Tag: Office Organization and Management

A Business Unit is most commonly recognized as an independent transaction-processing entity. It is defined as an organization or the subset of an organization which is independent in its accounting and operational functionality. A Business Unit is basically a profit making centre which has a prime focus to segment the market and be able to enhance the product offerings of the company. They usually have a separate clearly defined marketing plan, a well-defined marketing campaign and a detailed analysis of the competition, even when they are essentially a part of a bigger business entity.

In organizations, subsidiaries are often confused with business units. But these two have some significant differences. A company which is at least 50 percent owned by another company, more commonly known as the parent company is referred to as a subsidiary. The subsidiary is a complete corporate body, whereas the business units are sub-components or components of these subsidiaries. Business units are a smaller entity like a department or a functional group within a company which is responsible for handling the issues and affairs of that specific activity. Examples of business units include marketing, finance, operations, accounting, sales, human resources and research and development divisions.

Companies can have multiple independent business units into itself or as a branch, and each one of them is responsible for their own profitability. For example: General Electric is a company having 49 business units.

There are three important parameters that are usually seen as the success determining factors of a business unit:

• The degree of functionality and facility sharing between multiple SBUs.
• The autonomy and power delegated to a business unit manager.
• The way of handling new products in organizations.

Factor affecting Size of Business unit

1. Entrepreneurial Skill:

The most important factor of comes is the skill, initiative and resourcefulness of the entrepreneur. Everything depends on his judgment and ability. An entrepreneur of outstanding ability will be able to procure as much finance as he may need, hire the requisite labor force and build up a huge business. But an entrepreneur of moderate ability will run business on a moderate scale and a man of limited entrepreneurial skill will be content with a small business

2. Managerial Ability:

For running the routine part of the business, managers are appointed. If a firm is lucky enough to have a manager of great ability, the size of the firm will grow to considerable dimensions. On the other hand, a mediocre manager will have a small-sized firm to manage.

3. Availability of Finance:

It is finance which oils the wheels of business machine. If ample funds are available, it will help the entrepreneur to make his business grow to a big size. This requires a proper development, of the banking system so that savings of the community can be effectively mobilized and utilized in the development of trade and industry.

4. Availability of Labour:

Another factor on which the size of the firm depends is the availability of labour of requisite skill. After all, what can the entrepreneur even with large capital do, if the labour to man the business is not available? What is required is efficient and skilled labour.

5. Nature of Business:

Much also depends on the nature of business. If the business obeys the law of increasing Returns, it will grow to a big size, otherwise, in the case of diminishing returns it will remain stunted, and in the case of constant returns it will remain stagnant.

6. Extent of the Market:

The size of the firm also depends on the extent of the market. If the commodity in which the firm deals or which it-manufactures has a wide market, naturally the business will assume a large scale. But if the demand for the commodity is fitful or limited, the size of the firm will continue to be small. These are some of the factors on which the size of an average firm in a country depends.

Nature of an Organization

There are some common features of organization through which a clear idea about its nature can be obtained. These are indicated below:

Process

Organization is a process of defining, arranging and grouping the activities of an enterprise and establishing the authority relationships among the persons performing these activities. It is the framework within which people associate for the attainment of an objective.

The framework provides the means for assigning activities to various parts and identifying the relative authorities and responsibilities of those parts. In simple term, organization is the process by which the chief executive, as a leader, groups his men in order to get the work done.

Structure

The function of organizing is the creation of a structural framework of duties and responsibilities to be performed by a group of people for the attainment of the objectives of the concern. The organization structure consists of a series of relationships at all levels of authority.

An organization as a structure contains an “identifiable group of people contributing their efforts towards the attainment of goals.” It is an important function of man­agement to organize the enterprise by grouping the activities necessary to carry out the plans into administrative units, and defining the relationships among the executives and workers in such units.

Dividing and Grouping the Activities

Organizing means the way in which the parts of an enterprise are put into working order. In doing such, it calls for the determination of parts and integration of one complete whole on the other. In fact, organization is a process of dividing and combining the activities of an enterprise.

Activities of an enterprise are re­quired to be distributed between the departments, units or sections as well as between the persons for securing the benefits of division of labour and specialisation, and are to be inte­grated or combined for giving them a commonness of purpose.

1. Urwick defines organization as: ‘determining what activities are necessary to any purpose and arranging them as groups which may be assigned to individual.
2. Accomplishment of Goals or Objectives

An organization structure has no mean­ing or purpose unless it is built around certain clear-cut goals or objectives. In fact, an organization structure is built-up precisely because it is the ideal way of making a rational pursuit of objectives. Haney defines organization as: “a harmonious adjustment of specialised parts for the accomplishment of some common purpose or purposes”.

Authority-Responsibility Relationship

An organization structure consists of vari­ous positions arranged in a hierarchy with a clear definition of the authority and responsibility associated with each of these. An enterprise cannot serve the specific purposes or goals unless some positions are placed above others and given authority to bind them by their decisions.

In fact, organization is quite often defined as a structure of authority-responsibility relationships.

Human and Material Aspects

Organization deals with the human and material factors in business. Human element is the most important element in an organization. To accomplish the task of building up a sound organization, it is essential to prepare an outline of the organization which is logical and simple. The manager should then try to fit in suitable men. Henry Fayol says in this connection: “see that human and material organizations are suitable” and “ensure material and human order”.

From these features of organization, it emerges that, an organization is essentially an administrative ‘process’ of determining what activities are necessary to be performed for the achievement of objectives of an enterprise, dividing and grouping the work into individual jobs and, a ‘structure’ of positions arranged in a hierarchy with defined rela­tionships of authority and responsibility among the executives and workers performing these tasks for the most effective pursuit of common goals of the enterprise.

Characteristics

1. Economic activity:

Business is an economic activity of production and distribution of goods and services. It provides employment opportunities in different sectors like banking, insurance, transport, industries, trade etc. it is an economic activity corned with creation of utilities for the satisfaction of human wants.

It provides a source of income to the society. Business results into generation of employment opportunities thereby leading to growth of the economy. It brings about industrial and economic development of the country.

2. Buying and Selling:

The basic activity of any business is trading. The business involves buying of raw material, plants and machinery, stationary, property etc. On the other hand, it sells the finished products to the consumers, wholesaler, retailer etc. Business makes available various goods and services to the different sections of the society.

3. Continuous process:

Business is not a single time activity. It is a continuous process of production and distribution of goods and services. A single transaction of trade cannot be termed as a business. A business should be conducted regularly in order to grow and gain regular returns.

Business should continuously involve in research and developmental activities to gain competitive advantage. A continuous improvement strategy helps to increase profitability of the business firm.

4. Profit Motive:

Profit is an indicator of success and failure of business. It is the difference between income and expenses of the business. The primary goal of a business is usually to obtain the highest possible level of profit through the production and sale of goods and services. It is a return on investment. Profit acts as a driving force behind all business activities.

Profit is required for survival, growth and expansion of the business. It is clear that every business operates to earn profit. Business has many goals but profit making is the primary goal of every business. It is required to create economic growth.

5. Risk and Uncertainties:

Risk is defined as the effect of uncertainty arising on the objectives of the business. Risk is associated with every business. Business is exposed to two types of risk, Insurable and Non-insurable. Insurable risk is predictable.

6. Creative and Dynamic:

Modern business is creative and dynamic in nature. Business firm has to come out with creative ideas, approaches and concepts for production and distribution of goods and services. It means to bring things in fresh, new and inventive way.

One has to be innovative because the business operates under constantly changing economic, social and technological environment. Business should also come out with new products to satisfy the growing needs of the consumers.

7. Customer satisfaction:

The phase of business has changed from traditional concept to modern concept. Now a day, business adopts a consumer-oriented approach. Customer satisfaction is the ultimate aim of all economic activities.

Modern business believes in satisfying the customers by providing quality product at a reasonable price. It emphasize not only on profit but also on customer satisfaction. Consumers are satisfied only when they get real value for their purchase.

The purpose of the business is to create and retain the customers. The ability to identify and satisfy the customers is the prime ingredient for the business success.

8. Social Activity:

Business is a socio-economic activity. Both business and society are interdependent. Modern business runs in the area of social responsibility.

Business has some responsibility towards the society and in turn it needs the support of various social groups like investors, employees, customers, creditors etc. by making goods available to various sections of the society, business performs an important social function and meets social needs. Business needs support of different section of the society for its proper functioning.

9. Government control:

Business organisations are subject to government control. They have to follow certain rules and regulations enacted by the government. Government ensures that the business is conducted for social good by keeping effective supervision and control by enacting and amending laws and rules from time to time.

10. Optimum utilization of resources:

Business facilitates optimum utilization of countries material and non-material resources and achieves economic progress. The scarce resources are brought to its fullest use for concentrating economic wealth and satisfying the needs and wants of the consumers.

Business combinations are combinations formed by two or more business units, with a view to achieving certain common objective (specially elimination of competition); such combinations ranging from loosest combination through associations to fastest combinations through complete consolidations.

L.H. Haney defines a combination as follows:

“To combine is simply to become one of the parts of a whole; and a combination is merely a union of persons, to make a whole or group for the prosecution of some common purposes.”

Causes of Business Combinations:

(i) Wasteful Competition:

Competition, which is said to be the ‘salt of trade’, by going too far, becomes a very powerful instrument for the inception and growth of business combinations. In fact, competition, according to Haney, is the major driving force, leading to the emergence of combinations, in industry.

(ii) Economies of Large-Scale Organization:

Organisation of production on a large scale brings a large number of well-known advantages in its wake like technical economies, managerial economies, financial economies, marketing economies and economies vis-a-vis greater resistance to risks and fluctuations in economic activities. Economies of large scale operations, thus become, a powerful force causing increased race for combinations.

(iii) Desire for Monopoly Power:

Monopoly, a natural outcome of combination, leads to the control of market and generally means larger profits for business concerns. The desire to secure monopolistic position certainly prompts producers to join together less than one banner.

(iv) Business Cycles:

Trade cycles, the alternate periods of boom and depression, lead to business combinations. Boom period i.e. prosperity period leading to an unusual growth of firms to reap rich harvest of profits results in intense competition; and becomes a ground for forming combinations.

Depression, the times of economic crisis-with many firms having to only option to close down-prompts business units to combine to ensure their survival.

(v) Joint Stock Companies:

The corporate form of business organization is a facilitating force leading to emergence of business combinations. In joint stock companies, control and management of various corporate enterprises can be concentrated, in a ‘small group of powerful persons through acquiring a controlling amount of shares of different companies.

(vi) Influence of Tariffs:

Tariffs have been referred to as “the mother of all trusts”. (A trust is a form of business combinations). Tariffs do not directly result in combinations; they prepare the necessary ground for it. In fact, imposition of tariffs restricts foreign competition; but increases competition among domestic producers. Home producers resort to combinations, to protect their survival.

(vii) Cult of the Colossal (or Respect for Bigness):

In the present-day-world, business units of bigger size are more respected than units of small size. Those who believe in the philosophy of power and ambition, compel small units to combine; and are instrumental in forming powerful business combinations, in a craze for achieving bigness.

(viii) Individual Organising Ability:

The scarcity of organizing talent has also induced the formation of combinations, in the business world. Many-a-times, therefore, combinations are formed due to the ambition of individuals who are gifted with organising ability. The number of business units is far larger than the skilled business magnates; and many units have to combine to take advantage of the organising ability of these business brains.

Objectives

Eliminates Competition

Business combination helps in eliminating the tough competition among firms in market. In presence of a competition, many businesses are not able to earn suitable profits. They come together and set up their combination to work together for achieving common goals.

Proper Management

It leads to proper management of all business units that merged together into one unit. Small business cannot afford the services of quality managers which affects their performance. Combination of these units together enables them in hiring management experts.

Attains Monopoly

Acquiring market dominance is another major objective of business combination. Several businesses by forming a combination attain a monopoly position and enjoy a larger share in market.

Economy Scale

Business combination assist in availing the benefits of economies of scale. Small business units by merging together purchases large amount of raw materials at cheap rate and carrying out their production activities at a large scale. This brings down their cost of operations and increases their profit level.

Solves Capital Problem

It helps in overcoming the capital problems. Small business units lack funds for growing their activities. By associating with other units they easily gets funds for large scale production, buying advanced machinery and carrying out research activities.

Economic Stability

Combination of business impart them greater health to face crisis. By joining as one unit they can easily overcome times of political and economic instability.

Improve Product Quality

It leads to enhance the quality of products and level of production by firms. Combination enables them in sharing ideas, knowledge and technology with each other which results in better production. By combining the efforts they come up with new and advanced products in market.

Business combinations are of the following types:

(i) Horizontal Combinations.

(ii) Vertical Combinations.

(iii) Lateral or Allied Combinations:

Lateral combination refers to the combination of those firms which manufacture different kinds of products; though they are allied in some way.

Lateral combination may be:

(a) Convergent lateral combination:

In convergent lateral combination, different industrial units which supply raw-materials to a major firm, combine together with the major firm. The best illustration is found in a printing press, which may combine with units engaged in supply of paper, ink, types, cardboard, printing machinery etc.

(b) Divergent lateral combination:

Divergent lateral integration takes place when a major firm supplies its product to other combing firms, which use it as their raw material. The best example of such combination may be found in a steel mill which supplies steel to a number of allied concerns for the manufacture of a variety of products like tubing, wires, nails, machinery, locomotives etc.

(iv) Diagonal (or Service) Combinations:

This type of combination takes place when a unit providing essential auxiliary goods / services to an industry is combined with a unit operating in the main line of production. Thus, if an industrial enterprise combines with a repairs workshop for maintaining tools and machines in good order; it will be effecting diagonal combination.

(v) Circular (or Mixed) Combinations:

When firms engaged in the manufacture of different types of products join together; it is known as circular or mixed combination. For example, if a sugar mill combines with a steel works and a cement factory; the result is a mixed combination.

Forms of Business Combinations:

By the phrase ‘forms of combinations’, we mean the degree of combination, among the combining business units.

According to Haney, combinations may take the following forms, depending on the degree or fusion among combining firms:

(I) Associations:

(i) Trade associations

(ii) Chambers of commerce

(iii) Informal agreements

(II) Federations:

(i) Pools

(ii) Cartels

(III) Consolidations; Partial and Complete:

(а) Partial Consolidations:

(i) Combination trusts

(ii) Community of interest

(iii) Holding company

(b) Complete Consolidations:

(i) Merger

(ii) Amalgamation

The following chart depicts the above forms of business combinations:

Committee is not a separate organization as such. It is just an extended idea of line and staff system. Under this system, instead of a single officer acting in advisory capacity, there is a committee of experts for advice and guidance in business planning and execution. These committees play a wider role in the management of plant organization and are found at all levels of management hierarchy. But in medium sized undertakings, they are found only at top level.

These committees are basically set up for the following purposes:

• With the exchange of these ideas, some suggestions and recommendations can be generated that may prove useful for the organization.
• The committees are good for a where organizational members freely exchange ideas.
• The existing problems in the organization can be discussed within the committee forum and some new ideas for solving these problems can be introduced.
• Some committees are formed to assist in the development and establishment of organizational policies.

Principle characteristics of a committee

Important characteristics of Committees are that they are delegated definite responsibility and authority for doing a specific job, such as reviewing budgets, formulating plans for new products, making policy decisions on wages and salary and compensation plans. Others may only have the power to make recommendations and suggestions to a designated official.

1. A committee is a gathering of people representing different functions or spheres of knowledge, who come together to promote a common purpose or fulfill a common task or solve a problem, by interchanging of views.
2. The character and composition of a committee is often spelled out in the bylaws or administrative procedures of the company.
3. A committee usually has a fixed membership. In most cases, members are appointed, although sometimes, as with the board of directors, they may be elected.
4. In its deliberations, a committee usually follows certain definite written rules and procedures. Some committees can function if a quorum is complete; others only if all the members are present.
5. A committee may be granted authority to make or recommend decisions, or it may serve merely in an advisory capacity.

Advantages of Committee Organization

In all types of social institutions whether business or non-business, committees are found to exist in different areas and at different fields of the organization. The reasons for constituting such committees can be outlined as follows:

1. Fear of Authority

If too much functional authority is delegated to a single person, there is always a fear that the authority may be misused. Committees avoid undue concentration of authority in the hands of an individual or a few.

2. Group Deliberation and Judgement

It is the general rule that “two heads are better than one“. Since the committees comprise of various people with wide experience and diverse training, they can think the impact of the problems from various angles and can find out appropriate solutions. Such decisions are bound to be more appropriate than individual decisions.

3. Representation of interested Group

A policy decision may affect the interests of different sections. The committees provide an opportunity to represent their interest to the top management for consideration. This will facilitate the management to make a balanced decision.

4. Transmission of Information

Committees serve as a best medium to transmit information since they generally comprise of the representatives of various sections. Misinterpretation is almost avoided.

5. Coordination of Functions

They are highly useful in bringing co-ordination between different managerial functions.

6. Consolidation of Authority

Many special problems arising in individual departments cannot be solved by the departmental managers. The committees, on the other hand, permits the management to consolidate authority which is spread over several departments.

7. Avoidance of Action

The committee system also helps the manager who wants to postpone or avoid action. By referring the complicated matters to the committees, the managers can delay the action.

8. Motivation through Participation

Managerial decisions cannot be put into action without the co-operation of the operating personnel. Since the committees provide an opportunity for them to participate in the decision-making, the management can gain their confidence and co-operation.

9. Educational Value

Participation in committee meetings provides a beautiful ground for development of young executives. Through observation, exchange of information and cross examination, the young executives can broaden their knowledge and sharpen their understanding.

Disadvantages of Committees

The committees also have their own defects. Considering the dangers involved in the use of committees, a few authorities went to the extent of giving a sarcastic definition to the committee as “group of unfits engaged by unwilling to do unnecessary”. In particular, the committees suffer from the following demerits

1. Indecisive Action

In many cases, committees are unable to take any constructive decision because of the differences of opinions among their members.

2. High Cost in Time and Money

Committees take a lot of time to take a decision. The prolonged sessions of the committee results in a high expenditure. Generally speaking, committees are constituted only to avoid or postpone decisions. Hence, delay in decision has become an inherent feature of committees.

3. Compromising Attitude

In reality, many decisions taken by a committee are not the result of joint thinking and collective judgements. But they are only compromises reached between the various members Hence, the decisions of the committees are not real decisions in the strict sense.

4. Suppression of Ideas

Many smart members who can contribute new ideas, deliberately keep their mouth shut in order to avoid hard feelings.

5. Dominance of a Few

Collective thinking and group judgement are only in theory but not in practice. The decisions of the committees are generally the decisions of the chairman or any strong dominant members.

6. Splitting of Responsibilities

The greatest disadvantage of this system is the splitting of authority among the committee members. When authority is split up, no one in particular can be held responsible for the outcome of the committee.

7. Political Decisions

Since the committee decisions are influenced by the dominant members, the decisions of the committee cannot be taken as meritorious one with broader outlook.