1.

28 Principles of Management

LO3 Aypes of Business Organizations

When you want take up any business or social
enterprise, you need to analyze how to
organize your business so that you can protect yourself and your stakeholders. If
you are
alone, putting all your investments, doing the business without
sharing profit/losses with
others, you are said to be a sole proprietor. It is both
ness (all the profits are
advantageous to be alone in busi-
yours) and at the same time, it is risky also (you have to bear all
the losses). This is a case of sole
proprietorship.
It is usual that larger businesses cannot
be handled by one single person. So two or
more persons join hands with an
understanding to share the profits or losses equally or
otherwise and this is the case of
partnership. The partners have several joint liabilities.
In addition to this each
partner has unlimited liability. This means the partners are at a
great risk.
Is there any possibility that the common
man can get associated with business with
limited liability? Yes, here comes the
joint stock company where business projects with
huge capital requirements are undertaken. Joint stock company may be public or
limited company. private

Factors Affecting the Choice

There certain factors that affect the choice of form of business
are
be easy to start and easy to close. There should be
organizations. It should
provision for division of labor. It should
help to mobilize large amount of resources. It should provide for minimum personal li-
ability. Secrecy should be safeguarded. It should be simple to transfer the ownership. It is
always better to have ownership, management and control in the hands of one or small
group of persons for effective coordination and monitoring. Continuity should be taken care
of. With the death of one or two members, the business
should not come to an end. The
type of business organization you select should have provision for decision
quick making,
personal contact with customers and flexibility.
Taxation also should be investor friendly.
Now, let us see the features of each type of business organizations and evaluate each
organization in terms of its merits and demerits.

Different Business Organizations

Sole Proprietorship
In this form of business
organization, there is only one proprietor who invests capital, who
conducts business operations with the help of his
family members or paid employees after
complying with all the registration formalities where required. He himself takes care of all
the business functions such as
marketing, finance. He may have to pay the monthly salaries
or wages to the hired staff. He
enjoys all the profits. If there are losses, he himself has
to bear. Since business involves risk, it calls for
great expertise for being alone and take
care of all the things
though on small scale. There are number of cases, where businesses
are kept at low key only to avoid
problems of scaling up and growth. Sole proprietorship
is an excellent form of business
organization where it is easy to start and easy to close.
The proprietor will bring his own capital and also
may borrow where necessary. He has
 Chapter 1: Introduction to Management and Organization 1.29

unlimited liability and this implies that the liability extends to his
in case of loss. Sole personal property also
be shifted to any other
proprietorship offers high degree of flexibility and the business can
location. It does not involve too many legal formalities for
tration purpose. In some regis-
cases, it does not require any registration also. But
provides legal protection. Business secrets can be registration
freedom. He is the owner, guarded well. He has total operational
manager and controller. He can be in touch with the custom-
ers. He can take
decisions faster and also implement the same
are comparatively low. quickly. The rates of tax
Since he is alone, he cannot share
any responsibility with anybody else. There is no
continuity and death of the p oprietor will put the business to close. Where the
business
operations need to be scaled up, this form of
organization may not be suitable.
Partnership
This is improved form of sole proprietorship. Where there are like-minded
an
persons with
resources to take business, they can start
partnership with an agreement to share the
profits/losses. People who come together to form a partnership are called and
collectively called firm. Indian Partnership Act, 1932 defines partnership as thepartners
between two or more persons who relationship
agree to share the profits of the business carried on
by all or any one of them acting for all.
Features: It is a relationship among the
persons who come together and agree to do
business. There should be two or more number of
on by all or any one
people. The business may be carried
of them acting for all. The partners have unlimited liability and also
joint and several liability. In other words, if any partner becomes insolvent, the loss reso-
lution from his insolvency has to be borne
by the remaining solvent partners. The shares
in partnership can be transferred. Taxation is
relatively low when compared to joint stock
company type of organization. The partner who looks after the affairs of the
has an implied authority (upto say 10,000
partnership
per month) to take decisions. The number of
partners in partnership is 2 minimum and maximum 10 in case of banking business and
20 in case of non-banking business. It provides for division of labor.
Personal contact with
customers can be maintained and there is
relatively largerflexibilitywhen compared to
joint stock company.
Dissolution: The closing of partnership is called dissolution. The firm
gets dissolved on
partnership deed. It is a written agreement among the partners. It contains the terms and
conditions governing the functioning of partnership firm such as names and
addresses of
the firm and partners, nature of business,
duration, amount of capital to be brought by
each partner, profit sharing ratios, interest on
capital and drawings, salary or commission
payable to the any of the partners, procedure to be followed for
valuation of goodwill
at the time of admission, retirement or death of a
partner, allocation of responsibilities,
procedure to be followed for dissolution of the firm, name of the arbitrator to whom the
disputes, if any, have to be referred, etc.

Limited Liability Partnership

As seen above, normally partnership is known for
joint and several liabilities besides unlim-
ited liability. To protect the partners on the unlimited
liability front, Indian Companies Act,
2013 introduced a new form of entity called limited
liability partnership through which the
benefits of legal entity can be reaped without being tied
up with the much legal formalities
 imerated in the case of private/public limited companies. Ihe liability of the partners
in a limited liability is restricted to their contribution to the capital in the partnership.
Suitability: Partnership is a better form of organization where volume of funds required
of different skills such as in market
is not very largeand there is requirement for persons
production and technology.
Human resources,
are There where busi-
cases
ing, finance,
nesses are commenced in partnership
and to scale up the volume of business operations,
of organization.
they moved to joint stock company type

Joint Stock Company to participate

intended to facilitate the common man
This form of business organization is
with least amount of investment. Joint stock
in the business activities of the corporate
a distinct name,
association of persons recognized by law, having
company is a voluntary
business for profit, with capital
divisible into transferable
common seal, formed to carry on
and perpetual succession. The people contribute
shares, limited liability, corporate body who contribute
to the share capital and employ it
for a common purpose. The persons
to which each
so to the share capital are
called shareholders. The proportion of capital
it is an artificial person created by law
member is entitled is his share. In other words,
with perpetual succession and common
seal. It has separate legal existence. Members may
but it continues for ever and ever.
come, members may go,

Prospectus advertisement or any other document inviting

offers
The prospectus is a notice, circular,
shares or debentures of the body corporate. It
contains
from public for the subscription of
office of the company, nature of the business, main
the name and address of registered
shares issued, list of promoters, list of directors, details
objectives, number and types of
the minimum subscription to be received, opening
of bankers, brokers and auditors and
a public limited company
and closing date of offer etc. However issue of prospectus by
to be adopting 'Statement in Lieu of
is not mandatory. Where it is not issued, it is sald
issue of prospectus.
Prospectus'. A private company is prohibited from
is the most favored form of business organization
Why favored? Joint stock company
to take up large business ventures with huge capital
particularly where the promoters wish
resources. It has separate legal existence. The shareholders
outlay. It can mobilize large
transferred. Liquidity of investments in the
here have limited liability. The shares can be
on stock exchange. It facilitates
shares is taken care of by listing the shares of the company
of
growth and expansion. There is vast scope to involve professional managers. This form
organization savings and investments.
inculcates the habit of

Challenges: Ownership, management and control are diversified. Decision making is

delayed due to in
rigidities for
the system, general body has to approve the
instance, the
proposals in annual general body meeting or extraordinary general body meetings, strategic
decisions cannot be taken. The formation of company is a long-drawn process. It is very
difficult to form and close also. The closing of joint stock company is called winding up.
Joint stock company is mostly criticized to promote monopoly or oligarchy in management
as the controls are vested in the Board of Directors who provide the strategic direction to
the company.,Despite these chllenges, jontstock company is much favored particularlyfor
taking care of growth and expansion and where professional management is required.
 1.31
Chopter 1: Introduction to Management and Orgonization

Public and Private Limited Companies

Based on public interest, the joint stock company is of two kinds-public limited company
and private limited company. The following are the differences between a public limited
company and a private limited company (as per Indian Companies Act 2013):
1. Minimum capital: The minimum capital for a public limited company is R5,00,000.
In case of private limited company it is R100,000 and the shares in a private com-

pany cannot be transferred.

2. Number of members: For public limited company, minimum is 7 and there is no
limit on maximum number. For a private limited company, the minimum is 2 and

maximum is 200.
3. Name: The name of private limited company should end with 'private limited and

public limited company should end with 'public limited'.

4. Issue of securities: The public limited company raises its share capital by issue of
shares from public through prospectus (public offer) or by way of rights/bonus
issue through private placement. The private limited company is prohibited from
issue of prospectus. It can raise the capital by way of rights issue or bonus issue

through private placement.

5. Listing: To provide liquidity for the shareholders of a public company, the shares
of public limited company are listed on recognized stock exchange whereas the
shares of private limited company are not listed.
6. Quorum: The quorum means the minimum number of members required to con-
duct the proceedings of meeting. In case of public limited company, the quorum is
five in case of members upto 1000; 15 in case of members more than 1000, upto
5000; 30 in case of members exceeding 5000. In a private company, the quorum
is two only.
7. Acceptance of public deposits: The public limited company can accept public de-
posits but not a private company.

L04 Organization Culture and Environment

Organization As it relates to organizations, culture is the general pattern of behavior, shared beliefs,
cultureThe and values that members have in common.2 Culture can be inferred from what people
general pattern say, do, and think within an organizational setting. It involves the learning and transmitting
of behavior, of knowledge, beliefs, and patterns of behavior over a period of time, which means that
shared beliefs, an organization culture is fairly stable and does not change fast. It often sets the tone for
and values that
or0anizalion the company and establishes implied rules for the way people should behave. Many com-
members have pany slogans give a general idea of what a particular company stands for. Here are some
incommon examples: For General Electric, it is "Progress is our most important product." AT&T is
proud of its "universal service." Du Pont makes "better things for better living through
www.ne.com chemistry" Delta Airlines describes its internal climate as "the Delta family feeling." KLM
Royal Dutch Airlines wants to be known as "the reliable airline." Its president, Jan F. A. de
www.att.com
Soet, stated that KLM is not a flamboyant airline; instead, the organization culture reflects
www.duponL.com the Dutch dislike of ostentation,
www.delta.com
Similarly, 1BM wants to be known for its service, Sears for quality and price, Caterpillar
ww.Am.com for its 24-hour parts service, and so on, Indeed, the orientation of these companies, often
expressed in slogans, contributed to the successful conduct of their businesses.
1.32 Principles of Management
and
company), which comprises a Swedish
a
Asea Brown & Boveri (a giant electrical
www.ibm.com act locally"2
Swiss firm, is guided by a culture
illustrated by the phrase "think globally,
www.sears.com
decentralized company with more than 200,000
The organization culture of the highly
www.caterpillar. culture of the country in which the
employees around the world is integrated with the
Com with respect to sourcing.
division On the other hand, its managers act globally
operates.
financial market conditions, goods and services
or example, depending on the prevailing
www.abb.com are acquired in the country where
it is most favorable to do so.

Promoting an Appropriate Organization Culture30

the organization culture, which
The effectiveness of an organization is also influenced by
staffing, leading, and
affects the way the managerial functions of planning, organizing,
culture are given in Table 1.2.
controlling are carried out. llustrations of organization
work in an organization with an
Given the choice, most people would probably prefer to
process, one
environment such as B, in which one can participate in the decision-making
The effective- evaluated on the basis of pertormance criteria rather than on the basis of triendship,
ness of an
one has the opportunity to
organization is one has open communication channels in all directions, and
excellent companies, Thomas Peters
influenced by exercise a great deal of self-control. In their search for
on management, found that the
the organization and Robert Waterman, the authors of a best-selling book
Culture. dominance of a coherent culture characterized these organizations.

Culture and Management Practice

Table 1.2 Illustrations of Organization

Environment A Environment B

Planning
autocratic Goals are set with a great deal of participation.
Goals are set in an manner

Decision making is centralized. Decision making is decentralized.

Organizing8
Authority is centralized. Authority is decentralized.

is narrowly defined. Authority is broadly defined.

Authority
Staffing People are selected on the basis of performance
People are selected on the basis of friend-
ship. criteria
Training is in many functional areas.
Training is in a narrowly defined specialty.

Leading
Managers exercise directive leadership. Managers practice participative leadership
Communication flow is primarily top-down. Communication flow is top-down, bottom-up,
horizontal, and diagonal
Controlling
Individuals exercise a great deal of self-control.
Superiors exercise strict control.
Focus is on financlal criteria, Focus is on multiple criteria.
 Management and Organization 1.33
Chapter 1: ntroduction to

However, the recognition of the importance of corporate culture is not new at all (a
though some management gurus want you to believe it is). Over 2,000 years ago, in 431
B.C., Pericles in ancient Greece eloquently urged the Athenians, who were at war with the
Spartans, to adhere to values such as those inherent in democracy: informality in com
munication, the importance of individual dignity, and promotion based on pertormance
Pericles realized that the underlying values might mean victory or defeat. These values
are not so different from those espoused by many U.S. companies.

LEADERSHIP PERSPECTIVE

How to Create a Value- and Ethics-based Organization Culture"

Hatim Tyabji was the founding chairman and CEO of VeriFone, Inc., from 1986 to 1998
when he established Saraide, a highly respected company in the telecommunication
industry. At the national meeting of the Academy of Management in Toronto in 2000,
Mr. Tyabji shared his experience in creating an organization based on ethical values. On
one occasion, it was brought to his attention that a manager with excellent performance
figures was engaged in malfeasance. Revealing this information would have a very
negative effect on the company's share price. Instead of hiding this information until the
next quarterly reporting. Mr. Tyabji. after checking carefully the facts, approached the
manager, who was in charge of a foreign operation, and fired him on the spot. Impressed
by this decision, the associates worked especially hard so that the quarterly projection
could still be achieved. What message did Mr. Tyabjil's decision communicate to the
employees of the company? This is a company with a culture in which performance, no
http://www.
saraide.com matter how impressive, cannot be achieved by unethical behavior.

The Influence of the Leader on Organization Culture

ValueAfainfy Managers, especially top managers, create the climate for the enterprise. Their values
permanent belief influence the direction of the enterprise. Although the term value is used differently, a
aboutwhatis value can be defined as a fairly permanent belief about what is appropriate and what is
appropriate and not that guides the actions and behavior of employees in fulfilling the organization's aims.
what is not that
Values can be thought of as forming an ideology that permeates everyday decisions.
guides the ac
tions and behav
many successful companies, value-driven corporate leaders serve as role models, set
iorof employees the standards for performance, motivate employees, make the company special, and are
in fufling the a symbol to the external environment. It was Edwin Land, the founder of Polaroid, who
organization's created a favorable organizational environment for research and innovation. It was Jim
aims. Treybig of Tandem, in the Silicon Valley near San Francisco, who emphasized that every
www.polaroid. person is a human being and deserves to be treated accordingly. It was William Cooper
com Procter of Procter & Gamble who ran the company with the slogan "Do what is right."It
www.pa.com was Theodore Vail of AT&T who addressed the needs of customers by emphasizing service.
It was Du Pont's CEO Woolard who initiated the "Adopt a Customer" program, through
which workers are encouraged to visit their customers monthly to find out their needs
and concerns. The organization culture created by corporate leaders can result in manage
rial functions being carried out in quite different ways.
1.34 Principles of Management
While the CEO must indicate the direction, some contend that change must come from
are
the bottom of the organization. At Du Pont's Towanda plant in Pennsylvania, people
to set their own
organized in self-directing teams. Employees have a great deal of freedom
Indicative
schedules, solve their own problems, and even participate in selecting coworkers.
of this culture is that managers are called facilitators rather than superiors.
Changing a culture may take a long time, even five to ten years. It demands changing
values, symbols, myths, and behavior. It may require, first, understanding the old culture,
then identifying a subculture in the organization, and rewarding those living this new
culture. Rewards do not have to be in financial terms. In Sharp's factory in Japan, top
performers are rewarded by becoming members of the "gold badge" team that reports
ww.gnarp directly to the president. At any rate, CEOs must symbolize the culture they want to pro-
World.com
mote
A clear vision of a common purpose elicits commitment. Moreover, when people par-
ticipate in the decision-making process and exercise self-direction and self-control, they
feel committed to their own plans. But espoused values need to be reinforced through
rewards and incentives, ceremonies, stories, and symbolic actions.

LEADERSHIP PERSPECTIVE

Transformational Leadership of Mother Teresa

When one thinks of powerful, transformational leaders, most people envision a political
or business leader but not an Albania-borm Catholic nun ministering to the poor in India.
Yet, Mother Teresa, the Nobel Peace Prize winner was introduced to the United Nalions
as the most powerful woman. She founded the Missionaries of Charity in Calcutta and
received India's highest civilian honor, the Bharat Ratna in 1980, the prize that was initi-
ated by President Rajendra Prasad in 1954 for services that recognize scientific,
literary
artistic and public service. She opened the first home for the dying in Calcutta in 1952.
Later, her order opened leper houses, hospices, orphanages and foundations in India,
Venezuela, Rome, Austria and other countries in Europe, Africa, Asia, and the United
States. Mother Teresa did not learn her organizational skills in any business school; she
probably never read a management book, but her vision and implementing it through
example, resulted in an organization that spread around the world with 610 missions in
123 countries at the time of her death in 1997. She even was a model for leadership
and compassion for Jery Brown, the former governor of California (2011) who worked
with her in the Home for the Dying in India.

The Technological and Innovative Environments35

[AU-EEE/Civil/Mech/ECE-Dec 2012, 8 marks]
Tochnnlony The One of the most pervasive factors in the environment is technology. The term technology
Sum folal of the refers to the sum total of the knowledge we have of ways of doing things. It inludes
knowledge we inventions and techniques, and the vast store of organized knowledge about everything
have of ways to from aerodynamics to zoology. But its main influence is on ways of doing things, on how
do things we design, produce, distribute, and sell goods and services. (Innovation can be discussed
 Chapter 1: Introduction to Management and Organization 1.35

the
through
technology.
study of economics, entrepreneurship, business, organizations, and

Invention and Innovation

Inventionisnvention and innovation are different. Invention is finding new products, processes, or
finding new ideas, or combining them. Commercializing them, results in innovation which we define
products, pro as the commerciolization of new products, services, processes, or ideas. Innovation is not
Cesses, or ideas, a one-time event; to be successful, it has to be continuous. Apple, one of the most in-
hemnovative
them. companies, started with the computer, continued with the iPod, the iPhone and
the iPad. Similarly, Amazon started with books, continued with the Amazon Reader, and
Inmovationis now offers the Amazon Fire that could be a low-cost alternative to the iPad. Typewriters
h coneprogressed to computers using, for example, Microsoft Word. In the past, television view-
clalization of
ers in the United States essentially had to choose from three networks, ABC, CBS, and
new products,
Services, pro- NBC. Now they can choose from many cable or satellite providers. Moreover, consumers
cesses, orideas. can now also view YouTube by Google and similar offerings by other companies on
television.

Product, Service, and Process Innovation

One can distinguish between product innovation as illustrated by Apple, service innovation
such as Apple's iTunes, and process innovation. The latter can be exemplified by Toyota
which was able to produce high-quality cars effectively and efficiently.

Incremental and Breakthrough/Disruptive/Radical Innovation

Incremental By incremental innovation we mean the use of existing knowledge, making changes or
innovation is continuous improvements of existing products or services. We point out that the Japanese
the use of exisl are known for the kaizen approach which is a continuous effort to make products, ser-
ng nowede vices, and processes better, more effective and efficient by reducing cost or improving
nakung cnanges quality. Companies, such as Google, may have been breakthrough innovators but then may
or continuOus
improvements of continue with incremental innovation by introducing new products or services which are
existing products not necessarily radical. Other established enterprises may not want to radically change the
or services. existing organization or power structure and may opt for incremental innovation.
Incremental innovation approach involves continuous improvement by using Six Sigma
which aims at reducing defects, improve quality, and consequently increase consumer sat
isfaction. In statistical terms, Six Sigma means a failure rate of 3.4 parts per million. The
Six Sigma approach involves the following steps: First, define the issue by, for example,
listening to customer complaints; second, measure the process, third, analyze the data, by
for example, identifying the cause-and-effect of a problem; fourth improve the situation by,
for example, conducting a brainstorming session, and fifth, control through, for example,
statistical process control or documenting a process. 26

Disruptive or Disruptive or breakthrough innovations are new and radical and may use new methods,
breakthrough materials, products, or services. Apple's iPod and iPad are recent examples. The introduc-
innovationsare tion of the low-cost Swatch in the 1990s disrupted the expensive "watch-as-jewelry"
new and radical market. Ford's Model T mas-produced car is another illustration of breakthrough innova-
and can USe
tion from earlier times and digital imaging disrupted the film-based photography market.
new methods,
materal, prod Innovation can be risky. Michael Treacy reported in the Harvard Business Review that
ucts, or services. breakthrough innovation is risky and may be less effective than incremental innovation.37
1.36 Principles of Management

The Ecological Environment

Ecology TheManagers must take into account the ecological factors in their decision-making. By ecol-
relatonshioof ogy we mean the relationship of people and other living things with their environment,
people and other such as soil, water, and air. Land, water, and air pollution is of great concern to all people.
IVng things WIun Land may be polluted by industrial waste such as packaging. Water pollution may be
their environ
ment caused, for
example, by hazardous waste and sewage. Air pollution can be caused by a
variety of sources, such as acid rain, vehicle exhaust fumes, and carcinogens from manu-
facturing processes.
A variety of legislation has been passed dealing with solid waste, water, and air pollu-
tion. Managers must be keenly aware of these laws and regulations and must incorporate
ecological concerns into their decision-making.
In order to protect the environment, European countries developed the lISO 14001
standard to assure that company policies address a variety of public concerns, including
pollution prevention and compliance with relevant laws and regulations. Since the adoption
of ISO 14001 in 1996, some 10,000 companies had registered by the year 2000. Although
the standard had a slow start in the United States, it received a boost when Ford
Motor
Company certified all its facilities around the world as conforming to ISO 14001.33 Other
companies such as General Motors, IBM, and Xerox followed. The standard was valuable
to Ford for reducing water consumption, disposed paint sludge, and
disposable packing
materials.
More recently, ecological concerns have focused on climate change and global warming.
Global warming refers to the increase in temperature of the Earth's atmosphere and oceans
www.am.com that is believed to be caused by the human creation of excess carbon dioxide. The increase
in temperature may lead to rising sea levels and an increase in extreme weather.3" Manag-
ers must now consider how their products and production processes impact the earth's
climate over the long term and seek ways to minimize any negative consequence of their
firms' activities.

LO5Current Trends and Issues in Management

The performance of the business organizations and managers is always influenced by the
current trends and the challenges they face on the job front. Even the customers are well
informed today and they have absolute information about the prices and the quality range
available in the neighborhood, thanks to technology and media. This is the scenario at the
micro level. It is not less challenging to deal with the trends at the macro level. Trends,
such as globalization, technology etc., have been changing the rules of the game and the
leaders need to watch carefully how to ensure that the best of the goods and services are
delivered in terms of price and the quality. This section explains the prominent trends0
affecting the business organizations and how they should cope up to sustain and stay at
the top.

Trend : Globalization
Globalisation as a major trend was already discussed on page 1.1. In the recent past,
the business has been increasingly boundaryless with barriers among nations collapsing
 Chapter 1: Introduction to Management and Organization 1.37
resulting in increased
interconnectedness,
changed the world order technology driven operations. This trend has
has become more flat
impacting the global business
significantly. The business arena
where developments in one
parts of the world to have a part of the world impact the other
in this direction. The spiraling impact. The recent financial crisis is one
example
organizations started scouting for talent for global
larger complexity. There has been an increase in competencies
handle the situations of to

through licensing agreements, management exports/imports

and subsidiaries. contracts, joint ventures and strategic alliances

Trend 2: Technology
It is already mentioned that
tion
technology is one of the future trends
page 1.7. Informa-
on
technology was the key driver of
globalization for far-reaching and powerful
wave
changes in business. Technology plays a crucial role in
the customers, managing the every activity such as engaging
of the marketing,
supply chains via websites, social media,
emails; taking care
production and distribution processes through real-time information
systems, enabling staff to see, hear each other at the work desk
and work for 12 time
zones. There is no area in the
the underlying current in
society not touched by technology.
Technology has been
every walk of life.

Trend 3: Sustainability and Corporate Social Responsibility

The government and corporate have been focusing on sustainability whether it is in
or profits from business. planet
Management principles are widely applied to address the
social issues such as environmental complex
sustainability, energy security, access tohealthcare,
etc.
There has been increased attention for
interdisciplinary interaction and this has tremen-
dously impacted every business and management practices. The corporate intensified their
CSR focus to address the societal issues. From
corporate philanthropy, there has been shift
in the corporate to more direct and effective
engagement and this devised new model of
extending a social footprint.
Several projects with social impact ranging from
cleaning up a river to women empower-
ment to saving animals are being consideredfor corporate funding. One of the testimonies
-for this trend is the recent guideline under The Companies Act, 2013 in India that
every
corporate (with an annual turnover of 1,000 crore INR and more, or a net worth of 500
crore INR and more, or a net profit of 5 crore INR and
more) has to spend 2% of its aver-
age net profits in the previous three years on CSR activities.

Trend 4: Integrating Psychology Theory and Research into

Management Practice
Both the practice of business and welfare of the society are governed
by how well you
probe into cognition, motivation, behavior and performance. An analysis of both individual
and institutional psychology constitutes the backbone for all activities
ranging from em-
ployee management to social engagement. The current focus is more on how psychological
theory and research can be integrated into business academics and management practice.
1.38 Principles of Management

The managers today are better equipped with the tools and access to ever-growing in-
formation databases to substantially improve the quality of experience for the customers
and the quality of life for the citizens.

Trend 5: Business Ecosystems

Several firms or groups of them today specialize in providing complex products and re-
lated services to meet end-to-end
requirements of users in the value chain with apt use
of technology. The societies having such a
ecosystem will develop faster. One example for
business ecosystem is the integration among media,
technology and telecommunication
firms to offer better and quality services. The business
ecosystem rests on multiple
and
complementary platforms. To make the business ecosystems more innovative, it calls for a
collective action both to invent and appraise efficient,
cross-organization knowledge flows,
modular architectures, and good stewardship of
legacy systems.
Of late the number of companies
building and tuning their innovation engine success-
fully is on rise. Here are the four
trends shaping the future and the strategies how to
respond. Those who understand and equip themselves to take advantage of these trends
will gain substantially over slow footed or unaware.

Trend 6: Cross-functional Teams

'Silos' in the organization are no more boundaries. The
functional departments, such as
R&D, marketing, finance, planning, account services, and creative all
seem to understand
that to excel and move towards
innovation, they should sit together and think
beyond their traditional and routine activities. Small and cross functional teamssomething
driving strategic products,
are today
services and new business models in both and small
tions alike. organiza-

Trend 7: Outside-in Innovation

People within the organization are constrained with their
personal experiences and per-
spectives and often fail to see the opportunities within the
challenges. Many innovative and
priceless ideas likely to be around the experienced executives go unnoticed. The
innovation in-house
strategies
of the
organization, in many cases, are questioned. To address such
problems, the current focus is to create the culture
of learners instead of knowers.
The most promising organizations such as P&G
encourage their staff to see opportunity
in every challenge; empower them to find
expertise outside the company and this trend
has been largely responsible for increased
success rate, lower costs and
market. Open innovation is the current trend. For greater speed to
instance, a few years ago, A.G. Lafley,
CEO, Proctor and Gamble (P&G) declared 50% of their innovation must
not from R&D. Such innovative
come
through R&D,
approaches help to address specific technical
increase excitement and momentum, shift challenges,
perspective and ensure that the organization
learns from its mistakes and does not repeat the same.
Learning from our mistakes is
intelligence, learning from others' mistakes is wisdom.
 Management and Organization 1.39
Chapter 1: Introduction to

Trend 8: Leveraging Social Media

Social media, encompassing Face Book, Twitter, Linkedin and many such less familiar social
communication with
platforms, has emerged a platform for promoting insights, ideas, and
increasing number of online communities. The services of online influencers are being
increasingly sought to create new business models. These online
products, services, or
influencers emerged as the instant brand ambassadors for a given product or service. The
social media tracking tools made the job relatively simpler researchers and marketers get
access to optimize targeting, messaging, and new product ideas.

Trend 9: War Games

of
With the rapid pace of new technology, it is possible for a start up to change the rules
the game overnight. Orbitz, Dyson, EBAY are a few examples in this direction. The CEOs
are always on their toes to ensure that they do not miss something that will put them
out of business sooner or later.
The new trend in innovation is the use of war games. War games are no more inter

nal usually modification of the

a TOWS (threats, opportunities, weaknesses and
popular
team of people and get them access to all re-
strengths) analysis. Engage,, a really smart
it can
search and direct contact with every department head in the organization so that
take an objective crack at building a product, service, or business model that would rock
source of generating industry-changing ideas.
your world. War games constitute the only
As a manager, your job is to serve as a catalyst and coach to promote innovation removing
all the barriers and inertia that come in the way. Ensure that you ground in the executives
across the hierarchies in the organization a deep sense of activism for innovative thinking
and new ideas. They get focused on the end goals instead of focusing on the greater glory
of their own department.

LO6 Issues in Management12

which has been
Business dynamics is very difficult to predict and master. The company
be today. This is evident from today's
very successful yesterday need not necessarily
The examples include
bankrupt companies which were the yester years' corporate giants.
business dynamics also has been
galore including General Motors (GM) and Chrysler. The
changing pretty fast. Earlier such low performing companies, despite several rise and falls,
managed to stay intact, sell products and services, generate customer loyalty, and de-
its
liver a return to shareholders. Today, it is not enough. What you require to understand
those forces have redefined the
is about the forces shaping this new economy and how
requirements for outstanding leadership.
Today the leaders feel that they did not experience so far the scale and the complexity
in a flatter world. Business
of change that they face today. Businesses face competition
cannot be any more isolated from the global
issues such as terrorism, pirating, climate
are changing. Large numbers of
change, and pandemic disease. Employee expectations
women are in jobs now across
the developing countries. The ratio of women to men in
the workforce is increasing. Communication patterns are changing with impact of rapid
advancements. All such social forces shape the new work environment.
technological
1.40 Principles of Management

In this scenario, to be successful, the leaders have to simultaneously monitor these

forces, measure their impact, and create new opportunities in a proactive manner. Ihe
new rules of business demand leadership at the speed of thought and the capacity to

build measured, decisive, and inventive teams. Here are some operating tenets that guide
leaders to survive the storm of economic, global, political and social
change
1. Expand the number of radar screens to quickly build the capacity for discerning
what to ignore and what is critical to address.
2. Be ready to face the risky situations. Develop leaders who are decisive and good
at taking calculated risks.
3. Identify your challenges accurately and focus so that precious time, energy, and
resources are not wasted exploring issues that would not advance the business.
4. Empower the front-line staff, such as those in charge of customer care, etc. Cus-
tomers have today unlimited choices and unless they are taken care of, they will
not stay loyal to the brand.
5. Fix the mistakes quickly, focus on learning and keep moving forward. Don't lose
time in pointing out fingers, blaming for failure, etc.
6. Promote healthy level of trust and transparency between the leaders and the
teams. Ensure that everyone works from the same platform of information.
7. ldentify the smart and passionate candidates to handle critical roles and then sup
port for their career growth and development.
8. Effective communication is the key at every level. Do not take it for granted that
your team has understood everything. Cross check and ensure that there are no
communication gaps or distortions. Make use of the real-time communication at all
levels across the variety of communications platforms and social networking sites
like Twitter, Facebook, and Linkedlin.
9. Be a good role model and impart a sense of confidence about the future by dem-
onstrating robust values. Engender trust in the workforce and operate from a base
of passion to generate excitement and enerey (this is a very powerful combination)
throughout the organization.

CASE

Innovation Case The Most Innovative Companies in the World

The FastCompany publication identified some 50 companies in the world that are known for innovation,

from Google to Philips. Selected companies and some of their innovations are shown in mind map
ranging
in Figure 1.7. We will discuss two of those companies.

Google lllustration
for Google search, the most widely used search engine on the World Wide
Google is probably best known
Web. But there are many more recent and lesser-known innovations. Google Glass is a wearable computer

that is worn like a pair of eyeglasses. It displays information simllar to the smartphone and
with a display
communicate with the Internet. Then there is the autonomous car or self-driving car which drove
can
without an accident. The project involves some ten
cars from Toyota, Audi, and Lexus.
500,000 miles