Table of Contents
Q.1. What do you understand by Small Scale Industries? Discuss the role of small scale enterprises in the economic development of a developing country. (20)
Small scale industries are those industries in which the manufacturing, production and rendering of services are done on a small or micro scale. These industries make a one-time investment in machinery, plants, and industries, but it does not exceed Rs 1 Crore.
The small scale industries are generally comprised of those industries which manufacture, produce and render services with the help of small machines and less manpower. These enterprises must fall under the guidelines, set by the Government of India.
The SSI’s are the lifeline of the economy, especially in developing countries like India. These industries are generally labour-intensive, and hence they play an important role in the creation of employment. SSI’s are a crucial sector of the economy both from a financial and social point of view, as they help with the per capita income and resource utilisation in the economy.
Examples of Small Scale Industries
• Bakeries
• School stationeries
• Water bottles
• Leather belt
• Small toys
• Paper Bags
• Photography
• Beauty parlours
Role of small scale enterprises in the economic development of a developing country
The case for the development of small-scale industries is particularly strong in under-developed but developing countries like India.
These small-scale industries satisfy many of the investment criteria that one often prescribes for the planned development of the country.
a. Labour-intensive
Small-scale industries are labour-intensive, i.e., labour-investment ratio in their case is quite high. A given amount of capital invested in small-scale industrial undertakings is likely to provide more employment, at least in the short run, than the same amount of capital invested in large-scale undertakings.
b. Capital-light
Small-scale industries are capital-light, i.e., they need relatively smaller amount of capital than that required by large-scale industries, since the capital-output ratio is much smaller in the case of the former. Thus, one of the great advantages of small-scale industries is that they make possible economies in the use of capital. Capital is already scarce in an under-developed country like India.
c. Capital Formation
Besides making possible economies in the use of Ike existing stock of capital, small-scale industry may call into being capital that would not otherwise have come into existence. The spreading of industries over the countryside would encourage the habits of thrift and investment in the rural areas. Moreover, the enterprising Small manufacturer has to scrape together capital where he can find it. He often manages to get it from relatives and friends. This capital probably would never have come into existence as productive capital, had it not been for the small enterpriser.
d. Skill-light
The peculiar attraction of small-scale industries lies in their being skill-light. A large-scale industry calls for a great deal of management and supervising skill—foremen, engineers, accountants, and so on. Like capital, these skills are also in very short supply in our country, and it is important to economies as much as possible in their use. Small-scale industry provides a way of doing this and, at the same time, provides industrial experience and serves as a training ground for a large number of small-scale managers.
e. Import-light
Small-scale industries are import-light, i.e., they use a relatively low proportion of imported equipment and materials as compared with the total amount used in them. A low-import intensity in the capital structure of the small-scale industries reduces the need for foreign capital or foreign exchange, and thus obviates the balance of payments difficulties later, and currently retains within the country a large part of whatever induced effects may materialize.
f. Quick Investment
Small-scale industries are of the “quick- Investment type”, i.e., those in which the time-lag between the execution of the investment project and the start of flow of consumable goods is relatively short. In a developing economy, with a high inflationary potential and need for a rapid rise in the living standards, the importance of such quick-investment type industries can hardly be exaggerated. The small-scale industries have a high fruition co-efficient (i.e., a high ratio between planned output and investment) and also a short fruition lag.
g. Decentralisation
The development of small-scale industries will bring about dispersion or decentralisation of industries, and will thus promote the object of balanced regional development. A major drawback in the industrial structure of an under-developed country is that regional distribution of industries is exceedingly uneven.
h. Equal Distribution of Income and Wealth
Small-scale and cottage industries have the additional advantage that, with decentralized industries, they secure a more even distribution of income and wealth. The development of large-scale industries tends to concentrate large incomes and wealth in a few hands.
i. Overcoming Territorial Immobility:
By carrying the job to the worker, small-scale industries can overcome the difficulties of territorial immobility. Moreover, unlike large industries, small-scale industries do not create problems of slum housing, health and sanitation, etc., and the attendant disease, misery and squalor. Thus, there is a strong case for encouraging small-scale industries in under-developed countries like India.
Q.2. What do you understand by marketing orientation ? Discuss the variables whose understanding is necessary for determining market demand. (20)
Market orientation is an approach to business that prioritizes identifying the needs and desires of consumers and creating products that satisfy them.
Marketing strategies focus on establishing key selling points to promote existing products rather than designing products that have the qualities consumers say they want.
- Market orientation is a strategic focus on identifying consumer needs and desires in order to define new products to be developed.
- Established businesses like Amazon and Coca-Cola use market orientation principles to improve or expand their products or services.
- Even consumer demands that are impractical today can inform long-range decision-making.
- Market orientation is a customer-centered approach to product design. It involves research aimed at determining what consumers view as their immediate needs, primary concerns, or personal preferences within a particular product category.
- Additional data analysis may also be employed to reveal trends and consumer desires that are not specifically expressed. A knowledge of these trends ideally can help product developers meet or even anticipate consumer needs. They may even inspire improvements that the consumer was not aware of as being an option.
This allows a company to focus its product development efforts on the characteristics that are most in demand. With an increasingly global economy and the proliferation of choices for consumers, companies adapt to a market orientation in order to stay competitive.
Variables –
There are eight elements or variables which must be understood in order to determine market demand:
1. Product
The class of product has to be clearly defined. For example, a tour operator must decide whether its product is adventure tour, cultural tour, health tour or a combination thereof. Then there are various sizes and other features in each class. Opportunities available to the manufacturer differ according to the exact nature and specifications of the product.
2. Total Volume
We have the question of how total volume is measured. It can be measured in terms of physical volume (i.e. in terms of units sold), in monetary terms, or both. It can also be measured in terms of per cent of total market, i.e., in relative terms. As an illustration, a demand analysis for tours may reveal that in one particular region, the number of tours sold is 100, valued at Rs. 50,000. In another region, the number may be 50, valued at Rs. 25,000. It is evident that depending upon our requirement, the data on total volume must be in appropriate units.
3. Bought
The third element ‘bought’ needs also to be understood. Do we have to assess the volume ordered or booked, despatched, paid for, received, or consumed? The figures may vary according to the basis used. In the case of food grains we normally refer to quantity consumed, and in the case of construction industry we refers to orders booked. The relevance of the correct understanding of the term ‘bought’ becomes clear when we look at the example of the scooter industry in India.
4. Customer group
Market demand for a product should be measured for the customer group that is of interest to the firm. Examples are an airline which estimates the volume to be bought by the high income group people, and a mass tour operator who estimates the demand for its packages from the middle income group.
5. Geographical area
The geographical boundaries within which market demand is to be measured must be clear. This is particularly true for a small enterprise since its operations are usually confined to small areas. Service establishments also have to define their geographical boundaries while estimating market demand. For example a Yoga centre enjoys considerable demand in a metropolitan city but the concept is yet to establish its utility and acceptance in smaller towns and rural areas as a paid service.
6. Time period
Demand estimation must always be for specific time-period – for the next season, for the coming year, for the Plan period, and so on. When the time frame is an year or so, we call it short range forecasting, and when it is in terms of several years ahead, long range forecasting. As we increase the time frame, the forecast becomes more tenuous as the environmental factors may change beyond our present imagination. Thus, for products like computers and fashion goods it is almost futile to make any long range forecasts.
7. Marketing environment
Market demand is influenced by many external environmental factors. These include general economic conditions, technological breakthroughs and developments, government policies, political changes, changes in consumer behaviour and competitive situation, and even natural phenomena like rainfall and weather conditions.
8. Marketing programme
Finally, there are controllable factors which the firms use to influence the demand for their products. These may be termed as marketing efforts or marketing programmes of the sellers. These include pricing strategies, advertising, sales promotion, and personal selling. The marketing efforts proposed or assumed should be specified in order to determine market demand.
Q.3. Discuss the factors which influence the choice of technology in establishing a new tourism business. (20)
The choice of appropriate technology in underdeveloped countries is a difficult job. It is not possible to suggest a uniform pattern of technology for all the underdeveloped countries. They differ widely from each other in regard to factor endowments, level of income and capital formation, demographic patterns, institutional arrangements and stage of economic development.
Therefore, it is possible to lay down certain consideration, which must be kept in mind, while making a choice of technology in a country. The following factors are the most important which influence the choice of technique.
1. Objective of Development
The objective of development is a vital determinant of the choice of technique.
There may be various objectives of development, such as:
a. Maximization of employment,
b. Maximization of investment
c. Maximization of output at lowest possible cost,
d. freedom from dependence upon other countries, etc. All these objectives affect the choice of technique.
For example, if the objective of development is maximization of employment and freedom from dependence upon other countries, labour intensive technology should be adopted. On the contrary, if the government is in favour of external aid and wants to maximize output at the lowest possible cost, capital intensive technique should be favoured.
2. Factor Endowment
The prevailing factor endowment in a country determines the type of technology that will be suitable for that country. If the country has abundance of labour and scarcity of capital then labour intensive techniques of production must be adopted. On the other hand, in case of labour scarcity and capital abundant economies, labour saving and capital intensive techniques will be most suitable. Thus, the type of factor endowment in a country is an important consideration in the choice of technology.
3. Technological Level already attained
The prevailing level of technology forms the basis on which further technological change can take place. New technology has to be supported by the existing technology and only that type of technology should be preferred which can be supported by the technological level already attained by the country. Abrupt changes in technology are not in the interest of the economy.
4. Resources Available
Technological development in a country is largely determined by the availability of resources for such development. The most important resource necessary for technological development is capital, skill, organisation and natural resources. The availability of all these inputs largely determines the extent to which experimentation in new forms of organisation can be undertaken. An over-ambitious programme of technological change will merely result in waste of productive resources of the country. Hence, the technology must be in accordance with the availability of necessary inputs.
5. Institutional Structure
The institutional framework in a country also determines the type of technology that should be adopted by it. Economic, political and social institutions along with the aptitude of the people determine the technological level in a country. The social system in a country may be rigid as not to permit any technological change. Under these circumstances social and institutional change must precede technological change.
6. Availability of Infra-structure
Choosing the technique, one must also account for the existing infra-structure comprising of transport, communication, power and related facilities in the country. Such techniques are to be preferred which are compatible with the existing infra-structure of the country. Expansion of infra-structural facilities is not possible over short-periods. Therefore, in the initial stages of growth, labour-intensive technique should be adopted. As infra-structural facilities are expanded, one can switch over to more and more capital intensive techniques of production.
Q.4. Discuss the importance of a business plan in the small enterprise. Explain the steps involved in the preparation of a business plan for a travel agency. (20)
A business plan is a formal written document containing business goals, the methods on how these goals can be attained, and the time frame within which these goals need to be achieved.
Business plan is important for small businesses, include:
1. Tests the viability of your small business Idea
It makes sense to test your small business idea instead of just go and do it, hoping for the best. Needless to say, it can save you a great deal of money, energy and time.
2. Clarifies your small business goals and strategy
A comprehensive and thoughtful business plan is a valuable tool to clarify your business model. It contains a clear statement of your business mission, vision and the set of values that steer your business. It gives your small business direction and maps out strategies to achieve your goals by answering who, what, where, when, why and how.
3. Improves communication
A business plan allows you to communicate clearly the vision and small business essentials. It is insightful to potential investors, lenders, partners, employees, vendors and other stakeholders.
4. Smoother startup or running your small business
Writing a business plan makes you more organized and prepared for the future. In addition, you will make better operational decisions and have fewer unforeseen surprises and problems.
5. Gives you control over your business
A well-written business plan is a blueprint for a small business owner to stay on track. It helps the owner to stay focused on executing action plans to reach set objectives, within defined timelines. It allows you to set objectives for managers and key personnel.
6. Helping you to secure finance
If you’re seeking finance for your small business, you’ll have to show banks and venture capitalists or angel investors why they should invest in your business. Your need a solid business plan that clearly states the amount of capital you will need for startup/expansion and funding of operations. In addition, it must show how your cash flow will allow you to pay it back. Small business lenders and investors will only risk their money if they’re confident that you as small business owner will be successful and your business profitable.
7. Helping you to identify strengths and potential weaknesses
A business plan is an honest assessment of your small business’s strengths. Share you plan with mentors and experts who are at a position to give you invaluable advice.
Steps involved in Business Plan preparation
Step 1: Executive summary
This opening section kick starts your business plan and briefly outlines the key points of your plan. The goal here is to explain what your company does and why it will be successful. Include a company mission statement (i.e., what your ultimate goal is as a business, in just a sentence or two.)
Step 2: Business description
This section leads off the main portion of your business plan. In it, you’ll go into more detail on what your company does and what solutions to brings to the marketplace. In this section, it’s time to get specific and detail what product or services you’re developing and what customers you’re targeting. Include a brief history of your company and mention any top-level talent you have aboard to get your company off the ground.
Step 3: Market analysis
In this section, you’ll detail the marketplace you’ll be competing in. Where are the best opportunities in your market? What is the marketplace? Who are your competitors? What are their strengths and weaknesses? What is the leading marketplace product or service and what are you doing to improve on the leading products or services? Financing companies want to work with differentiators, and they’ll want to know what separates your business from the pack. Here’s the place to tell them exactly that.
Step 4: Company organization
How will your company operate (i.e., as a partnership or as a corporation, primarily) and who will be the key decision makers? How will the company be structured legally? What is the management hierarchy? Who has ownership of the company and at what percentage? These are the primary questions you’ll need to answer in the company organization section of your business plan.
Step 5: Products or services provided
What will your company produce and how will it benefit customers? What kind of research and development have you already put into your company and what results are you getting – and expecting? Also, how will you market your product or service to customers? These are the questions you’ll need to answer in this section.
Step 6: Financial outlook
In this section, you’ll need to lay out your financial projections for your company. If your company is already up and running, list any income statements and cash flow numbers for the past several years, if possible. Do you have any loans outstanding? What does your balance sheet look like? What are your quarterly projections going forward?
Step 7: Summary
Close your business plan with a pitch for funding, and list any supporting data, graphs and charts that bolster your pitch. Make it clear what you’re looking for financially from financiers – equity, a partnership or a loan. Provide a ballpark estimate of the funding you need and make it clear whether you’re open to a negotiation. A company that knows how much money it needs will be taken as a serious one, and will be treated as such by funders and financiers.
Q.5. What are the various forms of business organisation? Discuss the important considerations in the selection of an appropriate organisational form. (20)
Forms of Business Organisation
1. Sole Proprietorship
A sole proprietor is the unquestioned king of his venture. He owns it. He controls it from the word go. He provides the needed resources and launches the enterprise on his own. He burns up his candle of energies on everything. He brings his skills, knowledge and expertise to the table. He plans every step. He hires people, if additional hands are required. He interacts with customers and does everything possible to please them.
In a sole proprietorship business there is only ONE owner. There may be employees or helpers assisting and reporting to the owner, but there is only one “head” who administers and runs the show. It is a business enterprise exclusively owned, managed and controlled by a single person with all authority, responsibility and risk.
2. One Person Company
It is a creation of the Companies Act, 2013. It has only one shareholder. It is established like any private limited company. Since the company is owned by a single person, he should nominate someone to take charge in case of his death or disability. The nominee must offer his consent in writing which has to be filed with the Registrar of Companies. One person company is exempted from procedural hurdles such as conducting annual general meetings, general meetings or extraordinary general meetings.
The liability of the single shareholder is limited and the personal assets of that person remain protected in case the company fails.
3. Joint Hindu Family Business
Joint Hindu Family Business is a distinct type of organisation which is unique to India. Even within India its existence is restricted to only certain parts of the country. In this form of business ownership, all members of a Hindu undivided family do business jointly under the control of the head of the family who is known as the ‘Karta’. The members of the family are known as ‘Co-parceners’. Thus, the Joint Hindu Family firm is a business owned by co-parceners of a Hindu undivided estate.
4. Partnership Firm
A partnership is an association of two or more individuals who agree to carry on business and share gains collectively. According to Section 4 of the Partnership Act, 1932, partnership is “the relation between persons who have agreed to share profits of a business carried on by all or any one of them acting for all”.
Partnership business is conducted according to certain agreed terms and conditions—through a carefully drafted partnership deed. The partnership deed acts as a binding agreement in case of disputes between partners.
5. Limited Liability Partnership (LLP)
LLP, a legal form available world-wide is now introduced in India and is governed by the Limited Liability Partnership Act, 2008, with effect from April 1, 2009 LLP combines the meritorious features of both a company and a partnership business. LLP enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.
6. Joint Stock Company
The Companies Act, 1956 defines a company as an artificial person created by law, having a separate legal entity, with perpetual succession and a common seal. A company, thus, is a voluntary association of individuals formed to carry out some lawful activity. The capital—jointly contributed by shareholders (hence the name joint stock company)—is divided into transferable shares of fixed denomination. The liability of members is generally limited. A company has an artificial personality of its own which is different from the shareholders. It has a common seal and enjoys perpetual existence.
7. Co-Operative Organisation
Co-operative organisation is a society which has as its objectives the promotion of the interests of its members in accordance with the principles of cooperation. It is a voluntary association of ten or more members residing or working in the same locality, who join together on the basis of equality for the fulfilment of their economic or business interest.
Some of the factors that might considered for selection on business form are-
1.Personal characteristics
An entrepreneur’s psychological build up affects his or her capacity to get along with others. This also includes one’s venturesome, attitude to risk and uncertainty and capabilities to shoulder responsibilities among other things. Depending upon whether you are type of person who would like to go it alone or venturesome enough to try out something on your own, you might like to choose the form or organisation that allows you the freedom of decision-making.
2. Plans for expansion
While choosing a form of organisation you would have to bear in mind your future plans regarding expansion and growth. As a sole proprietorship offers limited expansion possibilities it may have to be deferred as a choice in favour of the two other forms of organisation.
3. Needs for raising capital now and in future
Closely related to the point of expansion is the point of your capital needs, both present and future. In case the enterprise requires low capital outlays in present but heavy outlays in future, you would like to choose a form which facilitates the raising of capital to meet your future requirements – for example, if both present and future capital outlay requirements are high you would go in a form of organisation which enables a larger amount of capital to be brought into the organisation. For example, a Company or a partnership.
4. Need for continuity of the enterprise
If the project envisaged by you is a relatively short-term project, you can choose any form of business organisation.
On the other hand if it is a long-term project, you would not like any contingency to threaten the continuity of your business and should choose a form that enjoys stable existence.
5. Tax adjustment
In proprietorships and partnerships any withdrawals of cash by owners during a particular financial year, even in the form of salary, are considered to be withdrawals of capital for tax purposes. In closing the books at the end of the financial year such amounts cannot be recorded as operating expenses of the business. Proprietors and partners pay income tax on the total profit shown irrespective of any withdrawals made during the year.
Q.6. Discuss the importance of training and development in small entrepreneurship firm. Support your answer with suitable examples. (20)
Operations depend on the level of the trained workforce you have. Training may be defined as ‘any procedure, initiated by the organisation, which is intended to foster and enhance learning among organisational members’.
In a small scale unit the owner has the responsibility for developing and conducting the training programmes, aimed at providing opportunities for employees to acquire job-related skills and knowledge. The training may require a few hours, a few days or even a few weeks or months, varying with the nature of work and the previous training or experience of the employee.
Some types of training available to employees are-
• On-the-job-training (OJT)
• Job Rotation
• Outside Training
• Apprenticeship Training
Development is concerned with the growth of an employee in all respects. Promotions, job rotations, special training courses, etc. are designed to develop employees while at work.
Importance of Training and Development in Small Entrepreneurship
In an ever changing and fast paced corporate world, training and development is an in dispensable function.
Training and development is one of the lowest things on the priority list of most companies. When it’s organized, it is often at the persistence of the human resources department. There is, however, enormous value in organizing proper training and development sessions for employees.
Training allows employees to acquire new skills, sharpen existing ones, perform better,increase productivity and be better leaders. Since a company is the sum total of what employees achieve individually, organizations should do everything in their power to ensure that employees perform at their peak.
Here are a few reasons that demonstrate the importance of training and development.
a. New Hire Orientation
Training is particularly important for new employees. This can be conducted by someone within the company and should serve as a platform to get new employees up to speed with the processes of the company and address any skill gaps.
b. Tackle shortcomings
Every individual has some shortcomings and training and development helps employees iron them out. For example, at many SSI they have divided the entire headcount in several groups to provide focused training which is relevant to those groups – sales training, first time manager, middle management, senior leadership, executive leadership.
c. Improvement in performance
If shortcomings and weaknesses are addressed, it is obvious that an employee’s performance improves. Training and development, however, also goes on to amplify your strengths and acquire new skill sets. It is important for a company to break down the training and development needs to target relevant individuals.
d. Employee satisfaction
A company that invests in training and development generally tends to have satisfied employees. However, the exercise has to be relevant to the employees and one from which they can learn and take back something. It will be futile if training and development become tedious and dull, and employees attend it merely because they have to. As a company, we stress on industry specific training and send many employees for international seminars and conferences that can be beneficial to them.
e. Increased productivity
In a rapidly evolving landscape, productivity is not only dependent on employees, but also on the technology they use. Training and development goes a long way in getting employees up to date with new technology, use existing ones better and then discard the outdated ones. This goes a long way in getting things done efficiently and in most productive way.
f. Self driven
Employees who have attended the right trainings need lesser supervision and guidance. Training develops necessary skill sets in employees and enable them to address tasks independently. This also allows supervisors and management to focus on more pressing areas.
- Training and development programs can have a huge impact on a company.
- Like every other function in your company, training and development should be focused on producing targeted and tangible results for the business. The key is to treat it seriously and consider it a capital investment and make it results- driven.
Q.7. What do you understand by performance index ? Explain the significance of short term measures of performance. (20)
Performance index is a calculation of how well work is meeting its defined goal. For work with response time goals, the performance index is the actual divided by goal. For work with velocity goals, the performance index is goal divided by actual.
A performance index of 1.0 indicates the service class period is exactly meeting its goal. A performance index greater than 1 indicates the service class period is missing its goal. A performance index less than 1.0 indicates the service class period is beating its goal. Work with a discretionary goal is defined to have a performance index of .81.
Each service class period has a sysplex and a local performance index. The sysplex performance index represents the performance of a service class period across all the systems in the sysplex. The local performance index represents only the performance on the local system.
Within resource groups and importances, receivers are selected in performance index order. Donors are selected in the reverse order of receivers. The sysplex performance index is the primary criteria used for selecting receivers and donors and assessing changes.
Performance measurement and target-setting are important to the growth process. While many small businesses can run themselves quite comfortably without much formal measurement or target-setting, for growing businesses the control these processes offer can be indispensable.
The benefits of performance measurement
Knowing how the different areas of your business are performing is valuable information in its own right, but a good measurement system will also let you examine the triggers for any changes in performance. This puts you in a better position to manage your performance proactively.
One of the key challenges with performance management is selecting what to measure. The priority here is to focus on quantifiable factors that are clearly linked to the drivers of success in your business and your sector. These are known as key performance indicators (KPIs). See the page in this guide on deciding what to measure.
Bear in mind that quantifiable isn’t the same as financial. While financial measures of performance are among the most widely used by businesses, nonfinancial measures can be just as important.
For example, if your business succeeds or fails on the quality of its customer service, then that’s what you need to measure – through, for example, the number of complaints received. For more information about financial measurement, see the page in this guide on measurement of your financial performance.
Q.8. Comment upon the typical strengths and weaknesses of family based enterprises. Support your answer with suitable examples. (20)
Family firms come with their own set of unique advantages and challenges. In order to be successful, the advantages must be capitalized upon and the challenges overcome.
Advantages of Family Firms
1. Stability
Family position typically determines who leads the business and as a result there is usually longevity in leadership, which results in overall stability within the organization. Leaders usually stay in the position for many years, until a life event such as illness, retirement, or death results in change.
2. Commitment
Since the needs of the family are at stake, there is a greater sense of commitment and accountability. This level of commitment is almost impossible to generate in non-family firms. This long term commitment leads to additional benefits, such as a better understanding of the industry, organization and job, stronger customer relationships and more effective sales and marketing.
Example – Hoshi Ryokan, a Japanese inn keeping business founded in 718, is said to be one of the oldest family businesses in world. Family members have operated the business for 46 that’s right, 46 generations. That level of family commitment has led to an understanding of the business that outsiders, or those relatively new to the business, simply wouldn’t be able to replicate. Ford Motor Company managed to stay afloat during very difficult economic times, when other companies, such as Chrysler and GM, were begging for bailouts. Why? I’m sure when all is said and done there are several reasons, but I don’t think it’s any coincidence that Ford’s family name was literally on the line.
3. Flexibility
You won’t hear, “Sorry, but that’s not in my job description” in a family business. Family members are willing to wear several different hats and to take on tasks outside of their formal jobs in order to ensure the success of the company.
Example – Estee Lauder, who led one of the world’s most famous family businesses and was the only woman on Time magazine’s list of the century’s business geniuses in 1998, said of her company’s success, “I have never worked a day in my life without selling. If I believe in something I sell it, and I sell it hard.” Lauder did everything from cooking up pots of face cream to personally giving free demonstrations, from designing the packaging of her products to training the saleswomen who would sell them.
4. Long-term Outlook
Non‐family firms think about hitting goals this quarter, while family firms think years, and sometimes decades, ahead. This “patience” and long- term perspective allows for good strategy and decision-making. In describing his reasons why he didn’t want to take his company public, Michael Otto, second- generation CEO of Hamburg, Germany’s $18.5 billion retailer Otto Group, said, “We don’t have to come up with a good story every quarter for the investors and the press.”
5. Decreased Cost
Unlike typical workers, family members working at family firms are willing to contribute their own finances to ensure the long‐term success of the organization. This could mean contributing capital, or taking a pay cut. This advantage comes in particularly handy during challenging times, such as during economic downturns, where it’s necessary to tighten the belt or personally suffer in order for the business to survive.
Disadvantages of Family Firms
1. Lack of interest among family members
Sometimes, family members aren’t truly interested in joining the family business, but do so anyway because it’s expected of them. The result is apathetic, unengaged employees. In the public sector, employees that fit into this category would simply be fired. It’s not so simple at the family firm.
2. Family Conflict
Conflict is bound to happen at any firm, but add in long histories, family relationships, and the kind of contempt that comes with familiarity, and the ante has just been upped. Deep-seated, long-lasting bitter fights and quarrels can affect every single person within the firm and can draw divisive lines. Because family members are involved, conflict can be more difficult to solve and can result in difficult endings. In 2005, a famous dispute between the sons of Reliance Industries founder Dhirubhai Ambani, Mukesh and Anil, divided India’s largest petrochemical manufacturer. When all was said and done Mukesh retained control of the petrochemical business, while Anil became chairman of Reliance Capital, Reliance Communications, and Reliance Energy.
3. Unstructured Governance
Governance issues such as internal hierarchies and rules, as well as the ability to follow and adhere to external corporate laws, tend to be taken less seriously at family businesses, because of the level of trust inherent at family firms. Unfortunately, this can be gravely detrimental. Take the example of Samsung Group, whose chairman, Lee Kun-Hee, was forced to resign in 2008 after being indicted for tax evasion and criminal breach of trust charges. While his three- year sentence was suspended, a fine of $109 million was still imposed. In this situation, a little governance would have gone a long way.
4. Nepotism
Some family businesses are reluctant to let outsiders into the top tier, and the result is that people are given jobs for which they lack the skills, education, or experience. This, obviously, has a far-reaching effect on the success of the company. In particular, it’s very difficult to retain good talent at lower levels if their performance, and their ability to succeed in the long run, is consistently being affected by incompetence at higher levels. More family firms are recognizing this issue and are taking care to strategically place outsiders in certain positions when necessary.
5. Succession Planning
Many family firms lack succession plans, either because the leader doesn’t have the desire to admit that he or she will, one day, need to step down, or because there is too much trust in the family to work this out when it becomes necessary. In fact, because of close relationships and long histories, it is of utmost importance in family firms that a strong succession plan is in place.
Risks associated with not having a strong succession plan include poor leadership, family quarrels and often financial or legal trouble for the company.
Example – Founder of Hyundai Motor, Chung Ju-Yung, named his son, Chung Mong-Koo, his successor in 1999. Just a year later, Chung Mong-Koo defied his father’s orders to step down.
In 2007, Chung Mong-Koo was convicted of embezzling funds from the company in order to buy corporate favors from the Korean government. As you can see, a well-run family business is capable of having a positive impact not only on the family involved, but also on the local and global economies. Family businesses are capable of promoting entrepreneurism, generating wealth and security for families and for providing employment opportunities for those in the community.
Some Successful Examples of Family Business in India –
a. TATA Group
b. TVS
c. Aditya Birla Group, etc
Q.9. Write short notes on any two of the following: (10×2=20)
a. Human Resource Planning
Human resources undoubtedly play the most important part in the functioning of an organization. The term ‘resource’ or ‘human resource’ signifies potentials, abilities, capacities, and skills, which can be developed through continuous interaction in an organizational setting.
E.W. Vetter viewed human resource planning as “a process by which an organisation should move from its current manpower position to its desired manpower position. Through planning, management strives to have the right number and right kind of people at the right places at the right time, doing things which result in both the organisation and the individual receiving maximum long-run benefit.”
According to Leon C. Megginson human resource planning is “an integrated approach to performing the planning aspects of the personnel function in order to have a sufficient supply of adequately developed and motivated people to perform the duties and tasks required to meet organisational objectives and satisfy the individual needs and goals of organisational members.”
Human resource planning may be viewed as foreseeing the human resource requirements of an organisation and the future supply of human resources and
a. making necessary adjustments between these two and organisational plans; and
b. foreseeing the possibility of developing the supply of human resources in order to match it with requirements by introducing necessary changes in the functions of human resource management. In this definition, human resource means skill, knowledge, values, ability, commitment, motivation, etc., in addition to the number/of employees.
Human resource planning (HRP) is the first step in the HRM process. HRP is the process by which an organization ensures that it has the right number and kind of people, at the right place, at the right time, capable of effectively and efficiently completing those tasks that will help the organization achieve its overall objectives.
Need and importance of HRP in the organizations:
a. Assessing Future Personnel Needs
b. Foundation for Other HRM Functions
c. Coping with Change
d. Investment Perspective
e. Expansion and Diversification Plans
Objectives:
The main objectives of HRP are:
• Proper assessment of human resources needs in future.
• Anticipation of deficient or surplus manpower and taking the corrective action.
• To create a highly talented workforce in the organization.
• To protect the weaker sections of the society.
• To manage the challenges in the organization due to modernization, restructuring and re-engineering.
• To facilitate the realization of the organization’s objectives by providing right number and types of personnel.
• To reduce the costs associated with personnel by proper planning.
• To determine the future skill requirements of the organization.
• To plan careers for individual employee.
• Providing a better view of HR dimensions to top management.
• Determining the training and development needs of employees.
b. Characteristics of a Company
1. An Artificial Person Created by Law
A company is a creation of law, and is, sometimes called an artificial person. It does not take birth like natural person but comes into existence through law. But a company enjoys all the rights of a natural person. It has right to enter into contracts and own property. It can sue other and can be sued. But it is an artificial person, so it cannot take oath, cannot be presented in court and it cannot be divorced or married.
2. Separate Legal Entity
A company is an artificial person and has a legal entity quite distinct from its members. Being separate legal entity, it bears its own name and acts under a corporate name; it has a seal of its own; its assets are separate and distinct from those of its members.
Its members are its owners but they can be its creditors simultaneously as it has separate legal entity. A shareholder cannot be held liable for the acts of the company even if he holds virtually the entire share capital. The shareholders are not agents of the company and so they cannot bind it by their acts.
3. Perpetual Succession
The life of company is not related with the life of members. Law creates the company and dissolve it. The death, insolvency or transfer of shares of members does not, in any way, affect the existence of a company.
In the case of company it may be said that members may come and members may go but the company goes on. It is a legal person having come into being by law and only law can bring its end and none else.
4. Common Seal
On incorporation a company becomes legal entity with perpetual succession and a common seal. The common seal of the company is of great importance. It acts as the official signature of the company. As the company has no physical form, it cannot sign its name on a contract. The name of the company must be engraved on the common seal. A document not bearing the common seal of the company is not authentic and has no legal importance.
5. Limited Liability
The limited liability is another important feature of the company. If anything goes wrong with the company his risk is only to the extent of the amount of his shares and nothing more. If some amount is uncalled upon a share, he is liable to pay it and not beyond that.
The creditors of a company cannot get their claims satisfied beyond the assets of the company. The liability of members of a company ‘limited by guarantee’ is limited to the amount of guarantee.
6. Transferability of Shares
A shareholder can transfer his shares to any person without the consent of other members. Under Articles of Association, a company can put certain restriction on the transfer of shares but it cannot altogether stop it. Private company can put more restrictions on the transferability of shares.
7. Limitation of Work
The field of work of a company is fixed by its charter. The Memorandum of Association. A company cannot do anything beyond the powers defined in it. Its action is, therefore, limited. In order to do the work beyond the memorandum of association, there is a need for its alteration.
8. Voluntary Association for Profits
A company is a voluntary association of persons to earn profits. It is formed for the accomplishment of some public good and whatsoever profit is divided among its shareholders. A company cannot be formed to carry on an activity against the public policy and having no profit motive.
9. Representative Management
The shareholders of company are widely scattered. It is not possible for all the shareholders to take part in the management. They leave their task to the representatives the Board of Directors and the company is managed by Board of Directors.
10. Termination of Existence
A company is created by law, carries on its affairs according to law and ultimately is affected by law. Generally, the existence of a company is terminated by means of winding up.
c. Need for Market Assessment
1. To Identify market entry points and develop an entry strategy.
One of the key elements of pursing a new business idea is understanding the market and those who are involved with it. First you will need to clearly identify who you are going to be selling to. With this in mind, it’s also important to recognize that you can choose a small market instead of a large share.
2. To Determine key market factors: Cost, Consumer Demographics, Challenges, Opportunities.
When developing your market strategy, it’s important that you understand all the potential factors that contribute to your market. These factors will help you determine how you will need to market to consumers, face your competition, and develop your overall business plan.
Consider the following factors:
a. Cost
b. The Consumers
c. Challenges
d. Opportunities
3. To Identify global market opportunities.
Success for your business has the potential to lead to international opportunities. When considering expanding into the global market, you need to be able to learn about a few things before making the transition.
4. To Analyze the current competitive landscape
Understanding the competition is key to having a successful business. You need to take the time to research different successes and failures of your closest competition. Also, when determining what market you should enter you need to know if there are already too many competitors present. You might not be able to successfully push your product if the market is already too saturated.
5. To Define an exit strategy
No matter how your business pans out, you need to have an exit strategy planned in the back of your head so you will be prepared for the future. Know what your plans will be if you have tremendous success. Or, be prepared to discuss what needs to happen if your business begins to fail. Either way, your next step will be most successful if you have a plan in place.
Q.10. Explain why product/service design is important to accommodation unit. (20)
Service design looks at the service comprehensively from the customer’s perspective. In other words, service design applies to everyone and everything. Or, well, it should.
Concepts like customer experience, customer understanding, customer orientation, uniform service quality, service promise and value proposition are basic concepts of service design, without forgetting the business resources.
Benefits
1. It Is Cheaper to Notice an Error at the Start
Service design ensures the delivery of value to the customer and the customer’s customer. Service design also looks at service development from the customer’s perspective. At best, it focuses on the customer in the early stages of product development. This ensures that the product and service is developed for users and the group of purchasing customers. Service design takes both the user experience and customer experience into account. User experience emphasizes functionality and ease, while customer experience leaves a memory.
The long cycle of service design starts from the functionality of the company’s customer orientation and internal service for ensuring customer orientation in service development and nailing down the customer experience of multi-channel customers. We think that service design is so important that you should handle it yourself, rather than assign it to any external party.
2. Service Design Breaks Silos
Service design is often described as a stage, with the customer playing the role of the audience. In other words, the customer does not know, nor do they need to know, what is happening backstage. The customer is not interested in what is happening within the company. Instead, the customer is aware of how things are done backstage. The nature of the company’s “internal service” is visible to the customer. At its most extensive, service design starts from the development of the work community experience and streamlining the activities of the teams.
Large companies in particular face the challenge that departments and employees may form a silo mentality around their own functions. In this case, development takes place within the same circles, without any fresh thoughts coming in. The risk is that people will only see things from one, i.e. their own, point of view. Another risk is that when tasks are moved from one department to another, they may drop into no one’s zone. Service design answers these challenges: it ensures that the boundaries of the silos are broken, ideas are exchanged and work goes smoothly without the customer even noticing the exchanges between departments.
3. With Service Design, You Lead How Customers Experience the Company
At best, a customer’s path is smooth and pleasant. In this case, the customer’s experience is also positive, and they are happy to deal with the company – perhaps even share their experience with their acquaintances. The world is full of services and products. Companies are now standing out through the customer’s experience of the product, service, company, person, or brand. People are increasingly buying experiences, not concrete things. Feelings affect people’s decisions more than seeing the matter be taken care of.
Operating through multiple channels brings its own challenges, as it is difficult for companies to manage all their channels. The power has shifted to the customers. In order for companies to keep the reins on leading customers, regardless of which channel or medium the customer uses, it is important to ensure the uniform quality of the service and genuine customer orientation, as well as understand the customer’s needs and identify their paths as early as possible. Going through all this once is not enough; instead, you need to lead it constantly, i.e. develop, edit and react. There are so many variables that if you want permanent and significant results, it is important for service design to be integrated deep into the organization’s core. True development is best achieved when the personnel have the tools and skills to primarily manage the wide field of service design by themselves.
4. By Delivering Value to the Customer, You Are Also Enhancing Your Own Business
The market is changing rapidly, and customers are responsive to it. The lifecycle of products and services is at risk of becoming shorter: companies must be more responsive to changes. For this reason, development must be continuous. The challenge is that customers may not even know what they want. One benefit of service design is that even though the customer is the focus point, service design does not bow down to the customer while turning its back on its own company; instead, it also takes the business goals and resources into account.
5. Companies That Utilize Service Design Are Customer-oriented and Provide a Positive Customer Experience
A successful customer experience can only be created in genuinely customer-oriented companies in which the basic concepts and philosophy of service design are part of everyday operations.
Despite this, many companies claim that they are customer-oriented while still producing products and services in a company-oriented manner: companies become so caught up in their way of operating that they cannot see themselves through an outsider’s eyes. A customer-oriented company is customer-oriented only if the customer is taken into account in all layers and phases of the company. It is too late to start including service design upon meeting the customer if the company wants to make customer orientation a permanent attribute. That is why it is important to involve the customer in the product development process and examine the operations by means of service design.