MBA-101: Business Environment

Answer any three questions. Each question carries 10 marks each:

Q. 1 Explain the internal and external elements of environment effecting business.

Ans : Introduction to Business EnvironmentThe formula for business success requires two elements - the individual and the environment. Remove either value and success becomes impossible. Business environment consist of all those factors that have a bearing on the business. The term 'business environment implies those external forces, factors and institutions that are beyond the control of individual business organisations and their management and affect the business enterprise. It implies all external forces within which a business enterprise operates. Business environment influence the functioning of the business system. Thus, business environment may be defined as all those conditions and forces which are external to the business and are beyond the individual business unit, but it operates within it. These forces are customer, creditors, competitors, government, socio-cultural organisations, political parties national and international organisations etc. some of those forces affect the business directly which some others have indirect effect on the business.Features of business environment

• Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature. • Specific and general forces: Business environment includes both specific and general forces. Specific forces affect individual enterprises directly and immediately in their day-to-day working. General forces have impact on all business enterprises and thus may affect an individual firm only indirectly. • Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market. • Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries. • Relativity: Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost non-existent in France.

TYPES OF ENVIRONMENT

On the basis of the extent of intimacy with the firm , the environmental factors may be classified into different types-internal and external.

INTERNAL ENVIRONMENT

The internal environment is the environment that has a direct impact on the business. Here there are some internal factors which are generally controllable because the company has control over these factors. It can alter or modify such factors as its personnel, physical facilities, and organization and functional means, like marketing, to suit the environment.

The important internal factors which have a bearing on the strategy and other decisions of internal organization are discussed below.

Value system

The value system of the founders and those at the helm of affairs has important bearing on the choice of business, the mission and the objectives of the organization, business policies and practices.

Mission and vision and objectives

Vision means the ability to think about the future with imagination and wisdom. Vision is an important factor in achieving the objectives of the organization. The mission is the medium through which the objectives are achieved.Management structure and nature

The structure of the organization also influences the business decisions. The organizational structure like the composition of board of directors , influences the decisions of business as they are internal factors . The structure and style of the organization may delay a decision making or some other helps in making quick decisions. Internal power relationships

The relationship among the three levels of the organization also influences on the business. The mutual co-ordination among those three is a an important need for a business. The relationship among the people working in the three levels of the organization should be cordial.Human resource

The human resource is the important factor for any organization as it contributes to the strength and weakness of any organization . the human resource in any organization must have characteristics like skills, quality, high morale, commitment towards the work ,

attitude, etc. T he involvement and initiative of the people in an organization at different levels may vary from organization to organization. The organizational culture and overall environment have bearing on them.

Company image and brand equity

The image of the company in the outside market has the impact on the internal environment of the company. It helps in raising the finance , making joint ventures , other alliances, expansions and acquisitions , entering sale and purchase contracts , launching new products, etc. Brand equity also helps the company in same way.

EXTERNAL ENVIRONMENT

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

Micro Environment

The micro environment is also known as the task environment and operating environment because the micro environmental forces have a direct bearing on the operations of the firm.“The micro environment consist of the actors in the company’s immediate environment that affect the performance of the company. These include the suppliers, marketing intermediaries, competitors, customers and the public”The micro environmental factors are more intimately linked with the company than the macro factors. The micro forces need not necessarily affect all the firms in a particular industry in the same way. Some of the micro factors may be particular to a firm. When the competing firms in an industry have the same micro elements, the relative success of the firms depends on their relative effectiveness in dealing with these elements

Suppliers An important force in the micro environment of a company is the suppliers,

i.e., those who supply the inputs like raw materials and components to the company. The importance of reliable source/sources of supply to the smooth functioning of the business is obvious.

Customer

The major task of a business is to create and sustain customers. A business existsonly because of its customers. The choice of customer segments should be made by considering a number of factors including the relative profitability, dependability, stability of demand, growth prospects and the extent of competition.Competition not only include the other firms that produce same product but also those firms which compete for the income of the consumers the competition here among these products may be said as desire competition as the primary task here is to fulfill the desire of the customers. The competition that satisfies a particular category desire then it is called generic competition..Marketing Intermediaries

The marketing intermediaries include middlemen such as agents and merchants that help the company find customers or close sales with them. The marketing intermediaries are vital links between the company and the final consumers .Financiers

The financiers are also important factors of internal environment. Along with financing capabilities of the company their policies and strategies, attitudes towards risk , ability to provide non-financial assistance etc. are very important. Public Public can be said as any group that has an actual or potentialinterest in or on an organization’s ability to achieve its interest. Public include media and citizens. Growth of consumer public is an important development affecting business.

Macro Environment

Macro environment is also known as General environment and remote environment. Macro factors are generally more uncontrollable than micro environment factors. When the macro factors become uncontrollable , the success of company depends upon its adaptability to the environment. Some of the macro environment factors are discussed below:

Economic Environment Economic environment refers to the aggregate of the nature of economic system of the country, business cycles, the socio-economic infrastructure etc. The successful businessman visualizes the external factors affecting the business, anticipating prospective market situations and makes suitable to get the maximum with minimize cost.Social Environment The social dimension or environment of a nation determines the value system of the society which, in turn affects the functioning of the business. Sociological factors such as costs structure, customs and conventions, mobility of labour etc. have far-reaching impact on the business. These factors determine the work culture and mobility of labour, work groups etc. Political Environment The political environment of a country is influenced by the political organisations such as philosophy of political parties, ideology of government or party in power, nature and extent of bureaucracy influence of primary groups etc. . The political environment of the country influences the business to a great extent. Legal Environment Legal environment includes flexibility and adaptability of law and other legal rules governing the business. It may include the exact rulings and decision of the courts. These affect the business and its managers to a great extent. Technical Environment The business in a country is greatly influenced by the technological development. The technology adopted by the industries determines the type and quality of goods and services to be produced and the type and quality of plant and equipment to be used. Technological environment influences the business in terms of investment in technology, consistent application of technology and the effects of technology on markets.

Q. 2 Explain the impact of Globalization, Privatization & Liberalization on Indian economy.

Ans : Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient. With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for India and her billion plus population. This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked. Besides, it also marks the advent of the real integration of the Indian economy into the global economy.This era of reforms has also ushered in a remarkable change in the Indian

mindset, as it deviates from the traditional values held since Independence in 1947, such as self reliance and socialistic policies of economic development, which mainly due to the inward looking restrictive form of governance, resulted in the isolation, overall backwardness and inefficiency of the economy, amongst a host of other problems. This, despite the fact that India has always had the potential to be on the fast track to prosperity.Now that India is in the process of restructuring her economy, with aspirations of elevating herself from her present desolate position in the world, the need to speed up her economic development is even more imperative. And having witnessed the positive role that Foreign Direct Investment (FDI) has played in the rapid economic growth of most of the Southeast Asian countries and most notably China, India has embarked on an ambitious plan to emulate the successes of her neighbors to the east and is trying to sell herself as a safe and profitable destination for FDI. The term “Liberalization” stands for “the act of making less strict”.Liberalization in Economy stands for “The process of making policies less constraining of economic activity." And also “Reduction of tariffs and/or removal of non-tariff barriers.”Economic liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities; the doctrine is associated with neo-liberalism. The arguments for economic liberalization include greater efficiency and effectiveness that would translate to a "bigger pie" for everybody.I n developing countries, economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments. Three of the fastest growing developing economies today; Brazil, China and India, have achieved rapid economic growth in the past several years or decades after they have "liberalized" their economies to foreign capital. Most first world countries, in order to remain globally competitive, have pursued the path of economic liberalization: partial or full privatization of government institutions and assets, greater labor-market flexibility, lower tax rates for businesses, less restriction on both domestic and foreign capital, open markets, etc. British Prime Minister Tony Blair wrote that: "Success will go to those companies and countries which are swift to adapt, slow to complain, open and willing to change. The task of modern governments is to ensure that our countries can rise to this challenge.

IMPACT OF LIBERALISATION ON INDIAN ECONOMY

The low annual growth rate of the economy of India before 1980, which stagnated around 3.5% from 1950s to 1980s, while per capital income averaged 1.3%.At the same time, Pakistan grew by 5%, Indonesia by 9%, Thailand by 9%, South Korea by 10% and in Taiwan by 12%. Only four or five licenses would be given for steel, power and communications. License owners built up huge powerful empires. A huge public sector emerged. State-owned enterprises made large losses. Infrastructure investment was poor because of the public sector monopoly. License Raj established the "irresponsible, self-perpetuating bureaucracy that still exists throughout much of the country" and corruption flourished under this system. Financial Liberalization

PRIVITISATION

The term “Privatization” refers to “The transfer of ownership of property or businesses from a government to a privately owned entity.”The transition from a publicly traded and

owned company to a company which is privately owned and no longer trades publicly on a stock exchange. When a publicly traded company becomes private, investors can no longer purchase a stake in that company.”The process of converting or "selling off" government-owned assets, properties, or production activities to private ownership. After several decades of increasing government control over productive activities, privatization came into vogue in the 1980s, along with business deregulation and an overall movement toward greater use of markets.”

Privatization is frequently associated with industrial or service-oriented enterprises, such as mining, manufacturing or power generation, but it can also apply to any asset, such as land, roads, or even rights to water. In recent years, government services such as health, sanitation, and education have been particularly targeted for privatization in many countries.”Privatization helps establish a "free market", as well as fostering capitalist competition, which its supporters argue will give the public greater choice at a competitive price. Conversely, socialists view privatization negatively, arguing that entrusting private businesses with control of essential services reduces the public's control over them and leads to excessive cost cutting in order to achieve profit and a resulting poor quality service.”

Impact Of Privatization On Indian Economy

It frees the resources for a more productive utilization.

Private concerns tend to be profit oriented and transparent in their functioning as private owners are always oriented towards making profits and get rid of sacred cows and hitches in conventional bureaucratic management.

Since the system becomes more transparent, all underlying corruptions are minimized and owners have a free reign and incentive for profit maximization so they tend to get rid of all free loaders and vices that are inherent in government functions.

Gets rid of employment inconsistencies like free loaders, or over employed departments reducing the strain on resources.

Reduce the government's financial and administrative burden.

Effectively minimizes corruption and optimizes output and functions.

Gets rid of employment inconsistencies like free loaders, or over employed departments reducing the strain on resources.

Private firms are less tolerant towards capitulations and appendages in government departments and hence tend to right size the human resource potential befitting the organization's needs and may cause resistance and disgruntled employees who are accustomed to the benefits as government functionaries

Permit the private sector to contribute to economic development.

Development of the general budget resources and diversifying sources of income.

GLOBALISATION

globalization (or globalization) describes a process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation, and trade. The term is sometimes used to refer specifically to economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. Globalization as a spatial integration in the sphere of social relations when he said “Globalization can be defined as the intensification of worldwide social relations which link distant locations in such a way that local happenings are shaped by events occurring many miles away and vice – versa.” Globalization generally means integrating economy of our nation with the world economy. The economic changes initiated have had a dramatic effect on the overall growth of the economy. It also heralded the integration of the Indian economy into the global economy. The Indian economy was in major crisis in 1991 when foreign currency reserves went down to $1 billion. Globalization had its impact on various sectors including Agricultural, Industrial, Financial, Health sector and many others. It was only after the LPG policy i.e. Liberalization, Privatization and Globalization launched by the then Finance Minister Man Mohan Singh that India saw its development in various sectors.

Advent of New Economic Policy -After suffering a huge financial and economic crisis Dr. Man Mohan Singh brought a new policy which is known as Liberalization, Privatization and Globalization Policy (LPG Policy) also known as New Economic Policy,1991 as it was a measure to come out of the crisis that was going on at that time. The following measures were taken to liberalize and globalize the economy:

1. Devaluation: To solve the balance of payment problem Indian currency were devaluated by 18 to 19%.

2. Disinvestment: To make the LPG model smooth many of the public sectors were sold to the private sector.

3. Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of sectors such as Insurance (26%), defense industries (26%) etc.

4. NRI Scheme: The facilities which were available to foreign investors were also given to NRI's.

The New Economic Policy (NEP-1991) introduced changes in the areas of trade policies, monetary & financial policies, fiscal & budgetary policies, and pricing & institutional reforms. The salient features of NEP-1991 are (i) liberalization (internal and external), (ii) extending privatization, (iii) redirecting scarce Public Sector Resources to Areas where the private sector is unlikely to enter, (iv) globalization of economy, and (v) market friendly state.

Consequences of Globalization:

The implications of globalisation for a national economy are many. Globalisation has

intensified interdependence and competition between economies in the world market. This is reflected in Interdependence in regard to trading in goods and services and in movement of capital. As a result domestic economic developments are not determined entirely by domestic policies and market conditions. Rather, they are influenced by both domestic and international policies and economic conditions. It is thus clear that a globalising economy, while formulating and evaluating its domestic policy cannot afford to ignore the possible actions and reactions of policies and developments in the rest of the world. This constrained the policy option available to the government which implies loss of policy autonomy to some extent, in decision-making at the national level.

Now for Further analysis we take up Impact of Globalization on various sector of Indian Economy.

Impact of Globalization on Agricultural Sector:

Agricultural Sector is the mainstay of the rural Indian economy around which socio-economic privileges and deprivations revolve and any change in its structure is likely to have a corresponding impact on the existing pattern of Social equity. The liberalization of India’s economy was adopted by India in 1991. Facing a severe economic crisis, India approached the IMF for a loan, and the IMF granted what is called a ‘structural adjustment’ loan, which is a loan with certain conditions attached which relate to a structural change in the economy. Essentially, the reforms sought to gradually phase out government control of the market (liberalization), privatize public sector organizations (privatization), and reduce export subsidies and import barriers to enable free trade (globalization). Globalization has helped in:

•Raising living standards,• Alleviating poverty,• Assuring food security,• Generating buoyant market for expansion of industry and services, and• Making substantial contribution to the national economic growth.

Impact of Globalization on Industrial Sector:Effects of Globalization on Indian Industry started when the government opened the country's markets to foreign investments in the early 1990s. Globalization of the Indian Industry took place in its various sectors such as steel, pharmaceutical, petroleum, chemical, textile, cement, retail, and BPO.

Globalization means the dismantling of trade barriers between nations and the integration of the nations economies through financial flow, trade in goods and services, and corporate investments between nations. Globalization has increased across the world in recent years due to the fast progress that has been made in the field of technology especially in communications and transport. The government of India made changes in its economic policy in 1991 by which it allowed direct foreign investments in the country. The benefits of the effects of globalization in the Indian Industry are that many foreign companies set up industries in India, especially in the pharmaceutical, BPO, petroleum, manufacturing, and chemical sectors and this helped to provide employment to many people in the country. This helped reduce the level of unemployment and poverty in the

country. Also the benefit of the Effects of Globalization on Indian Industry are that the foreign companies brought in highly advanced technology with them and this helped to make the Indian Industry more technologically advanced.

The negative Effects of Globalization on Indian Industry are that with the coming of technology the number of labor required decreased and this resulted in many people being removed from their jobs. This happened mainly in the pharmaceutical, chemical, manufacturing, and cement industries.

Impact on Financial Sector:

Reforms of the financial sector constitute the most important component of India’s programme towards economic liberalization. The recent economic liberalization measures have opened the door to foreign competitors to enter into our domestic market. Innovation has become a must for survival. Financial intermediaries have come out of their traditional approach and they are ready to assume more credit risks. As a consequence, many innovations have taken place in the global financial sectors which have its own impact on the domestic sector also. The emergences of various financial institutions and regulatory bodies have transformed the financial services sector from being a conservative industry to a very dynamic one. In this process this sector is facing a number of challenges. In this changed context, the financial services industry in India has to play a very positive and dynamic role in the years to come by offering many innovative products to suit the varied requirements of the millions of prospective investors spread throughout the country. Reforms of the financial sector constitute the most important component of India’s programme towards economic liberalization.

Growth in financial services (comprising banking, insurance, real estate and business services), after dipping to 5.6% in 2003-04 bounced back to 8.7% in 2004-05 and 10.9% in 2005-06. The momentum has been maintained with a growth of 11.1% in 2006-07. Because of Globalization, the financial services industry is in a period of transition. Market shifts, competition, and technological developments are ushering in unprecedented changes in the global financial services industry.

Impact on Export and Import:

India's Export and Import in the year 2001-02 was to the extent of 32,572 and 38,362 million respectively. Many Indian companies have started becoming respectable players in the International scene. Agriculture exports account for about 13 to 18% of total annual of annual export of the country. In 2000-01 Agricultural products valued at more than US $ 6million were exported from the country 23% of which was contributed by the marine products alone. Marine products in recent years have emerged as the single largest contributor to the total agricultural export from the country accounting for over one fifth of the total agricultural exports. Cereals (mostly basmati rice and non-basmati rice), oil seeds, tea and coffee are the other prominent products each of which accounts fro nearly 5 to 10% of the countries total agricultural exports.

Q. 3Explain the importance Small Scale Industries. Explain the problems faced by these industries and give suggestion to remove these problems.

IMPORTANCE OF SMALL SCALE INDUSTRIES Small-scale industries play an important role in industrial development of a country. It is all the more important in case of developing countries like India. The socio-economic transformation of India cannot be achieved without the development of small-scale industries. It has been estimated that the small-scale industries contribute about 47 per cent of gross value of output manufactured in the country. Their importance can be further highlighted by noting that SSIs provided nearly five times the employment as compared to the large-scale sector. SSI is an important segment of the economy contributing substantially in the form of production, employment and export. Let us now discuss the various advantages of small-scale industries to highlight the importance of this sector. The main advantages are as follows: 1. Generation of Employment: The small-scale industries are labour intensive i.e. the ratio of labour to investment is very high in their case. A given amount of capital invested in a small-scale industry provided more employment than the same amount of capital invested in a large-scale industry. Since capital is scarce and labour abundant in India, the generation of employment is the advantage that can be put forward for the support of small-scale industries in India. Moreover, these industries can be set-up at the very doorstep of workers and, thereby, provide work for the unemployed, more work for the underemployed and supplementary work for the seasonally unemployed workers. 2. Self Employment: The small-scale industries offer almost limitless opportunities for self employment and hence are particularly suited to a developing country like India where there is a big problem of unemployment and underemployment. 3. Lesser Capital Requirement: Another advantage of small-scale industries is that they need relatively lesser amount of capital than that required by large-scale industries. As capital is very scarce in an underdeveloped country like India, it may be used to greater advantage in small-scale sector. 4. Mobilisation of Capital: Small-scale industries not only make economies in the use of capital but also mobilise capital that would not otherwise have come into existence. Large-scale industries cannot mobilise the savings from rural areas, while this task can be effectively accomplished by setting up a network of small-scale industries in such areas. 5. Mobilisation of Entrepreneurial Skill: Another advantage of small-scale industries is the lesser requirement of skill and expertise, which is also scarce in a developing country like India. Further, large-scale industries cannot utilise a number of entrepreneurs who are spread over small towns and villages of the country. On the other hand, small-scale industries can effectively mobilise such entrepreneurial skills. 6. Equitable Distribution of Income: Small-scale industries secure a more equitable distribution of income and wealth. They are particularly suitable for the fulfillment of the objective of social justice. This is ensured because the ownership of small-scale industries is more widespread and they offer a much longer employment potential as compared to the large-scale industries. The development of large-scale industries tends to concentrate large incomes and wealth in a few hands. 7. Balanced Regional Development: Small-scale industries utilise local resources, bring about dispersion of industries and promote balanced regional development. The growth of large-scale industries on the other hand have a tendency towards concentration of industries at a few places leading to many evil consequences such as overcrowding, pollution, creation of slums, etc. Concentration of industries at a few places is undesirable

from the point of view of national defence also, as during war times, there is a greater risk of destroying different industries concentrated at one place. 8. Saving in Foreign Exchange: Another advantages of the small-scale industries are the savings they offer in the scarce foreign exchange resources of the country. Firstly, small-scale industries do not require much foreign exchange resources for their

SSIs are holding a very important place in the industrial system of the country. Thus, suitable measures are necessary to remove these bottlenecks in the optimum operation of SSIs. These remedial measures are as follows:

1. Effective Planning: SSIs are required to conduct detailed survey of the existing situations prevailing in small-scale sector and draw productive programmes for them. Study suggests that very few small entrepreneurs launch their operations on the basis of a careful plan. A detailed feasibility study or detailed project report is highly essential for small entrepreneurs to start their units. Without proper planning, they may be affected by improper location, inexperienced consultancy services, improper technology, under estimation of costs, etc. So SSIs are required to initiate effective action plan for their survival.

2. Improvement in Techniques of Production and Proper Technology: SSIs should try to improve their techniques of product and adopt modern technology. Government consultancy organisations and laboratories have an important role to play in this context. They have to arrange viable and modern techniques of production to them, as they are unable to expend money on this count. Besides SSIs should keep themselves in touch with development in technology. They should also try to give a lead, if possible financially, in research and development efforts. They should also believe in continuous innovation and then they can remain in their business.

3. Training and Development: SSIs should make concerted efforts in imparting proper education and training to workers engaged in this sector as they are valuable asset of industry. Expenditure on training and development activities should be treated as an investment. Small Industries Associations should also involve themselves in providing knowledge and skills required for them in the changing environment. Workers should be encouraged to innovate themselves in the production process as it would enable the SSI’s to compete with their medium and large scale counterparts. For this purpose effective motivation and reward system is highly desirable.

4. Provision of Infrastructural Facilities: Development finance, power arrangement, water supply, etc. are necessary for the smooth functioning of SSIs. State Development Corporation, Small Industries Corporation, State Technical Consultancy Organisations are engaged in provision of these facilities. But their support system needs further improvement. Development of industrial estates has solved this problem to a certain extent but efforts are needed to develop more industrial estates to accommodate more small units.

5. Regular Supply of Raw Materials: Small Industries Development Corporations and other canalising agencies responsible for the supply of raw materials to small scale sector should take necessary action to maintain a continuous but proper supply of raw material to SSIs. They should also ensure that bogus firms are to be excluded from this type of support. Government should also intervene from time to time in arranging cheaper imports of raw materials for them.

6. Adequate Credit Arrangement: For SSIs, traditional sources of financing offer little scope for expansion and alternative means like venture capital are yet to be developed for them. SIDBI has formulated guidelines for venture capital and there is hope for better finance facility for this sector. Besides, priority sector lending scheme should be made more broad-based and credit limits is to be enhanced. The SSIs depend more on

their own funds and loaned fund from non-banking sector as they are unable to get proper support from banks and other funding agencies. The SIDBI is trying to provide these facilities but intermediaries involved in the system are creating problems for them. So SIDBI should try to bring transparency and effectiveness in its functioning.

7. Effective Marketing Arrangements: SSIs should focus on brand, product and market development. They should try to remain in the market and special trust should be given on quality improvement programme. Products at low costs and passing on the benefits to consumers would go in long way to improve their marketing performance. The large companies earn handsome profits from marketing the products of small units by charging a much higher price from the customers. The reason is they have brands. So SSIs should try to popularise their products in the market which will provide them separate product and brand identity. This strategy will benefit them in the long run. However, efforts should be made to maintain standards and quality of the output then they will get positive support from their potential customers. 8. Development of Suitable Machinery: SSIs should try to develop separate suitable machineries for taking initiative with regard to problem faced by them. SSIs have different typical problems and that have to overcome by taking offensive strategies. SSIs Association should be offensive and objectively clear in their goals in pleading their cases with the Government. Associations like FICCI, Assocham and CII are more powerful in maintaining their relations with the Government. They should also involve themselves in focusing attention on the problems being faced by their members through seminar, conferences etc. So similar strategies should be adopted by the small industries associations to protect their members interest with the Government establishment and secondly, these industries can contribute to the foreign exchange resources of the country through adding to exports. 9. Quick Investment: The time lag between the execution of investment project and the start of production of goods is relatively short in case of small-scale industries. These quick investment type of industries are particularly suitable for developing countries like India. 10. Beneficial to large-scale industries: Large-scale industries can also prosper and develop, if small-scale industries manufacture and supply their small parts and semi-finished goods required by them. Infact, small-scale industries are a must for the development of large-scale industries.

MBA-103: Managerial Economics

Answer any three questions. Each question carries 10 marks each:

Q1. Explain demand analysis. (Determinants of demand, Law of demand & Elasticity of Demand)

Economic demand-How much of an item one is willing, ready and able to purchase- depends on a number of different factors. For example, people probably care about how much an item costs when deciding how much to purchase. They might also consider how much money they make when making purchasing decisions.

Economists break down the determinants of an individual's demand into five categories:

Price Income Prices of Related Goods Tastes Expectations

PricePrice, in many cases, is likely to be the most fundamental determinant of demand, since it's often the first thing that people think about when deciding how much of an item to buy. The vast majority of goods and services obey what economists call the law of demand- that, all else being equal, the quantity demanded of an item decreases when the price increases and vice versa. (There are some exceptions to this rule, but they are few and far between.)

IncomePeople certainly look at their incomes when deciding how much of an item to buy, but the relationship between income and demand isn't as straightforward as one might think.

Do people buy more or less of an item when their incomes increase? As it turns out, that's a more complicated question than it might initially seem. For example, if a person were to win the lottery, he would likely take more rides on private jets than he did before. On the other hand, the lottery winner would probably take fewer rides on the subway than before.

Economists categorize items as normal goods or inferior goods on exactly this basis. If a good is a normal good, then the quantity demanded goes up when income increases, and the quantity demanded goes down when income decreases. If a good is an inferior good, then the quantity demanded goes down when income increases and goes up when income decreases.

In our example, private jet rides are a normal good and subway rides are an inferior good. There are two things to note about normal and inferior goods:

Price of related goodsWhat is a normal good for one person may be an inferior good for another person, and vice versa. For an overall market, a good is normal if market demand increases when income increases, on average, for the people in that market, and a good is inferior if market demand decreases when average income increases.

It's possible for a good to be neither normal nor inferior- for example, it's quite possible that the demand for toilet paper neither increases nor decreases when income changes!

Then deciding how much of a good they want to purchase, people take into account the prices of both substitute goods and complementary goods. Substitute goods, or substitutes, are goods that are used in place of one another. For example, Coke and Pepsi are substitutes because people tend to, well, substitute one for the other. Complementary goods, or complements, on the other hand, are goods that people tend to use together. DVD players and DVDs are examples of complements, as are computers and high-speed internet access.

The key feature of substitutes and complements is the fact that a change in price of one of the goods has an impact on the demand for the other good. For substitutes, an increase in the price of one of the goods will increase demand for the substitute good. (It's probably not surprising that an increase in the price of Coke would increase the demand for Pepsi as some consumers switch over from Coke to Pepsi.) It's also the case that a decrease in the price of one of the goods will decrease demand for the substitute good.

For complements, an increase in the price of one of the goods will decrease demand for the complementary good. Conversely, a decrease in the price of one of the goods will increase demand for the complementary good. (For example, decreases in the prices of video game consoles serves in part to increase demand for video games.)

Goods that don't have either the substitute or complement relationship are called unrelated goods. In addition, sometimes goods can have both a substitute and a complement relationship to some degree- for example, gasoline is a complement to even fuel-efficient cars, but a fuel-efficient car is a substitute for gasoline to some degree.

TASTES

How much of a particular good or service also depends on an individual's taste for the item. In general, economists use the term "tastes" as a catchall category for consumers' attitude towards a product. In this sense, if consumers' tastes for a good or service increase, then their quantity demanded increases, and vice versa.

EXPECTATIONToday's demand can also depend on consumers' expectations of future prices, incomes, prices of related goods, and so on. For example, consumers demand more of an item today if they expect the price to increase increase in the future. Similarly, people who expect their incomes to increase in the future will often increase their consumption todayAlthough not a determinant of individual demand, the number of buyers in a market is clearly an important factor in calculating market demand. Not surprisingly, market demand increases when the number of buyers increases, and market demand decreases when the number of buyers decreases.

Law of demand

The law of demand states that when prices of goods and services rises the quantity demanded falls because first of all, it drives away all those good bargain hunters and cheap people if it got into a price level expensive enough for them. Individuals who have just enough cash to buy it would no longer intend to purchase the good when the price increased due to worries that they might run out of cash before payday arrives.

Demand Schedule

A table representing the quantity intended to purchase a good at a certain price level. These are assumptions about the buyer's sentiment towards the number of intended purchases at different prices for instance, he's got $10 and he intends to buy 10 sodas and 2 chips with that money. At $0.50 cents per soda he could get 10 sodas for $5 enough for his entire crew, but if the price is more than the usual he would have to face a decision whether to still buy 10 sodas using all his available money sacrificing the chips.

Demand Curve

This is a graphic representation of buyer's sentiment towards a change in price. It plots the degree of relationship between the price of the good and the number of items demanded at that price level. This is like drawing how the demand schedule looks like when converted to an image. Changes in the demand curve are caused by events such as taxes which increases the price a little bit therefore decreasing total demand. There are instances where the demand for an item changes at the same price level this is caused mainly by the average income of the consumer or the available disposable resource. This is called the shift in demand.

The law of demand states that there is a direct relationship between the price of a good and the demand for it. In particular, people generally buy more of a good when the price is low and less of it when the price is high. This is a general rule that applies to most goods called normal goods. As the price of a normal good increases, people buy less of it because they are usually able to switch to cheaper goods. An example is butter, which can be substituted for margarine when the price of butter increases. However there are certain goods that defy this general rule. One such category of goods is called "Giffen goods". With "Giffen goods", there are no cheap substitutes and these goods are so important to the livelihood of the consumer that he devotes overwhelmingly more of his income towards its purchase when the price increases. "Giffen goods" are extremely rare but one popular historical example of this phenomenon is potato during the Irish potato famine in the mid 19th century. It has also been suggested that gasoline may be an example of a modern day "Giffen good".

Q2. Explain National Income. Explain the methods of calculating National Income

Arriving at a figure for the total production of goods and services in a large region like a country entails a large amount of data-collection and calculation. Although some attempts were made to estimate national incomes as long ago as the 17th century, [2] the systematic keeping of national accounts, of which these figures are a part, only began in the 1930s, in the United States and some European countries. The impetus for that major statistical effort was the Great Depression and the rise of Keynesian economics, which prescribed a greater role for the government in managing an economy, and made it necessary for governments to obtain accurate information so that their interventions into the economy could proceed as well-informed as possible.

Market value

In order to count a good or service it is necessary to assign some value to it. The value that the measures of national income and output assign to a good or service is its market value – the price it fetches when bought or sold. The actual usefulness of a product (its use-value) is not measured – assuming the use-value to be any different from its market value.

Three strategies have been used to obtain the market values of all the goods and services produced: the product (or output) method, the expenditure method, and the income method. The product method looks at the economy on an industry-by-industry basis. The total output

of the economy is the sum of the outputs of every industry. However, since an output of one industry may be used by another industry and become part of the output of that second industry, to avoid counting the item twice we use not the value output by each industry, but the value-added; that is, the difference between the value of what it puts out and what it takes in. The total value produced by the economy is the sum of the values-added by every industry.

The expenditure method is based on the idea that all products are bought by somebody or some organisation. Therefore we sum up the total amount of money people and organisations spend in buying things. This amount must equal the value of everything produced. Usually expenditures by private individuals, expenditures by businesses, and expenditures by government are calculated separately and then summed to give the total expenditure. Also, a correction term must be introduced to account for imports and exports outside the boundary.

The income method works by summing the incomes of all producers within the boundary. Since what they are paid is just the market value of their product, their total income must be the total value of the product. Wages, proprieter's incomes, and corporate profits are the major subdivisions of income.

The output approach

The output approach focuses on finding the total output of a nation by directly finding the total value of all goods and services a nation produces.

Because of the complication of the multiple stages in the production of a good or service, only the final value of a good or service is included in total output. This avoids an issue often called 'double counting', wherein the total value of a good is included several times in national output, by counting it repeatedly in several stages of production. In the example of meat production, the value of the good from the farm may be $10, then $30 from the butchers, and then $60 from the supermarket. The value that should be included in final national output should be $60, not the sum of all those numbers, $100. The values added at each stage of production over the previous stage are respectively $10, $20, and $30. Their sum gives an alternative way of calculating the value of final output.

Formulae:

GDP(gross domestic product) at market price = value of output in an economy in a particular year - intermediate consumption

NNP at factor cost = GDP at market price - depreciation + NFIA (net factor income from abroad) - net indirect taxes

The income approach

The income approach equates the total output of a nation to the total factor income received by residents or citizens of the nation. The main types of factor income are:

Employee compensation (cost of fringe benefits, including unemployment, health, and retirement benefits);

Interest received net of interest paid; Rental income (mainly for the use of real estate) net of expenses of landlords; Royalties paid for the use of intellectual property and extractable natural resources.

All remaining value added generated by firms is called the residual or profit. If a firm has stockholders, they own the residual, some of which they receive as dividends. Profit includes

the income of the entrepreneur - the businessman who combines factor inputs to produce a good or service.

Formulae:

NDP at factor cost = Compensation of employees + Net interest + Rental & royalty income + Profit of incorporated and unincorporated NDP at factor cost

The expenditure approach

The expenditure approach is basically an output accounting method. It focuses on finding the total output of a nation by finding the total amount of money spent. This is acceptable, because like income, the total value of all goods is equal to the total amount of money spent on goods. The basic formula for domestic output takes all the different areas in which money is spent within the region, and then combines them to find the total output.

Where:C = household consumption expenditures / personal consumption expendituresI = gross private domestic investmentG = government consumption and gross investment expendituresX = gross exports of goods and servicesM = gross imports of goods and services

Note: (X - M) is often written as XN, which stands

Q3. Explain Perfect Competition Market. Explain the price and output determination under this markets.

Generally, a perfectly competitive market exists when every participant is a "price taker", and no participant influences the price of the product it buys or sells. Specific characteristics may include:

Infinite buyers and sellers – An infinite number of consumers with the willingness and ability to buy the product at a certain price, and infinite producers with the willingness and ability to supply the product at a certain price.

Zero entry and exit barriers – A lack of entry and exit barriers makes it extremely easy to enter or exit a perfectly competitive market.

Perfect factor mobility – In the long run factors of production are perfectly mobile, allowing free long term adjustments to changing market conditions.

Perfect information - All consumers and producers are assumed to have perfect knowledge of price, utility, quality and production methods of products.

Zero transaction costs - Buyers and sellers do not incur costs in making an exchange of goods in a perfectly competitive market.

Profit maximization - Firms are assumed to sell where marginal costs meet marginal revenue, where the most profit is generated.

Homogenous products - The qualities and characteristics of a market good or service do not vary between different suppliers.

Non-increasing returns to scale - The lack of increasing returns to scale (or economies of scale) ensures that there will always be a sufficient number of firms in the industry.

Property rights - Well defined property rights determine what may be sold, as well as what rights are conferred on the buyer.

In the short run, perfectly-competitive markets are not productively efficient as output will not occur where marginal cost is equal to average cost (MC=AC). They are allocatively efficient, as output will always occur where marginal cost is equal to marginal revenue (MC=MR). In the long run, perfectly competitive markets are both allocatively and productively efficient.

In perfect competition, any profit-maximizing producer faces a market price equal to its marginal cost (P=MC). This implies that a factor's price equals the factor's marginal revenue product. It allows for derivation of the supply curve on which the neoclassical approach is based. This is also the reason why "a monopoly does not have a supply curve". The abandonment of price taking creates considerable difficulties for the demonstration of a general equilibrium except under other, very specific conditions such as that of monopolistic competition.

Approaches and conditions

In neoclassical economics there have been two strands of looking at what perfect competition is. The first emphasis is on the inability of any one agent to affect prices. Usually justified by the fact that any one firm or consumer is so small relative to the whole market that their presence or absence leaves the equilibrium price very nearly unaffected. This assumption of negligible impact of each agent on the equilibrium price has been formalized by Aumann (1964) by postulating a continuum of infinitesimal agents. The difference between Aumann's approach and that found in undergraduate textbooks is that in the first, agents have the power to choose their own prices but do not individually affect the market price, while in the second it is simply assumed that agents treat prices as parameters. Both approaches lead to the same result.

The second view of perfect competition conceives of it in terms of agents taking advantage of – and hence, eliminating – profitable exchange opportunities. The faster this arbitragetakes place, the more competitive a market. The implication is that the more competitive a market is under this definition, the faster the average market price will adjust so as to equate supply and demand (and also equate price to marginal costs). In this view, "perfect" competition means that this adjustment takes place instantaneously. This is usually modeled via the use of the Walrasian auctioneer (see article for more information). Maury Osborne as noting the inapplicability of such models to actual economies since money and the commodities sold each have a smallest positive unit.

Thus nowadays the dominant intuitive idea of the conditions justifying price taking and thus rendering a market perfectly competitive is an amalgam of several different notions, not all present, nor given equal weight, in all treatments. Besides product homogeneity and absence of collusion, the notion more generally associated with perfect competition is the negligibility of the size of agents, which makes them believe that they can sell as much of the good as they wish at the equilibrium price but nothing at a higher price (in particular, firms are described as each one of them facing a horizontal demand curve). However, also widely accepted as part of the notion of perfectly competitive market are perfect information about price distribution and very quick adjustments (whose joint operation establish the law of one price), to the point sometimes of identifying perfect competition with an essentially instantaneous reaching of equilibrium between supply and demand. Finally, the idea of free entry with free access to technology is also often listed as a characteristic of perfectly competitive markets, probably owing to a difficulty

with abandoning completely the older conception of free competition. In recent decades it has been rediscovered that free entry can be a foundation of absence of market power, alternative to negligibility of agents.

Free entry also makes it easier to justify the absence of collusion: any collusion by existing firms can be undermined by entry of new firms. The necessarily long-period nature of the analysis (entry requires time!) also allows a reconciliation of the horizontal demand curve facing each firm according to the theory, with the feeling of businessmen that "contrary to economic theory, sales are by no means unlimited at the current market price" (Arrow 1959 p. 49). Sraffian economistssee the assumption of free entry and exit as characteristic of the theory of free competition in Classical economics, an approach that is not expressed in terms of schedules of supply and demand.

Results

In the short run, it is possible for an individual firm to make an economic profit. This situation is shown in this diagram, as the price or average revenue, denoted by P, is above the average cost denoted by C .

However, in the long period, economic profit cannot be sustained. The arrival of new firms or expansion of existing firms (if returns to scale are constant) in the market causes the (horizontal) demand curve of each individual firm to shift downward, bringing down at the same time the price, the average revenue and marginal revenue curve. The final outcome is that, in the long run, the firm will make only normal profit (zero economic profit). Its horizontal demand curve will touch its average total cost curve at its lowest point. (Seecost curve.)

In a perfectly competitive market, a firm's demand curve is perfectly elastic.

As mentioned above, the perfect competition model, if interpreted as applying also to short-period or very-short-period behaviour, is approximated only by markets of homogeneous products produced and purchased by very many sellers and buyers, usually organized markets for agricultural products or raw materials. In real-world markets, assumptions such as perfect information cannot be verified and are only approximated in organized double-auction markets where most agents wait and observe the behaviour of prices before deciding to exchange (but in the long-period interpretation perfect information is not necessary, the analysis only aims at determining the average around which market prices gravitate, and for gravitation to operate one does not need perfect information).

In the absence of externalities and public goods, perfectly competitive equilibria are Pareto-efficient, i.e. no improvement in the utility of a consumer is possible without a worsening of the utility of some other consumer. This is called the First Theorem of Welfare Economics. The basic reason is that no productive factor with a non-zero marginal product is left unutilized, and the units of each factor are so allocated as to yield the same indirect marginal utility in all uses, a basic efficiency condition (if this indirect marginal utility were higher in one use than in other ones, a Pareto improvement could be achieved by transferring a small amount of the factor to the use where it yields a higher marginal utility).

A simple proof assuming differentiable utility functions and production functions is the following. Let wj be the 'price' (the rental) of a certain factor j, let MP j1 and MPj2 be its marginal product in the production of goods 1 and 2, and let p1 and p2be these goods' prices. In equilibrium these prices must equal the respective marginal costs MC1 and MC2; remember thatmarginal cost equals factor 'price' divided by factor marginal productivity (because increasing the production of good by one very small unit through an increase of the employment of factor j requires increasing the factor employment by 1/MPji and thus increasing the cost by wj/MPji, and through the condition of cost minimization that marginal products must be proportional to factor 'prices' it can be shown that the cost increase is the same if the output increase is obtained by optimally varying all factors). Optimal factor employment by a price-taking firm requires equality of factor rental and factor marginal revenue product, wj=piMPji, so we obtain p1=MC1=wj/MPj1, p2=MCj2=wj/MPj2.

Now choose any consumer purchasing both goods, and measure his utility in such units that in equilibrium his marginal utility of money (the increase in utility due to the last unit of money spent on each good), MU1/p1=MU2/p2, is 1. Then p1=MU1, p2=MU2. The indirect marginal utility of the factor is the increase in the utility of our consumer achieved by an increase in the employment of the factor by one (very small) unit; this increase in utility through allocating the small increase in factor utilization to good 1 is MPj1MU1=MPj1p1=wj, and through allocating it to good 2 it is MPj2MU2=MPj2p2=wjagain. With our choice of units the marginal utility of the amount of the factor consumed directly by the optimizing consumer is again w, so the amount supplied of the factor too satisfies the condition of optimal allocation.

Monopoly violates this optimal allocation condition, because in a monopolized industry market price is above marginal cost, and this means that factors are underutilized in the monopolized industry, they have a higher indirect marginal utility than in their uses in competitive industries. Of course this theorem is considered irrelevant by economists who do not believe that general equilibrium theory correctly predicts the functioning of market economies; but it is given great importance by neoclassical economists and it is

the theoretical reason given by them for combating monopolies and for antitrust legislation.

Profit

In contrast to a monopoly or oligopoly, it is impossible for a firm in perfect competition to earn economic profit in the long run, which is to say that a firm cannot make any more money than is necessary to cover its economic costs. In order not to misinterpret this zero-long-run-profits thesis, it must be remembered that the term 'profit' is also used in other ways. Neoclassical theory defines profit as what is left of revenue after all costs have been subtracted, including normal interest on capital plus the normal excess over it required to cover risk, and normal salary for managerial activity. Classical economists on the contrary defined profit as what is left after subtracting costs except interest and risk coverage; thus, if one leaves aside risk coverage for simplicity, the neoclassical zero-long-run-profit thesis would be re-expressed in classical parlance as profits coinciding with interest in the long period, i.e. the rate of profit tending to coincide with the rate of interest. Profits in the classical meaning do not tend to disappear in the long period but tend to normal profit. With this terminology, if a firm is earning abnormal profit in the short term, this will act as a trigger for other firms to enter the market. As other firms enter the market the market supply curve will shift out causing prices to fall. Existing firms will react to this lower price by adjusting their capital stock downward.[7] This adjustment will cause their marginal cost to shift to the left causing the market supply curve to shift inward.[7] However, the net effect of entry by new firms and adjustment by existing firms will be to shift the supply curve outward.[7] The market price will be driven down until all firms are earning normal profit only.[8]

It is important to note that perfect competition is a sufficient condition for allocative and productive efficiency, but it is not a necessary condition. Laboratory experiments in which participants have significant price setting power and little or no information about their counterparts consistently produce efficient results given the proper trading institutions.[9]

The shutdown point

In the short run, a firm operating at a loss [R < TC (revenue less than total cost) or P < ATC (price less than unit cost)] must decide whether to continue to operate or temporarily shutdown.[10] The shutdown rule states "in the short run a firm should continue to operate if price exceeds average variable costs." [11] Restated, the rule is that for a firm to continue producing in the short run it must earn sufficient revenue to cover its variable costs.[12] The rationale for the rule is straightforward. By shutting down a firm avoids all variable costs.[13] However, the firm must still pay fixed costs.[14] Because fixed cost must be paid regardless of whether a firm operates they should not be considered in deciding whether to produce or shutdown. Thus in determining whether to shut down a firm should compare total revenue to total variable costs (VC) rather than total costs (FC + VC). If the revenue the firm is receiving is greater than its total variable cost (R > VC) then the firm is covering all variable cost plus there is additional revenue ("contribution"), which can be applied to fixed costs. (The size of the fixed costs is irrelevant as it is a sunk cost. The same consideration is used whether fixed costs are one dollar or one million dollars.) On the other hand if VC > R then the firm is not even covering its production costs and it should immediately shut down. The rule is conventionally stated in terms of price (average revenue) and average variable costs. The rules are equivalent (If you divide both sides of inequality TR > TVC by Q gives P > AVC). If the firm decides to operate, the firm will continue to produce where marginal

revenue equals marginal costs because these conditions insure not only profit maximization (loss minimization) but also maximum contribution.

Another way to state the rule is that a firm should compare the profits from operating to those realized if it shutdown and select the option that produces the greater profit. [15][16] A firm that is shutdown is generating zero revenue and incurring no variable costs. However, the firm still has to pay fixed cost. So the firm's profit equals fixed costs or −FC.[17] An operating firm is generating revenue, incurring variable costs and paying fixed costs. The operating firm's profit is R − VC − FC. The firm should continue to operate if R − VC − FC ≥ −FC, which simplified is R ≥ VC. [18][19] The difference between revenue, R, and variable costs, VC, is the contribution to fixed costs and any contribution is better than none. Thus, if R ≥ VC then firm should operate. If R < VC the firm should shut down.

A decision to shut down means that the firm is temporarily suspending production. It does not mean that the firm is going out of business (exiting the industry). [20]] If market conditions improve, and prices increase, the firm can resume production. Shutting down is a short-run decision. A firm that has shut down is not producing. The firm still retains its capital assets; however, the firm cannot leave the industry or avoid its fixed costs in the short run. Exit is a long-term decision. A firm that has exited an industry has avoided all commitments and freed all capital for use in more profitable enterprises.[21]

However, a firm cannot continue to incur losses indefinitely. In the long run, the firm will have to earn sufficient revenue to cover all its expenses and must decide whether to continue in business or to leave the industry and pursue profits elsewhere. The long-run decision is based on the relationship of the price and long-run average costs. If P ≥ AC then the firm will not exit the industry. If P < AC, then the firm will exit the industry. These comparisons will be made after the firm has made the necessary and feasible long-term adjustments. In the long run a firm operates where marginal revenue equals long-run marginal costs.[22]

Short-run supply curve

The short run supply curve for a perfectly competitive firm is the marginal cost (MC) curve at and above the shutdown point. Portions of the marginal cost curve below the shut down point are not part of the SR supply curve because the firm is not producing in that range. Technically the SR supply curve is a discontinuous function composed of the segment of the MC curve at and above minimum of the average variable cost curve and a segment that runs with the vertical axis from the origin to but not including a point "parallel" to minimum average variable costs.[23]

Examples

Though there is no actual perfectly competitive market in the real world, a number of approximations exist:

Perhaps the closest thing to a perfectly competitive market would be a large auction of identical goods with all potential buyers and sellers present. By design, a stock exchangeresembles this, not as a complete description (for no markets may satisfy all requirements of the model) but as an approximation. The flaw in considering the stock exchange as an example of Perfect Competition is the fact that large institutional investors (e.g. investment banks) may solely influence the market price. This, of course, violates the condition that "no one seller can influence market price".

Horse betting is also quite a close approximation. When placing bets, consumers can just look down the line to see who is offering the best odds, and so no one bookie can offer worse odds than those being offered by the market as a whole, since consumers will just go to another bookie. This makes the bookies price-takers. Furthermore, the product on offer is very homogeneous, with the only differences between individual bets being the pay-off and the horse. Of course, there are not an infinite amount of bookies, and some barriers to entry exist, such as a license and the capital required to set up.

Free software works along lines that approximate perfect competition as well. Anyone is free to enter and leave the market at no cost. All code is freely accessible and modifiable, and individuals are free to behave independently. Free software may be bought or sold at whatever price that the market may allow.

Some believe[who?] that one of the prime examples of a perfectly competitive market anywhere in the world is street food in developing countries. This is so since relatively few barriers to entry/exit exist for street vendors. Furthermore, there are often numerous buyers and sellers of a given street food, in addition to consumers/sellers possessing perfect information of the product in question. It is often the case that street vendors may serve a homogenous product, in which little to no variations in the product's nature exist.

Another very near example of perfect competition would be the fish market and the vegetable or fruit vendors who sell at the same place

Q. 1 Explain Planning & Organizing function of management in detail.

For theoretical purposes, it may be convenient to separate the function of management but practically these functions are overlapping in nature i.e. they are highly inseparable. Each function blends into the other & each affects the performance of others.

Planning means looking ahead and chalking out future courses of action to be followed. It is a preparatory step. It is a systematic activity which determines when, how and who is going to perform a specific job. Planning is a detailed programme regarding future courses of action. It is rightly said “Well plan is half done”. Therefore planning takes into consideration available & prospective human and physical resources of the organization so as to get effective co-ordination, contribution & perfect adjustment. It is the basic management function which

includes formulation of one or more detailed plans to achieve optimum balance of needs or demands with the available resources.

According to Urwick, “Planning is a mental predisposition to do things in orderly way, to think before acting and to act in the light of facts rather than guesses”. Planning is deciding best alternative among others to perform different managerial functions in order to achieve predetermined goals.

According to Koontz & O’Donell, “Planning is deciding in advance what to do, how to do and who is to do it. Planning bridges the gap between where we are to, where we want to go. It makes possible things to occur which would not otherwise occur”.

Steps in Planning Function

Planning function of management involves following steps:-

1. Establishment of objectivesa. Planning requires a systematic approach.b. Planning starts with the setting of goals and objectives to be achieved.c. Objectives provide a rationale for undertaking various activities as well as

indicate direction of efforts.d. Moreover objectives focus the attention of managers on the end results to be

achieved.e. As a matter of fact, objectives provide nucleus to the planning process.

Therefore, objectives should be stated in a clear, precise and unambiguous language. Otherwise the activities undertaken are bound to be ineffective.

f. As far as possible, objectives should be stated in quantitative terms. For example, Number of men working, wages given, units produced, etc. But such an objective cannot be stated in quantitative terms like performance of quality control manager, effectiveness of personnel manager.

g. Such goals should be specified in qualitative terms.h. Hence objectives should be practical, acceptable, workable and achievable.

2. Establishment of Planning Premisesa. Planning premises are the assumptions about the lively shape of events in

future.b. They serve as a basis of planning.c. Establishment of planning premises is concerned with determining where one

tends to deviate from the actual plans and causes of such deviations.d. It is to find out what obstacles are there in the way of business during the

course of operations.e. Establishment of planning premises is concerned to take such steps that avoids

these obstacles to a great extent.f. Planning premises may be internal or external. Internal includes capital

investment policy, management labour relations, philosophy of management, etc. Whereas external includes socio- economic, political and economical changes.

g. Internal premises are controllable whereas external are non- controllable.3. Choice of alternative course of action

a. When forecast are available and premises are established, a number of alternative course of actions have to be considered.

b. For this purpose, each and every alternative will be evaluated by weighing its pros and cons in the light of resources available and requirements of the organization.

c. The merits, demerits as well as the consequences of each alternative must be examined before the choice is being made.

d. After objective and scientific evaluation, the best alternative is chosen.e. The planners should take help of various quantitative techniques to judge the

stability of an alternative.4. Formulation of derivative plans

a. Derivative plans are the sub plans or secondary plans which help in the achievement of main plan.

b. Secondary plans will flow from the basic plan. These are meant to support and expediate the achievement of basic plans.

c. These detail plans include policies, procedures, rules, programmes, budgets, schedules, etc. For example, if profit maximization is the main aim of the enterprise, derivative plans will include sales maximization, production maximization, and cost minimization.

d. Derivative plans indicate time schedule and sequence of accomplishing various tasks.

5. Securing Co-operationa. After the plans have been determined, it is necessary rather advisable to take

subordinates or those who have to implement these plans into confidence.b. The purposes behind taking them into confidence are :-

a. Subordinates may feel motivated since they are involved in decision making process.

b. The organization may be able to get valuable suggestions and improvement in formulation as well as implementation of plans.

c. Also the employees will be more interested in the execution of these plans.

6. Follow up/Appraisal of plansa. After choosing a particular course of action, it is put into action.b. After the selected plan is implemented, it is important to appraise its

effectiveness.c. This is done on the basis of feedback or information received from

departments or persons concerned.d. This enables the management to correct deviations or modify the plan.e. This step establishes a link between planning and controlling function.f. The follow up must go side by side the implementation of plans so that in the

light of observations made, future plans can be made more realistic.

ORGANISING FUNCTION OF MANAGEMENT

Organizing is the function of management which follows planning. It is a function in which the synchronization and combination of human, physical and financial resources takes place. All the three resources are important to get results. Therefore, organizational function helps in achievement of results which in fact is important for the functioning of a concern. According toChester Barnard, “Organizing is a function by which the concern is able to define the role positions, the jobs related and the co- ordination between authority and responsibility. Hence, a manager always has to organize in order to get results.

A manager performs organizing function with the help of following steps:-

1. Identification of activities - All the activities which have to be performed in a concern have to be identified first. For example, preparation of accounts, making sales, record keeping, quality control, inventory control, etc. All these activities have to be grouped and classified into units.

2. Departmentally organizing the activities - In this step, the manager tries to combine and group similar and related activities into units or departments. This organization of dividing the whole concern into independent units and departments is called departmentation.

3. Classifying the authority - Once the departments are made, the manager likes to classify the powers and its extent to the managers. This activity of giving a rank in order to the managerial positions is called hierarchy. The top management is into formulation of policies, the middle level management into departmental supervision and lower level management into supervision of foremen. The clarification of authority help in bringing efficiency in the running of a concern. This helps in achieving efficiency in the running of a concern. This helps in avoiding wastage of time, money, effort, in avoidance of duplication or overlapping of efforts and this helps in bringing smoothness in a concern’s working.

4. Co-ordination between authority and responsibility - Relationships are established among various groups to enable smooth interaction toward the achievment of the organizational goal. Each individual is made aware of his authority and he/she knows whom they have to take orders from and to whom they are accountable and to whom they have to report. A clear organizational structure is drawn and all the employees are made aware of it.

Q2. Explain Maslow’s need hierarchy and Alderfer’s ERG theory of motivation

Abraham Maslow's Hierarchy of Needs motivational model

Abraham Maslow developed the Hierarchy of Needs model in 1940-50s USA, and the Hierarchy of Needs theory remains valid today for understanding human motivation, management training, and personal development. Indeed, Maslow's ideas surrounding the Hierarchy of Needs concerning the responsibility of employers to provide a workplace environment that encourages and enables employees to fulfil their own unique potential (self-actualization) are today more relevant than ever. Abraham Maslow's book Motivation and Personality, published in 1954 (second edition 1970) introduced the Hierarchy of Needs, and Maslow extended his ideas in other work, notably his later book Toward A Psychology Of Being, a significant and relevant commentary, which has been revised in recent times by Richard Lowry, who is in his own right a leading academic in the field of motivational psychology.

Abraham Maslow was born in New York in 1908 and died in 1970, although various publications appear in Maslow's name in later years. Maslow's PhD in psychology in 1934 at the University of Wisconsin formed the basis of his motivational research, initially studying rhesus monkeys. Maslow later moved to New York's Brooklyn College.

The Maslow's Hierarchy of Needs five-stage model below (structure and terminology - not the precise pyramid diagram itself) is clearly and directly attributable to Maslow; later versions of the theory with added motivational stages are not so clearly attributable to Maslow. These extended models have instead been inferred by others from Maslow's work. Specifically Maslow refers to the needs Cognitive, Aesthetic and Transcendence (subsequently shown as distinct needs levels in some interpretations of his theory) as additional aspects of motivation, but not as distinct levels in the Hierarchy of Needs.

Where Maslow's Hierarchy of Needs is shown with more than five levels these models have been extended through interpretation of Maslow's work by other people. These augmented models and diagrams are shown as the adapted seven and eight-stage Hierarchy of Needs pyramid diagrams and models below.

There have been very many interpretations of Maslow's Hierarchy of Needs in the form of pyramid diagrams. The diagrams on this page are my own interpretations and are not offered as Maslow's original work. Interestingly in Maslow's book Motivation and Personality, which first introduced the Hierarchy of Needs, there is not a pyramid to be seen.

 

Maslow's hierarchy of needs

Each of us is motivated by needs. Our most basic needs are inborn, having evolved over tens of thousands of years. Abraham Maslow's Hierarchy of Needs helps to explain how these needs motivate us all.

Maslow's Hierarchy of Needs states that we must satisfy each need in turn, starting with the first, which deals with the most obvious needs for survival itself.

Only when the lower order needs of physical and emotional well-being are satisfied are we concerned with the higher order needs of influence and personal development.

Conversely, if the things that satisfy our lower order needs are swept away, we are no longer concerned about the maintenance of our higher order needs.

Maslow's original Hierarchy of Needs model was developed between 1943-1954, and first widely published in Motivation and Personality in 1954. At this time the Hierarchy of Needs model comprised five needs. This original version remains for most people the definitive Hierarchy of Needs.

Alderfer’s ERG Theory

To bring Maslow’s need hierarchy theory of motivation in synchronization with empirical research, Clayton Alderfer redefined it in his own terms. His rework is called as ERG theory of motivation. He recategorized Maslow’s hierarchy of needs into three simpler and broader classes of needs:

Existence needs- These include need for basic material necessities. In short, it includes an individual’s physiological and physical safety needs.

Relatedness needs- These include the aspiration individual’s have for maintaining significant interpersonal relationships (be it with family, peers or superiors), getting public fame and recognition. Maslow’s social needs and external component of esteem needs fall under this class of need.

Growth needs- These include need for self-development and personal growth and advancement. Maslow’s self-actualization needs and intrinsic component of esteem needs fall under this category of need.

The significance of the three classes of needs may vary for each individual.

Difference between Maslow Need Hierarchy Theory and Alderfer’s ERG TheoryERG Theory states that at a given point of time, more than one need may be operational.

ERG Theory also shows that if the fulfillment of a higher-level need is subdued, there is an increase in desire for satisfying a lower-level need.

According to Maslow, an individual remains at a particular need level until that need is satisfied. While according to ERG theory, if a higher- level need aggravates, an individual may revert to increase the satisfaction of a lower- level need. This is called frustration- regression aspect of ERG theory. For instance- when growth need aggravates, then an individual might be motivated to accomplish the relatedness need and if there are issues in accomplishing relatedness needs, then he might be motivated by the existence needs. Thus,

frustration/aggravation can result in regression to a lower-level need.

While Maslow’s need hierarchy theory is rigid as it assumes that the needs follow a specific and orderly hierarchy and unless a lower-level need is satisfied, an individual cannot proceed to the higher-level need; ERG Theory of motivation is very flexible as he perceived the needs as a range/variety rather than perceiving them as a hierarchy. According to Alderfer, an individual can work on growth needs even if his existence or relatedness needs remain unsatisfied. Thus, he gives explanation to the issue of “starving artist” who can struggle for growth even if he is hungry.

Q3. What do you understand by group dynamics? Explain the types of groups.

Group dynamics refers to a system of behaviors and psychological processes occurring within a social group (intragroup dynamics), or between social groups (intergroup dynamics). The study of group dynamics can be useful in understanding decision-making behavior, tracking the spread of diseases in society, creating effective therapy techniques, and following the emergence and popularity of new ideas and technologies. Group dynamics are at the core of understanding racism, sexism, and other forms of social prejudice and discrimination. These applications of the field are studied in psychology, sociology, anthropology, political science, epidemiology, education, social work, business, andcommunication studies.Kurt Lewin (1943, 1948, 1951) is commonly identified as the founder of the movement to study groups scientifically. He coined the term group dynamics to describe the way groups and individuals act and react to changing circumstances. Group dynamics can be defined as a field of enquiry dedicated to the advancing knowledge about the nature of groups, the laws of their development and their interrelations with individuals, other groups and larger institutions. Based on their feelings and emotions, members of a group form a common perception. The interactive psychological relationship in which members of a group form this common perception is actually "Group Dynamics".The phrase "Group Dynamics" contains two words- (i) Group- a social unit of two or more individuals who have in common a set of beliefs and values, follow the same norms and works for an establishable common aim. The members of the group share a set of common purpose, tasks or goals. (ii) Dynamics- the flow of, coherent activities which as envisaged, will, in toto, lead the group towards the establishment of its set goals.

Within many organisations different groups are formed at different levels, formal groups, informal groups, primary groups and secondary groups. Some groups maybe deliberately formed, some groups are formed through an informal setting. Below we discuss briefly four forms of groups which are found within a company.

A formal group is created within an organization to complete a specific role or task. This may be to oversea a launch of a particular product or service.

Informal groups are established by individuals within the organization that a need to interact with one another and who also believe that these informal groups meet a need that formal groups cannot meet within the firm.

Primary groups , within an organization a primary group is a small group that gets together and interacts regularly. A team leader with a small team is an example of a primary group. A family also is a primary group. Within the primary group, values, beliefs and culture are all very important.

Secondary group: When large number of people get together, who do not normally get together, these are called secondary groups. Within a secondary group, people to do not get to know each other as well as those in a primary group. When a secondary group is formed,

individuals usually have their own agenda and goals. The relationship they form is not long term and there probably will not be much social interaction within a secondary group.

MBAHR-101: Industrial Relations & Labour Laws

Answer any three questions. Each question carries 10 marks each:

Q. 1 Explain provisions of Industrial Dispute Act 1947.

e main purpose of the Industrial Disputes Act, 1947 is to ensure fair terms between employers and employees, workmen and workmen as well as workmen and employers. It helps not only in preventing disputes between employers and employees but also help in finding the measures to settle such disputes so that the production of the organization is not hampered. In this unit, we are going to discuss the Industrial Disputes Act, 1947 and its importance. This unit encompasses the different authorities and their duties in the settlement of disputes. It also discuss about the reference of disputes. Through this unit, you will be able to know about the different award given by the different authorities under the Act. Thus, you will able to understand through this unit, the procedures of settlement of the disputes as well as the duties of different authorities as well as the way of reference of disputes.

he World War I (1914-1919) brought a new awakening among the working class people who were dominated by the employers regarding the terms and conditions of service and wages. The workers resorted to strikes to fulfill their demands and the employers retaliated by declaring lockouts. During the period 1928-29 the numerous strikes and lock-outs forced the Government to enact the Trade Disputes Act, 1929. 

The Trade Dispute Act, 1929 was introduced for the settlement of industrial disputes. This Trade Union Act gave the trade unions a legal status. The main object of the Act was to make provision for the establishment of Courts of Enquiry and Boards of Conciliation with a view to investigating and settling trade disputes. But, this Act failed to create favorable atmosphere in the industry and settle the disputes. The main defect of the Act was that no provision was has been made to render the proceedings institutable under the Act while restraint had been imposed on the right of strike and lock-out in the public utility services. But, later this defect was overcome by empowering under Rule 81-A, of the Defense of Indian Rules to refer industrial disputes to adjudicator for settlement during the Second World War (1938-1945). The rule provide speedy remedies for industrial disputes by compulsory reference of disputes to conciliation or adjudication, by making the awards of adjudicators legally binding on the parties, by prohibiting strikes and lock-outs during the pendency of conciliation or arbitration proceeding. 

With the termination of the Second World War, Rule 81-A was about to lapse on 1st October, 1946, but it was kept alive by recourse to Government’s Emergency Powers. The main provision was retained in the Industrial Disputes Act, 1947.he Industrial Dispute Act, 1947 makes provision for the investigation and settlement of disputes that may hamper the peace of the industry. It ensures harmony and cordial relationship between the employers and employees. The Act provides self-contained code to compel the parties to resort to industrial arbitration for the resolution of disputes. It also provides statutory norms besides helping in the maintaining of cordial relation among the employers and employees ,reflecting socio-economic justice. The act provides for the following authorities for Investigation and Settlement of industrial disputes:

(i) Works Committee(ii) Conciliation Officer(iii) Boards of Conciliation(iv) Court of Inquiry(v) Labour Court(vi) Labour Tribunals(vii) National TribunalsLet us discuss these authorities in detail:WORKS COMMITTEE (Section 3):The works committee is a committee consisting of representatives of employers and workmen (section3). The works committee is a forum for explaining the difficulties of all the parties.The main objective of the works committee is to solve the problems arising in the day-to-day working of a concern and to secure industrial harmony. The function of the working committee is to ascertain the grievances of the employees and to arrive at some agreement. The committee is formed by general or special order by the appropriate Government in an industrial establishment in which 100 or more workmen are employed or have been employed on any day in the preceding 12 months. It consists of the representatives of employers and workmen engaged in the establishment.

It shall be the duty of the working committee to promote measures for securing and preserving amity and good relations between the employers and workmen and, to that end, to comment upon matters of their common interest or concern and to endeavour to compose any material difference of opinion in respect of such matters and decision of the works committees are not binding.

CONCILIATION OFFICER (Section 4):For promoting and settlement of industrial disputes the appropriate Government may by notification in the Official Gazette, appoint such number of conciliation officer as it thinks fit. The main objective of appointing conciliation officer is to create congenial atmosphere within the industry and reconcile the disputes of the workers and the employers. He may be appointed for a specified area or for specified industries in a specified area or for one or more specified industries and either permanently or for a limited period.The duty of the conciliation officer is not judicial but administrative. He has to hold conciliation proceedings, investigate the disputes and do all such things as he thinks fit for the purpose of inducing the parties to arrive at a fair settlement of the disputes. The conciliation officer is entitled to enter an establishment to which the dispute relates, after reasonable notice and also to call for and inspect any document which he consider relevant. He has to send a report and memorandum of settlement to appropriate Government. The report by the conciliation officer has to be submitted within 14 days of the commencement of the conciliation proceeding or shorter period as may be prescribed by the appropriate Government. The conciliation officer has the power to enter the premises as well can call for and inspect documents.

BOARDS OF CONCILIATION (Section 5):

The appropriate Government may by notification in the Official Gazette, constitute a Board of Conciliation for the settlement of industrial disputes. The Board shall consist of a chairman and 2 or 4 other members in equal numbers representing the parties to the disputes as the appropriate Government thinks fit. The Chairman shall be an independent person. A person is “independent” for the purpose of appointment to a Board, Court or Tribunal if he is

uncommitted with the dispute or with any industry directly affected by such dispute. He may be a shareholder of a company connected with or likely to be affected by such disputes. But in such a case he must disclose to the Government the nature and intent of his share [Section 2(i)]. Where the appropriate Government is of the opinion that any industrial disputes exist in an industry, it may refer by order in writing to the Board of Conciliation for settling industrial disputes.

The Board of Conciliation has to bring about a settlement of the dispute. He has to send a report and memorandum of settlement to appropriate Government. He has to send a full report to the Appropriate Government setting for the steps taken by the Board in case no settlement is arrived at. The Board of Conciliation has to communicate the reasons to the parties if no further reference is made. The Board has to submit its report within 2 months of the date on which the dispute was referred to it within the period what the appropriate Government may think fit. The report of the Board shall be in writing and shall be signed by all the members of the Board.

COURT OF INQUIRY (Section 6): The appropriate Government may by notification in the Official Gazette, constitute a court of inquiry into any matter appearing to be connected with or relevant to settlement of industrial disputes having an independent person or of such independent persons as the appropriate Government may think fit. The court consists of two or more members one of whom shall be appointed by the Chairman. Within a period of 6 months, the court has to send a report thereon to the appropriate Government from the commencement of its any inquiry. This period is not mandatory and it may be extend.It has the same powers as are vested in a Civil Court under the Code of Civil Procedure 1908, in the following matters—a. enforcing the attendance of any person and examining him on oath,b. compelling the production of documents and material objects,c. issuing commissions for the examination of witnesses,

d. in respect of such other matters as may be prescribed.

The report of the Court must be signed by all the members. A member can submit a note of dissent. The Report together with the dissenting note must be published by the appropriate Government within 30 days from its report. A court of enquiry has no power to improve any settlement upon the parties.

LABOUR COURT (Section 7):The appropriate Government may by notification in the Official Gazette, constitute one or more labour court for adjudication of industrial disputes relating to any matters specified in the Second Schedule. A labour court consists of one person only to be appointed by the appropriate Government.The main function of the labour court is to hold its proceedings expeditiously and submit its award as the proceeding concludes.A person shall be presiding officer of a labour court unless—a. he is or has been, a Judge of the High court,b. he has for a period of not less than three years, been a District Judge or an Additional District Judge orc. he has held any judicial office in India for not less than seven years; ord. he has been the presiding officer of a Labour Court constituted under any provincial Act or

State Act for not less than five years.e. He must be an “ independent “ person and must not have attained the age of 65 years.

LABOUR TRIBUNALS (Section 7- A):The appropriate Government may by notification in the Official Gazette, constitute one or more Industrial Tribunals for adjudication of industrial disputes. A Tribunal shall consist of one person to be appointed by the appropriate Government. The Appropriate Government may appoint two persons as assessors to advise the Tribunel. The person shall be not qualified unless—a. he is, a Judge of the High court,b.. he has for a period of not less than three years, been a District Judge or an Additional District Judge.c. The appropriate Government may, if it so thinks fit, may appoint two persons as assessors to advise the Tribunal in the proceeding before it.The functions of the Tribunals are very much like those of a body discharging judicial functions, although it is not a Court. Its power is different from that of a Civil Court. The proceedings before an Industrial Tribunal are quasi-judicial in nature with all the attributes of a Court of Justice. The Government is empowered under Section 7-A of the Act to constitute for a limited time which comes to an end automatically on the expiry of the said period for any particular case. The duties of Industrial Tribunal are identical with the duties of Labour Court, i.e. on reference of any industrial disputes; the Tribunal shall hold its proceedings expeditiously and submit its award to the appropriate Government. 

NATIONAL TRIBUNALS ( Section 7 B)The Central Government may, by notification in the Official Gazette, constitute one or more National Industrial Tribunals for the adjudication of industrial disputes. National Industrial Tribunals are involve only incase of the questions of national importance or if they are of such a nature that industrial establishments situated in more than one State are likely to be interested in, or affected by, such industrial disputes. It consists of one person only to be appointed by the Central Government.The person shall not be qualified for appointment as the presiding officer unless he is, or has been, a Judge of a High Court. Beside these, the Central Government may, if it thinks fit, appoint two persons as assessors to advise the National Tribunal in the proceedings before it.

Any industrial disputes should have to referred by the Appropriate Government under section 10 for adjudication, to the Conciliation Board, Labour Court, Court of Inquiry or Industrial Tribunal or National Tribunal.A. Reference of disputes to various Authorities:A matter is referred to the Conciliation Board for promoting the settlement of the disputes. The Conciliation Board is to promote settlement and not to adjudicate.But if the purpose of reference of the matter is investigatory instead of conciliatory or adjudicatory, it should be referred to Court of Inquiry. Again, if the matter is related to the Second Schedule or Third Schedule, it is referred to the Labour court. On the other hand, any matter of the industrial disputes which may relate to the Second Schedule or Third Schedule may refer to the Industrial Tribunal.Where the disputes relate to a public utility service and a notice of the same is given, it becomes mandatory of the Appropriate Government or the Central Government to refer the

matter for adjudication. But the power of the Appropriate Government to make a reference is discretionary and it is open to judicial review. B. Reference of disputes to National Tribunal involving question of importance, etc:When industrial disputes are of national importance or they are likely to be affect the industrial establishments situated in more than one State then they are referred to the National Tribunal by the Appropriate Government for adjudication. Again if any matter referred to National Tribunal is pending in a proceeding before a Labour Court or Tribunal, the proceeding before Labour Court or Tribunal becomes invalid. On the other hand, it is not lawful to refer any matters which are under adjudication before the National Tribunal to Labour Court or Tribunal.C. Reference on application of parities:If a person individually or jointly applies any matter in a prescribed manner to the Conciliation Board, Labour Court, and Court of Inquiry, Industrial Tribunal or National Tribunal for adjudication and the Appropriate Government on being satisfied on the same specifies such time limit as it these proper to submit the award.D. Time limit for submission of awards:Section 10 (2A) of the Act specifies the time period for submitting award by the Appropriate Government, when any reference is made to the Labour Court, Industrial Tribunal or National Tribunal for adjudication.VOLUNTARY REFERENCE OF DISPUTES TO ARBITRATION:The settlement of industrial disputes may be done through voluntary reference under section 10-A.i) When an industrial dispute is not referred to Conciliation Board, Labour Court, and Court of Inquiry, Industrial Tribunal or National Tribunal for adjudication, the employer and the workmen through a written agreement forward the matter for arbitration specifying the names of the arbitrator.ii) The arbitration agreement should be made in prescribed form and should be signed by the parties.iii) Within one month from the receipt of the arbitration agreement which should be forwarded to Appropriate Government and the Conciliation Officer, a copy of the same has to be published in the Official Gazette.iv) The arbitrator or arbitrators shall have to investigate the disputes and submit to the Appropriate Government the award.v) The award should be signed by the arbitrator or the arbitrators.vi) The strike or lock-out in connection with the disputes should be prohibited by an order of the Appropriate Government.

PROCEDURE AND POWERS OF AUTHORITIES

Section 11 provides that every Conciliation Officer or member of a Board or Court or Presiding Officer of a Labour Court, Industrial Tribunal or National Tribunal after giving notice can enter the premises occupied by any establishment to which the disputes relate and follow such procedure as the arbitrator or other authority concerned may think fit. They have the same power as are vested in the Civil Court under the Code of Civil Procedure, 1908 while trying a suit in matters like,a. enforcing the attendance of any person and examining him on oath,b. compelling the production of documents and material objects,c. issuing commissions for the examination of witnesses,d. in respect of other such other matters as may be prescribed.

An assessor or assessors may be appointed by the Conciliation Board, Labour Court, and Court of Inquiry, Industrial Tribunal or National Tribunal for advice having special knowledge on that matter. The Conciliation Officer may enforce the attendance of any person for the purpose of examination of such person or call for and inspect the documents. The Conciliation Board, Labour Court, and Court of Inquiry, Industrial Tribunal or National Tribunal has the full power to determine to what extent, by whom and subject to what conditions costs are to be paid.Thus, it is seen that section 11 (1) has given wide power to the Conciliation Board, Labour Court, and Court of Inquiry, Industrial Tribunal or National Tribunal in the settlement of industrial disputes

AWARD AND SETTLEMENT

Award means an interim or a final determination of any industrial disputes or of any question relating thereto by any Labour Court, Tribunal or National Tribunal and includes an arbitration award made under section 10A Section 2 (b).The report of the Board of Conciliation or the Court of Inquiry shall be in writing and shall be signed by all the members and the award of a Labour Court and Industrial Tribunal shall be in writing and shall be signed by the Presiding Officer. Section 21 requires certain matters to be kept confidential and it is further provided by the section that certain matters are not disclosed without the written consent of the secretary of the trade union or firm or company in question as the case may be of any information obtained by Conciliation Board, Labour Court, and Court of Inquiry, Industrial Tribunal or National Tribunal. An award usually is enforceable on the expiry of 30 days from the date of its publication except when the Appropriate Government declares that the award given by the Labour Court and Industrial Tribunal shall not be enforceable on the expiry of 30 days from the date of its publication. Again, it may not be enforceable on the expiry of 30 days from the date of its publication, if the Central Government get the opinion regarding the award given by the National Tribunal. In such case, the Appropriate Government or the Central Government may within 90 days from the date of publication of the award under section 17 make an order rejecting or modifying the award. But, if it appears that the award given by the Industrial Tribunal is fair and just, it is authorised to issue direction that the award takes effect retrospectively.

Persons on whom settlements and awards are binding (Section 18):1. Settlement and awards are binding on all the parties under the agreement arrived at between the employers and workers in the course of conciliation proceedings.2. An arbitration award is binding on the concerned parties of the agreement who referred the disputes to arbitration.3. An arbitration award or settlement award or award of Labour Court, and Industrial Tribunal or National Tribunal is binding on—a. All the parties to the disputes,b. On all other parties who are summoned to appear in the proceeding as parties to the disputes, unless the Board, Arbitrator, Labour Court, Industrial Tribunal or National Tribunal in the settlement of industrial disputes as the case may be, records the opinion that they were so summoned without proper cause.

c. Where a party referred to Clause (a) and Clause (b) is an employer, his heirs, successors assigned in respect of the establishment to which the dispute relates.

d. But if the parties referred to in Clause (a) or Clause (b) is of workmen, all person who were employed in the establishment or part of the establishment, as the case may be, to which the disputes relates on the date of the dispute and all persons who subsequently become employed in that establishment or part.

A settlement arrived at in the course of conciliation proceedings before a Conciliation Officer shall come into operation on such date as is agreed upon by the parties to the disputes and on the date on which the memorandum of the settlement is signed by the parties to the disputes when no date is agreed. But, if a person breaches any term of any settlement or award which is binding on him he shall be punishable with imprisonment for a term which may extend to 6 months or with fine or both.

Q. 2 Explain provisions of Trade Unions ACT 1926

According to Sidney and Webb, trade union is a continuous association of wage earner for the purpose of maintaining and improving the conditions of their working lives. The origin of The Trade Unions Act, 1926 is beginning for the labour unrest dating back to 1877. The setting up of large scale industries creates exploitative tendencies in the mind of the employers which increase the demand for protecting the rights of the workers. The passing of The Trade Unions Act, 1926 is the results of formal recognition to the workers’ right to organize. The main objectives of the Act are,1. To promote both individual and collective welfare.2. To secures the payment of salaries, wages, allowances etc of the workers.3. To secures the employment of the workers.4. To protects the working condition of the workers.5. To secure the opportunities related to the promotion of the workers.6. To enlarges the training opportunities. 7. To assists in collective bargaining to protect the interest of the workers.8. To help the workers in introducing themselves in participatory movement in the different discussion of the management of the organization.9. To help in providing the educational, recreational and cultural facilities.10. To identify the different roles and responsibilities of the workers in the industry.

The origin of trade unionism in India can be traced back to the year 1890 when for the first time an association of mill workers was formed for the redressal of grievances of the Bombay mill workers.

REGISTRATION OF TRADE UNION

Under Section 3, the Appropriate Government shall appoint a person to be the Registrar of Trade Unions for each State. The appropriate Government may appoint as many Additional and Deputy Registrars of Trade Unions as it thinks fit.

Mode of registration (Section 4):-(1) Any seven or more members of a Trade Union may be subscribing their names to the rules of the Trade Union complying with the provisions of this Act with respect to registration, apply for its registration.

(2) Where an application has been made for the registration of a Trade Union shall not be deemed to have become invalid, merely by reason of the fact that, at any time—· after the date of the application, 

· but before the registration of the Trade Union ,some of the applications, 

· but not exceeding half of the total number of the persons who made the application, have ceased to be members of the Trade Union or 

· have notice in writing to the Registrar dissociating themselves from the application under sub-section (1).

Application for registration (Section 5): -

(1) Even application for registration of a Trade Union shall be made to the Registrar, and shall be accompanied by a copy of the rules of the Trade Union and a statement of the following particulars, namely:-(a) The names, occupations and addresses of the members making the application;(b) The name of the Trade Union and the address of its head office, and 

(c) The title, names, ages, addresses and occupations of the Trade Union. 

(2) Where a Trade Union has been in existence for more than one year before the making of an application for its registration, there shall be delivered to the Registrar, together with the application, a general statement of the assets and liabilities of the Trade Union prepared in such form and containing such particulars as may be prescribed.Provisions to be contained in the rules of Trade Union 

(Section 6):-Every registered trade union is required to have written rules dealing with certain matters specified in Schedule II of the Central Trade Union Regulation, 1938. The executive should be constituted in accordance with the provisions of this Act to form a Trade Union, and the rules thereof provided for following matters, namely:-

(a) The name of the Trade Union; (b) The whole of the object for which the Trade Union has been established;(c) The whole of the purposes for which the general funds of the Trade Union shall be applicable, all of which purposes shall be purpose, to which such funds are lawfully applicable under this Act;(d) The maintenance of a list of the members of the Trade Union and adequate facilities for the inspection thereof;(e) The admission of ordinary members who shall be persons actually engaged or employed in an industry with which the Trade Union is connected, and also the admission of the number of honorary or temporary members as required under Section 22 to form the executive of the Trade Union;(ee) The payment of a subscription by members of the Trade Union which shall be not less than—i. One percent per annum for rural workers;

ii. Three rupee per annum for workers in other unorganized sector; andiii. Twelve rupees per annum for workers in any other case;(f) The conditions under which any member shall be entitled to any benefit assured by the rules and under which any fine or forfeiture may be imposed on members;(g) The manner in which the member shall be amended, varied or rescinded;(h) The manner in which the members of the executive and the other of the Trade Union shall be appointed and removed;(i) The safe custody of the funds of the Trade Union, and annual audit, in such manner as may be prescribed, of the account books by and members of the Trade Union; and(j) The manner in which the Trade Union may be dissolved. 

Registration (Section 8):-The Registrar, on being satisfied that the Union has complied with all the requirements of this Act, shall register the Trade Union by entering in a register to be maintained in such form as may be prescribed. An application for registration cannot be rejected on the ground that it is an attempt to revive an old, already unlawful, union under a new name. The workmen of an industrial establishment can form as many unions as they like. 

Certificate of Registration (Section 9):- The Registrar registering a Trade Union under Section 8 shall issue a certificate of registration in the prescribed form which shall be conclusive that the Trade Union has been duly registered under this Act.

Cancellation of Registration (Section 10): - A certificate of registration of a Trade Union may be withdrawn or cancelled by the Registrar -(a) On the application of the Trade Union to be verified in such manner as may be prescribed, or (b) If the Registrar is satisfied that the certificate has been obtained by—i. fraud or mistake,ii. that the Trade Union has ceased to exist, oriii. has willfully and after notice from the Registrar contravened any provision of this Act ,oriv. allowed any rule to continue in force which is inconsistent with any such provision,v. has rescinded any rule providing for any matter, provision for which is required by Section 6:Provided that not less than two months previous notice in writing specifying the ground on

which it is proposed to withdraw or cancel the certificate shall be given by the Registrar to the Trade Union.Appeal (Section 11): - (1) Any person aggrieved by any refusal of the Registrar to register a Trade Union or by the withdrawal or cancellation of a certificate of registration may, may appeal –(a) Where the head office of the Trade Union is situated within the limits of Presidency-town to the High Court, or (b) Where the head office is situated in any outer area, to such Court, not inferior to the Court of an additional or assistant Judge of a principal Civil Court of original jurisdiction, as they may appoint in this behalf for that area.

(2) The Appellate Court may dismiss the appeal, or pass an order directing the Registrar to register the Union and to issue a certificate of registration. (3) For the purpose of an appeal under sub-section (1) an Appellate Court shall, so far as may be, follow the same procedure and have the same powers as it follows an has when trying a suit under the Code of Civil Procedure, 1908.(4) The person aggrieved shall have a right of appeal to the High Court and the High Court shall, for the purpose of such appeal, have all the powers of an Appellate Court under sub-sections (2) and (3) and the provisions of that sub-section shall apply accordinglyIncorporation of registered Trade Unions (Section 13): - Every registered Trade Union shall be a body corporate by the name under which it is registered .It has perpetual succession and a common seal. It also has the power to acquire and hold both movable and immovable property an contract, and shall, by the said name sues and be sued.

Q. 3 Explain the concept of collective bargaining. Explain its procedure. Explain its advantages and disadvantages.

Collective bargaining is a process of negotiations between employers and a group of employees aimed at reaching agreements that regulate working conditions. The interests of the employees are commonly presented by representatives of a trade union to which the employees belong. The collective agreements reached by these negotiations usually set out wage scales, working hours, training, health and safety,overtime, grievance mechanisms, and rights to participate in workplace or company affairs.[1]

The union may negotiate with a single employer (who is typically representing a company's shareholders) or may negotiate with a group of businesses, depending on the country, to reach an industry wide agreement. A collective agreement functions as a labor contract between anemployer and one or more unions. Collective bargaining consists of the process of negotiation between representatives of a union andemployers (generally represented by management, in some countries[which?] by an employers' organization) in respect of the terms and conditions of employment of employees, such as wages, hours of work, working conditions, grievance-procedures, and about the rights andresponsibilities of trade unions. The parties often refer to the result of the negotiation as a collective bargaining agreement (CBA) or as a collective employment agreement (CEA).

Collective Bargaining ProcessCollective bargaining generally includes negotiations between the two parties (employees’ representatives and employer’s representatives). Collective bargaining consists of

negotiations between an employer and a group of employees that determine the conditions of employment. Often employees are represented in the bargaining by a union or other labor organization. The result of collective bargaining procedure is called the collective bargaining agreement (CBA). Collective agreements may be in the form of procedural agreements or substantive agreements. Procedural agreements deal with the relationship between workers and management and the procedures to be adopted for resolving individual or group disputes.This will normally include procedures in respect of individual grievances, disputes and discipline. Frequently, procedural agreements are put into the company rule book which provides information on the overall terms and conditions of employment and codes of behavior. A substantive agreement deals with specific issues, such as basic pay, overtime premiums, bonus arrangements, holiday entitlements, hours of work, etc. In many companies, agreements have a fixed time scale and a collective bargaining process will review the procedural agreement when negotiations take place on pay and conditions of employment.The collective bargaining process comprises of five core steps:1. Prepare: This phase involves composition of a negotiation team. The negotiation team should consist of representatives of both the parties with adequate knowledge and skills for negotiation. In this phase both the employer’s representatives and the union examine their own situation in order to develop the issues that they believe will be most important. The first thing to be done is to determine whether there is actually any reason to negotiate at all. A correct understanding of the main issues to be covered and intimate knowledge of operations, working conditions, production norms and other relevant conditions is required. 2. Discuss: Here, the parties decide the ground rules that will guide the negotiations. A process well begun is half done and this is no less true in case of collective bargaining. An environment of mutual trust and understanding is also created so that the collective bargaining agreement would be reached. 3. Propose: This phase involves the initial opening statements and the possible options that exist to resolve them. In a word, this phase could be described as ‘brainstorming’. The exchange of messages takes place and opinion of both the parties is sought. 4. Bargain: negotiations are easy if a problem solving attitude is adopted. This stage comprises the time when ‘what ifs’ and ‘supposals’ are set forth and the drafting of agreements take place.5. Settlement: Once the parties are through with the bargaining process, a consensual agreement is reached upon wherein both the parties agree to a common decision regarding the problem or the issue. This stage is described as consisting of effective joint implementation of the agreement through shared visions, strategic planning and negotiated change.

Advantages and Disadvantages of Collective Barganing

Advantages:

1. Contract to guide standards2. It opens participation in decision-making process3. All union members and management must conform to terms of contract without

exception4. Process exists to question manager’s authority if member feels something was done

unjustly 5. Can lead to high-performance workplace where labor and management jointly engage

in problem solving, addressing issues on an equal standing6. Promotes fairness and consistency in employment policies and personnel decisions

within different organizations

Disadvantages

1. Reduced individuality2. All union members and management must conform to terms of contract without

exception3. Everyone involved must pay union dues even if they do not support unionization4. Creates significant potential for polarization between employees and managers5. Increased wages and improved facilities for workers can indirectly result in high

prices for goods and services6. Restricts management’s ability to deal effectively with a troubled employee

individually

Q. 1 Explain different sources of power in detail.Coercive Power:

The coercive power base is being dependent on fear.

It rests on the application, or the threat of application, of physical sanctions such as the infliction of pain, the generation of frustration through restriction of movement, or the controlling by force of basic physiological or safety needs.

At the organizational level, A has coercive power over B if A can dismiss, suspend, or demote B, assuming that B values his or her job.

Similarly, if A can assign B work activities that B finds unpleasant or treat B in a manner that B finds embarrassing, A possesses coercive power over B.

2. Reward Power:

The opposite of coercive power is reward power.

People comply because doing so produces positive benefits; therefore, one who can distribute rewards that others view as valuable will have power over those others.

These rewards can be anything that another person values.

Coercive power and reward power are actually counterparts of each other.

a. If you can remove something of positive value from another or inflict something of negative value upon him/her, you have coercive power over that person.

b. If you can give someone something of positive value or remove something of negative value, you have reward power over that person.

3. Legitimate Power:

In formal groups and organizations, the most frequent access power is one’s structural position. It represents the power a person receives as a result of his/her position in the formal hierarchy.

Positions of authority include coercive and reward powers.

Legitimate power, however, is broader than the power to coerce and reward. It includes acceptance of the authority of a position by members of an organization.

4. Information Power:

Refers to power that comes from access to and control over information. When people have needed information, others become dependant on them. (For example, managers have access to data that subordinates do not have).

B. Personal Power

1. Expert Power:

Expert power is "influence wielded as a result of expertise, special skill, or knowledge."

Expertise has become a powerful source of influence as the world has become more technological. As jobs become more specialized, we become increasingly dependent on experts to achieve goals.

2. Referent Power:

Its base is identification with a person who has desirable resources or personal traits. If I admire and identify with you, you can exercise power over me because I want to please you.

B. Personal Power (cont.)

Referent power develops out of admiration of another and a desire to be like that person; it is a lot like charisma.

Referent power explains why celebrities are paid millions of dollars to endorse products in commercials.

3. Charismatic Power:

Is an extension of referent power stemming from an individual’s personality and interpersonal style.

Others follow because they can articulate attractive visions, take personal risks, demonstrate follower sensitivity, etc.

Q4. Explain the change process in detail.

Change simply means alteration in status quo. Human beings are certainly familiar with change and they have the ability to adapt to it. But often they resist change in their work places. When managers use their most logical arguments and persuasive skills to support a change, they frequently discover that employees remain unconvinced of the need for it.

Process of Change

Stage 1: Unfreezing

The Unfreezing stage is probably one of the more important stages to understand in the world of change we live in today. This stage is about getting ready to change. It involves getting to a point of understanding that change is necessary, and getting ready to move away from our current comfort zone.

This first stage is about preparing ourselves, or others, before the change (and ideally creating a situation in which we want the change).

The more we feel that change is necessary, the more urgent it is, the more motivated we are to make the change. Right? Yes, of course! If you understand procrastination (like I do!) then you'd recognise that the closer the deadline, the more likely you are to snap into action and actually get the job started!

With the deadline comes some sort of reward or punishment linked to the job. If there's no deadline, then the urge to change is lower than the need to change. There's much lower motivation to make a change and get on with it.

Unfreezing and getting motivated for the change is all about weighing up the 'pro's' and 'con's' and deciding if the 'pro's' outnumber the 'con's' before you take any action. This is the basis of what Kurt Lewin called the Force Field Analysis.

Force Field Analysis is a fancy way of saying that there are lots of different factors (forces) for and against making change that we need to be aware of (analysis). If the factors for change outweigh the factorsagainst change we'll make the change. If not, then there's low motivation to change - and if we feel pushed to change we're likely to get grumpy and dig in our heels.

This first 'Unfreezing' stage involves moving ourselves, or a department, or an entire business towards motivation for change. The Kurt Lewin Force Field Analysis is a useful way to understand this process and there are plenty of ideas of how this can be done.

Stage 2: Movement - or Transition

Kurt Lewin was aware that change is not an event, but rather a process. He called that process a transition. Transition is the inner movement or journey we make in reaction to a change. This second stage occurs as we make the changes that are needed.

People are 'unfrozen' and moving towards a new way of being.

That said this stage is often the hardest as people are unsure or even fearful. Imagine bungey jumping or parachuting. You may have convinced yourself that there is a great benefit for you to make the jump, but now you find yourself on the edge looking down. Scary stuff! But when you do it you may learn a lot about yourself.

This is not an easy time as people are learning about the changes and need to be given time to understand and work with them. Support is really important here and can be in the form of training, coaching, and expecting mistakes as part of the process.

Using role models and allowing people to develop their own solutions also help to make the changes. It's also really useful to keep communicating a clear picture of the desired change and the benefits to people so they don't lose sight of where they are heading.

Freezing (or Refreezing)

Kurt Lewin refers to this stage as freezing although a lot of people refer to it as 'refreezing'. As the name suggests this stage is about establishing stability once the changes have been made. The changes are accepted and become the new norm. People form new relationships and become comfortable with their routines. This can take time.

It's often at this point that people laugh and tell me that practically there is never time for this 'freezing' stage. And it's just this that's drawn criticism to the Kurt Lewin model.

In todays world of change the next new change could happen in weeks or less. There is just no time to settle into comfortable routines. This rigidity of freezing does not fit with modern thinking about change being a continuous, sometimes chaotic process in which great flexibility is demanded.

So popular thought has moved away from the concept of freezing. Instead, we should think about this final stage as being more flexible, something like a milkshake or soft serv icecream, in the current favourite flavour, rather than a rigid frozen block. This way 'Unfreezing' for the next change might be easier.

Resistance to change:Most people don't like change because they don't like being changed. When change comes into view, fear and resistance developed. Resistance to change is the action taken by individuals and groups when they recognize that the change may threat their interest. Resistance may be active or passive, overt or covert, individual or organized, aggressive or timid. Types of resistance: PSYCHOLOGICAL RESISTANCEFear of the unknown:No one can say precisely about the consequences of change, and this uncertainty builds up discomfort. The uncertainty and discomfort cause negative reactions among people and they are encouraged to resist change.Fear of failure:The change may require advanced skill and abilities that may be beyond employees’ capabilities. In such situation, the employee may feel that his interests regarding jobs, power or status in an organization are at risk and this fear lead him to resist the change. LOGICAL RESISTANCE TO CHANGE Power and Conflict:Resistance to change also occurs when a change may benefit one department within the organization while harming another.Misinterpretation of change:People resist change when they do not understand it. Such situation occurs when the proposed change is not consulted with the employees and supposed to be enforced as an order. People like to know what going on in their organization, especially if something is related with their jobs.

Not agreed with the impact of changes:When employees feel that the change would increase their working hors and duties and disturb but the benefits and rewards are not seen as adequate, they resist.SOCIOLOGICAL RESISTANCE Group Norms:Over a period of time, the members of a group develop understanding and interpersonal relationship. The group members resist the change when they believe that it will alter interpersonal relation and coordination among group.Disturbance in established pattern:The employees and management are tending to develop a pattern of working. When they recognize that the proposed change can force them to modify their established pattern, they resist the change.

1. Explain factors affecting wage and salary determination in detailThe first and the most important problem in wage and salary administration is the establishment of base compensation for the job. This problem is enormously complicated by such factors as Supply and Demand, Labor organization, the firm’s ability to pay, Variations in productivity and Cost of living, Government legislation, Including CIVICS RIGHTS ACT.In order to attract and retain needed personnel for the organization, employees must perceive that compensation offered is equitable in relation to their inputs and relative contributions. The most likely to be used method to solve this problem at present would be job evaluation, a systematic and orderly process for establishing the worth of job.The importance of a pay system to an event of major importance to employees and its effects upon them cannot be ignored. It is a valid system if it results in a structure acceptable to both employee and employer. In general, structures that are internally and externally consistent have the greatest chances of affecting overall satisfaction. Under reward, Over-reward and inconsistency of reward not only tend to lead to lower satisfaction but encourage behaviour that often proves dysfunctional to organizational objectives. A sound, systematic, consistent system of compensation determination will do much to promote equity and satisfaction, provided that such a system is understood and accepted by most employees.

Factors influencing wage and salary structure and administrationThe wage policies of different organization vary some what. Marginal units pay the minimum necessary to attract the required number of kind of labour. Often, these units pay minimum wage rates required by labour legislation, and recruit marginal labour. At the other extreme, some units pay well about going rates in the labour market. They do so to attract and retain the highest caliber of labour force. Some managers believe in the economy of higher wages. They feel that, by paying high wages, they would attract better workers who will produce more than average worker in the industry. This greater production per employee means greater output per man hour. Hence, labour costs may turn those existing in firms using marginal labour. Some units pay high wages because of a combination of a favourable product market demand, higher ability to pay and the bargaining power of trade union. But a large number of them seek to be competitive in their wage programme, i.e., they aim at paying somewhere near the going rate in the labour they employ. Most units give greater weight to two wage criteria, viz, job requirements and the prevailing rates of wages in the labour market. Other factors, such as changes in the cost of living the supply and demand of labour, and ability to pay are accorded a secondary importance.A sound wage policy is to adopt a job evaluation programme in order to establish fair differentials in wages based upon differences in job contents. Beside the basic factors provided by a job description and job evaluation, those that are usually taken into consideration for wage and salary administration are:• The organizations ability to pay;• Supply and demand of labour;• The prevailing market rate;• The cost of living;• Living wage;• Productivity;• Trade unions bargaining power;

• Job requirements;• Managerial attitudes; and• Psychological and sociological factors.• Levels of skills available in the market.

(1) The organizations ability to pay: Wage increases should be given by those organizations which can afford them. Companies that have good sales and, therefore, high profits tend to pay higher those which running at a loss or earning low profits because of higher cost of production or low sales. In the short run, the economic influence on the ability to pay is practically nil. All employers, irrespective of their profits or losses, must pay no less than their competitors and need to pay no more if they wish to attract and keep workers. In the long run, the ability to pay is important. During the time of prosperity, pay high wages to carry on profitable operations and because of their increased ability to pay. But during the period of depression, wages are cut because the funds are not available. Marginal firms and non profit organization (like hospitals and educational institutions) pay relatively wages because of low or non profits.

(2) Supply and demand of labour: The labour market conditions or supply and demand forces operate at the national, regional and local levels, and determine organizational wage structure and level.If the demand for certain skills is high and supply is low, the result is a rise in the price to be paid to these skills. When prolonged and acuter, these labour market pressures probably force most organizations to reclassify hard to fill jobs at a higher level” that suggested by the job evaluation. The other alternative is to pay higher wages if the labour supply is scarce; and lower wages when it is excessive. Similarly, if there is a great demand for labour expertise, wages rise; but if the demand for manpower skill is minimal, the wages will be relatively low. The supply and demand compensation criterion is very closely related to the prevailing pay, comparable wage and on going wage concepts since; in essence, all of these remuneration standards are determined by immediate market forces and factors.

(3) Prevailing market rate: This is known as the ‘comparable wage’ or ‘going wage rate’, and is the widely used criterion. An organization compensation policy generally tends to conform to the wage rate payable by the industry and the community. This is done for several reasons. First, competition demand that competitors adhere to the same relative wage level. Second, various government laws and judicial decisions make the adoption of uniform wage rates an attractive proposition. Third, trade union encourages this practice so that their members can have equal pay, equal work and geographical differences may be eliminated. Fourth, functionally related firms in the same industry requires essentially the same quality of employees, with same skill and experience. This results in a considerable uniformity in wage and salary rates. Finally, if the same or about the same general rates of wages are not paid to the employees as are paid by the organizations competitors, it will not be able to attract and maintain the sufficient quantity and quality of manpower. Some companies pay on a high side of the market in order to obtain goodwill or to insure an adequate supply of labour, while other organizations pay lower wages because economically they have to or because by lowering hiring requirements they can keep jobs adequately manned.

(4) The cost of living: The cost of living pay criterion is usually regarded as an automatic minimum equity pay criterion. This criterion calls for pay adjustments based on increases or decreases in an acceptable cost of living index. In recognition of the influence of the cost of living.” escalator clauses” are written into labour contracts. When the cost of living increases,

workers and trade unions demand adjusted wages to offset the erosion of real wages. However, when living costs are stable or decline, the management does not resort to this argument as a reason for wage reductions.

(5) The living wage: Criterion means that wages paid should be adequate to enable an employee to maintain himself and his family at a reasonable level of existence. However, employers do not generally favor using the concepts of a living wage as a guide to wage determination because they prefer to base the wages of an employee on his contribution rather than on his need. Also, they feel that the level of living prescribed in a workers budge is open to argument since it is based on subjective opinion.

(6) Psychological and Social Factors:These determine in a significant measure how hard a person will work for the compensation received or what pressures he will exert to get his compensation increased. Psychologically, persons perceive the level of wages as a measure of success in life; people may feel secure; have an inferiority complex, seem inadequate or feel the reverse of all these. They may not take pride in their work, or in the wages they get. Therefore, these things should not be overlooked by the management in establishing wage rate. Sociologically and ethically, people feel that “equal work should carry equal wages”that“wages should be commensurate with their efforts,”that“they are not exploited, and that no distinction is made on the basis of caste, colour, sex or religion.” To satisfy the conditions of equity, fairness and justice, a management should take these factors into consideration.

(7) Skill Levels Available in the Market:With the rapid growth of industries business trade, there is shortage of skilled resources. The technological development, automation has been affecting the skill levels at faster rates. Thus the wage levels of skilled employees are constantly changing and an organization has to keep its level up to suit the market needs.

ADMINISTRATION OF WAGES AND SALARIESWage and salary administration should be controlled by some proper agency. This responsibility may be entrusted to the personnel department or to some job executive. Since the problem of wages and salary is very delicate and complicated, it is usually entrusted to a Committee composed of high-ranking executives representing major line organizations. The major functions of such Committee are:a) Approval and/or recommendation to management on job evaluation methods and findings;b) Review and recommendation of basic wage and salary structure;c) Help in the formulation of wage policies from time to time;d) Co-ordination and review of relative departmental rates to ensure conformity; ande) Review of budget estimates for wage and salary adjustments and increases.

This Committee should be supported by the advice of the technical staff. Such staff committees may be for job evolution. Job description, merit rating, wage and salary surveys in an industry, and for a review of present wage rates procedure and policies.

Alternatively, the over all plan is first prepared by the Personnel Manager in consultation and discussions with senior members of other departments. It is then submitted for final approval of the top executive. Once he has given his approval, for the wage and salary structure and the rules for administration, its implementation becomes a joint effort of all heads of the departments. The actual appraisal of the performance of subordinates is carried out by the various managers, who in turn submit their recommendations to higher authority and the

latter, in turn, to the personnel department. The personnel department ordinarily reviews recommendations to ensure compliance with established rules of administration. In unusual cases of serious disagreement, the president makes the final decision.

PRINCIPLES OF WAGES AND SALARY ADMINISTRATIONThe generally accepted principles governing the fixation of wages and salary are:a) There should be definite plan to ensure that differences in pay for jobs are based upon variations in job requirements, such as skill effort, responsibility or job or working conditions and mental and physical requirements.b) The general level of wages and salaries should be reasonably in line with that prevailing in the labour market. The labour market criterion is most commonly used.c) The plan should carefully distinguish between jobs and employees. A job carries a certain wage rate, and a person is assigned to fill it that rate. Exceptions sometimes occur in very high level jobs in which the job holder may make the job large or small, depending upon his ability and contributions.d) Equal pay for equal work, i.e., if two jobs have equal difficulty requirements, the pay should be the same, regardless of who fills them.e) An equitable practice should be adopted for the recognition of individual differences in ability and contribution. For some units, this may take the from of rate ranges, with in grade increases; in others, it may be a wage incentive plan; in still others, it may take the from of closely integrated sequences of job promotion.f) 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.g) The employees and the trade union, if there is one, should be informed about the procedure used to establish wage rates. Every employee should be informed of his own position, and of the wage and salary structure. Secrecy in wage matters should not be used as a cover up for haphazard and unreasonable wage programme.h) The wage should be sufficient to ensure for the worker and his family reasonable standard of living. Workers should receive a guaranteed minimum wage to protect them against conditions beyond their control.i) The wage and salary structure should be flexible so that changing conditions can be easily met.j) Prompt and correct payments of the dues of the employees must be ensured and arrears of payment should not accumulate.k) For revision of wages, a Wage Committee should always be preferred to the individual judgement, however unbiased, or a manager.l) The wage and salary payment must fulfill a wide variety of human needs, including the need for self-actualisation. It has been recognized that “money is the only form of incentive which is wholly negotiable, appealing to the widest possible range of seekers. Monetary payment often acts as motivation and satisfies interdependently of other job factors.

Desire to maintain or enhance the company’s prestige has been a major factor in the wage policy of a number of firms. Desires to improve or maintain morale, to attract high caliber employees, to reduced turnover, and to provide a high living standard for employees as possible also appear to be factors in management’s wage policy decisions.

(10) Psychological and Social Factors:These determine in a significant measure how hard a person will work for the compensation received or what pressures he will exert to get his compensation increased. Psychologically, persons perceive the level of wages as a measure of success in life; people may feel secure; have an inferiority complex, seem inadequate or feel

the reverse of all these. They may not take pride in their work, or in the wages they get. Therefore, these things should not be overlooked by the management in establishing wage rate. Sociologically and ethically, people feel that “equal work should carry equal wages”that“wages should be commensurate with their efforts,”that“they are not exploited, and that no distinction is made on the basis of caste, colour, sex or religion.” To satisfy the conditions of equity, fairness and justice, a management should take these factors into consideration.

(11) Skill Levels Available in the Market:With the rapid growth of industries business trade, there is shortage of skilled resources. The technological development, automation has been affecting the skill levels at a faster rate. Thus the wage levels of skilled employees are constantly changing and an organization has to keep its level up to suit the market needs.

Benchmarking is the process of comparing one's business processes and performance metrics to industry bests or best practices from other industries. Dimensions

typically measured are quality, time and cost. In the process of benchmarking, management identifies the best firms in their industry, or in another industry where similar

processes exist, and compare the results and processes of those studied (the "targets") to one's own results and processes. In this way, they learn how well the targets

perform and, more importantly, the business processes that explain why these firms are successful.

Benchmarking is used to measure performance using a specific indicator (cost per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or

defects per unit of measure) resulting in a metric of performance that is then compared to others.[citation needed]

Also referred to as "best practice benchmarking" or "process benchmarking", this process is used in management and particularly strategic management, in which

organizations evaluate various aspects of their processes in relation to best practice companies' processes, usually within a peer group defined for the purposes of

comparison. This then allows organizations to develop plans on how to make improvements or adapt specific best practices, usually with the aim of increasing some

aspect of performance. Benchmarking may be a one-off event, but is often treated as a continuous process in which organizations continually seek to improve their

practices.

Benchmarking is the systematic process of comparing business processes and performance metrics

to industry best practices in terms of quality, time, and cost dimensions, and making such

comparisons the basis to do things better, faster, and cheaper.

First introduced by Xerox Corporation in the mid-1990s, benchmarking is a key tool of business

performance management and finds use by enhancing the competitiveness of the organization. It

enables organizations to outperform competitors, opens minds to ideas from new sources, and places

the organization in a continuous improvement mode. It goes beyond competitive analysis to

understanding not just the competitor’s output, but also the process of obtaining such output.

Performance Improvement

A primary advantage of benchmarking is that it sets the foundation of performance improvement aimed at enhancing competitiveness. By showing how to better

competitors, benchmarking ensures the basic survival of the business.

ew Paradigms

A permanent benchmarking program forces organizations out of their comfort zones and

provides specific and measurable short-term improvement plans based on current reality

rather than historical performance.

Very often, organizations set goals based on past trends and established internal

patterns. Benchmarking helps remove such “paradigm blindness” and forces the

organization to take a fresh approach to goal setting based on a broader perspective,

including the external perspective, the most critical factor that drives customer

expectations.

Change

Benchmarking help place organizational focus on change and provides the direction for

the change process.

Benchmark heralds change by:

1. Making explicit the competitors' standards that provide the organization with

minimum standards of excellence.

2. Providing new ideas and better ways of doing things.

Benchmarking opens minds to new ideas, heralding a process of continuous learning that

leads to a learning organization.

Disadvantages

A major limitation of benchmarking is that while it helps organizations in measuring the efficiency of their operational metrics, it remains inadequate to

measure the overall effectiveness of such metrics. Benchmarking reveals the standards attained by competitors but does not consider the circumstances

under which the competitors attained such standards. If the competitor’s goals and visions were flawed or severely restricted due to some specific factor, an

organization by benchmarking such standards runs the risk of trying to ape such flawed standards or settling for extremely low standards.

A bigger disadvantage of benchmarking is the danger of complacency and arrogance. Many organizations tend to relax after excelling beyond competitors'

standards, allowing complacency to develop. The realization of having become the industry leader soon leads to arrogance, when considerable scope for

further improvements remains.

Finally, many organizations make the mistake of undertaking benchmarking as a stand-alone activity. Benchmarking is only a means to an end, and it is

worthless if not accompanied by a plan to change.

Comparing the pros and cons of benchmarking, the advantages of benchmarking overshadow disadvantages. The 2008 Global Benchmarking Network

survey finds organizations preferring benchmarking over any other performance analysis tools, including SWOT. Most organizations include benchmarking

as a part of continuous improvement initiatives such as Total Quality Management and Six Sigma.

Fringe benefits are typically insurance policies and other perks provided by an employer to employees as part of a comprehensive compensation package.

Most are not subject to income tax because they are either specifically excluded by law, or paid for by the employee. Fringe benefits such as holiday gifts or

bonuses, and certain types of retirement and insurance benefits, are considered taxable income, however. Many employers offer specific fringe benefits

packages, while others allow workers to select or create a plan. Benefits offered can include, but are not limited to, various insurances, paid or unpaid leave,

retirement plans, discounts, and tuition assistance.

Organizations provide a variety of fringe benefits. The fringe benefits are classified under four heads as given here under: 1.For Employment Security : Benefits under this head include unemployment, insurance, technological adjustment pay, leave travel pay, overtime pay, level for negotiation, leave for maternity, leave for grievances, holidays, cost of living bonus, call-back pay, lay-off, retiring rooms, jobs to the sons/daughters of the employees and the like. 2.For Health Protection: Benefits under this head include accident insurance, disability insurance, health insurance,

hospitalization, life insurance, medical care, sick benefits, sick leave, etc. 3.For Old Age and Retirement: Benefits under this category include: deferred income plans, pension, gratuity, provident fund, old age assistance, old age counseling , medical benefits for retired employees, traveling concession to retired employees, jobs to sons/daughters of the deceased employee and the like. 4.For Personnel Identification, Participation and Stimulation: This category covers the following benefits: anniversary awards, attendance bonus, canteen, cooperative credit societies, educational facilities, beauty parlor services, housing, income tax aid, counseling, quality bonus, recreational programs, stress counseling, safety measures etc. 

The fringe benefits are categorized as follows:a)Payment for Time Not worked: Benefits under this category include: sick leave with pay, vacation pay, paid rest and relief time, paid lunch periods, grievance time, bargaining time, travel time etc.b)Extra Pay for time Worked: This category covers the benefits such as: premium pay, incentive bonus, shift premium, old age insurance, profit sharing, unemployment compensation, Christmas bonus, Deewali or Pooja bonus, food cost subsidy, housing subsidy, recreation. 

Employee SecurityPhysical and job security to the employee should also be provided with a view to promoting security to the employee and his family members. The benefit of confirmation of the employee on the job creates a sense of job security. Further a minimum and continuous wage or salary gives a sense of security to the life. 

Retrenchment Compensation:The Industrial Disputes Act, 1947 provides for the payment of compensation in case of lay-off and retrenchment. The non-seasonal industrial establishments employing 50 or more workers have to give one month’s notice or one month’s wages to all the workers who are retrenched after one year’s continuous service. The compensation is paid at the rate of 15 days wage for every completed year of service with a maximum of 45 days wage in a year. Workers are eligible for compensation as stated above even in case of closing down of undertakings. 

Lay-off Compensation:In case of lay-off, employees are entitled to lay-off compensation at the rate to 50% of the total of the basic wage and dearness allowance for the period of their lay-off except for weekly holidays. Lay-off compensation can normally be paid up to 45 days in a year. 

Safety and HealthEmployee’s safety and health should be taken care of in order to protect the employee against accidents, unhealthy working conditions and to protect worker’s capacity. In India, the Factories Act, 1948, stipulated certain requirements regarding working conditions with a view to provide safe working environment. These provisions relate to cleanliness, disposal of waste and effluents, ventilation and temperature, dust and fume, artificial humidification, over-crowding, lighting, drinking water, latrine urinals, and spittoons. Provisions relating to safety measures include fencing of machinery, work on or near machinery in motion, employment of young persons on dangerous machines, striking gear and devices for cutting off power, self-acting machines, easing of new machinery, probation of employment of women and children near cotton openers, hoists and lifts, lifting machines, chains ropes and lifting tackles, revolving machinery, pressure plant, floors, excessive weights, protection of eyes, precautions against dangerous fumes, explosive or inflammable dust, gas etc. Precautions in case of fire, power to require specifications of defective parts of test of stability, safety of buildings and machinery etc.

ntroductionThe purpose of a training needs assessment is to identify performance requirements and the knowledge, skills, and abilities needed by an agency's workforce to achieve the

requirements. An effective training needs assessment will help direct resources to areas of greatest demand. The assessment should address resources needed to fulfill organizational

mission, improve productivity, and provide quality products and services. A needs assessment is the process of identifying the "gap" between performance required and current

performance. When a difference exists, it explores the causes and reasons for the gap and methods for closing or eliminating the gap. A complete needs assessment also considers the

consequences for ignoring the gaps.

There are three levels of a training needs assessment:

Organizational assessment evaluates the level of organizational performance. An assessment of this type will determine what skills, knowledge, and abilities an agency

needs. It determines what is required to alleviate the problems and weaknesses of the agency as well as to enhance strengths and competencies, especially for Mission

Critical Occupation's (MCO). Organizational assessment takes into consideration various additional factors, including changing demographics, political trends, technology,

and the economy.

Occupational assessment examines the skills, knowledge, and abilities required for affected occupational groups. Occupational assessment identifies how and which

occupational discrepancies or gaps exist, potentially introduced by the new direction of an agency. It also examines new ways to do work that can eliminate the

discrepancies or gaps.

Individual assessment analyzes how well an individual employee is doing a job and determines the individual's capacity to do new or different work. Individual

assessment provides information on which employees need training and what kind.

The Training Needs Assessment Process

1. Determine Agency Benefits of Needs Assessment - this part of the process will sell and help the decision makers and stakeholders understand the concept of the

needs assessment. Needs assessment based on the alignment of critical behaviors with a clear agency mission will account for critical occupational and performance

requirements to help your agency: a) eliminate redundant training efforts, b) substantially reduce the unnecessary expenditure of training dollars, and c) assist managers in

identifying performance requirements that can best be satisfied by training and other developmental strategies. To go beyond learning and actually achieve critical

behaviors the agency will also need to consider how required drivers will sustain desired outcomes.

Key steps include:

o Identify key stakeholders

o Solicit support

o Describe desired outcomes that will contribute to mission objectives

o Clarify critical behaviors needed to achieve desired outcomes

o Define required drivers essential to sustain the critical behaviors

2. Plan - The needs assessment is likely to be only as successful as the planning.

o Set goals/objectives for the needs assessment

o Evaluate organizational (agency) readiness and identify key roles

o Evaluate prior/other needs assessments

o Prepare project plan

o Inventory the capacity of staff and technology to conduct a meaningful training skills assessment and analysis

o Clarify success measures and program milestones

3. Conduct Needs Assessment

o Obtain needs assessment data (e.g., review strategic plans, assess HR metrics, review job descriptions, conduct surveys, review performance appraisals)

o Analyze data

o Define performance problems/issues: occupational group/individuals

o Describe critical behaviors needed to affect problems/issues

o Determine and clarify why critical behaviors do not currently exist

o Research integrated performance solutions

o If training is the best solution, determine best training and development approach(es)

o Assess cost/benefit of training and development approach(es); build a "business case"

o Include organizational drivers needed to reinforce the critical behaviors that will affect problems/issues

o Describe how the critical behaviors will be monitored and assessed after implementation of the improvement plan

The results of the needs assessment allows the training manager to set the training objectives by answering two very basic questions: what needs to be done, and why is it not being

done now? Then, it is more likely that an accurate identification of whom, if anyone, needs training and what training is needed. Sometimes training is not the best solution, and it is

virtually never the only solution. Some performance gaps can be reduced or eliminated through other management solutions, such as communicating expectations, providing a

supportive work environment, and checking job fit. These interventions also are needed if training is to result in sustained new behaviors needed to achieve new performance levels, for

an individual, an occupation, or an entire organization.

MEANING OF TRAINING:Training is a short-term process utilizing a systematic and organized procedureby which non-managerial personnel learn technical knowledge and skills for adefinite purpose.In shore training also means, .It is an effort to fit the individual into the immediateposition..According to Dale .S.Beah .Training is defined as the organized procedure bywhich people learn knowledge and / or skill for a definite purpose..TRAINING POLICY:Every organization has policies and procedures to follow, in the same wayorganizations must have training policies. Training policy represents the topmanagements commitment to the training of its employees, and comprises rulesand procedures governing the standard of scope of training.NEEDS OF TRAINING:Every organization needs training, the below points will explain the necessity oftraining as follows:i. To increase productivity: Instructions can help employees increase their levelperformance on their present assignment, Increased human performance oftendirectly leads to increased operational productivity and increased company profit.ii. To improve quality: Better-informed employees are less likely to makeoperational mistakes. Quality increases may be in relationships to a companyservice, or in reference to the intangible organizational employment atmospheres.iii. To help company to fulfill its future personnel needs: organizations thathave good internal educational programmes will have to make les drasticmanpower changes adjustments in the event of sudden personnel alterations.M.P. BIRLA INSTITUTE OF MANAGEMENT 57iv. To improve organizational climates: an endless chain of positive reactionsresult from a well-planned training Programme. Production and product qualitymay improve, financial incentives may then be increased, internal promotionsbecome stressed and less supervisory pressures etc. may result.v. To improve health and safety: proper training can help prevent industrialaccidents. A safer work environment leads to more stable mental attitude on thepart of employees.vi. Obsolescence prevention: training and development programs foster theinitiative and creativity of employees and help to prevent manpowerobsolescence which may be due to age, temperament or motivation or theinability of a person to adapt to technological changes.vii. Personal growth: Employees on a personal basis gain individual from theirexposure to educational experiences. Again management developmentprogrammes seem to give wide awareness and enlarged skill and makeenhanced personal growth possible.BENEFITS OF TRAINING:There are various benefits from training they are as follows:a) Increased productivity: An increase in skill usually results in anincrement in both quality and quantity of output. However, the increasinglytechnical nature of modern jobs demands systematic training to makepossible even minimum levels of accomplishment,b) Heightened moral: Possession of needed skills helps to meet such assecurity and ego satisfaction. Personnel and human relations programmescan make a contribution toward morale, but they are hollow shells if there

is no solid core of meaningful work laid down with knowledge, skill andpride.c) Reduced supervision: the trained employee is one who can perform withlimited supervision. Both employee and supervisor want less supervisionbut greater independence, which is not possible unless the employee isadequately trained.d) Reduced Accidents: More accidents are caused by deficiencies in peoplethan by deficiencies in equipment and working conditions. Proper trainingM.P. BIRLA INSTITUTE OF MANAGEMENT 58in both the job skills and safety attitudes should contribute towards areduction in the accident rate.e) Increased organizational stability: The ability of an organization tosustain its effectiveness despite the loss of key personnel can by developonly through creation of a reservoir of employees. Flexibility, the ability toadjust to short run variations in the volume of work requires personnel withmultiple skills to permit their transfer to jobs where the demand is highest.

OFF THE JOB TRAINING METHODS:These methods require the trainees to leave their work place and devote theirtime for undergoing training. The various off the job training methods are:1) Special courses and lectures: Some organizations like TATA.s andHindustan Lever, State bank of India, LIC, have their employees toattend course of 1 or 2 week duration conducted by the institutes ofmanagement, admininistrative staff college of India.2) Conferences: in this method, managers and potential managersattend the conference programmes in which they pool their ideas andM.P. BIRLA INSTITUTE OF MANAGEMENT 63experience with certain problems, which are a common subject ofdiscussion. For example the conference may discuss specific problemssuch as planning, delegation etc.3) Case studies: The case study method, which is popularized by theHarvard Business School, USA, is one of the common forms of trainingto the employees. In this method, instructor describes the actualsituation or problems of a specific concern and the participants areencouraged to take part in the objective discussion of the problem.This method increases the trainee.s power of observation and also hisanalytical ability.4) Simulation: In simulation, the real situation of work environment in anorganization is presented in the training session. In other words, insimulation, instead of taking participants into the field is simulated inthe training session itself.5) Role-playing: is one of the common simulation methods of training. Inrole-playing the participants play his role or those of others underspecific conditions of simulation. Role-playing enables the participantsto increase his skill in dealing with other people. In role-playing, theparticipants play different roles for different situation and by this; theyare enabled to deal with several problems from various angles.Sensitivity training: This method aims to influence an individual.sbehavior through group discussion. In-group discussion, the traineesfreely express their ideas, beliefs and attitudes. In sensitivity training,the trainees are enabled to see themselves as other and develop anunderstanding of others views and behavior. Further, the participants

are trained to become patient listeners and resolve conflicts, if any. Inaddition, the trainees by interaction in a group become sensitive to oneanother.s feelings and also develop increased tolerance for individualdifferences.M.P. BIRLA INSTITUTE OF MANAGEMENT 646) Incident method: In the usual case method, the entire problem ispresented to the students, whereas in the incident method, only a briefincident is presented to provoke discussion in the class. The groupthen puts questions to the instructor to draw solution of the case. Thegroup then puts questions to the instructor to draw solution of the case.This method draws the participants into discussion with greateremotional involvement.

Performance appraisal is defined by Wayne Cascio as “the systematic description of employee’s job relevant, strength, weakness.Performance appraisal may be conducted once in every 6 months or once in a year. The basic idea of the appraisal is to evaluate the performance of the employee, giving him a feed back. Identify areas where improvement is required so that training can be provided. Give incentives and bonus to encourage employees etc.

Method of performance appraisalPerformance appraisal is defined by Wayne Cascio as “the systematic description of employee’s job relevant, strength, weakness.Companies use different methods of appraisal for identifying and appraising the skills and qualities of their employees. The different methods used can be explained with the help of following diagram.

Methods of performance appraisal

Traditional method Modern method1. Check list method 2. Confidential report 3. Critical incident method 4. Ranking method5. Graphic rating scale 6. Narrated essay 7. 360* Appraisal

Traditional method Traditional method of performance appraisal has been used by companies for very long time. A common feature of these methods is they are all relatively simple and involve appraisal by one senior.

1. Check list method :- In this method the senior, the boss is given a list of questions about the junior. These questions are followed by check boxes. The superior has to put a tick mark in any one of the boxes

2. Confidential report :- This method is very popular in government departments to appraise IAS officers and other high level officials. In this method the senior or the boss writes a report about the junior giving him details about the performance about the employee. The +ve and – ve traits, responsibilities handled on the job and recommendations for future incentives or promotions. The report is kept highly confidential and access to the report is limited.

3. Critical incident method :-

In this method critical or important incidents which have taken place on this job are noted down along with employee’s behavior and reaction in all these situations. Both +ve and –ve incidents are mentioned. This is followed by an analysis of the person, his abilities and talent, recommendations for the future incentives and promotions.

4. Ranking method :- In this method ranks are given to employees based on their performance. There are different methods of ranking employees.

Simple ranking methodAlternate ranking methodPaired comparison method

i. Simple ranking method :- Simple ranking method refers to ranks in serial order from the best employee eg. If we have to rank 10 best employees we start with the first best employee and give him the first rank this is followed by the 2nd best and so on until all 10 have been given ranks.

ii. Alternate ranking :- In this method the serial alternates between the best and the worst employee. The best employee is given rank 1 and then we move to the worst employee and give him rank 10 again to 2nd best employee and give him rank 2 and so on.

iii. Paired comparison :- In this method each and every person is the group, department or team is compared with every other person in the team/group/department. The comparison is made on certain criteria and finally ranks are given. This method is superior because it compares each and every person on certain qualities and provides a ranking on that basis.

5. Graphic rating scale :- Graphic rating scale refers to using specific factors to appraise people. The entire appraisal is presented in the form of a chart. The chart contains certain columns which indicate qualities which are being appraised and other columns which specify the rank to be given.The senior has to put a tick mark for a particular quality along with the ranking. Such charts are prepared for every employee. According to the department in which they work. Sometimes the qualities which are judged may change depending upon the department.

6. Narrated essay :- In this method the senior or the boss is supposed to write a narrative essay describing the qualities of his junior. He may describe the employees strength and weakness, analytical abilities etc. the narrative essay ends with a recommendation for future promotion or for future incentives.

Modern methods Modern methods of appraisal are being increasingly used by companies. Now days one of the striving feature that appraisal involves is, the opinion of many people about the employee and in some cases psychological test are used to analyze the ability of employee. These methods are as follows

1. Role analysis :- In this method of appraisal the person who is being apprised is called the focal point and the members of his group who are appraising him are called role set members.These role set members identify key result areas (KRA 2 marks) (areas where you want improvement are called KRA) which have to be achieved by the employee. The KRA and their improvement will determine the amount of incentives and benefits which the employee will receive in future. The appraisal depends upon what role set members have to say about the employee.

2. Assessment centers :- Assessment centers (AC) are places where the employee’s are assessed on certain qualities talents and skills which they possess. This method is used for selection as well as for appraisal. The people who attend assessment centers are given management games, psychological test, puzzles, questioners about different management related situations etc. based on their performance in these test an games appraisal is done.

3. Management by objective :- This method was given by Petter Druckard in 1974. It was intended to be a method of group decision making. It can be use for performance appraisal also. In this method all members of the of the department starting from the lowest level employee to the highest level employee together discus, fix target goals to be achieved, plan for achieving these goals and work together to achieve them. The seniors in the department get an opportunity to observe their junior- group efforts, communication skills, knowledge levels, interest levels etc. based on this appraisal is done.

4. Behavioral anchored rating scale :- In this method the appraisal is done to test the attitude of the employee towards his job. Normally people with +ve approach or attitude view and perform their job differently as compared to people with a –ve approach.

5. Psychological testing :- In this method clinically approved psychological test are conducted to identify and appraise the employee. A feedback is given to the employee and areas of improvement are identified.

6. Human resource audit/accounting :- In this method the expenditure on the employee is compared with the income received due to the efforts of the employee. A comparison is made to find out the utility of the employee to the organization. The appraisal informs the employee about his contribution to the company and what is expected in future.

7. 3600 appraisal :- In this method of appraisal and all round approach is adopted. Feedback about the employee is taken from the employee himself, his superiors, his juniors, his colleagues, customers he deals with, financial institutions and other people he deals with etc. Based on all these observations an appraisal is made and feedback is given. This is one of the most popular methods.