Essentials of Budgets

Providing a Framework for Evaluation:

Budgeting provides a basis to evaluate the performance of different departments. A comprehensive budget, properly developed, will contain initially organisational goals and expectations and subsequently can be used as an effective evalu­ation technique.

Acceptance and Cooperation:

Successful budgeting also requires that budgets should be accepted by the people who must execute them. Budgeting should have the active cooperation of the entire organisation from the top to the bottom. Cooperation for the budget can be achieved in a number of ways.

Coordinating Business Activities:

Budgeting needs to coordinate all the individual budgets into an integrated plan as each budget has certain implications for the other budgets. There must be coordination between sales, production, purchasing, personnel budgets.

Efficient Organisation:

Preparation of Budget and its operation requires efficient, adequate and best organisation. Therefore, a budgeting system should always be supported by a sound organisational structure demarcating clearly the lines of authority and responsibility.

Moreover, there should be true delegation of authority from top to lower levels of management so that executives at all levels may get the opportunity to make best decisions and get themselves involved in budget making exercise.

Reasonable Flexibility:

The budgeting programme should contain reasonable flexibility if the situation so demands. However, it should be noted that too much flexibility and too much tightness are both undesirable. Too much flexibility will weaken the cost control and the budget will become inoperative. Similarly, too much rigidity not permitting reasonable deviations will create problems and restrictions in the implementation of the budget. If conditions have changed making the estimates and budgets inaccurate, the budgets should be revised.

Communicating the Budgets:

The success of a comprehensive budgeting programme depends on communication of individual budgets to the different units in the organisation. The basic point is that the preparation of the budget is of no value unless it is known to the person for whom it is meant. Managers are not responsible for budget unless the budget is communicated clearly, concisely and in an authoritative manner to them.

Accurate Forecasting of Business Activities:

Forecasting is a prerequisite in a budgeting process. It is not only the starting point, but is also critical to the development of an accurate budget.

An Adequate, Planned and Reliable Accounting System:

There should be a proper flow of accurate and timely information in the business which is ‘must’ for the preparation of budgets. The finance department should continuously supply financial data on the basis of which budget estimates and forecasts are to be made. If the data are wrong all the estimates will be wrong and the very objectives of budget will be misguiding.

Formation of Budget Committee:

It is the Budget Committee that receives the forecasts and targets of each department as well as periodic reports and finalizes the final acceptable targets in form of Mater Budget. The Budget Committee also approves the departmental budgets. It is imperative that opportunities must be provided to the executives of all the departments for their participation in the process of budget making.

Preparation of Fixed Budgets

It is a budget known as constant budget, never registers the changes in the preparation of a budget, being prepared for irrespective level of output or production. This budget is mainly meant for the fixed overheads of the firm which are constant in volume irrespective level of production. The ultimate utility of the budget is to control the cost as a cost controlling measure, but the fixed budget is meaningless in having comparison with the actual performance.

A fixed budget is a financial plan that is not modified for variations in actual activity. Since most companies experience substantial variations from their expected activity levels over the period encompassed by a budget, the amounts in the budget are likely to diverge from actual results. This divergence is likely to increase over time. The only situations in which a fixed budget is likely to track close to actual results are when:

  • The industry is not subject to much change, so that revenues are reasonably predictable.
  • Costs are largely fixed, so that expenses do not change as revenues fluctuate.
  • The company is in a monopoly situation, where customers must accept its pricing.

Mitigate

A good way to mitigate the disadvantages of a fixed budget are to combine it with continuous budgeting, where a new budget period is added onto the end of the budget as soon as the most recent budget period has been concluded. By doing so, the most recent projections are incorporated into the budget, while also maintaining a full-year budget at all times.

Another way to mitigate the effects of a fixed budget is to shorten the period covered by it. For example, the budget may only encompass a three-month period, after which management formulates another budget that lasts for an additional three months. Thus, even though the amounts in the budget are fixed, they apply to such a short period of time that actual results will not have much time in which to diverge from expectations.

The fixed budget is not effective for evaluating the performance of cost centers. For example, a cost center manager may be given a large fixed budget, and will make expenditures below the budget and be rewarded for doing so, even though a much larger overall decline in company revenues should have mandated a much larger expense reduction. The same problem arises if revenues are much higher than expected – the managers of cost centers have to spend more than the amounts indicated in the baseline fixed budget, and so appear to have unfavourable variances, even though they are simply doing what is needed to keep up with customer demand.

Features of Fixed budget

  • The performance report does not contain useful information and misleading one.
  • Fixed budget is rarely prepared and used. The reason is that the actual output is differing from the budgeted output. Hence, the management cannot exercise cost control.
  • If units are overlooked in the cost-to-cost comparison, accurate result is not available.
  • Fixed budget is limited by the costs and expenses which are affected by fluctuations in volume. This is a well known accepted fact.
  • The performance report gives merely whether the actual costs are higher or lower than budgeted costs.
  • There is no meaning of comparing one activity level with some other activity level. A fixed budget can be usefully employed when budgeted output is close to the actual output.

Example

let’s assume that a company pays a 5% sales commission on all of its sales. If the company prepares a fixed budget and it is projecting sales of Rs.1 million, the budget for sales commissions will be fixed at Rs.50,000. If the actual sales end up being only Rs.900,000 the budget for sales commissions will remain unchanged at the fixed amount of Rs.50,000. If the actual sales are Rs.1,100,000 the budget for sales commissions will also be Rs.50,000.

Had the company prepared a flexible budget, the budget for sales commissions would be expressed as 5% of sales. This means that the budget for sales commissions will be Rs.50,000 only when sales are Rs.1 million. If the company has actual sales of Rs.900,000, the budget for sales commissions will flex and will be Rs.45,000 (5% of Rs.900,000). If the actual sales are Rs.1,100,000 the budget for sales commissions will be Rs.55,000.

Financial Statement Analysis Meaning, Objective

The term “financial analysis”, also known as analysis and interpretation of financial statements’, refers to the process of determining financial strengths and weaknesses of the firm by establishing strategic relationship between the items of the balance sheet, profit and loss account and other operative data.

Analyzing financial statements,” according to Metcalf and Titard, “is a process of evaluating the relationship between component parts of a financial statement to obtain a better understanding of a firm’s position and performance.”

Objectives and Importance of Financial Statement Analysis:

The primary objective of financial statement analysis is to understand and diagnose the information contained in financial statement with a view to judge the profitability and financial soundness of the firm, and to make forecast about future prospects of the firm. The purpose of analysis depends upon the person interested in such analysis and his object.

However, the following purposes or objectives of financial statements analysis may be stated to bring out the significance of such analysis:

  • To assess the operational efficiency and managerial effectiveness.
  • To assess the earning capacity or profitability of the firm.
  • To assess the short term as well as long term solvency position of the firm.
  • To make inter-firm comparison.
  • To identify the reasons for change in profitability and financial position of the firm.
  • To make forecasts about future prospects of the firm.
  • To assess the progress of the firm over a period of time.
  • To guide or determine the dividend action.
  • To help in decision making and control.
  • To provide important information for granting credit.

Users Objectives

Prediction of Bankruptcy and Failure:

Financial statement analysis is a significant tool in predicting the bankruptcy and failure probability of business enterprises. After being aware about probable failure, both managers and investors can take preventive measures to avoid/minimise losses.

Prediction of Net Income and Growth Prospects:

The financial statement analysis helps in predicting the earning prospects and growth rates in the earnings which are used by investors while comparing investment alternatives and other users interested in judging the earning potential of business enterprises. Investors also consider the risk or uncertainty associated with the expected return.

The decision makers are futuristic and are always concerned with the future. Financial statements which contain information on past performances are analysed and interpreted as a basis for forecasting future rates of return and for assessing risk.

Assessment of Past Performance and Current Position:

Past performance is often a good indicator of future performance. Therefore, an investor or creditor is interested in the trend of past sales, expenses, net income, cash flow and return on investment. These trends offer a means for judging management’s past performance and are possible indicators of future performance.

Loan Decision by Financial Institutions and Banks:

Financial statement analysis is used by financial institutions, loaning agencies, banks and others to make sound loan or credit decision. In this way, they can make proper allocation of credit among the different borrowers. Financial statement analysis helps in determining credit risk, deciding terms and conditions of loan if sanctioned, interest rate, maturity date etc.

Fee based services Security, Features, Documents, Defaults

The term fee-based investment refers to a product offered by an investment company, bank, or other institution where the financial professional is compensated through a fee as well as a commission for selling the investment vehicle. The investor covers the fee, which covers things like advice, account access, and any other service related to the investment itself, while the commission comes from the investment provider. Financial professionals who sell fee-based investments are called fee-based advisors.

The term fee-based is often used to describe a hybrid advisor or a dually registered advisor. This is a professional who charges fees to certain clients and earns commissions by selling products to others. So, the investor is charged one or more fees for the services provided by a financial planner or advisor, while commissions are paid by companies that provide the investment. Fee-based investments vary depending on the planner who sells them. Like the products other advisors offer, they can range from retirement and estate accounts to regular investment accounts. Fee-based advisors may sell mutual funds, stocks, bonds, and other securities.

Fees may be a fixed amount or a certain percentage of the assets under management (AUM). In many cases, the commissions a fee-based advisor earns are fixed into the investment product itself, like the management expense ratio (MER) of a mutual fund.

Benefits to clients:

Professional Guidance

As an investor, you are flooded with information in the media and on the Internet that can help you make financial decisions. However, you likely don’t have the time to research each investment strategy and product to determine whether or not it’s appropriate for your situation and needs. By monitoring your portfolios and conducting ongoing research, we seek to help you feel more comfortable knowing your money is being professionally managed.

Regular, Personalized Communication

Fee-based services rely on an ongoing relationship. We meet at least once a year to ensure your investment policy is on track towards its goals. You will also receive a regular quarterly performance report that illustrates your progress. This regular communication can help you gain confidence in our investment strategy.

Greater Transparency

In today’s economic climate, transparency is a key factor in consumer confidence. When compared to commission-based services, fee-based services are much more transparent. Advisory fees are a fixed percentage of a client’s accounts’ values and are clearly displayed in the quarterly performance reports.

A Mutual Incentive

Our compensation as investment adviser representatives is a fixed percentage of your accounts’ values. This means that the performance of your advisory accounts is directly proportional to the fees we collect. We are genuinely motivated to grow your portfolio and preserve your wealth.

A Disciplined Approach

Markets inevitably rise and fall, and trying to time the market can be difficult and costly. Following an investment policy helps to institute a methodical, disciplined approach to investing that can strike a balance between risk and reward.

Potential Tax Benefits

Fees for advisory accounts are potentially deductible against your federal income taxes, which could translate into savings. Speak with your tax professional for more details.

Types:

Advising on Capital Restructuring:

For the purpose of fresh issue, the companies have to present and prepare their Balance Sheet in a healthy form but not with the product of window dressing which produces an effective use and application of financial management as a whole. It is not an easy task. It requires a lot a practical exercise and experience. Sometimes, professional advice may also be required.

Needless to mention here that NBFC can supply the necessary service for the purpose on various matters by giving their valued advices and instructions, e.g., capital structuring/restricting, so that the financial health of the enterprise through the Balance Sheet would be looked better. Since, it is a fee based service it will, no doubt, earn a lucrative amount.

Advising on Acquisition and Mergers:

NBFC should pay the proper attention in this field. In order to consolidate the firm and to form a new one or to enjoy the benefits of economies of large scale, many companies are interested to amalgamate. The matter is very clear and simple if the management of both the companies is ready to do so.

To have these objectives, sometimes the promoters misuse their powers over the various companies. For this purpose, the Government has laid down certain guidelines prescribing the maximum limit of holding by the NRJs in the Indian companies recently.

Corporate Counselling:

The corporate counselling is an another attractive fee based service. At the time of diversification, expansion and development, a medium size company needs the service of an expert relating to the above for which they seek the advice from various institutions. The institutions also come forward to assist them as soon as they receive the formal request from such firms.

Now, in this context the role of NBFCs is very important. They can perform various functions relating to the generation of funds by developing the existing systems and pointing out the weak areas of the companies.

Portfolio Management:

Portfolio management implies the investment of funds taken from numbers/clients in various securities and an adequate return should be given to them. In other words, it is a scheme by which the portfolio manager raise funds from his clients/members with a commitment in order to operate the securities market together with the information, in well explained terms relating to the composition of portfolio, annual return, appropriation of capital, the extent of risk etc.

The manager must be authorised by the Securities and Exchange Board of India positively. Before certifying a manager as authorised, the SEBI will enquire about the infrastructure and truck record of the firm For this purpose, a minimum amount of net worth/shareholders’ fund has been fixed at Rs. 50 lakhs.

It is the duty of the portfolio manager to maintain the funds which belong to his clients/ members with the schedule bank in a separate account, which will be invested according to the terms specified. The manager is, however, entitled to a fixed fee and not a variable one depending upon the returns to the clients/members accordingly.

Project Counselling:

It is practically coming from the concept of corporate counselling and under the circumstances, the concerned company employs engineers and MB As and other technical persons who are experts in the area of project management.

If the client desires to invest his resources on long term basis to any project and is ready to invest such funds accordingly as per guidelines presented by the consultant company, the same task can be performed by the NBFC accordingly. Better result can be achieved if these companies form an informal association or a guild.

Arranging the Foreign Collaboration:

It is one of the most significant tasks of the project management and the companies to arrange the foreign collaboration particularly who wants to specialise in the above area and should consider the matter carefully.

As a result of the liberalisation relating to industry and capital market by the Government of India, the companies are employing their resources which they acquire by issuing shares via primary capital route and as such, are interested for good projects relating to either export oriented project or import substitution projects.

Loan/Lease Syndication:

The practising Chartered Accountants who supply the liaison services to the clients where they are in need of funds whether for the purpose of working capital or for term loan purposes.

At present, it has been found that the Chartered Accountant firms are keen interested to keep in touch with the large group of companies and are trying to improve their contact with others with the help of such giant clients who are doing quite successful business.

When a company finds it difficult to procure funds who has some problems, weakness and is not able to get various services, these firms appear in the picture and act as an intermediary between the institution and the company as well In this particular case, NBFC, can play a very prominent role for procuring funds and assist them in various ways, can supply the necessary services for those clients.

They can act as a broker and their fees must be comparable with the fees charged by the Chattered Accountant firms. In order to serve these services, NBCFs should have a direct contact with the high officials of the banks and various financial institutions simply in order to collect the necessary information.

Issue Management:

Like ordinary issue, the process of issue management is same. It is, however, the duty of the Non-Banking Financial Company to supply a complete set of services and must try to improve and develop the process of marking the issues by which the network of the promoters will be extended.

It is needless to say that the institutions who will take the responsibility to supply the services, must be able to improve the network of the brokers which ultimately brings a success relating to the issue.

If the issues are not subscribed the same may be closed on the earliest closing date. In order to overcome this difficulty, these companies join with others and form a club taking 5 to 10 merchant bankers (those who are authorised) who must take a minimum corpus of funds.

Now, if the issue goes in the hands of the club, there will be, no doubt, hesitation on the part of anyone regarding the investment in the issue having a public support and as such, the issue closes at the earliest closing date which relieves the promoters regarding the issue.

As a result of the above, the merchant bankers and the Non-Banking Financial Companies (NBFCs) will earn a reputation in the market by which they can promote many businesses. NBFC, to some extent will capture and curtail the business that flows to the institutions belonging to the state level.

Cheques Collection and Payment procedure

The clearing process begins with the deposit of a cheque in a bank. The cheque (along with other cheques) is delivered to the bank/branch where it is drawn. The cheque is passed for payment if the funds are available and the banker is satisfied about the genuineness of the instrument.

The cheques that are unpaid are returned to the presenting bank through another clearing called the Return Clearing. The realization of the funds occurs after the completion of return clearing and by the absence of an unpaid cheque.

Cheques Clearing Cycle:

Following steps are to be taken during clearance of cheque:

Step 1st:

The customer

Step 2nd:

The PRESENTING BANK where cheques are presented by payee for deposit in his / her a/c.

Step 3rd:

The RCC:

Regional collecting centre- to collect all cheques from their presenting branch.

Step 4th:

Clearing House:

To collect cheques from RCC and for settlement of cheques.

Step 5th:

Drawee’s RCC:

Again, they collect cheques from the clearing house and send to their drawee bank.

Step 6th:

Drawee Bank:

It collects cheques from their RCC and debits the customer a/c.

Settlement of Funds:

The settlement of funds in clearing occurs at several levels. The aggregate amount or value of cheques presented by a bank on other banks represents the claim by that bank on other banks. All the banks on every other bank in the clearing make similar claims.

A net settlement is arrived at the clearinghouse and the debit or credit position of the bank is determined. These are booked in their current accounts maintained by the settling bank. This represents the inter- bank settlement. The settlement of funds between the service branch and the branch concerned represents the transfer of funds to the branch level.

The payment process is completed only when the funds are debited from the drawer’s account and credited to the payee’s account. This occurs after the completion of the return clearing mentioned.

Inter-branch clearing:

Cheques presented by customers drawn on different branches of the same bank need not be sent to the clearing house as the transfer of funds is internal to the bank. The service branch usually acts as a settlement branch for the branches and the instruments are sent to the drawee branches while the inter-branch accounts are credited or debited internally.

Time Required

Generally, if a cheque is to be paid within the same city (local cheque), it would take 2-3 days. In some large cities, there is a system called High Value Clearing, which facilitates completion of cheque clearing cycle on the same day, and the customer depositing the cheque is permitted to utilize the proceeds next day morning.

However, coverage of this High Value Clearing is very limited and usually available at the branches in the main business area; say Fort and Nariman Point area in Mumbai and Connaught Place in New Delhi.

Strategies Cultural Management

Culture managers are focused on establishing a work environment that helps people contribute and collaborate at their full potential. This means developing an organizational culture that creates a great place for people to work together. The benefit to the business in cultivating a great work culture is sustained, high performance by the people working in the organization.

The confrontational strategy

This strategy believes that, if you can arouse and then mobilise anger in people to confront the problem, they will change. Much depends on the strategists’ ability to argue the points, as well as being able to stir up emotions without promoting violence and to control these emotions. This approach encourages people to confront problems they would prefer not to address, but tends to focus too much on the problem and not on the solution. Anger and conflict tend to polarise people and can cause a backlash.

The engineering strategy

This technocratic approach assumes that, if the physical nature of a job is changed, enough people will be forced to change. The strong emphasis on the structural aspects of jobs: what people do, how and why they do it, and what the realistic alternatives are. A major channel of communication can prompt structural change but fails to commit most people. It is a method of re-engineering. Such change can also break up happy and efficient teams. The strategy is limited because only high-level managers can really understand it, it is impersonal and it ignores the question: ‘What is in it for me?’ But it can work well once those who can’t change leave or get out placed.

The economic strategy

This cynical culture change strategy believes that money is the best persuader. The person who controls the purse strings can buy or change anything. Everyone has a price. A serious increase or decrease in money will change behaviour which reflects the values of the new culture if sufficiently incentivised. This is the approach that assumes people act more or less logically, but that their logic is based on entirely economic motives. But ‘buying people off’ can be costly and the effects short term. The strategy also ignores emotional issues and all questions besides bottom-line profit. It too often is a strategy at odds with the new desirable cultural values of the organisation.

The fellowship strategy

The fellowship strategy relies heavily on interpersonal relations, using seminars, dinners and events to announce and discuss what needs to be changed and how. People at all levels are listened to, supposedly treated equally, and conflicting opinions are expressed. This ‘warm and fuzzy’ approach emphasises personal commitment over ideas; but, the process may have serious problems getting underway if at all. Because this strategy is averse to conflict, it can miss crucial issues and waste time. It rarely succeeds in changing culture.

The military strategy

The military strategy is reliant on brute force. The emphasis in on learning to use the weapons to fight the law, the union and the media. Physical strength and agility are required. Following the plan is rewarded. But the change-enforcer cannot relax, in case the imposed change disappears. Furthermore, force is met by force and the result is ever-escalating violence. It only ever works when organisations are in real crisis seriously struggling to survive.

The academic strategy

The academic strategy assumes that if you present people with enough information and the correct facts, they will accept the need to change and how to do it. The academic strategist commissions studies and reports from employees, experts and consultants. Although such strategists are happy to share their findings, it is difficult to mobilise energy and resources after the analysis phase. ‘Analysis paralysis’ often results because the study phase lasts too long and the results and recommendations are often out of date when they are published. Also, most managers do not really know what they should do, to whom, how or when. They often feel left out and ignored by the consultant academic.

The political strategy

The power structure is targeted by attempting to influence the official and unofficial leaders the ‘keepers of the culture’. The strategy seeks to identify and persuade those most respected, who have large constituencies and who therefore shape the culture. Political strategists’ flatter, bargain and compromise to achieve their ends, which is usually the introduction of new methods that reflects different values. But this destabilises the organisation because of continuing shifts in people’s political stances. Maintaining credibility can be difficult because the strategy is so obviously devious and paradoxically often it is the very opposite of the values that the new company is proposing in the new culture.

Diversity at work

Workplace diversity is the term used for the workplace composed of employees with varying characteristics, such as different sex, gender, race, ethnicity, sexual orientation, etc.

Workplace diversity is the term used for the workplace composed of employees with varying characteristics, such as different sex, gender, race, ethnicity, sexual orientation, etc.

Workplace diversity refers to the variety of differences between individuals in an organization. Diversity not only includes how individuals identify themselves but also how others perceive them. Diversity within a workplace encompasses race, gender, ethnic groups, age, religion, sexual orientation, citizenship status, military service and mental and physical conditions, as well as other distinct differences between people.

Diversity in the workplace refers to an organization that intentionally employs a workforce comprised of individuals with a range of characteristics, such as gender, religion, race, age, ethnicity, sexual orientation, education, and other attributes.

Many different characteristics, such as:

  • Ethnicity
  • Race
  • Gender
  • Sexual orientation
  • Age
  • Physical abilities and disabilities
  • Religion
  • Political beliefs
  • Education
  • Socioeconomic
  • Geographical orientation
  • Military service
  • Language
  • Culture

Most of the modern companies can sell their products all over the world, reaching many different groups of people. In order to successfully create, present and sell their products in this global market, companies need a diversified workforce.

Benefits of workplace diversity:

  • Increased creativity
  • Variety of different perspectives
  • Increased problem-solving
  • Improved employee engagement
  • Reduced employee turnover
  • Improved company reputation
  • Improved hiring results
  • Increased profits

More benefits to having diversity in the workplace:

  • A diverse workplace will help organizations better understand target demographics and what moves them.
  • Employees from diverse backgrounds imbue organizations with creative new ideas and perspectives informed by their cultural experiences.
  • Increased customer satisfaction by improving how employees interact with a more diverse clientele and public.
  • A diverse workplace can better align an organization’s culture with the demographic make-up of America.

Managing workplace diversity:

Prioritize Communication

To manage a diverse workplace, organizations need to ensure that they effectively communicate with employees. Policies, procedures, safety rules and other important information should be designed to overcome language and cultural barriers by translating materials and using pictures and symbols whenever applicable.

Treat Each Employee as an Individual

Avoid making assumptions about employees from different backgrounds. Instead, look at each employee as an individual and judge successes and failures on the individual’s merit rather than attributing actions to their background.

Encourage employees to work in diverse groups

Diverse work teams let employees get to know and value one another on an individual basis and can help break down preconceived notions and cultural misunderstandings.

Base Standards on Objective Criteria

Set one standard of rules for all groups of employees regardless of background. Ensure that all employment actions, including discipline, follow this standardized criteria to make sure each employee is treated the same.

Be Open-Minded

Recognize, and encourage employees to recognize, that one’s own experience, background, and culture are not the only with value to the organization. Look for ways to incorporate a diverse range of perspectives and talents into efforts to achieve organizational goals.

Hiring

To build a diverse workplace, it is crucial to recruit and hire talent from a variety of backgrounds. This requires leadership and others who make hiring decisions to overcome bias in interviewing and assessing talent. If organizations can break through bias and hire the most qualified people, those with the right education, credentials, experience and skill sets, a diverse workplace should be the natural result.

Inter group behaviour

Intergroup relations refers to interactions between individuals in different social groups, and to interactions taking place between the groups themselves collectively. It has long been a subject of research in social psychology, political psychology, and organizational behavior.

The organisation consists of many groups created formally or informally. The existence of groups leads to intergroup competition.

The whole phenomenon may be studied under two heads:

(i) What happens within the groups?

(ii) What happens between competing groups?

What Happens Within the Groups?

(1) Each group becomes a closely knit organisation by burying their internal bickering’s and differences.

(2) The group climate changes, it switches over from being informal, casual and playful to task oriented. It shifts from members’ psychological needs to taste accomplishment.

(3) Leadership changes, the group is not prepared to tolerate even the autocratic leadership.

(4) Group becomes structured and organised.

(5) Group expects more loyalty and conformity from members in order to present a solid front.

What Happens Between Competing Groups?

Each group looks to other as a competitor rather than interdependent part of the same organisation.

Each group develops distributions of perceptions because of dominating competitiveness. It concentrates only on its good points and refuses to perceive its weaknesses. Similarly, it perceives only the bad points or the shortcomings of other groups, this feeling is so dominating that it is not prepared to consider the good of its competitors.

Intergroup hostility increases which leads to reducing intergroup interaction and communication. This leads to distortion in perception.

When groups are forced into interaction they will only listen to their own representatives rather than of the other. Each will try to find faults of others.

Approaches to Inter-Group Relationship:

Inter-Group relationship may be presented in two ways:

(i) As portrayed by Rensis Likert

(ii) As stated by J. Thompson.

(i) Likert’s Approach:

According to Likert an organisation encompasses a series of overlapping groups. Each group is linked with the rest of the organisation by persons who hold membership in more than one group. These people are called ‘linking pins’ as they forge link between different groups. Though the success of decision making depends upon group process and interaction, occurring at different levels, yet everything revolves around the ‘linking pins’.

Apart from the linking pins, the Success of Organisation depends on:

(a) Good group process of decision making

(b) Supervision

Both these elements duly insulated by linking pins will generate intergroup confidence and trust; it will enhance the problem solving ability of the group which will result in better productivity level.

(ii) Thompson’s Approach:

Though Likert theory is very well accepted but it is based on the assumption that there exists equal interdependence among different groups. Thompson suggests that there are three different kinds of interdependence among groups.

These are:

(a) Pooled

(b) Sequential and

(c) Reciprocal

(a) Pooled Interdependence:

Pooled Interdependence occurs when groups rely on each other only because they belong to the same parent organisation. For example, the employees of Bata Shoe Company, Working at Ludhiana have no Interaction with their counterparts in Jammu, but both are interdependent because they are part and parcel of the Bata Organisation.

Success or failure of one may be reflected in another through the medium of the total organisation system. Pooled interdependence, does not need any interaction between groups, hence conflict does not arise. Co-ordination may, however, be forged through standardization and the rules formulated by the parent office.

(b) Sequential Interdependence:

It means that the work of one group depends on the performance of another. For instance, the finished Job i.e., output of one group becomes the input of another group. However, both groups are sustained by the organisation. The interdependence is both pooled and sequential. This type of interdependence may be regulated by proper planning and controlling the chances are that conflicts between the groups are higher than pooled interdependence.

(c) Reciprocal Interdependence:

Reciprocal interdependence means that each group is dependent on each other. The operations of each group precede and act as pre-requisite to the functioning of other. For example, management and union relationship, where both depend on each other. Because each group relies on other to perform its job effectively, any problems between them may result in reduced productivity or decreased satisfaction. Reciprocal interdependence ought to be coordinated by mutual adjustment between the groups. It requires greater communication and understanding to avoid possible conflict.

Applications of Transactional Analysis

Transactional Analysis (TA), thus, facilitates communication. TA studies transactions amongst people and understands their interpersonal behaviour. It was developed by Eric Berne, a psychotherapist. He observed there are several ‘people’ inside each person who interact with other people in different ways.

Transactional Mind Games

Psychological ‘mind games’ played at work are often a series of repeated transactions. The game may make sense at some superficial level, but in the end, it’s typically about strengthening someone else’s psychological position or avoidance. For example, “Passing the Buck” often occurs in organizations that pass important decisions on up to different hierarchical levels of management. Another example is “The Blame Game,” an attempt to shift responsibility from one person or group to another.

A boss may play the “Why Don’t You/Yes But” game when he calls a meeting to get suggestions on some issue, but then puts down each suggestion offered by the employees only to point out that his solution is the best answer.

Emphasis on Stroking

An important part of transactional analysis techniques is the concept of stroking, suggests professional skills platform Tools Hero. Humans have a continual need for strokes, which can be understood as simple units of interpersonal recognition. Managers and supervisors can create a positive work environment and positive relationships with employees by giving constant strokes. Examples include verbal praise of an employee, compliments or positive feedback about a project. Strokes can also be physical, such as a handshake or pat on the back. Negative work attitudes may ensue if employees experience negative strokes, such as constant criticism from an overbearing boss.

Crossed Transactions

When observing transactional analysis in communication, it is common to see crossed transactions, which can take place between a supervisor and employees or between employees themselves. When crossed transactions occur, a break in communication likely results unless one person shifts his response to a complementary ego state. This may happen when the receiver forms the wrong impression about the sender’s message or responds in an ego state differently than what you might expect.

The Complementary Transaction

Successful communication in the workplace requires complementary transactions. This involves one person initiating a conversation in one of the three ego states, such as parent-to-child, and the respondent sending a reply back to the sending ego state, such as child-to-adult, Breathe HR explains.

For example, a supervisor communicates in the parent-to-child ego when he reprimands an employee for being late. If the employee responds by apologizing and saying it won’t happen again, the employee is in the child-to-parent ego state and the result is a complementary transaction.

Also, consider two co-workers evaluating a failed project. If one person sends an adult-to-adult message of “Let’s figure out what went wrong,” a complementary adult-to-adult response from the other would be “Yes, let’s get to work and find out what happened.”

Ego states, Life positions

Ego states

It represents a person’s way of thinking, feeling and behaving. There are three ego states present in everyone: child, parent and adult. They are related to behaviour of a person and not his age. However, they are present in every person in varying degrees. There may be more of one ego state than another at a specific point of time. When two persons communicate with each other, communication is affected by their ego states. These are;

(a) Child ego:

Child behaviour reflects a person’s response to communicate in the form of joy, sorrow, frustration or curiosity. These are the natural feelings that people learn as children. It reflects immediate action and immediate satisfaction. It reflects childhood experience of a person gained generally up to the age of five years.

(i) Adaptive child:

He reacts the way his parents want him to react. He is trained to act.

(ii) Natural child:

He is naturally curious, joyous or scornful. He does what comes his way naturally.

(iii) Rebellious child:

He has the experience of fear, frustration and anger.

(b) Parent Ego:

Parent behaviour is acquired through external environment. As young children, their parents’ behaviour remains embedded in their minds which is reflected as parental ego when they grow up. It usually reflects protection, displeasure, reference to rules and working on the basis of past precedents.

(i) Nurturing parent ego:

As nurturing parents, managers praise good performance of the workers. They interact with them and help them during times of distress. They reflect nurturing behaviour towards others.

(ii) Negative or critical parent ego:

As critical parents, managers criticize or ignore poor performance of the workers rather than help them to improve. They have a critical attitude while interacting with others.

(c) Adult ego:

Adult behaviour reflects the ability to analyse the situation and take logical decisions. He overcomes the emotional feelings and takes decisions based on facts and figures. This state is based upon reasoning, thinking, experience, rationality and discussion based on facts.

It updates the parental ego to determine what is right and wrong and child ego to determine what feelings to express and what not to express. These ego states are present in all human beings at some time or the other. People respond to different situations in different ways depending on their ego state.

Life positions

Behaviour of a person depends upon his experience at different stages of his life. He develops a philosophy towards work from early childhood which becomes part of his identity and remains with him for lifetime unless some external factor changes it. These positions are called life time positions.

(a) I am OK, You are OK:

This life position represents adult ego of a person. It becomes the philosophy of a person who has good and positive experiences with others. They feel confident about themselves and others. Managers with this life position believe in give and take. They are competent to take decisions and also allow others to participate in the decision-making processes. They delegate authority and express confidence and consistency in others. They are not threatened by others and express freely what they want to express.

(b) I am OK, You are not OK

This life position is created when an individual was too much ignored when he was a child. Here, an individual believes that he is right, and all the others around him are wrong. These are the individual who possesses the rebellion child ego and put blame on others for anything that goes wrong with them.

© I am not OK, You are OK:

This life position represents a state of distrust in the person himself. He lacks confidence in whatever he does. He believes he cannot do things that people around him can do and, therefore, keeps grumbling most of the times about something or the other.

Managers with this life position are usually not good managers. They do not perform well, have an erratic behaviour, feel guilty for their acts and often use excuses to act against others.

(d) I am not OK, you are not OK

This kind of life position is created by those who lacks interest in living. They feel life is not worth living and are the ones who have been neglected by their parents in their childhood and were brought up by the servants. Such kind of people commits suicide or homicide to end their lives.

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