INDUSTRIAL MANAGEMENT (GNS 420)

BUSINESS ORGANISATION, GOALS AND ENVIRONMENT

BUSINESS ORGANISATION

A business organisation is an entity which utilise economic resources or inputs to

provide goods or services to customers in return for money or other goods and
services. It come in different types and different forms of ownership.

Forms of Business Organisation

These are the basic forms of business ownership:

1. Sole Proprietorship
2. Partnership
3. Corporation
4. Co-operative

Sole Proprietorship

A sole proprietorship is a type of business where the capital needed and the
management of the business as well as the risk-bearing the risk of the enterprise is
provided by one person. Thus, ‘Sole Proprietorship’ form of business organisation
refers to a business enterprise exclusively owned, managed and controlled by a

single individual with all authority, responsibility and risk.

It is easy to set-up and is the least costly among all forms of ownership. In
addition, the owner faces unlimited liability; meaning, that personal assets of the
owner can be disposed off by the creditors to offset debt owed by the business.
CHARACTERISTICS OF SOLE PROPRIETORSHIP

(i) SINGLE OWNERSHIP: The sole proprietorship form of business organisation

has a single owner who himself/herself starts the business by bringing together all
the resources. The controlling power of the sole proprietorship business always
remains with the owner. He/she runs the business as per his/her own will.

(ii) NO SEPARATION OF OWNERSHIP AND MANAGEMENT: The owner

himself/herself manages the business as per his/her own skill and intelligence.
There is no separation of ownership and management as is the case with company
form of business organisation.

(iii)LESS LEGAL FORMALITIES: The formation and operation of a sole

proprietorship form of business organisation does not involve any legal formalities.
Thus, its formation is quite easy and simple.

(iv) NO SEPARATE ENTITY: The business unit does not have an entity separate
from the owner. The businessman and the business enterprise are one and the
same, and the businessman is responsible for everything that happens in his
business unit.

(v) NO SHARING OF PROFIT AND LOSS: The sole proprietor enjoys the profits
alone. At the same time, the entire loss is also borne by him. No other person is
there to share the profits and losses of the business. He alone bears the risks and
reaps the profits.

(vi) UNLIMITED LIABILITY: The liability of the sole proprietor is unlimited. In

case of loss, if his business assets are not enough to pay the business liabilities, his
personal property can also be utilised to pay off the liabilities of the business.

ADVANTAGES OF SOLE PROPRIETORSHIP

(a) EASY FORMULATION AND DISSOLUTION: It is very easy and simple to
form a sole proprietorship. This is because no legal formalities are required.
Similarly, the business can be wind up any time if the proprietor so decides.

(b) QUICK DECISION AND PROMPT ACTION: Since nobody meddle in the
affairs of the sole proprietorship, he/she can take quick decisions on the various
issues relating to business and accordingly prompt action can be taken.

(c) DIRECT MOTIVATION: In sole proprietorship, the entire profit of the

business goes to the owner. This motivates the proprietor to work hard and run the

business well.

(d) FLEXIBILITY IN OPERATION: It is very easy to effect changes as per the

requirements of the business. The expansion or curtailment of business activities
does not require many formalities as in the case of other forms of business
organisation. The operator can open and close at any time as deem fit by the
owner.

(e)PRESERVATION OF BUSINESS CONFIDENTIALITY: The business secrets

are known only to the proprietor. He is not required to disclose any information to
others unless and until he himself so decides. He is also not bound to publish his
business accounts.

(f) PERSONAL TOUCH: Since the proprietor himself handles everything relating
to business, it is easy to maintain a good personal contact with the customers and
employees. By knowing the likes, dislikes and tastes of the customers, the
proprietor can adjust his operations accordingly. Similarly, as the employees are
few and work directly under the proprietor, it helps in maintaining a harmonious
relationship with them, and run the business smoothly.
DISADVANTAGES OF SOLE PROPRIETORSHIP FORM

(a) INADEQUATE CAPITAL: The resources of a sole proprietor are always

limited. Being the single owner it is not always possible to arrange sufficient funds
from his own sources. Again borrowing funds from friends and relatives or from
banks has its own implications. So, the proprietor has a limited capacity to raise
funds for his business.

(b) LACK OF CONTINUITY: The continuity of the business is linked with the life
of the proprietor. Illness, death or insolvency of the proprietor can lead to closure
of the business. Thus, the continuity of business is uncertain.

(c) UNLIMITED LIABILITY: In view of the fact that there is no separate entity
of the business from its owner, the proprietor and the business are one and the
same. Thus personal properties of the owner can also be disposed off to meet
business obligations and debts.

(d) LIMITED MANAGERIAL EXPERTISE: Sole proprietorship suffers from

inadequate managerial expertise. A single person may not be an expert in all fields
like, purchasing, selling, financing and the likes. Also, due to limited financial
resources and the size of the business it is not possible to employ professional
managers.

PARTNERSHIP

Partnership is the coming together of two or more persons who pool their financial
and managerial resources into the entity with the aim of starting a business and
sharing the profits realised among themselves. The persons who form a partnership
are individually known as partners and collectively a firm or partnership firm.
CHARACTERISTICS OF PARTNERSHIP
(a) TWO OR MORE PERSONS: To form a partnership firm a minimum of two
persons are required. The maximum limit on the number of persons is ten for
banking business and 20 for other businesses. If the number exceeds the above
limit, the partnership becomes illegal and the relationship among them cannot be
called partnership.

(b) CONTRACTUAL RELATIONSHIP: Partnership is created by an agreement

among the persons who have agreed to join hands. Such persons must be
competent to contract. Thus, minors, lunatics and insolvent persons are not eligible
to become the partners. However, a minor can be admitted to the benefits of
partnership firm, that is, he can have share in the profits without any obligation for
losses.

(c) SHARING PROFITS AND BUSINESS: Profits and losses of the business of
the partnership firm are shared based on the agreement among the partners as
contained in the partnership deed..

(d) UNLIMITED LIABILITY: The partners of the firm have unlimited liability.
They are jointly as well as individually liable for the debts and obligations of the
firms. If the assets of the firm are insufficient to meet the firm’s liabilities, the
personal properties of the partners can also be utilised for this purpose. However,
the liability of a minor partner is limited to the extent of his share in the profits.

MERITS OF PARTNERSHIP

(a) EASY TO FORM: Partnership can be formed easily without many legal
formalities. Since it is not compulsory to get the firm registered, a simple
agreement, either in oral, writing or implied is sufficient to create a partnership
firm.
(b) AVAILABILITY OF LARGER RESOURCES: Since two or more partners
join hands to start partnership firm it may be possible to pool more resources as
compared to sole proprietorship.

(c) BETTER DECISIONS: In partnership firm each partner has a right to take part
in the management of the business. All major decisions are taken in consultation
with and with the consent of all partners. Thus, collective wisdom prevails and
there is less scope for reckless and hasty decisions.

(d) FLEXIBILITY: The partnership firm is a flexible organisation. At any time the
partners can decide to change the size or nature of business or area of its operation
after taking the necessary consent of all the partners.

(e) SHARING OF RISKS: The losses of the firm are shared by all the partners

equally or as per the agreed ratio. Since partners share the profit and bear the
losses, they also,take keen interest in the affairs of the business

. (g) PROTECTION OF INTEREST: In partnership, the rights of each partner and

his/her interests are fully protected. If a partner is dissatisfied with any decision, he
can ask for dissolution of the firm or can withdraw from the partnership.

(h) SECRECY: Business secrets of the firm are only known to the partners. It is
not required to disclose any information to the outsiders. It is also not mandatory to
publish the annual accounts of the firm.

DEMERITS OF PARTNERSHIP

(a) Unlimited Liability: The most important drawback of partnership firm is that
the liability of the partners is unlimited i.e., the partners are personally liable for
the debt and obligations of the firm. In other words, their personal property can
also be utilised for payment of firm’s liabilities.

(b) INSTABILITY: Every partnership firm has uncertain life. The death,
insolvency, incapacity or the retirement of an active partner brings the firm to an
end. Not only that any dissenting partner can give notice at any time for dissolution
of partnership.

(c) NON-TRANSFERABILITY OF SHARE: The share of interest of any partner

cannot be transferred to other partners or to the outsiders. So it creates

inconvenience for the partner who wants to transfer his share to others fully and
partly. The only alternative is dissolution of the firm.

CORPORATION

This could be a public corporation or private corporation. A public corporation is

also referred to as state owned business and a private corporation is referred to as
private enterprise.

PUBLIC CORPORATION

A public corporation is an organisation that is owned and controlled by the

government. A state owned business is the exact opposite of a private enterprise
which is owned by private individuals.
ADVANTAGES OF STATE OWNED ENTERPRISES
They provide very essential services to the people at cheaper and affordable rates.
For example electricity and water are some of the essential services that state
owned enterprises produce for the people. If such services are left solely in the
hands of private enterprises, then consumers would end up paying a great deal of
money for it since the private enterprises have a sole aim of making profit.
 i. Since state owned enterprises do not have a sole aim of making profit, the
services that they provide end up being cheaper than services provided by
private enterprises.
ii. They protect the consumers from being exploited by private enterprises by
offering them a cheaper and better alternative.
iii. Another advantage that a nation derives from state owned enterprises is the
fact that they create jobs for the people.
iv. State owned enterprises help the government to control certain strategic
sectors of the economy. There are certain industries which if not monitored
and controlled properly could pose serious risks to the public. A good
example is the atomic energy industry. It is imperative that the state owns
and controls such industries in order to make sure operations do not pose
any risk to the public.
DISADVANTAGES OF STATE OWNED ENTERPRISES

i. There can be high levels of corruption in state owned enterprises. This is

especially common in many third world countries where management is very
poor.
ii. State owned enterprises are sometimes plagued by too much political
interference and control.
iii. Negative work attitude by workers is another problem associated with state
owned enterprises. Many workers regard state owned enterprises as
something which does not belong to them so they handle it with negative
work attitudes such as laziness and dishonesty. Since it is not their business
they do not care what happens to it. This negative work attitude that is
heavily seen in state owned enterprises is one of the major reasons many of
these enterprises don’t do well.
iv. Bribery and corruption is more rampant in state owned enterprises than the
private enterprises. Studies have shown that majority of workers in state
owned enterprises are corrupt. The level of corruption in state owned
enterprises is even worse in underdeveloped regions across the globe.
Workers in state owned enterprises tend to take bribes before they do jobs
that they are being paid to do. Most managers of these enterprises embezzle
monies and others misappropriate them, leading to the slow growth of most
state owned enterprises.
Co-operative
A cooperative society is a business organization owned by a group of individuals
and is operated for their mutual benefit. It is a self help business organization in
which membersbunite to foster their group and individual business interests. It can
also be in form of credit and thrift society which is formed by income earners in an
organization, where loans are granted to members at low interest and also to
encourage saving habit among members. Individual members pool their resources
together for profitable investment and more efficient management of the
cooperative business enterprise. Profits are allocated to members based on
patronage. Cooperatives may be incorporated or unincorporated.
Some examples of cooperatives are: water and electricity (utility), cooperative
banking, credit and thrift, individuals, producers, retailers, consumers, farmers etc.

CHARACTERISTICS OF COOPERATIVE SOCIETY

1. Each member has a single vote.

2. The number of shares which any individual may own is limited.
3. Cooperatives are non profit making organizations.
4. Members are mostly people who share common interest.
5. Profits are shared based on patronage.
6. Members are the owners and customers of the business.
7. Extra capital is raised through loans from members on which a
fixed rate of interest.

ADVANTAGES

1. It helps to develop savings habit; this is very important in situations where there
is lack of capital due to little or no savings.
2. It helps its members to pool their resources together in terms of money and
manpower in order to buy goods at moderate prices.
3. Profits are enjoyed by members if it succeeds.
4. It facilitates members getting material supplies from the manufacturers at
wholesale prices.
5. Members standard of living is also improved.
6. Members are in better position to get loans from banks.
7. The affairs of the cooperative societies are managed on democratic principles.
8. The service of middlemen are eliminated.
9. There is fair treatment since profits are shared on the basis of patronage.
Disadvantages
1. Leaders of the cooperative society often misuse the society’s funds especially
for political and selfish purposes.
2. Most members of cooperative societies belong to the low income group
therefore capital tends to be very low; this limits the growth and range of
activities carried out by the societies.
3. In some cases, elected leaders of cooperative societies may also lack business
experience. This may lead to mismanagement of the society.
4. Slow returns on investment.
5. Difficulty in recovering loans.
6. Disloyalty among members, that is, members may not take personal interest in
the running of the business since responsibility is collective.

BUSINESS OBJECTIVES

Business objectives are the detailed picture of how an organisation intends to

accomplish its stated targets over a specified period with the resources available.
The main objectives of a business include the following:

Profit Maximisation: This involve making as much profit as possible within the
specified business period. Maximising profit means making sure that revenue
stays ahead of the costs of doing business. To achieve this goal focus must be on
controlling costs in both production and operations while maintaining the profit
margin on products sold.

Survival/ Competitive Analysis: A comprehensive analysis of the activities of the

competition should be an ongoing business objective irrespective of the stage of
the product life cycle a product is introduced to the market. Understanding where a
product rank in the marketplace helps to better determine how to improve the
product’s standing among consumers and revenue to the business.

Profit satisficing: Satisficing means being happy with ‘good enough’ rather than
striving for the best possible option. This is a common strategy in smaller
businesses. If the owners want their managers to do more than just make them
happy, they should consider offering them a stake in the business.

Sales growth:The bigger a company, the more it can benefit from economies of
scale. To achieve this goal business owners have to make all effort to satisfy their
customer. This is because good customer service helps to retain customers and
generate repeat revenue.

In essence, the objective of maximizing profits hinge on the attainment of the other
objectives and the environment where the business operate.

BUSINESS ENVIRONMENT
Business environment means all of the internal and external forces, factors and
institutions that are beyond the control of the business. These include customers,
competitors, suppliers, government, and the social, political, legal and
technological factors,employees, management, supply and demand and business
regulations. However, emphasis will be on the macro environment of business.

The macro environment of a business consists of the political, technological,

social, legal and economic factors influencing business. All of these are not an
immediate part of the organisation yet they have an impact on business.

i. Political Environment

A business thrives under a stable and conducive political climate. Government

policies which give priority to growth of trade and industry, provision of
infrastructural facilities and institutional support gives incentive to businesses.
Government policies should be business friendly considering the fact that
employment and export potential, the short gestation period and businesses act as
seedbed for nurturing and developing a nation. There is, therefore, the need to
create extensive institutional framework for provision of finance, technology as
well as help in marketing be made available by government institutions.

ii. Technological Environment

The level of technology, the trends and the rate of change in technology existing in
a society all have a direct impact on businesses. Changes in technology, both
innovation and invention change industry structures by altering costs, quality
requirements and volume capabilities. Many products are of poor quality and lack
standardisation because use obsolete technologies and lack of investment in
Research and Development (R&D). A direct consequence of this is the inability to
face competition.
iii.Socio-Cultural Environment
The customs, norms and traditions of the society also play an important role in
either hindering or promoting businesses. In certain traditional communities in
Nigeria, working of females out of the home environment is frowned upon. Many
times the choice of occupation is also dictated by the family traditions. Many
vegetarians may not be engaged in poultry or fishery farms in spite of their
economic potential. It is definitely wrong to sight a piggery farm in a
predominantly Muslim community. It is, therefore, important for a business owner
to understand the socio-cultural background of their customers in the host
community. Socio-cultural environment is also concerned with attitudes about
work or quality concerns, ethics, values, religion etc.

iv. Legal Environment

The laws of the country can make the process of setting up business very lengthy
and difficult or vice-versa. This is further compounded by bureaucratic procedures
in Nigeria, which act as a damper on new venture creation. The labour laws and
legal redress system also have a bearing on business operations. Patents,
Agreements on trade and tariffs and environmental laws also need to be studied.
Copyright, trademark infringement, dumping and unfair competition can create
legal problems in the shape of long drawn out court battles. Simpler legal
procedures can facilitate the process of business creation and its smooth
functioning including setting up of ancillaries, foreign tie-ups and joint ventures.

v. Economic Environment
Economic reforms in Nigeria and the ECOWAS, has increased the space for
business operations. It has also opened channels for foreign investors, banks,
insurance and infrastructure companies to start operations. The resultant
competition, rapid and complex changes have changed existing business
environment, which have to be handled by business owners.

MANAGEMENT METHODS

Management is the process of reaching organisational goals by working. It

involves the performance of the function of planning, controlling, organising,
staffing and directing.

FUNCTIONS OF MANAGEMENT
Planning: Planning is a systematic thinking about the means of accomplishing
predetermined goals. It involves answering in advance the question of: what to do,
when to do and how to do. It bridges the gap from where the organisation is and
where it should be. Planning ensures proper utilization of human and non human
resources in an organization.

Controlling: This is the measurement of the accomplishment of an organization

against the organizational goals in order to ensure conformity with standards. It
involves the establishment of standard performance, measuremet of actual
performance, comparison of actual performance with the standards, finding out
deviation if any and taking corrective action.
Organising: This is the bringing together of physical, financial and human
resources and developing productive relationship amongst them in order to achieve
organizational goals. It involves: identification of activities, classification or
grouping of activities, assignment of duties, delegation of authority and creation of
responsibility as well as co-ordination of authority and responsibility relationships.

Staffing: It is the manning of organisation structure through proper and effective

selection, appraisal and development of personnel to fill the roles designed in the
structure. It is putting of the right man in the right job which involves manpower
planning, recruitment, selection and placement, training and development,
renumeration, performance appraisal, promotion and transfer of employees.

Directing: It deals with influencing, guiding, supervising and motivating

subordinates to achieve organizational goals.

Management by Objectives

Management by Objectives (MBO) was first outlined by Peter Drucker in 1954 in

his book 'The Practice of Management'. It is a systematic and organised approach
that allows management to focus on achievable goals and to attain the best possible
results from available resources. It aims to increase organisational performance by
aligning goals and subordinate objectives throughout the organisation. Ideally,
employees get strong input to identify their objectives and the time lines for
completion.

Management by Objectives includes ongoing tracking and feedback in the process

to reach objectives. The principle behind Management by Objectives is to make
sure that everybody within the organisation has a clear understanding of the aims
of the organization and are aware of their own roles and responsibilities in
achieving the aims. It is aimed at getting managers and empowering employees
acting to implement and achieve their plans, which automatically achieve those of
the organisation.

Motivation

Motivation is the internal and external factors that stimulate desire and energy in
people to be continually interested and committed to a job/role or make effort to
attain a goal. Motivation becomes necessary due to individual employee’s
involvement and participation in an organisation.

Douglas McGregor in the 1960s developed a motivational theory which relates to

the transformation of human resource practices of organizations. McGregor
believed that organisations and managements represent two opposing perceptions
about employees motivation. So he referred to these two perceptions as Theory X
and Theory Y.

Though Theories X and Y appear to represent unrealistic extremes, McGregor

concluded that the leadership style in organisations depend on the manager’s
perception of people (employees) who often fall somewhere in between these poles
and the work that has to be done. Theory X is more relevant in industrial
organisations where activities revolve around a high degree of productivity while
in instances where the thinking process is important and the employee is expected
to act on their own responsibility Theory Y is more appropriate. Nonetheless, a
mix of practices aimed at ensuring a healthy blend of systems and freedom to
perform at the work place may motivate the employees more.

Theory X

In this theory, managers assume that employees: are inherently lazy, will avoid
work if possible, are only out for themselves and their sole interest is to earn
money, do not wish to take responsibility, have no ambition and prefer to be
supervised.

On the other hand, managers influenced by Theory X believe that everything must
end in blaming someone without questioning the systems, policy, or lack of
training which could be the real cause of failures. The managers also tend to take a
rather pessimistic view of their employees.

Therefore, authoritarian leadership style is the most appropriate because workers

need to be closely supervised with comprehensive systems of control put in place.
A hierarchical structure is also needed, with narrow span of control at each level,
for effective employee management. In addition, the system of rewards and
punishments will work best since employees would want to avoid work and they
must be continually coerced and controlled. Furthermore, tasks and how they
should executed must be laid down in detail since workers do not wish to bear any
responsibility for their work.

Managers who build on the basic principles of Theory X, are often met with a
vicious circle in which their suppositions become reality and in which cause and
effect are reversed. Their employees are accustomed to coercion and control and
will therefore not make any effort at all or bear responsibility.

Theory Y

Unlike in Theory X, Douglas McGregor starts from the assumption in Theory Y

that employees have different needs, are inherently happy to work, want to exert
themselves and are motivated to pursue objectives, are prepared to take
responsibility for everything they do, are creative and they take a creative problem
solving approach.
On the other hand, management influenced by this theory assumes that employees
are ambitious, self-motivated and anxious to accept greater responsibility and
exercise self-control, self-direction, autonomy and empowerment. Management
believes that employees enjoy their work. They also believe that employees have
the desire to be creative at their work place and become forward looking. There is
a chance for greater productivity by giving employees the freedom to perform to
the best of their abilities, without being bogged down by rules.

Theory Y manager believes that, given the right conditions, the satisfaction of
doing a good job is a strong motivation in itself hence barriers preventing workers
from fully actualizing themselves are removed by the manager. Also, a democratic
leadership style arises which allows employees to have a greater say and feel
comfortable to commit themselves wholeheartedly to the organization.

In Theory Y, encouragement and rewards are used rather than control and
coercion. Employees are given an opportunity to develop themselves and put their
capabilities to good use. Non response to this results to employees looking for
opportunities to deploy their skills outside their work by focusing on hobbies,
committee and voluntary work or hunting for another job.
ELEMENTS OF MARKETING
Market refers to any place or space where buyer and sellers can come in contact
with each other either directly or indirectly, so as to trade goods and services for
value and a well defined product. This space can be a produce market, a shop,
internationally between countries or over the internet. The main function of a
market is to determine the price of the commodity, with the help of demand and
supply factors.

Marketing is derived from the term market. It involves the process creating value
for customers, clients and society as a whole. It includes all those activities that
facilitate trade, such as, identifying consumers’ needs through market research and
satisfying consumers needs in terms of packaging and distribution. It is more than
creating advertising and getting customer input on product changes. Rather, it is
understanding consumer buying trends, anticipating product distribution needs,
developing business partnerships that help improve market share/ increase sales
and profit.

The Marketing Mix

The marketing mix is referred to as the 4 Ps of marketing. It categorises all the
various strategies used in the marketing of goods and services. These categories
are product, promotion, pricing and place. The marketing mix is used to describe
how business owners combine the four categories into an overall marketing
programme.
(1) Product: This includes product designing, packaging, labelling and branding.
An effective product strategies may include concentrating on a narrow product
line, developing a highly specialized product or service, or providing a product-
service package containing an unusual amount of service.
(2) Promotion: This marketing decision area includes advertising, salesmanship,
public relations and other sales promotional activities. In general, high quality
salesmanship is a must for any businesses to thrive.
(3) Price: This includes various pricing strategies and methods. Determining
price levels and/or pricing policies (including credit policy) is a major factor
affecting total revenue. Generally, higher prices mean lower sales volume and
vice-versa; nonetheless, businesses often command higher prices because of the
personalised service they offer. The nature of the product/service is also important
in locational decisions.
(4) Place: This involves distribution of products through the various channels. The
manufacturer and wholesaler must decide how to distribute products. Working
through established distributors or manufacturer’s agents is generally more
feasible.

CHANNELS OF DISTRIBUTION
Philips Kotler defines channel of distribution as “a set of independent organisations
involved in the process of making a product or service available for use or
consumption”. This is the route through which goods and services are conveyed
from the manufacturer to the consumer or payments for those products travel from
the consumer to the vendor. It could be a direct transaction from the manufacturer
to the consumer, or the indirect distribution which involves several interconnected
intermediaries commonly referred to as middlemen such as wholesalers,
distributors, agents and retailers. The distribution of goods and services is not
complete until the goods or services reach the final consumer.

TYPES OF DISTRIBUTION CHANNEL

Direct Channel: This happen when the producer or the manufacturer directly sells
the goods to the customers without involving any middlemen. It is also known as
zero level channel. It is relationship driven since direct relationship is built with
consumer thereby leading to the control of consumer experience and brand image.
Though the start up cost could be high, it is the simplest and shortest mode of
distribution because intermediaries are eliminated and labour costs are reduced.
However, producers bear all the risks involved. Examples of this channel are
selling through post, internet, mail order, company owned retail outlets, door to
door selling and telemarketing.
2. Indirect Channels: This occurs when a manufacturer or a producer employs one
or more middlemen to distribute goods, it is known as indirect channel. Producers
adopting this channel gain significant competitive advantage, have more access to
increased consumer base. Also, start up costs are lower and operation is based on
the payment of outside costs in form of commission, broker fees and allowances.
LEVELS OF DISTRIBUTION CHANNEL
One Level Channel: This channel involves the use of one middleman who in turn
sells them to the ultimate customers, that is, Manufacturer-Retailer-Consumer. It is
usually adopted for specialty goods.
Two Level Channels: (Manufacturer-Wholesaler-Retailer-Customer). Under this
channel, wholesaler and retailer act as a link between the manufacturer and the
customer. This is the most commonly used channel for distributing goods like
soap, rice, wheat, clothes.
Three Levels Channel: (Manufacturer-Agent-Wholesaler-Retailer-Consumer).
This level comprises of three middlemen, namely: agent, wholesaler and the
retailer. The manufacturers supply the goods to their agents who in turn supply
them to wholesalers and retailers. This level is usually used when a manufacturer
deal in limited products and yet wants to cover a wide market.
Factors influencing the Choice of Distribution Channels
1. Product Related Factors:
(a) Nature of Product: In case of industrial goods short channels like zero level
channel should be preferred because they are usually technical, expensive, made to
order and purchased by few buyers. Consumer goods can be distributed through
long channels as they are less expensive, not technical and frequently purchased.
(b) Perishable and Non- Perishable Products: Perishable products like fruits or
vegetables are distributed through short channels while non perishable products
like soaps, oils, sugar, salt etc. require longer channels.
(c) Value of Product: In case of products having low unit value such as groceries,
long channels are preferred while those with high unit value such as diamond
jewellery short channels are used.
(d) Product Complexity: Short channels are preferred for technically complex
goods like industrial or engineering products like machinery, generators like
torches while non complex or simple ones can be distributed through long
channels.
2. Company Characteristics
(a) Financial Strength: The companies having huge funds at their disposal go for
direct distribution. Those without such funds go for indirect channels.
(b) Control: Short channels are used if management wants greater control on the
channel members otherwise a company can go in for longer channels.
3. Competitive Factors
Policies and channels selected by the competitors also affect the choice of
channels. A company has to decide whether to adopt the same channel as that of its
competitor or choose another one.
4. Market Factors
(a) Size of Market: If the number of customers is small like in case of industrial
goods, short channels are preferred while if the number of customers is high as in
case of convenience goods, long channels are used.
(b) Geographical Concentration:Generally, long channels are used if the consumers
are widely spread while if they are concentrated in a small place, short channels
can be used.
(c) Quantity Purchased: Long channels are used in case the size of order is small
while in case of large orders, direct channel may be used.
5. Economic Factor
Economic factors such as economic conditions and legal regulations also play a
vital role in selecting channels of distribution. For example, in a depressed
economy, generally shorter channels are selected for distribution.

PRODUCT LIFECYCLE
A product is anything that can be offered to a market that might satisfy a want or
need. In retailing, products are called merchandise. In manufacturing, products are
bought as raw materials and sold as finished goods. Every product is made at a cost
and sold at a price which is dependent on the market, the quality, the marketing
and the targeted segment.

The product life cycle is an important concept in marketing which describe the
stages a product goes through from when the product was first thought of until it is
removed from the market. Noteworthy is the fact that not all products reach the
final stage. As some continue to grow, others rise and fall.
Stages of Product Life Cycle
The product life cycle has five very clearly defined stages, each with its own
features which mean different things for business. The diagram below depicts the
various stages in a product life cycle.
PRODUCT LIFECYCLE

Sales Volume

I II III IV V

0 Time/Stage

I. Introduction – This stage of the cycle involves researching, developing and

then launching the product. It could be the most expensive for a company
launching a new product. This is because the size of the market for the
product is small and the sales volume is low, although they will increase
over time. On the other hand, the cost of things like research and
development, consumer testing, and the marketing needed to launch the
product can be very high, especially if it’s a competitive sector.
II. Growth – This is the stage when sales are increasing at their fastest rate.
The growth stage is typically characterized by a strong growth in sales and
profits. This is because the company can start to benefit from economies of
scale in production. This lead to increase in the profit margins, as well as,
the overall amount of profit. It is expected that more money be invested in
promotional activity to maximize the potential of this stage.
III. Maturity – At this stage, sales are near their highest and the rate of growth
is slowing down because of increased competition in the market. During
the maturity stage, the product is established and the main objective of the
manufacturer is to maintain the market share built up in the previous stages.
This is probably the most competitive time for most products and businesses
hence the need to invest wisely in any marketing strategy. There is also the
need to consider product modifications or improvements to the production
process which might give a competitive advantage.
IV. Saturation: At this stage, there is really no more growing that can be done.
The manufacturer has to start coming up with new ways of production in
order to increase demand for the product.
V. Decline – This is the final stage of the cycle, where sales begin to fall. In
the long run, the market for a product begins to shrink which will culminate
the decline stage. This shrinkage could be due to the market becoming
saturated (all the customers who will buy the product have already
purchased it) or because the consumers are changing to a different type of
product. While the decline stage is unavoidable producers may switch to
less-expensive production methods and cheaper markets in order to make
some profit.

NEW PRODUCT DEVELOPMENT

From the previous section, it was indicated that from the saturation stage of
product lifecycle producers should come up with new product in order to be
relevant. This, however, is not an easy task.
New product development is the creation of products with innovative or special
characteristics that offer new or additional benefits to the customer.  It involves
modification of an existing product or its presentation, or formulation of an entirely
new product that satisfies a newly defined customer want or market niche.

The procedures involved in the development of a new product are as follows:

Idea generation: Ideas for new product development can be generated by:
conducting marketing research to find out the consumers' needs and wants,
welcoming suggestions from consumers and employees, brainstorming suggestions
for new-product ideas, searching for ideas in different markets (national and
international), obtaining feedback from agents or dealers about services offered by
competitors and studying competitors products.

Idea screening: This involves studying all the ideas generated carefully and
selecting the good ones and rejecting the bad ones. The following should be borne
in mind while selecting ideas: the necessity of a new product introduction,
capability of existing plant and machinery to produce the new product, ability of
existing marketing network to sell the new product and when the new product will
break even. The response to these points becomes crucial in the selection or
otherwise of the new product. This will also help to avoid product failure.

Concept testing: This is carried out after idea screening in order to find out the
consumers' reactions towards the new product. At this point, the company finds
out: the understanding of consumers about the product idea, consumers need of the
new product and consumers acceptance of the product. To test the concept, a small
group of consumers are selected and are given full information about the new
product. Then they are asked what they feel about the new product in terms of
whether they like the new product or not.

Business analysis: Business analysis is done if most of the consumers like the

product. Here, a detailed business analysis is done by the company from the
business point of view to find out whether the new product is commercially viable
or not. Information is also sought on the cost of the product, the demand for the
product and its frequency, availability of competitors, total sales, advertisement
and other promotional expenses as well as the anticipated profit from the sale of
the new product. If the new product is profitable, it will be accepted else it will be
rejected.

Product development: At this stage, the company has decided to introduce the
new product in the market. It will take all necessary steps to produce and distribute
the new product. The production department will make plans to produce the
product. The marketing department will make plans to distribute the product. The
finance department will provide the finance for introducing the new product. The
advertising department will plan the advertisements for the new product. However,
all this is done as a small scale for test marketing.

Test marketing: Test marketing is a safety device which reduces the risk of large-
scale marketing. It can be time-consuming and must be done especially for costly
products. To test the market, a new product is introduced on a very small scale in a
small market. If the new product is successful in this market, then it is introduced
on a large scale. However, if the product fails in the test market, then the company
finds out the reasons for its failure, makes necessary changes in the new product
and re-introduces it. If the new product fails again the company will reject it.

Commercialisation: If the test marketing is successful, then the company

introduces the new product on a large scale, say all over the country. The company
makes a large investment in the new product. It produces and distributes the new
product on a huge scale. It advertises the new product on social media platforms
and the mass media like Television, Radio, Newspapers and Magazines, etc
Review of market performance: At this point, the company reviews the
marketing performance of the new product. To do this the following questions
must be answered.
a) Is the new product accepted by the consumers?

b) Are the demand, sales and profits high?

c) Are the consumers satisfied with the after-sales-service?

d) Are the middlemen happy with their commission?

e) Are the marketing staffs happy with their income from the new product?

f) Is the Marketing manager changing the marketing mix according to the

changes in the environment?

g) Are the competitors introducing a similar new product in the market?

The company must continuously monitor the performance of the new product and
make necessary changes in their marketing plans and strategies to avoid product
failure.

INDUSTRY

An industry is a producing unit, usually comprising of a number of other smaller

productive units, called firms.They are involved in the production of commodities
that are similar. For instance, all firms producing automobiles and automobile
accessories are grouped under and automobile industry. If all the products of an
industry is produced by a single firm then the firm and the industry cannot be
distinguished. Thus the firm and the industry are one and the same.
 A firm or an industry is usually set up with the aim of making profit except in a
few cases where the objective is political. For this reason, the producer will have to
adopt all policies and techniques that will give him the lower cost of production
and adopt all measures that will enhance his profit margin. One of such crucial
measure is the location. In taking a decision to locate or site an industry a number
of factors has to be considered.

FACTORS TO BE CONSIDERED BEFORE LOCATING AN INDUSTIES

i. The availability and accessibility or affordability of land: this means a

prospective industrial does not only need to consider the availability of land,
but also how accessible and affordable it is. Land should not be available at a
cost that will jeopardize the profit margin. It should be such that expansion
work on land could be possible.

ii. A sound network of transport is important: in locating an industry, serious

consideration must be given to the availability of a sound and effective
transport system, such that there might not be difficulties in conveying
people, raw materials and finished products or in and out of the industry. This
is very necessary where the finished products or the raw materials concerned
are bulky or fragile.

iii. Proximity to the sources of raw materials: this will ensure a timely arrival of
raw materials to site and reduce the enormous cost involved in moving
materials over long distance and rough roads. Availability of raw materials
will prevent interruptions in production that may result from the shortages of
raw materials.
 iv. Climate: climate is a natural advantage which may be considered when
locating an industry. It can be favourable or adverse on the life of a given
industry, depending on the nature of the products manufactured by the firm.

v. Nearness to thick population: this factor has become important in modern

time because of its tremendous influence on the location of an industry. Thick
population implies large number of people and hence eager consumers with
the result that there will be a large market and all categories of labour.

vi. Constant and steady power supply is paramount, to avoid interruption in

production.

vii. Consideration must be given to the possibility of reaping external economics.

Such economics include deriving advantages from the existence of other firms
through marketing services, advertising, warehousing services, packaging etc.

viii. Production is incomplete until goods produced gets to the final consumers,
thus in locating an industry, the potential market for the product must be
considered. Is the market there, is the market enough for the proposed
capacity? Or is it possible to locate the market. All these must be addressed.

ix. Socio political consideration. Is the social environment conducive for the
sitting of the industry? Is the political climate stable enough to warrant
smooth production and marketing? All these are to be considered too.
 INVESTMENT APPRAISAL
Investment appraisal is the planning process used to decide whether an
organisation's long term investments/projects are worthwhile.
Investment Appraisal Methods
i. Payback Period
ii. Accounting Rate of Return (ARR)
iii. Net Present Value (NPV)
iv. Internal Rate of Return (IRR)
Payback Period: It measures the time in which the initial cash flow of an
investment is recovered from the cash inflows generated by the project. It is one of
the simplest investment appraisal techniques. Lower payback period is preferred.
The formula for calculating the payback period of a project depends on whether the
cash flow per period of the project is even or uneven. In case they are even, the
formula to calculate payback period is:
Payback Period = Initial Investment
Cash Inflow per Period

When cash inflows are uneven, we need to calculate the cumulative net cash flow
for each period and then use the following formula for payback period:
Payback Period = A + (B/C)

A is the last period with a negative cumulative cash flow;

B is the absolute value of cumulative cash flow at the end of the period A;
C is the total cash flow during the period after A
Both of the above situations are applied in the following examples.
Decision Rule
Accept the project only if its payback period is LESS than the target payback
period.
Example 1: Even Cash Flows
Company C is planning to undertake a project requiring initial investment of N105
million. The project is expected to generate N25 million per year for 7 years.
Calculate the payback period of the project.
Solution
Payback Period = Initial Investment ÷ Annual Cash Flow = N105M ÷ N25M = 4.2
years
Example 2: Uneven Cash Flows
Company C is planning to undertake another project requiring initial investment of
N50 million and is expected to generate N10 million in Year 1, N13 million in
Year 2, N16 million in year 3, N19 million in Year 4 and N22 million in Year 5.
Calculate the payback value of the project.
Solution
Year Cash Flow Cumulative Cash Flow
0 (50) (50)
1 10 (40)
2 13 (27)
3 16 (11)
4 19 8
5 22 30
Payback Period = 3 + (N11M ÷ N19M)
≈ 3 + 0.58
≈ 3.58 years
Advantages and Disadvantages
Advantages of payback period are:
1. Payback period is very simple to calculate.
2. It can be a measure of risk inherent in a project. Since cash flows that occur
later in a project's life are considered more uncertain, payback period provides an
indication of how certain the project cash inflows are.
3. For companies facing liquidity problems, it provides a good ranking of
projects that would return money early.
Disadvantages of payback period are:
1. Payback period does not take into account the time value of money which is
a serious drawback since it can lead to wrong decisions. A variation of payback
method that attempts to remove this drawback is called discounted payback period
method.
2. It does not take into account, the cash flows that occur after the payback
period.

Net Present Value (NPV)

Net present value (NPV) of a project is the potential change in an investor's wealth
caused by that project while time value of money is being accounted for. It equals
the present value of net cash inflows generated by a project less the initial
investment on the project. It is one of the most reliable measures used in capital
budgeting because it accounts for time value of money by using discounted cash
flows in the calculation.
Net present value calculations take the following two inputs:
 Projected net cash flows in successive periods from the project.
 A target rate of return i.e. the hurdle rate.
Where,
Net cash flow equals total cash inflow during a period, including salvage value if
any, less cash outflows from the project during the period.
Calculation Methods and Formulas
The first step involved in the calculation of NPV is the estimation of net cash flows
from the project over its life. The second step is to discount those cash flows at the
hurdle rate.
The net cash flows may be even (i.e. equal cash flows in different periods) or
uneven (i.e. different cash flows in different periods). When they are even, present
value can be easily calculated by using the formula for present value of annuity.
However, if they are uneven, we need to calculate the present value of each
individual net cash inflow separately. Once we have the total present value of all
project cash flows, we subtract the initial investment on the project from the total
present value of inflows to arrive at net present value. That is,
R
NPV = − Initial Investment
(1+i)n

Where, R is the net cash inflow expected to be received in each period;

i is the required rate of return per period;
n are the number of periods during which the project is expected to operate and
generate cash inflows.
When cash inflows are uneven:
R1 R2 R3 R0
NPV = 1
+ 2
+
(1+i) (1+i) ( 1+i)
3 − Initial Investment
(1+i)0[ ]
Where,
i is the target rate of return per period;
R1 is the net cash inflow during the first period;
R2 is the net cash inflow during the second period;
R3 is the net cash inflow during the third period, and so on.
Decision Rule
In case of stand alone projects, accept a project only if its NPV is positive, reject it
if its NPV is negative and stay indifferent between accepting or rejecting if NPV is
zero.
In case of mutually exclusive projects (i.e. competing projects), accept the project
with higher NPV.
Examples
Example: An initial investment of N8,320 thousand on plant and machinery is
expected to generate cash inflows of N3,411 thousand, N4,070 thousand, N5,824
thousand and N2,065 thousand at the end of first, second, third and fourth year
respectively. At the end of the fourth year, the machinery will be sold for N900
thousand. Calculate the net present value of the investment if the discount rate is
18%.
Solution
PV Factors:
Year 1 = 1 ÷ (1 + 18%)1 ≈ 0.8475
Year 2 = 1 ÷ (1 + 18%)2 ≈ 0.7182
Year 3 = 1 ÷ (1 + 18%)3 ≈ 0.6086
Year 4 = 1 ÷ (1 + 18%)4 ≈ 0.5158
The rest of the calculation is summarized below:
Year 1 2 3 4
Net Cash Inflow(N) 3,411 4,070 5,824 2,065
Salvage Value(N) - - - 900
Total Cash Inflow(N) 3,411 4,070 5,824 2,965
× Present Value Factor 0.8475 0.7182 0.6086 0.5158
PV of Cash Flows 2,890.68 2,923.01 3,544.67 1,529.31
Total PV of Cash Inflows N10,888
− Initial Investment − 8,320
Net Present Value 2,568
STRENGTHS OF NPV
Net present value accounts for time value of money which makes it a sounder
approach than other investment appraisal techniques which do not discount future
cash flows such payback period and accounting rate of return.
Net present value is even better than some other discounted cash flows techniques
such as IRR. In situations where IRR and NPV give conflicting decisions, NPV
decision should be preferred.

WEAKNESSES OF NPV
NPV is after all an estimation. It is sensitive to changes in estimates for future cash
flows, salvage value and the cost of capital.
Net present value does not take into account the size of the project. For example,
say Project A requires initial investment of N4 million to generate NPV of N1
million while a competing Project B requires N2 million investment to generate an
NPV of N0.8 million. If we base our decision on NPV alone, we will prefer
Project A because it has higher NPV, but Project B has generated more
shareholders’ wealth per dollar of initial investment (N0.8 million/N2 million
versus N1 million/N4 million).

ACCOUNTING RATE OF RETURN (ARR)

Accounting rate of return (also known as simple rate of return) is the ratio of
estimated accounting profit of a project to the average investment made in the
project. ARR is used in investment appraisal.
Formula
Accounting Rate of Return is calculated using the following formula:
ARR = Average Accounting Profit x 100
Average Investment
Average accounting profit is the arithmetic mean of accounting income expected to
be earned during each year of the project's life time. Average investment may be
calculated as the sum of the beginning and ending book value of the project
divided by 2. Another variation of ARR formula uses initial investment instead of
average investment.
Decision Rule
Accept the project only if its ARR is equal to or greater than the required
accounting rate of return. In case of mutually exclusive projects, accept the one
with highest ARR.
Example:
Compare the following two mutually exclusive projects on the basis of ARR. Cash
flows and salvage values are in thousands of naira.
Project A:
Year 0 1 2 3
Cash Outflow -220 - - -
Cash Inflow - 91 130 105
Scrap Value - - - 10
Project B:
Year 0 1 2 3
Cash Outflow -198 - - -
Cash Inflow 87 110 84
Scrap Value - - - 18
Solution
Project A:
Average investment = ( 220 + 10 ) / 2 = 115
Average profit = (91 + 130 + 105) / 3 = 108.67
Payback period = (108.67 / 115) x 100
= 94.5%
Project B:
Average investment = ( 198 + 18 ) / 2 = 108
Average profit = (87 + 110 + 84) / 3 = 93.67
Payback period = (93.67 / 108) x 100
= 86.73%
Since the ARR of the project A is higher, it is more favorable than the project B.
Advantages
1. Like payback period, this method of investment appraisal is easy to
calculate.
2. It recognizes the profitability factor of investment.
Disadvantages
1. It ignores time value of money. Suppose, if we use ARR to compare two
projects having equal initial investments. The project which has higher annual
income in the latter years of its useful life may rank higher than the one having
higher annual income in the beginning years, even if the present value of the
income generated by the latter project is higher.
2. It can be calculated in different ways. Thus there is problem of consistency.
3. It uses accounting income rather than cash flow information. Thus it is not
suitable for projects which having high maintenance costs because their viability
also depends upon timely cash inflows.
INTERNAL RATE OF RETURN (IRR)
Internal rate of return (IRR) is the discount rate at which the net present value of an
investment becomes zero. In other words, IRR is the discount rate which equates
the present value of the future cash flows of an investment with the initial
investment. It is one of the several measures used for investment appraisal.
Decision Rule
A project should only be accepted if its IRR is NOT less than the target internal
rate of return. When comparing two or more mutually exclusive projects, the
project having highest value of IRR should be accepted.
IRR Calculation
The calculation of IRR is a bit complex than other capital budgeting techniques.
We know that at IRR, Net Present Value (NPV) is zero, thus:
NPV = 0; or
PV of future cash flows − Initial Investment = 0; or
CF 1 CF 2 CF 3 CF 0
1
+ 2
+
(1+r ) (1+r ) (1+ r)
3 − Initial Investment[ ]
(1+r )0
=0

Where,
r is the internal rate of return;
CF1 is the period one net cash inflow;
CF2 is the period two net cash inflow,
CF3 is the period three net cash inflow, and so on.
But the problem is, we cannot isolate the variable r (=internal rate of return) on one
side of the above equation. However, there are alternative procedures which can be
followed to find IRR. The simplest of them is described below:
1. Guess the value of r and calculate the NPV of the project at that value.
2. If NPV is close to zero then IRR is equal to r.
3. If NPV is greater than 0 then increase r and jump to step 5.
4. If NPV is smaller than 0 then decrease r and jump to step 5.
5. Recalculate NPV using the new value of r and go back to step 2.
Example
Find the IRR of an investment having initial cash outflow of N213,000. The cash
inflows during the first, second, third and fourth years are expected to be N65,200,
N96,000, N73,100 and N55,400 respectively.
Solution
Assume that r is 10%.
NPV at 10% discount rate = N18,372
Since NPV is greater than zero we have to increase discount rate, thus
NPV at 13% discount rate = N4,521
But it is still greater than zero we have to further increase the discount rate, thus
NPV at 14% discount rate = N204
NPV at 15% discount rate = (N3,975)
Since NPV is fairly close to zero at 14% value of r, therefore
IRR ≈ 14%
Alternatively, IRR can be calculated by using the graphical or extrapolation
methods. This involves evaluating investment with the initial cost of capital and
guessing either a lower or higher cost of capital depending on the initial NPV. If
the initial NPV is positive a higher cost of capital is guessed in order to obtain a
negative NPV and vice versa. From the example above the initial cost of capital
(10%) yielded an NPV of N18,372 which is positive but NPV at 15% discount rate
yielded a negative value (N3,975).
For graphical method, a graph is plotted with a vertical and horizontal axis labeled
NPV and cost of capital, respectively. Wherever the curve touch cost of capital
(horizontal) axis at zero becomes the IRR.
For extrapolation method, the formula used is as follows:
v 1 i 2−v 2 i 1
IRR = v 1−v 2
Where: v1is the positive NPV, v 2 is the negative NPV,i 1is the cost of capital of
positive NPV and i 2 is the cost of capital of negative NPV.
From the example above, 10%) yielded an NPV of N18,372 which is positive but
NPV at 15% discount rate yielded a negative value (N3,975).
IRR = 18,372 (0.15) – (-3,975)(0.1) = 2755.8 + 397.5 = 3153.3 = 0.1411
18,372 – (-3,975) 22347 22347

= 14.1%

PERSONNEL MANAGEMENT

Personnel management can be defined as obtaining, using and maintaining a

satisfied workforce. It is a significant part of management concerned with
employees at work and with their relationship within the organization.

According to Flippo, “Personnel management is the planning, organizing,

compensation, integration and maintenance of people for the purpose of
contributing to organizational, individual and societal goals.”

According to Brech, “Personnel Management is that part which is primarily

concerned with human resource of organization.”

Nature of Personnel Management

1. Personnel management includes the function of employment, development and
compensation. These functions are performed primarily by the personnel
management in consultation with other departments.

2. Personnel management is an extension to general management. It is concerned

with promoting and stimulating competent work force to make their fullest
contribution to the concern.
 3. Personnel management exists to advice and assist the line managers in
personnel matters. Therefore, personnel department is a staff department of an
organization.

4. Personnel management lays emphasize on action rather than making lengthy

schedules, plans, work methods. The problems and grievances of people at work
can be solved more effectively through rationale personnel policies.

5. It is based on human orientation. It tries to help the workers to develop their

potential fully to the concern.

6. It also motivates the employees through its effective incentive plans so that the
employees provide fullest co-operation.

7. Personnel management deals with human resources of a concern. In context to

human resources, it manages both individual as well as blue- collar workers.

Concepts in Personnel Management

I. Recruitment

Recruitment or hiring is the overall process of attracting, short listing, selecting

and appointing suitable candidates for jobs, either permanent or temporary, within
an organization. This can be sourced from either internal or external means.

1. Internal Recruitment – is a recruitment which takes place within the concern or

organization. Internal sources of recruitment are readily available to an
organization. Internal recruitment may lead to increase in employee’s productivity
as their motivation level increases. It also saves time, money and efforts. But a
drawback of internal recruitment is that it refrains the organization from new
blood. Also, not all the manpower requirements can be met through internal
recruitment. Hiring from outside has to be done.
Internal sources are primarily:
a. Transfers
b. Promotions (through Internal Job Postings) and
c. Re-employment of ex-employees - Re-employment of ex-employees is one of
the internal sources of recruitment in which employees can be invited and
appointed to fill vacancies in the concern.
2. External Recruitment – External sources of recruitment have to be solicited
from outside the organization. External sources are external to a concern. But it
involves lot of time and money. The external sources of recruitment include –
Employment at factory gate, advertisements, employment exchanges, employment
agencies, educational institutes, labour contractors, recommendations etc.

a. Employment at Factory Level –This a source of external recruitment in which

the applications for vacancies are presented on bulletin boards outside the Factory
or at the Gate. This kind of recruitment is applicable generally where factory
workers are to be appointed. There are people who keep on soliciting jobs from
one place to another. These applicants are called as unsolicited applicants. These
types of workers apply on their own for their job. For this kind of recruitment
workers have a tendency to shift from one factory to another.

b. Advertisement –It is an external source which has got an important place in

recruitment procedure. The biggest advantage of advertisement is that it covers a
wide area of market and scattered applicants can get information from
advertisements. Medium used is Newspapers and Television.
c. Employment Exchanges – There are certain Employment exchanges which are
run by government. Most of the government undertakings and concerns employ
people through such exchanges. Nowadays recruitment in government agencies
has become compulsory through employment exchange.

d. Employment Agencies – There are certain professional organizations which look

towards recruitment and employment of people, i.e. these private agencies run by
private individuals supply required manpower to needy concerns.

e. Educational Institutions – There are certain professional Institutions which serve

as an external source for recruiting fresh graduates from these institutes. This kind
of recruitment done through such educational institutions is called as Campus
Recruitment. They have special recruitment cells which help in providing jobs to
fresh candidates.

f. Recommendations – There are certain people who have experience in a

particular area. They enjoy goodwill and a stand in the company. There are certain
vacancies which are filled by recommendations of such people. The biggest
drawback of this source is that the company has to rely totally on such people
which can later on prove to be inefficient.

g. Labour Contractors –These are the specialist people who supply manpower to
the Factory or Manufacturing plants. Through these contractors, workers are
appointed on contract basis, i.e. for a particular time period. Under conditions
when these contractors leave the organization, such people who are appointed have
to also leave the concern.

II. Conciliation
Conciliation means is a process in which independent person or persons are
appointed by the parties with mutual consent by agreement to bring about a
settlement of their dispute. Conciliation is a process of persuading parties to reach
agreement in settling disputes without litigations through consensus. Confidence,
trust and faith are the essential ingredients of conciliation. This is often used for
domestic as well as international disputes.
The following benefits are derived if the parties are able to reasonably settle their
disputes through conciliation.

1) Quickness. The parties can devote their time and energy for better and useful
work.
2) Economic. Instead of spending hard earned money on litigation, one can invest
it for better dividends.
3) Social. The parties go happily to their respective places and stand relieved
from bickering, enmity, which in certain cases might have lingered on for
generations.
III. Arbitration

Arbitration is used in several senses. It may refer either to a judicial process or to a

non-judicial process is concerned with the ascertainment, declaration and
enforcement of rights and liabilities, as they exist, in accordance with some
recognized system of law. An industrial arbitration may well have for its function
to ascertain and declare, but not to enforce, what in the parties, and such a function
is non- judicial.
IV. Selection
Selection means a process by which the qualified personnel can be chosen from the
applicants who have offered their services to the organisation for employment. The
Selection process divides the candidates for employment into two classes—those
who will be offered employment and those who will be rejected. Thus the selection
process is a negative function because it attempts to eliminate applicants, leaving
only the best to be placed in the organisation.
The Employee selection Process takes place in following order-
1. Preliminary Interviews- It is used to eliminate those candidates who do not
meet the minimum eligibility criteria laid down by the organization. The skills,
academic and family background, competencies and interests of the candidate are
examined during preliminary interview. Preliminary interviews are less formalized
and planned than the final interviews. The candidates are given a brief up about the
company and the job profile; and it is also examined how much the candidate
knows about the company. Preliminary interviews are also called screening
interviews.
2. Application blanks- The candidates who clear the preliminary interview are
required to fill application blank. It contains data record of the candidates such as
details about age, qualifications, reason for leaving previous job, experience, etc.

3. Written Tests - Various written tests conducted during selection procedure are
aptitude test, intelligence test, reasoning test, personality test, etc. These tests are
used to objectively assess the potential candidate. They should not be biased.

4. Employment Interviews- It is a one to one interaction between the interviewer

and the potential candidate. It is used to find whether the candidate is best suited
for the required job or not. But such interviews consume time and money both.
Moreover the competencies of the candidate cannot be judged. Such interviews
may be biased at times. Such interviews should be conducted properly. No
distractions should be there in room. There should be an honest communication
between candidate and interviewer.
5. Medical examination- Medical tests are conducted to ensure physical fitness of
the potential employee. It will decrease chances of employee absenteeism.

6. Appointment Letter- A reference check is made about the candidate selected and
then finally he is appointed by giving a formal appointment letter.

V. Training
Training refers to the teaching and learning activities carried on for the primary
purpose of helping members of an organization acquire and apply the knowledge,
skills, abilities, and attitudes needed by a particular job and organization.
Training is generally imparted in two ways:
1. On the job training- On the job training methods are those which are given to the
employees within the everyday working of a concern. It is a simple and cost-
effective training method. The in-proficient as well as semi- proficient employees
can be well trained by using such training method. The employees are trained in
actual working scenario. The motto of such training is “learning by doing.”
Instances of such on-job training methods are job-rotation, coaching, temporary
promotions, etc.
2. Off the job training- Off the job training methods are those in which training is
provided away from the actual working condition. It is generally used in case of
new employees. Instances of off the job training methods are workshops, seminars,
conferences, etc. Such method is costly and is effective if and only if large number
of employees have to be trained within a short time period. Off the job training is
also called as vestibule training, i.e., the employees are trained in a separate area
(may be a hall, entrance, reception area, etc. known as a vestibule) where the
actual working conditions are duplicated.

VI. Trade Union

It is an association of workers formed for the purpose of protecting and improving
the socio-economic status of its members through collective action. It is a
democratic institution and the ultimate power lies with the members. The Trade
Union Act 1926 as per section 2(h) defines trade union as ‘’any combination,
whether temporary or permanent, formed primarily to regulate the relations
between workmen and employers or workmem and workmen or employers and
employers and for imposing any restriction, conditions or the conduct of any trade
or business and include any federation of two more trade unions.

Trade unions play crucial roles in industrial relations with the following broad
objectives:

1. To redress the bargaining advantages of the individual workers vis-a-vis the

individual employers by substituting collective action for individual action.
2. To secure improved terms and condition of employment for their members
and the maximum degree of security to enjoy these terms and conditions.
3. To obtain improved status for the workers in his or her work.
4. To increase the extension to which trade union can exercise democratic
control over decisions that affect their interest by power-sharing at national,
corporate and plant levels.

VII. Collective Bargaining

Collective bargaining “extends to all negotiations which take place between an

employer, a group of employers or one or more employers’ organisations, on the
one hand, and one or more workers’ organisations, on the other, for:

(a) determining working conditions and terms of employment; and/or

(b) regulating relations between employers and workers; and/or

(c) regulating relations between employers or their organisations and a workers’
organisation or workers’ organisations”.

Collective bargaining is a process of negotiation. Negotiation involves any form of

discussion, formal or informal, with a view to reaching an agreement. For
collective bargaining to be effective, it is important that these negotiations be
conducted in good faith.

Collective bargaining involves a process of joint decision making that helps to

build trust and mutual respect between the parties and enhance the quality of
labour relations. The focus of collective bargaining is on working conditions, terms
of employment, and the regulation of relations between employers or employers’
organizations and one or more trade unions.

Working conditions and terms of employment could include issues such as wages,
hours of work, annual bonus, annual leave, maternity leave, occupational safety
and health, and other matters. Issues relating to relations between the parties could
include matters such as facilities for trade union representatives; procedures for the
resolution of disputes; and consultation, cooperation and information sharing,
among others.

ASSIGNMENT

1. Calculate the net present value of the following investment proposals and decide on the
acceptance or otherwise of the proposals. The discount rate is 10% (11½marks).
Year 0 1 2 3 4
A (200,000) 80,000 80,000 80,000 80,000
B (200,000) 40,000 80,000 100,000 100,000
C (200,000) 100,000 100,000 100,000 50,000
Also calculate the internal rate of return for projects A and B (12½marks).