Overview of Management

Koontz and Weihrich offer an interesting perspective on management.

"Management is a process of designing and maintaining an environment in which individuals work together in groups to efficiently accomplish selected aims".

McFarland gives a holistic view on management.

"Management is a process by which managers create, direct, maintain and operate purposive organizations, through systematic, coordinated, cooperative human effort".

These definitions when expanded have these implications.

• The functions of managers include planning, organizing, staffing, leading and controlling.
• These functions are essential to any kind of organization.
• It applies to managers at all hierarchical levels.
• The aim of managers is to increase productivity, effectiveness and efficiency.

Management is thus a continuous effort aimed at shaping an organization and contributing to its overall growth.

Managerial Roles

In 1960, Henry Mintzberg conducted a study to understand about the managerial roles. He identified 10 managerial roles that are common to all managers. These 10 managerial roles are grouped under: Interpersonal, informational and decisional roles.

The interpersonal role is primarily social in nature; that is they are the roles in which the manager's main task is to relate to other people in certain ways. The informational role involves some aspect of information processing. The decision-making role makes significant use of the information. Managerial roles can be performed differently at different times, and the requirements for playing such roles can be fulfilled by the manager depending upon the level and function of management.

Interpersonal roles:  Three important interpersonal roles are the figure head, the leader and the liaison.

• Figurehead: Represents the company on social occasions. Attending the flag hosting ceremony, receiving visitors or taking visitors for dinner etc.
• Leader: In the role of a leader, the manager motivates, encourages, and builds enthusiasm among the employees. Training subordinates to work under pressure, forms part of the responsibilities of a manager.
• Liaison: Consists of relating to others outside the group or organization. Serves as a link between people, groups or organization. The negotiation of prices with the suppliers regarding raw materials is an example for the role of liaison.

Informational Roles: The key informational roles are the recipient, the disseminator and the spokesperson.

• Recipient:  Actively seeks information from subordinates and the external environment. He (Manager) keeps himself updated, with the latest developments which can be of value to the organization.
• Disseminator: The manager plays the role of a disseminator by circulating and transferring relevant information to subordinates, and to the top-level management.

For Example,  Communicating changes in the company policy (remuneration,       recruitment etc.) to subordinates.

• Spokesperson:  Transmits information to the people who are external to the organization, i.e., government, media etc.

For instance, a manager addresses a press conference announcing a new product launch or other major deal. 

Decisional roles: Four basic decision making roles are the entrepreneur, the disturbance handler, the resource allocator and the negotiator.

• Entrepreneur: Act as an initiator and designer and encourage changes and innovation, identify new ideas, delegate idea and responsibility to others.
• Disturbance handler: Take corrective action during disputes or crises; resolves conflicts among subordinates; adapt to environmental crisis.
• Resource allocator: Decides distribution of resources among various individuals and groups in the organization.

For instance, finalizes annual budgets of different departments, after a thorough discussion with the departmental heads. 

• Negotiator: Negotiates with subordinates, groups or organizations- both internal and external. Represents department during negotiation of union contracts, sales, purchases, budgets; represent departmental interests

For instance,  negotiates a contract with the suppliers for the purchase of raw materials.

FUNCTIONS OF MANAGER

Regardless of the type of the industry, the functions involved in an organization, or the organizational level at which one functions; every manager has to perform certain basic managerial functions such as planning, organizing, staffing, leading and controlling. 

• Planning is the process of setting goals, and charting the best way of action for achieving the goals. This function also includes, considering the various steps to be taken to encourage the necessary levels of change and innovation.

For example,  if a company is planning for a promotional campaign, then the manager responsible for the campaign has to chart out actions that are in the best interest of the firm.

• Organizing is the process of allocating and arranging work, authority and  resources, to the members of the organization so that they can successfully execute the plans.

In many retail outlets, departments are organized (inventory department etc.), based on the nature of the job (product packing, grading, pricing, inventory etc.,) 

• Staffing consists of recruiting, training and developing people, who form part of the organized efforts to contribute towards organizational growth.

For instance, recruiting programmers and analysts for a company. Training and developing them to achieve organizational goals forms a part of  the staffing activity. 

• Leading involves directing, influencing and motivating employees to perform essential tasks. This function involves display of leadership qualities, different leadership styles, different influencing powers, with excellent abilities of  communication and motivation. 

For instance, Sam Walton - founder of Walmart,  leadership style was instrumental for the roaring success achieved by the retail giant. He always enjoyed interacting with his employees. He also made it a practice to visit each store, at least once in an year. He also insisted that the top level executives should visit the stores, and interact with employees.  

• Controlling is the process of devising various checks to ensure that planned performance is actually achieved. It involves ensuring that actual activities confirm to the planned activities. Monitoring the financial statements,  checking the cash registers to avoid overdraft etc., form part of this process.

The Essentials of control activities are:

• Setting performance standards
• Determining the yard-stick for measuring performance
• Measuring the actual performance
• Comparing actuals with the standard
• Taking corrective actions, if actuals do not match with standards
  LEVELS OF MANAGEMENT AND TYPES OF MANAGERS
  Management can be classified into three levels. They are top management, middle management and supervisory or first-level management. The number of managerial jobs in an organization varies with the level of management.
  • Top management sets the goals of the organization, evaluates the overall performance of various departments involved in selection of key personnel and consults subordinate managers on subjects or problems of general scope.
  • Middle level management is responsible for developing departmental goals and initiate actions that are required to achieve organizational objectives.
  • Supervisory management takes charge of day-to-day operations at the floor level and is involved in preparing detailed short-range plans.
    There are three types of managers in an organization. They are: Top level managers, middle level managers and first-level mangers.
    • Top level managers: This level is appointed, elected or designated by the organization's governing body. Top managers are responsible for establishing objectives, strategies and operating policies. Top level managers carry titles such as: President, Chief Executive Officer (CEO), Managing Director etc. They are responsible for all the activities of the business and are accountable for their impact on society at large. Top managers have direct responsibility for the upper layer of middle level managers.
    • Middle level managers: Middle level managers are primarily responsible for implementing policies and plans that have been decided upon by the top management. They are also responsible for supervising and coordinating the activities of lower level managers. Middle level managers have titles such as manager, head of the department. They look to top management for direction and guidance and are answerable to top managers.
    • First level managers: First level or first line managers, are at the lowest level in the hierarchy of managers. They are responsible for activities of employees operating at the floor-level. Common titles of first level managers include, foreman, supervisor and office manager. In the organizational pursuit of achieving goals, First line managers form the crucial link in the managerial hierarchy, because they ensure that the day-to-day operations  of the organization are run smoothly. They are accountable for the operational output in terms of number of units produced, labor costs, inventory levels and quality control.  
    Example: First level manager could be a flight service manager, who is responsible to check the availability of flight attendants on each flight, besides handling passenger complaints.

ORGANISING

ORGANISING

Organising is the next important function of management after the planning. You know that
in case of planning a manager decides what is to be done in future. In case of organising,
he decides on ways and means through which it will be easier to achieve what has been
planned. Suppose, it is planned to start a new plant for soft drinks within six months. The
immediate task for the manager then is to identify and assign the various tasks involved,
and devise structure of duties and responsibilities so that things move smoothly and the
objective is achieved. All these tasks form part of organising function. Thus, organising
refers to the process of :
• Identifying and grouping the work to be performed.
• Defining and determining responsibility and authority for each job position.
• Establishing relationship among various job positions.
• Determining detailed rules and regulations of working for individuals and groups in
organisation.
IMPORTANCE OF ORGANISING

Organising is essential because it facilitates administration as well as operation of enterprise.
By grouping work and people properly, production increases, overload of work is checked,
wastage is reduced, duplication of work is restricted and effective delegation becomes
possible. Secondly, organising facilitates growth and diversification of activities through
clear division of work. It helps in developing a proper organisation structure and the extent
and nature of decentralisation can be determined. In addition to the above, organising also
provides for the optimum use of technical and human resources. It also encourages creativity
and enhances interaction among different levels of management which leads to unification
of efforts of all.

PROCESS OF ORGANISING
The process of organising consists of the following steps –
1. Identification of activities: Every enterprise is created with a specific purpose.
Based on this, the activities involved can be identified. For example, in a manufacturing
firm, producing goods and selling them are the major activities in addition to routine
activities like, paying salary to employees, raising loans from outside, paying taxes to
the government etc. And these activities vary when the organisation is a service concern
or a trading firm. Therefore, it is essential to identify various activities of an enterprise.
2. Grouping of activities: Once activities are identified, then they need to be grouped.
They are grouped in different ways. The activities which are similar in nature can be
grouped as one and a separate department can be created. For example – activities
undertaken before sale of a product, during the sale of the product and after the sale
of the product can be grouped under the functions of a marketing department. Normally,
all activities of a manufacturing unit can be grouped into major functions like purchasing,
production, marketing, accounting and finance, etc. and each function can be subdivided
into various specific jobs.
3. Assignment of Responsibilities: Having completed the exercise of identifying,
grouping and classifying all activities into specific jobs, they can be assigned to individuals
to take care of.
4. Granting authority: On the basis of responsibilities given to specific individuals, they
are also to be given the necessary authority to ensure effective performance.
5. Establishing relationship: This is a very important job of management as everybody
in the organisation should know as to whom he/she is to report, thereby establishing a
structure of relationships. By doing so, relationships become clear and delegation is
facilitated.

ORGANISATION STRUCTURE
The process of organisation culminates into an organisation structure which constitutes a
network of job positions and the authority relationships among the various positions. The
various factors that are usually taken into consideration for designing a good organisation
structure are job specifications, departmentation, authority-responsibility relationships, etc.
The whole structure takes the shape of a pyramid (look at the type of structure that follow)
and broadly indicates the tasks assigned, the hierarchical relationships and the patterns of
communication and coordination. Based on the arrangement of activities, two most
commonly used forms of organisation structure are (1) functional structure, and (2) divisional
structure. These are discussed hereunder.
1. Functional Structure
An organisation structure formed by grouping together all activities into functional
departments and putting each department under one coordinating head is called functional
structure. Thus, in any industrial enterprise the functions like manufacturing, marketing,
finance, personnel may constitute the major separate units (departments) of the enterprise;
and in case of a large retail store purchasing, sales and warehousing may be the major
units. It may be noted that the major units use are further divided into sub-units. For
example, the manufacturing department may be sub-divided into stores, repairs,
maintenance, production, etc.

This form organisation structure helps in developing functional specialisation in each unit
duly headed by an expert in that functional area. This facilitates the coordination within the
department since all are fully familiar with the various activities involved. However, this
type of structure is considered suitable for small and medium size organisations. In case of
large organisations, the units become too unwieldy and difficult to manage.

2. Divisional Structure
In large organisations dealing in multiple products and serving a number of distinctive
markets, the divisional structure is considered more suitable. Under such structure the organisation is divided into units entrusted with all activities related to different products on
different territories (markets). Each divisional head is required to look after all functions
related to the product or market territory.Under divisional structure, most activities associated with a product or product group can be well coordinated and its profitability easily ascertained. Moreover, it provides opportunity to divisional managers to take prompt decisions and resolve all sorts of problems without
much difficulty. However, this structure is expensive and gives rise to duplication of efforts.

FORMAL AND INFORMAL ORGANISATION
Formal organisation refers to the officially established pattern of relationship among
departments, divisions and individuals to achieve well-defined goals and is a consciously designed structure of roles. In other words, formal organisation clearly spells what a person
has to do, from who he has to take orders and what rules, policies and work procedures
are to be followed. Thus, it is a system of well defined jobs, each bearing a definitive
measure of authority, responsibility and accountability. This promotes order and facilitates
planning and controlling functions.
Informal organisations on the other hand, refers to relationship between individuals in the
organisation based on personal attitudes, likes and dislikes and originates to meet their
social and emotional needs and develops spontaneously. It represents natural grouping of
people in work situation and is supplementary to formal organisation as it serves the needs
not satisfied by formal organisation. The formal organisation does not provide opportunity
to members to exchange personal views and experiences and so they interact informally to
fulfill such interest and needs. In fact, informal organisation comes into being because of
the limitations of the formal structure and both are interlinked. However, they differ in
respect of their origin, purpose, structure, authority, channels of communication and
behaviour of members.
DELEGATION

In organisations, it is difficult on the part of a manager to complete all the jobs assigned to
him. He thus, can take help from others by asking them to do some of the work in a formal
way. It means, he can assign some of the work to his subordinate and give them authority
to carry on the work and at the same time make them accountable. For example, a
production manager may have the target to produce 1000 units in a weeks time. He can
distribute his work to three of his subordinates to produce 250 units each and keep 250 units for self to produce. And then he must also give them enough authority to use
organisational resources to produce. By doing so he also makes his subordinates answerable
to him for non-performance.
This active process of entrustment of a part of work or responsibility and authority to
another and the creation of accountability for performance is known as delegation. Thus,
there are three elements of delegation as follows.
1. Assignment of Responsibility: This is also known as entrustment of duties. Duties
can be divided into two parts: one part, that the individual can perform himself and the
other part, that he can assign to his subordinates to perform.
2. Granting Authority: Authority here simply refers to the official powers and position
required to carry on any task. When duties are assigned to subordinates then the
required authority must also be conferred on him. For example, when a manager asks
his subordinate to receive a guest of the company on his behalf then he must also grant
him some authority like carry the company vehicle, booking the company guest house
for accommodation etc.
3. Creating Accountability: This refers to the obligation on the part of the subordinates,
to whom responsibility and authority are granted to see to it that the work is done. In
other words, the delegatee is fully answerable to his superior for performance of the
task assigned to him. Thus, the superior ensures performance through accountability
by his subordinate.
 IMPORTANCE OF DELEGATION
Delegation is considered as one of the most important elements in the process of organisation
because, it reduces the load on managers as work is successfully shared by the subordinates.
This improves the managerial effectiveness because by delegating a good part of work to
the subordinate the managers are able to concentrate on important matters which require
them personal attention. Not only that, the organisations now-a-day are usually large in
size and complex in character, and no manager can claim to have all the skills and expertise
to handle all kinds of jobs himself. Moreover, the business activities are spread over a
larger area with several branches and units, which makes it difficult for him to look after
the supervise activities personally at all places. The delegation of responsibility with
commensurate authority offers a good workable solution. This also provides an opportunity
for subordinates to develop, and motivates and prepares them for taking up higher
responsibilities in future. It leads to creating a healthy work environment and harmony
among the employees. Thus, delegation facilitates organisational growth and prosperity.
 DECENTRALISATION
Decentralisation refers to a systematic effort to delegate authority at all levels of management
and in all departments. This shifts the power of decision making to lower level under a well
considered plan. Take the case of traffic police controlling movement of vehicles on road. He holds a lower level position in the organisation yet he has lot of authority given to him.
The senior concentrate on ways and means to improve traffic control. In case of business
units, the heads of departments have the authority to take decisions on most matters relating
to the functioning of their department. The top managers are confine themselves to policy
decisions like product lines to be added, further investment etc.
Decentralisation has number of benefits. Firstly, it reduces the workload of the top level
management. Secondly, it motivates the employees and gives them more autonomy. It
promotes initiative and creativity. It also helps employees to take quick and appropriate
decisions. In the process the top management is freed from the routine jobs and it enables
them to concentrate on crucial areas and plan for growth.

He holds a lower level position in the organisation yet he has lot of authority given to him.
The senior concentrate on ways and means to improve traffic control. In case of business
units, the heads of departments have the authority to take decisions on most matters relating
to the functioning of their department. The top managers are confine themselves to policy
decisions like product lines to be added, further investment etc.
Decentralisation has number of benefits. Firstly, it reduces the workload of the top level
management. Secondly, it motivates the employees and gives them more autonomy. It
promotes initiative and creativity. It also helps employees to take quick and appropriate
decisions. In the process the top management is freed from the routine jobs and it enables
them to concentrate on crucial areas and plan for growth.

PLANNING NOTES

WHAT IS PLANNING?

When we talk of planning, it simply refers to deciding in advance what is to be done and
how it is to be done? For example, you decide in advance where to study and what to study (to go in for Business Studies and Accountancy or Physics and Chemistry) etc. and plan for the admission, transport arrangement and purchase of books and stationeries etc. Thus, planning is a systematic way of deciding about and doing things in a purposeful manner. In the context of business organisations and their
management it may be defined as the process of setting future objectives and deciding on
the ways and means of achieving them. In the words of M.E. Hurley “planning is deciding
in advance what is to be done in future. It involves the selection of objectives, policies,
procedures and programmes from among the alternatives”.
FEATURES OF PLANNING

The basic features of planning can be summarised as follows:
(a) Planning is the primary function of management as every activity needs to be planned
before it is actually performed. In other words, planning precedes all other managerial
functions and provides the very basis for organising, staffing, directing and controlling.
(b) Planning is always goal directed. A manager cannot plan anything unless he knows
what he wants to achieve. For example, you cannot plan for a journey unless you
know where you want to go. Thus, planning is taking such steps so as to achieve the
desired goal.
(c) Planning is pervasive at all levels of management and so also for all functional area.
Managers at the top level plan for the entire organisation. They make plans for a long
period and lay down the objectives for the organisation as a whole. Middle-level
managers make quarterly, half-yearly and yearly plans for the departments under them.
Foremen and office supervisors plan for a workshop or a section of the office. They
make plans for a short period, i.e., for the next day, next week or next month.
(d) Planning is always futuristic. It is deciding in advance what to do, how to do, etc. It
requires collection of information about various matters relating to business and then
choosing a course of action for the future. However, while planning for the future, it
does take past experience and current situation into consideration.
(e) Planning is an intellectual activity and requires certain conceptual skills to look ahead
into the future. It needs good foresight and sound judgment to anticipate future events,
develop alternative courses of action and make the right choice.
(f) Planning is a continuous process. In organisations plans are made for a specific period
followed by new plans for further period. Sometimes the conditions or circumstance
change requiring the plans to be revised. For example, a sugar factory situated in
upper regions of Uttar Pradesh had planned for 1,000 tonnes of sugar during the last
quarter of the year. Accordingly, the management planned for procurement of sugar
cane from the nearby areas. Unfortunately, there was snowfall leading to loss of crop.
This made the management to change their plan and procure sugarcane from far off
areas like Haryana and Rajasthan and also revise their planned production of 1000 to
800 tonnes. Thus, planning is a continuous activity in organisations.
(g) Planning basically involves making choices. Need for planning arises when goals/
objectives are many and alternatives to achieve them are also plenty. While planning,
alternatives are evaluated and a choice is made regarding which course of action is to
be followed.

(h) Planning is flexible. Planning is done on the basis of some forecasts which may not
materalise. Hence, plans have to be changed in accordance with the changed conditions.
Activities are planned with certain assumptions, which may not come true. Managers
must make provision for alternate strategies and plans as indicate in the earlier example
of a sugar factory.
IMPORTANCE OF PLANNING

Planning is the most importance of all the management functions. Some of the importance
are as follows:
(a) Planning reduces uncertainty, risk and confusion in operation. Through planning, the
future course of action is known to all and so, everybody knows exactly what needs
to be done. This gives a sense of direction resulting in efficiency in operations.
(b) Planning guides the decision making by the managers. Planning of goals to be achieved
and the course of action to be followed to achieve the goal act as a guide in their own
decision making and action plans.
(c) Planning helps in achieving coordination and facilitates control. Proper planning
integrates the tasks at the operational level, thereby making coordination more effective.
It also helps in identifying deviations and taking the corrective action.
(d) Planning with an element of flexibility makes the organisation adaptable. In other words
planning makes the organisation capable of coping with the changing environment and
facing challenges.
(e) Planning leads to economy and efficiency in operations. Best methods are selected
out of available choices, thus, reducing overlapping and wasteful activities.
(f) Planning begins with the determination of objectives and directed towards their
achievement. It keeps the executive alive and alert. Managers have to review the
progress periodically and recast their strategies to meet the objectives.
It should be noted that planning also has certain limitations, as the plans are based on
certain assumptions and incomplete information. Hence, the management has to be vigilant
and provide for necessary flexibility to take care of changed situations.
THE PLANNING PROCESS/STEPS IN PLANNING

Planning in organisation follows a step-by-step process without which it may be difficult
to build up proper plans and ensure their implementation. Such steps are as follows.
1. Establishment of Objectives
All of us know that every organisation has some goals that it wants to achieve. Planning
actually starts with defining these goals in more concrete, clear and unambiguous terms.
This enables the management in gaining clarity on what they have to achieve and then plan
all activities accordingly. Hence establishing organisational objective is a pre-requisite for
good and meaningful planning.
2. Making Assumptions (establishing premises) about the External and Internal
Conditions
Making assumptions about the future environment of business is the second step in planning.
For example, it may be assumed that there will not be any change in tax laws and that there
will be sufficient funds available to meet its financial requirements. These assumptions
about the future environment of the business are known as planning premises. These
premises may be external or internal. External planning premises relate to conditions
outside the business. Internal planning premises relate to conditions prevailing within the
organisation.
External planning premises include assumptions about the market demand and nature of
competition, laws affecting the business, availability of resources, and changes in technology.
If the management can visualise the likely changes in the external conditions, they can take
steps to solve problems arising there from and plan to take advantage of the emerging
business opportunities. Government policies and laws, for example, affect the decisions of
managers to a great extent. Advance knowledge of the likely changes in government policy
enables managers to plan their activities more appropriately.
Internal planning premises relate to conditions within an organisation. These conditions
include cost, methods and techniques of production, employees, type of machinery and
equipment, etc. All these constitute the internal resources which determine as to what the
organisation is capable of achieving.
The study of external conditions enables a business unit to know the opportunities available
in the market. Hundreds of opportunities are available to a business unit, but it cannot take
advantage of every opportunity. It has to decide what it will produce and distribute in the
light of what it can do i.e., on the basis of the study of internal factors and then plan
accordingly.

3. Development of Alternative Courses of Action
The next step in planning is to identify the alternative courses of action to achieve the
objectives set. For example, to achieve the objective of increasing the profits of a business
unit, any one or more of the following alternatives can be used:
• Increase the sale of its existing products
• Improve product quality
• Add new products/product lines
• Increase the prices of products
• Reduce costs
4. Evaluation of Alternatives
Evaluation of alternatives is the fourth step in planning. When alternative courses of action
are there before a manager, he has to examine the feasibility and the possible results of
each course of action before selecting the best course. Certain alternatives may not be
practicable. Management should ignore such alternatives. For example, to maximise profits
the management may not think of reducing the wages of workers as it may not be workable.
Similarly, if prices are increased, the business unit may not be able to face competition in
the market. So, the management should evaluate each of the remaining alternatives and
work out how far they help in meeting the objectives and whether these are workable in
the light of available resources.
5. Selecting the Appropriate Course of Action
After evaluating the alternatives the manager will select that alternative which gives maximum
benefit at minimum cost. In selecting the best course from among the alternatives, managers
should also keep in mind their own limitations of resources. So in making the final selection
from among the alternative courses of action, the management will ultimately be guided by:
(a) the opportunities provided by the external environment; and
(b) the ability of the business unit to take advantage of these opportunities.
6. Arranging for implementation
After the management has finalised their choice, it should build up the necessary strategies
and action plan for its implementation in due consultation with all key personnel who are to
implement it.

CHARACTERISTICS OF MANAGEMENT

The various characteristics of management are:
(a) Management is universal: It means that management is required for every type of
organisation. It may be a business organisation or social or political. It may be a small
firm or a large one. Management is required by a school or a college or university or
a hospital or a big firm like Reliance Industries Limited or a small variety store in your
locality. Thus, it is a universal phenomenon and is common and essential element in all
organisations.
(b) Management is goal directed: Every organisation is created to achieve certain
goals. For example, for a business firm it may be to make maximum profit and/or to
provide quality products and services. Management of an organisation is always aimed
at achievement of the organisational goals. Success of management is determined by
the extent to which these goals are achieved.
(c) Management is a continuous process: Management is an ongoing process. It
continues as long as the organisation exists. No activity can take place without
management. To perform all activities like production, sale, storage, operation etc.
management is required. So, as long as these activities continue the process of
management also continues to operate.
(d) Management is an integrating process: All the functions, activities, processes and
operations are intermixed among themselves. It is the task of management to bring
them together and proceed in a coordinated manner to achieve desired result. In fact,
without integration of men, machine and material and coordination of individual efforts
to contribute successfully as a team, it will be difficult to achieve organisational goals.
(e) Management is intangible: Management is not a place like a graphic showing Board
meeting or a graphic showing a school Principal at her office desk which can be seen.
It is an unseen force and you can feel its presence in the form of rules, regulation,
output, work climate, etc.
(f) Management is multi-disciplinary: Management of an organisation requires wide
knowledge about various disciplines as it covers handling of man, machine, material
and looking after production, distribution, accounting and many other functions. Thus,
we find the principles and techniques of management are mostly drawn from almost all
fields of study like – Engineering, Economics, Sociology, Psychology, Anthropology,
Mathematics, Statistics etc.
(g) Management is a social process: The most important aspect of management is
handling people organised in work groups. This involves developing and motivating
people at work and taking care of their satisfaction as social beings. All managerial
actions are primarily concerned with relations between people and so it is treated as a
social process.
(h) Management is situational: The success of management depends on, and varies
from, situation to situation. There is no best way of managing. The techniques and
principles of management are relative, and do not hold good for all situations to come.
IMPORTANCE OF MANAGEMENT

The existence and success of any organisation largely depends on the kind of management
it has. No amount of quality resources is going to help unless they are put to productive
use by efficient management. It is because of this reason that management is studied as a
subject in almost every discipline of study. In today’s scenario with globalisation, job
specialisation, changing technologies, new responsibilities of business, consumerism,
competition and emphasis on research and development, the role of management has
grown multifold. Its importance is reflected in the positive result that the organisation can
get in respect of the following.
(a) Attainment of Goals
Every organisation has a goal to achieve and each employee in the organisation also has
his own goals that he wants to achieve. Even at operational level each department, each
unit or even each group has a goal that it wants to achieve. It is only through proper
management – by well thought of planning, good direction and proper coordination and
control that effectiveness to the efforts of each group to achieve given goals can be ensured.
(b) Stability and Growth
Management strives to utilise the available resources of the organisation effectively and
efficiently. It controls the activities and operations, integrates the functions, motivates the
employees, maintains the health of the organisation in the ever changing environment. It
thus, ensures stability to the working of the organisation and contributes to its growth.
(c) Change and Development
Management keeps itself in touch with the changes in the environment and foresees
development in the future. Accordingly, plans are made to keep the organisation ready to
meet the challenges. The technologies, operations, process as human factors are developed
on a continuous basis keeping an eye on the future.
(d) Efficiency and Effectiveness
By proper planning, staffing, organising, coordinating, directing, and its controlling activities,
the management helps in achieving efficiency and effectiveness to human efforts and
operations.
NATURE OF MANAGEMENT

The nature of management can be better appreciated by looking at it
• as a process
• as a discipline
• as a group of individuals
• as a profession, and
• as a science as well as an art.
(a) Management as a Process
Management consists of a series of inter-related activities of planning, organising and
controlling. All activities are undertaken in a proper sequence with a systematic approach
so as to ensure that all actions are directed towards achievement of common goals. Thus,
it is regarded as a process of organising and employing resources to accomplish the
predetermined objectives.
(b) Management as a Discipline
Management is a systematised body of knowledge that has developed, grown and evolved
over the years through practice and research. The knowledge so cumulated is disseminated
to successive generations of managers and used by them in performing their jobs. Thus, it
has become a separate field of study with its own principles and practices and thus, evolved
as an independent discipline with its own techniques and approaches.
(c) Management as a Group
Management normally refers to a group of managers working in an organisation. It includes
the top executive as well as the first line supervisors. These managers perform their functions
jointly as a group. The success of business does not depend on the efficiency of one, but
of all manages taken together. Managers work as a team so that objectives of the business
are fully achieved. However, in every organisation there are certain levels of managementwith varying degree of the nature of authority and responsibilities. You will learn about
these later in this lesson.
(d) Management as a Science as well as an Art
Management is regarded as a science as well as an art. Science refers to a systematic
body of knowledge with reference to understanding of some phenomenon or subject or
object of study. It establishes a cause and effect relationship between variables. It is based
on systematic explanation, experimental analysis, critical evaluation and logical consistency.
In science we learn the ‘why’ of a phenomenon. For example, two molecules/atoms of
hydrogen and one molecule/atom of oxygen makes water (H2O). Similarly we can say
earth moves round the sun. Any subject of study to be called a science should have the
following characteristics:
(i) There must be a systematised body of knowledge that includes concepts, people and
theories.
(ii) We should be able to establish a cause and effect relationship.
(iii) Its principles should be verifiable.
(iv) Its should ensure predictable results.
(v) It should have universal application.
Management as a subject of study fulfils almost all the above characteristics. Theories and
techniques like scientific management, PERT and CPM, break even analysis, budgeting
etc. are all scientific in nature. However, since it deals with human beings, we cannot
predict a definite cause - effect relationships. Hence management is not treated as a pure
or full-fledged science.
As for the art, you know that it refers to bringing about the desired result through application
of skill. It is a personalised process and states that there is no best way of doing a thing.
Thus, it is creative and it improves by practice. In art we learn about the ‘how’ of a
phenomenon. For example, take the case of painting. There is nothing called the best
way of painting. More one paints, the more he improves and learns how to paint. Now
look at management. Here also we apply a lot of skill (like technical, conceptual, human
etc.) and it is also creative in nature. Nobody can say that this is the best way of managing.
It varies from one manager to another. The more one manages, the more experienced and
expert he becomes.
Thus, management is a combination of both science and art.
(e) Management as Profession
In the first lesson you had learnt that profession is an occupation. To be precise, any
occupation that satisfies the following requirements is called a profession.
(i) It must be an organised and systematised body of knowledge. Take for example
professions like engineering or chartered accountancy. These require a specialised
knowledge.

(ii) There is always a formal method of acquisition of such knowledge. In other words,
individuals, to pursue a specific profession, must acquire the specialised knowledge
through some formal institutions. For example, you need to get a degree in law or
engineering to pursue the profession of a lawyer or engineer.
(iii) There exists an association to devise certain code of conduct for the professionals.
This code of conduct lays down norms to be observed by the professionals while
doing their job. Violation of the prescribed code can lead to derecognising the
professional to practise.
(iv) A profession is no doubt an occupation to earn one’s livelihood but the financial reward
is not the main measure of their success. The professional use their specialised
knowledge to serve the long-run interests of the society and are also conscious of their
social responsibility.
Though management may not meet all the requirements of a profession in strict sense of
the term, but it meets most of the above requirements and is, now a days, regarded a fullfledged
profession. A number of institutions have come up to teach management in a
formal way and train future managers. Various associations like American Management
Association in USA, All India Management Association in India have been functioning as
representative bodies of managers and have duly devised codes of conduct for managers.
Many more organisations have come up in the specialised fields of management.
LEVELS OF MANAGEMENT

As stated earlier, there are certain levels of management with varying degree of authority
and responsibilities. Some managers decide about the objectives of the business as a
whole; some managers perform functions to achieve these objectives in different
departments, like production, sales, etc, and some of the managers are concerned with
the supervision of day-to-day activities of workers. Managers performing different types
of duties may, thus, be divided into three categories:
• Top-Level Management
• Middle-Level Management
• Lower-Level Management

the top level management includes Board of Directors and the
Chief Executive. The chief executive may have the designation of Chairman, Managing
Director, President, Executive Director or General Manager. This level determines the
objectives of the business as a whole and lays down policies to achieve these objectives
(making of policy means providing guidelines for actions and decision). The top management
also exercises an overall control over the organisation.
The middle-level management includes heads of various departments, e.g., production,
sales, etc., and other departmental managers. Sometimes senior departmental heads are
included in the top management team. The objectives of the business as a whole are
translated into departmental objectives for the middle level management. The heads of the
departments then work out their own strategies so as to achieve these objectives. Middlelevel
managers are particularly concerned with the activities of their respective departments.
The lower-level management consists of foremen and supervisors who look after the
operative workers, and ensure that the work is carried out properly and on time. Thus,
they have the primary responsibility for the actual production of goods and services in the
organisation.
These three levels of management taken together form the ‘hierarchy of management’. It
indicates the ranks and positions of managers in the hierarchy. It shows that the middlelevel
management is subordinate to the top-level and that the lower-level is subordinate to
the middle-level management.

the number of people at each level increases as one moves from top to bottom. Workers including crafts persons, manual labourers, engineers, scientists, etc. form the bulk of the organisation membership.
Within the managerial ranks, the number of managers at each level decreases as one
moves from lower-level to top-level management. At the top of the organisation, there is
usually one person.
FUNCTIONS OF MANAGEMENT

In every organisation, the managers perform certain basic functions. These are broadly
divided into six categories viz., planning, organising, staffing, directing, coordinating and
controlling. These are discussed basically hereunder. You will learn about all these functions
in detail in the lessons to follow.
(a) Planning
Planning is deciding in advance what is to be done, when it is to be done, how it is to be
done. It is basically concerned with the selection of goals to be achieved and determining
the effective course of action from among the various alternatives. This involves forecasting,
establishing targets, developing the policies and programming and scheduling the action,
procedure, etc., Thus, planning requires decisions to be made on what should be done,
how it should be done, who will do it, where it will be done, and why it is to be done. The
essential part of planning consists of setting goals and programmes of activities.

(b) Organising
After the plans have been drawn, management has to organise the activities, and physical
resources of the firm to carry out the selected programmes successfully. It also involves
determining the authority and responsibility relationships among functions, departments
and personnel at various levels to ensure smooth and effective function together in
accomplishing the objective. Thus, the organising function of management is primarily
concerned with identifying the tasks involved and grouping them into units and departments,
and defining the duties and responsibilities of people in different positions within each
department for well coordinated and cooperative effort in the organisation.
(c) Staffing
Staffing is concerned with employing people for the various activities to be performed.
The objective of staffing is to ensure that suitable people have been appointed for different
positions. It includes the functions of recruitment, training and development, placement
and remuneration, and performance appraisal of the employees.
(d) Directing
The directing function of management includes guiding the subordinates, supervising their
performance, communicating effectively and motivating them. A manager should be a good
leader. He should be able to command and issue instruction without arousing any resentment
among the subordinates. He should keep a watch on the performance of his subordinates
and help them out whenever they come across any difficulty. The communication system,
i.e., exchange of information should take place regularly for building common understanding
and clarity. The managers should also understand the needs of subordinates and inspire
them to do their best and encourage initiative and creativity.
(e) Controlling
This function of management consists of the steps taken to ensure that the performance of
work is in accordance with the plans. It involves establishing performance standards and
measuring the actual performance with the standards set. If differences are noticed,
corrective steps are taken which may include revision of standards, regulate operations,
remove deficiencies and improve performance.
(f) Co-ordinating
Management has to ensure that all the activities contribute to the achievement of the
objectives of the business as a whole. This requires integration of activities and
synchronisation of efforts. The heads of different departments should not treat each other
as competitors but should work as organs of one body. As the proper functioning of every
organ of a human body is important for a healthy body, the work of every department is
important for the organisation as a whole. Managers should, therefore, see that everybody
in the organisation understands its objectives and works in co-operation with others to
achieve these objectives. This function of management is called co-ordination. It consists
of harmonising group effort so as to achieve common objectives.
CONCEPT OF SCIENTIFIC MANAGEMENT

F.W. Taylor, well-known management expert, worked as an apprentice, machinist, foreman
and ultimately as the chief engineer of a steel company in U.S.A. Taylor suggested a new
approach to management early in the twentieth century. This is known as ‘Scientific
Management’. The basic principles developed by Taylor as principles of scientific
management were:
1. Development of a true scientific approach to management replacing the old rule of
thumb method, which would enable managers, among other things, to determine the
best method of performing each task;
2. Scientific selection and placement of workers so that each worker could be assigned
the task for which he is best suited;
3. Scientific training and development of workers so as to achieve the highest level of
efficiency; and
4. Close co-operation between management and labour to ensure that work is carried
out in accordance with the scientific principles which are developed.

A number of techniques like time study, motion study, standardisation of equipment and
working conditions, and differential piece rate of wages were also developed to facilitate
scientific management.
GENERAL PRINCIPLES OF MANAGEMENT

Scientific management was primarily concerned with increasing the efficiency of individual
workers at the shop floor. It did not give adequate attention to role of managers and their
functions. However, around the same time Henry Foyal, Director of a coal mining company
in France made a systematic analysis of the process of management. He strongly felt that
managers should be guided by certain principles, and evolved 14 general principles of
management which are still considered important in management. These are:
1. Division of Work: This principle suggests that work should be assigned to a person
for which he is best suited. Work should be divided into compact jobs to be assigned
to individuals. This facilitates specialisation and improves efficiency.
2. Authority and Responsibility: Responsibility means the work assigned to any person,
and authority means rights that are given to him to manage people and things to ensure
performance. In other words, authority should go hand in hand with the responsibility
for effective results.
3. Discipline: This principle emphasises that subordinates should respect their superiors
and obey their orders. On the other hand, superiors’ behaviour should be such that
they make subordinates obedient. If such discipline is observed, there will be no problem
of industrial disputes.
4. Unity of Command: A subordinate should work under the supervision of one superior
only from whom he gets instructions and to whom he is accountable. It avoids confusion
in authority and instructions.
5. Unity of Direction: Each group of activities having the same objective must have
one head and one plan of action. Otherwise, there may be wastage, over expenditure
and useless rivalry among the managers.
6. Subordination of Individual Interest to General Interest: While taking any
decision, the collective good and collective interest of the organisation as a whole
should be preferred to individual interests. The individual’s interest should be
subordinated to the overall interest of the organisation. This ensures welfare of the
organisation as well as its individual members.
7. Remuneration: Management should try to give fair wages to the employees so as to
ensure reasonable satisfaction of workers and productivity for the organisation.
8. Centralisation: When a single person controls the affairs of an organisation, it is said
to be complete centralisation. In small concerns, a single manager can supervise the
work of the subordinates easily, while in a big organisation, control is divided among a

number of persons to facilitate operational decision making at various levels. Fayol’s
opinion was that there should be a proper balance between centralisation and
delegation of authority in an organisation.
9. Scalar Chain: This is the chain of authority relationship from the highest to the lowest
ranks. This implies that subordinates report to their immediate supervisors who, in
turn, report directly to their own boss. The order of this chain should be maintained
when some instructions are to be passed on or enquiries are to be made.
10. Order: Placement of men and materials should be properly made. Proper space
should be made available where materials can be kept safely. Each man should be
provided the work for which he is best suited.
11. Equity: This principle requires the managers to be kind and just to workers. This
promotes a friendly atmosphere between superiors and subordinates and motivates
them to perform their duties efficiently.
12. Stability of Tenure: Employees should be provided stability and continuity of their
tenure of employment. There should not be frequent termination of employees. This
could be achieved through attractive remuneration and honourable treatment of
personnel.
13. Initiative: This implies encouraging initiative among its personnel to chalking out and
execution of a plan to achieve the desired results.
14. Esprit de Corps: These French words mean team spirit. Managers should infuse the
spirit of team work and cooperation among the employees. It helps in developing an
atmosphere of mutual trust and a sense of unity.
Fayol made it clear that these principles can be applied to most organisations, but these
are not absolute principles. Organisations are at liberty to adopt those which suit them or
to delete a few according to their needs.

Business management notes

PARTNERSHIP

‘Partnership’ is an association of two or more persons who pool their financial and managerial
resources and agree to carry on a business, and share its profit. The persons who form a
partnership are individually known as partners and collectively a firm or partnership
firm.
The agreement may be in oral, written or implied. When the agreement is
in writing it is termed as partnership deed. However, in the absence of an agreement, the
provisions of the Indian Partnership Act 1932 shall apply.
Partnership form of business organisation in India is governed by the Indian Partnership Act, 1932 which defines partnership as “the relation between persons who have agreed to
share the profits of the business carried on by all or any of them acting for all”.

CHARACTERISTICS OF PARTNERSHIP FORM OF BUSINESS
ORGANISATION

Based on the definition of partnership as given above, the various characteristics of
partnership form of business organisation, can be summarised as follows:
(a) Two or More Persons: To form a partnership firm atleast two persons are required.
The maximum limit on the number of persons is ten for banking business and 20 for
other businesses. If the number exceeds the above limit, the partnership becomes
illegal and the relationship among them cannot be called partnership.
(b) Contractual Relationship: Partnership is created by an agreement among the persons
who have agreed to join hands. Such persons must be competent to contract. Thus,
minors, lunatics and insolvent persons are not eligible to become the partners. However,
a minor can be admitted to the benefits of partnership firm i.e., he can have share in the
profits without any obligation for losses.
(c) Sharing Profits and Business: There must be an agreement among the partners to
share the profits and losses of the business of the partnership firm. If two or more
persons share the income of jointly owned property, it is not regarded as partnership.
(d) Existence of Lawful Business: The business of which the persons have agreed to
share the profit must be lawful. Any agreement to indulge in smuggling, black marketing
etc. cannot be called partnership business in the eyes of law.
(e) Principal Agent Relationship: There must be an agency relationship between the
partners. Every partner is the principal as well as the agent of the firm. When a partner
deals with other parties he/she acts as an agent of other partners, and at the same time
the other partners become the principal.
(f) Unlimited Liability: The partners of the firm have unlimited liability. They are jointly
as well as individually liable for the debts and obligations of the firms. If the assets of
the firm are insufficient to meet the firm’s liabilities, the personal properties of the
partners can also be utilised for this purpose. However, the liability of a minor partner
is limited to the extent of his share in the profits.
(g) Voluntary Registration: The registration of partnership firm is not compulsory. But
an unregistered firm suffers from some limitations which makes it virtually compulsory
to be registered. Following are the limitations of an unregistered firm.
(i) The firm cannot sue outsiders, although the outsiders can sue it.
(ii) In case of any dispute among the partners, it is not possible to settle the dispute
through court of law.
(iii) The firm cannot claim adjustments for amount payable to, or receivable from, any
other parties.

MERITS OF PARTNERSHIP FORM OF BUSINESS ORGANISATION
(a) Easy to Form: A partnership can be formed easily without many legal formalities.
Since it is not compulsory to get the firm registered, a simple agreement, either in oral,
writing or implied is sufficient to create a partnership firm.
(b) Availability of Larger Resources: Since two or more partners join hands to start
partnership firm it may be possible to pool more resources as compared to sole
proprietorship form of business organisation.
(c) Better Decisions: In partnership firm each partner has a right to take part in the
management of the business. All major decisions are taken in consultation with and
with the consent of all partners. Thus, collective wisdom prevails and there is less
scope for reckless and hasty decisions.
(d) Flexibility: The partnership firm is a flexible organisation. At any time the partners
can decide to change the size or nature of business or area of its operation after taking
the necessary consent of all the partners.
(e) Sharing of Risks: The losses of the firm are shared by all the partners equally or as
per the agreed ratio.
(f) Keen Interest: Since partners share the profit and bear the losses, they take keen
interest in the affairs of the business.
(g) Benefits of Specialisation: All partners actively participate in the business as per
their specialisation and knowledge. In a partnership firm providing legal consultancy
to people, one partner may deal with civil cases, one in criminal cases, another in
labour cases and so on as per their area of specialisation. Similarly two or more
doctors of different specialisation may start a clinic in partnership.
(h) Protection of Interest: In partnership form of business organisation, the rights of
each partner and his/her interests are fully protected. If a partner is dissatisfied with
any decision, he can ask for dissolution of the firm or can withdraw from the partnership.
(i) Secrecy: Business secrets of the firm are only known to the partners. It is not required
to disclose any information to the outsiders. It is also not mandatory to publish the
annual accounts of the firm.

LIMITATIONS OF PARTNERSHIP FORM OF BUSINESS ORGANISATION
A partnership firm also suffers from certain limitations. These are as follows:
(a) Unlimited Liability: The most important drawback of partnership firm is that the
liability of the partners is unlimited i.e., the partners are personally liable for the debt
and obligations of the firm. In other words, their personal property can also be utilised
for payment of firm’s liabilities.
(b) Instability: Every partnership firm has uncertain life. The death, insolvency, incapacity
or the retirement of any partner brings the firm to an end. Not only that any dissenting
partner can give notice at any time for dissolution of partnership.
(c) Limited Capital: Since the total number of partners cannot exceed 20, the capacity
to raise funds remains limited as compared to a joint stock company where there is no
limit on the number of share holders.
(d) Non-transferability of share: The share of interest of any partner cannot be
transferred to other partners or to the outsiders. So it creates inconvenience for the
partner who wants to transfer his share to others fully and partly. The only alternative
is dissolution of the firm.
(e) Possibility of Conflicts: You know that in partnership firm every partner has an
equal right to participate in the management. Also every partner can place his or her
opinion or viewpoint before the management regarding any matter at any time. Because
of this, sometimes there is friction and quarrel among the partners. Difference of opinion
may give rise to quarrels and lead to dissolution of the firm.
TYPES OF PARTNERS

(A) Based on the extent of participation in the day-to-day management of the firm
partners can be classified as ‘Active Partners’ and ‘Sleeping Partners’. The partners
who actively participate in the day-to-day operations of the business are known as
active partners or working partners. Those partners who do not participate in the
day-to-day activities of the business are known as sleeping or dormant partners. Such
partners simply contribute capital and share the profits and losses.
(B) Based on sharing of profits, the partners may be classified as ‘Nominal Partners’
and ‘Partners in Profits’. Nominal partners allow the firm to use their name as partner.
They neither invest any capital nor participate in the day-to-day operations. They are
not entitled to share the profits of the firm. However, they are liable to third parties for
all the acts of the firm. A person who shares the profits of the business without being
liable for the losses is known as partner in profits. This is applicable only to the minors
who are admitted to the benefits of the firm and their liability is limited to their capital
contribution.
(C) Based on Liability, the partners can be classified as ‘Limited Partners’ and ‘General
Partners’. The liability of limited partners is limited to the extent of their capital
contribution. This type of partners is found in Limited Partnership firms in some European
countries and USA. So far, it is not allowed in India. However, the Limited liability
Partnership Act is very much under consideration of the Parliament. The partners
having unlimited liability are called as general partners or Partners with unlimited liability.
It may be noted that every partner who is not a limited partner is treated as a general
partner.
(D) Based on the behaviour and conduct exhibited, there are two more types of
partners besides the ones discussed above. These are (a) Partner by Estoppel; and
(b) Partner by Holding out. A person who behaves in the public in such a way as to
give an impression that he/she is a partner of the firm, is called ‘partner by estoppel’.
Such partners are not entitled to share the profits of the firm, but are fully liable if some
body suffers because of his/her false representation. Similarly, if a partner or partnership
firm declares that a particular person is a partner of their firm, and such a person does
not disclaim it, then he/she is known as ‘Partner by Holding out’. Such partners are
not entitled to profits but are fully liable as regards the firm’s debts.

SUITABILITY OF PARTNERSHIP FORM OF BUSINESS ORGANISATION
We have already learnt that persons having different ability, skill or expertise can join
hands to form a partnership firm to carry on the business. Business activities like construction,
providing legal services, medical services etc. can be successfully run under this form of
business organisation. It is also considered suitable where capital requirement is of a medium
size. Thus, business like a wholesale trade, professional services, mercantile houses and
small manufacturing units can be successfully run by partnership firms.

FORMATION OF PARTNERSHIP FORM OF BUSINESS ORGANISATION
The following steps are to be taken in order to form a partnership firm:
(a) Minimum two members are required to form a partnership. The maximum limit is ten
in banking and 20 in other businesses.
(b) Select the like-minded persons keeping in view the nature and objectives of the
business.
(c) There must be an agreement among the partners to carry on the business and share
the profits and losses. This agreement must preferably be in writing and duly signed by
the all the partners. The agreement, i.e., the partnership deed must contain the following:
(i) Name of the firm
(ii) Nature of the business
(iii) Names and addresses of partners
(iv) Location of business
(v) Duration of partnership, if decided
(vi) Amount of capital to be contributed by each partner
(vii) Profit and loss sharing ratio
(viii) Duties, powers and obligations of partners.
(ix) Salaries and withdrawals of the partners
(x) Preparation of accounts and their auditing.
(xi) Procedure for dissolution of the firm etc.
(xii) Procedure for settlement of disputes
(d) The partners should get their firm registered with the Registrar of Firms of the concerned
state. Although registration is not compulsory, but to avoid the consequences of nonregistration,
it is advisable to get it registered when it is setup or at any time during its
existence. The procedure for registration of a firm is as follows.
(i) The firm will have to apply to the Registrar of Firms of the concerned state in the
prescribed form.
(ii) The duly filled in form must be signed by all the partners.

(iii) The filled in form along with prescribed registration fee must be deposited in the
office of the Registrar of Firms.
(iv) The Registrar will scrutinise the application, and if he is satisfied that all formalities
relating to registration have been duly complied with, he will put the name of the
firm in his register and issue the Certificate of Registration.

JOINT HINDU FAMILY FORM OF BUSINESS ORGANISATION
After knowing about sole proprietorship and partnership forms of business organisation
let us now discuss about a unique form of business organisation that prevails only in India
and that too among the Hindus. The Joint Hindu Family (JHF) business is a form of business
organisation run by Hindu Undivided Family (HUF), where the family members of three
successive generations own the business jointly. The head of the family known as Karta
manages the business. The other members are called co-parceners and all of them have
equal ownership right over the properties of the business.
The membership of the JHF is acquired by virtue of birth in the same family. There is no
restriction for minors to become the members of the business.

CHARACTERISTICS OF JHF FORM OF BUSINESS ORGANISATION
From the above discussion, it must have been clear to you that the Joint Hindu family
business has certain special characteristics which are as follows:
(a) Formation: In JHF business there must be at least two members in the family, and
family should have some ancestral property. It is not created by an agreement but by
operation of law.
(b) Legal Status: The JHF business is a jointly owned business. It is governed by the
Hindu Succession Act 1956.
(c) Membership: In JHF business outsiders are not allowed to become the coparcener.
Only the members of undivided family acquire co-parcenership rights by birth..
(d) Profit Sharing: All coparceners have equal share in the profits of the business.
(e) Management: The business is managed by the senior most member of the family
known as Karta. Other members do not have the right to participate in the management.
The Karta has the authority to manage the business as per his own will and his ways of
managing cannot be questioned. If the coparceners are not satisfied, the only remedy
is to get the HUF status of the family dissolved by mutual agreement.
(f) Liability: The liability of coparceners is limited to the extent of their share in the
business. But the Karta has an unlimited liability. His personal property can also be
utilised to meet the business liability.
(g) Continuity: Death of any coparceners does not affect the continuity of business.
Even on the death of the Karta, it continues to exist as the eldest of the coparceners
takes position of Karta. However, JHF business can be dissolved either through mutual
agreement or by partition suit in the court.

MERITS OF JHF FORM OF BUSINESS ORGANISATION
Since Joint Hindu Family business has certain peculiar features as discussed above, it has
the following merits.
(a) Assured Shares in Profits: Every coparcener is assured of an equal share in the
profits irrespective of his participation in the running of the business. This safeguards
the interest of minor, sick, physically and mentally challenged coparceners.
(b) Quick Decision: The Karta enjoys full freedom in managing the business. It enables
him to take quick decisions without any interference.
(c) Sharing of Knowledge and Experience: A JHF business provides opportunity for
the young members of the family to get the benefits of knowledge and experience of
the elder members. It also helps in inculcating virtues like discipline, self-sacrifice,
tolerance etc.

(d) Limited Liability of Members: The liability of the coparceners except the Karta is
limited to the extent of his share in the business. This enables the members to run the
business freely just by following the instructions or direction of the Karta.
(e) Unlimited Liability of the Karta: Because of the unlimited liability of the Karta, his
personal properties are at stake in case the business fails to pay the creditors. This
clause of JHF business makes the Karta to manage business most carefully and efficiently.
(f) Continued Existence: The death or insolvency of any member does not affect the
continuity of the business. So it can continue for a long period of time.
(g) Tax Benefits: HUF is regarded as an independent assessee for tax purposes. The
share of coparceners is not to be included in their individual income for tax purposes.
After knowing the merits let us see the limitations of Joint Hindu Family form of business
organisation.

LIMITATION OF JHF FORM OF BUSINESS ORGANISATION
(a) Limited Resources: JHF business has generally limited financial and managerial
resource. Therefore, it is not considered suitable for large business.
(b) Lack of Motivation: The coparceners get equal share in the profits of the business
irrespective of their participation. So generally they are not motivated to put in their
best.
(c) Scope for Misuse of Power: Since the Karta has absolute freedom to manage the
business, there is scope for him to misuse it for his personal gains. Moreover, he may
have his own limitations.
(d) Instability: The continuity of JHF business is always under threat. A small rift within
the family may lead to seeking partition.

SUITABILITY OF JHF FORM OF BUSINESS ORGANISATION
The Joint Hindu Family form of business organisation is suitable where the family inherits a
running business and the members of the family want to continue that business jointly as a
family business. Even otherwise, this form of business organisation is considered suitable
for a business that requires limited financial and managerial resources and having a very
limited area of operation. It is found that JHF are usually engaged in trading business,
indigenous banking, small industry, and crafts etc.

Business management notes

FORMS OF BUSINESS ORGANISATION
Have you ever thought who brings the required capital, takes the responsibility of arranging
other resources, puts them into action, and coordinates and controls the activities to earn
the desired profits? If you look around, you will find that a small grocery shop is owned
and run by a single individual who performs all these activities. But, in big businesses, it
may not be possible for a single person to perform all these activities. So in such cases two
or more persons join hands to finance and manage the business properly and share its
profit as per their agreement. Thus, business organisations may be owned and managed
by a single individual or group of individuals who may form a partnership firm or a joint
stock company. Such arrangement of ownership and management is termed as a form of
business organisation. A business organisation usually takes the following forms in India:
(1) Sole proprietorship
(2) Partnership
(3) Joint Hindu Family
(4) Cooperative Society
(5) Joint Stock Company

SOLE PROPRIETORSHIP

Definition of Sole Proprietorship
J.L. Hanson: “A type of business unit where one person is solely responsible for
providing the capital and bearing the risk of the enterprise, and for the management
of the business.”
Thus, ‘Sole Proprietorship’ from of business organisation refers to a business
enterprise exclusively owned, managed and controlled by a single person
with all authority, responsibility and risk.
Now you can workout certain characteristics of sole proprietorship form of business
organisation.
CHARACTERISTICS OF SOLE PROPRIETORSHIP FORM OF BUSINESS
ORGANISATION
(a) Single Ownership: The sole proprietorship form of business organisation has a single
owner who himself/herself starts the business by bringing together all the resources.
(b) No Separation of Ownership and Management: The owner himself/herself manages
the business as per his/her own skill and intelligence. There is no separation of ownership
and management as is the case with company form of business organisation.

(c) Less Legal Formalities: The formation and operation of a sole proprietorship form
of business organisation does not involve any legal formalities. Thus, its formation is
quite easy and simple.
(d) No Separate Entity: The business unit does not have an entity separate from the
owner. The businessman and the business enterprise are one and the same, and the
businessman is responsible for everything that happens in his business unit.
(e) No Sharing of Profit and Loss: The sole proprietor enjoys the profits alone. At the
same time, the entire loss is also borne by him. No other person is there to share the
profits and losses of the business. He alone bears the risks and reaps the profits.
(f) Unlimited Liability: The liability of the sole proprietor is unlimited. In case of loss, if
his business assets are not enough to pay the business liabilities, his personal property
can also be utilised to pay off the liabilities of the business.
(g) One-man Control: The controlling power of the sole proprietorship business always
remains with the owner. He/she runs the business as per his/her own will.

MERITS OF SOLE PROPRIETORSHIP FORM OF BUSINESS ORGANISATION
(a) Easy to Form and Wind Up: It is very easy and simple to form a sole proprietorship
form of business organisation. No legal formalities are required to be observed. Similarly,
the business can be wind up any time if the proprietor so decides.
(b) Quick Decision and Prompt Action: As stated earlier, nobody interferes in the
affairs of the sole proprietary organisation. So he/she can take quick decisions on the
various issues relating to business and accordingly prompt action can be taken.
(c) Direct Motivation: In sole proprietorship form of business organisations. the entire
profit of the business goes to the owner. This motivates the proprietor to work hard
and run the business efficiently.
(d) Flexibility in Operation: It is very easy to effect changes as per the requirements of
the business. The expansion or curtailment of business activities does not require many
formalities as in the case of other forms of business organisation.
(e) Maintenance of Business Secrets: The business secrets are known only to the
proprietor. He is not required to disclose any information to others unless and until he
himself so decides. He is also not bound to publish his business accounts.
(f) Personal Touch: Since the proprietor himself handles everything relating to business,
it is easy to maintain a good personal contact with the customers and employees. By
knowing the likes, dislikes and tastes of the customers, the proprietor can adjust his operations accordingly. Similarly, as the employees are few and work directly under
the proprietor, it helps in maintaining a harmonious relationship with them, and run the
business smoothly.

LIMITATIONS OF SOLE PROPRIETORSHIP FORM OF BUSINESS
ORGANISATION
(a) Limited Resources: The resources of a sole proprietor are always limited. Being
the single owner it is not always possible to arrange sufficient funds from his own
sources. Again borrowing funds from friends and relatives or from banks has its own
implications. So, the proprietor has a limited capacity to raise funds for his business.
(b) Lack of Continuity: The continuity of the business is linked with the life of the
proprietor. Illness, death or insolvency of the proprietor can lead to closure of the
business. Thus, the continuity of business is uncertain.
(c) Unlimited Liability: You have already learnt that there is no separate entity of the
business from its owner. In the eyes of law the proprietor and the business are one and
the same. So personal properties of the owner can also be used to meet the business
obligations and debts.
(d) Not Suitable for Large Scale Operations : Since the resources and the managerial
ability is limited, sole proprietorship form of business organisation is not suitable for
large-scale business.
(e) Limited Managerial Expertise: A sole proprietorship from of business organisation
always suffers from lack of managerial expertise. A single person may not be an expert
in all fields like, purchasing, selling, financing etc. Again, because of limited financial
resources, and the size of the business it is also not possible to engage the professional
managers in sole proprietorship form of business organisations.

FORMATION OF SOLE PROPRIETORSHIP FORM OF BUSINESS
ORGANISATION
It is very simple to establish a sole proprietary concern. Any person who is willing to start
a business and has the necessary resources can set up this form of business organisation.
To start and operate the business in this form, practically does not require any legal formalities
to be fulfilled. In some cases like restaurant, chemist shop etc. however, permission from
the competent authority is required to be obtained before starting the business. Similarly,
setting up a factory may involve taking permission from the local authority. But, formation
of business unit as such does not involve any complexities.