PRE-INDUCTION MODULE FOR THE BATCH OF 2014-16

A Head Start to MBA

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Welcome to IMI!

Dear Batch of 2014-16,

Congratulations to each one of you for making it to one of the best management institutes

of the country. We welcome you to the International Management Institute, New Delhi and

wish you all the best for all your future endeavours.

This pre-induction module has been prepared to acquaint you with some important

concepts of MBA at an early stage and give you a feel of the academic experience that lies

ahead in the next two years. The module will introduce and illustrate some basic concepts

in Accountancy, Economics, Marketing, HR and Operations. Please feel free to

supplement this material with other course books, in order to develop a deeper

understanding.

We appreciate the support of various functional clubs of IMI in compiling the pre-

induction module. Wishing you a happy reading time ahead!

Warm Regards,

IMI Student Council

studentcouncil@imi.edu

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Contents

Accountancy .............................................................................................................................. 4

Accounting principles ............................................................................................................ 7

Financial Accounting Concepts ............................................................................................. 9

Financial Ratios .................................................................................................................... 12

Financial Markets ................................................................................................................. 14

Banking ................................................................................................................................ 21

Recent Developments ........................................................................................................... 23

Economics ................................................................................................................................ 25

Microeconomics ................................................................................................................... 25

Macroeconomics .................................................................................................................. 26

Types of Economy ............................................................................................................... 27

Monetary Policy & Role of Central Bank ............................................................................ 31

Marketing ................................................................................................................................. 34

Glossary of Marketing Terms .............................................................................................. 34

Marketing Concepts ............................................................................................................. 36

Segmentation, Targeting and Positioning ............................................................................ 38

BCG Growth sharing Matrix ................................................................................................ 42

Organization Behaviour & HRM ............................................................................................. 47

Basics of OB......................................................................................................................... 47

Industrial Relations .............................................................................................................. 50

Human Resource Management ............................................................................................ 52

Training & Development ..................................................................................................... 55

Performance Management System ....................................................................................... 55

Organizational Design .......................................................................................................... 58

Operations ................................................................................................................................ 60

Project management ............................................................................................................. 62

Six Sigma ............................................................................................................................. 65

Inventory Control ................................................................................................................. 66

Types of Layouts .................................................................................................................. 71

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Accountancy

What is accounting?

Accounting is the medium through which business organizations communicate their financial

performance and position to the outside world. It is the process of identifying, measuring and

communicating economic information to users of the information. It is defined as the

systematic and comprehensive recording of financial transactions pertaining to a business.

Who are the users of accounting information?

The accounting information is used by both internal and external stakeholders. The most

predominant group of external stakeholders includes the suppliers of capital like

shareholders, lending banks and financial institutions, bond holders and other lenders, etc.

These stakeholders have financial interest in the business and therefore are interested in

knowing the financial performance of the organization. Tax authorities are also interested in

the accounting information to ascertain the tax liability of business units.

What is meant by Accounting Cycle?

The accounting cycle involves:-

1. IDENTIFYING THE BUSINESS TRANSACTIONS: All business transactions

carried out by the firm are identified. Business activities are separated from the non-

business activities.

2. CLASSIFYING THE BUSINESS TRANSACTIONS: The business activities are

then classified according to their nature and recording in the financial statements.

3. RECORDING THE BUSINESS TRANSACTIONS: The identified business

transactions are recorded for maintaining proper records of firm’s activities. Journals,

ledgers and Trial Balance are used for recording transactions.

4. SUMMARIZING THE BUSINESS TRANSACTIONS: The business transactions

are summarized on periodic basis to interpret the firm’s profitability and performance.

Profit and Loss account, Balance Sheet and Cash Flow statements are used for

summarizing.

5. INTERPRETING THE BUSINESS TRANSACTIONS: The financial performance

of the firm is interpreted to arrive at the profitability position of the firm. Trend

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Analysis, Common Size, Ratio Analysis are used for the interpretation amongst others

available.

What are the different types of accounts?

For the usage in Accounting, Accounts are classified into:

1. REAL ACCOUNTS: They are accounts relating to assets owned by enterprise. E.g.

cash, machinery.

2. PERSONAL ACCOUNTS: They are accounts relating to the persons, both natural

and legal, with whom the enterprise has business transactions. They represent the

amount receivables and payable by the enterprise. For Ex- Capital Account, Loan

from Banks, etc.

3. NOMINAL ACCOUNTS: They are accounts relating to income and expenses. For

E.g. sales, rent earned and paid, etc.

What do you mean by journal entry?

Journal entry is the beginning of the accounting cycle. Journal entries are the logging of

business transactions and their monetary value into the t-accounts of the accounting journal

as either debits or credits. Journal entries are usually backed up with a piece of paper; a

receipt, a bill, an invoice, or some direct record of the transaction.

What is a Ledger?

Ledger is a book of accounts in which data from transactions recorded in journals are posted

and thereby classified and summarized. It is typically used by businesses that employ the

double-entry bookkeeping method - where each financial transaction is posted twice, both as

debit & credit.

What is a Trial Balance?

Trial Balance is the aggregate of all debits and credit balances at the end of an accounting

period. It shows if the general ledger is in balance (total debits equal total credits) before

making closing entries and serves as a worksheet for making closing entries. It provides the

basis for making draft financial statements.

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What do you mean by financial statement and explain types of financial statements and

their functions?

Financial statements can be referred to as representation of the financial status of a company

in a systematically documented form. These written reports help to quantify the financial

strength, performance and liquidity of a company. There are three different types of financial

statements which indicate the different activities occurring in a particular business house.

1. Balance Sheet

2. Income statement

3. Cash flow statement

What is a Balance Sheet?

Balance Sheet presents the financial position of an entity at a given date. It is comprised of

the following three elements:

• ASSETS: Something a business owns or controls (e.g. cash, inventory, plant and

machinery)

• LIABILITIES: Something a business owes to someone (e.g. creditors, bank loans, etc)

• EQUITY (CAPITAL): What the business owes to its owners. This represents the

amount of capital that remains in the business after its assets are used to pay off its

outstanding liabilities. Equity therefore represents the difference between the assets and

liabilities.

What is meant by Income Statement?

Also known as the P&L statement or the Profit And Loss Statement, this statement ascertains

the profit and loss of any business. Income Statement is composed of the following two

elements:

• Income: What the business has earned over a period (e.g. sales revenue, dividend

income)

• Expense: The cost incurred by the business over a period (e.g. salaries and wages,

depreciation, rental charges, etc.)

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What is a Cash Flow Statement?

Cash Flow Statement presents the movement in cash and bank balances over a period. The

movement in cash flows is classified into the following segments:

Operating Activities: Represents the cash flow from primary activities of a business.

Investing Activities: Represents cash flow from the purchase and sale of assets other

than inventories (e.g. purchase of a factory plant)

Financing Activities: Represents cash flow generated or spent on raising and repaying

share capital and debt together with the payments of interest and dividends.

Accounting principles

Separate Entity Concept

The business entity concept provides that the accounting for a business or organization be

kept separate from the personal affairs of its owner, or from any other business or

organization. The balance sheet of the business must reflect the financial position of the

business alone.

The Going Concern Concept

The going concern concept assumes that a business will continue to operate, unless it is

known that such is not the case. This concept has strong implication on the valuation of assets

of the business.

The Principle of Conservatism

The principle of conservatism provides that accounting for a business should be fair and

reasonable. It is better to understate the financial position of the business rather than

overstate. Probable gains should be ignored but account for probable losses should be made.

The Objectivity Principle

The objectivity principle states that accounting will be recorded on the basis of objective

evidence. Objective evidence means that different people looking at the evidence will arrive

at the same values for the transaction. Simply put, this means that accounting entries will be

based on fact and not on personal opinion or feelings

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Accounting Period Concept

This concept provides that accounting takes place over specific time periods known as fiscal

periods. It is usually of 12 months. These fiscal periods are of equal length, and are used

when measuring the financial progress of a business.

The Accrual Basis of accounting concept

Cash basis- transactions are recorded on receipt and payment of cash.

Accrual basis- revenue is recorded when earned while expenses are recorded when incurred

irrespective of when cash is received or paid.

The Matching Principle

It states that each expense item related to revenue earned must be recorded in the same

accounting period as the period in which the revenue it helped to earn is recorded.

The Cost Concept

The cost principle states that the accounting for purchases must be at their cost price. This is

the figure that appears on the source document for the transaction in almost all cases. The

value recorded in the accounts for an asset is not changed until later if the market value of the

asset changes.

The Consistency Principle

The consistency principle requires accountants to apply the same methods and procedures

from period to period. When they change a method from one period to another they must

explain the change clearly on the financial statements.

The Materiality Principle

The materiality principle states that all information that affects the full understanding of a

company's financial statements must be included with the financial statements provided but

unnecessary details should be avoided.

The Dual Concept

Every transaction affects at least two accounts in such a way that the below equation would

always be balanced. Assets = Capital + Liabilities

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Money Measurement Concept

It states that only those events and transactions that can be expressed in money terms form

the subject matter of accounting and are recorded in the financial statements. Also, if business

units earn revenue in different currencies then the financial statements are prepared using a

uniform currency called reporting currency.

Financial Accounting Concepts

What is an asset in financial accounting?

Any item of economic value owned by an individual or corporation, especially that which

could be converted to cash. E.g.: land, buildings, furniture, patent, etc.

What are the different types of assets?

Assets can be classified into 2 types:

1. TANGIBLE ASSETS: Assets that have a physical substance such as currencies,

buildings, real estate, vehicles, inventories, equipment, and precious metals are called

tangible assets. They can be further classified into current assets and fixed assets.

2. INTANGIBLE ASSETS: They lack physical substance and usually are very hard to

evaluate which includes patents, copyrights, franchises, goodwill, trademarks, trade

names, etc.

What is a liability?

A liability is commonly defined as an obligation of an entity arising from past transactions or

events. They are reported on a balance sheet and are usually divided into two categories:

1. CURRENT LIABILITIES: These liabilities are reasonably expected to be liquidated

within a year. They usually include payables such as wages, accounts, taxes, and

accounts payable, unearned revenue when adjusting entries, short-term obligations

etc.

2. LONG-TERM LIABILITIES: These liabilities are reasonably expected not to be

liquidated within a year. They usually include issued long-term bonds, notes payables,

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long-term leases, pension obligations, and long-term product warranties. The balance

sheet is based upon the following equation:

ASSETS = LIABILITIES + OWNER'S EQUITY

What is Owner's equity?

Owner's equity is an individual or company's net worth. This is calculated by taking the value

of all assets and subtracting the value of all liabilities. Owner's equity is used in determining

an individual's or company's creditworthiness, and can be used in determining the value of a

business when its owner or shareholders want to sell. It may be referred as book value of the

company.

What is Shareholder’s Fund?

It represents the actual amount put in the business by the owners and the amount raised by

issuance of shares and earnings retained. It is divided into two parts-

• SHARE CAPITAL: It represents the amount raised by issuance of shares at the face

value.

• RESERVE AND SURPLUS: It represents the part of profit that has been retained by

the company after paying out the dividends. It is also called as retained earnings.

What are dividends?

It represents a part of the profit that is distributed to the shareholders. The final dividend is

proposed by the directors of the company. The dividends released attract a tax called as

dividend distribution tax or corporate distribution tax and is deducted from the profit made by

the company.

What is the distinction between debtor and creditor?

A DEBTOR is a person or enterprise that owes money to another party. (The party to whom

the money is owed is often a supplier or bank that will be referred to as the creditor.)

CREDITORS are the entities which give some type of credit to a borrower or debtor. A

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creditor could be a company, person, organization, government, a bank, a corporation or a

credit card issuer.

E.g.: If Company X borrowed money from its bank, Company X is the debtor and the bank is

the creditor. If Supplier A sold merchandise to Retailer B, then Supplier A is the creditor and

Retailer B is the debtor.

What are the different types of credits?

SECURED LOAN OR CREDIT: Loan is given only if there is some kind of asset

(collateral) that is pledged by the borrower. If the borrower defaults, the same is

liquidated.

UNSECURED LOAN OR CREDIT: Some creditors prefer to not entail the pledging

of some kind of asset in exchange for giving a credit or loan to the borrower. The loan

is given on trust based on details furnished by the debtor.

What are trade payables?

Liabilities owed to suppliers for purchases or services rendered. They are also referred as

accounts payable or as sundry creditors.

What is depreciation?

The process of appropriating the cost of a fixed asset over its useful life is called

depreciation. The term depreciation is associated with tangible assets such as plant

machinery, furniture etc. E.g.: If a company buys a piece of equipment for $1 million and

expects it to have a useful life of 10 years. Every accounting year, the company will expend

$100,000 (assuming straight-line depreciation), for ten years.

What is amortization?

It is defined as the deduction of capital expenses over a specific period of time (usually over

the asset's life). This concept is used for measuring the consumption of value of intangible

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assets like patents and copyrights over their life.

E.g.: Suppose XYZ Biotech spent $30 million dollars on a piece of medical equipment and

that the patent on the equipment lasts 15 years, this would mean that $2 million would be

recorded each year as an amortization expense.

Financial Ratios

What is a ratio?

Ratios express one item in relation to other and draw inference of this expression. Ratios are

very important as they help to analyze the financial statements of a company or a firm.

What is profitability ratio? What are the different kinds of profitability ratios?

A class of financial metrics that are used to assess a business's ability to generate earnings as

compared to its expenses and other relevant costs incurred during a specific period of time.

Following are the different profitability ratios:

Sales − Cost of Goods Sold

Gross Profit Ratio =

Sales

Net Profit Ratio = PAT / Sales

Operating Expenses

Operating Expenses Ratio =

Sales

PAT – Dividend on Preference Shares (if any)

Earnings Per share =

Number of Equity Shares

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What is growth ratio? What are the different kinds of growth ratios?

Growth ratio indicates the growth of the company based on its historical performance.

COMPOUND ANNUAL GROWTH RATIO (CAGR) indicates average annual growth

achieved by an enterprise during a given period of time.

A= P(1+g)n

A = current value

P = base value

g = CAGR

n = difference between current year and base year.

What is dividend policy ratio? What are the different kinds of dividend policy ratios?

Dividend policy ratios measure how much a company pays out in dividends relative to its

earnings and market value of its shares. These ratios provide insights into the dividend policy

of a company.

Dividend Rate=Total Dividend

No. of Shares

Dividend Payout Ratio=Dividends + Dividend Distribution Tax

PAT

Dividend Yield =Dividend per Share

Current Market Price

What is Short-term Liquidity ratio? What are the different kinds of Short-term

Liquidity ratios?

Short-term liquidity ratios indicate the adequacy of the company’s current assets to meet its

current obligations.

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Current Ratio =

Current Assets

Current Liabilities

Quick Ratio= Current Assets –Inventories

Current Liabilities

What is Capital Structure ratio? What are the different kinds of Capital Structure

ratios?

Capital Structure ratios indicate the proportion of borrowed funds and shareholder funds in

total capital employed.

Debt equity Ratio = Long term debts / Shareholder’s Fund

Financial Markets

What is a Share?

Total equity capital of a company is divided into equal units of small denominations, each

called a share. Each share forms a unit of ownership of a company and is offered for sale so

as to raise capital for the company. For example, in a company the total equity capital of Rs

2,00,00,000 is divided into 20,00,000 units of Rs. 10 each. Each such unit of Rs 10 is called a

Share.

Shares can be broadly divided into two categories - equity and preference shares.

• EQUITY SHARES give their holders the power to share the earnings/profits in the

company as well as a vote in the AGMs of the company. Such a shareholder has to share

the profits and also bear the losses incurred by the company.

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• PREFERENCE SHARES earn their holders only dividends, which are fixed, giving no

voting rights.

What is a Derivative?

A derivative is a product whose value is derived from the value of one or more underlying

variables or assets in a contractual manner. The underlying asset can be equity, Forex,

commodity or any other asset.

Some commonly used FINANCIAL DERIVATIVES are:

• FORWARDS: A forward contract is a customized contract between two entities, where

settlement takes place at a specific date in the future at today’s predetermined price.

FUTURES: A futures contract is an agreement between two parties to buy or sell the

underlying asset at a future date at today's future price. Futures contracts differ from

forward contracts in the sense that they are standardized and exchange traded.

• OPTIONS: An Option is a contract which gives the right, but not an obligation, to buy or

sell the underlying at a stated date and at a stated price.

Options are of two types - CALL and PUT options:

o ‘CALLS’ give the buyer the right, but not the obligation to buy a given quantity of

the underlying asset, at a given price on or before a given future date.

o ‘PUTS’ give the buyer the right, but not the obligation to sell a given quantity of

underlying asset at a given price on or before a given future date.

• WARRANTS: Longer dated options are called Warrants and are generally traded over-

the-counter.

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What is a Mutual Fund?

A Mutual Fund is a corporate body registered with SEBI that pools money from

individuals/corporate investors and invests the same in a variety of different financial

instruments or securities such as equity shares, Government securities, Bonds, debentures etc.

What is an Exchange Traded Fund?

An ETF represents a basket of stocks that reflect an index such as the Nifty. An ETF trades

just like any other company on a stock exchange. An ETF's price changes throughout the day,

fluctuating with supply and demand.

What is an Index?

An Index shows how a specified portfolio of share prices is moving in order to give an

indication of market trends. It is a basket of securities and the average price movement of the

basket of securities indicates the index movement, whether upwards or downwards.

NIFTY INDEX: S&P CNX Nifty (Nifty), is a scientifically developed, 50 stock

index, reflecting accurately the market movement of the Indian markets. It comprises

of some of the largest and most liquid stocks traded on the NSE.

SENSEX INDEX: S&P BSE SENSEX (S&P Bombay Stock Exchange Sensitive

Index), also-called the BSE 30 or simply the SENSEX, is a free-float market

capitalization-weighted stock market index of 30 well-established and financially

sound companies listed on BSE Ltd.

Define Securities.

Securities includes instruments such as shares, bonds, stocks or other marketable securities of

similar nature in or of any incorporate company or body corporate, government securities,

derivatives of securities, units of collective investment scheme, interest and rights in

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securities, security receipt or any other instruments so declared by the Central Government.

What is the function of Securities Market?

Securities Markets is a place where buyers and sellers of securities can enter into transactions

to purchase and sell shares, bonds, debentures etc.

Who regulates the Securities Market?

The responsibility for regulating the securities market is shared by Department of Economic

Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and

Securities and Exchange Board of India (SEBI).

What is SEBI and what is its role?

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India

established under SEBI Act, 1992. Its role includes regulating the business in stock

exchanges and any other securities markets, registering and regulating the working of stock

brokers, sub–brokers, promoting and regulating self-regulatory organizations Prohibiting

fraudulent and unfair trade practices, etc.

What are the different segments of Securities Market?

The securities market has two interdependent segments: the primary (new issues) market and

the secondary market. The primary market provides the channel for sale of new securities

while the secondary market deals in securities previously issued. Secondary market

comprises of equity markets and the debt markets.

What is meant by Face Value of a share?

The nominal or stated amount assigned to a security by the issuer. For shares, it is the original

cost of the stock shown on the certificate; for bonds, it is the amount paid to the holder at

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maturity. It is also known as par value or simply par.

Why do companies need to issue shares to the public?

Most companies are usually started privately by their promoter(s). However, the promoters’

capital and the borrowings from banks and financial institutions may not be sufficient for

setting up or running the business over a long term. So companies invite the public to

contribute towards the equity and issue shares to individual investors.

What is meant by Market Capitalization?

The market value of a quoted company, which is calculated by multiplying its current share

price (market price) by the number of shares in an issue, is called as market capitalization

What is a Bond?

Bond is a negotiable certificate evidencing indebtedness. The issuer usually pays the bond

holder periodic interest payments over the life of the loan. The various types of Bonds are

zero coupon bonds, convertible bonds, treasury bills, etc.

Define Bull Market.

A bull market is when everything in the economy is great, people are finding jobs, gross

domestic product (GDP) is growing, and stocks are rising.

Define Bear Market.

A bear market is when the economy is bad, recession is looming and stock prices are falling.

Bear markets make it tough for investors to pick profitable stocks.

Define Short Selling.

Selling short is the sale of a stock that you don't own. More specifically, a short sale is the

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sale of a security that isn't owned by the seller, but that is promised to be delivered. Short

sellers assume that they will be able to buy the stock at a lower amount than the price at

which they sold short.

What is a Stock Exchange?

The stock exchanges in India, under the overall supervision of the regulatory authority, the

Securities and Exchange Board of India (SEBI), provide a trading platform, where buyers and

sellers can meet to transact in securities.

What is a Portfolio?

A Portfolio is a combination of different investment assets mixed and matched for the

purpose of achieving an investor's goal(s). Items that are considered a part of your portfolio

can include any asset you own-from shares, debentures, bonds, mutual fund units to items

such as gold, art and even real estate etc.

What is meant by ‘Dividends’ declared by a Company?

Dividend is distribution of part of a company's earnings to shareholders, usually twice a year

in the form of a final dividend and an interim dividend. Dividend is therefore a source of

income for the shareholder.

What is a Stock Split?

A stock split is a corporate action which splits the existing shares of a particular face value

into smaller denominations so that the number of shares increase, however, the market

capitalization or the value of shares held by the investors post-split remains the same as that

before the split.

What is meant by Buy Back of Shares?

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It is a method for company to invest in itself by buying shares from other investors in the

market. It helps the company to improve liquidity of its shares as it gains ownership and

control of the firm in proportion to its shareholding.

What are various Short-term financial options available for investment?

• SAVINGS BANK ACCOUNT which offers low interest (4%-5% p.a.), making them

only marginally better than fixed deposits.

• MONEY MARKET OR LIQUID FUNDS are a specialized form of mutual funds that

invest in extremely short-term fixed income instruments and thereby provide easy

liquidity

• FIXED DEPOSITS WITH BANKS are also referred to as term deposits. The

minimum investment period for bank FDs varies from 7 – 30 days for different

banks.. FD’s are for investors with low risk appetite.

What are various Long-term financial options available for investment?

• POST OFFICE MONTHLY INCOME SCHEME is a low risk saving instrument,

which can be availed through any post office. It provides an interest rate of around 8%

per annum, which is paid monthly.

• PUBLIC PROVIDENT FUNDS are long term savings instrument with a maturity of

15 years and interest payable at 8.70% per annum which is compounded annually.

Tax benefits can be availed for the amount invested and interest accrued is tax-free.

• BONDS are fixed income (debt) instrument issued for a period of more than one year

with the purpose of raising capital. It is a promise to repay the principal along with a

fixed rate of interest on a specified date, called the Maturity Date.

• MUTUAL FUNDS are funds operated by an investment company which raises

money from the public and invests in a group of assets (shares, debentures etc.).

What are the different types of Investors in the market?

• AGGRESSIVE: They adopt a method of portfolio management and asset allocation

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that attempts to achieve maximum return. They take additional risks (more than what

a rational investor would take) to ensure that their investment grows at an above

average rate.

• MODERATELY AGGRESSIVE: These investors seek longer term investment gains

through a mix of equity investments. The overall portfolio contains some more

conservative investments. An investor here is with a time frame of 6-10+ years with

average level of return between 10-11% annually.

• MODERATELY CONSERVATIVE: They are much less willing to accept variations

in their portfolio's balance and are with a time frame of 3-6 years, or those looking for

a regular income stream. The average level of return is 6-8% annually.

• CONSERVATIVE: Typically those investors with either a short term goal (less than 3

years), or those who are in retirement seeking a regular income stream.

Banking

What is a Bank and what are its functions?

The term ‘bank’ is used generically to refer to any financial institution that is licensed to

accept deposits that are repayable on demand, and lends money. A bank makes money via

‘Net Interest Income’

Net Interest Income (NII) = Interest Earned on Loans – Interest Paid on Deposits

What are the different services offered by a bank to a corporate?

• LOANS: Banks provide short and long-term funds to businesses.

• CASH DEPOSITS: Corporate deposit surplus funds in a bank.

• FOREIGN EXCHANGE TRANSACTIONS: Banks act as authorized dealers to

facilitate foreign exchange transactions.

• ADVISORY SERVICES: Banks provide financial advisory services such as

valuations, issue management, mergers & acquisitions, etc. to corporate.

• TRADE SERVICES: Banks play the role of the trusted intermediary between parties

involved in trade and facilitate trade and commerce.

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What are the different Types of Bank Accounts?

• SAVINGS ACCOUNTS: These accounts are meant for individuals. It pays interest.

The interest is calculated on the daily balance in the account.

• CURRENT ACCOUNTS: They are held mainly by businesses. Banks do not pay any

interest on them.

• TERM/TIME/FIXED DEPOSITS: These are deposits with a fixed maturity, hence

also called Fixed Deposits (FDs). FDs earn higher interest than savings deposits.

• RECURRING DEPOSITS: These are a fixed deposit variant. The only difference

being that, the customer has the flexibility to deposit the amount in instalments.

• PUBLIC PROVIDENT FUND ACCOUNTS: These are accounts meant for

retirement savings. In India, they are fully tax exempt.

What are the different categories of banks?

• SCHEDULED BANKS: Banks which have deposits>INR 200 crores are Scheduled

Banks E.g.: SBI, ICICI

• NON-SCHEDULED BANKS: Banks which have deposits<=INR 200 crores E.g.:

Sawai Madhopur Urban Co-operative Bank Ltd, City Co-operative Bank Ltd., Mysore

• PUBLIC SECTOR BANKS: Those banks where the government holds a majority

(>50%) ownership. E.g.: SBI, Bank of India

• PRIVATE BANKS: Banks which are owned by private Indian entities such as

corporate or individuals. E.g.: ICICI, Axis Bank

• FOREIGN BANKS: Banks owned by Multinational/non-Indian entities. E.g.: HSBC,

Deutsche bank.

• URBAN CO-OPERATIVE BANK: These banks are formed by a group of members

and their main focus is to mobilize savings from low income and middle income

groups to ensure credit availability to its members.

What are NBFCs?

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Non-Banking Finance Companies (NBFCs) are financial institutions that provide services,

similar to banks, but they do not hold a banking license. NBFCs cannot accept deposits

repayable on demand. Only those NBFCs to which the Bank had given a specific

authorization are allowed to accept/hold public deposits. Motilal Oswal, Tata Capital,

Reliance Capital are some of the NBFCs in India.

Recent Developments

Companies Act

An Act of Parliament which regulates the workings of companies, stating the legal limits

within which companies may do their business. The new Companies’ bill, 2012 was tabled in

parliament and become Companies Act 2013 with the approval of both the houses on Aug 08

2013.

What are the key highlights of the new Companies Act?

The new legislation introduces the concept of an independent director. For every

listed company, at least one-third of the directors should be independent, with

every such board member allowed a maximum two terms of five years each.

These independent directors should not have monetary transaction of more than or

equivalent to 10% of the companies’ revenue.

Mandates to setup National Financial Reporting Authority (NFRA), which will

monitor compliance of accounting and auditing standards. NFRA has the power to

investigate the Auditors of the companies.

All the listed companies should have at least one woman at board level.

For the first time, it also permits class action suits against companies.

It is mandatory for companies with unlisted subsidiaries to publish their

consolidated balance sheets.

Companies with the net worth more than 500 crores or net profit of more than 5

crores, to spend 2% of the annual net profit for towards CSR. In case of Non-

Compliance the companies are not penalized but have to disclose the reasons for

this.

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A company’s auditor should have maximum of ten years tenure.

Banking Licenses

Banking licenses are issued by RBI to a financial institute that wishes to provide banking

services. After nationalization of banks in 1969, RBI first allowed private banks to open up

their shops in 1993. During this time, ICICI bank and HDFC bank started functioning. Again

in 2004 Yes Bank and Kotak Mahindra were issued licenses to start operations. This year

RBI had accepted 26 applications from banking aspirants. The license was awarded to IDFC

Ltd and Bandhan Financial Services Pvt. Ltd.

Prime Criterion for Evaluation of Applications -“Innovative financial inclusion plans” was

the key criteria for evaluation of banking applications. According to the estimates only 40 %

of the households in India have bank accounts. RBI in its guidelines had mentioned that the

new banks should have at least 25% of its branches in the rural areas.

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Economics

Economics is the study of how individuals and groups make decisions with limited resources

as to best satisfy their wants, needs, and desires. Resources include the time and talent people

have available, the land, buildings, equipment, and other tools on hand, and the knowledge of

how to combine them to create useful products and services.

In a market economy, resources are allocated by the forces of demand and supply.

In a non market economy, resources are allocated by a central authority (government).

In a mixed economy, both the public and private sectors decide on allocation of resources.

Microeconomics

It deals with economic decisions made at a low or micro level. For e.g.: How does the change

of a price of good influence a family's purchasing decisions?

It involves certain key concepts like:

Demand, Supply& Equilibrium:

Demand is an economic principle that describes a consumer's desire and willingness to pay a

price for a specific good or service. There is a significant difference between demand and the

quantity demanded. Law of Demand states that holding all other factors constant, as the

price of that good goes down, the quantity of that good that the market will demand will

increase and vice versa. This relationship between price and quantity demanded is known as

demand relationship.

Supply is an economic concept that describes the total amount of a specific good or service

that is available to consumers. The law of supply states that holding all other factors

Macroeconomic

sssssssss

Microeconomics

Study of Economics

26

constant, with increase in quantity supplied, increases the price of the commodity. Simply, as

the price rises for a given product/service, suppliers are willing to supply more.

At equilibrium, the quantity supplied and quantity demanded intersects and are equal.

Elasticity is the measurement of how responsive an economic variable is to a change in

another variable. Elasticity can be quantified as the ratio of the percentage change in one

variable to the percentage change in another variable. Frequently used elasticity’s include

price elasticity of demand, price elasticity of supply, and income elasticity of demand.

A monopoly exists when a single company is the only supplier of a particular commodity.

Perfect competition describes markets such that no participants are large enough to have the

market power to set the price of a homogeneous product. Ex- EBay.

An oligopoly is a market form in which a market or industry is dominated by a small number

of sellers (oligopolists).

Macroeconomics

It deals with the sum total of the decisions made by individuals in a society. For e.g.: how

does a change in interest rates influence national savings.

Key Concepts in Macroeconomics:

Output and income: National output is the total value of everything a country produces in a

given time period. Everything that is produced and sold generates income. Therefore, output

and income are usually considered equivalent and the two terms are often used

interchangeably.

decreases

increases

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Macroeconomic output is usually measured by Gross Domestic Product (GDP). It is the

monetary value of all the finished goods and services produced within a country's borders in a

specific time period.

GDP=C+G+I+NX

where:

"C" is equal to all private consumption, or consumer spending, in a nation's economy

"G" is the sum of government spending

"I" is the sum of all the country's businesses spending on capital

"NX" is the nation's total net exports, calculated as total exports minus total imports (NX =

Exports - Imports).

Inflation: The rate at which the general level of prices for goods and services is rising, and,

subsequently, purchasing power is falling. A general price increase across the entire economy

is called inflation. When prices decrease, there is deflation. Economists measure these

changes in prices with price indexes.

Disposable Income: The amount of money that households have available for spending and

saving after income taxes have been accounted for. Disposable personal income is often

monitored as one of the many key economic indicators used to gauge the overall state of the

economy.

Test Yourself: What is the GDP of India and the present inflation rate in India?

Types of Economy

An economy can be of two different types depending on the policies.

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Closed Economy: An economy in which no activity is conducted with outside economies. A

closed economy is self-sufficient, meaning that no imports are brought in and no exports are

sent out. The goal is to provide consumers with everything that they need from within the

economy's borders.

Open Economy: An open economy is an economy in which international trade takes place.

Most nations around the world have open economies, and many nations rely heavily on

international trade to meet economic and social goals.

Aggregate Demand and Aggregate Supply

Open Economy Closed Economy

It allows its businesses and

individuals to have trade with

businesses and individuals in other

economies.

It prevents its businesses and

individuals to have trade with

businesses and individuals in other

economies.

Open economy is considered stronger

as compared to closed economy.

Closed economy is considered weaker

as compared to open economy.

Open Economy allows participation

in foreign capital markets.

Closed Economy do not allow

participation in foreign capital

markets.

Almost all countries have open

economy today.

There are no countries existing today

that have strict closed economy.

Some countries in North Korea

restrict their trade with limited

countries but those countries are also

not fully closed economies.

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The Aggregate Supply Curve

The aggregate supply curve shows the relationship between a nation's overall price level, and

the quantity of goods and services produced by that nation's suppliers. The curve is upward

sloping in the short run and vertical, or close to vertical, in the long run.

Net investment, technology changes that yield productivity improvements, and positive

institutional changes can increase both short-run and long-run aggregate supply. Some

changes can alter short-run aggregate supply (SAS), while long-run aggregate supply (LAS)

remains the same. Examples include:

Supply Shocks - Supply shocks are sudden surprise events that increase or decrease

output on a temporary basis. Examples include unusually bad or good weather or the

impact from surprise military actions.

Resource Price Changes - These, too, can alter SAS. Unless the price changes reflect

differences in long-term supply, the LAS is not affected.

Changes in Expectations for Inflation - If suppliers expect goods to sell at much

higher prices in the future, their willingness to sell in the current time period will be

reduced and the SAS will shift to the left.

The Aggregate Demand Curve

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The aggregate demand curve shows, at various price levels, the quantity of goods and

services produced domestically that consumers, businesses, governments and foreigners (net

exports) are willing to purchase during the period of concern. The curve slopes downward to

the right, indicating that as price levels decrease (increase), more (less) goods and services

are demanded.

Factors that can shift an aggregate demand curve include:

Real Interest Rate Changes - Such changes will impact capital goods decisions

made by individual consumers and by businesses. Lower real interest rates will lower

the costs of major products such as cars, large appliances and houses; they will

increase business capital project spending because long-term costs of investment

projects are reduced. The aggregate demand curve will shift down and to the right.

Higher real interest rates will make capital goods relatively more expensive and cause

the aggregate demand curve to shift up and to the left.

Changes in Expectations - If businesses and households are more optimistic about

the future of the economy, they are more likely to buy large items and make new

investments; this will increase aggregate demand.

The Wealth Effect - If real household wealth increases (decreases), then aggregate

demand will increase (decrease)

Changes in Income of Foreigners - If the income of foreigners increases (decreases),

then aggregate demand for domestically-produced goods and services should increase

(decrease).

Changes in Currency Exchange Rates - From the viewpoint of the U.S., if the value

of the U.S. dollar falls (rises), foreign goods will become more (less) expensive, while

goods produced in the U.S. will become cheaper (more expensive) to foreigners. The

net result will be an increase (decrease) in aggregate demand.

Inflation Expectation Changes - If consumers expect inflation to go up in the future,

they will tend to buy now, causing aggregate demand to increase. If consumers'

expectations shift so that they expect prices to decline in the future, aggregate demand

will decline and the aggregate demand curve will shift up and to the left.

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Monetary Policy & Role of Central Bank

Monetary policy is the process by which the monetary authority (RBI in India) of a country

controls the supply of money, availability of money, and cost of money or rate of interest for

the purpose of achieving the following:

Economic growth

Economic stability

Relatively stable prices

Low unemployment.

Exchange rates with other currencies

Within almost all modern nations, special institution generally called central bank has

responsibility of formulating monetary policy and supervising the smooth operation of the

financial system.

Monetary policy can either be expansionary or contractionary, where an expansionary

policy increases the total supply of money in the economy more rapidly than usual, this form

of policy is traditionally used to try to combat unemployment in a recession by making easy

credit available in the hope that easy credit will entice businesses to expand. On the other

hand contractionary policy expands the money supply more slowly than usual or even shrinks

it by making credit dearer to discourage borrowing, which is intended to slow inflation in

order to avoid the resulting distortions and deterioration of asset values.

Some ways to manage the monetary policy:

Monetary base

The first tactic manages the money supply. This mainly involves buying government bonds

for expanding the money supply or selling them for contracting the money supply, these are

known as open market operations, because the central bank buys and sells government bonds

in public market. When the central bank disburses or collects payment for these bonds, it

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alters the amount of money in the economy, i.e. the change in the amount of money in the

economy which is called monetary base.

Interest rates

The second tactic manages money demand. Demand for money, like demand for most things,

is sensitive to price. For money, the price is the interest rates charged to borrowers. Setting

banking system lending or interest rates in order to manage money demand is a major tool

used by central banks. Ordinarily, a central bank conducts monetary policy by raising or

lowering its interest rate target for the interbank interest rate.

Reserve requirements

The monetary authority’s third tactic exerts regulatory control over banks. Monetary policy

can be implemented by changing the proportion of total assets that banks must hold in reserve

with the central bank. Banks only maintain a small portion of their assets as cash available for

immediate withdrawal; the rest is invested in illiquid assets like mortgages and loans. By

changing the proportion of total assets to be held as liquid cash, the central bank changes the

availability of loanable funds. This acts as a change in the money supply. Example -

alteration in cash reserve ratio and statutory liquidity ratio.

What are Policy Rates?

At first let us consider two similar rates – bank rate and repo rate.

BANK RATE is the rate of interest that commercial banks and other financial intermediaries

have to pay on the loan that they take from country’s central or federal bank. REPO RATE

is similar to bank rate except that it is applicable to short term loans while bank rate is

applicable to long term loans. In India Reserve Bank of India (RBI) is central bank.

REVERSE REPO RATE is the counterpart of repo rate. It is the rate of interest commercial

banks and other financial intermediaries receive on excess funds they deposit with the central

bank. The three above mentioned rates are also referred to as POLICY RATES.

What are Reserve Ratios?

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Cash Reserve Ratio is the percentage of their total deposits that the commercial banks have

to keep in central bank in form of cash. Statutory Liquidity Ratio is similar to CRR except

that apart from cash other liquid assets like precious metals such as gold and approved short

term securities like treasury bills may be used to meet the reserve requirements.

The RBI reviews these rates and ratios on a monthly basis with intent to keep a check on

money supply and inflation rate in economy. In order to increase the supply of money in

economy RBI may decrease its policy rates and reserve ratios. The decrease will have the

combined effect of increasing the deposits available with the commercial banks which may

be offered as loans to general public thereby pumping money into the economy.

What is Marginal Standing Facility (MSF)?

MSF rate is the rate at which banks borrow funds overnight from the Reserve Bank of India

(RBI) against approved government securities. This came into effect in May 2011. Under the

Marginal Standing Facility (MSF), currently banks avail funds from the RBI on overnight

basis against their excess statutory liquidity ratio (SLR) holdings.

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Marketing

Glossary of Marketing Terms

Above the Line Promotion: Above-the-line promotion is based on advertising in mass

media, such as newspapers, television, radio, cinema and the internet. This type of promotion

reaches a wide audience.

Advertising: The activity or profession of producing advertisements for commercial products

or services.

AIDA Concept: The formula used in selling to produce a favourable response from a

customer. It states that first a potential customer should be made Aware about the product.

Then, an Interest is to be generated in the customer about the product. This interest would

stimulate Desire, which would finally result in Action, i.e. buying of the product.

Ansoff Matrix: A model showing the possible product-market strategies of an organization;

these are considered the main marketing strategies and comprise: market penetration, product

development, market and diversification. The 2 x 2 matrix axes are: new and existing

products along one axis and new and existing markets along the other.

Behavioral Segmentation: The division of market into a group based on the customer’s

knowledge and behavior towards a particular product. Some behavioral dimensions used to

segregate customers are user status, user rate, loyalty status, and buyer readiness status.

Below the Line Advertising: In general, an advertising strategy in which a product is

promoted in mediums other than radio, television, billboards, print, film and the internet.

Types of below the line advertising commonly include direct mail campaigns, trade shows

and catalogs; this advertising type tends to be less expensive and more focused.

Brand: A unique identifiable name, symbol, image associated with a product which

distinguishes it from its competitors.

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Brand Equity: A term used in reference to the value of a well-known brand. For e.g. Apple

has greater brand equity than Samsung in mobile phones.

Crowd Sourcing: The practice of obtaining information or services by soliciting input from

a large number of people, typically via the Internet and often without offering compensation.

Indiegogo is an example of crowdsourcing in India.

Customer Value Proposition: The sum total of benefits which a seller promises a customer

in return for the customer’s payment.

Landfill marketing: The large volume of poorly targeted marketing messages found online,

created with little strategic thought for what its purpose is.

Market Segmentation: Breaking down a large target market into smaller sub group of

Customers having similar needs and wants.

Market Share: Percentage of total sales captured by a product, company or brand.

Niche Marketing: Niche Marketing is the act of segmenting the market for a specific

product and marketing intently to a small subset of the market, rather than pursuing a smaller

share of a larger market.

Showrooming: Means a specific shopper behavior, when customers come to the real store to

experience some product and then go back home and order it online at a lower price.

Amazon is best known for this, even going so far as to offer a discount to customers who

found items they wanted and then used Amazon’s price check app to make a purchase while

still standing in the store.

SoLoMo: This is the new buzzword being thrown around by marketing teams. SoLoMo,

which stands for Social-Local-Mobile, refers to the integration of social, location-based, and

mobile marketing tools into new customer acquisition platforms. It allows the marketer to

reach the right customer with right message, in the right time and place.

Consumers’ seamless moves between channels and platforms make it incumbent on

Marketers to have an integrated strategy. Someone can check-in to a store using a location

based app like Foursquare, redeem an offer, share a comment on that platform, and then

immediately post an update to their Facebook wall or other platform, all the while referencing

the retailer’s Facebook page.

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Now more than ever marketer’s must “walk in a customer’s shoes” and identify where the

customer experience isn’t up to par.

Target Market: The consumers a company wants to sell its products and services to, and to

whom it directs its marketing efforts.

White label products: A white-label product or service is a product or service produced by

one company (the producer) that other companies (the marketers) rebrand to make it appear

as if they made it. For example the same model of mobile phone may be sold by Spice

Mobiles and Intex under different names.

Marketing Concepts

What is marketing?

In the simplistic sense marketing is managing profitable customer relationships. The

twofold goal of marketing is to attract new customers by promising superior customer

value and to keep and grow current customers by delivering satisfaction.

The Marketing Mix

The Marketing mix is a set of four decisions which need to be taken before launching any

new product. These variables are also known as the 4 P’s of marketing. These four variables

help the firm in making strategic decisions necessary for the smooth running of any product /

organization. These variables are

1. Product

2. Price

3. Place

4. Promotions

Marketing mix is mainly of two types.

1) Product marketing mix – Comprises of Product, price, place and promotions. This

marketing mix is mainly used in case of Tangible goods.

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2) Service marketing mix – The service marketing mix has three further variables

included which are people, physical evidence and process.

It has 7Ps of Marketing:

Product: It is the tangible object or an

intangible service that is getting

marketed through the program.

Tangible products may be items like

consumer goods (Toothpaste, Soaps,

and Shampoos) or consumer durables

(Watches, IPods). Intangible products

are service based like the tourism

industry and information technology

based services or codes-based

products like cell phone load and

credits. Product design which leads to

the product attributes is the most important factor. However packaging also needs to be taken

into consideration while deciding this factor. Every product is subject to a life-cycle including

a growth phase followed by an eventual period of decline as the product approaches market

saturation. To retain its competitiveness in the market, continuous product extensions though

innovation and thus differentiation is required and is one of the strategies to differentiate a

product from its competitors.

Price: The price is the amount a customer pays for the product. If the price paid outweigh the

perceived benefits for an individual, the perceived value of the offering will be low and it will

be unlikely to be adopted, but if the benefits are perceived as greater than their costs, chances

of trial and adoption of the product is much greater.

Place: Place represents the location where a product can be purchased. It is often referred to

as the distribution channel. This may include any physical store (supermarket, departmental

stores) as well as virtual stores (e-markets and e-malls) on the Internet. This is crucial as this

provides the place utility to the consumer, which often becomes a deciding factor for the

purchase of many products across multiple product categories.

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Promotion: This represents all of the communications that a marketer may use in the

marketplace to increase awareness about the product and its benefits to the target segment.

Promotion has four distinct elements: advertising, public relations, personal selling and sales

promotion. A certain amount of crossover occurs when promotion uses the four principal

elements together (e.g. in film promotion). Sales staff often plays a major role in promotion

of a product.

People: People are crucial in service delivery. The best food may not seem equally palatable

if the waitress is in a sour mood. A smile always helps. Intensive training for your human

resources on how to handle customers and how to deal with contingencies is crucial for your

success.

Processes: Processes are important to deliver a quality service. Services being intangible,

processes become all the more crucial to ensure standards are met with. Process mapping

ensures that your service is perceived as being dependable by your target segment.

Physical evidence: Physical evidence affects the customer’s satisfaction. Often, services

being intangible, customers depend on other cues to judge the offering. This is where

physical evidence plays a part. Would you like eating at a joint where the table is greasy or

the waitresses and cooks look untidy and wear a stained apron? Surely you would evaluate

the quality of your experience through proxies such as these.

Segmentation, Targeting and Positioning

Segmentation

For most of the earlier era, marketing worked under the presumption that there was a mass

market for products and services. That is, there was a belief that most consumers were very

similar and hence could be catered with the same goods and services.

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This was considered a lucrative strategy because it created a large potential market and higher

profit margins. Then came the concept of market segmentation, which changed the way

goods and services were designed and catered to different customer segments.

Market segmentation can be said as the division of markets into specific groups that are

homogenous but at the same time different from other groups.

Segmentation allows marketers to:

Quickly detect trends in a rapidly changing environment

Design products and brands that truly meet the demands of the target market

Determine the most effective communication appeal

There exist some criteria for effective segmentation. A few important aspects are:

A segment needs to be able to be identified and measured. Marketers should be

able to distinguish those who fit in the segment and those who do not.

A segment needs to have a distinctive identity that makes it different from the rest

as well as visible elements that make it measurable.

A segment has to be accessible. That means that reaching individuals within the

segment should be economically sustainable.

A segment has to be substantial, i.e. it must be large enough to justify a separate

marketing program.

A segment has to be responsive, so that the efforts of segmentation and catering to

those identified segment(s) are worth undertaking.

Strategies for Segmentation:

There are many ways in which a market can be segmented. Approaches to segmentation

result from answers to the questions: where, who, why and how?

A marketer decides which strategy is best for a given product or service. Sometimes the best

option arises from using different strategies in conjunction.

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Geographic segmentation: Where?

Geographic segmentation is the division of the market according to different geographical

units like continents, countries, regions, counties or neighborhoods. This form of

segmentation provides the marketer with a quick snapshot of consumers within a delimited

area.

But this strategy fails to take into consideration other important variables such as personality,

age and consumer lifestyles.

Demographic segmentation: Who?

A very popular form of dividing the market is through demographic variables. Understanding

who consumers are will enable you to more closely identify and understand their needs,

product and services usage rates and wants.

Understanding who consumers are requires companies to divide consumers into groups based

on variables such as gender, age, income, social class, religion, race or family lifecycle.

A clear advantage of this strategy over others is that there is large amount of secondary data

available that will enable to divide a market according to demographic variables.

Psycho-demographic segmentation: Why?

Unlike demographic segmentation strategies that describe who is purchasing a product or

service, psycho-demographic segmentation attempts to answer the 'why's' regarding

consumer's purchasing behavior. Through this segmentation strategy markets are divided into

groups based on personality, lifestyle and values.

Targeting

After categorizing the consumers into various segments, the firm has to evaluate the various

segments in order to decide how many and which segments it can serve best.

Some of the most important factors of evaluation are:

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Company’s objectives and

resources

Segment attractiveness (current

sales, growth rates, expected

profitability etc.)

Product and Market variability

Competitors in the segment

Bargaining of suppliers and

buyers in the segment

Availability of substitute products

After evaluating different segments,

the company must decide which and how

many segments it will target. A Target market consists of a set of buyers who share common

needs or characteristics that the company decides to serve i.e. selection of potential customers

to whom the company wishes to cater to.

For e.g., HUL targets only affluent women who seek moisturizing benefits with Dove while

with Rexona, it seeks to appeal to mass, semi-urban and rural customers.

Positioning

A product’s position is the way the product is defined by consumers on important attributes-

The place the product occupies in consumers’ minds relative to competing products

E.g. Tide is positioned as a powerful, all-purpose family detergent; Ariel is positioned as the

gentle detergent for fine washables. Maruti Suzuki 800 is positioned on economy, Mercedes

and Cadillac on luxury and BMW

on performance.

Consumers position products

with or without help of marketers.

But marketers must make sure

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that they don’t leave a product’s position to chance.

Biggest positioning blunder in recent times:

The over emphasis on price and the tag ‘cheap car’ positioned Nano as in a negative light,

something people would not take pride in ownership. It was perceived as a poor man’s car as

opposed to the fact that it is a very much an affordable family car. This has caused the

debacle of the car despite its value engineering and brilliant innovation.

It has tried to break the cheap tag by adding a

more emotive personality through its

communication and ads which portray Nano

as a perfect four wheeler for the young,

vibrant, youth who are generally first time

car owners seeking an easy on pocket

product.

Now the brand is trying to resurrect its image

by trying to position itself as a smart city car,

a mobility solution for the soaring city traffic

and parking issues through the latest Tata

Nano Twist advertisement.

BCG Growth sharing Matrix

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It is a portfolio planning tool developed by Bruce H. Henderson for the Boston consulting

group in 1970. BCG matrix is used to determine what priority should be given to a product in

a product portfolio of business. The BCG matrix has two dimensions called market growth

and market share. To sustain in the market and create long term value, it is necessary that

company have products which are in high growth segment as well as which produce a lot of

cash for the company.

Products can be placed in 4 categories in BCG matrix.

1. Stars ( high growth , high market share )

Generates large amount of cash due to their leadership in business but also

consumes a lot of cash.

Every effort should be made to hold share as rewards will be great when the

growth rate declines and it turns into cash cow.

2. Cash Cows ( low growth , high market share)

High cash and profit generation due to huge market share.

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Least investments are required to sustain; Foundation of any company.

3. Dogs : ( low market share as well as growth rate )

Milk them as long as you can without any further investment

Avoid any big turnaround plan for the product; if product is not generating cash

liquidate them.

4. Question marks( high growth , low market share )

High demand but low return due to low market share.

Absorb a lot of cash to if steps are not taken increase the market share and later

turns into dog.

Either invest heavily to shift them to star category or sell off or invest nothing and

generate whatever cash can be generated.

BCG matrix also has few limitations:

1. Market growth is only one of the indicator of attractiveness of the industry. There can

be several other factors which determines attractiveness of an industry.

2. High market share might be just one success factor. There are many other factors

which play a very important role in product’s success/failure.

3. Business units are not always independent. Sometimes a dog can earn more cash than

cash cow.

What is the difference between marketing and branding?

There is a spectrum of opinions here, but majorly, marketing is actively promoting a product

or service. It’s a push tactic. It’s pushing out a message to get sales results: “Buy our product

because it’s better than theirs.” (Or because it’s cool, or because this celebrity likes it, or

because you have this problem and this thing will fix it, etc.) This is oversimplification, but

that’s it in a nutshell.

This is not branding. Branding should both precede and underlie any marketing effort.

Branding is not push, but pull. Branding is the expression of the essential truth or value of an

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organization, product, or service. It is communication of characteristics, values, and attributes

that clarify what this particular brand is and is not.

A brand will help encourage someone to buy a product, and it directly supports whatever

sales or marketing activities are in play, but the brand does not explicitly say “buy

me.” Instead, it says “This is what I am. This is why I exist. If you agree, if you like me, you

can buy me, support me, and recommend me to your friends.”

Branding is strategic. Marketing is tactical.

Marketing may contribute to a brand, but the brand is bigger than any particular marketing

effort. The brand is what remains after the marketing has swept through the room. It’s what

sticks in your mind associated with a product, service, or organization—whether or not, at

that particular moment, you bought or did not buy.

The brand is ultimately what determines if you will become a loyal customer or not. The

marketing may convince you to buy a particular Toyota, and maybe it’s the first foreign car

you ever owned, but it is the brand that will determine if you will only buy Toyotas for the

rest of your life.

The brand is built from many things. Very important among these things is the lived

experience of the brand. Did that car deliver on its brand promise of reliability? Did the

maker continue to uphold the quality standards that made them what they are? Did the sales

guy or the service center mechanic know what they were talking about?

Marketing unearths and activates buyers. Branding makes loyal customers, advocates,

even evangelists out of those who buy.

This works the same way for all types of businesses and organizations. All organizations

must sell (including non-profits). How they sell may differ, and everyone in an organization

is, with their every action, either constructing or deconstructing the brand. Every thought,

every action, every policy, every ad, every marketing promotion has the effect of either

inspiring or deterring brand loyalty in whomever is exposed to it. All of this affects sales.

Branding is as vital to the success of a business or non-profit as having financial coherence,

having a vision for the future, or having quality employees.

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It is the essential foundation for a successful operation. So yes, it’s a cost center, like good

employees, financial experts, and business or organizational innovators are. They are cost

centers, but what is REALLY costly is not to have them, or to have substandard ones.

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Organization Behaviour & HRM

A field of study that investigates the impact that individuals, groups and structures have on

behaviour within an organization, for the purpose of applying such knowledge towards

improving an organization’s effectiveness.

“Behaviour is a function of person and situation. It is internally caused and externally

determined.” – Prof. Bhupen Srivastava

ATTITUDE

Attitude is an evaluative statement or judgement concerning objects, people or events.

Attitude has following 3 components that are closely related and impact each other:

i. Cognitive: The opinion or belief segment, i.e. the evaluation

ii. Affective: The emotional segment, i.e. the feeling

iii. Behavioural: The intention to behave a certain way, i.e. the action

EMOTIONAL INTELLIGENCE

The ability to detect and to manage emotional cues and information; studies suggest that

higher EI, and not IQ, characterizes high performers.

PERSONALITY

Personality = Nature (heredity, genetics) + Nurture (experiences, upbringing, environment)

Myer Briggs Type Indicator: A personality test that measures four characteristics and

classifies people into 16 categories depending on whether they are

1. Extraverted (E) or Introverted (I) 2. Sensing(S) or Intuitive (N)

3. Thinking (T) or Feeling (F) 4. Judging (J) or Perceiving (P)

Big 5 Personality Model: 5 basic dimensions of human personality

1. Extraversion 2. Agreeableness 3. Conscientiousness

4. Emotional Stability 5. Openness to experience

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VALUES

Basic convictions that a specific mode of conduct or end-state of existence is personally or

socially preferable to an opposite or converse mode of conduct or end-state of existence.

PERCEPTION

A process by which individuals organize and interpret their sensory impressions in order to

give meaning to their environment

MOTIVATION

It is the process that accounts for an individual’s intensity, direction and persistence of effort

toward attaining a goal

Theories Of Motivation

a) Hierarchy of Needs Theory

There is a hierarchy of five needs—physiological, safety, social, esteem, and self-

actualization; as each need is substantially satisfied, the next need becomes dominant.

Self-Actualization- The drive to become what one is capable of becoming

b) Theory X and Theory Y (Douglas McGregor)

Theory X-Assumes that employees dislike work, lack ambition, avoid responsibility,

and must be directed and coerced to perform.

Theory Y-Assumes that employees like work, seek responsibility, are capable of

making decisions, and exercise self-direction and self-control when committed to a

goal.

c) Two-Factor Theory (Frederick Herzberg)

Intrinsic factors are related to job satisfaction, while extrinsic factors are associated

with dissatisfaction.

Hygiene Factors- Factors—such as company policy and administration, supervision,

and salary—that, when adequate in a job, placate workers. When factors are adequate,

people will not be dissatisfied.

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d) David McClelland’s Theory of Needs

Need for Achievement- The drive to excel, to achieve in relation to a set of

standards, to strive to succeed.

Need for Affiliation- The desire for friendly and close personal relationships.

Need for Power- The need to make others behave in a way that they would not have

behaved otherwise.

e) Cognitive Evaluation Theory

Providing an extrinsic reward for behavior that had been previously only intrinsically

rewarding tends to decrease the overall level of motivation.

f) Goal-Setting Theory (Edwin Locke)

The theory that specific and difficult goals, along with feedback, lead to higher

performance is called Goal setting Theory.

Self-Efficacy- The individual’s belief that he or she is capable of performing a task.

g) Equity Theory

Individuals compare their job inputs and outcomes with those of others and then

respond to eliminate any inequities.

h) Expectancy Theory (Victor Vroom)

The strength of a tendency to act in a certain way depends on the strength of an

expectation that the act will be followed by a given outcome and on the attractiveness

of that outcome to the individual.

LEADERSHIP

1. Leadership is the ability to influence a group toward the achievement of a vision or a

set of goals

2. Organizations need strong leadership and strong management for optimal

effectiveness

Concepts:

More than one need can be operative at the same time.

If a higher-level need cannot be fulfilled, the desire to satisfy a lower-level need increases.

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TRAIT THEORIES OF LEADERSHIP: Theories that consider personal qualities and

characteristics that differentiate leaders from non-leaders

BEHAVIORAL THEORIES OF LEADERSHIP: Theories proposing that specific behaviors

differentiate leaders from non-leaders

CONTINGENCY THEORIES: These are the contingency theories of Leadership

1. The Fiedler Model

2. Situational leadership theory

3. Leader-Member exchange theory

Industrial Relations

The term ‘Industrial Relations’ comprises of two terms: ‘Industry’ and ‘Relations’.

“Industry” refers to “any productive activity in which an individual (or a group of

individuals) is (are) engaged”. By “relations” we mean “the relationships that exist within the

industry between the employer and his workmen.” The term industrial relations explains the

relationship between employees and management which stem directly or indirectly from

union-employer relationship.

IMPORTANT TERMS

1. INDUSTRY- Industrial Disputes Act 1947 defines an industry as any systematic

activity carried on by co-operation between an employer and his workmen for the

production, supply or distribution of goods or services with a view to satisfy human

wants or wishes whether or not any capital has been invested for the purpose of

carrying on such activity; or such activity is carried on with a motive to make any

gain or profit. Thus, an industry is a whole gamut of activities that are carried on by

an employer with the help of his employees and labors for production and distribution

of goods to earn profits.

2. EMPLOYER- As per Industrial Disputes Act 1947 an employer means:-

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in relation to an industry carried on by or under the authority of any department of

[the Central Government or a State Government], the authority prescribed in this

behalf, or where no authority is prescribed, the head of the department;

in relation to an industry carried on by or on behalf of a local authority, the chief

executive officer of that authority

3. EMPLOYEE- In order to qualify to be an employee, under ESI Act, a person should

belong to any of the categories:

Those who are directly employed for wages by the principal employer within the

premises or outside in connection with work of the factory or establishment.

Those employed for wages by or through an immediate employer in the premises

of the factory or establishment in connection with the work thereof

Those employed for wages by or through an immediate employer in connection

with the factory or establishment outside the premises of such factory or

establishment under the supervision and control of the principal employer or his

agent.

Employees whose services are temporarily lent or let on hire to the principal

employer by an immediate employer under a contract of service (employees of

security contractors, labor contractors, housekeeping contractors etc. come under

this category).

4. LABOR MARKET- The market in which workers compete for jobs and employers

compete for workers. It acts as the external source from which organizations attract

employees. These markets occur because different conditions characterize different

geographical areas, industries, occupations, and professions at any given time

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ACTORS IN THE IR SYSTEM

INDUSTRIAL DISPUTES ACT 1947

The objective of the Industrial Disputes Act is to secure industrial peace and harmony by

providing machinery and procedure for the investigation and settlement of industrial

disputes by negotiations.

FACTORIES ACT 1948

Objectives:

1. To ensure adequate safety measures and to promote the health and welfare of the

workers employed in factories

2. To prevent haphazard growth of factories through the provisions related to the

approval of plans before the creation of a factory

3. To regulate the working condition in factories

4. Regulate the working hours, leave, holidays, overtime, and employment of children,

women and young persons

Human Resource Management

Human Resource Management includes the policies, practices and systems that influence

employees’ behavior, attitudes and performance. The following practices come under scope

of HRM:

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JOB ANALYSIS

Job analysis is the procedure to determine the duties of jobs & the characteristics of the

people who should be hired for them. It is used to develop job descriptions & job

specifications.

JOB DESCRIPTION

Job descriptions are written statements that describe the following:

Tasks

Duties

Responsibilities

Required qualifications of candidates

Reporting relationship and co-workers of a particular job

Job descriptions are based on objective information obtained through job analysis, an

understanding of the competencies and skills required to accomplish needed tasks, and the

needs of the organization to produce work.

JOB SPECIFICATION

Job specification describes the knowledge, skills, education, experience, and abilities that are

essential to perform a particular job. The job specification is developed from the job analysis.

Job Analysis & Design

Manpower Planning

Recruitment & Selection

Training & Delopment

Compensation Performance Management

Employee Relation

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Ideally, also developed from a detailed job description, the job specification describes the

person you want to hire for a particular job.

Components of a Job Specification

Experience

Education

Required Skills, Knowledge and Characteristics

High Level Overview of Job Requirements

MANPOWER PLANNING

It is the continuous process of planning the human resource of an organization to meet the

demand in terms of numbers and the quality. The process involves the critical task to balance

the supply and demand of human resource to optimally utilize the resources.

RECRUITMENT

It is a systematic process of generating a pool of qualified applicants to meet an

organization’s job requirements. The process includes steps like attracting talent pool and

their basic screening. This process comes just after manpower planning.

SELECTION

The process of selection begins right after recruitment. The purpose is to identify the right fit

for the right job i.e. whether the qualifications of an applicant suit the job for which he is

being considered or not. The applicant who is most likely to perform well on that job is

selected.

EMPLOYEE ENGAGEMENT

Employee Engagement is a measurable degree of an employee's positive or negative

emotional attachment to their job, colleagues and organization that profoundly influences

their willingness to learn and perform at work.

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Training & Development

Training and Development is a planned process through which an organization helps its

employees to acquire job related knowledge, skills, abilities and behaviours, with the goal of

applying these on the job. It ensures that learning and behavioural changes take place in

structured format.

DIFFERENT METHODS OF TRAINING

Class room instruction- less expensive, less time consuming, allows group interaction.

Audio-visual and computer based training

On the job training methods-apprenticeship, internship

Simulation exercise- a real life like situation based training

Business games and case studies- for practicing decision making skills

Behavior modelling- observe desired behaviors, effective for interpersonal skills

Experiential and adventure learning- group dynamics in challenging circumstances

Team training- focus on team achievement of a particular goal

COMPETENCIES

Competency is a set of clustered KSA`s together with behaviors. It is a set of underlying

characteristics of an employee (motive, trait, skill, aspect of one`s self image, social role),

which result in effective and superior performance.

Performance Management System

PMS or Performance Management System is a process in which managers decide what

activities and outputs are desired by the organization, observe whether they occur and then

provide feedback. It ensures that employees’ activities and goals contribute to the

organization’s goal.

PROCESS OF PMS

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METHODS OF PMS IN ORGANIZATIONS

Forced choice method – normalization is done among employees ie. Below average,

average, above average, good, excellent

360 degree assessment/Performance Potential Matrix

Rotation of High/Low Performers

Individual and Group Rewards

KRA`s

Drivers of performance

Individual KRA should be aligned with divisional and organizational goals

KRAs should be SMART – Specific, Measurable, Achievable, Relevant, Time-Bound

Final Rating and Final Discussions with reward giving

Approval of goal sheet filled by employees with feedbacks by supervisors

Updation of goal sheet by employees

One-to-One discussions

Regular feedback through coaching and mentoring

Deployment of KRA`S by employees

Development of KRA`s by managers and supervisors

Discussions on setting objectives aligned to vision, mission and strategy

Vision, Mission and Strategy of Organization

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Compensation

Compensation or Pay is a statement of an employee’s worth by an employer. It is a

perception of worth by an employee. It is a powerful tool for meeting the organization’s

goals. It has large impact on employee attitudes and behaviors. Compensation is an integral

part of human resource management which helps in motivating the employees and improving

organizational effectiveness

BENEFITS

Employee benefits are the indirect financial payments an employee receives. They are

compensation in forms other than cash. They account for over one-third of the total cost of

company payrolls

Benefits are important because:

a) Benefits contribute to attracting, retaining, and motivating employees.

b) The variety of possible benefits helps employers tailor their compensation to the kinds

of employees they need.

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c) Employees have come to expect that benefits will help them maintain economic

security.

d) Providing benefits more than minimum helps an organization compete in labor

market.

e) Benefits impose significant costs and many are required by law.

Organizational Design

OD is a deliberately planned, organization-wide intervention to increase an organization’s

effectiveness (improving the impact of a certain strategy) or efficiency (improving

organization productivity). Douglas McGregor and Richard Beckhard coined the term

organization development (OD) to describe an innovative bottoms-up change effort that fit no

traditional consulting categories.

Effective organizational development can assist organizations and individuals to cope with

change. Strategies can be developed to introduce planned change, such as improved

interpersonal and group processes, more effective communication, enhanced ability to cope

with organizational problems of all kinds, more effective decision processes, more

appropriate leadership style, improved skill in dealing with destructive conflict, and higher

levels of trust and cooperation among organizational members, to improve organizational

functioning.

Change will not occur unless the need for change is critical. Because individuals and

organizations usually resist change, they typically do not embrace change unless they must.

Planned change takes conscious and diligent effort on the part of the educator or manager.

Thus originated the concept of the change master or change agent: a person or organization

adept at the art of anticipating the need for and of leading productive change.

Kurt Lewin is known as the father of OD. He laid the foundations of OD through his work on

‘Group Dynamics’ (the way groups and individuals act and react to changing circumstances)

and ‘Action Research’ (reflective process of problem solving led by individuals working in

teams or as part of a community; composed of a cycle of “planning, action and fact-finding

about the result of the action”). He founded the "Research Center for Group Dynamics" from

which the T-groups and group-based OD emerged.

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Concerned with social change and, more particularly, with effective, permanent social

change, Lewin believed that the motivation to change was strongly related to action: If people

are active in decisions affecting them, they are more likely to adopt new ways. "Rational

social management", he said, "proceeds in a spiral of steps, each of which is composed of a

circle of planning, action, and fact-finding about the result of action".

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Operations

What is Operations?

Operations is generally used as an umbrella term to refer to the corporate area responsible for

actually producing goods and services. This includes all the activities required to create and

deliver a product or service, from selecting suppliers and/or raw materials to supply chain

management and distribution.

The organization of these different activities within the company implies a vision of the

business as different processes. Of all the corporate divisions, operations tends to require the

greatest number of employees and assets. Generally in charge of product and service quality,

operations is also the key basis on which the company’s long-term performance rests. For this

reason, operations is increasingly seen as a source of competitive advantage because correctly

managing this area is fundamental to ensuring the company’s carefully crafted strategy

becomes reality; without operations, corporate strategy would run the risk of remaining a

merely theoretical exercise.

What is Operations Management?

Operations Management deals with the design and management of products, processes,

services and supply chains. It considers the acquisition, development, and utilization of

resources that firms need to deliver the goods and services their clients want.

The purview of OM ranges from strategic to tactical and operational levels. Representative

strategic issues include determining the size and location of manufacturing plants, deciding

the structure of service or telecommunications networks, and designing technology supply

chains.

Tactical issues include plant layout and structure, project management methods, and

equipment selection and replacement. Operational issues include production scheduling and

control, inventory management, quality control and inspection, traffic and materials handling,

and equipment maintenance policies.

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Supply Chain Management

Supply chain management is the integration of the activities that procure materials and

services, transform them into intermediate goods and final products, and deliver them through

a distribution system.

Elements of Supply Chain

A simple supply chain is made up of several elements that are linked by the movement of

products along it. The supply chain starts and ends with the customer.

1. Transportation vendors

2. Credit and cash transfers

3. Suppliers

4. Distributors

5. Accounts payable and receivable

6. Warehousing and inventory

7. Order fulfillment

8. Sharing customer, forecasting, and production information

Supply Chain Management Decisions

To ensure that the supply chain is operating as efficient as possible and generating the highest

level of customer satisfaction at the lowest cost, companies have adopted Supply Chain

Management decision making activities at different levels:

1. Strategic : At this level, company management will be looking to high level strategic

decisions concerning the whole organization

2. Tactical: Tactical decisions focus on adopting measures that will produce cost

benefits such as using industry best practices, developing a purchasing strategy with

favored suppliers, working with logistics companies to develop cost effect

transportation and developing warehouse strategies to reduce the cost of storing

inventory.

3. Operational: Decisions at this level are made each day in businesses that affect how

the products move along the supply chain.

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Other Factors to be considered

1. Supply chain Risk

2. Ethics and Sustainability

3. Supply chain Economics

4. Make or Buy Decisions

5. Outsourcing

6. Supply Chain Strategies

a. Supplier Strategies: Few suppliers, many suppliers

b. Vertical integration

c. Joint Ventures

7. Vendor Management: Vendor selection, vendor development, vendor evaluation

Supply Chain Management Technology

Companies make some investment in technology in order to get benefit from their supply

chain management process. The backbone for many large companies has been the vastly

expensive Enterprise Resource Planning (ERP) suites, such as SAP and Oracle. These

enterprise software implementations will encompass a company’s entire supply chain, from

purchasing of raw materials to warranty service of items sold.

Project management

It is the application of knowledge, skills and techniques to execute projects effectively and

efficiently. It’s a strategic competency for organizations, enabling them to tie project results

to business goals — and thus, better compete in their markets.

Planning of projects:

The success of a project will depend critically upon the effort, care and skill you apply in its

initial planning. As a manager, you have to provide some form of framework both to plan and

to communicate what needs doing. Without a structure, the work is a series of unrelated tasks

which provides little sense of achievement and no feeling of advancement. WBS (Work break

down structure) is one technique to achieve the sameTools to show a project schedule include

Gantt chart, Project network diagram (Activity On the Node (AON) diagram, Critical path

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analysis, PERT charts, Precedence diagramming method (PDM), Critical chain project

management (CCPM)) the finale of planning calls for project cost estimation. The budget is

determined from the project schedule, the cost assigned to tasks, and other indirect costs or

resources.

Implementation of projects:

Two basic issues why the implicit assumption in the project network numbers that resources

will be available in the required amounts when needed is not realistic:

1. May not have adequate resources

2. Want to use resources efficiently, avoid peaks and valleys in resource utilization

Resource levelling: Any form of network analysis where resources management issues drive

scheduling decisions. It incorporates the resource constraints in terms of human resource, raw

material, working capital management. Time constraint is yet another limiting factor for

projects.

Crashing: This incorporates various techniques to focus on reducing the duration of

activities on the critical path to shorten overall duration of the project. It’s a time vs cost trade

off.

Project Evaluation & Control:

Mile stone analysis: Milestones are events or stages of the project that represent a

significant accomplishment.

Tracking Gannt Chart: Project status is updated by linking task completion to the

schedule baseline

Earned Value Analysis: it includes various steps:

o Clearly define each activity including its resource needs and budget

o Create usage schedules for activities and resources

o Develop a time-phased budget (PV)

o Total the actual costs of doing each task (AC)

o Calculate both the budget variance (CV) and schedule variance (SV)

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Project S curve

Lean Manufacturing

Lean Manufacturing is a way to eliminate waste and improve efficiency in a manufacturing

environment. Lean Manufacturing is the production of goods using less of everything

compared to traditional mass production: less waste, human effort, manufacturing space,

investment in tools, inventory, and engineering time to develop a new product.

It is renowned for its focus on reduction of the seven wastes to improve overall customer

value. The seven wastes are:

Transport (moving products that are not actually required to perform the processing)

Inventory (all components, work in process and finished product not being processed)

Motion (people or equipment moving or walking more than is required to perform the

processing)

Waiting (waiting for the next production step, interruptions of production during shift

change)

Overproduction (production ahead of demand)

Over Processing (resulting from poor tool or product design creating activity)

Defects (the effort involved in inspecting for and fixing defects)

Lean Manufacturing is sometimes called as “Toyota Production systems” as many major

innovations and developments in lean happened at Toyota. Lean was generated from JIT

(Just-in-time) philosophy of continuous improvement and forced problem solving. JIT is

“supplying customers with what they want and when they want”.

Key Lean Manufacturing Techniques:

5s: It is a strategy for creating a well organized, smoothly flowing manufacturing process. 5’s

include:

1. Sort

2. Stabilize

3. Shine

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4. Standardize

5. Sustain

SMED (Single Minute Exchange of Dies): It is a constant improvement program that

focuses on rapid conversion from manufacturing one product to the next. It reduces the cost

of set ups and decreases the required skill level of operators.

Kanban: It is a system that uses replenishment signals to simplify inventory management. It

usually uses signals (usually cards) that hold the product details like “what to make, when to

make, how much to make and where to send”

Six Sigma

Six Sigma is a statistical tool to ensure quality by measuring how far a process deviates from

perfection. This is done by measuring number of defects per million opportunities, where

each opportunity is a chance for not meeting the required specification. A six sigma process

is one in which 99.99966% of the products manufactured are statistically expected to be free

of defects (3.4 defective parts/million). It was developed by Motorola in 1986 and

implemented widely in General Electric in 1995.

Applications of Six Sigma:

Six sigma can be used for all kinds of process and hence finds applications in wide range of

industries including manufacturing, health care, construction etc. In short it can be applied to

industries of all sizes to get the benefits of reduced process cycle time, reduced costs,

increased customer satisfaction, increased profits and standardized business development.

Six Sigma Methodology and Tools:

Six sigma employs a systematic methodology for the application of various statistical tools

available using the DMAIC cycle – Define, Measure, Analyze, Improve and Control.

Define – Identify focus area (process) based on business requirements.

Measure- Determine how to measure the process and its performance.

Analyze – Determine potential causes of defects by identifying key variables which

might cause process variations.

Improve – Identify means to remove causes of defects, clearly define acceptable

ranges for key variables and modify process to stay within the acceptable range.

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Control – Standardize the process to ensure the improvements are maintained.

Some of the tools used for Six sigma include flowcharts, run charts, pareto charts, check

sheets, cause and effect diagrams, opportunity flow diagram, control charts, failure mode and

effect analysis and design of experiments.

Lean Six Sigma:

Lean Six Sigma is a process improvement concept combining Lean and Six Sigma to

eliminate different kinds of wastes and to ensure improved capability of performance to help

organizations operate more efficiently. Lean Six Sigma offers companies the opportunity to

rethink their entire business and create a more innovative environment. Lean Six Sigma finds

its applications in product as well as service industries and the major companies benefitted by

applying this concept include General Electric, Xerox Corporation, Johnson and Johnson,

IBM etc.

Inventory Control

Inventory is the stock of any item or resource used in an organization.

An Inventory system is the set of policies and controls that monitor levels of inventory and

determine what levels should be maintained, when stock should be replenished, and how

large orders should be.

Manufacturing Inventory refers to the items that contribute to or become part of a firm’s

product output. It is classified into raw materials, finished products, component parts,

supplies and work-in-process.

Service Inventory refers to the tangible goods to be sold and the supplies necessary to

administer the service.

Inventory analysis essentially answers the following questions:

1. WHEN items should be ordered

2. HOW LARGE the order should be

Purpose of inventory:

1. To maintain independence of operations: Since the number of production setups is

minimized, the costs associated with each can be reduced.

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2. To meet variation in the product demand.

3. To allow flexibility in product scheduling: It permits smoother flow and lower-cost

operations through larger lot size production.

4. To provide a safeguard for variation in raw material delivery time: It provides a

cushion against delays that can be caused by strikes, lost orders, incorrect or defective

material, etc.

5. To take advantage of economic purchase order size ie. the optimum order size to

reduce various inventory costs.

Inventory Costs:

The various costs associated with maintaining inventory are:

1. Holding/Carrying costs: These include costs for storage facilities, handling, pilferage,

etc.

2. Setup/Production Change Costs: These include material arrangement, equipment

setup, etc.

3. Ordering Costs: These refer to managerial and clerical cost to prepare for the

purchase.

4. Shortage Costs: These are the costs associated with the unavailability of a material.

Independent Vs dependent demand:

Independent demand is that demand which is not related to the demand of another product

whereas dependent demand of product depends on the demand of some other product.

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Single Period Vs Multi period Inventory Systems:

A single period inventory model is one in which the inventory is ordered only once, hence the

question of when to order does not arise. However, it is of high significance that the question

of how much to order be predicted as accurately as possible. This is to ensure that profits are

not lost (or loss is not occurred). This can happen because of unavailability of products or

storing extra products that cannot be used afterwards. For example, a newspaper vendor

ordering newspapers in the morning for sales is a perfect example of single period inventory

model. If he orders less, he will lose profits due to shortage of newspapers. On the other

hand, if he orders surplus, he will have bear the cost of the newspapers that are unsold and

can’t be sold the subsequent day.

Multi period inventory models are the ones in which the material can be ordered on more

than one instances. This to ensure the constant availability of material. These are generally of

two types:

1. Fixed Order Quantity Model (EOQ OR Q-MODEL)

In this model, the inventory size is kept constant and the material is ordered when the

size of the inventory reaches a particular amount. For this reason, this model is known

as an “event triggered” model.

2. Fixed Time Period Model (P-MODEL)

In this model, the inventory is replenished after a particular period of time. The

inventory is inspected after the certain pre-determined time period and the size of the

inventory can be varied depending upon the available material. Hence, this model is

known as a “time triggered” model. This might sometimes lead to shortage of

material.

There is an important term known as the safety stock. The previous model assumes that the

demand is constant but in real life, it is rarely the case. Hence, Safety Stock is the amount of

inventory ordered in addition to the expected demand to safeguard any variation in demand.

Forecasting In Business

A process of predicting future trends using observations, past happenings, and by analyzing

past and present data. The process of forecasting can involves using both qualitative methods

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and quantitative/statistical methods. While qualitative methods may include judgment,

opinions about future, the quantitative methods rely on developing mathematical models

through analysis of past and present data collected about that situation.

Why are companies investing in forecasting?

With increasing competition and uncertainty in today’s business world, more and more

companies are finding ways to understand their business situation and trying to minimize

business risk. Forecasting is one such way of predicting how their business might perform in

future, and how can they work on the they make better decision making at present to

improve.

Applications of Forecasting:

Some of the applications of forecasting in business-

1 Predicting demand/sales of the business.

2 Improving financial performance of the firm.

3 Ability to make better decision- making at present to improve business in future.

4 Minimizing risk associated with competition, industry and regulatory changes.

What techniques are being used in present for forecasting?

Qualitative methods: These types of forecasting methods are based on judgments, opinions,

intuition, emotions, or personal experiences and are subjective in nature. They do not rely on

any rigorous mathematical computations.

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Quantitative methods: These types of forecasting methods are based on mathematical

(quantitative) models, and are objective in nature. They rely heavily on mathematical

computations.

Facility Layout

Facility layout can be defined as the process by which the placement of departments,

workgroups within departments, workstations, machines, and stock-holding points within a

facility is determined. The basic objective of layout is to ensure a smooth flow of work,

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material, and information through a system. The basic meaning of facility is the space in which a

business's activities take place. The layout and design of that space impact greatly how the work

is done—the flow of work, materials, and information through the system.

Ex:-

A

B

C

D

E

F

If A, B, C, D, E and F are six machines (or departments) and machine (or department) A

interacts more frequently with department C, i.e., goods or people are transported more

frequently then they need to be kept close to each other. So interchanging B and C is a

possible solution to this problem.

Types of Layouts:

1) Product or Line Layouts - uses standardized processing operations to achieve smooth,

high-volume flow

2) Process or Functional Layouts - can handle varied processing requirements

3) Project or Fixed-Position - the product or project remains stationary, and workers,

materials, and equipment are moved as needed

4) Cellular Layouts

5) Combination Layouts

Product Layout VS Process Layout:

A product layout groups different workstations together according to the products they work

on. Workstations in a product layout can quickly transfer small batches of semi-finished

goods directly to the next station in a production line. Product layouts can be ideal for smaller

manufacturing businesses with lower volume than their large corporate competitors.

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A process layout groups workstations together according to the activities being performed,

regardless of which products each workstation is working on. Workstations produce higher

volumes of output at a time before sending semi-finished goods in bulk to the next area,

which may be located as close as the other end of a building or as far as another facility on

the other side of the globe.

What is capacity planning?

Capacity planning is the process of determining the production capacity needed by an

organization to meet changing demand for its products. Capacity is the rate of productive

capability of a facility. Capacity is usually expressed as volume of output per time period. It

is the process of determining the necessary to meet the production objectives. The objectives

of capacity planning are:

To identify and solve capacity problem in a timely manner to meet consumer needs.

To maintain a balance between required capacity and available capacity.

The goal of capacity planning is to minimize this discrepancy.

Capacity is calculated: (number of machines or workers) × (number of shifts) × (utilization) ×

(efficiency).

The need for capacity planning:

Capacity planning is the first step when an organization decided to produce more or a new

product. Once capacity is evaluated and a need for a new expanded facility is determined,

facility location and process technology activities occur. Too much capacity would require

exploring ways to reduce capacity, such as temporarily closing, selling, or consolidating

facilities. Consolidation might involve relocation, a combining of technologies, or a

rearrangement of equipment and processes.

Capacity planning is done in order to estimate whether the demand is higher than capacity or

lower than capacity. That is compare demand versus capacity.

It helps an organization to identify and plan the actions necessary to meet customer’s present

and future demand.

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How is capacity measured?

For some organization capacity is simple to measure. General Motors Corporation can use

“numbers of automobiles per year.” But what about organizations whose product lines are

more diverse? For these firms, it is hard to find a common unit of output.

As a substitute, capacity can be expressed in terms of input. A legal office may express

capacity in terms of the number of attorneys employed per year. A custom job shop or an

auto repair shop may express capacity in terms of available labour hours and/or machine

hours per week, month, or year.

Capacity can be expressed in terms of input & output, depending on the nature of business.

Capacity planning decision:

Capacity planning normally involves the following activities:

Assessing existing capacity.

Forecasting capacity needs.

Identifying alternative ways to modify capacity.

Evaluating financial, economical, and technological capacity alternatives.

Selecting a capacity alternative most suited to achieving strategic mission.

Simulation

Simulation is an attempt to duplicate the features, appearance, and characteristics of a real

system.

It helps in doing the following tasks:

To imitate a real-world situation mathematically

To study its properties and operating characteristics

To draw conclusions and make action decisions based on the results of the simulation

Process of Simulation:

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Advantages of Simulation:

1. Relatively straightforward and flexible

2. Can be used to analyze large and complex real-world situations that cannot be solved

by conventional models

3. Real-world complications can be included that most OM models cannot permit

4. “Time compression” is possible

5. Allows “what-if” types of questions

6. Does not interfere with real-world systems

7. Can study the interactive effects of individual components or variables in order to

determine which ones are important

Disadvantages of Simulation:

1. Can be very expensive and may take months to develop

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2. It is a trial-and-error approach that may produce different solutions in repeated runs

3. Managers must generate all of the conditions and constraints for solutions they want

to examine

4. Each simulation model is unique

Some of the simulation applications:

Ambulance location and dispatching

Assembly-line balancing

Parking lot and harbor design

Distribution system design

Scheduling aircraft

Labor-hiring decisions

Personnel scheduling

Traffic-light timing

Voting pattern prediction