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Handout of chapter one and two

agricultural economics (Hawassa University)

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1. Introduction to Agribusiness Management

Introduction

Agribusiness Management is oriented towards management of agricultural business, that is,

firms that provide supplies and services to farmers or process and market farm products. While
many concepts and tools presented here might not be applicable to the traditional farm business
and businesses in general, the focus is strictly on agribusiness applications.

Although the early professional responsibilities of those beginning a line of business in

agribusiness may not include management by itself, management concepts and tools are essential
to every facet of agribusiness operations. Those who begin their career as agronomists,
horticulturalists, engineers, or sales persons are soon faced with a variety of management
decisions and are often quickly promoted into management positions. The same is true for those
who begin their career path as drivers, field technicians, mill hands, and operators. Agribusiness
management should serve as a good base on which to build a productive agribusiness career.

Overview of Agribusiness

Definitions of Agribusiness

Agribusiness is a combination of two words agriculture and business. Literally speaking,

business means the activity of making, buying, selling, or supplying things for money and it
includes service-providing firms like consulting firms. In simple words, “business means the
state of being busy”. Broadly, business involves activities connected with the production of
wealth. It is an organized and systematized human activity involving buying and selling goods,
manufacturing goods or providing services in order to earn profit.

The word agriculture indicates plowing a field, planting seed, harvesting a crop, milking cows, or
feeding livestock. Until recently, this was a accurate picture. Nevertheless, today’s’ agriculture is
radically different.

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Agriculture has evolved into agribusiness and has become a vast and complex system that
reaches far beyond the farm to include all those who are involved in providing food and fiber to
consumers. Agribusiness includes not only those farms or the land but also the people and firms
that provide the inputs (for example seed, chemicals, credit etc.), process the output (e.g. milk,
grain, meat etc.), manufacture the food products (for example: ice cream, bread, breakfast cereals
etc.), and transport and sell the food products to consumers (for ex. restaurants, supermarkets).
Literally, agribusiness refers to the industry concerned with the production, processing, and
distribution of agricultural products or with farm machinery and services.

It is apparent that the definition of agriculture has to be expanded to include concepts more than
production. Farmers rely on the input industries to provide products and service; they need to
produce agricultural commodities. They also rely on commodity processors, food manufactures,
and ultimately food distributors and retailers to purchase their raw agricultural commodities and
to process and deliver them to the consumer for final sale. The result is the food and fiber
system. The food and fiber system is increasingly being referred to as “agribusiness”.

Davis and Goldberg first introduced the term agribusiness in 1957. It represents three part
systems made up of (1) the agricultural input sector (2) the production sector and (3) the
processing-manufacturing sector. To capture the full meaning of the term “agribusiness” it is
important to visualize these three sectors as interrelated parts of a system in which the success of
each part depends heavily on the proper functioning of the other two.

Agribusiness includes the production, processing, and supply of agricultural goods that range
from lettuce to corn syrup. Companies may focus on things like cut flowers, fresh vegetables, or
byproducts of farming such as fuels derived from farm waste. Agribusiness also encompasses
farming equipment, machinery, chemicals, suppliers, and personnel.

The following are very interesting definitions of agribusiness:

 Agribusiness is a big business that is connected to agriculture, either owning or operating

large-scale farms, or catering to those who do. Farming engaged in as a large-scale

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business operation embracing the production, processing, and distribution of agricultural

products.
 Agribusiness includes the agricultural input sector, the production sector, and the
processing-manufacturing sector: Farmers, providers of farm inputs, processors of farm
outputs, manufacturers of food products, and those who transport, sell, and/or prepare
food products.
 Agribusiness is everything from farm to fork. It represents all business-related activities
involved in the production, finance, marketing and distribution of food and fiber. The
academic discipline of agribusiness combines theory and method in finance, marketing
and management to address global agricultural issues.

Scope of Agribusiness

It has already indicated that agribusiness is a complex system of input sector, production sector,
processing manufacturing sector and transport and marketing sector. Therefore, it is directly
related to industry, commerce and trade. Industry is concerned with the production of
commodities and materials while commerce and trade are concerned with their distribution.

Agribusiness may encompass the primary production activities, the processing sectors and the
tertiary activities too. It has a broader scope. The modern definition of agribusiness calls for
more of an industry. Let us explain what an industry is then.

A. Industry: Industry refers to the processes of extraction and production of goods meant for
final consumption or use buy individual or buy another industry for its production. Thus, goods
used by the final or ultimate consumers are called “consumer goods” such as edible oils, fruit
jams, papaya, pickles etc.
Types of industries: Based on their nature, industries are broadly classified into following types:

1) Extractive industries: These industries are concerned with the extraction; and utilization of
natural resources. Example: fishing, fruit gathering, agro-based industries, forestation.

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2) Genetic industries: These industries include breeding of plants, seeds, cattle breeding farm,
fish hatcheries, and poultry farms. Of course, factors like nature, climate and environment play a
dominant role in these industries, yet human skill involved in their production cannot be ignored.
For example, intensive agriculture is possible with greater amount of capital and larger number
of workers.

3) Manufacturing industries: These industries are engaged in the conversion of raw material or
semi finished goods produced in the extractive industries. Some prominent examples are: cotton
textile industry, spinning and weaving mills etc. Manufacturing industries can further be
classified into five types: (i) Analytical industry (ii) Processing industry (iii) Synthetic industry,
(iv) Service industry (v) Assembly industry.

B. Commerce: Commerce is another major component of agribusiness. It includes all those

activities that are necessary to bring goods and services from the place of their production to the
place of their consumption. Thus, it includes the buying, selling of goods and service and all
those activities that facilitate trade such as storing, grading, packaging, financing, insurance, and
transportation. In simple words, commerce includes trade and aid to trade. The principal function
of trade (commerce) is to remove the hindrance of person, place, time exchange, knowledge etc.
and ensure a free and smooth flow of goods from the producers to the consumers. Trade in fact is
a branch of commerce itself. In a way, it is the final state of business activity involving sale and
purchase of commodities or goods. It does not include aids to trade like transportation, insurance,
banking, finance etc. Based on its coverage and volume, trade is normally classified into the
following types: On the basis of volume as wholesale trade and retail trade wholesale trade
involves exchange of large volume of goods whereas retail trade involves exchange of smaller
volume of goods. On the basis of coverage as regional trade and national trade.

The Nature of Successful Agribusiness

Today, the business has become very competitive and complex. This is mainly due to changing
taste and fashion of the consumers on one hand, and introduction of substitutes and cheaper and
better competitive goods, on the other hand. The old dictum “produce and sells has changed

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overtime into produce only what customers want”. In fact, knowing what customers want is
never simple. Nevertheless, a farmer operator or farmer manager has to give proper thought to
this consideration in order to make his/her business a successful one.
The important requisites for success in a modern business are:
1. Clear objectives: Determining objectives is one of the most essential prerequisite for the
success of business. The objectives set forth should be realistic and clearly defined. Then, all the
business efforts should be geared to achieve the set objectives. In a way, objectives are
destination points for an agribusiness.
2. Planning: In simple words, planning is a pre-determined line of action. The accomplishment
of objectives set, largely, depends upon planning itself. Planning is a proposal based on part of
experience and present trends for future actions.
3. Sound organization: An organization is the art or science of building up systematical whole
by a number of but related parts. Just as human frame is built up of various parts like heart, liver,
brain, legs etc. similarly, organization of business is a harmonies combination of men, machine
material, money management etc. so that all these could work jointly as one unit, i.e.
“business”or “the agribusiness”.
4. Research: As indicated earlier, today the agricultural production philosophy “produces what
the consumer wants”. “Consumers” behavior is influenced by variety of factors like cultural,
social, personal and psychological factors. The knowledge of these factors is acquired through
market research. Research is a systematic search for new knowledge. Market research enables a
business in finding out new methods of production, improving the quality of product and
developing new products as per the changing tastes and wants if the consumers.
5. Finance: Finance is said to be the life-blood of business enterprise. It brings together the land,
labor, machine and raw materials into production. Agribusiness should estimate its financial
requirements adequately so that it may keep the business wheel on moving. Therefore, proper
arrangements should be made for securing the required finance for the enterprise.

6. Proper plant location, layout and size: The success of agribusiness depends largely on the
location where it is set up. Location of the business should be convenient from various points of
view such as availability of required infrastructure facilities, availability of inputs like raw

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materials, skill labor, nearer to the market etc. Hence, the businessmen must take sufficient care
in the initial stages to selected suitable location for his/her business.
7. Efficient management: One of the reasons for failure of business often attributed to the poor
management or inefficient management. The one man, i.e. the proprietor may not be equally
good in all areas of the business. Efficient businessperson can make proper use of available
resources for achieving the objectives set for the business.

8. Harmonious relations with the workers: In an agribusiness organization, the farmer

operator occupies a distinct place because he/she is the main living factor among all factors of
production. In fact, it is the human factor who makes the use of other non-human factors like
land, machine, money etc. Therefore, for successful operation of business, there should be
cordial and harmonious relations maintained with the workers or labors to get their full
cooperation in achieving business activities.

Forms of Business Organization

One of the first decisions that you will have to make as a business owner is how the business
should be structured. All businesses must adopt some legal configuration that defines the rights
and liabilities of participants in the business’s ownership, control, personal liability, life span,
and financial structure.
In making a choice, you will want to take into account the following:
 Your vision regarding the size and nature of your business.
 The level of control you wish to have.
 The level of “structure” you are willing to deal with.
 The business’s vulnerability to lawsuits.
 Tax implications of the different organizational structures.
 Expected profit (or loss) of the business.
 Whether or not you need to re-invest earnings into the business.
 Your need for access to cash out of the business for yourself.
A. Sole Proprietorship
 Most of small businesses start this way. It is owned by one person .Sole proprietorships
own all the assets of the business and the profits generated by it.

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 They also assume complete responsibility for any of its liabilities or debts.
 In the eyes of the law and the public, you are one in the same with the business
Advantages of a Sole Proprietorship
 Easiest and least expensive form of ownership to organize.
 Sole proprietors are in complete control, and within the parameters of the law, may make
decisions as they see fit.
 Profits from the business flow-through directly to the owner’s personal tax return.
 The business is easy to dissolve, if desired.
Disadvantages of a Sole Proprietorship
 have unlimited liability and are legally responsible for all debts against the business.
Their business and personal assets are at risk.
 May be at a disadvantage in raising funds and are often limited to using funds from
personal savings or consumer loans.
 May not easily find qualified employees
 Partnerships
 Voluntary association between two or more people two or more people who share
ownership of a single business.
 the law does not distinguish between the business and its owners.
B. Partnerships
Advantages of a Partnership
 Partnership are relatively easy to establish; however time should be invested in
developing the partnership agreement.
 With more than one owner, the ability to raise funds may be increased.
 The profits from the business flow directly through to the partners’ personal tax return.
 Prospective employees may be attracted to the business if given the incentive to become a
partner.
 The business usually will benefit from partners who have complementary skills.
Disadvantages of a Partnership
 Partners are jointly and individually liable for the actions of the other partners.
 Profits must be shared with others.
 Since decisions are shared, disagreements can occur.

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 Some employee benefits are not deductible from business income on tax returns.
 The partnership may have a limited life; it may end upon the withdrawal or death of a
partner.
Types of Partnerships
1.General Partnership
 Partners divide responsibility for management and liability, as well as the shares of profit
or loss according to their internal agreement.
 Equal shares are assumed unless there is a written agreement that states differently.
2.Limited Partnership and Partnership with limited liability
“Limited” means that most of the partners have limited liability (to the extent of their
investment) as well as limited input regarding management decision, which generally
encourages investors for short term projects, or for investing in capital assets.
 This form of ownership is not often used for operating retail or service businesses.
 Forming a limited partnership is more complex and formal than that of a general
partnership.
C. Corporations
 Chartered by the state in which it is headquartered, is considered by law to be a unique
entity, separate and apart from those who own it.
 A Corporation can be taxed; it can be sued; it can enter into contractual agreements.
 The owners of a corporation are its shareholders.
 The shareholders elect a board of directors to oversee the major policies and decisions.
 The corporation has a life of its own and does not dissolve when ownership changes.
D. Joint Venture
 Acts like a general partnership, but is clearly for a limited period of time or a single
project.
 If the partners in a joint venture repeat the activity, they will be recognized as an ongoing
partnership and will have to file as such, and distribute accumulated partnership assets
upon dissolution of the entity.
Advantages of a Corporation
 Shareholders have limited liability for the corporation’s debts or judgments against the
corporation.

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 shareholders can only be held accountable for their investment in stock of the company.
 can raise additional funds through the sale of stock.
 A Corporation may deduct the cost of benefits it provides to officers and employees.
 Can elect S Corporation status if certain requirements are met. This election enables
company to be taxed similar to a partnership.
Disadvantages of a Corporation
 The process of incorporation requires more time and money than other forms of
organization.
 Corporations are monitored by federal, state and some local agencies, and as a result may
have more paperwork to comply with regulations.
 Incorporating may result in higher overall taxes. Dividends paid to shareholders are not
deductible from business income; thus this income can be taxed twice.
E. Cooperative
 owned by those who use its services, and profits are distributed to the user-owners.
 It consists of a board and members that have voting rights.
 This is common in agriculture, where high capital infrastructure such as packing, storage,
trucks, or processing facilities can be purchased, used, and collectively owned by
cooperative members to the benefit of all.
 If there are surplus profits, coop members are taxed once on the profits and not at the
corporate level.
F. Franchise
 A contractual agreement to sell a company’s products or services in a designated
geographical area

Scaling up agribusinesses
Scaling up means expanding, replicating, adapting, and sustaining successful policies, programs,
or projects to reach a greater number of people; it is part of a broader process of innovation and
learning.
Types of Agribusiness Expansion
 Expansion through Concentration
 Expansion through diversification
 Expansion through integration

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 Expansion through cooperation

 Expansion through Internationalization

 1. CONCENTRATION STRATEGIES
When an organization focuses on intensifying its core businesses with a view on expanding
through either acquiring a new customer base or diversifying its product portfolio, it is having a
concentration strategy. IGOR ANSOFF’S PRODUCT-MARKET MATRIX
was developed by H. Igor Ansoff

1. Market Penetration-the firm seeks to achieve growth with existing products in their current
market segments, aiming to increase its market share.
2. Market Development-the firm seeks growth by targeting its existing products to new market
segments.
3.Product Development-the firms develops new products targeted to its existing market
segments.
4. Diversification-the firm grows by diversifying into new businesses by developing new
products for new markets.
 2. INTEGRATION STRATEGIES
 Integration means combining activities related to the present activity of a company
 Integration is part of the diversification strategy

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 It widens the scope for a company as far is the market penetration is concerned.

TYPES OF INTEGRATION STRATEGIES

A. Horizontal Integration
B. Vertical Integration
Horizontal Integration
When an organization takes up the same types of products at the same level of production or
marketing process, it is said to follow a strategy of Horizontal Integration (Also known as
Merger/Acquisition)
Vertical Integration :Expansion to serve its own needs.
Two types: Backward and Forward Integration
Backward Integration means going back to the source of raw materials (Example: wheat flour
company may start planting wheat, butter selling AB may start rearing dairy cows)
Forward Integration implies moving closer to the finished product (example: Fresh milk
supplying agribusiness would start making fermented milk, yogurt, cheese, butter or fruit selling
AB may start making juice)
.
 3. DIVERSIFICATION STRATEGIES
1. Concentric or Related Diversification
2. Conglomerate or Unrelated Diversification

1. CONCENTRIC OR RELATED DIVERSIFICATION

 When an organization takes up related activities within a wider industry situation, it is
termed as “Concentric Diversification”
 Example: milk supplying company starts producing babies food
2. CONGLOMERATE OR UNRELATED DIVERSIFICATION
 A conglomerate is a combination of two or more corporations engaged in entirely
different businesses that fall under one corporate group, usually involving a parent
company and many subsidiaries
 In other words, a conglomerate takes up such activities which are unrelated to the core
business.

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4. Expansion through Cooperation

Is a strategy followed when an organization enters into a mutual agreement with the competitor
to carry out the business operations and compete with one another at the same time, with the
objective to expand the market potential. The expansion through cooperation can be done by
following any of the strategies as explained below
 Merger: is the combination of two or more firms wherein one acquires the assets and
liabilities of the other in the exchange of cash or shares, or both the organizations get
dissolved, and a new organization came into the existence. The firm that acquires another
is said to have made an acquisition, whereas, for the other firm that gets acquired, it is a
merger.
 Takeover: one firm acquires the other in such a way, that it becomes responsible for all
the acquired firm’s operations. The takeovers can either be friendly or hostile. Friendly,
both the companies agree for a takeover and feels it is beneficial for both. In the case of a
hostile takeover, a firm try to take on the operations of the other firm forcefully either
known or unknown to the target firm.
 Joint Venture: both the firms agree to combine and carry out the business operations
jointly. Is generally done, to capitalize the strengths of both the firms. The joint ventures
are usually temporary; that lasts till the particular task is accomplished.
 Strategic Alliance: the firms unite or combine to perform a set of business operations,
but function independently and pursue the individualized goals. Generally, the strategic
alliance is formed to capitalize on the expertise in technology or manpower of either of
the firm.
5. Expansion through Internationalization
Is the strategy followed by an organization when it aims to expand beyond the national
market. It arises when an organization has explored all the potential to expand
domestically and look for the expansion opportunities beyond the national boundaries.
Going global is not an easy task, the organization has to comply with the stringent benchmarks of
price, quality and timely delivery of goods and services, that may vary from country to country.

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Distinguishing Features of Agribusiness

Agribusinesses and Non-agribusinesses

1) The tremendous variety in the kinds of business in the agriculture sector; that is from
basic producers to brokers, wholesalers, processors, packagers, manufacturers, storage
firms, transporters, financing institutions, retailers, food chains, restaurants, the list is
nearly endless.
2) The Sheet number of agribusinesses: Literally millions of different businesses have
evolved to handle a product when it moves in the route from the producer through the
retail marketer to the final consumers.
3) The way in which basic agribusiness is built around several million-farm producers:
These farmers produce hundreds of different food and fiber products. Most agribusiness
deals with farmers directly or indirectly. No other industry is built principally around the
basic producer of its raw product.
4) The infinite variety in size of agribusiness, from giants like down chemical to the one
person or one family organization. Most agribusiness tends to be small when compared to
other business and industrial segments.
5) Agribusinesses are small and compete in a relatively free market where there are many
sellers and fewer buyers and where the number and size of agribusiness do not allow
monopoly like enterprises. Product differentiation is also difficult in agribusinesses – a
ton of 20-20-20 fertilizers or a quintal of corn will vary little from producer to producer.
6) The fact that agribusiness firms tend to be community oriented. Many agribusinesses are
run by families or deal with businesses that are run by families. Husbands and wives are
often involved heavily in both the operational and decision making phases of the business
on a full partnership basis.
7) The fact that agribusinesses are small scaled and located in rural areas. Many of them are
located in small towns and rural areas where inter personal relationships are important
and associations are long term.
8) The fact those agribusinesses, even those that are industrial giants, are likely to be highly
personal in nature. Because of intimate relationship and interdependence of agribusiness

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and farm producers, and because of the nature of planting and harvesting seasons, special
problems often arise.
9) Agribusinesses deal with the vagaries of nature. Drought, flood, insects and diseases are a
constant threat for most agribusinesses. Every one from the banker to the chemical
manufacturer is concerned with the weather.
10) The direct impact governmental programs and policies have on agribusinesses. The price
of wheat, for example, may be heavily influenced by government regulation. Many
agricultural products are directly influence by government programs.
CHAPTER TWO
2.Nature, Scope and Purpose of Management
2.1 Definition of Management

More broadly, management is the process of designing and maintaining an environment in which
individuals, working together in groups, efficiently accomplish selected aims (Koontz and
Weihrich 1990, p. 4). In its expanded form, this basic definition means several things. First, as
managers, people carry out the managerial functions of planning, organizing, staffing, leading,
and controlling. Second, management applies to any kind of organization. Third, management
applies to managers at all organizational levels. Fourth, the aim of all managers is the same – to
create surplus. Finally, managing is concerned with productivity – this implies effectiveness and
efficiency. Efficiency - doing things the right way. Something is efficient if it functions with the
least use of resources. Effectiveness - doing the right things. Effective if it produces the
intended result. It is possible to be effective without being efficient and vice versa.

2.2 Role and Importance of Management

Management is indispensable for the successful functioning of every organization. It is all the
more important in business enterprises. Every business needs repeated stimulus which can only
be provided by management. According to Peter Drucker,“ management is a dynamic life-giving
element in an organization, without it the resources of production remain mere resources and
never become production”.
The importance of management has been highlighted clearly in the following points:
(i)Achievement of group goals: A human group consists of several persons, each specializing in
doing a part of the total task. Each person may be working efficiently, but the group as a whole
cannot realize its objectives unless there is mutual cooperation and coordination among the
members of the group.
(ii) Optimum utilization of resources: Managers forecast the need for materials, machinery,
money and manpower. They ensure that the organization has adequate resources and at the same
time does not have idle resources. Managers make sure that workers use the most efficient
methods of work so that they can make the best use of the available resources.

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(iii) Minimization of cost: In the modern era of cut-throat competition no business can succeed
unless it is able to supply the required goods and services at the lowest possible cost per unit.
Management directs day-to-day operations in such a manner that all wastage and extravagance
are avoided. Managers enable an enterprise to be competent and earn profits.
(iv) Survival and growth: Modern business operates in a rapidly changing environment. An
enterprise has to adapt itself to the changing demands of the market and society. Management
takes steps in advance to meet the challenges of changing environment. Changes in business
environment create risks as well as opportunities. Managers enable the enterprise to minimize the
risks and maximize the benefits of opportunities. In this way, managers facilitate the continuity
and prosperity of business.
(v) Generation of employment: By setting up and expanding business enterprises, managers
create jobs for the people. People earn their livelihood by working in these organizations.
Managers also create such an environment that people working in enterprise can get job
satisfaction and happiness. In this way managers help to satisfy the economic and social needs of
the employees.
(vi) Development of the nation: Efficient management is equally important at the national level.
Management is the most crucial factor in economic and social development. The development of
a country largely depends on the quality of the management of its resources.
Levels of Management

Every business organization, irrespective of its size, has many managerial positions in its struc-
ture. These positions are created through the process of delegation of authority from top to lower
levels. Each position is marked by authority, responsibility, functions, roles and an important
role, larger the contribution, greater the authority and higher the responsibility. These managerial
positions lying in the chain of command may be classified into various groups or levels of man-
agement. Broadly speaking, an organization has two important levels of management, namely
functional and operative.

The functional level is concerned with the process of determining primary objectives, formulat-
ing basic policies, making vital decisions and controlling and coordinating activities of person-
nel. The operative level of management is related to implementation of plans and decisions, and
pursuit of basic policies for achieving the objectives of the organization. Generally, the levels of
management consisting of various managerial positions in the structure of an organization differ
from one organization to another, depending on the size of business activity, philosophy of man-
agement, span of control and other related factors. Usually, managerial personnel may be placed
in three levels, that is, top, middle and lower or supervisory level.
The top level determines the objectives of the business as a whole and lays down policies to
achieve these objectives (making of policy means providing guidelines for actions and decision).
The top management also exercises an overall control over the organisation. The middle-level
management includes heads of various departments, e.g., production, sales, etc., and other de-

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partmental managers. Sometimes senior departmental heads are included in the top management
team. The objectives of the business as a whole are translated into departmental objectives for
the middle level management. The heads of the departments then work out their own strategies
so as to achieve these objectives. Middlelevel managers are particularly concerned with the ac-
tivities of their respective departments.
The lower-level management consists of foremen and supervisors who look after the operative
workers, and ensure that the work is carried out properly and on time. Thus, they have the pri-
mary responsibility for the actual production of goods and services in the organisation.

These three levels of management taken together form the ‘hierarchy of management’. It indi-
cates the ranks and positions of managers in the hierarchy. It shows that the middlelevel manage-
ment is subordinate to the top-level and that the lower-level is subordinate to the middle-level
management.
Carefully see the figure shown above once again. You will see that the number of people at each
level increases as one moves from top to bottom. Workers including crafts persons, manual
labourers, engineers, scientists, etc. form the bulk of the organisation membership.
Within the managerial ranks, the number of managers at each level decreases as one moves from
lower-level to top-level management. At the top of the organisation, there isusually one person
Skills of Management
In modern business the job management has become very difficult. Several skills are required to
manage successfully a large organization in a dynamic environment. These skills of managers
have been classified into four categories, namely technical, human, conceptual and diagnostic
skills.
(i) Technical Skills
Technical skills refer to the ability and knowledge in using the equipment, technique and proce-
dures involved in performing specific tasks. These skills require specialized knowledge and pro-
ficiency in the mechanics of particular job. Ability in programming and operating computers is,
for instance, a technical skill. There are two things a manager should understand about technical
skills. In the first place, he must know which skills should be employed in his particular enter-
prise and be familiar enough with their potentiality to ask discerning questions of his technical
advisors. Secondly a manager must understand both the role of each skill employed and interre-
lations between the skills.
(ii) Human Skills
Human skills consists of the ability to work effectively with other people both as individual and
as members of a group. These are required to win cooperation of others and to build effective
work teams. Such skills require a sense of feeling for others and capacity to look at things from
others point of view. Human skills are reflected in the way a manager perceives his superiors,
subordinates and peers. An awareness of the importance of human skills should be part of a man-
agers orientationmand such skills should be developed throughout the career. While technical
skills involve mastery of ‘things’ human skills are concerned with understanding of ‘People’.
(iii) Conceptual Skills
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Conceptual skills comprise the ability to see the whole organization and the interrelationships be-
tween its parts. These skills refer to the ability to visualise the entire picture or to consider a situ -
ation in its totality. Such skills help the manager to conceptualise the environment, to analyse the
forces working in a situation and take a broad and farsighted view of the organisation. Concep-
tual skills also include the competence to understand a problem in all its aspects and to use origi-
nal thinking in solving the problem. Such competence is necessary for rational decision-making.
(iv) Diagnostic Skills
Diagnostic skills include the ability to determine by analysis and examination the nature and cir-
cumstances of particular conditions. It is not only the ability to specify why something happened
but also the ability to develop certain possible outcomes. It is the ability to cut through different
aspects and quickly get to the heart of the problem. Diagnostic skills are probably the most diffi-
cult ones to develop because they require the proper blend of analytic ability with common sense
and intelligence to be effective.

Thus technical skills deal with jobs, human skills with persons, conceptual skills with ideas and
diagnostic Skills with investigation. These types of skills are interrelated. But the proportion or
relative significance of these skills varies with the level of management. For purposes of elabora-
tion, technical skills are of greatest importance at the supervisory level and less at the middle-
management level, conceptual skills not critical for lower-level supervisors but gain an impor-
tance at the middle-management level. Human skills are equally important at all levels of man-
agement because every manager has to deal with people. At the top management level, concep-
tual and diagnostic abilities are especially valuable, but there is relatively little need for technical
abilities. The assumption, especially in large companies is that chief executives can utilize the
technical abilities of their subordinates. In smaller firms, however, technical experience may still
be quite important.
Goals of All Managers
First and foremost, the logical and publicly desirable aim of all managers in all kinds of
organizations, whether business or non-business, should be a surplus. Thus, managers must
establish an environment in which people can accomplish group goals with the least amount of
time, money, materials, and personal dissatisfaction or in which they can achieve as much as
possible of a desired goal with available resources. In a non-business enterprise such as units of a
business (such as an accounting department) that are not responsible for total business profits,
managers still have goals and should strive to accomplish them with the minimum of resources
or to accomplish as much as possible with available resources. A manager who achieves such an
aim is said to be a strategic manager. The second goal or aim of all managers is that they must be
productive. Indeed, government, and the private sector recognize the urgent need for productivity
improvement. Productivity improvement is about effectively performing the basic managerial
and non-managerial activities. Simply defined, productivity is about the output-input ratio within
a time period with due consideration for equality. Lastly, productivity implies effectiveness and
efficiency in individual and organizational performance. Effectiveness is the achievement of
objectives. Efficiency is the achievement of the ends with the least amount of resources.
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Managers cannot know whether they are productive unless they first know their goals and those
of the organization.

Function of Business management

Planning function
 What is planning?
It is the process of setting future objectives and deciding on the ways and means of
achieving them. “planning is deciding in advance what is to be done in future. It involves
the selection of objectives, policies, procedures and programmes from among the
alternatives”. Planning is the process of determining objectives and selecting course of
action for its attainment. Planning is the process by which a manager looks to the future
and discovers alternate courses of action
Features of Planning
(a) primary function of management
(b) always goal directed
(c)pervasive at all levels of management and so also for all functional area.
 Top level -entire organization,
 Middle-level -make quarterly, half-yearly and yearly plans for the departments under
them.
 Foremen and office supervisors - workshop or a section of the office.
(d) always futuristic.
It is deciding in advance what to do, how to do, etc
(e) an intellectual activity and requires certain conceptual skills to look ahead into the
future.
(f) continuous process
(g) involves making choices
(h) flexible
Importance of Planning
 is the most importance of all the management functions
 reduces uncertainty, risk and confusion in operation
 guides the decision making by the managers.
 helps in achieving coordination and facilitates control.
 with an element of flexibility makes the organization adaptable. Important for surv &
grow
 leads to economy and efficiency in operations. Reduce overlap & waste
 Limitations
As the plans are based on certain assumptions and incomplete information the management
has to be watchful and provide for necessary flexibility to take care of changed situations
Elements of planning

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 Plans encompasses any course of future action, classified as Purposes or mission,

objectives, strategies, policies, procedures, rules, programmes, and budgets.
The Planning Process/Steps in Planning
1. Establishment of Objectives
 starts with defining org’n goals in more concrete, clear and unambiguous terms.
 Helps in gaining clarity on what they have to achieve and then plan all activities
accordingly.
 is a pre-requisite for good and meaningful planning
1. Making Assumptions (establishing premises) about the External and Internal
conditions
 These assumptions about the future environment of the business are known as
planning premises
 External or internal
3. Development of Alternative Courses of Action
 increasing the profits & the sale of its existing products, improve product quality, add
new products/product lines, increase the prices of products and reduce costs
4.Evaluation of Alternatives
5. Selecting the Appropriate Course of Action
 maximum benefit at minimum cost
6. Arranging for implementation
 it should build up the necessary strategies and action plan for its implementation in due
consultation with all key personnel who are to implement it.
 Organizing function
 is the next important function of management after the planning.
 Organizing is the process of arranging people and physical resources in an orderly
manner to carryout planned activity.
 decides on ways and means through which it will be easier to achieve what has been
planned.
 Organizing refers to the process of :
 Identifying and grouping the work to be performed.
 Defining and determining responsibility and authority for each job position.
 Establishing relationship among various job positions.
 Determining detailed rules and regulations of working for individuals and groups in
organization.
 Importance of Organizing
ST
1 facilitates administration as well as operation of enterprise.
 By grouping work and people properly, production increases, overload of work is
checked, wastage is reduced, duplication of work is restricted and effective delegation
becomes possible.
 2ND facilitates growth and diversification of activities through clear division of work.

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 It helps in developing a proper organization structure and the extent and nature of
decentralization can be determined.
 provides for the optimum use of technical and human resources.
 It also encourages creativity and enhances interaction among different levels of
management which leads to unification of efforts of all.
 Process of Organizing
1. Identification of activities –based on the purpose
 Manufacturing – producing and selling then ozr
2. Grouping of activities - activities which are similar in nature can be grouped as one and a
separate department can be created.
3. Assignment of Responsibilities
4. Granting authority –to ensure effv. Performance
5. Establishing relationship: This is a very important job of management as everybody in the
organization should know as to whom he/she is to report, thereby establishing a structure of
relationships.
 ORGANIZATION STRUCTURE
Based on the arrangement of activities, three most commonly used forms of organization
structure are
(1) functional structure,
(2) divisional structure and
(3) Matrix
Delegation
 In organizations, it is difficult on the part of a manager to complete all the jobs assigned
to him.Assign some of the work to subordinate and give them authority to carry on the
work and at the same time make them accountable. There are three elements of
delegation.
1.Assignment of Responsibility
2. Granting Authority:
3. Creating Accountability
 Decentralization
 Decentralization refers to a systematic effort to delegate authority at all levels of
management and in all departments.
 This shifts the power of decision making to lower level under a well considered plan.
 Decentralization has number of benefits.
 1st it reduces the workload of the top level management.
 2nd it motivates the employees and gives them more autonomy.
 It promotes initiative and creativity. It also helps employees to take quick and appropriate
decisions.
 Distinction between Delegations and Decentralization
1.Delegation is the process of assigning responsibility & authority and thereby creating
accountability; decentralization is the ultimate outcome of planned delegation.
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2. Delegation of authority takes place between the manager and his subordinates
while decentralization involves the entire organization, and is between top management and
divisions/departments.
3.Delegation is done to speed up the work and is essential in trace; while decentralization is
optional and is usually done in large scale organizations.
4. In case of delegation the responsibility and authority delegated may be withdrawn by the
delegator; which is not so easy in case of decentralization.
Staffing function
 Staffing refers employing & developing human resources for carrying out the various
managerial and non-managerial activities in an organization.
 This involves determining the manpower requirement, and the methods of recruiting,
selecting, training and developing the people for various positions created in the
organization. Staffing success depends heavily on the planning and organizing functions
of management.
 Importance of Staffing
1) It helps in getting right people for the right job at the right time.
2) Staffing contributes to improved organizational productivity. Quality works & high
performance
3) It helps in providing job satisfaction to the employees keeping their morale high
4) maintains harmony in the organization - their performance is regularly appraised and
promotions made on merit
 Process of staffing
1) Human resource planning-determining the human resource requirement in terms of its
number & qualifications.
2. Recruitment:- is a process of developing qualified candidates from which the
organization can select the best.
3. Selection:- is the process of evaluating and selecting the best out of the pool of applicants
based on their experiences, qualifications and skills.
4. Induction and orientation
 Induction is introducing new workers with the existing workers and orientation is the
process of introducing new employees to their new work environments & along with
organizational rules and regulations.
5. Training and development : It is a planned effort by an organization to facilitate employees
learning of the job related behaviors.
6. Performance appraisal : Is the process of determining the extent to which an employee is
performing a job effectively. It is evaluating employees.
 7. Compensation :Is the most important factors influencing relations between
management and the workers.

 8. Separation (termination) :termination of relationships between an employee and the

organization. It can be done voluntarily or Non voluntarily
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 Controlling function
 Controlling as a function of management refers to the evaluation of actual performance
of work against standard performance and taking the corrective action, if necessary.
 Characteristics of Control
 Planning is the basis of control
 Control is a continuous process
 Control is all-encompassing
 Action is the essence of control
 Control is forward looking
 Levels of Controlling
Takes place on three levels corresponding to levels of management
1. Strategic control:- It is done by top management, it does have organizational
perspective it needs long time frame, it is broad in scope (overall control)
2. Tactical control:- It is done by middle management, it does have departmental
perspective. It needs periodic (medium) time frame
3. Operational control: - It is done by lower managers, it is unit or individual
perspective, it needs short time frame (daily, weekly etc, it is limited
(specific) in scope
1. Pre controls:-
 It is said to be preventive control.
 It is used to control inputs to ensure that they meet the standard for transformation
 It is designed to anticipate problems and take preventive action.
2. Concurrent control: -
 It is said to be screening control
 involves regulation of ongoing activities
 It has significant to cope with contingencies
3. Post action controls:-
 Said to be feedback control
 It takes place after the output is made to meet organizational standards (after
transformation).
 Essential for refining an organization planning capabilities.

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