LECTURE NOTES ON MANAGEMENT SCIENCEcrectirupati.com/sites/default/files/lecture_notes/MS.pdf ·...

LECTURE NOTES

ON

MANAGEMENT SCIENCE

2018 – 2019

III B. Tech II Semester

Mr.S. Chandra Mohan, Assistant Professor

CHADALAWADA RAMANAMMA ENGINEERING COLLEGE

(AUTONOMOUS)

Chadalawada Nagar, Renigunta Road, Tirupati – 517 506

Department of EEE

CREC, DEPT. OF EEE MANAGEMENT SCIENCE (15A52601)

Mr. S. Chandra Mohan, Faculty In-Charge

UNIT I

INTRODUCTION TO MANAGEMENT

INTRODUCTION

In the present context, managing has become one of the most important areas of human activity because

of increasing role of large and complex organisations in the society. Because of their increasing role, the

organisations have attracted the attention of both practitioners and academicians to find out the solutions

for business problems.

Concept

Defining the term management precisely is not so simple because the term management is used in a

variety of ways. Being a new discipline, it has drawn concepts and principles from a number of

disciplines such as economics, sociology, psychology, anthropology, statistics and so on.

Each group of contributors has treated management differently. For example, economists have treated

management as a factor of production; sociologists have treated it as a class or group of persons;

practitioners have treated it as a process comprising different activities.

DEFINITION

“Management is the art of getting things done through and with people in formally organized groups” ---

Koontz

“Management is the art of knowing what you want to do and then seeing that it is done in the best and

cheapest way” – F.W. Taylor

“Management is the art of securing maximum results with minimum effort so as to secure maximum

prosperity and happiness for both employer and employee and give the public the best possible service”

--- John Mee.

“Management is the accomplishment of results through the efforts of other people” -- Lawrence

“Management is simply the process of decision making and control over the action of human beings for

the expressed purpose of attaining pre-determined goals” – Stanley V.

“Management is a process involving planning, organizing, staffing, directing and controlling human

efforts to achieve stated objectives in an organization.”

From the above definitions, the following features are identified:-

1) Organised Activities: Management is a process of organized activities. Without organized

activities, two groups of people cannot be involved in the performance of activities. Where a

group of people are involved in working towards a common objective, management comes into

existence.

2) Existence of objectives: The existence of objectives is a basic criterion of e very human

organization because all organizations are deliberate and purposive creation and, therefore, they

should have some objectives. Without objectives, it becomes difficult to define the direction

where organized group of activities would lead to.



3) Relationship among resources: Organised activities meant to achieve common goals are

brought about to establish certain relationships about the available resources. Resources include

money, machine, material, men and methods. All these resources are made available to those

who manage the organization. Managers apply knowledge, experience, principles for getting the

desired results. Thus, the essence of management is integration of various organisational

resources.

4) Working with and through people: Management involves working with people and getting

organisational objectives achieved through them. The idea of working through people is

interpreted in terms of assigning and reassigning of activities to subordinates.

5) Decision Making: Management process involves decision making at various levels for getting

things done through people. Decision making basically involves selecting the most appropriate

alternative out of the several. If there is only one alternative, there is no question of decision

making.

Nature of Management: - The study and application of management techniques in managing the affairs

of the organization have changed its nature over a period of time. The following points will describe the

nature of management

1) Multidisciplinary: Management has been developed as a separate discipline, but it draws

knowledge and concepts from various disciplines like psychology, sociology, anthropology,

economics, statistics, operations research etc.,. Management integrates the idea and concepts

taken from these disciplines and presents newer concepts which can be put into practice for

managing the organisations

2) Dynamic nature of Principles: Principle is a fundamental truth which establishes cause and

effect relationships of a function. Based on integration and supported by practical evidences,

management has framed certain principles. However, these principles are flexible in nature and

change with the changes in the environment in which an organization exists.

3) Relative, Not absolute Principles: Management principles are relative, not absolute, and they

should be applied according to the need of the organization. Each organization may be different

from others. The difference may exist because of time, place, socio-cultural factors, etc.,.

4) Management: Science or Art: There is a controversy whether management is science or art.

An art is personal skill of business affairs. Art is characterized by practical knowledge, personal

creativity and skill. The more one practices an art, the more professional one becomes.

Management can be considered as an art because it satisfies all these criterion of an art.

A science is a systematized body of knowledge of facts. It can establish cause-and-effect

relationships among various factors. It involves basic principles, which are capable of universal

application. Management can be considered as science because it satisfies all these criterion of a

science.

5) Management as profession: Management has been regarded as a profession by many

while many have suggested that it has not achieved the status of a profession.

Profession refers to a vocation or a branch of advanced learning such as engineering or medicine.

6) Universality of management: Management is a universal phenomenon. However, management

principles are not universally applicable but are to be modified according to the needs of the

situation.

Importance of Management

Management has been important to the daily lives of people and to the organisations. The

importance of management may be traces with the following.



1) Effective utilisation of Resources: Management tries to make effective utilisation of various

resources. The resources are scarce in nature and to meet the demand of the society, their

contribution should be more for the general interests of the society.

Management not only decides in which particular alternative a particular resource should be

used, but also takes actions to utilize it in that particular alternative in the best way.

2) Development of Resources: Management develops various resources. This is true with human

as well as non-human factors. Most of the researchers for resource development are carried on in

an organized way and management is involved in these organized activities.

3) It ensures continuity in the organization: Continuity is very important in the organisations.

Where there are no proper guidelines for decision making continuity can not be guaranteed. It is

quite natural that new people join while some others retire or leave the organization. It is only

management that keeps the organization continuing.

4) Integrating various interest groups: In the organized efforts, there are various interest groups

and they put pressure over other groups for maximum share in the combined output. For

example, in case of a business organization, there are various pressure groups such as

shareholders, employees, govt. etc. these interest groups have pressure on an organization.

Management has to balance these pressures from various interest groups.

5) Stability in the society: Management provides stability in the society by changing and

modifying the resources in accordance with the changing environment of the society. In the

modern age, more emphasis is on new inventions for the betterment of human beings. These

inventions make old systems and factors mostly obsolete and inefficient. Management provides

integration between traditions and new inventions, and safeguards society from the unfavorable

impact of these inventions so that continuity in social process is maintained.

Functions of Management:-

To achieve the organisational objectives managers at all levels of organization should perform different

functions. A function is a group of similar activities. The list of management functions varies from

author to author with the number of functions varying from three to eight.

Writers Management Functions

Henry Fayol

Luther Gullick

R. Davis

E.F.L. Breech

Planning, Organizing, Commanding, Coordinating,

Controlling

POSDCORD- Planning, Organising, Staffing, Directing,

Coordinating, Reporting, Directing

Planning , Organising, Controlling

Planning, Organising, Motivating, Coordinating,

Controlling

Planning, Organising, Staffing, Leading, Controlling



Koontz

Different authors presented different variations. By combining some of functions, these are

broadly grouped into Planning, Organising, Staffing, Directing, and Controlling.

1) Planning: Planning is the conscious determination of future course of action. This involves why

an action, what action, how to take action, and when to take action. Thus, planning includes

determination of specific objectives, determining projects and programs, setting policies and

strategies, setting rules and procedures and preparing budgets.

2) Organising: Organising is the process of dividing work into convenient tasks or duties, grouping

of such duties in the form of positions, grouping of various positions into departments and

sections, assigning duties to individual positions, and delegating authority to each positions so

that the work is carried out as planned. It is viewed as a bridge connecting the conceptual idea

developed in creating and planning to the specific means for accomplishment these ideas.

3) Staffing: Staffing involves manning the various positions created by the organizing process. It

includes preparing inventory of personal available and identifying the sources of people,

selecting people, training and developing them, fixing financial compensation, appraising them

periodically etc.

4) Directing: when people are available in the organization, they must know what they are

expected to do in the organization. Superior managers fulfill this requirement by communicating

to subordinates about their expected behavior. Once subordinates are oriented, the superiors have

continuous responsibility of guiding and leading them for better work performance and

motivating them to work with zeal and enthusiasm. Thus, directing includes communicating,

motivating and leading.

5) Controlling: Controlling involves identification of actual results, comparison of actual results

with expected results as set by planning process, identification of deviations between the two, if

any, and taking of corrective action so that actual results match with expected results.

TAYLOR & SCIENTIFIC MANAGEMENT

The concept of scientific management was introduced by Frederick Winslow Taylor in USA in the

beginning of 20th century.“Scientific management is concerned with knowing exactly what you want to

do and then see in that they do it in the best and cheapest way”.

Since Taylor has put the emphasis on solving managerial problems in a scientific way, often, he is called

as father of scientific management and his contributions as the principles of scientific management.

Taylor carried experiments about how to increase the efficiency of people. On the basis of experiments,

he published many papers and books and all his contributions were compiled in his book “scientific

management”. His contributions are divided into two parts.

Elements and tools of scientific management

Principles of scientific management

FEATURES / ELEMENTS AND TOOLS OF SCIENTIFIC MANAGEMENT

1) Separation of planning & doing: Taylor emphasized the separation of planning aspect from

actual doing of the work. In other words planning should be left to the supervisor and the worker

should concentrate only operational work.



2) Functional foremanship: Taylor introduced the concept of functional foremanship based on

specialization of functions. In this system, eight persons are involved to direct the activities of

workers. Out of these four persons are concerned with planning viz., route clerk, instruction card

clerk, time and cost clerk and disciplinarian. The remaining four persons are concerned with

doing aspect of the job, viz., speed boss, inspector, gang boss and maintenance foreman. It is

against to the principle of unity of command.

3) Job Analysis: It is useful to find out the one best way of doing the things. The best way of doing

a job is one which requires the least movements, consequently less time and cost. The best way

of doing the thing can be determined by taking up time – motion - fatigue studies.

Time study involves the determination of time a movement takes to complete.

Motion study involves the study of movements in parts which are involved in doing a job

and thereby eliminating the wasteful movements.

Fatigue study shows the amount and frequency of rest required in completing the work.

Thus, job analysis identifies the fair amount of a day’s work requiring certain movements and

rest periods to complete it.

4) Standardization: As far as possible, standardization should be maintained in respect of

instruments and tools, period of work, amount of work, working conditions, cost of production

etc.,. These things should be fixed in advance on the basis of job analysis and various elements

of costs that in performing a work.

5) Scientific selection and training of workers: Taylor has suggested that workers should be

selected on scientific basis taking into account their education, work experience, aptitude,

physical strength, etc., A worker should be given work for which he is physically and technically

most suitable. Apart from selection, proper training should be provided to workers to make them

more effective and efficient.

6) Financial Incentives: Financial incentives can motivate workers to put in their maximum

efforts. If provisions exist to earn higher wages by putting in extra effort, workers will be

motivated to earn more. Taylor himself applied the concept of differential piece rate system

which was highly motivating. According to this scheme, a worker who completes the normal

work gets wages at higher rate per piece and one who does not complete gets at lower rate.

7) Economy: while applying scientific management, not only scientific and technical aspects

should be considered but adequate consideration should be given to economy and profit. The

economy and profit can be achieved by making the resources more productive as well as by

eliminating the wastages.

Work Shop Manager

Planning In charge Production In charge

Route

Boss

worker

disciplin

arian

Instructi

on

Card

clerk

Time

and

cost cl

cost

clerk

Cost

Clerk

Route

Clerk

Gang

Boss

inspect

or

Mainten

ance

Forema

n



8) Mental Revolution: scientific management depends on the mutual co-operation between

management and workers. For this co-operation, there should be mental change in both parties

from conflict to co-operation.

PRINCIPLES OF SCIENTIFIC MANAGEMENT:-

Taylor has given certain basic principles of scientific management.

1) Replacing rule of thumb with science: According to Taylor, exactness of various aspects of

work like day’s fair work, standardization in work, differential piece rate for payment, etc.., is

the basic core of scientific management, it is essential that all these are measured precisely and

should not be based on mere estimates.

2) Harmony in group action: Taylor has pointed out that attempts should be made to obtain

harmony in group action rather than discord. Group harmony suggests that there should be

mutual give and take situation and proper understanding so that group as a whole contributes to

the maximum.

3) Co-operation: Scientific management involves achieving cooperation rather than chaotic

individualism. It is based on mutual confidence, co-operation and goodwill. Co-operation

between management and workers can be developed through mutual understanding and a change

in thinking.

4) Maximum output: scientific management involves continuous increase in production and

productivity instead of restricted production either by management or by worker. Taylor heated

inefficiency and deliberate curtailment of production.

In his opinion, “there is no worse crime to my mind than that of deliberately restricting output”

5) Development of workers: all workers should be developed to the fullest extent possible for their

own and for the company’s highest prosperity. Training should be provided to the workers to

keep them fully fit according to the requirement of new methods of working which may be

different from non-scientific methods.

FAYOL’S ADMNISTRATIVE MANAGEMENT

Henry Fayol is a French Industrialist and the father of modern operational management theory.

Fayol recognized the following organizational activities.

Organizational Activities: Fayol divided the activities of organization into six groups---

Technical (related to production)

Commercial ( buying, selling and exchange)

Financial ( search for capital and its optimum use)

Security ( protection of property and person )

Accounting

Managerial ( planning, organizing, commanding, coordinating and controlling)

Among the above activities Fayol considered managerial activities are the most important for the

success of business and he concentrated more on that. His contributions are divided the following

categories.

Qualities of a manager



General principles of management

Elements of management

Managerial Qualities and Training: According to Fayol the following are the list of qualities required

in a manager.

Physical ( Health, Vigor and Health )

Mental ( Ability to understand and learn, judgment , mental vigor and capability)

Moral ( energy, firmness, initiative, loyalty, tact etc.,)

Educational

Technical ( peculiar to the function being performed )

Experience

GENERAL PRINCIPLES OF MANAGEMENT:

Fayol has given 14 principles of management. He has made distinction between management principles

and management elements. While management principles is a fundamental truth and establishes cause

effect relationship, elements of management denotes the function performed by a manager.

While giving the management principles, Fayol has emphasized two things.

1. The list of management principles is not exhaustive but suggestive and has discussed only those

principles which he followed on most occasions.

2. principles of management are not rigid but flexible

Principles:-

1. Division of work: It is helpful to take the advantage of specialization. Here, the work is divided

among the members of the group based on the employees skills and talents. It can be applied at all

levels of the organization.

2. Authority and Responsibility: Fayol finds authority as a continuation of official and personal

factors. Official authority is derived from the manager’s position and personal authority is derived

from personal qualities such as intelligence, experience, moral worth, past services, etc.,

Responsibility arises out of assignment of activity. In order to discharge the responsibility properly,

there should be parity between authority and responsibility.

3. Discipline: All the personal serving in an organization should be disciplined. Discipline is

obedience, application, behavior and outward mark of respect shown by employees.

4. Unity of Command: Unity of command means that a person should get orders from only one

superior. Fayol has considered unity of command as an important aspect in managing an

organization. He says that “should it be violated, authority is undermined, discipline is in jeopardy,

order disturbed, and stability threatened.”

5. Unity of Direction: According to this principle, each group of activities with the same objective

must have one head and one plan. It is concerned with functioning of the organization I respect of

grouping of activities or planning. Unity of direction provides better coordination among various

activities to be undertaken by an organization.

6. Subordination of individual interest to general interest: Individual interest must be subordinate to

general interest when there is conflict between the two. However factors like ambition, laziness,

weakness, etc., tend to reduce the importance of general interest. Therefore, superiors should set an

example in fairness and goodness.

7. Remuneration to Personnel: Remuneration to employees should be fair and provide maximum

possible satisfaction to employees and employers. Fayol did not favor profit sharing plan for workers

but advocated it for managers. He was also in favor of non-financial benefits.



8. Centralization: Everything which goes to increase the importance of subordinate’s role is

decentralization; ever thing which goes to reduce it is centralization. The degree of centralization or

decentralization is determined by the needs of the company.

9. Scalar Chain: There should be a scalar chain of authority and of communication ranging from the

highest to the lowest. It suggests that each communication going up or coming down must flow

through each position in the line of authority. It can be short-circuited only in special circumstances.

For this purpose, Fayol has suggested ‘gang plank’

Scalar chain and gang plank can be presented as follows.

10. Order: This is a principle relating to the arrangement of things and people. In material order, there

should be a place for everything and everything should be in its place. Similarly, in social order,

there should be the right man in the right place.

11. Equity: Equity is the combination of justice and kindness. Equity in treatment and behavior is liked

by everyone and it brings loyalty in the organization. The application of equity requires good sense,

experience and good nature.

12. Stability of tenure: No employee should be removed within short time. There should be reasonable

security of jobs. Stability of tenure is essential to get an employee accustomed to new work and

succeeding in doing it well

13. Initiative: Within the limits of authority and discipline, managers should encourage their employees

for taking initiative. Initiative is concerned with thinking out and execution of a plan. Initiative

increases zeal and energy on the part of human beings.

14. Esprit de corps: It is the principle of ‘union is strength’ and extension of unity of command for

establishing team work. The manager should encourage esprit de corps among his employees.

Motivational theories:

MASLOW’S NEED HIERARCHY:

The behaviour of an individual at a particular movement is usually determined by his strongest

need. Psychologist’s claims that needs have a certain priority, as the more basic needs are satisfied, an

individual seeks to satisfy the higher needs. If his basic needs are not met, efforts to satisfy the higher

needs should be postponed.

A.H.Maslow, a famous social scientist, has given a framework that helps to explain the strength

of certain needs. According to him, there is hierarchy for need, which is presented in the following way.

Self actualization needs

Esteem needs|

Social needs|

Security needs|

Physiological needs |

Mallow’s need hierarchy

Physiological needs: The Physiological needs are at the top of hierarchy because they tend to have the

highest strength until they are reasonably satisfied. Until these needs are satisfied to the degree needed

for the efficient operation of the body, the majority of a person’s activities will probably at this level,

and the other level will provide him with little motivation.



A famous saying ‘man can live on bread alone if there is no bread’ suggests that man first try to

acquire necessities for their survival.

Safety Needs: Once physiological needs are satisfied to a reasonable level, the next level in the

hierarchy is safety. Safety means being free of physical danger or self-preservation. In the industrial

society, employee can be motivated through either positive action like pension plan, insurance plan etc...

Or negative actions like laid off or demotions.

Social needs: After the first two needs are satisfied, social needs become important in the need

hierarchy. Since man is a social being, he has a need to belong and to be accepted by various groups. In

the organisation, workers form informal group environment to support unfulfilled social needs such as

affiliation.

Esteem needs: These needs are concerned with self respect, self confidence, a feeling of personal worth,

feeling of being unique and recognition. Satisfaction of these needs produces feelings of self confidence,

prestige, power and control. These needs are satisfied through adaptive behaviour, matured behaviour or

with irresponsible actions.

Self actualization needs: It is the need to maximize ones potential, whatever it may be. It is related with

the development of intrinsic capabilities which lead people to seek situations that can utilize their

potential. This includes competence which implies control over environmental factors both physical and

social and achievement.

HERZBERG’S MOTIVATION – HYGIENE THEORY:

Frederick Hertzberg conducted a structured interview programme to analyse the experience and

feelings of 200 engineers and accountants in nine different companies in Pittsburg area, U.S.A during

the structured interview, they were asked to describe a few previous job experiences in which they felt

‘exceptionally good’ or exceptionally bad about jobs.

In his analysis, he found that there are some job conditions which operate primarily to dissatisfy

employees when the conditions are absent, however their presence does not motivate them in a strong

way. Another set of job conditions operates primarily to build strong motivation and high job

satisfaction, but their absence rarely proves strongly dissatisfying.

The first set of job conditions has been referred to as maintenance or hygiene factors and second

set of job conditions as motivational factors.

Hygiene Factors:

According to Hertzberg, there are 10 maintenance factors. These are company policy and

administration, technical supervision, salary, job security, personal life, status, working conditions,

interpersonal relationship with superiors, interpersonal relationship with peers and interpersonal

relationship with subordinates.

These maintenance factors are necessary to maintain at a reasonable level of satisfaction in

employees. Any increase beyond this level will not produce any satisfaction to the employees: however,

any cut below this level will dissatisfy them.

Motivational Factors:



These factors are capable of having a positive effect on job satisfaction often resulting in an

increase in ones total output. Hertzberg includes six factors that motivate employees. These are

achievement, recognition, advancement; work itself, possibility of growth and responsibility.

Most of the above factors are related with job contents. An increase in these factors will satisfy

the employees: however, any decrease in these factors will not affect their level of satisfaction. Since,

these increased level of satisfaction in the employees, can be used in motivating them for higher output.

GENERAL PRINCIPLES OF MANAGEMENT:

Fayol has given 14 principles of management. He has made distinction between management principles

and management elements. While management principles is a fundamental truth and establishes cause

effect relationship, elements of management denotes the function performed by a manager.

While giving the management principles, Fayol has emphasized two things.

1. The list of management principles is not exhaustive but suggestive and has discussed only those

principles which he followed on most occasions.

2. principles of management are not rigid but flexible

Principles:-

1. Division of work: It is helpful to take the advantage of specialization. Here, the work is divided

among the members of the group based on the employees skills and talents. It can be applied at all


2. Authority and Responsibility: Fayol finds authority as a continuation of official and personal

factors. Official authority is derived from the manager’s position and personal authority is derived

from personal qualities such as intelligence, experience, moral worth, past services, etc.,

Responsibility arises out of assignment of activity. In order to discharge the responsibility properly,

there should be parity between authority and responsibility.

3. Discipline: All the personal serving in an organization should be disciplined. Discipline is

obedience, application, behavior and outward mark of respect shown by employees.

4. Unity of Command: Unity of command means that a person should get orders from only one

superior. Fayol has considered unity of command as an important aspect in managing an

organization. He says that “should it be violated, authority is undermined, discipline is in jeopardy,

order disturbed, and stability threatened.”

5. Unity of Direction: According to this principle, each group of activities with the same objective

must have one head and one plan. It is concerned with functioning of the organization I respect of

grouping of activities or planning. Unity of direction provides better coordination among various

activities to be undertaken by an organization.

6. Subordination of individual interest to general interest: Individual interest must be subordinate to

general interest when there is conflict between the two. However factors like ambition, laziness,

weakness, etc., tend to reduce the importance of general interest. Therefore, superiors should set an

example in fairness and goodness.

7. Remuneration to Personnel: Remuneration to employees should be fair and provide maximum

possible satisfaction to employees and employers. Fayol did not favor profit sharing plan for workers

but advocated it for managers. He was also in favor of non-financial benefits.

8. Centralization: Everything which goes to increase the importance of subordinate’s role is

decentralization; every thing which goes to reduce it is centralization. The degree of centralization or

decentralization is determined by the needs of the company.

9. Scalar Chain: There should be a scalar chain of authority and of communication ranging from the

highest to the lowest. It suggests that each communication going up or coming down must flow



through each position in the line of authority. It can be short-circuited only in special circumstances.

For this purpose, Fayol has suggested ‘gang plank’

Scalar chain and gang plank can be presented as follows

10. Order: This is a principle relating to the arrangement of things and people. In material order, there

should be a place for every thing and every thing should be in its place. Similarly, in social order,

there should be the right man in the right place.

11. Equity: Equity is the combination of justice and kindness. Equity in treatment and behavior is liked

by everyone and it brings loyalty in the organization. The application of equity requires good sense,

experience and good nature.

12. Stability of tenure: No employee should be removed within short time. There should be reasonable

security of jobs. Stability of tenure is essential to get an employee accustomed to new work and

succeeding in doing it well

13. Initiative: Within the limits of authority and discipline, managers should encourage their employees

for taking initiative. Initiative is concerned with thinking out and execution of a plan. Initiative

increases zeal and energy on the part of human beings.

14. Esprit de corps: It is the principle of ‘union is strength’ and extension of unity of command for

establishing team work. The manager should encourage esprit de corps among his employees.

Introduction:

Decision making is a daily activity for any human being. There is no exception about that. When it

comes to business organizations, decision making is a habit and a process as well.

Effective and successful decisions make profit to the company and unsuccessful ones make losses.

Therefore, corporate decision making process is the most critical process in any organization.

In the decision making process, we choose one course of action from a few possible alternatives. In the

process of decision making, we may use many tools, techniques and perceptions.

In addition, we may make our own private decisions or may prefer a collective decision.

Usually, decision making is hard. Majority of corporate decisions involve some level of dissatisfaction

or conflict with another party.

Let's have a look at the decision making process in detail.

Steps of Decision Making Process

Following are the important steps of the decision making process. Each step may be supported by

different tools and techniques.



Step 1: Identification of the purpose of the decision

In this step, the problem is thoroughly analysed. There are a couple of questions one should ask when it

comes to identifying the purpose of the decision.

What exactly is the problem?

Why the problem should be solved?

Who are the affected parties of the problem?

Does the problem have a deadline or a specific time-line?

Step 2: Information gathering

A problem of an organization will have many stakeholders. In addition, there can be dozens of factors

involved and affected by the problem.

In the process of solving the problem, you will have to gather as much as information related to the

factors and stakeholders involved in the problem. For the process of information gathering, tools such

as 'Check Sheets' can be effectively used.

Step 3: Principles for judging the alternatives

In this step, the baseline criteria for judging the alternatives should be set up. When it comes to

defining the criteria, organizational goals as well as the corporate culture should be taken into

consideration.

As an example, profit is one of the main concerns in every decision making process. Companies

usually do not make decisions that reduce profits, unless it is an exceptional case. Likewise, baseline

principles should be identified related to the problem in hand.

Step 4: Brainstorm and analyse the different choices



For this step, brainstorming to list down all the ideas is the best option. Before the idea generation step,

it is vital to understand the causes of the problem and prioritization of causes.

For this, you can make use of Cause-and-Effect diagrams and Pareto Chart tool. Cause-and-Effect

diagram helps you to identify all possible causes of the problem and Pareto chart helps you to prioritize

and identify the causes with highest effect.

Then, you can move on generating all possible solutions (alternatives) for the problem in hand.

Step 5: Evaluation of alternatives

Use your judgement principles and decision-making criteria to evaluate each alternative. In this step,

experience and effectiveness of the judgement principles come into play. You need to compare each

alternative for their positives and negatives.

Step 6: Select the best alternative

Once you go through from Step 1 to Step 5, this step is easy. In addition, the selection of the best

alternative is an informed decision since you have already followed a methodology to derive and select

the best alternative.

Step 7: Execute the decision

Convert your decision into a plan or a sequence of activities. Execute your plan by yourself or with the

help of subordinates.

Step 8: Evaluate the results

Evaluate the outcome of your decision. See whether there is anything you should learn and then correct

in future decision making. This is one of the best practices that will improve your decision-making

skills.

Conclusion

When it comes to making decisions, one should always weigh the positive and negative business

consequences and should favour the positive outcomes.

This avoids the possible losses to the organization and keeps the company running with a sustained

growth. Sometimes, avoiding decision making seems easier; especially, when you get into a lot of

confrontation after making the tough decision.

But, making the decisions and accepting its consequences is the only way to stay in control of your

corporate life and time.

LEADERSHIP STYLES:

Management philosophy is the manager's set of personal beliefs and values about people and work. It is

something that the manager can control. Eminent social psychologist and management researcher,

Douglas McGregor, emphasized that a manager's philosophy creates a self-fulfilling prophecy. Theory

X managers treat employees almost as children who need constant direction, while Theory Y managers

treat employees as competent adults capable of participating in work-related decisions.

These managerial philosophies then have a subsequent effect on employee behavior, leading to the

self‐fulfilling prophecy. As a result, organizational and managerial philosophies need to be in harmony.

The Many Aspects of Leadership



The character of top executives and their philosophy have an important influence on the extent

to which authority is decentralized.

Sometimes top managers are dictatorial, tolerating no interference with authority and

information they hoard. Conversely, some managers find decentralization a means to make

large business work successfully.

The number of coworkers involved within a problem‐solving or decision‐making process

reflects the manager's leadership style.

Empowerment means sharing information, rewards and power with employees so that they are

equal contributors to the organizations outcomes.

An empowered and well-guided workforce may lead to heightened productivity and quality,

reduced costs, more innovation, improved customer service, and greater commitment from the

employees of the organization.

Each business must go through the process of identifying its individual management philosophy and

continuously review and evaluate the same to see if it is aligned with its larger purpose.

Leadership Styles

Leadership can be stated as the ability to influence others. We may also define leadership as the process

of directing and influencing people so that they will strive willingly and enthusiastically towards the

achievement of group objectives.

Ideally, people should be encouraged to develop not only willingness to work but also willingness to

work with confidence and zeal. A leader acts to help a group achieve objectives through the

exploitation of its maximum capabilities.

In the course of his survey of leadership theories and research, Management theorist, Ralph Stogdill,

came across innumerable definitions of leadership.

Qualities/Ingredients of Leadership

Every group of people that perform satisfactorily has somebody among them who is more skilled than

any of them in the art of leadership. Skill is a compound of at least four major ingredients −

The ability to use power effectively and in a responsible manner.

The ability to comprehend that human beings have different motivation forces at different times

and in different situations.

The ability to inspire.

The ability to act in a manner that will develop a climate conducive to responding and arousing

motivation.

Leadership styles/types can be classified under the following categories −

Leadership Style Based on the Use of Authority



The traditional way of classifying leadership is based on the use of authority by the leader. These are

classified as −

Autocratic leadership Democratic

leadership

Free-rein

leadership

Use of coercive power to

give order and expect

compliance. Dogmatic

and leads by the ability to

withhold or give

punishment or rewards,

commands and expects

compliance.

Participative leader

who usually consults

with subordinates on

proposed actions and

decisions, and

encourages

participation from

them.

As opposed to

autocratic

leadership, this

leadership style

provides maximum

freedom to

subordinates.

Some autocratic leaders

happen to be benevolent

autocrats, willing to hear

and consider subordinates’

ideas and suggestions but

when a decision is to be

made, they turn to be

more autocratic than

benevolent.

Ranges from the

person who does not

take action without

subordinates’

concurrence to the one

who makes decisions

but consults with sub-

ordinates before doing

so.

Favors autonomy

and exercises

minimal control.

Gives workers a

high degree of

independence in

their operations.

Leadership Continuum

Propounded by Robert Tannenbaum and Warren H. Schmidt, according to the Leadership Continuum,

leadership style depends on three forces: the manager, employees and the situation.

Thus, instead of suggesting a choice between the two styles of leadership, democratic or autocratic, this

approach offers a range of styles depicting the adaptation of different leadership styles to different

contingencies (situations), ranging from one that is highly subordinate-centered to one that is highly

boss-centered.

Features of Leadership Continuum

The characteristics of individual subordinates must be considered before managers adopt a

leadership style.

A manager can be employee-centered and allow greater freedom when employees identify with

the organization’s goals, are knowledgeable and experienced, and want to have decision making

responsibility.

Where these conditions are absent, managers might need to initially adopt a more authoritarian

style. As employees mature in self-confidence, performance and commitment, managers can

modify their leadership style.

Leadership Styles in Managerial Grid

Developed by Robert Blake and Jane Mouton, this approach as shown in the following grid, has two

dimensions −



Concern for people which includes such elements as provision of good working conditions,

placement of responsibility on the basis of trust rather than concern for production.

Concern for production includes the attitudes of a supervisor toward a wide variety of things,

such as quality of staff services, work efficiency, volume and quality of output, etc.

The bi-dimensional managerial grid identifies a range of management behavior based on the various

ways that task-oriented and employee-oriented styles (each expressed as a continuum on a scale of 1 to

9) can interact with each other.

Management Style 1,1 −

o Impoverished management with low concern for both people and production.

o This is called laissez-faire management because the leader does not take a leadership

role.

o Also known as delegate leadership is a type of leadership style in which leaders are

hands-off and allow group members to make the decisions.


o Country club management having high concern for employees but low concern for

production.

o These leaders predominantly use reward power to maintain discipline and to encourage

the team to accomplish its goals.


o Middle of the road management with medium concern for production and for people.

o Leaders who use this style settle for average performance and often believe that this is

the most anyone can expect.


o Authoritarian management with high concern for production but low concern for

employees exercising disciplinary pressure.

o This approach may result in high production but low people satisfaction levels.


o Democratic management with high concern for both production, and employee morale

and satisfaction.

o The leader's high interest in the needs and feelings of employees affects productivity

positively.

This theory concluded that style 9,9 is the most effective management style as this leadership approach

will, in almost all situations, result in improved performance, low turnover and absenteeism, and high

employee satisfaction.

Systems of Management

Professor Rensis Likert of Michigan University studied the patterns and styles of managers and leaders

for three decades. He suggests four styles of management, which are the following −

Exploitative-authoritative management −



o Managers are highly autocratic, showing little trust in subordinates.

o The prime drivers are motivating people through fear and punishment.

o Managers engage in downward communication and limit decision making to the top.

Benevolent-authoritative management −

o The manager has condescending confidence and trust in subordinates (master-servant

relationship).

o Management uses rewards and upward communication is censored or restricted.

o The subordinates do not feel free to discuss things about the job with their superior.

Teamwork or communication is minimal and motivation is based on a system of

rewards.

Consultative management −

o Managers have substantial but not complete confidence and trust in subordinates.

o Use rewards for motivation with occasional punishment and some participation, usually

try to make use of subordinates' ideas and opinions.

o Communication flow is both up and down.

o Broad policy and general decisions are made at the top while allowing specific decisions

to be made at lower levels and act consultatively in other ways.

Participative management −

o Managers have trust and confidence in subordinates.

o Responsibility is spread widely through the organizational hierarchy.

o Some amount of discussion about job-related issues take place between the superior and

subordinates.

Likert concluded that managers who applied the participative management approach to their operations

had the greatest success as leaders.

ORGANIZATIONAL DESIGN:

Organizational Design is a sequential method of identifying the performing aspects and liabilities in a

system, so that they can be re-aligned as per the needs of the company, such as current goals and

implementing new business changes. It focusses on improving technical and interpersonal side of the

workplace. Implementing an efficient organizational design leads to a more effective organization, a

more focused workforce and a workplace of better productivity by improving internal operations, inter-

departmental relationships, working efficiency, all of which leads to better productivity and customer

satisfaction.

During the implementation of Organization Design, a management may enforce numerous strategic

changes as per their strategy to deliver the desired results. In this process, there are chances of clashes

between work-processes and the occasional trade-offs. Sometimes, there will be situations where the

management realizes that they have to sacrifice smaller benefits to ensure larger benefits in the future.

Due to these reasons, changes in Organizational Design are always not as smooth as the management

will like them to be. However, successful companies have managed to implement such changes with an



eye on the big picture and have communicated their strategies with transparency to their employees,

which has helped them to bring future-embracing changes in their structure without getting any

negative press or reputation to their names.

Example

A notable example would be the Belgian giant, DuPont that decided to enter into the international

market and diversify its business in 1921. To ensure that these ventures remain profitable, they

implemented changes to many fundamental structures of their management, thereby bringing a new

structure to their working, which has held them high through all the effects of the fluctuating global

economy. This case will be explored in greater detail in a case study.

Designing changes in any organization is a step-by-step process and involves focusing on different

phases of planning.

In the first phase, people develop a vision for their company for the future. Once that’s done,

they identify their goals and the areas that they need to bring changes in to reach these goals.

The next step involves drawing out a clear set of objectives and what changes to implement, so

that these objectives are realized.

This is followed by a crucial phase called Organizational Grouping during which the

management decentralizes their workforce and divides them into separate groups that take care

of different departments with enough autonomy to take their own decisions, with clear and

timely communication with interlinked departments.

President George H. W. Bush had once asked a friend to help him identify some pressing

issues for the election campaign, who suggested that he go alone to Camp David for a few

days and figure out what direction he wants to lead the country towards, an incensed Bush

told, “Oh, the vision thing".

This exposed his inability to articulate important policies in a concise manner. He was one of

the few incumbent US presidents who didn’t win a second term.

Can you guess why?

Defining Organizational Design

Organization design is a framework architecture for an organization according to which an organization

runs its business. It structures the workforce and the management in the most efficient working method

through which they can realize their company’s mission statement.

A successful and comprehensive design process is defined by the holistic approach it envisions for the

organizational improvement. To design such a framework that addresses all the vital areas of a

company, the management will have to draw objectives that ensure the following −

Business Growth Model

Improved Efficiency and Profits

Outstanding Customer Service

Improved Process Management

Improved Workforce Productivity

Decreasing Operational Expenses

Improved Employee Engagement



Based on this framework, work is deployed, teams are formed, responsibilit ies are delegated and core

values are implemented. As a result of this, high-quality output is produced, which is then offered to

the clients. Following this chain of operations for every project ensures trust, quality-assurance, time-

efficiency and more business.

However, unlike what many people assume, there is no particular super-design that fits all. In fact,

companies have lost their fortunes and brought severe losses upon themselves in chasing after the

elusive formula that will set everything in order for them. They kept implementing repeated changes in

their organization’s structure, but didn’t end up improving their business.

PRINCIPLES AND TYPES OF ORGANIZATION:

An organization is a social unit of individuals that is designed and managed to achieve collective goals.

As such organizations are open systems that are greatly affected by the environment they operate in.

Every organization has its own typical management structure that defines and governs the relationships

between the various employees, the tasks that they perform, and the roles, responsibilities and authority

provided to carry out different tasks.

An organization that is well structured achieves effective coordination, as the structure delineates

formal communication channels, and describes how separate actions of individuals are linked together.

Organizational structure defines the manner in which the roles, power, authority, and responsibilities are

assigned and governed, and depicts how information flows between the different levels of hierarchy in

an organization.

The structure an organization designs depends greatly on its objectives and the strategy it adopts in

achieving those objectives.

An organizational chart is the visual representation of this vertical structure. It is therefore very

important for an organization to take utmost care while creating the organizational structure. The

structure should clearly determine the reporting relationships and the flow of authority as this will

support good communication – resulting in efficient and effective work process flow.

Common Organization Structures

Managements need to seriously consider how they wish to structure the organization. Some of the

critical factors that need to be considered are −

The size of the organization

Nature of the business

The objectives and the business strategy to achieve them

The organization environment

Functional Organization Structure

The functional structure is the most common model found in most organizations. Organizations with

such a structure are divided into smaller groups based on specialized functional areas, such as

operations, finance, marketing, Human Resources, IT, etc.



The organization’s top management team consists of several functional heads (such as the VP

Operations, VP Sales/Marketing). Communication generally occurs within each functional department

and is communicated across departments through the department heads.

This structure provides greater operational efficiency as employees are functionally grouped based on

expertise and shared functions performed. It allows increased specialization as each group of specialists

can operate independently.

In spite of the above benefits there are some issues that arise with this structure. When different

functional areas turn into silos they focus only on their area of responsibility and do not support other

functional departments. Also expertise is limited to a single functional area allowing limited scope for

learning and growth.

Product Organizational Structure

This is another commonly used structure, where organizations are organized by a specific product type.

Each product category is considered a separate unit and falls within the reporting structure of an

executive who oversees everything related to that particular product line. For example, in a retail

business the structure would be grouped according to product lines.



Organization structured by product category facilitates autonomy by creating completely separate

processes from other product lines within the organization. It promotes depth of understanding within a

particular product area and also promotes innovation. It enables clear focus with accountability for

program results.

As with every model, this model also has a few downsides like requirement of strong skills specializing

in the particular product. It could lead to functional duplication and potential loss of control; each

product group becomes a heterogeneous unit in itself.

Geographic Organizational Structure

Organizations that cover a span of geographic regions structure the company according to the

geographic regions they operate in. This is typically found in organizations that go beyond a city or

state limit and may have customers all across the country or across the world.

It brings together employees from different functional specialties and allows geographical division. The

organization responds more quickly and efficiently to market needs, and focuses efforts solely on the

objectives of each business unit, increasing results.

Though this structure increases efficiency within each business unit, it reduces the overall efficiency of

the organization, since geographical divisions duplicate both activities and infrastructure. Another main



challenge with this model is that it tends to be resource intensive as it is spread across and also leads to

duplication of processes and efforts.

Matrix Organizational Structure

A matrix structure is organized to manage multiple dimensions. It provides for reporting levels both

horizontally as well as vertically and uses cross-functional teams to contribute to functional expertise.

As such employees may belong to a particular functional group but may contribute to a team that

supports another program.

This type of structure brings together employees and managers across departments to work toward

accomplishing common organizational objectives. It leads to efficient information exchange and flow

as departments work closely together and communicate with each other frequently to solve issues.

This structure promotes motivation among employees and encourages a democratic management style

where inputs from team members are sought before managers make decisions.

However, the matrix structure often increases the internal complexity in organizations. As reporting is

not limited to a single supervisor, employees tend to get confused as to who their direct supervisor is

and whose direction to follow. Such dual authority and communication leads to communication gaps,

and division among employees and managers.

UNIT-II

Factors affecting Facility location decision in Operations Management

Facility location is the process of determining a geographic site for a firm’s operations. Managers of

both service and manufacturing organizations must weigh many factors when assessing the desirability

of a particular site, including proximity to customers and suppliers, labor costs, and transportation costs.

Location conditions are complex and each comprises a different Characteristic of a tangible (i.e. Freight

rates, production costs) and non-tangible (i.e. reliability, frequency security, quality) nature.

Location conditions are hard to measure. Tangible cost based factors such as wages and products costs

can be quantified precisely into what makes locations better to compare. On the other hand non-tangible

features, which refer to such characteristics as reliability, availability and security, can only be measured

along an ordinal or even nominal scale. Other non-tangible features like the percentage of employees



that are unionized can be measured as well. To sum this up non-tangible features are very important for

business location decisions.

It is appropriate to divide the factors, which influence the plant location or facility location on the basis

of the nature of the organization as

1. General locational factors, which include controllable and uncontrollable factors for all type of

organizations.

2. Specific locational factors specifically required for manufacturing and service organizations.

Location factors can be further divided into two categories: Dominant factors are those derived from

competitive priorities (cost, quality, time, and flexibility)

and have a particularly strong impact on sales or costs. Secondary factors also are important, but

management may downplay or even ignore some of them if other factors are more important.

General Locational Factors

Following are the general factors required for location of plant in case of all types of organisations.

CONTROLLABLE FACTORS

1. Proximity to markets.

2. Supply of materials

3. Transportation facilities

4. Infrastructure availability

5. Labour and wages

Factors influencing plant location

6. External economies

7. Capital

UNCONTROLLABLE FACTORS

8. Government policy

9. Climate conditions

10. Supporting industries and services



11. Community and labor attitudes

12. Community Infrastructure

CONTROLLABLE FACTORS

1. Proximity to markets:

Every company is expected to serve its customers by providing goods and services at the time needed

and at reasonable price organizations may choose to locate facilities close to the market or away from

the market depending upon the product. When the buyers for the product are concentrated, it is

advisable to locate the facilities close to the market. Locating nearer to the market is preferred if

The products are delicate and susceptible to spoilage.

After sales services are promptly required very often.

Transportation cost is high and increase the cost significantly.

Shelf life of the product is low.

Nearness to the market ensures a consistent supply of goods to customers and reduces the cost of

transportation.

2. Supply of raw material:

It is essential for the organization to get raw material in right qualities and time in order to have an

uninterrupted production. This factor becomes very important if the materials are perishable and cost of

transportation is very high.

General guidelines suggested by Yaseen regarding effects of raw materials on plant location are:

When a single raw material is used without loss of weight, locate the plant at the raw material

source, at the market or at any point in between.

When weight loosing raw material is demanded, locate the plant at the raw material source.

When raw material is universally available, locate close to the market area.

If the raw materials are processed from variety of locations, the plant may be situated so as to

minimize total transportation costs.

Nearness to raw material is important in case of industries such as sugar, cement, jute and cotton

textiles.

3. Transportation facilities:

Speedy transport facilities ensure timely supply of raw materials to the company and finished goods to

the customers. The transport facility is a prerequisite for the location of the plant. There are five basic

modes of physical transportation, air, road, rail, water and pipeline. Goods that are mainly intended for

exports demand a location near to the port or large airport. The choice of transport method and hence

the location will depend on relative costs, convenience, and suitability. Thus transportation cost to

value added is one of the criteria for plant location.

4. Infrastructure availability:

The basic infrastructure facilities like power, water and waste disposal, etc., become the prominent

factors in deciding the location. Certain types of industries are power hungry e.g., aluminum and steel

and they should be located close to the power station or location where uninterrupted power supply is

assured throughout the year. The non-availability of power may become a survival problem for such

industries. Process industries like paper, chemical, cement, etc., require continuous. Supply of water in

large amount and good quality, and mineral content of water becomes an important factor. A waste

disposal facility for process industries is an important factor, which influences the plant location.

5. Labor and wages:



The problem of securing adequate number of labor and with skills specific is a factor to be considered

both at territorial as well as at community level during plant location. Importing labor is usually costly

and involve administrative problem. The history of labor relations in a prospective community is to be

studied. Prospective community is to be studied. Productivity of labor is also an important factor to be

considered. Prevailing wage pattern, cost of living and industrial relation and bargaining power of the

unions’ forms in important considerations.

6. External economies of scale:

External economies of scale can be described as urbanization and locational economies of scale. It

refers to advantages of a company by setting up operations in a large city while the second one refers

to the “settling down” among other companies of related Industries. In the case of urbanization

economies, firms derive from locating in larger cities rather than in smaller ones in a search of having

access to a large pool of labor, transport facilities, and as well to increase their markets for selling their

products and have access to a much wider range of business services.

Location economies of scale in the manufacturing sector have evolved over time and have mainly

increased competition due to production facilities and lower production costs as a result of lower

transportation and logistical costs. This led to manufacturing districts where many companies of related

industries are located more or less in the same area. As large corporations have realized that inventories

and warehouses have become a major cost factor, they have tried reducing inventory costs by launching

“Just in Time” production system (the so called Kanban System). This high efficient production system

was one main factor in the Japanese car industry for being so successful. Just in time ensures to get spare

parts from suppliers within just a few hours after ordering. To fulfill these criteria corporations have to

be located in the same area increasing their market and service for large corporations.

7. Capital:

By looking at capital as a location condition, it is important to distinguish the physiology of fixed

capital in buildings and equipment from financial capital. Fixed capital costs as building and

construction costs vary from region to region. But on the other hand buildings can also be rented and

existing plants can be expanded. Financial capital is highly mobile and does not very much influence

decisions. For example, large Multinational Corporations such as Coca- Cola operate in many

different countries and can raise capital where interest rates are lowest and conditions are most

suitable.

Capital becomes a main factor when it comes to venture capital. In that case young, fast growing (or not)

high tech firms are concerned which usually have not many fixed assets. These firms particularly need

access to financial capital and also skilled educated employees.

UNCONTROLLABLE FACTORS

8. Government policy:

The policies of the state governments and local bodies concerning labor laws, building codes, safety, etc.,

are the factors that demand attention. In order to have a balanced regional growth of industries, both

central and state governments in our country offer the package of incentives to entrepreneurs in particular

locations. The incentive package may be in the form of exemption from a safes tax and excise duties for

a specific period, soft loan from financial institutions, subsidy in electricity charges and investment

subsidy. Some of these incentives may tempt to locate the plant to avail these facilities offered.

9. Climatic conditions:

The geology of the area needs to be considered together with climatic conditions (humidity,

temperature). Climates greatly influence human efficiency and behavior. Some industries require specific

climatic conditions e.g., textile mill will require humidity.



10. Supporting industries and services:

Now a day the manufacturing organization will not make all the components and parts by itself and it

subcontracts the work to vendors. So, the source of supply of component parts will be the one of the

factors that influences the location.

The various services like communications, banking services professional consultancy services and other

civil amenities services will play a vital role in selection of a location.

11. community and labor attitudes:

Community attitude towards their work and towards the prospective industries can make or mar the

industry. Community attitudes towards supporting trade union activities are important criteria. Facility

location in specific location is not desirable even though all factors are favoring because of labor attitude

towards management, which brings very often the strikes and lockouts.

12. Community infrastructure and amenity:

All manufacturing activities require access to a community infrastructure, most notably economic

overhead capital, such as roads, railways, port facilities, power lines and service facilities and social

overhead capital like schools, universities and hospitals.

These factors are also needed to be considered by location decisions as infrastructure is enormously

expensive to build and for most manufacturing activities the existing stock of infrastructure provides

physical restrictions on location possibilities.

Specific Locational Factors for Manufacturing Organization

DOMINANT FACTORS

Factors dominating location decisions for new manufacturing plants can be broadly classified in six

groups. They are listed in the order of their importance as follows.

1. Favorable labor climate

2. Proximity to markets

3. Quality of life

4. Proximity to suppliers and resources

5. Utilities, taxes, and real estate costs

1. Favorable labor climate:

A favorable labor climate may be the most important factor in location decisions for labour-intensive

firms in industries such as textiles, furniture, and consumer electronics. Labor climate includes wage

rates, training requirements, attitudes toward work, worker productivity, and union strength. Many

executives consider weak unions or allow probability of union organizing efforts as a distinct

advantage.

2. Proximity to markets:

After determining where the demand for goods and services is greatest, management must select a

location for the facility that will supply that demand. Locating near markets is particularly important

when the final goods are bulky or heavy and outbound transportation rates are high. For example,

manufacturers of products such as plastic pipe and heavy metals all emphasize proximity to their

markets.

3. Quality of life:

Good schools, recreational facilities, cultural events, and an attractive lifestyle contribute to quality of

life. This factor is relatively unimportant on its own, but it can make the difference in location decisions.



4. Proximity to suppliers and resources:

In many companies, plants supply parts to other facilities or rely on other facilities for management and

staff support. These require frequent coordination and communication, which can become more difficult

as distance increases.

5. Utilities, taxes, and real estate costs:

Other important factors that may emerge include utility costs (telephone, energy, and water), local and

state taxes, financing incentives offered by local or state governments, relocation costs, and land costs.

SECONDARY FACTORS

There are some other factors needed to be considered, including room for expansion, construction costs,

accessibility to multiple modes of transportation, the cost of shuffling people and materials between

plants, competition from other firms for the workforce, community attitudes, and many others. For

global operations, firms are emphasizing local employee skills and education and the local

infrastructure.

Classification and Advantages of Plant Layout

Layouts can be classified into the following five categories:

1. Process layout.

2. Product layout

3. Combination layout

4. Fixed position layout

5. Group layout

Process Layout

Process layout is recommended for batch production. All machines performing similar type of

operations are grouped at one location in the process layout e.g., all lathes, milling machines, etc. are

grouped in the shop will be clustered in like groups.

Thus, in process layout the arrangement of facilities are grouped together according to their functions. A

typical process layout is shown in the following figure. The flow paths of material through the facilities

from one functional area to another vary from product to product. Usually the paths are long and there

will be possibility of backtracking.

Process layout is normally used when the production volume is not sufficient to justify a product layout.

Typically, job shops employ process layouts due to the variety of products manufactured and their low

production volumes.

Process layout

Advantages 1. In process layout machines are better utilized and fewer machines are required.

2. Flexibility of equipment and personnel is possible in process layout.

3. Lower investment on account of comparatively less number of machines and lower cost of general

purpose machines.

4. Higher utilization of production facilities.



5. A high degree of flexibility with regards to work distribution to machineries and workers.

6. The diversity of tasks and variety of job makes the job challenging and interesting.

7. Supervisors will become highly knowledgeable about the functions under their department.

Limitations

1. Backtracking and long movements may occur in the handling of materials thus, reducing material

handling efficiency.

2. Material handling cannot be mechanized which adds to cost.

3. Process time is prolonged which reduce the inventory turnover and increases the in- process

inventory.

4. Lowered productivity due to number of set-ups.

5. Throughput (time gap between in and out in the process) time is longer.

6. Space and capital are tied up by work-in-process.

Product Layout

In this type of layout, machines and auxiliary services are located according to the processing sequence

of the product. If the volume of production of one or more products is large, the facilities can be

arranged to achieve efficient flow of materials and lower cost per unit. Special purpose machines are

used which perform the required function quickly and reliably.

The product layout is selected when the volume of production of a product is high such that a separate

production line to manufacture it can be justified. In a strict product layout, machines are not shared by

different products. Therefore, the production volume must be sufficient to achieve satisfactory

utilization of the equipment. A typical product layout is shown in the following figure.

Product layout

Advantages

1. The flow of product will be smooth and logical in flow lines.

2. In-process inventory is less.

3. Throughput time is less.

4. Minimum material handling cost.

5. Simplified production, planning and control systems are possible.

6. Less space is occupied by work transit and for temporary storage.

7. Reduced material handling cost due to mechanised handling systems and straight flow.

8. Perfect line balancing which eliminates bottlenecks and idle capacity.

9. Manufacturing cycle is short due to uninterrupted flow of materials.

10. Small amount of work-in-process inventory.

11. Unskilled workers can learn and manage the production.

Limitations

1. A breakdown of one machine in a product line may cause stoppages of machines in the downstream

of the line.

2. A change in product design may require major alterations in the layout.

3. The line output is decided by the bottleneck machine.

4. Comparatively high investment in equipments is required.

5. Lack of flexibility. A change in product may require the facility modification.

Combination Layout Advantages and Disadvantages

Combination Layout



A combination of process and product layouts combines the advantages of both types of layouts. A

combination layout is possible where an item is being made in different types and sizes. Here machinery

is arranged in a process layout but the process grouping is then arranged in a sequence to manufacture

various types and sizes of products. It is to be noted that the sequence of operations remains same with

the variety of products and sizes. The following figure shows a combination type of layout for

manufacturing different sized gears.

Combination layout for making different types and sizes of gears

Fixed Position Layout

This is also called the project type of layout. In this type of layout, the material, or major components

remain in a fixed location and tools, machinery, men and other materials are brought to this location.

This type of layout is suitable when one or a few pieces of identical heavy products are to be

manufactured and when the assembly consists of large number of heavy parts, the cost of transportation

of these parts is very high.

Fixed position layout

Advantages The major advantages of this type of layout are:

1. Helps in job enlargement and upgrades the skills of the operators.

2. The workers identify themselves with a product in which they take interest and pride in doing the job.

3. Greater flexibility with this type of layout.

4. Layout capital investment is lower.

Group Layout (or Cellular Layout)

There is a trend now to bring an element of flexibility into manufacturing system as regards to variation

in batch sizes and sequence of operations. A grouping of equipment for performing a sequence of

operations on family of similar components or products has become all the important.



Group technology layout in Operation Management

Group technology (GT) is the analysis and comparisons of items to group them into families with

similar characteristics. GT can be used to develop a hybrid between pure process layout and pure flow

line (product) layout. This technique is very useful for companies that produce variety of parts in small

batches to enable them to take advantage and economics of flow line layout.

The application of group technology involves two basic steps; first step is to determine component

families or groups. The second step in applying group technology is to arrange the plants equipment

used to process a particular family of components. This represents small plants within the plants. The

group technology reduces production planning time for jobs. It reduces the set-up time.

Thus group layout is a combination of the product layout and process layout. It combines the

advantages of both layout systems. If there are m-machines and n-components, in a group layout

(Group-Technology Layout), the M -machines and n -components will be divided into number of

machine-component cells (group) such that all the components assigned to a cell are almost processed

within that cell itself. Here, the objective is to minimize the intercell movements.

The basic aim of a group technology layout is to identify families of components that require similar of

satisfying all the requirements of the machines are grouped into cells. Each cell is capable of satisfying

all the requirements of the component family assigned to it.

The layout design process considers mostly a single objective while designing layouts. In process layout,

the objective is to minimize the total cost of materials handling. Because of the nature of the layout, the

cost of equipments will be the minimum in this type of layout. In product layout, the cost of materials

handling will be at the absolute minimum. But the cost of equipments would not be at the minimum if

the equipments are not fully utilized.

In-group technology layout, the objective is to minimize the sum of the cost of transportation and the

cost of equipments. So, this is called as multi-objective layout. A typical process layout is shown .

Group layout or Cellular layout

Advantages of Group Technology Layout

Group Technology layout can increase

1. Component standardization and rationalization.

2. Reliability of estimates.

3. Effective machine operation and productivity.

4. Customer service.

It can decrease the



1. Paper work and overall production time.

2. Work-in-progress and work movement.

3. Overall cost.

Limitations of Group Technology Layout

This type of layout may not be feasible for all situations. If the product mix is completely dissimilar,

then we may not have meaningful cell formation.

Methods of production:

Production methods fall into three main categories: job (one-off production), batch (multiple items, one

step at a time for all items), and flow (multiple items, all steps in process at once for separate items.

Job Production

Job Production is used when a product is produced with the labor of one or few workers and is rarely

used for bulk and large scale production. It is mainly used for one-off products or prototypes (hence also

known as Prototype Production), as it is inefficient; however, quality is greatly enhanced with job

production compared to other methods. Individual wedding cakes and made-to-measure suits are

examples of job production. New small firms often use job production before they get a chance or have

the means to expand. Job Production is highly motivating for workers because it gives the workers an

opportunity to produce the whole product and take pride in it.

Batch production

Batch production is the method used to produce or process any product in groups or batches where the

products in the batch go through the whole production process together. An example would be when a

bakery produces each different type of bread separately and each product(in this case, bread) is not

produced continuously. Batch production is used in many different ways and is most suited to when

there is a need for a quality/quantity balance. This technique is probably the most commonly used

method for organizing manufacture and promotes specialist labor, as very often batch production

involves a small number of persons. Batch production occurs when many similar items are produced

together. Each batch goes through one stage of the production before moving onto next stage.

Lean Production

Contrary to job production, the method Boutique Manufacturing is suitable for the production of very

small to small batches, i.e. orders of a few units up to several dozens of similar or equal goods. The

workflow organization of a Boutique Manufacturing entity can be a mixture of both jobbing and batch

production but involves higher standardization than job production. Boutique Manufacturing is often

organized with single workplaces or production cells carrying out a number of subsequent production

steps until completion of certain components or even the whole product; large assembly lines are

generally not used. The flexibility and variety of products able to be produced in the entity therefore are

much higher than with the more standardized method of batch production.

Statistical Process Control (SPC)

Process Variability

If you have reviewed the discussion of frequency distributions in the Histogram module, you will recall

that many histograms will approximate a Normal Distribution, as shown below (please note that control

charts do not require normally distributed data in order to work - they will work with any process

distribution - we use a normal distribution in this example for ease of representation):



In order to work with any distribution, it is important to have a measure of the data dispersion, or spread.

This can be expressed by the range (highest less lowest), but is better captured by the standard deviation

(sigma). The standard deviation can be easily calculated from a group of numbers using many

calculators, or a spreadsheet or statistics program.

Example

there is a Special Cause - a source of variation beyond the normal chance variation of the process.

Implementing Statistical Process Control



Deploying Statistical Process Control is a process in itself, requiring organizational commitment across

functional boundaries. The flow-chart below outlines the major components of an effective SPC effort.

The process steps are numbered for reference.

Formulas are shown below for Attribute and Variable data.



(Here n = subgroup or sample size and k = number of subgroups or samples)

Values for formula constants are provided by the following charts:

Chart examples:

X and R Chart

p-Chart

The area circled denotes an out-of-control condition, which is discussed below.

10. Assess Control.

After establishing control limits, the next step is to assess whether or not the process is in control

(statistically stable over time). This determination is made by observing the plot point patterns and

applying six simple rules to identify an out-of-control condition.

Out of Control Conditions:



1. If one or more points falls outside of the upper control limit (UCL), or lower control limit (LCL). The

UCL and LCL are three standard deviations on either side of the mean - see section A of the

illustration below.

2. If two out of three successive points fall in the area that is beyond two standard deviations from the

mean, either above or below - see section B of the illustration below.

3. If four out of five successive points fall in the area that is beyond one standard deviation from the

mean, either above or below - see section C of the illustration below.

4. If there is a run of six or more points that are all either successively higher or successively lower - see

section D of the illustration below.

5. If eight or more points fall on either side of the mean (some organization use 7 points, some 9) - see

section E of the illustration below.

6. If 15 points in a row fall within the area on either side of the mean that is one standard deviation from

the mean - see section F of the illustration below.

When an out-of-control condition occurs, the points should be circled on the chart, and the reaction plan

should be followed.

Process average, or x̄

Upper Specification Limit (USL) and Lower Specification Limit (LSL).

The Process Standard Deviation ( σest). This can be calculated directly from the individual data, or can

be estimated by: σest = R̄ / d2

Cp is calculated as follows:



Following is an illustration of the Cp concept:

Cp is often referred to as "Process Potential" because it describes how capable the process could be if it

were centered precisely between the specifications. A process can have a Cp in excess of one but still

fail to consistently meet customer expectations, as shown by the illustration below:

The measurement that assesses process centering in addition to spread, or variability, is Cpk. Think of

Cpk as a Cp calculation that is handicapped by considering only the half of the distribution that is closest

to the specification. Cpk is calculated as follows:

The illustrations below provide graphic examples of Cp and Cpk calculations using hypothetical data:



INVENTORY:

Inventory generally refers to the materials in stock. It is also called the idle resource of an enterprise.

Inventories represent those items which are either stocked for sale or they are in the process of

manufacturing or they are in the form of materials, which are yet to be utilized. The interval between

receiving the purchased parts and transforming them into final products varies from industries to

industries depending upon the cycle time of manufacture. It is, therefore, necessary to hold inventories

of various kinds to act as a buffer between supply and demand for efficient operation of the system.

Thus, an effective control on inventory is a must for smooth and efficient running of the production

cycle with least interruptions.

Reasons for Keeping Inventories

1. To stabilize production: The demand for an item fluctuates because of the number of factors, e.g., seasonality, production

schedule etc. The inventories (raw materials and components) should be made available to the

production as per the demand failing which results in stock out and the production stoppage takes

place for want of materials. Hence, the inventory is kept to take care of this fluctuation so that the

production is smooth.

2. To take advantage of price discounts: Usually the manufacturers offer discount for bulk buying and to gain this price advantage the

materials is bought in bulk even though it is not required immediately. Thus, inventory is maintained

to gain economy in purchasing.

3. To meet the demand during the replenishment period: The lead time for procurement of materials depends upon many factors like location of the source,

demand supply condition, etc. So inventory is maintained to meet the demand during the

procurement (replenishment) period.

4. To prevent loss of orders (sales): In this competitive scenario, one has to meet the delivery schedules at 100 per cent service level,

means they cannot afford to miss the delivery schedule which may result in loss of sales. To avoid

the organizations have to maintain inventory.

5. To keep pace with changing market conditions: The organizations have to anticipate the changing market sentiments and they have to stock materials

in anticipation of non-availability of materials or sudden increase in prices.

6. Sometimes the organizations have to stock materials due to other reasons like suppliers minimum

quantity condition, seasonal availability of materials or sudden increase in prices.

Meaning of Inventory Control



Inventory control in Operations Management

Inventory control is a planned approach of determining what to order, when to order and how much to

order and how much to stock so that costs associated with buying and storing are optimal without

interrupting production and sales. Inventory control basically deals with two problems:

1. When should an order be placed? (Order level), and

2. How much should be ordered? (Order quantity).

These questions are answered by the use of inventory models. The scientific inventory control system

strikes the balance between the loss due to non-availability of an item and cost of carrying the stock of

an item. Scientific inventory control aims at maintaining optimum level of stock of goods required by

the company at minimum cost to the company.

Objectives of Inventory Control 1. To ensure adequate supply of products to customer and avoid shortages as far as possible.

2. To make sure that the financial investment in inventories is minimum (i.e., to see that the working

capital is blocked to the minimum possible extent).

3. Efficient purchasing, storing, consumption and accounting for materials is an important objective.

4. To maintain timely record of inventories of all the items and to maintain the stock within the desired

limits.

5. To ensure timely action for replenishment.

6. To provide a reserve stock for variations in lead times of delivery of materials.

7. To provide a scientific base for both short-term and long-term planning of materials.

Benefits of Inventory Control

It is an established fact that through the practice of scientific inventory control, following are the

benefits of inventory control:

1. Improvement in customer’s relationship because of the timely delivery of goods and service.

2. Smooth and uninterrupted production and, hence, no stock out.

3. Efficient utilization of working capital. Helps in minimizing loss due to deterioration, obsolescence

damage and pilferage.

4. Economy in purchasing.

5. Eliminates the possibility of duplicate ordering.

Techniques of Inventory Control

In any organization, depending on the type of business, inventory is maintained. When the number of

items in inventory is large and then large amount of money is needed to create such inventory, it

becomes the concern of the management to have a proper control over its ordering, procurement,

maintenance and consumption. The control can be for order quality and order frequency. The different

techniques of inventory control are: (1) ABC analysis, (2) HML analysis, (3) VED analysis, (4) FSN

analysis, (5) SDE analysis, (6) GOLF analysis and (7) SOS analysis. The most widely used method of

inventory control is known as ABC analysis. In this technique, the total inventory is categorized into

three sub-heads and then proper exercise is exercised for each sub-heads.

1. ABC analysis: In this analysis, the classification of existing inventory is based on annual consumption and the

annual value of the items. Hence we obtain the quantity of inventory item consumed during the year

and multiply it by unit cost to obtain annual usage cost. The items are then arranged in the

descending order of such annual usage cost. The analysis is carried out by drawing a graph based on

the cumulative number of items and cumulative usage of consumption cost. Classification is done as

follows:



The classification of ABC analysis is shown by the graph given as follows.

ABC classification

Once ABC classification has been achieved, the policy control can be formulated as follows:

A-Item: Very tight control, the items being of high value. The control need be exercised at higher level of

authority.

B-Item:

Moderate control, the items being of moderate value. The control need be exercised at middle level

of authority.

C-Item: The items being of low value, the control can be exercised at gross root level of authority, i.e., by

respective user department managers.

2. HML analysis:

In this analysis, the classification of existing inventory is based on unit price of the items. They are

classified as high price, medium price and low cost items.

3. VED analysis:

In this analysis, the classification of existing inventory is based on criticality of the items. They are

classified as vital, essential and desirable items. It is mainly used in spare parts inventory.

Inventory Model



ECONOMIC ORDER QUANTITY (EOQ)

Inventory models deal with idle resources like men, machines, money and materials. These models are

concerned with two decisions: how much to order (purchase or produce) and when to order so as to

minimize the total cost.

For the first decision how much to order, there are two basic costs are considered namely, inventory

carrying costs and the ordering or acquisition costs. As the quantity ordered is increased, the inventory

carrying cost increases while the ordering cost decreases. The ‘order quantity’ means the quantity

produced or procured during one production cycle. Economic order quantity is calculated by balancing

the two costs. Economic Order Quantity (EOQ) is that size of order which minimizes total costs of

carrying and cost of ordering. Minimum Total Cost occurs when Inventory Carrying Cost = Ordering

Cost

Economic order quantity can be determined by two methods:

1. Tabulation method.

2. Algebraic method.

Inventory cost curve

1. Determination of EOQ by Tabulation (Trial & Error) Method

This method involves the following steps:

1. Select the number of possible lot sizes to purchase.

2. Determine average inventory carrying cost for the lot purchased.

3. Determine the total ordering cost for the orders placed.

4. Determine the total cost for each lot size chosen which is the summation of inventory carrying

cost and ordering cost.

5. Select the ordering quantity, which minimizes the total cost.

The data calculated in a tabular column can plotted showing the nature of total cost, inventory cost

and ordering cost curve against the quantity ordered .

ILLUSTRATION 3: The XYZ Ltd. carries a wide assortment of items for its customers. One of its popular items has annual

demand of 8000 units. Ordering cost per order is found to be Rs. 12.5. The carrying cost of average

inventory is 20% per year and the cost per unit is Re. 1.00. Determine the optimal economic quantity

and make your recommendations.

SOLUTION:



The table and the graph indicates that an order size of 1000 units will gives the lowest total cost among

the different alternatives. It also shows that minimum total cost occurs when carrying cost is equal to

ordering cost.

2. Determination of EOQ by Analytical Method In order to derive an economic lot size formula following assumptions are made:

1. Demand is known and uniform.

2. Let D denotes the total number of units purchase/produced and Q denotes the lot size in each

production run.

3. Shortages are not permitted, i.e., as soon as the level of the inventory reaches zero, the inventory

is replenished.

4. Production or supply of commodity is instantaneous.

5. Lead-time is zero.

6. Set-up cost per production run or procurement cost is C3.

7. Inventory carrying cost is C1= CI, where C is the unit cost and I is called inventory carrying cost

expressed as a percentage of the value of the average inventory.

This fundamental situation can be shown on an inventory-time diagram, with Q on the vertical axis and

the time on the horizontal axis. The total time period (one year) is divided into n parts.



MARKEING MIX:

MARKETING MIX HISTORY

Marketing mix is one of the important topics in marketing. The idea of this term is generated back in

1948 by James Culliton he said marketing decision should be the result of something like recipe. It

analogues to the restaurants offer same recipe but customer always go for tasty one. The idea

of recipe was further refined by Neil Borden and coined the term ‘Marketing Mix’. In 1960’s E.Jerome

McCarthy elaborate in more details by classifying the term into 4Ps concept are product, price, place

and promotion.

WHAT IS MARKETING MIX?

Marketing mix is the decision which came out as the result of blending 4P’s to stimulate the demand of

firm product and services. Marketing mix can be also defined as tactical, strategic and controllable

marketing tool contain product, price, place and promotion use by the firm to generate response from

target market.

MARKETING MIX VARIABLES

PRODUCT

Products are goods and services offered by company to the target market. Marketing mix use in a variety

of ways by firms to pursue customer to buy and use their products. The variety of options that firm can

adopt came out from only four variable product, price, place and promotion. Some firms like to focus on

their products so they will spend more on product packaging, quality, design, features, brand name and

service, to offer high brand products and services to target market. Such as Mercedes Benz is an

expensive car but have its own niche market people feel proud to buy and drive the car just because of

the product is completely differentiated from their competitors having numerous features.

PRICE: Price is a amount which customer pays to buy the products and services. Price can also attract

customer towards firm products and services such as Southwest Airlines offer low price services to their

customers by offering normal service. It means they want to capture the target market on cost

differentiation not on product differentiation. The price variables encompassed the following factors

such list price, discount, allowances, payment period and credit terms.

https://i1.wp.com/mba-tutorials.com/wp-content/uploads/2009/08/4ps.gif



PLACE

Place are the set of activities which allow the firm to spread their availability of the products and

services for the customers. Physical existence is not the only criteria of place but virtual firms like

amazon, eBay is also the part of third P(place).

PROMOTION: Promotion is a way of communication to pass message to customers about firms

products and services. The other 3Ps (product,price and place) message is transferred via the 4th

P(promotion), target market feel happy to know about the new product and services offered to them.

Price factor in marketing mix encompassed the following factors channels, coverage, assortments,l

ocations, inventory. transportation and logistics.

MARKETING MIX PERSPECTIVES: There are two perspectives of marketing mix one is from

buyer point of view and other is from customer point of view.

SELLER MARKETING MIX

The firm see themselves as the seller of the product the above discussion about the 4P’s tells the benefits

of the seller not the customer.

BUYER MARKETING MIX

Buyer looking toward the offering not as 4P’s, buyer is searching a solution within the product if the

needs and wants are meet then first P(product) match the customer first C(customer solution). Buyer

always wish to get a good retail price for the product to increase his profit margin but its not the thing

most of the customers are not rarely bother about the price of the product,what they are looking for? is

cost of the product which they have to pay by acquiring,using, maintaining, storing and disposing the

product. The second P(price) should take care of second C(customer cost) will lead the product towards

the success, customer feel easy to buy the product at good market price.

A distribution channel is the route through which goods or services move from the company to the

customer or the transfer of payment happens from the customer to the company.

Distribution channels can mean selling of products directly or selling through wholesalers, retailers etc.

The same applies for payment transfer from customers to company; it can move through a path or can

be sent directly to the company.

Functions of Distribution Channels

Distribution channels basically function to deliver goods from the manufacturer to the customer.

The following are the functions of distribution channels −

Facilitate selling by being physically close to customers

Gather information about potential and current customer competitions, other factors and forces

of the environment

Provide distributional efficiency by bridging the gap between the manufacturer and the user

efficiently and economically

Assemble products into assortments to meet buyers’ needs

Match segments of supply with segments of demand



Assist in sales promotion

Assist in introducing new products

Assist in implementing the price mechanism

Assist in developing sales forecast

Provide market intelligence and feedback

Maintain records

Take care of liaison requirements

Standardize transaction

Objectives of Distribution Channels

Objectives of a distribution channel are planned as per the target of the enterprise and executed

respectively. The following are the various objectives behind the planning of distribution channels −

To ensure availability of products at the point of sale

To build channel member’s loyalty

To stimulate channel members to put greater selling efforts

To develop management efficiency in channel organization

To identify the organization at the level

To have an efficient and effective distribution system for making the products and services

available readily, regularly, equitably and fresh.

Major Channels of Distribution

Here is a list of some of the major channels of distribution −

Manufacturer → Consumer

Manufacturer → Retailer → Customer

Manufacturer → Wholesaler → Customer

Manufacturer → Wholesaler → Retailer → Customer

Manufacturer → Agent → Retailer → Customer

Manufacturer → Agent → Wholesaler → Customer

Manufacturer → Agent → Wholesaler → Retailer → Customer

Profit distribution decreases as the channel length increases.

Designing Distribution Channels

We have seen what a distribution channel is. Let us now see the designing process of a distribution

channel.

The following steps are involved in the designing of a channel system −

Formulating the channel objectives

Identifying the functions to be performed by the channel

Analyzing the product and linking the channel design to the product characteristics



Evaluating the distribution environment, including legal aspects

Evaluating competitor’s channel designs

Evaluating company resources and matching the channel design to the resources

Generating alternative designs, evaluating them and selecting the one that suits the firm best

Product life cycle is the timeline of demand for the product from its initial stage of introduction.

Let us now discuss the various stages of a product, starting from its innovation to its decline stage.

Stages of Product Cycle

Product life cycle can be defined as the life cycle of the product. It means the various stages a product

sees in its complete life span.

Product life cycle comprises of the following four stages −

Introduction or innovation

Growth

Maturity

Decline

Let us start by describing the first stage we have in the product life cycle, that is, the introduction stage.

Introduction Stage

The product is introduced in the market in this stage; it is the initial stage of the product.

Sales of the product are low in this stage because there may not be a need of the product in the

market.

The product may undergo brand trouble.

In this stage, there is very little or no profit.

The demand for the product is created and developed in this stage.

After this initial stage, the next stage of the product is the growth stage.

Growth Stage

In this stage, the demands and market share increases as well as competition emerges in the market.



Generally, the price remains constant in this stage.

Marketing and promotional expenses increase.

There is rapid increase in sales.

The manufacturing cost decreases so there is increase in profit margin.

It penetrates other market segment.

In the growth stage, there is a boom in the demand of the product and the profit increases substantially.

Maturity Stage

The price of the product is comparatively low, but the advertisement and promotion cost increases in

this stage.

This stage remains for a comparatively longer duration.

In this stage, there is high competition.

Profit is decreased.

Sales growth can be divided into the following three categories in the maturity stage −

o Growth

o Stability

o Decay

In growth, there is an increase in the demand of the product. In stability, the demand of the product

remains constant. In decay, there is a slight decrease in the demand.

Decline Stage

There is a decrease in sales in this stage. Demand of product also decreases.

There is decrease in the price of the product.

Margins are lowered.

There is introduction of new product in market.

New strategies are implemented.

This is the final stage of the product. There is a decrease in demand and sales of the product.

Importance of Product Life Cycle

Product life cycle is an important tool for market forecasting, planning and control. Product life cycle is

important in various ways. The situation of the product can be analyzed properly and changes can be

made in order to increase profit. Some other important features are −

Helpful in formulating a proper product policy, production and pricing.

Helpful in modifying the marketing policy.

Helpful to the marketer regarding competition.

Cautions the management about the decline stage of the product.

In today’s world, all of us are under the influence of ‘Advertisement’. Right from buying groceries to

children’s study materials, finding a holiday spot to watching a movie, selecting restaurant for dinner to



booking a banquet hall for special events, and searching educational institutions to hunting for a

company to find jobs, almost every act is guided and decided by advertisements.

What is an Advertisement?

Advertisement (ad) is an efficient and effective technique to promote goods, services, and ideas. It is a

paid form of non-personal communication wherein business information is made available for potential

customers. Advertisement, is derived from the Latin word “Advertere” which literally means “to turn

the minds of … towards…”. Advertisement promotes and supplements selling of products, services,

and ideas to a great extent. The most interesting part of an advertisement is – it carries factual

information with fascinating emotional appeal. Hence, without a proper advertisement no business can

prosper.

What is a Buzz?

The literal meaning of “Buzz” is – “a low, continuous humming or murmuring sound.” In the

advertising sense, it is a technique of marketing. It is getting viral these days. Buzz marketing technique

relies upon the power of one-on-one personal messages.

It is believed that word-of-mouth holds more weightage with consumers. Buzz marketing is perceived

as an impartial form of marketing people trust the recommendations made by their relatives and friends.

Social media is the most energetic vehicle of buzz marketing.

Objectives of Advertisements

The fundamental idea behind advertisement is to increase the business by selling goods/services.

Besides, there are many other objectives of advertisement, significant of them are −

To promote newly launched products among the potential customers.

To promote personal selling program.

To create awareness among maximum people about your business in a short period of time.

To enter national or even international market and motivate new group of customers.

To enhance the goodwill and build credibility among the customers by promising to provide

better quality of products and services.

Advertisement Process



The advertisements that we see in the newspapers, magazines, and roadside hoardings or watch on

television or on the internet involves a lot of work. An advertisement goes through different stages

from its initial planning stage to its execution. In addition, it also involves groups of people specialized

in different fields. For example, experts of management, copyediting, creative writing, photography,

videography, acting, etc.

Following are the fundamental stages to develop and execute an ad −

Typical Workflow in an Ad Agency

Stage Work Performed

Beginning Stage

Idea briefing to an Ad Agency

Internal discussion

Market research relevant to ad (to find

competitors, customers’ behaviors, & target

audiences)

Media selection (print, electronic, or

outdoor)

Setting budget

Development Stage

Designing and creation of Ad (creative/copy

writing, filming, etc.)

Internal review/editing

Presentation to client and taking his final

approval

Final production of ad

Pre-testing

Approval from the concerned authority

Fixing the time and place to release the ad

Execution Stage Media Scheduling and media booking

Handing over to media to make it live

Post Execution

Media release monitoring

Judging the performance

Noting customer’s review

Market response

Segments of Advertisement

Following are the three major sectors of Advertisements −



Advertiser − Business organization or any other individual, who wishes to advertise their

products, services, or ideas.

Ad Agency − A service-based firm that creates innovative ideas and develops an attractive and

meaningful ad.

Media − A communication platform that offers substantial and effective medium to advertise.

Medium of Advertisement

While planning to advertise your business/product/idea, you also need to decide which medium would

be the best suited to execute your ad. You can choose from multiple mediums from the list given below

−

Print Media

It is one of the oldest, but still popular medium of advertisement. It includes, newspapers, brochures,

magazines, and fliers. It is the low budget medium of advertisement, but the rate varies to a great extent

depending upon the −

Geographic location (city, town, etc.)

Brand (of newspaper & magazine), and

Space (how much & which part of the page you are booking).

Broadcast/Electronic Media

It is the most advanced and fastest media, which reaches the remotest regions of the world in a fraction

of a minute.

It includes radio, television, and the Internet. Since, on television and internet, both video and audio can

be run; therefore, it is the most popular and effective medium.

Outdoor − It is the cheapest, but effective medium. It includes hoardings, flags, banners, billboards,

motor vehicles, building/fence wraps, events, etc. Outdoor advertisement is used in various ways to

increase brand awareness and for the promotion of products/services.

Check Your Progress

What is advertisement process?

How is advertisement the most essential feature of a business?

What do you understand by ‘advertisement media?’

What are the objectives of advertisement?

Sales promotion describes promotional methods using special short-term techniques to persuade

members of a target market to respond or undertake certain activity. As a reward, marketers offer

something of value to those responding generally in the form of lower cost of ownership for a purchased

product (e.g., lower purchase price, money back) or the inclusion of additional value-added material

(e.g., something more for the same price).

Sales promotions are used by a wide range of organizations in both the consumer and business markets,

though the frequency and spending levels are much greater for consumer products marketers.

Unfortunately, given the number of different methods that can be classified as sales promotion, it is



difficult to measure the yearly amount spent on this promotional method, though it is likely on par with

what is spent yearly on advertising.

Sales promotions are often confused with advertising. For instance, a television advertisement

mentioning a contest that will award winners with a free trip to a Caribbean island may give the contest

the appearance of advertising. While the delivery of the marketer’s message through television media is

certainly labeled as advertising, what is contained in the message, namely the contest, is considered a

sales promotion. The factors that distinguish between the two promotional approaches are:

1. Evidence of Time Constraint – Sales promotions involve a short-term value proposition where

an advertisement does not. In general, if there is a limited time period within which action must

be taken then it most likely qualifies as a sales promotion. In our contest example, a stated entry

deadline would indicate a time constraint.

2. Customer Action Required – Sales promotions require customers to perform some activity in

order to be eligible to receive the value proposition.

For instance, in our Caribbean trip example, customers may need to complete an online form to

make them eligible to be entered in the contest.

Advantages of Sales Promotion

Sales promotion can prove useful for marketers in several ways. These include:

1. Helps Create Awareness of New Products – Sales promotion is a highly effective methods for

exposing customers and business partners to new products and for moving customers to take an

action (e.g., sample a product).

2. Strengthens Customer Involvement and Loyalty – Sales promotion can be the primary

mechanism organizations use to interact with their customers and ultimately build a stronger

connection (e.g., offer customer rewards).

3. Can Be Quick to Develop – Compared to other types of promotion, some sales promotions can

be quickly created and made available within a market (e.g., creation and distribution of email

coupon).

4. Used to Support Other Promotions – Sales promotion is often used as a supporting feature of

other methods of promotion (e.g., salespeople may give promotional items to give to sales

prospects).

5. Helps Reduce Inventory – Sales promotion can be used to rapidly reduce inventory in situations

where product replacement is needed (e.g., products nearing expiration date; clearing inventory

to make room for new models).

Disadvantages of Sales Promotion

While the benefits of sales promotion are very attractive to a marketer’s promotional plan, there are

downsides to this type of promotion. These include:

1. May Condition Customers to Wait for Promotion – Repeated use of sales promotion may

condition customers to wait until a product promotion is available before making their next

purchase resulting in the marketer not maximizing a product’s revenue potential (i.e., customer

will not pay full price).

2. Can Lower Perception of the Brand – The overuse of some sales promotions may condition

customers to believe the lower price is the regular price, which may cause them to not believe the

product’s quality compares to similar competitors’ products that offer less frequent or no price

reductions.



3. Issues With Promotion Clutter – While in the same way an advertisement competes with

other ads for customers’ attention, promotional clutter may also be an issue with sales

promotions (e.g., excessive promotion sent by email, postal mail).

4. Distributors May Not Be Willing to Accept – Some sales promotions targeted to consumers

require the assistance of distributors (e.g., retailers), however, not all distributors may accept a

consumer sales promotion, especially if the promotion requires the distributor to perform extra

work.

UNIT-III

Human Resource Management (HRM) is an operation in companies designed to maximize employee

performance in order to meet the employer's strategic goals and objectives. More precisely, HRM

focuses on management of people within companies, emphasizing on policies and systems.

In short, HRM is the process of recruiting, selecting employees, providing proper orientation and

induction, imparting proper training and developing skills.

HRM also includes employee assessment like performance appraisal, facilitating proper compensation

and benefits, encouragement, maintaining proper relations with labor and with trade unions, and taking

care of employee safety, welfare and health by complying with labor laws of the state or country

concerned.

The Scope of HRM

The scope of HRM is very wide. It consists of all the functions that come under the banner of human

resource management. The different functions are as follows −

Human Resources Planning

It is the process by which a company identifies how many positions are vacant and whether the

company has excess staff or shortage of staff and subsequently deals with this need of excess or

shortage.

Job Analysis Design

Job analysis can be defined as the process of noticing and regulating in detail the particular job duties

and requirements and the relative importance of these duties for a given job.

Job analysis design is a process of designing jobs where evaluations are made regarding the data

collected on a job. It gives an elaborate description about each and every job in the company.

Recruitment and Selection

With respect to the information collected from job analysis, the company prepares advertisements and

publishes them on various social media platforms. This is known as recruitment.

A number of applications are received after the advertisement is presented, interviews are conducted

and the deserving employees are selected. Thus, recruitment and selection is yet another essential area

of HRM.

Orientation and Induction

After the employees are selected, an induction or orientation program is organized. The employees

are updated about the background of the company as well as culture, values, and work ethics of the

company and they are also introduced to the other employees.

Training and Development



Employees have to undergo a training program, which assists them to put up a better performance on

the job. Sometimes, training is also conducted for currently working experienced staff so as to help

them improve their skills further. This is known as refresher training.

Performance Appraisal

After the employees have put in around 1 year of service, performance appraisal is organized in order

to check their performance. On the basis of these appraisals, future promotions, incentives, and

increments in salary are decided.

Compensation Planning and Remuneration

Under compensation planning and remuneration, various rules and regulations regarding compensation

and related aspects are taken care of. It is the duty of the HR department to look into remuneration and

compensation planning.

Features of HRM

Human Resource Management as a discipline includes the following features −

It is pervasive in nature, as it is present in all industries.

It focuses on outcomes and not on rules.

It helps employees develop and groom their potential completely.

It motivates employees to give their best to the company.

It is all about people at work, as individuals as well as in groups.

It tries to put people on assigned tasks in order to have good production or results.

It helps a company achieve its goals in the future by facilitating work for competent and well-

motivated employees.

It approaches to build and maintain cordial relationship among people working at various levels

in the company.

Basically, we can say that HRM is a multi-disciplinary activity, utilizing knowledge and inputs drawn

from psychology, economics, etc.

Human Resource Planning (HRP) is the process of foreseeing the requirement of human resources in an

organization. The objective is also to determine how the existing human resources best fit in their jobs.

Thus, it focuses on the basic economics concept of demand and supply in the context of the human

resource capacity of an organization.

Components of HRP

The following are the components of human resource planning −

Current HR Supply

It involves a comprehensive study of human resource strength in the organization with respect to the

numbers, skills, talents, competencies, qualifications, experiences, age, tenures, performance ratings,

designations, grades, compensations, benefits, etc.

At this stage, the consultants may organize extensive interviews with the managers to understand the

critical HR issues they face and basic workforce abilities as crucial for various business processes.

Future HR Demand



All the known HR variables like attrition, lay-offs, foreseeable vacancies, retirements, promotions, pre-

set transfers, etc. are considered while selecting future HR demand. Further, specific unknown

workforce temporaries like competitive factors, resignations, abrupt transfers or dismissals are also

involved in the scope of analysis.

Demand Forecast

It is important to understand the business strategy and the objectives of the organization in the long run

so that the workforce demand forecast is aligned to the organizational goals.

HR Sourcing Strategy and Implementation

Sourcing strategy and implementation may involve conducting interaction programs with employees,

relocation, talent acquisition, recruitment and outsourcing, talent management, training and coaching,

and revision of policies. The plans are then executed taking into confidence the mangers so as to make

the process of execution smooth and efficient.

Even though HR Planning sounds quite simple as a process of managing the numbers in terms of

human resource needs of the company, the actual exercise may include the HR manager to face many

roadblocks owing to the effect of the current workforce in the company, pressure to meet the business

objectives and prevailing workforce market condition.

Thus, a properly conducted process of HR Planning by an HR Consulting company helps the company

in meeting its aims and objectives in a timely manner with the right HR strength in action.

Job Analysis

It is the process of identifying and choosing elaborated contents of a particular job, thus clearly

defining duties, rules, responsibilities, accountabilities, and skills related to the job.

Job analysis is the process of analyzing the job — what is the demand and requirement for the job, and

not of the individual.

The process of job analysis gives two sets of data −

Job description − Job description is a written statement including complete information about

what all a job holds, like job title, duties, tasks and responsibilities related to job, working

conditions and hazards, reporting relationships, tools, machines and equipment to be used, and

relationships with other designations.

Job specification − Job specification includes particulars regarding the capabilities that an

individual should possess to perform the assigned tasks efficiently. This includes educational



qualification, experience, training, appropriate skills, knowledge, and abilities required to

perform the job.

Job Design

Job design is a continuous and ever-evolving process that is targeted at helping employees in making

adjustments with the changes at the workplace. The end goal is minimizing dissatisfaction and

enhancing motivation and employee engagement at the workplace.

There are various steps involved in job designing, but all these steps follow a logical sequence. Every

step has its own importance and no step can be neglected during the designing process. The sequence

is given below −

What jobs are to be done or what jobs are a part of the job?

How are the jobs performed?

What amount of jobs is required to be done?

What is the procedure of performing these tasks?

All these questions are considered while arriving upon a clear definition of a specific job, thereby

making it less risky for the one performing the same. A well-defined job creates a feeling of

achievement and a sense of high self-esteem among the employees.

Job Evaluation

In contrast to job specification, job evaluation specifies the relative value or worth of each job in a

company by examining the task and ranking the jobs accordingly.

Job evaluation cab be done by any of the following methods −

Points rating − Different levels are allotted to the various elements of jobs and then the points

allocated to different levels are summarized to get the point score of the jobs. It forms the basis

of pay structure.

Factor comparison − A comparison of different independent factors of jobs is done and points

are given to each factor scale of individual job. These points are then aggregated to rank the

jobs.

Job ranking − A job is not broken into factors or elements; instead, it is evaluated as a complete

process and is compared with other jobs. After proper evaluation, jobs are scaled accordingly.

Paired comparison − Jobs are compared with each other and points are allocated depending on

being ‘higher, lesser or equal’. These points are added to prioritize the order of jobs. The jobs

with higher priorities are given more attention as compared to others.

Recruitment is a process of identifying, screening, shortlisting and hiring potential resource for filling

up the vacant positions in an organization. It is a core function of Human Resource Management.

Recruitment is the process of choosing the right person for the right position and at the right time.

Recruitment also refers to the process of attracting, selecting, and appointing potential candidates to

meet the organization’s resource requirements.

The hiring of the candidates can be done internally i.e., within the organization, or from external

sources. And the process should be performed within a time constraint and it should be cost effective.

Importance of Recruitment



Recruitment is one of the most fundamental activities of the HR team. If the recruitment process is

efficient, then

The organization gets happier and more productive employees

Attrition rate reduces.

It builds a good workplace environment with good employee relationships.

It results in overall growth of the organization.

Here is a list that shows the purpose and importance of Recruitment in an organization −

It determines the current and future job requirement.

It increases the pool of job at the minimal cost.

It helps in increasing the success rate of selecting the right candidates.

It helps in reducing the probability of short term employments.

It meets the organization’s social and legal obligations with regards to the work force.

It helps in identifying the job applicants and selecting the appropriate resources.

It helps in increasing organizational effectives for a short and long term.

It helps in evaluating the effectiveness of the various recruitment techniques.

It attracts and encourages the applicants to apply for the vacancies in an organization.

It determines the present futures requirements of the organization and plan according.

It links the potential employees with the employers.

It helps in increasing the success ratio of the selection process of prospective candidates.

It helps in creating a talent pool of prospective candidates, which enables in selecting the right

candidates for the right job as per the organizational needs.

Recruitment is a process of finding and attracting the potential resources for filling up the vacant

positions in an organization. It sources the candidates with the abilities and attitude, which are required

for achieving the objectives of an organization.

Recruitment process is a process of identifying the jobs vacancy, analyzing the job requirements,

reviewing applications, screening, shortlisting and selecting the right candidate.

To increase the efficiency of hiring, it is recommended that the HR team of an organization follows the

five best practices (as shown in the following image). These five practices ensure successful

recruitment without any interruptions. In addition, these practices also ensure consistency and

compliance in the recruitment process.



Recruitment process is the first step in creating a powerful resource base. The process undergoes a

systematic procedure starting from sourcing the resources to arranging and conducting interviews and

finally selecting the right candidates.

Recruitment Planning

Recruitment planning is the first step of the recruitment process, where the vacant positions are

analyzed and described. It includes job specifications and its nature, experience, qualifications and

skills required for the job, etc.

A structured recruitment plan is mandatory to attract potential candidates from a pool of candidates.

The potential candidates should be qualified, experienced with a capability to take the responsibilities

required to achieve the objectives of the organization.

Identifying Vacancy

The first and foremost process of recruitment plan is identifying the vacancy. This process begins with

receiving the requisition for recruitments from different department of the organization to the HR

Department, which contains −

Number of posts to be filled

Number of positions

Duties and responsibilities to be performed

Qualification and experience required

When a vacancy is identified, it the responsibility of the sourcing manager to ascertain whether the

position is required or not, permanent or temporary, full-time or part-time, etc. These parameters should

be evaluated before commencing recruitment. Proper identifying, planning and evaluating leads to

hiring of the right resource for the team and the organization.

Job Analysis



Job analysis is a process of identifying, analyzing, and determining the duties, responsibilities, skills,

abilities, and work environment of a specific job. These factors help in identifying what a job demands

and what an employee must possess in performing a job productively.

Job analysis helps in understanding what tasks are important and how to perform them. Its purpose is to

establish and document the job relatedness of employment procedures such as selection, training,

compensation, and performance appraisal.

The following steps are important in analyzing a job −

Recording and collecting job information

Accuracy in checking the job information

Generating job description based on the information

Determining the skills, knowledge and skills, which are required for the job

The immediate products of job analysis are job descriptionsand job specifications.

Job Description

Job description is an important document, which is descriptive in nature and contains the final

statement of the job analysis. This description is very important for a successful recruitment process.

Job description provides information about the scope of job roles, responsibilities and the positioning of

the job in the organization. And this data gives the employer and the organization a clear idea of what

an employee must do to meet the requirement of his job responsibilities.

Job description is generated for fulfilling the following processes −

Classification and ranking of jobs

Placing and orientation of new resources

Promotions and transfers

Describing the career path

Future development of work standards

A job description provides information on the following elements −

Job Title / Job Identification / Organization Position

Job Location

Summary of Job

Job Duties

Machines, Materials and Equipment

Process of Supervision

Working Conditions

Health Hazards

Job Specification

Job specification focuses on the specifications of the candidate, whom the HR team is going to hire.

The first step in job specification is preparing the list of all jobs in the organization and its locations.

The second step is to generate the information of each job.

This information about each job in an organization is as follows −



Physical specifications

Mental specifications

Physical features

Emotional specifications

Behavioral specifications

A job specification document provides information on the following elements −

Qualification

Experiences

Training and development

Skills requirements

Work responsibilities

Emotional characteristics

Planning of career

Job Evaluation

Job evaluation is a comparative process of analyzing, assessing, and determining the relative

value/worth of a job in relation to the other jobs in an organization.

The main objective of job evaluation is to analyze and determine which job commands how much pay.

There are several methods such as job grading, job classifications, job ranking, etc., which are

involved in job evaluation. Job evaluation forms the basis for salary and wage negotiations.

Recruitment Strategy

Recruitment strategy is the second step of the recruitment process, where a strategy is prepared for

hiring the resources. After completing the preparation of job descriptions and job specifications, the

next step is to decide which strategy to adopt for recruiting the potential candidates for the

organization.

While preparing a recruitment strategy, the HR team considers the following points −

Make or buy employees

Types of recruitment

Geographical area

Recruitment sources

The development of a recruitment strategy is a long process, but having a right strategy is mandatory to

attract the right candidates. The steps involved in developing a recruitment strategy include −

Setting up a board team

Analyzing HR strategy

Collection of available data

Analyzing the collected data

Setting the recruitment strategy

Searching the Right Candidates



Searching is the process of recruitment where the resources are sourced depending upon the

requirement of the job. After the recruitment strategy is done, the searching of candidates will be

initialized. This process consists of two steps −

Source activation − Once the line manager verifies and permits the existence of the vacancy,

the search for candidates starts.

Selling − Here, the organization selects the media through which the communication of

vacancies reaches the prospective candidates.

Searching involves attracting the job seekers to the vacancies. The sources are broadly divided into two

categories: Internal Sources and External Sources.

Internal Sources

Internal sources of recruitment refer to hiring employees within the organization through −

Promotions

Transfers

Former Employees

Internal Advertisements (Job Posting)

Employee Referrals

Previous Applicants

External Sources

External sources of recruitment refer to hiring employees outside the organization through −

Direct Recruitment

Employment Exchanges

Employment Agencies

Advertisements

Professional Associations

Campus Recruitment

Word of Mouth

Screening / Shortlisting

Screening starts after completion of the process of sourcing the candidates. Screening is the process of

filtering the applications of the candidates for further selection process.

Screening is an integral part of recruitment process that helps in removing unqualified or irrelevant

candidates, which were received through sourcing. The screening process of recruitment consists of

three steps −

Reviewing of Resumes and Cover Letters

Reviewing is the first step of screening candidates. In this process, the resumes of the candidates are

reviewed and checked for the candidates’ education, work experience, and overall background

matching the requirement of the job

While reviewing the resumes, an HR executive must keep the following points in mind, to ensure better

screening of the potential candidates −

Reason for change of job



Longevity with each organization

Long gaps in employment

Job-hopping

Lack of career progression

Conducting Telephonic or Video Interview

Conducting telephonic or video interviews is the second step of screening candidates. In this process,

after the resumes are screened, the candidates are contacted through phone or video by the hiring

manager. This screening process has two outcomes −

It helps in verifying the candidates, whether they are active and available.

It also helps in giving a quick insight about the candidate’s attitude, ability to answer interview

questions, and communication skills.

Identifying the top candidates

Identifying the top candidates is the final step of screening the resumes/candidates. In this process, the

cream/top layer of resumes are shortlisted, which makes it easy for the hiring manager to take a

decision. This process has the following three outcomes −

Shortlisting 5 to 10 resumes for review by the hiring managers

Providing insights and recommendations to the hiring manager

Helps the hiring managers to take a decision in hiring the right candidate

Evaluation and Control

Evaluation and control is the last stage in the process of recruitment. In this process, the effectiveness

and the validity of the process and methods are assessed. Recruitment is a costly process, hence it is

important that the performance of the recruitment process is thoroughly evaluated.

The costs incurred in the recruitment process are to be evaluated and controlled effectively. These

include the following −

Salaries to the Recruiters

Advertisements cost and other costs incurred in recruitment methods, i.e., agency fees.

Administrative expenses and Recruitment overheads

Overtime and Outstanding costs, while the vacancies remain unfilled

Cost incurred in recruiting suitable candidates for the final selection process

Time spent by the Management and the Professionals in preparing job description, job

specifications, and conducting interviews.

Finally, the question that is to be asked is, whether the recruitment methods used are valid or not? And

whether the recruitment process itself is effective or not? Statistical information on the costs incurred

for the process of recruitment should be effective.

Selection is the process of picking or choosing the right candidate, who is most suitable for a vacant job

position in an organization. In others words, selection can also be explained as the process of

interviewing the candidates and evaluating their qualities, which are required for a specific job and then

choosing the suitable candidate for the position.

The selection of a right applicant for a vacant position will be an asset to the organization, which will

be helping the organization in reaching its objectives.



Different authors define Selection in different ways. Here is a list of some of the definitions −

Employee selection is a process of putting a right applicant on a right job.

Selection of an employee is a process of choosing the applicants, who have the qualifications to

fill the vacant job in an organization.

Selection is a process of identifying and hiring the applicants for filling the vacancies in an

organization.

Employee selection is a process of matching organization’s requirements with the skills and the

qualifications of individuals.

A good selection process will ensure that the organization gets the right set of employees with the right

attitude.

Difference between Recruitment and Selection

The major differences between Recruitment and Selection are as follows −

Recruitment Selection

Recruitment is defined as the

process of identifying and making

the potential candidates to apply

for the jobs.

Selection is defined as the process of

choosing the right candidates for the

vacant positions.

Recruitment is called as a positive

process with its approach of

attracting as many candidates as

possible for the vacant jobs

Selection is called as a negative

process with its elimination or

rejection of as many candidates as

possible for identifying the right

candidate for the position.

Both recruitment and selection work hand in hand and both play a vital role in the overall growth of an

organization.

Importance of Selection

Selection is an important process because hiring good resources can help increase the overall

performance of the organization. In contrast, if there is bad hire with a bad selection process, then the

work will be affected and the cost incurred for replacing that bad resource will be high.

The purpose of selection is to choose the most suitable candidate, who can meet the requirements of the

jobs in an organization, who will be a successful applicant. For meeting the goals of the organization, it

is important to evaluate various attributes of each candidate such as their qualifications, skills,

experiences, overall attitude, etc. In this process, the most suitable candidate is picked after the

elimination of the candidates, who are not suitable for the vacant job.

The organization has to follow a proper selection process or procedure, as a huge amount of money is

spent for hiring a right candidate for a position. If a selection is wrong, then the cost incurred in

induction and training the wrong candidate will be a huge loss to the employer in terms of money,



effort, and also time. Hence, selection is very important and the process should be perfect for the

betterment of the organization.

Advantages of Selection

A good selection process offers the following advantages−

It is cost-effective and reduces a lot of time and effort.

It helps avoid any biasing while recruiting the right candidate.

It helps eliminate the candidates who are lacking in knowledge, ability, and proficiency.

It provides a guideline to evaluate the candidates further through strict verification and

reference-checking.

It helps in comparing the different candidates in terms of their capabilities, knowledge, skills,

experience, work attitude, etc.

A good selection process helps in selecting the best candidate for the requirement of a vacant position

in an organization.

Selection Process and Steps

As we have discussed that Selection is very important for any organization for minimizing the losses

and maximizing the profits. Hence the selection procedure should be perfect. A good selection process

should comprise the following steps −

Employment Interview − Employment interview is a process in which one-on-one session in

conducted with the applicant to know a candidate better. It helps the interviewer to discover the

inner qualities of the applicant and helps in taking a right decision.

Checking References − Reference checking is a process of verifying the applicant’s

qualifications and experiences with the references provided by him. These reference checks

help the interviewer understand the conduct, the attitude, and the behavior of the candidate as an

individual and also as a professional.

Medical Examination − Medical examination is a process, in which the physical and the mental

fitness of the applicants are checked to ensure that the candidates are capable of performing a

job or not. This examination helps the organization in choosing the right candidates who are

physically and mentally fit.

Final Selection − The final selection is the final process which proves that the applicant has

qualified in all the rounds of the selection process and will be issued an appointment letter.



A selection process with the above steps will help any organization in choosing and selecting the right

candidates for the right job.

Employee Induction and Placement

Placement is the actual posting of an employee to a specific job. It involves assigning a specific rank and

responsibility to an employee. Placement is an important human resource activity. If neglected, it may

create employee adjustment problems leading to absenteeism, turnover, accidents, poor performance,

etc. The employee will also suffer seriously. He may quit the organisation in frustration, complaining

bitterly about everything. Proper placement is, therefore, important to both the employee and the

organisation.

Placement, it should the remembered, should be made with as little disruption to the employee and

organisation as possible. To this end, new recruits must be oriented properly so that they become

productive contributors. There should be a conscious and determined effort to adapt the new recruit to

the organisation’s culture (the rules, jargon, customs and other traditions that clarify acceptable and

unacceptable behaviour in an organisation) by conveying to the employee how things are done and

what matters. When new employees know what is expected of them, they have better organisational

performance and less frustration and uncertainty.

The HR department may initiate the following steps while organising the induction programme:

1. Welcome to the organisation.

2.Explain about the company.

3. Show the location/department where the new recruit will work.

4. Give the company’s manual to the new recruit.

5. Provide details about various work groups and the extent of unionism within the company.

6. Give details about pay, benefits, holidays, leave, etc. Emphasise the importance of attendance

or punctuality.

7. Explain about future training opportunities and career prospects.

8. Clarify doubts, by encouraging the employee to come out with questions.

9. Take the employee on a guided tour of buildings, facilities, etc. Hand him over to his

supervisor.

Socialisation:

Socialisation is a process through which a new recruit begins to understand and accept the values, norms

and beliefs held by others in the organisation. HR department representatives help new recruits to

“internalise the way things are done in the organisation”. Orientation helps the newcomers to interact

freely with employees working at various levels and learn behaviours that are acceptable. Through such

formal and informal interaction and discussion, newcomers begin to understand how the

department/company is run, who holds power and who does not, who is politically active within the

department, how to behave in the company, what is expected of them, etc. In short, if the new recruits

wish to survive and prosper in their new work home, they must soon come to ‘know the ropes’.

Orientation programmes are effective socialisation tools because they help the employees to learn about

the job and perform things in the desired way.

Follow up:



Despite the best efforts of supervisors, certain dark areas may still remain in the orientation programme.

New hires may not have understood certain things. The supervisors, while covering a large ground, may

have ignored certain important matters. To overcome the resultant communication gaps, it is better to

use a supervisory checklist as shown in Box 11.1 and find out whether all aspects have been covered or

not. Follow up meetings could be held at fixed intervals, say after every three or six months on a face-to-

face basis. The basic purpose of such follow-up orientation is to offer guidance to employees on various

general as well as job-related matters – without leaving anything to chance. To improve orientation, the

company should make a conscious effort to obtain feedback from everyone involved in the programme.

There are several ways to get this kind of feedback: through roundtable discussions with new hires

after their first year on the job, through in-depth interviews with randomly selected employees and

superiors and through questionnaires for mass coverage of all recent recruits.

Importance

Proper placement and Induction is very important as they serve the following purposes:

1. Removes fear: A newcomer steps into an organisation as a stranger. He is new to the people,

workplace and works environment. He is not very sure about what he is supposed to do. Induction helps

a new employee overcome such fears and perform better on the job. It assists him in knowing more

about:

(a) The job, its content, policies, rules and regulations.

(b) The people with whom he is supposed to interact.

(c) The terms and conditions of employment.

2. Creates a good impression: Another purpose of induction is to make the newcomer feel at home and

develop a sense of pride in the organisation. Induction helps him to:

(a) Adjust and adapt to new demands of the job.

(b) Get along with people.

(c) Get off to a good start.

Through induction, a new recruit is able to see more clearly as to what he is supposed to do, how good

the colleagues are, how important is the job, etc. He can pose questions and seek clarifications on issues

relating to his job. Induction is a positive step, in the sense, it leaves a good impression on the company

and the people working there in the minds of new recruits. They begin to take pride in their work and are

more committed to their jobs.

Challenges

The challenges for organisations in induction and placement with the diversified workforce come in a

form of language, culture and different working method. The changing business scenario and workforce

trends have made employee retention a crucial problem that needs to be offset. An effective employee

induction program is one such tool that is used for a successful employee on boarding and employee

retention. The Employee Induction Program should be designed in such a way that it provides relevant

information to the employees. Provision of reality checks through surveys, feedbacks, and appraisals

help the employer ensure the effectiveness of the induction program. The companies that invest more

time and resources in induction enjoy the highest degree of employee engagement, which has a

significant impact on the company’s bottom line. [ Employee Induction ]

Socialisation of Employee



The socialisation of a new employee is a critical part of the induction and can reflect in the employee’s

satisfaction in their new working environment. Managers need to arrange a departmental meeting on the

first day of the new employee to formally introduce him to the team. Arrangements should also be made

for the new employee to visit other departments with which he needs to work closely in the course of his

duties.

Culture

Cultural fit is very important. Hence, briefing the new employee about the management philosophy and

the organisational culture is vital. New employees also need to be coached on organisational sensitivity,

grooming and business etiquette. Besides responsibility orientation and support goals, new members of

the family need to learn how to be an effective brand ambassador of the organisation.

Learning Challenges

Care should be taken that the new incumbent is not bombarded with details or bulldozed with an

overdose of talks and power point slides. A good corporate induction should incorporate case studies,

role plays, video films and simulated exercises that are fun and yet serve the purpose.

There are two methods of training which are as:

On the job methods

Off the job methods

1. ON THE JOB METHODS (OJT):

1.1 On the Job Training:

It is the responsibility of supervisors and managers to utilize available resources to train, qualify, and

develop their employees. On-the-job training (OJT) is one of the best training methods because it is

planned, organized, and conducted at the employee's worksite. OJT will generally be the primary

method used for broadening employee skills and increasing productivity. It is particularly appropriate

for developing proficiency skills unique to an employee's job - especially jobs that are relatively easy to

learn and require locally-owned equipment and facilities. Morale, productivity, and professionalism will

normally be high in those organizations that employ a sound OJT program. An analysis of the major job

requirements (identified in the position description and performance plan) and related knowledge’s,

skills, and abilities form the basis for setting up an OJT plan. To be most effective, an OJT plan should

include:

The subject to be covered;

Number of hours;

Estimated completion date; and

Method by which the training will be evaluated

To have a successful OJT program, supervisors need to assign a coach to each employee involved in

OJT. It is the responsibility of the coach to plan training carefully and conduct it effectively. Various on

the job training method include: I. Job Instruction Training (JIT):

Job Instruction Training (JIT) is a logical outgrowth of Job Hazard Analysis. It is a proven technique for

teaching new skills and safe, healthful work habits faster and more effectively. All new employees and

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those transferred to new jobs should receive JIT. One of the first steps is trainer selection – preferably a

supervisor or a skilled person within the department.

Regardless of who is selected, the trainer should:

Know the job in question thoroughly

Have leadership skills

Have a desire to teach others

Be friendly and cooperative

Have a professional attitude toward the job and other employees

1.2 Vestibule Training (Training Centre):

In the early 1800s, factory schools were created, due to the industrial revolution, in which workers were

trained in classrooms within the factory walls. The apprentice system was inadequate due to the number

of learners that had to be trained as the machines of the Industrial Revolution increased the ability of the

factory to produce goods. The factory owners needed trained workers quickly because there was a large

demand for the produced goods.

Towards the end of the 1800s, a method that combined the benefits of the classroom with the benefits of

on-the-job training, called vestibule training, became a popular form of training. The classroom was

located as close as conditions allowed to the department for which the workers were being trained. It

was furnished with the same machines as used in production. There were normally six to ten workers per

trainer, who were skilled workers or supervisors from the company.

1.3 Simulation Training:

Technical companies that are required to train employees on dangerous or expensive equipment are most

likely to benefit from simulation-based training. Simulations allow the user to observe the impact of

their choices without the outcomes having any impact on the real operation. Trainees can learn how to

respond to emergencies, how individual actions and decisions affect entire processes, and how to operate

complex pieces of equipment.

Figure 1. Simulated Airplane cockpit.

Example:

The airplane cockpit simulation takes on a new approach to simulation training. The user can observe

how all the components of the cockpit work together. This approach allows the user to gain a

perspective of the interactions and correlations between the numerous components contained in an

airplane cockpit.

1.3.1. Demonstration and examples:

This method is a visual display of how something works or how to do something. As an example, trainer

shows the trainees how to perform or how to do the tasks of the job. In order to be more effective,

demonstration method should be should be accompanied by the discussion or lecture method.

To carry out an effective demonstration, a trainer first prepares the lesson plan by breaking the task to be

performed into smaller modules, easily learned parts. Then, the trainer sequentially organizes those



modules and prepares an explanation for why that part is required. While performing the demonstration,

trainer.

Demonstrates the task by describing how to do, while doing.

Helps the focusing their attention on critical aspects of the task.

Tells the trainees what you will be doing so they understand what you will be showing them.

Explains why it should be carried out in that way.

The difference between the lecture method and the demonstration method is the level of involvement of

the trainee. In the lecture method, the more the trainee is involved, the more learning will occur.

The financial costs that occur in the demonstration method are as follows:

Cost of training facility for the program

Cost of materials that facilitate training

Food, travel, lodging for the trainees and the trainers

Compensation of time spent in training to trainers and trainees

Cost related to creating content, material

Cost related to the organization of the training

After completing the demonstration the trainer provide feedback, both positive and or negative, give the

trainee the opportunity to do the task and describe what he is doing and why.

1.3.2. Apprenticeship:

A major part of training time is spent on the on the job productive work. Each apprenticeship is given a

programme of assignments according to predetermined schedules which provides for efficient training in

trade skills. This method is appropriate for training in crafts, trades, and technical areas, especially when

proficiency in a job is the result of a relatively long training or apprenticeship period, e.g.; job of a crafts

man, a printer, a tool maker, and a mechanic. Etc.

2. OFF THE JOB METHODS:

2.1. Lecturers (or class room instructions) :

Lectures are regarding as one of the simplest ways of imparting knowledge to the trainees, especially

when facts, or principles, attitudes, theories and problem solving abilities are to be taught. Lectures are

formal organized talks by the training specialist, the formal superior or other individual specific topics.

The lecture method can be used for very large groups which are to be trained within a short time, thus

reducing the cost per trainee. Lectures are essential when it is a question of imparting technical or

special information of a complex nature.

2.2. Conference Method:

The conference training method is a good problem-solving approach. A group considers a specific

problem or issue and they work to reach agreement on statements or solutions.



Pros: There is a lot of trainee participation. The trainees build consensus and the trainer can use several

methods (lecture, panel, and seminar) to keep sessions interesting.

Cons: It can be difficult to control a group. Opinions generated at the conference may differ from the

manager‟s ideas, causing conflict.

2.3. Seminar:

Seminars often combine several group methods: lectures, discussions, conferences, demonstrations.

Pros: Group members are involved in the training. The trainer can use many group methods as part of

the seminar activity.

Cons: Planning is time-consuming. The trainer must have skill in conducting a seminar. More time is

needed to conduct a seminar than is needed for many other methods

2.4. Role Playing:

During a role play, the trainees assume roles and act out situations connected to the learning concepts. It

is good for customer service and sales training.

Pros: Trainees can learn possible results of certain behaviors in a classroom situation. They get an

opportunity to practice people skills. It is possible to experiment with many different approaches to a

situation without alienating any actual customers.

Cons: A lot of time is spent making a single point. Trainers must be skilled and creative in helping the

class learn from the situation. In some role play situations, only a few people get to practice while others

watch.

2.5. T Group:

T- Group Training is a technique of off the job training methods. It is a group experience designed to

provide maximum opportunity for the individuals to expose their behavior, give and take feedback and

experience new behavior and develop awareness about self and others. The t- group training is also

known as several names such as sensitivity training, action training, human capacity movement, group

dynamics, and awareness expertise and as forth.

This training involves development techniques to attempt to increase or improve human sensitivity and

awareness. The goal of this training is to helping trainees to improve and participate in human affairs.

The T-group training enables trainee to understand themselves and others, changed their attitude towards

self, others and groups role, increase their interpersonal skills and provide organizational improvement

as groups rather than individuals.

In this training, the numbers of trainees should be limited to 10 to 15 persons so that regular interaction

could happen throughout the training programme. Usually there is no leader, no planned agenda and

stated goal. The trainees can be given any assignment like case study, role play etc that leads the group

interaction. The participants would be encouraged to be thoughtful and understanding towards the

feeling of others. The trainees should feel secure to express their personal feeling and reactions to what

happening in the group and understand the others behavior and feelings. The emphasis is on face to face

interaction.

Merits of T-group training

1. The trainee learn more about themselves, specially their weakness and emotions



2. They understand that how they react to others and how others react to them

3. They discover how the groups work and identify human relation problems

4. Find out how to behave more effectively in inter-personal relationship and manage people through

means rather than power.

5. Developed more capable and genuine relations in which feelings are expressed openly.

6. Confront interpersonal problems directly to find out solution instead of avoiding them.

After training, trainees usually become more sensitive to others and open. Such training can also result

in improved performance and increased company‟s profit.

The demerits T-group training

1. During the training, the trainer often create stressful situation. In such situation, the training may do a

job of tearing apart people instead of bringing them together.

2. The changes trainees acquire during the training are tend to face out when trainee returns to c

insensitive environment of workplace.

3. This training may make the management trainee as sensitive towards others that they become

unwilling to take necessary hard decisions.

4. T group training proved less effective when it is applied ob technical professional.

5. Such training may make people frustrated and upset as many stressful situations are created during

this technique.

Some basic points to implement the T group training:

1. T-group training is more suitable for develop “organic” Organization. If such openness and flexible

organizational structure is not available, this training is not appropriate.

2. The participants should be selected on the basis of their emotional stability and anxiety tolerance

3. The participation should be strictly voluntary

4. The trainees should know in advance that what sort of training they are going to receive

5. The transfer of learning back to the Organization should be ensured.

6. In-Basket Method:

In-Basket Technique:

It provides trainees with a log of written text or information and requests, such as memos, messages, and

reports, which would be handled by manger, engineer, reporting officer & administrator.

Procedure of the In-basket Technique:

- In this technique, trainee is given some information about the role to be played such as, description,

responsibilities, general context about the role.



- The trainee is then given the log of materials that make up the in-basket and asked to respond to

materials within a particular time period.

- After all the trainees complete in-basket, a discussion with the trainer takes place.

- In this discussion the trainee describes the justification for the decisions.

- The trainer then provides feedback, reinforcing decisions made suitably or encouraging the trainee to

increase alternatives for those made unsuitably.

A variation on the technique is to run multiple, simultaneous in-baskets in which each trainee receives a

different but organized set of information. It is important that trainees must communicate with each

other to accumulate the entire information required to make a suitable decision.

This technique focuses on:

- Building decision making skills

- Assess and develops Knowledge, Skills and Attitudes (KSAs)

- Develops of communication and interpersonal skills

- Develops procedural knowledge

- Develops strategic knowledge

2.7. Incident Method:

This method was developed by Paul Pigors. It aims to develop the trainee in the areas of intellectual

ability, practical judgment and social awareness. Under this method each employee developed in a group

process .Incidents are prepared on the basis of actual situations which happened in different

organizations. Each Employee in the training group is asked to study the incident and to make short term

decisions in the role of a person who has to cope with the incident in the actual situation. Later, the

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group studies and discusses the incident and takes decisions relating to incident, based on the group

interaction and decisions taken by each member . Thus, this method is similar to a combination of case

method and in basket method.

2.8. Syndicate Method:

Syndicate is a group of individuals or organizations combined or making a joint effort to undertake some

specific duty or carry out specific transactions or negotiations. It is not actually one group that

constitutes the components of syndicate method.

This method is suitable for learning at a higher level. Therefore, this method was experimented, found

useful and widely used in teaching- learning situations, especially in top level management training.

Performance management can be defined as a systematic process to improve organizational

performance by developing the performance of individuals and teams working with an organization. It

is a means of getting better results from the organization, teams and individuals by understanding and

managing their performance within a framework of planned goals, standards and competence

requirements. In other words, performance management is the process of managing an organization’s

management strategy. This is how plans are converted into desired outcomes in organizations.

Performance management is a powerful tool

Performance management is a difficult role to play. Some people have difficulty when it comes to

performance evaluation. Performance management is about motivation and partnership. When this kind

of prospective is shared with your employees and they learn to see in that way, performance

management becomes a powerful tool that will help your team to become more successful.

Performance Management is NOT Human Resource Planning



Performance management is sometimes mistaken for human resources and personnel system, but it is

very different when it comes to execution. Performance management comprises of the methodologies,

processes, software tools, and systems that manage the performance of an organization,

whereas Human Resource Planning only takes care of individual employee’s work responsibilities

and work delivery.

The benefits of performance management extend to enhancing broad cross-functional involvement in

decision-making, and calculated risk-taking by providing greater visibility with accurate and relevant

information, to execute an organization’s strategy.

Performance management involves many managerial roles, which shows you must be a communicator,

a leader and a collaborator as well. Each individual in the team should understand exactly what their

responsibilities are and what the expectations from them are, and how to work accordingly to reach the

goals.

Scope and Uses

Many organizations jump from one improvement program to another, hoping that one of them will

provide that big, elusive result. Most managers would acknowledge that pulling levers for improvement

rarely results in a long-term sustained change. The key to improving is integrating and balancing

multiple programs sustainably. You cannot break the chain by simply implementing one improvement

program and exclude the other programs and initiatives.

There should be a strong bonding between the issues and the strategy of an organization. The manner in

which an organization implements performance management can be influenced by its history, goals,

mission, vision, strategic priorities, and the various problems it faces in its economic, political,

demographic and technological environment.

Performance management is not free floating. If we simplify a little, performance management only

exists to help the organization achieve its strategy in the best possible way to help the organization to

survive and compete in the market.

Performance management has no end point. Sometimes, for busy, hardworking managers it seems

like it is the reason we go through appraisal with staff and get the appraisal process done. Strong and

improving performance by individuals and excellent performance management by all managers who

are responsible to hold on with their teams are essential to achieving organizational goals.

Research has indicated that a great majority of individuals wants to perform excellently. When

managers manage their teams and individual’s performance skillfully, this motivates individuals to be

proud of what they do. Although this is a big generalization, it does look that most individuals really do

want to do a good job, making our leadership in performance management a real-time opportunity.

let us understand the process of performance management. Performance management is a process

management which consists of the following activities −



Plan − decide what to do and how to do it.

Act − carry out the work needed to implement the plan.

Monitor − carry out continuous checks on what is being done and measure outcomes in order to

assess progress in implementing the plan.

Review − consider what has been achieved and, in the light of this, establish what more needs to

be done and any corrective action required if performance is not in line with the plan.

This sequence of activities can be expressed as a continuous cycle as shown in the following figure −

Performance Management Cycle

Performance management can be described as a continuous process cycle as shown in the following

figure, which follows the plan–act–monitor–review sequence as described above.

Performance Management Sequence

The sequence of processes carried out in this cycle and the likely outcomes are illustrated in the

following figure −

Performance Management Activities

Let us now discuss the activities that take place in performance management. The main activities are −



Role definition, in which the key result areas and competence requirements are agreed.

The performance agreement, which defines expectations − what individuals have to achieve

in the form of objectives, how performance will be measured and the competences needed to

deliver the required results.

The performance improvement plan, which specifies what individuals should do to improve

their performance when necessary.

The personal development plan, which sets out the actions people should take to develop their

knowledge and skills and increase their levels of competence.

Managing performance throughout the year, when action is taken to implement the

performance agreement and performance improvement and personal development plans as

individuals carry on with their day-to-day work and their planned learning activities. It includes

a continuous process of providing feedback on performance, conducting informal progress

reviews, updated objectives and, where necessary, dealing with performance problems.

Performance review is an evaluation stage, where a review of performance over a period takes

place covering the aspects like achievements, progress and problems as the basis for the next

part of the continuous cycle – a revised performance agreement and performance improvement

and personal development plans. It can also lead to performance ratings.

Evaluation:

Performance Management in Action

Performance management should not be like a system based on periodical formal appraisals and

detailed documentation. The activities should be logical in the sense of contributing to an overall

approach in which all aspects of the performance management process are designed.

Thus, in every organization there is a need to declare why performance management is important, how

it works and how people will be affected by it. The declaration should have the visible and continuous

support of top management and should emphasize to develop a high-performance culture and integrate

organizational and individual goals.

Performance management recognizes the fact that we all create the view of the people who work for the

organization and it also makes sense to express that view explicitly against a framework of reference.

Meaning of Wage and Salary Administration:

Administration of employee compensation is called wage and salary administration.

According to D.S. Beach “Wage and Salary Administration refers to the establishment and

implementation of sound policies and practices of employee compensation.

It includes such areas as job evaluation, surveys of wage and salaries, analysis of relevant organisational

problems, development and maintenance of wage structure, establishing rules for administrating wages,

wage payment incentives, profit sharing, wage changes and adjustments, supplementary payments,

control of compensation costs and other related items.”

According to S.P. Robbins, The term ‘compensation administration’ or ‘wage and salary administration’

denotes the process of managing a company’s compensation programme. The goals of compensation

administration are to design a cost-effective pay structure that will attract, motivate and retain competent

employees.

Thus, wage and salary administration aims to establish and maintain an equitable wage and salary

structure and an equitable labour cost structure.



. Objectives of Wage and Salary Administration:

A sound plan of wage and salary administration seeks to achieve the following objectives:

(i) To establish a fair and equitable compensation offering similar pay for similar work.

(ii) To attract competent and qualified personnel.

(iii) To retain the present employees by keeping wage levels in nine with competitive units.

(iv) To keep labour and administrative costs in line with the ability of the organisation to pay.

(v) To improve motivation and morale of employees and to improve union management relations.

(vi) To project a good image of the company and to comply with legal needs relating to wages and

salaries.

(vii) To establish job sequences and lines of promotion wherever applicable.

(viii) To minimise chances of favouritism while assigning the wage rates.

According to D.S. Beach, wage and salary administration has four main purposes:

a. To recruit persons for a firm

b. To control payroll costs

c. To satisfy people, to reduce the incidence of quitting, grievances and fractions over pay

d. To motivate people to perform better.

3. Principles of Wage and Salary Administration:

The following principles should be observed in the wage and salary administration:

1. Wage policy should be developed keeping in view the interests of all concerned parties viz. employer,

employees, the consumers and the society.

2. Wage and salary plans should be sufficiently flexible or responsive to changes in internal and external

conditions of the organisation.

3. Efforts should be made to ensure that differences in pay for jobs are based on variations in job

requirements such as skill, responsibility, efforts and mental and physical requirements.

4. Wage and salary administration plans must always be consistent with overall organisational plans and

programmes.

5. Wage and salary administration plans must be in conformity with the social and economic objectives

of the country like attainment of equality in income distribution and controlling inflation etc.

6. These plans and programmes should be responsive to the changing local and national conditions.

7. Wage and salary plans should expedite and simplify administrative process.

8. Workers should be associated, as far as possible, in formulation and implementation of wage policy.



9. An adequate database and a proper organisational set up should be developed for compensation

determination and administration.

10. The general level of wages and salaries should be reasonably in line with that prevailing in the

labour market.

11. There should be a clearly established procedure for hearing and adjusting wage complaints. This

may be integrated with the regular grievance procedure, if it exists.

12. The workers should receive a guaranteed minimum wage to protect them against conditions beyond

their control.

13. Prompt and correct payments to the employees should be ensured and arrears of payment should not

accumulate.

14. The wage and salary payments must fulfill a wide variety of human needs including the need for self

actualisation.

15. Wage policy and programme should be reviewed and revised periodically in conformity with

changing needs. For revision of wages, a wage committee should always be preferred to the individual

judgement, in order to prevent bias of a manager.

4. Factors Affecting Wage Rate Decisions:

The wage payment is an important factor affecting the labour management relations. Workers are very

much concerned with the rates of wages as their standard of living is linked to the amount of

remuneration they get. Managements, however, do not come forward to pay higher wages because cost

of production goes up and profits decrease to that extent. A number of factors, thus, Influence the

remuneration payable to the employees. These factors can be categorised into (i) External Factors and

(ii) Internal Factors.

(A) External Factors:

1. Demand and Supply:

The labour market conditions or demand and supply forces operate at the national and local levels and

determine organisational wage structure. When the demand for a particular type of labour is more and

supply is less than the wages will be more.

On the other hand, if supply of labour is more and demand on the other hand, is less then persons will be

available at lower wage rates also. In the words of Mescon, ‘the supply and demand compensation

criterion is very closely related to the prevailing pay, comparable wage and ongoing wage concepts

since, in essence, all these remuneration standards are determined by immediate market forces and

factors.

2. Cost of Living:

The wage rates are directly influenced by cost of living of a place. The workers will accept a wage

which may ensure them a minimum standard of living. Wages will also be adjusted according to price

index number. The increase in price index will erode the purchasing power of workers and they will

demand higher wages. When the prices are stable then frequent wage increases may not be undertaken.

3. Trade Unions’ Bargaining Power:



The wage rates are also influenced by the bargaining power of trade unions. Stronger the trade union

higher will be the wage rates. The strength of a trade union is judged by its membership, financial

position and type of leadership. Union’s last weapon is strike which may also be used for getting wage

increases. If the workers are disorganised and disunited then employers will be successful in offering

low wages.

4. Government Legislation:

To improve the working conditions of workers, government may pass a legislation for fixing minimum

wages of workers. This may ensure them a minimum level of living. In underdeveloped countries

bargaining power of labour is weak and employers try to exploit workers by paying them low wages. In

India, Minimum Wages Act, 1948 was passed to empower government to fix minimum wages of

workers.

5. Psychological and Social Factors:

Psychologically the level of compensation is perceived as a measure of success in life.

Management should take into consideration the psychological needs of the employees while fixing the

wage rates so that the employees take pride in their work. Sociologically and ethically, the employees

want that the wage system should be equitable, just and fair. These factors should also be taken into

consideration while devising a wage programme.

6. Economy:

Economy also has its impact on wage and salary fixation. While it may be possible for some

organisations to thrive in a recession, there is no doubt that economy affects remuneration decisions. A

depressed economy will probably increase the labour supply. This, in turn, should lower the going wage

rate.

7. Technological Development:

With the rapid growth of industries, there is a shortage of skilled resources. The technological

developments have been affecting skill levels at faster rates. Thus, the wage rates of skilled employees

constantly change and an organisation has to keep its level upto the mark to suit the market needs.

8. Prevailing Market Rates:

No enterprise can ignore prevailing or comparative wage rates. The wage rates paid in the industry or

other concerns at the same place will form a base for fixing wage rates. If a concern pays low rates then

workers leave their jobs whenever they get a job somewhere else. It will not be possible to retain good

workers for long.

(B) Internal Factors:

1. Ability to Pay:

The ability to pay of an enterprise will influence wage rates to be paid. If the concern is running into

losses then it may not be able to pay higher wage rate. A profitable concern may pay more to attract

good workers. During the period of prosperity, workers are paid higher wages because management

wants to share the profits with labour.

2. Job Requirements:



Basic wages depend largely on the difficulty level, and physical and mental effort required in a

particular job. The relative worth of a job can be estimated through job evaluation. Simple, routine tasks

that can be done by many people with minimum skills receive relatively low pay. On the other hand,

complex, challenging tasks that can be done by few people with high skill levels generally receive high

pay.

3. Management Strategy:

The overall strategy which a company pursues should determine the remuneration to its employees.

Where the strategy of the organisation is to achieve rapid growth, remuneration should be higher than

what competitors pay. Where the strategy is to maintain and protect current earnings, because of the

declining fortunes of the company, remuneration level needs to be average or even below average.

4. Employee:

Wage Policy in India:

Wage policy refers to all systematic efforts of the government in relation to the national wage and salary

system.

It includes notifications, orders, legislations etc. to regulate the levels or structures of wages and salaries

with a view to achieve the economic and social objectives of the government. India aims at rapid

economic growth, industrial peace, price stability, equitable distribution of income and progressively

rising standard of living for the working class.

In order to realize these objectives, the Government of India has taken the following steps:

The first step towards the evolution of wage policy was the enactment of the Payment of Wages Act

1936. The main objective of the Act is to prohibit any delay or withholding of wages, legitimately due to

the employees. The next step was the passing of the Industrial Disputes Act, 1947 authorizing all the

state governments to set up industrial tribunals which would look into disputes relating to remuneration.

Another important development that led to the evolution of wage policy was the enactment of Minimum

Wages Act, 1948. The purpose of this Act is the fixation of minimum rates of wages to workers in

sweated industries, such as woolen, carpet making, flour mills, tobacco manufacturing, oil mills,

plantations, quarrying, mica agriculture and the like.

The Act was amended several times to make it applicable to more and more industries. In 1976, Equal

Remuneration Act was passed, which prohibits discrimination in matters relating to remuneration on the

basis of religion, region or sex.

The constitution of India also made it obligatory for the government to evolve a wage policy. Successive

five year plans have also devoted necessary attention to the need for a wage policy. Following the

recommendations of the First and second plans, the Government of India constituted wage boards for

important industries in the country.

A wage board is a tripartite body comprising representatives from the government, employers and

employees. Technicality speaking, a wage board can make only recommendations and wage policies are

normally implemented through persuasion.

Wages and allowances of central and State government employees are determined through the pay

commissions appointed by the appropriate government. So far the central government has appointed six



pay commissions. The disputes arising out of pay commission awards and their implementation are

decided by commissions of inquiry, adjudication machinery and the joint consultative machinery.

In spite of legislations, tribunals and boards disparities in wages and salaries still persist. In order to

correct such disparities, the Government of India appointed a committee headed by Mr. Bhootalingam in

1979.

The brief given to the committee was to suggest rational and integrated wage policy covering all sectors

of the economy. Soon after the committee submitted its report, it was strongly opposed by the trade

unions. It was criticised as anti labour and impracticable. Therefore, the Government shelved its report.

Wage Differentials:

As it is clear from the word itself, wage differential means differences or disparities in wages. Wages

differ in different employments or occupations, industries and localities and also between persons in the

same employment or grade.

Types of Wage Differentials:

Wage differentials may be:

1. Occupational Differentials:

The reasons for occupational wage differentials can be varying requirements of skill, knowledge,

demand supply situation, degree of responsibilities involved etc.

In countries adopting course of planned economic development, skill differentials play an important role

in manpower and employment programmes, for they considerably help in bringing about an adequate

supply of labour with skills corresponding to the requirements of product plans.

2. Inter Firm Differentials:

Inter firm differentials reflect the relative wage levels of workers in different plants in the same area and

occupation. The reasons for inter firm differentials are ability of employer to pay, employees’ bargaining

power, degree of unionisation, skills needs etc.

3. Inter-Area Differentials:

Such differentials arise when workers in the same industry, and in the same occupational group, but

living in different geographical areas are paid different wages. Varying requirements of skill,

knowledge, demand-supply situation are generally the reasons for such differentials. In some cases these

differentials are used to encourage planned mobility of labour.

4. Inter-personal Wage Differentials:

These differentials are between workers working in the same plant and the same occupation. These may

be due to differentials in sex, skills, age, knowledge or experience.

Significance of Wage Differentials:

Wage differentials play a pivotal role in a planned economy.

Its importance arises because of the following factors:



1. By providing an important incentive for labour mobility, wage differentials bring about a reallocation

of the labour force among different occupations industries and geographical areas in the economy!

2. Wage differentials enable full employment of the resources of the economy to be attained.

3. These facilitate desirable rate of economic progress.

Wage differentials have a great economic and social significance for they are directly related to the

allocation of the economic resources of a country including manpower, growth of the national income

and the pace of economic development.

The object of the Government is to minimise income inequalities and inequalities in the distribution of

wealth. Thus, wage differentials are not desirable in a socialistic pattern of society.

Grievance may be any genuine or imaginary feeling of dissatisfaction or injustice which an employee

experiences about his job and it’s nature, about the management policies and procedures. It must be

expressed by the employee and brought to the notice of the management and the organization.

Grievances take the form of collective disputes when they are not resolved. Also they will then lower the

morale and efficiency of the employees. Unattended grievances result in frustration, dissatisfaction, low

productivity, lack of interest in work, absenteeism, etc. In short, grievance arises when employees’

expectations are not fulfilled from the organization as a result of which a feeling of discontentment and

dissatisfaction arises. This dissatisfaction must crop up from employment issues and not from personal

issues.

Grievance may result from the following factors-

a. Improper working conditions such as strict production standards, unsafe workplace, bad relation

with managers, etc.

b. Irrational management policies such as overtime, transfers, demotions, inappropriate salary

structure, etc.

c. Violation of organizational rules and practices

The manager should immediately identify all grievances and must take appropriate steps to eliminate the

causes of such grievances so that the employees remain loyal and committed to their work. Effective

grievance management is an essential part of personnel management. The managers should adopt the

following approach to manage grievance effectively-

1. Quick action- As soon as the grievance arises, it should be identified and resolved. Training

must be given to the managers to effectively and timely manage a grievance. This will lower the

detrimental effects of grievance on the employees and their performance.

2. Acknowledging grievance- The manager must acknowledge the grievance put forward by the

employee as manifestation of true and real feelings of the employees. Acknowledgement by the

manager implies that the manager is eager to look into the complaint impartially and without any

bias. This will create a conducive work environment with instances of grievance reduced.

3. Gathering facts- The managers should gather appropriate and sufficient facts explaining the

grievance’s nature. A record of such facts must be maintained so that these can be used in later

stage of grievance redressal.

4. Examining the causes of grievance- The actual cause of grievance should be identified.

Accordingly remedial actions should be taken to prevent repetition of the grievance.



5. Decisioning- After identifying the causes of grievance, alternative course of actions should be

thought of to manage the grievance. The effect of each course of action on the existing and future

management policies and procedure should be analyzed and accordingly decision should be

taken by the manager.

6. Execution and review- The manager should execute the decision quickly, ignoring the fact, that

it may or may not hurt the employees concerned. After implementing the decision, a follow-up

must be there to ensure that the grievance has been resolved completely and adequately.

An effective grievance procedure ensures an amiable work environment because it redresses the

grievance to mutual satisfaction of both the employees and the managers. It also helps the management

to frame policies and procedures acceptable to the employees. It becomes an effective medium for the

employees to express t feelings, discontent and dissatisfaction openly and formally.

UNIT-IV

Corporate planning is creating a strategy for meeting business goals and improving your business. A

corporate plan is a roadmap that lays out your business’s plan of action. It is imperative to write down

goals and plan for how they will be achieved. Without planning, business operations can be haphazard,

and employees are rarely on the same page. When you focus on corporate planning, you set achievable

goals and bring your business one step closer to success.

Corporate Planning Definition

Corporate planning is the act of creating a long-term plan to improve your business. A corporate plan

examines a business’s internal capabilities and lays out strategies for how to use those capabilities to

improve the company and meet goals. Think of a corporate plan as a roadmap laying out everything you

need to do to achieve your future goals and reach new levels of success. The plan looks at each sector of

a business and makes sure that all parts are aligned, working towards similar goals. Corporate planning

is often looked at through a SWOT analysis (strengths, weaknesses, opportunities, threats). Further, it

usually starts with broad goals and works its way towards a much more detailed analysis, laying out

exactly how objectives will be reached. The following elements tend to be in a corporate plan:

Vision statement: You company’s vision statement broadly defines what goals you are working

to achieve. This statement is where you hone in on your business’s focus and what you want to

accomplish over the next three-to-five years. Think big, but remember that you will have to

create a strategic plan to back these goals up. So always make sure that your goals can be defined

as SMART goals (strategic, measurable, achievable, realistic and time-based).

Mission statement: A good mission statement lays out how you will achieve your vision

statement in a few sentences. It should illustrate what you plan to offer or sell, the market you are

in, and what makes your company unique. A mission statement is like an elevator pitch for your

entire strategy. It effectively communicates who you are and what you want to do in a few

lines.

Resources and scope: Part of corporate planning is taking stock of everything you currently

have going on in your organization. You'll look at your systems, products, employees, assets,

programs, divisions, accounting, finance and anything else that is critical to meeting your vision.

This part is almost like making a map of your current organization. It gives you a bird’s eye view

of everything your company has going on, which helps you create a plan for moving towards the

future.



Objectives: Next, you need to lay out your business objectives and how you plan to measure

success. This is a good time to hone in on that SMART planning to ensure that your objectives

are strategic, measurable, achievable, realistic and time-based. A vague goal such as “improve

brand reputation” is meaningless without a solid measure of success in place. A SMART goal

would instead be “improve brand reputation by placing the product in five positive media stories

by the end of Q1.”

Strategies: Now, it’s time to illustrate the strategies you plan to use to meet the objectives of

your company. These strategies could be anything from introducing new products to reducing

labor costs by 25 percent, depending on the goal. Your strategies should directly address the

objectives you have laid out in your corporate plan, and include a plan of action for how you will

implement them. These are the nitty-gritty plan details.

Corporate Planning Examples

The needs of your corporate planning will vary depending on your business and industry. For example,

for automotive giant GM, CEO Mary Barra’s corporate turnaround strategy included several objectives.

The main ones included becoming a leader in product and technology, growing the Cadillac brand,

continuing to grow the GM brand in China, continuing to improve GM’s finances and becoming more

efficient from an operational standpoint. These objectives are, of course, tailored to GM’s specific needs

as a company.

The following are a few examples of corporate planning objectives:

Financial objectives: Presumably, you went into business to make money. Your corporate

planning financial objectives are your money-oriented goals. These objectives can include

growing shareholder value, increasing profits and generating more revenue, to name a few.

However, not all financial objectives are about revenue and profits. There are also objectives on

cutting costs, balancing budgets, maintaining proper budget ratios and more. Another

financial objective example might be diversifying or creating new revenue streams. Your

specific goals will depend on your company’s individual needs, but most corporate plans include

at least a few financial objectives.

Customer objectives: Your customer objectives center on what you plan to do for your

customers. A customer-centered objective could be giving your consumers the best value for the

price they pay. Or, you could aim to improve product reliability. Another customer objective is

increasing your market share or offering the best possible customer service. These objectives will

vary, but they all center around meeting customer demand.

Internal objectives: It’s important to consider internal objectives when doing corporate

planning. Internal objectives include three areas: innovation, operations and customer service.

Innovation objectives might consist of improving a product or growing the percentage of sales of

a particular product. Another innovation objective might be to invest x dollars in the innovation

of products. Operations objectives focus on reducing waste, investing in quality, improving

workplace safety and reducing errors in manufacturing, to name a few. Another potential

operations objective is streamlining. Finally, customer service objectives center on improving

customer service, retention and satisfaction.

Learning and growth objectives: Every organization needs learning and growth objectives

when corporate planning. Learning and growth objectives are those that involve employees, your

company culture and your business’s organizational capacity. One possible example of a

learning and growth objective is boosting company culture, increasing employee retention and

improving productivity.



Why You Need Corporate Planning

Every business needs to do corporate planning. Creating a strategic plan gives your company direction

and actionable goals to see through. Without a plan, how will you know your priorities or where to place

your resources? A business with a plan achieves better results than one that does not have any direction.

The first reason you need corporate planning is because it provides clear objectives for your

organization. You wouldn’t leave for a road trip without mapping out your route. Similarly, it’s not

advisable to run a business without mapping out your route. Corporate planning puts on paper your

focus, and allows you to move forward with purpose. If your business is operating without a plan, you

will not be able to achieve your goals. Goals must be written down and broken into parts to be

efficiently achieved. Further, they must have clear timelines and deliverables. Corporate planning helps

you create a roadmap for success by asking you to answer three crucial questions:

What is the purpose of this business? (Mission)

Where do we want to go and what do we hope to achieve? (Vision)

How will we achieve our objectives? (Plan)

Another reason you need corporate planning is because it can help align your organization and its

values. A corporate plan does more than simply keep your employees on a timeline for success. It also

defines who you are as a company, and what you stand for. Likewise, when employees get a say in the

direction of a business and its objectives, your company culture will improve. Planning for the future

brings everyone to the table, promotes the exchange of ideas and creates effective solutions to

organizational problems. Making and sticking to a plan ensures that everyone in the organization is on

the same page. Small business owners especially will find that strategic planning is a great way to get

feedback from employees and improve overall culture.

Finally, a corporate plan helps communicate your brand’s message to employees, shareholders,

creditors, partners, investors and customers. Taking the time to hone your vision and mission statements

is extremely important for messaging, which is essentially communicating what you are and what you

want to be as a company. When your purpose as a company is boiled down to its bare bones and made

widely available, the message sticks. Everyone immediately knows what your brand stands for and who

it hopes to serve. A solid, clear corporate plan can be used to attract investors, customers and employees.

How to Do Corporate Planning

There are no hard-and-fast rules for how to do corporate planning. Each company has unique needs

when it comes to planning for the future. However, there are a few tips to keep in mind for corporate

planning success. First, gather input from employees from all different divisions of the company to go

into the plan. You can do this through an open forum or employee meetings.

Next, a crucially important step is to bring the right people together to write the plan. Even if you

involve many people in the brainstorming process, only a few should be involved in the actual writing

process. Wording can become arduous when too many people are involved. For the first draft of the

plan, it’s important not to obsess over every word. That will come later as you revise drafts and bring in

more players, such as your board members. At first, only concern yourself with getting the main ideas

and objectives written down.

After writing your first draft, show your employees, the board of directors and senior management as

soon as possible. They will all have valuable insight and feedback as to how you should move forward.

Ultimately, your corporate planning draft should include:



Executive summary: This is the quick version of what your corporate plan includes. An

executive summary should concisely cover your brand values, mission, vision, objectives and

key strategies.

Signature page: This page will include board member signatures, stating that they agree with

and are committed to your goals and vision.

Company description: Include your company’s biography, including its history, products and

any significant achievements.

Mission, vision and value statements: These statements outline who your company is, what

you do and where you plan to go in the future. This is where you communicate your most

important priorities.

Strategic analysis of your company: This is the section that covers a SWOT analysis

(strengths, weaknesses, opportunities, threats) of your company and its divisions. The strategic

analysis also lays out issues you plan to address in the coming months and years.

Strategies and tactics: In this section, lay out your strategies and how exactly you plan to

accomplish them.

Action plan: Your action plan lays out the responsibilities you plan to take on, as well as a

timeline for accomplishing them.

Budget and operations plans: Of course, to accomplish your company’s goals, you will need to

have money in the budget. Lay out the financials and your specific plan for operations.

Monitoring and evaluation: How do you plan to evaluate if your goals are being met? This

section illustrates how you will measure progress for your objectives.

Communication of the plan: A description of how you will communicate your corporate plan to

employees, stakeholders, customers and any other important parties.

SWOT ANALYSIS:

SWOT analysis (or SWOT matrix) is a strategic planning technique used to help a person or

organization identify strengths, weaknesses, opportunities, and threats related to business competition or

project planning. It is intended to specify the objectives of the business venture or project and identify

the internal and external factors that are favorable and unfavorable to achieving those objectives. Users

of a SWOT analysis often ask and answer questions to generate meaningful information for each

category to make the tool useful and identify their competitive advantage. SWOT has been described as

the tried-and-true tool of strategic analysis.

Strengths and weakness are frequently internally-related, while opportunities and threats commonly

focus on the external environment. The name is an acronym for the four parameters the technique

examines:

Strengths: characteristics of the business or project that give it an advantage over others.

Weaknesses: characteristics of the business that place the business or project at a disadvantage

relative to others.

Opportunities: elements in the environment that the business or project could exploit to its

advantage.

Threats: elements in the environment that could cause trouble for the business or project.

The degree to which the internal environment of the firm matches with the external environment is

expressed by the concept of strategic fit. Identification of SWOTs is important because they can inform

later steps in planning to achieve the objective. First, decision-makers should consider whether the

objective is attainable, given the SWOTs. If the objective is not attainable, they must select a different

objective and repeat the process.



Some authors credit SWOT to Albert Humphrey, who led a convention at the Stanford Research

Institute (now SRI International) in the 1960s and 1970s using data from Fortune

500 companies. However, Humphrey himself did not claim the creation of SWOT, and the origins

remain obscure.

SWOT analysis aims to identify the key internal and external factors seen as important to achieving an

objective. SWOT analysis groups key pieces of information into two main categories:

1. Internal factors — the strengths and weaknesses internal to the organization

2. External factors — the opportunities and threats presented by the environment external to the

organization

Analysis may view the internal factors as strengths or as weaknesses depending upon their effect on the

organization's objectives. What may represent strengths with respect to one objective may be

weaknesses (distractions, competition) for another objective. The factors may include all of the 4Psas

well as personnel, finance, manufacturing capabilities, and so on.

The external factors may include macroeconomic matters, technological change, legislation, and

sociocultural changes, as well as changes in the marketplace or in competitive position. The results are

often presented in the form of a matrix.

SWOT analysis is just one method of categorization and has its own weaknesses. For example, it may

tend to persuade its users to compile lists rather than to think about actual important factors in achieving

objectives. It also presents the resulting lists uncritically and without clear prioritization so that, for

example, weak opportunities may appear to balance strong threats.

It is prudent not to eliminate any candidate SWOT entry too quickly. The importance of individual

SWOTs will be revealed by the value of the strategies they generate. A SWOT item that produces

valuable strategies is important. A SWOT item that generates no strategies is not important.

The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may be

used in any decision-making situation when a desired end-state (objective) is defined. Examples

include non-profit organizations, governmental units, and individuals. SWOT analysis may also be used

in pre-crisis planning and preventive crisis management. SWOT analysis may also be used in creating a

recommendation during a viability study/survey.

Strategy building

SWOT analysis can be used effectively to build organizational or personal strategy. Steps necessary to

execute strategy-oriented analysis involve identification of internal and external factors (using the

popular 2x2 matrix), selection and evaluation of the most important factors, and identification of

relations existing between internal and external features. For instance, strong relations between strengths

and opportunities can suggest good conditions in the company and allow using an aggressive strategy.

On the other hand, strong interactions between weaknesses and threats could be analyzed as a potential

warning and advice for using a defensive strategy.

Matching and converting

One way of using SWOT is matching and converting. Matching is used to find competitive

advantage by matching the strengths to opportunities. Another tactic is to convert weaknesses or threats

into strengths or opportunities. An example of a conversion strategy is to find new markets. If the threats

or weaknesses cannot be converted, a company should try to minimize or avoid them.

Corporate planning

https://en.wikipedia.org/wiki/Marketing_mix



As part of the development of strategies and plans to enable the organization to achieve its objectives,

that organization will use a systematic/rigorous process known as corporate planning. SWOT

alongside PEST/PESTLE can be used as a basis for the analysis of business and environmental factors.

Set objectives — defining what the organization is going to do

Environmental scanning

Internal appraisals of the organization's SWOT — this needs to include an assessment of the

present situation as well as a portfolio of products/services and an analysis of the product/service

lifecycle

Analysis of existing strategies — this should determine relevance from the results of an

internal/external appraisal. This may include gap analysis of environmental factors

Strategic Issues defined — key factors in the development of a corporate plan that the organization

must address

Develop new/revised strategies — revised analysis of strategic issues may mean the objectives need

to change

Establish critical success factors — the achievement of objectives and strategy implementation

Preparation of operational, resource, projects plans for strategy implementation

Monitoring all results — mapping against plans, taking corrective action, which may mean

amending objectives/strategies.

Marketing

In many competitor analysis, marketers build detailed profiles of each competitor in the market,

focusing especially on their relative competitive strengths and weaknesses using SWOT analysis.

Marketing managers will examine each competitor's cost structure, sources of profits, resources and

competencies, competitive positioning and product differentiation, degree of vertical integration,

historical responses to industry developments, and other factors.

Marketing management often finds it necessary to invest in research to collect the data required to

perform accurate marketing analysis. Accordingly, management often conducts market research

(alternately marketing research) to obtain this information. Marketers employ a variety of techniques to

conduct market research, but some of the more common include:

Qualitative marketing research such as focus groups

Quantitative marketing research such as statistical surveys

Experimental techniques such as test markets

Observational techniques such as ethnographic (on-site) observation

Marketing managers may also design and oversee various environmental scanning and competitive

intelligence processes to help identify trends and inform the company's marketing analysis.

Below is an example SWOT analysis of a market position of a small management consultancy with

specialism in HRM.

Strengths Weaknesses Opportunities Threats

Reputation in

marketplace

Shortage of consultants

at operating level rather

than partner level

Well established

position with a well-

defined market niche

Large consultancies

operating at a minor

level



Expertise at partner

level in HRM

consultancy

Unable to deal with

multidisciplinary

assignments because of

size or lack of ability

Identified market for

consultancy in areas

other than HRM

Other small

consultancies looking to

invade the marketplace

STRATEGY:

Strategy formulation refers to the process of choosing the most appropriate course of action for the

realization of organizational goals and objectives and thereby achieving the organizational vision. The

process of strategy formulation basically involves six main steps. Though these steps do not follow a

rigid chronological order, however they are very rational and can be easily followed in this order.

1. Setting Organizations’ objectives - The key component of any strategy statement is to set the

long-term objectives of the organization. It is known that strategy is generally a medium for

realization of organizational objectives. Objectives stress the state of being there whereas

Strategy stresses upon the process of reaching there. Strategy includes both the fixation of

objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider

term which believes in the manner of deployment of resources so as to achieve the objectives.

While fixing the organizational objectives, it is essential that the factors which influence the

selection of objectives must be analyzed before the selection of objectives. Once the objectives

and the factors influencing strategic decisions have been determined, it is easy to take strategic

decisions.

2. Evaluating the Organizational Environment - The next step is to evaluate the general

economic and industrial environment in which the organization operates. This includes a review

of the organizations competitive position. It is essential to conduct a qualitative and quantitative

review of an organizations existing product line. The purpose of such a review is to make sure

that the factors important for competitive success in the market can be discovered so that the

management can identify their own strengths and weaknesses as well as their competitors’

strengths and weaknesses.

After identifying its strengths and weaknesses, an organization must keep a track of competitors’

moves and actions so as to discover probable opportunities of threats to its market or supply

sources.

3. Setting Quantitative Targets - In this step, an organization must practically fix the quantitative

target values for some of the organizational objectives. The idea behind this is to compare with

long term customers, so as to evaluate the contribution that might be made by various product

zones or operating departments.

4. Aiming in context with the divisional plans - In this step, the contributions made by each

department or division or product category within the organization is identified and accordingly

strategic planning is done for each sub-unit. This requires a careful analysis of macroeconomic

trends.



5. Performance Analysis - Performance analysis includes discovering and analyzing the gap

between the planned or desired performance. A critical evaluation of the organizations past

performance, present condition and the desired future conditions must be done by the

organization. This critical evaluation identifies the degree of gap that persists between the actual

reality and the long-term aspirations of the organization. An attempt is made by the organization

to estimate its probable future condition if the current trends persist.

6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of action

is actually chosen after considering organizational goals, organizational strengths, potential and

limitations as well as the external opportunities.

7. Strategy implementation is the translation of chosen strategy into organizational action so

as to achieve strategic goals and objectives. Strategy implementation is also defined as the

manner in which an organization should develop, utilize, and amalgamate organizational

structure, control systems, and culture to follow strategies that lead to competitive advantage and

a better performance. Organizational structure allocates special value developing tasks and roles

to the employees and states how these tasks and roles can be correlated so as maximize

efficiency, quality, and customer satisfaction-the pillars of competitive advantage. But,

organizational structure is not sufficient in itself to motivate the employees.

8. An organizational control system is also required. This control system equips managers with

motivational incentives for employees as well as feedback on employees and organizational

performance. Organizational culture refers to the specialized collection of values, attitudes,

norms and beliefs shared by organizational members and groups.

9. Following are the main steps in implementing a strategy:

Developing an organization having potential of carrying out strategy successfully.

Disbursement of abundant resources to strategy-essential activities.

Creating strategy-encouraging policies.

Employing best policies and programs for constant improvement.

Linking reward structure to accomplishment of results.

Making use of strategic leadership.

10. Excellently formulated strategies will fail if they are not properly implemented. Also, it is

essential to note that strategy implementation is not possible unless there is stability between

strategy and each organizational dimension such as organizational structure, reward structure,

resource-allocation process, etc.

11. Strategy implementation poses a threat to many managers and employees in an organization.

New power relationships are predicted and achieved. New groups (formal as well as informal)

are formed whose values, attitudes, beliefs and concerns may not be known. With the change in

power and status roles, the managers and employees may employ confrontation behaviour.

Strategy Evaluation is as significant as strategy formulation because it throws light on the efficiency and

effectiveness of the comprehensive plans in achieving the desired results. The managers can also assess

the appropriateness of the current strategy in todays dynamic world with socio-economic, political and

technological innovations. Strategic Evaluation is the final phase of strategic management.



The significance of strategy evaluation lies in its capacity to co-ordinate the task performed by

managers, groups, departments etc, through control of performance. Strategic Evaluation is

significant because of various factors such as - developing inputs for new strategic planning, the urge for

feedback, appraisal and reward, development of the strategic management process, judging the validity

of strategic choice etc.

The process of Strategy Evaluation consists of following steps-

1. Fixing benchmark of performance - While fixing the benchmark, strategists encounter

questions such as - what benchmarks to set, how to set them and how to express them. In order to

determine the benchmark performance to be set, it is essential to discover the special

requirements for performing the main task. The performance indicator that best identify and

express the special requirements might then be determined to be used for evaluation. The

organization can use both quantitative and qualitative criteria for comprehensive assessment of

performance. Quantitative criteria includes determination of net profit, ROI, earning per share,

cost of production, rate of employee turnover etc. Among the Qualitative factors are subjective

evaluation of factors such as - skills and competencies, risk taking potential, flexibility etc.

2. Measurement of performance - The standard performance is a bench mark with which the

actual performance is to be compared. The reporting and communication system help in

measuring the performance. If appropriate means are available for measuring the performance

and if the standards are set in the right manner, strategy evaluation becomes easier. But various

factors such as managers contribution are difficult to measure. Similarly divisional performance

is sometimes difficult to measure as compared to individual performance. Thus, variable

objectives must be created against which measurement of performance can be done. The

measurement must be done at right time else evaluation will not meet its purpose. For measuring

the performance, financial statements like - balance sheet, profit and loss account must be

prepared on an annual basis.

3. Analyzing Variance - While measuring the actual performance and comparing it with standard

performance there may be variances which must be analyzed. The strategists must mention the

degree of tolerance limits between which the variance between actual and standard performance

may be accepted. The positive deviation indicates a better performance but it is quite unusual

exceeding the target always. The negative deviation is an issue of concern because it indicates a

shortfall in performance. Thus in this case the strategists must discover the causes of deviation

and must take corrective action to overcome it.

4. Taking Corrective Action - Once the deviation in performance is identified, it is essential to

plan for a corrective action. If the performance is consistently less than the desired performance,

the strategists must carry a detailed analysis of the factors responsible for such performance. If

the strategists discover that the organizational potential does not match with the performance

requirements, then the standards must be lowered. Another rare and drastic corrective action is

reformulating the strategy which requires going back to the process of strategic management,

reframing of plans according to new resource allocation trend and consequent means going to the

beginning point of strategic management process

The strategy statement of a firm sets the firm’s long-term strategic direction and broad policy directions.

It gives the firm a clear sense of direction and a blueprint for the firm’s activities for the upcoming

years. The main constituents of a strategic statement are as follows:

1. Strategic Intent



An organization’s strategic intent is the purpose that it exists and why it will continue to exist,

providing it maintains a competitive advantage. Strategic intent gives a picture about what an

organization must get into immediately in order to achieve the company’s vision. It motivates the

people. It clarifies the vision of the vision of the company.

Strategic intent helps management to emphasize and concentrate on the priorities. Strategic

intent is, nothing but, the influencing of an organization’s resource potential and core

competencies to achieve what at first may seem to be unachievable goals in the competitive

environment. A well expressed strategic intent should guide/steer the development of strategic

intent or the setting of goals and objectives that require that all of organization’s competencies be

controlled to maximum value.

Strategic intent includes directing organization’s attention on the need of winning; inspiring

people by telling them that the targets are valuable; encouraging individual and team

participation as well as contribution; and utilizing intent to direct allocation of resources.

Strategic intent differs from strategic fit in a way that while strategic fit deals with harmonizing

available resources and potentials to the external environment, strategic intent emphasizes on

building new resources and potentials so as to create and exploit future opportunities.

2. Mission Statement

Mission statement is the statement of the role by which an organization intends to serve it’s

stakeholders. It describes why an organization is operating and thus provides a framework within

which strategies are formulated. It describes what the organization does (i.e., present

capabilities), who all it serves (i.e., stakeholders) and what makes an organization unique (i.e.,

reason for existence).

A mission statement differentiates an organization from others by explaining its broad scope of

activities, its products, and technologies it uses to achieve its goals and objectives. It talks about

an organization’s present (i.e., “about where we are”).

For instance, Microsoft’s mission is to help people and businesses throughout the world to

realize their full potential. Wal-Mart’s mission is “To give ordinary folk the chance to buy the

same thing as rich people.” Mission statements always exist at top level of an organization, but

may also be made for various organizational levels. Chief executive plays a significant role in

formulation of mission statement. Once the mission statement is formulated, it serves the

organization in long run, but it may become ambiguous with organizational growth and

innovations.

In today’s dynamic and competitive environment, mission may need to be redefined. However,

care must be taken that the redefined mission statement should have original

fundamentals/components. Mission statement has three main components-a statement of mission

or vision of the company, a statement of the core values that shape the acts and behaviour of the

employees, and a statement of the goals and objectives.

Features of a Mission

a. Mission must be feasible and attainable. It should be possible to achieve it.

b. Mission should be clear enough so that any action can be taken.

c. It should be inspiring for the management, staff and society at large.



d. It should be precise enough, i.e., it should be neither too broad nor too narrow.

e. It should be unique and distinctive to leave an impact in everyone’s mind.

f. It should be analytical,i.e., it should analyze the key components of the strategy.

g. It should be credible, i.e., all stakeholders should be able to believe it.

3. Vision

A vision statement identifies where the organization wants or intends to be in future or where it

should be to best meet the needs of the stakeholders. It describes dreams and aspirations for

future. For instance, Microsoft’s vision is “to empower people through great software, any time,

any place, or any device.” Wal-Mart’s vision is to become worldwide leader in retailing.

A vision is the potential to view things ahead of themselves. It answers the question “where we

want to be”. It gives us a reminder about what we attempt to develop. A vision statement is for

the organization and it’s members, unlike the mission statement which is for the

customers/clients. It contributes in effective decision making as well as effective business

planning. It incorporates a shared understanding about the nature and aim of the organization and

utilizes this understanding to direct and guide the organization towards a better purpose. It

describes that on achieving the mission, how the organizational future would appear to be.

1. An effective vision statement must have following features-

a. It must be unambiguous.

b. It must be clear.

c. It must harmonize with organization’s culture and values.

d. The dreams and aspirations must be rational/realistic.

e. Vision statements should be shorter so that they are easier to memorize.

In order to realize the vision, it must be deeply instilled in the organization, being owned and

shared by everyone involved in the organization.

2. Goals and Objectives

A goal is a desired future state or objective that an organization tries to achieve. Goals specify in

particular what must be done if an organization is to attain mission or vision. Goals make

mission more prominent and concrete. They co-ordinate and integrate various functional and

departmental areas in an organization. Well made goals have following features-

a. These are precise and measurable.

b. These look after critical and significant issues.

c. These are realistic and challenging.

d. These must be achieved within a specific time frame.

e. These include both financial as well as non-financial components.

Objectives are defined as goals that organization wants to achieve over a period of time. These

are the foundation of planning. Policies are developed in an organization so as to achieve these

objectives. Formulation of objectives is the task of top level management. Effective objectives

have following features-



f. These are not single for an organization, but multiple.

g. Objectives should be both short-term as well as long-term.

h. Objectives must respond and react to changes in environment, i.e., they must be flexible.

i. These must be feasible, realistic and operational.

CPM:

Critical path is the sequential activities from start to the end of a project. Although many projects have

only one critical path, some projects may have more than one critical paths depending on the flow logic

used in the project. If there is a delay in any of the activities under the critical path, there will be a delay

of the project deliverables. Most of the times, if such delay is occurred, project acceleration or re-

sequencing is done in order to achieve the deadlines. Critical path method is based on mathematical

calculations and it is used for scheduling project activities. This method was first introduced in 1950s

as a joint venture between Remington Rand Corporation and DuPont Corporation. The initial critical

path method was used for managing plant maintenance projects. Although the original method was

developed for construction work, this method can be used for any project where there are

interdependent activities.

In the critical path method, the critical activities of a program or a project are identified. These are the

activities that have a direct impact on the completion date of the project.

Key Steps in Critical Path Method

Let's have a look at how critical path method is used in practice. The process of using critical path

method in project planning phase has six steps.

Step 1: Activity specification

You can use the Work Breakdown Structure (WBS) to identify the activities involved in the project.

This is the main input for the critical path method.

In activity specification, only the higher-level activities are selected for critical path method.

When detailed activities are used, the critical path method may become too complex to manage and

maintain.

Step 2: Activity sequence establishment

In this step, the correct activity sequence is established. For that, you need to ask three questions for

each task of your list.

Which tasks should take place before this task happens.



Which tasks should be completed at the same time as this task.

Which tasks should happen immediately after this task.

Step 3: Network diagram

Once the activity sequence is correctly identified, the network diagram can be drawn (refer to the

sample diagram above).

Although the early diagrams were drawn on paper, there are a number of computer softwares, such as

Primavera, for this purpose nowadays.

Step 4: Estimates for each activity

This could be a direct input from the WBS based estimation sheet. Most of the companies use 3-point

estimation method or COCOMO based (function points based) estimation methods for tasks estimation.

You can use such estimation information for this step of the process.

Step 5: Identification of the critical path

For this, you need to determine four parameters of each activity of the network.

Earliest start time (ES) - The earliest time an activity can start once the previous dependent

activities are over.

Earliest finish time (EF) - ES + activity duration.

Latest finish time (LF) - The latest time an activity can finish without delaying the project.

Latest start time (LS) - LF - activity duration.

The float time for an activity is the time between the earliest (ES) and the latest (LS) start time or

between the earliest (EF) and latest (LF) finish times.

During the float time, an activity can be delayed without delaying the project finish date.

The critical path is the longest path of the network diagram. The activities in the critical path have an

effect on the deadline of the project. If an activity of this path is delayed, the project will be delayed.

In case if the project management needs to accelerate the project, the times for critical path activities

should be reduced.

Step 6: Critical path diagram to show project progresses

Critical path diagram is a live art fact. Therefore, this diagram should be updated with actual values

once the task is completed.

This gives more realistic figure for the deadline and the project management can know whether they are

on track regarding the deliverables.

Advantages of Critical Path Method

Following are advantages of critical path methods:

Offers a visual representation of the project activities.

Presents the time to complete the tasks and the overall project.

Tracking of critical activities.

Conclusion



Critical path identification is required for any project-planning phase. This gives the project

management the correct completion date of the overall project and the flexibility to float activities.

A critical path diagram should be constantly updated with actual information when the project

progresses in order to refine the activity length/project duration predictions.

PERT:

Before any activity begins related to the work of a project, every project requires an advanced, accurate

time estimate. Without an accurate estimate, no project can be completed within the budget and the

target completion date.

Developing an estimate is a complex task. If the project is large and has many stakeholders, things can

be more complex.

Therefore, there have been many initiatives to come up with different techniques for estimation phase

of the project in order to make the estimation more accurate.

PERT (Program Evaluation and Review Technique) is one of the successful and proven methods

among the many other techniques, such as, CPM, Function Point Counting, Top-Down Estimating,

WAVE, etc.

PERT was initially created by the US Navy in the late 1950s. The pilot project was for developing

Ballistic Missiles and there have been thousands of contractors involved.

After PERT methodology was employed for this project, it actually ended two years ahead of its initial

schedule.

The PERT Basics

At the core, PERT is all about management probabilities. Therefore, PERT involves in many simple

statistical methods as well.

Sometimes, people categorize and put PERT and CPM together. Although CPM (Critical Path Method)

shares some characteristics with PERT, PERT has a different focus.

Same as most of other estimation techniques, PERT also breaks down the tasks into detailed activities.

Then, a Gantt chart will be prepared illustrating the interdependencies among the activities. Then,

a network of activities and their interdependencies are drawn in an illustrative manner.

In this map, a node represents each event. The activities are represented as arrows and they are drawn

from one event to another, based on the sequence.

Next, the Earliest Time (TE) and the Latest Time (TL) are figured for each activity and identify the

slack time for each activity.

When it comes to deriving the estimates, the PERT model takes a statistical route to do that. We will

cover more on this in the next two sections.

Following is an example PERT chart:



The Three Chances

There are three estimation times involved in PERT; Optimistic Time Estimate, Most Likely Time

Estimate , and Pessimistic Time Estimate.

In PERT, these three estimate times are derived for each activity. This way, a range of time is given for

each activity with the most probable value,.

Following are further details on each estimate:

1. Optimistic Time

This is the fastest time an activity can be completed. For this, the assumption is made that all the

necessary resources are available and all predecessor activities are completed as planned.

2. Most Likely Time

Most of the times, project managers are asked only to submit one estimate. In that case, this is the

estimate that goes to the upper management.

3. Pessimistic Time

This is the maximum time required to complete an activity. In this case, it is assumed that many things

go wrong related to the activity. A lot of rework and resource unavailability are assumed when this

estimation is derived.

The PERT Mathematics

BETA probability distribution is what works behind PERT. The expected completion time (E) is

calculated as below:

E = (TOPT + 4 x TLIEKLY + TPESS) / 6

At the same time, the possible variance (V) of the estimate is calculated as below:

V = (TPESS - TOPT)^2 / 6^2

Now, following is the process we follow with the two values:

For every activity in the critical path, E and V are calculated.

Then, the total of all Es are taken. This is the overall expected completion time for the project.



Now, the corresponding V is added to each activity of the critical path. This is the variance for

the entire project. This is done only for the activities in the critical path as only the critical path

activities can accelerate or delay the project duration.

Then, standard deviation of the project is calculated. This equals to the square root of the

variance (V).

Now, the normal probability distribution is used for calculating the project completion time with

the desired probability.

Conclusion

The best thing about PERT is its ability to integrate the uncertainty in project times estimations into its

methodology.

It also makes use of many assumption that can accelerate or delay the project progress. Using PERT,

project managers can have an idea of the possible time variation for the deliveries and offer delivery

dates to the client in a safer manner.

UNIT-V

MRP

Concept of MRP:

Independent vs. Dependent demand, Lumpy demand, Lead time, Common use items and Time phasing

Independent vs. Dependent demand

Independent Demand: An inventory of an item is said to be falling into the category of independent

demand when the demand for such an item is not dependent upon the demand for another item. Finished

goods Items, which are ordered by External Customers or manufactured for stock and sale, are called

independent demand items.

Dependent Demand: If the demand for inventory of an item is dependent upon another item, such

demands are categorized as dependant demand. Raw materials and component inventories are dependent

upon the demand for Finished Goods and hence can be called as Dependant demand inventories.

Lumpy Demand

Manufacturing is often done intermittently in lots or models of one or the other kind. The components or

parts of a finished product are only required during the manufacturing of the product. Therefore, there

could be huge demands for inventory occasionally and none at other times, which makes the demand

‘lumpy’. When the demand comes in large gaps, it is called lumpy demand. MRP plays a great role in

dealing with lumpy demand-driven inventory situations.

Lead Time

The amount of time that elapses between when a process starts and when it is completed. Lead time is

examined closely in manufacturing, supply chain management and project management, as companies



want to reduce the amount of time it takes to deliver products to the market. In business, lead time

minimization is normally preferred.

Common Use Items

In case of manufacturing of products, one raw material is generally used to manufacture more than one

type of component. For instance, finished product X is to be manufactured and for which component A

is needed, which further requires component B, component B requiring other three components of which

C needs D and D needs E, which could be a raw material. The end item E is also needed to produce N, S

and T, and therefore, E manufactures two varied components of the finished product X. The MRP is

responsible for collecting these common use items from varied products to influence economies in

ordering raw materials and manufacturing components.

Time Phasing

This signifies adding time schedule to material inventory position by recording and storing details on

either planning periods or particular dates, with which the relevant quantities are linked. These details

could be expanded by incorporating data on demand and availability of materials.

SIX SIGMA

Six Sigma is a highly disciplined process that helps us focus on developing and delivering near-perfect

products and services.

Features of Six Sigma

Six Sigma's aim is to eliminate waste and inefficiency, thereby increasing customer satisfaction

by delivering what the customer is expecting.

Six Sigma follows a structured methodology, and has defined roles for the participants.

Six Sigma is a data driven methodology, and requires accurate data collection for the processes

being analyzed.

Six Sigma is about putting results on Financial Statements.

Six Sigma is a business-driven, multi-dimensional structured approach for −

o Improving Processes

o Lowering Defects

o Reducing process variability

o Reducing costs

o Increasing customer satisfaction

o Increased profits

The word Sigma is a statistical term that measures how far a given process deviates from perfection.

The central idea behind Six Sigma: If you can measure how many "defects" you have in a process, you

can systematically figure out how to eliminate them and get as close to "zero defects" as possible and

specifically it means a failure rate of 3.4 parts per million or 99.9997% perfect.



Key Concepts of Six Sigma

At its core, Six Sigma revolves around a few key concepts.

Critical to Quality − Attributes most important to the customer.

Defect − Failing to deliver what the customer wants.

Process Capability − What your process can deliver.

Variation − What the customer sees and feels.

Stable Operations − Ensuring consistent, predictable processes to improve what the customer

sees and feels.

Design for Six Sigma − Designing to meet customer needs and process capability.

Our Customers Feel the Variance, Not the Mean. So Six Sigma focuses first on reducing process

variation and then on improving the process capability.

Myths about Six Sigma

There are several myths and misunderstandings surrounding Six Sigma. Some of them few are given

below −

Six Sigma is only concerned with reducing defects.

Six Sigma is a process for production or engineering.

Six Sigma cannot be applied to engineering activities.

Six Sigma uses difficult-to-understand statistics.

Six Sigma is just training.

Benefits of Six Sigma

Six Sigma offers six major benefits that attract companies −

Generates sustained success

Sets a performance goal for everyone

Enhances value to customers

Accelerates the rate of improvement

Promotes learning and cross-pollination

Executes strategic change

Origin of Six Sigma

Six Sigma originated at Motorola in the early 1980s, in response to achieving 10X reduction in

product-failure levels in 5 years.

Engineer Bill Smith invented Six Sigma, but died of a heart attack in the Motorola cafeteria in

1993, never knowing the scope of the craze and controversy he had touched off.



Six Sigma is based on various quality management theories (e.g. Deming's 14 point for

management, Juran's 10 steps on achieving quality).

There are three key elements of Six Sigma Process Improvement −

Customers

Processes

Employees

The Customers

Customers define quality. They expect performance, reliability, competitive prices, on-time delivery,

service, clear and correct transaction processing and more. This means it is important to provide what

the customers need to gain customer delight.

The Processes

Defining processes as well as defining their metrics and measures is the central aspect of Six Sigma.

In a business, the quality should be looked from the customer's perspective and so we must look at a

defined process from the outside-in.

By understanding the transaction lifecycle from the customer's needs and processes, we can discover

what they are seeing and feeling. This gives a chance to identify weak areas with in a process and then

we can improve them.

The Employees

A company must involve all its employees in the Six Sigma program. Company must provide

opportunities and incentives for employees to focus their talents and ability to satisfy customers.

It is important to Six Sigma that all the team members should have a well-defined role with measurable

objectives.

Six Sigma has two key methodologies −

DMAIC − It refers to a data-driven quality strategy for improving processes. This methodology

is used to improve an existing business process.

DMADV − It refers to a data-driven quality strategy for designing products & processes. This

methodology is used to create new product designs or process designs in such a way that it

results in a more predictable, mature and defect free performance.

There is one more methodology called DFSS − Design For Six Sigma. DFSS is a data-driven quality

strategy for designing or redesigning a product or service from the ground up.

Sometimes a DMAIC project may turn into a DFSS project because the process in question requires

complete redesign to bring about the desired degree of improvement.

DMAIC Methodology

This methodology consists of the following five steps.

Define --> Measure --> Analyze --> Improve -->Control



Define − Define the problem or project goal that needs to be addressed.

Measure − Measure the problem and process from which it was produced.

Analyze − Analyze data and process to determine root causes of defects and opportunities.

Improve − Improve the process by finding solutions to fix, diminish, and prevent future

problems.

Control − Implement, control, and sustain the improvements solutions to keep the process on

the new course.

We will discuss more on DMAIC Methodology in the subsequent chapters.

DMADV Methodology

This methodology consists of five steps −

Define --> Measure --> Analyze --> Design -->Verify

Define − Define the Problem or Project Goal that needs to be addressed.

Measure − Measure and determine customers needs and specifications.

Analyze − Analyze the process to meet the customer needs.

Design − Design a process that will meet customer needs.

Verify − Verify the design performance and ability to meet customer needs.

TQM: Total quality management (TQM) consists of organization-wide efforts to "install and make

permanent a climate where employees continuously improve their ability to provide on demand products

and services that customers will find of particular value. "Total" emphasizes that departments in addition

to production (for example sales and marketing, accounting and finance, engineering and design) are

obligated to improve their operations; "management" emphasizes that executives are obligated to

actively manage quality through funding, training, staffing, and goal setting. While there is no widely

agreed-upon approach, TQM efforts typically draw heavily on the previously developed tools and

techniques of quality control. TQM enjoyed widespread attention during the late 1980s and early 1990s

before being overshadowed by ISO 9000, Lean manufacturing, and Six Sigma.

In the late 1970s and early 1980s, the developed countries of North America and Western

Europe suffered economically in the face of stiff competition from Japan's ability to produce high-

quality goods at competitive cost. For the first time since the start of the Industrial Revolution, the

United Kingdom became a net importer of finished goods. The United States undertook its own soul-

searching, expressed most pointedly in the television broadcast of If Japan Can... Why Can't We? Firms

began reexamining the techniques of quality control invented over the past 50 years and how those

techniques had been so successfully employed by the Japanese. It was in the midst of this economic

turmoil that TQM took root.

The exact origin of the term "total quality management" is uncertain.It is almost certainly inspired

by Armand V. Feigenbaum's multi-edition book Total Quality Control(OCLC 299383303) and Kaoru

Ishikawa's What Is Total Quality Control? The Japanese Way (OCLC 11467749). It may have been first

coined in the United Kingdom by the Department of Trade and Industry during its 1983 "National

Quality Campaign". Or it may have been first coined in the United States by the Naval Air Systems

Command to describe its quality-improvement efforts in 1985.

Development in the United States

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In the spring of 1984, an arm of the United States Navy asked some of its civilian researchers to

assess statistical process control and the work of several prominent quality consultants and to make

recommendations as to how to apply their approaches to improve the Navy's operational

effectiveness. The recommendation was to adopt the teachings of W. Edwards Deming. The Navy

branded the effort "Total Quality Management" in 1985.

From the Navy, TQM spread throughout the US Federal Government, resulting in the following:

The creation of the Malcolm Baldrige National Quality Award in August 1987

The creation of the Federal Quality Institute in June 1988

The adoption of TQM by many elements of government and the armed forces, including the United

States Department of Defense, United States Army, and United States Coast Guard

The US Environmental Protection Agency's Underground Storage Tanks program, which was

established in 1985, also employed Total Quality Management to develop its management style. The

private sector followed suit, flocking to TQM principles not only as a means to recapture market share

from the Japanese, but also to remain competitive when bidding for contracts from the Federal

Government since "total quality" requires involving suppliers, not just employees, in process

improvement efforts.

Features]

There is no widespread agreement as to what TQM is and what actions it requires of

organizations however a review of the original United States Navy effort gives a rough understanding of

what is involved in TQM.

The key concepts in the TQM effort undertaken by the Navy in the 1980s include:

"Quality is defined by customers' requirements."

"Top management has direct responsibility for quality improvement."

"Increased quality comes from systematic analysis and improvement of work processes."

"Quality improvement is a continuous effort and conducted throughout the organization."

The Navy used the following tools and techniques:

The PDCA cycle to drive issues to resolution

Ad hoc cross-functional teams (similar to quality circles) responsible for addressing immediate

process issues

Standing cross-functional teams responsible for the improvement of processes over the long term

Active management participation through steering committees

Use of the Seven Basic Tools of Quality to analyze quality-related issues

Notable definitions]

While there is no generally accepted definition of TQM, several notable organizations have attempted to

define it. These include:

United States Department of Defense (1988

"Total Quality Management (TQM) in the Department of Defense is a strategy for continuously

improving performance at every level, and in all areas of responsibility. It combines fundamental

management techniques, existing improvement efforts, and specialized technical tools under a

disciplined structure focused on continuously improving all processes. Improved performance is directed

at satisfying such broad goals as cost, quality, schedule, and mission need and suitability. Increasing

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user satisfaction is the overriding objective. The TQM effort builds on the pioneering work of Dr. W. E.

Deming, Dr. J. M. Juran, and others, and benefits from both private and public sector experience with

continuous process improvement.

British Standards Institution standard BS 7850-1:1992

"A management philosophy and company practices that aim to harness the human and material

resources of an organization in the most effective way to achieve the objectives of the organization.

International Organization for Standardization standard ISO 8402:1994

"A management approach of an organisation centred on quality, based on the participation of all its

members and aiming at long term success through customer satisfaction and benefits to all members of

the organisation and society.

The American Society for Qualityedit]

"A term first used to describe a management approach to quality improvement. Since then, TQM has

taken on many meanings. Simply put, it is a management approach to long-term success through

customer satisfaction. TQM is based on all members of an organization participating in improving

processes, products, services and the culture in which they work. The methods for implementing this

approach are found in the teachings of such quality leaders as Philip B. Crosby, W. Edwards

Deming, Armand V. Feigenbaum, Kaoru Ishikawa and Joseph M. Juran.

Standards

During the 1990s, standards bodies in Belgium, France, Germany, Turkey, and the United Kingdom

attempted to standardize TQM. While many of these standards have since been explicitly withdrawn,

they all are effectively superseded by ISO 9000:

Total Quality Management: Guide to Management Principles, London, England: British Standards

Institution, 1992, ISBN 9780580211560, OCLC 655881602, BS 7850

Electronic Components Committee (1994), Guide to Total Quality Management (TQM) for CECC-

Approved Organizations, Brussels, Belgium: European Committee for Electrotechnical

Standardization, CECC 00 806 Issue 1

System zur Zukunftssicherung: Total Quality Management (TQM), Düsseldorf, Germany: Verein

Deutscher Ingenieure, 1996, OCLC 632959402, VDI 5500

Total Quality and Marketing/Management Tools, Paris, France: AFNOR, 1998, FD X50-680

Total Quality Management: Guide to Management Principles, Turkish Standards Institution (TSE),

2006, TS 13133

CMM: What is Capability Maturity Model?

The Software Engineering Institute (SEI) Capability Maturity Model (CMM) specifies an increasing

series of levels of a software development organization. The higher the level, the better the software

development process, hence reaching each level is an expensive and time-consuming process. Levels of

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Level One :Initial - The software process is characterized as inconsistent, and occasionally

even chaotic. Defined processes and standard practices that exist are abandoned during a crisis.

Success of the organization majorly depends on an individual effort, talent, and heroics. The

heroes eventually move on to other organizations taking their wealth of knowledge or lessons

learnt with them.

Level Two: Repeatable - This level of Software Development Organization has a basic and

consistent project management processes to track cost, schedule, and functionality. The process

is in place to repeat the earlier successes on projects with similar applications. Program

management is a key characteristic of a level two organization.

Level Three: Defined - The software process for both management and engineering activities

are documented, standardized, and integrated into a standard software process for the entire

organization and all projects across the organization use an approved, tailored version of the

organization's standard software process for developing,testing and maintaining the application.

Level Four: Managed - Management can effectively control the software development effort

using precise measurements. At this level, organization set a quantitative quality goal for both

software process and software maintenance. At this maturity level, the performance of processes

is controlled using statistical and other quantitative techniques, and is quantitatively predictable.

Level Five: Optimizing - The Key characteristic of this level is focusing on continually

improving process performance through both incremental and innovative technological

improvements. At this level, changes to the process are to improve the process performance and

at the same time maintaining statistical probability to achieve the established quantitative

process-improvement objectives.

JIT

Introduction

Just-in-time manufacturing was a concept introduced to the United States by the Ford motor

company. It works on a demand-pull basis, contrary to hitherto used techniques, which worked on a

production-push basis.

To elaborate further, under just-in-time manufacturing (colloquially referred to as JIT production

systems), actual orders dictate what should be manufactured, so that the exact quantity is produced at

the exact time that is required.

Just-in-time manufacturing goes hand in hand with concepts such as Kanban, continuous improvement

and total quality management (TQM).



Just-in-time production requires intricate planning in terms of procurement policies and the

manufacturing process if its implementation is to be a success.

Highly advanced technological support systems provide the necessary back-up that Just-in-time

manufacturing demands with production scheduling software and electronic data interchange being the

most sought after.

Advantages Just-In-Time Systems

Following are the advantages of Adopting Just-In-Time Manufacturing Systems

Just-in-time manufacturing keeps stock holding costs to a bare minimum. The release of storage

space results in better utilization of space and thereby bears a favorable impact on the rent paid

and on any insurance premiums that would otherwise need to be made.

Just-in-time manufacturing eliminates waste, as out-of-date or expired products; do not enter

into this equation at all.

As under this technique, only essential stocks are obtained, less working capital is required to

finance procurement. Here, a minimum re-order level is set, and only once that mark is reached,

fresh stocks are ordered making this a boon to inventory management too.

Due to the aforementioned low level of stocks held, the organizations return on investment

(referred to as ROI, in management parlance) would generally be high.

As just-in-time production works on a demand-pull basis, all goods made would be sold, and

thus it incorporates changes in demand with surprising ease. This makes it especially appealing

today, where the market demand is volatile and somewhat unpredictable.

Just-in-time manufacturing encourages the 'right first time' concept, so that inspection costs and

cost of rework is minimized.

High quality products and greater efficiency can be derived from following a just-in-time

production system.

Close relationships are fostered along the production chain under a just-in-time manufacturing

system.

Constant communication with the customer results in high customer satisfaction.

Overproduction is eliminated when just-in-time manufacturing is adopted.

Disadvantages

Following are the disadvantages of Adopting Just-In-Time Manufacturing Systems

Just-in-time manufacturing provides zero tolerance for mistakes, as it makes re-working very

difficult in practice, as inventory is kept to a bare minimum.

There is a high reliance on suppliers, whose performance is generally outside the purview of the

manufacturer.

Due to there being no buffers for delays, production downtime and line idling can occur which

would bear a detrimental effect on finances and on the equilibrium of the production process.

The organization would not be able to meet an unexpected increase in orders due to the fact that

there are no excess finish goods.



Transaction costs would be relatively high as frequent transactions would be made.

Just-in-time manufacturing may have certain detrimental effects on the environment due to the

frequent deliveries that would result in increased use of transportation, which in turn would

consume more fossil fuels.

Precautions

Following are the things to Remember When Implementing a Just-In-Time Manufacturing System

Management buy-in and support at all levels of the organization are required; if a just-in-time

manufacturing system is to be successfully adopted.

Adequate resources should be allocated, so as to obtain technologically advanced software that

is generally required if a just-in-time system is to be a success.

Building a close, trusting relationship with reputed and time-tested suppliers will minimize

unexpected delays in the receipt of inventory.

Just-in-time manufacturing cannot be adopted overnight. It requires commitment in terms of

time and adjustments to corporate culture would be required, as it is starkly different to

traditional production processes.

The design flow process needs to be redesigned and layouts need to be re-formatted, so as to

incorporate just-in-time manufacturing.

Lot sizes need to be minimized.

Workstation capacity should be balanced whenever possible.

Preventive maintenance should be carried out, so as to minimize machine breakdowns.

Set-up times should be reduced wherever possible.

Quality enhancement programs should be adopted, so that total quality control practices can be

adopted.

Reduction in lead times and frequent deliveries should be incorporated.

Motion waste should be minimized, so the incorporation of conveyor belts might prove to be a

good idea when implementing a just-in-time manufacturing system.

Conclusion

Just-in-time manufacturing is a philosophy that has been successfully implemented in many

manufacturing organizations.

It is an optimal system that reduces inventory whilst being increasingly responsive to customer needs,

this is not to say that it is not without its pitfalls.

However, these disadvantages can be overcome with a little forethought and a lot of commitment at all


SCM:

Supply Chain Management can be defined as the management of flow of products and services, which

begins from the origin of products and ends at the product’s consumption. It also comprises movement

and storage of raw materials that are involved in work in progress, inventory and fully furnished goods.



The main objective of supply chain management is to monitor and relate production, distribution, and

shipment of products and services. This can be done by companies with a very good and tight hold over

internal inventories, production, distribution, internal productions and sales.

In the above figure, we can see the flow of goods, services and information from the producer to the

consumer. The picture depicts the movement of a product from the producer to the manufacturer, who

forwards it to the distributor for shipment. The distributor in turn ships it to the wholesaler or retailer,

who further distributes the products to various shops from where the customers can easily get the

product.

Supply chain management basically merges the supply and demand management. It uses different

strategies and approaches to view the entire chain and work efficiently at each and every step involved

in the chain. Every unit that participates in the process must aim to minimize the costs and help the

companies to improve their long term performance, while also creating value for its stakeholders and

customers. This process can also minimize the rates by eradicating the unnecessary expenses,

movements and handling.

Here we need to note that supply chain management and supply chain event management are two

different topics to consider. The Supply Chain Event Management considers the factors that may

interrupt the flow of an effective supply chain; possible scenarios are considered and accordingly,

solutions are devised for them.

Supply Chain Management - Advantages

In this era of globalization where companies compete to provide the best quality products to the

customers and satisfy all their demands, supply chain management plays a very important role. All the

companies are highly dependent on effective supply chain process.

Let’s take a look at the major advantages of supply chain. The key benefits of supply chain

management are as follows −

Develops better customer relationship and service.

Creates better delivery mechanisms for products and services in demand with minimum delay.

Improvises productivity and business functions.

Minimizes warehouse and transportation costs.



Minimizes direct and indirect costs.

Assists in achieving shipping of right products to the right place at the right time.

Enhances inventory management, supporting the successful execution of just-in-time stock

models.

Assists companies in adapting to the challenges of globalization, economic upheaval, expanding

consumer expectations, and related differences.

Assists companies in minimizing waste, driving out costs, and achieving efficiencies throughout

the supply chain process.

These were some of the major advantages of supply chain management. After taking a quick glance at

the concept and advantages on supply chain management, let us take a look at the main goals of this

management.

Supply Chain Management - Goals

Every firm strives to match supply with demand in a timely fashion with the most efficient use of

resources. Here are some of the important goals of supply chain management −

Supply chain partners work collaboratively at different levels to maximize resource productivity,

construct standardized processes, remove duplicate efforts and minimize inventory levels.

Minimization of supply chain expenses is very essential, especially when there are economic

uncertainties in companies regarding their wish to conserve capital.

Cost efficient and cheap products are necessary, but supply chain managers need to concentrate

on value creation for their customers.

Exceeding the customers’ expectations on a regular basis is the best way to satisfy them.

Increased expectations of clients for higher product variety, customized goods, off-season

availability of inventory and rapid fulfillment at a cost comparable to in-store offerings should

be matched.

To meet consumer expectations, merchants need to leverage inventory as a shared resource and

utilize the distributed order management technology to complete orders from the optimal node

in the supply chain.

Lastly, supply chain management aims at contributing to the financial success of an enterprise. In

addition to all the points highlighted above, it aims at leading enterprises using the supply chain to

improve differentiation, increase sales, and penetrate new markets. The objective is to drive

competitive benefit and shareholder value.

Supply chain management is a process used by companies to ensure that their supply chain is efficient

and cost-effective. A supply chain is the collection of steps that a company takes to transform raw

materials into a final product. The five basic components of supply chain management are discussed

below −

Plan

The initial stage of the supply chain process is the planning stage. We need to develop a plan or

strategy in order to address how the products and services will satisfy the demands and necessities of



the customers. In this stage, the planning should mainly focus on designing a strategy that yields

maximum profit.

For managing all the resources required for designing products and providing services, a strategy has to

be designed by the companies. Supply chain management mainly focuses on planning and developing a

set of metrics.

Develop(Source)

After planning, the next step involves developing or sourcing. In this stage, we mainly concentrate on

building a strong relationship with suppliers of the raw materials required for production. This involves

not only identifying dependable suppliers but also determining different planning methods for shipping,

delivery, and payment of the product.

Companies need to select suppliers to deliver the items and services they require to develop their

product. So in this stage, the supply chain managers need to construct a set of pricing, delivery and

payment processes with suppliers and also create the metrics for controlling and improving the

relationships.

Finally, the supply chain managers can combine all these processes for handling their goods and

services inventory. This handling comprises receiving and examining shipments, transferring them to

the manufacturing facilities and authorizing supplier payments.

Make

The third step in the supply chain management process is the manufacturing or making of products that

were demanded by the customer. In this stage, the products are designed, produced, tested, packaged,

and synchronized for delivery.

Here, the task of the supply chain manager is to schedule all the activities required for manufacturing,

testing, packaging and preparation for delivery. This stage is considered as the most metric-intensive

unit of the supply chain, where firms can gauge the quality levels, production output and worker

productivity.

Deliver

The fourth stage is the delivery stage. Here the products are delivered to the customer at the destined

location by the supplier. This stage is basically the logistics phase, where customer orders are accepted

and delivery of the goods is planned. The delivery stage is often referred as logistics, where firms

collaborate for the receipt of orders from customers, establish a network of warehouses, pick carriers to

deliver products to customers and set up an invoicing system to receive payments.



Return

The last and final stage of supply chain management is referred as the return. In the stage, defective or

damaged goods are returned to the supplier by the customer. Here, the companies need to deal with

customer queries and respond to their complaints etc.

This stage often tends to be a problematic section of the supply chain for many companies. The

planners of supply chain need to discover a responsive and flexible network for accepting damaged,

defective and extra products back from their customers and facilitating the return process for customers

who have issues with delivered products.

Supply chain performance measure can be defined as an approach to judge the performance of supply

chain system. Supply chain performance measures can broadly be classified into two categories −

Qualitative measures − For example, customer satisfaction and product quality.

Quantitative measures − For example, order-to-delivery lead time, supply chain response time,

flexibility, resource utilization, delivery performance.

Here, we will be considering the quantitative performance measures only. The performance of a supply

chain can be improvised by using a multi-dimensional strategy, which addresses how the company

needs to provide services to diverse customer demands.

Quantitative Measures

Mostly the measures taken for measuring the performance may be somewhat similar to each other, but

the objective behind each segment is very different from the other.

Quantitative measures is the assessments used to measure the performance, and compare or track the

performance or products. We can further divide the quantitative measures of supply chain performance

into two types. They are −

Non-financial measures

Financial measures

Non - Financials Measures

The metrics of non-financial measures comprise cycle time, customer service level, inventory levels,

resource utilization ability to perform, flexibility, and quality. In this section, we will discuss the first

four dimensions of the metrics −

Cycle Time

Cycle time is often called the lead time. It can be simply defined as the end-to-end delay in a business

process. For supply chains, cycle time can be defined as the business processes of interest, supply chain

process and the order-to-delivery process. In the cycle time, we should learn about two types of lead

times. They are as follows −

Supply chain lead time

Order-to-delivery lead time

The order-to-delivery lead time can be defined as the time of delay in the middle of the placement of

order by a customer and the delivery of products to the customer. In case the item is in stock, it would

be similar to the distribution lead time and order management time. If the ordered item needs to be



produced, it would be the summation of supplier lead time, manufacturing lead time, distribution lead

time and order management time.

The supply chain process lead time can be defined as the time taken by the supply chain to transform

the raw materials into final products along with the time required to reach the products to the

customer’s destination address.

Hence it comprises supplier lead time, manufacturing lead time, distribution lead time and the logistics

lead time for transport of raw materials from suppliers to plants and for shipment of semi-

finished/finished products in and out of intermediate storage points.

Lead time in supply chains is governed by the halts in the interface because of the interfaces between

suppliers and manufacturing plants, between plants and warehouses, between distributors and retailers

and many more.

Lead time compression is a crucial topic to discuss due to the time based competition and the

collaboration of lead time with inventory levels, costs, and customer service levels.

Customer Service Level

The customer service level in a supply chain is marked as an operation of multiple unique performance

indices. Here we have three measures to gauge performance. They are as follows −

Order fill rate − The order fill rate is the portion of customer demands that can be easily

satisfied from the stock available. For this portion of customer demands, there is no need to

consider the supplier lead time and the manufacturing lead time. The order fill rate could be

with respect to a central warehouse or a field warehouse or stock at any level in the system.

Stockout rate − It is the reverse of order fill rate and marks the portion of orders lost because of

a stockout.

Backorder level − This is yet another measure, which is the gauge of total number of orders

waiting to be filled.

Probability of on-time delivery − It is the portion of customer orders that are completed on-

time, i.e., within the agreed-upon due date.

In order to maximize the customer service level, it is important to maximize order fill rate, minimize

stockout rate, and minimize backorder levels.

Inventory Levels

As the inventory-carrying costs increase the total costs significantly, it is essential to carry sufficient

inventory to meet the customer demands. In a supply chain system, inventories can be further divided

into four categories.

Raw materials

Work-in-process, i.e., unfinished and semi-finished sections

Finished goods inventory

Spare parts

Every inventory is held for a different reason. It’s a must to maintain optimal levels of each type of

inventory. Hence gauging the actual inventory levels will supply a better scenario of system efficiency.

Resource Utilization

In a supply chain network, huge variety of resources is used. These different types of resources

available for different applications are mentioned below.



Manufacturing resources − Include the machines, material handlers, tools, etc.

Storage resources − Comprise warehouses, automated storage and retrieval systems.

Logistics resources − Engage trucks, rail transport, air-cargo carriers, etc.

Human resources − Consist of labor, scientific and technical personnel.

Financial resources − Include working capital, stocks, etc.

In the resource utilization paradigm, the main motto is to utilize all the assets or resources efficiently in

order to maximize customer service levels, reduce lead times and optimize inventory levels.

Finanacial Measures

The measures taken for gauging different fixed and operational costs related to a supply chain are

considered the financial measures. Finally, the key objective to be achieved is to maximize the revenue

by maintaining low supply chain costs.

There is a hike in prices because of the inventories, transportation, facilities, operations, technology,

materials, and labor. Generally, the financial performance of a supply chain is assessed by considering

the following items −

Cost of raw materials.

Revenue from goods sold.

Activity-based costs like the material handling, manufacturing, assembling rates etc.

Inventory holding costs.

Transportation costs.

Cost of expired perishable goods.

Penalties for incorrectly filled or late orders delivered to customers.

Credits for incorrectly filled or late deliveries from suppliers.

Cost of goods returned by customers.

Credits for goods returned to suppliers.

In short, we can say that the financial performance indices can be merged as one by using key modules

such as activity based costing, inventory costing, transportation costing, and inter-company financial

transactions.

ERP:

Introduction

In any industry, some of the demands managers face is to be cost effective. In addition to that, they are

also faced with challenges such as to analyze costs and profits on a product or consumer basis, to be

flexible to face ever altering business requirements, and to be informed of management decision

making processes and changes in ways of doing business.

However, some of the challenges holding managers back include the difficulty in attaining accurate

information, lack of applications that minimize existing business practices and bad interfaces. When



some challengers are holding a manager back, that is where Enterprise Resource Planning (ERP) comes

into play.

Over the years business applications have evolved from Management Information Systems with no

decision support to Corporate Information Systems, which offer some decision support to Enterprise

Resource Planning. Enterprise Resource Planning is a software solution that tackles the needs of an

organization, taking into account the process view to meet an organization's goals while incorporating

all the functions of an organization.

Its purpose is to make easy the information flow between all business functions within the boundaries

of the organization and manage the organization's connections with its outside stakeholders.

In a nutshell, the Enterprise Resource Planning software tries to integrate all the different departments

and functions of an organization into a single computer system to serve the various needs of these

departments.

The task at hand, of implementing one software program that looks after the needs of the Finance

Department together with the needs of the Human Resource Department and the Warehouse, seems

impossible. These different departments usually have an individual software program that is optimized

in the way each department works.

However, if installed correctly this integrated approach can be very cost effective for an organization.

With an integrated solution, different departments can easily share information and communicate with

one another.

The following diagram illustrates the differences between non-integrated systems versus an integrated

system for enterprise resource planning.



The Driving Force behind ERP

There are two main driving forces behind Enterprise Resource Planning for a business organization.

In a business sense, Enterprise Resource Planning ensures customer satisfaction, as it leads to

business development that is development of new areas, new products and new services.

Also, it allows businesses to face competition for implementing Enterprise Resource Planning,

and it ensures efficient processes that push the company into top gear.

In an IT sense: Most softwares does not meet business needs wholly and the legacy systems

today are hard to maintain. In addition, outdated hardware and software is hard to maintain.

Hence, for the above reasons, Enterprise Resource Planning is necessary for management in today's

business world. ERP is single software, which tackles problems such as material shortages, customer

service, finances management, quality issues and inventory problems. An ERP system can be the

dashboard of the modern era managers.

Implementing ERP System

Producing Enterprise Resource Planning (ERP) software is complex and also has many significant

implications for staff work practice. Implementing the software is a difficult task too and one that 'in-



house' IT specialists cannot handle. Hence to implement ERP software, organizations hire third party

consulting companies or an ERP vendor.

This is the most cost effective way. The time taken to implement an ERP system depends on the size of

the business, the number of departments involved, the degree of customization involved, the magnitude

of the change and the cooperation of customers to the project.

Advantages of ERP System

With Enterprise Resource Planning (ERP) software, accurate forecasting can be done. When

accurate forecasting inventory levels are kept at maximum efficiency, this allows for the

organization to be profitable.

Integration of the various departments ensures communication, productivity and efficiency.

Adopting ERP software eradicates the problem of coordinating changes between many systems.

ERP software provides a top-down view of an organization, so information is available to make

decisions at anytime, anywhere.

Disadvantages of ERP System

Adopting ERP systems can be expensive.

The lack of boundaries created by ERP software in a company can cause problems of who takes

the blame, lines of responsibility and employee morale.

Conclusion

While employing an ERP system may be expensive, it offers organizations a cost efficient system in

the long run.

ERP software works by integrating all the different departments in on organization into one computer

system allowing for efficient communication between these departments and hence enhances

productivity.

The organizations should take extra precautions when it comes to choosing the correct ERP system for

them. There have been many cases that organizations have lost a lot of money due to selecting the

'wrong' ERP solution and a service provider for them.

PERFORMANCE MANAGEMENT:

Performance management can be defined as a systematic process to improve organizational

performance by developing the performance of individuals and teams working with an organization. It

is a means of getting better results from the organization, teams and individuals by understanding and

managing their performance within a framework of planned goals, standards and competence

requirements. In other words, performance management is the process of managing an organization’s

management strategy. This is how plans are converted into desired outcomes in organizations.

Performance management is a powerful tool

Performance management is a difficult role to play. Some people have difficulty when it comes to

performance evaluation. Performance management is about motivation and partnership. When this kind



of prospective is shared with your employees and they learn to see in that way, performance

management becomes a powerful tool that will help your team to become more successful.

Performance management is about aligning individual objectives to organizational objectives and

ensuring that individuals hold the corporate core values. It provides for expectations to be defined in

terms of role responsibilities and accountabilities expected to do, skills expected to have and behavior

expected to be.

The overall aim of performance management is to establish a good culture in which individuals and

teams take responsibility for the improvement of their own skills and their organizations.

Specifically, performance management is all about achieving the individual objectives according to the

organizational objectives and ensuring that every individual is working towards it.

Another aim is to develop the capacity of individuals to meet the expectations of the organization.

Mainly, performance management is concerned with the support and guidance for the people who need

to develop.

The main points of view towards achieving the aims of performance managements are −

Empowering, motivating and rewarding employees to perform their best for the organization.

Focusing on employees’ tasks, the right things and make them doing right. Aligning everyone’s

individual goals towards the goals of the organization.

Proactively managing and resourcing performance against objectives of the organizations.

Linking job performance to the achievement of the council’s corporate strategy and service

plans.

The alignment of individual objectives with team, department and corporate plans. The

presentation of objectives with clearly defined goals using measures, both soft and numeric. The

monitoring of performance and tasking of continuous action as required.

All individuals being clear about what they need to achieve and expected standards, and how

that contributes to the overall success of the organization; receiving regular, fair, accurate

feedback and coaching to stretch and motivate them to achieve their best.

Performance management is a pre-planned process of which the primary elements are

agreement, measurement and feedback.

The following are the characteristics of performance management −

Measures outputs of delivered performance

It is concerned with measuring outputs of delivered performance compared with expectations

expressed as objectives. Its complete focus is on targets, standards and performance measures. It

is based on the agreement of role requirements, objectives and performance improvement and

personal development plans.

Concerned with inputs and values

Performance management is also concerned with inputs and values. The inputs are the

knowledge, skills and behaviors required to produce the expected results from the individuals.

Continuous and flexible process

Performance management is a continuous and flexible process that involves managers and those

whom they manage acting as partners within a framework that sets out how they can best work

together to achieve the required results.



Based on the principle of management by contract and agreement

It is based on the principle of management by contract and agreement rather than management

by command. It relies on consensus and cooperation rather than control or coercion.

Focuses on future performance planning and improvement

Performance management also focuses on future performance planning and improvement rather

than on retrospective performance appraisal. It functions as a continuous and evolutionary

process, in which performance improves over the period of time; and provides the basis for

regular and frequent dialogues between managers and individuals about performance and

development needs.

BPO:

What is Business Process Outsourcing (BPO)?

The concept of outsourcing started with Ross Perot when he founded Electronic Data Systems in 1962.

EDS would tell a prospective client, “You are familiar with designing, manufacturing and selling

furniture, but we’re familiar with managing information technology. We can sell you the information

technology you need, and you pay us monthly for the service with a minimum commitment of two to ten

years.

BPO is the act of transferring some of an organization’s repeated non-core and core business processes

to an outside provider to achieve cost reductions while improving service quality. Because the processes

are repeated and a long-term contract is used, outsourcing goes far beyond the use of consultants. If

done well, BPO results in increasing shareholder value. The main difference between BPO and more

traditional IT outsourcing is that BPO offers companies a way of achieving transformational outcomes

much more quickly. In a typical BPO contract, a service provider takes over a specific corporate

function. Effective BPO encompasses much more than just changing who is responsible for performing

the process. In BPO, the outside provider not only takes on the responsibility to manage the function or

business process, but also re-engineers the way the process has been traditionally done.

The next generation of Business Process Outsourcing has emerged as a priority for businesses looking to

better options in managing their application portfolios. The first wave offered low-cost, off-shore

development labor, but today firms are demanding new, less risky options for applications that are

strategic, complex, or mission-critical, while still taking cost into consideration. Outsourcing has moved

from a niche technology management tool to a mainstream strategic weapon. Business Process

Outsourcing leverages process driven efficiencies in terms of organizational excellence, responsiveness

& branding, financial efficiency and customer relationship. BPO is emerging as a powerful and flexible

approach that business leaders can use to achieve a wide range of tactical and strategic aims.

The most common business process that gets outsourced is call centers. Call centers and Help Desks of

many multinational and fortune 500 companies are being outsourced to low waged, English speaking

countries such as Philippines and India. Countries like India with vast IT human resources are also

attracting outsourcing from American IT/Technology companies to outsource their IT Help Desks.

Many of these help desks are state of the art with latest Help Desk software and help desk hardware with

technical savvy IT graduates behind them answering your questions.

Key Elements of BPO



Business Process Outsourcing in today’s world is seen as a strategic management option rather than just

a way to cut costs. It helps achieve the companies their business objectives through operational

excellence and an edge in the market place.

Every company today, has one or more of its services outsourced so that it can focus more on its core

competencies. Outsourcing’s emerging power as a business tool of unique versatility and flexibility is

undoubted. Resources of the companies need to be focused on core business functions so the non-core

functions need to be outsourced. Outsourcing gives you the right combination of people, processes and

technology to operate effectively in the Global market place without burdening your time and budget.

This is the reason why more and more companies are showing interest in outsourcing there activities to

various offshore locations. With the cost to bring a product from development to market having

increased significantly, outsourcing is seen as a potential savior. Two prime factors come into play when

searching for a reliable outsourcing provider: quality and price.

Benefits of BPO

Business Process Outsourcing (BPO) has been found beneficial to the businesses with the results of

increased customer satisfaction. More efficient operations, access to global capabilities, increased cash

flow, and faster time-to-market are also the very feasible outcomes of BPO.

Non-core business processes, such as human resources, finance and accounting, are critical, but also

resource-intensive, time-consuming, and costly. Outsourcing improves operational efficiencies and

drastically reduces costs without large, up-front capital investments. Business Process Outsourcing

provides quantifiable benefits through improved efficiencies, lower overhead, reduced payroll and

benefit expenses, and fewer capital investments.

Companies seeking the Business Process Outsourcing benefits generally engage themselves in a

systematic process led by the outsourcer and well designed to ensure a positive and mutually beneficial

experience for both client and provider.

BPO allows organizations to move non-core business processes to a services provider so that they may

focus on the more important strategic, revenue-generating programs that create profitable growth and

sustain business success. BPO provides access to proprietary workflow systems, process re engineering

skills, and innovative staffing and delivery models, combined with world-class technology delivered by



experts. Business Process Outsourcing provides the flexibility to respond to a rapidly changing

marketplace and scale operations up or down as conditions dictate.

How big is this Business Process Outsourcing affair really? The first question is about the size of

the ITES/BPO business in the years ahead. There is such a wide range of estimates put out by

consultancies and private research agencies that credibility is at a premium. An estimate prepared by

IDC that NASSCOM cites sees global ITES business rising from $570 billion in 2002 to $1,200 billion

in 2006. The recent E-Commerce and Development Report 2003 cites a Goldman Sachs figure of $570

billion in 2005 for global BPO contracts and a Gartner estimate of $300 billion of ITES revenue in 2004.

Another research agency, Forester, says that because of unreliability of suppliers, the global BPO

business will rise to only $145 billion by 2008.

BENCH MARKING:

Introduction

If a company is to be successful, it needs to evaluate its performance in a consistent manner.

In order to do so, businesses need to set standards for themselves and measure their processes and

performance against recognized industry leaders or against best practices from other industries, which

operate in a similar environment.

This is commonly referred to as benchmarking in management parlance.

The benchmarking process is relatively uncomplicated. Some knowledge and a practical dent is all that

is needed to make such a process a success.

Therefore, for the benefit of corporate executives, students and the interested general populace, the key

steps in the benchmarking process are highlighted below.

A Step-by-Step Approach to Benchmarking

Following are the steps involved in benchmarking process:

(1) Planning

Prior to engaging in benchmarking, it is imperative that corporate stakeholders identify the activities

that need to be benchmarked.

For instance, the processes that merit such consideration would generally be core activities that have

the potential to give the business in question a competitive edge.

Such processes would generally command a high cost, volume or value. For the optimal results of

benchmarking to be reaped, the inputs and outputs need to be redefined; the activities chosen should be

measurable and thereby easily comparable, and thus the benchmarking metrics needs to be arrived at.



Prior to engaging in the benchmarking process, the total process flow needs to be given due

consideration. For instance, improving one core competency at the detriment to another proves to be of

little use.

Therefore, many choose to document such processes in detail (a process flow chart is deemed to be

ideal for this purpose), so that omissions and errors are minimized; thus enabling the company to obtain

a clearer idea of its strategic goals, its primary business processes, customer expectations and critical

success factors.

An honest appraisal of the company's strengths, weaknesses and problem areas would prove to be of

immense use when fine-tuning such a process.

The next step in the planning process would be for the company to choose an appropriate benchmark

against which their performance can be measured.

The benchmark can be a single entity or a collective group of companies, which operate at optimal

efficiency.

As stated before, if such a company operates in a similar environment or if it adopts a comparable

strategic approach to reach their goals, its relevance would, indeed, be greater.

Measures and practices used in such companies should be identified, so that business process

alternatives can be examined.

Also, it is always prudent for a company to ascertain its objectives, prior to commencement of the

benchmarking process.

The methodology adopted and the way in which output is documented should be given due

consideration too. On such instances, a capable team should be found in order to carry out the

benchmarking process, with a leader or leaders being duly appointed, so as to ensure the smooth, timely

implementation of the project.

(2) Collection of Information

Information can be broadly classified under the sub texts of primary data and secondary data.

To clarify further, here, primary data refers to collection of data directly from the benchmarked

company/companies itself, while secondary data refers to information garnered from the press,

publications or websites.

Exploratory research, market research, quantitative research, informal conversations, interviews and

questionnaires, are still, some of the most popular methods of collecting information.

When engaging in primary research, the company that is due to undertake the benchmarking process

needs to redefine its data collection methodology.

Drafting a questionnaire or a standardized interview format, carrying out primary research via the

telephone, e-mail or in face-to-face interviews, making on-site observations, and documenting such

data in a systematic manner is vital, if the benchmarking process is to be a success.

(3) Analysis of Data

Once sufficient data is collected, the proper analysis of such information is of foremost importance.

Data analysis, data presentation (preferably in graphical format, for easy reference), results projection,

classifying the performance gaps in processes, and identifying the root cause that leads to the creation

of such gaps (commonly referred to as enablers), need to be then carried out.

(4) Implementation



This is the stage in the benchmarking process where it becomes mandatory to walk the talk. This

generally means that far-reaching changes need to be made, so that the performance gap between the

ideal and the actual is narrowed and eliminated wherever possible.

A formal action plan that promotes change should ideally be formulated keeping the organization's

culture in mind, so that the resistance that usually accompanies change is minimized.

Ensuring that the management and staff are fully committed to the process and that sufficient resources

are in place to meet facilitate the necessary improvements would be critical in making the

benchmarking process, a success.

(5) Monitoring

As with most projects, in order to reap the maximum benefits of the benchmarking process, a

systematic evaluation should be carried out on a regular basis.

Assimilating the required information, evaluating the progress made, re-iterating the impact of the

changes and making any necessary adjustments, are all part of the monitoring process.

Conclusion

As is clearly apparent, benchmarking can add value to the organization's workflow and structure by

identifying areas for improvement and rectification.

It is indeed invaluable in an organization's quest for continuous improvement.

BALANCE SCORE CARD:

Introduction

The balance scorecard is used as a strategic planning and a management technique. This is widely used

in many organizations, regardless of their scale, to align the organization's performance to its vision and

objectives.

The scorecard is also used as a tool, which improves the communication and feedback process between

the employees and management and to monitor performance of the organizational objectives.

As the name depicts, the balanced scorecard concept was developed not only to evaluate the financial

performance of a business organization, but also to address customer concerns, business process

optimization, and enhancement of learning tools and mechanisms.

The Basics of Balanced Scorecard

Following is the simplest illustration of the concept of balanced scorecard. The four boxes represent the

main areas of consideration under balanced scorecard. All four main areas of consideration are bound

by the business organization's vision and strategy.



The balanced scorecard is divided into four main areas and a successful organization is one that finds

the right balance between these areas.

Each area (perspective) represents a different aspect of the business organization in order to operate at

optimal capacity.

Financial Perspective - This consists of costs or measurement involved, in terms of rate of

return on capital (ROI) employed and operating income of the organization.

Customer Perspective - Measures the level of customer satisfaction, customer retention and

market share held by the organization.

Business Process Perspective - This consists of measures such as cost and quality related to the

business processes.

Learning and Growth Perspective - Consists of measures such as employee satisfaction,

employee retention and knowledge management.

The four perspectives are interrelated. Therefore, they do not function independently. In real-world

situations, organizations need one or more perspectives combined together to achieve its business

objectives.

For example, Customer Perspective is needed to determine the Financial Perspective, which in turn can

be used to improve the Learning and Growth Perspective.

Features of Balanced Scorecard

From the above diagram, you will see that there are four perspectives on a balanced scorecard. Each of

these four perspectives should be considered with respect to the following factors.

When it comes to defining and assessing the four perspectives, following factors are used:

Objectives - This reflects the organization's objectives such as profitability or market share.

Measures - Based on the objectives, measures will be put in place to gauge the progress of

achieving objectives.

Targets - This could be department based or overall as a company. There will be specific targets

that have been set to achieve the measures.

Initiatives - These could be classified as actions that are taken to meet the objectives.

A Tool of Strategic Management



The objective of the balanced scorecard was to create a system, which could measure the performance

of an organization and to improve any back lags that occur.

The popularity of the balanced scorecard increased over time due to its logical process and methods.

Hence, it became a management strategy, which could be used across various functions within an

organization.

The balanced scorecard helped the management to understand its objectives and roles in the bigger

picture. It also helps management team to measure the performance in terms of quantity.

The balanced scorecard also plays a vital role when it comes to communication of strategic objectives.

One of the main reasons for many organizations to be unsuccessful is that they fail to understand and

adhere to the objectives that have been set for the organization.

The balanced scorecard provides a solution for this by breaking down objectives and making it easier

for management and employees to understand.

Planning, setting targets and aligning strategy are two of the key areas where the balanced scorecard

can contribute. Targets are set out for each of the four perspectives in terms of long-term objectives.

However, these targets are mostly achievable even in the short run. Measures are taken in align with

achieving the targets.

Strategic feedback and learning is the next area, where the balanced scorecard plays a role. In strategic

feedback and learning, the management gets up-to-date reviews regarding the success of the plan and

the performance of the strategy.

The Need for a Balanced Scorecard

Following are some of the points that describe the need for implementing a balanced scorecard:

Increases the focus on the business strategy and its outcomes.

Leads to improvised organizational performance through measurements.

Align the workforce to meet the organization's strategy on a day-to-day basis.

Targeting the key determinants or drivers of future performance.

Improves the level of communication in relation to the organization's strategy and vision.

Helps to prioritize projects according to the timeframe and other priority factors.

Conclusion

As the name denotes, balanced scorecard creates a right balance between the components of

organization's objectives and vision.

It's a mechanism that helps the management to track down the performance of the organization and can

be used as a management strategy.

It provides an extensive overview of a company's objectives rather than limiting itself only to financial

values.

This creates a strong brand name amongst its existing and potential customers and a reputation amongst

the organization's workforce.



BUSINESS PROCESS REENGINEERING:

What is Business Process Reengineering?

Business process reengineering is the act of recreating a core business process with the goal of

improving product output, quality, or reducing costs.

Typically, it involves the analysis of company workflows, finding processes that are sub-par or

inefficient, and figuring out ways to get rid of them or change them.

Business process reengineering became popular in the business world in the 1990s, inspired by an

article called Reengineering Work: Don’t Automate, Obliterate which was published in the Harvard

Business review by Michael Hammer.

His position was that too many businesses were using new technologies to automate fundamentally

ineffective processes, as opposed to creating something different, something that is built on new

technologies.

Think, using technology to “upgrade” a horse with lighter horseshoes which make them faster, as

opposed to just building a car.

In the decades since, BPR has continued to be used by businesses as an alternative to business process

management (automating or reusing existing processes), which has largely superseded it in popularity.

And with the pace of technological change faster than ever before, BPR is a lot more relevant than ever

before.

Business Process Reengineering Steps

As we’ve mentioned before, business process reengineering is no easy task.

Unlike business process management or improvement, both of which focus on working with existing

processes, BPR means changing the said processes fundamentally.

This can be extremely time-consuming, expensive and risky. Unless you manage to carry out each of the

steps successfully, your attempts at change might fail.

Step #1: Identity and Communicating the Need for Change

If you’re a small startup, this can be a piece of cake. You realize that your product has a high user

drop-off rate, send off a text to your co-founder, and suggest a direction to pivot.

For a corporation, however, it can be a lot harder. There will always be individuals who are happy with

things as they are, both from the side of management and employees. The first might be afraid that it

might be a sunk investment, the later for their job security.

So, you’ll need to convince them why making the change is essential for the company. If the company

is not doing well, this shouldn’t be too hard.

https://tallyfy.com/business-process

https://tallyfy.com/what-is-a-workflow/

https://hbr.org/1990/07/reengineering-work-dont-automate-obliterate

https://tallyfy.com/guides/business-process-automation/

https://tallyfy.com/guides/business-process-management-bpm/

https://tallyfy.com/guides/business-process-management-bpm/



In some cases, however, the issue is with the company not doing as well as it could be. Meaning, you

should do your research. Which processes might not be working? Is your competition doing better than

you in some regards? Worse?

Once you have all the information, you’ll need to come up with a very comprehensive plan, involving

leaders from different departments. The management will have to play the role of salespeople:

conveying the grand vision of change, showing how it’ll affect even the lowest-ranked employee

positively.

Risk of Failure: Not Getting Buy-In From The Company

If you fail to do this, however, your business process reengineering efforts might be destined to fail long

before they even start.

Business Process Re-Engineering can seriously impact on everyone in the company, and sometimes this

can appear to be a negative change for some. Some employees might, for example, think you’ll let them

all go if you find a better way to function (which is a real possibility).

In such cases, even if the management is on board, the initiative might fail because the employees

aren’t engaged.

Usually, it’s possible to get the employees buy-in by motivating them or showing them different views

they weren’t aware of. Sometimes, however, the lack of employee engagement might be because of a

bad workplace culture – something that might need to be dealt with before starting any BPR initiatives.

Getting your employee to commit to change isn’t easy. There are a bunch of change management

models that help you accomplish this, though. Some of our favorites include the ADKAR

Model and Bridge’s Transition Model.

Step #2: Put Together a Team of Experts

As with any other project, business process reengineering needs a team of highly skilled, motivated

people who will carry out the needed steps.

In most cases, the team consists of:

Senior Manager. When it comes to making a major change, you need the supervision of someone who

can call the shots. If a BPR team doesn’t have someone from the senior management, they’ll have to get

in touch with them for every minor change.

Operational Manager. As a given, you’ll need someone who knows the ins-and-outs of the process –

and that’s where the operational manager comes in. They’ve worked with the process(es) and can

contribute with their vast knowledge.

Reengineering Experts. Finally, you’ll need the right engineers. Reengineering processes might need

expertise from a number of different fields, anything from IT to manufacturing. While it usually varies

case by case, the right change might be anything – hardware, software, workflows, etc.

https://tallyfy.com/improve-employee-buy-in/

https://tallyfy.com/change-management-models

https://tallyfy.com/change-management-models

https://tallyfy.com/adkar-model/

https://tallyfy.com/adkar-model/

https://tallyfy.com/bridges-transition-model/



Risk of Failure: Not Putting The Right Team Together

There are a lot of different ways to mess this one up.

If the team consists of individuals with a similar viewpoint and agenda, for example, they might not be

able to properly diagnose the problems/solutions.

Or, the team might involve too many or too few people. In the first case, the decision making might be

slowed down due to conflicting viewpoints. In the later, there might not be enough experts in certain

fields to create adequate solutions.

It’s hard to put all that down as a framework, as it depends on the project itself. There is one thing,

however, that benefits every BPR team: having a team full of people who are enthusiastic (and yet

unbiased), positive and passionate about making a difference.

Step #3: Find the Inefficient Processes and Define Key Performance Indicators (KPI)

Once you have the team ready and about to kick-off the initiative, you’ll need to define the right KPIs.

You don’t want to adapt to a new process and THEN realize that you didn’t keep some expenses in mind

– the idea of BPR is to optimize, not the other way around.

While KPIs usually vary depending on what process you’re optimizing, the following can be very

typical:

Manufacturing

o Cycle Time – The time spent from the beginning to the end of a process

o Changeover Time – Time needed to switch the line from making one product to the next

o Defect Rate – Percentage of products manufactured defective

o Inventory Turnover – How long it takes for the manufacturing line to turn inventory into products

o Planned VS Emergency Maintenance – The ratio of the times planned maintenance and emergency

maintenance happen

IT

o Mean Time to Repair – Average time needed to repair the system / software / app after an

emergency

o Support Ticket Closure rate – Number of support tickets closed by the support team divided by the

number opened

o Application Dev. – The time needed to fully develop a new application from scratch

o Cycle Time – The time needed to get the network back up after a security breach

Once you have the exact KPIs defined, you’ll need to go after the individual processes. The easiest way

to do this is to do business process mapping. While it can be hard to analyze processes as a concept, it’s

a lot easier if you have everything written down step by step.

This is where the operational manager comes in handy – they make it marginally easier to define and

analyze the processes.

https://tallyfy.com/business-process-mapping



Usually, there are 2 ways to map out processes:

Process Flowcharts – the most basic way to work with processes is through flowcharts. Grab a pen and

paper and write down the processes step by step.

Business Process Management Software – if you’re more tech-savvy, using software for process

analysis can make everything a lot easier. You can use Tallyfy, for example, to digitize your processes,

set deadlines, etc. Simply using such software might end up optimizing the said processes as it allows

for easier collaboration between the employees.

Want to get started with BPMS, but not sure how? Our guide to different BPM tools (and their

distinct features) is as good of a start as any.

Risk of Failure: Inability to Properly Analyze Processes

Or, to put it more succinctly – impatience. It’s uncommon for someone to try business process

reengineering if they profits are soaring and the projections are looking great.

BPR is usually called for when things aren’t going all that well and businesses need drastic changes. So,

it can be very tempting to hurry things up and skip through the analysis process and start carrying out

the changes.

The thing is, though, the business needs analysis needs to be done properly, not rushed through to get to

the more exciting parts.

There are always time and money pressures in the business world, and it’s the responsibility of the

senior management to resist the temptation and make sure the proper procedure is carried out. Problem

areas need to be identified, key goals need to be set and business objectives need to be defined and this

takes time.

Ideally, each stage requires input from groups from around the business to ensure that a full picture is

being formed, with feedback and ideas being taken into consideration from a diverse range of sources.

The next step is to identifyand prioritize the improvements that are needed and those areas and

processes that need to be scrapped. Any business that doesn’t take this analysis seriously will be going

into those next steps blind and will find that their BPR efforts will fail.

Any business that doesn’t take this analysis seriously will be going into those next steps blind and will

find that their BPR efforts will fail.

Step #4: Reengineer the processes and Compare KPIs

Finally, once you’re done with all the analysis and planning, you can start implementing the solutions

and changes on a small scale.

Once you get to this point, there’s not much to add – what you have to do now is keep putting your

theories into practice and seeing how the KPIs hold up.

If the KPIs show that the new solution works better, you can start slowly scaling the solution, putting it

into action within more and more company processes.

https://tallyfy.com/process-flowchart/

https://tallyfy.com/solutions/business-process-management-software-bpms/

https://tallyfy.com/bpm-tools

https://tallyfy.com/bpm-tools

https://tallyfy.com/business-process-improvement-bpi/



If not, you go back to the drawing board and start chalking up new potential solutions.

Business Process Reengineering Examples

The past decade has been very big on change. With new technology being developed at such a

breakneck pace, a lot of companies started carrying out business process reengineering initiatives. There

are a lot of both

There are a lot of both successful and catastrophic business process reengineering examples in history,

one of the most famous being that of Ford.

BPR Examples: Ford Motors

One of the most referenced business process reengineering examples is the case of Ford, an automobile

manufacturing company.

In the 1980s, the American automobile industry was in a depression, and in an attempt to cut costs, Ford

decided to scrutinize some of their departments in an attempt to find inefficient processes.

One of their findings was that the accounts payable department was not as efficient as it could be:

their accounts payable division consisted of 500 people, as opposed to Mazda’s (their partner) 5.

While Mazda was a smaller company, Ford estimated that their department was still 5 times bigger than

it should have been.

Accordingly, Ford management set themselves a quantifiable goal: to reduce the number of clerks

working in accounts payable by a couple of hundredemployees. Then, they launched a business process

reengineering initiative to figure out why was the department so overstaffed.

They analyzed the current system, and found out that it worked as follows:

1. When the purchasing department would write a purchase order, they sent a copy to accounts payable.

2. Then, the material control would receive the goods, and send a copy of the related document to

accounts payable.

3. At the same time, the vendor would send a receipt for the goods to accounts payable.

Then, the clerk at the accounts payable department would have to match the three orders, and if they

matched, he or she would issue the payment. This, of course, took a lot of manpower in the department.

Old Payable Process

So, as is the case with BPR, Ford completely recreated the process digitally.

1. Purchasing issues an order and inputs it into an online database.

2. Material control receives the goods and cross-references with the database to make sure it matches an

order.

3. If there’s a match, material control accepts the order on the computer.

https://tallyfy.com/accounts-payable/

https://tallyfy.com/purchase-order-process/

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