Business Studies Booklet

Business Studies
Operations & Administrative Management
First Edition 2013
A comprehensive review of the local and corporate management, from the
planning of a small business to the management of operations, marketing,
finance and human resources in large businesses. Through the analysis of
contemporary business strategies the book also provides rigor, depth and
lays an excellent foundation for students either in tertiary study or in future
employment.
This publication is recommended for;
 Introduction to Business Management
 Undergraduate Business Studies exam papers
 Business model for Administration & Operations
Director
Kenya School of Finance & Social Sciences
P. O. Box 19496-40123, Mega City-Kisumu
Cell: +254 722 976 633 ; 716 455 743
Email: info.ksfss@gmail.com ; info@ksfss.ac.ke
williamkasati@gmail.com
williamkasati@yahoo.com
2013
Author: Dr. Sati Oloo
Jaramogi Oginga Odinga University of Science & Technology
School of Business & Economics

………………..BBM 2111 Business Studies ………………..
S O William: Lecturer - Jaramogi Oginga Odinga University of Science & Technology: williamkasati@gmail.com Page - 2 -
TABLE OF CONTENT
Topics Pages
Introduction to business enterprise……………………………………………………………………..-4-
Internal and external business environment…………………………………………………………..-6-
The SWOT analysis……………………………………………………………………………………….-8-
Internal factors that may affect the business organization……………………………………..……-8-
Internals factors in SWOT……………………………………………………………………………...-11-
Management functions………………………………………………………………………………….-13-
Planning…………………………………………………………………………………………………..-14-
Organizing………………………………………………………………………………………………..-18-
Staffing…………………………………………………………………………………………………….-19-
Nature of staffing function………………………………….…………………………………………..-20-
Directing………………………………………………………………………………………………….-21-
Controlling……………………………………………………………………………………………….-23-
Features of controlling function……………………………………………………………………….-24-
Marketing concepts in a business………………………………………………………..……………-25-
Production systems………………………………………………………………………………………-30-
Basic concepts related to the theory of firm………………………………………………………….-34-
Factors of production…………………………………………………………………………………...-35-
Concept of production function………………………………………………………………………..-36-
Types of production function…………………………………………………………………………..-37-
Levels of production…………………………………………………………………………………….-40-
Linkage industries……………………………………………………………………………………….-41-
Factors determining business location……………………………………………………………….-41-
Functions of a small business………………………………………………………………………….-42-
Effects of growth on a business………………………………………………………………………..-43-
Internal economies of scale…………………………………………………………………………….-43-
External economies of scale……………………………………………………………………………-44-
Operations management………………………………………………………………………………..-45-
History of production and operation systems………………………………………………………..-46-
Human resource management…………………………………………………………………………-49-

Principles of human resource management………………………………………………………….-50-
Position and structure of HRM………………………………………………………………………..-50-
HRM key responsibilities……………………………………………………………………………….-52-
The changing field of HRM…………………………………………………………………………….-56-
Small business and HRM……………………………………………………………………………….-57-
Industrial relations………………………………………………………………………………………-59-
Objectives of industrial relations in Kenya…………………………………………………………..-60-
Economic conditions…………………………………………………………………………………….-60-
Institutional and political factors……………………………………………………………………...-61-
Business policy…………………………………………………………………………………………..-62-
Difference between policy and strategy………………………………………………………………-63-
Business plans……………………………………………………………………………………………-64-
Foreign exchange………………………………………………………………………………………..-65-
Risk taking and decision-making………………………………………………………………………-67-
Market systems in modern business…………………………………………………………………..-68-
Evolution of modern marketing………………………………………………………………………..-69-
Small business management……………………………………………………………………………-71-
Organizational development…………………………………………………………………………...-73-
Business ethics…………………………………………………………………………………………...-77-
Social responsibility…………………………………………………………………………………….-79-
Legal and social business environments……………………………………………………………..-86-
Current issues in modern business……………………………………………………………………-87-
Revision kit & suggested answers……………………………………………………………………..-94-
Reference……………………………………………………………………………………………..…-114-

PREFACE
Aims of the book;
This publication is designed to provide a sound understanding of Business Studies and is
particularly relevant for;
a) Students pursuing higher level courses and undergraduates pursuing Business Studies,
Management, and any course including Operations and Administration.
b) Students preparing themselves for professional and Academics examination.
c) Managers and others in Business Management, commerce and local authorities who wish to
obtain knowledge of Business Operations to aid them in their organizations operations.
Teaching Methodology;
This book is interactively tailored on teacher-student relationship with practical approach to
emerging issues on Business Studies and needs in the current market. The publication has been
written in standardized format with review questions, suggested answers and summaries.
Book Objectives
The approach taken in this 1st
edition is to teach the key aspects of Business Studies through
realistic and relevant examples from business arenas and various organizations. The course will
also utilize the application of practical‗s needed for the implementation of Business
Administration. Class facilitations with lectures on assigned topics and group discussions are
essential for any academic success. The book emphasizes on understanding the concepts in each
topic. Techniques are commonly misused because the concepts are not sufficiently understood.

INTRODUCTION TO BUSINESS ENTERPRISE
A business enterprise is any type of operation that is involved in providing goods or services
with the anticipated outcome of earning a profit. Its broad nature allows the term to be applied to
any type of company or firm that is geared toward generating revenue by selling products of any
type. The term company, firm, and business enterprise are often used interchangeably.
While some think of a business enterprise as being a large corporation or conglomerate, any type
of for-profit operation that involves sales to consumers can be rightly referred to using this word.
A child who engages in the task of setting up a roadside lemonade stand, and has the goal of
earning a profit from that endeavor, can be said to be operating an enterprise. So too can an
individual who opens a small bookshop with the plan of selling books to generate profit.
Along with the sale of goods, a business can also be involved in the sale of various types of
services. Companies that offer telecommunications services are part of this category. Local
businesses that offer outsourcing services, such as accounting or janitorial support, are also
considered to be business or commercial enterprises. Courier services also qualify as an
enterprise of this type.
There is some difference of opinion as to whether an unincorporated entity that functions for the
purpose of generating profit is also considered a business enterprise. For example, some would
consider an individual who earns a living as an independent contractor, but has not incorporated
as a sole proprietorship, to still be a business or commercial enterprise. Others would feel that the
matter of incorporation is not relevant, and that as long as the individual is attempting to earn a
profit from his or her efforts, the operation can rightly be referred to as an enterprise.
In most cases, a business enterprise must be licensed to operate within the local community. This
includes any commercial enterprise that establishes a place of business where consumers are free
to purchase goods or services, such as a retail store.

The enterprise must also usually obtain a business license when the operation includes the
presence of sales office in the area, or any other type of operation that is capable of generating
revenue. Because the regulations related to operating a business vary somewhat from one
jurisdiction to another, it is very important to contact municipal officials and identify what types
of compliance are required in order to operate the enterprise in the local area.
A business, also known as an Enterprise or a Firm, is an organization involved in the trade of
goods, services, or both to consumers. Businesses are prevalent in capitalist economies, where
most of them are privately owned and provide goods and services to customers in exchange for
other goods, services, or money. In general, any endeavor where the primary motive is profit and
not mere employment for oneself and others.
Small Business Enterprises
A small business is a privately owned and operated business. A small business typically has a
small number of employees. In the United States, the legal definition of a small business is
determined by the registering body called; Small Business Administration (SBA), which sets the
criteria to be used by the SBA in making small business determinations.
Business; is the activity of providing goods and services involving financial and commercial and
industrial aspects; "computers are now widely used in business‖
Enterprise; similar to business definition above, you are an enterprise if the majority of these
conditions apply:
 The business strategy is based on the results of the different parts of the business working
together. If you have separate strategies for different parts of the business, then the company is
more of a holding company, and it is less likely that you are an enterprise.
 The people in the business think of themselves as belonging to a company that is bigger than
their individual team or operating unit. If people identify with their organizational unit more
than they do the entire company, then it is less likely that you are an enterprise.

 The business operates out of a common set of financial resources – meaning underperformance
in one part of the business adversely effect the other parts of the business. If the parts of the
business are financially independent with separate P&L, capital expenditure and investment
plans, than it is less likely that you are an enterprise.
 The business serves different customers and success does not require the customer to buy
products and services from different parts of the business. If you separate customers, either by
geographic lines or by product or business lines and you do not expect them to cross those lines
then it is less likely that you are an enterprise.
 The business uses a common set of information, metrics and measures to run the company. You
do not have to have all of the same rules, but there is a core of rules that apply equally across
your operations. If the different parts of the business play by different rules and are graded
differently, then it is less likely that you are an enterprise.
 The business shares common systems for similar functions. If you have different systems for the
same functions across parts of the business it is less likely that you are an enterprise.
INTERNAL AND EXTERNAL BUSINESS ENVIRONMENT
An organization must have the ability to examine and make changes based on internal and
external environmental factors that affect its performance. The use of tools to analyze these
environmental factors is the key to a successful organization.
What Are Internal and External Environments?
If there is anything that is steadfast and unchanging, it is change itself. Change is inevitable, and
organizations that don't accept change and that make adjustments to their business model based
on changes are doomed to fail. There are events or situations that occur that affect the way a
business operates, in a positive or negative way. These events or situations can have either a
positive or a negative impact on a business and are called 'environmental factors.'

There are two types of environmental factors: internal environmental factors and external
environmental factors. Internal environmental factors are events that occur within an
organization. Generally speaking, internal environmental factors are easier to control than
external environmental factors. Some examples of internal environmental factors are as follows:
 Management changes
 Employee morale
 Culture changes
 Financial changes and/or issues
External environmental factors are events that take place outside of the organization and are
harder to predict and control. External environmental factors can be more dangerous for an
organization given the fact they are unpredictable, hard to prepare for, and often bewildering.
Some examples of external environmental factors are noted below:
 Changes to the economy
 Threats from competition
 Political factors
 Government regulations
 The industry itself
The internal business environment includes factors within the organization that impact the
approach and success of your operations. The external environment consists of a variety of
factors outside your company doors that you typically don't have much control over. Managing
the strengths of your internal operations and recognizing potential opportunities and threats
outside of your operations are keys to business success.

The SWOT Analysis
SWOT is a structured planning tool that
can be used to evaluate the Strengths,
Weaknesses, Opportunities, and Threats
involved in running a business venture.
Using a SWOT analysis can be used to
help a business determine the advantages
or disadvantages of changes they want to
make based on internal and external
factors. A SWOT analysis can be broken
into two distinct parts. The strengths and weaknesses are based on internal environmental
factors. Opportunities and threats are based on external environmental factors.
Internal Factors that May Affect the Business Organization
Mastering some of the forces that impact your business is more challenging than handling others.
The extent to which you can control them differs. You can change how internal and external
factors affect your firm. You cannot make the economy grow, rather you can encourage
spending. Learning more about the factors at work will better equip you.
The internal business environment comprises of factors within the company which impact the
success and approach of operations. Unlike the external environment, the company has control
over these factors. It is important to recognize potential opportunities and threats outside
company operations. However, managing the strengths of internal operations is the key to
business success.

The role of company leadership is an essential internal factor. Your leadership style and other
management style impact organizational culture. Often, firms provide a formal structure with its
mission and vision statements. Some cultural implications which result from leadership
approaches are:
 Value of employees
 The positive or negative nature
 Effectiveness of communication level of family-friendliness
The strength of employees is also an essential internal business factor. Check if employees are
motivated, hard-working and talented. They will produce better results compared to an
unmotivated and less talented workforce. The processes and relationships between and within
departments can also improve effectiveness and efficiency.
In a high performing workplace, the workers not only have talent, but they also work better
together. The employees and departments collaborate on ideas and resolutions.
The internal factors basically include the inner strengths and weaknesses. Internal factors can
affect how a company meets its objectives. Strengths have a favorable impact on a business.
Weaknesses have a harmful effect on the firm.
Some examples of areas which are typically considered in internal factors are:
 Financial resources like funding, investment opportunities and sources of income.
 Physical resources like company‘s location, equipment, and facilities
 Human resources like employees, target audiences, and volunteers
 Access to natural resources, patents, copyrights, and trademarks
 Current processes like employee programs, software systems, and department hierarchies
Companies must also consider softer elements like company culture and image, the role of key
staff, operational efficiency and potential.

These common internal factors might affect your business in various ways.
 Organizational and operational
These are part of the operational and administrative procedures. They include;
- Disorganized or inaccurate record keeping.
- Interruptions to your supply chain and outdated or faulty.
- IT systems are also factors you should evaluate. If you do not overcome these, your
customers might see you as unreliable. You can also lose all your data.
 Strategic risks
These affect your firm‘s ability to reach the goals in the business plan. They could be due to the
impacts of changes in technological evolutions or customer demand. These factors could pose as
threats as they can alter how customers perceive your product. Based on these, customers might
think a product is overpriced, dull and outdated.
 Innovation
Your business needs innovation in order to keep up with competitors. It is essential to get one
step ahead. Innovation could come in the form of marketing. It could also be through
promotional initiatives in the marketing plan, staff training, and welfare. Embracing new
technology is the best way to keep up with technological advancements.
A lack of innovation can pose a serious risk to a growing business. No innovation will cause a
company to remain boring. The company will become dull, stagnant and irrelevant.
 Financial
The financial risks depend on the financial structure of your business. It is also dependent on
your business transactions and the financial systems. For example, changes in interest rates or
being overly reliant on one customer could affect business.

 Employee risks
Employees are vital to business success. But, there are risks associated with them. For an
industry, strike action could lead to a lot of problems.
Internals Factors in SWOT
The internal factors of a business are
often studied in a SWOT analysis. The
SWOT matrix is a structured planning
method. You can use SWOT analysis to
analyze your company and its
environment. It assesses the strengths,
weaknesses, opportunities, and threats.
The strengths and weaknesses of a
project or business are internal factors. Opportunities and threats are external elements.
Strengths
Strengths are the features of your business which allow you to work more effectively than
competitors. Your specialist technical knowledge could be your strength. You will have to
consider your strengths from own point of view. You should also give importance to customers‘
and clients‘ view.
You must be honest and realistic. When you try to find company‘s strengths, try to answer the
below questions:
 What is it that you do well?
 What benefits do you have over your competitors?
 What makes you stand out from the competitors?

Weaknesses
Weaknesses are the areas which have scope for improvement. Find out if your business is new
products or skills. Also, try to find if you have a lower productivity or higher cost base than your
competitors. You will have to face the unpleasant truths about your firm and be realistic. Ask the
following questions:
 What are you bad at?
 Is there anything you could be better at?
 What should you avoid?
 What leads to problems or complaints?
The greatest thing about internal factors is that you have control over most of them. Changing
internal factors often involves some indirect costs. Some of the factors are a result of the way
you run your business. Example of this includes reputation, credit worthiness, and image. Other
factors depend on your business decisions. Example of this includes management structure and
staffing.

MANAGEMENT FUNCTIONS
Management has been described as a social process involving responsibility for economical and
effective planning & regulation of operation of an enterprise in the fulfillment of given purposes.
It is a dynamic process consisting of various elements and activities. These activities are
different from operative functions like marketing, finance, purchase etc. Rather these activities
are common to each and every manager irrespective of his level or status.
Different experts have classified functions of management.
 According to George & Jerry; ―There are four fundamental functions of management i.e.
Planning, Organizing, Actuating and Controlling‖.
 According to Henry Fayol, ―To manage is to forecast and plan, to organize, to command, & to
control‖.
 Whereas Luther Gullick has given a keyword ‘POSDCORB‘ where P stands for Planning, O for
Organizing, S for Staffing, D for Directing, Co for Co-ordination, R for Reporting & B for
Budgeting.
 But the most widely accepted are functions of management given by KOONTZ and O‘DONNEL
i.e. Planning, Organizing, Staffing, Directing and Controlling.
For theoretical purposes, it may
be convenient to separate the
function of management but
practically these functions are
overlapping in nature i.e. they
are highly inseparable. Each
function blends into the other &
each affects the performance of
others.

Effective management and leadership involve creative problem solving, motivating employees
and making sure the organization accomplishes objectives and goals. There are five functions of
management and leadership: planning, organizing, staffing, coordinating and controlling. These
functions separate the management process from other business functions such as marketing,
accounting and finance.
Five Functions of Management
1. PLANNING
It is the basic function of management. It deals with chalking out a future course of action &
deciding in advance the most appropriate course of actions for achievement of pre-determined
goals. According to KOONTZ, ―Planning is deciding in advance; what to do, when to do & how
to do. It bridges the gap from where we are & where we want to be‖. A plan is a future course of
actions. It is an exercise in problem solving & decision making. Planning is determination of
courses of action to achieve desired goals. Thus, planning is a systematic thinking about ways &
means for accomplishment of pre-determined goals. Planning is necessary to ensure proper
utilization of human & non-human resources. It is all pervasive, it is an intellectual activity and it
also helps in avoiding confusion, uncertainties, risks, wastages etc.
Planning Function of Management
Planning means looking ahead and chalking out future courses of action to be followed. It is a
preparatory step. It is a systematic activity which determines when, how and who is going to
perform a specific job. Planning is a detailed programme regarding future courses of action.
It is rightly said ―Well plan is half done‖. Therefore planning takes into consideration available
& prospective human and physical resources of the organization so as to get effective co-
ordination, contribution & perfect adjustment. It is the basic management function which
includes formulation of one or more detailed plans to achieve optimum balance of needs or
demands with the available resources.

According to Urwick, ―Planning is a mental predisposition to do things in orderly way, to think
before acting and to act in the light of facts rather than guesses‖. Planning is deciding best
alternative among others to perform different managerial functions in order to achieve
predetermined goals.
According to Koontz & O‘Donell, ―Planning is deciding in advance what to do, how to do and
who is to do it. Planning bridges the gap between where we are to, where we want to go. It
makes possible things to occur which would not otherwise occur‖.
Steps in Planning Function
Planning function of management involves following steps:-
1. Establishment of objectives
a. Planning requires a systematic approach.
b. Planning starts with the setting of goals and objectives to be achieved.
c. Objectives provide a rationale for undertaking various activities as well as indicate direction of
efforts.
d. Moreover objectives focus the attention of managers on the end results to be achieved.
e. As a matter of fact, objectives provide nucleus to the planning process. Therefore, objectives
should be stated in a clear, precise and unambiguous language. Otherwise the activities
undertaken are bound to be ineffective.
f. As far as possible, objectives should be stated in quantitative terms. For example, Number of
men working, wages given, units produced, etc. But such an objective cannot be stated in
quantitative terms like performance of quality control manager, effectiveness of personnel
manager.
g. Such goals should be specified in qualitative terms.
h. Hence objectives should be practical, acceptable, workable and achievable.

2. Establishment of Planning Premises
a. Planning premises are the assumptions about the lively shape of events in future.
b. They serve as a basis of planning.
c. Establishment of planning premises is concerned with determining where one tends to deviate
from the actual plans and causes of such deviations.
d. It is to find out what obstacles are there in the way of business during the course of operations.
e. Establishment of planning premises is concerned to take such steps that avoids these obstacles to
a great extent.
f. Planning premises may be internal or external. Internal includes capital investment policy,
management labour relations, philosophy of management, etc. Whereas external includes socio-
economic, political and economical changes.
g. Internal premises are controllable whereas external are non- controllable.
3. Choice of alternative course of action
a. When forecast are available and premises are established, a number of alternative course of
actions have to be considered.
b. For this purpose, each and every alternative will be evaluated by weighing its pros and cons in
the light of resources available and requirements of the organization.
c. The merits, demerits as well as the consequences of each alternative must be examined before
the choice is being made.
d. After objective and scientific evaluation, the best alternative is chosen.
e. The planners should take help of various quantitative techniques to judge the stability of an
alternative.
4. Formulation of derivative plans
a. Derivative plans are the sub plans or secondary plans which help in the achievement of main
plan.

b. Secondary plans will flow from the basic plan. These are meant to support and expediate the
achievement of basic plans.
c. These detail plans include policies, procedures, rules, programmes, budgets, schedules, etc. For
example, if profit maximization is the main aim of the enterprise, derivative plans will include
sales maximization, production maximization, and cost minimization.
d. Derivative plans indicate time schedule and sequence of accomplishing various tasks.
5. Securing Co-operation
a. After the plans have been determined, it is necessary rather advisable to take subordinates or
those who have to implement these plans into confidence.
b. The purposes behind taking them into confidence are :-
i. Subordinates may feel motivated since they are involved in decision making process.
ii. The organization may be able to get valuable suggestions and improvement in formulation as
well as implementation of plans.
iii. Also the employees will be more interested in the execution of these plans.
6. Follow up/Appraisal of plans
a. After choosing a particular course of action, it is put into action.
b. After the selected plan is implemented, it is important to appraise its effectiveness.
c. This is done on the basis of feedback or information received from departments or persons
concerned.
d. This enables the management to correct deviations or modify the plan.
e. This step establishes a link between planning and controlling function.
f. The follow up must go side by side the implementation of plans so that in the light of
observations made, future plans can be made more realistic.

2. ORGANIZING
It is the process of bringing together physical, financial and human resources and developing
productive relationship amongst them for achievement of organizational goals. According to
Henry Fayol, ―To organize a business is to provide it with everything useful or its functioning
i.e. raw material, tools, capital and personnel‘s‖. To organize a business involves determining &
providing human and non-human resources to the organizational structure. Organizing as a
process involves:
 Identification of activities.
 Classification of grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility relationships.
Organizing is the function of management which follows planning. It is a function in which the
synchronization and combination of human, physical and financial resources takes place. All the
three resources are important to get results. Therefore, organizational function helps in
achievement of results which in fact is important for the functioning of a concern. According to
Chester Barnard, ―Organizing is a function by which the concern is able to define the role
positions, the jobs related and the co-ordination between authority and responsibility. Hence, a
manager always has to organize in order to get results.
A manager performs organizing function with the help of following steps:-
1. Identification of activities - All the activities which have to be performed in a concern have to
be identified first. For example, preparation of accounts, making sales, record keeping, quality
control, inventory control, etc. All these activities have to be grouped and classified into units.

2. Departmentally organizing the activities - In this step, the manager tries to combine and group
similar and related activities into units or departments. This organization of dividing the whole
concern into independent units and departments is called departmentation.
3. Classifying the authority - Once the departments are made, the manager likes to classify the
powers and its extent to the managers. This activity of giving a rank in order to the managerial
positions is called hierarchy. The top management is into formulation of policies, the middle
level management into departmental supervision and lower level management into supervision of
foremen. The clarification of authority helps in bringing efficiency in the running of a concern.
This helps in achieving efficiency in the running of a concern. This helps in avoiding wastage of
time, money, effort, in avoidance of duplication or overlapping of efforts and this helps in
bringing smoothness in a concern‘s working.
4. Co-ordination between authority and responsibility - Relationships are established among
various groups to enable smooth interaction toward the achievement of the organizational goal.
Each individual is made aware of his authority and he/she knows whom they have to take orders
from and to whom they are accountable and to whom they have to report. A clear organizational
structure is drawn and all the employees are made aware of it.
3. STAFFING
It is the function of manning the organization structure and keeping it manned. Staffing has
assumed greater importance in the recent years due to advancement of technology, increase in
size of business, complexity of human behavior etc. The main purpose o staffing is to put right
man on right job i.e. square pegs in square holes and round pegs in round holes. According to
Kootz & O‘Donell, ―Managerial function of staffing involves manning the organization structure
through proper and effective selection; appraisal & development of personnel to fill the roles
designed in the structure‖. Staffing involves:

 Manpower Planning (estimating man power in terms of searching, choose the person and
giving the right place).
 Recruitment, Selection & Placement.
 Training & Development.
 Remuneration.
 Performance Appraisal.
 Promotions & Transfer.
The managerial function of staffing involves manning the organization structure through proper
and effective selection, appraisal and development of the personnel‘s to fill the roles assigned to
the employers/workforce.
According to Theo Haimann, ―Staffing pertains to recruitment, selection, development and
compensation of subordinates.‖
Nature of Staffing Function
1. Staffing is an important managerial function- Staffing function is the most important
managerial act along with planning, organizing, directing and controlling. The operations of
these four functions depend upon the manpower which is available through staffing function.
2. Staffing is a pervasive activity- As staffing function is carried out by all mangers and in all
types of concerns where business activities are carried out.
3. Staffing is a continuous activity- This is because staffing function continues throughout the
life of an organization due to the transfers and promotions that take place.
4. The basis of staffing function is efficient management of personnel’s - Human resources can
be efficiently managed by a system or proper procedure, that is, recruitment, selection,
placement, training and development, providing remuneration, etc.

5. Staffing helps in placing right men at the right job. It can be done effectively through proper
recruitment procedures and then finally selecting the most suitable candidate as per the job
requirements.
6. Staffing is performed by all managers depending upon the nature of business, size of the
company, qualifications and skills of managers, etc. In small companies, the top management
generally performs this function. In medium and small scale enterprise, it is performed
especially by the personnel department of that concern.
4. DIRECTING
It is that part of managerial function which actuates the organizational methods to work
efficiently for achievement of organizational purposes. It is considered life-spark of the
enterprise which sets it in motion the action of people because planning, organizing and staffing
are the mere preparations for doing the work. Direction is that inert-personnel aspect of
management which deals directly with influencing, guiding, supervising, motivating sub-ordinate
for the achievement of organizational goals.
Direction has following elements:
 Supervision- implies overseeing the work of subordinates by their superiors. It is the act of
watching & directing work & workers.
 Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work.
Positive, negative, monetary, non-monetary incentives may be used for this purpose.
 Leadership- may be defined as a process by which manager guides and influences the work of
subordinates in desired direction.
 Communications- is the process of passing information, experience, opinion etc from one
person to another. It is a bridge of understanding.

DIRECTING is said to be a process in which the managers instruct, guide and oversee the
performance of the workers to achieve predetermined goals. Directing is said to be the heart of
management process. Planning, organizing, staffing has got no importance if direction function
does not take place.
Directing initiates action and it is from here actual work starts. Direction is said to be consisting
of human factors. In simple words, it can be described as providing guidance to workers is doing
work. In field of management, direction is said to be all those activities which are designed to
encourage the subordinates to work effectively and efficiently. According to Human, ―Directing
consists of process or technique by which instruction can be issued and operations can be carried
out as originally planned‖ Therefore, Directing is the function of guiding, inspiring, overseeing
and instructing people towards accomplishment of organizational goals.
Direction has got following characteristics:
1. Pervasive Function - Directing is required at all levels of organization. Every manager provides
guidance and inspiration to his subordinates.
2. Continuous Activity - Direction is a continuous activity as it continuous throughout the life of
organization.
3. Human Factor - Directing function is related to subordinates and therefore it is related to human
factor. Since human factor is complex and behavior is unpredictable, direction function becomes
important.
4. Creative Activity - Direction function helps in converting plans into performance. Without this
function, people become inactive and physical resources are meaningless.
5. Executive Function - Direction function is carried out by all managers and executives at all
levels throughout the working of an enterprise; a subordinate receives instructions from his
superior only.

6. Delegate Function - Direction is supposed to be a function dealing with human beings. Human
behavior is unpredictable by nature and conditioning the people‘s behavior towards the goals of
the enterprise is what the executive does in this function. Therefore, it is termed as having
delicacy in it to tackle human behavior.
5. CONTROLLING
It implies measurement of accomplishment against the standards and correction of deviation if
any to ensure achievement of organizational goals. The purpose of controlling is to ensure that
everything occurs in conformities with the standards. An efficient system of control helps to
predict deviations before they actually occur. According to Theo Haimann, ―Controlling is the
process of checking whether or not proper progress is being made towards the objectives and
goals and acting if necessary, to correct any deviation‖. According to Koontz & O‘Donnell
―Controlling is the measurement & correction of performance activities of subordinates in order
to make sure that the enterprise objectives and plans desired to obtain them as being
accomplished‖. Therefore controlling has following steps:
a.Establishment of standard performance.
b.Measurement of actual performance.
c.Comparison of actual performance with the standards and finding out deviation if any.
d.Corrective action.
What is controlling?
Controlling consists of verifying whether everything occurs in conformities with the plans
adopted, instructions issued and principles established. Controlling ensures that there is effective
and efficient utilization of organizational resources so as to achieve the planned goals.
Controlling measures the deviation of actual performance from the standard performance,
discovers the causes of such deviations and helps in taking corrective actions

According to Brech, ―Controlling is a systematic exercise which is called as a process of
checking actual performance against the standards or plans with a view to ensure adequate
progress and also recording such experience as is gained as a contribution to possible future
needs.‖
According to Donnell, ―Just as a navigator continually takes reading to ensure whether he is
relative to a planned action, so should a business manager continually take reading to assure
himself that his enterprise is on right course.‖
Controlling has got two basic purposes
1. It facilitates co-ordination
2. It helps in planning
Features of Controlling Function
Following are the characteristics of controlling function of management-
1. Controlling is an end function- A function which comes once the performances are made in
conformities with plans.
2. Controlling is a pervasive function- which means it is performed by managers at all levels and
in all type of concerns.
3. Controlling is forward looking- because effective control is not possible without past being
controlled. Controlling always looks to future so that follow-up can be made whenever required.
4. Controlling is a dynamic process - since controlling requires taking reviewable methods,
changes have to be made wherever possible.
5. Controlling is related with planning- Planning and Controlling are two inseparable functions
of management. Without planning, controlling is a meaningless exercise and without controlling,
planning is useless. Planning presupposes controlling and controlling succeeds planning.

MARKETING CONCEPTS IN A BUSINESS
Marketing concept is the Management philosophy according to which a firm's goals can be best
achieved through identification and satisfaction of the customers' stated and unstated needs and
wants.
Company Orientations to the Marketplace
What philosophy should guide a company marketing and selling efforts? What relative weights
should be given to the interests of the organization, the customers, and society? These interest
often clash, however, an organization‘s marketing and selling activities should be carried out
under a well-thought-out philosophy of efficiency, effectiveness, and socially responsibility.
Five orientations (philosophical concepts to the marketplace have guided and continue to guide
organizational activities:
1. The Production Concept
2. The Product Concept
3. The Selling Concept
4. The Marketing Concept
5. The Societal Marketing Concept
The Five Concepts Described
The Production Concept. This concept is the oldest of the concepts in business. It holds that
consumers will prefer products that are widely available and inexpensive. Managers focusing on
this concept concentrate on achieving high production efficiency, low costs, and mass
distribution. They assume that consumers are primarily interested in product availability and low
prices. This orientation makes sense in developing countries, where consumers are more
interested in obtaining the product than in its features.

The Product Concept. This orientation holds that consumers will favor those products that offer
the most quality, performance, or innovative features. Managers focusing on this concept
concentrate on making superior products and improving them over time. They assume that
buyers admire well-made products and can appraise quality and performance. However, these
managers are sometimes caught up in a love affair with their product and do not realize what the
market needs. Management might commit the ―better-mousetrap‖ fallacy, believing that a better
mousetrap will lead people to beat a path to its door.
The Selling Concept. This is another common business orientation. It holds that consumers and
businesses, if left alone, will ordinarily not buy enough of the selling company‘s products. The
organization must, therefore, undertake an aggressive selling and promotion effort. This concept
assumes that consumers typically sho9w buyi8ng inertia or resistance and must be coaxed into
buying. It also assumes that the company has a whole battery of effective selling and
promotional tools to stimulate more buying. Most firms practice the selling concept when they
have overcapacity. Their aim is to sell what they make rather than make what the market wants.
The Marketing Concept. This is a business philosophy that challenges the above three business
orientations. Its central tenets crystallized in the 1950s. It holds that the key to achieving its
organizational goals (goals of the selling company) consists of the company being more effective
than competitors in creating, delivering, and communicating customer value to its selected target
customers. The marketing concept rests on four pillars: target market, customer needs,
integrated marketing and profitability.

Distinctions between the Sales Concept and the Marketing Concept:
1. The Sales Concept focuses on the needs of the seller. The Marketing Concept focuses on the
needs of the buyer.
2. The Sales Concept is preoccupied with the seller‘s need to convert his/her product into cash.
The Marketing Concept is preoccupied with the idea of satisfying the needs of the customer by
means of the product as a solution to the customer‘s problem (needs).
3. The Marketing Concept represents the major change in today‘s company orientation that
provides the foundation to achieve competitive advantage. This philosophy is the foundation of
consultative selling.
4. The Marketing Concept has evolved into a fifth and more refined company orientation: The
Societal Marketing Concept. This concept is more theoretical and will undoubtedly influence
future forms of marketing and selling approaches.
The Societal Marketing Concept. This concept holds that the organization‘s task is to
determine the needs, wants, and interests of target markets and to deliver the desired satisfactions
more effectively and efficiently than competitors (this is the original Marketing Concept).
Additionally, it holds that this all must be done in a way that preserves or enhances the
consumer‘s and the society‘s well-being.
This orientation arose as some questioned whether the Marketing Concept is an appropriate
philosophy in an age of environmental deterioration, resource shortages, explosive population
growth, world hunger and poverty, and neglected social services.
Are companies that do an excellent job of satisfying consumer wants necessarily acting in the
best long-run interests of consumers and society?

The marketing concept possibly sidesteps the potential conflicts among consumer wants,
consumer interests, and long-run societal welfare. Just consider:
The fast-food hamburger industry offers tasty buty unhealthy food. The hamburgers have a high
fat content, and the restaurants promote fries and pies, two products high in starch and fat. The
products are wrapped in convenient packaging, which leads to much waste. In satisfying
consumer wants, these restaurants may be hurting consumer health and causing environmental
problems.
Marketing Concept
The concept of marketing has evolved over time. Whilst in today‘s business world "the customer
is king". In the past this was not the case, some businesses put factors other than the customer
first. This article examines factors that businesses may orientate their marketing around, so that
you can recognize when your marketing strategy is orientated around something other than the
customer.

Production Orientation
The focus for the business is to reduce costs through mass production. A business orientated
around production believes that the "economies of scale" generated by mass production will
reduce costs and maximize profits. A production orientated business needs to avoid production
efficiency processes which affect product design and quality. Compromising product design and
quality for the sake of production is likely to reduce the product's appeal to customers.
Product Orientation
A product orientated company believes that its product's high quality and functional features
make it a superior product. Such a company believes that if they have a superior product
customers will automatically like it as well. The problem with this approach is that superiority
alone does not sell products; superior products will not sell unless they satisfy consumer wants
and needs.
Sales Orientation
A sales orientated company's focus is simple; make the product, and then sell it to the target
market. This type of orientation involves the organization making what they think the customer
needs or likes without relevant research. However as we know sales usually aren't this simple.
An effective marketing strategy requires market and marketing research, prior to product
development and finally an effective promotion strategy.
Market Orientation
A market orientated company puts the customer at the "heart" of the business; all activities in the
organization are based around the customer. The customer is truly king! A market orientated
organization endeavors to understand customer needs and wants, then implements marketing
strategy based on their market research; from product development through to product sales.
Once sales have begun further research will be conducted to find out what consumers think about
the product and whether product improvements are required.

As markets continuously change, market research and product development is an ongoing
process for a market orientation company. In today‘s competitive world, it is more important
than ever to implement a market orientated strategy. In this digital age customers are able to
research the products available on the market fairly quickly. If an organization does not offer
customers what they are looking for (product and customer service) they will buy from a
competitor that does.
PRODUCTION SYSTEMS
Production system may be defined as, "The methods, procedure or arrangement which includes
all functions required to accumulate (gather) the inputs, process or reprocess the inputs, and
deliver the marketable output (goods)." Production system utilizes materials, funds,
infrastructure, and labor to produce the required output in form of goods.
1. Meaning of production
Production can be explained as an act of either manufacturing or mining or growing of goods
(commodities) generally in bulk for trade.
Production is a method employed for making or providing essential goods and services for
consumers. It is a process that puts intangible inputs like ideas, creativity, research, knowledge,
wisdom, etc. in use or action. It is a way that transforms (convert) tangible inputs like raw-
materials, semi-finished goods and unassembled goods into finished goods or commodities.
2. Meaning of system
System is an arrangement or assembly of inter-dependent processes (activities) that are based on
some logic and function. It operates as a whole and is designed (build) with an intension to
achieve (fulfill) some objective or do some work. Huge systems are often a collection (assembly)
of smaller sub-systems.

Meaning of production system
Production system consists of three main components viz., Inputs, Conversion Process and
Output.
1. Inputs include raw-materials, machines, man-hours, components or parts, drawing, instructions
and other paper works.
2. Conversion process includes operations (actual production process). Operations may be either
manual or mechanical or chemical. Operations convert inputs into output. Conversion process
also includes supporting activities, which help the process of conversion. The supporting
activities include; production planning and control purchase of raw-materials, receipt, storage
and issue of materials, inspection of parts and work-in-progress, testing of products, quality
control, warehousing of finished products, etc.
3. Output includes finished products, finished goods (parts), and services.

The three components of a production system are depicted in this diagram.
Hence, we can say that, production system is a union or combination of its three main
components viz., Inputs, Conversion Process, and Output. In short, everything which is done to
produce goods and services or to achieve the production objective is called production system.
Examples
The examples of a production system are as follows:
1. Tangible goods: Consider an example of a manufacturing industry like a Sugar Industry.
Here, sugarcane is first used as an input, then the juice of sugarcane is processed through a
conversion process, finally to get an output known as a refined sugar (used for mass
consumption).
2. Intangible goods: Consider an example from a service industry that of a software-
development firm or company. Here, initially, written program codes are used as inputs.
These codes are then integrated in some database and are provided with a user-friendly
interface through a conversion process. Finally, an output is made available in form of an
executable application program.
Conclusion
Production system is a result of arranging inputs, their conversion process and output based on
some logic and functions. Production system fails if any such arrangement made don't give a
desired level of outcome.

Production function
The production function is one of the key concepts of
mainstream neoclassical theories, used to define marginal
product and to distinguish a locative efficiency, the defining
focus of economics.
Types of Firm
There are different types of firms that operate in the market. A road-side milk supplier is
different from the other milk supplying firms Mother Dairy, Nestle, Gokul, etc. There are
different types of firms. A quick review of the types of ownership of firms would be useful at
this stage.
1.Individual Proprietorship– It refers to any business that is owned by a single owner or a single
business family. A small provisional stores or a laundry shop is an individual proprietorship.
Here the proprietor is responsible for anything good or bad happens to the business. Such firms
may be registered or unregistered ones.
2. Partnership – Here there are groups of people who own the business. All of them are co-
owners. There may be unlimited liability or each partner is totally liable for all what happens to
the firm. That means if some payments are to be made and the other partners cannot make, then
one of them is fully liable to make the payments.
3. Corporations – In this form of a firm ownership, anyone can become a share-holder of a firm
and have limited liability equal to his ownership share in the company. That means if Mr. X
holds 20% of the company‘s share, he is responsible for 20% of outstanding payments of that
company. MTNL, Reliance Industries, Tata Motors, etc are the examples of corporations.

Basic concepts related to the Theory of Firm
Objectives of Firm
Like the rational consumers aim at maximizing their satisfaction or utility, the firms aim at
maximizing their profits. Apart from profit maximization, firms may aim at sales maximization,
revenue maximization, good will among the consumers. Depending upon the type of ownership
of a firm, the nature of objectives may change. For example, it is argued that, under corporation
as a form of firm‘s ownership, the objective of profit maximization is replaced by the objective
of sales maximization. This is because, in big corporations, ownership of firm is separated from
its management.
With this background information about the firm, its ownership structure and its objectives, let us
begin with the analysis of the concept of production. A story of production and firm‘s behavior
will be easier to follow once we take a note of following concepts:-
1. Production process
It is process by which the inputs or factors of production are transformed into output. In a cement
factory, inputs include labor of its workers, raw materials such as limestone, sand, clay, and
capital invested in equipment required to produce cement. Output of cement industry would be
different varieties of cement.

Factors of production
There are four factors of production, land, labor,
capital and organization. All these are brought
together in the process of production to form a
final output. Land represents natural resources like
land plots, minerals, water, oil, etc. Labor is
considered to be an integral part of the process of
production. Both skilled and unskilled labor is
required by the firm. Capital represents physical
capital in the form of machinery, equipment, plants, factory and other physical assets. Finally,
organization/entrepreneur brings all these factors of production together to transform them into a
finished product.
Short run and the long run period
In the theory of production, short run is a period during which some of the factors of production
mentioned above are constant. For example, in the short run, firm cannot buy a new machine. So
capital may remain constant in the short run. If it has to increase production in the short run, it
may do so by hiring more contract labor to work on the same stock of machines or equipment.
Long run, on the other hand, is a period, during which all the factors of production can vary. A
firm can not only hire more/less labor but also can increase/reduce size of plant, buy more/sale
existing stock of capital, and so on. One should keep in mind, the short-run and long-run
period in production theory, is not time specific. For a poultry firm, for example, long run will
be a period, till it increases its capacity by adding poultry stock (which may take say 2 weeks).
But for a cement factory, it may take 2 years to increase its capacity by constructing a new plant.
So long run for cement factory may be 2 years.

Concept of Production Function
As seen earlier, production involves a transformation of inputs into output. The technical
relationship between inputs and output which gives maximum output is called production
function. Production function gives different combinations inputs that produce maximum level of
output. A production function is written as Q = f (I1....In) where, Q is output, f is a functional
relationship and I1 to In are quantities of different inputs. To keep the things as simple as
possible, at this stage, we will define production function as follows
Q = f (L, K)
Where
Q is output
L is labor used in process of production
K is capital used in the process of production
That means, firm‘s output depends upon the labor employed and units of capital services used up
in the production. Now, suppose a firm requires increasing its output, it cannot change the
quantities of labor and capital at the same speed. Generally labor units can be employed at a
short notice but it takes more time to install machinery or equipment i.e. capital. In the short run,
one of the inputs may remain fixed say capital. Other inputs that may remain fixed in the short
run may be supply of skilled labor, land plot, etc. But some inputs like unskilled labor units can
be easily changed even in the short run.
So we can further define production function using the short-run and long-run period.
Short run production function ⇒ Q = f (L, K)
Where L is variable and K is fixed factor of production.
Long run production function ⇒ Q = f (L, K)
Where both L and K are variable factors of production.

Types of Production Function
There are two distinct types of production function that show possible range of substitution
inputs in the production process.
1. Fixed proportion Production function
2. Variable proportions production function
These two types are based on the technical coefficient of production. The technical co-efficient is
the amount of input required to produce a unit of output. For example, if 50 workers are required
to produce 200 units of output, then 0.25 is the technical co-efficient of labor for production.
When 0.25 units of labor are required to produce
every unit of output, it is called fixed proportion
production function. Here, doubling of quantities
of capital and labor in a required ratio will double
the output. Fixed proportion production function
can be illustrated with the help of isoquants. In
this type of production function, the two factors of
production, say labor and capital, should be used in a fixed proportion. The isoquants of such
function are right angled as shown in the following diagram
On the other hand, when the technical co-efficient to produce different units of output is varying
or changing, it is called as the variable proportions production function. In such a type of
production function, given amount of output can be produced with several alternative
combinations of labor and capital. Many commodities in real world are produced with variable
proportion production function. For example, certain amount of wheat may be produced using
more labor and less capital in India and more capital and less labor in USA. Variable proportion
production function is illustrated in the following diagram.

The short run analysis of production function is
done with one input variable (L) and the other
input constant (K). The variation in the output
resulting from different amounts labor applied
to a fixed amount of capital is explained with
the help of Law of Diminishing Returns or
Law of Variable Proportions
The long run analysis of production function is done with both the inputs(L,K) variable. The
variation in the output resulting from different amounts of labor and capital employed is
explained with the help of Law of Returns to Scale
Case Study
Crops can be produced using different methods. Food grown on large farms in countries like
Canada and the United States is usually produced with a capital intensive technology which
involves substantial investment in capital, such as buildings and equipment, and relatively less
input of labor. However, food can also be produced using very little capital (say a plough) and a
lot of labor (several people) as is done in several parts of the developing countries. One way to
describe the agricultural production process is to show one isoquant that describes the
combination of inputs which generates a given level of output. The description that follows
comes from a production function for wheat that is estimated using figures.
Following diagram shows one isoquant associated with the production function, corresponding to
some level output of per year. The farmer can use this isoquant to decide whether it is profitable
to hire more labor or to use more machinery. The decision about how many laborers to hire and
how much machinery to employ, will depend upon the cost of each input.

Cobb-Douglas Production Function
Many studies have been undertaken to empirically study and statistically calculate the
relationship between physical inputs and physical output. One of such empirical production
functions is Cobb Douglas Production Function. It is intermediate between a linear and a fixed
proportion production function. It is given by a formula; Q = ALα
Kβ
Where Q is total output,
L stands for quantity of labor,
K is quantity of capital,
A, α and β are positive constants.
Empirically it was found that, 75% increase in output can be attributed to increase in labor input
and the remaining 25% was due to capital input. It was also found that the sum of exponents of
Cobb-Douglas production function is equal to one. That is α + β is equal to one. This implies that
it is a linearly homogenous production function.
Following are important features of Cobb-Douglas Production Function
1. Average Product of factors of production used up in this function depends upon the ratio in
which the factors are combined for the production of commodity under consideration
2. Marginal Product of factors of production used up in this function also depends upon the ratio in
which the factors are combined for the production of commodity under consideration
3. Cobb-Douglas production function is used in obtaining marginal rate of technical substitution
(the rate at which one input can be substituted for the other to produce same level of output)
between two inputs.
4. As seen earlier, the sum of exponents of Cobb Douglas production function is equal to one. (α +
β = 1). This is a measure of returns to scale. When α + β = 1, it is constant returns to scale, α + β
> 1, it indicates, increasing returns to scale and when α + β < 1, it indicates diminishing returns
to scale.

Levels of Production
Subsistence
This is the lowest level of production. Subsistence productions refers to output from the
production process that is just enough for the survival. This amount of production is therefore not
adequate to meet all needs and wants of a family, community or a country. For example,
subsistence farming involves the production of crops to feed the family and for survival. Wealth
is not created as whatever is produced is consumed.
Domestic Production
Domestic production refers to production that is more than survival level. It provides output that
is enough to satisfy domestic needs and wants. Excess is not available for export. However,
production is adequate to supply local demand.
Surplus or Export
This level of production is adequate to supply local demand and for export. Large industries can
produce large quantities of output to satisfy local consumption and earn foreign exchange from
export, for example, the sugar and banana industries.
Types of Production
Primary Production
This includes all kinds of extractive industries such as agriculture, mining and fishing.
Secondary Production
This includes manufacturing such as assembling, refining and construction (building) industries.
Tertiary Production
This includes all kinds of service industries such as transportation, communication and tourism.
Cottage Industry:
Cottage industry is a generic term for any type of home–based production business. The term is
specifically used to describe industries of a craft nature e.g. basket weaving, carving and pottery.

This type of home based business is not difficult to start as it requires little capital to purchase
tools and employs family members. These small scale businesses are important to an economy.
They utilize local raw materials such as clay for pottery, wood for carving and straw for baskets.
They earn foreign exchange from selling to tourist at craft markets and fairs.
Linkage Industries
This refers to industries that are connected because they depend on each other to obtain or to sell
raw materials.
Forward Linkage; If the final product or finished products of one industry is used in another
industry as its raw material then a forward linkage occurs. For example, sugar produced from a
sugar factory is used by a bakery to make pastries. Sugar is therefore the end product of one
industry and used as raw material in another. Other examples include agriculture and canning,
lumber and construction and cattle farming and meat processing.
Backward linkage occurs when the demands of an industry leads to the establishment of other
industries to produce for the needs of this industry. For example, the establishment of several
multinational fast food restaurants in the Caribbean has led to new businesses being established
to supply these restaurants with raw materials (vegetables, ground provisions, meats and paper
based products).
Factors determining Business Location
The location identified for the operation of a business will impact on its success or failure. An
unsuitable location can result in high operational costs or low sales volume. Business owners
must therefore consider the following factors when choosing a location.
The proximity to customers
It is important that business owners give customers easy access to goods and services. Shopping
plazas in very central locations are very popular locations for businesses. Many companies now
opt for selling online and therefore do not need to be centrally located.

The proximity to raw materials
It is more cost effective for a business that uses raw materials that are heavy and or bulky to
locate close to the source of raw material. For example, bauxite processing plants are located
close to mining areas and sugar factories are located close to sugar fields.
Availability to suitable labor supply
A business will need adequate number of workers who posses the skills suitable for the creation
of its goods and services.
Adequate Infrastructure
Firms will locate where there are adequate supplies of water, lighting, airports, seaports, good
roads, transportation, and communication facilities.
Functions of a Small Business
Supplying goods and services that satisfy demand
Identifying a particular need in a market and developing a product that will supply that market
need improves standard of living and increases the overall revenue (GNP) earned in a country.
Small businesses have the advantage over large businesses to identify changing market trends as
they are closer to the customers. They are also able to produce unique products to suit the needs
of each customer.
Creating employment
Small businesses account for a large percentage of total employment in Caribbean economies.
Making profits
The main purpose of starting and operating a business is to make profits. Profit makes it
worthwhile for the entrepreneur to continue business. Profit earned may be reinvested to expand
the business.

Effects of Growth on a Business
Small businesses that are efficient, creative and are cognizant of changing market trends are
poised for growth. Growth impacts on the business organizational structure and the business
operations.
The creation of new posts and departments as a result of specialization and expansion will
change the organization‘s structure. More workers will also be employed resulting in greater
specialization or division of labor (more workers will mean that tasks can be subdivided into
smaller tasks).
There will also be an increase in the internal communication systems (telephone, mail etc.) to
accommodate this expansion. More factory and office space, equipment and furniture will be
required to facilitate expansion.
As the business expands it can take advantage of economies of scale. Economies of scale refer to
the benefits that firms are able to enjoy because of expansion.
Internal Economies of Scale
This refers to the benefits enjoyed by a firm because of it‘s own expansion. These include:
 Technical Economies of Scale - Expanding businesses will need to purchase machinery and
equipment to supply the level of output required. With the use of machines productivity will rise
and the firm will experience technical savings as unit cost of production will decline.
 Marketing Economies – Expanding businesses can take advantage of bulk buying and receive
discounts on raw materials.
 Financial Economies -Larger firms will access loans more easily and at a cheaper interest rate
than small firms since they already have established reputations and adequate collateral.
 Managerial Economies -The employment of experts who will specialize in various management
functions such as marketing, personnel, accounting and production will increase efficiency and
thus output.

External Economies of Scale
External economies refer to the benefits enjoyed by a business because it is part of a well-
organized industry and not because of its own expansion. Thus any businesses whether large or
small can reap these benefits as long as it is part of an industry enjoying these benefits. Benefits
include; government subsidies offered to particular industries, tax holidays and reduced duties on
items imported.
Diseconomies of Scale
A diseconomy of scale refers to the disadvantages arising from the expansion, such as:
1. High Advertising Cost: This becomes a diseconomy when the percentage increase in a firm‘s
advertising cost is much greater than the percentage increase in its revenue.
2. High maintenance cost for machinery and equipment.
3. Increased difficulty in controlling the organization.
OPERATIONS MANAGEMENT
Operations management refers to the administration of business practices to create the highest
level of efficiency possible within an organization. Operations management is concerned with
converting materials and labor into goods and services as efficiently as possible to maximize the
profit of an organization.
Operations management teams design the method of conversion of inputs (materials, labor,
proprietary information, etc.) into outputs (goods, services, value-added products, etc.) that is
most beneficial to the organization. Operations management teams attempt to balance costs with
revenue to achieve the highest net operating profit possible.

Operations management is an area of management concerned with overseeing, designing, and
controlling the process of production and redesigning business operations in the production of
goods or services. It involves the responsibility of ensuring that business operations are efficient
in terms of using as few resources as needed, and effective in terms of meeting customer
requirements.
It is concerned with managing the process that converts inputs (in the forms of raw materials,
labor, and energy) into outputs (in the form of goods and/or services). The relationship of
operations management to senior management in commercial contexts can be compared to the
relationship of line officers to highest-level senior officers in military science. The highest-level
officers shape the strategy and revise it over time, while the line officers make tactical decisions
in support of carrying out the strategy.
In business as in military affairs, the
boundaries between levels are not always
distinct; tactical information dynamically
informs strategy, and individual people often
move between roles over time. Ford Motor
car assembly line: the classical example of a
manufacturing production system.
Post office queue; Operations management studies both manufacturing and services.
According to the United States Department of Education, operations management is the field
concerned with managing and directing the physical and/or technical functions of a firm or
organization, particularly those relating to development, production, and manufacturing.
Operations management programs typically include instruction in principles of general
management, manufacturing and production systems, factory management, equipment

maintenance management, production control, industrial labor relations and skilled trades‘
supervision, strategic manufacturing policy, systems analysis, productivity analysis and cost
control, and materials planning. Management, including operations management, is like
engineering in that it blends art with applied science. People skills, creativity, rational analysis,
and knowledge of technology are all required for success.
History of Production and operation systems
The history of production and operation systems began around 5000 B.C. when Sumerian priests
developed the ancient system of recording inventories, loans, taxes, and business transactions.
The next major historical application of operation systems occurred in 4000 B.C. It was during
this time that Egyptians started using planning, organization, and control in large projects such as
the construction of the pyramids. By 1100 B.C., labor was being specialized in China; by about
370 B.C., Xenophon described the advantages of dividing the various operations necessary for
the production of shoes among different individuals in ancient Greece.
Shoemakers, 1568
In the middle Ages, kings and queens ruled over large areas of land. Loyal noblemen maintained
large sections of the monarch‘s territory. This hierarchical organization in which people were
divided into classes based on social position and wealth became known as the feudal system. In
the feudal system, servants produced for themselves and people of higher classes by using the
ruler‘s land and resources. Although a large part of labor was employed in agriculture, artisans
contributed to economic output and formed guilds. The guild system, operating mainly between
1100 and 1500, consisted of two types: merchant guilds, which bought and sold goods, and craft
guilds, which made goods. Although guilds were regulated as to the quality of work performed,
the resulting system was rather rigid, e.g. shoemakers, were prohibited from tannin hides.
The industrial revolution was facilitated by two elements: interchangeability of parts and division
of labor.

Division of labor has always been a feature from the beginning of civilization, the extent to
which the division is carried out varied considerably depending on period and location.
Compared to the middle ages, the renaissance and the age of Discovery were characterized by a
greater specialization in labor, one of characteristics of growing European cities and trade. It was
in the late eighteenth century when Eli Whitney popularized the concept of interchangeability of
parts when he manufactured 10,000 muskets. Up to this point in history of manufacturing, each
product (e.g. each gun) was considered a special order, meaning that parts of a given gun were
fitted only for that particular gun and could not be used in other guns. Interchangeability of parts
allowed the mass production of parts independent of the final products in which they will be
used.
In 1883, Frederick W. Taylor introduced the stopwatch method for accurately measuring the
time to perform each single task of a complicated job. He developed the scientific study of
productivity and identifying how to coordinate different tasks to eliminate wasting of time and
increase the quality of work. The next generation of scientific study occurred with the
development of work sampling and predetermined motion time systems (PMTS). Work sampling
is used to measure the random variable associated with the time of each task. PMTS allows the
use of standard predetermined tables of the smallest body movements (e.g. turning the left wrist
by 90°), and integrating them to predict the time needed to perform a simple task. PMTS has
gained substantial importance due to the fact that it can predict work measurements without
actually observing the actual work. The foundation of PMTS was laid out by the research and
development of Frank B. and Lillian M. Gilbreth around 1912. The Gilbreths took advantage of
taking motion pictures at known time intervals while operators were performing the given task.
The idea of the production line has been used multiple times in history prior to Henry Ford: the
Venetian Arsenal (1104), Smith pin manufacturing in the Wealth of Nations (1776) or Brunel's
Portsmouth Block Mills (1802).

Ransom Olds was the first to manufacture cars using the assembly line system, but Henry Ford
developed the first auto assembly system where a car chassis was moved through the assembly
line by a conveyor belt while workers added components to it until the car was completed.
During World War II, the growth of computing power led to further development of efficient
manufacturing methods and the use of advanced mathematical and statistical tools. This was
supported by the development of academic programs in industrial and systems engineering
disciplines, as well as fields of operations research and management science (as multi-
disciplinary fields of problem solving).
While systems engineering concentrated on the broad characteristics of the relationships between
inputs and outputs of generic systems, operations researchers concentrated on solving specific
and focused problems. The synergy of operations research and systems engineering allowed for
the realization of solving large scale and complex problems in the modern era. Recently, the
development of faster and smaller computers, intelligent systems, and the World Wide Web has
opened new opportunities for operations, manufacturing, production, and service systems.
Malakooti (2013) states that production and operation systems can be divided into five phases:[6]
1. Empiricism (learning from experience)
2. Analysis (scientific management)
3. Synthesis (development of mathematical problem solving tools)
4. Isolated Systems with Single Objective (use of Integrated and Intelligent Systems, and
WWW)
5. Integrated Complex Systems with Multiple Objectives (development of ecologically
sound systems, environmentally sustainable systems, considering individual preferences)

HUMAN RESOURCE MANAGEMENT
Human Resource Management (HRM) is the term used to describe formal systems devised for
the management of people within an organization. The responsibilities of a human resource
manager fall into three major areas: staffing, employee compensation and benefits, and
defining/designing work. Essentially, the purpose of HRM is to maximize the productivity of an
organization by optimizing the effectiveness of its employees. This mandate is unlikely to
change in any fundamental way, despite the ever-increasing pace of change in the business
world. As Edward L. Gubman observed in the Journal of Business Strategy, "the basic mission
of human resources will always be to acquire, develop, and retain talent; align the workforce
with the business; and be an excellent contributor to the business. Those three challenges will
never change."
Until fairly recently, an organization's human resources department was often consigned to lower
rungs of the corporate hierarchy, despite the fact that its mandate is to replenish and nourish what
is often cited—legitimately—as an organization's greatest resource, it's work force. But in recent
years recognition of the importance of human resources management to a company's overall
health has grown dramatically. This recognition of the importance of HRM extends to small
businesses, for while they do not generally have the same volume of human resources
requirements as do larger organizations, they too face personnel management issues that can
have a decisive impact on business health. As Irving Burstiner commented in The Small Business
Handbook, "Hiring the right people and training them well can often mean the difference
between scratching out the barest of livelihoods and steady business growth'. Personnel problems
do not discriminate between small and big business. You find them in all businesses, regardless
of size."

PRINCIPLES OF HUMAN RESOURCE MANAGEMENT
Business consultants note that modern human resource management is guided by several
overriding principles.
Perhaps the paramount principle is a simple recognition that human resources are the most
important assets of an organization; a business cannot be successful without effectively
managing this resource.
Another important principle, articulated by Michael Armstrong in his book A Handbook of
Human Resource Management, is that business success "is most likely to be achieved if the
personnel policies and procedures of the enterprise are closely linked with, and make a major
contribution to, the achievement of corporate objectives and strategic plans."
A third guiding principle, similar in scope, holds that it is the HR's responsibility to find, secure,
guide, and develop employees whose talents and desires are compatible with the operating needs
and future goals of the company.
Other HRM factors that shape corporate culture; whether by encouraging integration and
cooperation across the company, instituting quantitative performance measurements, or taking
some other action, are also commonly cited as key components in business success.
Armstrong is his summary of HRM said; "is a strategic approach to the acquisition, motivation,
development and management of the organization's human resources. It is devoted to shaping an
appropriate corporate culture, and introducing programs which reflect and support the core
values of the enterprise and ensure its success."
POSITION AND STRUCTURE OF HRM
Human resource department responsibilities can be subdivided into three areas: individual,
organizational, and career. Individual management entails helping employees identify their
strengths and weaknesses; correct their shortcomings; and make their best contribution to the
enterprise.

These duties are carried out through a variety of activities such as performance reviews, training,
and testing. Organizational development, meanwhile, focuses on fostering a successful system
that maximizes human (and other) resources as part of larger business strategies. This important
duty also includes the creation and maintenance of a change program, which allows the
organization to respond to evolving outside and internal influences.
Finally, there is the responsibility of managing career development. This entails matching
individuals with the most suitable jobs and career paths within the organization.
Human resource management functions are ideally positioned near the theoretic center of the
organization, with access to all areas of the business. Since the HRM department or manager is
charged with managing the productivity and development of workers at all levels, human
resource personnel should have access to and the support of key decision makers. In addition, the
HRM department should be situated in such a way that it is able to communicate effectively with
all areas of the company.
HRM structures vary widely from business to business, shaped by the type, size, and governing
philosophies of the organization that they serve. But most organizations organize HRM functions
around the clusters of people to be helped—they conduct recruiting, administrative, and other
duties in a central location. Different employee development groups for each department are
necessary to train and develop employees in specialized areas, such as sales, engineering,
marketing, or executive education. In contrast, some HRM departments are completely
independent and are organized purely by function. The same training department, for example,
serves all divisions of the organization. In recent years, however, observers have cited a decided
trend toward fundamental reassessments of human resources structures and positions. "A cascade
of changing business conditions, changing organizational structures, and changing leadership has
been forcing human resource departments to alter their perspectives on their role and function
almost overnight," wrote John Johnston in Business Quarterly.

"Previously, companies structured themselves on a centralized and compartmentalized basis—
head office, marketing, manufacturing, shipping, etc. They now seek to decentralize and to
integrate their operations, developing cross-functional teams'¦. Today, senior management
expects HR to move beyond its traditional, compartmentalized 'bunker' approach to a more
integrated, decentralized support function." Given this change in expectations, Johnston noted
that "an increasingly common trend in human resources is to decentralize the HR function and
make it accountable to specific line management. This increases the likelihood that HR is viewed
and included as an integral part of the business process, similar to its marketing, finance, and
operations counterparts. However, HR will retain a centralized functional relationship in areas
where specialized expertise is truly required," such as compensation and recruitment
responsibilities.
HRM KEY RESPONSIBILITIES
Human resource management is concerned with the development of both individuals and the
organization in which they operate. HRM, then, is engaged not only in securing and developing
the talents of individual workers, but also in implementing programs that enhance
communication and cooperation between those individual workers in order to nurture
organizational development.
The primary responsibilities associated with human resource management include: job analysis
and staffing, organization and utilization of work force, measurement and appraisal of work
force performance, implementation of reward systems for employees, professional development
of workers, and maintenance of work force.
 Job analysis consists of determining often with the help of other company areas the nature and
responsibilities of various employment positions. This can encompass determination of the skills
and experiences necessary to adequately perform in a position, identification of job and industry
trends, and anticipation of future employment levels and skill requirements.

"Job analysis is the cornerstone of HRM practice because it provides valid information about
jobs that is used to hire and promote people, establish wages, determine training needs, and make
other important HRM decisions," stated Thomas S. Bateman and Carl P. Zeithaml in
Management: Function and Strategy.
Staffing, meanwhile, is the actual process of managing the flow of personnel into, within
(through transfers and promotions), and out of an organization. Once the recruiting part of the
staffing process has been completed, selection is accomplished through job postings, interviews,
reference checks, testing, and other tools.
 Organization, utilization, and maintenance of a company's work force is another key function of
HRM. This involves designing an organizational framework that makes maximum use of an
enterprise's human resources and establishing systems of communication that help the
organization operate in a unified manner. Other responsibilities in this area include safety and
health and worker-management relations. Human resource maintenance activities related to
safety and health usually entail compliance with federal laws that protect employees from
hazards in the workplace.
These regulations are handed down from several federal agencies, including the Occupational
Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA), and
various state agencies, which implement laws in the realms of worker's compensation, employee
protection, and other areas.
Maintenance tasks related to worker-management relations primarily entail: working with labor
unions; handling grievances related to misconduct, such as theft or sexual harassment; and
devising communication systems to foster cooperation and a shared sense of mission among
employees.

 Performance appraisal is the practice of assessing employee job performance and providing
feedback to those employees about both positive and negative aspects of their performance.
Performance measurements are very important both for the organization and the individual, for
they are the primary data used in determining salary increases, promotions, and, in the case of
workers who perform unsatisfactorily, dismissal.
 Reward systems are typically managed by HR areas as well. This aspect of human resource
management is very important, for it is the mechanism by which organizations provide their
workers with rewards for past achievements and incentives for high performance in the future. It
is also the mechanism by which organizations address problems within their work force, through
institution of disciplinary measures. Aligning the work force with company goals, stated
Gubman, "requires offering workers an employment relationship that motivates them to take
ownership of the business plan."
 Employee development and training is another vital responsibility of HR personnel. HR is
responsible for researching an organization's training needs, and for initiating and evaluating
employee development programs designed to address those needs. These training programs can
range from orientation programs, which are designed to acclimate new hires to the company, to
ambitious education programs intended to familiarize workers with a new software system.
 "After getting the right talent into the organization," wrote Gubman, "the second traditional
challenge to human resources is to align the workforce with the business to constantly build the
capacity of the workforce to execute the business plan." This is done through performance
appraisals, training, and other activities. In the realm of performance appraisal, HRM
professionals must devise uniform appraisal standards, develop review techniques, train
managers to administer the appraisals, and then evaluate and follow up on the effectiveness of
performance reviews. They must also tie the appraisal process into compensation and incentive
strategies, and work to ensure that federal regulations are observed.

 Responsibilities associated with training and development activities, meanwhile, include the
determination, design, execution, and analysis of educational programs. The HRM professional
should be aware of the fundamentals of learning and motivation, and must carefully design and
monitor training and development programs that benefit the overall organization as well as the
individual. The importance of this aspect of a business's operation can hardly be overstated. As
Roberts, Seldon, and Roberts indicated in Human Resources Management, "the quality of
employees and their development through training and education are major factors in
determining long-term profitability of a small business'¦. Research has shown specific benefits
that a small business receives from training and developing its workers, including: increased
productivity; reduced employee turnover; increased efficiency resulting in financial gains; [and]
decreased need for supervision."
 Meaningful contributions to business processes are increasingly recognized as within the
purview of active human resource management practices. Of course, human resource managers
have always contributed to overall business processes in certain respects by disseminating
guidelines for and monitoring employee behavior, for instance, or ensuring that the organization
is obeying worker-related regulatory guidelines.
Now, increasing numbers of businesses are incorporating human resource managers into other
business processes as well. In the past, human resource managers were cast in a support role in
which their thoughts on cost/benefit justifications and other operational aspects of the business
were rarely solicited.
But as Johnston noted, the changing character of business structures and the marketplace are
making it increasingly necessary for business owners and executives to pay greater attention to
the human resource aspects of operation: "Tasks that were once neatly slotted into well-defined
and narrow job descriptions have given way to broad job descriptions or role definitions.

In some cases, completely new work relationships have developed; telecommuting, permanent
part-time roles and outsourcing major non-strategic functions are becoming more frequent." All
of these changes, which human resource managers are heavily involved in, are important factors
in shaping business performance.
THE CHANGING FIELD OF HRM
In recent years, several business trends have had a significant impact on the broad field of HRM.
Chief among them was new technologies. These new technologies, particularly in the areas of
electronic communication and information dissemination and retrieval, have dramatically altered
the business landscape. Satellite communications, computers and networking systems, fax
machines, and other devices have all facilitated change in the ways in which businesses interact
with each other and their workers. Telecommuting, for instance, has become a very popular
option for many workers, and HRM professionals have had to develop new guidelines for this
emerging subset of employees.
Changes in organizational structure have also influenced the changing face of human resource
management. Continued erosion in manufacturing industries in the United States and other
nations, coupled with the rise in service industries in those countries, have changed the
workplace, as has the decline in union representation in many industries (these two trends, in
fact, are commonly viewed as interrelated). In addition, organizational philosophies have
undergone change. Many companies have scrapped or adjusted their traditional, hierarchical
organizational structures in favor of flatter management structures. HRM experts note that this
shift in responsibility brought with it a need to reassess job descriptions, appraisal systems, and
other elements of personnel management. A third change factor has been accelerating market
globalization. This phenomenon has served to increase competition for both customers and jobs.
The latter development enabled some businesses to demand higher performances from their
employees while holding the line on compensation.

Other factors that have changed the nature of HRM in recent years include new management and
operational theories like Total Quality Management (TQM), rapidly changing demographics, and
changes in health insurance and federal and state employment legislation.
SMALL BUSINESS AND HRM
A small business's human resource management needs are not of the same size or complexity of
those of a large firm. Nonetheless, even a business that carries only two or three employees faces
important personnel management issues. Indeed, the stakes are very high in the world of small
business when it comes to employee recruitment and management. No business wants an
employee who is lazy or incompetent or dishonest. But a small business with a work force of half
a dozen people will be hurt far more by such an employee than will a company with a work force
that numbers in the hundreds (or thousands). Nonetheless, "most small business employers have
no formal training in how to make hiring decisions," noted Jill A. Rossiter in Human Resources:
Mastering Your Small Business. "Most have no real sense of the time it takes nor the costs
involved. All they know is that they need help in the form of a 'good' sales manager, a 'good'
secretary, a 'good' welder, and so on. And they know they need someone they can work with,
who is willing to put in the time to learn the business and do the job. It sounds simple, but it
isn't."
Before hiring a new employee, the small business owner should weigh several considerations.
The first step the small business owner should take when pondering an expansion of employee
payroll is to honestly assess the status of the organization itself. Are current employees being
utilized appropriately? Are current production methods effective? Can the needs of the business
be met through an arrangement with an outside contractor or some other means? Are you, as the
owner, spending your time appropriately? As Rossiter noted, "any personnel change should be
considered an opportunity for rethinking your organizational structure."

Small businesses also need to match the talents of prospective employees with the company's
needs. Efforts to manage this can be accomplished in a much more effective fashion if the small
business owner devotes energy to defining the job and actively taking part in the recruitment
process. But the human resource management task does not end with the creation of a detailed
job description and the selection of a suitable employee. Indeed, the hiring process marks the
beginning of HRM for the small business owner.
Small business consultants strongly urge even the most modest of business enterprises to
implement and document policies regarding human resource issues. "Few small enterprises can
afford even a fledgling personnel department during the first few years of business operation,"
acknowledged Burstiner. "Nevertheless, a large mass of personnel forms and data generally
accumulates rather rapidly from the very beginning. To hold problems to a minimum, specific
personnel policies should be established as early as possible. These become useful guides in all
areas: recruitment and selection, compensation plan and employee benefits, training, promotions
and terminations, and the like." Depending on the nature of the business enterprise (and the
owner's own comfort zone), the owner can even involve his employees in this endeavor. In any
case, a carefully considered employee handbook or personnel manual can be an invaluable tool
in ensuring that the small business owner and his or her employees are on the same page.
Moreover, a written record can lend a small business some protection in the event that its
management or operating procedures are questioned in the legal arena.
Some small business owners also need to consider training and other development needs in
managing their enterprise's employees. The need for such educational supplements can range
dramatically. A bakery owner, for instance, may not need to devote much of his resources to
employee training, but a firm that provides electrical wiring services to commercial clients may
need to implement a system of continuing education for its workers in order to remain viable.

Finally, the small business owner needs to establish and maintain a productive working
atmosphere for his or her work force. Employees are far more likely to be productive assets to
your company if they feel that they are treated fairly. The small business owner who clearly
communicates personal expectations and company goals, provides adequate compensation,
offers meaningful opportunities for career advancement, anticipates work force training and
developmental needs, and provides meaningful feedback to his or her employees is far more
likely to be successful than the owner who is neglectful in any of these areas.
INDUSTRIAL RELATIONS
Industrial relations is a multidisciplinary field that studies the employment relationship.
Industrial Relations in Kenya refer to the regulations that occur in the relationship that exist
between an employer and an employee in an organization. It is the study of how employees,
employers and the government relate and make decisions which define and shape the
employment relationship between employer and employees
Significance of Good Industrial Relations in Kenya
 Industrial Relations in Kenya ease supervision work among the employers.
 Good relations create a good working environment among the employees.
 Increases productivity of employees i.e. smooth the work will be done well.
 It helps both employees and employers know what procedures to follow when there is grievances
and conflict
 Industrial Relations in Kenya enhances the welfare and safeguards the interest of both employers
and employers i.e. salaries, compensation.
 It helps in economic progress of a country.
 It also leads to smooth collective bargaining in case of dispute solving.
 Industrial Relations in Kenya help the government in framing and implementing labor laws.

Objectives of Industrial Relations in Kenya
There are six objectives of Industrial Relations in Kenya;
 Maintaining peace and stability in the industries.
 They ensure that interests of both parties are secured.
 To ensure increase in productivity of organization.
 To enhance industrial democracy-employees are involved in decision making.
 Enhance collective bargaining.
 Minimizes or eliminate disputes, strikes, lock outs.
Determinants of good Industrial Relations in Kenya
There are seven factors that influence Industrial Relations in Kenya;
 Economic Conditions,
 Institutional and Political Factors,
 Level of Education and Awareness of Employees,
 Management Styles of Organization,
 Nature of Business,
 Employee Condition and Welfare
 Negotiating Ability of Unions and Management
Economic Conditions
The first determinant of good Industrial Relations in Kenya is economic conditions. Fluctuations
in economic conditions may influence industrial relations. During recessions there may be more
conflicts as employees demand higher pay and employers are hesitant due to inability of the
organization to increase their salaries. However during boom the situation is different because
the organization is in position to meet the demands of the employees.

Institutional and Political Factors
This is another determinant of good Industrial Relations in Kenya which include government
legislation, politics, trade unions, employer associational and other lobby groups such as human
rights commissions that ensure that industrial climate is peaceful. The intervention of the groups
or the lack of it influences industrial relations
Level of Education and Awareness of Employees
Level of education and awareness of employees is another determinant of good Industrial
Relations in Kenya. The more educated the employees are the more they will make reasonable
demands concerning their welfare, conditions of employment and involvement in decision
making. It is easier for management to negotiate with more educated employees than less
educated ones.
Management Styles in the Organization
Another determinant of Industrial Relations in Kenya is management styles. They may be
autocratic, persuasive or convulsive. Other managers may limit industrial democracy thus
refusing the participation of employer in decision making. The way management handles
employees determines the relations in the organization.
Nature of Business
Nature of Business is yet another determinant of Industrial Relations in Kenya. In some
organization employment are not allowed to join unions and in others the number of employees
are few to make any significant contribution to union activities. Some employers also don‘t join
employer association. This reduces the power and strength of trade union and employer
association thus affecting industrial association.

Employees’ Condition and Welfare
This is another determinant of Industrial Relations. As a result of globalization, various changes
take place in organization every day. If these changes are not implemented well, they may lead to
conflict in the organization thus influencing industrial relations.
Negotiating Ability of Unions and Management
The negotiation ability of the two parties affects prevailing relations. If they are armed with
concrete facts and are persuasive in their bargaining it will ensure that industrial peace is
maintained. This is the last determinant of good Industrial Relations in Kenya.
Conclusion on Industrial Relations in Kenya
Economic Conditions, Institutional and Political Factors, Level of Education and Awareness of
Employees, Management Styles of Organization, Nature of Business, Employee Condition and
Welfare and Negotiating Ability of Unions and Management are the determinants of good
Industrial Relations in Kenya.
BUSINESS POLICY
Business Policy defines the scope or spheres within which decisions can be taken by the
subordinates in an organization. It permits the lower level management to deal with the problems
and issues without consulting top level management every time for decisions. Business policies
are the guidelines developed by an organization to govern its actions. They define the limits
within which decisions must be made. Business policy also deals with acquisition of resources
with which organizational goals can be achieved. Business policy is the study of the roles and
responsibilities of top level management, the significant issues affecting organizational success
and the decisions affecting organization in long-run.

Features of Business Policy
An effective business policy must have following features-
1. Specific- Policy should be specific/definite. If it is uncertain, then the implementation will
become difficult.
2. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations. There
should be no misunderstandings in following the policy.
3. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed by the
subordinates.
4. Appropriate- Policy should be appropriate to the present organizational goal.
5. Simple- A policy should be simple and easily understood by all in the organization.
6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be comprehensive.
7. Flexible- Policy should be flexible in operation/application. This does not imply that a policy
should be altered always, but it should be wide in scope so as to ensure that the line managers
use them in repetitive/routine scenarios.
8. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in minds of
those who look into it for guidance.
Difference between Policy and Strategy
The term ―policy‖ should not be considered as synonymous to the term ―strategy‖. The
difference between policy and strategy can be summarized as follows-
1. Policy is a blueprint of the organizational activities which are repetitive/routine in nature. While
strategy is concerned with those organizational decisions which have not been dealt/faced before
in same form.
2. Policy formulation is responsibility of top level management. While strategy formulation is
basically done by middle level management.

3. Policy deals with routine/daily activities essential for effective and efficient running of an
organization. While strategy deals with strategic decisions.
4. Policy is concerned with both thought and actions. While strategy is concerned mostly with
action.
5. A policy is what is, or what is not done. While a strategy is the methodology used to achieve a
target as prescribed by a policy.
BUSINESS PLANS
A business plan is a formal statement of business goals, reasons they are attainable, and plans
for reaching them. It may also contain background information about the organization or team
attempting to reach those goals.
Business Plans: A Step-by-Step Guide
A business plan is a written description of your business's future, a document that tells what you
plan to do and how you plan to do it. If you jot down a paragraph on the back of an envelope
describing your business strategy, you've written a plan, or at least the germ of a plan.
Business plans are inherently strategic. You start here, today, with certain resources and abilities.
You want to get to a there, a point in the future (usually three to five years out) at which time
your business will have a different set of resources and abilities as well as greater profitability
and increased assets. Your plan shows how you will get from here to there.
Typical structure for a business plan for a start up venture
 Cover page and table of contents
 Executive summary
 Mission statement
 Business description
 Business environment analysis

 SWOT analysis
 Industry background
 Competitor analysis
 Market analysis
 Marketing plan
 Operations plan
 Management summary
 Financial plan
 Attachments and milestones
FOREIGN EXCHANGE
This is the exchange of one currency for another or the conversion of one currency into another
currency. Foreign exchange also refers to the global market where currencies are traded virtually
around-the-clock. The term foreign exchange is usually abbreviated as "forex" and occasionally
shortened as "FX."
Foreign exchange transactions encompass everything from the conversion of currencies by a
traveler at an airport kiosk to billion-dollar payments made by corporate giants and governments
for goods and services purchased overseas. Increasing globalization has led to a massive increase
in the number of foreign exchange transactions in recent decades. The global foreign exchange
market is by far the largest financial market, with average daily volumes in the trillions of
dollars.
The foreign exchange market (forex, FX, or currency market) is a global decentralized
market for the trading of currencies. In terms of volume of trading, it is by far the largest market
in the world. The main participants in this market are the larger international banks. Financial
centers around the world function as anchors of trading between a wide range of multiple types
of buyers and sellers around the clock, with the exception of weekends.

The foreign exchange market determines the relative values of different currencies. The foreign
exchange market works through financial institutions, and it operates on several levels. Behind
the scenes banks turn to a smaller number of financial firms known as ―dealers,‖ who are
actively involved in large quantities of foreign exchange trading. Most foreign exchange dealers
are banks, so this behind-the-scenes market is sometimes called the ―interbank market‖, although
a few insurance companies and other kinds of financial firms are involved. Trades between
foreign exchange dealers can be very large, involving hundreds of millions of dollars. Because of
the sovereignty issue when involving two currencies, forex has little (if any) supervisory entity
regulating its actions.
The foreign exchange market assists international trade and investments by enabling currency
conversion. For example, it permits a business in the United States to import goods from the
European Union member states, especially Eurozone members, and pay Euros, even though its
income is in United States dollars. It also supports direct speculation and evaluation relative to
the value of currencies, and the carry trade, speculation based on the interest rate differential
between two currencies.
In a typical foreign exchange transaction, a party purchases some quantity of one currency by
paying with some quantity of another currency. The modern foreign exchange market began
forming during the 1970s after three decades of government restrictions on foreign exchange
transactions (the Bretton Woods system of monetary management established the rules for
commercial and financial relations among the world's major industrial states after World War II),
when countries gradually switched to floating exchange rates from the previous exchange rate
regime, which remained fixed as per the Bretton Woods system.

The foreign exchange market is unique because of the following characteristics:
 Its huge trading volume representing the largest asset class in the world leading to high liquidity;
 Its geographical dispersion;
 Its continuous operation: 24 hours a day except weekends, i.e., trading from 22:00 gmt on
Sunday (Sydney) until 22:00 GMT Friday (New York);
 The variety of factors that affect exchange rates;
 The low margins of relative profit compared with other markets of fixed income; and
 The use of leverage to enhance profit and loss margins and with respect to account size.
RISK TAKING AND DECISION-MAKING
Risks are an integral part of complex, high-stakes decisions, and decision makers are faced with
the unavoidable tasks of assessing risks and forming risk preferences. This is true for all decision
domains, including financial, environmental, and foreign policy domains, among others.
Risks are an integral part of complex, high-stakes decisions, and decision makers are faced with
the unavoidable tasks of assessing risks and forming risk preferences. This is true for all decision
domains, including financial, environmental, and foreign policy domains, among others. How
well decision makers‘ deal with risk affects, to a considerable extent, the quality of their
decisions. This book provides the most comprehensive analysis available of the elements that
influence risk judgments and preferences.
As decision-making is central to motivated behavior, understanding its neural substrates can help
elucidate the deficits that characterize various maladaptive behaviors. Twenty healthy adults
performed a risk-taking task during positron emission tomography with (15) O-labeled water.
The task, a computerized card game, tests the ability to weigh short-term rewards against long-
term losses.
A control task matched all components of the risk-taking task except for decision-making and the
difference between responses to contingent and non-contingent reward and punishment.

To demonstrate that human
overeating is not just a
passive response to salient
environmental triggers and
powerful physiological
drives; it is also about
making choices. The
ventromedial prefrontal
cortex has been strongly implicated in the neural circuitry necessary for making advantageous
decisions when various options for action are available. Decision-making deficits have been
found in patients with ventromedial prefrontal cortex lesions and in those with substance
dependence—impairments that reflect an inability to advantageously assess future consequences.
That is, they choose immediate rewards in the face of future long-term negative consequences.
MARKET SYSTEMS IN MODERN BUSINESS
Marketing, in economics is that part of the process of production and exchange that is concerned
with the flow of goods and services from producer to consumer. In popular usage it is defined as
the distribution and sale of goods, distribution being understood in a broader sense than the
technical economic one. Marketing includes the activities of all those engaged in the transfer of
goods from producer to consumer—not only those who buy and sell directly, wholesale and
retail, but also those who develop, warehouse, transport, insure, finance, or promote the product,
or otherwise have a hand in the process of transfer. In a modern capitalist economy, where nearly
all production is intended for a market, such activities are just as important as the manufacture of
the goods. It is estimated in the United States that approximately 50% of the retail price paid for
a commodity is made up of the cost of marketing.

Evolution of Modern Marketing
In a subsistence-level economy there is little need for exchange of goods because the division of
labor is at a rudimentary level: most people produce the same or similar goods. Interregional
exchange between disparate geographic areas depends on adequate means of transportation.
Thus, before the development of caravan travel and navigation, the exchange of the products of
one region for those of another was limited. The village market or fair, the itinerant merchant or
peddler, and the shop where customers could have such goods as shoes and furniture made to
order were features of marketing in rural Europe. The general store superseded the public market
in England and was an institution of the American country town.
In the 19th
century in United States the typical marketing setup was one in which wholesalers
assembled the products of various manufacturers or producers and sold them to jobbers and
retailers.
The independent store operated by its owner, was the chief retail marketing agency. In the 20th
century, that system met stiff competition from chain stores, which were organized for the mass
distribution of goods and enjoyed the advantages of large-scale operation. Today large chain
stores dominate the field of retail trade. The concurrent advent of the motor truck and paved
highway, making possible the prompt delivery of a variety of goods in large quantities, still
further modified marketing arrangement, and the proliferation of the automobile has expanded
the geographic area in which a consumer can make retail purchases.
Modern Marketing
At all points of the modern marketing system people have formed associations and eliminated
various middlemen in order to achieve more efficient marketing. Manufacturers often maintain
their own wholesale departments and deal directly with retailers. Independent stores may operate
their own wholesale agencies to supply them with goods. Wholesale houses operate outlets for
their wares, and farmers sell their products through their own wholesale cooperatives.

Recent years have seen the development of wholesale clubs, which sell retail items to consumers
who purchase memberships that give them the privilege of shopping at wholesale prices.
Commodity exchanges, such as those of grain and cotton, enable businesses to buy and sell
commodities for both immediate and future delivery.
Methods of merchandising have also been changed to attract customers. The one-price system,
probably introduced (1841) by A. T. Stewart in New York, saves sales clerks from haggling and
promotes faith in the integrity of the merchant. Advertising has created an international market
for many items, especially trademarked and labeled goods. In 1999 more than $308 billion was
spent on advertising in the United States alone. The number of customers, especially for durable
goods, has been greatly increased by the practice of extending credit, particularly in the form of
installment buying and selling.
Customers also buy through mail-order catalogs (much expanded from the original catalog sales
business of the late 1800s), by placing orders to specialized "home-shopping" television
channels, and through on-line transactions ("e-commerce") on the Internet.
Services are marketed in much the same manner as goods and commodities. Sometimes a
service, like that of a repair person or physician, is marketed through the same act that produces
it. Personal services may also be brokered by employment agencies, booking agents for concert
or theatrical performers, travel agents, and the like.
Methods of marketing now include market research, motivational research, and other means of
determining consumer acceptability of a product before the producer decides to manufacture and
market it on a large scale. Market research, often conducted by means of telephone interviews
with consumers, is a major industry in itself, with the top 50 U.S. marketing firms tallying
revenues of $5.9 billion in 1998.

An economic system in which economic decisions and the pricing of goods and services are
guided solely by the aggregate interactions of a country's citizens and businesses and there is
little government intervention or central planning. This is the opposite of a centrally planned
economy, in which government decisions drive most aspects of a country's economic activity.
Market economies work on the assumption that market forces, such as supply and demand, are
the best determinants of what is right for a nation's well-being. These economies rarely engage in
government interventions such as price fixing, license quotas and industry subsidizations.
While most developed nations today could be classified as having mixed economies, they are
often said to have market economies because they allow market forces to drive most of their
activities, typically engaging in government intervention only to the extent that it is needed to
provide stability. Although the market economy is clearly the system of choice in today's global
marketplace, there is significant debate regarding the amount of government intervention
considered optimal for efficient economic operations.
SMALL BUSINESS MANAGEMENT
To run a successful business you need a diverse range of business management skills. When you
start your business it‘s likely that your responsibilities will include:
 Sales and marketing;
 Accounts;
 Human resources; and
 Information Technology (IT).
How confident do you feel in your ability to manage them?
It‘s a good idea to plan ahead of time how you‘re going to manage each area which may include
delegating various functions to a business partner, undertaking additional training or contracting
a specialist advisor such as a bookkeeper, graphic designer or merchandiser.

Remember that although you need to understand, manage and take responsibility for every aspect
of your business, you don‘t have to do everything yourself. Some of the key areas you‘ll need to
think about are outlined below.
Marketing, sales and promotion
Marketing is more than just selling and promoting your business. It's about identifying your
customers and working out how to get them to purchase your product or service. Go to
Marketing for more information.
Human resources
Human resources is about managing and looking after your staff. If you‘re buying an existing
business or taking on a franchise you may find that you‘ve got employees to manage before you
even start your business.
Understanding business financials
The primary objective of any business is to make a profit. Good financial management is
essential to ensure your goal is achieved. The first step involves understanding your financial
statements which is crucial to running a successful business.
Communication and negotiation skills
Business is all about people regardless of your industry or the product or service you‘re offering.
On a daily basis you will encounter a range of people including customers, suppliers, employees
and business associates. Developing your communication and negotiation skills will be
invaluable in a range of situations from negotiating a supplier contract to dealing with a difficult
customer.

Knowledge of business legal issues
Starting a business can be full of legal potholes for the unwary, whether its industry regulation,
tax requirements, industrial relations, business structures, negotiating a commercial tenancy lease
or contracts with suppliers. There are many legal issues to be aware of, so before you start a
business, it‘s a good idea to engage a lawyer to advise you in these areas.
Logistics expert
Logistics is about managing the procurement, supply and maintenance of products and
operational goods. One of the major concerns for a business owner is stock control and there are
many different approaches and programs to stock management.
Before you start your business you should think about how you‘ll ensure you have the right
amount of stock at the right place and at the right time. Efficiently managing stock is important
and will ensure your capital isn‘t tied up, and protects production if problems arise in the supply
chain.
ORGANIZATIONAL DEVELOPMENT
Organizational Development (OD) is a field of research, theory, and practice dedicated to
expanding the knowledge and effectiveness of people to accomplish more successful
organizational change and performance. One classic definition of organization development
comes from Richard Beckhard‘s 1969 Organization Development: Strategies and Models:
Organization Development is an effort to;
(1) Planned
(2) Organization-wide
(3) Managed from the top to bottom
(4) Increase organization effectiveness and health through planned interventions in the organizations
"processes,‖ using behavioral-science knowledge.

Other definitions from leaders in Organization Development Network:
"OD is a field directed at interventions in the processes of human systems (formal and informal
groups, organizations, communities, and societies) in order to increase their effectiveness and
health using a variety of disciplines, principally applied behavioral sciences. OD requires
practitioners to be conscious about the values guiding their practice and focuses on achieving its
results through people."
Arnold Minors, Arnold Minors & Associates, Toronto, Canada
"Organization Development is a body of knowledge and practice that enhances organizational
performance and individual development, by increasing alignment among the various systems
within the overall system. OD interventions are inclusive methodologies and approaches to
strategic planning, organization design, leadership development, change management,
performance management, coaching, diversity, team building, and work/life balance."
Matt Minahan, MM & Associates, Silver Spring, Maryland
Organizational Development Theory

Organizational Development Theory
Organizational Development (OD) is a field of research, theory, and practice dedicated to
organizational change and performance.
OD is a process of continuous diagnosis, action planning, implementation and evaluation, with
the goal of transferring knowledge and skills to organizations to improve their capacity for
solving problems and managing future change.
History and Application of Organizational Development Theory
OD emerged out of human relations studies from the 1930s where psychologists realized that
organizational structures and processes influence worker behavior and motivation. Lewin's work
in the 1940s and 1950s also helped show that feedback was a valuable tool in addressing social
processes.
More recently, work on OD has expanded to focus on aligning organizations with their rapidly
changing and complex environments through organizational learning, knowledge management
and transformation of organizational norms and values.
Key Concepts of Organizational Development Theory
Organizational Climate
 Defined as the mood or unique "personality" of an organization.
 Attitudes and beliefs about organizational practices create organizational climate and influence
members' collective behavior.
 Climate features and characteristics may be associated with employee satisfaction, stress, service
quality and outcomes and successful implementation of new programs. Climate features and
characteristics include:
o Leadership, openness of communication, participative management, role clarity, and conflict
resolution, leader support and leader control.

Organizational Culture
Deeply seated norms, values and behaviors that members share. The five basic elements of
culture in organizations include:
1. Assumptions
2. Values
3. Behavioral norms
4. Behavioral patterns
5. Artifacts
The subjective features (assumptions, values and norms) reflect members' unconscious thoughts
and interpretations of their organizations.
The subjective features shape the behaviors and artifacts take on within organizations
Organizational Strategies
A common OD approach used to help organizations negotiate change, i.e. action research,
consists of four steps.
1. Diagnosis
o Helps organization identify problems that may interfere with its effectiveness and assess the
underlying causes
o Usually done by OD enlisting the help of an outside specialist to help identify problems by
examining its mission, goals, policies, structures and technologies; climate and culture;
environmental factors; desired outcomes and readiness to take action.
o Usually done through key informant interviews or formal surveys of all members.
2. Action planning
o Strategic interventions for addressing diagnosed problems are developed.
o The organization is engaged in an action planning process to assess the feasibility of
implementing different change strategies that lead to action.

3. Intervention
o Change steps are specified and sequenced, progress monitored, and stakeholder commitment
is cultivated.
4. Evaluation
o Assess the planned change efforts by tracking the organization's progress in implementing
the change and by documenting its impact on the organization.
BUSINESS ETHICS
Business ethics (also corporate ethics) is a form of applied ethics or professional ethics that
examines ethical principles and moral or ethical problems that arise in a business environment.
It applies to all aspects of business conduct and is relevant to the conduct of individuals and
entire organizations.
The study of proper business policies and practices regarding potentially controversial issues,
such as corporate governance, insider trading, bribery, discrimination, corporate social
responsibility and fiduciary responsibilities. Business ethics are often guided by law, while other
times provide a basic framework that businesses may choose to follow in order to gain public
acceptance.
Business ethics are implemented in order to ensure that a certain required level of trust exists
between consumers and various forms of market participants with businesses. For example, a
portfolio manager must give the same consideration to the portfolios of family members and
small individual investors. Such practices ensure that the public is treated fairly.
The importance of ethics in business
Ethics concern an individual's moral judgments about right and wrong. Decisions taken within an
organization may be made by individuals or groups, but whoever makes them will be influenced
by the culture of the company.

The decision to behave ethically is a moral one; employees must decide what they think is the
right course of action. This may involve rejecting the route that would lead to the biggest short-
term profit.
Ethical behavior and corporate social responsibility can bring significant benefits to a business.
For example, they may:
 Attract customers to the firm's products, thereby boosting sales and profits
 Make employees want to stay with the business, reduce labor turnover and therefore increase
productivity
 Attract more employees wanting to work for the business, reduce recruitment costs and enable
the company to get the most talented employees
 Attract investors and keep the company's share price high, thereby protecting the business from
takeover.
Unethical behavior or a lack of corporate social responsibility, by comparison, may damage a
firm's reputation and make it less appealing to stakeholders. Profits could fall as a result.
Along with good corporate governance, ethical behavior is an integral part of everything that
Cadbury Schweppes does. Treating stakeholders fairly is seen as an essential part of the
company's success, as described here: 'A creative and well managed corporate and social
responsibility programme is in the best interests of all our stakeholders - not just our consumers
- but also our shareowners, employees, customers, suppliers and other business partners who
work together with us.'
Ensuring that employees understand the company‘s corporate values is achieved by statement of
business principles which make clear the behavior it seeks from employees. Cadbury
Schweepers‘ good practices were recognized when it was voted one of the most admired
companies for community and environmental responsibility by management today magazine in
2003.

Ethics at work
The supply chain and distribution process
This describes the way in which raw materials are sourced and transformed into final products
and delivered to customers. Cadbury Schweppes has direct control over what happens in the
transformation stage of its own process and can also influence the behavior of suppliers and
distributors. For example, it performs due diligence on potential suppliers by requesting them to
complete a questionnaire prior to engagement.
This enables Cadbury Schweppes to monitor a supplier and check they adhere to stringent
standards in particular criteria. One criterion, for example, may be the environment and the
questionnaire allows the supplier to express whether they carry out audits or have an
environmental policy.
SOCIAL RESPONSIBILITY
Social responsibility is an ethical framework which suggests that an entity, be it an organization
or individual, has an obligation to act for the benefit of society at large. Social responsibility is a
duty every individual has to perform so as to maintain a balance between the economy and the
ecosystems.
What is the Social Responsibility of Business?
Ever since Milton Friedman famously proclaimed ―The Social Responsibility of Business is to
Increase its Profits‖ (NY Times 1970), pundits have pondered whether his purist interpretation
was really the only way. Profit is certainly a lot easier to quantify than something like
‗happiness‘, but the intangible benefits of good, honest business clearly go way beyond pure
finance. Must the word ‗profit‘ always refer to money in the strictest sense?
Collected on this page are various interpretations of the idea of ―social responsibility‖ and the
responsibility of business to take an active, passive or indifferent role in building a more
sustainable business world.

20 Great Examples of Socially Responsible Businesses
Today's consumers are more conscious than ever about social issues, and sometimes they're even
willing to switch brands in favor of a company that gives back.
But it may not be enough to just make a one-time donation, or put in an hour of volunteer work
every year. Companies that practice social responsibility as part of their everyday business model
prove that a dedication to charitable initiatives goes a long way, both for the cause and their
reputation. These 20 businesses are just a few of the countless examples of successful socially
responsible companies that answer the question of; what is Corporate Social Responsibility?
Accessibility Partners – Many people take their computers, Smartphone‘s and tablets for
granted, but for those with disabilities, using these technologies can present significant
challenges. Accessibility Partners works with private and public IT manufacturing companies,
federal agencies and other organizations to test and review products that make information
technology accessible to individuals with a variety of disabilities. More than 70 percent of the
company's employees have disabilities themselves, so the company promotes disability advocacy
in all of its operations.
Altered Seasons – Kelly Reddington founded his eco-friendly candle company Altered Seasons
in 2003 at age 14 with the help of his mother. When he assumed ownership of the company, he
shifted it to a one-for-one model to do more for the community. For every candle sold, Altered
Seasons provides a meal to an American in need through Feeding America.
Charitable Agents – Anyone who's sold or purchased a home knows how cutthroat real estate
agencies can be about their commissions and fees. But what if you knew that part of that
commission was going to support your favorite charity? With Charitable Agents, a network
committed to helping homeowners and Realtors make a positive impact in their community, you
can do just that. The company matches buyers and sellers with a top-performing local Realtor,
and when the transaction closes, 10 percent of the agent's commission goes to charity.

Children Inspire Design – Artist and mother Rebecca Peragine began selling her whimsical
wall art, cards and posters to promote environmental education for children. In addition to using
recycled materials, eco-friendly inks and biodegradable packaging for Peragine's original
designs, Children Inspire Design sells handcrafted paper ornaments made by a women's
cooperative in Mexico, and a special poster whose full proceeds go to Future Fortified.
Cole and Parker – This Canada-based sock company does more than just sell colorful footwear.
Through its partnership with microfinance organization Kiva, Cole and Parker donates proceeds
from every sock sale to a fund that is used to provide small loans for entrepreneurs in developing
countries.
Do Good Buy Us – The mission of Do Good Buy Us is to sell "goods that do good." This e-
commerce website is dedicated to changing consumerism by selling products made by
organizations that support social causes. Additionally, 50 percent of the company's proceeds go
toward fighting poverty, hunger, disease and other global issues.
Gift of Happiness – Donating a portion of your sales to charity is a popular way for retailers to
get involved in corporate social responsibility (CSR). Gift of Happiness has put its own spin on
this approach, donating 5 percent of every purchase to the listed charity of the customer's choice.
But what makes this cause-centric marketplace truly unique is its transparent follow-through:
Every charity has a "progress bar," and customers can check back to see how much closer their
favorite causes are to reaching their funding goals.
Headbands of Hope – After a life-changing internship at the Make-A-Wish Foundation, Jessica
Ekstrom decided she wanted to continue helping children with life-threatening illnesses by
starting her own business. Her company, Headbands of Hope, sells made-in-the-U.S. headbands
and donates a dollar of each sale to childhood cancer research through the St. Baldrick's
Foundation.

HERO|farm – Founded by two laid-off advertising executives, HERO|farm is a social mission-
focused marketing and design agency whose philosophy is "Do great work for good people." The
duo behind HERO|farm made the decision to work with socially responsible companies after
realizing how beneficial and impactful advertising can be when a company has an admirable
mission. HERO|farm also does at least one pro bono campaign per year for a nonprofit
organization.
Image Outfitters – Since its launch in 1998, promotional products manufacturer Image
Outfitters has made annual donations to local charities. Last year, the company changed its sales
model after seeing how adversely the economic downturn affected these organizations. Through
its proprietary platform, iShare, 10 percent of the total sale amount for new customer orders is
donated to the charities of the customer's choice.
Juntos Shoes – This ethically conscious fashion startup designed a shoe inspired by traditional
Ecuadorean canvas shoes. For each pair sold, Juntos Shoes donates a supply-filled backpack to
an at-risk Ecuadorean child to help him or her participate more fully and effectively in school.
Krochet Kids – Years ago, three high school friends with a shared love of snow sports learned
to crochet their own headwear. Though they sold custom creations to classmates, Krochet Kids
fizzled out when the guys went to college until they realized teaching their skill in developing
countries could help break the cycle of poverty. The company earned its nonprofit status in 2008,
and today, Krochet Kids is helping more than 150 Ugandans and Peruvians make a fair wage
through the sale of crocheted goods.
Mirage Spa and Recreation – Hot tubs are a big-ticket item. That's why Mirage Spa and
Recreation is able to encourage so many of its customers to take part in the company's
philanthropic initiatives: Customers receive 15 percent off their purchase when they bring in
food, pet supplies or personal care items for Mirage to donate to a local food pantry.

Nicklaus Companies – Legendary golfer Jack Nicklaus founded Nicklaus Companies, a global
business that focuses on marketing, licensing and the design of golf courses worldwide.
Recently, Nicklaus and business partner Howard Milstein released a line of golf balls to be sold
online and at Nicklaus Design courses, with a percentage of all proceeds going to benefit the
Nicklaus Children's Health Care Foundation. Customers receive a discount for purchasing online
but have the option to make up the difference from the retail price by donating to the foundation.
Out of Africa – Customers of cosmetics company Out of Africa do more than just purchase
high-quality shea-butter skin care products; they also help improve the quality of life for West
African women and children. A portion of Out of Africa's proceeds is donated to organizations
that provide education and medical care to children, and the company regularly donates to
women's cooperatives that create jobs in West Africa.
People Water – You might be wondering how buying bottled water in the U.S. can provide
clean water in impoverished nations around the world. Thanks to People Water's "Drop for
Drop" initiative, every bottle the company sells helps to fund one of its global clean water
projects, whether it's building a new well, repairing a broken one or establishing a water
purification system in an area suffering from poor water quality. To date, People Water has
helped bring more than 5.7 million gallons (21.6 million liters) of clean water to people in need.
PopNod – When people shop online at one of PopNod's partner stores, they earn cash back that
can be donated in varying amounts to the cause of their choice. With nearly 100 causes to
support and more than 250 major retailers in categories such as apparel, electronics, beauty and
entertainment, there's a partner store and cause for every consumer.
Prime Five Homes – Homes built by Prime Five Homes aren't your typical houses. Each of
these modern, sustainable homes is equipped to use less energy, gas and water, so buyers know
they're moving into a property that's better for the environment.

A portion of all sales goes to the company's nonprofit arm, the Dream Builders Project, which
provides services and monetary donations to select charities.
Rainbow Light – Founded in 1981, Rainbow Light started out selling spirulina nutritional
supplements to health-conscious consumers. In addition to expanding its line of natural
supplements, the company has been committed to improving the health of its customers, trade
partners, global community and the planet. As part of its Circle of Care initiative, Rainbow Light
helps fight global malnutrition with its supplements through Vitamin Angels, a nonprofit that
delivers vitamins to at-risk mothers and babies, and uses 100 percent recycled and recyclable
BPA-free packaging.
Survey Monkey – Survey Monkey is best known for its easy-to-use survey creation software,
but the company's nationwide survey service, Audience, was created as a way to give back to
deserving causes across the country. Instead of offering cash and prizes to survey takers, Survey
Monkey donates 50 cents per survey completion to the taker's charity of choice. In 2013, the
company donated more than $1 million to organizations such as the Humane Society, Boys &
Girls Club of America, and Teach for America.
BONUS: ON.com – New social networking app ON.com may have been founded on the
principle of sharing geo-tagged photos to connect with people, but this startup lets you do good
when you post a selfie. Throughout the year, ON.com hosts charitable campaigns in which they
donate $1 per site member when someone posts a photo with their hashtag, #On is fun. For
Thanksgiving, the company asked for photos of food and donated $522 to Feed My Starving
Children. A similar campaign is planned for the holiday season.

Summary of 'Social Responsibility'
The idea that companies should embrace its social responsibilities and not be solely focused on
maximizing profits. Social responsibility entails developing businesses with a positive
relationship to the society which they operate in. According to the International Organization for
Standardization (ISO), this relationship to the society and environment in which they operate is
"a critical factor in their ability to continue to operate effectively. It is also increasingly being
used as a measure of their overall performance."
Many companies, particularly "green" companies have made social responsibility an integral part
of their business models. What's more, some investors use a company's social responsibility - or
lack thereof - as an investment criterion. For example, one who has a moral (or other) objection
to smoking may not want to invest in a tobacco company.
That said, not everybody believes that business should have a social conscience. Noted
economist Milton Friedman noted that the "social responsibilities of business are notable for
their analytical looseness and lack of rigor." Friedman believed that only people could have
social responsibilities. Businesses, by their very nature, cannot.

LEGAL AND SOCIAL BUSINESS ENVIRONMENTS
Businesses do not operate in a vacuum. They are subject to their external environment. In this
lesson, you'll learn about the legal and economic environments of business and how businesses
are affected by them.
The External Environment
Meet Emmanuelle. She's a real estate broker that wants to leverage her expertise in real estate
and start a real estate investment company. She hopes to acquire some properties for rental
income and some for a quick flip and quick profit.
As a real estate broker, she's been around the block more than a few times. She knows that she
needs to pay careful attention to the current external business environment, which is a set of
external factors that can affect her business and of which she has little, if any, control over. Two
important environmental factors are legal and economic.
The Economic Environment
Emmanuelle must consider the current economic environment before she decides to make an
investment and risk her money in a new business venture. The economic environment of a
business is the external microeconomic and macroeconomic factors that can affect it. Let's take a
closer look.
Emmanuelle must determine if the current macroeconomic conditions are conducive for her
business to succeed. Macroeconomic factors are large scale economic factors that affect all
participants in an economy and include such things as unemployment, inflation, interest rates and
tax rates. Since Emmanuelle wants to start a real estate investment company, the current
macroeconomic environment is very important.
For example, if the unemployment rate is too high, many people will not be able to afford to
purchase homes or even pay rent. If interest rates are high, then it will be much more expensive
for Emmanuelle to finance the purchases of her investment properties.

An increase in taxes can cut into her profits. In fact, property taxes may make a difference
between a profit and a loss on rental property of course, if taxes, interest rates and inflation are
low; the business environment is safer for a new business.
Emmanuelle must also consider the microeconomic factors, which involves the economic
decisions that businesses and individuals make. While macroeconomics looks at the big picture,
microeconomics looks at individual situations. If you remember that 'macro' means 'big' and
'micro' means small, you should be able to remember the difference between macroeconomics
and microeconomics.
One of the most important microeconomic concepts that Emmanuelle must factor into her
business decision is the supply and demand for residential dwellings, such as single and
multifamily housing units, potential home owners and potential tenants. For example, if the
supply of single family houses exceeds the demand, the prices for the homes should be low or in
decline. If the supply of rental units is less than the number of tenants looking to rent, rental rates
should be high or increasing.
If Emmanuelle has a command of her market as it concerns the demand and supply of housing,
potential buyers and renters, then she will greatly increase her chances of success. For example,
if demand for rentals is outpacing demand for owner-occupied homes and there is an oversupply
of houses for sale on the market, she may want to focus on rental properties instead of the quick
flip.
CURRENT ISSUES IN MODERN BUSINESS
'8 Great' Challenges Every Business Faces
Navigating a business is extra tricky these days. The speed of economic and technological
changes means that the right path yesterday may not work today and could be a disaster by
tomorrow. Solving these dynamic problems is what separates those who excel from the
companies who are closing the doors.

1. Integrity. Business has never faced the type of moral challenges that it faces in today‘s global
economy. Everyone is struggling to be more successful, to make the next quarterly earnings
estimate, to keep their job, to earn a big bonus, or to compete effectively. The temptation to cut
corners, omit information, and do whatever it takes to get ahead occurs every day. Many
business employees and executives succumb. Sadly, the theme becomes highly infectious and
soon people actually start to feel like lying a little, or stealing a little, or deceiving others, is just
―a part of business‖. These practices erode the trust that needs to exist between employers and
employees, between business partners, between executives and shareholders. Without trust, the
business will not be able to compete effectively and it will eventually fail.
2. Cash, Borrowing, and Resource Management. Cash is King! We‘ve all heard this maxim
and it is truer today than ever before. A healthy profit may look nice on your financial
statements, but if capital expenditures or receivable collections are draining your cash, you won‘t
be able to stay in business for long. Too often executives and small business owners fail to focus
enough on cash flow generation. In order to head off this problem, businesses must either be
adequately capitalized and must shore up cash reserves to meet all obligations as they are needed
and to handle downturns and emergencies that may arise. Cash management becomes even more
important during recessionary times when cash is flowing more slowly into the business and
creditors are less lenient in extending time to pay. For small businesses, handling business
accounting and taxes may be within the capabilities of the business owners, but professional help
is usually a good idea. The complexity of a business‘ books go up with each client and
employee, so getting assistance with managing cash and the bookkeeping can allow you to excel
when others are calling it quits. Cash flow challenges are exacerbated by the lending climate,
particularly for small businesses. Bankers are unlikely to be more liberal in their lending policies
any time soon.

3. Increased selection and competition. It‘s never been easier to start a business. Gone are the
days when it took weeks, months, and a myriad of forms to get your business started. Now if you
can buy a domain name and register your business online, you‘re in business. However, staying
in business is a much more complicated matter. While business expertise was once an expensive
and time consuming endeavor, you can now find experts online for many questions that you
might encounter. There is help to starting an online store, for example, for getting business cards
and marketing materials – all at a very reasonable cost. The ease of starting a business creates a
much broader level of competition. You might find different business competing for each
product you sell and new business that focus on a single item and spend all their time and focus
on being the very best at just one thing. This increase in overall selection and more focused
completion will make it more difficult for businesses of all sizes to retain customers who can
change their suppliers with the click of a mouse. It‘s a battle of perception, focus, and
marketing. Business owners who master these elements and provide a great customer experience
will win the sale.
4. Marketing and Customer Loyalty. Along the same lines as increased selection and
competition is the challenge to market to potential customers effectively and retain your existing
customers. Smartphone‘s, social media, texting, email, twitter and other communication channels
are making it easy for businesses and individuals to get their messages out. Figuring out the
right marketing channels is key for businesses to be successful in the future. Where are your
customers and how do you best reach them and what is the right messaging? Once you get a
new customer, how do you keep these customers when they are constantly barraged by
competitors of all types, sizes, and locations, trying to convince them that they can do it better or
provide it cheaper? Identifying what your customers want and doing a better job of giving it to
them will make all the difference in your company‘s future. The conservative spending climate
is also causing a shrinking customer base.

Consumers are still quite conservative with their pocketbooks, and as a result, organic growth
from current and new customers is not growing as quickly as businesses would like. Business
owners and executives are spending more time figuring out how to go above and beyond to keep
existing customers, while at the same time figuring out how to cost-effectively reach new
customers without competing solely on price, which always ends up to be a race to the bottom.
5. Uncertainty. All of us and especially business leaders find great discomfort in uncertainty.
Because of global debt and economic struggles, uncertainty is more pronounced today than in the
past. The sad news is that uncertainty leads to a short-term focus. Due to uncertainty, companies
tend to shy away from long-term planning in favor of shorter-term goals. While this might feel
right, a failure to strategically plan five to ten years into the future can end up destroying value.
Businesses must learn to balance the need for a more reactive, short-term focus with the need for
informed, long-term strategies. Uncertainty tends to put many into a general malaise – unable to
get anything done. The ever-running news cycle leaves everyone feeling a bit on edge. This
causes business owners and executives to hunker down and customers to stop spending. You
need to shut out the world ending news and get back to work.‖
6. Regulation. A changing regulatory environment is always of concern in certain industries, but
uncertain energy, environmental and financial policy is wreaking havoc for nearly all companies
today. Whether a demand from customers or shareholders to become more ―green,‖ or the threat
of increased costs due to new carbon taxes, environmental considerations are among the biggest
challenges businesses face today. And we don‘t need to give too much press to the current issue
of financial reform and regulation, although we do have some opinions about how to prepare for
that if you‘re a bank or a brokerage house. The problems to be solved are to understand the
meaning of regulation in your industry, its implications for your business, and to develop the
skills necessary to deal with it. Two key areas of regulatory challenges are taxes and health
care.

Lawmakers are still haggling over what‘s called the fiscal cliff, the combination of billions of
dollars in tax increases and budget cuts. Even if Congress reaches an agreement, businesses
won‘t have the certainty they need to make intelligent decisions. When Congress does reach an
agreement, it most likely won‘t be comprehensive enough that it won‘t need to be revisited again
next year. Health care has been another challenge for businesses. The new Affordable Health
Care Act (Obamacare) is so complex that state and local governments won‘t know what to
do and businesses will have to devote significant time and resources to understanding the law or
for a small business, hiring some professional to help them do it. They‘ll have to get their arms
around the law, look at their options, learn more about the exchanges and determine how to make
it all work. Many businesses don‘t yet know whether their states will be creating exchanges, or
whether they‘ll have to go into the national system — and they don‘t know what that will mean
for their costs. For some businesses, that information will help them decide whether they will
buy insurance, or whether they‘ll decide it‘s cheaper to not provide coverage and just pay the
government a $2,000-per-employee fine. For those who have close to 50 workers, they may
decide to not hire more workers in order to remain outside the law‘s jurisdiction.
7. Problem Solving and Risk Management. A major challenge for all companies is identifying,
assessing, and mitigating risks, including human and financial capital, in addition to the macro
economy. The lack of a sophisticated problem-solving competency among today‘s business
leaders is limiting their ability to adequately deal with risks facing their businesses. This is why
corporate managers tend to jump from one fire to another, depending on which one their
executives are trying to put out, and in many cases the fast-changing business environment is
what ignites these fires. So what is the problem to be solved? We believe, to do well into the
future, companies must resolve that problem solving is the key to business, then develop a robust
problem-solving capability at all levels. As companies proceed to identify risks, they will then
have the problem solving skills to know how to best mitigate them.

8. Finding the right staff. Without exception, every business executive I speak to says that one
of their biggest challenges is staff – finding the right staff, retaining them, and ensuring they buy
into the vision of the business. I‘ll freely admit that I have no magic answers here. In fact, if
someone could develop a formula for recruiting and engaging the right team members, they
would make millions. A small business is almost like a family, and, like many families, they can
work well, or they can be dysfunctional. In big companies, the human resource challenge is
politics and fit in the workplace, but when it comes to small business, its personalities and skill.
When you work in a small environment, each team member‘s personality can have a huge impact
on the harmony and productivity of the business. The key is to learn how to deal with different
personalities, figure out what drives each individual team member and tailor your management
accordingly. Despite high unemployment, many companies struggle to find the right talent with
the right skills for their business. Many new manufacturing jobs require high-tech skills. They
include positions at factories where computers are used to create products like airplane parts and
machinery. And some require several years of training. Because of changing technology,
businesses are struggling to find qualified workers with IT skills, problem solving abilities, and
deductive reasoning skills.
Sure Signs a Startup Firm will succeed
1. Has Validated Customers. This is one of the core rules of consummate entrepreneur and
fellow Forbes Contributor Alan Hall. Do you know in advance that you have customers who are
willing to pay the price you are asking for the product or service you have? Too many good
startups fail to sufficiently validate their customer assumptions or, in the case of internet firms,
scale too quickly before validating the initial marketplace and streamlining their costs. A
successful startup scales its growth on the basis of proven, steady and paying customers
(especially where residual/subscription income is involved). Steady acquisition is also a very
good sign, as opposed to high and low fits and starts.

2. Shows a Strategic Perspective. This is the direct opposite of a company that is operating in
panic mode, or exhibiting survival thinking. A startup actively planning and moving towards
national and global expansion; that has a solid one- and five-year agenda and is making steady
and measurable strides to meet the critical milestones is poised to succeed.
3. Is Cash Conservative. There‘s never been a better time to start a business in many respects,
but there‘s perhaps never been a more challenging time to obtain early stage credit or funding.
Today‘s successful startups are a stark contrast to the high-flying internet firms who bragged
about their rabid ―burn rates‖ in 2000-2002. Lean operations are the name of the game, and the
ability to stretch and conserve early stage funds, even if greater funds are available, is a
significant sign that points to future success. One of my favorite agency clients, Dan Dyer (CEO
of NASCAR Car Wash) notes that none of his high-flying executive contemporaries have ever
proven to him yet the genuine economic need for a private jet. ―Do you know what I call a
company jet?‖ he said recently. ―Transportation to bankruptcy.‖ Good one, Dan. A funny
statement, but he‘s pretty much right.
4. Operates with Transparency. Commitment, integrity and transparency are closely related. A
successful organization has little or nothing (other than its proprietary IP) to hide. Life is simpler
with fewer secrets about billing methods, pricing and customer acquisition strategies. It‘s also
easier to keep employees committed and fully engaged. Transparency is key to my favorite topic,
public relations, as well. Deep in the midst of a discussion on corporate spokesperson training
(Watch the whiteboards. Know who you‘re speaking to. Be aware who‘s in earshot) one of our
astute clients made a profound statement: The easiest way to avoid bad press is to live and
operate each day as if everyone‘s watching. He was right. Rarely does bad or embarrassing
exposure occur when a company operates in a fashion that leaves nothing to be secretive or
embarrassed about. Transparency of operation is a very positive sign.

5. Communication. Yes, my favorite topic is the element of strength that I‘m saving for last.
Again, a word of wisdom from Alan Hall: Every great leader and every great company
communicates well. They communicate good news. They communicate bad news, with candor
and straightforward language, as well. They communicate with skill imagine the frustration of
the investor who knows he or she has invested in a great company, but due to lack of
communication, the world may never know. No great company was ever conceived and grown in
a vacuum. Every successful company recognizes the vital need and the tremendous opportunity
they afford themselves when they communicate well.
But in summary; has any startup that met these five criteria ever failed? Surely yes, there are
some organizations who met with tragic occurrences such as 9/11, Katrina, or unforeseeable and
sudden shifts in market conditions. But short of cataclysmic occurrence, I would maintain that
any company that meets these conditions is highly unlikely to fail.
REVISION KIT & SUGGESTED ANSWERS
i. Every business venture must have the ability to examine and make changes based on
internal and external environmental factors in order to successfully meet the business
gains. List and describe both Internal and External environmental factors to be considered
for success in any business
There are two types of environmental factors: internal environmental factors and external
environmental factors. Internal environmental factors are events that occur within an
organization. Generally speaking, internal environmental factors are easier to control than
external environmental factors. Some examples of internal environmental factors are as follows:
 Management changes
 Employee morale
 Culture changes
 Financial changes and/or issues
External environmental factors are events that take place outside of the organization and are
harder to predict and control. External environmental factors can be more dangerous for an

organization given the fact they are unpredictable, hard to prepare for, and often bewildering.
Some examples of external environmental factors are noted below:
 Changes to the economy
 Threats from competition
 Political factors
 Government regulations
 The industry itself
The internal business environment includes factors within the organization that impact the
approach and success of your operations. The external environment consists of a variety of
factors outside your company doors that you typically don't have much control over. Managing
the strengths of your internal operations and recognizing potential opportunities and threats
outside of your operations are keys to business success.
ii. SWOT analysis is a structured planning tool that can be used to evaluate the success or
failure of any organization. Explain
SWOT is a structured planning tool that can be
used to evaluate the Strengths, Weaknesses,
Opportunities, and Threats involved in running a
business venture. Using a SWOT analysis can be
used to help a business determine the advantages
or disadvantages of changes they want to make
based on internal and external factors. A SWOT
analysis can be broken into two distinct parts.
The strengths and weaknesses are based on
internal environmental factors. Opportunities
and threats are based on external environmental
factors.
The internal business environment comprises of factors within the company which impact the
success and approach of operations. Unlike the external environment, the company has control
over these factors. It is important to recognize potential opportunities and threats outside
company operations. However, managing the strengths of internal operations is the key to
business success.

The strength of employees is also an essential internal business factor. Check if employees are
motivated, hard-working and talented. They will produce better results compared to an
unmotivated and less talented workforce. The processes and
relationships between and within departments can also
improve effectiveness and efficiency.
Internals Factors in SWOT
The internal factors of a business are often studied in a
SWOT analysis. The SWOT matrix is a structured planning
method. You can use SWOT analysis to analyze your
company and its environment. It assesses the strengths,
weaknesses, opportunities, and threats. The strengths and weaknesses of a project or business
are internal factors. Opportunities and threats are external elements.
iii. With a well labeled strategic planning, indicate both the internal and external
environmental factors in the above SWOT analysis
Strengths
Strengths are the features of your business which allow you to work more effectively than
competitors. Your specialist technical knowledge could be your strength. You will have to
consider your strengths from own point of view. You should also give importance to customers’
and clients’ view.
You must be honest and realistic. When you try to find company’s strengths, try to answer the
below questions:
 What is it that you do well?
 What benefits do you have over your competitors?
 What makes you stand out from the competitors?
Weaknesses
Weaknesses are the areas which have scope for improvement. Find out if your business is new
products or skills. Also, try to find if you have a lower productivity or higher cost base than your
competitors. You will have to face the unpleasant truths about your firm and be realistic. Ask the
following questions:
 What are you bad at?
 Is there anything you could be better at?

 What should you avoid?
 What leads to problems or
complaints?
The greatest thing about internal
factors is that you have control over
most of them. Changing internal
factors often involves some indirect
costs. Some of the factors are a result
of the way you run your business.
Example of this includes reputation,
credit worthiness, and image. Other factors depend on your business decisions. Example of this
includes management structure and staffing.
iv. Define the term Management, describing the widely accepted functions of management
according to KOONTZ and O’DONNEL
Management has been described as a social process involving responsibility for economical and
effective planning & regulation of operation of an enterprise in the fulfillment of given purposes.
It is a dynamic process consisting of various elements and activities. These activities are
different from operative functions like marketing, finance, purchase etc. Rather these activities
are common to each and every manager irrespective of his level or status.
The most widely accepted are functions of management given by KOONTZ and O’DONNEL i.e.
Planning, Organizing, Staffing, Directing and Controlling.
For theoretical purposes, it may be convenient to separate
the function of management but practically these functions
are overlapping in nature i.e. they are highly inseparable.
Each function blends into the other & each affects the
performance of others.
Effective management and leadership involve creative
problem solving, motivating employees and making sure the
organization accomplishes objectives and goals. There are five functions of management and
leadership: planning, organizing, staffing, coordinating and controlling. These functions
separate the management process from other business functions such as marketing, accounting
and finance.

6. PLANNING
It is the basic function of management. It deals with chalking out a future course of action &
deciding in advance the most appropriate course of actions for achievement of pre-determined
goals. According to KOONTZ, “Planning is deciding in advance; what to do, when to do & how
to do. It bridges the gap from where we are & where we want to be”. A plan is a future course of
actions. It is an exercise in problem solving & decision making. Planning is determination of
courses of action to achieve desired goals. Thus, planning is a systematic thinking about ways &
means for accomplishment of pre-determined goals. Planning is necessary to ensure proper
utilization of human & non-human resources. It is all pervasive, it is an intellectual activity and
it also helps in avoiding confusion, uncertainties, risks, wastages etc.
7. ORGANIZING
It is the process of bringing together physical, financial and human resources and developing
productive relationship amongst them for achievement of organizational goals. According to
Henry Fayol, “To organize a business is to provide it with everything useful or its functioning
i.e. raw material, tools, capital and personnel’s”. To organize a business involves determining &
providing human and non-human resources to the organizational structure. Organizing as a
process involves:
 Identification of activities.
 Classification of grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility relationships
8. STAFFING
It is the function of manning the organization structure and keeping it manned. Staffing has
assumed greater importance in the recent years due to advancement of technology, increase in
size of business, complexity of human behavior etc. The main purpose o staffing is to put right
man on right job i.e. square pegs in square holes and round pegs in round holes. According to
Kootz & O’Donell, “Managerial function of staffing involves manning the organization structure
through proper and effective selection; appraisal & development of personnel to fill the roles
designed in the structure”. Staffing involves:
 Manpower Planning
 Recruitment, Selection & Placement.
 Training & Development.

 Remuneration.
 Performance Appraisal.
 Promotions & Transfer.
9. DIRECTING
It is that part of managerial function which actuates the organizational methods to work
efficiently for achievement of organizational purposes. It is considered life-spark of the
enterprise which sets it in motion the action of people because planning, organizing and staffing
are the mere preparations for doing the work. Direction is that inert-personnel aspect of
management which deals directly with influencing, guiding, supervising, motivating sub-ordinate
for the achievement of organizational goals.
Direction has following elements:
 Supervision- implies overseeing the work of subordinates by their superiors. It is the act of
watching & directing work & workers.
 Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work.
Positive, negative, monetary, non-monetary incentives may be used for this purpose.
 Leadership- may be defined as a process by which manager guides and influences the work of
subordinates in desired direction.
 Communications- is the process of passing information, experience, opinion etc from one person
to another. It is a bridge of understanding.
10. CONTROLLING
It implies measurement of accomplishment against the standards and correction of deviation if
any to ensure achievement of organizational goals. The purpose of controlling is to ensure that
everything occurs in conformities with the standards. An efficient system of control helps to
predict deviations before they actually occur. According to Theo Haimann, “Controlling is the
process of checking whether or not proper progress is being made towards the objectives and
goals and acting if necessary, to correct any deviation”. According to Koontz & O’Donnell
“Controlling is the measurement & correction of performance activities of subordinates in order
to make sure that the enterprise objectives and plans desired to obtain them as being
accomplished”. Therefore controlling has following steps:
a.Establishment of standard performance.
b.Measurement of actual performance.
c.Comparison of actual performance with the standards and finding out deviation if any.
d.Corrective action.

v. Define Marketing concepts in business, explaining philosophical theories and orientations
in the Marketplace
Marketing concept is the Management philosophy according to which a firm's goals can be best
achieved through identification and satisfaction of the customers' stated and unstated needs and
wants.
Five orientations (philosophical concepts to the marketplace have guided and continue to guide
organizational activities:
The Production Concept. This concept is the oldest of the concepts in business. It holds that
consumers will prefer products that are widely available and inexpensive. Managers focusing
on this concept concentrate on achieving high production efficiency, low costs, and mass
distribution. They assume that consumers are primarily interested in product availability and
low prices. This orientation makes sense in developing countries, where consumers are more
interested in obtaining the product than in its features.
The Product Concept. This orientation holds that consumers will favor those products that offer
the most quality, performance, or innovative features. Managers focusing on this concept
concentrate on making superior products and improving them over time. They assume that
buyers admire well-made products and can appraise quality and performance. However, these
managers are sometimes caught up in a love affair with their product and do not realize what the
market needs. Management might commit the “better-mousetrap” fallacy, believing that a better
mousetrap will lead people to beat a path to its door.
The Selling Concept. This is another common business orientation. It holds that consumers and
businesses, if left alone, will ordinarily not buy enough of the selling company’s products. The
organization must, therefore, undertake an aggressive selling and promotion effort. This
concept assumes that consumers typically sho9w buyi8ng inertia or resistance and must be
coaxed into buying. It also assumes that the company has a whole battery of effective selling and
promotional tools to stimulate more buying. Most firms practice the selling concept when they
have overcapacity. Their aim is to sell what they make rather than make what the market wants.
The Marketing Concept. This is a business philosophy that challenges the above three business
orientations. Its central tenets crystallized in the 1950s. It holds that the key to achieving its
organizational goals (goals of the selling company) consists of the company being more effective
than competitors in creating, delivering, and communicating customer value to its selected target
customers. The marketing concept rests on four pillars: target market, customer needs,
integrated marketing and profitability.

The Societal Marketing Concept. This concept holds that the organization’s task is to
determine the needs, wants, and interests of target markets and to deliver the desired
satisfactions more effectively and efficiently than competitors (this is the original Marketing
Concept). Additionally, it holds that this all must be done in a way that preserves or enhances
the consumer’s and the society’s well-being.
vi. Under the concept of marketing evolution over time, the orientation factors confirming
‘The Customer is the King’ philosophy. With a detailed chart, draw and label the Four
orientation levels of marketing evolution
Production Orientation
The focus for the business is to reduce
costs through mass production. A business
orientated around production believes that
the "economies of scale" generated by
mass production will reduce costs and
maximize profits. A production orientated
business needs to avoid production
efficiency processes which affect product
design and quality. Compromising product
design and quality for the sake of
production is likely to reduce the product's
appeal to customers.
Product Orientation
A product orientated company believes that its product's high quality and functional features
make it a superior product. Such a company believes that if they have a superior product
customers will automatically like it as well. The problem with this approach is that superiority
alone does not sell products; superior products will not sell unless they satisfy consumer wants
and needs.
Sales Orientation
A sales orientated company's focus is simple; make the product, and then sell it to the target
market. This type of orientation involves the organization making what they think the customer
needs or likes without relevant research. However as we know sales usually aren't this simple.
An effective marketing strategy requires market and marketing research, prior to product
development and finally an effective promotion strategy.

Market Orientation
A market orientated company puts the customer at the "heart" of the business; all activities in the
organization are based around the customer. The customer is truly king! A market orientated
organization endeavors to understand customer needs and wants, then implements marketing
strategy based on their market research; from product development through to product sales.
Once sales have begun further research will be conducted to find out what consumers think
about the product and whether product improvements are required.
vii. Define Production systems?
Production system may be defined as, "The methods, procedure or arrangement which includes
all functions required to accumulate (gather) the inputs, process or reprocess the inputs, and
deliver the marketable output (goods)." Production system utilizes materials, funds,
infrastructure, and labor to produce the required output in form of goods.
viii. With a show of a diagram, List and describe major components of production system
giving examples?
Production system consists of three main components viz., Inputs, Conversion Process and
Output.
4. Inputs include raw-materials, machines, man-hours, components or parts, drawing, instructions
and other paper works.
5. Conversion process includes operations (actual production process). Operations may be either
manual or mechanical or chemical. Operations convert inputs into output. Conversion process
also includes supporting activities, which help the process of conversion. The supporting
activities include; production planning and control purchase of raw-materials, receipt, storage
and issue of materials, inspection of parts and work-in-progress, testing of products, quality
control, warehousing of finished products, etc.
6. Output includes finished products, finished goods (parts), and services.
The three components of a production system are depicted in this diagram.

Hence, we can say that, production system is a union or combination of its three main
components viz., Inputs, Conversion Process, and Output. In short, everything which is done to
produce goods and services or to achieve the production objective is called production system.
Examples
The examples of a production system are as follows:
3. Tangible goods: Consider an example of a manufacturing industry like a Sugar Industry. Here,
sugarcane is first used as an input, then the juice of sugarcane is processed through a
conversion process, finally to get an output known as a refined sugar (used for mass
consumption).
4. Intangible goods: Consider an example from a service industry that of a software-development
firm or company. Here, initially, written program codes are used as inputs. These codes are then
integrated in some database and are provided with a user-friendly interface through a
conversion process. Finally, an output is made available in form of an executable application
program.
Production system is a result of arranging inputs, their conversion process and output based on
some logic and functions. Production system fails if any such arrangements made don’t give a
desired level of outcome.
ix. List and explain factors of production
Factors of production
There are four factors of production, land,
labor, capital and organization. All these
are brought together in the process of
production to form a final output. Land
represents natural resources like land plots,
minerals, water, oil, etc. Labor is
considered to be an integral part of the
process of production. Both skilled and
unskilled labor is required by the firm.
Capital represents physical capital in the
form of machinery, equipment, plants,
factory and other physical assets. Finally, organization/entrepreneur brings all these factors of
production together to transform them into a finished product.

Short run and the long run period
In the theory of production, short run is a period during which some of the factors of production
mentioned above are constant. For example, in the short run, firm cannot buy a new machine. So
capital may remain constant in the short run. If it has to increase production in the short run, it
may do so by hiring more contract labor to work on the same stock of machines or equipment.
Long run, on the other hand, is a period, during which all the factors of production can vary. A
firm can not only hire more/less labor but also can increase/reduce size of plant, buy more/sale
existing stock of capital, and so on. One should keep in mind, the short-run and long-run period
in production theory, is not time specific. For a poultry firm, for example, long run will be a
period, till it increases its capacity by adding poultry stock (which may take say 2 weeks). But for
a cement factory, it may take 2 years to increase its capacity by constructing a new plant. So
long run for cement factory may be 2 years.
x. Describe types of production functions
There are two distinct types of production function that show possible range of substitution
inputs in the production process.
1. Fixed proportion Production function
2. Variable proportions production function
These two types are based on the technical coefficient of production. The technical co-efficient is
the amount of input required to produce a unit of output. For example, if 50 workers are
required to produce 200 units of output, then 0.25 is the technical co-efficient of labor for
production.
When 0.25 units of labor are required to produce
every unit of output, it is called fixed proportion
production function. Here, doubling of quantities of
capital and labor in a required ratio will double the
output. Fixed proportion production function can be
illustrated with the help of isoquants. In this type of
production function, the two factors of production,
say labor and capital, should be used in a fixed
proportion. The isoquants of such function are right
angled as shown in the following diagram
On the other hand, when the technical co-efficient to produce different units of output is varying
or changing, it is called as the variable proportions production function.

In such a type of production function, given amount of output can be produced with several
alternative combinations of labor and capital. Many commodities in real world are produced
with variable proportion production function. For example, certain amount of wheat may be
produced using more labor and less capital in India and more capital and less labor in USA.
Variable proportion production function is illustrated in the following diagram.
xi. Explain the following terms in production
a. Levels of Production
Subsistence
This is the lowest level of production. Subsistence productions refers to output from the
production process that is just enough for the survival. This amount of production is therefore
not adequate to meet all needs and wants of a family, community or a country. For example,
subsistence farming involves the production of crops to feed the family and for survival. Wealth
is not created as whatever is produced is consumed.
Domestic Production
Domestic production refers to production that is more than survival level. It provides output that
is enough to satisfy domestic needs and wants. Excess is not available for export. However,
production is adequate to supply local demand.
Surplus or Export
This level of production is adequate to supply local demand and for export. Large industries can
produce large quantities of output to satisfy local consumption and earn foreign exchange from
export, for example, the sugar and banana industries.
b. Types of Production
Primary Production
This includes all kinds of extractive industries such as agriculture, mining and fishing.
Secondary Production
This includes manufacturing such as assembling, refining and construction (building) industries.
Tertiary Production
This includes all kinds of service industries such as transportation, communication and tourism.
c. Cottage Industry
Cottage industry is a generic term for any type of home–based production business. The term is
specifically used to describe industries of a craft nature e.g. basket weaving, carving and pottery.
This type of home based business is not difficult to start as it requires little capital to purchase
tools and employs family members. These small scale businesses are important to an economy.

They utilize local raw materials such as clay for pottery, wood for carving and straw for baskets.
They earn foreign exchange from selling to tourist at craft markets and fairs.
d. Linkage Industries
This refers to industries that are connected because they depend on each other to obtain or to
sell raw materials.
Forward Linkage; If the final product or finished products of one industry is used in another
industry as its raw material then a forward linkage occurs. For example, sugar produced from a
sugar factory is used by a bakery to make pastries. Sugar is therefore the end product of one
industry and used as raw material in another. Other examples include agriculture and canning,
lumber and construction and cattle farming and meat processing.
Backward linkage occurs when the demands of an industry leads to the establishment of other
industries to produce for the needs of this industry. For example, the establishment of several
multinational fast food restaurants in the Caribbean has led to new businesses being established
to supply these restaurants with raw materials (vegetables, ground provisions, meats and paper
based products).
xii. List and describe determining factors for business venture a location
The location identified for the operation of a business will impact on its success or failure. An
unsuitable location can result in high operational costs or low sales volume. Business owners
must therefore consider the following factors when choosing a location.
The proximity to customers
It is important that business owners give customers easy access to goods and services. Shopping
plazas in very central locations are very popular locations for businesses. Many companies now
opt for selling online and therefore do not need to be centrally located.
The proximity to raw materials
It is more cost effective for a business that uses raw materials that are heavy and or bulky to
locate close to the source of raw material. For example, bauxite processing plants are located
close to mining areas and sugar factories are located close to sugar fields.
Availability to suitable labor supply
A business will need adequate number of workers who posses the skills suitable for the creation
of its goods and services.
Adequate Infrastructure
Firms will locate where there are adequate supplies of water, lighting, airports, seaports, good
roads, transportation, and communication facilities.

xiii. Describe economies of scale giving types in any business environment
As the business expands it can take advantage of economies of scale. Economies of scale refer to
the benefits that firms are able to enjoy because of expansion.
Internal Economies of Scale
This refers to the benefits enjoyed by a firm because of it’s own expansion. These include:
 Technical Economies of Scale - Expanding businesses will need to purchase machinery and
equipment to supply the level of output required. With the use of machines productivity will rise
and the firm will experience technical savings as unit cost of production will decline.
 Marketing Economies – Expanding businesses can take advantage of bulk buying and receive
discounts on raw materials.
 Financial Economies -Larger firms will access loans more easily and at a cheaper interest rate
than small firms since they already have established reputations and adequate collateral.
 Managerial Economies -The employment of experts who will specialize in various management
functions such as marketing, personnel, accounting and production will increase efficiency and
thus output.
External Economies of Scale
External economies refer to the benefits enjoyed by a business because it is part of a well-
organized industry and not because of its own expansion. Thus any businesses whether large or
small can reap these benefits as long as it is part of an industry enjoying these benefits. Benefits
include; government subsidies offered to particular industries, tax holidays and reduced duties
on items imported.
Diseconomies of Scale
A diseconomy of scale refers to the disadvantages arising from the expansion, such as:
 High Advertising Cost: This becomes a diseconomy when the percentage increase in a firm’s
advertising cost is much greater than the percentage increase in its revenue.
 High maintenance cost for machinery and equipment.
 Increased difficulty in controlling the organization.
xiv. Give a short history of Production and Operation systems
The history of production and operation systems began around 5000 B.C. when Sumerian priests
developed the ancient system of recording inventories, loans, taxes, and business transactions.
The next major historical application of operation systems occurred in 4000 B.C. It was during
this time that Egyptians started using planning, organization, and control in large projects such
as the construction of the pyramids.

By 1100 B.C., labor was being specialized in China; by about 370 B.C., Xenophon described the
advantages of dividing the various operations necessary for the production of shoes among
different individuals in ancient Greece.
xv. Define Industrial Relations, giving significance of good industrial relations in Kenya
Industrial relations is a multidisciplinary field that studies the employment relationship.
Industrial Relations in Kenya refer to the regulations that occur in the relationship that exist
between an employer and an employee in an organization. It is the study of how employees,
employers and the government relate and make decisions which define and shape the
employment relationship between employer and employees
Significance of Good Industrial Relations in Kenya
 Industrial Relations in Kenya ease supervision work among the employers.
 Good relations create a good working environment among the employees.
 Increases productivity of employees i.e. smooth the work will be done well.
 It helps both employees and employers know what procedures to follow when there is grievances
and conflict
 Industrial Relations in Kenya enhances the welfare and safeguards the interest of both
employers and employers i.e. salaries, compensation.
 It helps in economic progress of a country.
 It also leads to smooth collective bargaining in case of dispute solving.
 Industrial Relations in Kenya help the government in framing and implementing labor laws.
xvi. Define business policy, describing its features in any business venture
Business Policy defines the scope or spheres within which decisions can be taken by the
subordinates in an organization. It permits the lower level management to deal with the
problems and issues without consulting top level management every time for decisions. Business
policies are the guidelines developed by an organization to govern its actions. They define the
limits within which decisions must be made. Business policy also deals with acquisition of
resources with which organizational goals can be achieved. Business policy is the study of the
roles and responsibilities of top level management, the significant issues affecting organizational
success and the decisions affecting organization in long-run.
Features of Business Policy
An effective business policy must have following features-

 Specific- Policy should be specific/definite. If it is uncertain, then the implementation will
become difficult.
 Clear- Policy must be unambiguous. It should avoid use of jargons and connotations. There
should be no misunderstandings in following the policy.
 Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed by the
subordinates.
 Appropriate- Policy should be appropriate to the present organizational goal.
 Simple- A policy should be simple and easily understood by all in the organization.
 Inclusive/Comprehensive- In order to have a wide scope, a policy must be comprehensive.
 Flexible- Policy should be flexible in operation/application. This does not imply that a policy
should be altered always, but it should be wide in scope so as to ensure that the line managers
use them in repetitive/routine scenarios.
 Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in minds of
those who look into it for guidance.
xvii. Differentiate between Policy and Strategy
The term “policy” should not be considered as synonymous to the term “strategy”. The
difference between policy and strategy can be summarized as follows-
6. Policy is a blueprint of the organizational activities which are repetitive/routine in nature. While
strategy is concerned with those organizational decisions which have not been dealt/faced before
in same form.
7. Policy formulation is responsibility of top level management. While strategy formulation is
basically done by middle level management.
8. Policy deals with routine/daily activities essential for effective and efficient running of an
organization. While strategy deals with strategic decisions.
9. Policy is concerned with both thought and actions. While strategy is concerned mostly with
action.
10. A policy is what is, or what is not done. While a strategy is the methodology used to achieve a
target as prescribed by a policy.
xviii. Define Business Plan, describing a step-by-step guide structure for a start up venture
A business plan is a written description of your business's future, a document that tells what you
plan to do and how you plan to do it. If you jot down a paragraph on the back of an envelope
describing your business strategy, you've written a plan, or at least the germ of a plan.

Business plans are inherently strategic. You start here, today, with certain resources and
abilities. You want to get to a there, a point in the future (usually three to five years out) at which
time your business will have a different set of resources and abilities as well as greater
profitability and increased assets. Your plan shows how you will get from here to there.
Typical structure for a business plan for a start up venture
 Cover page and table of contents
 Executive summary
 Mission statement
 Business description
 Business environment analysis
 SWOT analysis
 Industry background
 Competitor analysis
 Market analysis
 Marketing plan
 Operations plan
 Management summary
 Financial plan
 Attachments and milestones
xix. Organizational Development (OD) is a field of research, theory, and practice dedicated to
organizational change and performance. By a show of a chart describe the factors affecting
growth of Organizational development
OD is a process of continuous diagnosis, action planning, implementation and evaluation, with
the goal of transferring knowledge and skills to organizations to improve their capacity for
solving problems and managing future change.
OD emerged out of human relations studies from the 1930s where psychologists realized that
organizational structures and processes influence worker behavior and motivation. Lewin's work
in the 1940s and 1950s also helped show that feedback was a valuable tool in addressing social
processes.
More recently, work on OD has expanded to focus on aligning organizations with their rapidly
changing and complex environments through organizational learning, knowledge management
and transformation of organizational norms and values.

Key Concepts of Organizational Development Theory
Organizational Climate
 Defined as the mood or unique "personality" of an organization.
 Attitudes and beliefs about organizational practices create organizational climate and influence
members' collective behavior.
 Climate features and characteristics may be associated with employee satisfaction, stress,
service quality and outcomes and successful implementation of new programs. Climate features
and characteristics include:
o Leadership, openness of communication, participative management, role clarity, and conflict
resolution, leader support and leader control.
Organizational Culture
Deeply seated norms, values and
behaviors that members share. The
five basic elements of culture in
organizations include:
6. Assumptions
7. Values
8. Behavioral norms
9. Behavioral patterns
10. Artifacts
The subjective features (assumptions, values and norms) reflect members' unconscious thoughts
and interpretations of their organizations.
The subjective features shape the behaviors and artifacts take on within organizations
Organizational Strategies
A common OD approach used to help organizations negotiate change, i.e. action research,
consists of four steps.
5. Diagnosis
o Helps organization identify problems that may interfere with its effectiveness and assess the
underlying causes
o Usually done by OD enlisting the help of an outside specialist to help identify problems by
examining its mission, goals, policies, structures and technologies; climate and culture;
environmental factors; desired outcomes and readiness to take action.
o Usually done through key informant interviews or formal surveys of all members.

6. Action planning
o Strategic interventions for addressing diagnosed problems are developed.
o The organization is engaged in an action planning process to assess the feasibility of
implementing different change strategies that lead to action.
7. Intervention
o Change steps are specified and sequenced, progress monitored, and stakeholder commitment is
cultivated.
8. Evaluation
o Assess the planned change efforts by tracking the organization's progress in implementing the
change and by documenting its impact on the organization.

BIBLIOGRAPHY
 Armstrong, Michael. A Handbook of Human Resource Management Practice. Kogan Page
Limited, 1999.
 Burstiner, Irving. The Small Business Handbook. Prentice Hall, 1988.
 Johnston, John. "Time to Rebuild Human Resources." Business Quarterly. Winter 1996.
 Mathis, Robert L., and John H. Jackson. Human Resource Management. Thomson South-
Western, 2005.
 Rossiter, Jill A. Human Resources: Mastering Your Small Business. Upstart Publishing, 1996.
 Solomon, Charlene Marmer. "Working Smarter: How HR Can Help." Personnel Journal. June
1993.
 Ulrich, Dave. Delivering Results: A New Mandate for HR Professionals. Harvard Business
School Press, 1998.
 Kotler, Philip. (2000) Marketing Management. Upper Saddle River, New Jersey: Prentice Hall

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