Tag: Customer Relationship Management

The Extreme Presentation method takes a marketing approach to presentation design: focusing on how to “Sell” your ideas to your audience. The method consists of the five essential elements of an effective presentation and ten practical steps to put each of those elements into practice.

The circle in the center of the Extreme Presentation method diagram, with the word “impact” in it, indicates that the entire purpose of the method is to ensure that you have impact on your audience. Around that inner circle, the next ring contains the five essential elements of an effective presentation:

• Logic: we need to make sure that there is solid logic in our presentation and that our recommendations are robust.
• Rhetoric: we must tell an interesting story, in a compelling way. Logic is important, but of no use to you if everyone has tuned out because they are bored.
• Graphics: to make sure that you are using the most effective visual elements and overall layout.
• Politics: to apply effective influence in order to get your audience to take action.
• Metrics: to be clear on what the specific objective is for the presentation, and how success will be measured.

There are two steps in each of the five elements, for a total of ten steps. These steps are:

• Audience: Identify the communication preferences of the different personality types.
• Objectives: Set specific objectives for what you want your audience to think and do differently after your presentation.
• Problem/Solution: Identify a problem your audience has that your presentation will contribute to solving.
• Evidence: List all the information that you think you may need to include in your presentation.
• Anecdotes: Identify brief anecdotes that highlight your most important points.
• Sequencing: Sequence your information so that it tells a compelling story.
• Graphics: Identify the most effective graphical elements to use in your presentation.
• Layout: Create slides that communicate your information concisely and effectively.
• Stakeholders: Identify any potential roadblocks to achieving your objectives, and make a plan to deal with each other.
• Measurement: Decide how you will measure the success of your presentation.

Presenting information clearly and effectively is a key skill in getting your message across. Today, presentation skills are required in almost every field, and most of us are required to give presentations on occasions. While some people take this in their stride, others find it much more challenging.

Interaction with others is a routine job of businesses in today’s world. The importance of good presentation skills is established on the basis of following points:

• They help an individual in enhancing his own growth opportunities. In addition, it also grooms the personality of the presenter and elevates his levels of confidence.
• In case of striking deals and gaining clients, it is essential for the business professionals to understand the audience. Good presentation skills enable an individual to mold his message according to the traits of the audience. This increases the probability of successful transmission of messages.
• Lastly, business professionals have to arrange seminars and give presentations almost every day. Having good presentation skills not only increases an individual’s chances of success, but also enable him to add greatly to the organization.

Presentation Skills improve

• Research the Audience before Presenting: This will enable you to better understand the traits of the audience. You can then develop messages that can be better understood by your target audience. For instance, in case of an analytical audience, you can add more facts and figures in your presentation.
• Structure your Presentation Effectively: The best way to do this is to start with telling the audience, in the introduction, what you are going to present. Follow this by presenting the idea, and finish off the presentation by repeating the main points.
• Do a lot of Practice: Rehearse but do not go for memorizing the presentation. Rehearsals reduce your anxiety and enable you to look confident on the presentation day. Make sure you practice out loud, as it enables you to identify and eliminate errors more efficiently. Do not memorize anything as it will make your presentation look mechanical. This can reduce the degree of audience engagement.
• Take a Workshop: Most medium and large businesses allow their employees to take employee development courses and workshops, as well-trained employees are essential to the success of any company. You can use that opportunity to take a workshop on professional presentation skills such as those offered by Langevin Learning Services, which are useful for all business professionals, from employees to business trainers and managers.

Types of Presentation Skills

Analytical

The best presenters are constantly improving their skills. To get better, you must be able to look honestly at your performance, assess the feedback you get, and figure out what you need to do to improve. That takes analytical thinking.

More importantly, you need to have a firm grasp of the information you are about to communicate to others. You need to analyze your audience and be prepared to think quickly if asked questions that force you to demonstrate that you are fully aware of the material and its implications.

• Problem sensitivity
• Reporting
• Surveying
• Optimization
• Predictive Modelling
• Problem-solving
• Restructuring
• Strategic planning
• Integration
• Process management
• Ongoing improvement
• Diagnostics
• Dissecting
• Evaluating
• Judgment

Organization

You do not want to be the person who spends half of their presentation time trying to find a cable to connect their laptop to the projector. Many things can go wrong just before a presentation, and they probably will, unless you are organized.

Presentation preparation also means keeping track of notes, information, and start/stop times.

Nonverbal Communication

When speaking to an audience, the way you present yourself can be just as important as how you present your information. You want to appear confident and engaging. You can do this through good posture, the use of hand gestures, and making eye contact with the audience. Practice your nonverbal communication by filming yourself doing a practice presentation and observing your body language carefully.

• Active listening
• Bearing
• Poise
• Confidence
• Emotional intelligence
• Respect
• Facilitating group discussion
• Awareness of ethnic, political, and religious diversity

Good visuals in a business presentation can range from complex videos to a simple poster. For those presenters who are not skilled in the video arts, there are several ways to present information with visuals that will help your audience remember key points long after your presentation has ended. Three effective methods include PowerPoint presentations, flip charts and posters.

PowerPoint Presentations

PowerPoint offers hundreds of font, audio and image options for its users. The first thing presenters should understand is that just because there are 350 font options does not mean you should use them. Always use either light font over a dark background or dark font over a light background. Avoid red font and green backgrounds or fonts and backgrounds that are close on the color wheel as they will be difficult to read. Follow the rule of 8. The rule of 8 states that you should be able to read your presentation while standing 8 feet away from the standard computer screen. If the font is too small to read from this distance, it will be too small to read in your presentation. Include a maximum of five points per page.

Effective Flip Charts

Flip Charts are not only inexpensive but they can also be used for ideas and brainstorming within the context of the meeting. Use dark markers to write on a flip chart and make sure you have plenty of paper on the flip chart pad. Some flip charts now have adhesive on the back of each page so the presenter when finished, can stick the page to a corresponding wall that the audience can see. This feature prevents having to flip back and forth from page to page wasting valuable time and allows for writing a free flow of ideas with ease.

Effective Posters

Posters are prepared much in advance of a presentation. The simplest posters can be made from poster board with graphics and text added with glue or tape. More advanced posters can be made using PowerPoint and then printed and laminated for a more professional look. Change the size of your PowerPoint slide to a good poster size, such as 2-by-3 feet , and decrease the view percentage on your computer screen to around 25 percent, or the smallest view that still allows you to see each element clearly. PowerPoint hints also apply to poster design. Avoid designing posters that are too busy or have too much text. A poster should have an eye-catching visual that tells the story without viewers having to read paragraphs of accompanying text.

Simplicity is key in conveying information visually. The more complex the visual, the more likely you are to lose the message you are trying to convey. Visuals can help your audience retain information up to six times longer. Beware, however, of staying on one visual for too long. According to The Eggleston Group, studies show that audience members become bored with a visual after 7 to 10 seconds. Always rehearse with your visuals. Don’t forget to inspect the room where you will be presenting to make sure the elements required for your presentation, such as projectors, screens and outlets, are available.

Positive persuasive messages, however, point out the good things that can happen if people follow a course of action or if they follow the wrong path. Negative persuasive arguments illustrate the bad things that may happen if people do not follow a particular course of action or if they do the wrong thing.

Positive Emotional Messages

The same kinds of messages can use positive appeals. For example, a positive anti-smoking campaign would show kids doing well in school, looking healthy and happy and having lots of positive friends. A positive recycling message would talk about how many natural resources are saved by recycling, what a positive thing it is for business finances and how recycling saves habitats for endangered species. Positive appeals emphasize the good and appeal to the listener’s desire for good, happy emotions.

Positive Logical Appeals

Positive rational messages use facts, statistics and details, but instead of emphasizing the negative effects of not acting or acting negatively, they emphasize the positive effects of action. For example, a positive persuasive message on drinking during pregnancy would emphasize that those who choose not to drink have healthier babies who are three times more likely to have normal intelligence and twice as likely to be born healthy and alive.

Positive Business Messages

Positive persuasion in a business situation emphasizes positive action. For example, an employee evaluation could say, “I appreciate your insights, and look forward to hearing from you more often in meetings.” A business may use positive persuasion for collecting payments, such as offering discounts for early or prompt payment. An alarm company using positive appeals would emphasize peace of mind and the knowledge that an outside person is looking out for the well-being and safety of your workplace or family

Negative Emotional Appeals

People use negative emotions fear, anxiety and disgust, for instance to craft negative persuasive messages. These arguments predict that something scary, disgusting or bad will happen if people don’t follow a course of action or if they do the wrong thing. For example, anti-smoking messages are generally fear messages. The famous “this is your brain on drugs” advertisements played on the fear that a persons’ brain would fry if that person took drugs. Ads calling cigarettes “Killaz” and ads showing teens with rotted out teeth and lesions on the body due to methamphetamine use also use fear to persuade. A photo of a mile-wide garbage island in the ocean promotes disgust, and can motivate people to recycle more to try to avoid polluting the oceans.

Negative Logical Messages

Negative logical messages show that negative results will follow a certain action or inaction. For example, an argument may use statistics from the March of Dimes to show that mothers who drink alcohol during pregnancy are more likely to have miscarriages or premature delivery, and women who have five or more drinks per week are 70 percent more likely to have stillborn babies. This kind of logical argument pointing out dangers and problems is a negative persuasive message.

Negative Persuasion in Business

In a business setting, a negative persuasive message generally threatens negative consequences as a means of motivation. For example, an evaluation for an employee with unsatisfactory job performance threatens disciplinary action, puts the person on probation or outlines negative qualities. For example, it may say, “Your constant tardiness and inability to contribute productively in meetings lead us to put you in probationary standing. If your performance does not improve in three months, there will be further disciplinary action.” Another type of negative persuasion is threatening to turn an account over to a collection agency, or a sales appeal that says without a certain product such as an alarm system your family or business is in danger.

Routine Letters

“A business letter is a letter written in formal language, usually used when writing from one business organization to another, or for correspondence between such organizations and their customers, clients and other external parties. Types of Routine Business Letters”: Persuasive Letters

Persuasive Letter is a letter written to persuade an organisation/s or individual/s towards accepting the writer’s (sender’s) issue, interest or perspective. It can be written to any type of organisation i.e. school, bank, college, NGO, municipality etc. The individuals can be a director, CEO, government official etc. The motive of the persuasion letter is to ‘Get your work done’ in layman terms.

The persuasion can be related to any matter, it can be:

• A Complaint
• A Sale
• A Petition
• A request or any other matter which requires convincing.

Taking that into note, persuasion letter is a broad term inclusive of Cover Letter, Complaint Letter, Petition Letter, Request Letter, and Sales Letter. This is because in all of the above mentioned there is moderate to maximum amount of persuasion on part of the sender.

Depending upon the region where you live a Complaint Letter or a Sales Letter may be an interchangeable name for a Persuasive letter. Persuasion letter comes under formal letter type and follows certain formats like Full Block Style, Semi-Block Style, Modified Block Style and Modified Semi-Block Style. As mentioned earlier about the formal nature of letters of persuasion, you can include certain informal elements depending upon the need. While a persuasive letter may or may not be successful in its objective, it does raise awareness about the matter addressed. And it can act as a source of inspiration for others when you are addressing certain important social issues.

Persuasive Letters

The persuasive letters are a letter written to convince an organization or person, to accept the issue of the author (sender), interest or perspective. It can be written for any kind of organization i.e. school, bank, college, NGO, municipality, etc. A person can be a director, CEO, government official, etc. Purpose of the Persuasive letter of persuasion is to ‘complete’ your work for the common man.

Strategies:

Planning

Planning is the first aspect that needs to be addressed before the writing begins. The planning will be very different depending on what the goal of the persuasion actually is. Some persuasive letters will require research of both sides of an argument, while other planning might just need to consider the person’s potential objections. Planning involves a few key considerations that should be thoroughly thought through.

• Tone: The tone of the letter is critical to whether the argument will be effective. The tone is the attitude of the piece and should be logical and mature. The specific tone that is set will depend on the argument and the recipient. Setting the wrong tone could be very ineffective. For example, if a child is trying to persuade their parents to get a family pet, setting a tone of annoyance or defiance could be a deal breaker.
• Support: Supporting an argument is essential to the success of the persuasion. Every point that is argued has to have support to back it up. Sometimes the support is data and other times it’s anecdotal evidence. The child asking for a dog might support the argument that they will be responsible by citing evidence of how they took care of a class pet over the weekend. Another part of support is counter-arguments. Identifying what arguments the recipient might have and having counter-support to those arguments will help bolster the persuasion.
• Purpose: If a persuasive letter doesn’t have a purpose, which is the intended outcome, then the letter will fall flat.
• The Hook: Making a compelling statement that attracts the recipient’s attention is crucial and hooking the recipient will help them to keep an open mind. The hook should take into consideration that the person receiving the letter is going to initially be opposed to the argument. The hook can work to soften the potentially barriers the recipient might have to the letter in general.
• The Close: Closing the letter is like closing the deal. It should be a repetition of the central argument and a reiteration of what the purpose of the letter is.

Formatting

Formatting is the second aspect that needs to be considered. Just like the planning, formatting will take different forms with different arguments. Sometimes formatting might include a section that explains how a certain action will be beneficial for the recipient and not just the sender.

The first step to formatting is to make sure that the letter follows the physical formatting of a formal letter. Whether the letter is asking for a raise or trying to convince a parent, it’s always good to write a persuasive letter in formal format.

Having effective listening skills means being able to display interest in the topic discussed and understand the information provided. In today’s society, the ability to communicate effectively is becoming increasingly important. Although the ability to speak effectively is a highly sought-after skill, developing effective listening skills is often not regarded in the same respect.

Paraphrasing

Paraphrasing: when we paraphrase what a person has told us we give a re-worded statement of the message content.

Paraphrasing helps the speaker feel they are being listened to and understood, and it helps the listener confirm their understanding is accurate.

When paraphrasing try to:

• Listen for key thoughts, feelings, and statements of facts.
• Use your own words to let the other person know what you think they meant.
• Be brief – you are trying to give a summary of key things said not a word for word account.
• Avoid interpreting or jumping too far ahead of what the person has said.

Summarizing Guidelines to increase listening

Active listening is a process where the listener responds in a conversational manner back to the speaker. They place their attention on the speaker and they feed back their perceptions of the speaker’s feelings and the content of what they said. When you are actively listening, you’re thinking about what the person is telling you and what their point of view is that they are trying to get across. Please watch this video about how to improve your listening skills.

The three the main techniques for active listening are paraphrasing, clarifying and summarizing.

• Paraphrasing is restating the speaker’s thought, in your own words. For instance, “I think you’re saying that…” or “It sounds like you’re saying …”. This is so they know you understand, or don’t understand, in which case they can clarify for you.
• Clarifying involves asking questions to make sure that you understand. For example, “Can you give me an example of that?” or “You just said that such and such is important, can you help me understand what that means to you?”
• Summarizing is accurately and briefly summarizing the intent of their message. For instance, “I think the main ideas here are …”.

Activities to enhance listening

1. Face the speaker and give them your attention

It is difficult to talk to someone who is constantly looking around. Make sure to face the speaker, maintain eye contact, and give them your undivided attention. In Western cultures, eye contact is necessary for effective communication. Although shyness, uncertainty, or cultural taboos may inhibit eye contact, try your best to make sure the speaker knows that they have your full attention.

2. Keep an open mind

Do not judge or mentally criticize what the speaker is telling you. Doing so can compromise your ability to take in what is being said. Never exhibit judgmental behavior, as it compromises your effectiveness as a listener. You can evaluate what was said after the speaker is finished talking, but don’t do so while you are still listening to them.

Let the speaker finish what they are saying and don’t be a sentence-grabber. Interrupting the speaker or prohibiting them from finishing what they are saying can indicate disrespect to the speaker. Often, interrupting the speaker mid-sentence interrupts their train of thought and can easily destroy a productive conversation.

3. Active listening

Active listening shows the speaker that you’re interested and is an important business communication skill. Using active listening techniques helps to ensure that you correctly understand what is said.

Active listening techniques:

• Paraphrasing back to the speaker what was said, to show understanding.
• Nonverbal cues (nodding, eye contact, etc.).
• Verbal affirmations (“I understand,” “I know,” “Thank you,” etc.).
• Demonstrating concern and establishing rapport.

4. Just listen

Create a mental model of the information, whether it be a picture or an arrangement of abstract concepts. Listen to keywords and phrases and do not rehearse what you are going to say after the speaker is done talking. Think about what the other person is saying rather than what you are going to respond with. It is difficult to think of what you are going to say while also listening to the speaker. Be attentive and relaxed – don’t get distracted by your own thoughts and feelings.

Listening is perhaps the most important of all interpersonal skills and Skills You Need has many pages devoted to the subject, see Listening Skills for an introduction.

Discriminative Listening

Discriminative listening is first developed at a very early age perhaps even before birth, in the womb.  This is the most basic form of listening and does not involve the understanding of the meaning of words or phrases but merely the different sounds that are produced. In early childhood, for example, a distinction is made between the sounds of the voices of the parents the voice of the father sounds different to that of the mother.

Discriminative listening develops through childhood and into adulthood.  As we grow older and develop and gain more life experience, our ability to distinguish between different sounds is improved. Not only can we recognise different voices, but we also develop the ability to recognise subtle differences in the way that sounds are made this is fundamental to ultimately understanding what these sounds mean.  Differences include many subtleties, recognising foreign languages, distinguishing between regional accents and clues to the emotions and feelings of the speaker.

Informational Listening

Whenever you listen to learn something, you are engaged in informational listening.  This is true in many day-to-day situations, in education and at work, when you listen to the news, watch a documentary, when a friend tells you a recipe or when you are talked-through a technical problem with a computer there are many other examples of informational listening too.

Although all types of listening are ‘active’ they require concentration and a conscious effort to understand. Informational listening is less active than many of the other types of listening.

Empathic Listening

When you listen empathically you are doing so to show mutual concern. During this type of listening, you are trying to identify with the speaker by understanding the situation in which he/she is discussing. You are stepping into the other’s shoes to get a better understanding of what it is he/she is talking about. Usually during this type of listening you want to be fully present in the moment or mindfully listening to what the speaker is saying. Your goal during this time is to focus on the speaker, not on yourself. You are trying to understand from the speaker’s perspective.

Appreciative Listening

When you listen for appreciation, you are listening for enjoyment. Think about the music you listen to. You usually listen to music because you enjoy it. The same can be said for appreciative listening when someone is speaking. Some common types of appreciative listening can be found in sermons from places of worship, from a motivational speech by people we respect or hold in high regard, or even from a stand-up comedian who makes us laugh.

Comprehensive Listening

If you are watching the news, listening to a lecture, or getting directions from someone, you are listening to understand or listening to comprehend the message that is being sent. This process is active. In class, you should be focused, possibly taking notes of the speaker’s main ideas. Identifying the structure of the speech and evaluating the supports he/she offers as evidence. This is one of the more difficult types of listening because it requires you to not only concentrate but to actively participate in the process. The more you practice listening to comprehend, the stronger listener you become.

Critical Listening

Have you ever had to buy an expensive item, such as a new appliance, a car, a cell phone, or an iPad? You probably did some research beforehand and listened closely to the salesperson when you went to compare brands. Or perhaps your best friend is telling you about some medical tests he/she recently had done. You listen closely so you can help your friend understand her results and the possible ramifications of the findings. Both of these scenarios are examples of critical listening. Critical listening is listening to evaluate the content of the message. As a critical listener you are listening to all parts of the message, analyzing it, and evaluating what you heard. When engaging in critical listening, you are also critically thinking. You are making mental judgments based on what you see, hear, and read. Your goal as a critical listener is to evaluate the message that is being sent and decide for yourself if the information is valid.

Communication network refer to a combination of sender and receiver in their role of transmission of message. Communication networks make the communication interesting, quicken the flow of information, and increases the effectiveness of communication. Depending upon the nature of message, urgency, organizational culture and size of the organization, different communication networks can be used. Basically, there are five types of communication network as follows:

Wheel Network

It is a pattern of communication network in which a single person as pivotal, supplies message to other members. It is centralized communication network. Here, the group idea is probably the main source of communication.

In the above diagram, 1 (manager) is the main source of information and he passes the information to the other group members, 2, 3, 4 and 5. In this type of network, only the manager communicates to subordinates but subordinates are not allowed to communicate with others i.e., member 2 cannot communicate with 3 and others.

Y Network

It is the pattern of communication network in which top leaders or managers communicate to the person closed to them. Then the message is communicated in downward direction in hierarchy.

Chain Network

It is a pattern of communication network in which a person can communicate with immediate superior and subordinate in hierarchy. In the diagram, 1 can communicate with 2, 2 with 3, and 3 with 5 in downward communication where information can flow from from bottom to top and top to bottom. It is more suitable when authority and responsibility are clearly defined among the group or team members.

Circle Network

It is a pattern of communication network in which message is communicated in circle, i.e., each person can pass the information to his/her adjoining two person right or left. For example, in above diagram, 2 can communicate information to 3 and 1 and similarly 3 can pass to 2 and 4 but cannot pass the information to 3 or 4.

All channel Network

It is one of the most decentralized type of communication network. In which, all the members of group or team share their ideas, views and suggestion to all the members without any restriction. Here, each of the member has right to communicate with any other person in the group without any restriction and boundaries.

Profits or expected profit stream from a productive activity or an investment play a crucial role in decision making by managers.

Therefore, it is necessary to first explain the difference between business profits and economic profits. Business profits are an accounting concept and represent the residual sales revenue to the owners of the firm after making payments to all other factors or resources the firm uses.

These payments to hired factors include the wages to hired labour, interest on borrowed capital, rent on land and factory buildings and expenditure on raw materials used by the firm. The expenditures on these factors or resources hired or purchased by the firms are call explicit costs. Business profit refers to the sales revenue of the firm minus its explicit costs. Thus

Business profits = Total sales revenue – Explicit costs

It is the concept of business profits that is generally used by the business community and accountants.

In their calculation of economic profit, the economists deduct not only explicit costs but also implicit costs from the sales revenue of the firm. The implicit costs refer to the opportunity costs of the resources provided by the firm’s owners themselves including capital and entrepreneurial ability.

These self-owned factors must be paid if they are too employed by the firm in its own production process otherwise, they will be employed elsewhere on hired basis. Thus, economists take into account the normal rate of return on capital used by the owner of the firm in its own business and the transfer earnings of the owner-entrepreneur as costs of doing business.

The risk adjusted rate of return on capital is the minimum return that is necessary to attract or retain it in business and is equal to what the owner could earn from investing in other firms.

Similarly, the opportunity cost of the entrepreneurial effort made by the owner entrepreneur is the salary that he could earn in his next best activity (say, as the manager of another firm). Likewise, the opportunity costs of other self-owned factors or inputs such as land, buildings used by the owner-entrepreneur in his own business will be counted as implicit costs.

The economic profit represents the sales revenue of the firm in excess of both explicit and implicit costs.

Economic profits = Sales revenue – Explicit costs – implicit costs.

While explaining maximisation of short-run profits or present value of the stream of expected profits in the future, economists assume that it is economic profits that owner- entrepreneur or managers of corporations seek to maximise. The concept of economic profits brings into sharp focus the question why such profits which is over and above the normal rate of return on equity capital and reward for entrepreneurial ability in case of owner-entrepreneur, exists and what is its role in a free enterprise system.

In long-run equilibrium economic profits will be zero if all firms work in perfectly competitive market. Then, how does an economic profit, positive or negative, come into existence.

Function of Profits

Profits play an important role in a free market economy. Profits perform two important primary roles in such an economy.

First, profits serve as a signal to change the rate of output or for the firms to enter or leave the industry.

Second, profits play a critical role in providing incentive to introduce innovations and increase productive efficiency and take risks.

Thus, high economic profits being earned in an industry serve as a signal that consumers want more of the commodity being produced by that industry. These profits indicate to the firm to expend output of the commodity and for the new firms to enter the industry to gain a share of economic profits that exist in the industry. As a result, more resources will be allocated to the output of that industry.

On the other hand, below normal profits in an industry serve as a signal that either less output of the industry is demanded by the consumers or inefficient production methods are being used by the firms. In response to the lower demand for the product the firms will reduce their output and also some firms will leave the industry.

As a result, some productive resources will be released from that industry and made available for the production of other goods. If the lower profits are due to the inefficient production and organisation, this will induce firm to improve efficiency by changing the production methods or make organisational changes to reduce costs.

Profit motive drives a free-market economy. Although it has been observed that sometimes managers and entrepreneurs in a free market system are swayed by greed and avarice, and break laws to make money or profits by exploiting the consumers or workers but in general profits perform useful function of sending signals for changing levels of output of various products and for reallocation of resources among them.

Secondly, above normal rate of profits in a free enterprise system is an essential reward for introducing innovations and taking risks. No entrepreneur will introduce new products or more efficient of production methods or undertake investment in risky projects unless there is prospect of making profits. Some firms continue to earn above-normal rate of profit year after year as they are continually introducing new products, new production methods and providing good customer services.

In the economy changes in demand for the product often occur due to cyclical and structural changes. Besides, new strategies of rival firms also affect the demand for the product of a firm. All these uncertain and unanticipated changes involve a good deal of risk. An important function of economic profits is to reward entrepreneurs for taking these risks involved in making investment and organising factors for the production of products.

However, in some cases firms are also able to make supernormal profits by virtue of their having monopoly power. Their monopoly power may be due to some legal patent and license obtained from the government, the economies of large scale production, exclusive control over essential raw materials which prevent the other firms from producing the same product or service.

These enable the monopoly firms to charges higher prices and thereby make large economic profits. Therefore, even in free-market economies steps are taken to prevent the emergence of monopolies through anti-trust laws or Competition Acts as recently enacted in India. Of course, monopolies are legally permitted if they are needed in public interest. For example, in several cities Government grants license to some firms to provide public utility services such electricity, gas, telephone etc.

In these cases of legal monopolies government regulates them and fix reasonable prices to be charged by them from the public but at the same time ensures fair return or normal profits to them on their investment.

It is generally held that the main motive of a firm is to make profits. The volume of profit made by it is regarded as a primary measure of its success. Economic theory advocates profit maximisation as the chief policy of a firm. Modem business enterprises do not accept this view and relegate the profit maximisation theory to the back ground. This does not mean that modem firms do not aim at profits. They do aim at maximum profits but aim at other goals as well. All these constitute the profit policy.

(i) Industry Leadership:

Industry leadership may involve either the achievement of the maxi­mum sales volume or the manufacture of the maximum product lines. For the attainment of leadership in the industry, there has to be a satisfactory level of profit consistent with capital invested, labour force employed and volume of output produced.

(ii) Restricting the Entry:

If a firm follows a policy of restricting its profit, no competitors are likely to enter the market. Reasonable profits which guarantee its survival and growth are essential. According to Joel Dean, “Competitors can invade the market as soon as they discover its profitability and find ways to shift the patents and make necessary changes in design, technique, and production plant and market penetration.”

(iii) Political Impact:

High profits are considered to be suicidal for a firm. If the government comes to know that the firms are earning huge returns, it may resort to high taxation or to nationalisa­tion. High profits are often considered as an index of monopoly power and to prevent the govern­ment may introduce price control and profit regulation policies.

(iv) Consumer Goodwill:

Consumer is the foundation of any business. For maintaining con­sumer goodwill, firms have to restrict the profit. By maintaining low profit, the firms may seek the goodwill of the consumers. Consumer goodwill is valued so much these days that firms often make organised efforts through advertisements.

(v) Wage Consideration:

Higher profits may be taken as evidence of the ability to pay higher wages. If the labour associations come to know that the firms are declaring higher dividends to the shareholders, naturally they demand higher wages, bonus, etc. Under these circumstances in the inter­est of harmonious relations with employees, firms keep the profit margin at a reasonable level.

(vi) Liquidity Preference:

Many concerns give greater importance to capital soundness of a firm and hence prefer liquidity to profit maximisation. Liquidity preference means the preference to hold cash to meet the day to day transactions. The first item that attracts one’s attention in the balance sheet is the ratio of current assets to current liabilities. In order to give capital soundness, the business concerns keep less profit and maintain high cash.

(vii) Avoid Risk:

Avoiding risk is another objective of the modem business for which the firms have to restrict the profit. Risk element is high under profit maximisation. Managerial decision involving the setting up of a new venture has to face a number of uncertainties. Very often experienced manage­ments avoid the possibility of such risks. When there is oligopolistic uncertainty, firms may focus attention at minimising losses. The guiding principle of business economics is not maximisation of profit but the avoidance of loss.

1. Alternative Profit Policies:

Economists have suggested different profit policies which business firms may adopt as an alter­native to profit maximisation.

These alternative profit policies are listed below:

Prof. K. Rothschild observes, “Profit maximisation has until now served as the wonderful mar­ket key that opened all doors leading to an understanding of the behaviour of the entrepreneur. It was always realised that family pride, moral and ethical considerations, poor intelligences and similar factors may modify the results built on the maximum profit assumption, but it was right by assuming that these disturbing phenomena are sufficiently exceptional to justify their exclusion from the main body of price theory. But there is another motive which cannot be so lightly dismissed and which is probably a similar order of magnitude as the desire for maximum profits, namely the desire for secure profits”. He has suggested that the primary motive of an enterprise is long run survival.

According to him, the assump­tion of profit maximisation is no doubt valid to the situation of perfect competition or monopolistic competition. Under monopolistic condition, the aim of the firm is to secure monopoly profits. In the case of oligopoly, he says that the assumption of profit maximisation is not sufficient.

W.J. Baumol puts forth the maximisation of sales as the ultimate aim of the firm. He says while maximising sales the producer will not regard costs incurred as output and profits to be made. If the sales of the company increase, it means that the producer is not only covering costs but also making a usual rate of return on investment. Baumol’s theory of sales maximisation as a rational behaviour of the producer is considered as an alternative to the theory of profit maximisation.

Benjamin Higgins, Mekin Reder and Tibor Scitovsky have developed another alternative to the theory of profit maximisation, that of utility maximisation, if the producer is supposed to maximise his satisfaction. In this approach, they have introduced leisure as a variable. Leisure is an essential ingredi­ent of an individual welfare. If more work is put in by the producer, the less leisure he will be able to enjoy. It is said that the producer would get maximum satisfaction where his net profit is optimum.

Donaldson and Lorsch are of the opinion that career managers prefer policies that favour long term stability and growth of their firms which are possible only when they get maximum current profits. For the survival, self sufficiency and success, the top managers strive hard and augment corporate wealth. The more the wealth, the greater the assurance of the means of survival.

1. Aims of Profit Policy:

The firm seeks to achieve many objectives and profit making is the main objective but it is not the only objective. Profit making is no doubt necessary. In addition to adequate profit, the firm often pursues multiple and even contradictory objectives. If a firm makes sufficient profits, it can give good dividends and attractive salaries, etc. The firm can fix a target rate for profits as its investment. There is a problem in determining the target rate of profits.

They are:

(i) Competitive rate of profit

(ii) Historical profit rate

(iii) Rate of profit sufficient enough to protect the equity, and

(iv) Plough back of profit rate.

Competitive rate of profit is the rate earned by other companies in the same industry or of selected companies in other industries working under similar conditions. It may be slightly different from the rate of profit of other companies.

Historical rate of profit is the rate of profit determined as the basis of past earnings in the normal times. The rates should be sufficient enough to attract equity capital, have provided adequate dividend to shareholders and have not encouraged much competition.

Rate of profit sufficient enough to protect the equity is the rate sufficient enough to attract equity capital and the rate of return on investment should protect the interest of present shareholders. Plough back of profit late is that late of profit Which should be such that there is a surplus after paying the dividends to finance further growth of the industry. Cyert and March have focused on five aims which represent main operative organisational goals.

They are:

(i) Production goal

(ii) Inventory goal

(iii) Sales goal

(iv) Marketing share goal and

(v) Profit goal

Production Goal:

The firms want to maintain the production of the product at a stable level to ensure stable employment and growth. The basic requirement is that the production does not fluctuate.

Inventory Goal:

To ensure a complete and convenient stock of inventory throughout the pro­duction, a minimum level of inventory has to be maintained so that the firm can prevent fluctuations in prices.

Sales Goal:

It is considered as very important from the point of view of stability and survival of the firm. Increasing sales mean progress of the firm. Sales strengthen the organisation. The more are the sales, the more is the profit.

Market Share Goal:

Company sales do not reveal how well the company is performing. If the company’s market share goes up, the company is gaining as a competitor, if it goes down the company is losing relative to competitors.

Profit Goal:

Profits are a function of the chosen price, advertising and sales promotion budgets. Normal profit is essential not only to pay dividends but also to ensure additional resources for reinvest­ment.