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10320130403003

  1. 1. International Journal of Marketing and Human Resource INTERNATIONAL643X (Online), Volume 4, IssueManagement (IJMHRM), ISSN 0976 JOURNAL OF MARKETING AND HUMAN – 6421 (Print), ISSN 0976 – 3, September – December (2013) RESOURCE MANAGEMENT (IJMHRM) ISSN 0976 – 6421 (Print) ISSN 0976 – 643X (Online) Volume 4, Issue 3, September - December (2013), pp. 10-18 © IAEME: www.iaeme.com/ijmhrm.asp Journal Impact Factor (2013): 4.6901 (Calculated by GISI) www.jifactor.com IJMHRM ©IAEME PROSPECT OF EFFECTIVE COST MANAGEMENT: A STUDY OF SUCCESSFUL AND UNSUCCESSFUL SMALL SCALE UNITS IN MYSORE DISTRICT *Dr. C. MAHADEVA MURTHY **Dr. VEENA. K.P *Associate Professor & Chairman, Department of Studies and Research in Management, Karnataka State Open University, Mukthagangothri, Mysore – 570006, Karnataka. **Assistant Professor, P.G. Department of Studies in Business Administration (MBA), Maharani’s Arts and Commerce College for Women, Mysore,-570005, Karnataka. ABSTRACT In the increasing knowledge-driven economy, emerging trends are key consideration in day-to-day business decisions. New products, technologies, best practices and creative designs appear almost daily on the market and are the result of continuous human innovation and creativity. The individual occupies the prime position in the development process of developing countries, especially the Indian situation, has been the strategy of nurturing the small scale sector through entrepreneurial development having several avowed socioeconomic objectives. In recent years, man as a micro-organism has occupied the pivotal role in the management of either the large organization or the small organization. The research findings emphasize actions for success and these actions are under one’s locus of control. The success or failure of any economic enterprise hovers around innovation levels, entrepreneurial orientation and management heuristics. It is also evidenced that nurturing policy of the government has failed to build entrepreneurial people in a country. What is needed is the development of self propelled entrepreneurialism for any society, which has to take self employment as a growth strategy. In this direction, the present study makes an attempt to compare the effectiveness of cost management of successful units (SUs) and unsuccessful units (UUs) in Mysore district. An efficient cost management not only results in effective competition, but also in financial performance. The management of cost can be achieved through cost control and reduction. Cost control refers to the realization of producing a product within or at budgeted unit cost. Keywords: Micro-organism, locus of control, innovation levels, successful units, unsuccessful units, cost control and reduction. 10
  2. 2. International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976 – 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 3, September – December (2013) PROLOGUE All countries in the world have found an elixir in development. The sheet anchor of this development has been the economic development, which basically denotes material wellbeing or increased per capital consumption or possession of worldly goods. The term ‘economic development’ was often used as a synonym with ‘economic growth’ to denote an increase in material well being. Economic growth signifies an increase in product availability or consumption per head of population. Further, economic growth signifies a self-propelled positive change and economic development signifies managing the change deliberately with a thrust on socio-economic equity. Another dimension of development issue has been the role of agriculture and industry. It is popularly held that the development connotes a shift from agriculture to industrialization because the underdeveloped countries are characterized by agrarian economies. According to Chenery (1984) industrialization has become a major hope of all poor countries which are trying to increase their levels of income. The planners of most of the developing countries regard industrialization as the panacea for underdevelopment and poverty. Industrialization not only influences the growth of national output and income, but also enriches the national life and social, political and cultural pattern of the whole social hierarchy. Another important dimension of development through industrialization has been the relative role of small industries and large industries. Further, the state policy is envisaged to bring industrialization through an effective entrepreneurial environment, moving away from metropolitan cities of the country. In non-metropolitan regions, entrepreneurship is a new challenge and performance of the units established in these regions is highly dependent on an effective cost management. LITERATURE REVIEW The studies on cost management strategies and other related factors on small scale units are analyzed. According to Balakrishnan (1972), the small industrialists pay very little attention to external as well as internal sources of finance. He has indicated that small industries are not sound financially as those of big industries. They do not have adequate resources at their disposal and are more vulnerable to changes in the market. Singh and Sandhu (1988) observe that the average level of capacity underutilization of Indian industries is fluctuating in between 50.00 per cent and 60.00 per cent. Thus, it has become a ‘chronic malice’, which has evaded solution so far. Many factors are found to be responsible for such unpleasant situations. It may be partly due to bottlenecks arising out of inefficient management of material, labour and overheads. Sharma (1976) reveals that small scale units are suffering from underutilization of productive capacity. The factors responsible are found to be power shortage, dearth of skilled labour, labour problem due to unhealthy motivation, and dearth of raw materials, uncertainty of market and lack of mechanical equipments. Jha (1976) was of the opinion that at times, the liberal and blanket assistance given to small scale sector had resulted in malpractices and that scare raw materials were sold in the black market. Such practices resulted in increased cost of production which put them in an adverse position 11
  3. 3. International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976 – 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 3, September – December (2013) Small scale units are expected to serve the hapless labour. Labour is the very backbone of every production activity. Dwett (1988) observes that unlike other factors of production, labour is a living factor. It is not merely a means but also an end of production Deolankar (1993) observed that the labour supply being abundant in India, cost of labour is almost zero and small scale industries can utilize labour as a substitute for fresh capital at a nominal cost. Angel (2004) analyzed that the relationship between knowledge management strategy and business strategy was very essential for any business to perform well. The study revealed that the firm size, age and industry are the factors leading to corporate performance. He concluded that the firm should consider all these factors for any enterprise to succeed. David and Chesebrough (2004) observed that knowledge management increases the efficiency, productivity and efficiency of any business. They also opined that Knowledge management will leads to new opportunities in business. They concluded that master your knowledge then any business will succeed. Singh (2007) stated that failure of any business was due to mismanagement of various resources like material, labour and like. He also opined that mis-functioning of several functional areas also leads to the poor performance of any business. Manimala (2011) highlighted that employee engagement, cost management, customer focusing, operational efficiency, corporate restructuring are the strategies used by successful enterprises more frequently than unsuccessful groups. OBJECTIVES OF THE STUDY The objectives of the study are as follows: 1. To measure the performance of successful and unsuccessful units in terms of cost management; 2. To highlight the importance of different cost elements among successful and unsuccessful units; 3. To present the scope of cost control and reduction of successful and unsuccessful units; and 4. To make relevant findings in the light of objectives of the study. RESEARCH METHODOLOGY The present study is based on both primary and secondary data. The study makes an analysis of effective cost management of small scale units in Mysore District. In the background and the objectives of the study, the present study was carried out to know the difference between successful units and unsuccessful units in managing various cost elements. Out of the total 175 respondents, the numbers of respondents under successful units and unsuccessful units stood at 100 and 75 respectively and their percentages stood at 57.14 per cent and 32.86 per cent. The identification of successful units and unsuccessful units was done by eliciting the performance status by the respondents themselves and then having cross verification of their performance responses through employees of their units, neighboring units and most importantly the bank branches through which they transacted their business. The respondents were chosen from six industry categories of general engineering, chemicals, plastics, rubber products, packaging materials and electrical based on stratified random sampling. The data was collaged with SPSS package and the statistical tools 12
  4. 4. International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976 – 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 3, September – December (2013) comprising of chi-square value, ‘t’ value and mean value were adopted to arrive at meaningful conclusions.. ANALYSIS AND INTERPRETATION OF DATA In this competitive world, cost efficiency plays an influential role in facing competition. Cost Management has been analyzed under (i) Significance of Cost Management; and (ii) Amenability of Cost Control. (i) Significance of Cost Management An efficient cost management not only results in effective competition, but also in financial performance. Significance of cost management has been analyzed under (a) Weightage to Cost Management; and (b) Relative Importance of Cost. (a) Weightage to Cost Management Table No. 1 reveals the weightage given to cost management from the viewpoint of material, labour and overheads. The SUs had given the highest importance to material management and the mean value stood at 3.66. The UUs had the mean value of 1.80. The ‘t’ value was above 10 for materials. Labour had the mean values of 3.16 and 1.88 for SUs and UUS respectively. Overheads had the mean values of 3.18 and 1.75 for SUs and UUs respectively. In other words, SUs gave more weightage to the management of material, labour and overheads than the UUs and all the components of cost were found to be highly significant. Table No. 1 WEIGHTAGE TO COST MANAGEMENT Mean Values Components ‘t’ SUs UUs Material 3.66 1.80 10.001 Labour 3.16 1.88 6.525 Overheads 3.18 1.75 6.847 SUs = Successful Units; UUs = Unsuccessful Units Source: Field Survey. P 0.000 0.000 0.000 (b) Relative Importance of Costs The relative importance of different cost elements, also called cost centres, has been presented under Tables Nos. 2, 3 and 4 with reference to material, labour and overheads. More carefully managed material cost had a significant effect on the success of the unit. It was evident from table No. 2 that 40 per cent of successful units managed the material cost very cautiously. However, 52 per cent of unsuccessful units showed least preference to the management of material cost. The successful units managed the labour cost very judiciously. Whereas the unsuccessful units, did not adopt this policy as shown in table No.3. It was evident that there was significant variation in successful and unsuccessful units regarding labour cost. 13
  5. 5. International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976 – 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 3, September – December (2013) Table No. 2 Cost Performance: Material Weightage Points Group Total 1 2 3 4 5 SUs 10 08 28 14 40 100 (10.0) (8.0) (28.0) (14.0) (40.0) (100.0) UUs 39 18 15 03 75 (52.0) (24.0) (20.0) (4.0) (100.0) 49 26 43 14 43 175 Total (28.0) (14.9) (24.6) (18.0) (24.6) (100.0) SUs = Successful Units; UUs = Unsuccessful Units Note: Figures in parentheses indicate respective percentages Source: Field Survey. Table No. 3 Cost Performance: Labour Weightage Points Group Total 1 2 3 4 5 SUs 14 22 22 18 24 100 (14.0) (22.0) (22.0) (18.0) (24.0) (100.0) UUs 41 12 14 06 02 75 (54.7) (16.0) (18.7) (8.0) (2.7) (100.0) 55 34 36 24 26 175 Total (31.4) (19.4) (20.6) (13.7) (14.9) (100.0) SUs = Successful Units; UUs = Unsuccessful Units Note: Figures in parentheses indicate respective percentages Source: Field Survey. Table No. 4 Cost Performance: Overheads Weightage Points Group Total 1 2 3 4 5 SUs 23 13 19 13 32 100 (23.0) (13.0) (19.0) (13.0) (32.0) (100.0) UUs 44 12 16 03 75 (58.7) (16.0) (21.3) (4.0) (100.0) 67 25 35 13 35 175 Total (38.3) (14.3) (20.0) (7.4) (20.0) (100.0) SUs = Successful Units; UUs = Unsuccessful Units Note: Figures in parentheses indicate respective percentages Source: Field Survey. X2 P 0.531 0.000 X2 P 0.431 0.000 X2 P 0.436 0.000 The table No. 4 revealed that the successful units managed the overhead cost very cautiously, where as the unsuccessful units did not follow this approach. So there is a significant different between successful and unsuccessful units regarding overheads cost management. 14
  6. 6. International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976 – 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 3, September – December (2013) (ii) Amenability for Cost Control and Reduction: The management of cost can be achieved through cost control and cost reduction. Cost control refers to the realization of producing a product within or at budgeted unit cost. Cost reduction refers to the questioning of the budgeted cost and searching for better ways of producing a product below the budgeted cost. In order to achieve cost efficiency, the adoption of these tools is not only important in an efficient financial management but it also as a high potential tool in marketing performance. The importance of amenability for cost control and reduction has been analyzed under (a) Scope for Cost Control and Reduction; and (b) Relative Weightage. (a) Scope for Cost Control and Reduction: Table No. 5presents the scope for cost control and reduction for SUs and UUs from the viewpoint of their mean values. It was observed that SUs had higher mean values regarding material, labour and overheads at 3.12, 2.89, and 2.93 respectively, when compared to UUs with the mean values of 1.81, 1.87 and 1.76 respectively. It was also important to note that SUs rated material as having highest scope for cost control and reduction, but the UUs had the lowest weightage given this material cost. Further, UUs identified labour as the most significant cost element having the scope for control and reduction as against SUs recognizing the least scope. Table No. 5 Scope for Cost Control and Reduction Mean Values Components ‘t’ SUs UUs Material 3.12 1.81 6.654 Labour 2.93 1.76 5.702 Overheads 2.89 1.87 5.358 SUs = Successful Units; UUs = Unsuccessful Units Source: Field Survey. P 0.000 0.000 0.000 In other words, the amenability for control and reduction of different cost elements had an entirely different prioritization structure in SUs and UUs. This has led to a high significance for all cost elements. (b) Relative Weightage The relative weightage given to material, labour and overheads along with frequency distribution has been presented under table Nos. 6, 7 and 8. The SUs recognized material cost having amenability for control and reduction. However, most of the UUs could not recognize materials cost having amenability for control and reduction. There was a significant variation between SUs and UUs on the perception of material cost subject to control and reduction. Regarding labour as a source of cost control and reduction, there was highly dispersed opinion by SUs, but polarized opinion from UUs. Taking the combined opinion of both the groups, the results were highly dispersed. However, there was a significant difference. 15
  7. 7. International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976 – 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 3, September – December (2013) Table No. 6 Cost Control and Reduction: Material Weightage Points Group Total 1 2 3 4 5 SUs 23 10 27 12 28 100 (23.0) (10.0) (27.0) (12.0) (28.0) (100.0) UUs 33 27 13 02 75 (58.7) (36.0) (17.30) (2.7) (100.0) 56 37 40 12 30 175 Total (32.0) (21.1) (22.9) (6.9) (17.1) (100.0) SUs = Successful Units; UUs = Unsuccessful Units Note: Figures in parentheses indicate respective percentages Source: Field Survey. Table No. 7 Cost Control and Reduction: Labour Weightage Points Group Total 1 2 3 4 5 SUs 19 22 29 11 19 100 (19.0) (22.0) (29.0) (11.0) (19.0) (100.0) UUs 39 15 15 04 02 75 (52.0) (20.0) (20.0) (5.3) (2.7) (100.0) 58 37 44 15 21 175 Total (33.1) (21.1) (25.1) (8.6) (12.0) (100.0) SUs = Successful Units; UUs = Unsuccessful Units Note: Figures in parentheses indicate respective percentages Source: Field Survey. Table No. 8 Cost Control and Reduction: Overheads Weightage Points Group Total 1 2 3 4 5 SUs 24 22 17 11 26 100 (24.0) (22.0) (17.0) (11.0) (26.0) (100.0) UUs 43 13 15 2 2 75 (57.3) (17.3) (20.0) (2.7) (2.7) (100.0) 67 35 32 13 28 175 Total (38.3) (20.0)) (18.3) (7.4) (16.0) (100.0) SUs = Successful Units; UUs = Unsuccessful Units Note: Figures in parentheses indicate respective percentages Source: Field Survey. X2 P 0.458 0.000 X2 0.364 0.000 P 0.000 X2 0.392 0.000 P 0.000 It was found that successful units perceived scope for overhead cost with efficient managerial performance. But majority of unsuccessful units perceived very little scope for control of overhead cost. Hence, overhead cost control had significant effect on success of the units. 16
  8. 8. International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976 – 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 3, September – December (2013) On the whole, cost management was found to be more effective in SUs than in UUs. Further, the scope for cost control and reduction was perceived positively by SUs and negatively by UUs. FINDINGS OF THE STUDY The following were the major findings of the study 1) The weightage of cost management was more directly discernable in SUs than in UUs and the overall mean values stood at 3.33 and 1.81 for SUs and UUs respectively. The utmost importance was given to materials in cost management with the mean value of 3.66 by SUs and this was followed by overheads and labour with their mean value standing at 3.18 and 3.16 respectively. 2) All cost elements in cost management were found to have significance. This indicated that the performance of an enterprise through appropriate cost management was one of the variables for success. 3) Focusing on different cost elements for an effective managerial performance of successful entrepreneurs representing 22.86 per cent gave the highest weightage to materials as a source of cost management as against 44 unsuccessful entrepreneurs representing 25.14 per cent and giving least weightage to materials. 4) Similarly, successful entrepreneurs were found to give more weightage to labour and overheads in cost management than UUs. There was a high significance level. 5) The scope for cost control and reduction in the areas of materials, labour and overheads was perceived at a higher level with the mean value of 2.98 by SUs and the perception by UUs in this regard was very low at 1.81. 6) The scope for cost control and reduction was found to have high significance in all the components of cost. CONCLUDING REMARKS The significance of small scale industries continues to be a predominant policy directive in future also, because they act as conduits for equitable distribution and significantly contribute towards development in terms of production and employment. Further, this sector is endowed with a potential of competitive edge caused by cheap labor and locational advantages. At present, it is conceived to be a policy oriented towards the reduction of unemployment and equitable distribution of economic gains. The result has been mushrooming of small scale industries. This explosion of small scale industries on massive scale has ended up with large number of these units becoming unsuccessful. The major problem of unsuccessful units was found to be inefficient cost management. On the whole, cost management was found to be more efficient in SUs than in UUs. Further, the scope for cost control and reduction was perceived positively by SUs and negatively by UUs. REFERENCES 1. 2. Balakrishnan, G., (1972). Financing Small Scale Industries in India, Pune: Gokhale Institute of Politics and Economics. Singh, A., Sandhu, A.N., (1988). Industrial Economics, Bombay: Himalaya Publishing House, p. 231. 17
  9. 9. International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976 – 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 3, September – December (2013) 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Sharma A.K., (1976). Management Problems of Small Scale Enterprises in Assam, Unpublished Ph.D. Thesis, Gauhati Univeristy, Assam. Jha, L.K., (1976). Shortage and High Price, The Wayout, New Delhi: Indian Book Company. Dewett, K.K. (1988). Modern Economic Theory, New Delhi: S. Chand & Sons. Deolankar, Vivek., (1993). Management of Small Business, Dordrecht: Kluwer Academic Publishers. Sheshadri, T., (1995). Development of an Industries Backward Area: A Case Study of Performance, Mysore: Shankar Publishers. Srinivas, Subba Rao, P., (2001). Entrepreneurship and Small Business Management, New Delhi: Discovery Publishing House. Merono, A. Lope Z.C., and Saboter, R., (2004). Knowledge Management Strategy and Instruments Alignment: Helping SMEs to Choose, OKLC, Innsbruck (Austria), 2004. David, E., and Chesebrough , P.E., (2004). Knowledge Management A Tool for SMEs to Enhance Competitiveness, Asia-Pacific Tech Monitor, Jan-Feb. 2004, pp. 15-21. Singh, B.K., (2007). Industrial Sickness in India- Dimensions, Threats and Remedies, The ICFAI Journal of Managerial Economics, Vol. 2, pp. 63-88. Mathew, Manimala J., (2011), Successful Turnarounds: The Role of Appropriate Entrepreneurial Strategies, Working Paper, 2011. Dr. C. Mahadeva Murthy and Prof. S.N. Pathi, “Risk Management in Banking: A Study with Reference to State Bank of India (SBI) and Associates”, International Journal of Management (IJM), Volume 4, Issue 4, 2013, pp. 119 - 130, ISSN Print: 0976-6502, ISSN Online: 0976-6510. Dr. C. Mahadeva Murthy and Prof. S.N. Pathi, “An Assessment of Risk Management in Banking Sector: A Study with Special Reference to Public and Private Sector Banks in India”, International Journal of Advanced Research in Management (IJARM), Volume 4, Issue 3, 2013, pp. 18 - 33”. ISSN Print: 0976 – 6324, ISSN Online: 0976 – 6332. Ravindra Uttamrao Kanthe and Dr.Rajesh U Kanthe, “Human Resource Practices –A Study on Small Scale Industries in Miraj City”, International Journal of Management (IJM), Volume 3, Issue 3, 2012, pp. 228 - 234, ISSN Print: 0976-6502, ISSN Online: 0976-6510. Prof. Dr Slobodan Stefanović and Prof. Dr Radoje Cvejić, “Linear Programming of Basic Economic Parameters used at Reengineering in Small and Medium Enterprises”, International Journal of Management (IJM), Volume 4, Issue 2, 2013, pp. 31 - 43, ISSN Print: 0976-6502, ISSN Online: 0976-6510. 18

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