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Principles and Practices of Management

Principles and Practices Of


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Principles and Practices of Management


Q1. “Management is a combination of Arts, Science &

Profession” Explain fully.

Ans. Before writing a write up on “Management is a combination of

Arts, Science & Profession” I would like to write something about the

Management is to create a team which accomplishes pre-determined
goals with more efficiently in a prescribed time period as

Management actually is planning, organizing, directing, controlling &

coordinating supported by leadership, communication, motivation and

Now I would like to start Management as Art and afterwards I will write
about management as science and profession in detail.

Management as an Art

1. It requires conceptual, technical, human relationship & decision-

making skills.

a) Conceptual Skills: Ability to see the “big picture” to recognize

significant elements & to understand relationship among the
b) Technical Skills: Is knowledge of & proficiency in activities
involving methods, procedures & pressures e.g., Mechanic
works with tools & Superior show knows how to use these
tools to teach them.
c) Human Relations: is ability to work with people; it is a
cooperative effort; teamwork; create an environment where
people feel secure & free to express their opinions.
d) Decision: Ability to solve problems in ways that will benefit
the enterprise.

2. It requires knowledge: Learning & acquiring knowledge from

various subjects such as Marketing, Finance, Production, etc.

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3. Art is creative: As a discipline in function of creativity. We notice

this creativity in facing challenges of competition. Introduction of new
product, advertising campaigns etc.

4. Art is Personalized: Every person has different ways & means of

performing Art. Similarly every individual has different type of
management, we categorize them as Democratic, Autocratic,
Patternistic, Beaurocratic etc.

5. Art is Performance: Performance indicators such as profit, growth &

development, market share can only understood management as a

“Managing as practice is an Art; the organized knowledge underlying

the practice may be referred to as Science”

Management as Science

1. Science is a body of organized knowledge.

2. Science is developed over a period of time.
3. Science establishes cause & effect relationship.
4. Science has predictive power.
5. Rules / Regulations in Science varied from time to time. Old rules
are challenged & new rules are established.
6. Science is of two types: perfect science like
physics/chemistry/maths and social science as management.

Above rules also apply to the management as social science which

consists of history of management thought. Management as a subject
developed over a period of time. Generalizations in management e.g.
“if you spend more money on advertisement sales may go up”. “If you
keep employees happy there may not be any labour strikes”.

This word may happen/may not happen make management social


Management as a Profession

Before discussing about management as a profession it is better to

know about what actually the profession means. Any discipline to be
called as profession must fulfill following conditions e.g. like medicine,

a) It requires definite period of learning.

b) It has centralized rule making authority.

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c) It has enforceable code of conduct.

d) It needs certificate of practice.
e) Membership through acquired qualification approval.
f) Social commitment/obligation/accountability.

If we compare above features with that of management, we get

confusing signals.

1. Anybody can become a manager does not require any specific

qualification or definite period of learning.

2. It has no centralized rule making authority. There are number of

parent bodies in specialized functional areas.

3. These parent bodies can publish desirable code of conduct but that
cannot be enforced by law in management.

4. There are many business that are managed/controlled/owned by

various business families in India such as Tata’s, Ambani’s, Birla’s,
individuals born in business families get ownership right/management
right mainly due to law of inheritance. It is irrespective of qualification
they hold.

5. Management as a discipline does not require any certificate of

practice. There is no legal definition of the term manager.

6. Managers do have social commitment/ obligation/accountability.

This is the part of social responsibilities of management. These
responsibilities are desirable & not enforceable under law.

Management as Profession

Management as a subject is a dynamic, so the term “Profession” or

“Professional Manager” has got different connotation. This approach is
very close to practice of management. This approach clarifies the role
of professional manager as well as who can be called as professional

At the outset, it must be made clear that professional manager is a

mindset that signifies:

1. Separation of ownership from management.

2. Knowledge based decision instead of intuition and individual
based decision making.
3. It based on the experience & expertise of past manager in the
requisite field.

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4. Professional manager are objective/focused/performance

5. They help organizations in chalking out corporate strategies.
6. They help in meeting competitive challenges of business.
7. Specialization in every field, technological advancement,
globalization of business results into appointment of qualified
managers at every level. They can be called as professional
8. Professional managers are creative/dynamic.
9. They follow management based on worldwide experiences &
10.They apply theories of management to solve emerging
organizational problems.

From the above you will clearly notice that “management is a

combination of Art, Science and Profession”.

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Q2. “Planning cannot eliminate risk, but minimize it”. Explain

this statement with reference to the limitations of planning.
Also write a note on the various strategies adopted by Indian
companies to stay ahead of competition.

Ans. Management functions begin with forecasting. It is the scientific

process of looking forward which is based on past performance, current
analysis & future trends. Planning is based on forecasting. Planning is
defined as a long look ahead, broad look around and a searching look
within. Actually planning is based on answering following questions.
a) What is to be done?
b) Why to do it?
c) How to do it?
d) Where to do it?
e) Who will do it?
f) When to do it?

Planning is an imperative in uncertain environment. It actually

makes company competitive, it helps the company to face future
challenges, it gives direction & helps in formulating specific
strategies & due to these characters it also anticipate risk factors &
eliminates waste. It cannot fully eliminate risk. But its risk can be
minimized if the information is authentic and reliable to that
particular organization. Its risk also depends upon the internal &
external variable which are beyond the control of the planner.

Strategies can be called the “Action Component” of planning. It is a

competitive planning. Indian companies have adopted various
strategies for survival & facing the threats from competition & also
to stay ahead of the competition.

Following are the examples of recent corporate strategies:

1. Joint ventures, Alliances, Tie-ups.

2. Take-over, Acquisitions.
3. Reverse mergers, mergers & amalgamations.
4. Demerger.
5. Core competence.
6. Diversification.
7. Harvesting.
8. Disinvestments.
9. Brand-building etc.

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The purpose of strategies then is to determine & communicate,

through a system of major objectives & policies, a picture of the
kind of enterprise that is envisioned.

Strategy introduces a word called vision which is essentially a

dream with a deadline. It is a look beyond the present to see what
the future can be. Vision statement should have the following
a) An ability to inspire people to work for the organization.

b) It should be precise & objective.

c) It should be worthiness, which creates a lasting impact.

d) It should be achievable & realizable.

e) It should be clear & understandable detail.

Indian corporates show the vibrate dreams of their leaders. The

tractor of Mahindra & Mahindra Company has declared the vision to
be the world’s biggest tractor manufacturers by 2003. Powerful
visions if communicated always produce powerful results. An
organization without a vision is like a ship without a rudder.

Mission: It is derived from the vision statements. It elicits an

emotional, motivational response. It is easily understood & can be
transformed into individual action. Has a major able, attainable
goal. It is simple, honest & frank & is fully believed.

Mission is an action-oriented & enduring expression of how a

company wants to accomplish visions.

A corporate example of a mission statement of PepsiCo’s is

“PepsiCo’s mission is to increase the value of our shareholders
investment. We do this through sales growth, cost controls & wise
investment of resources”. Hence mission statement ends up
company at its final destination-success.

Statement of vision and mission are not just elements of future

planning. They also provide benchmarks for an historic view.
Managers will find it difficult to develop a future strategy for a
business without correctly articulating its vision and mission. Vision
& mission must be combined with corporate values so as to have
the realization of the organizational goals.

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Q4. Define delegation of authority. What are the problems in

delegation? Explain the principles of effective delegation.

Ans. To delegate is to give, offer, confer and allot a part of authority

to subordinate. Authority is right to act or decide. As simple as
delegation of authority appears to be, studies have shown that many
managers fail because of poor delegation. Delegation is necessary for
an organization to exist. Just as no one person in an enterprise can do
all the tasks necessary for accomplishing a group purpose, so is it
impossible, as an enterprise grows, for one person to exercise all the
authority for making decisions. There is a limit to the number of
persons managers can effectively supervise & make decisions for.
Once this limit has been passed, authority must be delegated to
subordinates, who will make decisions within the area of their assigned

Authority is delegated when a superior give a subordinate discretion to

make decisions. Delegation becomes must because –
a) Structure of authority/accountability exists.
b) Superiors need to concentrate on important and vital issues.

Degrees of Delegation

As mentioned delegation is a network of authority relationship

established. This delegation has basically five degrees – zero, low,
moderate, high, and fifth degree.

a) Low degree of Delegation: Low degree of delegation is that in

which superior states a particular task to his subordinate & tell
him to investigate on that task & report back.
b) Moderate degree of Delegation: Moderate degree of delegation is
that in which superior states a particular task to his subordinate
& tell him to investigate on that task & report back with an action
c) High degree of Delegation: High degree of delegation is that in
which superior states a particular task to his subordinate & tell
him to investigate on that task, make an action plan, formulate
the plan and then report back with the results and reasons.

1. Clarifying the assignment

Clarifying the assignments is the initial steps for an effective

delegation process. There are two steps which clarifying the
assignment has to follow.

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a. What to be delegated: a superior should always be clear as to

what is to be delegated to the subordinate. He should see to it
that the subordinate has the perfect knowledge & skill to perform
the delegation.
b. Whom to be delegated: This is the important point while
considering the clarifying the assignment. It should be seen the
subordinate to whom the authority is being delegated has a
perfect motivation and zeal to do a particular job. Until & unless
a subordinate has these two qualities the efficiency of the work is

2. Specify the subordinates range of discretion

It should be always clear for a subordinate as to the parameters he has

to work in the boundaries & the limitations for the delegation should be
clear so that subordinate knows where to work & how to perform there.

3. Allow the subordinate to participate

If the superior allows participating more, he will be much clear about

the knowledge & their skills that his subordinates excels in and it will
be easier for him to decide as to which part of authority should be
delegated to him. On the whole it will increase the employee

4. Inform others that a delegation has occurred

Different people have different personalities and as a result different

approaches. When a delegation occurs in an organization all those
who are affected by the delegation should always be informed so that
they get to know that under whom they have to perform the job and
clearly see as to the way their superior wants a particular job to be
done so that they mould themselves in the same manner.

5. Establish feedback control

This is a most important factor. Superior should always establish

feedback control so that subordinates report back to them periodically,
give them time to report back, monitor their progress. In this manner
superior can identify the problems faced by his subordinates & look for
the solutions.

Due to this delegation in the organization it reduces the work load of

superiors permitting them to concentrate on key areas. It also helps
subordinate to grow & develop. Due to this delegation it helps in
exercising effective control over the activities of subordinates & also

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provides satisfaction to subordinates in terms of recognition and this

also results in prompt decision-making.

Problems in Delegation

1. Some managers believe in fallacy i.e., if we want it done right, do

it yourself.
2. Managers lacking required confidence & trust in subordinates
might not be interested in delegating the authority.
3. Low self-confidence & more over confidence amongst the
managers may create a bottleneck in a process of delegation.
4. Fear amongst managers that they will lose status & position.
5. Poor examples set by superiors who do not delegate may
discourage the managers to delegate further.

Principles of Effective Delegation

1. Explain the degree of delegation (as explained above).

2. Select appropriate subordinates to delegate the authority.
3. Keep line of communication open. There should be a free flow of
information between superior & subordinate so that subordinate
can take decisions & to interpret properly the authority
4. Superior should train the subordinate; motivate them to get the
results effectively.
5. Managers should be ever watchful for means of rewarding both
effective delegation and effective assumption of authority –
financial and non-financial.
6. Delegation should be accompanied by techniques for ensuring
that the authority is properly used. But if controls are to enhance
delegation, they must be relatively broad and be designed to
show deviations from plans, rather than interfering with routine
actions of subordinate.
7. Don’t delegate and disappear.
8. Don’t follow practices of “Delegation on Paper” that should be
implemented otherwise it is of no use rather it wastes energy
and paper.
9. Believe in feedback, interaction & result orientation of
10.Last but not least follow “Principle of Exception”. Subordinate
should approach superior only in case of exceptional matter,
urgent matter, discretionary matter requiring your attention &
authentication. For all other routine matters subordinate should
function independently.

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Q6. Write Detailed notes on (A) Delegation of Authority. (B)

Barriers to Communication & Principles of effective

(A)Delegation of Authority

To delegate is to give, offer, confer and allot a part of authority to

subordinate. Authority is right to act or decide. As simple as
delegation of authority appears to be, studies have shown that many
managers fail because of poor delegation. Delegation is necessary for
an organization to exist. Just as no one person in an enterprise can do
all the tasks necessary for accomplishing a group purpose, so is it
impossible, as an enterprise grows, for one person to exercise all the
authority for making decisions. There is a limit to the number of
persons managers can effectively supervise & make decisions for.
Once this limit has been passed, authority must be delegated to
subordinates, who will make decisions within the area of their assigned

Authority is delegated when a superior give a subordinate discretion to

make decisions. Delegation becomes must because –
a) Structure of authority/accountability exists.
b) Superiors need to concentrate on important and vital issues.

Degrees of Delegation

As mentioned delegation is a network of authority relationship

established. This delegation has basically five degrees – zero, low,
moderate, high, and fifth degree.

a) Low degree of Delegation: Low degree of delegation is that in

which superior states a particular task to his subordinate & tell
him to investigate on that task & report back.
b) Moderate degree of Delegation: Moderate degree of delegation is
that in which superior states a particular task to his subordinate
& tell him to investigate on that task & report back with an action
c) High degree of Delegation: High degree of delegation is that in
which superior states a particular task to his subordinate & tell
him to investigate on that task, make an action plan, formulate
the plan and then report back with the results and reasons.

1. Clarifying the assignment

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Clarifying the assignments is the initial steps for an effective

delegation process. There are two steps which clarifying the
assignment has to follow.

a) What to be delegated: a superior should always be clear as to

what is to be delegated to the subordinate. He should see to it
that the subordinate has the perfect knowledge & skill to perform
the delegation.
b) Whom to be delegated: This is the important point while
considering the clarifying the assignment. It should be seen the
subordinate to whom the authority is being delegated has a
perfect motivation and zeal to do a particular job. Until & unless
a subordinate has these two qualities the efficiency of the work is

2. Specify the subordinates range of discretion

It should be always clear for a subordinate as to the parameters he has

to work in the boundaries & the limitations for the delegation should be
clear so that subordinate knows where to work & how to perform there.

3. Allow the subordinate to participate

If the superior allows participating more, he will be much clear about

the knowledge & their skills that his subordinates excels in and it will
be easier for him to decide as to which part of authority should be
delegated to him. On the whole it will increase the employee

4. Inform others that a delegation has occurred

Different people have different personalities and as a result different

approaches. When a delegation occurs in an organization all those
who are affected by the delegation should always be informed so that
they get to know that under whom they have to perform the job and
clearly see as to the way their superior wants a particular job to be
done so that they mould themselves in the same manner.

5. Establish feedback control

This is a most important factor. Superior should always establish

feedback control so that subordinates report back to them periodically,
give them time to report back, monitor their progress. In this manner
superior can identify the problems faced by his subordinates & look for
the solutions.

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Due to this delegation in the organization it reduces the work load of

superiors permitting them to concentrate on key areas. It also helps
subordinate to grow & develop. Due to this delegation it helps in
exercising effective control over the activities of subordinates & also
provides satisfaction to subordinates in terms of recognition and this
also results in prompt decision-making.

(B) Barriers to communication & principles of effective


It is probably no surprise that managers frequently cite communication

break-downs as one of their most important problems. Barriers can
exist in the sender, in the transmission of the message, in the receiver,
or in the feedback. Specific communication barriers are mentioned
a) Lack of Planning: Good communication seldom happens
by chance. Too often people start talking and writing
without first thinking, planning and staffing the purpose of
message. Yet giving the reasons for a directive, selection
the most appropriate channel and choosing proper timing
can greatly improve understanding and reduce resistance
to change.
b) Unclarified Assumptions: Often overlooked, yet very
important, are the uncommunicated assumptions that
underlie messages. A customer may send a note stating
that she will visit a vendor’s plant. Then she may assume
that the vendor will meet her at the airport, reserve a hotel
room, arrange for transportation, and set up a full scale
review of the program at the plant. But the vendor may
assume that the customer is coming to town mainly to
attend a wedding and will make a routine call at the plant.
These unclarified assumptions will result in confusion and
the loss of goodwill.
c) Semantic Distortion: Another barrier to effective
communication is semantic distortion, which can be
deliberate or accidental. An advertisement states “we sell
for less” is deliberately ambiguous; it raises the question
less than what? Words may evoke different responses. To
some people the word “government” may mean
interference or deficit spending; to others, the same word
may mean help, equalization and justice.
d) Poorly expressed messages: No matter how clear the
idea in the mind of the sender of communication, it may
still be marked by poorly chosen words, omissions, lack of
coherence, poor organization of ideas, etc. This lack of

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clarity and precision, which can be costly, can be avoided

through greater care in encoding the message.
e) Communication Barriers in the International
Environment: Communication in the international
environment becomes even more difficult because of
different languages, cultures, and etiquette. Translating
slogans is very risky. To overcome communication barriers
in the international environment large corporates have
taken a variety of steps e.g. large staff of translators,
provides extensive language training etc.
f) Loss by Transmission and Poor Retention: In a series
of transmissions from one person to the next, the message
becomes less and less accurate. Poor retention of
information is another serious problem. Thus, necessity of
repeating the message and using several channels is
rather obvious.
g) Poor Listening and Premature Evaluation: There are
many talkers but few listeners. Everyone probably has
observed people entering a discussion with comments that
have no relation to the topic. One reason may be that
these persons are pondering their own problems – such as
preserving their own egos or making a good impression on
other group members – instead of listening to the
h) Impersonal communication: As the events in the
Perspective indicate, real improvement of communication
often requires not expensive and sophisticated (and
impersonal) communication media but the willingness of
superiors to engage in face-to-face communication.
i) Distrust, Threat and Fear: Distrust, threat, and fear
undermine communication. In a climate containing these
forces, any message will be viewed with skepticism.
Distrust can be the result of inconsistent behavior by the
superior, or it can be due to past experiences in which the
subordinate was punished for honestly reporting
unfavorable, but true, information to the boss.
j) Insufficient Period for Adjustment to Change:
Changes affect people in different ways, and it may take
time to think through the full meaning of a message.
Consequently, for maximum efficiency, it is important not
to force change before people can adjust to its
k) Information Overload: One might think that more and
unrestricted information flow would help people overcome
communication problems. However, changes are that
attention will be given first to matters that are easy to

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handle, while more difficult but perhaps critical messages

are ignored. People respond to information overload by
simply escaping from the task of communication.
l) Other Communication Barriers: Besides the mentioned
barriers to effective communication, there are many
others. In selective perception people tend to perceive
what they expect to perceive. In communication this
means that they hear what they want to hear and ignore
other relevant information. Still other barriers to
communication are differences in status and power
between the sender and the receiver of communication.
Barriers also resulting from illiteracy, ignorance,
superstition in a country like India.

Principles of Effective Communication

Effective communication is the responsibility of all persons in the

organization, managers as well as non-managers, who work toward a
common aim. Whether communication is effective can be evaluated
by the intended results. The following guidelines can help overcome
the barriers to communication:

1. Senders of messages must clarify in their minds what they want

to communicate. This means that one of the first steps in
communicating is clarifying the purpose of message and making
a plan to achieve the intended end.
2. Effective communication requires that encoding and decoding be
done with symbols that are familiar to the sender and receiver of
the message. Thus the manager should avoid unnecessary
technical jargon.
3. The planning of the communication should not be done in a
vacuum. Instead, other people should be consulted and
encouraged to participate: to collect the facts, analyze the
message, and select the appropriate media.
4. It is important to consider the needs of the receivers of the
information. Whenever appropriate, one should communicate
something that is of value to them, in the short run as well as in
the more distant future.
5. There is a saying that the tone makes the music. Similarly, in
communication the tone of voice, the choice of language, and
the congruency between what is said and how it is said influence
the reactions of the receiver of the message.
6. Too often information is transmitted without communicating,
since communication is complete only when the message is
understood by the receiver. And one never knows whether
communication is understood unless the sender gets feedback.

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This is accomplished by asking questions, requesting a reply to a

letter, and encouraging receivers to give their reactions to the
7. The function of communication is more than transmitting
information. It also deals with emotions that are very important
in interpersonal relationships between superiors, subordinates,
and colleagues in an organization.
8. Effective communicating is the responsibility not only of the
sender but also of the receiver of the information. Thus, listening
is an aspect that needs additional comment.
9. Remember the various barriers to communication – avoid mental
blocks, closed mind, ego problems.
10.Speak to the point and avoid communication garbage.

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Q7. Define Decision-making. Prepare list of factors that affect

decision-making process.

Ans. Decision-making is defined as selection of a course of action

from among alternatives; it is at the core of planning. A plan cannot be
said to exist unless a decision – a commitment of resources, direction
or reputation – has been made. Decision making as a process and
function of management is very vital as many critical aspects of
management depend upon the right decision at the right time. It is an
intellectual process involving the following steps:

a) Identify the problem.

b) Collect information from all possible sources.
c) Develop alternatives.
d) Compare and evaluate these alternatives.
e) Decision making stage of making a choice among alternatives.
f) Implementation and communication of decisions.
g) Follow-up and review.

Factors Affecting the Decision Making Process

1. Information – It must be available, authentic, adequate,

reliable must be available at the right time. It must be
analysed and presented in the right manner.

2. Time Factor – Decision must be taken at the right time.

3. External Environmental Factors – As decision making is

always interactive with the environment, various
environmental factors influence decision making such as
economic, political, social, cultural, technical, ethical, legal,
global factors.

4. Internal Factors – Rules, regulations, procedures within the

organization or administrative restrictions also affect
decision making.

5. Personality of the Decision Maker or Subjectivity – The

decision making process has a lot to do with who is the
decision maker, his attitudes, perceptions, values, style of
functioning, the nature of personality and overall way of

6. Participation, Acceptance and Implementation – Elements

of how decisions are taken, how far they are accepted and

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how they are to be implemented also contribute in the

decision making process.

7. Precedent – In a bureaucratic set up this becomes a ruling

factor as questions like “Have we done this before?”, “Is
there a precedent of taking such decisions?” are often
asked before taking decision.

8. Experience of a Decision Maker – As it is said that

experience is the best teacher, maturity in business
experience of a manager go a long way in taking effective

9. Power to Decide – Many times, people know what is wrong

in the organization, but often they do not have the power
to decide and act. That is how the concept of
empowerment is evolved which talks about decision
making to the lowest possible level.

10.Escalation of Commitment: After a decision has been

taken, it is often felt that the decision is going in a wrong
way, but more than half of the work is completed.
Therefore, there comes a point of no return and the
decision has to be completed in spite of negative feedback.

11.Bounded Rationality – Constructing simplified models that

extract the essential features from the problems without
capturing all their complexities. The decision maker settles
for the early solution that is good enough. In Layman’s
language, decision maker finds out the earliest available
alternatives, takes certain things for granted and acts on it.
The decision maker takes generalized judgmental shortcuts
which are also called heuristics. For e.g. if two students
from a particular management institute show exemplary
performance in the job, the judgmental shortcut is “every
student from this institute is good”, and vice-versa.

12.Problem Perception: Problems that are visible catch a

decision maker’s decision. These problems become the
first to be acted upon or a priority. For e.g., if at the time of
the chief executive officers (CEO) visit, workers start
agitating, then this agitation becomes the main problem
for the CEO because it is visible for him.

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Q8. “Services Sector is India’s new economy” critically

comment. What are the general management challenges in
Service Sector? (Support your answer with corporate

Ans. Service is popularly defined as “The Art and Science of

managing the experiences and exceptions of others”. A service is
intangible i.e., this is not a physical transfer of goods, yet it provides
satisfaction to the customer. Good service makes the customer feel
good. It is provided by people not by machines. The key features of
services are:

1. Intangibility: This is not a physical transfer of goods. For e.g.,

Hotels offer ‘comfort’, airlines offer ‘travel’ etc.
2. Simultaneous production and consumption: The services
are created and delivered on the spot. For e.g. the consultancy
services of a doctor.
3. Non-Inventorial: Services cannot be stalked as inventory and
delivered at a later stage. For e.g. a room in a hotel is vacant
would mean loss of revenue which cannot be made good later.
4. Low Entry Barriers: Services are a good opportunity for new
entrepreneurs as they require little investment and hence they
also lead to a high degree of competition as the entry barriers in
the service sector are low.
5. Environment Factors: The influence of the various
environment factors can be felt strongly in the service sector,
just as in case of the manufacturing sector.

Now a days Service sector is contributing more than the half of the
national income. But its contribution to the employment generation
has been less than proportionate. The share of service sector has
grown considerably in Gross Domestic Product from 35% to 47%
(approximately). The total employment has also gone up but not in the
proportion of market share as per the 1999-2000 RBI report.

One out of two Indians earn his livelihood by providing services. This is
because services is the most diverse sector of the economy, consisting
of neurosurgeons, college professors and housemaids.

Though the services sector has expanded relentlessly in the past

decade, three related events of the 1990’s gave it a pre-eminence.

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1. An explosion in information technology (IT).

2. A slower growth and painful restructuring of India’s
manufacturing industry and
3. A virtual stagnation in agriculture.

As a consequence, India seems to leap from agriculture to services, by

passing the industrial evolution, unlike most other economies.


“Service is India’s new economy”

The growth of services sector is good, but the failure of the industry to
grow is bad. The reasons for the stunted industrial growth, like
restrictive licensing system, a closed economy, anti-employment laws
etc do not exists for services. For most hi-tech service industries, the
two ingredients of are:

a. Labour
b. Knowledge

Both labour and knowledge is abundant in India. But this sector cannot
keep growing by itself. Services need efficient telecom, transport,
roads and power as much as industry and agriculture. The country has
to invest more and better in human resources. India has under
invested in education. The quality of human capital varies from world
class computer professionals to complete illiterate.
The government's projections of the growth of GDP in 2002-2003 are
being revised by various government departments. Within two months
of the start of the new fiscal year (which occurs in April), the then
finance minister Yashwant Sinha had announced that GDP was likely to
grow by 6 to 6.5 per cent this year. This figure was always highly
suspect, for it required agriculture to grow by 4.5 per cent, industry to
grow by 5.5 per cent and the services sector to grow by 6.5 to 7.5 per

A more conservative and far more respected set of estimates were

those of the Centre for Monitoring the Indian Economy (CMIE), which
projected 4.1 per cent - 2 per cent in agriculture, 4 per cent in industry
and 6 per cent in services. However, the 6 per cent estimate had been
cooked up by the Reserve bank of India, no less. So it became the
government's new mantra. This figure was trotted out confidently by
the prime minister.

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Reasons for the Service Sector grown?

 The failures of countries to preserve an advantage in

manufacturing. This is because technological development that
increase manufacturing productivity pass with increasing rapidity
across national borders, hence it becomes harder for any country
to gain a competitive advantage just by making things and this
advantage will have to come from design, marketing, branding
and distribution.
 There has been a marked tendency to distribute specialized
knowledge and high technology-embedded capital for labour in
goods producing process. For e.g. only 5% of IBM’s employees
are involved in physical production and only 10% of the purchase
price of the PC goes to actual manufacturing.
 Contracting out is another reason for expansion of services.
Many firms, which were traditionally performing services
activities in-house now, find it more efficient to hire these to
service producing firms. Firms prefer to buy-in particular skills
that requires rather than expensive labour that is not fully

 As income per capita rises, agriculture loses its primacy, giving

way first to a rise in the industrial sector, then to the rise in
service sector.

The service sector produces “intangible” goods, some well known –

government, health, education and some quite new – modern
communication, information & business services tends to require
relatively less natural capital and more human capital than producing
agricultural or industrial goods. As a result demand has grown for
more educated workers, prompting countries to invest more in
education – an overall benefit to their people. Another benefit of the
growing service sector is that by using fewer natural resources than
agriculture or industry, it puts less pressure on local, regional, and
global environment. Conserving natural capital & building up human
capital may help global development become more environmentally &
social sustainable.

For example in the service sector, India's foreign equity caps are a
disincentive to foreign investment. Foreign insurance companies are
eager to enter India's virtually vacant market, but New Delhi requires
them to form joint ventures with local firms and limit their investment
to 26 percent. Because of a 45-year government monopoly on
insurance, only a few Indian firms are experienced enough to enter a

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joint venture with an foreign insurance company. Even fewer possess

the financial wherewithal to provide the 74 percent investment
necessary to start a new business. If an agreement could be reached
to lift the foreign equity cap, more foreign investors would be able to
enter the market, providing better insurance coverage for Indians in
the process.

Four A’s of Service Sector

1. Accountability: There are many services which have emerged

recently, but the big question is ‘Is the Indian society ready to
accept such services? For e.g. professionally managed old-age
homes or day care centers and even wedding management
services. As our social and cultural fabric is different, it may take
some time to accept such services.
2. Awareness: As the services sector is new to our economy,
many individuals and sections in society are not aware of the
number of services being offered in their towns and cities, such
as, maintenance of housing societies, payment of all taxes and
bills, or reestablishment service for an executive who has been
transferred from one city to another.
3. Affordability: Services as a concept being intangible and many
times taken for granted, people are not yet ready to pay a price
for it. So any services offered must be affordable.
4. Availability: Services have a wide spectrum of activities. For
e.g. in Delhi, some entrepreneurs started with mobile Maruti
maintenance service where the concept is that Maruti Van acts
as mobile service station. But, looking at the distances to be
covered in Delhi and the traffic jams, reach ability and
availability of services is the big question. A simple example
would be children’s day care centers or crèches not just being
acceptable to people but also their availability closer to home.

Management Challenges in the Service Sector

a. General Management Challenges

1. Communicating the concept (How to put across the idea of a

particular service that is being offered).
2. Branding.
3. Packaging.
4. Differentiating Factors.
5. Revenue Model (How many will be generated? Do we have
sustainable income model? Who are our customers)
6. Product, Price, Place, Promotion.

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7. Pace, People and their experiences (The speed at which

services are to be launched, adopting as per time, and
managing the experiencing of people).

b. Functional Management Challenges

1. Human resources (How to advertise the service? How to retain

them? How to train and develop them?)
2. Marketing and advertising (How to advertise the service? How to
do a market research? How to work on customer’s feedback?)
3. Finance and taxation (How to raise the required capital? Time
factor and break-even point, Accounting challenges, Taxation
implications in terms of budgetary provisions).

Looking at the earlier information in this section, it can be said that

services sector is our new economy consisting of Information
Communicating and Entertainment Companies or Technology Media
and Telecommunication Companies.

Though India has leapfrogged into services sector, its major

contribution towards our GDP suggests:

1. Services will provide jobs for tomorrow.

2. There will be unprecedented growth of a number of services.
3. It will require a new set of management practices to be
4. There is a tremendous scope for creativity in this sector.
5. With a most talented manpower in India, this sector is the
strength of our economy to show the world that Indians have
arrived on the global scene.

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Q9. Write a detailed note no Retailing Sector in India – Growth

prospects & various challenges.

Ans. “Retailing consists of those business activities, which are involved, in the sale of
goods or services to consumers for their personal, family or household use.” It is the
final stage in the distribution process for goods and services from manufacturers to
final consumers

Retailing involves
- Interpreting needs of the consumers
- Developing good assortments of merchandise
- Presenting them in an effective manner so that consumers find it easy and
attractive to buy.

Retailing differs from marketing in the sense that it refers to only those activities,
which are related to marketing goods and/or services to final consumers for personal,
family or household use. Whereas marketing, according to American Marketing
Association, refers to "the process of planning and executing the conception, pricing,
promotion and distribution of ideas, goods and services to create exchanges that
satisfy individual and organizational objectives."

Organizational buyers purchase in order to perform a task or sell a product

effectively, efficiently and at a profit. They could be industrial buyers or intermediary
buyers. Industrial buyers are those who purchase goods and services to be used in or
to aid manufacturing process. Intermediary buyers are those (i.e. wholesalers and
retailers) who buy merchandise for resale. Retailers include street vendors, local
supermarkets, department stores, restaurants, hotels, barbershops, airlines and even
bike and car showrooms. Still retailing may or may not involve the use of a physical
location. Mail and telephone orders, direct selling to consumers in their homes and
offices and vending machines - all fall within the purview of retailing. In addition to it,
retailing may or may not involve a "retailer." Manufacturers, importers, non-profit
firms and wholesalers are acting as retailers when they sell goods and/or services to
final consumers.

Whatever the form of retailing, a retail marketing strategy defines the execution of
the marketing process and facilitation of customer satisfaction. This retail marketing
strategy involves selecting a retail target market (i.e. the carefully/exactly identified
group of final consumers that a retailer seeks to satisfy) and then implementing the
corresponding retail marketing mix (i.e. a combination of product, price, promotion
and distribution strategies that will satisfy the retail target market). The elements of
the marketing mix encompass the facets shown in the table below. The table depicts
consumer service as the crux of the whole activity.

Retailing Industry in India

• Even though India has well over 5 million retail outlets of all sizes
and styles (or non-styles), the country sorely lacks anything that
can resemble a retailing industry in the modern sense of the
term. This presents international retailing specialists with a great
• It was only in the year 2000 that the global management
consultancy AT Kearney put a figure to it: Rs. 400,000 crore (1

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crore = 10 million) which will increase to Rs. 800,000 crore by

the year 2005 – an annual increase of 20 per cent.
• Retailing in India is thoroughly unorganized. There is no supply
chain management perspective. According to a survey b y AT
Kearney, an overwhelming proportion of the Rs. 400,000 crore
retail market is UNORGANISED. In fact, only a Rs. 20,000 crore
segment of the market is organized.
• As much as 96 per cent of the 5 million-plus outlets are smaller
than 500 square feet in area. This means that India per capita
retailing space is about 2 square feet (compared to 16 square
feet in the United States). India's per capita retailing space is
thus the lowest in the world (source: KSA Technopak (I) Pvt Ltd,
the India operation of the US-based Kurt Salmon Associates).
• Just over 8 per cent of India's population is engaged in retailing
(compared to 20 per cent in the United States). There is no data
on this sector's contribution to the GDP.
• From a size of only Rs.20, 000 crore, the ORGANISED retail
industry will grow to Rs. 160,000 crore by 2005. The TOTAL retail
market, however, as indicated above will grow 20 per cent
annually from Rs. 400,000 crore in 2000 to Rs. 800,000 crore by
2005 (source: survey by AT Kearney)
• Given the size, and the geographical, cultural and socio-
economic diversity of India, there is no role model for Indian
suppliers and retailers to adapt or expand in the Indian context.
• The first challenge facing the organized retail industry in India is:
competition from the unorganized sector. Traditional retailing has
established in India for some centuries. It is a low cost structure,
mostly owner-operated, has negligible real estate and labour
costs and little or no taxes to pay. Consumer familiarity that runs
from generation to generation is one big advantage for the
traditional retailing sector.
• In contrast, players in the organized sector have big expenses to
meet, and yet have to keep prices low enough to be able to
compete with the traditional sector. High costs for the organized
sector arises from: higher labour costs, social security to
employees, high quality real estate, much bigger premises,
comfort facilities such as air-conditioning, back-up power supply,
taxes etc. Organized retailing also has to cope with the middle
class psychology that the bigger and brighter a sales outlet is,
the more expensive it will be.
• The above should not be seen as a gloomy foreboding from
global retail operators. International retail majors such as
Benetton, Dairy Farm and Levis have already entered the market.
Lifestyles in India are changing and the concept of "value for
money" is picking up.

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• India's first true shopping mall – complete with food courts,

recreation facilities and large car parking space – was
inaugurated as lately as in 1999 in Mumbai. (this mall is called
• Local companies and local-foreign joint ventures are expected to
more advantageously position than the purely foreign ones in the
fledgling organized India's retailing industry.
• These drawbacks present opportunity to international and/or
professionally managed Indian corporations to pioneer a modern
retailing industry in India and benefit from it.
• The prospects are very encouraging. The first steps towards
sophisticated retailing are being taken, and "Crossroads" is the
best example of this awakening. More such malls have been
planned in the other big cities of India.
• An FDI Confidence Index survey done by AT Kearney, retail
industry is one of the most attractive sectors for FDI (foreign
direct investment) in India and foreign retail chains would make
an impact circa 2003.

The customers of the 21st century would expect to pick his/her own products from an
array of choices rather than asking the local kirana wallas to deliver a list of monthly
groceries. Thus the way of distribution of products has gained importance in the past

What is the reason that big groups like Tata’s, ITC, Piramal Enterprises and
S.Kumars are putting huge amounts of money into retailing? The answer is
very simple. Now, just a couple large organized retailers are in the market
whose turnover crosses Rs. 100 crore. And in this sector anything above 25
crore counts you as a major player.

Shopper's Stop: Shopper's Stop launched its Mumbai branch in 1991 with
their men's line soon followed by women's and children clothes. The
concentration was on "one room, one ambience, and one experience" and
its success resulted in opening new branches in Bangalore and Hyderabad.
Cashing on in the current consumerist trend, the shop not only offers
products but also offers an avenue to channelize operations. For customers
who cannot afford a John Miller or Wendell Rodericks original once a year
moderately priced truck show is held at Shopper's Stop.

Challenges Ahead For Retailing

Organized retailing is not a bed of roses for the big players also. In addition to the
advent of Internet, various issues glare at retailing. Some of them are

Human Resource:

Big retail shops do not confine their target segments for employees to
undergraduates. Shoppers Stop broke the myth of MBAs not wanting to go into the
retailing career. Cross Roads and Spencer also hire MBAs to manage their chains.
However there still exists a gap between the supply and demand of professionals. Mr.

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Goenka, chairman RPG Group, hopes that one of the greatest challenges facing
modern retailing in India is the availability of trained personnel. In order to address
the problem RPG Group has set up a national retail Institute in Chennai, which, offers
a variety of courses in retail management for frontline, supervisory and managerial

Retaining the human resources is also a major challenge for these big retailers. The
bigwigs like Crossroads offer high compensation and create a cohesive environment
that makes an employee proud to be a part of such big retail chains.

Space and Infrastructure:

To establish a retail shop/ Mall, the real estate and the infrastructure are very vital.
The expenditure and availability on both the accounts do hinder the growth of the
retail chain. The land ceiling restrictions and other state restrictions on land use have
prevented the growth of efficient retailing in the cities. An average investment of
about Rs. 5 crore is required to establish a mall and that explains the rush of big
companies into this business. Small and individual retailers find it difficult to pour in
that much of investment. In addition to the initial investment, to combat e-tailing,
expenditure has to be incurred on technological side. This makes the retail projects
less attractive for the individual players.

Consumer Mindset Towards Discount Stores:

In India the concept of discount stores like Wall-Mart, at which genuine, defect free
international brands are available at 50% discount, is yet to catch on. Still, the major
section of customers is conservative and choosy and prefers to go to a known retail
shop than opt for a discount store. Very few discount stores like SM2, Mumbai are at
present operational. Its reach is confined to major cities. Breaking the conventional
mindset of the Indian consumers that discount stores do not sell inferior goods will
take some time.

Rural Market- How To Penetrate?

Penetration into the rural market is what big retailers have to concentrate on for
growth. Attracting rural markets will be different from that of the urban market. For
example detergent cakes are preferred to powder and coconut oil in bottle to sachets
in the rural areas. The rural consumer are different from the urban consumers as they
are more price sensitive and their quantity of consumption would be less as their
share of wallet for shopping along with entertainment is delineated. Food and
agricultural inputs dominate the rural consumers list and whatever is left would be
used to fulfill aspiration needs. Customers in the rural area are not urbanites without
money. He has a distinct identity and value system. One more challenge in the rural
market is that shopping habits vary according to seasons. During harvest time, the
spending of a rural consumer increases compares to other times. However,
penetration of television, increasing literacy levels, mobility between rural and urban
areas and telecommunication (STD Services) have increased their awareness towards
branded products and entertainment. Customized retail shops would be a big success
in the rural areas too if the right strategies are adopted.

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The retailing community has accepted and realized the fact that the consumers want
to choose between the variety of brand and value for money is their topmost priority.
The big retailers have to deliver a consistent branded experience. Crossroads in
Mumbai is an endeavor to achieve the same, though its target segments the upper
and upper middle class. Technology has made a difference in retailing also. E-tailing
(through internet) is considered to be eroding the store retailing slowly. Is it the real
picture? With the concept of B2C (Business to Consumer Transactions over internet)
coming up at a fast pace, an intimate two-way access is emerging between the
retailer and the customers. Customized products are offered to the customers. For
instance while one buys a book through, a synopsis of the book, its
reviews, its prominent readers and other books of the same author are some of the
information provided to the customers. Within minutes of placing an order, one gets a
confirmation thus saving time and satisfying the customer. The penetration level of
the internet is increasing at a pace that the reach would be equivalent to what
television took about 40 years and that cable about 15 years.
In online services and the web, the retailers seek out the customers unlike the
traditional model where the customer goes to the store and locates the product. The
busy life-style of the consumers in this hectic era, tilts the preference needle towards
the online retail model. However, B2C success depends on the behavioral and
attitudinal changes in customers. First, the customers have to be familiar with
Internet and have to be informed about buying on the net. Then, the customers have
to build the mentality to trust the e-sellers and be convinced on the products quality.
The KSA customer 2000 study showed that only 1% have ever used net shopping
though 40% are aware of it. But 10% of the representatives do not trust the quality in
net shopping. This shows e-tailing (stand alone) has a long way to go in India.
The major advantage of the retailers in India is that, most of the products operate on
the push factor than pull factor. In order to popularize their products the
manufacturers have to attract the customers to feel the products, physical existence
and this is enabled by the retailers.

Instead of viewing e-commerce as a threat for retailing the big retailers can embrace
technology and provide value added and personalized services to the customers. In
the recent times, companies like ARCHIES have used technology to their
advertisement and increased their sales. By promoting, Fathers day, mothers, sisters,
friendship, valentines, and even egg and Love at first sight days, Archies has been
successful in pulling crowd in their galleries all over India.

The big retailers can learn the lesson from Archies. A recent KSA Technopark survey
finding showed that Apparels and Consumer durables occupy the top slot in priority
for shopping in India. Apparels and Consumer durables and for that matter even
footwear are those products which gives satisfaction when you feel it. How can the
big retailers use technology in this? Technology is so flexible that it can coexist with
business anywhere. The big retailers have to have their websites to combat the
competition from e-tailing. For instance for clothing, the big retailers can show the
variety and design offered by them through the net. A virtual experience can be
provided and the customer can have n option whether to visit the shop or shop from
home. If the virtual round through the shop is irresistible, the customer will definitely
come to the shop for an experience at least. Thus, in this era of Information
Technology store and retailers have to become technology savvy to satisfy customer
preferences. The consumer mercantile activities grouped into three phases, pre-
purchase preparation, purchase consummation and post-purchase interaction have to

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be properly incorporated with technology. The model below explains the activities in
the three phases of mercantile procedures.

Product / Service search and

information gathering
Pre-Purchase Interaction

Comparison of shopping
and product selection

Placement of Order

Authorization of payment Purchase Consummation

Receipt of Product

Customer Service & Post Purchase Interaction


Fig: Consumer Mercantile Activities

In the product/ service search, the retailers can give search for basic products and
the brands available with the retailer, the price and discounts if any. In case of
customer specific information like size and colours, the available colours size and a
preview of the same can be displayed to attract the customers.

Comparison of the prices between the products and unique features and attributes
can make the customer more informed and aware. The mode of receipt of money and
the two-way communication i.e. between the customer and retailer will ensure better
customer service. This will also ensure that the big retailers will not loose their
customers who cannot visit their store but would prefer goods from that particular

In case of purchase consummation, placement of order would be ensured if the

customer were satisfied with the product range. An immediate confirmation for order
placement would also give a sense of satisfaction to the customer. Proper dispatch of
the product and acknowledgement of the receipt of payment would involve the
customer in the process and provide him a sense of belonging.

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The after sales service plays a vital role in customer satisfaction and loyalty. By
providing the details and clauses for return of products, if such a situation arises, and
personalized greeting cards to the customers would ensure a personal touch and
would motivate the customers to refer the store to his/ her friends to visit the shop.

Even though adopting e-tailing along with store retailing would involve larger
investment and expenditure, the big retailers have to do so in order to sustain the
onslaught of technology. With the customer, especially the upper class becoming
more techno- savvy, the retailers need to formulate such strategies to retain and
expand its customer base.

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Q.11 “Event Management is the biggest challenges for

Professional Manager” discuss fully.

Ans. Since ancient times human race has been engaged in mass
activities the cause of which varied, to encourage the feeling of
brotherhood, for recreation or just for beer and skittles. These
activities include entertainment in sports. All these activities enhanced
the feeling of brotherhood and sense of belongingness in the society. A
new sector has emerged in modern times that have taken care of all
these emotions and that sector is know to be as Event Management.
An event management company works on an event from is very
conceptualization and works till the execution of the same. Any mass
gathering under the sun can be considered as an event be it a birthday
party or republic day parade. To make it memorable one has to work
on the details. To take care of all these things and to perform them
professionally even management companies come in the picture.

According to Kotler “Events are the occurrences designed for marketing

interests, it is among one of the third generation non personal
marketing tools”. Event management companies involve themselves
in the planning, organizing, and execution of an event, which could
include a product or a brand launch, an exhibition, a concert or even a
conference. Events are basically an extended form of advertising,
allowing brands to associate directly with the consumer. Event is a
form of interactive advertising.

Event Management as an industry in India is nascent, and in an

unstructured form. Leading event management companies in India are
Wizcraft, DNA Networks, CineYug, Pinnacle, Midas events etc. These
companies have their specific areas of specializations like
entertainment, sports events, celebrity management, corporate
management, corporate events etc. These companies handle most of
the big events like Filmfare awards, Femina Miss India Pageant, Zee
Cine Awards, Sansui handled by government authorities. The biggest
concourse under the sun Kumbhmela is again handled by Allahabad
municipal corporation.

In India in every city one can easily find hundreds of event

management companies. For example in Pune there are 215 big and
small event management companies operating with different

Most of the leading ad agencies in India also have a separate event

section that ad events, Vin event, Thompson Contact are the event
management arms of Lintas Mumbai, Vigennet, Ogilvy and mathers
and HTA respectively.

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Even leading television channels have separate event sections that

works for the promotion for the programme aired by their network. For
example ZEE Television has ZEE events as a separate arm for its event

Various areas of operations are:

1. Concerts.
2. Corporate events (Brand launch etc).
3. Celebrity management.
4. Television events (Awards nights like Filmfare, Channel[V]
Music Awards etc).
5. Exhibitions.
6. Sporting events.
7. Artist Management.
8. High profile weddings, Birthday parties.
9. Parties at Discos, Night Clubs.
10.Talent Bank.
11.Direct Sales promotions.

The various steps taken by an event management company during the

events are concept evaluation, concept building and to formulate the
communication strategy. For different events we need different
professionals, talent bank, technical back up and depending on the
place one may require logistics and liaisons with local companies also.
For various sections handled by any event management company
skilled professionals are required. So this sector can cater to a vast
stratum of skilled professionals. Various departments of a company
are client servicing, creative, production, administration, logistics, and
talent bank. So people from different backgrounds can work in an
event management company, all they need to have is organizational
skills i.e., intelligent creativity.

Event management is among one of the fastest growing third

generation marketing tools. It is practiced along with various other
tools like public relations. This sector is considered to be a one off
industry in India. The true potential of this sector is yet to be realized.
New opportunities are coming up in various other sectors like television
broadcasting and production. They have realized that events have
become an important promotional tool in their marketing kit. At such

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times it becomes increasingly important that the events be

professionally managed.

New opportunities that are coming up are offers like one made by ZEE
Television Networks for the entire leading event management
companies of India to work with its event section to promote the
programme aired on the network.

Leading advertising agencies in India also have separate event

handling sections that along with other instruments provide very good
mix for integrated marketing.

A very nascent segment of big ticket entertainment business, the live

entertainment and event management industry has the potential to
gross more than Rs. 3350 Crore in less than five years from now, says
a report prepared by the Federation of Indian Chamber of Commerce
and Industry (FICCI). Almost a decade ago the industry was estimated
at only Rs. 20 Crore in size, but has grown to become a Rs. 200 to Rs.
250 Crore industry today.

The live concert circuit is probably the fastest growing segment of the
business. As per the industry estimates, it has grown more than 200 %
between 1995 and 1999. The last three years have witnessed a spate
of International Artists coming to India to perform in live events.

With Indian Films and film celebrities always being close to the heart of
Indians, wherever they may be located, there is a huge potential for
the event management industry to organize live shows abroad. The
last few years have seen a plethora of such shows in Countries like the
US, UAE, UK and South Africa, where there is a large non resident
Indian presence.

These shows have evoked tremendous response not only from the
Indians settled there but also from Pakistanis, Sri-Lankan, and UAE
residents. Shows already organized in the US featuring leading film
artists have been a complete sell-out, with people craving for more.
The UAE with a large concentration of South Indian population has
been a favourite stop over for South Indian Film Artists who have
always performed to a full house. Moreover, with the growing
expatriate population in countries like Australia, Canada and New
Zealand, there is a huge untapped potential for shows/events to be
organized abroad with Indian Cinema Actors.

Problems Faced

The industry is facing the following problems:

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A. Entertainment tax rates, which forms a big chunk needs to be

rationalized across the country. Presently different states levy different
tax rates, with southern states levying lower taxes. Funds thus saved
can be re-invested in more “Events”, which will help generate more
revenues for the Government.

B. Apart from the tax rates, the payment of entertainment tax also
poses a major problem to the organizers. Currently the tax has to be
paid before the tickets of the events are sold and the relevant
department stamps the tickets for the tax paid is lost, if the tickets
remain unsold. The Government should only levy tax on the exact
number of tickets sold.

C. In addition to the entertainment tax, an event management

company is also required to pay service tax. A clear case of double
taxation, the service tax element should be withdrawn.

D. For holding such events a large number of permissions need to be

sought. These include permissions from the Police Departments (for
use of loud speakers, traffic etc), Customs (in the event of foreign
artists being used) local municipal corporation and Central Government
among others. This imposes unusual hardship on event management
companies as well as the artists. The industry feels that instead the
Government should introduce the facility of single window clearance,
which will expedite and reduce the time taken for such permissions
from the current one month to a few days.

E. Professional charges by organizations like Indian Performers Right

Society or IRPS and Indian Music Industry or IMI are unjustified
arbitrary, almost amounting to dual form of taxation, allege industry

Inclusion of Even Management in to the list of services to be taxed is

really discouraging. Let us hope that excellence Professionalism
Prevails & that this sector will show spring action to handle this below.

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Q.13 What are the problems faced by Indian Business families

after 1991? (Beginning of liberation in India)
What is their strategic response for the same?

Ans. After 1991 in this complex age of new liberalized economy, such
business families also face common problems like

a. Transnational attack.
b. Stiff Competition.
c. Low Profiles.
d. Fickle Consumers.
e. Unproductive Labor.
f. Falling Share Values etc.

In spite of these, everyone of them has expanded its range of business

activities. This is so because

12.These corporates have a sound a knowledge of the tastes

of Indian Consumers.
13.These corporates are much more practically savvy and
they know how to maintain political links.

However, these family owned business also face major fears:

1. Splits like a clash between father and son or other members of the
family leading to division of the company e.g. the Birla Groups division
into many companies after the death of Mr. G.D.Birla.

2. Successful planning to get the right person at the right place after
the business pioneer retires or expires. The rules have changed after
liberalization and the successor needs to have the right qualification or
the corporate needs to outsource a person from outside the company,
thus restricting the family’s control on the business.

3. Lack of focus where the companies need to focus more on their

areas of core competence and selling of non-revenue generating
companies. For e.g. Tata selling TOMCO to HLL.

4. Transnational Attack: Foreign companies are more focused,

organized, able to bear shots and they pose a threat because of their
global threats of product and service quality.

6. LPG (Liberalization, privatization and globalization): Today’s

Entrepreneurs are having such huge opportunities only because of
multinationals but the timing of globalisation can be debated on.
According to Mr. Shashikant Ruia (CEO, Essar Group) – “The way the

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country was opened upto foreign competition was unfair, but it has
to be faced upto by the family business with a new set of strategies.

7. Difficulties with restructuring: The changed circumstances required

a great amount of change, but for most of these business houses
change was painful, expensive and forced. Very few could change
from within, due to lack of initiative taking ability.

8. Take Overs: Since most of the Indian Companies are neither

technically nor financially sound, they are always under the threat of

9. HR Issues: Retaining the Indian Brain is a major difficulty of Indian

Companies. They have to:

a. Tap the untapped human resources.

b. Give them industry standards pay packages and other
c. Emphasis on overall personality development through training
and exposure.
d. Offer them a proper career path.
e. Delegate authority to them.
f. Give them space to work.

10. Lack of professional management and clashes between

professional CEO’s and family members who control the business.
Separation of ownership from management is always a debatable issue
in such companies, though the need for appointing a professional
manager is widely accepted, problems arise in terms of clashes of
styles and approaches towards running the company. Today however
these families have to change their approach in order to remove the
redundancy in the system and in view of the liberalization in market
place, Indian business houses have to undergo radical strategic
operational and financial transformation and most importantly, they
must rewrite the role of the family. The families have realized that the
family and the business are essentially two separate institutional
systems with distinctive rules governing the respective behaviors they
have began to appreciate this distinction. They have also made
certain vital changes over their future role to make the family business

Some of the major strategies adopted by the Business families:

1. Raising their capital state to a comfort zone so that the fears of

take over can be kept at bay: preliberalisation, many families were
running the business with a low capital state of 15 to 20% which made

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them vulnerable for takeovers, post liberalization, families like Tatas,

Ambanis, Singhanias have raised their stake to 26% on above and in
many cases as high as 45 to 50% to gain complete control over the
management of the company.

2. Consolidation of business by selling of non viable and non care

business such as Raymonds sold their steel division to Thyssen of
Germany and cement division to Lafarge of France. Even Tata Steel
sold their cement division to Lafarge to concentrate on Steel business.

3. Appointment of Professional Manager: Business families have

realized that business should run by experts and specialists and the
concept capital stake and managerial stake should be clearly defined.
So many business houses are taking back seats and professional
managers are running the show.

4. Attention and Investment in research and development : So far

R&D was neglected by Indian Business Houses. But companies have
realized that creativity, innovation, new product launch, improvement
in quality bringing down costs are the survival strategies of tomorrow.
So business families have started spending more on R&D. For e.g.
Ranbaxy Pharmaceuticals, Dr. Reddy’s Lab, Mahindra and Mahindra.

5. Joint Ventures and Tie Ups: With globalization and government

rules and regulations, moving ahead requires strategies like joint
ventures, For e.g. Hero and Honda of Japan, Bajaj having technical
collaboration with Kawasaki of Japan etc.

6. Technology upgradation and managing the pace of change:

Technology today is moving at the speed of internet. Most of the
companies have realized that managing understanding and adapting
to changes are the challenges they have to face and business families
are readying themselves for this.

7. Understanding the realities that economies are moving from sellers

market to buyers market. Business families earlier took customers for
granted. Post liberalization, the consumer has wider choice of
products. Business families have adapted themselves to the new
realities, and new product launch, customer relationship management,
reliable after sales service have become the benchmarks of the new

8. Profit will not come from cornering licenses or Beaurocratic favours

but by being competitive at the market place: This realization has
resulted into giving weightage to the performance of managers over
loyalty of managers towards families.

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9. Succession Planning: Professional management is an attitude and

mindset. Many business families scions are educated, are trained
abroad and they return to take over. They begin at the grass-root level
to gain experience. A senior family member and trust professional
manager acts as mentor for them. As soon as they are ready to take
over, they enter the board room with confidence.

In this entire shake up, some business families are emerged victorious
and others have disintegrated or lost out.

To conclude, it can be said that family owned business houses is an

integral part of Indian Business Families. At every stage of
liberalization, they face problems and challenges, but they are here to

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Q14. Define Emotional Intelligence. Explain its importance for

a manager.

Ans. Definition of emotional intelligence (EI) is "the ability to process

emotional information, particularly as it involves the perception,
assimilation, understanding, and management of emotion."

The Four branches of EI:

1. Perception Appraisal and Expression of Emotion

 Ability to identify emotion in one's physical states, feelings, and
 Ability to identify emotions in other people, designs, artwork, etc.
through language, sound, appearance, and behavior.
 Ability to express emotions accurately, and to express needs
related to those feelings.
 Ability to discriminate between accurate and inaccurate, or
honest vs. dishonest expressions of feeling.

2. Emotional Facilitation of Thinking

 Emotions prioritize thinking by directing attention to important
 Emotions are sufficiently vivid and available that they can be
generated as aids to judgment and memory concerning feelings.
 Emotional mood swings change the individual's perspective from
optimistic to pessimistic, encouraging consideration of multiple
points of view.
 Emotional states differentially encourage specific problem-
solving approaches such as when happiness facilitates inductive
reasoning and creativity.

3. Understanding and Analyzing Emotions; Employing

Emotional Knowledge
 Ability to label emotions and recognize relations among the
words and the emotions themselves, such as the relation
between liking and loving.
 Ability to interpret the meanings that emotions convey regarding
relationships, such as that sadness often accompanies a loss.
 Ability to understand complex feelings: simultaneous feelings of
love and hate or blends such as awe as a combination of fear
and surprise.
 Ability to recognize likely transitions among emotions, such as
the transition from anger to satisfaction or from anger to shame.

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4. Reflective Regulation of Emotions to Promote Emotional and

Intellectual Growth
 Ability to stay open to feelings, both those that are pleasant and
those that are unpleasant.
 Ability to reflectively engage or detach from an emotion
depending upon its judged informativeness or utility.
 Ability to reflectively monitor emotions in relation to oneself and
others, such as recognizing how clear, typical, influential or
reasonable they are.
 Ability to manage emotion in oneself and others by moderating
negative emotions and enhancing pleasant ones, without
repressing or exaggerating information they may convey.
Emotional intelligence is defined as a person’s self-awareness, self-
confidence, self-control, commitment and integrity, and a person’s
ability to communicate, influence, initiate change and accept change.
Studies have shown that emotional intelligence impacts a leader’s
ability to be effective. Three of the most important aspects of
emotional intelligence for a leader’s ability to make effective decisions
are self-awareness, communication and influence, and commitment
and integrity. Managers who do not develop their emotional
intelligence have difficulty in building good relationships with peers,
subordinates, superiors and clients.

Definition and Motive

"When it comes to improving organizational effectiveness,
management scholars and practitioners are beginning to emphasize
the importance of a manager’s emotional intelligence". What influence
does emotional intelligence have on the effectiveness of decisions
made by a modern organizational leader?

Emotional intelligence
Emotional intelligence is a combination of competencies. These skills
contribute to a person’s ability to manage and monitor his or her own
emotions, to correctly gauge the emotional state of others and to
influence opinions. Goleman describes a model of five dimensions.
Each area has its own set of behavioral attributes as follows.
2. Self-awareness is the ability to recognize a feeling as it happens,
to accurately perform self-assessments and have self-confidence.
It is the keystone of emotional intelligence (Goleman, 1995).
3. Self-management or self-regulation is the ability to keep
disruptive emotions and impulses in check (self-control),
maintain standards of honesty and integrity (trustworthiness),
take responsibility for one’s performance (conscientiousness),

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handle change (adaptability), and be comfortable with novel

ideas and approaches (innovation).
4. Motivation is the emotional tendency guiding or facilitating the
attainment of goals. It consists of achievement drive (meeting a
standard of excellence), commitment (alignment of goals with
the group or organization), initiative (acting on opportunities),
and optimism (persistence reaching goals despite set backs).
5. Empathy is the understanding of others by being aware of their
needs, perspectives, feelings, concerns, sensing the
developmental needs of others.
6. Social skills are fundamental to emotional intelligence. They
include the ability to induce desirable responses in others by
using effective diplomacy to persuade (influence); listen openly
and send convincing messages (communicate); inspire and guide
groups and individuals (leadership); nurture instrumental
relationships (building bonds); work with others toward a shared
goal (collaboration, cooperation); and create group synergy in
pursuing collective goals.

These five characteristics will be shown to apply to a leader’s ability to

make effective decisions.

Effective Leadership
The term effective in this essay can be defined as (1) "getting the job
done through high quantity and quality standards of performance, and
(2) getting the job done through people, requiring their satisfaction and

Major Findings

Leaders who underestimated their leadership were positively linked to

social self-confidence while leaders who overestimated their abilities
were negatively related to sensitivity. The results also suggested "self-
awareness may provide individuals with greater perceived control over
interpersonal events and consequences in their life…transformational
leaders who are self-aware possess high levels of self-confidence and
self-efficacy and provide orientation for followers". The authors suggest
that self-awareness may enable leaders to understand the emotional
implications of their own feelings and thoughts. Managers who
maintain accurate self-awareness have more attributes of emotional
intelligence and appear to be more effective to their superiors and
subordinates. Interviews of three senior executives revealed that
"managers ‘who played the game’ according to established norms
were looked upon favorably by superiors in performance evaluations
and promotion considerations. However, those interviews also revealed
that ‘fast-track’ candidates and the ‘darlings’ of senior management

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are often seen as self-serving, duplicitous and uncaring by their

subordinates". The high public self-consciousness aspect of emotional
intelligence may be useful for managers who are interested in success
(to maximize performance appraisal ratings), but "this does not
guarantee high ratings of transformational leadership and
effectiveness by one’s subordinates".

You can make a quick measure of your own Emotional

Intelligence by answering these questions:
(1) Are you aware of the subtleties of your own feelings?

(2) Do you usually know what other people are feeling, even if they
do not say so?

(3) Does your awareness of what others are going through give you
feelings of compassion for them?

(4) Can you carry on doing the things you want to do under
distressing circumstances, so they do not control your life?

(5) When you are angry, can you still make your needs known in a
way that resolves rather than exacerbates the situation?

(6) Can you hang on to long-term goals, and avoid being too

(7) Do you keep trying to achieve what you want, even when it
seems impossible and it is tempting to give up?

(8) Can you use your feelings to help you to reach decisions in your

People with high Emotional Intelligence will answer yes to these

questions. However, self-assessment can only measure well for people
who are self-aware. Therefore, the above test is only a good measure
for those with the important Emotional Intelligence quality of self-
awareness. There are objective psychometric instruments, but they are
still in the development stage.

Emotions at work
Low emotional intelligence brings a plethora of negative emotions, like
fear, anger and hostility. These use up a lot of energy, lower morale,
absenteeism, apathy, and are an effective block to collaborative effort.

Emotions give us great energy. Negative emotions create negative

energy and positive emotions create positive energy. We all know the

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tight knot in the stomach that comes with anger and resentment, and
the primitive urges it brings to wreak revenge, or at least discomfort,
to the one we see as opposing us. We also know the excitement of
being involved in developing some project, be it an ambitious new
product, or winning a football match. It is obvious in the extremes that
emotions have a huge effect. They also have a steady, day to day

It is easy to recognise low emotional intelligence in others. We are all

guilty of sounding off about someone who gets our backs up, who
bulldozes their way through opposition, so that somehow, their
decision stands. We are not so quick to ponder on how we could exhibit
high emotional intelligence.

There are insensitive managers who try to bulldoze their staff. They
think that steady criticism, backed by a loud voice and veiled threats of
redundancy, will spur staff on to greater efforts. This is certainly
emotionally unintelligent. The typical reaction is for people to start
huffing and puffing in corners, and occasionally have a showdown
shouting match. This is also emotionally unintelligent.

The reasons for this behaviour stem from emotions. Being badly
treated by the manager rouses anger, antagonism, fear, desire to get
your own back, and a general feeling of ill will. The manager probably
behaves like that because of similar feelings, caused by past
experiences or they are mimicking how their boss behaves. The
behaviour evokes bad reactions, which evoke bad behaviour. Once
emotionally unintelligent behaviour starts, it creates a downward spiral
of low morale, avoidance, and negative politics.

This situation is common, and the deleterious effects are obvious to

anyone who has been there. Good work is not compatible with knotted
stomachs and anxious looking over the shoulder. Yet managers are
slow to realise the value of emotional intelligence in the workplace.

Logic is given more value. It is generally believed that a logical flow of

information is the essential ingredient for new ideas. Emotions are
supposed to be stowed away until the work is done. Exceptions might
be made for artists and poets, as their creativity is considered
emotional, but the "real work" comes from logic.

This staid point of view does not seem valid when you see and feel
inspiration. It comes with a whoosh, seemingly from nowhere.
Suddenly, one thought locks into another, a new connection is made,
and we feel what is pithily known as the "Aha" experience. There is a
rush of excitement as we see a dozen possibilities all at once, and can

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not wait to try them out. We write feverishly in case we forget, we rush
into the next office to tell our colleagues. We phone up whoever we
think can help us expand the ideas. Nothing will stop us. That is when
ideas really develop. The careful step by step process gets ideas into
action, but their first development comes from that heady rush of
adrenaline. The logic is there in abundance, but it is fuelled by
emotional fervour.

Emotions have a part to play. The emotionally intelligent are aware of

this. They are not constantly thinking about how they feel. They do not
go to the extremes of letting it all hang out, or hiding everything. They
express what they feel when appropriate, so that molehills do not grow
into mountains. They listen and empathize, but do not drown people
with sympathy.

Sometimes there is a fine line between empathy and sympathy,

between self-awareness and self-obsession, between confronting
uncomfortable differences and nit picking. Part of emotional
intelligence is making these judgments.

What do you need for excellence in the job?

There are a great many formal and informal ways of deciding
Emotional Intelligence requirements for a job, from detailed
competency frameworks, to simple observations. Emotional
intelligence is rarely given the importance it deserves. A workforce that
deals with problems, setbacks and conflict in a productive way will
avoid delays, and prevent obstacles growing. It is an asset with a
strong commercial benefit. So, decide beforehand what Emotional
intelligence elements will make the difference in your place of work
and focus on them using real world examples where possible.
Continuous reinforcement
The importance of emotional intelligence should be emphasized, not
just once, but continuously. It is not a separate quality from such
factors as energy, willingness to work hard, expanding knowledge
bases, and so on. Emotional intelligence is embedded in all areas of life
and work. Therefore the principles should be reinforced, if only tacitly,
in all development programme.

Initial training starts people on the road to greater emotional

intelligence. This can rapidly add to the value of the organization’s
emotional capital. It can bring change that is more profound if it
becomes part of an ongoing cultural transformation programme,
backed up by coaching, on-the-job learning, participative processes
and reinforcing of strong people oriented values and vision.

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To sum up, emotional intelligence is being able to harness
emotions effectively, so that they play a role in business
success. It is not emotionally intelligent to allow the heart to
rule the head. It is no better to allow the head to rule the
heart. The heart and the head must each play an intelligent
role so that business relationships and business projects can
both improve, side by side.

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