SYLLABUS FOR BCA
MANAGING INFORMATION SYSTEM AND ENTERPRISE RESOURCE PLANNING
PART 1 – Managing Information System
MODULE 1
UNIT 1- Information system
Objectives, Introduction, The Real World Of Information Systems , System Concepts- A
Foundation,Information System Resources ,Information System Activities , Recognizing Information
Systems , Analysing BellSouth’s Information System , The Fundamental Roles of IS Applications In
Business, E-Business in Business, Trends in Information System , Types Of Information Systems,
Operations Support Systems, Management Support Systems (MSS), Managerial Challenges Of
Information Technology, Success and Failure with IT , Summary , Keywords , Exercises
UNIT 2- Introduction of MIS
Objectives, Mis: concept, Evolution of mis, Definition, Role of the mis, Impact of mis, MIS and the user,
Elements of mis, Management as a control system, MIS support to the management, Organization as
system, Organizational behavior, Organization effectiveness, Summary, Keywords, ExerciseUNIT 3Planning
Objectives, Introduction, Nature of Planning, Characterstics of Planning, Planning Process, Guidelines
to Ensure Successful Planning and Implementation, Types of planning, Advantages of Planning,
Limitation of Planning, Summary, Keywords, Exercises, References
UNIT 4 - Organizing And Staffing
Objectives, Introduction, Importance of organizing Function, Principles Of Organizing, Classification of
Organizing, Line Organization, Line and staff organization, Functional Organization, Delegation of
Authority, Importance Of Delegation, Principles of Delegation, Centralization and Decentralization,
Delegation and Decentralization, Introduction to Staffing
Staffing Process, Manpower Planning, Obstacles in Manpower Planning, Types of Recruitment
Employee Selection Process, Difference between recruitment and selection, Orentation and Placement,
Training of Employees, Employee Remuneration, Summary, Keywords, Exercises, References.
MODULE 2
UNIT 1- Directing & Controlling
Objectves, Introduction, Importance of Directing, Role of Supervisor, Functions of Supervisor,
Controlling, Process of Controlling, Relation between planning and controlling, CommuncationRemoving Barriers to Communication in the Family Business, Communication Model , Barriers to
Communication , Facilitating Communication, Leadership, Leadership and Management- Relationship
and Differences, Leader v/s Manager, Summary, Keywords, Exercises, References
UNIT 2- Decision Making and DSS
Objectives, Decision making concepts, Decision making process, Decision-making by analytical
modeling, Behavioral concepts in decision making, Characteristics of the business decision making,
Classification of decision making, organizational decision-making, Decision structure
DSS, CDSS,
SDSS, Summary, Keywords, Exercise
UNIT 3 – ELECTORNICS COMMERCE SYSTEMS
Objectives, Overview of E-Commerce, Types of E-Commerce Transactions, The Scope Of EC, Benefits
of E-Commerce, Limitations of E-Commerce, E-COMMERCE Mechanisms, BUSINESS-TOCONSUMER Applications, Electronic Retailing: Storefronts and Malls, E-Tailing: The Essentials,
Service Industries Online, B2B Applications:Sell-Side Marketplaces, Buy-Side Marketplaces,Electronic
Exchanges, Electronic Payment Systems, Security in Electronic Payments, Summary, Keywords,
Exercises
UNIT 4- Client Server Architecture and E-business Technology
Objectives, Client server architecture, Implementation strategies, Introduction to Ebusiness, Effective ebusiness processes, Model of E-business, Customer relationship e-business management , Benefits of e-
business, Internet and World Wide Web, Electronic mail , Impact of Web on Strategic management, Web
enabled business management, MIS in Web environment, Summary, Keywords, Exercise
Part 2- Enterprise Resource Planning
MODULE 3
UNIT 1- Introduction
Objectives, Introduction, ERP as Integrated Management Information Systems, Evolution of ERP ,ERP
Benefits, ERP vs Traditional Information Systems, ERP: competitive advantage and benefits, Basic
Constituents of ERP, ERP Software Selection Criteria ,Procurement process for ERP Package, Summary,
Exercises
UNIT 2- Overview of ERP packages
Objectives, ERP Packages, Survey of Indian ERP, Summary, Keywords, Exercises
UNIT 3 - ERP Implementation
Objectives, ERP Implementation, Post Implementation Process, ERP Modules, Key stakeholders
involved in an ERP implementation project, ERP Training, Summary, Keywords, Exercises
UNIT 4 - ENTERPRISE BUSINESS SYSTEMS
Objectives, Customer Relationship Management: The Business Focus, Phases of CRM, Benefits And
Challenges Of CRM, Trends in CRM, Enterprise Resource Planning: The Business Backbone: Benefits
and Challenges of ERP, Supply Chain Management: The Business Network- Electronic Data Interchange,
Benefits And Challenges of SCM, Summary, Keywords, Exercises
MODULE 1
UNIT 1
CONTENTS
1.1 Objectives
1.2 Introduction
1.2.1 The Real World Of Information Systems
1.2.2 System Concepts- A Foundation
1.3 Information System Resources
1.4 Information System Activities
1.5 Recognizing Information Systems
1.5.1 Analysing BellSouth’s Information System
1.6 The Fundamental Roles of IS Applications In Business
1.7 E-Business in Business
1.8 Trends in Information System
1.9 Types Of Information Systems
1.9.1 Operations Support Systems
1.9.2 Management Support Systems (MSS)
1.10 Managerial Challenges Of Information Technology
1.10.1 Success and Failure with IT
1.11 Summary
1.12 Keywords
1.13 Exercises
1.1 Objectives
• Explain why knowledge of information systems is important for business professionals and
identify five areas of information systems knowledge they need.
• Give examples to illustrate how the business applications of information systems can support a
firm’s business processes, managerial decision-making, and strategies for competitive advantage.
• Provide examples of several major types of information system from your experiences with
business organizations in the real world.
• Identify several challenges that a business manager might face in managing the successful and
ethical development and use of information technology in a business.
1.2 Introduction
An understanding of the effective and responsible use and management of information systems is
important for managers and other business knowledge workers in today’s global information
society. Information systems and technologies have become a vital component of successful
businesses and organizations. Information systems constitute an essential field of study in
business administration and management, as they are considered a major functional area in
business operations.
1.2.1 The Real World Of Information Systems
Managerial end users need to know how information systems can be employed successfully in a
business environment. The important question for any business end user or manager is: What do
you need to know in order to help manage the hardware, software, data, and network resources
of your business, so they are used for the strategic success of your company?
Figure 1.1: An IS Framework for Business Professionals
Managers or business professionals are not required to know the complex technologies, abstract
behavioral concepts, or the specialized applications involved in the field of information systems.
Figure 1.1 illustrates a useful conceptual framework that outlines what a manager or business
professional needs to know about information systems. It emphasizes five areas of knowledge:
•Foundation Concepts
•Information Technologies
•Business Applications
•Development Processes
• Management Challenges
Figure 1.2: What is an Information System?
An information system (IS) can be any organized combination of people, hardware, software,
communications networks, and data resources that collect, transforms, and disseminate
information in an organization.
Information Technologies:Business professionals rely on many types of information systems that
use a variety of information technologies.
For example:
Types of IS- Manual (paper-and-pencil) information systems- Informal (word-of-mouth)
information systems- Formal (written procedures) information systems- Computer-based
information systems Computer-based information systems (IS) use hardware, software, the
Internet, and other telecommunications networks, computer-based data resource management
techniques, and other forms of information technologies (IT) to transform data resources into a
variety of information products for consumers and business professionals.
1.2.2 System Concepts- A Foundation
System concepts underlie the field of information systems. Understanding system concepts will
help you understand many other concepts in the technology, applications, development, and
management of information systems. System concepts help you understand:
•Technology. That computer networks are systems of information processing components that
uses a variety of hardware, software, data and telecommunication technologies.
•Applications.
That electronic business and commerce involves interconnected business
information systems.
•Development.
That developing ways to use information technology n business includes
designing the basic components of information systems.
•Management. That managing information technology emphasizes the quality, strategic business
value, and security of an organization’s information systems.
System in information system
A system is a group of interrelated components working together toward a common goal by
accepting inputs and producing outputs in an organized transformation process. A system
(sometimes called a dynamic system) has three basic interacting components or functions.
These include:
•Input involves capturing and assembling elements that enter the system to be processed.
•Processing involves transformation processes that convert input into output.
•Output involves transferring elements that have been produced by a transformation process to
their ultimate destination.
Feedback and Control:
Two additional components of the system concept include feedback and control. A system with
feedback and control components is sometimes called a Cybernetic system, that is, a selfmonitoring, self-regulating system.
•Feedback is data about the performance of a system.
•Control involves monitoring and evaluating feedback to determine whether a system is moving
toward the achievement of its goals. The control function then makes necessary adjustments to a
system's input and processing components to ensure that it produces proper output.
Other System Characteristics
A system does not exist in a vacuum; rather, it exists and functions in an environment containing
other systems.
Subsystem: A system that is a component of a larger system, where the larger system is its
environment.
System Boundary: A system is separated from its environment and other systems by its system
boundary.
Interface: Several systems may share the same environment. Some of these systems may be
connected to one another by means of a shared boundary, or interface.
Open System: A system that interacts with other systems in its environment is called an open
system (connected to its environment by exchanges of inputs and outputs).
Adaptive System: A system that has the ability to change itself or its environment in order to
survive is called an adaptive system.
Figure 1.3 : Components of an Information System
An information system model expresses a fundamental conceptual framework for the major
components and activities of information systems. An information system depends on the
resources of people, hardware, software, data, and networks to perform input, processing, output,
storage, and control activities that convert data resources into information products. The
information systems model outlined in the text emphasizes four major concepts that can be
applied to all types of information systems:
•People, hardware, software, data, and networks, are the five basic resources of information
systems.
•People resources include end users and IS specialists, hardware resources consist of machines
and media, software resources include both programs and procedures, data resources can include
data and knowledge bases, and network resources include communications media and networks.
•Data resources are transformed by information processing activities into a variety of
information products for end users.
•Information processing consists of input, processing, output, storage, and control activities.
1.3 Information System Resources
The basic IS model shows that an information system consists of five major resources:
•People resources
•Hardware resources
•Software resources
•Data resources
•Network resources
People Resources
People are required for the operation of all information systems. These people resources include
end users and IS specialist
•End Users (also called users or clients) are people who use an information system or the
information it produces. Most of us are information system end users. And most end users in
business are knowledge workers, that is, people who spend most of their time communicating
and collaborating in teams of workgroups and creating, using, and distributing information.
•IS Specialists are people who develop and operate information systems. They include system
analysts, software developers, system operators, and other managerial, technical, and clerical IS
personnel. Systems analysts – design information systems based on the information requirements
of end users. Software developers – create computer programs based on the specifications of
systems analysts. System operators – monitor and operate large computer systems and networks.
Hardware Resources
Hardware resources include all physical devices and materials used in information processing.
•Machines- physical devices (computers, peripherals, telecommunications networks, etc.)
•Media- all tangible objects on which data are recorded (paper, magnetic disks etc.) Examples of
hardware in computer-based information systems are:
•Computer Systems – which consist of central processing units containing microprocessors, and
a variety of interconnected peripheral devices.
•Computer peripherals – which are devices such as a keyboard or electronic mouse for input of
data and commands, a video screen or printer for output of information, and magnetic or optical
disks for storage of data resources.
Software Resources
Software resources include all sets of information processing instructions.
•Program - a set of instructions that causes a computer to perform a particular task.
•Procedures - set of instructions used by people to complete a task.Examples of software
resources are:
•System software – such as an operating system program, that controls and supports the
operations of a computer system.
•Application software – are programs that direct processing for a particular use of computers by
end users.
•Procedures – are operating instructions for the people who will use an information system.
Data Resources
Data constitutes a valuable organizational resource. Thus, data resources must be managed
effectively to benefit all end users in an organization. The data resources of information systems
are typically organized into:
•Databases - a collection of logically related records or files. A database consolidates many
records previously stored in separate files so that a common pool of data records serves many
applications.
•Knowledge Bases - which hold knowledge in a variety of forms such as facts and rules of
inference about various subjects.
Data versus Information. The word data is the plural of datum, though data is commonly used to
represent both singular and plural forms. The term’s data and information are often used
interchangeably. However, you should make the following distinction:
Data are raw facts or observations, typically about physical phenomena or business transactions.
More specifically, data are objective measurements of the attributes (characteristics) of entities,
such as people, places, things, and events.
Information: - is processed data, which has been placed in a meaningful and useful context for an
end user.
Data is subjected to a “value-added” process (data processing or information
processing) where:
•Its form is aggregated, manipulated, and organized.
•Its content is analyzed and evaluated
•It is placed in a proper context for a human user
Network Resources
Telecommunications networks like the Internet, intranets, and extranets have become essential to
the successful electronic business and commerce operations of all types of organizations and
their computer-based information systems. Telecommunications networks consist of computers,
communications processors, and other devices interconnected by communications media and
controlled by communications software. The concept of network resources emphasizes that
communications networks are a fundamental resource component of all information systems.
Network resources include:
•Communications media (twisted-pair wire, coaxial cable, fiber-optic cable, and microwave,
cellular, and satellite wireless systems.
•Network support (people, hardware, software, and data resources that directly support the
operation and use of a communications network).
1.4 Information System Activities
Information processing (or data processing) activities that occur in information system include
the following:
•Input of data resources
•Processing of data into information
•Output of information products
•Storage of data resources
•Control of system performance
Input of Data Resources
•Data about business transactions and other events must be captured and prepared for processing
by the input activity. Input typically takes the form of data entry activities such as recording and
editing.
•Once entered, data may be transferred onto a machine-readable medium such as magnetic disk
or type, until needed for processing.
Processing of Data into Information
•Data is typically subjected to processing activities such as calculating, comparing, sorting,
classifying, and summarizing.
These activities organize, analyze, and manipulate data, thus
converting them into information for end users.
•A continual process of correcting and updating activities must maintain quality of data stored in
an information system.
Output of Information Products
•Information in various forms is transmitted to end-users and made available to them in the
output activity. The goal of information systems is the production of appropriate information
products for end users.
Storage of Data Resources
Storage is a basic system component of information systems.
•Storage is the information system activity in which data and information are retained in an
organized manner for later use.
Control of System Performance
An important information system activity is the control of its performance.
•An information system should produce feedback about its input, processing, output, and storage
activities.
•Feedback must be monitored and evaluated to determine if the system is meeting established
performance standards.
•Feedback is used to make adjustments to system activities to correct deficiencies.
1.5 Recognizing Information Systems
As a business professional, you should be able to recognize the fundamental components of
information systems you encounter in the real world. This means that one should be able to
identify:
•The people, hardware, software, data, and network resources they use.
•The types of information products they produce.
•The way they perform input, processing, output, storage, and control activities.
1.5.1 Analysing BellSouth’s Information System
From the Real World Case of BellSouth Corporation, we will try to recognize or visualize the
resources used, activities performed, and information products produced by their information
systems.IS Resources:
•People resources include end users like BellSouth’s online customers and employees, and IS
specialists like CIO Fran Dramis and project leader Lori Groves. Hardware Resources:
•Thousands of PC server
•Other computers that BellSouth and its customers must be usingSoftware Resources:
•Web browsers
•Operating systems
•e-commerce websites software
•Oracle’s customer relationship management system
•Other proprietary BellSouth business software. Network Resources:
•Communications media and network support components that are part of the network resources
that BellSouth would need to support the e-business and e-commerce activities of such a large
telecommunications company. Data Resources:
•Computer-accessible databases of data about their customers, employees, services, and other
necessary business information.Information Products:
•Displays on customer and employee networked PCs that provide information about and support
the provision of BellSouth’s services, such as one would find by visiting their Websites at
www.bellsouth.com and www.bellsouthcorp.com.
IS Activities
•Input activities include the input of Web site navigation clicks and e-commerce and e-business
data entries and selections, and online collaboration queries and responses made by customers,
suppliers, and employees.Processing Activities:
•Processing activities are accomplished whenever any of BellSouth’s computers executes the
programs that are part of their e-business and e-commerce software resources. Output Activities:
•Output activities primarily involve the display or printing of information products mentioned
earlier. Storage Activities:
•Storage activities take place whenever business data is stored and managed in the files and
databases on the disk drives and other storage media of BellSouth’s computer systems.Control
Activities:
•Control activities include the use of passwords and other security codes by customers, suppliers,
and employees for entry into BellSouth’s e-business and e-commerce websites, and access of
their databases and knowledge bases.
1.6 The Fundamental Roles of IS Applications In Business
Information systems perform three vital roles in any type of organization. That is, they support
an organization’s:
•Business processes and operations
•Decision making by employees and managers
•Strategies for competitive advantage
Figure 1.4: The Major Roles of IS- Examples
Three major roles of the business applications of information systems include:
•Support Business Processes – involves dealing with information systems that support the
business processes and operations in a business.
•Support Decision Making – help decision makers to make better decisions and attempt to gain a
competitive advantage.
•Support Competitive Advantage – help decision makers to gain a strategic advantage over
competitors requires innovative use of information technology.
1.7 E-Business in Business
Figure 1.5: e-BUSINESS IN BUSINESS
The explosive growth of the Internet and related technologies and applications is revolutionizing
the way businesses are operated and people work, and how information technology supports
business operations and end user work activities. Businesses are becoming e-business
enterprises. The Internet and Internet-like networks – inside the enterprise (intranets), and
between an enterprise and its trading partners (extranets) – have become the primary information
technology infrastructure that supports the business operations of many companies. e-business
enterprises rely on such technologies to:
•Reengineer and revitalize internal business processes.
•Implement electronic commerce systems among businesses and their customers and suppliers.
•Promote enterprise collaboration among business teams and workgroups.
e-business is defined as the use of Internet technologies to internetwork and empower business
processes, electronic commerce, and enterprise communication and collaboration within a
company and with its customers, suppliers, and other business stakeholders.
Enterprise collaboration systems involve the use of groupware tools to support communication,
coordination, and collaboration among the members of networked teams and workgroups. An
internetworked e-business enterprise depends on intranets, the Internet, extranets, and other
networks to implement such systems.
Electronic commerce is the buying and selling, and marketing and servicing of products,
services, and information over a variety of computer networks. An internetworked e-business
enterprise uses the Internet, intranets, extranets, and other networks to support every step of the
commercial process.
1.8 Trends in Information System
The roles given to the information systems function have expanded significantly over the
years.1950s - 1960s -
Data Processing- Electronic data processing systems
Role: Transaction processing, record keeping, and accounting, and other electronic data
processing (EDP) applications
Management Reporting – Management information systems
Role: Providing managerial end users with predefined management reports that would give
managers the information they needed for decision-making purposes.1970s - 1980s -
Decision Support - Decision support systems
Role: The new role for information systems was to provide managerial end users with ad hoc
support of their decision-making process. This support would be tailored to the unique decisionmaking styles of managers as they confronted specific types of problems in the real world.1980s
- 1990s.
Strategic and End User Support
Role: End users could use their own computing resources to support their job requirements
instead of waiting for the indirect support of corporate information services departments.
•End User Computing Systems
Role: Direct computing support for end user productivity and work group collaboration.
•Executive Information Systems
(EIS) - Role: These information systems attempt to give top executives an easy way to get the
critical information they want, when they want it, tailored to the formats they prefer.
•Expert Systems (ES) and other Knowledge-Based Systems Role: Expert systems can serve
as consultants to users by providing expert advice in limited subject areas.
•Strategic Information Systems (SIS)
Role: Information technology becomes an integral component of business processes, products,
and services that help a company gain a competitive advantage in the global marketplace.
1990s - 2000 – Electronic business and commerce systems
Role: The rapid growth of the Internet, intranets, extranets, and other interconnected global
networks has revolutionising the operations and management of today’s business enterprises.
1.9 Types Of Information Systems
Figure 1.6: Types of information system
Information Systems perform important operational and managerial support roles in businesses
and other organizations. Therefore, several types of information systems can be classified
conceptually as either:
•Operations Support Systems
•Management Support Systems
1.9.1 Operations Support Systems
Information systems are needed to process data generated by and used in business operations.
Such operations support systems (OSS) produce a variety of information products for internal
and external use. However, they do not emphasize producing the specific information products
that can best be used by managers.
Further processing by management information systems is
usually required. The role of a business firm’s operations support systems is to:
•Effectively process business transactions
•Control industrial processes
•Support enterprise communications and collaboration
•Update corporate databases
Transaction Processing Systems (TPS)
Focus on processing the data generated by business transactions and operations.
Transaction processing systems record and process data resulting from business transactions
(sales, purchases, inventory changes). TPS also produce a variety of information products for
internal or external use (customer statements, employee paychecks, sales receipts etc.). TPS
process transactions in two basic ways:
•Batch Processing - transactions data is accumulated over a period of time and processed
periodically.
•Real-time (or online) processing - data is processed immediately after a transaction occurs.
Process Control Systems (PCS) - Process control systems are systems, which make use of
computers to control ongoing physical processes.
These computers are designed to
automatically make decisions, which adjust the physical production process. Examples include
petroleum refineries and the assembly lines of automated factories.
Enterprise Collaboration Systems - Enterprise collaboration systems are information systems
that use a variety of information technologies to help people work together.
Enterprise
collaboration systems help us:
•Collaborate - to communicate ideas
•Share resources
•Co-ordinate our cooperative work efforts as members of the many formal and informal process
and project teams. The goal of enterprise collaboration systems is to use information technology
to enhance the productivity and creativity of teams and workgroups in the modern business
enterprise.
1.9.2 Management Support Systems (MSS)
Management support systems focus on providing information and support for effective decision
making by managers. They support the decision-making needs of strategic (top) management,
tactical (middle) management, and operating (supervisory) management. Conceptually, several
major types of information systems support a variety of decision-making responsibilities:
•Management Information Systems (MIS)
•Decision Support Systems (DSS)
•Executive Information Systems (EIS)
Management information systems are the most common form of management support systems.
They provide managerial end users with information products that support much of their day-today decision-making needs. MIS provide a variety of prespecified information (reports) and
displays to management that can be used to help them make more effective, structured types of
day-to-day decisions. Information products provided to managers include displays and reports
that can be furnished:
•On demand
•Periodically, according to a predetermined schedule
•Whenever exceptional conditions occur
Decision support systems provide managerial end users with information in an interactive
session on an ad hoc (as needed) basis. Managers generate the information they need for more
unstructured types of decisions in an interactive, computer-based information system that uses
decision models and specialized databases to assist the decision-making processes of managerial
end users.
Executive information systems provide top and middle management with immediate and easy
access to selective information about key factors that are critical to accomplishing a firm’s
strategic objectives. EIS are easy to operate and understand.
Other Classifications of Information Systems: Several other categories of information systems
that support either operations or management applications include:
•Expert Systems
•Knowledge Management Systems
•Functional Business Information Systems
•Strategic Information Systems
•Cross-functional Information Systems
1.10 Managerial Challenges Of Information Technology
For managerial end users, the information systems function represents:
•A major functional area of business that is important to a business’ success
•An important factor affecting operational efficiency, employee productivity and morale, and
customer service and satisfaction.
•A major source of information and support needed to promote effective decision making by
managers.
•An important ingredient in developing competitive products and services that give an
organization a strategic advantage in the marketplace.
•A major part of the resources of an organization and its cost of doing business
•A vital, dynamic, and challenging career opportunity for many men and women.
1.10.1 Success and Failure with IT
Is important that students realize that information technology and information systems can be
mismanaged and misapplied so that they create both technological and business failure.
Figure 1.7 : Developing IS Solutions
Developing successful information system solutions to business problems is a major challenge
for business managers and professionals today.
As a business professional, you will be
responsible for proposing or developing new or improved use of information systems for your
company. As a business manager, you will also frequently manage the development efforts of
information systems specialists and other business end users. Most computer-based information
systems are conceived, designed, and implemented using some form of systematic development
process. Figure 1.7 shows that:
•Several major activities must be accomplished and managed in a complete IS development
cycle.
•In the development process, end users and information specialists design information system
applications based on an analysis of the business requirements of an organization.
•Investigating the economic or technical feasibility of a proposed application.
•Acquiring and learning how to use the software required to implement the new system, and
make improvements to maintain the business value of a system.
Challenges of Ethics and IT
As a prospective managerial end user and knowledge worker in a global society, you should also
become aware of the ethical responsibilities generated by the use of information technology. For
example:
•What uses of information technology might be considered improper, irresponsible, or harmful to
other individuals or to society?
•What is the proper use of an organization’s information resources?
•What does it take to be a responsible end user of information technology?
•How can you protect yourself from computer crime and other risks of information technology?
Ethical dimensions of information systems deal with ensuring that information technology and
information systems are not used in an improper or irresponsible manner against other
individuals or to society.
A major challenge for our global information society is to manage its information resources to
benefit all members of society while at the same time meeting the strategic goals of
organizations and nations. For example, we must use information systems to find more efficient,
profitable and socially responsible ways of using the world’s limited supplies of material,
energy, and other resources.
Challenges of IT Careers
•Information technology and its uses in information systems have created interesting, highly
paid, and challenging career opportunities.
•Employment opportunities in the field of information systems are excellent, as organizations
continue to expand their use of information technology.
•Employment surveys continually forecast shortages of qualified information systems personnel
in a variety of job categories.
•Job requirements in information systems are continually changing due to dynamic developments
in business and information technology.
The IS Function
The information systems function represents:
•A major functional area of business that is as important to business success as the functions of
accounting, finance, operations management, marketing, and human resource management.
•An important contributor to operational efficiency, employee productivity and morale, and
customer service and satisfaction.
•A major source of information and support needed to promote effective decision making by
managers and business professionals.
•A vital ingredient in developing competitive products and services that gives an organization a
strategic advantage in the global marketplace.
•A dynamic, rewarding, and challenging career opportunity for millions of men and women.
•A key component of the resources, infrastructure, and capabilities of today’s internetworked ebusiness enterprise.
1.11 Summary
An information system that uses computer hardware and software to perform its information
processing activities. The systems component that evaluates feedback to determine whether the
system is moving toward the achievement of its goal and then makes any necessary adjustments
to the input and processing components of the system to ensure that proper output is produced.
Facts or observations about physical phenomena or business transactions. More specifically,
data are objective measurements of the attributes (characteristics) of entities, such as people,
places, things, and events.
The act of converting data into information. Data, model, and
knowledge bases. End users and IS specialists develop and implement business/IT solutions to
problems and opportunities arising in businesses. Using the Internet, intranets, and extranets as
the IT platform for internal business operations, electronic commerce, and enterprise
collaboration. Businesses today are using Internet technologies to web-enable business processes
and create innovative e-business applications. The buying and selling, marketing and servicing,
and delivery and payment of products, services, and information over the Internet, intranets,
extranets, and other networks, between an internetworked enterprise and its prospects,
customers, suppliers, and other business partners. Anyone who uses an information system or the
information it produces. The use of groupware tools and the Internet, intranets, extranets, and
other computer networks to support and enhance communication, coordination, collaboration,
and resource sharing among teams and workgroups in an internetworked enterprise. Information
– Products is the degree to which information has the appropriate information that is useful for
users.
Information products include messages, reports, forms, and graphic images. IS
Knowledge Needed by Business Professionals: Fundamental concepts about information
systems, their technology, development, applications, and management. Managing the IT
resources of a company effectively and ethically to improve its business performance and value.
1.12 Keywords
Computer-Based Information System
End users and IS specialists
E-Business in Business
Information – Products
Information – Quality
Information System Model
Information System Activities
Knowledge Workers
1.13 Exercises
1. How can information technology support a company’s business processes and decision
making, and give it a competitive advantage?
2. How does the use of the Internet, intranets, and extranets by an e-business enterprise
support their e-commerce activities?
3. Why do big companies still fail in their use of information technology? What should
they be doing differently?
4. How can a manager demonstrate that he or she is a responsible end user of information
systems?
5. What are some of the toughest management challenges in developing IT solutions to
solve business problems and meet new e-business opportunities?
6. Why are there so many conceptual classifications of information systems? Why are they
typically integrated in information systems found in the real world?
7. In what major ways have the roles of information systems applications in business
expanded during the last 40 years? What is one major change you think will happen in
the next 10 years?
8. Can the business use of Internet technologies help a company gain a competitive
advantage?
MODULE 1
UNIT – 2
CONTENTS
2.1 Objectives
2.2 Mis: concept
2.3 Evolution of mis
2.4 Definition,
2.5 Role of the mis,
2.6 Impact of mis,
2.7 MIS and the user,
2.8 Elements of mis
2.9 Management as a control system
2.10 MIS support to the management,
2.11 Organization as system.
2.12 Organizational behavior
2.13 Organization effectiveness
2.14 Summary
2.15 Keywords
2.16 Exercise
2.1
Objectives
The main purpose of this chapter is to make students understand about basics of MIS like
definition, elements, role of MIS, how MIS helps to different users, how MIS works in a system
and organization.
2.2 Concept of MIS
A system is a combination or arrangement of parts to form an integrated whole according
to some common principles or rules. A system is a plan or method of doing something. A system
is an assembly of elements arranged in a local order to achieve certain objectives. The
organization is also a system of people where people are selected on the basis of number, quality
and ability and are placed in hierarchical order plan and execute the business activities to achieve
certain goals and objectives.
A system is a scientific method of inquiry, that is, observation, the formulation of an idea,
the testing of that idea, and the application of the results. The scientific method of problem
solving is systems analysis in its broadest sense. Data are facts and figures. However, data have
no value until they are compiled into a system and can provide information for decision making.
Information is what is used in the act of informing or the state of being informed.
Information includes knowledge acquired by some means. It is processed data which in turn is
collection of raw facts, observations and figures.
Management is usually defined as planning, organizing, directing, staffing and
controlling the business operation. This definition, which evolved from the work of Henri Fayol
in the early 1900s, defines what a manager does, but it is probably more appropriate to define
what management is rather than what management does. Management is the process of
allocating an organization's inputs, including human and economic resources, by planning,
organizing, directing, and controlling for the purpose of producing goods or services desired by
customers so that organizational objectives are accomplished. If management has knowledge of
the planning, organizing, directing, and controlling of the business, its decisions can be made on
the basis of facts, and decisions are more accurate and timely as a result.
2.3 Evolution Of MIS
When computers were first used in the mid-1950s, the applications were primarily the
simple processing of transaction records and preparation of business documents and standard
reports. This was termed Data Processing (DP) or Electronic Data Processing (EDP). By the
mid-1960s, many users and builders of information processing systems developed a more
comprehensive vision of what computers could do for organisations. This vision was termed as
Management Information System (MIS). It enlarged the scope of data processing to add systems
for supporting management and administrative activities including planning, scheduling, analysis
and decision making.
In the 1980s and 1990s, there was a merging of computer and communications
technologies. The organisational use of information technology was extended to Intranet
(internal networks), Local Area Networks (LAN), external networks that connects an
organisation to its suppliers and customers, and communications systems that enable employees
to work alone or in groups. Innovative applications of information technology created value by
providing customized services at any time and at any location, and information systems began to
prompt changes in organisational structures and processes.Although the scope of systems
providing information technology services has increased dramatically, the broad concept of MIS
as a system that combines transaction and operational requirements with administrative and
management support remains valid. The term MIS is still in common use despite a recent
tendency to use the simpler term ‘Information Systems’.
2.4 Definition of MIS
Management information systems are those systems that allow managers to make
decisions for the successful operation of businesses. MIS refers broadly to a computer-based
system that provides managers with the tools for organizing, evaluating and efficiently running
their departments. In order to provide past, present and prediction information, an MIS can
include software that helps in decision making, data resources such as databases, the hardware
resources of a system, decision support systems, people management and project management
applications, and any computerized processes that enable the department to run efficiently.
Within companies and large organizations, the department responsible for computer systems is
sometimes called the MIS department. Other names for MIS include IS (Information Services)
and IT (Information Technology).
'MIS' is a planned system of collecting, processing, storing and disseminating data in the
form of information needed to carry out the functions of management. According to Phillip
Kotler "A marketing information system consists of people, equipments, and procedures to
gather, sort, analyse, evaluate, and distribute needed, timely, and accurate information to
marketing decision makers."
The terms MIS and information system are often confused. Information systems include
systems that are not intended for decision making. MIS is sometimes referred to, in a restrictive
sense, as information technology management. That area of study should not be confused with
computer science. IT service management is a practitioner-focused discipline. MIS has also some
differences with Enterprise Resource Planning (ERP) as ERP incorporates elements that are not
necessarily focused on decision support.
Management information system would mean a set of computer based systems and
procedures implemented to help managers in their crucial job of decision making. The actual
process of MIS will involve the collection, organization, distribution and storage of organizationwide information for managerial analysis and control. It is better understood if these components
are understood. Management Information Systems (MIS), sometimes referred to as Information
Management and Systems, is the discipline covering the application of people, technologies, and
procedures collectively called information systems to solving business problems. Management
Information Systems are distinct from regular information systems in that they are used to
analyze other information systems applied in operational activities in the organization.
Academically, the term is commonly used to refer to the group of information management
methods tied to the automation or support of human decision making, Business computers were
used for the practical business of computing the payroll and keeping track of accounts payable
and receivable. As applications were developed that provided managers with information about
sales, inventories, and other data that would help in managing the enterprise, the term "MIS"
arose to describe these kinds of applications. Today, the term is used broadly in a number of
contexts and includes (but is not limited to): decision support systems, resource and people
management applications, project management, and database retrieval application.
Management information systems consist of computer resources, people, and procedures
used in the modern business enterprise. The term MIS stands for management information
systems. MIS also refers to the organization that develops and maintains most or all of the
computer systems in the enterprise so that managers can make decisions. The goal of the MIS
organization is to deliver information systems to the various levels of corporate managers. MIS
professionals create and support the computer system throughout the company. Trained and
educated to work with corporate computer systems, these professionals are responsible in some
way for nearly all of the computers, from the largest mainframe to the desktop and portable PCs.
2.5 Role OF MIS
A management information system is a system that has important tools to support,
analyze, deliver and add reliability to any organization. It ensures that appropriate data is
collected from various sources, processed and sent to needy destinations. Also this helps to solve
businesses problems. The term MIS is often used to submit to a group of information
management methods tied to the support of human decision making, e.g. Decision Support
Systems, Expert systems, and Executive information systems.
MIS stands for management information system. MIS is a mainframe or minicomputerbased system that provides predefined periodic reports on an organization's performance in
formats tailored to the informational needs of different management levels: strategic, tactical,
and operational.
At its basic level, MIS monitors day-to-day activities and distributes information on those
activities to middle management to support and enhance tactical decision-making. For example,
MIS not only gives middle managers the information they need to make informed decisions on
how to best organize resources to achieve their division's goals, but also reports on whether those
goals are being met. At the most senior levels of management, MIS provides the information
necessary to make informed strategic decisions. Upper management uses MIS output to evaluate
performance, manage resources, comply with regulatory requirements, and manage risk—
including assessing the effectiveness of existing risk management controls.
2.6 Impact OF MIS
MIS provides several advantages to the organization:
1. Ability to link and enable employees: Electronic communication increases the overall
amount of communication within a firm. The most important aspect is that people from
the various units of a corporation can interact with each other and thus horizontal
communication is promoted. All the obvious advantages of quicker information
availability is the outcome of this function of IT but it must also be remembered that too
much electronic communication leads to increased alienation of employees due to
increased impersonality.
2. Increases boundary spanning: An individual can access any information in any part of the
organization with the aid of the appropriate technology. This eliminates the need for the
repetition of information and thus promotes non-redundancy. If information provided is
adequate, one can deal with factors like business risk and uncertainties effectively.
3. Ability to store and retrieve information at any instance: means that the organization does
not have to rely solely on the fallibility of human error, which is subject to error and
erosion. Information can be stored, retrieved and communicated far more easily and
effectively. The information support improves the lack of knowledge, enriches
experience and improves analytical ability leading to better business judgment. It helps
managers to act decisively.
4. Helps in forecasting and long term planning: A disciplined IS creates a structured
database and knowledge base for all people in the organization. The information
available in such a form that it can be used either straight away or using blending and
analysis thereby saving manager’s valuable time.
5. Types of Systems
6. Management information systems can be used as a support to managers to provide a
competitive advantage. The system must support the goals of the organization. Most
organizations are structured along functional lines, and the typical systems are identified
as follows:
7. Accounting management information systems: All accounting reports are shared by all
levels of accounting managers.
8. Financial management information systems: The financial management information
system provides financial information to all financial managers within an organization
including the chief financial officer. The chief financial officer analyzes historical and
current financial activity, projects future financial needs, and monitors and controls the
use of funds over time using the information developed by the MIS department.
9. Manufacturing management information systems: More than any functional area,
operations have been impacted by great advances in technology. As a result,
manufacturing operations have changed. For instance, inventories are provided just in
time so that great amounts of money are not spent for warehousing huge inventories. In
some instances, raw materials are even processed on railroad cars waiting to be sent
directly to the factory. Thus there is no need for warehousing.
10. Marketing management information systems: A marketing management information
system supports managerial activity in the area of product development, distribution,
pricing decisions, promotional effectiveness, and sales forecasting. More than any other
functional areas, marketing systems rely on external sources of data. These sources
include competition and customers, for example.
11. Human resources management information systems: Human resources management
information systems are concerned with activities related to workers, managers, and other
individuals employed by the organization. Because the personnel function relates to all
other areas in business, the human resources management information system plays a
valuable role in ensuring organizational success. Activities performed by the human
resources management information systems include, work-force analysis and planning,
hiring, training, and job assignments.
12. The above are examples of the major management information systems. There may be
other management information systems if the company is identified by different
functional areas.
2.7 MIS And The USER
Management in all business and human organization activity is simply the act of getting
people together to accomplish desired goals and objectives. Management comprises planning,
organizing, staffing, leading or directing, and controlling an organization (a group of one or more
people or entities) or effort for the purpose of accomplishing a goal. Re-sourcing encompasses
the deployment and manipulation of human resources, financial resources, technological
resources, and natural resources.
Management can also refer to the person or people who perform the act(s) of management.
The various decisions in management are:
Steps in Management
Decision
Planning
A selection from various alternativesstrategies, resources and methods etc.
Organizing
A selection of combination out of various
combinations of the goals, resources,
method and authority.
Staffing
Providing proper man power complement.
Directing
Choosing a method of directing the efforts
in the organization for the accomplishment
of the goals
Coordinating and controlling
Coordinating the efforts for optimum
results
and
selection
of
exceptional
conditions and decision guidelines.
Table 2.1: Decisions in management
2.8 Elements OF MIS
The three elements of MIS are as follows:
1. Management. There are many different definitions of Management, which vary from
author to author, situation to situation and from occasion to occasion. A general
definition is: “The art of getting things done through people, with the people”.
Management may be thought of as the sum total of these activities which relate to the
laying down of certain plans, policies and purposes, securing men, money, materials
and machinery needed for their goal achievements; putting all of them into operation,
checking their performance and providing material rewards and mental satisfaction to
the men engaged in the operation.
2. Information. In MIS, Information is data that has been processed into meaningful
format for use by decision makers within an organisation. Thus, Information is a
source for increment in knowledge. Information must possess certain qualities to be
useful.
3. System (i.e., Information System). We have discussed systems in the earlier chapter.
An efficient system uses its inputs economically in producing its outputs. An
effective system produces the outputs that best meet the objectives of formal
information support to the members of the organization.
These are the three basic elements or basic pillars on which MIS stands. These will be discussed
in detail in the following discussions.
An organization needs information for following basic managerial activities, such as:
1. Planning
2. Monitoring performance
3. Control
4. Decision making
5. Recording and processing transactions
o Communication.
Information required by managers varies according to their specific role.
Strategic level
Tactical level
Operational level
FIGURE:2.1 LEVELS OF MANAGEMENT.
1. Strategic (Top) level — Top-level managers or Strategic managers are involved with
long-term objective setting and overall control of the organisation. However, strategic
decision making may still involve short-term decision making.
2. Tactical (Middle) level — Tactical managers are involved with some detailed operational
decisions as well as implementing the policies of strategic management. They may be
viewed as ‘administrative’ level.
3. Operational (Lower) level — Operational managers are involved in day-to-day decision
making in an organisation.
All levels of management are involved in planning and controlling activities, although the mix
varies according to the level of management.
P lanning activities
Strategic level
Tactical level
Operational level
Controlling
FIGURE:2.2 PLANNING AND CONTROLLING FUNCTIONS OF
DIFFERENT LEVELS OF MANAGEMENT.
2.9 Management As A Control System
Information systems are focused on the requirements of management and present
information in different ways.
Executive Support System
Management level
Knowledge level
Management Information System
Decision Support System
Knowledge Work System
Office Automation System
Operational
Level
Management
level
Knowledge
level
Tactical Level
Strategic
Level
Transaction P rocessing System
FIGURE: 2.3 DIFFERENT INFORMATION SYSTEMS FOR DIFFERENT
MANAGERIAL LEVELS.
Following are major types of Information Systems:
1. Executive Support System (ESS) — ESS is an interactive method of allowing
executives and managers to access information for monitoring the operations of the
organisation and scanning general business conditions.
2. Executive Information System (EIS) — EIS try to provide information when it is
needed by managers, rather than wait for specific reports to be printed from other
information systems.
3. Management Information System (MIS) — MIS is an integrated, computer-based,
user-machine system that provides information for supporting operations and decision
making functions.
4. Decision Support System (DSS) — DSS are computer-based systems that helps
decision makers confronts ill-structured problems through direct interaction with data
and analysis models.
5. Knowledge Work System (KWS) — KWS is a computerized package designed to
provide knowledge workers with the means to create and integrate new knowledge
into an organisation.
6. Office Automation System (OAS) — OAS is a computerised package designed to
increase the productivity of data workers by providing access to basic systems such as
electronic mail and word-processing.
7. Transaction Processing System (TPS) — TPS is a computerised package designed to
record the basic transaction data within an organisation.
Support Systems provide support or assistance in respective field of action, whereas Information
System only reveals information (i.e., makes the unknown, known).
A system is a set of components that operate together to achieve a common purpose.
Thus a management information system collects, transmits, processes, and stores data on an
organization's resources, programs, and accomplishments. The system makes possible the
conversion of these data into management information for use by decision makers within the
organization. A management information system, therefore, produces information that supports
the management functions of an organization.
MIS personnel must be technically qualified to work with computer hardware, software,
and computer information systems. MIS managers, once they have risen through their technical
ranks of their organization to become managers, must remember that they are no longer doing
the technical work. They must cross over from being technicians to become managers. Their job
changes from being technicians to being systems managers who manage other people's technical
work. They must see themselves as needing to solve the business problems of the user, and not
just of the data-processing department.
MIS managers are in charge of the systems development operations for their firm.
Systems development requires four stages when developing a system for any phase of the
organization:
Phase I is systems planning. The systems team must investigate the initial problem by
determining what the problem is and developing a feasibility study for management to review.
Phase II identifies the requirements for the systems. It includes the systems analysis, the user
requirements, necessary hardware and software, and a conceptional design for the system. Top
management then reviews the systems analysis and design.
Phase III involves the development of the systems. This involves developing technical support
and technical specifications, reviewing users' procedures control, designing the system, testing
the system, and providing user training for the system. At this time, management again reviews
and decides on whether to implement the system.
Phase IV is the implementation of the system. The new system is converted from the old system,
and the new system is implemented and then refined. There must then be ongoing maintenance
and reevaluation of the system to see if it continues to meet the needs of the business.
2.10 MIS Support To The Management
There are three mutually exclusive approaches towards MIS development.
Top Down Approach
The Top level defines the business objective/constraints and other parameters. A model of
information flow is designed. Thus, several sub-systems and their modules come into existence.
The information system so developed is viewed as a total system fully integrated rather than as a
collection of loosely coordinated sub-systems.
The advantage of this system is that, since the top level management becomes eager in
development of top down approach, the development procedure seldom faces resource
requirement.
The disadvantage is that, the lower level may not be in the stage to adapt the new MIS. As a
consequent, they may not be fully co-operative and participative in the system development and
implementation process. Moreover, the functions/modules defined by the top level, may, in
practical operation, need certain alterations, which the lower level may understand but may not
be able to put to reality because it has been designed by someone above his rank.
Bottom Up Approach
Here, the development of MIS starts right from the grass-root level. Life-stream systems are
identified and developed. Life stream system is those systems, which are essential for the day-today business activities. The examples of life stream include: payroll, sales order, etc. After
ascertaining these, data/information requirement and flows are identified. Steps are taken to
ensure data-flow and data-integration between these sub-systems. The next stage is the addition
of decision models and various planning models for supporting the planning activities involved
in the model base facilitate and support higher management activities.
The advantage of this approach is that, it is more realistic, more practical and less theoretical.
The disadvantage of this approach is that, it may take more time to interpret the data/information
flow and data-integration part.
Integrated approach
The Integrated approach is a combination of Top-down and Bottom-up approaches, where all
levels of managers influences the design of the system.
Top management identifies the structure and design. This presented to the lower level
management for making observations and suggesting alterative views and modifications. The
revised design is drawn and evaluated by the top level and sent down again in a modified form
for further consideration, if required. This is an iterative process, which is continued until a final
design is achieved, that satisfies the requirements at all levels of the organisation. Then this
design is transformed into operation and implemented into reality.
This approach aims to eradicate the disadvantages of the other two systems and simultaneously
amalgamate the advantages of the other two approaches. If used impartially, the integrated
approach, can neutrally overcome the limitations of the above top-down and bottom-up
approaches.
1.
The MIS will analyse the sales data to highlight sales trends of different product lines, to
enable decisions to be made as to whether the product needs special promotion, or whether
it should be discontinued.
A. The MIS deals with internal and external information.
The internal information can be got quite easily from the various systems on the company
network, e.g. sales figures for each product line.
The external information is gathered from:
1.
Intelligence about competitors’ activities. This can come through reading articles in the
press, leaks, or even industrial espionage.
2.
Information about population shifts. As the population gets older, the less likely they
are to be interested in pop-music or customising cars, but are more likely to be
interested in weight-loss products or holidays for the over 50s.
3.
Economic and social factors. Sales of cars would go down in an area where a major
employer had just closed down a plant.
4.
Government Legislation. Financial forecasts would change if the minimum wage rose.
B. The MIS can be used to gather information from both formal and informal flows of
information.
1. A formal flow of information is one in which a procedure is adopted, e.g. the
downloading of sales figures from several branches first thing on a Monday morning.
External data can be collected using specialised data collection agencies such as Dun
and Bradstreet who produce economic data for academic and commercial
organisations. Formal flows can also come from people working on the same
document at several locations, or by use of e-mail, or by use of company intranets.
2. Informal information flows come from chance meetings, reading magazines or
newspapers, or watching the news on TV
C. The MIS must produce information for managers on three levels:
1. Operational – day-to-day decisions such as ordering in more stock
2. Tactical – decisions that have a short to medium term effect, e.g. introducing a new
product to a particular retail outlet;
3. Strategic – long term decisions that will affect the future of the organisation, e.g.
whether to open a new store, or take over a rival concern.
2.11 Organizations As System
MIS is not as important for smaller organizations as it is for the larger corporations. The smaller
locally run businesses are run usually by owners who rarely need instant access of information
that larger companies require. Large corporate with varied product lines definitely can not do
without a computer based MIS in order to survive and keep pace with competitors.
An MIS performs various roles in an organization, namely:—
1. Supports day-to-day business operations
2. Supports managerial decision-making
3. Supports strategic decision-making and competitive advantage
4. Optimizing operational cost
5. Provide timely and accurate information
6. Provide expert advice to the managers on selected domains
For example, an organization may use MIS to keep track of inventory, evaluate sales trend of
different products, keep information about client and employees, etc.
MIS provides information to all levels of management organizations for the following purposes
1. To define the objectives of the organization
2. To formulate strategies and policies to achieve the objectives set by the management
3. To report the organization performance to tax authorities, shareholders, regulatory
authorities and other stakeholders such as suppliers and customers, etc.
4. To prepare future plans for short and long term basis
5. To exercise day-to-day control on various operations in the different functional areas in
the organization
6. To allocate different type of resources to different functional areas
7. To allow management by exception
8. To develop database of business partners and to devise procedures to deal with them
9. To develop the training tools for the new recruits in the organization at all levels.
Information Outputs
CAPTURE
Reports
External Data
Processing
Internal Data
Storage
Query Responses
Provision of Access
Expert System Advice
MANAGEMENT
INFORMATION
SYSTEM
Environment
Organisation
Fig. 2.4 Organizations System
A Management Information System is a computer system that is usually on a mainframe or
minicomputer, designed to provide management personnel with up-to date information on an
organisations performance, e.g. inventory and sales. These systems output information in a
form that is useable by managers at all levels of the organisation: strategic, tactical and
operational. A typical use could be for sales reps from different areas each reporting to an
area manager who then reports to a district manager, who collates these reports and then
passes, processed reports to the director of area operations at HQ. Now the sales reps just add
reports to the Management Information System, the MIS does all the processing and the
director looks at it at his convenience.
In basic terms the role of the Management Information System is to convert data from both
external and internal sources into information that can be used to aid in making effective
decisions for planning, directing and controlling the activities for which they are responsible.
2.12 Organizational behavior
Organizational behavior can be termed as the behavior of persons in an organization. It is an
important aspect to understand others behavior in an organization. The understanding of other
behavior helps in influencing them. Human behavior is directed by external and internal forces.
The appropriate analysis of these forces proves useful in understanding the behavior of other
persons in the organization. The understanding of behavior has proved useful for the managers.
It helps them in directing human energy in accomplishing the set goals of the organization. The
concept and study of organizational behavior delivers guidelines for influencing the behavior of
persons in the organization. According to Keith Davis, it is an academic discipline that is
concerned with understanding and relating human behavior in an organizational behavior. It
focuses on the complex human factor in the organizations. It is done through identifying the
causes and effects of the observed particular behavior. According to Joe Kelly, Organizational
behavior can be explained as the systematic study of the nature of the organizations. It
thoroughly focuses on factors such as the origination of organization, its growth and
development and organization effect on its members and other relative organizations.
The study of OB has proved beneficial in many ways. The benefits of studying OB are as
follows:
1. OB is a systematic study of the actions and attitudes that people exhibit within the
organization.
It
also
helps
any
individual
to
understand
his
behavior.
2. OB has proved instrumental for managers in getting their work done effectively.
3. OB lays emphasis on the interaction and relations between organization and individual
behavior. It works as a positive attempt in fulfilling psychological agreement between
organization
and
the
individuals.
4. OB delivers job satisfaction to employees and helps in developing work-related
behavior
5.
6.
OB
in
helps
OB
in
helps
the
building
in
motivating
building
organization.
climate
cordial
in
the
industrial
organization.
relations.
7. OB smoothes the progress of marketing by providing deeper insight of consumer
behavior
and
motivating
and
managing
field
employees.
8. OB helps in predicting behavior and its application in meaningful way delivers
effectiveness
9.
OB
in
implies
effective
the
management
organization.
of
human
resources.
10. OB helps in improving functional behavior within the organization. It helps in
attaining higher productivity, effectiveness, efficiency, organizational citizenship. It
works effectively in reducing dysfunctional behavior at work place like absenteeism,
employee turnover, dissatisfaction, tardiness etc.
2.13 Organization Effectiveness On MIS
The Department of Inland Security of any Country/State has Detective or Spy or Informer — by
whatever name — to gather information, which is reported to higher authority and then to
highest authority, as per requirement. Decision and subsequent actions follows. This procedure,
or similar procedure, had been in operation all over World, since human civilisation. Computers
are used now-a-days to assist searching (e.g. photo matching of criminals/wanted; quicken
signature or other verification(s), etc.). Thus we see that computer is used just as an aid or
assistant.
Gone are the days of Rajas and Maharajas. However, in that era, businessmen used to appoint
special persons to ‘hear’ the incomes and expenses from the accountant and accordingly report
them. The word “audit” came from ‘audire’ – which means ‘to hear’. This concept has been still
in operation, under the name “Auditing”. There are professionals (the Chartered Accountants),
who does the job of this ‘listening’. Presently, Computers are used in auditing: Computer
Assisted Audit Techniques. Furthermore, Computers are still used in Accounting-procedure,
which was discovered for manual operation. This does not mean that Accounting and/or
Auditing can not be performed without computers.
Conceptually, Management Information System can exist without Computer; but it is the power
if computer which makes MIS feasible. MIS are characterised mainly by their ability to produce
periodic reports (e.g. quarterly sales forecast, etc.), compared with set target (e.g. budget) and
providing required representation of analysis to be made thereof — all done in minimum time
with minimum human involvement.
Following are the advantages of using computer for MIS:–
1. Data access from several (remote) locations. It is possible to assimilate data from multiple
(remotely situated) business locations, where these data are inputted and validated. After
data processing/analysis, reports can be sent back to the remote locations, if required.
2. Data security.
3. Data confidentiality. The confidential nature of data and information can be maintained in
a computer system. With this application, the MIS becomes a safe application in the
organisation.
4. Data storage.
5. Faster computation.
6. Integrates working of different information sub-system.
7. Widened scope of analysis.
8. Better decision making.
9. Increased effectiveness of information system.
10. User-friendly.
11. More comprehensive information. The use of computer for MIS enables system experts to
provide more complete and wide-ranging information to executives on business matters,
so as to assist better decision making.
12. Easy access using non-procedural languages (4GLs). The software, an integral part of a
computer system, further enhances the capability of hardware. The software is available to
handle the procedural and non-procedural data processing. For example, if one wants to
use a formula to calculate a certain result, an efficient language is available to handle the
situation. Whereas, if one is not required to use a formula but have to resort every time to
a new procedure, the non-procedural languages are available.
An effective organizational structure shall facilitate working relationships between various
entities in the organization and may improve the working efficiency within the organizational
units. Organization shall retain a set order and control to enable monitoring the processes.
Organization shall support command for coping with a mix of orders and a change of conditions
while performing work. Organization shall allow for application of individual skills to enable
high flexibility and apply creativity. When a business expands, the chain of command will
lengthen and the spans of control will widen. When an organization comes to age, the flexibility
will decrease and the creativity will fatigue. Therefore organizational structures shall be altered
from time to time to enable recovery. If such alteration is prevented internally, the final escape is
to turn down the organization to prepare for a re-launch in an entirely new set up. It should be an
open system capable of adjusting itself to the changing environment.
1.14 Summary
Management can be defines as a formal method of collecting timely information in a presentable
form, in order to facilitate effective decision-making and implementation, in order to carry out
organizational operations for the purpose of achieving the organization goals.MIS is a system
that aids management in making, carrying out and controlling decisions. Management in all
business and human organization activity is simply the act of getting people together to
accomplish desired goals and objectives.
1.15 Keywords
Organization Behavior
Planning
Control
Data Processing (DP) or Electronic Data Processing (EDP)
Decision Support System
1.16 Exercise
1. What is the main purpose of MIS?
2. Name some advantages of MIS.
3. What is the role of MIS in a system?
4. How MIS will make the control of the organization more easier?
5. What is the main objective of MIS?
6. Define MIS.
7. Explain the elements of MIS.
8. Explain the structure of MIS.
9. Explain how MIS simplifies control?
10. How do MIS aid the top management in controlling?
MODULE 1
UNIT-3
CONTENTS
3.1 Objectives
3.2 Introduction
3.3 Nature of Planning
3.4 Characterstics of Planning
3.5 Planning Process
3.6
GUIDELINES
TO
ENSURE
IMPLEMENTATION
3.7 Types of planning
3.8 Advantages of Planning
3.9 Limitation of Planning
3.10 Summary
3.11 Keywords
3.12 Exercises
3.13 References
3.1 Objectives
The mail goal of this chapter to study about1. What is planning?
2. Types of planning
3. Planning process
SUCCESSFUL
PLANNING
AND
4. Advantages and Disadvantages of Planning
5. Guidelines to implement planning
3.2 Introduction
Planning is the process that involve the determination of future course of action, that is why an
action, what action, how to a action, and when to take a action. Planning means looking ahead
and chalking out future courses of action to be followed. It is a preparatory step. It is a systematic
activity which determines when, how and who is going to perform a specific job. Planning is a
detailed programme regarding future courses of action. It is rightly said “Well plan is half done”.
Therefore planning takes into consideration available & prospective human and physical
resources of the organization so as to get effective co-ordination, contribution & perfect
adjustment. It is the basic management function which includes formulation of one or more
detailed plans to achieve optimum balance of needs or demands with the available resources.
According to Urwick, “Planning is a mental predisposition to do things in orderly way, to
think before acting and to act in the light of facts rather than guesses”. Planning is deciding best
alternative among others to perform different managerial functions in order to achieve
predetermined goals.
According to Koontz & O’Donell, “Planning is deciding in advance what to do, how to
do and who is to do it. Planning bridges the gap between where we are to, where we want to go.
It makes possible things to occur which would not otherwise occur”.
According to Terry- Planning is the selection and relation of facts and making and using
of assumptions regarding the future in the visualization and formulation of proposed activities
believed necessary to achieve the desired objectives.
According to Mcfarland- Planning may be broadly defined as a concept of executive
action that embodies the skills of anticipating, influencing, and controlling the nature and
direction of change.
The key terms in planning are defined as follows:
Vision Nonspecific directional and motivational guidance for the entire organization. Top
managers normally provide a vision for the business. It is the most emotional of the four levels in
the hierarchy of purposes.
Mission An organization's reason for being. It is concerned with scope of the business and what
distinguishes this business from similar businesses. Mission reflects the culture and values of top
management.
Objectives Objectives refine the mission and address key issues within the organization such as
market standing, innovation, productivity, physical and financial resources, profitability,
management and worker performance and efficiency. They are expected to be general,
observable, challenging, and untimed.
Goals Goals are specific statements of anticipated results that further define the organization's
objectives. They are expected to be SMART: Specific, Measurable, Attainable, Rewarding, and
Timed.
Development of tactics is a fifth level of planning. Tactics, the most specific and narrow plans,
describe who, what, when, where and how activities will take place to accomplish a goal.
Features of Planning

Process that determines the future course of actions

Future oriented requiring forecasting, correct forecasting of future situation leads to
correct decision about future course of actions

Selecting the best among the alternatives

Objective oriented and feasible

At all levels of management as all levels are involved with future course

Flexible as it is future oriented which is dynamic

Continuous managerial function involving complex processes of
 Perception
 Analysis
 Conceptual thought
 Communication
 decision and action
3.3 Nature of Planning

Planning An Open System Approach:

Takes inputs from the environment, processes these and exports outputs to environment
the approach indicates the identification of gap between current status and the desired
status a

Decides the action the bridge the gap ,

Actions are influenced by a variety of environment factors – PESTEL

Pervasiveness of Planning

Planning exist at all level of management
3.4 Characterstics of Planning
1. Planning is goal-oriented.
a. Planning is made to achieve desired objective of business.
b. The goals established should general acceptance otherwise individual efforts &
energies will go misguided and misdirected.
c. Planning identifies the action that would lead to desired goals quickly &
economically.
d. It provides sense of direction to various activities. E.g. Maruti Udhyog is trying to
capture once again Indian Car Market by launching diesel models.
2. Planning is looking ahead.
a. Planning is done for future.
b. It requires peeping in future, analyzing it and predicting it.
c. Thus planning is based on forecasting.
d. A plan is a synthesis of forecast.
e. It is a mental predisposition for things to happen in future.
3. Planning is an intellectual process.
a. Planning is a mental exercise involving creative thinking, sound judgement and
imagination.
b. It is not a mere guesswork but a rotational thinking.
c. A manager can prepare sound plans only if he has sound judgement, foresight and
imagination.
d. Planning is always based on goals, facts and considered estimates.
4. Planning involves choice & decision making.
a. Planning essentially involves choice among various alternatives.
b. Therefore, if there is only one possible course of action, there is no need planning
because there is no choice.
c. Thus, decision making is an integral part of planning.
d. A manager is surrounded by no. of alternatives. He has to pick the best depending
upon requirements & resources of the enterprises.
5. Planning is the primary function of management / Primacy of Planning.
a. Planning lays foundation for other functions of management.
b. It serves as a guide for organizing, staffing, directing and controlling.
c. All the functions of management are performed within the framework of plans
laid out.
d. Therefore planning is the basic or fundamental function of management.
6. Planning is a Continuous Process.
a. Planning is a never ending function due to the dynamic business environment.
b. Plans are also prepared for specific period f time and at the end of that period,
plans are subjected to revaluation and review in the light of new requirements and
changing conditions.
c. Planning never comes into end till the enterprise exists issues, problems may keep
cropping up and they have to be tackled by planning effectively.
7. Planning is all Pervasive.
a. It is required at all levels of management and in all departments of enterprise.
b. Of course, the scope of planning may differ from one level to another.
c. The top level may be more concerned about planning the organization as a whole
whereas the middle level may be more specific in departmental plans and the
lower level plans implementation of the same.
8. Planning is designed for efficiency.
a. Planning leads to accompishment of objectives at the minimum possible cost.
b. It avoids wastage of resources and ensures adequate and optimum utilization of
resources.
c. A plan is worthless or useless if it does not value the cost incurred on it.
d. Therefore planning must lead to saving of time, effort and money.
e. Planning leads to proper utilization of men, money, materials, methods and
machines.
9. Planning is Flexible.
a. Planning is done for the future.
b. Since future is unpredictable, planning must provide enough room to cope with
the changes in customer’s demand, competition, govt. policies etc.
c. Under changed circumstances, the original plan of action must be revised and
updated to male it more practical.
Figure 3.1 Necessity of Planning
3.5 Planning Process
Refer to Figure 3.2.
Figure 3.2: Planning Process
Perception of Opportunities

Preliminary look at possible opportunities

Understands SWOT

By studying the internal environment for strength and weakness and external
environment for opportunities and strength.
Establishing Objectives

Planning requires a systematic approach.

Planning starts with the setting of goals and objectives to be achieved.

Objectives provide a rationale for undertaking various activities as well as indicate
direction of efforts.

Moreover objectives focus the attention of managers on the end results to be
achieved.

As a matter of fact, objectives provide nucleus to the planning process. Therefore,
objectives should be stated in a clear, precise and unambiguous language. Otherwise
the activities undertaken are bound to be ineffective.

As far as possible, objectives should be stated in quantitative terms. For example,
Number of men working, wages given, units produced, etc. But such an objective
cannot be stated in quantitative terms like performance of quality control manager,
effectiveness of personnel manager.

Such goals should be specified in qualitative terms.

Hence objectives should be practical, acceptable, workable and achievable.
Establishment of Planning Premises

Planning premises are the assumptions about the lively shape of events in future.

They serve as a basis of planning.

Establishment of planning premises is concerned with determining where one
tends to deviate from the actual plans and causes of such deviations.

It is to find out what obstacles are there in the way of business during the course of
operations.

Establishment of planning premises is concerned to take such steps that avoids
these obstacles to a great extent.

Planning premises may be internal or external. Internal includes capital investment
policy, management labour relations, philosophy of management, etc. Whereas
external includes socio- economic, political and economical changes.

Internal premises are controllable whereas external are non- controllable.
Identification of alternatives

When forecast are available and premises are established, a number of
alternative course of actions have to be considered.

For this purpose, each and every alternative will be evaluated by weighing its
pros and cons in the light of resources available and requirements of the
organization.

The merits, demerits as well as the consequences of each alternative must be
examined before the choice is being made.

After objective and scientific evaluation, the best alternative is chosen.

The planners should take help of various quantitative techniques to judge the
stability of an alternative.
Evaluation of alternatives and Formulation of derivative plans
 Feasible alternatives are taken for detailed study

Evaluation of the alternatives to understand its contribution to organizational
objectives in terms of resources and constraints

Derivative plans are the sub plans or secondary plans which help in the
achievement of main plan.

Secondary plans will flow from the basic plan. These are meant to support and
expediate the achievement of basic plans.

These detail plans include policies, procedures, rules, programmes, budgets,
schedules, etc. For example, if profit maximization is the main aim of the
enterprise, derivative plans will include sales maximization, production
maximization, and cost minimization.

Derivative plans indicate time schedule and sequence of accomplishing various
tasks.
Choice of alternative plans

The best plan in terms of contribution to the business objectives in the light of the
resources and constraints is chosen

The planner needs to select more than one plan in event of changes. Such plans
are contingence plans
Formulating of Supporting Plans
 Plan supporting the main plan
 Derivative plans like
 Planning for buying equipments
 Buying raw materials
 Recruitment plans
 Training plans
Establishing sequences of activities

The sequence of the plan is decided so as to put the plan in action

Based on the plans the responsibility of implementation and its control is decided

Budget preparation and allocation is done
3.6 GUIDELINES TO ENSURE SUCCESSFUL PLANNING
AND IMPLEMENTATION
A common failure in many kinds of planning is that the plan is never really implemented.
Instead, all focus is on writing a plan document. Too often, the plan sits collecting dust on a
shelf. Therefore, most of the following guidelines help to ensure that the planning process is
carried out completely and is implemented completely -- or, deviations from the intended plan
are recognized and managed accordingly.
Involve the Right People in the Planning Process
Going back to the reference to systems, it's critical that all parts of the system continue to
exchange feedback in order to function effectively. This is true no matter what type of system.
When planning, get input from everyone who will responsible to carry out parts of the plan,
along with representative from groups who will be effected by the plan. Of course, people also
should be involved in they will be responsible to review and authorize the plan.
Write Down the Planning Information and Communicate it Widely
New managers, in particular, often forget that others don't know what these managers know.
Even if managers do communicate their intentions and plans verbally, chances are great that
others won't completely hear or understand what the manager wants done. Also, as plans change,
it's extremely difficult to remember who is supposed to be doing what and according to which
version of the plan. Key stakeholders (employees, management, board members, funders,
investor, customers, clients, etc.) may request copies of various types of plans. Therefore, it's
critical to write plans down and communicate them widely.
Goals and Objectives Should Be SMARTER
SMARTER is an acronym, that is, a word composed by joining letters from different words in a
phrase or set of words. In this case, a SMARTER goal or objective is:
Specific: For example, it's difficult to know what someone should be doing if they are to pursue
the goal to "work harder". It's easier to recognize "Write a paper".
Measurable: It's difficult to know what the scope of "Writing a paper" really is. It's easier to
appreciate that effort if the goal is "Write a 30-page paper".
Acceptable: If one has to take responsibility for pursuit of a goal, the goal should be acceptable
to them. For example, writer may not likely to follow the directions of someone telling him/her
to write a 30-page paper when he/she also have to five other papers to write. However, if one
involves him/her in setting the goal so he/she can change his/her other commitments or modify
the goal, he/she’s much more likely to accept pursuit of the goal as well.
Realistic: Even if one accept responsibility to pursue a goal that is specific and measurable, the
goal won't be useful to them or others if, for example, the goal is to "Write a 30-page paper in the
next 10 seconds".
Time frame: It may mean more to others if writer commit to a realistic goal to "Write a 30-page
paper in one week". However, it'll mean more to others (particularly if they are planning to help
me or guide me to reach the goal) if he/she specify that he/she will write one page a day for 30
days, rather than including the possibility that he/she will write all 30 pages in last day of the 30day period.
Extending: The goal should stretch the performer's capabilities. For example, Author might be
more interested in writing a 30-page paper if the topic of the paper or the way that I write it will
extend my capabilities.
Build in Accountability (Regularly Review Who's Doing What and By When?)
Plans should specify who is responsible for achieving each result, including goals and objectives.
Dates should be set for completion of each result, as well. Responsible parties should regularly
review status of the plan. Be sure to have someone of authority "sign off" on the plan, including
putting their signature on the plan to indicate they agree with and support its contents. Include
responsibilities in policies, procedures, job descriptions, performance review processes, etc.
Note Deviations from the Plan and Replan Accordingly
It's OK to deviate from the plan. The plan is not a set of rules. It's an overall guideline. As
important as following the plan is noticing deviations and adjusting the plan accordingly.
Evaluate Planning Process and the Plan
During the planning process, regularly collect feedback from participants. Do they agree with the
planning process? If not, what don't they like and how could it be done better? In large, ongoing
planning processes (such as strategic planning, business planning, project planning, etc.), it's
critical to collect this kind of feedback regularly.
During regular reviews of implementation of the plan, assess if goals are being achieved
or not. If not, were goals realistic? Do responsible parties have the resources necessary to
achieve the goals and objectives? Should goals be changed? Should more priority be placed on
achieving the goals? What needs to be done? Finally, take 10 minutes to write down how the
planning process could have been done better. File it away and read it the next time you conduct
the planning process.
Recurring Planning Process is at Least as Important as Plan Document
Far too often, primary emphasis is placed on the plan document. This is extremely unfortunate
because the real treasure of planning is the planning process itself. During planning, planners
learn a great deal from ongoing analysis, reflection, discussion, debates and dialogue around
issues and goals in the system. Perhaps there is no better example of misplaced priorities in
planning than in business ethics. Far too often, people put emphasis on written codes of ethics
and codes of conduct. While these documents certainly are important, at least as important is
conducting ongoing communications around these documents. The ongoing communications are
what sensitize people to understanding and following the values and behaviors suggested in the
codes.
Nature of the Process Should Be Compatible to Nature of Planners
A prominent example of this type of potential problem is when planners don't prefer the "top
down" or "bottom up", "linear" type of planning (for example, going from general to specific
along the process of an environmental scan, SWOT analysis, mission/vision/values, issues and
goals, strategies, objectives, timelines, etc.) There are other ways to conduct planning. For an
overview of various methods, see (in the following, the models are applied to the strategic
planning
process,
but
generally
are
eligible
for
use
elsewhere):
Basic Overview of Various Planning Models
Critical -- But Frequently Missing Step -- Acknowledgement and Celebration of Results
It's easy for planners to become tired and even cynical about the planning process. One of the
reasons for this problem is very likely that far too often, emphasis is placed on achieving the
results. Once the desired results are achieved, new ones are quickly established. The process can
seem like having to solve one problem after another, with no real end in sight. Yet when one
really thinks about it, it's a major accomplishment to carefully analyze a situation, involve others
in a plan to do something about it, work together to carry out the plan and actually see some
results.
3.7 Types of planning
Planning can be differentiated based on dimensions such as :
Table 3.1 : Types of Planning
Strategic Planning
Strategic planning is one specific type of planning. Strategies are the outcome of strategic
planning. An organization's strategies define the business the firm is in, the criteria for entering
the business, and the basic actions the organization will follow in conducting its business
Strategies are major plans that commit large amounts of the organization's resources to proposed
actions, designed to achieve its major objectives and goals. Strategic planning is the process by
which the organization's strategies are determined. In the process, three basic questions are
answered:
1. Where are we now?
2. Where do we want to be?
3. How do we get there?
The "where are we now?" question is answered through the first three steps of the strategy
formulation process:
(1) perform internal and external environmental analyses
(2) review vision, mission and objectives
(3) determine SWOT: Strengths, Weaknesses, Opportunities and Threats. SWOT analysis
requires managers to be honest, self-disciplined and thorough. Going on to strategy
choices without a comprehensive SWOT analysis is risky.
Strengths and weaknesses come from the internal environment of the firm. Strengths can be
exploited, built upon and made key to accomplishment of mission and objectives. Strengths
reflect past accomplishments in production, financial, marketing and human resource
management. Weaknesses are internal characteristics that have the potential to limit
accomplishment of mission and objectives. Weaknesses may be so important that they need to be
addressed before any further strategic planning steps are taken.
Opportunities and threats are uncontrollable by management because they are external to the
firm. Opportunities provide the firm the possibility of a major improvement. Threats may stand
in the way of a firm reaching its mission and objectives.
Operational Planning
It defines how you will operate in practice to implement your action and monitoring plans – what
your capacity needs are, how you will engage resources, how you will deal with risks, and how
you will ensure sustainability of the project’s achievements. Operational planning is the process
of assuring that specific tasks are carried out effectively. An operational planning is a subset of
strategic work plan. An operational plan is the basis for, and justification of an annual operating
budget request. Therefore, a five-year strategic plan would need five operational plans funded by
five operating budgets. Like a strategic plan, an operational plan addresses four questions:

Where are we Stand now ?

what do we want to Achieve?

How do we get there?

How do we measure our progress?
Operational plans should be prepared by the people who will be involved in implementation.
There is often a need for significant cross-departmental dialogue as plans created by one part of
the organisation inevitably have implications for other parts. A operational planning allow us:

Achievement of Goals

Concentration of effort

Clarity around cost/expenditure issues

Confidence of staff

Enhanced partnership working

Assurance of success for Health

Improvement/Development for Leads/Managers

Clarity around cost/expenditure issues
Key components of Operational Planning
Human Requirements
The human capacity and skills required to implement any project, and your current and potential
sources of these resources. A good and quality human resource give power to achieve any goal
within the timelimit.
Financial Requirements
finance is always needed for any planning and project. With operational planning we able to find
the way of manage finance resource
Risk Assessment
What risks exist and how they can be addressed. calculate your all the risk available.
Exit Strategy
In exit strategy you plan when and how you will exit your project
Guidelines for Operational Planning
Following are the Guidelines for Operational Planning:
1. what is the optimal operational plan (row material acquisition, product sources, inventory
levels, distribution, system configuration, route and mode of distribution etc.) to meet the
specific system objectives, consistant with some long term plan, with existing facilities in the
next planning period.
2. what is the best operating plan on which, to base plan for production
3. what specific operations or sequences of operations should be performed with existing
facilities or meet specific output requirement in the next operational period
Corporate Planning
It is the process of drawing up detailed action plans to achieve an organization's goals and
objectives, taking into account the resources of the organization and the environment within
which it operates. Corporate planning represents a formal, structured approach to achieving
objectives and to implementing the corporate strategy of an organization. Success of the Plan
depends how best the resources (strength and weakness) of the organization and the environment
(opportunity and threats) have been critically analysed. In addition, modification in action plans
prepared based on feedbacks are the key for suscess
Corporate planning is a continuous process in which a company first defines its
philosophy, mission and vision in a strategic plan, and then uses that plan to direct, monitor and
manage the business. Strategic planning, detailed operational planning and performance
monitoring are the three components of corporate planning. Studies prove that companies who
do corporate planning perform significantly better than competitors who do not use corporate
planning. An annual survey by management consultants Bain and Company continually confirms
that executives get more value out of strategic planning than any other management tool.
Corporate planning gives companies consistent guidelines for making decisions. When
there is a crisis, opportunity or gradual evolution of business circumstances, planning helps a
company maintain its strategy. The goal of corporate planning is to look ahead, but before that
can be done, an analysis of the past, especially the recent past, is required. This analysis will
include a look at production levels, marketing campaigns and review of long-term and short-term
goals. These will give an indication of what changes may be needed. Once the past has been
thoroughly reviewed, an assessment of the present is required. Corporate planning involves
looking at the way business is done. For a manufacturing business, this may mean reviewing
production at various facilities. For a retail location, reviewing sales at each location may be
required. The corporate structure will also need to be reviewed. Those areas showing inadequate
performance will need adjustments. Once the past has been analyzed and the present assessed,
the next step in corporate planning is to set new goals and possibly new directions. This will
always be critical. Whether it is marketing, production or administration, the goal is to find ways
to meet new targets. This will involve discussion among a multidisciplinary executive team.
Eventually,
after
this
discussion,
corporate
planning
will
involve
making
recommendations that are based on facts and analysis. These may be presented to the CEO or a
board of directors. Often, these recommendations are presented to a group of shareholders as
well. This often happens at annual shareholders meetings.
Corporate planning will cover all aspects of the business and likely work to set budgets.
This includes the budgets for production, marketing, sales, administration and debt load.
Budgeting too much in a particular area may lead to excesses that hurt the company. Likewise,
budgeting too little may choke off a critical component of the business plan. In most cases,
corporate planning will involve a written business plan . It is customary to review and upgrade
this plan annually. In a publicly held company, these business plans are available to the public
and are often published on company Web sites. As with any business plan, constant monitoring
is extremely important. In an ultracompetitive business environment, waiting a year could be
fatal. Nothing stays static in a business environment, and any corporate plan must involve some
flexibility.
Corporate planning is not easy. The larger the corporation the higher the stakes will be.
Planning at the corporate level not only involves an analysis of the past, but a focus on the future.
Those who fail to learn the lessons of the past are more likely to find the future much harder to
deal with. As with any type of planning, much of corporate planning involves budgeting--figuring out where to spend money so that it brings the most return on investment.
Long-Range planning can be for the period of five years or some times more than that.
This consists of whole business and deals with the growth rate, directions of the business, shares
and so on. However, many organizations have a continual planning process that reviews and
modifies their long-range plans on a regular basis, such as every six months to a year.
Short-Range planning can be for the period one year. This type of planning mainly
concerns the business results for that year. Typical examples are the development of financial
and operating budgets, production scheduling, and planning for the development and
implementation of projects.
Functional Planning
Functional planning refers to medium term planing carrired out by middle management and at
times with assisnatnce of top management as well. Functional planing is undertaken by various
departments (functions) in the organisation to determine thier respectiev objectives, derived from
the long-term goals and objectives, as well as for putting in place strategies and action plans.
Functional planing may also be of a long term nature where the business organisation is
subjected to an uncertain and highly volatile business environment.
Proactive Planning
Proactive planning is the concept of planning AHEAD of the actual event, to be prepared for it
(whatever it is). By being proactive you avoid being over-run by the event, and have plans and
procedures in place to cope with it (whatever it is). Emergency organizations, like police and
EMS have plans for future events like riots, floods or earthquakes, you should, too. In business,
it is always good to be prepared. It is the opposite of reactive, which is waiting for failure.
Proactive is the changing of parts before they fail. As an example, on a scheduled down day,
major components are checked for wear. Depending on the process, this can be very time
consuming, but the efficiency and the reliability of the process is greatly increased. Although not
a foolproof solution, failures can still occur but instead of major components failing with a
greater or longer downtime to repair the problem, smaller parts may fail but can be replaced
much quicker. Some parts cannot be checked for they are what is called 'black boxes', which will
operate for so long before they fail, and because they are less expensive you wait for them to fail
and then react to the failure. Another example of proactive planning: lighting studies done for
lighting efficiency for larger factories or buildings which suggest replacing lamps at eighty
percent spent or used before they expire.
Reactive Planning
In this approach, no specific sequence of actions is planned in advance. Just as for contingency
planning, the planner is given a set of initial conditions and a goal. However, instead of
producing a plan with branches, it produces a set of condition-action rules: for example,
universal plans or Situated Control Rules (SCRs). In theory, a reactive planning system can
handle exogenous events as well as uncertain effects and unknown initial conditions: it is
possible to provide a reaction rule for every possible situation that may be encountered, whether
or not the circumstances that would lead to it can be envisaged. In contrast, a contingency
planner such as Cassandra cannot handle exogenous events as it cannot predict them. Cassandra
and other contingency planners focus their planning effort on circumstances that are predicted to
be possible (or likely, in the case of a probabilistic contingency planner such as C-BURIDAN).
It would be possible to represent Cassandra's contingency plans as sets of conditionaction rules, by using the causal links and preconditions to specify the conditions in which each
action should be performed. However, more reasoning is required at execution time to use
reaction rules than is required to execute a contingency plan. Instead of simply executing the
next step in the plan, reasoning only at branch points, the use of reaction rules requires the
evaluation of conditions on every cycle in order to select the relevant rule.
Informal Planning
Informal planning, very little, if anything, is written down. What is to be accomplished is in the
head of one or few people. Furthermore, the organization's objectives are rarely verbalized. This
is very common in small business, but informal planning exists in some large organization
3.8 Advantages of Planning
1. Planning facilitates management by objectives.
a. Planning begins with determination of objectives.
b. It highlights the purposes for which various activities are to be undertaken.
c. In fact, it makes objectives more clear and specific.
d. Planning helps in focusing the attention of employees on the objectives or goals
of enterprise.
e. Without planning an organization has no guide.
f. Planning compels manager to prepare a Blue-print of the courses of action to be
followed for accomplishment of objectives.
g. Therefore, planning brings order and rationality into the organization.
2. Planning minimizes uncertainties.
a. Business is full of uncertainties.
b. There are risks of various types due to uncertainties.
c. Planning helps in reducing uncertainties of future as it involves anticipation of
future events.
d. Although future cannot be predicted with cent percent accuracy but planning
helps management to anticipate future and prepare for risks by necessary
provisions to meet unexpected turn of events.
e. Therefore with the help of planning, uncertainties can be forecasted which helps
in preparing standbys as a result, uncertainties are minimized to a great extent.
3. Planning facilitates co-ordination.
a. Planning revolves around organizational goals.
b. All activities are directed towards common goals.
c. There is an integrated effort throughout the enterprise in various departments and
groups.
d. It avoids duplication of efforts. In other words, it leads to better co-ordination.
e. It helps in finding out problems of work performance and aims at rectifying the
same.
4. Planning improves employee’s moral.
a. Planning creates an atmosphere of order and discipline in organization.
b. Employees know in advance what is expected of them and therefore conformity
can be achieved easily.
c. This encourages employees to show their best and also earn reward for the same.
d. Planning creates a healthy attitude towards work environment which helps in
boosting employees moral and efficiency.
5. Planning helps in achieving economies.
a. Effective planning secures economy since it leads to orderly allocation
ofresources to various operations.
b. It also facilitates optimum utilization of resources which brings economy in
operations.
c. It also avoids wastage of resources by selecting most appropriate use that will
contribute to the objective of enterprise. For example, raw materials can be
purchased in bulk and transportation cost can be minimized. At the same time it
ensures regular supply for the production department, that is, overall efficiency.
6. Planning facilitates controlling.
a. Planning facilitates existence of certain planned goals and standard of
performance.
b. It provides basis of controlling.
c. We cannot think of an effective system of controlling without existence of well
thought out plans.
d. Planning provides pre-determined goals against which actual performance is
compared.
e. In fact, planning and controlling are the two sides of a same coin. If planning is
root, controlling is the fruit.
7. Planning provides competitive edge.
a. Planning provides competitive edge to the enterprise over the others which do not
have effective planning. This is because of the fact that planning may involve
changing in work methods, quality, quantity designs, extension of work,
redefining of goals, etc.
b. With the help of forecasting not only the enterprise secures its future but at the
same time it is able to estimate the future motives of it’s competitor which helps
in facing future challenges.
c. Therefore, planning leads to best utilization of possible resources, improves
quality of production and thus the competitive strength of the enterprise is
improved.
8. Planning encourages innovations.
a. In the process of planning, managers have the opportunities of suggesting ways
and means of improving performance.
b. Planning is basically a decision making function which involves creative thinking
and imagination that ultimately leads to innovation of methods and operations for
growth and prosperity of the enterprise.
3.9 Limitation of Planning
Internal Limitations
There are several limitations of planning. Some of them are inherit in the process of planning
like rigidity and other arise due to shortcoming of the techniques of planning and in the planners
themselves.
1. Rigidity
a. Planning has tendency to make administration inflexible.
b. Planning implies prior determination of policies, procedures and programmes and
a strict adherence to them in all circumstances.
c. There is no scope for individual freedom.
d. The development of employees is highly doubted because of which management
might have faced lot of difficulties in future.
e. Planning therefore introduces inelasticity and discourages individual initiative and
experimentation.
2. Misdirected Planning
a. Planning may be used to serve individual interests rather than the interest of the
enterprise.
b. Attempts can be made to influence setting of objectives, formulation of plans and
programmes to suit ones own requirement rather than that of whole organization.
c. Machinery of planning can never be freed of bias. Every planner has his own
likes, dislikes, preferences, attitudes and interests which is reflected in planning.
3. Time consuming
a. Planning is a time consuming process because it involves collection of
information, it’s analysis and interpretation thereof. This entire process takes a lot
of time specially where there are a number of alternatives available.
b. Therefore planning is not suitable during emergency or crisis when quick
decisions are required.
4. Probability in planning
a. Planning is based on forecasts which are mere estimates about future.
b. These estimates may prove to be inexact due to the uncertainty of future.
c. Any change in the anticipated situation may render plans ineffective.
d. Plans do not always reflect real situations inspite of the sophisticated techniques
of forecasting because future is unpredictable.
e. Thus, excessive reliance on plans may prove to be fatal.
5. False sense of security
a. Elaborate planning may create a false sense of security to the effect that
everything is taken for granted.
b. Managers assume that as long as they work as per plans, it is satisfactory.
c. Therefore they fail to take up timely actions and an opportunity is lost.
d. Employees are more concerned about fulfillment of plan performance rather than
any kind of change.
6. Expensive
a. Collection, analysis and evaluation of different information, facts and alternatives
involves a lot of expense in terms of time, effort and money
b. Accoring to Koontz and O’Donell, ’ Expenses on planning should never exceed
the estimated benefits from planning. ’
External Limitations of Planning
1. Political Climate- Change of government from Congress to some other political party,
etc.
2. Labour Union- Strikes, lockouts, agitations.
3. Technological changes- Modern techniques and equipments, computerization.
4. Policies of competitors- Eg. Policies of Coca Cola and Pepsi.
5. Natural Calamities- Earthquakes and floods.
6. Changes in demand and prices- Change in fashion, change in tastes, change in income
level, demand falls, price falls, etc.
3.10 Summary
Planning is nothing but the process of determining the goals and objectives and strategies for
achieving goals of the organization. It is the foundation area of management. It is the base upon
which the all the areas of management should be built. Planning requires administration to
assess; where the company is presently set, and where it would be in the upcoming. From there
an appropriate course of action is determined and implemented to attain the company’s goals and
objectives Planning is unending course of action. There may be sudden strategies where
companies have to face. Sometimes they are uncontrollable. You can say that they are external
factors that constantly affect a company both optimistically and pessimistically. Depending on
the conditions, a company may have to alter its course of action in accomplishing certain goals.
This kind of preparation, arrangement is known as strategic planning. In strategic planning,
management analyzes inside and outside factors that may affect the company and so objectives
and goals. Here they should have a study of strengths and weaknesses, opportunities and threats.
For management to do this efficiently, it has to be very practical and ample.
3.11 Keywords
Planning
Strategic
Corporate
Proactive
Reactive
Goal
Mission
Vision
Operational
Long term
Short term
Premises
3.12 Exercises
1. Describe each of the following terms: Goals. Objectives. Strategies. Resources. Budgets.
2. Who should be involved in planning a particular effort?
3. How can you build in accountability to your planning processes?
4. What should be evaluated when evaluating a planning process?
5. What are the four functions of management?
6. What’s the difference between goals and objectives?
7. What’s the difference between strategic and operational planning?
8. Briefl explain different tpes of planning.
9. Write various definitions for planning.
10. Explain the characterstics of planning.
11. With diagram explain planning process.
12. Explain the guidelines to be followed when developing and implementing a plan.
13. What are the advantages of planning?
14. What are the limitations of planning?
3.13 References
1. www.google.com
2. Management Study Guide - Training Guide for Students and Entrepreneurs.
MODULE1
UNIT4
CONTENTS
4.1 Objectives
4.2 Introduction
4.3 Importance of organizing Function
4.4 Principles Of Organizing
4.5 Classification of Organizing
4.6 Line Organization
4.7 Line and staff organization
4.8 Functional Organization
4.9 Delegation of Authority
4.10 Importance Of Delegation
4.11 Principles of Delegation
4.12 Centralization and Decentralization
4.13 Delegation and Decentralization
4.14 Introduction to Staffing
4.15 Staffing Process
4.16 Manpower Planning
4.17 Obstacles in Manpower Planning
4.18 Types of Recruitment
4.19 Employee Selection Process
4.20 Difference between recruitment and selection
4.21 Orentation and Placement
4.22 Training of Employees
4.23 Employee Remuneration
4.24 Summary
4.25 Keywords
4.26 Exercises
4.27 References
4.1 Objectives
The main goal of this chapter is to study about the following1. Organizing, Staffing, recruitment, selection
2. Importance, principlpes, classification of organizing
3. Delegation, Placement, Employees Training
4.2 Introduction
Organizing is the function of management which follows planning. It is a function in which the
synchronization and combination of human, physical and financial resources takes place. All the
three resources are important to get results. Therefore, organizational function helps in
achievement of results which in fact is important for the functioning of a concern. According to
Chester Barnard, “Organizing is a function by which the concern is able to define the role
positions, the jobs related and the co- ordination between authority and responsibility. Hence, a
manager always has to organize in order to get results.
A manager performs organizing function with the help of following steps:1. Identification of activities - All the activities which have to be performed in a concern
have to be identified first. For example, preparation of accounts, making sales, record
keeping, quality control, inventory control, etc. All these activities have to be grouped
and classified into units.
2. Departmentally organizing the activities - In this step, the manager tries to combine
and group similar and related activities into units or departments. This organization of
dividing the whole concern into independent units and departments is called
departmentation.
3. Classifying the authority - Once the departments are made, the manager likes to classify
the powers and its extent to the managers. This activity of giving a rank in order to the
managerial positions is called hierarchy. The top management is into formulation of
policies, the middle level management into departmental supervision and lower level
management into supervision of foremen. The clarification of authority help in bringing
efficiency in the running of a concern. This helps in achieving efficiency in the running
of a concern. This helps in avoiding wastage of time, money, effort, in avoidance of
duplication or overlapping of efforts and this helps in bringing smoothness in a concern’s
working.
4. Co-ordination between authority and responsibility - Relationships are established
among various groups to enable smooth interaction toward the achievment of the
organizational goal. Each individual is made aware of his authority and he/she knows
whom they have to take orders from and to whom they are accountable and to whom they
have to report. A clear organizational structure is drawn and all the employees are made
aware of it.
4.3 Importance of organizing Function
1. Specialization - Organizational structure is a network of relationships in which the work
is divided into units and departments. This division of work is helping in bringing
specialization in various activities of concern.
2. Well defined jobs - Organizational structure helps in putting right men on right job
which can be done by selecting people for various departments according to their
qualifications, skill and experience. This is helping in defining the jobs properly which
clarifies the role of every person.
3. Clarifies authority - Organizational structure helps in clarifying the role positions to
every manager (status quo). This can be done by clarifying the powers to every manager
and the way he has to exercise those powers should be clarified so that misuse of powers
do not take place. Well defined jobs and responsibilities attached helps in bringing
efficiency into managers working. This helps in increasing productivity.
4. Co-ordination - Organization is a means of creating co- ordination among different
departments of the enterprise. It creates clear cut relationships among positions and
ensure mutual co- operation among individuals. Harmony of work is brought by higher
level managers exercising their authority over interconnected activities of lower level
manager.
Authority responsibility relationships can be fruitful only when there is a formal
relationship between the two. For smooth running of an organization, the co- ordination
between authority- responsibility is very important. There should be co- ordination
between different relationships. Clarity should be made for having an ultimate
responsibility attached to every authority. There is a saying, “Authority without
responsibility leads to ineffective behaviour and responsibility without authority makes
person ineffective.’’ Therefore, co- ordination of authority- responsibility is very
important.
5. Effective administration – The organization structure is helpful in defining the jobs
positions. The roles to be performed by different managers are clarified. Specialization is
achieved through division of work. This all leads to efficient and effective administration.
6. Growth and diversification - A company’s growth is totally dependant on how
efficiently and smoothly a concern works. Efficiency can be brought about by clarifying
the role positions to the managers, co-ordination between authority and responsibility and
concentrating on specialization. In addition to this, a company can diversify if its
potential grow. This is possible only when the organization structure is well- defined.
This is possible through a set of formal structure.
7. Sense of security - Organizational structure clarifies the job positions. The roles assigned
to every manager is clear. Co- ordination is possible. Therefore, clarity of powers helps
automatically in increasing mental satisfaction and thereby a sense of security in a
concern. This is very important for job- satisfaction.
8. Scope for new changes - Where the roles and activities to be performed are clear and
every person gets independence in his working, this provides enough space to a manager
to develop his talents and flourish his knowledge. A manager gets ready for taking
independent decisions which can be a road or path to adoption of new techniques of
production. This scope for bringing new changes into the running of an enterprise is
possible only through a set of organizational structure.
4.4 Principles Of Organizing
The organizing process can be done efficiently if the managers have certain guidelines so that
they can take decisions and can act. To organize in an effective manner, the following principles
of organization can be used by a manager.
1. Principle of Specialization
According to the principle, the whole work of a concern should be divided amongst the
subordinates on the basis of qualifications, abilities and skills. It is through division of
work specialization can be achieved which results in effective organization.
2. Principle of Functional Definition
According to this principle, all the functions in a concern should be completely and
clearly defined to the managers and subordinates. This can be done by clearly defining
the duties, responsibilities, authority and relationships of people towards each other.
Clarifications in authority- responsibility relationships helps in achieving co- ordination
and thereby organization can take place effectively. For example, the primary functions
of production, marketing and finance and the authority responsibility relationships in
these departments shouldbe clearly defined to every person attached to that department.
Clarification in the authority-responsibility relationship helps in efficient organization.
3. Principles of Span of Control/Supervision
According to this principle, span of control is a span of supervision which depicts the
number of employees that can be handled and controlled effectively by a single manager.
According to this principle, a manager should be able to handle what number of
employees under him should be decided. This decision can be taken by choosing either
froma wide or narrow span. There are two types of span of control:a. Wide span of control- It is one in which a manager can supervise and control
effectively a large group of persons at one time. The features of this span are:a. Less overhead cost of supervision
b. Prompt response from the employees
c. Better communication
d. Better supervision
e. Better co-ordination
f. Suitable for repetitive jobs
According to this span, one manager can effectively and efficiently handle a large
number of subordinates at one time.
b. Narrow span of control- According to this span, the work and authority is
divided amongst many subordinates and a manager doesn't supervises and control
a very big group of people under him. The manager according to a narrow span
supervises a selected number of employees at one time. The features are:a. Work which requires tight control and supervision, for example,
handicrafts, ivory work, etc. which requires craftsmanship, there narrow
span is more helpful.
b. Co-ordination is difficult to be achieved.
c. Communication gaps can come.
d. Messages can be distorted.
e. Specialization work can be achieved.
Factors influencing Span of Control
c. Managerial abilities- In the concerns where managers are capable, qualified and
experienced, wide span of control is always helpful.
d. Competence of subordinates- Where the subordinates are capable and
competent and their understanding levels are proper, the subordinates tend to very
frequently visit the superiors for solving their problems. In such cases, the
manager can handle large number of employees. Hence wide span is suitable.
e. Nature of work- If the work is of repetitive nature, wide span of supervision is
more helpful. On the other hand, if work requires mental skill or craftsmanship,
tight control and supervision is required in which narrow span is more helpful.
f. Delegation of authority- When the work is delegated to lower levels in an
efficient and proper way, confusions are less and congeniality of the environment
can be maintained. In such cases, wide span of control is suitable and the
supervisors can manage and control large number of sub- ordinates at one time.
g. Degree of decentralization- Decentralization is done in order to achieve
specialization in which authority is shared by many people and managers at
different levels. In such cases, a tall structure is helpful. There are certain
concerns where decentralization is done in very effective way which results in
direct and personal communication between superiors and sub- ordinates and
there the superiors can manage large number of subordinates very easily. In such
cases, wide span again helps.
4. Principle of Scalar Chain
Scalar chain is a chain of command or authority which flows from top to bottom. With a
chain of authority available, wastages of resources are minimized, communication is
affected, overlapping of work is avoided and easy organization takes place. A scalar
chain of command facilitates work flow in an organization which helps in achievement of
effective results. As the authority flows from top to bottom, it clarifies the authority
positions to managers at all level and that facilitates effective organization.
5. Principle of Unity of Command
It implies one subordinate-one superior relationship. Every subordinate is answerable and
accountable to one boss at one time. This helps in avoiding communication gaps and
feedback and response is prompt. Unity of command also helps in effective combination
of resources, that is, physical, financial resources which helps in easy co- ordination and
,therefore, effective organization.
Authority Flows from Top to Bottom
Managing Director
↓
Marketing Manager
↓
Sales/ Media Manager
↓
Salesmen
Figure 4.1:Authority Flow
4.5 Classification of Organizing
Organizations are basically clasified on the basis of relationships. There are two types of
organizations formed on the basis of relationships in an organization
1. Formal Organization - This is one which refers to a structure of well defined jobs each
bearing a measure of authority and responsibility. It is a conscious determination by
which people accomplish goals by adhering to the norms laid down by the structure. This
kind of organization is an arbitrary set up in which each person is responsible for his
performance. Formal organization has a formal set up to achieve pre- determined goals.
2. Informal Organization - It refers to a network of personal and social relationships
which spontaneously originates within the formal set up. Informal organizations develop
relationships which are built on likes, dislikes, feelings and emotions. Therefore, the
network of social groups based on friendships can be called as informal organizations.
There is no conscious effort made to have informal organization. It emerges from the
formal organization and it is not based on any rules and regulations as in case of formal
organization.
Relationship between formal and informal organizations
For a concerns working both formal and informal organization are important. Formal
organization originates from the set organizational structure and informal organization originates
from formal organization. For an efficient organization, both formal and informal organizations
are required. They are the two phase of a same concern. Formal organization can work
independently. But informal organization depends totally upon the formal organization. Formal
and informal organization helps in bringing efficient working organization and smoothness in a
concern. Within the formal organization, the members undertake the assigned duties in cooperation with each other. They interact and communicate amongst themselves. Therefore, both
formal and informal organizations are important. When several people work together for
achievement of organizational goals, social tie ups tends to built and therefore informal
organization helps to secure co-operation by which goals can be achieved smooth. Therefore, we
can say that informal organization emerges from formal organization.
4.6 Line Organization
Line organization is the most oldest and simplest method of administrative organization.
According to this type of organization, the authority flows from top to bottom in a concern. The
line of command is carried out from top to bottom. This is the reason for calling this organization
as scalar organization which means scalar chain of command is a part and parcel of this type of
administrative organization. In this type of organization, the line of command flows on an even
basis without any gaps in communication and co- ordination taking place.
Features of Line Organization
1. It is the most simplest form of organization.
2. Line of authority flows from top to bottom.
3. Specialized and supportive services do not take place in these organization.
4. Unified control by the line officers can be maintained since they can independently take
decisions in their areas and spheres.
5. This kind of organization always helps in bringing efficiency in communication and
bringing stability to a concern.
Merits of Line Organization
1. Simplest- It is the most simple and oldest method of administration.
2. Unity of Command- In these organizations, superior-subordinate relationship is
maintained and scalar chain of command flows from top to bottom.
3. Better discipline- The control is unified and concentrates on one person and therefore, he
can independently make decisions of his own. Unified control ensures better discipline.
4. Fixed responsibility- In this type of organization, every line executive has got fixed
authority, power and fixed responsibility attached to every authority.
5. Flexibility- There is a co-ordination between the top most authority and bottom line
authority. Since the authority relationships are clear, line officials are independent and
can flexibly take the decision. This flexibility gives satisfaction of line executives.
6. Prompt decision- Due to the factors of fixed responsibility and unity of command, the
officials can take prompt decision.
Demerits of Line Organization
1. Over reliance- The line executive’s decisions are implemented to the bottom. This
results in over-relying on the line officials.
2. Lack of specialization- A line organization flows in a scalar chain from top to bottom
and there is no scope for specialized functions. For example, expert advices whatever
decisions are taken by line managers are implemented in the same way.
3. Inadequate communication- The policies and strategies which are framed by the top
authority are carried out in the same way. This leaves no scope for communication from
the other end. The complaints and suggestions of lower authority are not communicated
back to the top authority. So there is one way communication.
4. Lack of Co-ordination- Whatever decisions are taken by the line officials, in certain
situations wrong decisions, are carried down and implemented in the same way.
Therefore, the degree of effective co- ordination is less.
5. Authority leadership- The line officials have tendency to misuse their authority
positions. This leads to autocratic leadership and monopoly in the concern.
4.7 Line and staff organization
Line and staff organization is a modification of line organization and it is more complex than line
organization. According to this administrative organization, specialized and supportive activities
are attached to the line of command by appointing staff supervisors and staff specialists who are
attached to the line authority. The power of command always remains with the line executives
and staff supervisors guide, advice and council the line executives. Personal Secretary to the
Managing Director is a staff official.
Features of Line and Staff Organization
1. There are two types of staff :
a. Staff Assistants- P.A. to Managing Director, Secretary to Marketing Manager.
b. Staff Supervisor- Operation Control Manager, Quality Controller, PRO
2. Line and Staff Organization is a compromise of line organization. It is more complex
than line concern.
3. Division of work and specialization takes place in line and staff organization.
4. The whole organization is divided into different functional areas to which staff
specialists are attached.
5. Efficiency can be achieved through the features of specialization.
6. There are two lines of authority which flow at one time in a concern :
a. Line Authority
b. Staff Authority
7. Power of command remains with the line executive and staff serves only as counselors.
MANAGING DIRECTOR
↓
↓
↓
Production
Manager
Marketing Manager
Finance
Manager
↓
↓
↓
Plant
Supervisor
Market Supervisor
Chief
Assisstant
↓
↓
↓
Foreman
Salesman
Accountant
Figure 4.2: Line and Staff Organzation
Merits of Line and Staff Organization
1. Relief to line of executives- In a line and staff organization, the advice and counseling
which is provided to the line executives divides the work between the two.The line
executive can concentrate on the execution of plans and they get relieved of dividing their
attention to many areas.
2. Expert advice- The line and staff organization facilitates expert advice to the line
executive at the time of need. The planning and investigation which is related to different
matters can be done by the staff specialist and line officers can concentrate on execution
of plans.
3. Benefit of Specialization- Line and staff through division of whole concern into two
types of authority divides the enterprise into parts and functional areas. This way every
officer or official can concentrate in its own area.
4. Better co-ordination- Line and staff organization through specialization is able to
provide better decision making and concentration remains in few hands. This feature
helps in bringing co- ordination in work as every official is concentrating in their own
area.
5. Benefits of Research and Development- Through the advice of specialized staff, the
line executives, the line executives get time to execute plans by taking productive
decisions which are helpful for a concern. This gives a wide scope to the line executive to
bring innovations and go for research work in those areas. This is possible due to the
presence of staff specialists.
6. Training- Due to the presence of staff specialists and their expert advice serves as
ground for training to line officials. Line executives can give due concentration to their
decision making. This in itself is a training ground for them.
7. Balanced decisions- The factor of specialization which is achieved by line staff helps in
bringing co- ordination. This relationship automatically ends up the line official to take
better and balanced decision.
8. Unity of action- Unity of action is a result of unified control. Control and its effectivity
take place when co- ordination is present in the concern. In the line and staff authority all
the officials have got independence to make decisions. This serves as effective control in
the whole enterprise.
Demerits of Line and Staff Organization
1. Lack of understanding- In a line and staff organization, there are two authority flowing
at one time. This results in the confusion between the two. As a result, the workers are
not able to understand as to who is their commanding authority. Hence the problem of
understanding can be a hurdle in effective running.
2. Lack of sound advice- The line official get used to the expertise advice of the staff. At
times the staff specialist also provide wrong decisions which the line executive have to
consider. This can affect the efficient running of the enterprise.
3. Line and staff conflicts- Line and staff are two authorities which are flowing at the same
time. The factors of designations, status influence sentiments which are related to their
relation, can pose a distress on the minds of the employees. This leads to minimizing of
co- ordination which hampers a concern’s working.
4. Costly- In line and staff concern, the concerns have to maintain the high remuneration of
staff specialist. This proves to be costly for a concern with limited finance.
5. Assumption of authority- The power of concern is with the line official but the staff
dislikes it as they are the one more in mental work.
6. Staff steals the show- In a line and staff concern, the higher returns are considered to be
a product of staff advice and counseling. The line officials feel dissatisfied and a feeling
of distress enters a concern. The satisfaction of line officials is very important for
effective results.
4.8 Functional Organization
Functional organization has been divided to put the specialists in the top position throughout
the enterprise. This is an organization in which we can define as a system in which functional
department are created to deal with the problems of business at various levels. Functional
authority remains confined to functional guidance to different departments. This helps in
maintaining quality and uniformity of performance of different functions throughout the
enterprise.
The concept of Functional organization was suggested by F.W. Taylor who recommended the
appointment of specialists at important positions. For example, the functional head and
Marketing Director directs the subordinates throughout the organization in his particular area.
This means that subordinates receives orders from several specialists, managers working above
them.
Features of Functional Organization
1. The entire organizational activities are divided into specific functions such as operations,
finance, marketing and personal relations.
2. Complex form of administrative organization compared to the other two.
3. Three authorities exist- Line, staff and function.
4. Each functional area is put under the charge of functional specialists and he has got the
authority to give all decisions regarding the function whenever the function is performed
throughout the enterprise.
5. Principle of unity of command does not apply to such organization as it is present in line
organization.
Merits of Functional Organization
1. Specialization- Better division of labour takes place which results in specialization of
function and it’s consequent benefit.
2. Effective Control- Management control is simplified as the mental functions are
separated from manual functions. Checks and balances keep the authority within certain
limits. Specialists may be asked to judge the performance of various sections.
3. Efficiency- Greater efficiency is achieved because of every function performing a limited
number of functions.
4. Economy- Specialization compiled with standardization facilitates maximum production
and economical costs.
5. Expansion- Expert knowledge of functional manager facilitates better control and
supervision.
Demerits of Functional Organization
1. Confusion- The functional system is quite complicated to put into operation, especially
when it is carried out at low levels. Therefore, co- ordination becomes difficult.
2. Lack of Co- ordination- Disciplinary control becomes weak as a worker is commanded
not by one person but a large number of people. Thus, there is no unity of command.
3. Difficulty in fixing responsibility- Because of multiple authority, it is difficult to fix
responsibility.
4. Conflicts- There may be conflicts among the supervisory staff of equal ranks. They may
not agree on certain issues.
5. Costly- Maintainance of specialist’s staff of the highest order is expensive for a concern.
4.9 Delegation of Authority
A manager alone cannot perform all the tasks assigned to him. In order to meet the targets, the
manager should delegate authority. Delegation of Authority means division of authority and
powers downwards to the subordinate. Delegation is about entrusting someone else to do parts of
your job. Delegation of authority can be defined as subdivision and sub-allocation of powers to
the subordinates in order to achieve effective results.
Elements of Delegation
1. Authority - in context of a business organization, authority can be defined as the power
and right of a person to use and allocate the resources efficiently, to take decisions and to
give orders so as to achieve the organizational objectives. Authority must be welldefined. All people who have the authority should know what is the scope of their
authority is and they shouldn’t misutilize it. Authority is the right to give commands,
orders and get the things done. The top level management has greatest authority.
Authority always flows from top to bottom. It explains how a superior gets work done
from his subordinate by clearly explaining what is expected of him and how he should go
about it. Authority should be accompanied with an equal amount of responsibility.
Delegating the authority to someone else doesn’t imply escaping from accountability.
Accountability still rest with the person having the utmost authority.
2. Responsibility - is the duty of the person to complete the task assigned to him. A person
who is given the responsibility should ensure that he accomplishes the tasks assigned to
him. If the tasks for which he was held responsible are not completed, then he should not
give explanations or excuses. Responsibility without adequate authority leads to
discontent and dissatisfaction among the person. Responsibility flows from bottom to top.
The middle level and lower level management holds more responsibility. The person held
responsible for a job is answerable for it. If he performs the tasks assigned as expected,
he is bound for praises. While if he doesn’t accomplish tasks assigned as expected, then
also he is answerable for that.
3. Accountability - means giving explanations for any variance in the actual performance
from the expectations set. Accountability can not be delegated. For example, if ’A’ is
given a task with sufficient authority, and ’A’ delegates this task to B and asks him to
ensure that task is done well, responsibility rest with ’B’, but accountability still rest with
’A’. The top level management is most accountable. Being accountable means being
innovative as the person will think beyond his scope of job. Accountability ,in short,
means being answerable for the end result. Accountability can’t be escaped. It arises from
responsibility.
For achieving delegation, a manager has to work in a system and has to perform following steps :
1. Assignment of tasks and duties
2. Granting of authority
3. Creating responsibility and accountability
Delegation of authority is the base of superior-subordinate relationship, it involves following
steps:1. Assignment of Duties – The delegator first tries to define the task and duties to the
subordinate. He also has to define the result expected from the subordinates. Clarity of
duty as well as result expected has to be the first step in delegation.
2. Granting of authority – Subdivision of authority takes place when a superior divides
and shares his authority with the subordinate. It is for this reason, every subordinate
should be given enough independence to carry the task given to him by his superiors. The
managers at all levels delegate authority and power which is attached to their job
positions. The subdivision of powers is very important to get effective results.
3. Creating Responsibility and Accountability – The delegation process does not end
once powers are granted to the subordinates. They at the same time have to be obligatory
towards the duties assigned to them. Responsibility is said to be the factor or obligation
of an individual to carry out his duties in best of his ability as per the directions of
superior. Responsibility is very important. Therefore, it is that which gives effectiveness
to authority. At the same time, responsibility is absolute and cannot be shifted.
Accountability, on the others hand, is the obligation of the individual to carry out his
duties as per the standards of performance. Therefore, it is said that authority is
delegated, responsibility is created and accountability is imposed. Accountability arises
out of responsibility and responsibility arises out of authority. Therefore, it becomes
important that with every authority position an equal and opposite responsibility should
be attached.
Therefore every manager,i.e.,the delegator has to follow a system to finish up the delegation
process. Equally important is the delegatee’s role which means his responsibility and
accountability is attached with the authority over to here.
Relationship between Authority and Responsibility
Authority is the legal right of person or superior to command his subordinates while
accountability is the obligation of individual to carry out his duties as per standards of
performance Authority flows from the superiors to subordinates,in which orders and
instructions are given to subordinates to complete the task. It is only through authority, a
manager exercises control. In a way through exercising the control the superior is demanding
accountability from subordinates. If the marketing manager directs the sales supervisor for 50
units of sale to be undertaken in a month. If the above standards are not accomplished, it is the
marketing manager who will be accountable to the chief executive officer. Therefore, we can
say that authority flows from top to bottom and responsibility flows from bottom to top.
Accountability is a result of responsibility and responsibility is result of authority. Therefore,
for every authority an equal accountability is attached.
Differences between Authority and Responsibility
Authority
Responsibility
It is the legal right of a person or a
It is the obligation of subordinate to perform the work
superior to command his subordinates.
assigned to him.
Authority is attached to the position of a
Responsibility
superior in concern.
relationship in which subordinate agrees to carry out
arises
out
of
superior–subordinate
duty given to him.
Authority can be delegated by a
Responsibility cannot be shifted and is absolute
superior to a subordinate
It flows from top to bottom.
It flows from bottom to top.
Table 4.1: Authority v/s Responsibility
4.10 Importance Of Delegation
Delegation of authority is a process in which the authority and powers are divided and shared
amongst the subordinates. When the work of a manager gets beyond his capacity, there should be
some system of sharing the work. This is how delegation of authority becomes an important tool
in organization function. Through delegation, a manager, in fact, is multiplying himself by
dividing/multiplying his work with the subordinates. The importance of delegation can be
justified by –
1. Through delegation, a manager is able to divide the work and allocate it to the
subordinates. This helps in reducing his work load so that he can work on important areas
such as - planning, business analysis etc.
2. With the reduction of load on superior, he can concentrate his energy on important and
critical issues of concern. This way he is able to bring effectiveness in his work as well in
the work unit. This effectivity helps a manager to prove his ability and skills in the best
manner.
3. Delegation of authority is the ground on which the superior-subordinate relationship
stands. An organization functions as the authority flows from top level to bottom. This in
fact shows that through delegation, the superior-subordinate relationship become
meaningful. The flow of authority is from top to bottom which is a way of achieving
results.
4. Delegation of authority in a way gives enough room and space to the subordinates to
flourish their abilities and skill. Through delegating powers, the subordinates get a feeling
of importance. They get motivated to work and this motivation provides appropriate
results to a concern. Job satisfaction is an important criterion to bring stability and
soundness in the relationship between superior and subordinates. Delegation also helps in
breaking the monotony of the subordinates so that they can be more creative and
efficient. Delegation of authority is not only helpful to the subordinates but it also helps
the managers to develop their talents and skills. Since the manager get enough time
through delegation to concentrate on important issues, their decision-making gets strong
and in a way they can flourish the talents which are required in a manager. Through
granting powers and getting the work done, helps the manager to attain communication
skills, supervision and guidance, effective motivation and the leadership traits are
flourished. Therefore it is only through delegation, a manager can be tested on his traits.
5. Delegation of authority is help to both superior and subordinates. This ,in a way, gives
stability to a concern’s working. With effective results, a concern can think of creating
more departments and divisions flow working. This will require creation of more
managers which can be fulfilled by shifting the experienced, skilled managers to these
positions. This helps in both virtual as well as horizontal growth which is very important
for a concern’s stability.
Therefore, from the above points, we can justify that delegation is not just a process but it is a
way by which manager multiples himself and is able to bring stability, ability and soundness to a
concern.
4.11 Principles of Delegation
There are a few guidelines in form of principles which can be a help to the manager to process of
delegation. The principles of delegation are as follows: 1. Principle of result excepted- suggests that every manager before delegating the powers
to the subordinate should be able to clearly define the goals as well as results expected
from them. The goals and targets should be completely and clearly defined and the
standards of performance should also be notified clearly. For example, a marketing
manager explains the salesmen regarding the units of sale to take place in a particular
day, say ten units a day have to be the target sales. While a marketing manger provides
these guidelines of sales, mentioning the target sales is very important so that the
salesman can perform his duty efficiently with a clear set of mind.
2. Principle of Parity of Authority and Responsibility- According to this principle, the
manager should keep a balance between authority and responsibility. Both of them
should go hand in hand. According to this principle, if a subordinate is given a
responsibility to perform a task, then at the same time he should be given enough
independence and power to carry out that task effectively. This principle also does not
provide excessive authority to the subordinate which at times can be misused by him. The
authority should be given in such a way which matches the task given to him. Therefore,
there should be no degree of disparity between the two.
3. Principle of absolute responsibility- This says that the authority can be delegated but
responsibility cannot be delegated by managers to his subordinates which means
responsibility is fixed. The manager at every level, no matter what is his authority, is
always responsible to his superior for carrying out his task by delegating the powers. It
does not means that he can escape from his responsibility. He will always remain
responsible till the completion of task. Every superior is responsible for the acts of their
subordinates and are accountable to their superior therefore the superiors cannot pass the
blame to the subordinates even if he has delegated certain powers to subordinates
example if the production manager has been given a work and the machine breaks down.
If repairmen is not able to get repair work done, production manager will be responsible
to CEO if their production is not completed.
4. Principle of Authority level- This principle suggests that a manager should exercise his
authority within the jurisdiction / framework given. The manager should be forced to
consult their superiors with those matters of which the authority is not given that means
before a manager takes any important decision, he should make sure that he has the
authority to do that on the other hand, subordinate should also not frequently go with
regards to their complaints as well as suggestions to their superior if they are not asked to
do. This principle emphasizes on the degree of authority and the level upto which it has
to be maintained.
4.12 Centralization and Decentralization
Centralization is said to be a process where the concentration of decision making is in a few
hands. All the important decision and actions at the lower level, all subjects and actions at the
lower level are subject to the approval of top management. According to Allen, “Centralization”
is the systematic and consistent reservation of authority at central points in the organization. The
implication of centralization can be :1. Reservation of decision making power at top level.
2. Reservation of operating authority with the middle level managers.
3. Reservation of operation at lower level at the directions of the top level.
Under centralization, the important and key decisions are taken by the top management and the
other levels are into implementations as per the directions of top level. For example, in a
business concern, the father & son being the owners decide about the important matters and all
the rest of functions like product, finance, marketing, personnel, are carried out by the
department heads and they have to act as per instruction and orders of the two people. Therefore
in this case, decision making power remain in the hands of father & son.
On the other hand, Decentralization is a systematic delegation of authority at all levels of
management and in all of the organization. In a decentralization concern, authority in retained by
the top management for taking major decisions and framing policies concerning the whole
concern. Rest of the authority may be delegated to the middle level and lower level of
management.
The degree of centralization and decentralization will depend upon the amount of authority
delegated to the lowest level. According to Allen, “Decentralization refers to the systematic
effort to delegate to the lowest level of authority except that which can be controlled and
exercised at central points.
Decentralization is not the same as delegation. In fact, decentralization is all extension of
delegation. Decentralization pattern is wider is scope and the authorities are diffused to the
lowest most level of management. Delegation of authority is a complete process and takes place
from one person to another. While decentralization is complete only when fullest possible
delegation has taken place. For example, the general manager of a company is responsible for
receiving the leave application for the whole of the concern. The general manager delegates this
work to the personnel manager who is now responsible for receiving the leave applicants. In this
situation delegation of authority has taken place. On the other hand, on the request of the
personnel manager ,if the general manager delegates this power to all the departmental heads at
all level, in this situation decentralization has taken place. There is a saying that “Everything that
increasing the role of subordinates is decentralization and that decreases the role is
centralization”. Decentralization is wider in scope and the subordinate’s responsibility increase
in this case. On the other hand, in delegation the managers remain answerable even for the acts
of subordinates to their superiors.
Implications of Decentralization
1. There is less burden on the Chief Executive as in the case of centralization.
2. In decentralization, the subordinates get a chance to decide and act independently which
develops skills and capabilities. This way the organization is able to process reserve of
talents in it.
3. In decentralization, diversification and horizontal can be easily implanted.
4. In decentralization, concern diversification of activities can place effectively since there
is more scope for creating new departments. Therefore, diversification growth is of a
degree.
5. In decentralization structure, operations can be coordinated at divisional level which is
not possible in the centralization set up.
6. In the case of decentralization structure, there is greater motivation and morale of the
employees since they get more independence to act and decide.
7. In a decentralization structure, co-ordination to some extent is difficult to maintain as
there are lot many department divisions and authority is delegated to maximum possible
extent ,i.e., to the bottom most level delegation reaches. Centralization and
decentralization are the categories by which the pattern of authority relationships became
clear. The degree of centralization and de-centralization can be affected by many factors
like nature of operation, volume of profits, number of departments, size of a concern, etc.
The larger the size of a concern, a decentralization set up is suitable in it.
4.13 Delegation and Decentralization
Basis
Meaning
Delegation
Decentralization
Managers delegate some of
Right to take decisions is shared by top
their function and authority to
management
their subordinates.
management.
and
other
level
of
Scope of delegation is limited as
Scope
superior delegates the powers to
Scope is wide as the decision making is
the subordinates on individual
shared by the subordinates also.
bases.
Responsibility remains of the
Responsibility
managers
and
cannot
be
delegated
Freedom is not given to the
Freedom of Work
subordinates as they have to
work as per the instructions of
their superiors.
Responsibility is
also
delegated to
subordinates.
Freedom to work can be maintained by
subordinates as they are free to take
decision and to implement it.
Nature
It is an important decision of an
It is a routine function
Need on purpose
enterprise.
Delegation is important in all
Decentralization
concerns whether big or small.
important in large concerns and it
No
depends upon the decision made by the
enterprises
can
work
without delegation.
Grant of Authority
Grant
Responsibility
Degree
Process
of
individual to another.
cannot
more
enterprise, it is not compulsory.
The authority is granted by one
Responsibility
becomes
It is a systematic act which takes place at
all levels and at all functions in a
concern.
be
Authority with responsibility is delegated
delegated
to subordinates.
Degree of delegation varies
Decentralization is total by nature. It
from concern to concern and
spreads throughout the organization i.e.
department to department.
at all levels and all functions
Delegation is a process which
It
explains superior subordinates
relationship between top management
relationship
and all other departments.
is
an
outcome
which
explains
Essentiality
Significance
Withdrawal
Freedom of Action
Delegation is essential of all
Decentralization is a decisions function
kinds of concerns
by nature.
Delegation
is
essential
for
creating the organization
Delegated
authority can
the discretion of top management.
be
taken back.
Very little freedom to the
subordinates
Decentralization is an optional policy at
It is considered as a general policy of top
management and is applicable to all
departments.
Considerable freedom
Table 4.2: Delegation v/s Decentralization
Decentralization can be called as extension of delegation. When delegation of authority is done
to the fullest possible extent, it gives use to decentralization.
4.14 Introduction to Staffing
The managerial function of staffing involves manning the organization structure through proper
and effective selection, appraisal and development of the personnels to fill the roles assigned to
the employers/workforce.
According to Theo Haimann, “Staffing pertains to recruitment, selection, development and
compensation of subordinates.”
Nature of Staffing Function
1. Staffing is an important managerial function- Staffing function is the most important
mangerial act along with planning, organizing, directing and controlling. The operations
of these four functions depend upon the manpower which is available through staffing
function.
2. Staffing is a pervasive activity- As staffing function is carried out by all mangers and in
all types of concerns where business activities are carried out.
3. Staffing is a continuous activity- This is because staffing function continues throughout
the life of an organization due to the transfers and promotions that take place.
4. The basis of staffing function is efficient management of personnels- Human
resources can be efficiently managed by a system or proper procedure, that is,
recruitment, selection, placement, training and development, providing remuneration, etc.
5. Staffing helps in placing right men at the right job. It can be done effectively through
proper recruitment procedures and then finally selecting the most suitable candidate as
per the job requirements.
6. Staffing is performed by all managers depending upon the nature of business, size of
the company, qualifications and skills of managers,etc. In small companies, the top
management generally performs this function.In medium and small scale enterprise, it is
performed especially by the personnel department of that concern.
4.15 Staffing Process
Steps involved in staffing are as follows1. Manpower requirements- The very first step in staffing is to plan the manpower
inventory required by a concern in order to match them with the job requirements and
demands. Therefore, it involves forecasting and determining the future manpower needs
of the concern.
2. Recruitment- Once the requirements are notified, the concern invites and solicits
applications according to the invitations made to the desirable candidates.
3. Selection- This is the screening step of staffing in which the solicited applications are
screened out and suitable candidates are appointed as per the requirements.
4. Orientation and Placement- Once screening takes place, the appointed candidates are
made familiar to the work units and work environment through the orientation
programmes. placement takes place by putting right man on the right job.
5. Training and Development- Training is a part of incentives given to the workers in
order to develop and grow them within the concern. Training is generally given according
to the nature of activities and scope of expansion in it. Along with it, the workers are
developed by providing them extra benefits of indepth knowledge of their functional
areas. Development also includes giving them key and important jobsas a test or
examination in order to analyse their performances.
6. Remuneration- It is a kind of compensation provided monetarily to the employees for
their work performances. This is given according to the nature of job- skilled or
unskilled, physical or mental, etc. Remuneration forms an important monetary incentive
for the employees.
7. Performance Evaluation- In order to keep a track or record of the behaviour, attitudes
as well as opinions of the workers towards their jobs. For this regular assessment is done
to evaluate and supervise different work units in a concern. It is basically concerning to
know the development cycle and growth patterns of the employeesin a concern.
8. Promotion and transfer- Promotion is said to be a non- monetary incentive in which the
worker is shifted from a higher job demanding bigger responsibilities as well as shifting
the workers and transferring them to different work units and branches of the same
organization.
4.16 Manpower Planning
Manpower Planning which is also called as Human Resource Planning consists of putting right
number of people, right kind of people at the right place, right time, doing the right things for
which they are suited for the achievement of goals of the organization. Human Resource
Planning has got an important place in the arena of industrialization. Human Resource Planning
has to be a systems approach and is carried out in a set procedure. The procedure is as follows:
1. Analysing the current manpower inventory
2. Making future manpower forecasts
3. Developing employment programmes
4. Design training programmes
Steps in Manpower Planning
1. Analysing the current manpower inventory- Before a manager makes forecast of
future manpower, the current manpower status has to be analysed. For this the following
things have to be noted
Type of organization

Number of departments

Number and quantity of such departments

Employees in these work units
Once these factors are registered by a manager, he goes for the future forecasting.
2. Making future manpower forecasts- Once the factors affecting the future manpower
forecasts are known, planning can be done for the future manpower requirements in
several work units.
The Manpower forecasting techniques commonly employed by the organizations are as
follows:
a. Expert Forecasts: This includes informal decisions, formal expert surveys and
Delphi technique.
b. Trend Analysis: Manpower needs can be projected through extrapolation
(projecting past trends), indexation (using base year as basis), and statistical
analysis (central tendency measure).
c. Work Load Analysis: It is dependent upon the nature of work load in a
department, in a branch or in a division.
d. Work Force Analysis: Whenever production and time period has to be analysed,
due allowances have to be made for getting net manpower requirements.
e. Other methods: Several Mathematical models, with the aid of computers are
used to forecast manpower needs, like budget and planning analysis, regression,
new venture analysis.
3. Developing employment programmes- Once the current inventory is compared with
future forecasts, the employment programmes can be framed and developed accordingly,
which will include recruitment, selection procedures and placement plans.
4. Design training programmes- These will be based upon extent of diversification,
expansion plans, development programmes,etc. Training programmes depend upon the
extent of improvement in technology and advancement to take place. It is also done to
improve upon the skills, capabilities, knowledge of the workers.
Importance of Manpower Planning
1. Key to managerial functions- The four managerial functions, i.e., planning, organizing,
directing and controlling are based upon the manpower. Human resources help in the
implementation of all these managerial activities. Therefore, staffing becomes a key to all
managerial functions.
2. Efficient utilization- Efficient management of personnels becomes an important function
in the industrialization world of today. Seting of large scale enterprises require
management of large scale manpower. It can be effectively done through staffing
function.
3. Motivation- Staffing function not only includes putting right men on right job, but it also
comprises of motivational programmes, i.e., incentive plans to be framed for further
participation and employment of employees in a concern. Therefore, all types of
incentive plans becomes an integral part of staffing function.
4. Better human relations- A concern can stabilize itself if human relations develop and
are strong. Human relations become strong trough effective control, clear
communication, effective supervision and leadership in a concern. Staffing function also
looks after training and development of the work force which leads to co-operation and
better human relations.
5. Higher productivity- Productivity level increases when resources are utilized in best
possible manner. higher productivity is a result of minimum wastage of time, money,
efforts and energies.This is possible through the staffing and it's related activities (
Performance appraisal, training and development, remuneration)
Need of Manpower Planning
Manpower Planning is a two-phased process because manpower planning not only analyses the
current human resources but also makes manpower forecasts and thereby draw employment
programmes. Manpower Planning is advantageous to firm in following manner:
1. Shortages and surpluses can be identified so that quick action can be taken wherever
required.
2. All the recruitment and selection programmes are based on manpower planning.
3. It also helps to reduce the labour cost as excess staff can be identified and thereby
overstaffing can be avoided.
4. It also helps to identify the available talents in a concern and accordingly training
programmes can be chalked out to develop those talents.
5. It helps in growth and diversification of business. Through manpower planning, human
resources can be readily available and they can be utilized in best manner.
6. It helps the organization to realize the importance of manpower management which
ultimately helps in the stability of a concern.
4.17 Obstacles in Manpower Planning
Following are the main obstacles that organizations face in the process of manpower planning:
1. Under Utilization of Manpower: The biggest obstacle in case of manpower planning is
the fact that the industries in general are not making optimum use of their manpower and
once manpower planning begins, it encounters heavy odds in stepping up the utilization.
2. Degree of Absenteeism: Absenteeism is quite high and has been increasing since last
few years.
3. Lack of Education and Skilled Labour: The extent of illetracy and the slow pace of
development of the skilled categories account for low productivity in employees. Low
productivity has implications for manpower planning.
4. Manpower Control and Review:
a. Any increase in manpower is considered at the top level of management
b. On the basis of manpower plans, personnel budgets are prepared. These act as
control mechanisms to keep the manpower under certain broadly defined limits.
c. The productivity of any organization is usually calculated using the formula:
Productivity = Output / Input
. But a rough index of employee productivity is calculated as follows:
Employee Productivity = Total Production / Total no. of employees
d. Exit Interviews, the rate of turnover and rate of absenteesim are source of vital
information on the satisfaction level of manpower. For conservation of Human
Resources and better utilization of men studying these condition, manpower
control would have to take into account the data to make meaningful analysis.
e. Extent of Overtime: The amount of overtime paid may be due to real shortage of
men, ineffective management or improper utilization of manpower. Manpower
control would require a careful study of overtime statistics.
Few Organizations do not have sufficient records and information on manpower. Several of
those who have them do not have a proper retrieval system. There are complications in resolving
the issues in design, definition and creation of computerized personnel information system for
effective manpower planning and utilization. Even the existing technologies in this respect is not
optimally used. This is a strategic disadvantage.
4.18 Types of Recruitment
Recruitment is of 2 types
1. Internal Recruitment – is a recruitment which takes place within the concern or
organization. Internal sources of recruitment are readily available to an organization.
Internal sources are primarily three – Transfers, promotions and Re-employment of exemployees. Re-employment of ex-employees is one of the internal sources of recruitment
in which employees can be invited and appointed to fill vacancies in the concern. There
are situations when ex-employees provide unsolicited applications also.
Internal recruitment may lead to increase in employee’s productivity as their motivation
level increases. It also saves time, money and efforts. But a drawback of internal
recruitment is that it refrains the organization from new blood. Also, not all the
manpower requirements can be met through internal recruitment. Hiring from outside has
to be done.
Internal sources are primarily 3
a. Transfers
b. Promotions (through Internal Job Postings) and
c. Re-employment of ex-employees - Re-employment of ex-employees is one of the
internal sources of recruitment in which employees can be invited and appointed to fill
vacancies in the concern. There are situations when ex-employees provide unsolicited
applications also.
2. External Recruitment – External sources of recruitment have to be solicited from
outside the organization. External sources are external to a concern. But it involves lot of
time and money .The external sources of recruitment include – Employment at factory
gate, advertisements, employment exchanges, employment agencies, educational
institutes, labour contractors, recommendations etc.
a. Employment at Factory Level – This a source of external recruitment in which
the applications for vacancies are presented on bulletin boards outside the Factory
or at the Gate. This kind of recruitment is applicable generally where factory
workers are to be appointed. There are people who keep on soliciting jobs from
one place to another. These applicants are called as unsolicited applicants. These
types of workers apply on their own for their job. For this kind of recruitment
workers have a tendency to shift from one factory to another and therefore they
are called as “badli” workers.
b. Advertisement – It is an external source which has got an important place in
recruitment procedure. The biggest advantage of advertisement is that it covers a
wide area of market and scattered applicants can get information from
advertisements. Medium used is Newspapers and Television.
c. Employment Exchanges – There are certain Employment exchanges which are
run by government. Most of the government undertakings and concerns employ
people through such exchanges. Now-a-days recruitment in government agencies
has become compulsory through employment exchange.
d. Employment Agencies – There are certain professional organizations which look
towards recruitment and employment of people, i.e. these private agencies run by
private individuals supply required manpower to needy concerns.
e. Educational Institutions – There are certain professional Institutions which
serves as an external source for recruiting fresh graduates from these institutes.
This kind of recruitment done through such educational institutions, is called as
Campus Recruitment. They have special recruitment cells which helps in
providing jobs to fresh candidates.
f. Recommendations – There are certain people who have experience in a
particular area. They enjoy goodwill and a stand in the company. There are
certain vacancies which are filled by recommendations of such people. The
biggest drawback of this source is that the company has to rely totally on such
people which can later on prove to be inefficient.
g. Labour Contractors – These are the specialist people who supply manpower to
the Factory or Manufacturing plants. Through these contractors, workers are
appointed on contract basis, i.e. for a particular time period. Under conditions
when these contractors leave the organization, such people who are appointed
have to also leave the concern.
4.19 Employee Selection Process
Employee Selection is the process of putting right men on right job. It is a procedure of matching
organizational requirements with the skills and qualifications of people. Effective selection can
be done only when there is effective matching. By selecting best candidate for the required job,
the organization will get quality performance of employees. Moreover, organization will face
less of absenteeism and employee turnover problems. By selecting right candidate for the
required job, organization will also save time and money. Proper screening of candidates takes
place during selection procedure. All the potential candidates who apply for the given job are
tested.
But selection must be differentiated from recruitment ,though these are two phases of
employment process. Recruitment is considered to be a positive process as it motivates more of
candidates to apply for the job. It creates a pool of applicants. It is just sourcing of data. While
selection is a negative process as the inappropriate candidates are rejected here. Recruitment
precedes selection in staffing process. Selection involves choosing the best candidate with best
abilities, skills and knowledge for the required job.
The Employee selection Process takes place in following order1. Preliminary Interviews- It is used to eliminate those candidates who do not meet the
minimum eligiblity criteria laid down by the organization. The skills, academic and
family background, competencies and interests of the candidate are examined during
preliminary interview. Preliminary interviews are less formalized and planned than the
final interviews. The candidates are given a brief up about the company and the job
profile; and it is also examined how much the candidate knows about the company.
Preliminary interviews are also called screening interviews.
2. Application blanks- The candidates who clear the preliminary interview are required to
fill application blank. It contains data record of the candidates such as details about age,
qualifications, reason for leaving previous job, experience, etc.
3. Written Tests- Various written tests conducted during selection procedure are aptitude
test, intelligence test, reasoning test, personality test, etc. These tests are used to
objectively assess the potential candidate. They should not be biased.
4. Employment Interviews- It is a one to one interaction between the interviewer and the
potential candidate. It is used to find whether the candidate is best suited for the required
job or not. But such interviews consume time and money both. Moreover the
competencies of the candidate cannot be judged. Such interviews may be biased at times.
Such interviews should be conducted properly. No distractions should be there in room.
There should be an honest communication between candidate and interviewer.
5. Medical examination- Medical tests are conducted to ensure physical fitness of the
potential employee. It will decrease chances of employee absenteeism.
6. Appointment Letter- A reference check is made about the candidate selected and then
finally he is appointed by giving a formal appointment letter.
4.20 Difference between recruitment and selection
Basis
Recruitment
Selection
Meaning
It is an activity of establishing contact
It is a process of picking up more
between employers and applicants.
competent and suitable employees.
Objective
It
encourages
large
Candidates for a job.
number
of
It attempts at rejecting unsuitable
candidates.
Process
It is a simple process.
It is a complicated process.
Hurdles
The candidates have not to cross over
Many hurdles have to be crossed.
many hurdles.
Approach
It is a positive approach.
It is a negative approach.
Sequence
It proceeds selection.
It follows recruitment.
Economy
It is an economical method.
It is an expensive method.
Time
Less time is required.
More time is required.
Consuming
Table 4.3: Recruitment v/s Selection
4.21 Orentation and Placement
Once the candidates are selected for the required job, they have to be fitted as per the
qualifications. Placement is said to be the process of fitting the selected person at the right job or
place,i.e. fitting square pegs in square holes and round pegs in round holes. Once he is fitted into
the job, he is given the activities he has to perform and also told about his duties. The freshly
appointed candidates are then given orientation in order to familiarize and introduce the
company to him. Generally the information given during the orientation programme includes
Employee’s layout

Type of organizational structure

Departmental goals

Organizational layout

General rules and regulations

Standing Orders

Grievance system or procedure
In short, during Orientation employees are made aware about the mission and vision of the
organization, the nature of operation of the organization, policies and programmes of the
organization.
The main aim of conducting Orientation is to build up confidence, morale and trust of the
employee in the new organization, so that he becomes a productive and an efficient employee of
the organization and contributes to the organizational success.
The nature of Orientation program varies with the organizational size, i.e., smaller the
organization the more informal is the Orientation and larger the organization more formalized is
the Orientation programme.
Proper Placement of employees will lower the chances of employee’s absenteeism. The
employees will be more satisfied and contended with their work.
4.22 Training of Employees
Training of employees takes place after orientation takes place. Training is the process of
enhancing the skills, capabilities and knowledge of employees for doing a particular job.
Training process moulds the thinking of employees and leads to quality performance of
employees. It is continuous and never ending in nature.
Importance of Training
Training is crucial for organizational development and success. It is fruitful to both employers
and employees of an organization. An employee will become more efficient and productive if he
is trained well. Training is given on four basic grounds:
1. New candidates who join an organization are given training. This training familiarize
them with the organizational mission, vision, rules and regulations and the working
conditions.
2. The existing employees are trained to refresh and enhance their knowledge.
3. If any updations and amendments take place in technology, training is given to cope up
with those changes. For instance, purchasing a new equipment, changes in technique of
production, computer implantment. The employees are trained about use of new
equipments and work methods.
4. When promotion and career growth becomes important. Training is given so that
employees are prepared to share the responsibilities of the higher level job.
The benefits of training can be summed up as:
1. Improves morale of employees- Training helps the employee to get job security and job
satisfaction. The more satisfied the employee is and the greater is his morale, the more he
will contribute to organizational success and the lesser will be employee absenteeism and
turnover.
2. Less supervision- A well trained employee will be well acquainted with the job and will
need less of supervision. Thus, there will be less wastage of time and efforts.
3. Fewer accidents- Errors are likely to occur if the employees lack knowledge and skills
required for doing a particular job. The more trained an employee is, the less are the
chances of committing accidents in job and the more proficient the employee becomes.
4. Chances of promotion- Employees acquire skills and efficiency during training. They
become more eligible for promotion. They become an asset for the organization.
5. Increased productivity- Training improves efficiency and productivity of employees.
Well trained employees show both quantity and quality performance. There is less
wastage of time, money and resources if employees are properly trained.
Ways/Methods of Training
Training is generally imparted in two ways:
1. On the job training- On the job training methods are those which are given to the
employees within the everyday working of a concern. It is a simple and cost-effective
training method. The inproficient as well as semi- proficient employees can be well
trained by using such training method. The employees are trained in actual working
scenario. The motto of such training is “learning by doing.” Instances of such on-job
training methods are job-rotation, coaching, temporary promotions, etc.
2. Off the job training- Off the job training methods are those in which training is provided
away from the actual working condition. It is generally used in case of new employees.
Instances of off the job training methods are workshops, seminars, conferences, etc. Such
method is costly and is effective if and only if large number of employees have to be
trained within a short time period. Off the job training is also called as vestibule
training,i.e., the employees are trained in a separate area( may be a hall, entrance,
reception area,etc. known as a vestibule) where the actual working conditions are
duplicated.
4.23 Employee Remuneration
Employee Remuneration refers to the reward or compensation given to the employees for their
work performances. Remuneration provides basic attraction to a employee to perform job
efficiently and effectively. Remuneration leads to employee motivation. Salaries constitutes an
important source of income for employees and determine their standard of living. Salaries effect
the employees productivity and work performance. Thus the amount and method of
remuneration are very important for both management and employees.
There are mainly two types of Employee Remuneration
1. Time Rate Method
2. Piece Rate Method
These methods of employee remuneration are explained below in detail
Methods of Employee Remuneration
1. Time Rate Method: Under time rate system, remuneration is directly linked with the
time spent or devoted by an employee on the job. The employees are paid a fixed predecided amount hourly, daily, weekly or monthly irrespective of their output. It is a very
simple method of remuneration. It leads to minimum wastage of resources and lesser
chances of accidents. Time Rate method leads to quality output and this method is very
beneficial to new employees as they can learn their work without any reduction in their
salaries. This method encourages employees unity as employees of a particular
group/cadre get equal salaries.
There are some drawbacks of Time Rate Method, such as, it leads to tight supervision,
indefinite employee cost, lesser efficiency of employees as there is no distinction made
between efficient and inefficient employees, and lesser morale of employees.
Time rate system is more suitable where the work is non-repetitive in nature and
emphasis is more on quality output rather than quantity output.
2. Piece Rate Method: It is a method of compensation in which remuneration is paid on the
basis of units or pieces produced by an employee. In this system emphasis is more on
quantity output rather than quality output. Under this system the determination of
employee cost per unit is not difficult because salaries differ with output. There is less
supervision required under this method and hence the per unit cost of production is low.
This system improves the morale of the employees as the salaries are directly related with
their work efforts. There is greater work-efficiency in this method.
There are some drawbacks of this method, such as, it is not easily computable, leads to
deterioration in work quality, wastage of resources, lesser unity of employees, higher cost
of production and insecurity among the employees.Piece rate system is more suitable
where the nature of work is repetitive and quantity is emphasized more than quality.
4.24 Summary
The second function of the management is getting prepared, getting organized. Management
must organize all its resources well before in hand to put into practice the course of action to
decide that has been planned in the base function. Through this process, management will now
determine the inside directorial configuration; establish and maintain relationships, and also
assign required resources. While determining the inside directorial configuration, management
ought to look at the different divisions or departments. They also see to the harmonization of
staff, and try to find out the best way to handle the important tasks and expenditure of
information within the company. Management determines the division of work according to its
need. It also has to decide for suitable departments to hand over authority and responsibilities.
Staffing is filling and keeping filled with qualified people all positions in the business.
Recruiting, hiring, training, evaluating and compensating are the specific activities included in
the function. In the family business, staffing includes all paid and unpaid positions held by
family members including the owner/operators. The primary purposes of staffing are to find,
hire, train, develop, reward and retain the required amount of good people, helping them meet
their needs while they help the company meet its goal. This statement addresses several
important aspects of staffing including recruiting, training and retaining employees that will
benefit the company.
4.25 Keywords
Delegation
Organization
Training
Recruitment
Staff
Selection
Placement
Remuneration
Orientation
Centralization
Decentralization
Manpower
Authority
4.26 Exercises
1. What is delegation?
2. What are some benefits of delegation?
3. Why is it sometimes difficult for managers to learn to delegate?
4. What are the nine steps to delegation (as listed in your materials for review)?
5. What might you foresee as your biggest challenge to learning how to delegate?
Delegation is a critical skill in the effective management of organizations. What can you
do to start overcoming these challenge(s)?
6. How might you recruit a mentor or coach?
7. What is the argument that some people put forth to explain their view that managing and
leading are different? What do you think?
8. Conduct the following activities with each of the following practices: problem solving
and decision making, planning, delegating, internal communications and meeting
management.
9. What is the difference between line and staff personnel?
10. What is an inverted organization?
11. What is organizational culture?
12. Why do organizations outsource functions?
13. What are some of the new challenges facing managers today?
4.27 References
1. www.google.com
2. Management Study Guide - Training Guide for Students and Entrepreneurs.
MODULE 2
UNIT 1
CONTENTS
1.1 Objectves
1.2 Introduction
1.3 Importance of Directing
1.4 Role of Supervisor
1.5 Functions of Supervisor
1.6 Controlling
1.7 Process of Controlling
1.8 Relation between planning and controlling
1.9 Communcation- Removing Barriers to Communication in the Family Business
1.9.1 Communication Model
1.9.2 Barriers to Communication
1.9.3 Facilitating Communication
1.10 Leadership
1.11 Leadership and Management- Relationship and Differences
1.12 Leader v/s Manager
1.13 Summary
1.14 Keywords
1.15 Exercises
1.16 References
1.1
Objectives
At the end of this chapter students wll learn about,
1. Management Functions-Directing and controlling
2. Roles and Functions of supervisor
3. Relation between planning and controlling.
4. Leader ship skills
5. Difference between Leader and Manager
1.2 Introduction
DIRECTING is said to be a process in which the managers instruct, guide and oversee the
performance of the workers to achieve predetermined goals. Directing is said to be the heart of
management process. Planning, organizing, staffing have got no importance if direction function
does not take place.
Directing initiates action and it is from here actual work starts. Direction is said to be consisting
of human factors. In simple words, it can be described as providing guidance to workers is doing
work. In field of management, direction is said to be all those activities which are designed to
encourage the subordinates to work effectively and efficiently. According to Human, “Directing
consists of process or technique by which instruction can be issued and operations can be carried
out as originally planned” Therefore, Directing is the function of guiding, inspiring, overseeing
and instructing people towards accomplishment of organizational goals.
Direction has got following characteristics:
1. Pervasive Function - Directing is required at all levels of organization. Every manager
provides guidance and inspiration to his subordinates.
2. Continuous Activity - Direction is a continuous activity as it continuous throughout the
life of organization.
3. Human Factor - Directing function is related to subordinates and therefore it is related to
human factor. Since human factor is complex and behaviour is unpredictable, direction
function becomes important.
4. Creative Activity - Direction function helps in converting plans into performance.
Without this function, people become inactive and physical resources are meaningless.
5. Executive Function - Direction function is carried out by all managers and executives at
all levels throughout the working of an enterprise, a subordinate receives instructions
from his superior only.
6. Delegate Function - Direction is supposed to be a function dealing with human beings.
Human behaviour is unpredictable by nature and conditioning the people’s behaviour
towards the goals of the enterprise is what the executive does in this function. Therefore,
it is termed as having delicacy in it to tackle human behaviour.
1.3 Importance of Directing
Directing or Direction function is said to be the heart of management of process and therefore, is
the central point around which accomplishment of goals take place. A few philosophers call
Direction as “Life spark of an enterprise”. It is also called as on actuating function of
management because it is through direction that the operation of an enterprise actually starts.
Being the central character of enterprise, it provides many benefits to a concern which are as
follows:1. It Initiates Actions – Directions is the function which is the starting point of the work
performance of subordinates. It is from this function the action takes place, subordinates
understand their jobs and do according to the instructions laid. Whatever are plans laid,
can be implemented only once the actual work starts. It is there that direction becomes
beneficial.
2. It Ingrates Efforts – Through direction, the superiors are able to guide, inspire and
instruct the subordinates to work. For this, efforts of every individual towards
accomplishment of goals are required. It is through direction the efforts of every
department can be related and integrated with others. This can be done through
persuasive leadership and effective communication. Integration of efforts bring
effectiveness and stability in a concern.
3. Means of Motivation – Direction function helps in achievement of goals. A manager
makes use of the element of motivation here to improve the performances of
subordinates. This can be done by providing incentives or compensation, whether
monetary or non – monetary, which serves as a “Morale booster” to the subordinates
Motivation is also helpful for the subordinates to give the best of their abilities which
ultimately helps in growth.
4. It Provides Stability – Stability and balance in concern becomes very important for long
term sun survival in the market. This can be brought upon by the managers with the help
of four tools or elements of direction function – judicious blend of persuasive leadership,
effective communication, strict supervision and efficient motivation. Stability is very
important since that is an index of growth of an enterprise. Therefore a manager can use
of all the four traits in him so that performance standards can be maintained.
5. Coping up with the changes – It is a human behaviour that human beings show
resistance to change. Adaptability with changing environment helps in sustaining planned
growth and becoming a market leader. It is directing function which is of use to meet
with changes in environment, both internal as external. Effective communication helps in
coping up with the changes. It is the role of manager here to communicate the nature and
contents of changes very clearly to the subordinates. This helps in clarifications, easy
adaptions and smooth running of an enterprise. For example, if a concern shifts from
handlooms to powerlooms, an important change in technique of production takes place.
The resulting factors are less of manpower and more of machinery. This can be resisted
by the subordinates. The manager here can explain that the change was in the benefit of
the subordinates. Through more mechanization, production increases and thereby the
profits. Indirectly, the subordinates are benefited out of that in form of higher
remuneration.
6. Efficient Utilization of Resources – Direction finance helps in clarifying the role of
every subordinate towards his work. The resources can be utilized properly only when
less of wastages, duplication of efforts, overlapping of performances, etc. doesn’t take
place. Through direction, the role of subordinates become clear as manager makes use of
his supervisory, the guidance, the instructions and motivation skill to inspire the
subordinates. This helps in maximum possible utilization of resources of men, machine,
materials and money which helps in reducing costs and increasing profits.
From the above discussion, one can justify that direction, surely, is the heart of management
process. Heart plays an important role in a human body as it serves the function pumping blood
to all parts of body which makes the parts function. In the similar manner, direction helps the
subordinates to perform in best of their abilities and that too in a healthy environment. The
manager makes use of the four elements of direction here so that work can be accomplished in a
proper and right manner. According to Earnest Dale, “Directing is what has to be done and in
what manner through dictating the procedures and policies for accomplishing performance
standards”. Therefore, it is rightly said that direction is essence of management process.
1.4 Role of Supervisor
Supervisor has got an important role to play in factory management. Supervision means
overseeing the subordinates at work at the factory level. The supervisor is a part of the
management team and he holds the designation of first line managers. He is a person who has to
perform many functions which helps in achieving productivity. Therefore, supervisor can be
called as the only manager who has an important role at execution level. There are certain
philosophers who call supervisors as workers. There are yet some more philosophers who call
them as managers. But actually he should be called as a manager or operative manager. His
primary job is to manage the workers at operative level of management
A supervisor plays multiplinary role at one time like –
1. As a Planner - A supervisor has to plan the daily work schedules in the factory. At the
same time he has to divide the work to various workers according to their abilities.
2. As a Manager - It is righty said that a supervisor is a part of the management team of an
enterprise. He is ,in fact, an operative manager.
3. As a Guide and Leader - A factory supervisor leads the workers by guiding them the
way of perform their daily tasks. In fact, he plays a role of an inspirer by telling them.
4. As a Mediator - A Supervisor is called a linking pin between management and workers.
He is the spokesperson of management as well as worker.
5. As an Inspector - An important role of supervisor is to enforce discipline in the factory.
For this, the work includes checking progress of work against the time schedule,
recording the work performances at regular intervals and reporting the deviations if any
from those. He can also frame rules and regulations which have to be followed by
workers during their work.
6. As a Counselor - A supervisor plays the role of a counselor to the worker’s problem. He
has to perform this role in order to build good relations and co-operation from workers.
This can be done not only by listening to the grievances but also handling the grievances
and satisfying the workers.
Therefore, we can say that effective and efficient supervision helps in serving better work
performance, building good human relations, creating a congenial and co-operative environment.
This all helps in increasing productivity.
1.5 Functions of Supervisor
Supervisor, being the manager in a direct contact with the operatives, has got multifarious
function to perform. The objective behind performance of these functions is to bring stability and
soundness in the organization which can be secured through increase in profits which is an end
result of higher productivity. Therefore, a supervisor should be concerned with performing the
following functions –
1. Planning and Organizing - Supervisor’s basic role is to plan the daily work schedule of
the workers by guiding them the nature of their work and also dividing the work amongst
the workers according to their interests, aptitudes, skills and interests.
2. Provision of working conditions - A supervisor plays an important role in the physical
setting of the factory and in arranging the physical resources at right place. This involves
providing proper sitting place, ventilation, lighting, water facilities etc. to workers. His
main responsibility is here to provide healthy and hygienic condition to the workers.
3. Leadership and Guidance - A supervisor is the leader of workers under him. He leads
the workers and influences them to work their best. He also guides the workers by fixing
production targets and by providing them instruction and guidelines to achieve those
targets.
4. Motivation - A supervisor plays an important role by providing different incentives to
workers to perform better. There are different monetary and non-monetary incentives
which can inspire the workers to work better.
5. Controlling - Controlling is an important function performed by supervisor. This will
involve
a. Recording the actual performance against the time schedule.
b. Checking of progress of work.
c. Finding out deviations if any and making solutions
d. If not independently solved, reporting it to top management.
6. Linking Pin - A supervisor proves to be a linking pin between management and workers.
He communicates the policies of management to workers also passes instructions to them
on behalf of management. On the other hand, he has a close contact with the workers and
therefore can interact the problems, complaints, suggestions, etc to the management. In
this way, he communicates workers problems and brings it to the notice of management.
7. Grievance Handling - The supervisor can handle the grievances of the workers
effectively for this he has to do the following things :a. He can be in direct touch with workers.
b. By winning the confidence of the workers by solving their problems.
c. By taking worker problems on humanitarian grounds.
d. If he cannot tackle it independently, he can take the help and advice of
management to solve it.
8. Reporting - A supervisor has got an important role to report about the cost, quality and
any such output which can be responsible for increasing productivity. Factors like cost,
output, performance, quality, etc can be reported continually to the management.
9. Introducing new work methods - The supervisor here has to be conscious about the
environment of market and competition present. Therefore he can innovate the techniques
of production. He can shift the workers into fresh schedules whenever possible. He can
also try this best to keep on changing and improving to the physical environment around
the workers. This will result in
a. Higher productivity,
b. High Morale of Workers,
c. Satisfying working condition,
d. Improving human relations,
e. Higher Profits, and
f. High Stability
10. Enforcing Discipline - A supervisor can undertake many steps to maintain discipline in
the concern by regulating checks and measures, strictness in orders and instructions,
keeping an account of general discipline of factory, implementing penalties and
punishments for the indiscipline workers. All these above steps help in improving the
overall discipline of the factory.
1.6 Controlling
Controlling consists of verifying whether everything occurs in confirmities with the plans
adopted, instructions issued and principles established. Controlling ensures that there is effective
and efficient utilization of organizational resources so as to achieve the planned goals.
Controlling measures the deviation of actual performance from the standard performance,
discovers the causes of such deviations and helps in taking corrective actions
According to Brech, “Controlling is a systematic exercise which is called as a process of
checking actual performance against the standards or plans with a view to ensure adequate
progress and also recording such experience as is gained as a contribution to possible future
needs.”
According to Donnell, “Just as a navigator continually takes reading to ensure whether he is
relative to a planned action, so should a business manager continually take reading to assure
himself that his enterprise is on right course.”
Controlling has got two basic purposes
1. It facilitates co-ordination
2. It helps in planning
Features of Controlling Function
Following are the characteristics of controlling function of management1. Controlling is an end function- A function which comes once the performances are
made in confirmities with plans.
2. Controlling is a pervasive function- which means it is performed by managers at all
levels and in all type of concerns.
3. Controlling is forward looking- because effective control is not possible without past
being controlled. Controlling always look to future so that follow-up can be made
whenever required.
4. Controlling is a dynamic process- since controlling requires taking reviewal methods,
changes have to be made wherever possible.
5. Controlling is related with planning- Planning and Controlling are two inseperable
functions of management. Without planning, controlling is a meaningless exercise and
without controlling, planning is useless. Planning presupposes controlling and
controlling succeeds planning.
1.7 Process of Controlling
Controlling as a management function involves following steps:
1. Establishment of standards- Standards are the plans or the targets which have to be
achieved in the course of business function. They can also be called as the criterions for
judging the performance. Standards generally are classified into twoa. Measurable or tangible – Those standards which can be measured and expressed
are called as measurable standards. They can be in form of cost, output,
expenditure, time, profit, etc.
b. Non-measurable or intangible- There are standards which cannot be measured
monetarily. For example- performance of a manager, deviation of workers, their
attitudes towards a concern. These are called as intangible standards.
Controlling becomes easy through establishment of these standards because controlling is
exercised on the basis of these standards.
2. Measurement of performance- The second major step in controlling is to measure the
performance. Finding out deviations becomes easy through measuring the actual
performance. Performance levels are sometimes easy to measure and sometimes difficult.
Measurement of tangible standards is easy as it can be expressed in units, cost, money
terms, etc. Quantitative measurement becomes difficult when performance of manager
has to be measured. Performance of a manager cannot be measured in quantities. It can
be measured only bya. Attitude of the workers,
b. Their morale to work,
c. The development in the attitudes regarding the physical environment, and
d. Their communication with the superiors.
It is also sometimes done through various reports like weekly, monthly, quarterly, yearly
reports.
3. Comparison of actual and standard performance- Comparison of actual performance
with the planned targets is very important. Deviation can be defined as the gap between
actual performance and the planned targets. The manager has to find out two things hereextent of deviation and cause of deviation. Extent of deviation means that the manager
has to find out whether the deviation is positive or negative or whether the actual
performance is in conformity with the planned performance. The managers have to
exercise control by exception. He has to find out those deviations which are critical and
important for business. Minor deviations have to be ignored. Major deviations like
replacement of machinery, appointment of workers, quality of raw material, rate of
profits, etc. should be looked upon consciously. Therefore it is said, “ If a manager
controls everything, he ends up controlling nothing.” For example, if stationery charges
increase by a minor 5 to 10%, it can be called as a minor deviation. On the other hand, if
monthly production decreases continuously, it is called as major deviation.
Once the deviation is identified, a manager has to think about various cause which has led
to deviation. The causes can bea. Erroneous planning,
b. Co-ordination loosens,
c. Implementation of plans is defective, and
d. Supervision and communication is ineffective, etc.
4. Taking remedial actions- Once the causes and extent of deviations are known, the
manager has to detect those errors and take remedial measures for it. There are two
alternatives herea. Taking corrective measures for deviations which have occurred; and
b. After taking the corrective measures, if the actual performance is not in
conformity with plans, the manager can revise the targets. It is here the
controlling process comes to an end. Follow up is an important step because it is
only through taking corrective measures, a manager can exercise controlling.
1.8 Relation between planning and controlling
Planning and controlling are two separate fuctions of management, yet they are closely related.
The scope of activities if both are overlapping to each other. Without the basis of planning,
controlling activities becomes baseless and without controlling, planning becomes a meaningless
exercise. In absense of controlling, no purpose can be served by. Therefore, planning and
controlling reinforce each other. According to Billy Goetz, " Relationship between the two can
be summarized in the following points
1. Planning preceeds controlling and controlling succeeds planning.
2. Planning and controlling are inseperable functions of management.
3. Activities are put on rails by planning and they are kept at right place through controlling.
4. The process of planning and controlling works on Systems Approach which is as follows
:
Planning
→
Results
→ Corrective Action
5. Planning and controlling are integral parts of an organization as both are important for
smooth running of an enterprise.
6. Planning and controlling reinforce each other. Each drives the other function of
management.
In the present dynamic environment which affects the organization, the strong relationship
between the two is very critical and important. In the present day environment, it is quite likely
that planning fails due to some unforeseen events. There controlling comes to the rescue. Once
controlling is done effectively, it give us stimulus to make better plans. Therfore, planning and
controlling are inseperate functions of a business enterprise.
1.9 Communcation- Removing Barriers to Communication in the
Family Business
Communication plays a major role in the family business. It affects the relationships among
family members on the management team and their relationships with employees. Although
effective communication does not guarantee the success of a farm business, its absence usually
assures problems. A communication problem may soon become a crisis or it may linger on for
years.
More specifically, communication influences the day-to-day relations among family
members. Communication also affects the willingness of family members to provide useful
suggestions. Making employees outside the family feel a part of the business requires
communication. In fact, for employees to make the important evolution from "workers" to
"working managers" requires effective communication between supervisors and employees.
Family members are typically hesitant to state their goals, their concerns and their
disappointments. Of course, a family member may be a complainer and share views to the point
other family members silently beg for less "communication." Much more common is the need to
understand better what family members are "really thinking."
This topc is about improving communication skills. Removing barriers to communication
is one of the easiest ways to improve communication. Removing these barriers starts with an
understanding of a communication model. This paper is designed to help managers think about
their own communication skills and the way communication is done day-to-day back home.
1.9.1 Communication Model
The process starts with a sender who has a message for a receiver. Two or more people are
always involved in communication. The sender has the responsibility for the message. The
sender's message travels to the receiver through one or more channels chosen by the sender. The
channels may be verbal or nonverbal. They may involve only one of the senses, hearing for
example, or they may involve all five of the senses: hearing, sight, touch, smell, and taste.
Nonverbal communication, popularly referred to as body language, relies primarily on seeing
rather than hearing.
The sending of a message by an appropriate channel to a receiver appears to have
completed the communication process or at least the sender's responsibility. Not so! After
sending the message, the sender becomes a receiver and the receiver becomes a sender through
the process of feedback. Feedback is the receiver's response to the attempt by the sender to send
the message. Feedback is the key to determination by the sender of whether or not the message
has been received in the intended form. Feedback involves choice of channel by the receiver of
the original message. The channel for feedback may be quite different from the original channel
chosen by the sender. A puzzled look may be the feedback to what the sender considered a
perfectly
clear
oral
instruction.
Effect on the receiver completes the communication process. Effective communication is
the original sender having the desired effect on the receiver. Communication at its best
minimizes misunderstanding between sender and receiver. The sender cannot transplant a
message or idea. Ineffective communication means there was no effect on the receiver or the
effect was unexpected, undesired and/or unknown to the sender.
This simplified version of a complex process can be a powerful tool for thinking about
one's communication skills, diagnosing communication problems and developing plans for
improvement of communication. The good news about communication is that improvement is
almost always possible. The bad news is that perfection in communication escapes everyone.
1.9.2 Barriers to Communication
Problems with any one of the components of the communication model can become a barrier to
communication. These barriers suggest opportunities for improving communication.
1. Muddled messages - Effective communication starts with a clear message. Contrast these two
messages: "Please be here about 7:00 tomorrow morning." "Please be here at 7:00 tomorrow
morning." The one word difference makes the first message muddled and the second message
clear.
Muddled messages are a barrier to communication because the receiver is left unclear
about the intent of the sender. Muddled messages have many causes. The sender may be
confused in his or her thinking. The message may be little more than a vague idea. The problem
may be semantics, e.g., note this muddled newspaper ad: "Dog for sale. Will eat anything.
Especially likes children. Call 888-3599 for more information."
Feedback from the receiver is the best way for a sender to be sure that the message is
clear rather than muddled. Clarifying muddled messages is the responsibility of the sender. The
sender hoping the receiver will figure out what was really meant does little to remove this barrier
to communication.
2. Stereotyping - Stereotyping causes us to typify a person, a group, an event or a thing on
oversimplified conceptions, beliefs, or opinions. Thus, basketball players can be typed as tall,
green equipment as better than red equipment, football linemen as dumb, Ford as better than
Chevrolet, Vikings as handsome, and people raised on swine farms as interested in animals.
Stereotyping can substitute for thinking, analysis and open mindedness to a new situation.
Stereotyping is a barrier to communication when it causes people to act as if they already
know the message that is coming from the sender or worse, as if no message is necessary
because "everybody already knows." Both senders and listeners should continuously look for and
address thinking, conclusions and actions based on stereotypes.
3. Wrong channel - "Good morning." An oral channel for this message is highly appropriate.
Writing "GOOD MORNING!" on a chalk board in the machine shed is less effective than a
warm oral greeting. On the other hand, a detailed request to a contractor for construction of a
farrowing house should be in writing, i.e., non-oral. A long conversation between a pork
producer and a contractor about the farrowing house construction, with neither taking notes,
surely will result in confusion and misunderstanding. Similarly, several conversations between a
father and son concerning a partnership and long-term plans for the business, with neither taking
notes, surely will result in confusion and misunderstanding. It will also likely result in other
family members not understanding what father and son have agreed to. These simple examples
illustrate how the wrong channel can be a barrier to communication.
Variation of channels helps the receiver understand the nature and importance of a
message. Using a training video on cleaning practices helps new employees grasp the importance
placed on herd health. A written disciplinary warning for tardiness emphasizes to the employee
that the problem is serious. A birthday card to a daughter-in-law is more sincere than a request to
a son to say "Happy Birthday" to his wife.
Simple rules for selection of a channel cause more problems than they solve. In chosing a
channel, the sender needs to be sensitive to such things as the complexity of the message (good
morning versus a construction contract); the consequences of a misunderstanding (medication for
a sick animal versus a guess about tomorrow's weather); knowledge, skills and abilities of the
receiver (a new employee versus a partner in the business); and immediacy of action to be taken
from the message (instructions for this morning's work versus a plan of work for next year).
4. Language - Words are not reality. Words as the sender understands them are combined with
the perceptions of those words by the receiver. Language represents only part of the whole. We
fill in the rest with perceptions. Trying to understand a foreign language easily demonstrates
words not being reality. Being "foreign" is not limited to the language of another country. It can
be the language of another farm. The Gerken house may be where the Browns now live. The
green goose may be a trailer painted red long after it was given the name green goose. A brassy
day may say much about temperature and little about color. Each new family member and
employee needs to be taught the language of the farm. Until the farm's language is learned, it can
be as much a barrier to communication as a foreign language.
5. Lack of feedback - Feedback is the mirror of communication. Feedback mirrors what the
sender has sent. Feedback is the receiver sending back to the sender the message as perceived.
Without feedback, communication is one-way.
Feedback happens in a variety of ways. Asking a person to repeat what has been said,
e.g., repeat instructions, is a very direct way of getting feedback. Feedback may be as subtle as a
stare, a puzzled look, a nod, or failure to ask any questions after complicated instructions have
been given. Both sender and receiver can play an active role in using feedback to make
communication truly two-way.
Feedback should be helpful rather than hurtful. Prompt feedback is more effective that
feedback saved up until the "right" moment. Feedback should deal in specifics rather than
generalities. Approach feedback as a problem in perception rather than a problem of discovering
the facts.
6. Poor listening skills - Listening is difficult. A typical speaker says about 125 words per
minute. The typical listener can receive 400-600 words per minute. Thus, about 75 percent of
listening time is free time. The free time often sidetracks the listener. The solution is to be an
active rather than passive listener.
One important listening skill is to be prepared to listen. Tune out thoughts about other
people and other problems. Search for meaning in what the person is saying. A mental outline or
summary of key thoughts can be very helpful. Avoid interrupting the speaker. "Shut up" is a
useful listening guideline. "Shut up some more" is a useful extension of this guideline. Withhold
evaluation and judgement until the other person has finished with the message. A listener's
premature frown, shaking of the head, or bored look can easily convince the other person there is
no reason to elaborate or try again to communicate his or her excellent idea.
Providing feedback is the most important active listening skill. Ask questions. Nod in
agreement. Look the person straight in the eye. Lean forward. Be an animated listener. Focus on
what is being said. Repeat key points.
Active listening is particularly important in dealing with an angry person. Encouraging
the person to speak, i.e., to vent feelings, is essential to establishing communication with an
angry person. Repeat what the person has said. Ask questions to encourage the person to say
again what he or she seemed most anxious to say in the first place. An angry person will not start
listening until they have "cooled" down. Telling an angry person to "cool" down often has the
opposite effect. Getting angry with an angry person only assures that there are now two people
not
listening
to
what
the
other
is
saying.
7. Interruptions - A farm is a lively place. Few days are routine. Long periods of calm and quiet
rarely interrupt the usual hectic pace. In this environment, conversations, meetings, instructions
and even casual talk about last night's game are likely to be interrupted. The interruptions may be
due to something more pressing, rudeness, lack of privacy for discussion, a drop-in visitor, an
emergency or even the curiosity of someone else wanting to know what two other people are
talking about.
No matter the cause, interruptions are a barrier to communication. In the extreme, there is
a reluctance of employees and family members even to attempt discussion with a manager
because of the near certainty that the conversation will be interrupted. Less extreme but
nevertheless serious is the problem of incomplete instructions because someone came by with a
pressing question.
8. Physical distractions - Physical distractions are the physical things that get in the way of
communication. Examples of such things include the telephone, a pick-up truck door, a desk, an
uncomfortable meeting place, and noise.
These physical distractions are common on farms. If the phone rings, the tendency is to
answer it even if the caller is interrupting a very important or even delicate conversation. A
supervisor may give instructions from the driver's seat of a pick-up truck. Talking through an
open window and down to an employee makes the truck door a barrier. A person sitting behind a
desk, especially if sitting in a large chair, talking across the desk is talking from behind a
physical barrier. Two people talking facing each other without a desk or truck-door between
them have a much more open and personal sense of communication. Uncomfortable meeting
places may include a place on the farm that is too hot or too cold. Another example is a meeting
room with uncomfortable chairs that soon cause people to want to stand even if it means cutting
short the discussion. Noise is a physical distraction simply because it is hard to concentrate on a
conversation if hearing is difficult.
1.9.3 Facilitating Communication
Beyond removal of specific barriers to communication, the following general guidelines may
also
help
communication.
1. Have a positive attitude about communication. Defensiveness interferes with communication.
2. Work at improving communication skills. It takes knowledge and work. The communication
model and discussion of barriers to communication provide the necessary knowledge. This
increased awareness of the potential for improving communication is the first step to better
communication.
3. Include communication as a skill to be evaluated along with all the other skills in each
person's job description. Help other people improve their communication skills by helping them
understand
their
communication
problems.
4. Make communication goal oriented. Relational goals come first and pave the way for other
goals. When the sender and receiver have a good relationship, they are much more likely to
accomplish
their
communication
goals.
5. Approach communication as a creative process rather than simply part of the chore of working
with people. Experiment with communication alternatives. What works with one person may not
work well with another person. Vary channels, listening techniques and feedback techniques.
6. Accept the reality of miscommunication. The best communicators fail to have perfect
communication. They accept miscommunication and work to minimize its negative impacts.
1.10 Leadership
Leadership is a process by which an executive can direct, guide and influence the behavior and
work of others towards accomplishment of specific goals in a given situation. Leadership is the
ability of a manager to induce the subordinates to work with confidence and zeal.
According to Keith Davis, “Leadership is the ability to persuade others to seek defined
objectives enthusiastically. It is the human factor which binds a group together and motivates it
towards goals.”
Features of Leadership
1. It is a inter- personal process in which a manager is into influencing and guiding workers
towards attainment of goals.
2. It denotes a few qualities to be present in a person which includes intelligence, maturity
and personality.
3. A leader is involved in shaping and moulding the behavior of the group towards
accomplishment of organizational goals.
4. Leadership is situation bound. There is no best style of leadership. It all depends upon
tackling with the situations.
Leadership is an important function of management which helps to maximize efficiency and to
achieve organizational goals. The following points justify the importance of leadership in a
concern.
1. Initiates action- Leader is a person who starts the work by communicating the policies
and plans to the subordinates from where the work actually starts.
2. Motivation- A leader proves to be playing an incentive role in the concern’s working. He
motivates the employees with economic and non-economic rewards and thereby gets the
work from the subordinates.
3. Providing guidance- A leader has to not only supervise but also play a guiding role for
the subordinates. Guidance here means instructing the subordinates the way they have to
perform their work effectively and efficiently.
4. Creating confidence- Confidence is an important factor which can be achieved through
expressing the work efforts to the subordinates, explaining them clearly their role and
giving them guidelines to achieve the goals effectively. It is also important to hear the
employees with regards to their complaints and problems.
5. Building morale- Morale denotes willing co-operation of the employees towards their
work and getting them into confidence and winning their trust. A leader can be a morale
booster by achieving full co-operation so that they perform with best of their abilities as
they work to achieve goals.
6. Builds work environment- Management is getting things done from people. An efficient
work environment helps in sound and stable growth. Therefore, human relations should
be kept into mind by a leader. He should have personal contacts with employees and
should listen to their problems and solve them. He should treat employees on
humanitarian terms.
7. Co-ordination- Co-ordination can be achieved through reconciling personal interests
with organizational goals. This synchronization can be achieved through proper and
effective co-ordination which should be primary motive of a leader.
Following are the main roles of a leader in an organization :
1. Required at all levels- Leadership is a function which is important at all levels of
management. In the top level, it is important for getting co-operation in formulation of
plans and policies. In the middle and lower level, it is required for interpretation and
execution of plans and programmes framed by the top management. Leadership can be
exercised through guidance and counseling of the subordinates at the time of execution of
plans.
2. Representative of the organization- A leader, i.e., a manager is said to be the
representative of the enterprise. He has to represent the concern at seminars, conferences,
general meetings, etc. His role is to communicate the rationale of the enterprise to outside
public. He is also representative of the own department which he leads.
3. Integrates and reconciles the personal goals with organizational goals- A leader
through leadership traits helps in reconciling/ integrating the personal goals of the
employees with the organizational goals. He is trying to co-ordinate the efforts of people
towards a common purpose and thereby achieves objectives. This can be done only if he
can influence and get willing co-operation and urge to accomplish the objectives.
4. He solicits support- A leader is a manager and besides that he is a person who entertains
and invites support and co- operation of subordinates. This he can do by his personality,
intelligence, maturity and experience which can provide him positive result. In this
regard, a leader has to invite suggestions and if possible implement them into plans and
programmes of enterprise. This way, he can solicit full support of employees which
results in willingness to work and thereby effectiveness in running of a concern.
5. As a friend, philosopher and guide- A leader must possess the three dimensional traits
in him. He can be a friend by sharing the feelings, opinions and desires with the
employees. He can be a philosopher by utilizing his intelligence and experience and
thereby guiding the employees as and when time requires. He can be a guide by
supervising and communicating the employees the plans and policies of top management
and secure their co-operation to achieve the goals of a concern. At times he can also play
the role of a counselor by counseling and a problem-solving approach. He can listen to
the problems of the employees and try to solve them.
A leader has got multidimensional traits in him which makes him appealing and effective in
behavior. The following are the requisites to be present in a good leader:
1. Physical appearance- A leader must have a pleasing appearance. Physique and health
are very important for a good leader.
2. Vision and foresight- A leader cannot maintain influence unless he exhibits that he is
forward looking. He has to visualize situations and thereby has to frame logical
programmes.
3. Intelligence- A leader should be intelligent enough to examine problems and difficult
situations. He should be analytical who weighs pros and cons and then summarizes the
situation. Therefore, a positive bent of mind and mature outlook is very important.
4. Communicative skills- A leader must be able to communicate the policies and
procedures clearly, precisely and effectively. This can be helpful in persuasion and
stimulation.
5. Objective- A leader has to be having a fair outlook which is free from bias and which
does not reflects his willingness towards a particular individual. He should develop his
own opinion and should base his judgement on facts and logic.
6. Knowledge of work- A leader should be very precisely knowing the nature of work of
his subordinates because it is then he can win the trust and confidence of his
subordinates.
7. Sense of responsibility- Responsibility and accountability towards an individual’s work
is very important to bring a sense of influence. A leader must have a sense of
responsibility towards organizational goals because only then he can get maximum of
capabilities exploited in a real sense. For this, he has to motivate himself and arouse and
urge to give best of his abilities. Only then he can motivate the subordinates to the best.
8. Self-confidence and will-power- Confidence in himself is important to earn the
confidence of the subordinates. He should be trustworthy and should handle the situations
with full will power.
9. Humanist-This trait to be present in a leader is essential because he deals with human
beings and is in personal contact with them. He has to handle the personal problems of
his subordinates with great care and attention. Therefore, treating the human beings on
humanitarian grounds is essential for building a congenial environment.
10. Empathy- It is an old adage “Stepping into the shoes of others”. This is very important
because fair judgement and objectivity comes only then. A leader should understand the
problems and complaints of employees and should also have a complete view of the
needs and aspirations of the employees. This helps in improving human relations and
personal contacts with the employees.
From the above qualities present in a leader, one can understand the scope of leadership and it’s
importance for scope of business. A leader cannot have all traits at one time. But a few of them
helps in achieving effective results.
1.11 Leadership and Management- Relationship and Differences
Leadership and management are the terms that are often considered synonymous. It is essential
to understand that leadership is an essential part of effective management. As a crucial
component of management, remarkable leadership behaviour stresses upon building an
environment in which each and every employee develops and excels. Leadership is defined as
the potential to influence and drive the group efforts towards the accomplishment of goals. This
influence may originate from formal sources, such as that provided by acquisition of managerial
position in an organization.
A manager must have traits of a leader, i.e., he must possess leadership qualities. Leaders
develop and begin strategies that build and sustain competitive advantage. Organizations require
robust leadership and robust management for optimal organizational efficiency
Differences between Leadership and Management
Leadership differs from management in a sense that:
1. While managers lay down the structure and delegates authority and responsibility, leaders
provides direction by developing the organizational vision and communicating it to the
employees and inspiring them to achieve it.
2. While management includes focus on planning, organizing, staffing, directing and
controlling; leadership is mainly a part of directing function of management. Leaders
focus on listening, building relationships, teamwork, inspiring, motivating and
persuading the followers.
3. While a leader gets his authority from his followers, a manager gets his authority by
virtue of his position in the organization.
4. While managers follow the organization’s policies and procedure, the leaders follow their
own instinct.
5. Management is more of science as the managers are exact, planned, standard, logical and
more of mind. Leadership, on the other hand, is an art. In an organization, if the managers
are required, then leaders are a must/essential.
6. While management deals with the technical dimension in an organization or the job
content; leadership deals with the people aspect in an organization.
7. While management measures/evaluates people by their name, past records, present
performance; leadership sees and evaluates individuals as having potential for things that
can’t be measured, i.e., it deals with future and the performance of people if their
potential is fully extracted.
8. If management is reactive, leadership is proactive.
9. Management is based more on written communication, while leadership is based more on
verbal communication
1.12 Leader v/s Manager
Leadership and managership are two synonymous terms” is an incorrect statement. Leadership
doesn’t require any managerial position to act as a leader. On the other hand, a manager can be a
true manager only if he has got the traits of leader in him. By virtue of his position, manager has
to provide leadership to his group. A manager has to perform all five functions to achieve goals,
i.e., Planning, Organizing, Staffing, Directing, and Controlling. Leadership is a part of these
functions. Leadership as a general term is not related to managership. A person can be a leader
by virtue of qualities in him. For example: leader of a club, class, welfare association, social
organization, etc. Therefore, it is true to say that, “All managers are leaders, but all leaders are
not managers.”
A leader is one who influences the behavior and work of others in group efforts towards
achievement of specified goals in a given situation. On the other hand, manager can be a true
manager only if he has got traits of leader in him. Manager at all levels are expected to be the
leaders of work groups so that subordinates willingly carry instructions and accept their
guidance. A person can be a leader by virtue of all qualities in him.
Leaders and Managers can be compared on the following basis:
Basis
Origin
Formal Rights
Followers
Functions
Necessity
Stability
Mutual
Relationship
Manager
Leader
A person becomes a manager by
A person becomes a leader on basis
virtue of his position.
of his personal qualities.
Manager has got formal rights in an
organization because of his status.
Rights are not available to a leader.
The subordinates are the followers
The group of employees whom the
of managers.
leaders leads are his followers.
A
manager
performs
all
five
functions of management.
A manager is very essential to a
concern.
Leader influences people to work
willingly for group objectives.
A leader is required to create cordial
relation between person working in
and for organization.
It is more stable.
Leadership is temporary.
All managers are leaders.
All leaders are not managers.
Manager is accountable for self and
Accountability
subordinates
behaviour
and
performance.
Concern
Followers
A
manager’s
concern
is
have
no
well
defined
accountability.
A leader’s concern is group goals and
organizational goals.
member’s satisfaction.
People follow manager by virtue of
People follow them on voluntary
job description.
basis.
A manager can continue in office
Role
till
continuation
satisfactorily in congruence with
he
performs
his
duties
organizational goals.
Manager
Sanctions
Leaders
allocation
sanctions.
has
and
command
distribution
over
of
A leader can maintain his position
only through day to day wishes of
followers.
A leader has command over different
sanctions and related task records.
These sanctions are essentially of
informal nature.
1.13 Summary
Directing initiates action and it is from here actual work starts. Direction is said to be consisting
of human factors. Directing is influencing people's behavior through motivation, communication,
group dynamics, leadership and discipline. The purpose of directing is to channel the behavior of
all personnel to accomplish the organization's mission and objectives while simultaneously
helping them accomplish their own career objectives. Managers give this function a variety of
names. Higgins calls it leading. Other labels are: influencing, coaching, motivating, interpersonal
relations, and human relations. The directing function gives the manager an active rather than a
passive role in employee performance, conduct and accomplishments. Managers accomplish
their objectives through people. In blaming others for her or his human resource problems, a
manager is denying the management responsibilities inherent in the directing function. The
directing function gives managers a second responsibility: helping people in the organization
accomplish their individual career goals. Organizations do not succeed while their people are
failing. Helping people in the organization with career planning and professional development is
an integral part of the directing function.
Communication is at the heart of many interpersonal problems in family businesses.
Understanding the communication process and then working at improvement provide managers a
recipe for becoming more effective communicators. Knowing the common barriers to
communication is the first step to minimizing their impact. Managers can reflect on how they are
doing and use the ideas presented in this paper. When taking stock of how well you are doing as
a manager and family member, first ask yourself and others how well you are doing as a
communicator.
Control, the last of four functions of management, includes establishing performance
standards which are of course based on the company’s objectives. It also involves evaluating and
reporting of actual job performance. When these points are studied by the management then it is
necessary to compare both the things. This study on comparision of both decides further
corrective
and
preventive
actions.
In an effort of solving performance problems, management should higher standards. They should
straightforwardly speak to the employee or department having problem. On the contrary, if there
are inadequate resources or disallow other external factors standards from being attained,
management had to lower their standards as per requirement. The controlling processes as in
comparison with other three, is unending process or say continuous process. With this
management can make out any probable problems. It helps them in taking necessary preventive
measures against the consequences. Management can also recognize any further developing
problems that need corrective actions.
1.14 Keywords
Manage
Control
Motivate
Plan
Communication
Directing
1.15 Exercises
1. What might you include in regular monthly meetings with all of your employees in
attendance?
2. How do you ensure that all key employees are aware of important information and
activities in the organization?
3. How can you ensure that the right people are included in your meetings?
4. What's the best way to design an agenda (according to the materials for review)?
5. What kinds of activities should be included in the opening of a meeting?
6. What are some ideas to ensure that meeting time is managed as effectively as possible?
7. How can you evaluate the meeting process? How can you evaluate results of the overall
meeting process?
8. What activities are including when closing a meeting?
9. Why is the role of first-time manager and/or supervisor so stressful sometimes?
10. Give brief definitions for the following terms (compare the terms with each other, noting
how they are similar and different:). Board of Directors. Executives. Managers. Leaders.
Supervisors.
11. What are some reasons for having a narrow span of control in an organization?
12. Explain the characterstics of Delegation.
13. Why delegation is necessary in management?
14. Explain the role and function of supervisor.
15. Define Controlling. Explain controlling process.
16. Differentiate between controlling and planning.
17. Explain the communication model.
18. How communication helps in management?
19. Explain the role and importance of leadership.
20. Differentiate between the followinga. Leadership and management b. leader and manager
1.16 References
1. www.google.com
2. Management Study Guide - Training Guide for Students and Entrepreneurs.
MODULE 2
UNIT – 2
CONTENTS
2.1
Objectives
2.2
Decision making concepts
2.3
Decision making process
2.4
Decision-making by analytical modeling
2.5
Behavioral concepts in decision making
2.6
Characteristics of the business decision making
2.7
Classification of decision making
2.8
organizational decision-making,
2.9
Decision structure
2.10 DSS
2.11 CDSS
2.12 SDSS
2.13 Summary
2.14 Keywords
2.15 Exercise
2.1 Objectives
The main objective of this chapter is to deal with decision making. It describes about the
structure, classification of decision making process, decision making in an organization, decision
structures.
2.2 Decision Making Concepts
The word decision is derived from the Latin root decido, meaning to cut off. The
concept of decision, therefore, is settlement, a fixed intention bringing to a conclusive result, a
judgment, and a resolution. A decision is the choice out of several options made by the decision
maker to achieve some objective in a given situation.
Business decisions are those, which are made in the process of conducting business to
achieve its objectives in a given environment. In concept, whether we are talking about business
decisions or any other decision, we assume that the decision maker is a rational person who
would decide, with due regard to the rationality in decision making.
Decision making can be regarded as an outcome of mental processes (cognitive process)
leading to the selection of a course of action among several alternatives. Every decision making
process produces a final choice. The output can be an action or an opinion of choice.
Human performance in decision making terms has been the subject of active research
from several perspectives. From a psychological perspective, it is necessary to examine
individual decisions in the context of a set of needs, preferences an individual has and values
they seek. From a cognitive perspective, the decision making process must be regarded as a
continuous process integrated in the interaction with the environment. From a normative
perspective, the analysis of individual decisions is concerned with the logic of decision making
and rationality and the invariant choice it leads to.
Yet, at another level, it might be regarded as a problem solving activity which is
terminated when a satisfactory solution is found. Therefore, decision making is a reasoning or
emotional process which can be rational or irrational, can be based on explicit assumptions or
tacit assumptions.
Logical decision making is an important part of all science-based professions, where
specialists apply their knowledge in a given area to making informed decisions. Some research
shows, however, that in situations with higher time pressure, higher stakes, or increased
ambiguities, experts use intuitive decision making rather than structured approaches.
2.3 Decision Making Process
Fig. 2.1 Decision making process
Human performance in decision making terms has been the subject of active research
from several perspectives. From a psychological perspective, it is necessary to examine
individual decisions in the context of a set of needs, preferences an individual has and values
they seek. From a cognitive perspective, the decision making process must be regarded as a
continuous process integrated in the interaction with the environment. From a normative
perspective, the analysis of individual decisions is concerned with the logic of decision making
and rationality and the invariant choice it leads to.
Yet, at another level, it might be regarded as a problem solving activity which is terminated
when a satisfactory solution is found. Therefore, decision making is a reasoning or emotional
process which can be rational or irrational, can be based on explicit assumptions or tacit
assumptions.
Logical decision making is an important part of all science-based professions, where specialists
apply their knowledge in a given area to making informed decisions. For example, medical
decision making often involves making a diagnosis and selecting an appropriate treatment. Some
research using naturalistic methods shows, however, that in situations with higher time pressure,
higher stakes, or increased ambiguities, experts use intuitive decision making rather than
structured approaches, following a decision approach to fit a set of indicators into the expert's
experience and immediately arrive at a satisfactory course of action without weighing
alternatives. Recent robust decision efforts have formally integrated uncertainty into the decision
making process. However, Decision Analysis, recognized and included uncertainties with a
structured and rationally justifiable method of decision making since its conception in 1964.
Decision making skills are used to solve problems by selecting one course of action from
several possible alternatives. Decision making skills are also a key component of time
management skills.
Decision making can be hard. Almost any decision involves some conflicts or
dissatisfaction. The difficult part is to pick one solution where the positive outcome can
outweigh possible losses. Avoiding decisions often seems easier. Yet, making your own
decisions and accepting the consequence is the only way to stay in control of your time, your
success, and your life.
2.4 Decision making By Analytical Modeling
To make a decision in an organised way to generate priorities we need to decompose the decision
into the following steps.
1 Define the problem and determine the kind of knowledge sought.
2 Structure the decision hierarchy from the top with the goal of the decision, then the objectives
from a broad perspective, through the intermediate levels (criteria on which subsequent elements
depend) to the lowest level (which usually is a set of the alternatives).
3 Construct a set of pairwise comparison matrices. Each element in an upper level is used to
compare the elements in the level immediately below with respect to it.
4 Use the priorities obtained from the comparisons to weigh the priorities in the level
immediately below. Do this for every element. Then for each element in the level below add its
weighed values and obtain its overall or global priority. Continue this process of weighing and
adding until the final priorities of the alternatives in the bottom most level are obtained.
Fig 2.2 Best job analytical decision
The above is a simple decision examined by someone to determine what kind of job would be
best for him/her after getting his/her PhD: either to work in two kinds of companies or to teach in
two kinds of schools. The goal is to determine the kind of job for which he/she is best suited as
spelled out by the criteria. Because of space limitations we will not define them in detail here
2.5 Behavioral Concepts In Decision Making
‘Decision making’ is a course of action to bring a situation under control. It involves
selection of best suitable set of actions among available alternatives. The decision making
process can be broken down into four stages, namely:–
1. Trigger — an event or a piece of information that precipitates the need for a decision, i.e.,
recognize the problem.
2. Information gathering — identifies preliminary information needs; obtain information.
3. Design — define and structure the problem; identify alternative courses of action.
4. Evaluation — Build model to simulate reality; choose the course of action.
Decision making is a continuous process and an inseparable managerial process. All
levels of management are involved in the process of decision making. The type of decision
making and the importance of the decision made depend on the situation and the managerial
level.
Thus, we can easily understand that although all the three management levels are
involved in decision making, type of decision making varies.
Decisions can be broken down into 3 main types:
1. ‘Structured decisions’ follow a set of rules. This means that:
A. decisions can be taken objectively
B. there is a clearly defined method of solving the problem
C. generally, there is a right answer
There are a number of operational research techniques to help reach structured decisions.
These include linear programming and network analysis.
2. ‘Unstructured decisions’ are normally subjective and do not follow any definite set of
rules. (Efforts are made to turn unstructured decisions into structured ones by setting
hard-and-fast criteria.)
3. ‘Semi-structured decisions’ lie between structured and unstructured decisions. Some parts
of the decision making process are programmable (structured), others not.
A significant part of decision making skills is in knowing and practicing good decision making
techniques. One of the most practical decision making techniques can be summarized in those
simple decision making steps:
1. Identify the purpose of your decision. What is exactly the problem to be solved? Why it
should be solved?
2. Gather information. What factors does the problem involve?
3. Identify the principles to judge the alternatives. What standards and judgment criteria
should the solution meet?
4. Brainstorm and list different possible choices. Generate ideas for possible solutions.
5. Evaluate each choice in terms of its consequences. Use your standards and judgment
criteria to determine the cons and pros of each alternative.
6. Determine the best alternative. This is much easier after you go through the above
preparation steps.
7. Put the decision into action. Transform your decision into specific plan of action steps.
Execute your plan.
8. Evaluate the outcome of your decision and action steps. What lessons can be learnt? This
is an important step for further development of your decision making skills and judgment.
In everyday life we often have to make decisions fast, without enough time to systematically
go through the above action and thinking steps. In such situations the most effective decision
making strategy is to keep an eye on your goals and then let your intuition suggest you the right
choice.
2.6 Characteristics Of The Business Decision Making
1. Sequential in nature.
2. Exceedingly complex due to risks and trade offs.
3. Influenced by personal vales
4. Made in institutional settings and business environment.
A. The business decision making is sequential in nature. In business, the decisions are not
isolated events. Each of them has a relation to some other decision or situation. The decision
may appear as a “snap” decision but it is made only after a long chain of developments and a
series of related earlier decision.
B. The decision making process is a complex process in the higher hierarchy of management.
The complexity is the result of many factors, such as the inter-relationship among the experts
or decision makers, a job responsibility, a question of feasibility, the codes of morals and
ethics, and a probable impact on business.
C. The personal values of the decision maker play a major role in decision making. A decision
otherwise being very sound on the business principle and economic rationality may be
rejected on the basis of the personal values, which are defeated if such a decision is
implemented. The culture, the discipline and the individual’s commitment to the goals will
decide the process and success of the decision.
D.
Whatever may be the situation, if one analyses the factors underlying the decision
making process, it would be observed that there are common characteristics in each of them.
There is a definite method of arriving at a decision: and it can be put in the form of decision
process model.The decision making process requires creativity, imagination and a deep
understanding of human behavior. The process covers a number of tangible and intangible
factors affecting the decision process. It also requires a foresight to predict the post-decision
implications and a willingness to face those implications. All decisions solve a problem but
over a period of time they give rise to a number of other problems.
2.7 Classification Of Decision Making
The decision making systems can be classified in a number of ways. There are two types
of systems based on the manager’s knowledge about the environment.
Closed decision making system
If the manager operates in a known environment then it is a closed decision making
system. The conditions of the closed decision making system are:
1. The manager has a known set of decision alternatives and knows their outcomes
fully in terms of value, if implemented.
2. The manager has a model, a method or a rule whereby the decision alternatives
can be generated, tested, and ranked.
3. The manager can choose one of them, based on some goal or objective.
A few examples are a product mix problem, an examination system to declare pass or fail, or an
acceptance of the fixed deposits.
Open decision making system
If the manager operates in an environment not known to him, then the decision making system is
termed as an open decision making system. The conditions of this system are:
a. The manager does not know all the decision alternatives.
b. The outcome of the decision is also not known fully. The knowledge of the
outcome may be a probabilistic one.
c. No method, rule or model is available to study and finalize one decision among
the set of decision alternatives.
d. It is difficult to decide an objective or a goal and, therefore, the manager resorts to
that decision, where his aspirations or desires are met best.
Deciding on the possible product diversification lines, the pricing of a new product, and the plant
location, are some decision making situations which fall in the category of the open decision
making systems.
The MIS tries to convert every open system to a closed decision making system by
providing information support for the best decision. The MIS gives the information support,
whereby the manager knows more and more about the environment and the outcomes, he is able
to generate the decision alternatives, test them and select one of them. A good MIS achieves this.
Rational Decision Making
A rational decision is the one which, effectively and efficiently, ensures the achievement of
the goal for which the decision is made. If it is raining, it is rational to look for a cover so that
you do not get wet. If you are in business and want to make profit, then you must produce goods
and sell them at a price higher than the cost of production. In reality, there is no right or wrong
decision but a rational or an irrational decision. The quality of decision making is to be judged on
the rationality and not necessarily on the result it produces. The rationality of the decision made
is not the same in every situation. It will vary with the organization, the situation and the
individual’s view of the business situation. The rationality, therefore, is a multi-dimensional
concept. For example, the business decisions in a private organization and a Public Sector
Undertaking differ under the head of rationality. The reason for this difference in rationality is
the different objectives of the decision makers. Any business decision if asked to be reviewed by
a share-holder, a consumer, an employee, a supplier and a social scientist, will result in a
different criticism with reference to their individual rationality.
This is because each one of them will view the situation in different contexts and the
motive with the different objectives. Hence, whether a decision is right or wrong depends on a
specific rational view.
Simon Herbert differentiates among the types of rationality. A decision, in a given situation is:
1. Objectively rational if it maximizes the value of the objective.
2. Subjectively rational if it maximizes the attainment of value in relation to the knowledge
and awareness of the subject.
3. Consciously rational to the extent the process of the decision making is a conscious one.
4. Organizationally rational to the degree of the orientation towards the organization.
5. Personally rational to the extent it achieves an individual’s personal goals.
In other words, so long as the decision maker can explain with logic and reason, the
objectivity and the circumstances in which the decision is made, it can be termed as a rational
decision.
2.8 Organizational Decision Making
The organizational decision making process involves proper and efficient implementation of
strategic plans and methods to achieve desired business objective. let’s examine some key areas
that affect the overall process.
Often one difficulty facing an organization is that multiple divisions are involved in the overall
decision making process. Making a decision can have different implications for each respective
division. Gaining agreement from all stakeholders can be a challenge. when a companies overall
strategy depends on the support of all business units, organization wide support is crucial.
Decision making in organizations is often pictured as a coherent and rational process in which
alternative interests and perspectives are considered in an orderly manner until the optimal
alternative is selected. yet, as many members of organizations have discovered from their own
experience, real decision processes in organizations only seldom fit such a description. This
chapter brings together researchers who focus on cognitive aspects of decision processes, on the
one hand, and those who study organizational aspects such as conflict, incentives, power, and
ambiguity, on the other. it draws from the tradition of herbert simon, who studied organizational
decision making’s pervasive use of bounded rationality and heuristics of reasoning. These
multiple perspectives may further our understanding of organizational decision making.
Organizational decision making is particularly well suited for students and faculties of business,
psychology, and public administration. The main feature is the integration (never been done
before) of psychological aspects of decision making and organizational characteristics that affect
decision making in organizations
2.9 Decision Structure
Information systems will vary according to the level of management they are providing
information to. With in this hierarchy, strategic planning will normally involve making
unstructured decisions and operational planning will normally involve making structured
decisions. Tactical planning is caught in the middle and will involve a mixture of both decision
EI
S
types. Following diagram will assist in clear understanding.
Strat-egic level
TP
S
SS
D
Tactical level
Operational level
FIG. 2.3 — DECISION MAKING AND INFORMATION SYSTEMS.
1. Strategic level information systems.
i. Strategic information systems are informal and will normally be focused
on external information sources. The different information needs of the
organisation have led to different types of systems being developed: MIS,
DSS, Executive Information System, Expert System, etc.
2. Tactical level information systems.
i. Tactical information is largely fed from transaction processing systems,
although it may also come from external sources. Tactical level
information systems will be informal, and the tactical manager will be
responsible for knitting together the different strands of information
available.
3. Operational level information systems.
i. Operational decisions are programmable and require specific and detailed
information. Many of the decisions taken are able to be programmed into
the computer.
ii. Most of the information used for operational decisions comes from the
simplest form of information system, transaction processing systems.
iii. The outputs of these systems are simple reports and sorted lists of
transactions.
iv. Also used by operational managers are reports comparing their
performance with target, and with operational managers.
2.10 Decision Support System (DSS)
Constitute a class of computer-based information including knowledge-based systems that
support decision activities. A Decision Support Systems (DSS) is a class of information systems
(including but not limited to computerized systems) that support business and organizational
decision-making activities. A properly designed DSS is an interactive software-based system
intended to help decision makers compile useful information from a combination of raw data,
documents, personal knowledge, or business models to identify and solve problems and make
decisions.
Typical information that a decision support application might gather and present are:
1.
An inventory of all of your current information assets (including legacy and relational
data sources, cubes, data warehouses, and data marts),
2.
Comparative sales figures between one week and the next,
3.
Projected revenue figures based on new product sales assumptions;
A cooperative DSS allows the decision maker (or its advisor) to modify, complete, or
refine the decision suggestions provided by the system, before sending them back to the system
for validation. The system again improves, completes, and refines the suggestions of the decision
maker and sends them back to her for validation. The whole process then starts again, until a
consolidated solution is generated.
Taxonomy for DSS has been created by Daniel Power. Using the mode of assistance as
the criterion, Power differentiates communication-driven DSS, data-driven DSS, documentdriven DSS, knowledge-driven DSS, and model-driven DSS.[6]

A communication-driven DSS supports more than one person working on a shared
task; examples include integrated tools like Microsoft's NetMeeting or Groove[7]

A data-driven DSS or data-oriented DSS emphasizes access to and manipulation of
a time series of internal company data and, sometimes, external data.

A document-driven
DSS manages,
retrieves,
and
manipulates
unstructured
information in a variety of electronic formats.

A knowledge-driven DSS provides specialized problem-solving expertise stored as
facts, rules, procedures, or in similar structures.

A model-driven DSS emphasizes access to and manipulation of a statistical, financial,
optimization, or simulation model. Model-driven DSS use data and parameters
provided by users to assist decision makers in analyzing a situation; they are not
necessarily data-intensive. Decodes is an example of an open source model-driven
DSS generator.
Using scope as the criterion, Power[9] differentiates enterprise-wide DSS and desktop DSS.
An enterprise-wide DSS is linked to large data warehouses and serves many managers in the
company. A desktop, single-user DSS is a small system that runs on an individual manager's PC.
DSS COMPONENTS
There are several ways to classify DSS applications. Not every DSS fits neatly into one category,
but a mix of two or more architecture in one.
Holsapple and Whinston classify DSS into the following six frameworks: Text-oriented
DSS, Database-oriented DSS, Spreadsheet-oriented DSS, Solver-oriented DSS, Rule-oriented
DSS, and Compound DSS.
A compound DSS is the most popular classification for a DSS. It is a hybrid system that
includes two or more of the five basic structures described by Holsapple and Whinston. The
support given by DSS can be separated into three distinct, interrelated categories: Personal
Support, Group Support, and Organizational Support.
DSS components may be classified as:
1. Inputs: Factors, numbers, and characteristics to analyze
2. User Knowledge and Expertise: Inputs requiring manual analysis by the user
3. Outputs: Transformed data from which DSS "decisions" are generated
4. Decisions: Results generated by the DSS based on user criteria
DSSs which perform selected cognitive decision-making functions and are based
on artificial intelligence or intelligent agents technologies are called Intelligent Decision Support
Systems (IDSS).
The nascent field of Decision engineering treats the decision itself as an engineered
object, and applies engineering principles such as Design and Quality assurance to an explicit
representation of the elements that make up a decision.
2.11 Clinical Decision Support System (CDSS)
Clinical decision support systems (CDSS) are interactive computer programs, which are
designed to assist physicians and other health professionals with decision making tasks. A
working definition has been proposed by Dr. Robert Hayward of the Centre for Health Evidence;
"Clinical Decision Support systems link health observations with health knowledge to influence
health choices by clinicians for improved health care". This definition has the advantage of
simplifying Clinical Decision Support to a functional concept.
The basic components of a CDSS include a dynamic (medical) knowledge base and
an inferencing mechanism (usually a set of rules derived from the experts and evidence-based
medicine) and implemented through medical logic modules based on a language such as Arden.
It could be based on Expert systems or artificial neural networks or both (connectionist expert
systems).as definition of a CDSS in its simplest form is that it is a DSS that is used in the clinical
setting. Often a Diagnostic Decision Support System DDSS is assumed to be equivalent to a
CDSS and are thought to be interchangeable. However, in a clinical setting, making diagnosis
based on clinical data is only a subset of the spectrum in which DSS can be used in a clinical
setting.
A clinical decision support system has been coined as an “active knowledge systems,
which use two or more items of patient data to generate case-specific advice. This implies that a
CDSS is simply a DSS that is focused on using knowledge management in such a way to achieve
clinical advice for patient care based on some number of items of patient data.
Most CDSS consist of three parts, the knowledge base, inference engine, and mechanism to
communicate. The knowledge base contains the rules and associations of compiled data which
most often take the form of IF-THEN rules. If this was a system for determining drug
interactions, then a rule might be that IF drug X is taken AND drug Y is taken THEN alert user.
Using another interface, an advanced user could edit the knowledge base to keep it up to date
with new drugs. The inference engine combines the rules from the knowledge base with the
patient’s data. The communication mechanism will allow the system to show the results to the
user as well as have input into the system.
2.12 Spatial Decision Support System (SDSS)
Developed in parallel with the concept of Decision Support Systems (DSS). An sDSS is an
interactive, computer-based system designed to support a user or group of users in achieving a
higher effectiveness of decision making while solving a semi-structured spatial problem. It is
designed to assist the spatial planner with guidance in making land use decisions. For example,
when deciding where to build a new airport many contrasting criteria, such as noise pollution vs.
employment prospects or the knock on effect on transportation links, which make the decision
difficult. A system which models decisions could be used to help identify the most effective
decision path. An sDSS is sometimes referred to as a Policy Support System
A spatial decision support system typically consists of the following components.
1. A database management system - This system holds and handles the geographical data. A
standalone system for this is called aGeographical Information System, (GIS).
2. A library of potential models that can be used to forecast the possible outcomes of
decisions.
3. An interface to aid the user’s interaction with the computer system and to assist in
analysis of outcomes.
This concept fits dialog, data and modelling concepts outlined by Sprague and Watson as
the DDM paradigm. An sDSS usually exists in the form of a computer model or collection of
interlinked computer models, including a land use model. Although various techniques are
available to simulate land use dynamics, two types are particularly suitable for sDSS. These
are Cellular Automata(CA) based models and Agent Based Models (ABM).
An sDSS typically uses a variety of spatial and nonspatial information, like data on land
use, transportation, water management,demographics, agriculture, climate or employment. By
using two (or, better, more) known points in history the models can be calibrated and then
projections into the future can be made to analyze different spatial policy options. Using these
techniques spatial planners can investigate the effects of different scenarios, and provide
information to make informed decisions. To allow the user to easily adapt the system to deal
with possible intervention possibilities an interface allows for simple modification to be made.
2.13 Summary
Decision making is a process of choosing the best alternative for reaching objectives. It is
a process of selection which aims to select the best alternative. It is aimed at achieving the
objectives of the organization. To make a decision in an organised way to generate priorities we
need to decompose the decision into five steps. The decision making process can be broken
down into four stages. There are two types of decision systems based on the manager’s
knowledge about the environment.
2.14 Keywords
Cognitive process
Logical Decision
Analytical Modeling
Trigger
Closed Decision
Open Decision
Rational Decision
2.15 Exercise
1. What is decision making?
2. What are the objectives of decision making?
3. What are the advantages of decision making?
4. Explain the process involved in decision making?
5. Explain the characteristics of decision making.
6. Write a note on- DSS, CDSS,SDSS.
7. Classify decision making.
8.Explain decision structure.
9.Explain how decision making helps in organization?
10. Will individual decision making process lead the organization with good co-ordination and
control?
11.Can an organization go smooth by the decisions at earlier time?
MODULE 2
UNIT 3
CONTENTS
3.1 Objectives
3.2 Overview of E-Commerce
3.3 Types of E-Commerce Transactions
3.4 The Scope Of EC
3.5 Benefits of E-Commerce
3.6 Limitations of E-Commerce
3.7 E-COMMERCE Mechanisms
3.8 BUSINESS-TO-CONSUMER Applications
3.8.1 Electronic Retailing: Storefronts and Malls
3.8.2 E-Tailing: The Essentials
3.8.3 Service Industries Online
3.9 B2B Applications
3.9.1 Sell-Side Marketplaces
3.9.2 Buy-Side Marketplaces
3.9.3 Electronic Exchanges
3.10 Electronic Payment Systems
3.10.1 Security in Electronic Payments
3.11 Summary
3.12 Keywords
3.13 Exercises
3.1 Objectives
After studying this chapter, students will be able to:

Describe electronic commerce, its scope, benefits, limitations, and types.

Understand auctions and bartering.

Describe the major applications of business-to-consumer commerce, including service
industries.

Discuss the importance and activities of B2C market research and online advertising.

Describe business-to-business applications.

Describe the e-commerce support services, specifically payments and logistics.
3.2 Overview of E-Commerce
Electronic commerce (EC, or e-commerce) describes the process of buying, selling, transferring,
or exchanging products, services, and/or information via computer networks, including the
Internet. Some people view the term commerce as describing only transactions conducted
between business partners. When this definition of commerce is used, some people find the term
electronic commerce to be fairly narrow. Thus, many use the term e-business instead. E-business
refers to a broader definition of EC, not just the buying and selling of goods and services, but
also servicing customers, collaborating with business partners, conducting e-learning, and
conducting electronic transactions within an organization. Others view e-business as the “other
than buying and selling” activities on the Internet, such as collaboration and intrabusiness
activities. In this book we use the broadest meaning of electronic commerce, which is basically
equivalent to e-business. The two terms will be used interchangeably throughout the chapter and
the remainder of the text.
Electronic commerce can take several forms depending on the degree of digitization (the
transformation from physical to digital) involved. The degree of digitization can relate to: (1) the
product (service) sold, (2) the process, or (3) the delivery agent (or intermediary). Choi et al.
(1997) created a framework that explains the possible configurations of these three dimensions.
A product can be physical or digital, the process can be physical or digital, and the delivery agent
can be physical or digital. In traditional commerce all three dimensions are physical, and in pure
EC all dimensions are digital. All other combinations include a mix of digital and physical
dimensions. If there is at least one digital dimension, we consider the situation electronic
commerce but only partial EC. For example, buying a shirt at Wal-Mart Online, or a book from
Amazon.com is partial EC, because the merchandise is physically delivered by FedEx. However,
buying an e-book from Amazon.com or a software product from Buy.com is pure EC, because
the product, its delivery, payment, and transfer agent are all done online.
EC Organizations
Pure physical organizations (corporations) are referred to as brick-and-mortar (or old-economy)
organizations, whereas companies that are engaged only in EC are considered virtual (or pureplay) organizations. Click-and-mortar (or click-and-brick) organizations are those that conduct
some e-commerce activities, yet their primary business is done in the physical world. Gradually,
many brick-and-mortar companies are changing to click-and-mortar ones (e.g., Wal-Mart
Online).
Internet Versus Non-Internet EC.
Most e-commerce is done over the Internet. But EC can also be conducted on private networks,
such as value-added networks (VANs, networks that add communication services to existing
common carriers), on local area networks (LANs), or even on a single computerized machine.
For example, buying food from a vending machine and paying with a smart card or a cell phone
can be viewed as EC activity
3.3 Types of E-Commerce Transactions
E-commerce transactions can be done between various other parties, as follows:
● Business-to-business (B2B): In B2B transactions, both the sellers and the buyers are business
organizations. The vast majority of EC volume is of this type.
● Collaborative commerce (c-commerce): In c-commerce, business partners collaborate
electronically. Such collaboration frequently occurs between and among business partners along
the supply chain.
● Business-to-consumers (B2C): In B2C, the sellers are organizations, and the buyers are
individuals.
● Consumers-to-businesses (C2B): In C2B, consumers make known a particular need for a
product or service, and suppliers compete to provide the product or service to consumers. An
example is Priceline.com, where the customer names a product and the desired price, and
Priceline tries to find a supplier to fulfill the stated need.
● Consumer-to-consumer (C2C): In C2C, an individual sells products or services to other
individuals.
● Intrabusiness (intraorganizational) commerce: In this case an organization uses EC
internally to improve its operations. A special case of this is known as B2E (business to its
employees) EC.

Government-to-citizens (G2C) and to others: In this case the government provides
services to its citizens via EC technologies. Governments can do business with other
governments as well as with businesses (G2B).
● Mobile commerce (m-commerce): When e-commerce is done in a wireless environment,
such as using cell phones to access the Internet, we call it m-commerce. Each of the above types
of EC is executed in one or more business models, the method by which a company generates
revenue to sustain itself. For example, in B2B one can sell from catalogs, or in auctions.
3.4 The Scope of EC
The field of e-commerce is broad, and consider Figure 3.1 to describe it. As can be seen in the
figure, there are many of EC applications (top of the figure. To execute these applications,
companies need the right information, infrastructure, and support services. Figure 3.1 shows that
the EC applications are supported by infrastructure and by five support areas (shown as
supporting pillars):
● People: Sellers, buyers, intermediaries, information systems specialists and other employees,
and any other participants.
● Public policy: Legal and other policy and regulating issues, such as privacy protection and
taxation, that are determined by the government.
● Marketing and advertising: Like any other business, EC usually requires the support of
marketing and advertising. This is especially important in B2C online transactions where the
buyers and sellers usually do not know each other.
● Support services: Many services are needed to support EC. These range from payments to
order delivery and content creation.
● Business partnerships: Joint ventures, e-marketplaces, and business partnerships of various
sorts are common in EC. These occur frequently throughout the supply chain (i.e., the
interactions between a company and its suppliers, customers, and other partners). The supporting
infrastructure includes hardware, software, and networks, ranging from browsers to multimedia.
All of these EC components require good management practices. This means that companies
need to plan, organize, motivate, devise strategy, and reengineer processes as needed.
Figure: 3.1 A framework for e-commerce.
3.5 Benefits of E-Commerce
To Organizations

Expands a company’s marketplace to national and international markets. With minimal
capital outlay, a company can quickly locate more customers, the best suppliers, and the
most suitable business partners worldwide.

Enables companies to procure material and services from other companies, rapidly and at
less cost.

Shortens or even eliminates marketing distribution channels, making products cheaper
and vendors’ profits higher.

Decreases (by as much as 90 percent) the cost of creating, processing, distributing,
storing, and retrieving information by digitizing the process.

Allows lower inventories by facilitating “pull”-type supply chain management. This
allows product customization and reduces inventory costs.

Lowers telecommunications costs because the Internet is much cheaper than value-added
networks (VANs).

Helps some small businesses compete against large companies.

Enables a very specialized niche market.
To Customers

Frequently provides less expensive products and services by allowing consumers to
conduct quick online searches and comparisons.

Gives consumers more choices in selecting products and vendors.

Enables customers to shop or make other transactions 24 hours a day, from almost any
location.

Delivers relevant and detailed information in seconds.

Enables consumers to get customized products, from PCs to cars, at competitive prices.

Makes it possible for people to work and study at home.

Makes possible electronic auctions that benefit buyers and sellers (see Section 5.9).

Allows consumers to interact in electronic communities and to exchange ideas and
compare experiences.
To Society

Enables individuals to work at home and to do less traveling, resulting in less road traffic
and lower air pollution.

Allows some merchandise to be sold at lower prices, thereby increasing people’s standard
of living.

Enables people in developing countries and rural areas to enjoy products and services that
are otherwise are not available. This includes opportunities to learn professions and earn
college degrees, or to receive better medical care.

Facilitates delivery of public services, such as government entitlements, reducing the cost
of distribution and chance of fraud, and increasing the quality of social services, police
work, health care, and education.
3.6 Limitations of E-Commerce
Technological Limitations

Lack of universally accepted standards for quality, security, and reliability.

Insufficient telecommunications bandwidth.

Still-evolving software development tools.

Difficulties in integrating the Internet and EC applications and software with some
existing (especially legacy) applications and databases.

Need for special Web servers in addition to the network servers.

Expensive and/or inconvenient Internet accessibility for many would-be users
Nontechnological Limitations

Unresolved legal issues

Lack of national and international government regulations and industry standards.

Lack of mature methodologies for measuring benefits of and justifying EC.

Many sellers and buyers waiting for EC to stabilize before they take part.

Customer resistance to changing from a real to a virtual store. People do not yet
sufficiently trust paperless, faceless transactions.

Perception that EC is expensive and unsecured.

An insufficient number (critical mass) of sellers and buyers exists for profitable EC
operations.
3.7 E-COMMERCE Mechanisms
The major mechanism for buying and selling on the Internet is the electronic catalog. However,
in order to better understand how e-commerce works, let’s first look at two common mechanisms
used in its implementation: electronic auctions and bartering online
Electronic Auctions (E-Auctions)
An auction is a market mechanism by which sellers place offers and buyers make sequential
bids. The primary characteristic of auctions, whether off-line or online, is that prices are
determined dynamically by competitive bidding. Auctions have been an established method of
commerce for generations, and they are well-suited to deal with products and services for which
conventional marketing channels are ineffective or inefficient. Auctions can expedite the
disposal of items that need liquidation or a quick sale. The Internet provides an efficient
infrastructure for executing auctions at lower administrative cost and with many more involved
sellers and buyers . Individual consumers and corporations alike can participate in this rapidly
growing form of e-commerce. There are several types of auctions, each with its motives and
procedures. Auctions are divided here into two major types: forward auctions and reverse
auctions.
Forward Auctions
Forward auctions are auctions that sellers use as a selling channel to many potential buyers.
Usually, items are placed at sites for auction, and buyers will bid continuously for the items. The
highest bidder wins the items. Sellers and buyers can be individuals or businesses. The popular
auction site eBay.com is a forward auction. According to Gallaugher (2002) there are two types
of forward e-auctions. One is for liquidations, the other one is to increase marketing efficiency,
as defined and shown in Figure 3.2.
Figure: 3.2 Types of forward auctions.
Reverse Auctions
In reverse auctions, there is one buyer, usually an organization, that wants to buy a product or a
service. Suppliers are invited to submit bids. Online bidding is much faster than conventional
bidding, and it usually attracts many more bidders. The reverse auction is the most common
auction model for large purchases (in terms of either quantities or price). Governments and large
corporations frequently mandate this approach, which may provide considerable savings.
Auctions are used in B2C, B2B, C2B, e-government, and C2C commerce, and they are
becoming popular in many countries. Electronic auctions started in the 1980s on private
networks, but their use was limited. The Internet opens many new opportunities for e-auctions.
As discussed, auctions can be conducted from the seller’s site, the buyer’s site, or from a thirdparty site. For example, eBay, the most known third-party site, offers hundreds of thousands of
different items in several types of auctions. Over 300 other major companies, including
Amazon.com and Dellauction.com, offer online auctions as well
Bartering
Related to auctions is electronic bartering, the exchange of goods or service without a monetary
transaction. In addition to the individual-to-individual bartering ads that appear in some
newsgroups, bulletin boards, and chat rooms, there are several intermediaries that arrange for
corporate e-bartering (e.g., barterbrokers.com). These intermediaries try to match online partners
to a barter.
3.8 BUSINESS-TO-CONSUMER Applications
Forrester Research Institute, the Gartner Group, and others predict that online B2C will be in the
range of $300 to $800 billion in the year 2004, up from $515 million in 1996 (see cyberatlas.com
and emarketer.com). For 2004 the total of B2C and B2B is estimated to be in the range of $3.5
billion to $8 billion (depending on the estimator and their definitions of what they measure).
Here let us study some of the major categories of B2C applications.
3.8.1 Electronic Retailing: Storefronts and Malls
For generations home shopping from catalogs has flourished, and television
shopping channels have been attracting millions of shoppers for more than two
decades. However, these methods have drawbacks: Both methods can be
expensive; paper catalogs are sometimes not up-to-date; many people are troubled
by the waste of paper used in catalogs that just get tossed out; and television
shopping is limited to what is shown on the screen at any given time. Shopping
online offers an alternative to catalog and television shopping that appeals to many
consumers. Like any mail-order shopping experience, e-commerce enables you to
buy from home, and to do so 24 hours a day, 7 days a week. However, EC
overcomes some of the limitations of the other forms of home shopping. It offers a
wide variety of products and services, including the most unique items, often at
lower prices. Furthermore, within seconds, shoppers can get very detailed
information on products, and can easily search for and compare competitors’
products and prices. Finally, using the Internet, buyers can find hundreds of
thousands of sellers.
Electronic retailing (e-tailing) is the direct sale of products through
electronic storefronts or electronic malls, usually designed around an electronic
catalog format and/or auctions. Both goods and services are sold online. Goods
that are bought most often online are computers and computer-related items, office
supplies, books and magazines, CDs, cassettes, movies and videos, clothing and
shoes, toys, and food.Services that are bought most often online include
entertainment, travel services, stocks and bonds trading, electronic banking,
insurance, and job matching. Directories and hyperlinks from other Web sites and
intelligent search agents help buyers find the best stores and products to match
their needs. Two shopping locations online are electronic storefronts and electronic
malls.
Electronic Storefronts
Hundreds of thousands of solo storefronts can be found on the Internet, each with
its own Internet name and EC portal. Called electronic storefronts, they may be an
extension of physical stores such as Home Depot, The Sharper Image, or WalMart. Or, they may be new businesses started by entrepreneurs who saw a niche on
the Web, such as Amazon.com, CDNow, Uvine.com, Restaurant.com and
Alloy.com. Besides being used by retailers, such as Officedepot.com, storefronts
also are used by manufacturers, such as Dell.com. Retailers’ and manufacturers’
storefronts may sell to individuals and/or to organizations. There are two types of
storefronts, general and specialized. The specialized store sells one or a few
products (e.g., flowers, wines or dog toys). The general storefronts sell many
products.
Electronic Malls
An electronic mall, also known as a cybermall or emall, is a collection of
individual shops under one Internet address. The basic idea of an electronic mall is
the same as that of a regular shopping mall—to provide a one-stop shopping place
that offers many products and services. Representative cybermalls are Downtown
Anywhere (da.awa.com), Cactus Hill HandCrafters Mall (cactushill.com),
America’s Choice Mall (mall.choicemall.com), and Shopping 2000
(shopping2000.com). A unique e-mall is 2bsure.com, which specializes in services
(financial, legal, etc.) but also sells computers and other electronic products, as
well as provides price comparisons. Two types of malls exist. First, there are
referral malls, such as hawaii.com. You
cannot buy in such a mall, but instead you are transferred to a participating
storefront. In the second, more traditional type of mall, such as at store.yahoo.com,
you can actually make a purchase. At this type of mall, you might shop from a
variety of stores, but are able to make only one purchase transaction at the end; an
electronic shopping cart enables you to gather items from various vendors and pay
for them all together in once transaction. (The mall organizer, such as
Yahoo, takes a commission from the sellers for this service.) Each cybermall may
include thousands of vendors. For example, shopping. yahoo.com and
eshop.msn.com include tens of thousands of products from thousands of vendors.
As is true for vendors that locate in a physical shopping mall, a vendor that locates
in an e-mall gives up a certain amount of independence. Its success depends on the
popularity of the mall, as well as on its own marketing efforts. On the other hand,
malls generate streams of prospective customers who otherwise might never have
stopped by the store.
3.8.2 E-Tailing: The Essentials
The concept of retailing and e-tailing implies sales of goods and/or services to individual
customers. However, the distinction between B2C and B2B e-commerce is not always clear cut.
For example, Amazon.comsells books mostly to individuals (B2C), but it also sells to
corporations (B2B). Amazon.com’s rival, Barnes & Noble Online (bn.com), has a special
division that caters only to business customers. Walmart.com sells to both individuals and
businesses (via Sam’s Club). Dell.com sells its computers to both consumers and businesses, as
does Staples.com, and some insurance sites sell both to individuals and corporations. There are
several models of B2C. One of the most interesting properties of these models is the ability to
offer customized products at a reasonable price and fairly fast (as done by Dell Computer). Many
sites (e.g., nike.com and lego.com) offer product self-configuration from their B2C portals. The
most well known B2C site is Amazon.com.
Issues in E-Tailing
The following are the major issues faced by e-tailers that may be handled and supported by IT
tools:
● Resolving channel conflict
If a seller is a click-and-mortar company, such as Levi’s or GM, it may face a conflict with its
regular distributors when it sells directly online. Known as channel conflict, this situation can
alienate the regular distributors. Channel conflict has forced some companies (e.g., Lego.com) to
limit their B2C efforts; others (e.g., some automotive companies) have decided not to sell direct
online. An alternative approach is to try to collaborate in some way with the existing distributors
whose services may be restructured. For example, an auto company could allow customers to
configure a car online, but require that the car be picked up from a dealer, where customers
would arrange financing, warranties, and service. IT tools can facilitate resolution of channel
conflict, for example by using a group DSS.
● Resolving conflicts within click-and-mortar organizations.
When an established company decides to sell direct online, on a large scale, it may create a
conflict within its existing operations. Conflicts may arise in areas such as pricing of products
and services, allocation of resources (e.g., advertising budget) and logistics services provided by
the offline activities to the online activities (e.g., handling of returns of items bought online). As
a result of these conflicts, some companies have completely separated the “clicks” (the online
portion of the organization) from the “mortars” or “bricks” (the traditional brick-and-mortar part
of the organization). Such separation may increase expenses and reduce the synergy between the
two. The decisions about how to organize the online and off-line operations and whether or not
to separate them, can be facilitated by IT tools. In addition, group DSS can be used to resolve
conflicts.
● Organizing order fulfillment and logistics.
E-tailers face a difficult problem of how to ship very small quantities to a large number of
buyers. This can be a difficult undertaking, especially when returned items need to be handled.
IT-supported decision models can help with scheduling, routing, shipments, inventory
management and other logistics-related decisions.
● Determining viability and risk of online e-tailers.
Many pure online e-tailers folded in 2000–2002, the result of problems with customer
acquisition, order fulfillment, and demand forecasting. Online competition, especially in
commodity-type products such as CDs, toys, books, or groceries, became very fierce, due to the
ease of entry to the marketplace. So a problem most young e-tailers face is to determine how
long to operate while you’re still losing money and how to finance the losses. In deciding on new
EC initiatives, or on an entire dot-com company, a risk analysis is needed. A DSS modeling can
be helpful in such cases.
● Identifying appropriate revenue models.
Many dot-com companies were selling goods at or below cost, with the objective of attracting
many customers and advertisers to their sites. One early dot-com model was to generate enough
revenue from advertising to keep the business afloat until the customer base reached critical
mass. This model did not work. Too many dotcom companies were competing for too few
advertising dollars, which went mainly to a small number of well-known sites such as AOL and
Yahoo. In addition, there was a “chicken-and-egg” problem: Sites could not get advertisers to
come if they did not have enough visitors. To succeed in EC, it is necessary to identify
appropriate revenue models.
3.8.3 Service Industries Online
Selling books, toys, computers, and most other products on the Internet may reduce vendors’
selling costs by 20 to 40 percent. Further reduction is difficult to achieve because the products
must be delivered physically. Only a few products (such as software or music) can be digitized to
be delivered online for additional savings. On the other hand, delivery of services, such as
buying an airline ticket or buying stocks or insurance online, can be done 100 percent
electronically, with considerable cost reduction potential. Therefore, delivering services online is
growing very rapidly, with millions of new customers added annually. Indeed, in many ways ecommerce is now simply a part of traditional commerce, and like the addition of credit card
payment capabilities a generation ago, many people expect companies to offer some form of ecommerce. Lets study about the leading online service industries: banking, trading of securities
(stocks, bonds), job matching, travel services, and real estate.
Cyber Banking
Electronic banking, also known as cyberbanking and online banking, includes various banking
activities conducted from home, a business, or on the road instead of at a physical bank location.
Electronic banking has capabilities ranging from paying bills to applying for a loan. It saves time
and is convenient for customers. For banks, it offers an inexpensive alternative to branch banking
(for example, about 2 cents cost per transaction versus $1.07 at a physical branch) and a chance
to enlist remote customers. Many banks now offer online banking, and some use EC as a major
competitive strategy. Electronic banking offers several of the benefits of EC such as expanding
the customer base and saving the cost of paper transactions. In addition to regular banks with
added online services, one can see the emergence of virtual banks, dedicated solely to Internet
transactions, such as netbank.com.
International and Multiple-Currency Banking.
International banking and the ability to handle trading in multiple currencies are critical for
international trade. Although some international retail purchasing can be done by giving a credit
card number, other transactions may require cross-border banking support. For example, Hong
Kong and Shanghai Bank (hsbc.com.hk) has developed a special system (called Hexagon) to
provide electronic banking in 60 countries. Using this system, the bank has leveraged its
reputation and infrastructure in the developing economies of Asia, to rapidly become a major
international bank without developing an extensive new branch network. Transfers of electronic
funds and electronic letters of credit are other important services in international banking. An
example of support for EC global trade is provided by TradeCard (tradecard.com), which is done
is conjuction with Master-Card. Banks and companies such as Oanda also provide currency
conversion of over 160 currencies. International foreign-currency traders can be assisted by
many other online services (see financialsupermarket.com and foreign-trade.com).
Online Securities Trading
It is estimated that by the year 2004, about 35 million people in the United States will be using
computers to trade stocks, bonds, and other financial instruments. In Korea, more than half of
stock traders are using the Internet for that purpose. Why? Because it makes a lot of dollars and
“sense”: An online trade typically costs the trader between $3 and $15, compared to an average
fee of $100 from a full-service broker and $25 from a discount broker. There is no waiting on
busy telephone lines. Furthermore, the chance of making mistakes is small because online
trading does away with oral communication with a securities broker in a frequently very noisy
physical environment. Orders can be placed from anywhere, any time, even from cell phone.
Investors can find on the Web a considerable amount of information regarding investing in a
specific company or in a mutual fund. (e.g., money.cnn.com, bloomberg.com). How does online
trading work? Let’s say someone have an account with Charles Schwab. One will access
Schwab’s Web site (schwab.com) from PC or Internet-enabled mobile device, enter account
number and password to access personalized Web page, and then clicks on “stock trading.”
Using a menu, enter the details of order (buy or sell, margin or cash, price limit, market order,
etc.). The computer tells the current “ask” and “bid” prices, much as a broker would do on the
telephone, and can approve or reject the transaction. Some well-known companies offer only
online trading are E*Trade, Ameritrade, and Suretrade. However, both online banking and
securities trading require tight security. Otherwise, your money may be at risk. Here is what
happened in Korea on August 23, 2002: According to news items (Korean Times, August 24,
2002), an unknown criminal managed to get an account number and a password of a large
investor in Korea (Hyundai Investment). Sitting in an Internet café, the criminal placed an order
with the company that managed the investment, Daewoo Securities, to buy five million shares of
Delta Information Communication. Within 90 seconds 2.7 million shares were sold by 100
sellers, at a much higher than normal price. When the fake order was discovered and the news
broke out, the price of the shares spiraled down. Daewoo Securities ended with 2.7 million
unwanted shares. Some analysts have suggested that one or more sellers hired the hacker so they
could sell at a high price. Whatever the motive, Daewoo lost a huge amount of money. Most
online bank stock and traders use only ID numbers and passwords. This may not be secured
enough.
The Online Job Market
The Internet offers a perfect environment for job seekers and for companies searching for hardto-find employees. The online job market is especially effective for technology-oriented jobs.
However, there are thousands of companies and government agencies that advertise available
positions of all types of jobs, accept resumes, and take applications via the Internet. The online
job market is used by:
● Job seekers.
Job seekers can reply to employment ads online. Or they can take the initiative and place
resumes on their own home pages or on others’ Web sites, send messages to members of
newsgroups asking for referrals, and use recruiting firms such as Career Mosaic
(careermosaic.com), Job Center (jobcenter.com), and Monster Board (monster.com). For entrylevel jobs and internships for newly minted graduates, job seekers can use jobdirect.com. Need
help writing your resume? Try resume-link.com or jobweb.com. Finally, if you want to know if
you are underpaid or how much you can get if you relocate to another city, consult
wageweb.com.
● Job offerers.
Many organizations advertise openings on their Web site. Others use sites ranging from Yahoo!
to bulletin boards of recruiting firms. In many countries governments must advertise openings on
the Internet.
● Recruiting firms.
Hundreds of job-placement brokers and related services are active on the Web. They use their
own Web pages to post available job descriptions and advertise their services in electronic malls
and in others’ Web sites. Recruiters use newsgroups, online forums, bulletin boards, and chat
rooms. Job-finding brokers help candidates write their resumes and get the most exposure.
Matching of candidates and jobs is done by companies such as Peopleclick.com. Due to the large
number of job market resources available on the Internet, it is too expensive and time-consuming
to evaluate them manually.
Travel Services
The Internet is an ideal place to plan, explore, and economically arrange almost any trip.
Potential savings are available through special sales, comparisons, use of auctions, and the
elimination of travel agents. Examples of comprehensive travel online services are Expedia.com,
Travelocity. com, and Orbitz.com. Services are also provided online by all major airline vacation
services, large conventional travel agencies, car rental agencies, hotels (e.g., hotels.com), and
tour companies. Online travel services allow to purchase airline tickets, reserve hotel rooms, and
rent cars. Most sites also support an itinerary-based interface, including a fare-tracker feature that
sends you e-mail messages about low-cost flights to favorite destinations or from required home
city. Finally, Priceline.com allows to set a price one is willing to pay for an airline ticket or hotel
accommodations and Priceline then attempts to find a vendor that will match your price. A
similar service offered by Hotwire.com tries to find the lowest available price.
Real Estate
Real estate transactions are an ideal area for e-commerce, for the following reasons. First, one
can view many properties on the screen, saving time for customer and the broker. Second,
customer can sort and organize properties according to his/her preferences and decision criteria,
and can preview the exterior and interior designs of the properties, shortening the search process.
Finally, he/she can find detailed information about the properties and frequently get even more
detail than brokers will provide. In some locations brokers allow the use of real estate databases
only from their offices, but considerable information is now available on the Internet. For
example, Realtor.com allows you to search a database of over 1.2 million homes across the
United States. The database is composed of local “multiple listings” of all available properties
and properties just sold, in hundreds of locations. Those who are looking for an apartment can try
Apartments.com. In another real estate application, homebuilders use three-dimensional floor
plans for potential home buyers on their Web sites. They use “virtual models” that enable buyers
to “walk through” mockups of homes
3.9 B2B Applications
In business to business (B2B) applications, the buyers, sellers, and transactions involve only
organizations. Business-to-business comprises about 85 percent of EC volume. It covers a broad
spectrum of applications that enable an enterprise to form electronic relationships with its
distributors, resellers, suppliers, customers, and other partners. By using B2B, organizations can
restructure their supply chains and partner relationship. There are several business models for
B2B applications. The major ones are sell-side marketplaces, buy-side marketplaces, and
electronic exchanges.
3.9.1 Sell-Side Marketplaces
In the sell-side marketplace model, organizations attempt to sell their products or services to
other organizations electronically, from their own private emarket place and/or from a third-party
site. This model is similar to the B2C model in which the buyer is expected to come to the
seller’s site, view catalogs, and place an order. In the B2B sell-side marketplace, however, the
buyer is an organization.
The key mechanisms in the sell-side model are: (1) electronic catalogs that can be
customized for each large buyer and (2) forward auctions. Sellers such as Dell Computer
(dellauction.com) use this method extensively. In addition to auctions from their Web sites,
organizations can use third-party auction sites, such as eBay, to liquidate items. Companies such
as Freemarkets.com are helping organizations to auction obsolete and old assets and inventories.
The sell-side model is used by thousands of companies and is especially powerful for companies
with superb reputations. Examples are major computer companies such as Cisco, IBM, and Intel.
The seller in this model can be either a manufacturer, a distributor (e.g., bigboxx.com and
avnet.com), or a retailer. In this model, EC is used to increase sales, reduce selling and
advertising expenditures, increase delivery speed, and reduce administrative costs. This model is
especially suitable to customization. For example, customers can configure their orders online at
cisco.com, dell.com, and others. This results in fewer misunderstandings about what customers
want and in much faster order fulfillment.
3.9.2 Buy-Side Marketplaces
The buy-side marketplace is a model in which organizations attempt to buy needed products or
services from other organizations electronically, usually from their own private e-marketplace. A
major method of buying goods and services in the buy-side model is a reverse auction. Here, a
company that wants to buy items places a request for quotation (RFQ) on its Web site, or in a
thirdparty bidding marketplace. Once RFQs are posted, sellers (usually preapproved suppliers)
submit bids electronically. Such auctions attract large pools of willing sellers, who can be either
a manufacturer, a distributor, or a retailer. The bids are routed via the buyer’s intranet to the
engineering and finance departments for evaluation. Clarifications are made via e-mail, and the
winner is notified electronically.
The buy-side model uses EC technology to streamline the purchasing process in order to
reduce the cost of items purchased, the administrative cost of procurement, and the purchasing
cycle time. General Electric, for example, has calculated that it saves 10 to 15 percent on the cost
of the items placed for bid and up to 85 percent on the administrative cost of procurement in
addition, cycle time is reduced by about 50 percent. Procurements using a third-party buy-side
marketplace model are especially popular for medium and small organizations.
E-Procurement
Purchasing by using electronic support is referred to as eprocurement. In addition to reverse
auctions just discussed, e-procurement uses other mechanism. Two popular ones are group
purchasing and desktop purchasing.
Group purchasing
In group purchasing, the requirements of many buyers are aggregated so that they total to a large
volume, and may merit more seller attention. Once buyers’ orders are aggregated, they can be
placed on reverse auction, and a volume discount can be negotiated. The orders of small buyers
usually are aggregated by a third-party vendor, such as Consarta.com and Shop2gether.com.
Group purchasing is especially popular in the health care industry (see all-health.com).
Desktop purchasing
In this variation of e-procurement, known as desktop purchasing, suppliers’ catalogs are
aggregated into an internal master catalog on the buyer’s server, so that the company’s
purchasing agents (or even end users) can shop more conveniently. Desktop purchasing is most
suitable for maintenance, replacement, and operations (MRO) indirect items, such as office
supplies. (The term indirect refers to the fact that these items are not inputs to manufacturing.)
In the desktop purchasing model, a company has many suppliers but the quantities purchased
from each are relatively small. This model is most appropriate for large companies and for
government entities.
3.9.3 Electronic Exchanges
E-marketplaces in which there are many sellers and many buyers are called public exchanges (in
short, exchanges). They are open to all, and frequently are owned and operated by a third party.
According to Kaplan and Sawhney, there are basically four types of exchanges:
1. Vertical distributors for direct materials.
These are B2B marketplaces where direct materials (materials that are inputs to manufacturing)
are traded in an environment of long-term relationship, known as systematic sourcing. Examples
are Plasticsnet.com and Papersite.com. Both fixed and negotiated prices are common in this type
of exchange
2. Vertical exchanges for indirect materials.
Here indirect materials in one industry are purchased on an “as-needed” basis (called spot
sourcing). Buyers and sellers may not even know each other. ChemConnect.com and
Isteelasia.comare examples. In such vertical exchanges, prices are continually changing, based
on the matching of supply and demand. Auctions are typically used in this kind of B2B
marketplace, sometimes done in private trading rooms, which are available in exchanges like
ChemConnect.com .
3. Horizontal distributors.
These are “many-to-many” e-marketplaces for indirect (MRO) materials, such as office supplies,
used by any industry. Prices are fixed or negotiated in this systematic sourcing-type exchange.
Examples are EcEurope.com, Globalsources.com, and Alibaba.com.
4. Functional exchanges.
Here, needed services such as temporary help or extra space are traded on an “as-needed” basis
(spot sourcing). For example, Employease.com can find temporary labor using employers in its
Employease Network. Prices are dynamic, and they vary depending on supply and demand.
All four types of exchanges offer diversified support services, ranging from payments to
logistics. Vertical exchanges are frequently owned and managed by a group of big players in an
industry (referred to as a consortium). For example, Marriott and Hyatt own a procurement
consortium for the hotel industry, and Chevron Texaco owns an energy e-marketplace. The
vertical e-marketplaces offer services particularly suited to the particular e-community they
serve. Since B2B activities involve many companies, specialized network infrastructure is
needed. Such infrastructure works either as an Internet/EDI or as extranets. A related EC
activity, usually done between and among organizations, is collaborative commerce.
3.10 Electronic Payment Systems
As in the traditional marketplace, so too in cyberspace, diversity of payment methods
allows customers to choose how they wish to pay. The following instruments are acceptable
means of electronic payment: Electronic checks, electronic credit cards, purchasing cards,
electronic cash, stored-value cards, smart cards, and person-to-person payments. In addition we
discuss electronic bill presentment and/or payment, both online and from ATMs. Let us look at
each of these payment mechanisms.
Electronic checks
Electronic checks (e-checks) are similar to regular checks. They are used mostly in B2B. Here is
how they work: First, the customer establishes a checking account with a bank. Next, the
customer contacts a seller, buys a product or a service, and e-mails an encrypted electronic check
to the seller. The seller deposits the check in a bank account, and funds are transferred from the
buyer’s account and into the seller’s account. Like regular checks, e-checks carry a signature (in
digital form) that can be verified (see echeck.net). Properly signed and endorsed e-checks are
exchanged between financial institutions through electronic clearinghouses. Consider figure 3.3.
FIGURE 3.3: eSecure Check
Electronic credit cards.
Electronic credit cards make it possible to charge online payments to one’s credit card account. It
is easy and simple for a buyer to e-mail his or her credit card number to the seller. The risk here
is that if the card number is not encrypted, then hackers will be able to read it and may use it
illegally. Sender authentication is also difficult. (New technologies will solve this problem in 2 to
3 years, however.) Therefore, for security, only encrypted credit cards should be used. (Credit
card details can be encrypted by using the SSL protocol in the buyer’s computer, which is
available in standard browsers. Here is how electronic credit cards works: When customer buy a
book from Amazon, his/her credit card information and purchase amount are encrypted in
browser. So the information is safe while “travelling” on the Internet. Furthermore, when this
information arrives at Amazon, it is not opened but is transferred automatically (in encrypted
form) to a clearinghouse, where the information is decrypted for verification and for money
transfer from the payer’s account to the payee’s bank account. Electronic credit cards are used
mainly in B2C and in shopping by SMEs (small to medium enterprises). Consider figure 3.4.
FIGURE 3.4: How e-Credit Cards Work
Purchasing Cards
The B2B equivalent of electronic credit cards is purchasing cards. In some countries companies
pay other companies primarily by means of purchasing cards, rather than by traditional checks.
Unlike credit cards, where credit is provided for 30 to 60 days (for free) before payment is made
to the merchant, payments made with purchasing cards are settled within a week. Purchasing
cards typically are used for unplanned B2B purchases, and corporations generally limit the
amount per purchase (usually $1,000 to $2,000). Purchasing cards can be used on the Internet
much like regular credit cards. They expedite the process of unplanned purchases, usually as part
of desktop purchasing described earlier.
Electronic Cash.
Cash is the most prevalent consumer payment instrument. Traditional brick-and-mortar
merchants prefer cash since they do not have to pay commissions to credit card companies, and
they can put the money to use as soon as it is received. Also, some buyers pay with cash because
they do not have checks or credit cards, or because they want to preserve their anonymity. It is
logical, therefore, that EC sellers and some buyers may prefer electronic cash. Electronic cash (ecash) appears in three major forms: stored-value cards, smart cards, and person-to-person
payments.
Stored-Value Money Cards.
A typical e-payment card is known as a stored value money card. It is the one that you use to pay
for photocopies in your library, for transportation, or for telephone calls. It allows a fixed amount
of prepaid money to be stored on it. Each time you use the card, the amount is reduced. One
successful example is used by the New York Metropolitan Transportation Authority (MTA).
Similar cards are used in many cities around the world. Some of these cards are reloadable, and
some are discarded when the money is depleted. The transportation card Octopus in Hong Kong
is used in trains, buses, and shopping in stores and from vending machines. Cards with storedvalue money can be also purchased for Internet use. To use such cards, you enter a third-party
Web site and provide an ID number and a password, much as you do when you use a prepaid
phone card. The money can be used only in participating stores online.
Smart Cards.
Although some people refer to stored-value money cards as smart cards, they are not really the
same. True smart cards contain a microprocessor (chip), which enables them to store a
considerable amount of information (more than 100 times that of a stored-value card) and
conduct processing. Such cards are frequently multipurpose; they can be used as a credit card,
debit card, or stored-value card. In addition, when used in department store chains (as a loyalty
card), they may contain the purchasing information of shoppers. Advanced smart cards have the
ability to transfer funds, pay bills, buy from vending machines, or pay for services such as those
offered on television or PCs. Money values can be loaded onto advanced smart cards at ATMs,
kiosks, or from your PC. For example, the VISA Cash Card allows you to buy goods or services
at participating gas tations, fast-food outlets, pay phones, discount stores, post offices,
convenience stores, coffee shops, and even movie theaters. Smart cards are ideal for
micropayments. Smart cards can also be used to transfer benefits from companies to their
employees, as when retirees get their pension payments, and from governments that pay citizens
various entitlements. The money is transferred electronically to a smart card at an ATM, kiosk,
or PC.
Person-to-person payments
Person-to-person payments are one of the newest and fastest-growing payment schemes. They
enable the transfer of funds between two individuals, or between an individual and a business,
for a variety of purposes like repaying money borrowed from a friend, sending money to students
at college, paying for an item purchased at an online auction, or sending a gift to a family
member. One of the first companies to offer this service was PayPal (paypal.com). PayPal (now
an eBay company) claimed to have had about 20 million customer accounts in 2003, handling
more than 35 percent of all transactions of eBay and funneling $8.5 billion in payments through
its servers annually. Other companies offer similar services; Citibank c2it (c2it.com), AOL
QuickCash,
One’s
Bank
eMoneyMail,
Yahoo
Pay-
Direct,
and
WebCertificate
(webcertificate.com) are all PayPal competitors. Virtually all of these person-to-person payment
services work in a similar way. Assume you want to send money to someone over the Internet.
First, you select a service and open up an account. Basically, this entails creating a user name,
selecting a password, giving your e-mail address, and providing the service with a credit card or
bank account number. Next, you add funds from your credit card or bank account to your
account. Once the account has been funded you’re ready to send money. You access PayPal with
your user name and password. Now you specify the e-mail address of the person to receive the
money, along with the dollar amount that you want to send. An e-mail is sent to the payee’s email address. The e-mail will contain a link back to the service’s Web site. When the recipient
clicks on the link, he or she will be taken to the service. The recipient will be asked to set up an
account to which the money that was sent will be credited. The recipient can then credit the
money from this account to either his or her credit card or bank account. The payer pays a small
amount (around $1) per transaction.
Electronic Bill Presentment and Payments.
An increasing number of people prefer to pay online their recurring monthly bills, such as
telephone, utilities, credit cards, and cable TV. The recipients of such payments are even more
enthusiastic about such service than the payers, since online payments enable them to reduce
processing costs significantly. The following are the major existing payments systems in
common use: automatic payment of mortgages. automatic transfer of funds to pay monthly utility
bills; paying bills from online banking account; merchant-to-customer direct billing; and use of
an intermediary to aggregate bills into one payable Web site.
Paying Bills at ATMs.
In some countries (e.g., Hong Kong, Singapore) customers can pay bills at regular ATMs. The
bills are sent by regular mail or can be viewed online. When you receive the bills, you go to an
ATM, slide in your bank card, enter a password and go to “bill payments” on the menu. All you
need to do is insert the account number of the biller and the amount you want to pay; that amount
will be charged to your bank card and sent to the biller. You get a printed receipt on the spot. In
addition to utilities you can pay for purchases of products and services (e.g., for airline tickets).
Merchants love it and many give a discount to those who use the service, since they do not have
to pay 3 percent to Visa or MasterCard.
3.10.1 Security in Electronic Payments
Two main issues need to be considered under the topic of payment security: what is required in
order to make EC payments safe, and the methods that can be used to do so. Security
requirements for conducting EC are the following:
1. Authentication. The buyer, the seller, and the paying institutions must be assured of the
identity of the parties with whom they are dealing.
2. Integrity. It is necessary to ensure that data and information transmitted in EC, such as
orders, reply to queries, and payment authorization, are not accidentally or maliciously
altered or destroyed during transmission.
3.
Nonrepudiation. Merchants need protection against the customer’s unjustified denial of
placing an order. On the other hand, customers need protection against merchants’
unjustified denial of payments made. (Such denials, of both types, are called
repudiation.)
4.
Privacy. Many customers want their identity to be secured. They want to make sure
others do not know what they buy. Some prefer complete anonymity, as is possible with
cash payments.
5. Safety. Customers want to be sure that it is safe to provide a credit card number on the
Internet. They also want protection against fraud by sellers or by criminals posing as
sellers.
Security Protection.
Several methods and mechanisms can be used to fulfill the above requirements. One of the
primary mechanisms is encryption, which is often part of the most useful security schemes.
Other representative methods are discussed below.
E-Wallets.
E-wallets (or digital wallets) are mechanisms that provide security measures to EC purchasing.
The wallet stores the financial information of the buyer, including credit card number, shipping
information, and more. Thus, sensitive information does not need to travel on the Net, and the
buyer and seller save time. E-wallets can contain digital certificates, e-loyalty information, etc.
As soon as you place an order, say at Amazon.com, your e-wallet at Amazon is opened, and
Amazon can process your order. The problem is that you need an e-wallet with each merchant.
One solution is to have a wallet installed on your computer (e.g., MasterCard Wallet).
In that case, though, you cannot purchase from another computer, nor is it a totally secured
system. Another solution is a universal e-wallet such as Microsoft’s Passport and the Liberty
Alliance. Universal systems are becoming popular since they provide a digital identity as well.
Virtual Credit Cards.
Virtual credit cards are a service that allows you to shop with an ID number and a password
instead of with a credit card number. They are used primarily by people who do not trust browser
encryption sufficiently to use their credit card number on the Internet. The virtual credit card
gives an extra layer of security. The bank that supports your traditional credit card, for example,
can provide you with a transaction number valid for use online for a short period. For example, if
you want to make a $200 purchase, you would contact your credit card company to charge that
amount to your regular credit card account, and would be given transaction number that is good
for charges up to $200. This transaction number is encrypted for security, but even in the worst
possible case (that some unauthorized entity obtained the transaction number), your loss be
limited, in this case to $200.
Payment Using Fingerprints.
An increasing number of supermarkets allow their regular customers to pay by merely using their
fingerprint for identification. A computer template of your fingerprint is kept in the store’s
computer system. Each time you shop, your fingerprint is matched with the template at the
payment counter. You approve the amount which is then charged either to your credit card or
bank account.
3.11 Summary
E-commerce can be conducted on the Web, by e-mail, and on other networks. It is divided into
the following major types: business-to-consumer, consumer-to-consumer, business-to-business,
e-government, collaborative commerce, and intrabusiness. In each type you can find several
business models. E-commerce offers many benefits to organizations, consumers, and society, but
it also has limitations (technological and nontechnological). The current technological limitations
are expected to lessen with time. A major mechanism in EC is auctions. Two major types exist:
one for selling, which is the traditional process of selling to the highest bidder (forward
auctions), and one is for buying, using a tendering system of buying at the lowest bid (reverse
auctions). A minor mechanism is online bartering, in which companies arrange for exchange of
physical items and/or services. The major application areas of B2C commerce are in direct
retailing, banking, securities trading, job markets, travel, and real estate. The major B2B
applications are selling from catalogs and by forward auctions, buying in reverse auctions and in
group and desktop purchasing, and trading in exchanges. Most organizations employ B2B
collaborative commerce, usually along the supply chain.
3.12 Keywords
Business-to-business (B2B)
Business-to-consumer (B2C)
Buy-side marketplace
Click-and-mortar organizations
E-procurement
E-wallets (digital wallets)
Electronic auctions
Electronic banking (cyberbanking)
Electronic bartering
Electronic cash (e-cash)
Electronic checks (e-checks)
Electronic mall
Electronic marketplace
Electronic retailing (e-tailing)
Electronic storefronts
Forward auction
Sell-side marketplace
Smart cards
Stored-value money cards
3.13 Exercises
1. Define e-commerce and distinguish it from e-business.
2. List the major types of EC (by transaction)
3. Distinguish between business-to-consumer, business to Business, and intra business EC.
4. List major technological and non technological limitations of EC (three each).
5. Describe electronic storefronts and malls.
6. List the benefits of cyberbanking.
7. Describe electronic securities trading.
8. Describe the online job market.
9. Explain how electronic auctions work.
10. Briefly describe the sell-side marketplace.
11. Describe the various methods of e-procurement.
12. Describe how forward and reverse auctions are used in B2B commerce.
13. Describe the role of exchanges in B2B.
14. Describe c-commerce and its benefits.
15. Describe e-bartering.
16. List the various electronic payment mechanisms.
17. List the security requirements for EC.
18. Describe the issues in EC order fulfillment.
19. Describe some areas of potential fraud on the Internet.
20. Describe buyer protection in EC.
21. Discuss the major limitations of e-commerce. Which of them are likely to disappear? Why?
22. Why is the electronic job market popular, especially among the high-tech professions?
23. Distinguish between business-to-business forward auctions and buyers’ bids for RFQs.
24. Discuss the benefits to sellers and buyers of a B2B exchange.
25. Why are online auctions popular?
26. Discuss the reasons for EC failures.
27. Discuss the various ways to pay online in B2C. Which one you prefer and why?
28. Distinguish between smart cards and value-added cards. Discuss the advantages of each.
29. Discuss the online consumer behavior model and explain why it is needed.
30. Discuss the reasons for having multiple EC business models. Assume you’re interested in
buying a car.
31. Summarize the benefits to the customers, suppliers, store management, and employees.
32. The data collected at Activesys can be uploaded to a PC and transmitted to the corporate
intranet via the internet. It is suggested that transmission be done using a wireless system.
Comment on the proposal.
33. Compare the various electronic payment methods. Specifically, collect information from the
vendor cited in the chapter, and find more with google.com. Be sure you pay attention to
security level, speed, cost, and convenience
MODULE 2
UNIT – 4
CONTENTS
4.1 Objectives
4.2 Client server architecture
4.3 Implementation strategies
4.4 Introduction to Ebusiness
4.5 Effective e-business processes,
4.6 Model of E-business
4.7 Customer relationship e-business management ,
4.8 Benefits of e-business
4.9 Internet and World Wide Web,
4.10 Electronic mail ,
4.11 Impact of Web on Strategic management,
4.12 Web enabled business management
4.13 MIS in Web environment.
4.14 Summary
4.15 Keywords
4.16 Exercise
4.1 Objectives
The main objective of this chapter is to study client-server architecture, how to implement MIS
in web environment, importance of E-Business, Different client-server architecture like internet,
intranet.Uses of E-Business, strategic management.
4.2 Client Server Architecture
Client/Server architectures are being used throughout industry. They provide a versatile
infrastructure that supports insertion of new technology more readily than earlier software
designs.
R-Tech’s Client/Server team provides a full range of client/server consulting. They help
clients formulate client/server strategies across multiple platforms, and help them select the
client/server model that is most appropriate for them. They also plan and design the
infrastructure that supports their specific needs, and using technical services experts.They
provide infrastructure administration services ranging from security to disaster recovery.
R-Tech’s consultants are well versed in the iterative prototyping development approach.
Using object-oriented methodologies they have developed themselves, they work with clients to
identify the deliverables for the successful completion of the project, helping them adapt their
existing methods to suit their new environment. They offer the following solutions:
1. Client/Server Strategy Development
2. Windows and UNIX based Client/Server Applications Development
3. Internet and intranet Client/Server Applications Development
4. e-Business
4.3 Implementation Strategies
R-Tech’s team has enormous experience in developing a wide range of client server
applications on diverse platforms like UNIX, Linux, Windows, Oracle, SQL server, Oracle
Forms, VB, Java, C++, C, Small talk CORBA, COM/DCOM and Power builder etc...
R-Tech helps companies define the steps they must take to migrate successfully to
client/server technology. R-Tech Client/Server consultants help clients design, develop,
implement, and deploy I-Net, Windows applications, and groupware applications across the
following models:
1. Distributed presentation
2. Remote presentation
3. Distributed function
4. Remote data management
5. Distributed database
6. Remote Procedure Calls
7. Connectivity to a variety of data sources including flat files, non-relational DBMS, and
mainframe
8. Unix to Windows NT
9. Mainframe Systems to Client/Server
10. Database Migration
11. Internet Applications
R-Tech conducts full infrastructure planning for networks and intranets, providing
database integration, and ensures that security measures are fully planned and executed. R-Tech
also provides object-oriented concepts mentoring, object modeling techniques, and other services
that help the client adopt a fully object-oriented design. They can deliver "turn-key" applications
solutions by assuming full project development responsibility.
Windows-Based Client/Server Applications Development: R-Tech assists clients in choosing
from among several models in designing Windows and UNIX based client/server applications.
These models give our clients a variety of options for development along a "thin client"–"fat
client" continuum. We design, develop, and implement applications that provide two- and three-
tier solutions. Our range of services includes object-oriented development and design and the
implementation of middleware and major RDBMSs.
Internet and Intranet Client/Server Applications Development: R-Tech assists clients in
choosing from among several models in designing Internet/intranet based client/server
applications. Critical to all of these models are strategies to overcome the stateless nature of
browser technology and the inherent security concerns of the Internet. We design, develop, and
implement leading Internet/Intranet applications such as Java, Visual Basic, ActiveX, MII
Server, Internet Studio, and Front Page for our clients. We provide full infrastructure planning
for our clients’ Intranets, including browser deployment, data integration, and security and
firewall implementation.
Distributed/collaborative Enterprise Architecture: R-Tech offers distributed/ collaborative
enterprise architecture. The benefit of this architectural approach is that standardized business
object models and distributed object computing are combined to give an organization flexibility
to improve effectiveness organizationally, operationally, and technologically. This software
architecture is based on Object Request Broker (ORB) technology, but goes further than the
Common Object Request Broker Architecture (CORBA) by using shared, reusable business
models (not just objects) on an enterprise-wide scale. An enterprise is defined here as a system
comprised of multiple business systems or subsystems.
Complementary Technologies: Complementary technologies for client/server architectures are
computer-aided software engineering (CASE) tools because they facilitate client/server
architectural development and open systems because they facilitate the development of
architectures that improve scalability and flexibility.
4.4 E- BUSINESS
E-business is about utilizing Internet technologies – such as simple email, online banking
solutions, websites, and more sophisticated applications such as web-based customer relationship
management solutions – to provide superior customer service, streamline business processes,
increase sales and reduce costs.
Therefore, any business owner who uses the Internet to develop or enhance their business
is using e business. This means that you may already be using e-business in your own business.
Electronic Business is defined as the utilization of information and communication
technologies (ICT) in support of all the activities of business. Commerce constitutes the
exchange of products and services between businesses, groups and individuals and can be seen
as one of the essential activities of any business. electronic commerce focuses on the use of ICT
to enable the external activities and relationships of the business with individuals, groups and
other businesses .
Electronic business methods enable companies to link their internal and external data
processing systems more efficiently and flexibly, to work more closely with suppliers and
partners, and to better satisfy the needs and expectations of their customers.
In practice, e-business is more than just e-commerce. While e-business refers to more
strategic focus with an emphasis on the functions that occur using electronic capabilities, ecommerce is a subset of an overall e-business strategy. E-commerce seeks to add revenue
streams using the World Wide Web or the Internet to build and enhance relationships with
clients and partners and to improve efficiency using the Empty Vessel strategy. Often, ecommerce involves the application of knowledge management systems.
E-business involves business processes spanning the entire value chain: electronic
purchasing and supply chain management, processing orders electronically, handling customer
service, and cooperating with business partners. Special technical standards for e-business
facilitate the exchange of data between companies. E-business software solutions allow the
integration of intra and inter firm business processes. E-business can be conducted using
the Web, the Internet, intranets, extranets, or some combination of these.
4.5 Effective E-Business Processes
In every successful e-business, the business process domains (CRM, SCM, and core business
operations) are an integral part of the continuous optimization process. The advantage and, thus,
the return on investment for an e-business integrating its business process domains is that it
extends
the
organization’s
business
directly
to
customers
and
suppliers.
When business process domains are integrated, they can increase productivity and improve
customer and supplier satisfaction. For example, when a repeat customer views a successful ebusiness’s Web site, an integrated CRM system presents that individual with offers or items of
interest based on previous orders. After the customer places an order, this same e-business allows
that individual to view the status of his order in real time as it moves through the supply chain.
Business process domains are aggregations of core business processes. Although there is
growing popularity of business process domains as their own entities (CRM, SCM, and core
business operations), they are commanding a mind-share in the marketplace (and each has
attracted various vendors and products to support it). These domains must operate together as a
key
component
to
the
overall
e-business
strategy.
In a successful e-business, convergence is the driving connection of all of the business process
domains. When there appears to a customer or a supplier to be no barrier between departments,
the business process domains are tightly integrated with the business and IT strategies.
4.6 Models Of E-Business
When organizations go online, they have to decide which e-business models best suit their
goals. A business model is defined as the organization of product, service and information
flows, and the source of revenues and benefits for suppliers and customers. The concept of ebusiness model is the same but used in the online presence. The following is a list of the
currently most adopted e-business models such as:
1.
E-shops
2.
E-commerce
3.
E-procurement
4.
E-malls
5.
E-auctions
6.
Virtual Communities
7.
Collaboration Platforms
8.
Third-party Marketplaces
9.
Value-chain Integrators
10.
Value-chain Service Providers
11.
Information Brokerage
12.
Telecommunication
E-shops
Online shopping is the process consumers go through to purchase products or services over
the Internet. An online shop, eshop, e-store, internet shop, webshop, webstore, online store, or
virtual store evokes the physical analogy of buying products or services at abricks-andmortar retailer or in a shopping mall.
Benefits of online shopping are as fallows:
1. Bargaining power of consumers. They enjoy a wider choice
2. Supplier power. It is more difficult for consumers to manage a non-digital channel.
3. Internet increases commoditization
4. Threat of new entrants. Online means it is easier to introduce new services with lower
over-heads
5. Threat of substitutes
6. Rivalry among competitors. It is easier to introduce products and services to different
markets.
E-commerce
Electronic Commerce consists of the buying and selling of products or services over
electronic systems such as the Internet and other computer networks. The amount of trade
conducted electronically has grown extraordinarily with widespread Internet usage. The use of
commerce is conducted in this way, spurring and drawing on innovations in electronic funds
transfer, supply chain management, Internet marketing, online transaction processing, electronic
data interchange (EDI), inventory management systems, and automated data collection systems.
Modern electronic commerce typically uses the World Wide Web at least at some point in the
transaction's lifecycle, although it can encompass a wider range of technologies such as e-mail as
well.
A large percentage of electronic commerce is conducted entirely electronically
for virtual items such as access to premium content on a website, but most electronic commerce
involves the transportation of physical items in some way. Online retailers are sometimes known
as e-tailers and online retail is sometimes known as e-tail. Almost all big retailers have electronic
commerce presence on the World Wide Web.
E-PROCUREMENT
E-procurement (electronic procurement, sometimes also known as supplier exchange) is the
business-to-business or business-to-consumer or Business-to-government purchase and sale of
supplies, Work and services through the Internet as well as other information and networking
systems, such as Electronic Data Interchange and Enterprise Resource Planning.
Typically, e-procurement Web sites allow qualified and registered users to look for buyers or
sellers of goods and services. Depending on the approach, buyers or sellers may specify costs or
invite bids. Transactions can be initiated and completed. Ongoing purchases may qualify
customers for volume discounts or special offers. E-procurement software may make it possible
to automate some buying and selling. Companies participating expect to be able to control parts
inventories more effectively, reduce purchasing agent overhead, and improve manufacturing
cycles. E-procurement is expected to be integrated into the wider Purchase-to-pay (P2P) value
chain with the trend toward computerized supply chain management.
E-procurement is done with a software application that includes features for supplier
management and complex auctions. The new generation of E-Procurement is now on-demand or
a software-as-a-service.
There are seven main types of e-procurement:

Web-based ERP (Enterprise Resource Planning): Creating and approving purchasing
requisitions, placing purchase orders and receiving goods and services by using a software
system based on Internet technology.

E-MRO (Maintenance, Repair and Overhaul): The same as web-based ERP except that
the goods and services ordered are non-product related MRO supplies.

E-sourcing: Identifying new suppliers for a specific category of purchasing requirements
using Internet technology.

E-tendering: Sending requests for information and prices to suppliers and receiving the
responses of suppliers using Internet technology.

E-reverse auctioning: Using Internet technology to buy goods and services from a
number of known or unknown suppliers.

E-informing: Gathering and distributing purchasing information both from and to internal
and external parties using Internet technology.

E-market sites: Expands on Web-based ERP to open up value chains. Buying
communities can access preferred suppliers' products and services, add to shopping carts,
create requisition and seek approval, receipt purchase orders and process electronic invoices
with integration to suppliers' supply chains and buyers' financial systems.
VIRTUAL COMMUNITIES
A virtual community, e-community or online community is a group of people that primarily
interact via communication media such as news letters, telephone, email, internet social network
service or instant messages rather than face to face, for social, professional, educational or other
purposes. If the mechanism is a computer network, it is called an online community. Virtual and
online communities have also become a supplemental form of communication between people
who know each other primarily in real life. Many means are used in social software separately or
in combination, including text-based chat rooms and forums that use voice, video text or avatars.
Significant socio-technical change may have resulted from the proliferation of such Internetbased social networks.
INFORMATION BROKERAGE
An information broker is a person or business that researches information for clients. Common
uses for information brokers include market research and patent searches, but can include
practically any type of information research.
TELECOMMUNICATION
Telecommunication is
of communication.
In
the transmission of
earlier
times,
signals
this
may
over
have
a
distance
involved
for
the
the
use
purpose
of smoke
signals, drums, semaphore, flags or heliograph. In modern times, telecommunication typically
involves the use of electronic devices such as telephones, television, radio or computers.
Telecommunication is an important part of the world economy
4.7 Customer Relationship E-Business Management
Customer relationships are becoming a more important factor in differentiating one business
from another. In order to stay competitive, e-businesses in every industry have begun to analyze
these
relationships
with
customers
using
CRM
solutions.
In the past, customers would place an order via the telephone and wait until the company’s
purchasing department processed and shipped the order. Today’s customers place an order
electronically and then demand to be able to check the status of their order within minutes.
CRM enables an organization to adopt a comprehensive view of the customer and
maximize this relationship. These CRM systems enable a business to identify, attract, retain, and
support customs centers, direct mail, and retail facilities. In an efficient e-business, there are
CRM
processes
in
place
to
handle:
Analytical CRM: The analysis of data created on the operational side of the CRM equation for
the purpose of business performance management; utilizing data warehousing technologies and
leveraging
data
marts
Customer interactions: Sales, marketing, and customer service (call center, field service) via
multiple, interconnected delivery channels and integration between front office and back office
Operational CRM: The automation of horizontally integrated business processes involving
“front office” customer touch points
4.8 The Benefits Of E-Business
The Internet and related technologies can change the way that develops and conducts business
processes, making them more time and cost efficient. They can diversify the marketing channels
and, ultimately, helps to increase business revenue. Collect vital business information related to
your customers and competitors. The Internet is a valuable research tool and, as a readily
accessible information medium, its ability to allow you to remain competitive in your industry
should not be underestimated.
1. Increase awareness about your company.
Even if you are not considering selling online, having a website that promotes your business,
provides contact information, and outlines your unique value proposition – that is, the unique
collection of benefits attributed to your product or service that creates value for your customers
or clients – will simply increase your reach and value in the marketplace, and make it easier for
potential clients/customers to find you.
2. Streamline communications and improve customer service.
Email communications, website FAQs and auto-responders are examples of simple and cost
effective electronic techniques that can help improve communications between you and your
clients/customers.
3. Improve productivity and reduce costs.
Simply by streamlining communications using Internet technologies, you can improve your
business productivity. And, out-of-pocket costs can be reduced further by implementing a readily
updatable website, instead of printed materials that have a short shelflife, to relay pertinent
information to your customer base.
4. Sell your products online.
For those considering making the leap to ecommerce, selling online can lower your upfront setup costs and operational costs, increase your reach to a global marketplace, and allow you to be
“open” 24 hours per day, 7 days per week. Further, it can allow you to automate your order
processing and order tracking capabilities, develop cheaper online catalogues, and update your
product lists on the fly.
4.9 The Internet And The World Wide Web
The World Wide Web, or simply the Web, is a subset of the Internet. It functions as the
Internet’s navigation system and allows users to view the Internet network through the use of
websites.
INTERNET
The Internet is an electronic communications network that allows computers around the
world to “talk” to each other. Any computer that is connected to the Internet can exchange
information with other connected computers. The Internet is a valuable business tool in a number
of ways. First, the Internet allows users in the business to research things relevant to their jobs.
By allowing employee to do this, corporations open up a vast number of resources that only help
an employee to perform their job more effectively. Secondly, the Internet allows businesses to
publish information that is relevant to their company, such as contact information, employment
information etc. In addition the Internet allows company another way to market it goods and/or
services to customers.
EXTRANETS
Extranets allow business to increase connectivity. For example, a business may connect
with one of its suppliers via an extranet. This allows for information exchange between the two
companies. By doing this, business allow each other to access the information that they need
when they need it. This represents a great deal of time savings on the account of both companies.
In addition, a business may use its extranet to place immediate orders with it suppliers which
leads to a more efficient supply chain.
INTRANETS
Intranets allow for both internal communications as well as information sharing. By
creating an intranet a company allows employees to communicate at a rapid pace as well as
reduce the costs associated with internal memos. In addition an intranet allows for information
sharing between departments that increase the efficiency of the business.
Intranets also have created new concepts in business such as virtual teams, which allows
employees in different geographic locations to be part of the same team.
WORLD WIDE WEB
The World Wide Web, abbreviated as WWW and W3 and commonly known as The Web, is a
system of interlinked hypertext documents contained on the Internet. With a web browser, one
can view web pages that may contain text, images, videos, and other multimedia and navigate
between them using hyperlinks. Using concepts from earlier hypertext systems
Websites are a collection of web pages, which are electronic pages of information linked
together much like a spider’s web. This spider’s web-like navigational system (inherent in both
websites and the Web itself) allows users to move around the system in a non-linear fashion.
This means that, unlike a book – where information is laid out for the reader chronologically, in
a set order – a Web user has the power to access information online however they choose.
Websites are accessed via a web browser such as Internet Explorer or Mozilla. Web browsers are
the graphical interface that enables users to view, find and interact with websites.
Websites each have their own unique address, called an IP address, through which users
can find them. For example, the Alberta E-Future Centre’s online address is www.efuture.ca/alberta. By typing this address into the web browser address bar, a user would be
connected to our website. But, since the Web indexes literally billions of websites, another
method to facilitate finding relevant websites was necessary. Therefore, search engines that
utilize “keyword searching” were created. It is estimated that more than 98% of Internet users
use search engines to find websites online. A search engine is a website whose primary purpose
is to provide a search function for gathering and reporting information available on the Internet.
Search engines allow Internet users to quickly find websites related to a certain topic through the
use of “keywords” and “keyword phrases,” that is, words and phrases that describe the topic of
interest. It is estimated that 98% of Internet users use search engines to find websites online.
4.10 Electronic Mail
Electronic mail, often abbreviated as email, e.mail or e-mail, is a method of exchanging digital
messages. E-mail systems are based on a store-and-forward model in which e-mail computer
server systems accept, forward, deliver and store messages on behalf of users, who only need to
connect to the e-mail infrastructure, typically an e-mail server, with a network-enabled device
(e.g., a personal computer) for the duration of message submission or retrieval. Originally, e-mail
was always transmitted directly from one user's device to another's; nowadays this is rarely the
case.
An electronic mail message consists of two components, the message header, and the
message body, which is the email's content. The message header contains control information,
including, minimally, an originator's email address and one or more recipient addresses. Usually
additional information is added, such as a subject header field.
4.11 Impact Of Web On Strategic Management
The creation of a strategic plan has always been an essential ingredient to long-term success.
Now, with the explosive growth of the Internet and the dramatic impact it is having on the global
economy, strategic planning is an urgent activity. So how can it be effectively done? The first
step is to understand that strategic planning requires a hierarchy of information beginning with
the organization’s mission. Based upon your mission statement, a vision for the future can be
formed, along with specific goals, and also performance measures developed to track progress
towards each goal. This leads next and naturally to the formulation of specific actions to improve
performance. A last step is to identify initiatives which will drive your actions and enable you to
meet your goals.
Major Components of a Business Strategy- The science of strategic planning requires
strong product or service definition as a prerequisite. Once core product or service features have
been defined, your strategic plan will lead the way to profitable sales channels and improved
operational efficiencies.
Mission Statement: The creation of a powerful web-enabled business strategy requires a
guiding mission statement that defines and justifies your organization's existence. Everyone
needs to comprehend the mission since it will form the basis for organizational decision-making.
Each level and functional group within the organization should restate the mission in its own
terms, defining its individual purposes and ways in which it plans to contribute to achieving the
overall mission.
Corporate mission statement should encompass the entire organization, and also specify
high level criteria for success. Though The Web need not be specifically reflected in a mission
statement, keep in mind that the Internet can provide you with instant global visibility within a
fiercely competitive arena. It’s a wise idea for your mission statement to reflect this reality.
For example, a mission statement might read, "The place to go to get connected to anything or
anyone" or "To be the best place to find, research and buy any product or service.” Another
example: “To strengthen and broaden our brand, our customer base and our expertise as we build
the world's number one on-line destination."
Fig . 4.1 The Sequence for Creating a Web-Enabled Strategy
VISION STATEMENT: The “vision statement” documents how organization intends to
fulfill its mission. Vision statements motivate, provide clear direction and form the bases for
clear policies and decision-making. To effectively identify a vision, questions such as the
following should be asked and answered. What is our business? (Think globally!) What skills
and capabilities are needed? (Consider technological implications!) Who are our competitors?
(Stretch far outside the box!) How can we stay competitive? (Be afraid… be very afraid!)
4.12 Web Enables Business Management
While anyone can create and implement a web site, operating a web-enabled business is a very
different matter. To get there, one need a web-enabled business strategy resulting from re-
thinking, reengineering and re-vamping business model. Technology must no longer be seen as
an operational element but as integral to the success of business. Many people mistakenly see the
Web as a mere point of information but in fact it’s much more than that: advertising medium,
distribution channel and customer service vehicle, all presenting wholly new opportunities.
Involvement on The Web provides many benefits at once: a global presence, reduction of time to
market, minimization of order-processing costs, testing capability for small volume products and
an automatic collecting of customer data. The choice of technology then acts as an enabler,
magnifying these results when used wisely.
One inherent element of strategic planning is the identification and definition of data
elements (and their sources), required of information systems if they are to fully support the
organization’s processes. This leads to the development of a “technology architecture,” which
provides a road map for the organization and guides the decision-making process to take greater
advantage of the World Wide Web.
Technology architecture is critical in delivering enterprise-computing systems, providing
a control point for managing complexity and for maintaining system integrity. Its unifying and
coherent structure systematically organizes people, process and other essential components, and
generates rules for growing the system. It protects an enterprise system, typically greater than the
sum of its components, from the danger of its complexity exploding unmanageably.
The Web services are based on a suite of specifications that define rich functions and that
may be composed to meet varied service requirements. A crucial application for these services is
in the area of systems management. To promote Interoperability between management
applications and managed resources, this Specification identifies a core set of Web service
specifications and usage requirements to expose a common set of operations that are central to
all systems management. This comprises the abilities to
1. DISCOVER the presence of management resources and navigate between them.
2. GET, PUT, CREATE, RENAME, and DELETE individual management resources, such
as settings and dynamic values.
3. ENUMERATE the contents of containers and collections, such as large tables and logs.
4. SUBSCRIBE to events emitted by managed resources.
5. EXECUTE specific management methods with strongly typed input and output
parameters.
In each of these areas of scope, this specification defines minimal implementation
requirements for conformant Web service implementations. An implementation is free to extend
beyond this set of operations, and may also choose not to support one or more areas of
functionality listed above if that functionality is not appropriate to the target device
or system.
4.13 MIS In Web Environment
MIS in the web environment helps in the following way-
1. Expand business opportunities by enabling enterprises to offer new types of products and
services
2. Reduce time-to-market and development costs of such products and services
3. Deliver personalized versions of products and services to individual customers
4. Identify the most profitable customers and create one-to-one marketing programs
targeting their needs
5. Reduce operating costs and increase return on investment (ROI)
6. Establish electronic partnerships with other businesses that transparently deliver
additional value to customers
7. Offer multiple integrated channels for customer transactions and communication so
customers can interact with a business via telephone, e-mail, Web site, brick-and-mortar
store, or any combination of the above In the financial services industry, the ability to
offer services such as online mortgage closings (utilizing electronic signatures) and realtime global access to investment portfolios can be a key differentiator for businesses
experiencing erosion of customer loyalty because of deregulation and consolidation. As a
result, increasingly complex transaction-oriented services that employ Java™, Common
Gateway Interface (CGI), dynamic HTML, and Common Object Request Broker
8. Architecture (CORBA) to enable Web access to active content are rapidly replacing
legacy host/ and client/server architectures throughout the global financial services arena.
4.14 Summary
E-business is about utilizing Internet technologies – such as simple email, online banking
solutions, websites, and more sophisticated applications such as web-based customer relationship
management solutions – to provide superior customer service, streamline business processes,
increase sales and reduce costs. When business process domains are integrated, they can increase
productivity and improve customer and supplier satisfaction. A business model is defined as the
organization of product, service and information flows, and the source of revenues and benefits
for suppliers and customers.there
are
various
e-business
models.
E
procurement (electronic procurement, sometimes also known as supplier exchange) is the
business-to-business or business-to-consumer or Business-to-government purchase and sale of
supplies, Work and services through the Internet as well as other information and networking
systems, such as Electronic Data Interchange and Enterprise Resource Planning. CRM enables
an organization to adopt a comprehensive view of the customer and maximize the relationship.
4.15 Keywords
Procurement
Strategy
Information and Communication technologies (ICT)
Business Model
E-Business
Information brokerage
Customer Relationship Management (CRM)
4.16 Exercise
1. How MIS helps in web environment?
2. What is E-Business?
3. How internet transforms organization?
4. How do you charactirise E-Business as a emerging field of study in relation to other more
established disciplines?
5. What e-business different from traditional business?
6. What is your mission statement? Goals? Objectives? Business model?
7. What customer needs does your product/service fulfill?
8. What products and services will you offer?
9. Under what circumstances do strategic plans fail?
10. Many people mistake vision statement for mission statement. From your reading, list down
what you understand are their differences?
11. Explain in detail about E-commerce, E-Business and E-Procurement with suitable examples.
MODULE 3
UNIT-1
CONTENTS
1.1 Objectives
1.2 Introduction
1.3 ERP as Integrated Management Information Systems
1.4 Evolution of ERP
1.5 ERP Benefits
1.6 ERP vs Traditional Information Systems
1.7 ERP: competitive advantage and benefits
1.8 Basic Constituents of ERP
1.9 ERP Software Selection Criteria
1.10 Procurement process for ERP Package
1.11 Summary
1.12 Exercises
1.1
Objectives
The mail goal of this chapter is to study about introduction to ERP, benefits, evolution of ERP.
Difference between ERP and traditional systems. ERP software package, selection criteria.
1.2 Introduction
An enterprise is a group of people with a common goal which has certain resources at its
disposal to achieve this goal. This enterprise acts as a single entity. ERP stands for Enterprise
Resource Planning. This term is originally coined in 1990 by The Gartner Group to describe the
next generation of MRP II software. The purpose was to integrate all facets of the business
enterprise under one suite of software applications. An enterprise resource planning (ERP)
system can integrate a company’s operations by acting as a company-wide computing
environment that includes a database that is shared by all functional area. ERP is a way to
integrate the data and processes of an organization into one single system.
The term ERP originally referred to how a large organization planned to use
organizational wide resources. In the past, ERP systems were used in larger, more industrial
types of companies. However, the use of ERP has changed and is extremely comprehensive today the term can refer to any type of company, no matter what industry it falls in. In fact, ERP
systems are used in almost any type of organization - large or small.
In one sentence, ERP is a combination of business management practice and technology, where
Information Technology integrates with your company's core business processes to enable the
achievement of specific business objectives. Today's ERP systems can cover a wide range of
functions and integrate them into one unified database. For instance, functions such as Human
Resources, Supply Chain Management, Customer Relations Management, Financials,
Manufacturing functions and Warehouse Management were all once stand-alone software
applications, usually housed with their own database and network, today, they can all fit under
one umbrella - the ERP system
1.3 ERP as Integrated Management Information Systems
ERP also called Integrated Management Software are applications whose purpose consists in
coordinating all activities of a company (so-called vertical activities such as production,
procurement, or rather horizontal activities such as marketing, sales forces, management of
human resources, etc.) around the same information system. Integrated Management Software
generally provide Groupware and Workflow tools to ensure transversality and flow of
information between the different services of the company. The term "ERP" comes from the
name of the MRP (Manufacturing Resource Planning) method used during the 70s for managing
the planning of industrial production.
Enterprise Resource Planning (ERP) systems are the most integrated information systems
that cut across various organisations and functional areas. It has been observed that the majority
of ERP systems proved to be a failure either in the design or its implementation. A number of
reasons contribute in the success or failure of ERP systems. ERP systems inherently present
unique risks due to tightly linked interdependencies of business processes, relational databases
and process reengineering, and so on. Knowledge of such factors is important in the design of
system and programme management as they contribute to the overall success of the system. In
this paper, an attempt has been made to study the design factors for ERP systems in Indian
organisations. To achieve this two public sector companies, namely PCL and PTL located in
northern India, have been selected.
Effective ERP requires that integrated management processes extend horizontally across
the company, including product development, sales, marketing, manufacturing, and finance. It
must extend vertically throughout the company's supply chain to include the acquisition of raw
materials, suppliers, customers, and consumers. The fundamental purpose of ERP is to establish
a process that links projected demand plans to supply plans, so that the resources of
manufacturers, their suppliers, and especially their customers are utilized in the most efficient
and cost effective way. To do so requires a process for anticipating demand and planning and
scheduling resources in a manner that supports a company's strategic and financial goals. There
are five major elements in this:
1. An integrated business operating process that links strategic plans and business plans to
sales plans and operations plans.
2. A people-driven process that is supported by a computer system.
3. A formal resource planning process that involves all functions within a company.
4. Defined responsibilities and performance measurements for all functions in a company.
There are many views to ERP in the organizational context – as a competitive weapon, a
means to improve productivity and reduce costs, a tool to integrate information systems etc. In
this note consider another view, namely, ERP as the infrastructure for corporate information
systems should have the following features-
1. To be really useful ERP must be shared by all departments across the organizations and owned
by all users. ERP is NOT one more project initiative from EDP/ MIS/ IT departments. Even if
Finance and Logistics modules alone are implemented other related functions like Production &
Quality must be interfaced or externally integrated so that the base-data of ERP truly reflects the
state of affairs across the organization. There are enough tools available today, both from ERP
vendors or other tools vendors to accomplish this. Even Microsoft Back office can be used for
this external integration. More important the users in the departments where ERP modules are
currently not implemented should be as much part of ERP as those departments where ERP is
being implemented. The essence of ERP is integration and this must not be lost sight of under
any circumstances.
2. The second feature of ready availability is important, particularly in Indian scenario. The per
user licensing cost of ERP being high, the tendency in many Indian companies going for ERP is
to restrict ERP access to key managers and senior personnel. If the order -entry clerk has to own
the data that person will own the data only if he / she were responsible for the data creation /
updating. The access control and infrastructure management tools are sufficiently evolved today
that data sensitivity can be mapped to the user hierarchy without hardware-based control. As
such there is no need even to have separate ERP access terminals; ERP access can be through
the same PC / Workstation/ Terminal that every user routinely accesses for e-mail / wordprocessing / Internet / Intranet. What is important though is the widespread access to every point
of data generation and modification so that data ownership can be maintained.
3. Infrastructure must offer highest levels of reliability. Naturally the choice of servers, disk
systems, network devices & access devices must be such that one can take ERP availability as
granted. While data processing or word processing can wait for a few hours or a few days of
downtime, ERP cannot and one should not resort to “offline” operations with later adjustments
except in rare circumstances.
4. The fourth aspect is the nature of ERP as the information backbone Of the organization. There
is no point in every user department maintaining individually “private systems” even after ERP
has been implemented. The organization would be “back to square one” with multiple data for
key elements beating the very purpose for which ERP was put in place Unless users depend on
ERP data for their very job function, irrespective of their departmental affiliations, the full
benefits of ERP for organizational excellence would remain a distant dream.
5. The most important part of ERP, viewed as infrastructure is the support it provides for a host
of value-added services through applications. A well- implemented ERP would pave the way for
organizational level data discipline. Users will not have to chase others for information; no need
to set up reminders, follow-up groups and meetings. “Information would be available on tap”;
however it is important that the users start planning for innovative use of this information
for planning & analysis. Ultimately the real use of information is to provide insight; information
per se will be of little use, except where required from statutory point of view. It is important to
plan for Supply Chain Management, Customer Relations Management, Data warehousing &
Data mining (OLAP) and other initiatives right away so that with the high quality information
infrastructure provided by ERP the organization can leverage the high quality information
systematically generated & maintained by ERP towards corporate excellence. Finally
infrastructure should not be viewed from a narrow “cost benefit” and ROI perspective.
1.4 Evolution of ERP
In the ever growing business environment the following demands are placed on the industry :
o
Aggressive Cost control initiatives
o
Need to analyze costs / revenues on a product or customer basis
o
Flexibility to respond to changing business requirements
o
More informed management decision making
o
Changes in ways of doing business
Difficulty in getting accurate data, timely information and improper interface of the complex
natured business functions have been identified as the hurdles in the growth of any business.
Time and again depending upon the velocity of the growing business needs, one or the other
applications and planning systems have been introduced into the business world for crossing
these hurdles and for achieving the required growth. They are:
o
Management Information Systems (MIS)
o
Integrated Information Systems (IIS)
o
Executive Information Systems (EIS)
o
Corporate Information Systems (CIS)
o
Enterprise Wide Systems (EWS)
o
Material Resource Planning (MRP)
o
Manufacturing Resource Planning (MRP II)
o
Money Resource Planning (MRP III)
The latest planning tool added to the above list is Enterprise Resource Planning.
1.5 ERP Benefits
ERP offers lots of benefits to the implementing organization. It helps for a manager to make
decision at the right time. This is possible when entire organization is sharing information and
interprets in same perspectives. The benefits of ERP can be classified in two categories: Tangible benefits (Those which can be measured in one form or other)
Intangible benefits (Difficult to measure in one form or other).
Other significant benefits include:

Improved visibility: Due to the centralized nature of ERP systems , organizations can
track inventory levels on a daily basis, including inventory in transit and future
consignments to be received. This visibility can enable organizations to control their
working capital requirements to a great degree. This visibility also enables organizations
to run their enterprise in accordance with their strategy, while empowering them to make
quick decisions to pursue opportunities.

Reduced operating costs: One of the most immediate benefits from implementing an
ERP is reduced operating costs: such as lower inventory control costs, lower production
costs and lower marketing costs. By avoiding duplication of information but not
reinventing the wheel for common business processes, an ERP provides opportunities for
cost reduction and value-added tasks, leading to increased margins.

Standardized business processes: Most ERP vendors design their products around
standard best-business processes, which are based on industry best practices.
Organizations can use these business processes to standardize their own processes. This
process consistency allows a consolidated view of the business across the distributed
enterprise, enabling organizations to drive continuous improvements, as operations are
streamlined and there is healthy synergy between departments and functions. The
improvement also comes from transparency and reduction in human errors due to
automation of inter-company transactions.

Improved compliance: With ERP, organizations can enforce compliance related to
different regulations such as Sarbanes-Oxley or industry specific initiatives such as 21
CFR part II
1.6 ERP vs Traditional Information Systems
This enterprise acts as a single entity. However this view of a company or an organisation is
drastically different from the traditional approach. In the traditional approach, the organisation is
divided into different units based on the function they perform, and hence we have a
manufacturing or production department, production planning department, purchasing
department, sales and distribution department, finance department, R&D department etc. These
departments usually have their own goals and objectives, which they believe is in line with the
organisation’s objectives.
These departments usually function in isolation and have their own systems of data
collections and analysis. So, the information that is created or generated by the various
departments in most cases is available only to the top management and not to the other
departments. The result of this is that instead of taking the organisation towards the common
goal the various departments end up pulling it in different directions and this is because one
department does not know what the other does and also sometimes the departmental objectives
can be conflicting. So basically unless and until all the departments in the organisation know
what the others are doing and for what purpose, these kinds of conflicts will arise, disrupting the
normal functioning of the organisation.
But in the enterprise way the entire organisation is considered as one system and all the
other departments as its sub-systems. All the information is stored centrally and is available to all
departments. This transparency and information access ensures that the departments do not work
in isolation and strive to achieve the common goals of the organisation.
ERP systems help to make this task easier by integrating the information systems,
enabling smooth and seamless flow of information across departmental barriers, automating
business process and functions and thus helping the organisation to work and move forward as a
single entity
1.7 ERP: competitive advantage and benefits
Does ERP, by itself, provide a sustainable competitive advantage to companies that deploy it?
Not really. If an ERP vendor is really proficient at a vertical (e.g., consumer packaged goods,
health care), customers will flock to that vendor’s ERP software. Then, if 10 companies are all
running the same software, where is the competitive advantage?
A company must determine what its sources of competitive advantage are, and then determine
how the ERP package can help the company sustain its competitive advantage. Clearly, strategic
competitive advantage is a good thing.
Once a strategy is determined, select ERP software to help you with the strategy.For that
determine the benefits .Consider some examples Lawson’s customers.

Product differentiation: Lawson M3 gives us the ability to process high volumes of
order lines quickly every day. It also enables us to bake the right products as close as
possible to the moment they are delivered, and in the correct volumes to avoid waste
(Schulstad Bread). One can also argue for customer service. But, Schulstad has a real
quantifiable benefit here, and should measure its net advantage in the marketplace.

Customer service: With Lawson M3, we have total visibility over every product and its
physical location. GBC has been successful in improving service to customers, delivering
the correct product on time and, just as importantly, invoicing correctly (General Binding
Corp.). In the rental business, visibility can lead to competitive advantage.

Operational Efficiency: Saved $30 million in supply chain costs during initial 18-month
period; $50 million in cumulative savings from 2001 through the end of 2003. Reduced
supply cost per adjusted discharge ratio to 14% below national average. Reduced supply
cost compared to net revenue to 21% below national average. Maintained consistent
capture of vendor discounts (Advocate Health Care). Procurement-related benefits are
often the easiest to obtain and quantify.
1.8 Basic Constituents of ERP
The following are Basic Constituents of ERP
ERP software
ERP software is made up of many software modules. Each ERP software module mimics
a major functional area of an organization. Common ERP modules include modules for
product planning, parts and material purchasing, inventory control, product distribution,
order tracking, finance, accounting, marketing, and HR. Organizations often selectively
implement the ERP modules that are both economically and technically feasible.

Business Processes
Business Process is a collection of activities that takes one or more kind of input and
creates an output that is of value to the customer. ERP software supports the efficient
operation of the business processes by integrating activities throughout the business
including Sales, Marketing, Manufacturing, Logistics, Accounting and Staffing.
Organizational processes are divided into three levels - strategic planning,
management control and operational control. The driving force behind the acceptance of
ERP was to streamline and automate enterprise-wide resource planning at strategic
planning level. In reality, much of ERP success has been in facilitating operational
coordination across departments. The success of ERP at strategic planning, management
control calls for the integration of ERP with other enterprise applications and demand
long term management commitment.

ERP Users
ERP Users can be classified into 1) those who execute strategic planning, 2) those who
perform managerial control, and 3) those who do operational control. Even though ERP
applications have been mostly beneficial to the operational control, the users of an ERP
system include workers from all levels of an organization.

Operating Systems for ERP
ERP software runs on various operating systems and hardware, from UNIX, Linux, and
Windows to mainframe. Since one organization may acquire ERP and other enterprise
software from many different vendors, the requirements for running ERP applications are
common - security, stability, scalability and open standards.
1.9 ERP Software Selection Criteria
ERP packages come in all sizes and shapes, with all the frills, bells and whistles, gizmos and
gadgets that you can imagine. Hence, it is a good practice to specify selection criteria for
evaluating
the
packages
that
survive
the
pre-evaluation screening. The criteria can be in the form of a questionnaire and a point system
can be implemented. This will help in making the selection process more objective. The
questions should address the company’s business needs and concerns and each issue or question
should be given a weight according to how critical that function is for the company. For
example, if the company has offices in different countries, then the capability of handling
multiple languages and currencies becomes an important criterion. Likewise the selection criteria
should be divided into categories—vital, essential and desirable—and points should be given to
each criterion. The point rating system will simplify the evaluation process. But the importance
of human intuition, gut feeling, and judgment should never be underestimated.
The best method for preparing the selection criteria is to conduct a requirements analysis—find
out what the company needs. The requirements must reflect those factors that the company
considers indispensable for the successful running of the business according to the company’s
work culture and practices. Given below are some examples of the selection criteria.

The package should have Multilanguage and multi-currency support.

The package should be international and should have installations in specified countries
(basically in countries where the company have offices). The vendor should also have a
local presence in those countries.

The package should have at least ‘x’ number of installations out of which at least ‘y’
should be in your business sector.

The cost of the package with all the necessary modules should be less than ‘x’ Rupees.

The package should have the facility to do an incremental module addition. For example,
the company should have the facility to buy the core modules initially and then go in for
the additional modules as and when desired.

The vendor should provide implementation and post implementation support.

The vendor should give a commitment on training the company employees on the
package.

The package should have the capability of interfacing with other systems that the
company is dealing with—banks, suppliers, customers, etc.

The package must be customizable and the customization process should be easy
(something that could be done in-house)

_ The vendor’s policy and practices regarding updates, versions, etc, should be
acceptable
In this way, the issues, concerns and expectations that the company has, regarding the
package, can be consolidated and made into a list. Then the items in the list should be placed into
the ‘vital-essential-desirable’ categories. Then, using this list each package should be evaluated.
Many items in the list will have descriptive answers. The committee should sit together and
analyse these issues and assign points to these items. One important thing that should be kept in
mind is that whenever a decision is made, the committee should discuss it and a consensus must
be reached to ensure commitment and avoid conflicts. The functional experts (who know the
business process well) and vendor representatives (who know the ERP package well) can tell
areas and issues that should be given more importance, the aspects that should be scrutinized
more thoroughly and how the company’s current business practices could be replaced with new
ones or modified to suit the package.
1.10 Procurement process for ERP Package
Any organization pursuing a successful ERP experience should start by following a wellestablished . ERP system procurement process, defined in terms as much systematic and formal
as possible. Once the strategic nature of ERP systems procurement is accepted, it follows that
this statement stands on reasons that, although obvious, seem to be often overseen or rarely and
superficially considered:
• A well-established ERP procurement process can become a good starting practice and set a
good pace for the remaining ERP life cycle phases within the hosting organization.
• Furthermore, it can help to determine organizational, business and user requirements that will
facilitate more mature evaluations of ERP alternatives, as well as clarify how the ERP solution
eventually selected fits these requirements.
• An early clear vision of required customizations, bespoke extensions and integration with
preserved legacy systems will ease the definition of the scope of the subsequent ERP
implementation process and of what the users should expect from the ERP-based IS.
• An early vision of the ERP-based transactional IS will facilitate IS strategic planning with
regard to subsequent decisional and communicational, intra- and inter-organizational IS domains,
such as so-called “business intelligence”, “customer relationships management”, “supply chain
management” and more generally, “electronic business”.
• In other words, a well-established ERP procurement process is a good foundation for a
successful ERP implementation and usage experience.
An example of an ERP procurement method presents the SHERPA approach. SHERPA divides
the process in five phases. Each phase is divided in stages: an organization stage, followed by
some stages specific to the phase and a final review and approval stage. Among the prior
research work related to general software selection, let us signify the PORE method , dedicated
to discussing the evaluation of COTS, which provides templates for the processes and
documents, and guidelines for the procurement project team. This work has been extended to
address the issue of ERP evaluation in . Mayrand and Coallier [9] base their work on the eight
phases of the procurement process proposed by standards ISO/IEC-12207 and ISO/IEC 9126,
focusing in large scale software, risk management and quality assurance. Other
specially
relevant work is SA-CMM or Software Acquisition Capability Maturity Model. This model
helps an organization to evaluate its general software procurement process, obtaining a maturity
level, and to improve it progressively.
E-Procurement is the business to business (B2B) purchasing of goods and services, if done
through the Internet then it is called E-Procurement. EProcurement can be implemented through
either a manual process or using automated software such as Enterprise Resource Planning
(ERP)
tools.
Benefits
A vital part of supply chain management, the procurement of materials and services can become
a major stumbling block for enterprises involved in the manufacture of deliverable goods.
Without a regular and reliable supply of raw materials the manufacturing process will come
grinding to a halt, leading inevitably to missed delivery dates and a backlog of orders. It is vital,
then, to ensure that the process of procurement is as efficient and reliable as possible.
Eprocurement can be an invaluable tool for enterprises experiencing difficulties in their supply
chain. If purchase orders are not being processed in a timely fashion and delivery dates are not
being met through manual purchasing methods.
Types
of
E-Procurement
There are several varieties of e-Procurement, each of which can offers benefits to manufacturing
enterprises in ensuring both that materials are delivered in time to meet production schedules and
that
they
are
at
the
best
price
to
maximize
profit
margins.
Web-based ERP
ERP software packages (from vendors such as SAP AG, Oracle and The Sage Group) are
designed to optimize the resource planning of an enterprise. In terms of the manufacturing
process they can generate recommended purchasing schedules in order to achieve an ideal justin-time (JIT) production cycle. One of the many features of ERP software is its ability to
automatically generate purchases orders using the Bill of Materials for the finished product as a
basis. Web-based ERP software can go one step further. As well as generating purchase orders it
can forward them to suppliers in order to fully automate the procurement process. Based on the
ideal manufacturing process laid out by the ERP software, these orders ensure that materials will
be available in time to begin production at the ideal time. In addition to generating new purchase
orders, ERP software can also issue reschedule notices to suppliers. Reschedule notices are
supplementary orders that can either cancel, delay, speed up and alter the size of pending orders.
e-MRO
ERP software can also generate and send purchase orders for maintenance, repair and operating
supplies to enable the smooth running of the production process. When repairs are necessary to
components of a production line, e-MRO orders can greatly reduce down time. E-MRO orders
are of greatest benefit to automated production lines using numerical control machine tools.
Many automated machine tools can run self-diagnostic programs, notifying an operator by SMS
message to a cell phone in the event of components failure. In addition to a message to the
operator the tool can also use ERP software to generate an e-MRO order for replacement parts.
e-sourcing
E-sourcing is the use of the Internet for the identification of new suppliers for a category of
purchasing requirements. Otherwise known as reverse auctioning, e-sourcing is a method by
which enterprises can move their procurement process online in order to reach a larger number
of suppliers than would be possible through usual channels. The major benefit of e-sourcing is
the competitive aspect by which suppliers bid for projects. Suppliers submit bids along with
various details of the service they promise to provide, and purchasers can pick and choose from
the offers. While reverse auctions can be performed through traditional channels, many
enterprises prefer using the Internet as they can connect with a wider range of service providers
than
would
be
practical
in
the
real
world.
e-informing
Finally, e-Procurement can be used for the simple job of exchanging purchasing information
between buyers and suppliers. Using Internet technologies such as e-mail the process of
accumulating a database of supplier information can be made much simpler than by using
traditional contact methods. Perhaps most importantly, these databases can be applied in the
future to generating action in a reverse auction. By informing suppliers of forthcoming auctions
an enterprise can allow suppliers the time to build a tender.
E-procurement, then, offers two main advantages. The first is the further automation of
business processes related to the production of goods and services. By automating procurement
orders an enterprise can ensure that orders are placed in time to align with the recommended
production schedules of ERP applications. Furthermore, e-procurement can also be a valuable
tool in sourcing new suppliers of goods and services, driving down materials expenditure by
promoting competitive bidding.
1.11 Summary
ERP systems can affect nearly every aspect of organizational performance and functioning, and
measures of ERP system success must reflect this fact. Most of the companies were looking
toward IT as a necessary expenditure; almost all of them felt that IT was necessary to leverage
their existing capabilities in a competitive world. The employee and customer satisfaction
has increased in the past after the ERP package was implemented with increase in performance
in productivity and market coverage. Thus it enhances the effectiveness and efficiency of
organizational functions in every aspect of retail sector. An ERP implementation, if done right,
can build the foundation for future growth, and translate into improved productivity, cost
savings, and a much better bottom line. That said, implementation of ERP is not an end point:
organizations must keep refining their business processes to continue on their path towards
process excellence.
1.12 Exercises
1. What is ERP?
2. How can ERP helps a business organization?
3. What are some obstacles to implement ERP?
4. What are the primary reasons for implementing an ERP system?
5. What do you think are the different roles for implementing an ERP? For someone responsible
for helping with implementation, what type of educational background do you want them to
have?
6.What will ERP fix in my business?
7. Will ERP fit the ways I do business?
8. What does ERP really cost?
9. How do companies organize their ERP projects?
10. How does ERP fit with e-commerce?
11. How do on-demand and software-as-a-service ERP applications work?
12. How do I know my ERP data is any good?
13. Just how important have ERP systems become?
14. Explain the nature of customer relationship management and why it has become an important
concept
15. Describe what is involved in customer relationship management in terms of processes and
data
16. Identify what types of changes are required when implementing IT such as enterprise
systems
MODULE 3
UNIT-2
CONTENTS
2.1 Objectives
2.2 ERP Packages
2.3 Survey of Indian ERP
2.4 Summary
2.5 Keywords
2.6 Exercises
2.1 Objectives
This chapter discuss about ERP packages like Peopesoft, Oracle Financial, SAP R3, BAAN,
MFG/PRO and survey of Indian ERP
2.2 ERP Packages
PeopleSoft
This Started as a software firm for human resource management in 1987, Pleasanton-based
PeopleSoft gradually expanded its software to cater to other corporate functions. The company’s
-fold from $32 million in 1992 (sales are
expected to remain flat in 1999). PeopleSoft’s ERP system provides enterprise solutions for
finance, materials management, distribution, supply chain planning, manufacturing and human
resources. In 1996, PeopleSoft acquired Red Pepper, a producer of supply chain management
software, and in 1999 it acquired Vantive for its customer relationship management offering.
SAP R/3
SAP R/3 is a general-purpose platform with options that enable it to be configured for the
specific needs of each customer without changing the R/3 code. This does not mean that SAP
R/3 is a plug-and-play solution. In order to implement SAP R/3, the system must be configured
to specifically meet the organization’s process requirements. This is a complex and lengthy
process, which can take years to implement. The organization, the business process and all
transaction details must be explicitly modeled and entered as settings in about 8,000
configuration tables.14 The user defines precisely her organizational units, processes,
transactions, the different SAP R/3 screens, reports etc. SAP R/3 consists of modules that may be
used separately or bundled together. This enterprise system has an open architecture that allows
third-party solutions providing other functionality’s to be “bolted on” to the SAP backbone. All
the modules work in an integrated fashion, so different parts of the enterprise use the same data
at the same time. The software can also link business processes between companies world wide,
for example between a supplier and a custome in different countries.
Example: Integrated Order Process
Figure 2.1: SAP R/3 Order Process Stages
The SAP R/3 database integrates all data items, so entire processes use the same data, seamlessly
passed from step to step. Consider, for example, how the order fulfillment process is managed by
SAP R/3. As seen in Figure 6, when a customer inquires about a potential purchase , SAP R/3
creates a quote including price and delivery date. The quote takes into account what the system
already knows about the customer , about the item and about inventory and materials availability
, which are in the SAP R/3 database. As a result, the prices, delivery times and delivery terms are
based on up-todate information and may be specific to a customer or an order. If the customer
accepts the quote, SAP records a sales order , including pricing and delivery terms. The order
then goes into production, triggering the entire order fulfillment process. SAP automatically
sends the relevant data where it needs to go,15 so delivery can be automatically scheduled . The
customer’s credit limit can be automatically checked by the system, and the collection process
can be managed through the system as well .
Baan
IV
An integrated family of client/server applications from Baan. It included manufacturing,
distribution, finance, transportation, service, project and features enterprise modeling via its
Orgware modules. Earlier versions of the software were named TRITON. It later evolved into
Baan ERP (later SSA Baan ERP), which was more modular with added components for
procurement, order management and warehousing. BAAN IV is an integrated family of
manufacturing, distribution, finance and transportation, service, project and orgware modules.
The solution offers a new concept in business management software using the principle of
dynamic enterprise modelling (DEM). It is specially designed to meet the needs of key vertical
markets. BAAN IV provides a scalable client server architecture making it possible for all
enterprises- fortune 500, mid-size or small-scale to cost effectively implement the BAAN
softwareWe will now focus on the ERP Baan IV. It has its own functioning and its management
of the tables differentiate it from the. other ERPs. Several versions were carried out on Baan
until now, presenting really notable differences in its management and use. Created in 1978 by
Jan Baan in the Netherlands, the company “The Baan Corporation” proposed services as a
financial and administrative consultant. Gradually a more complete software package emerged
and became a ERP positioning thus on the market with Baan IV. In 1998, Baan released in
version V or iBaan ERP 5. In 2000 Baan is bought by the Invensys company. New services and
components are then created in the software package. Acquired by SSA global since July 2003,
Baan bears now on for its last version the name of SSA ERP LN. Baan IV makes it possible to
adapt in real time IS(information system) to the evolution of the structures of the company by the
DEM (Dynamic Enterprise Modeling). It is a modeling which rests on “Orgware” which is a
serie of tools of methods and services, and which received many new improvements for the last
versions
of
Baan
IV.
MFG/PRO
With a well-rounded MFG/PRO practice, ITTI offers its customers end-to-end consulting
services on QAD’s Enterprise Solutions. Our offering includes implementation consulting, post
implementation support, process review, application integration and training. The MFG/PRO
practice at ITTI boasts of several hundred person years of experience in a wide variety of
industries like FMCG, Automotive, Electronics, Pharma and Consumer Products. Very high
levels of MFG/PRO and PROGRESS related experience coupled with deep understanding of
business processes. Our highly effective, integrated Implementation Methodology has enabled us
to shortcut the traditional implementation process. This means faster, predictable, successful
implementations for our customers. It also means faster return on investment and lower overall
implementation costs.
Services offering:

Implementation, Project Management & Consulting

Upgrade

Post Implementation Support and Helpdesks

Software Installation, Database Configuration & Performance Tuning

Business Process "best practices" Reengineering

Customization and Extension

Training

Integration to third party and legacy systems

Sarbanes-Oxley Compliance Assistance
ITTI takes pride in the list of satisfied customers we have been servicing for several years
through this practice, some of them are as old as the practice itself. We believe that such
relationships are the natural result of consistent, high-quality and reliable service. MFG/PRO is a
comprehensive supply chain-enabled enterprise solution that includes manufacturing, sales and
distribution, and financial management applications within an open systems environment from
QAD Inc. QAD leverages more than 23 years of experience and commitment delivering
solutions to global manufacturers. Today, MFG/PRO powers some of the most sophisticated and
complex manufacturing operations in the world.
QAD's MFG/PRO
ITTI is a Distributor Partner for QAD Inc., USA, and, offers its customers end-to-end consulting
services on QAD’s Enterprise Solutions. Over the years, ITTI has acquired significant domain
expertise in the Manufacturing & Distribution verticals; and, successfully demonstrated our
implementation and support capabilities in the CPG, Food & Beverage, Retail, Automotive,
Pharma & Electronics Industry verticals.Our decade-old QAD Practice has acquired a wide
portfolio of Customers around the world, and, many of them are marquee names in Industry. Our
Partner Alliance with QAD Inc. gives our 60-member QAD team unparalleled access to PreSales and Marketing support, Technology updates, Product capabilities, and, a suite of worldclass products that are then translated into innovative solutions and services for our Global
Customers.
Services offering:

Sale of QAD Software License

Implementation, Project Management & Consulting

Version Upgrades

Post Implementation Support and Helpdesk Services

Software Installation, Database Configuration & Performance Tuning

Business Process "best practices" Reengineering

Customization and Development of ‘add-on’ Modules

Training

Integration to Third party products (India Localization) and legacy systems

Sarbanes-Oxley Compliance assistance
ITTI takes pride in the list of satisfied customers we have been servicing for several years
through this practice, some of them are as old as the practice itself. We believe that such
relationships are the natural result of consistent, high-quality and reliable service. We have the
experience and expertise to assist you in all your needs in becoming a world-class user of QAD’s
MFG/PRO ERP suite. QAD’s MFG/PRO is a comprehensive Supply Chain-enabled Enterprise
solution that includes Manufacturing, Sales Distribution and Financial Modules, within an open
systems environment from QAD Inc. QAD leverages several man-years of experience and
commitment delivering solutions to its Global Customers. Today, QAD’s MFG/PRO powers
some of the most sophisticated and complex manufacturing operations in the world.
Oracle ERP Applications
Within the overall rubric of Oracle Applications, Oracle Corporation's E-Business Suite ("EBSuite" or "EBS") consists of a collection of enterprise resource planning (ERP), customer
relationship management (CRM), and supply-chain management (SCM) computer applications
either developed by or acquired by Oracle. The software utilizes Oracle's core Oracle relational
database management system technology. The E-Business Suite contains several product lines,
including:

Oracle CRM (Siebel)

Oracle Financials (Siebel Analytics)

Oracle HRMS (PeopleSoft)

* Oracle Mobile Supply chain Applications

Oracle Order Management

Oracle Project Portfolio Management

Oracle Quotes

Oracle Transportation Management

Oracle Warehouse Management Systems
Each product comprises several modules, each separately licensed. Significant technologies
incorporated into the applications include the Oracle database technologies, (engines for
RDBMS, PL/SQL, Java, .NET, HTML and XML), the "technology stack" (Oracle Forms Server,
Oracle Reports Server, Apache Web Server, Oracle Discoverer, Jinitiator and Sun's Java).
Oracle Financials
Oracle Financials products provide organizations with solutions to a wide range of long- and
short-term accounting system issues. Regardless of the size of the business, Oracle Financials
can meet accounting management demands with:
Oracle Assets: Ensures that an organization's property and equipment investment is accurate and
that the correct asset tax accounting strategies are chosen.
Oracle General Ledger: Offers a complete solution to journal entry, budgeting, allocations,
consolidation, and financial reporting needs.
Oracle Inventory: Helps an organization make better inventory decisions by minimizing stock
and maximizing cash flow.
Oracle Order Entry: Provides organizations with a sophisticated order entry system for managing
customer commitments.
Oracle Payables: Lets an organization process more invoices with fewer staff members and
tighter controls. Helps save money through maximum discounts, bank float, and prevention of
duplicate payments.
Oracle Cash Management: Lets you perform bank reconciliation and cash forecasting.
Oracle Personnel: Improves the management of employee- related issues by retaining and
making available every form of personnel data.
Oracle Purchasing: Improves buying power, helps negotiate bigger discounts, eliminates paper
flow, increases financial controls, and increases productivity.
Oracle Receivables:. Improves cash flow by letting an organization process more payments
faster, without off-line research. Helps correctly account for cash, reduce outstanding
receivables, and improve collection effectiveness.
Oracle Revenue Accounting Gives an organization timely and accurate revenue and flexible
commissions reporting.
Oracle Sales Analysis: Allows for better forecasting, planning. and reporting of sales
information.
2.3 Survey of Indian ERP
ERP's best hope for demonstrating value is as a sort of battering ram for improving the way your
company takes a customer order and processes it into an invoice and revenue—otherwise known
as the order fulfillment process. That is why ERP is often referred to as back-office software. It
doesn't handle the up-front selling process (although most ERP vendors have recently developed
CRM software to do this); rather, ERP takes a customer order and provides a software road map
for automating the different steps along the path to fulfilling it. When a customer service
representative enters a customer order into an ERP system, he has all the information necessary
to complete the order (the customer's credit rating and order history from the finance module, the
company's inventory levels from the warehouse module and the shipping dock's trucking
schedule from the logistics module, for example) .People in these different departments all see
the same information and can update it. When one department finishes with the order it is
automatically routed via the ERP system to the next department. To find out where the order is at
any point, you need only log in to the ERP system and track it down. With luck, the order
process moves like a bolt of lightning through the organization, and customers get their orders
faster and with fewer errors than before. ERP can apply that same magic to the other major
business processes, such as employee benefits or financial reporting. That, at least, is the dream
of ERP. The reality is much harsher. People don't like to change, and ERP asks them to change
how they do their jobs. That is why the value of ERP is so hard to pin down. The software is less
important than the changes companies make in the ways they do business. If you use ERP to
improve the ways your people take orders, manufacture goods, ship them and bill for them, you
will see value from the software. If you simply install the software without changing the ways
people do their jobs, you may not see any value at all—indeed, the new software could slow you
down by simply replacing the old software that everyone knew with new software that no one
does.
HOW LONG WILL AN ERP PROJECT TAKE?
Companies that install ERP do not have an easy time of it. The companies shouldn’t get fooled
when ERP vendors tell them about a three or six month average implementation time. Those
short (that's right, six months is short) implementations all have a catch of one kind or another:
The company was small, or the implementation was limited to a small area of the company, or
the company used only the financial pieces of the ERP system (in which case the ERP system is
nothing more than a very expensive accounting system). To do ERP right, the ways the company
do business will need to change and the ways people do their jobs will need to change too. And
that kind of change doesn't come without pain. Unless, of course, the company’s ways of doing
business are working extremely well (orders all shipped on time, productivity higher than all
your competitors, customers completely satisfied), in which case there is no reason to even
consider ERP. The important thing is not to focus on how long it will take—real transformational
ERP efforts usually run between one and three years, on average —but rather to understand why
you need it and how you will use it to improve your business.
WHAT WILL ERP FIX IN A BUSINESS?
There are five major reasons why companies undertake ERP.
Integrate financial information: As the CEO tries to understand the company's overall
performance, he may find many different versions of the truth. Finance has its own set of
revenue numbers, sales has another version, and the different business units may each have their
own version of how much they contributed to revenues. ERP creates a single version of the truth
that cannot be questioned because everyone is using the same system.
Integrate customer order information: ERP systems can become the place where the customer
order lives from the time a customer service representative receives it until the loading dock
ships the merchandise and finance sends an invoice. By having this information in one software
system, rather than scattered among many different systems that can't communicate with one
another, companies can keep track of orders more easily, and coordinate manufacturing,
inventory and shipping among many different locations at the same time.
Standardize and speed up manufacturing processes: Manufacturing companies especially
those with an appetite for mergers and acquisitions often find that multiple business units across
the company make the same widget using different methods and computer systems. ERP systems
come with standard methods for automating some of the steps of a manufacturing process.
Standardizing those processes and using a single, integrated computer system can save time,
increase productivity and reduce head count.
Reduce inventory: ERP helps the manufacturing process flow more smoothly, and it improves
visibility of the order fulfillment process inside the company. That can lead to reduced
inventories of the stuff used to make products (work in- progress inventory), and it can help
users better plan deliveries to customers, reducing the finished good inventory at the warehouses
and shipping docks. To really improve the flow of your supply chain, you need supply chain
software, but ERP helps too.
Standardize HR information: especially in companies with multiple business units, HR may
not have a unified, simple method for tracking employees' time and communicating with them
about benefits and services.
ERP can fix that. In the race to fix these problems, companies often lose sight of the fact that
ERP packages are nothing more than generic representations of the ways a typical company does
business. While most packages are exhaustively comprehensive, each industry has its quirks that
make it unique. Most ERP systems were designed to be used by discrete manufacturing
companies (that make physical things that can be counted), which immediately left all the
process manufacturers (oil, chemical and utility companies that measure their products by flow
rather than individual units) out in the cold. Each of these industries has struggled with the
different ERP vendors to modify core ERP programs to their needs.
WHAT DOES ERP REALLY COST?
Meta Group recently did a study looking at the total cost of ownership (TCO) of ERP, including
hardware, software, professional services and internal staff costs. The TCO numbers include
getting the software installed and the two years afterward, which is when the real costs of
maintaining, upgrading and optimizing the system for your business are felt. Among the 63
companies surveyed including small, medium and large companies in a range of industries, the
average TCO was $15 million (the highest was$300 million and lowest was $400,000). While it's
hard to draw a solid number from that kind of range of companies and ERP efforts, Meta came
up with one statistic that proves that ERP is expensive no matter what kind of company is using
it. The TCO for a "heads down" user over that period was a staggering $53,320.
WHEN WILL A COMPANY GET PAYBACK FROM ERP AND HOW MUCH?
The company shouldn’t expect to revolutionize its business with ERP. It is a navelgazing
exercise that focuses on optimizing the way things are done internally rather than with
customers, suppliers or partners. Yet the navel gazing has a pretty good payback if the company
is willing to wait for it— a Meta Group study of 63 companies found that it took eight months
after the new system was in (31 months total) to see any benefits. But the median annual savings
from the new ERP system were $1.6 million.
WHAT ARE THE HIDDEN COSTS OF ERP?
Although different companies will find different land mines in the budgeting process, those who
have implemented ERP packages agree that certain costs are more commonly overlooked or
underestimated than others. Armed with insights from across the business, ERP pros vote the
following areas as most likely to result in budget overrun.
Training: Training is the near-unanimous choice of experienced ERP implementers as the most
underestimated budget item. Training expenses are high because workers almost invariably have
to learn a new set of processes, not just a new software interface. Worse, outside training
companies may not be able to help you. They are focused on telling people how to use software,
not on educating people about the particular ways you do business. Prepare to develop a
curriculum yourself that identifies and explains the different business processes that will be
affected by the ERP system. One enterprising CIO hired staff from a local business school to
help him develop and teach the ERP business-training course to employees. Remember that with
ERP, finance people will be using the same software as warehouse people and they will both be
entering information that affects the other. To do this accurately, they have to have a much
broader understanding of how others in the company do their jobs than they did before ERP
came along. Ultimately, it will be up to your IT and businesspeople to provide that training. So
take whatever you have budgeted for ERP training and double or triple it up front. It will be the
best ERP investment you ever make.
Integration and testing : Testing the links between ERP packages and other corporate software
links that have to be built on a case-by-case basis is another often-underestimated cost. A typical
manufacturing company may have add-on applications from the major— e-commerce and
supply chain— to the minor—sales tax computation and bar coding. All require integration links
to ERP. If you can buy add-ons from the ERP vendor that is pre-integrated, you're better off. If
you need to build the links yourself, expect things to get ugly. As with training, testing ERP
integration has to be done from a process-oriented perspective. Veterans recommend that instead
of plugging in dummy data and moving it from one application to the next, run a real purchase
order through the system, from order entry through shipping and receipt of payment— the whole
order-to-cash banana— preferably with the participation of the employees who will eventually
do those jobs.
Customization : Add-ons are only the beginning of the integration costs of ERP. Much more
costly, and something to be avoided if at all possible, is actual customization of the core ERP
software itself. This happens when the ERP software can't handle one of your business processes
and you decide to mess with the software to make it do what you want. You're playing with fire.
The customizations can affect every module of the ERP system because they are all so tightly
linked together. Upgrading the ERP package— no walk in the park under the best of
circumstances becomes a nightmare because you'll have to do the customization all over again in
the new version. Maybe it will work, maybe it won't. No matter what, the vendor will not be
there to support you. You will have to hire extra staffers to do the customization work, and keep
them on for good to maintain it.
Data conversion: It costs money to move corporate information, such as customer and supplier
records, product design data and the like, from old systems to new ERP homes. Although few
CIOs will admit it, most data in most legacy systems is of little use. Companies often deny their
data is dirty until they actually have to move it to the new client/server setups that popular ERP
packages require. Consequently, those companies are more likely to underestimate the cost of the
move. But even clean data may demand some overhaul to match process modifications
necessitated— or inspired— by the ERP implementation.
Data analysis : Often, the data from the ERP system must be combined with data from external
systems for analysis purposes. Users with heavy analysis needs should include the cost of a data
warehouse in the ERP budget— and they should expect to do quite a bit of work to make it run
smoothly. Refreshing all the ERP data every day in a big corporate data warehouse is difficult,
and ERP systems do a poor job of indicating which information has changed from day to day,
making selective warehouse updates tough. One expensive solution is custom programming. The
upshot is that the wise will check all their data analysis needs before signing off on the budget.
Consultants ad infinitum : When users fail to plan for disengagement, consulting fees run wild.
To avoid this, companies should identify objectives for which its consulting partners must aim
when training internal staff. Include metrics in the consultants' contract; for example, a specific
number of the user company's staff should be able to pass a project-management leadership
test— similar to what Big Five consultants have to pass to lead an ERP engagement.
Replacing your best and brightest : It is accepted wisdom that ERP success depends on
staffing the project with the best and brightest from the business and IS divisions. The software
is too complex and the business changes too dramatic to trust the project to just anyone. The bad
news is a company must be prepared to replace many of those people when the project is over.
Though the ERP market is not as hot as it once was consultancies and other companies that have
lost their best people will be hounding yours with higher salaries and bonus offers than you can
afford— or that you’re HR policies permit. Huddle with HR early on to develop a retention
bonus program and create new salary strata for ERP veterans. If you let them go, you'll wind up
hiring them— or someone like them— back as Consultants for twice what you paid them in
salaries.
Implementation teams can never stop : Most companies intend to treat their ERP
Implementation as they would any other software project. Once the software is installed, they
figure the team will be scuttled and everyone will go back to his or her day job. But after ERP,
you can't go home again. The implementers are too valuable. Because they have worked
intimately with ERP, they know more about the sales process than the salespeople and more
about the manufacturing process than the manufacturing people. Companies can't afford to send
their project people back into the business because there's so much to do after the ERP software
is installed. Just writing reports to pull information out of the new ERP system will keep the
project team busy for a year at least. And it is in analysis— and, one hope, insight— that
companies make their money back on an ERP implementation. Unfortunately, few IS
departments plan for the frenzy of post- ERP installation activity, and fewer still build it into
their budgets when they start their ERP projects. Many are forced to beg for more money and
staff immediately after the go-live date, long before the ERP project has demonstrated any
benefit.
Waiting for ROI : One of the most misleading legacies of traditional software project
management is that the company expects to gain value from the application as soon as it is
installed, while the project team expects a break and maybe a pat on the back. Neither
expectation applies to ERP. Most of the systems don't reveal their value until after companies
have had them running for some time and can concentrate on making improvements in the
business processes that are affected by the system. And the project team is not going to be
rewarded until their efforts pay off.
Post-ERP depression: ERP systems often wreak cause havoc in the companies that install them.
In a recent Deloitte Consulting survey of 64 Fortune 500 companies, one in four admitted that
they suffered a drop in performance when their ERP system went live. The true percentage is
undoubtedly much higher. The most common reason for the performance problems is that
everything looks and works differently from the way it did before. When people can't do their
jobs in the familiar way and haven't yet mastered the new way, they panic, and the business goes
into spasms.
2.4 Summary
PeopleSoft acquired Red Pepper, a producer of supply chain management software, and in 1999
it acquired Vantive for its customer relationship management offering. In order to implement
SAP R/3, the system must be configured to specifically meet the organization’s process
requirements. This is a complex and lengthy process, which can take years to implement. BAAN
IV is an integrated family of manufacturing, distribution, finance and transportation, service,
project and orgware modules. The MFG/PRO practice at ITTI boasts of several hundred person
years of experience in a wide variety of industries like FMCG, Automotive, Electronics, Pharma
and Consumer Products. Oracle Financials products provide organizations with solutions to a
wide range of long- and short-term accounting system issues. ERP takes a customer order and
provides a software road map for automating the different steps along the path to fulfilling it.
2.5 Keywords
Package
Software
Consumer
Financial
BAAN
MFG/PRO
Peoplesoft
2.6 Exercises
1. What are the different ERP Packages?
2. What are the use of ERP packages?
3. Differentiate between different ERP Packages.
4. How ERP Packages helps in business in terms of costwise?
MODULE 3
UNIT 3
CONTENTS
3.1 Objectives
3.2 ERP Implementation
3.3 Post Implementation Process
3.4 ERP Modules
3.5 Key stakeholders involved in an ERP implementation project
3.6 ERP Training
3.7 Summary
3.8 Keywords
3.9 Exercises
3.1 Objectives
This chapter discusses about ERP implementation, modules, need for training, postimplementation.
3.2 ERP Implementation
1. 49% project over schedule, over budget with less functionality
2. 40% failed to achieve their business case
3. 75% experienced “productivity dip” within first 6 months
4. 20% terminated ERP projects
Picking the right product is just the start of an ERP project. PCB manufacturers must also
consider system configuration, software modification, user training, and integration with other
systems, data conversion, and business process adjustments. All of these should be well
planned in implementation. There are five important lessons to be learned from other
companies who have been through a less than fully successful ERP implementation:
1. Operating strategy did not drive business process design and deployment
2. The implementation took much longer than expected
3. Pre-implementation preparation activities were poorly done
4. People were not well-prepared to accept and operate the new system
5. The cost of implementation was much more than anticipated
The road map for rapid implementation: Understand business needs, simplify process, and
introduce automation. Here is an example of how leading ERP vendors implement ERP systems
using a Stage and Gate process.
Stage 1: Analysis
Objectives:
Gather and document requirements related to functions within project scope
Minimize or eliminate the amount of development work
Project Milestones:
Conduct requirements-gathering meetings
Conduct business analysis review sessions
Conduct business process improvement sessions
Document data migration and integration strategy
Identify and train key users in different business units
Project & Change Management:
Assess impact on users and manage concerns and expectations
Create project schedule and training, support plan
Key Deliverables
Project team formation, senior management sponsor, and project kick off
Functional requirement document and gap/fit analysis
Project schedule and plan including the estimation of project resources, costs, and duration of
each activity.
Stage 2: Design
Objectives:
Determine how to design and implement the required functionality based on business process
Design, data structure
Create a specification for configuration ad programming (if needed)
Project Milestones:
Conduct information-gathering regarding customization needs
Write software requirement specifications for custom-developed functions (if needed)
Create a test plan (if programming is required)
Project & Change Management:
Assess current infrastructure
Develop data collection, input and test plan
Finalize project plan and schedule, and present to senior management
Key Deliverables:
Present and get approval of updated project plan, schedule
Stage 3: Development and Testing
Objectives:
Complete and test software and database required
Ensure that required infrastructure (hardware, network) is in place
Project Milestones:
Configure software and database to match the structure of the company with desired business
process
Develop standard and custom functions and integration
Project & Change Management:
Manage software incidents and change requests
Update project plan for next release on an ongoing basis
Key Deliverables:
Ensure that all business requirements are met. Measure the new system benefits to determine
ROI
3.3 Post Implementation Process
The post implementation or review stage of any project methodology is often overlooked by
businesses keen to return to business as normal. Although typically carried out around three
months after go live, even if you have been live with a system for a few years it’s still worth
carrying out an efficiency exercise. It can be all too easy to jump straight to solutions, without
taking the time to understand the nature of the problem. Most ERP implementations do not
reveal their value until after they have been running for some time and the business can
concentrate on making improvements to the processes affected by the system. Going live with
an ERP system is only the first milestone on a long journey to improvement. Below is a 3-stage
process that can be used to help live with ERP:
The undertaking of a Post Implementation Audit
Lean process alignment
Maximizing business benefit
Post Implementation Audits
The best way to ascertain how well your business system is performing is to ask the people
dependent upon either its processes or its outcomes. This will cover a cross-section of users,
managers and the IT department; but customers and suppliers can also be included. There are a
number of methods for gathering this information including questionnaires, focus groups,
informal meetings and interviews. Questions can be open-ended, which will allow you to gather
specific comments, or can be tick-boxes against a range of possible options, which will allow
you to statistically analyze the data. Whichever approach is selected there are a number of key
questions to ask:

Does the system meet the needs of your daily activities?

Is the system efficient to use?

Was the functionality promised at the start of the process delivered?

Have business processes changed?

Are there any old systems still in use?

Are there any spreadsheets or databases in use?

Is there data to show that the new system has delivered business benefit?

Could further training improve your utilization of the system?

Do you believe that you are utilizing all of the available functionality?

Does the system provide all of the information you need to do your job?
More focused questions can be directed at specific personnel where there are issues with
particular functionality or where more detailed information is required (i.e.) performance
issues. The outputs from this process will generally include a list of functional gaps, processing
gaps, and system issues, together with a range of statistics that can be used to determine the
status of the project and provide a benchmark for assessing progress when the process is
repeated following issue resolution.
Lean Process Alignment
Lean delivers what companies really need in today’s competitive world – shortened lead times,
improved quality, reduced cost, increased profit, improved productivity and better customer
service. A well-functioning and aligned ERP system will also deliver against these goals. ERP
systems work best in a cross-functional environment with departments talking to each other
and agreeing working practices. One of the areas often having an imbalance is where the
processes have not been aligned with the system. People are working hard to hold onto their
previous ways of working which may be in direct conflict with the ERP system being used. This
can cause immense inefficiencies, frustrations and cost to the business. Sometimes this can
become apparent within days of the new system going live or it may be hidden from view for
months or even years, quietly eroding any faith people may have in the ERP system. Having
spent a great deal of money buying a new system, it always amazes me how often people incur
further expense by ensuring that the new system replicates the old one it is replacing – “same
tune different piano”. An ERP implementation is an ideal opportunity to re-engineer business
processes, but the aggressive timescale can often prevent this from happening. The best
implementations are those where effort has been expended early on to document existing
processes and to identify non value-adding ones. The new ERP system can then be used to drive
through new ways of working. The starting point is to map out all of the business processes to
establish those that are value-adding and those that are non value-adding; with the aim of
enhancing the former and eliminating the latter. AN ERP system provides a window on what is
happening and it is often useful to compare the system’s way of doing things with what is
happening in practice. Once process flows have been determined then the business needs to
look towards determining the best activity flow.
Maximizing Business Benefit
The two processes highlighted above should have produced a range of opportunities to
maximize business benefits. But there is a further area that needs to be monitored. I refer to
this as “system noise.” These are the quiet grumbles, water fountain conversations, interdepartmental stresses and strained relationships with customers and suppliers that may be
occurring so frequently that they have become invisible and so not mentioned in analysis. It is
imperative that whoever is project managing this process picks up on these things.
Once all of the issues / challenges have been documented attention needs to focus on
developing and implementing solutions. The system vendor needs to be involved with the
process, as they will have the knowledge to ensure that you are getting the best from the
system. Even if there are major problems with the system it does not necessarily mean that it
has to be replaced.
One of the first areas to consider is whether the previous system has been truly
replaced or is it still in use. This will have a double impact – the new system will be missing a
key element of the process flow which will cause issues further down the line, but it will also
ensure that the users do not migrate onto the new system. This reluctance to let go may also be
reflected in the number of spreadsheets, databases and manual recording systems still in use,
which your Post Implementation Survey will have identified. It is important to remember that
the users have been asked to fundamentally change the way that they work and may be fearful
of relinquishing knowledge that they believe provides them with job security. ERP systems
formalize and make transparent business processes and this can be challenging for those
people who feel secure with their personal knowledge.
This links to the second point. Changing hardware and software is not the hardest part,
it is the cultural change required to make the ERP system perform efficiently that is difficult.
Without changing the culture, business behavior will remain the same and an improvement
opportunity missed. People don’t like change and ERP asks them to fundamentally change how
they do their jobs. If you use ERP to change how people process orders, manufacture goods,
ship and invoice them, you will see value from your software. But if you install the software and
leave working practices the same, then at the very least you will see no benefit and in all
likelihood the new software could actually slow you down.
At this point attention should also be given to Phase 2 module implementations. These are the
tools that looked really exciting at the demonstration, but when the budget or implementation
started to get challenged were deemed to be of less initial importance than the primary
modules. Typically these include Business Intelligence (BI), Customer Relationship Management
(CRM), Advanced Planning (APM) and process automation tools. These can often be what the
stakeholder is expecting and without their implementation, the stakeholder will never consider
the ERP project a success. In addition, some can also be used to support the implementation of
lean practices.
Linked with the phase 2 modules are the third-party integrations that may well have
formed part of the initially determined solution. These are challenging in two ways – they
involve multiple parties which can present an ownership challenge and they involve writing
specialized coding to support the linkages. Often the time involved in developing the links is
under-estimated so may continue to present a challenge post go-live. It is vital that all
interested parties get together to resolve any operational issues. The survey may also illustrate
that the system has been set up incorrectly – assumptions may have been wrong, analysis fields
may be missing key elements, redundant records may have been transferred or the data may
contain errors. All of these factors will make the ERP solution ineffective and inefficient and
need to be resolved. A reimplementation exercise will need to be conducted, with the support
of the vendor, to address these issues.
Another area that is often neglected is the task of keeping the system up to date. Most
vendors issue a range of patches, bug fixes, and minor version updates; as well as the more
major system upgrades. You will experience the most efficient support for the system only if
you have kept your ERP system on the latest release. This will also ensure that you are
prevented from experiencing issues that have already been addressed. However, one factor
more than any other, will have an impact here – any customizations that were an “essential”
requirement at the start of the project will make applying upgrades much more challenging and
expensive. Effort should be made to resist these where possible, or look to eliminate them as
the system becomes embedded and the processes subject to lean alignment.
One of the major challenges of any implementation is the training of end users. Typically
a few people, often termed senior users, are trained on the system by the vendor at the start of
the project. They then spend subsequent months developing the solution and testing it, before
the business is ready to go live. Usually at this point the senior users are presented with the
responsibility to train the end users – a role for which they are unlikely to have received any
training themselves. The success of this process is reliant upon the skills of the trainer and the
responsiveness of the trainee. In addition, people change jobs much more frequently than in
the past and so it is quite easy for the system knowledge to leave the business. It is possible for
businesses to mine value from an ERP system post implementation. To achieve this they need
to understand what their ERP system can do and then invest in people, training, the system and
internal processes to achieve alignment. Once this work has been carried out the business
should be leaner and more efficient, and better able to achieve competitive advantage.
Finally, remember that the cost to re-implement an existing ERP system is likely to be
substantially lower than the costs – in money and resource, required to select and implement a
new system.
3.4 ERP Modules
ERP software is made up of many software modules. Each ERP software module mimics a major
functional area of an organization. Common ERP modules include modules for product
planning, parts and material purchasing, inventory control, product distribution, order tracking,
finance, accounting, marketing, and HR. Organizations often selectively implement the ERP
modules that are both economically and technically feasible.
ERP Production Planning Module
In the process of evolution of manufacturing requirements planning (MRP) II into ERP, while
vendors have developed more robust software for production planning, consulting firms have
accumulated vast knowledge of implementing production planning module. Production
planning optimizes the utilization of manufacturing capacity, parts, components and material
resources using historical production data and sales forecasting.
ERP Purchasing Module
Purchase module streamline procurement of required raw materials. It automates the
processes of identifying potential suppliers, negotiating price, awarding purchase order to the
supplier, and billing processes. Purchase module is tightly integrated with the inventory control
and production planning modules. Purchasing module is often integrated with supply chain
management software.
ERP Inventory Control Module
Inventory module facilitates processes of maintaining the appropriate level of stock in a
warehouse. The activities of inventory control involves in identifying inventory requirements,
setting targets, providing replenishment techniques and options, monitoring item usages,
reconciling the inventory balances, and reporting inventory status. Integration of inventory
control module with sales, purchase, finance modules allows ERP systems to generate vigilant
executive level reports.
ERP Sales Module
Revenues from sales are live blood for commercial organizations. Sales module implements
functions of order placement, order scheduling, shipping and invoicing. Sales module is closely
integrated with organizations' ecommerce websites. Many ERP vendors offer online storefront
as part of the sales module.
ERP Market in Module
ERP marketing module supports lead generation, direct mailing campaign and more.
ERP Financial Module
Both for-profit organizations and non-profit organizations benefit from the implementation of
ERP financial module. The financial module is the core of many ERP software systems. It can
gather financial data from various functional departments, and generates valuable financial
reports such balance sheet, general ledger, trail balance, and quarterly financial statements.
ERP HR Module
HR (Human Resources) is another widely implemented ERP module. HR module streamlines the
management of human resources and human capitals. HR modules routinely maintain a
complete employee database including contact information, salary details, attendance,
performance evaluation and promotion of all employees. Advanced HR module is integrated
with knowledge management systems to optimally utilize the expertise of all employees.
ERP Human Resource Management (HRM) Module
Human Resources is another widely implemented ERP module. ERP HR module streamlines the
management of human resources and human capitals. HR modules routinely maintain a
complete employee database including contact information, salary details, attendance,
performance evaluation and promotion of all employees. Advanced HR module is integrated
with knowledge management systems to optimally utilize the expertise of all employees.
ERP HR modules, refers to the systems and processes at the intersection between
human resource management (HRM) and information technology. On the whole, these ERP
systems have their origin on software that integrates information from different applications
into one universal database. The linkage of its financial and human resource modules through
one database is the most important distinction to the individually and proprietary developed
predecessors,
which
makes
this
software
application
both
rigid
and
flexible.
The HR management module is a component covering many other HR aspects from
application to retirement. The system records basic demographic and address data, selection,
training and development, capabilities and skills management, compensation planning records
and other related activities. Leading edge systems provide the ability to "read" applications and
enter relevant data to applicable database fields, notify employers and provide position
management and position control. Human resource management function involves the
recruitment, placement, evaluation, compensation and development of the employees of an
organisation. Initially, businesses used computer based information system to:



produce pay checks and payroll reports;
maintain personnel records;
pursue Talent Management.
In the transactions of the payroll module the user is allowed entering the daily
attendance data of all the employees of the company on the payroll. The user can mark the
entire employee’s data as present or absent. Also if the operator of the company has done any
overtime then the user of the software can enter the data relating to the operators overtime.
Also the processing of the pay roll and the attendance can be done in this module. The
reports will correctly specify the leaves and the attendance taken of the employee after the
processing
of
the
attendance
has
been
done.
The Work Time gathers standardized time and work related efforts. The most advanced
modules provide broad flexibility in data collection methods, labour distribution capabilities
and data analysis features. Cost analysis and efficency metrics are the primary functions.
The Benefits Administration module provides a system for organizations to administer
and track employee participation in benefits programs. These typically encompass, insurance,
compensation, profit sharing and retirement.
ERP Finance Module
All kind of organizations small scale, large scale organizations benefit from the implementation
of ERP finance module. The financial module is the core of many ERP software systems. It can
gather financial data from various functional departments, and generates valuable financial
reports such general ledger, trail balance, asbalance sheet and quarterly financial statements.
This module of the ERP software will take care of all accounts related entries and their
impact on the whole system. How the finance comes and how it is been utilised. Total flow of
money (Cash/Bank) and total expenditures will be reflected here. As an after effect of this, the
management will be able to take their important financial decision, Budgeting etc. They can
come to know about company’s financial position at any point of time. All sorts of important
financial reports i.e. Trial Balance, Trading A/c, Profit & Loss A/c, Balance Sheet, Debtor’s
Balance, Creditors Balance, Cash/Bank Fund position and many more are covered in this
module.
General
Ledger
The General Ledger module is the foundation of your accounting system, with flexibility that
meets the current and future financial management requirements of organizations of all types
and sizes. It provides a robust feature set designed to handle your most demanding budgeting
and processing needs. General Ledger fully integrates with all modules and is the key to
maximizing
G/L
the
efficiency
and
accuracy
of
your
financial
data.
Security
The G/L Security module enables organizations to control which users can view or use certain
general ledger accounts based on segment validation in G/L Security settings.
G/L
Consolidations
G/L Consolidations lets you transfer and merge General Ledger account and transaction
information between separate company and branch office locations. It is also designed to
enable subsidiaries and holding companies to run without being on the same network or
accounting database. G/L Consolidations provides a feature set that allows your company to
define the level of detail to consolidate and provides a comprehensive audit trail.
Intercompany
Transactions
The Intercompany Transactions module lets you enter General Ledger and Accounts Payable
transactions that affect more than one company by automatically distributing transactions
across two or more companies. In addition, its built-in flexibility automatically generates
intercompany loan account entries according to user-defined relationship tables called routes.
Intercompany Transactions simplifies and significantly reduces the amount of work required for
intercompany
accounting.
The Accounting Module is completely Transaction based unlike journal based. This
implies most of the accounting functions are handled through relevant transactions in other
Modules there by saving lot of time. The Module contains complete functionality required for
any Accounting Department right from vouchers to the Balance Sheet and Profit and Loss
Account.
Budgeting and Variance Analysis between Budgeted and Actual figures helps in
controlling the Enterprise Expenses and Income efficiently. The Module also includes Cost
Centres, which is completely flexible in terms of defining Cost Centres and their components.
Cost Allocations for General Overheads can also be done on a pre-defined basis and required
outputs could be generated for analysis purposes. Outstanding of Payables and Receivables
with Ageing Analysis of both debtors and creditors are some the features of this module.
Overall the module takes care of complete functions of any Accounting department.
The function of this module starts with accounts creation. External departments like
marketing or purchase will create some of those accounts. Apart from regular voucher entries
this module will help the authority as well as other departments by providing financial figures.
Final accounts will be generated from this module. Documents like Receivable and Payable
statements are generated from this module. This module bridges between Sales &
Procurement processes. All figures will be protected under password. Only authorised person
will
be
eligible
to
access
information
from
this
module.
Funds manipulations for a concern are important factor and some times it is treated as blood
for an organisation. So in this regard, sources of funds and application of funds are to be taken
care of, by defining Balance sheets, Schedules, General and Sub-Ledger, party and customer
masters etc. Also the various input transaction such as Voucher Entry, Credit/Debit entry,
Cash/Bank receipts, Cash/Bank Payment, Bank Reconciliation statements, Bill verification etc.
Then finally different types of financial reports, which can be of various types according to
specified company standard.
ERP (Production and Planning)
ERP production module will just handle a tiny portion of production. The module begins with
Product creation. There will be a component master and stage master. This module is mainly
designed to monitor day-to-day production progress. On completion of any work order
information will be passed on to despatch for delivery. Reports on delivery schedule will be
available
in
this
module.
Production Planning helps an organization plan production with the optimum utilization of all
available resources. Material Requirement Planning is done based on the production advice
generated by the sales department. Feasibility of production is evaluated using details like raw
material availability and procurement time, machine availability and capacity. A production
schedule is generated for all machines where the scheduling is done in an optimized fashion
based
Main
on
features
the
of
Production
priorities
and
Production
of
production.
planning
module:
Production module:

Process definition with inputs, outputs, by-products and overheads

Definition of Bill of Material for all products up to any number of levels

Planning based on customer wise production advice and sales forecast

Material requirement planning: MRP based on machine capacity and availability,
machine efficiency, raw material availability, lead time - giving feasible quantity for
production

Production plan for machines with optimum utilization of all available resources like raw
materials and machines

Option to revoke production plan to change input parameters/ production priority/
quantity using fresh production advice

Generation of production schedule for machines detailing inputs and outputs

Analysis of machine efficiency and utilization

Automatic generation of MRS and purchase requisitions on finalization of plan

Generation of process requisition for processes that have to be subcontracted

Reserving quantity for production

Automatic generation of job orders for production

Option to make daily plans for production
Production Planning module:

Process definition with inputs, outputs, by-products and overheads

Definition of Bill of Material for all products up to any number of levels

Planning based on customer wise production advice and sales forecast

Material requirement planning: MRP based on machine capacity and availability,
machine efficiency, raw material availability, lead time - giving feasible quantity for
production

Production plan for machines with optimum utilization of all available resources like raw
materials and machines

Option to revoke production plan to change input parameters/ production priority/
quantity using fresh production advice

Generation of production schedule for machines detailing inputs and outputs

Analysis of machine efficiency and utilization

Automatic generation of MRS and purchase requisitions on finalization of plan

Generation of process requisition for processes that have to be subcontracted

Reserving quantity for production

Automatic generation of job orders for production

Option to make daily plans for production
Production Planning helps an organization plan production with the optimum utilization
of all available resources. Material Requirement Planning is done based on the production
advice generated by the sales department. Feasibility of production is evaluated using details
like raw material availability and procurement time, machine availability and capacity. A
production schedule is generated for all machines where the scheduling is done in an optimized
fashion based on the priorities of production.
ERP Inventory Module
ERP Inventory module facilitates processes of maintaining the appropriate level of stock in a
warehouse. The activities of inventory control involves in identifying inventory requirements,
setting targets, providing replenishment techniques and options, monitoring item usages,
reconciling the inventory balances, and reporting inventory status. Integration of inventory
control module with sales, purchase, finance modules allows ERP systems to generate vigilant
executive
level
reports.
Features of Inventory Module:

Online status of item quantity in terms of on-hand, on-hand, available, reserved,
ordered, to order, rejected, defective and reworkable quantities.

Complete excise functionality and generation of excise registers

Multiple levels of classification of items

Quality Control based on QC parameters

Handling Material Rejections

Rejected Material dispatch to subcontractors

Linking of GRN to PO and Invoice

Gate pass – returnable/non returnable

Cenvat claim for capital goods

Analysis which help in maintaining optimum stock levels

Physical verification of stock

Reallocation of reworkable stock

Multiple warehouses/branches/regional offices

Stock transfer – receipts from other warehouse

Excisable items – Definition and Chapter allocation

Multiple units of measurement

Alternate items for Production Planning

Handling of non-stock low value items like stationery

Lot wise tracking of inventory at shop floor and main stores

Stock Valuation – LIFO/FIFO/weighted average

Material Requisition from different requirement areas

Purchasing and subcontracting

Receiving material against sales order processing, material requirement, subcontracting,
gate pass and production requisition

Landed Rate of Items

Consolidation of all warehouses

Consolidation at any level of company hierarchy
ERP inventory module covers all stock related functions of an organization. Stock
management and valuation activities, which form the backbone of any organization generally,
take a lot of time and resources. M- wan Inventory handles all the store activities of issues,
dispatches, receipts and quality control. The lot wise stock of each item is maintained and
various MIS are provided for tracking stock movement.
ERP Sales and Marketing/distribution Module
ERP Sales module implements functions of order placement, order scheduling, shipping and
invoicing. Sales module is closely integrated with organizations' ecommerce websites. Many
ERP vendors offer online store front as part of the sales module. ERP marketing module along
with CRP supports lead generation, direct mailing campaign and other marketing works.
Scheduling
of
the
promotion
is
possible
using
this.
Features of sales and marketing module:

Handles pre-sales and sales activities of the organization

Complete stock-to-dock tracking of sales order processing cycle

Sales Force Automation – Prospect tracking through various stages, detailed competitor
products information location-wise, scheduling marketing executives’ visits, tracking
expenses

Marketing surveys for estimating demand for various products to prepare an effective
marketing strategy

Detailed Customers/ Business Partners/ Dealers database including bank details, TDS
details, contact details and credit limit

Target setting for executives

Order amendment history

Authorization of orders and invoices

Order scheduling over a period of time and tracking delivery schedule

Order tracking through status and transaction reports

Generation of production advice to plan for production based on sales orders

Order processing based on MRP

Preparation of dispatch advice

Multiple dispatches against single Sales Order

Invoice generation with advance adjustments – sales voucher automatically generated
in Finance

Tracking sales returns

Association of customers to Marketing Executives and Business Partners for tracking

Flexibility to define customer-specific prices for products and reference to customer
part no.

Multiple dispatch location for customers/dealers

Complete export documentation for export oriented companies

Excise details (chapter no. associated with excisable products)

Enquiries from potential and existing customers

Quotations and amendments to quotations with complete history

Analyzing lost jobs

Different types of orders can be generated to suit varied needs of customers

Order entry for direct/scheduled/open/D3/sample orders with details for Dealers,
incentive % and competition

Order calculation based on price offered, discounts (line and total), excise, taxes, freight
etc.

Letter of credit details for association with sales orders

Rejection invoice for rejections made against purchases with excise consideration

MIS for analyzing sales trends to project and forecast sales

Stock Transfer between warehouses for multi-location companies

Service invoice for services given to customers

Variance reports

Enables top view - consolidation of sales data for all child companies

CRM integration through Internet – posting enquiries and sales orders on web by
customers. Importing the same into ERP after validations.
ERP Sales module is the most important and essential function for the existence of an
organization. Sales handle all the activities for domestic and export sales of an organization. The
customer and product database is maintained. Capturing enquiries, order placement, order
scheduling and then dispatching and invoicing form the broad steps of the sales cycle. Stock
transfer between warehouses is also covered. Besides all this, important analysis reports are
provided to guide decision making and strategy planning. Export documents are also generated.
ERP Purchasing Module
ERP Purchasing module streamline procurement of required raw materials. It automates the
processes of identifying potential suppliers, negotiating price, awarding purchase order to the
supplier, and billing processes. Purchase module is tightly integrated with the inventory control
and production planning modules. Purchasing module is often integrated with supply chain
management
Features of purchasing module:

Streamlines purchase and process cycles
software.

Detailed Supplier/Subcontractor/Service Provider database

Capturing materials requirement

Automatic firing of purchase requisitions based on MRS

Quotations from various suppliers

Recording Payment terms in PO

Excise consideration in Purchase and Process Orders

PO authorization

PO amendments with complete amendment history

Order cancellation and order closing

Multiple delivery schedules

Quality inspection of goods

Quotation validity

MIS for vendor evaluation based on quality, price & delivery time

Subcontracting – generation of process orders

Multiple indents for multiple items in a single PO

Purchase order processing

Purchase order entry with item details and other details like taxes, discounts, extra
charges like freight, P&F, octroi etc.

Flexibility to generate Purchase Order in domestic and foreign currency

Advance adjustments

Purchase bill with updating of GL and purchase book

Service contracts, Service Bills, Service indents and PO

Value based approval of indents

Bill of Entry

Complete import functionality with handling of custom details - Purchase Bill for import,
Excise consideration in imports

Reports for Order tracking for complete control on the procurement cycle
ERP Purchasing module aims at making available the required materials of the right quality, in
the right quantity, at the right time and at the right price, for the smooth functioning of the
organization. All purchasing and subcontracting activities such as inviting quotations, supplier
evaluation, placing purchase order, order scheduling and billing are covered in this module.
Import of goods is also handled by the system.
3.5 Key stakeholders involved in an ERP implementation project
There are four main parties involved in ERP implementation projects: management,
users, developers and consultants. The key stakeholders involved in any ERP project and
examined the interrelations between them. Areas of conflicts were studies as possible sources
of project failure. Additionally, the study investigated the key stakeholders power to influence
the outcome of ERP project and their strategies to gain support for the project.
• Management
Incentives
Management is concerned retaining the key people with broad range of skills and specific
knowledge. The retaining of employees is closely related to the company’s compensation policy
through both, monetary and non-monetary awards such as bonuses and salary increases,
recognition and career development.
Top management and stakeholders
The involvement of top management from the start and support from the other key players
such as stakeholders can reduce the major challenges towards the change. The role of the top
management is to convey a message that ERP is not another technology but a business project.
Customers
The study shows that customers need to be informed on the upcoming changes ERP brings to
give them confidence in the implementation plans and to avoid the unpredictable and
unfavourable behaviour from their side.
• Consultants
Consultants have a very important role of influencing ERP implementations, however, a
close monitoring and control of their involvement is required. Conflicts with consultants
occurred with the following matters.
Knowledge transfer
Consultants may be reluctant to transfer their knowledge to client company’s employees. It has
been also felt that the power and influence is too great and that they don’t provide solutions
for company’s problems.
Motivation
Consultants are involved almost throughout the project life cycle and their role is to help to
achieve the business benefits. Monetary incentives, for example, bonuses facilitate keeping up
their motivation.
Communication
Communication problems with consultants mainly took place because consultants used a
different language, which companies’ management and staff didn’t understand, their
documentation of the project process didn’t match companies needs and some of the
consultants were not able to communicate with the people at lower levels.
Agenda differences
Another conflict point with consultants that came out was that they wanted to get rid of their
current project as quickly as possible and to move on to the next client. Thus, resulting the low
commitment. In addition, many consultants seemed to lack the required business and technical
skills.
Influence of consultants
The power and influence of consultants may grow too big not only because of their ERP
knowledge and expertise but also because the management of the company is too busy to
come up with new ideas. Consequently, consultants generate the ideas and take control over
the project.
Contracts
It is important to have the contractual agreements with consultants in order when the
problems occur. For instance, inexperienced experts are not being tolerated, consultants are
made responsible for the promised results and companies are demanding more value for their
money.
• Developers
Developers are the staff, either out-sourced or in-house, designing the configurations of the
system.
Performance
They are people with specific technical skills who have no realistic understanding of a
marketplace, economics and competition.
Skills shortage
It is difficult to acquire people with these skills and to retain them because they generally don’t
have any loyalty to the company but are more interested in their personal career development.
Communication
They might not have the same values or ways of operating as the business managers mainly
because they tend to be younger people. However, as the ERP packages are technically
complex the company needs the staff with these skills. In addition, these young people are
more accustomed to work within the rapidly changing environment.
• Users
As implementing ERP system means new way of doing things and cutting down job positions.
Users experience a huge range of emotions such as anger, fear and denial as resistance to
change. People want to know what will happen specifically to their jobs not about the longterm vision of the company.
International dimension
Cultural differences are present with ERP implementations as people in deferent countries have
different ways of working.
Sharing culture
Employees of one department might be unwilling to share their knowledge and information
with another department.
Training
Training the users while providing support for the job changes help the staff to overcome their
attitudes toward the corporate and cultural changes due to ERP implementation.
Super users
The key benefit of training super users among the employees is that they accordingly train
other end users, which helps to improve the communication and reduces resistance to change.
The results expose that people with the right business and IT skills are essential to the success
of the project. However, the fact is that companies are losing more key staff than expected at
the end of the project. Therefore, substantial bonuses and other incentives are essential to
retain the talent in the organisation during the post implementation stage. The major conflict
identified was the use of the external consultants and developers. Companies tend to rely too
much on external help during the implementations whereas the competence and motivation of
the consultants and developers is questionable. Despite of the problems associated with the
use of consultants their knowledge and skills are still needed for the companies but it is critical
to have the strategies and agreements in place to manage them. Other main difficulties with
the ERP implementations are encountered with the change management. Cultural and process
changes have a destructive impact on employee attitudes and these behavioural problems are
more challenging to manage than the technical difficulties that they come across with.
3.6 ERP Training
In any ERP implementation, it is generally understood that training is a key component of
organizational change management and of the overall success of the ERP implementation.
However, there is a subtle and distinct difference between training and training effectively.
ERP training programs often, and erroneously, focus on transactional training. ERP software
companies and implementation teams are generally good at creating documentation and
delivering training that teaches people how to complete transactions in the system. However,
running a business entails much more than merely completing transactions within a software
program.
Instead, ERP training programs should focus on new business processes as the
foundation. In fact, ERP is relatively irrelevant to these new training programs. Granted, ERP is
an enabler of new business processes, but the software should certainly not be the exclusive
focus
of
a
pre-go-live
ERP
training
program.
Conversely, these training programs should teach employees how to perform their business
processes and workflows in the new environment. It is important for ERP training programs to
deliver knowledge in the context of how employees perform their day-to-day jobs, not simply
how
to
complete
transactions
in
a
system.
For example, transactional training would focus on how to create a purchase order in a
system. While this transaction is important to understand in a new system, it does not address
the business rules behind the PO: who will approve it, what will happen after the PO is
approved, how are orders received against the PO, etc. It is these business processes that
employees
need
to
understand,
not
just
the
transactions
in
the
system.
Training and change management are matters that affect all the phases of the ERP
implementation project. Not surprisingly, there are many challenges related to training as each
user group has different needs, preferences and learning potential. For instance, the steering
committee members need to have a good project overview and general idea about the
functionality of the system. Project leaders instead require in-depth knowledge about system’s
functionality and project management. Users have to learn only those functions that are
related to their tasks in addition to the understanding the new processes and procedures.
Moreover, training is expensive and underestimating the needs and the requirements are the
reasons for exceeding the budget. Skilled employees tend to switch their jobs and training of
new employees will remain a continuous effort. However, the importance of training cannot be
neglected and it is not something that should be conducted only before or after the
implementation but rather it has to be present in each part of the ERP life cycle. Other issues to
take into account with training include:
• identifying what kind of training is needed
• different types of training for workers and supervisors
• measuring training performance and effectiveness
• providing the support for training
• documenting the training process
• preparing employees for change
• using different training methods
Moreover, ERP training has been identified as a critical requirement in ERP implementation and
this has lead to creation of an entire industry providing ERP training.
ERP projects can go a long way toward making adoption easier if they focus on effective
training that deliver business process and workflow training, in addition to ERP transactional
training. This type of process-focused training should be a centerpiece of any ERP
organizational
change
management
program.
The cost of ERP systems has historically been a significant capital initiative that only
large companies could afford. The cost of ERP software apps alone are a barrier for smaller cash
strapped companies but the associated cost with many of the on premise solutions such as the
ERP training, implementation and maintenance costs had made ERP systems an impossibility
for most companies. However, there is a lot of interest in the last five years about web based,
or software as a Service (SaaS) applications. These web based solutions have gone way beyond
the early adopters milestone and customer acceptance milestone. This strong consumer appeal
which has been growing double digits each year, and has spurred the introduction of a plethora
of software on demand products and apps into the market as companies continue to scramble
for tools and technologies in the tough economic climate to cut costs, deliver more value, and
drive more profit. A big part of the appeal is that implementation and new ERP training costs as
well are dramatically reduced with these applications. Web based solution are now such a
formidable competitor and alternative to traditional on-premise ERP systems as more than half
of all US companies today use one or more web based enterprise apps. This strong consumer
demand for web based ERP solutions has ignited the development of new innovative software
applications in the market as companies continue to search for tools and technologies in the
tough economy to lower costs, and mitigate profit shortfalls.
The key benefits contributing to the popularity are the low to zero capital costs required
to get started on the system, the ease and speed of integration and low ERP training
requirements for faster deployment. These key attributes are a multiple win for companies and
their pressure for acceptable ROI on any cost expenditure. The web based application's
powerful features, ease of use and minimized ERP training costs are significant benefits,
however, what is equally important in today's economic slump is the pay as you go financial
model of web based applications that has accelerated its popularity in the last 3 years. The
mindset of only paying for what you use is an attractive model in a recessionary environment in
which every penny spent is justified with a corresponding benefit.
Although there are robust, state of the art web based ERP apps on the market today, it
is still debatable whether a viable comprehensive full enterprise wide solution that is web
based exists for medium to large companies. Companies looking for a single, enterprise wide
ERP solution may need to go with the on-premise software ERP. However, given the flexibility,
low cost, faster deployment, and lower ERP training costs, IT managers should include web
based ERP apps in their ERP software selection process.
3.7 Summary
Picking the right product is just the start of an ERP project.The post implementation or review
stage of any project methodology is often overlooked by businesses keen to return to business
as normal. ERP software is made up of many software modules. Each ERP software module
mimics a major functional area of an organization. Common ERP modules include modules for
product planning, parts and material purchasing, inventory control, product distribution, order
tracking, finance, accounting, marketing, and HR.There are four main parties involved in ERP
implementation projects: management, users, developers and consultants. The key
stakeholders involved in any ERP project and examined the interrelations between them. Areas
of conflicts were studies as possible sources of project failure.training is expensive and
underestimating the needs and the requirements are the reasons for exceeding the budget.
Skilled employees tend to switch their jobs and training of new employees will remain a
continuous effort. However, the importance of training cannot be neglected and it is not
something that should be conducted only before or after the implementation but rather it has
to be present in each part of the ERP life cycle.
3.8 Keywords
Software
Vendor
Post-implementation
Training
Module
Human resource
Sales/Marketing
3.9 Exercises
1. Explain different stages in ERP implementation.
2. Explain the role of stakeholders in ERP implementation.
3. Is it necessary to educate people about ERP? Why?
4. Explain the importance of post-implementation of ERP.
5. Explain different ERP modules with example.
6. What is importance of ERP systems?
7. What does ERP really cost?
MODULE 3
UNIT 4
CONTENTS
4.1 Objectives
4.2 Customer Relationship Management: The Business Focus
4.2.1 Phases of CRM
4.2.2 Benefits And Challenges Of CRM
4.2.3 Trends in CRM
4.3 Enterprise Resource Planning: The Business Backbone
4.3.1 Benefits and Challenges of ERP
4.4 Supply Chain Management: The Business Network
4.4.1 Electronic Data Interchange
4.4.2 Benefits And Challenges of SCM
4.5 Summary
4.6 Keywords
4.7 Exercises
4.1 Objectives
The chapter Enterprise e-Business Systems outlines the goals and components of customer
relationship management, enterprise resource planning, and supply chain management, and
discusses the benefits and challenges of these major enterprise e-business applications.
4.2 Customer Relationship Management: The Business Focus
Customer-focused business is one of the top business strategies that can be supported by
information technology. Many companies are implementing customer relationship management
(CRM) business initiatives and information systems as part of a customer-focused or customer
centric strategy to improve their chances for success in today’s competitive business
environment.
.
Figure 4.1: CRM
· CRM is described as a cross-functional e-business application that integrates and automates
many customer serving processes in sales, direct marketing, accounting and order management,
and customer service and support.
· CRM systems create an IT framework that integrates all the functional processes with the rest
of a company’s business operations.
· CRM systems consist of a family of software modules that perform the business activities
involved in such front office processes.
CRM software provides the tools that enable a business and its employees to provide fast,
convenient, dependable, and consistent service to its customers.
Contract and Account Management
CRM software helps sales, marketing, and service professionals capture and track relevant data
about every past and planned contact with prospects and customers, as well as other business and
life cycle events of customers.
Sales
CRM software tracks customer contacts and other business and life cycle events of customers for
cross-selling and up-selling.
Marketing and Fulfilment
CRM software can automate tasks such as qualifying leads, managing responses, scheduling
sales contacts, and providing information to prospects and customers.
Customer Service and Support
CRM helps customer service managers quickly create, assign, and manage service requests. Help
desk software assists customer service reps in helping customers whom are having problems
with a product or service, by providing relevant service data and suggestions for resolving
problems.
Retention and Loyalty Programs
· It costs six times more to sell to a new customer than to sell to an existing one.
· A typical dissatisfied customer will tell eight to ten people about his or her experience.
· A company can boost its profits 85 percent by increasing its annual customer retention by only
5 percent.
· The odds of selling a product to a new customer are 15 percent, whereas the odds of selling a
product to an existing customer are 50 percent.
· Seventy percent of complaining customers will do business with the company again if it
quickly takes care of a service snafu.
· More than 90 percent of existing companies don’t have the necessary sales and service
integration to support e-commerce.
Examples of business benefits of customer relationship management include:
· CRM allows a business to identify and target their best customers; those who are the most
profitable to the business, so they can be retained as lifelong customers for greater and more
profitable services.
· CRM enables real-time customization and personalization of products and services based on
customer wants, needs, buying habits, and life cycles.
· CRM can keep track of when a customer contacts the company, regardless of the contact point.
· CRM enables a company to provide a consistent customer experience and superior service and
support across all the contact points a customer chooses.
4.2.1 Phases of CRM
CRM can be viewed as an integrated system of Web-enabled software tools and databases
accomplishing a variety of customer-focused business processes that support the three phases of
the relationship between a business and its customers.
Figure 4.2: 3-Phases Of CRM
· Acquire – a business relies on CRM software tools and databases to help it acquire new
customers by doing a superior job of contract management, sales prospecting, selling, direct
marketing, and fulfilment. The goal of these CRM functions is to help customers perceive the
value of a superior product offered by an outstanding company.
· Enhance – Web-enabled CRM account management and customer service and support tools
help keep customers happy by supporting superior service from a responsive networked team of
sales and service specialists and business partners. CRM sales force automation and direct
marketing and fulfilment tools help company’s cross-sell and up-sell to their customers, thus
increasing their profitability to the business. The value perceived by customers is the
convenience of one-stop shopping at attractive prices.
· Retain – CRM analytical software and databases help a company proactively identify and
reward its most loyal and profitable customers to retain and expend their business via targeted
marketing and relationship marketing programs. The value perceived by customers is of a
rewarding personalized business relationship with “their company”.
4.2.2 Benefits And Challenges Of CRM
· CRM allows a business to identify and target their best customers; those who are the most
profitable to the business, so they can be retained as lifelong customers for greater and more
profitable services.
· CRM enables real-time customization and personalization of products and services based on
customer wants, needs, buying habits, and life cycles.
· CRM can keep track of when a customer contacts the company, regardless of the contact point.
· CRM enables a company to provide a consistent customer experience and superior service and
support across all the contact points a customer chooses.
CRM Failures:
· Major reason for the failure of CRM systems is the lack of understanding and preparation.
4.2.3 Trends in CRM
Figure 4.3: Trends In CRM
Four types or categories of CRM that are being implemented by many companies today include:
· Operational CRM – most businesses start out with operational CRM systems such as sales
force automation and customer service centers.
· Analytical CRM – analytical CRM applications are implemented using several analytical
marketing tools, such as data mining, to extract vital data about customers and prospects for
targeted marketing campaigns.
· Collaborative CRM – CRM systems to involve business partners as well as customers in
collaborative customer service.
· Portal-based CRM – Internet, intranet, and extranet Web-based CRM portals as a common
gateway for various levels of access to all customer information, as well as operational,
analytical, and collaborative CRM tools for customers, employees, and business partners.
4.3 Enterprise Resource Planning: The Business Backbone
Enterprise resource planning (ERP) systems serve as a cross-functional enterprise backbone that
integrates and automates many internal business processes and information systems within the
manufacturing, logistics, distribution, accounting, finance, and human resource functions of a
company.
Figure 4.4: ERP
Enterprise resource planning (ERP) is a cross-functional enterprise system that serves as a
framework to integrate and automate many of the business processes that must be accomplished
within the manufacturing, logistics, distribution, accounting, finance, and human resources
functions of a business. Characteristics of ERP software include:
· ERP software is a family of software modules that supports the business activities involved in
vital back-office processes.
· ERP gives a company an integrated real-time view of its core business processes.
· ERP systems track business resources, and the status of commitments made by the business no
matter what department has entered the data into the system.
· ERP software suites typically consist of integrated modules of manufacturing, distribution,
sales, accounting, and human resource applications.
4.3.1 Benefits and Challenges of ERP
· Quality and efficiency – ERP creates a framework for integrating and improving a company’s
internal business processes those results in significant improvements in the quality and efficiency
of customer service, production, and distribution.
· Decreased costs – many companies report significant reductions in transaction processing costs
and hardware, software, and IT support staff compared to the non-integrated legacy systems that
were replaced by their new ERP systems.
· Decision support – ERP provides vital cross-functional information on business performance
quickly to managers to significantly improve their ability to make better decisions in a timely
manner across the entire business enterprise.
· Enterprise agility – ERP can be used in breaking down many former departmental and
functional walls, which results in more flexible organizational structures, managerial
responsibility, and work roles. The result is a more agile and adaptive organization and
workforce that can more easily capitalize on new business opportunities.
Figure 4.5: The Cost of ERP
· Costs and risks involved in implementing ERP are considerable.
· Hardware and software costs are a small part of the total costs. The costs of developing new
business processes (reengineering) and preparing employees for the new system (training and
change management)a make up the bulk of implementing a new ERP system.
· Converting data from previous legacy systems to the new cross-functional ERP system is
another major category of ERP implementation costs.
Causes of ERP Failures:
· Business managers and IT professionals underestimate the complexity of the planning,
development, and training that are needed to prepare for a new ERP system that would radically
change their business processesn and information systems.
· Failure to involve affected employees in the planning and development phases and change
management programs
· Trying to do too much too fast in the conversion process.
· Insufficient training in the new work tasks required by the ERP system.
· Failure to do enough data conversion and testing.
· Overreliance by company or IT management on claims of ERP software vendors or the
assistance of prestigious consulting firms hired to lead the implementation.
Figure 4.6: Trends In ERP
Four major developments and trends that are evolving in ERP applications include:
· ERP software packages are gradually being modified into more flexible products.
· In relation to the growth of the Internet and corporate intranets and extranets prompted software
companies to use Internet technologies to build Web interfaces and network capabilities into
ERP systems.
· Development of interenterprise ERP systems that provide Web-enabled links between key
business systems of a company and its customers, suppliers, distributors, and others.
· ERP software companies have developed modular, Web-enabled software suites that integrate
ERO, customer relationship management, supply chain management, procurement, decision
support, enterprise portals, and other business applications and functions.
4.4 Supply Chain Management: The Business Network
Fundamentally, supply chain management helps a company get the right products to the right
place at the right time, in the proper quantity and at an acceptable cost. The goal of SCM is to
efficiently manage this process by forecasting demand; controlling inventory; enhancing the
network of business relationships a company has with customers, suppliers, distributors, and
others; and receiving feedback on the status of every link in the supply chain. To achieve this
goal, many companies today are turning to Internet technologies to Web-enable their supply
chain processes, decision-making, and information flows.
Figure 4.7: SCM
Supply chain management is a cross-functional interenterprise system that uses information
technology to help support and manage the links between some of a company’s key business
processes and those of its suppliers, customers, and business partners. The goal of SCM is to
create a fast, efficient, and low-cost network of business relationships, or supply chain, to get a
company’s products from concept to market. According to the Advanced Management Council,
supply chain management has three business objectives:
· Get the right product to the right place at the least cost.
· Keep inventory as low as possible and still offers superior customer service.
· Reduce cycle times. Supply chain management seeks to simplify and accelerate
operations that deal with how customer orders are processed through the system and
ultimately filled, as well as how raw materials are acquired and delivered for
manufacturing processes.
4.4.1 Electronic Data Interchange
Electronic data interchange (EDI) involves the electronic exchange of business transaction
documents over the Internet and other networks between supply chain trading partners
(organizations and their customers and suppliers). Data representing a variety of business
transaction documents are electronically exchanged between computers using standard document
message formats. Characteristics of EDI software include:
· EDI software is used to convert a company’s own document formats into standardized EDI
formats as specified by various industry and international protocols.
· Formatted transaction data are transmitted over network links directly between computers,
without paper documents or human intervention.
· Besides direct network links between the computers of trading partners, third-party services are
widely used.
· EDI eliminates the printing, mailing, checking, and handling by employees of numerous
multiple-copy forms of business documents.
Benefits of the business use of EDI include:
· Reduction in paper, postage, and labor costs
· Faster flow of transactions as formatted transaction data are transmitted over network links
directly between computers, without paper documents or human intervention.
· Reductions in errors
· Increases in productivity
· Support of just-in-time (JIT) inventory policies
· Reductions in inventory levels
· Value-added network companies offer a variety of EDI services. They can offer secure, lower
cost EDI services over the Internet.
· Smaller businesses can now afford the costs of EDI services.
Figure 4.8: The Role Of SCM
SCM supports the objectives of the top three management levels of an organization (strategic,
tactical, and operational). The role of information technology in SCM is to support these
objectives with interenterprise information systems that produce many of the outcomes a
business needs to effectively manage its supply chain.
4.4.2 Benefits And Challenges of SCM
Major business benefits that are possible with effective supply chain management systems
include:
· Faster, more accurate order processing, reductions in inventory levels, quicker time to market,
lower transaction and materials costs, and strategic relationships with suppliers.
· Companies can achieve agility and responsiveness in meeting the demands of their customers
and the needs of their business partners.
Major business challenges include:
· Lack of proper demand planning knowledge, tools, and guidelines is a major source of SCM
failure.
· Inaccurate or overoptimistic demand forecasts will cause major production, inventory, and
other business problems, no matter how efficient the rest of the supply chain management
process is constructed.
· Inaccurate production, inventory, and other business data provided by a company’s other
information systems are frequent causes of SCM problems.
· Lack of adequate collaboration among marketing, production, and inventory management
departments within a company, and with suppliers, distributors, and others.
· SCM software tools are considered to be immature, incomplete, and hard to implement by
many companies who are installing SCM systems.
Figure 4.9: Trends In SCM
Three possible stages in a company’s implementation of SCM systems.
· First stage – a company concentrates on making improvements to its internal supply chain
process and its external processes and relationships with suppliers and customers.
· Second stage – a company accomplishes substantial supply chain management applications by
using selected. SCM software programs internally, as well as externally via intranet and extranet
links among suppliers, distributors, customers, and other trading partners.
· Third stage – company begins to develop and implement cutting-edge collaborative supply
chain management applications using advance SCM software, full-service extranets links, and
private and public e-commerce exchanges.
4.5 Summary
CRM systems use information technology to support the many companies who are reorienting
themselves into customer-focused businesses as a top business strategy. The major application
components of CRM include contact and account management, sales, marketing and fulfillment,
customer service and support, and retention profitable relationships with its customers as a
primary business goal. However, many companies have found CRM systems difficult to properly
implement due to lack of adequate understanding and preparation by management and affected
employees. ERP serves as the vital backbone information system of the enterprise, helping a
company achieve the efficiency, agility, and responsiveness required to succeed in a dynamic
business environment. ERP software typically consists of integrated modules that give a
company a real-time cross-functional view of its core business processes, such as production,
order processing, and sales, and its resources, such as cash, raw materials, production capacity,
and people. However, properly implementing ERP systems is a difficult and costly process that
has caused serious business losses for some companies, who underestimated the planning,
development, and training that were necessary to reengineer their business processes to
accommodate their new ERP systems. The goal of SCM is to help a company achieve agility and
responsiveness in meeting the demands of their customers and needs of their suppliers, by
enabling it to design, build, and sell its products using a fast, efficient, and low cost network of
business partners, processes, and relationships, or supply chains. SCM is frequently sub-divided
into supply chain planning applications, such as demand and supply forecasting, and supply
chain execution applications, such as inventory management, logistics management, and
warehouse management.
4.6 Keywords
Customer Relationship Management.
Business Benefits
e-Business Suites
Electronic Data Interchange
Enterprise Resource Planning
Application Components
Trends
Supply Chain Management
4.7 Exercises
1.
Define supply chain and supply chain management (SCM).
2. Describe the components of a supply chain.
3. What is an e-supply chain?
4. Define ERP and describe its major characteristics.
5. Why would systems that enhance a company’s relationships with customers have such a high
rate of failure?
6. How could some of the spectacular failures of ERP systems have been avoided?
7. Should companies continue to use EDI systems?
8. How can the problem of overenthusiastic demand forecasts in supply chain planning be
avoided?
9. What challenges do you see for a company that wants to implement collaborative SCM
systems?
10. Should companies install e-business software suites or “best of breed” e-business software
components?
11. Distinguish between ERP and SCM software. In what ways do they complement each other?
12. Examine the functionalities of ERP software from SAP or other vendors.
13. It is said that SCM software created more changes in logistics than 100 years of continuous
improvement did. Discuss.
14. Relate ERP to software integration.
15. Discuss how cooperation between a company that you are familiar with and its suppliers can
reduce inventory cost.
16. Find examples of how organizations improve their supply chains in two of the following:
manufacturing, hospitals, retailing, education, construction, agribusiness, shipping.