NATUREOBJECTIVE S OF BUSINESS MANAGEMENT BY OBJECTIVES NATURE

NATURE/OBJECTIVE S OF BUSINESS MANAGEMENT BY OBJECTIVES

NATURE OF BUSINESS Nature of Business

THE NATURE OF BUSINESS ONE OF THE WAYS TO BECOME SUCCESSFUL ANYWHERE IN THE WORLD IS TO START A BUSINESS. WHEN ONE STARTS A BUSINESS, THERE WILL BE PROFITS, REVENUES, LOSSES, RISKS, ETC. • BUSINESS IS DEFINED AS ANY ACTIVITY THAT SEEKS TO PROVIDE GOODS OR SERVICES TO OTHERS WHILE OPERATING AT A PROFIT. IT IS ALSO AN ORGANIZATION THAT PROVIDES GOODS OR SERVICES TO EARN PROFITS. • PROFIT IS THE DIFFERENCE BETWEEN A BUSINESS’S REVENUES AND ITS EXPENSES; OR THE AMOUNT OF MONEY A BUSINESS EARNS ABOVE FOR S AND BEYOND WHAT IT SPENDS FOR SALARIES AND OTHER EXPENSES. • REVENUE IS THE TOTAL AMOUNT OF MONEY A BUSINESS TAKES IN DURING A GIVEN PERIOD BY SELLING GOODS AND SERVICES. • A LOSS OCCURS WHEN A BUSINESS’S COSTS AND EXPENSES ARE MORE THAN ITS REVENUES. STARTING A BUSINESS INVOLVES RISKS. • RISK IS THE CHANCE AN ENTREPRENEUR TAKES OF LOSING TIME AND MONEY ON A BUSINESS THAT MAY NOT PROVE PROFITABLE.

IMPORTANCE OF BUSINESSES • BUSINESS IMPROVES THE STANDARD OF LIVING OF THE PEOPLE BY PROVIDING BETTER QUALITY AND LARGE VARIETY OF GOODS AND SERVICES AT THE RIGHT TIME AND AT RIGHT PLACE. • IT PROVIDES OPPORTUNITIES TO WORK AND EARN A LIVELIHOOD. THUS, IT GENERATES EMPLOYMENT IN THE COUNTRY, WHICH IN TURN REDUCES POVERTY. • EMPLOYEES PAY TAXES THE GOVERNMENT AND LOCAL COMMUNITIES USE TO BUILD HOSPITALS, SCHOOLS AND OTHER FACILITIES.

IMPORTANCE OF BUSINESSES • IT IMPROVES NATIONAL IMAGE BY PRODUCING AND EXPORTING QUALITY OF GOODS AND SERVICES TO FOREIGN COUNTRIES. BY PARTICIPATING IN INTERNATIONAL TRADE FAIRS AND EXHIBITIONS, IT ALSO DEMONSTRATES THE PROGRESS AND ACHIEVEMENTS OF ITS COUNTRY TO THE OUTSIDE WORLD. • IT ALSO FACILITIES EXCHANGE OF CULTURE AMONG THE PEOPLE OF DIFFERENT NATIONS AND THUS, MAINTAIN INTERNATIONAL HARMONY AND PEACE. • IT HELPS IN THE DEVELOPMENT OF SCIENCE AND TECHNOLOGY. IT SPENDS LARGE AMOUNT OF MONEY ON RESEARCH AND DEVELOPMENT IN SEARCH OF NEW PRODUCTS AND SERVICES.

TYPES OF BUSINESSES GENERALLY, THERE ARE TWO MAJOR TYPES OF BUSINESSES: INDUSTRIAL AND COMMERCIAL BUSINESSES. • INDUSTRIAL BUSINESSES: THEY PRODUCE GOODS USED BY OTHER BUSINESSES OR ORGANIZATIONS TO MAKE THINGS. FOR EXAMPLE, COMPANIES THAT MINE ORE FOR MAKING METAL PRODUCTS ARE INDUSTRIAL BUSINESSES. • COMMERCIAL BUSINESSES: THEY ARE ENGAGED IN THE FOLLOWING: Ø MARKETING: WHOLESALERS AND RETAILERS; Ø FINANCE: BANKS AND INVESTMENT COMPANIES; AND Ø SERVICES: MEDICAL OFFICERS, MOTELS, ATHLETICS CENTERS.

THE OBJECTIVES OF BUSINESS OBJECTIVES ARE SOMETHINGS WHICH A BUSINESS ORGANISATION WANTS TO ACHIEVE OR ACCOMPLISH OVER A SPECIFIED PERIOD OF TIME. IT IS GENERALLY BELIEVED THAT BUSINESS HAS A SINGLE OBJECTIVE, THAT IS, TO MAKE PROFIT & SAFEGUARD THE INTERESTS OF ITS OWNERS. HOWEVER, NO BUSINESS CAN IGNORE THE INTERESTS OF ITS EMPLOYEES, CUSTOMERS, AS WELL AS THE INTEREST OF THE SOCIETY AS A WHOLE. BUSINESS OBJECTIVES ALSO NEED TO BE AIMED AT CONTRIBUTING TO NATIONAL GOALS & ASPIRATIONS INTERATIONAL WELL-BEING. AS WELL AS TOWARDS

THUS, THE OBJECTIVES OF BUSINESS MAY BE CLASSSIFIED AS: A. ECONOMIC OBJECTIVES B. SOCIAL OBJECTIVES C. HUMAN OBJECTIVES D. NATIONAL OBJECTIVES E. GLOBAL OBJECTIVES

q ECONOMIC OBJECTIVES OF A BUSINESS REFER TO THE OBJECTIVE OF EARNING PROFIT & THOSE WHICH HAVE A DIRECT IMPACT ON THE PROFIT-EARNING OBJECTIVE OF BUSINESS. SOME OF THE MAIN ECONOMIC OBJECTIVES OF BUSINESS ARE: I. EARNING OF ADEQUATE PROFITS; II. EXPLORING NEW MARKETS & CREATION OF MORE CUSTOMERS; III. GROWTH & EXPANSION OF BUSINESS OPERATION; IV. MAKING USE OF AVAILABLE RESOURCES IN THE BEST POSSIBLE MANNER.

q SOCIAL OBJECTIVES OF BUSINESS ARE THOSE WHICH ARE DESIRED TO BE ACHIEVED FOR THE SOCIETY. SOME OF THE MAJOR SOCIAL OBJECTIVES ARE: I. PRODUCTION & SUPPLY OF QUALITY GOODS & SERVICES TO THE SOCIETY. II. MAKING GOODS AVAILABLE AT REASONABLE PRICES. III. AVOIDANCE OF UNFAIR PRACTICES LIKE HOARDING, BLACKMARKETING, OVER-CHARGING, ETC. IV. CONTRIBUTING TOWARDS THE GENERAL WELFARE & UPLIFTMENT OF THE SOCIETY. V. ENSURING FAIR RETURN TO THE INVESTORS. VI. TAKING STEPS IN THE DIRECTION OF CONSUMER EDUCATION. VII. CONSERVING NATURAL RESOURCES & WILDLIFE & PROTECTING THE ENVIRONMENT.

q HUMAN OBJECTIVES OF BUSINESS PRIMARILY REFER TO THE OBJECTIVES AIMED AT SAFEGUARDING THE INTEREST OF ITS EMPLOYEES AND THEIR WELFARE. SOME OF THE MAJOR HUMAN OBJECTIVES ARE: I. PROVIDING FAIR REMUNERATION & INCENTIVES TO THE EMPLOYEES; II. ARRANGEMENT OF BETTER WORKING CONDITIONS & PROPER WORK ENVIRONMENT FOR THE EMPLOYEES; III. PROVIDING JOB SATISFACTION BY MAKING THE JOBS INTERESTING & CHALLENGING, PUTTING THE RIGHT PERSONS IN THE RIGHT JOB;

IV. PROVIDING THE EMPLOYEES WITH MORE & MORE PROMOTIONAL OPPORTUNITIES; V. ORGANISING TRAINING & DEVELOPMENT PROGRAMMES FOR THE GROWTH OF THE EMPLOYEES; VI. PROVIDING EMPLOYMENT TO THE BACKWARD CLASSES OF THE SOCIETY & PEOPLE WHO ARE PHYSICALLY & MENTALLY CHALLENGED.

q NATIONAL OBJECTIVES OF BUSINESS ARE THE OBJECTIVES OF FULFILLING THE NATIONAL GOALS & ASPIRATIONS LIKE: I. CREATION OF EMPLOYMENT OPPORTUNITIES; II. PROMOTION OF SOCIAL JUSTICE; III. PRODUCE & SUPPLY GOODS IN ACCORDANCE WITH NATIONAL INTEREST & PRIORITIES; IV. PAYMENT OF TAXES & OTHER DUES HONESTLY & REGULARLY; V. HELPING THE STATE IN MAINTAINING LAW & ORDER BY PROMOTING GOOD INDUSTRIAL RELATIONS; VI. IMPLEMENTING GOVERNMENT’S ECONOMIC & FINANCIAL POLICIES FRAMES FROM TIME TO TIME.

q GLOBAL OBJECTIVES OF BUSINESS ARE THE OBJECTIVES OF FACING THE CHALLENGES OF GLOBAL MARKET. SOME OF THE GLOBAL OBJECTIVES ARE: I. MAKING AVAILABLE GLOBALLY COMPETITIVE GOALS 7 SERVICES; II. REDUCING DISPARITIES AMONG RICH & POOR NATIONS BY EXPANDING ITS OPERATIONS.

CHARACTERISTICS OF EFFECTIVE OBJECTIVES (SMARTER) T M A E R S R P E C I F I C E A S S S U R A B L E I G N A B L E E A L I S T I C I M E B O U N D M O E W T I O N A L A R D I N G

• OBJECTIVES MUST BE SPECIFIC: THEY SHOULD BE CLEARLY AND PRECISELY DEFINED. THEY SHOULD COVER AREAS OF THE BUSINESS, E. G. SALES, PROFITS, MARKET SHARE, CUSTOMER SATISFACTION, ETC. • OBJECTIVES MUST BE MEASURABLE: THEY SHOULD BE EXPRESSED IN QUANTITATIVE TERMS, E. G. 10% SHARE OF PRIMARY MARKET. • OBJECTIVES MUST BE ATTAINABLE: THEY SHOULD NOT BE TOO HIGH. • OBJECTIVES MUST BE REALISTIC: THEY MUST BE WITHIN THE WORKERS’ AND FIRM’S RESOURCES AND MEANS. THEY SHOULD NOT BE TOO HIGH OR TOO LOW. • OBJECTIVES MUST BE TIME BOUND: THEY SHOULD HAVE TIME FRAME. DEADLINES MUST BE SET. TASKS MUST BE COMPLETED ON TIME. • OBJECTIVES MUST BE EMOTIONAL: THEY MUST BE HEARTFELT. YOU MUST WANT TO HAVE THEM. • OBJECTIVES MUST BE REWARDING: THERE MUST BE A BENEFIT ATTACHED TO THEM AS THAT IN ITSELF FUELS THE DRIVE TO ATTAIN THEM.

MANAGEMENT BY OBJECTIVES Management by Objectives

• • • MANAGEMENT BY OBJECTIVES (MBO) IS A SYSTEMATIC AND ORGANIZED APPROACH THAT ALLOWS MANAGEMENT TO FOCUS ON ACHIEVABLE GOALS AND TO ATTAIN THE BEST POSSIBLE RESULTS FROM AVAILABLE RESOURCES. IT AIMS TO INCREASE ORGANISATIONAL PERFORMANCE BY ALIGNING GOALS AND SUBORDINATE OBJECTIVES THROUGHOUT ORGANISATION. IDEALLY, EMPLOYEES GET STRONG INPUT TO IDENTIFY THEIR OBJECTIVES, TIMELINES FOR COMPLETION, ETC. MBO INCLUDES ONGOING TRACKING AND FEEDBACK IN THE PROCESS TO REACH OBJECTIVES. MANAGEMENT BY OBJECTIVES WAS FIRST OUTLINED BY PETER DRUCKER IN 1954 IN HIS BOOK ‘THE PRACTICE OF MANAGEMENT’. IN THE 90 S, PETER DRUCKER HIMSELF DECREASED THE SIGNIFICANCE OF THIS ORGANISATION METHOD, WHEN HE SAID: “IT’S JUST ANOTHER TOOL. IT IS NOT THE GREAT CURE FOR MANAGEMENT INEFFICIENCY… MBO WORKS IF YOU KNOW THE OBJECTIVES, 90% OF THE TIME YOU DON’T”.

DEFINITION MANAGEMENT BY OBJECTIVES (MBO) CAN BE DEFINED AS A PROCESS WHEREBY THE EMPLOYEES AND THE SUPERIORS COME TOGETHER TO IDENTIFY COMMON GOALS, THE EMPLOYEES SET THEIR GOALS TO BE ACHIEVED, THE STANDARDS TO BE TAKEN AS THE CRITERIA FOR MEASUREMENT OF THEIR PERFORMANCE AND CONTRIBUTION AND DECIDING THE COURSE OF ACTION TO BE FOLLOWED.

MAIN CONCEPT q THE PRINCIPLE BEHIND MANAGEMENT BY OBJECTIVES (MBO) IS TO MAKE SURE THAT EVERYBODY WITHIN THE ORGANISATION HAS A CLEAR UNDERSTANDING OF THE AIMS, OR OBJECTIVES , OF THAT ORGANISATION AS WELL AS AWARENESS OF THEIR OWN ROLES AND RESPONSIBILITIES IN ACHIEVING THOSE AIMS. q THE COMPLETE MBO SYSTEM IS TO GET MANAGERS AND EMPOWERED EMPLOYEES ACTING TO IMPLEMENT AND ACHIEVE THEIR PLANS, WHICH AUTOMATICALLY ACHIEVE THOSE OF THE ORGANISATION.

MANAGEMENT BY OBJECTIVES PRONCIPLES • CASCADING OF ORGANISATIONAL VISION, GOALS AND OBJECTIVES • SPECIFIC OBJECTIVES FOR EACH MEMBER • PARTICIPATIVE DECISION MAKING • EXPLICIT TIME PERIOD • PERFORMANCE EVALUATION AND FEEDBACK

MBO STRATEGY: THE THREE BASIC PARTS v ALL INDIVIDUALS WITHIN AN ORGANISATION ARE ASSIGNED A SPECIAL SET OF OBJECTIVES THAT THEY TRY TO REACH DURING A NORMAL OPERATING PERIOD. THESE OBJECTIVES ARE MUTUALLY SET AND AGREED UPON BY INDIVIDUALS AND THEIR MANAGERS. v PERFORMANCE REVIEWS ARE CONDUCTED PERIODICALLY TO DETERMINE HOW CLOSE INDIVIDUALS ARE TO ATTAINING THEIR OBJECTIVES. v REWARDS ARE GIVEN TO INDIVIDUALS ON THE BASIS OF HOW CLOSE THEY COME TO REACHING THEIR GOALS.

MBO PROCESS

• SETTING OBJECTIVES/ COLLECTIVELY FIXING OBJECTIVES: THE FIRST PHASE IN THE MBO PROCESS IS THE DEFINING AND CLARIFICATION OF THE ORGANIZATIONAL OBJECTIVES. OVERALL GOALS FOR THE FIRM SET, AFTER WHICH GOALS FOR THE DEPARTMENTS ARE DECIDED. AFTER THAT OBJECTIVES ARE SET FOR INDIVIDUAL WORKERS. AT ALL LEVEL, OBJECTIVES ARE DECIDED JOINTLY BY THE SUPERIOR AND SUBORDINATE. • DEVELOPING ACTION PLANS/COLLECTIVELY MAKING A PLAN: AFTER SETTING THE OBJECTIVES ANTICIPATIVELY, MANAGERS AT EACH LEVEL DEVELOP PLANS THAT INCORPORATE OBJECTIVES ESTABLISHED IN STEP 1. HIGHER MANAGERS ARE RESPONSIBLE FOR ENSURING THAT THEIR DIRECT ASSISTANTS’ PLANS COMPLEMENT ONE ANOTHER AND DO NOT WORK AT CROSS-PURPOSES.

• PERIODIC REVIEW: AT REGULAR INTERVALS, OBJECTIVES ARE REVIEWED TO ASSESS THEIR PROGRESS. PROBLEMS ARE DETECTED AND CORRECTED. PERIODIC CHECKUPS GIVE MANAGERS AN EXCELLENT OPPORTUNITY TO GIVE THEIR SUBORDINATES NEEDED AND APPRECIATED FEEDBACK. • PERFORMANCE APPRAISAL/COLLECTIVELY MONITORING PERFORMANCE: AT THE END OF ONE COMPLETE CYCLE OF MBO, ONE YEAR AFTER THE ORIGINAL GOALS WERE SET, FINAL PERFORMANCE IS MATCHED WITH THE PREVIOUSLY AGREEDUPON OBJECTIVES. MBO EMPHASIZES RESULTS, NOT PERSONALITIES OR EXCUSES. THE CONTROL PHASE OF MBO CYCLE IS COMPLETED WHEN SUCCESS IS REWARDED WITH PROMOTIONS, MERIT PAY, OR OTHER SUITABLE BENEFITS AND WHEN FAILURE IS NOTED FOR FUTURE CORRECTIVE ACTION.

ADVANTAGES OF MBO • MEANS OF PLANNING AND CONTROL • SUPERIOR AND SUBORDINATE BOTH SET THE GOALS TOGETHER • THE MEANS TO ACHIEVE THE GOAL IS DISCUSSED • MBO AIDS IN STRUCTURAL CHANGES WHEREVER IT SEEMS NECESSARY AND TRANSFORMS THE STRUCTURE FOR GOOD • MBO IS USED BY MANAGERS TO MEASURE THE PROGRESS OF THEIR STAFF • PERIODIC APPRAISAL OF PERFORMANCE ARE MADE TO SEE IF PROGRESS TOWARDS THE OBJECTIVES IS MADE.

DISADVANTAGES OF MBO • SUBORDINATE FEELS UNCOMFORTABLE • TOO MUCH MULTI-TASKING • MORE ADMINISTRATIVE PAPER WORK • MANAGERS PURSUE GOALS AT ANY COST • DIFFICULTY OF SETTING HIGH, YET REALISTIC GOALS