Chapter

1
Nature and Significance
of Management
NCERT Question

Very Short Answer Type Questions work in the organisation? What are her basic
1. What is meant by management? functions?
OR Ans. Ritu is working at the middle level of
Define management. management. Her basic functions are (number
of functions should be given according to the
Ans. The management is a single or group of
marks allotted for the question).
individuals who challenges and oversees a
1. Conveying the policies formed by the
person or collective group of people in efforts to
top level management and acting as a
accomplish desired goals and objectives.
link between top level management and
2. Name any two important characteristics of
operative/lower/supervisory management.
management.
2. Assigning duties to the subordinates.
Ans. Continuous and Pervasive.
2. State the basic features of management as a
3. Identify and state the force that binds all the
profession.
other functions of management.
Ans. Coordination is a binding force that integrates OR
the individuals’ efforts for the accomplishment Discuss the basic features of management as a
of the common organisational goals. It is a profession.
process by which the activities of different Ans. Basic features of management as a profession
departments and units get synchronized for the are as follows:
achievement of the organisation’s goals. (i) Well-defined Body of Knowledge: All
4. List any two indicators of growth of an professionals focus on well defined body of
organisation. knowledge as they contain some rules and
Ans. Indicators of Growth of an organisation are: regulations.
1. Growth in sales volume (ii) Professional Association: They are
2. Increment in the capital investment associated with various associations for
5. Indian Railways has launched a new broad practicing managers in India, like the AIMA
gauge solar power train which is going to be (All India Management Association) that
a path breaking leap towards making trains has laid the code of conduct to regulate
greener and more environment friendly. The the activities of their members. It is not
solar power DEMU (Diesel Electric Multiple compulsory for managers to become a part
Unit) has 6 trailer coaches and is expected to of these associations.
save about 21,000 liters of diesel and ensure a (iii) Service Motive: All business organisations
cost saving of `12, 00,000 per year. aim to provide good quality product or
Name the objectives of management achieved service at a reasonable price thus serving
by Indian Railways in the above case. the society and focusing on welfare.
Ans. The objective achieved by the Indian Railways Thus, we can say management does not meet
in the given case is Social objective. Social the exact criteria of a profession but it has some
objectives involve creation of benefit by features as a profession.
assuring health, safety and price control to the 3. Why is management considered to be a multi-
society. This involves creating economic value dimensional concept?
consistently for the society as a whole. Ans. Management is considered as a multi-
Short Answer Type Questions dimensional concept because it is a complex
1. Ritu is the manager of the Northern division of activity that has three main dimensions. These
a large corporate house. At what level does she are:

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2 | CBSE NCERT Question Business Studies– XII
(i) Management of Work: Every organization In such a case, there may arise a conflict between
focuses on work and how the work will be the two departments. Coordination is needed to
processed e.g., producing or selling. A work synchronise the activities of each department
is defined as the goals or objectives which towards the achievement of common goals of the
needs to be achieved. organisation. For instance, in the given situation,
the various departments rather than blaming
(ii) Management of People: The main element
each other should work by coordinating with
of the organisation is the people who will
each other and work collectively to improve
work and accommodate the process. This
company’s position with regard to profit
resource has to be managed in such a
margins and market share.
manner that it helps to achieve the goals and
objectives of the organisations. The following steps can be taken by the
management to bring the company back on
(iii) Management of Operations: All organisa-
track:
tions either produce a product or provide a
service. This requires a production process 1. The market should be analysed carefully
which means using an operation to convert and the demand must be analysed such that
the inputs into the output, therefore is the products can be amended accordingly.
interlinked with both management of work 2. The quality of the products must be
and management of operations. improved.
4. Company X is facing a lot of problems these 3. The various products and their features
days. It manufactures white goods like washing should be marketed well.
machines, microwave ovens, refrigerators 4. Customer satisfaction should be worked
and air conditioners. The company’s margins upon through measures such as customer
are under pressure and the profits and care services and feedback.
market share are declining. The production 5. Each of the departments must be motivated
department blames marketing for not meeting to work collectively towards the common
sales targets and marketing blames production goals of the organisation rather than
department for producing goods, which indulging in a blame game.
are not of good quality meeting customers’ 5. Coordination is the essence of management.
expectations. The finance department blames Do you agree? Give reasons.
both production and marketing for declining Ans. Coordination is a function that is inherent
return on investment and bad marketing. State and pervasive. Coordination is not a separate
the quality of management that the company is function of management. It is the essence of
lacking? What quality of management do you management. The coordination is needed to
think the company is lacking? perform all the functions of management. They
Explain briefly. What steps should the company are:
management take to bring the company back (i) Coordination in planning: Coordination
on track? is needed between overall plan of the
Ans. As per the given situation, the quality of organisation and the departmental plans. It
management lacking in the organisation is is needed between objectives and available
coordination. This can be determined from the physical and human resources.
example that various departments blame each (ii) Coordination in organising: Coordination
other for the fall off in profits and market share is required between resources of an
of the company. Coordination refers to a path by organisation and activities to be performed
which the group functions get interconnected. and among authority, responsibility and
It binds the people of the organisation and accountability.
their activities to make a functioning of the (iii) Coordination in staffing: In staffing,
work smooth. It is that force which unites
coordination is needed between the skills of
the working and efforts of the people of the
the workers and the jobs assigned to them
organisation towards the common objective and between the efficiency of the workers
of the organisation. It links the interrelated and the compensation, etc.
functions of management. Every organisation
(iv) Coordination in directing: Coordination
has various departments and sub-departments
is required among orders, instructions,
such as production, sales, finance, etc. There is
guidelines and suggestions. Coordination
an independent working of each department
is required between superiors and
according to their own policies and objectives.

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 Nature and Significance of Management | 3
subordinates, e.g. a manager instructs the available on management and its branches
subordinates, motivates them and also – finance, marketing, human resource, etc.
supervises their work. (ii) Personalised Application: The use of
(v) Coordination in controlling: Coordination knowledge differs from one particular
is required between the standard and individual as it is based on theories and
the actual performance. Coordination is behaviour. Two painters, two dancers or
required between correction of deviations two singers all use their knowledge and
and achievement of objectives. creativity in their own way. Same way two
Management function revolves around managers who have acquired the same
making, arranging things, moving things knowledge may use it in their own different
in an organisation in relation to overall ways to get the work done.
objective of the organisation. Thus, (iii) Based on Practice and Creativity: All art is
coordination can be considered as the core practical. It involves creative practice and
function of management which ensures that regular consistency. The more we practice
all the factors in the business work together it, better we become at it. Without practice
smoothly. artists lose their perfection. It also requires
creativity.
6. Ashita and Lakshita are employees working
in Dazzling enterprises dealing in costume Same way a manager applies his gained
jewellery. The firm secured an urgent order for knowledge in a unique manner. More practice
1,000 bracelets that were to be delivered within makes him a better manager and he also
4 days. They were assigned the responsibility develops his own style of management.
of producing 500 bracelets each at a cost of `100 Management is an In-exact Science:
per bracelet. (i) Systematic Body of Knowledge: Science
Ashita was able to produce the required is a systematised body of knowledge. Its
number within the stipulated time at the principles are based on cause and effect
cost of `55,000 whereas, Lakshita was able to relationship, and it is universal in nature
produce only 450 units at a cost of `90 per unit. as these are the principles which focus on
experiments and they are proven to be truth
State whether Ashita and Lakshita are efficient
e.g., water evaporates on being heated. Same
and effective.
way management is a body of systematized
Give reasons to justify your answer. knowledge. All managerial principles have
Ans. Ashita is effective, but not efficient because cause and effect relationship.
Ashita completed the task on time but at a (ii) Principles Based on Experimentation:
higher cost. Effectiveness involves completing a Scientific principles are first developed
given work in the required time with a focus on through observation and then tested
the end results. through repeated experimentation. Same
Whereas, Lakshita is neither efficient nor way management principles are also
effective because Lakshita did not complete the propounded after observation and repeated
target at all. Even though she produced the units experimentation as they also have a
at a lower cost, but not achieving the target will database for representing a particular type
make her inefficient and ineffective. of behaviour.
Long Answer Type Questions (iii) Universal Validity: All scientific principles
1. Management is considered to be both an art have universal validity, as they are
and science. Explain. propounded by certain elements of
Ans. Art is the skillful and personal applications of behaviour and condition. They give same
existing knowledge to achieve desired goals and result wherever applied.
objectives. Principles of management do not have
Management is considered as an art due to the universal validity. They have to be adjusted
following reasons: and applied according to the need and
(i) Existence of Theoretical Knowledge: All art behaviour of the situation.
subjects are based on theoretical knowledge, Thus, management is an in-exact science.
as their exists number of theories and 2. Do you think management has the
principles and conventions. For e.g., various characteristics of a full fledged profession?
books on ‘ragas’ are available in music. Ans. No, management doesn’t have all the
In the same way, there is lot of literature characteristics of a full fledged profession.

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4 | CBSE NCERT Question Business Studies– XII
The reasons are as follows: task on time or within the stipulated time frame.
It is concerned with end result, it is achieved
(i) Well-defined Body of Knowledge: All
or not. Efficiency means doing the work
professions are characterised as a well-
correctly and with minimum cost. If by using
defined body of knowledge that can be
less resources more benefits are derived then
acquired through adapting teaching–
efficiency has been increased. It is thus essential
learning process. This feature of a profession
for any organisation to focus on efficiency as
is possessed by management as well. There
well as effectiveness. It is not only important
is vast knowledge available in management
to complete the work correctly but equally
in the form of definitions, concepts, theories,
important to complete it with minimum cost.
principles but that too can be adapted with
In the same manner, it is not only important to
regular practice and functioning etc.
reduce cost but equally important to complete
(ii) Restricted Entry: All professions have a
the work correctly.
restriction on the entry of its practitioners, as
Thus, in real work situations, it is important for
they have to bear the specialised knowledge.
a manager to be both efficient and effective.
They have to acquire a specific degree to be
professional e.g., LLB for a lawyer, MBBS for 4. Management is a series of continuous inter-
a doctor, etc. But a manager can be an MBA related functions. Comment.
qualified or not therefore it cannot be fully Ans. Management is a series of continuous inter-
organized. related functions. Each one of them is performed
(iii) Professional Association: All professions to guide and direct the efforts of others.
are affiliated to a professional association The functions are:
which regulates entry, grants certificate of (i) Planning: Planning is the primary function
practice and formulates a code of conduct of management which runs through all
e.g., all lawyers to get registered with Bar of other functions. It is the process of thinking
Council to practice law. It is not compulsory before doing. It creates a benchmark or
for all managers to be a member of AIMA.’ blueprint to proceed further. It focuses
(iv) Ethical Code of Conduct: All professions are on more wider concept of objective which
bound by an ethical code of conduct which needs to be fulfilled. As it bridges the gap
likely guides the behaviour of members. But between where we are in the present and
as it is not compulsory for all managers to where we want to go in the future.
be members of AIMA, they all may not be (ii) Organising: It is the process of defining
aware of the prescribed code of conduct of the formal relationship among people and
AIMA. resources to accomplish the desired goals, it
(v) Service Motive: Basic motive to serve makes planning execution. It involves:
their client’s interest is welfare, it is the (a) Identification and division of work
most important aspect of management e.g., (b) Departmentalisation
lawyers to get justice for their clients, doctors (c) Assigning of duties
to treat the patients etc. All managers also (d) Establishing reporting relationships
work in a manner through which they show (iii) Staffing: Human resources make goal to
their effectiveness and efficiency in the be achieved only through human efforts.
form of good quality goods provided to the It is the duty of management to make the
customer at a reasonable price. best possible use of this resource. Thus,
Thus, management possesses some placing the right person on the right job at
characteristics of a profession but not all. right time is very important. Staffing helps
3. “A successful enterprise has to achieve its goals management to motivate, select and place
effectively and efficiently” Explain. the right person on the right job.
Ans. “A successful enterprise has to achieve its goals (iv) Directing: Directing involves leading,
effectively and efficiently”. Thus, management influencing, supervising, communicating
has to see that tasks are completed and goals are and motivating employees to perform
achieved with the minimum resources. the tasks assigned to them. It requires
Management is thus getting things done with establishing an atmosphere that encourages
the aim of achieving objectives effectively employees to do their best. Directing
and efficiently. Being effective or doing work comprises of four elements; supervision,
effectively basically means finishing the given motivation, leadership and communication.

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 Nature and Significance of Management | 5
(v) Controlling: Controlling function which 2. It must ensure quality of the work while
focuses on monitoring organisational minimising the wastages.
performance towards the attainment of 3. It must motivates the workers to work
organisational goals. It means comparing towards the achievement of the common
actual performance with planned perfor- objectives.
mance. The task of controlling involves. 6. A firm plans in advance and has a sound
(a) Establishing standards of performance, organisation structure with efficient
(b) Measuring actual performance, supervisory staff and control system but on
(c) Comparing it with established several occasion it finds that plans are not
standards, being adhered to. It leads to confusion and
(d) Taking corrective action. duplication of work. Advise remedy.
5. A company wants to modify its existing Ans. The main aspect that needs to be worked upon
product in the market due to decreasing sales. in the organisation is coordination.
You can imagine any product about which you Coordination is the force which synchronise all
are familiar. What decisions/steps should each the functions of management and activities of
level of management take to give effect to this different departments.
decision? Coordination means linking the functions of
Ans. In order to modify the existing product in the groups and individuals. It binds the activities of
market, the following decisions/steps should be employees to ensure the smooth functioning of
taken by each level of management. the organisation.
Top Level Management: 1. The various management functions must
1. The top level managers must analyse the be linked with strong coordination to avoid
market and modify the product accordingly. any confusion in the work.
2 It should work by coordinating the activities 2 Every level of management from the
of the various departments towards the planning stage, where the objectives are set
common goal by modifying the product. must be coordinated with each other. Next,
3. It must organise various resources that are it is required between the planning stage and
required for the achievement of the objective the staffing stage, so that the right people
of modification of the product. are hired. After that, functions of directing
Middle Level Management and controlling must be coordinated with
1. The middle level managers must work each other.
towards executing the plans framed by the 3. It must be ensured that interdepartmental
top level management. conflicts are avoided. The wok of each of the
2. They must organise the personnel required departments, must be synchronised.
for implementing the plans and strategies. 4. It must be ensured that the proper
3. The personnel must be assigning the duties direction and motivation are being given
according to the plan and it must be ensured to the workforce to avoid any chaos and
that the work is being done accordingly. duplication of the work.
Operational Level: 5. It must be focused that the personal goals
1. The operational level management must of the individuals are synchronised with the
provide instructions properly to the workers overall objectives of the organisation and
and provide guidelines to them to work the plans are properly adhered to or not.
smoothly.


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 Chapter
Principles of Management
2
NCERT Question

Very Short Answer Type Questions Ans. The principle of management followed by
1. What makes principles of management Wales Limited is 'Stability of Personnel'.
flexible? This principle states that no frequent termination
Ans. Management principles are not rigid as they are and transfer should be made. Enter and exist
the determined guidelines which can be used in the organization must not be frequent. This
by the managers according to the situations. principle ensures the stability of personnel over
They are flexible enough to be used and a longer period.
moulded by the manager as per the need of the 6. Which technique is used by Taylor for
hour. Moreover, individual principles are like distinguishing efficient and inefficient
different tools serving different purposes, the workers?
manager has to decide which tool to use under Ans. The technique used by Taylor for distinguishing
different circumstances. efficient andinefficient workerswas“Differential
2. State the main objective of time study. Piece Wage System”.
Ans. The main objective of time study is to set a Under this technique, wages are being decided
standard time limit for completing a particular according to the set standard. The workers who
job. The time taken for completing the job is perform better than the set standards get higher
measured for setting the standard time limit. wages in comparison with the workers who
This helps to decide the number of workers to perform below the standards.
be employed for a particular task, determine Short Answer Type Questions
their wages, etc. 1. How is the Principle of ‘Unity of Command’
3. Name the principle that is an extension of the useful to management? Explain briefly.
‘harmony, not discord’. Ans. ‘One boss on every subordinate’ this is the
Ans. The extension of the principle 'Harmony, not objective of this principle, which says that
discord' is ‘cooperation, not individualism’. subordinate should be integrated with the help
Cooperation among the managers and the of its superior i.e. one boss on one subordinate.
workers is focused in this principle, rather than Orders and instructions should come from only
their individual interests. The managers should one head hence, dual subordination should be
take care of the workers, so that the workers avoided.
should work willingly, and give their best This helps the working of any organisation in
contribution to the company.
the following manner:
4. State any two causes of fatigue that may create
1. Subordinate-superior relationship is clearly
hindrance in the employee’s performance.
defined.
Ans. Two causes of fatigue that may create hindrance
2. Subordinates are known to whom they are
in the employee's performance are:
accountable and responsible.
1. Long working hours,
3. Maintenance of order and discipline.
2. Uncordial relations with the boss or bad
working conditions. 2. Define scientific management. State any three
of its principles.
5. SanakLal and Gagan started their career in
Wales Limited (a printing press) after going Ans: Scientific management can be defined as
through a rigorous recruitment process. knowing exactly what the objectives are and
Since they had no prior work experience, what you want from people to do for the
the firm decided to give them one year to particular work and they do it in the best and
prove themselves. Name the principle of cheapest possible way or method which could
management followed by Wales Limited. be efficient and effective.

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 Principles of Management | 7
Scientific management aims at choosing the best an organisation, which principle is violated?
method to get the maximum output from the What are the consequences of it?
workers, the principles of scientific management Ans. The principle which is violated here is ‘order’, if
are mainly applicable to the shop-floor level i.e. an organisation does not provide the right place
the lower level. for physical and human resources.
Three principles of scientific management are If this principle is violated then.
as follows: (i) Wastage of time and efforts,
(i) Science, Not Rule of Thumb: When
different managers use their own different (ii) Delayed decisions,
methods to get the work done as they (iii) Wastage of energy which will lead to delay
have their own outlook and perception to in production,
deal with things behaviourally, it is rule (iv) Causes hindrance of various activities of
of thumb not hit and trial method. Taylor business.
believed that there is only one best method
4. Explain any four points regarding significance
to maximise efficiency. Taylor advised that
every—organisation should compare the of principles of management.
results of different methods, and make that Ans. Significance of principles of management are as
method to be used repetitive so that when so follows:
ever the situation arrives that method could (i) Providing Managers with Useful Insights
be used to solve the concerned problem, test into Reality: Managers focus on more
them again and again and finally select one
realistic attitudes as they are full fledged
best method of getting the work done.
(ii) Harmony, Not Discord: Managers are an with their knowledge, ability and under-
extension of the management and serve as standing of managerial situations and
a link between workers and the owners. circumstances. This improves managerial
Management should share the gains of the efficiency e.g., when managers use
company with workers on part of workers, delegation as a tool then they get more time
they should work hard with loyalty and to concentrate on critical areas of working.
discipline. Often times the relation between (ii) Scientific Decision Making: Management
them is spoilt which is very harmful for
principles help in thoughtful decision
everyone-workers, managers and owners as
it will lead to conflicts and make the things making, as they focus on facts and logical
worst on the part of management. This class reasons rather than illogical presumptions.
conflict should be replaced by harmony They emphasise on logic rather than blind
between the two. Both should change their faith. Here, decisions are based on the
thinking towards each other. Both should objective assessment of the situation.
realise and give importance to each other. (iii) Optimum Utilisation of Resources and
This is known as mental revolution. This Effective Administration: Principles help
is the most important concept as it leads to
the managers to conceptualise the net
less conflicts.
(iii)Co-operation, Not Individualism: There effect of their decision rather than going for
should be complete co-operation and trial and error method resulting in saved
coordination between the workers and the time, efforts and energy thereby increased
management instead of individualism as productivity.
their exist the collective responsibility of (iv) Management Training, Education and
worker as well as their management. This Research: Principles of management are
principle is an extension of the principle of
the base for management theory. As such
‘Harmony not discord.’ The management
they are used as a basis for management
and the workers should not compete with
each other rather they need to coordinate training, education and research. These
with each other. Management should principles provide basic groundwork for
consider all good suggestions and initiative the development of management as a
made by the employees which effects subject. Professional courses like BBA, MBA
efficiency. At the same time, workers should also teach these principles as part of their
never think of going on curriculum.
in order to get their unreasonable demands
5. Explain the principle of ‘Scalar Chain’ and
fulfilled.
Gang plank.
3. If an organisation does not provide the right
Ans. Principle of Scalar Chain and Gang plank: The
place for physical and human resources in
chain of authority from the highest to the lowest

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8 | CBSE NCERT Question Business Studies– XII
ranks which help in formal communication Long Answer Type Questions
are known as scalar chain. According to Fayol, 1. Explain the Principles of Scientific
“Organisation should have a chain of authority Management given by Taylor.
and communication that runs from top to Ans. Principles of scientific management given by
bottom and should be followed by managers FW Taylor are as follows:
and subordinates.” (i) Science, Not Rule of Thumb: When
In the given diagram, O is heading 2 teams, different managers use their own different
where A and X are at the same level, B and Y methods according to the behaviours and
are at the same level and C and Z are at the the situations to get the work done, it is
same level. The line of communication is clearly rule of thumb. Taylor emphasized that there
defined A to B to C and X to Y to Z. Authority was only one best method to maximise
responsibility relationship is also very clear. efficiency, he even focuses on avoiding hit
But C and Z cannot directly contact each other and trial method. Taylor advised that every
directly. This at times may take lot of time organisation should compare the results
during an emergency to communicate as per the of different methods, test them again and
prescribed flow, to avoid this problem a system again and finally select one best method of
known as ‘Gang Plank’ was introduced where in getting the work done.
C or Z could contact each other and same way B (ii) Harmony, Not Discord: Managers are an
and Y could contact each other. extension of the management and serve as
O
a link between workers and the owners.
Workers have to take the instructions from
the managers and managers have to get the
A X work done through the workers. Sometime
the relation between them is spoiled, which
B Y is very harmful for everyone—workers,
managers and owners. This class conflict
should be replaced by harmony between
the two. Both should change their thinking
C Z towards each other. This is known as mental
6. A production manager at top level in a reputed revolution.
corporate, Mr. Rathore holds the responsibility (iii) Co-operation, Not Individualism: There
for ordering raw material for the firm. While should be complete co-operation between
deciding on the supplier for the financial year the labour and the management instead of
2017-18, he gave the order to his cousin at a individualism. This principle is an extension
higher price per unit instead of the firm’s usual of principle of harmony, not discord. The
supplier who was willing to lower the rates for management and the workers should not
the order. Which principle of management was compete with each other rather co-operate
violated by Mr. Rathore? What are the positive with each other. Management should
impacts of following the above identified consider all good suggestions made by the
principle? employees which can help in cost reduction.
Ans. The principle of management which was At the same time workers should never
violated by Mr. Rathore is 'Subordination of think of going on strikes in order to get their
individual interest over the general interest'. unreasonable demands fulfilled.
He pursued his own interest by providing the (iv) Development of Each and Every person
supply order to his cousin at a higher price but to His or her Greatest Efficiency and
not to the supplier instead of general interest. Prosperity: Scientific management also
And as a result, this led to achieving his personal stood for worker development. Taylor
goal but not the organisational goal. believed that workers should be aware
The positive impacts of following the above of the ‘best method’. On the other hand,
principle are: all organisations should select employee
(i) Helps in increasing productivity, carefully in order to get maximum efficiency.
(ii) Harmonious work culture, and When the duties are allotted, perfect match
(iii) Sense of belongingness and coordination to should be made between the requirements
the organisation among employees. of the job and the capabilities of the worker.
(iv) Helps in achieving organisational goals. Training should be provided to improve

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 Principles of Management | 9
the skills further. In this way, efficiency will team should give credit of good result to
go higher resulting in prosperity for both the whole team rather than confining it to
workers and company. his ownself, i.e. “I” should be replaced with
2. Explain the following principles of “WE”.
management given by Fayol with examples. (d) Order: A place for everything and everyone
(a) Unity of direction in his/her place. Basically it means
(b) Equity orderliness. If there is a fixed place for
different things in a factory and they
(c) Espirit de Corps
remain in their places then no time is
(d) Order wasted in locating them. In the same way,
(e) Centralisation and decentralisation if every personnel is allocated an area to
(f) Initiative operate from, then his co-workers, head
Ans. Fayol introduced general principles of or subordinates, anyone can contact him
management. Some of them have been explained easily.
below: (e) Centralisation and Decentralisation:
(a) Unity of Direction:“One organization Concentration of authority and decision
one plan”, every unit focuses on same making in a few hands is centralisation and
goal irrelevant to their own department its dispersal among more number of people
objectives, every objective will focus on is decentralisation. Fayol believed that an
same goal of organization. Each group of organisation should not work with anyone
activities having the same objective must of them in isolation. An organisation
have “One Head and One Plan”. Each group can never be completely centralised. A
should have its own in charge, plans and combination of both is important. Simple,
resources and there must be no overlapping easy and work of routine type should be
of its work. decentralised and critically, important type
of work should be centralised.
(b) Equity: This principle emphasises on
(f) Initiative: Initiative means taking the first
equal and fair justice in the behaviour of
step with self-motivation. Workers should
managers towards workers, these must be
be encouraged to develop and carry out their
no favouritism. This will ensure loyalty and
plans for improvements according to Fayol.
devotion. Lazy personnel should be dealt
Initiatives should be encouraged. A good
sternly and strictly and penalties must be
company system should invite suggestions
provided. There should be no discrimination
from employees which can result in
against anyone on account of gender,
substantial cost/time reduction. Rewards
religion, caste, language or nationality etc.
can be given to fruitful suggestions.
All decisions should be merit and factual
3. Explain the technique of ‘Functional
based.
Foremanship’ and the concept of ‘Mental
(c) Espirit de Corps:This principle emphasises Revolution’ as enunciated by Taylor.
on building harmony and team spirit
Ans. Functional Foremanship: Taylor advocated
among employees. In a large organisation
separation of planning and execution functions.
due to a large work force teamwork is very
This concept was extended to the lowest level
important. Teamwork leads to better co-
of the shop floor. It was known as functional
ordination while working. The head of each
foremanship.
Basis Henry Fayol FW Taylor
Perspective Top level management Lower level management
Unity of command Followed Not followed (functional foremanship)
Applicability Universal applicable Application as per the specialised situations
Basis of formation Personal experience Observation experimentation
Focus To improve overall working Increase productivity
Personality Practitioner Scientist
Expression General theory of administration Scientific management
Under the factory manager, there is a planning Under the planning incharge, the work goes as
incharge and a production incharge. follows:

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10 | CBSE NCERT Question Business Studies– XII
(i) Instruction Card Clerk: Draft instructions will depend upon volume and frequency of
for the workers. the task, the cycle time of the operation and
(ii) Route Clerk: Specify the route of production. time measurement costs.
Three objectives that can be achieved
(iii) Time and Cost Clerk: Prepare time and cost
through time study are:
sheet.
(iv) Disciplinarian: Ensure discipline. (i) Number of workers to be determined,
(ii) Incentive schemes are being framed
Under the production incharge, the work goes
accordingly,
as follows:
(iii) Labour cost is analysed.
(i) Speed Boss: Timely and accurate
completion of work. e.g., If standard time taken to do a piece
of work in 20 minutes then one work
(ii) Gang Boss: Keeping tools and machines
can be done 3 times in an hour and total
ready for operation by workers.
21 times (3 ×7 hours per day) the work
(iii) Repairs Boss: Ensure proper working
can be done on a single day.
conditions of machines.
(b) Motion Study: Motion study refers to the
(iv) Inspector: Check the quality of work,
study of movements like lifting, putting
process.
objects, sitting and changing positions. On
Mental Revolution: In a factory, the managers close examination of body motions, e.g., it is
served as a link between the owners and the possible to find out three types of motions:
workers. The managers have to get the work
(i) Motions which are productive and non-
done from the workers which sometimes create
productive in nature,
problems between the two. Taylor emphasized
(ii) Some of them are incidental,
that there should be harmony between the
management and workers. Both should realise (iii) Motions which are unproductive.
that they need each other. For this, both had Out of the above, three workers were
to change their thoughts for each other. This motivated to eliminate the third type
is known as ‘Mental Revolution’. Management completely and reduce the second one to
should share the gains of the company with the the minimum. This helps in increasing
workers and at the same time workers should productivity.
work hard and be ready to accept any change (c) Fatigue Study: Fatigue study seeks to
made for the betterment of the organisation. determine the amount and frequency of rest
4. Discuss the following techniques of Scientific intervals in completing a task. A person is
Work Study: bound to feel tired physically and mentally
(a) Time study if he does not take rest while working. The
(b) Motion study next interval will help one to regain stamina
and work again with the same efficiency. For
(c) Fatigue study
e.g., in an organisation working hours are 9
(d) Method study to 5. There is a lunch break of an hour for the
(e) Simplification and standardisation of workers to take rest. Similarly, in a school
work there is a break for the students and teachers
Ans. Some of the techniques of Scientific Work Study after 4 periods of continuous learning.
are: (d) Method Study: The objective of method
(a) Time Study: Time Study is the original study is to find out the one best way of
technique of work measurement, simple doing the job. Different managers would
in concept though it does require a high use their own different methods of getting
degree of concentration and expertise the work done. But there is always one
on the part of the observer. Direct time best method. Right from procurement
study is the technique principally used for of raw materials till the final product is
the measurement of repetitive work, i.e., delivered to the customer, every activity
work which follows a defined pattern and is the part of method study. The objective
method. It determines the standard time of whole exercise is to minimise the cost of
taken to perform a well-defined job. production and maximise the satisfaction of
The standard time is fixed for the whole the customer.
of the task by taking several readings/ (e) Simplification and Standardisation of
observations. The method of time study Work: Standardisation refers to the process

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 Principles of Management | 11
of setting standards for every business (iv) To establish standards of performance of
activity e.g., process, raw material, time, men and machines.
product, machinery, methods or working Simplification aims at eliminating unnecessary
conditions. diversity of products. It results in saving cost of
The objectives of standardisation are: labour, machines and tools. It implies reduced
(i) Excessive product line must be reduced and inventories, fuller utilisation of equipment and
even the product whose size, features are increasing turnover.
not necessary can be considered. 5. Discuss the differences between the
(ii) To focus on interchangeability. contributions of Taylor and Fayol.
(iii) To establish standards of excellence and Ans. The differences between the contributions of
quality in raw materials. Taylor and Fayol are:
Principle Taylor Fayol
Title Father of Scientific Management Father of General Management
Contribution Scientific Management or Taylorism was The General Theory of Fayolism was
given by him in 1911. introduced by him in 1916.
Perspective Focused on lower level management Focused on top level management
Focus Focused on improving the overall Focused on improving the
administration of the organization productivity and worker’s efficiency
Unity of command Focused on functional foremanship and Followed the concept of unit of
not on unity of command command
Basis of Formation Based on observation and experiments Based on personal experiences.
Applicability Applicable in specific situation as they Applicable universally as they are
are less flexible in nature flexible in nature.
6. Discuss the relevance of Taylor and Fayol’s people working the market for processed food
contribution in the contemporary business was increasing. New players were also coming
environment. to cash in on the new trend. In order to keep
Ans. Both Fayol and Taylor have given principles its market share in the short run the company
of management of improve efficiency of an directed its existing workforce to work
organisation by providing guidelines to the overtime. But this resulted in many problems.
managers in taking actions and decisions. As Due to increased pressure of work the
these principles are based on the human efficiency of the workers declined. Sometimes
behaviour, so, they help in establishing a the subordinates had to work for more than
relationship between the human and behaviour, one superior resulting in declining efficiency.
so, they help in establishing a relationship The divisions that were previously working on
between the human and materialistic resources one product were also made to work on two or
in an organisation. Both the principles suggested more products.
division of work and specialization which
This resulted in a lot of overlapping and
focused on maximising the efficiency.Taylor
wastage. The workers were becoming
gave us scientific principles of management
indisciplined. The spirit of teamwork, which
which are being adopted by all the organisations
had characterized the company, previously
to improve their productivity at the shop floor
was beginning to wane. Workers were feeling
level the principles help in giving effective
results. In the same manner, Henry Fayol gave cheated and initiative was declining. The
general principles of management which when quality of the products was beginning to
implemented at any of the levels—top, middle or decline and market share was on the verge of
lower and help in achieving better co-ordination, decrease.
remove ambiguity and encourage the employees Actually the company had implemented
to improve their work performance. changes without creating the required
7. ‘Bhasin’ limited was engaged in the business infrastructure.
of food processing and selling its products (a) Identify the Principles of Management
under a popular brand. (out of 14 given by Henry Fayol) that were
Lately the business was expanding due to good being violated by the company.
quality and reasonable prices. Also with more

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12 | CBSE NCERT Question Business Studies– XII
(b) Explain these principles in brief. task would be completed in a competent
manner. This principle results in
(c) What steps should the company
specialisation in work.
management take in relation to the above
principles to restore the company to its (iii) Discipline: Discipline means that the
past glory? organisation must follow the rules and
regulations to ensure conformity to the set
Ans. (a) The principles of management that are
rules and policies. It is important for both
being violated in the given situation are as
the workers as well as the management to
follows:
honour their commitments.
(i) Quote 1: Sometimes the subordinates
(iv) Espirit de corps: This principle states that
had to work for more than one superior
employees should work in unity with
resulting in declining efficiency.
each other. They should work like a team
Principle: Unity of command— This
and team spirit should be promoted by
is visible from the situation that the
the manager. Each employee should have
employees are made to work for more
a sense of belongingness. This proves
than one superior.
functional especially in large organisations
(ii) Quote 2: The divisions that were
where without team work, achievement of
previously working on one product
objectives would become difficult. Team
were also made to work on two or more
sprit helps in increasing coordination
products.
and mutual understanding among the
Principle: Division of work— In the employees and thereby improves efficiency.
situation given, One division is made to
(v) Initiative: According to this principle,
work on more than one product which
workers should be given praiseworthy
gives rise to the wastages.
motivation and incentive to work. They
(iii) Quote 3: The workers were becoming should be welcomed to come up with the
indisciplined. suggestions regarding the work. Although
Principle: Discipline— ‘Principle of initiatives should be encouraged, but they
discipline’ is not being followed in should be in line with the practices and
the given situation, as workers were rules of the organisation. For example, the
becoming indisciplined. managers can ask the workers for their
(iv) Quote 4: The spirit of teamwork, inputs over how to increase efficiency. Also,
which had characterised the company, good suggestions can be rewarded.
previously was beginning to wane. (c) The steps that can be taken by the company to
Principle: Espirit de corps—As the restore its past glory are as follows:
workers lost the spirit of team work. It 1. Scientific management must be followed.
resulted to the violation of ‘E sprit de 2. The subordinates get instruction from only
corps” principle. one superior at a time to avoid any confusion
(v) Quote 5: Workers were feeling cheated and chaos.
and initiative was declining. 3. There must be specialisation in work in such
Principle Initiative: It is given in the a manner that each division specialises in
situation that initiative is declining and single particular task. Hence it will help to
employees are discouraged. avoid overlapping in work.
2. (b) (i) Unity of Command: According to 4. Workers must be given proper incentives
this principle, subordinate should be and motivation to work through such
answerable to and take orders from measures as differential piece wage system
only one boss. If an employee gets so they can work with their full efficiency.
orders from more than one superior, the 5. Preverence would be given to team
employee will be confused about whose work with proper coordination and
orders to follow, which will eventually understanding.
affect the work. It might also cause a
8. (Further information related to the above
conflict of interests and egos among the
question 6)
superiors.
The management of company Bhasin Limited
(ii) Division of work: Division of work
now realised its folly. In order to rectify the
means that the given task is divided
situation it appointed a management consultant
into small groups or units so that the

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 Principles of Management | 13
—Mukti Consultants- to recommend a technique separately as enunciated in
restructure plan to bring the company back on points 1 through 6 in the case problem. 6
the rails. above.)
Mukti Consultants undertook a study of the Ans. 1. Yes, the scientific management techniques
production process at the plant of the company. as suggested by ‘Mukti Consultants’
Bhasin Limited and recommended the would be helpful for the organisation. By
following changes: implementing the scientific management
(i) The company should introduce scientific techniques the company would be able
management with regard to production. to work efficiently according to the
(ii) Production Planning including routing, standardised techniques and tools which
scheduling, dispatching and feedback results to improve both the quantity as well
should be implemented. asthequalityoftheproduct. Simultaneously,
It would also help in reducing the costs. In
(iii) In order to separate planning from
this way, scientific management would help
operational management ’Functional
in improving the effectiveness as well as
foremanship’ should be introduced.
efficiency in the work.
(iv) ‘Work study’ should be undertaken to
2. The following precautions can be taken by
optimise the use of resources.
the Bhasin Limited:
(v) ‘Standardisation’ of all activities should
(i) New staff i.e., freshly trained and
be implemented to increase efficiency and
specialised can be recruited for certain
accountability.
specific areas and the existing staff can
(vi) To motivate the workers ‘Differential Piece
be given proper training.
Rate System’ should be implemented.
(ii) There should be proper planning of
(The above changes should be introduced
production with utmost care.
apart from the steps recommended as an
(iii) In the functional foremanship,
answer to Part c - case problem.
there must be enough incentive and
It was expected that the changes will bring
motivation for the employees.
about a radical transformation in the
working of the company and it will regain (iv) Other studies such as method study,
its pristine glory. motion study, time study and fatigue
study should be undertaken besides
(a) Do you think that introduction of
work study.
scientific management as recommended
by M consultants will result in intended (v) For different aspects of production
outcome? technique of standardisation can be
used.
(b) What precautions should the company
undertake to implement the changes? (vi) Monetary incentives can be given to
motivate the employees to work more
(c) Give your answer with regard to each
and with better efficiency.


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 Chapter
Business Environment
3
NCERT Question

Very Short Answer Type Questions They had a steady demand for their products
1. What is meant by business environment? but over the years, they found their market
share declining because of new entrants in
Ans. The term ‘business environment’ means the
the field. The firm decided to review their
sum total of all individuals, institutions and
operations and decided that in order to meet
other external forces that are outside the control
the competition, they need to study and
of a business organisation which may affect its
analyse the market trends and then design
performance. The economic, social, political,
and develop their products accordingly.
technological and legal other forces, which
List any two impacts of changes in business
operate outside the business enterprise are part
environment on Krishna Furnishers Mart’s
of its environment. operations. (Hint: increase in competition and
2. How does understanding of business market orientation).
environment help in improving performance Ans. The following impacts can be seen with
of a business? changing changes in business environment on
Ans. Understanding the business environment Krishna Furnishers Mart's operations are:
properly by the organisation results in 1. Rise in competitors leads to more
developing plans and policies according competition.
to the environment which results in great
2. Innovation in designs needed to differentiate
improvement in performance. It also helps to
product from competitors.
counter any negativity that may exist in the
5. Name any two specific forces of business
market with a well-defined strategy. This will
environment affecting business.
help an organisation perform at best every time.
Ans. Specific forces are those forces that directly
3. Give an example to show that a business firm
affect individual enterprises in the day-to-day
operates within numerous inter related factors
operations.
constituting the business environment. (Hint:
example highlighting the inter-relatedness of Examples of specific forces are:
dimensions of business environment). 1. Investors loyalty,
Ans. Business organisations work in a complex 2. Customer tastes and preferences
environment consisting of numerous 3. Strategies of Competitors,
interrelated and dynamic conditions. 4. Terms and conditions of the Suppliers (any
For example, ABC Ltd. is an automobile two)
company. Its performance is affected by the Short Answer Type Questions
following factors: 1. Why is it important for business enterprises to
Economic: Global recession, understand their environment? Explain.
Social: Changed consumption habits of people Ans. It is important for business organisations to
due to the improved standard of living of understand their environment because of the
customers. following reasons:
Technological: Advanced technology leads to (i) It enables the firm to identify opportunities
automation in manufacturing. and getting the first mover advantage:
Legal: 28% GST levied on automobiles. There are various opportunities provided
4. Krishna Furnishers Mart started its operations by environment to business. Initial
in the year 1954 and emerged as the market identification of opportunities helps an
leader in the industry because of their original enterprise to use it before instead of losing
designs and efficiency in operations. them to competitors.

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 Business Environment | 15
(ii) It helps the firm to identify threats and the role of public sector. Hence, there with
early warning signals: Threats refer to the be less ownership of government owned
external environment trends and changes sector.
that will hinder a firm’s information. (c) Globalisation: Globalisation means the
Managers can get insights through integration of the various economies of the
environment screening get it on time and world leading towards the emergence of
they may get early warnings and serve as an a cohesive global economy. Its main focus
early warning signals. is on foreign trade and institutional and
(iii) It helps in tapping useful resources: private investments. Till 1991, India had a
Environment turns out to be an effective policy which strictly regulated imports in
source to run a business. To engage in value and volume terms. After 1991, the
any type of activity, a business enterprise reforms aimed at import liberalisation.
summons various resources called inputs. 3. Briefly discuss the impact of Government
The appropriate resources are determined policy changes on business and industry.
by studying the local business environment. Ans. Impact of changes in Government policy on
(iv) It helps in coping with rapid changes: business and industry are:
All types of enterprises facing increasingly (i) Increasing competition: As a result of
dynamic environment which means LPG, there are new players who came and
changes which have to be adaptable. In increased the number of players in all sectors
order to adapt easily with the change, and firms now face competition from MNCs
managers must understand and examine also.
the environment and develop suitable
(ii) More demanding customers: Increased
courses of action.
competition in the market gives the
(v) It helps in assisting in planning and customer wider choices in purchasing better
policy formulation: Since environment is quality of goods and services, which makes
the source of opportunities and threats, its them more demanding.
understanding and analysis becomes the
(iii) Rapidly changing technological
base for various policies to be framed and
environment: New technologies help to
strategies to be made as per the market
upgrade machines, process products and
trends.
services. The rapid changes in technological
(vi) It helps in improving performance: The
environment creates tough challenges for
enterprises that continuously monitor their
smaller firms.
environment and adopt suitable business
practices are the ones, which not only (iv) Necessity for change: After 1991, the market
improve their present performance but forces are unstable in nature as a result of
also continue to succeed in the market for a which, the enterprises have to continuously
longer period. amend their operations.
2. Explain the following terms: (v) Need for developing human resource: The
(a) Liberalisation new market conditions require people with
(b) Privatisation higher competence and greater commitment.
Hence, the need for developing human
(c) Globalisation
resources emerged.
Ans. The three important features of New Economic
Policy, 1991 are: (vi) Market orientation: Earlier, production
(a) Liberalisation: Under the new economic stage was taken up first place and then
policy of 1991, the economic reforms that the process of selling was done. Now, due
were introduced aimed at liberalising or to the increasing competition and more
freeing the Indian business and industry demanding customers firms have to study
from all unnecessary controls and and analyse the market first and then
restrictions. They signalled the end of the produce the goods accordingly.
licence-permit quota raj and relief in trade (vii) Loss of budgetary support to the public
barriers. sector: Now-a-days public sectors have
(b) Privatisation: The new set of economic lesser budgetary support from the Central
reforms is privatisation which aims at Government. So, they have to generate
expanding the role of the private sector in their own resources and be more efficient
the nation building process and reducing in order to survive and grow.

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16 | CBSE NCERT Question Business Studies– XII
4. National Digital Library of India (NDL India) The different forces that have an impact
is a pilot project initiated by the HRD ministry. on the business environment are inter-
It works towards developing a framework of related. This inter-relation has an effect on
virtual repository of learning resources with the business environment. For e.g., if there
a single-window search facility. It provides is an increase in the annual income of the
support to all academic levels including consumers, they are more likely to purchase
researchers, life-long learners and differently- goods that fulfil all their demands and this
abled learners free of cost. State the dimensions leads to increase in demand for electric
of business environment highlighted above. appliances, mobile phones, gadgets etc.
Ans. The dimensions of business environment being (iii) Business environment is constantly evolving
highlighted here are: and therefore is dynamic in nature. This
can be explained as we see changing trends
1. Technological dimension: By developing a
in consumer behaviour, technology and
framework of virtual repository of learning
policies of the government.
resources with a single-window search
facility it highlights the technological (iv) The business environment is an uncertain
dimension. territory. The changes in the market
dynamics cannot be predicted easily. Due to
2. Social dimension: 'By providing support to
which there exists an uncertainty.
all academic levels including researchers,
(v) Business environment is the sum total of
life-long learners and differently-abled
all interrelated dynamic forces. Hence,
learners free of cost it highlights social
it is somewhat complex and difficult to
dimension.
understand. All the factors like social,
5 State the impact of demonetization on interest political, technological etc. have an effect on
rates, private,wealth and real estate. the performance of the organisation. It can
Ans. Impact of demonetization on: be easy to ascertain the individual impact of
1. Interest rates: Because of demonetization all the forces; it can be difficult to determine
cash transactions got declined, there is an their cumulative effect.
increment in bank deposits and financial (vi) Business environment varies with
savings each region and hence is relative. The
2. Private wealth: High demonetised notes reason behind the variation in business
were not returned, hence it results in environment is that the forces that determine
declination in private wealth. the nature of business environment are
3. Real estate: Decline in prices of property. dynamic in nature and therefore change as
per the region.
Long Answer Type Questions
Specific environment is said to be the external
1. How would you characterise business
forces that play a vital role in functioning of an
environment? Explain with examples, the
organisation directly. These forces are specific
difference between general and specific
to a particular organisation or an enterprise.
environment.
Specific environment is unique to a industry
Ans. The sum of all the forces (external, institutions and has an impact on day to day business
and individuals) that are outside the control activities. For example, change in price of a raw
of a business organisation is referred to as the material required for production will result
business environment. The forces mentioned in less demand and abundant supply of raw
here can be of varied nature such as social, materials has a direct impact on the production
economic, political, legal or technological. The of the company.
organisation is unable to control such type of General environment comprises of all the
forces, but it can definitely have a positive or forces that has an impact on all organisations
negative impact on their performance. irrespective of the type of industry. These forces
The following are the characteristics of do not differentiate between the industries
business environment: or types of business. They have a cumulative
(i) Business environment is the sum total of all effect on the organisation’s performance. For
external forces which includes individuals, example, a new technology for communication
government, consumers. These have an will have a impact on the quality and quantity of
impact on the business performance that is production or if there is a change in technology
either positive or negative. then it will have an effect on all organisations.
(ii)

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 Business Environment | 17
2. How would you argue that the success of a Explain with examples, the various dimensions
business enterprise is significantly influenced of business environment.
by its environment? Ans. Business environment has the following
Ans. Any organisation is unable to function on its dimensions:
own. It is influenced by the various forces such (i) Economic Environment: It includes the
as political, legal, social, technological. These changes in the system due to economic
forces form the business environment of an policies made by the government. Reserve
organisation. It is essential that an organisation Bank of India is the key regulator of
has a good understanding of its business country’s economic environment since it—
environment. It enables an organisation to (a) affects the interest rates.
identify that help or those that obstruct the (b) manages the flow of money in the
growth of an organisation, knowing them well economy.
will help in reacting better to these forces. (c) regulates the working of banks.
Success of a business is influenced by its Example: If the banks reduce the interest
environment in the following ways: rates on long term loans, industries like
construction and automobiles get a boost to
(i) Whenever there is a change in the business
the business as more spending is made on
environment, it provides the opportunity
the purchase of homes and cars by loans.
to start fresh. Careful observation of
the business environment is helpful in (ii) Social Environment: The social
identifying these opportunities. It also gives environment comprises of the social forces
the first movers advantage to the business. like customs and traditions, values, social
Organisations can reap maximum benefit in trends, society’s expectations from business
comparison to its competitors. etc. But in business terms, these values turn
into freedom of choice in the market.
(ii) Studying of business environment helps in
Major elements of social environment are:
identifying threats for the business. It helps
(a) life expectancy,
to take preventive measures in order to
counter those negative forces. (b) shifts in the presence of women in the
workforce,
(iii) Environment provides source or inputs
(c) consumption habits
such as machinery, raw materials,
labour etc., which are essential for an Example: Due to the shift in women’s
organisation. Therefore, it makes sense for presence in the workforce, the demand
the organisations to choose those resources for the readymade ladies formal wear,
cosmetics, packed/processed food,
from the environment and convert into
electronic gadgets has risen.
desired products.
(iii) Technological Environment:Technological
(iv) Business environment is dynamic in nature.
environment comprises of forces relating
There is a constant change in the factors that
to scientific improvements and innovations
make up the business environment. Having
which provide new ways of producing
a good understanding of the business
goods and services and new methods and
environment helps cope up with the factors techniques of operating a business. Business
better and help organisations derive benefit not updating themselves in the technology
from them. field can find themselves in spot of bother
(v) As various threats and opportunities are with competitors.
discovered during analysis of the business Example: Due to the technological
environment. The business can thus advancement, booking of railway tickets
formulate plans and policies that will be through internet from home, office, etc.
appropriate for the market in the existing became possible.
scenario. (iv) Political Environment:Political
(vi) Knowing about the threats and environment includes political conditions
opportunities helps one improve their such as general stability, peace in the
performance by adapting to these changes country, law and order and specific attitudes
in a more informed manner. Being prepared that elected the government representatives
for the situation helps in providing the best hold towards business. It can be used only
performance. when a business enterprise can predict its
3.

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18 | CBSE NCERT Question Business Studies– XII
business activities under stable political and `1,000 currency notes with effect from
conditions. the midnight of November 8, 2016 to curb
Major elements of political environment the illegal use of money by some entities.
are: (ii) Legal dimension: As a result, the existing
(a) The constitution of the country, `500 and `1,000 currency notes ceased to be
(b) The nature and profile of political leadership illegal tender from that date to introduce the
and thinking of political personalities, new legal tender.
(c) Political ideology and practices of the ruling (iii) Technological dimension: The step resulted
party. in a substantial increases in the awareness
Example: After the NEP of 1991, due to the about and use of digital forms of payment
globalisation the international companies like Point of Sale machines, e-wallets,
started coming to India, but due to the digital cash and other modes of cashless
bureaucratic red tape it became difficult transactions.
to do business here. As a result, these (b) Features of Demonetization are:
companies got bothered in our country (i) Measure of tax administration: Because of
regarding investments. demonetisation black money holders had
(v) Legal Environment: Legal environment to declare the unaccounted wealth and pay
includes various legislations and legal rules taxes at penalty rates.
passed by the Government administrative (ii) Measure to avoid tax evasion:
orders issued by government authorities, Demonetisation considered as a strict
court judgements as well as the decisions measure as indicating the government will
rendered by various commissions and not tolerate tax evasion.
agencies. Non-compliance can lead to (iii) Measure of channelizing savings into the
legal trouble for the business. Therefore, financial system: By depositing money in
an adequate knowledge of rules and banks
regulations framed by the government is
(iv) Creation of a ‘cash-less’ or ‘cash-lite’
mandatory to pre-requisite for the better
economy: Demonetisation helps in
business performance.
channeling more savings and reducing tax
Example: Setting up of a company is
evasion.
governed by the Companies Act, not acting
5. What economic changes were initiated by
according to the law will result in company
the Government under the Industrial Policy,
facing legal hassles.
1991? What impact have these changes made
4. The government of India announced
on business and industry? (Question not in
Demonetization of `500 and `1,000 currency
Syllabus according to new curriculum 2022)
notes with effect from the midnight of
November 8, 2016. As a result, the existing Ans. Some economic changes which were initiated by
the Government under the Industrial Policy,1991
`500 and `1,000 currency notes ceased to be
are:
legal tender from that date. New currency
notes of the denomination of `500 and `2,000 (i) Under the new Industrial Policy 1991,
were issued by Reserve Bank of India after the industrial licensing was prohibited.
announcement. The system of licensing was retained
This step resulted in a substantial increase in in six industries likewise drug and
the awareness about and use of Point of Sale pharmaceuticals, defence equipment,
machines, e-wallets, digital cash and other dangerous chemicals, liquor, cigarette,
industrial explosives.
modes of cashless transactions. Also, increased
transparency in monetary transactions and (ii) The Government set up the Foreign
disclosure led to a rise in government revenue Investment Promotion Board to encourage
in the form of tax collection. and channelise the foreign investment .
(a) Enumerate the dimensions of business (iii) The role of industries exclusively reserved
environment highlighted above. for the public sector was considerably
(b) State the features of Demonetization. reduced. The private sector was given
Ans. Dimensions of business environment preference to operation in majority of the
highlighted above are as follows: industries with only three industries under
(i) Political dimension: ‘The government of the government namely, railways, atomic
India announced demonetization of `500 mineral and atomic energy.

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 Business Environment | 19
(iv) For many public sector enterprises, the privatisation and competition. Thus,
process of disinvestment was carried out. businesses have to bear huge costs on
That is, an increase in share of the assets of planning based on market research, and
the public industrial enterprises was sold to producing products or services based on
the private sector. the changing tastes, needs and wants of
Features of impact of government policy their customers. The concept of market has
changes on business and industry are as changed from selling to marketing.
follows: 6. What are the essential features of:
(i) Demanding customers: Government (a) Liberalisation
policies have allowed entry to competitively (b) Privatisation
driven products and services under new (c) Globalisation
economic policies. Consumers have also
Ans. (a) Liberalisation: The essential features of
become well-informed and could choose
liberalisation are:
from a variety of such products and services.
(i) Abolishing licensing requirements in
Along with rising incomes, increasing
most of the industries except a short list
purchasing power and changing lifestyles,
of industries.
Indian customers have become more
demanding about value driven products (ii) No restriction on expansion or
and services. contraction of business.
(ii) Increasing competition: Government’s new (iii) Free movement of goods and services.
policies have given an impetus to private (iv) Freedom in fixing the prices of goods
sector and enabled easy access to foreign and services.
companies, thus enabling a competitive (v) Reduction in tax rates.
structure in India. Competition has led to the (vi) Simplifying procedures for imports and
development of new products and services, exports.
innovation, creating easy access to domestic (vii) Making it easier to attract foreign
and foreign markets and resources, led to capital and technology to India.
existence of competitive pricing, increased (b) Privatisation:
productivity and profitability across (i) The government redefined the role of
industries and businesses. public sector.
(iii) Technological development: Increase (ii) Policy of planned disinvestments of the
in competition with the entry of foreign public sector.
companies has led to technological
(iii) Refining of sick enterprises to the
development in the country. Government
Board of Industrial and Financial
policies and regulations have been directed
Reconstruction.
towards following global production
(c) Globalisation:
compliances that have led businesses with
large-scale operations to adopt state-of-the (i) It helped the firms to set up a business
art technology. and transact both within and outside
the country.
(iv) Market orientation: Market orientation
means that businesses attempt to discover (ii) Promotes exports by abolishing the
and match the needs and desires of the licensing for imports.
consumers by providing customised (iii) Foreign Investment Promotion
products and services by encouraging Board was set up to promote foreign
investment in India.
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 Chapter

Planning 4
NCERT Question

Very Short Answer Type Questions is a general guidelines that aims at channeling
1. How does planning provide direction? the efforts of the organisation in a particular
Ans. Planning provides direction for action by direction.
deciding in advance what to do, how to do, 5. Can planning work in a changing environment?
when to do and who will do. In planning, goals Give a reason to justify your answer.
are will defined, employees are aware of what Ans. No, planning may not work right in a changing
the organisation has to do and what they must environment. Business environment is dynamic
do to achieve those goals. in nature and changes continuously. For
2. A company wants to increase its market share example, political conditions, social conditions,
from the present 10% to 25% to have a dominant consumer tastes and preferences, government
position in the market by the end of the next rules and regulations change continuously.
financial year. Ms Rajni, the sales manager The organisation has to constantly change itself
has been asked to prepare a proposal that will according to the need of the environment.
outline the options available for achieving this Short Answer Type Questions
objective. 1. What are the main points in the definition of
Her report included the following options planning?
entering new markets, expanding the Ans. The main points in the definition of planning are
product range offered to customers, using as follows:
sales promotion techniques such as giving (i) Planning is what to do and how to do.
rebates, discounts or increasing the budget for (ii) It is one of primary function.
advertising activities.
(iii) Planning involves objectives and action to
Which step of the planning process has been
execute them.
performed by Ms Rajni?
(iv) It seeks to bridge the gap between where we
Ans. The step of the planning process which has been
are and where we want to reach.
performed by Ms Rajni is 'Identifying alternative
2. If planning involves working out details for
courses of action'.
the future, why does it not ensure success?
There are many ways to act and achieve
Ans. Planning does not guarantee success. The
objectives laid by the management. Ms Raini has
success of an enterprise is possible only when
indexed all the possible alternative courses of
plans are properly drawn up and formulated.
action which can be used to increase the market
Any plan has to be turned into action or it would
share.
be meaningless. Managers have a tendency to
3. Why are rules considered to be plans?
rely on previously tried and tested successful
Ans. Rules are specific statements that specifies plans in a current scenario . It is not always true
what is to be done or not to be done. There is that just because a plan has worked before it will
no flexibility or discretion decision. It reflects a work again. This kind of false sense of security
managerial decision that a certain action must or may actually lead to failure instead of success.
must not be taken. They are usually the simplest
3. What kind of strategic decisions are taken by
types of plans because there is no compromise
business organisations?
when a policy decision is being taken.
Ans. Major strategic decisions include whether the
4. Rama Stationery Mart has made a decision
organisation will continue to be in the same line
to make all the payments by e-transfers only.
of business or combine new lines of activity with
Identify the type of plan adopted by Rama
the existing business or the position company is
Stationery Mart.
aiming in the existing market and the pricing
Ans. Rama Stationery has adopted a payment 'policy'
policy which should be used.
of making all payments by e-transfers. A policy

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 Planning | 21

4. Planning reduces creativity. Critically sometimes the things do not go as per the plan.
comment. (Hint: both the points— Unforeseen changes in the business environment
Planning promotes innovative ideas and often dampen the plans of the organisation.
planning reduces creativity – will be Moreover, the process of planning has its own
given). limitations that hinder the accomplishment of
Ans. Planning promotes innovation. The formulation all the objectives of an organisation.
of plans and policies is an intellectual process Following are some of the limitations of
that requires creativity and innovation on the planning which may result in the abandoning
part of the managers. However, once a plan is of the organisational objectives:
formulated, the manager may not be able to (i) Rigidness: Planning is rigid in nature.
change it. This rigidity creates obstacles when Once a plan regarding the objectives to
unforeseen changes come about and thereby be achieved and the course of action to be
reduces creativity. followed is formulated, the manager may
5. In an attempt to cope with Reliance Jio’s not be able to change it. Such rigidity creates
onslaught in 2018, market leader Bharti Airtel hurdles at times of unforeseen changes. At
has refreshed its `149 prepaid plan to offer 2 times of unexpected changes, the managers
GB of 3G/4G data per day, twice the amount may require certain degree of flexibility so as
it offered earlier. Name the type of plan is to cope with the changes in an appropriate
highlighted in the given example. ? State its manner. Thus, rigidity in plans sometimes
three dimensions also. creates obstacles in the completion of the
Ans. Bharti Airtel has adopted a Strategy. A strategy objectives.
is created by keeping the business environment (ii) Cannot Deal With Dynamic Environment:
in mind. Business environment is dynamic and
Strategy includes three dimensions: thereby, very uncertain. However, planning
1. Determining long term objectives, cannot foresee such changes and fails at
times of changes and uncertainties. This
2. Adopting a particular course of action
may lead to failure in the accomplishment
3. Allocating resources necessary to achieve
of objectives. An organisation must adapt its
the objective.
functioning to the changing environment.
6. State the type of plan and state whether they
(iii) Gigantic Costs: Formulation of plans
are Single use or Standing plan: involves huge costs in terms of time and
(a) A type of plan which serves as a controlling money. As planning is based on future
device as well.(budget). predictions, it requires a lot of thinking and
(b) A plan based on research and analysis and analysing. It involves scientific calculations
is concerned with physical and technical along with the figures and the facts, which
tasks. (Method). are to be used in formulating the course of
Ans. (a) Budget: It is a statement which forecasts action. This involves high costs. Moreover,
the expected results of a specific task to be sometimes it might also happen that the
performed in the future period. A budget is benefits derived from planning fall short of
a Single-used plan which is developed for a the costs incurred.
one time project or event. (iv) False Security: Good planning does not
(b) Method: A plan based on research and mean a guarantee to success. Often the
analysis and is concerned with physical mangers tend to rely on pretested plans that
and technical tasks. Method is a Standing have worked well in the past. However, it
plan as it is used for activities which occur is not always true that if a plan had worked
regularly over a period of time and usually well in the past, it will also be successful in
developed once but is modified from time to the future. Many unforeseen changes may
time business needs as required. crop up that may fail the plan. Sometimes
Long Answer Type Questions managers think that planning can prevent
1. Why is it that organisations are not always able the problems from occurring, however, they
to accomplish all their objectives? neglect the fact that planning just provides
Ans. For the attainment of the desired objectives, a base for predicting the future. It does not
organisations make plans. Planning is an give straight away solutions to the problems.
essential activity for any organisation and (v) Time Consuming: Formulating plans is
sets the basis for its functioning. However, a very time consuming task, as it involves

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22 | CBSE NCERT Question Business Studies– XII
looking forward in the unforeseen situations. competition from other new and existing
It involves a lot of research and evaluation. players in the market. Its competitors
This increases the time consumed by the are introducing lower priced models for
managers and the actual actions may get mass consumers who are price sensitive.
delayed. C Ltd. realized that it needs to take steps
2. What are the steps taken by management in immediately to improve its market standing
the planning process? in the future. For quality conscious consumers,
Ans. The planning process involves the following C Limited plans to introduce new models
steps: with added features and new technological
(i) Establishing objectives: The first step in advancements. The company has formed a
planning is to determine objectives which team with representatives from all the levels
must be realistic, specific and clear to of management. This team will brainstorm
specify what is to be accomplished by the and will determine the steps that will be
network of policies, procedures, strategies adopted by the organisation for implementing
etc. After setting up the objectives, the the above strategy. Explain the features of
clearly defined goals are communicated to Planning highlighted in the situation given
all the employees. below.(Hint: Planning is pervasive, Planning
is futuristic and Planning is a mental exercise).
(ii) Developing premises: Premises refer to
making the assumptions regarding future. Ans. The features of planning that are highlighted in
These assumptions or forecasts of the future the above case are:
and unknown conditions will eventually (i) Planning is pervasive: Planning is required
affect the operations of the plans. They at all levels of management as well as in all
provide an idea about the future which departments of the organization. The scope
facilitates the work of planning. of planning differs at different management
(iii) Identifying the alternative courses of levels. It is performed at all level as it is not
action: The next step in planning is to just a function restricted to top level .As
identify the various alternatives available the organizational plans form by top level
to achieve the objectives. management, then the middle level does
departmental planning, and the lower level
(iv) Evaluating alternative courses: The merits
makes plans for the day-to-day operations
and demerits of different courses of actions
for the organization.
are evaluated in the light of objectives to be
achieved; how far they will be successful in (ii) Planning is futuristic: Planning is based on
helping to achieve the objective. forecasting and it is prepared for the future.
This is done to scan the general environment
(v) Selecting an alternative: The next step is
so that the organisation set their objectives
to find out the most suitable course to be
accordingly. Hence, its main purpose is to
followed. The efforts are directed towards
meet future events effectively to the best
selecting that course of action, which
advantage of an organization. It implies
increases efficiency in the organisation
looking into the future, analyzing it. Thus,
by maximising output and profits at the
planning is a futuristic process.
minimum costs.
(iii) Planning is a mental exercise: Planning is
(vi) Implement the plan: At this step the best
a mental exercise as it requires creativity,
alternative chosen is put to use.
imagination and higher thinking skills
(vii) Follow up: Only putting the best alternative
with sound judgement. It is an intellectual
to action is not enough. The future is
activity of thinking rather then doing which
uncertain and dynamic. Therefore, it
requires application of mind involving
becomes important to check back whether
foresight, intelligent imagination and
the plan is giving results or not.
sound judgement. . It requires logical and
3. An auto company C Ltd. is facing a problem systematic thinking rather than guesswork
of declining market share due to increased or wishful thinking.
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 Chapter
Financial Market 10
NCERT Question

Very Short Answer Type Questions A Dematerialisation Account (also known as

1. What is a Treasury Bill? Demat Account) is a pre-requisite for electronic
trading in securities. For example, if a person
Ans. A treasury bill is an instrument of short term
wants to trade the listed securities in electronic
borrowing issued by the RBI on behalf of
form, then it is mandatory for him/her to open
Government of India and having maturity
up a Demat account in a depository bank.
period of less than one year. They are also
known as Zero Coupon Bonds since no interest 5. Name any two details that need to be provided
is earned on them. ‘Treasury bills are issued in by the investor to the broker while filling a
the form of a promissory note. They are highly client registration form.
liquid and have assured yield and negligible Ans. Client need to furnish an Identity proof- Adhaar
risk of default. They are issued at a price which number; PAN number and proof of address.
is lower than their face value and repaid at part. Short Answer Type Questions
Treasury bills are available for a minimum 1. What are the functions of a Financial Market?
amount of `25,000 and in multiples thereof. Ans. For the allocation of scarce resources, financial
2. Name the segments of the National Stock market plays on important role by performing
Exchange (NSE). some functions. They are:
Ans. NSE provides trading in two main segments: (i) Mobilisation of savings and channelising
(i) Wholesale Debt Market Segment them into the most productive uses: A
(ii) Capital Market Segment financial market facilitates the transfer of
savings from savers to investors. It gives
3. State any two reasons why investing public can
choice to the saver of different investments
expect a safe and fair deal in the stock market.
and thus, it helps to transmit the surplus
(Point w.r.t safety of Transactions – Functions
funds into the most beneficial use.
of the Stock Exchange).
(ii) Facilitate Price Discovery: In the financial
Ans. SEBI is set up to protect the interests of the
market, the households are the suppliers
parties involved in the exchange in capital
of funds and business firms represent the
market.
demand. The interaction between them
It performs following functions: helps to establish a price for the financial
(i) Prohibition: Prohibits fraudulent and unfair asset which is being traded in that particular
trade practices. In addition, it prevents the market.
spreading of misleading statements which (iii) Provide Liquidity to Financial Assets:
are likely to affect the functioning of the Financial markets facilitate easy purchase
securities market. and sale of financial assets. Holders of assets
(ii) Checks on insider trading: Insider trading can readily sell their financial assets through
refers to a situation wherein an individual the mechanism of financial market.
connected with the company leaks out (iv) Reduce the Cost of Transactions: Financial
crucial information regarding the company markets provide valuable information
which may adversely affect its share prices. about securities being traded in the market.
SEBI keeps a strict check on such practices. It helps to save time, effort and money that
4. What is the common name for Beneficiary both buyers and sellers of a financial asset
Owner Account, which is to be opened by the would have to spend to try or otherwise
investors for trading in securities? find each other.
Ans. The common name of the Beneficiary Account is 2. “Money Market is essentially a Market for
Dematerialisation or DEMAT account. short term funds.” Discuss.

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54 | CBSE NCERT Question Business Studies– XII
Ans. The money market refers to the market for of a stock exchange is the formation of a
short-term funds which deals in monetary continuous market where securities are
assets whose period of maturity ranges from bought and sold. It gives investors the chance
one day to one year. These assets act as a close to disinvest and reinvest. This provides
substitutes for money. It is a market where low both liquidity and easy marketability to the
risk, unsecured and short term debt instruments existing securities in the market.
that are high in liquidity, are issued and actively (ii) Pricing of securities: Share prices on a stock
traded everyday. It enables the raising of short exchange are determined by the forces of
term funds for earning returns. The major demand and supply. A stock exchange is a
participants in the market are the Reserve Bank mechanism of constant valuation through
of India, Commercial Banks, Non-Banking which the prices of securities are determined.
Finance Companies, State Governments, Large Such a valuation provides important instant
Corporate Houses and Mutual Funds. information to both buyers and sellers in the
3. Distinguish between Capital Market and market.
Money Market. (iii) Safety of transactions: The membership of
Ans. Difference between Capital and Money Market a stock exchange is well-regulated and its
are: dealings are well defined according to the
Money existing legal framework which ensures that
Basis Capital Market the investing public gets a safe and fair deal
Market
on the market by eliminating the problems
Duration It deals in It deals in
associated with physical certificates e.g.
medium and short term
long term securities. theft, forgery, bad delivery.
securities. (iv) Contributes to economic growth: A stock
exchange is a market in which existing
Instruments The common The common
securities are resold or traded. This process
used instruments instruments
of disinvestment and reinvestment savings
like equity like
get channelised into the most productive
shares, commercial,
preference paper, investment avenues. This leads to capital
shares, bonds, treasury bill, formation and economic growth.
debentures are trade bill, 5. What are the objectives of the SEBI?
included. certificate of Ans. (i) To prevent trading malpractices in the
deposit are securities markets.
included. (ii) To protect the rights and interests of
Safety The risk is Risk investors and to guide and educate them.
comparativel involvemen (iii) To regulate and develop a code of conduct
y high t is low. and fair practices by intermediaries like
Expected Returns on Returns on brokers, merchant bankers, etc., to make
return investment Investment them competitive and professional.
expected to be expected to (iv) To regulate stock exchanges and the
higher. be lesser. securities market to encourage their orderly
Participants Individual RBI, functioning.
investors, commercial 6. State the objectives of the NSE.
financial Banks, Ans. NSE was setup with the following objectives:
institutions, financial
(i) Organising a nationwide trading platform
corporate institutions
for all types of securities.
houses etc. mutual
funds. (ii) An appropriate communication network,
ensures equal access to investors.
4. What are the functions of a Stock Exchange?
(iii) Provides a fair, efficient and transparent
Ans. The efficient functioning of a stock exchange
security market throught electronic trading
creates a conducive climate for an active and
system.
growing primary market.
(iv) It enables shorter settlement cycles and
Following are the important functions of a
book entry settlements.
stock exchange:
(v) Meeting international benchmarks and
(i) Provide liquidity and marketability to
standards.
existing securities: The basic function

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 Financial Market | 55
7. Name the document prepared in the process capital requirements of business firms. It
of online trading of securities that is legally is a short term negotiable, self-liquidating
enforceable and helps to settle disputes/claims instrument which is used to finance the
between the investor and the broker. credit sales of firms, when goods are sold
Ans. A contract note is enforceable under law. This on credit, the buyer becomes liable to make
note contains details of the number of shares payment on a specific date in future.
bought or sold, the price, the date and time of 2. Explain the recent Capital Market reforms in
deal, and the brokerage charges. India.
Long Answer Type Questions Ans. A capital market refers to the market that
1. Explain the various Money Market instruments. deals in the trading of medium and long-term
Ans. Money Market Instruments: securities. That is, it deals in those securities that
(i) Treasury Bill: A treasury bill is an instrument have a maturity period of greater than or equal
of short term borrowing issued by the RBI to one year. Capital market contains instruments
on behalf of the GOI having maturity of less like equity and preference shares, debentures,
than one year. They are also known as Zero bonds, mutual funds, public deposits, etc. A
Coupon Bonds. They are issued in the form capital market can be further divided in two
of a promissory note. They are highly liquid parts namely, Primary Market and Secondary
and issued at a price which is lower than Market. Primary market deals with issue of
their face value and repaid at par. Treasury new securities. Issue of new securities in the
bills are available for a minimum amount of primary market directs funds towards those
`25,000. entrepreneurs who either want to start a new
(ii) Commercial Paper: Commercial paper is enterprise or wish to expand the existing one.
a short term unsecured promissory note, Secondary market, on the other hand, deals in
negotiable and transferable by endorsement the sale and purchase of the existing securities.
and delivery with a fixed maturity period. That is, it deals in the trading of those securities
It is issued by large and creditworthy that were initially issued in the primary market.
companies to raise short term funds at The history of capital market in the form of
lower rates of interest than market rates. stock exchange dates back to the eighteenth
Maturity period of it is usually of 15 days to century. The Government of India introduced
one year. The issuance of commercial paper the Companies Act in 1850 with the aim of
is an alternative to bank borrowing for large generating investor interest in corporate
companies that are generally considered to securities. The first stock exchange was set up
be finally strong. It is sold at a discount and in India in the year 1875 as 'The Native Share
redeemed at par. and Stock Brokers Association' in Bombay. Later
(iii) Call Money: Call money is a short term it was renamed as 'Bombay Stock Exchange'
finance repayable on demand, with a (BSE). In the subsequent years, stock exchanges
maturity period of one day to fifteen days, were developed in Ahemdabad, Calcutta and
used for inter-bank transactions to maintain Madras.
a minimum cash balance known as cash In 1990s, the Indian secondary market only
reserve ratio as required by the RBI. Call consisted of regional stock exchanges wherein,
money is a method by which banks borrow first being the BSE. However, after the reforms
from each other. of 1991, the Indian Stock Market acquired a
(iv) Certificate of Deposit: Certificates of three-tier system. This consisted of Regional
deposit are unsecured, negotiable, short Stock Exchanges, National Stock Exchange and
term instruments in bearer form, issued Over the Counter Exchange of India (OTCEI).
by Commercial Banks and the financial Regional Stock Exchange: The first Regional
institutions. They can be issued to Stock Exchange was developed in Ahmedabad
individuals, corporations and companies as Ahmedabad Stock Exchange (ASE) in 1894.
during the periods of tight liquidity when Similarly, in 1908, Calcutta Stock Exchange (CSE)
the deposit growth of banks is slow but was established. In the later years other regional
the demand for credit is high. They help to stock exchanges were established in Calcutta,
mobilise a large amount of money for short Madras, Ahmedabad, Delhi, Hyderabad and
periods. Indore. Recently, Regional Stock Exchanges
(v) A Commercial Bill: A commercial bill is a were developed in Coimbatore as Coimbatore
bill of exchange used to finance the working Stock Exchange and in Meerut as Meerut Stock

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56 | CBSE NCERT Question Business Studies– XII
Exchange. Currently, there are 22 regional stock Registration of collective investment
exchanges in India. schemes and mutual funds.
National Stock Exchange: The NSE is the latest (iii) Regulation of stock brokers, portfolio
technology driven stock exchange which was exchanges, underwriters and merchant
recognised in 1993. It started its operations in bankers and the business in stock exchanges
1994 with trading in money market securities. and any other securities market.
Later, it also expanded its trading operations in (iv) Regulation of takeover bids by companies.
capital market segment. NSE was set up in order (v) Seeking information by undertaking
to establish a nationwide platform for trading in inspection conducting enquiries and audits
all types of securities. It ensured the development of stock exchanges and intermediaries.
of fair and efficient securities market. Within the (vi) Levying for or other charges for carrying
span of its presence, NSE has transformed the out the purposes of the Act.
Indian capital market and has been able to take (vii) Performing and exercising such power
the stock market to the investor's door step. It under Securities Contracts Act, 1956, as
has provided a wide screen-based automated may be delegated by the Government of
trading system across the nation ensuring equal India.
access to all the investors. Development Functions:
Over the Counter Exchange of India (OTCEI): (i) Training of intermediaries of the securities
OTCEI is a company which was set up in 1990 market.
under the Companies Act,1956 but later it (ii) Conducting research and publishing
was recognised as a stock exchange under the information useful to all market segments.
Securities Contracts Regulation Act, 1956. It
(iii) Undertaking measures to develop the capital
commenced its operations in trading in 1992 and
markets by adopting a flexible approach.
is modelled along the lines of NASDAQ, the OTC
Protective Functions:
exchange in USA. Its aim is to provide the small
companies an easy access to the capital market. (i) Prohibition of fraudulent and unfair trade
OTCEI provides a screen based nationwide practices like making misleading statements,
trading system, that acts as a place where buyers manipulations, price rigging etc.
meet the sellers and negotiate for an acceptable (ii) Controlling insider trading and imposing
terms of trade. Herein, dealers can trade both heavy penalties for such practices.
in new issue of securities as well as secondary (iii) Undertaking steps for investor protection.
market. It is a single window exchange which (iv) Promotion of fair practices and code of
provides a convenient, transparent and efficient conduct in securities market.
avenue for capital market investment. 4. India’s largest domestic investor Life Insurance
3. Explain the objectives and functions of SEBI. Corporation of India has once again come to
Ans. Objectives of SEBI: (i) To prevent trading government’s rescue by subscribing 70% of
malpractices in the securities markets. Hindustan Aeronautics’ `4,200-crore initial
(ii) To protect the rights and interests of public offering.
investors and to guide and educate them. (a) Which market is being reflected in the
(iii) To regulate and develop a code of conduct above case?
and fair practices by intermediaries like (b) State which method of floatation in
brokers, merchant bankers, etc., to make the above identified market is being
them competitive and professional. highlighted in the case? (Primary Market)
(iv) To regulate stock exchanges and the (c) Explain any two other methods of
securities market to encourage their orderly floatation. (Private Placement, Offer
functioning. through prospectus, offer for sale).
Functions of SEBI: Acknowledging the Ans. (a) Primary Market is being discussed above.
emerging nature of the securities market in Primary market is the market that deals
India, SEBI was entrusted with the twin task with the issue of new securities. It directs
of both regulation and development of the funds towards those entrepreneurs who
securities market. It has certain functions. either want to start a new enterprise or wish
Regulatory Functions: to expand the existing one.
(i) Registration of brokers and sub-brokers and (b) Right Issue mode of floatation has been
other players in the market. mentioned above. Existing shareholders are
(ii)

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 Financial Market | 57
offered subscription of new shares of the for cash transactions in the securities market.
company in proportion to the number of Discuss the subsequent steps involved in the
shares possessed by them. screen-based trading for buying and selling of
(c) Other methods of floatation are: securities in this case.
(i) Offer through prospectus: Under this Ans. Steps involved in the screen based trading of
method, a prospectus is published securities:
in newspapers, magazines, etc., in 1. Enter into an agreement with a registered
accordance with the guidelines and broker or sub-broker.
rules listed under the Companies Act 2. Place the order with the broker.
and SEBI disclosure. The subscriptions 3. Broker goes online and check for the best
are then invited from the public through prices.
this prospectus. 4. Once the prices are within the acceptable
(ii) Private Placement: In this method, the range, transaction is executed.
securities are sold only to some selected 5. Issue of Contract Note (within 24 hours).
individuals and big institutional
6. Surrender of shares or making payment
investors rather than to the general
against contract note immediately (pay-in-
public. Companies either allot the
day).
securities themselves or sell them to
7. Cash paid or securities delivered before T +
intermediaries who in turn sell these
securities to selected clients. 2 day (same day).
8. Exchange delivers or makes payment to the
5. Lalita wants to buy shares of Akbar
Enterprises, through her broker Kushvinder. other broker on T+2 day (payout day).
She has a Demat Account and a bank account 9. Broker makes delivery of securities in
Demat form to investors account.
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 Chapter

Marketing 11
NCERT Question

Very Short Answer Type Questions Ans. (i) Curtains,

1. State any two advantages of branding to (ii) Shirts,
marketers of goods and services. (iii) Cosmetics,
Ans. Branding is an important function performed by (iv) Travelling bags,
a marketer. He/she has to decide to lether the (v) Hand bags. (or do it by yourself)
firm’s products will be marketed under a brand 6. A marketer of colour TV having 20% of the
name or generic name. current market share of the country aims at
It has following advantages to the marketers: enhancing the market share to 50 per cent in
(i) Enables firm to differentiation product. next three years. For achieving this objective
(ii) Facilitates advertising and display he specified an action programme. Name the
programmes. function of marketing being discussed above.
(iii) Differential pricing. (Ans. Marketing planning.)
(iv) Ease in introduction of new products. Ans. Marketing planning is the function that has
been discussed above. This involves creating
2. How does branding help in differential
a market plan in order to attain the marketing
pricing?
goals and objectives of the organisation.
Ans. Good branding helps in creating loyalty and
habituality for product among the customers. Short Answer Type Questions
As a result, the firm can take advantage of this 1. What is marketing? What functions does it
and charge a different price (generally a higher play with process of exchange of goods and
price) for its product accordingly. services? Explain.
3. What is the societal concept of marketing? Ans. According to philip Kotter, Marketing is a social
Ans. The societal concept of marketing is an expansion process by which individual groups obtain what
of marketing concept. Apart from the consumer they need and want through creating offerings
satisfaction, it pays attention to the social, ethical and freely exchange products and services of
and ecological aspects of marketing. value with other.
4. Enlist the advantages of packaging of a Functions of marketing activities are as
consumer products. follows:
Ans. Advantages of packaging are as follows: (i) Gathering and Analysing Market
(i) Helps in raising the standard of health and Information: To identify the needs of the
sanitation. customers, collection of market information
(ii) With the help packaging, the product can is necessary. To gather market information
be easily identified e.g., Maggi noodles in the marketer makes a SWOT analysis.
yellow colour etc. (ii) Marketing Planning: Another important
(iii) Innovational opportunity e.g., new types of activity or area of work of a marketer is
packaging availability have made it easier to develop appropriate marketing plans,
to market the product. so that the marketing objective of the
(iv) Product Differentiation: Packaging is one organisation can be achieved.
of the important means of creating product (iii) Product Designing and Development:
differentiation. The design of the product contributes to
5. List five shopping products purchased by you make the product attractive to the target
or your family during the last few months. customers. A good design can improve

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 Marketing | 59
performance of a product and also give it a the nature of product, cost, location of target
competitive advantage in the market. market, etc.
(iv) Standardisation and Grading: Standardi- (xii)Storage or Warehousing: In order to
sation refers to producing goods of pre- maintain smooth flow of products in the
determined specification which helps in market, there is a need for proper storage
achieving uniformity and consistency in of the products. Further, there is a need for
the output which reduces the need for storage of adequate stock of goods to protect
inspection, testing and evaluation of the against unavoidable delays in delivery or to
products. meet out contingencies in the demand.
Grading is the process of classification of 2. Distinguish between the product concept and
products into different groups, on the basis production concept of marketing.
of its features such as quality, size etc. It Ans. Difference between Product and Production
ensures that goods belong to a particular Concept:
quality helps in realising higher prices for
Basis Product Production
high quality output. Concept Concept
(v) Packaging and Labelling: Packaging refers
Main focus Product Production
to designing the package for the products. concept concept focuses
Labelling refers to designing the label to focuses on on quantity of
be put on the package. Packaging provides quality of the the product.
protection to the product and also helps in product.
its promotion. Labelling helps in self service.
Means It can be It is achieved
(vi) Branding:It is the process of providing achieved through
name to product so that it can be easily through increased
distinguished from other products available continuous production
in the market. improvement leading to
(vii)Customer Support Service: Marketing in the quality. lower costs.
management is related to developing Objective Its main Its objective is
customer support service such as after sales objective is to to maximise
services, handling customer complaints. maximise the the profit
This aims at providing customer satisfaction profit through through
which is a key to marketing success. quality increased
(viii) Pricing of Product: Price is an important improvement. production.
factor affecting the success or failure of a 3. Product is a bundle of utilities. Explain.
product in the market. The marketers have Ans. Yes, product is a bundle of utilities, which is
to analyse the factors that determine the purchased because of its capability to provide
price of a product properly. satisfaction of certain need. A customer
(ix) Promotion: Promotion of products and seeks different types of satisfaction from the
services involves informing the customers product. There can be three types of benefits, it
about the firm’s product, its features provides to a customer (i) functional benefits (ii)
etc. and persuading them to purchase psychological benefits and (iii) social benefits,
these products. It includes four methods e.g., the purchase of a motorcycle provides
advertising, sales promotion, personal functional utility of transportation, but at the
selling and publicity. same time satisfies the need for prestige and
esteem and provides social benefit in the form
(x) Physical Distribution: The important
of acceptance by a group, by riding it.
decisions are as under physical distribution
4. What are industrial products? How are they
include managing inventory, storage,
warehousing and transportation of goods different from consumer products? Explain.
from one place to the other. Ans. Industrial products are those products, which
are used as inputs in providing other products
(xi) Transportation: Transportation involves
e.g., raw material, engines, tools, lubricants etc.
physical movement of goods from one place
The difference between consumer products and
to another. A marketer has to perform this
industrial products is based on their ultimate
function very efficiently keeping in mind
use and nature of purchases.

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60 | CBSE NCERT Question Business Studies– XII
Basis of Difference Industrial Products Consumer Products
Number of The number of customers is limited as The number of customers is higher as
Customers they are: mostly used by the producers they are consumed by many people
of other products. For example, Mustard oil.
For example, oil seeds.
Channel of These products require shorter These products require comparatively
Distribution channels of distribution such as direct longer channels before they reach the
selling or one level channel. final consumer. However, channel of
distribution for perishable consumer
products is small.
Location These products remain concentrated Consumer products readily and
only in those areas where the conveniently available.
industries producing these goods are
located.
Demand Demand for industrial product is Demand of consumer product is not a
a derived demand based on the derived demand rather sets the basis
demand for consumer products. for demand for industrial products.
Role of Technical While purchasing these products Such products do not involve
Features in Decision technical features play an important
any technical complexities in
Making role. manufacturing. Thereby, technical
features do not have much role in the
decision making while purchasing.
5. Distinguish between convenience product and shopping product.
Ans. Difference between Convenience and Shopping Product:
Basis of Difference Convenience Product Shopping Product
Demand Convenience products have a constant Shopping products have a
and regular demand. comparatively less frequent demand.
Nature of Products Essential commodities come under the Generally, such goods are durable in
category of convenience goods. nature
Unit of Purchase These products are available in small These products usually come in
and Price units and have low unit price. Thereby, bigger units and have high unit
such products have low profit margin. prices. Thereby, the profit margin is
also high.
Nature of Purchase Such products are brought impulsively Such products are not brought
without devoting much time and impulsively and the consumer
effort. devotes considerable time and effort
Example: Ice-creams, medicines, to compare the price, quality, etc.
newspaper, stationary items. of the product. Example Jewellery,
furniture, clothes, etc.
6. Describe the functions of labelling in the brand e.g., we can easily pick our favourite
marketing of products. soap from a number of packages only
Ans. Labelling refers to designing the label to be put because of its label.
on the package. Label on a product provides (iii) Grading of Products: Labels help grading
detailed information about the product, its the products into different categories.
contents, methods of use etc. The various Sometimes, marketers assign different
functions performed by a label are as follows: grades to indicate features or quality of the
(i) Describe the Product and Specify its product e.g., different type of tea is sold by
Contents: One of the most important some brands under Yellow, Red and Green
functions of label is that it describes the label categories.
product, its usage, cautions in use etc., and (iv) Help in Promotion of Products: An
specify its contents. important function of label is to aid in
(ii) Identification of the Product or Brand: A promotion of the products. A carefully
label helps in identifying the product or designed label can attract the customer

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 Marketing | 61
different sources, assemble or assort them
to purchase the product. So, many labels
as per the requirements of the consumers.
provide promotional messages, some show
discount or other schemes etc. 8. Define advertising, what are its main features?
(v) Providing Information Required by Law: Explain.
Another important function of labelling is Ans. Advertising is defined as the impersonal method
to provide information required by law. of promotion which is paid by the marketer to
e.g., the statutory warning on the package promote some goods or services. It is commonly
of cigarette or pan masala – ‘Smoking is use as the promotional tool of the company. The
injurious to health’ or ‘Chewing tobacco important features of advertising are as follows:
causes cancer.’ (i) Paid Form: Advertising is a paid form of
7. Discuss the role of intermediaries in the communication which means the sponsor
distribution of consumer non-durable has to bear the cost of communication with
products. the prospective buyers.
Ans. The term channels of distribution refers to the (ii) Impersonality: There is no direct face to
path through which the ownership as well as the face contact between the prospect and
possession of goods passes from the producer advertiser. It is therefore, referred as the
to the consumer. Following are the functions impersonal method of promotion.
performed by the channels of distribution: (iii) Identified Sponsor: Advertising is
(i) Accumulation: It aims at holding the stock undertaken by some identified individual
to match between the consumer demand or company, who makes the advertising
and supply condition. Warehousing helps efforts and also bears the cost of it.
in maintaining continuous flow of goods 9. Discuss the role of ‘Sales Promotion’ as an
and services. element of promotion mix.
(ii) Promotion: The marketing channels also Ans. Sales promotion includes those marketing
help in promoting the demand for the activities other than personal selling, advertising
product by displaying, demonstrating and publicity that stimulate consumer
and participating in various promotional
purchasing and dealer effectiveness, such as
activities organised by the producers.
display, shows and exhibitions, demonstrations
(iii) Negotiating: The marketing channels are and various non-current selling efforts not in the
the intermediaries between the producers
ordinary routine.
and the consumers. They attempt to reach
The main objectives of sales promotion
final agreement on price and other terms
activities are:
of the offer, so that transfer of ownership is
properly affected. (i) Creation of demand for the product.
(iv) Risk Taking: Risk taking is the basic (ii) Educating the consumers about new
responsibility of the intermediaries. It may products or new uses of the old product.
arise out of physical deteriorations, changes (iii) Building the brand loyalty for the product
in price levels, natural calamities, change among the consumers.
in fashion etc. These are unavoidable as 10. As the marketing manager of a big hotel
they hold sufficiently large and variety of located at an important tourist destination,
inventories till the sale of stock. what societal concerns would be faced by you
(v) Grading/Sorting: Grading is the process and what steps would you plan to take care of
whereby they sort the products on the these concerns? Discuss.
basis of different sizes, qualities, moisture Ans. As a Marketing Manager at a famous tourist
contents and so on. It helps us realising the destination, following would be the societal
time value for the product and at the same concerns:
time ultimate consumer feels satisfied with 1. Any activity of the hotel should not harm
the uniform quality of the product. the environment of the tourist place.
(vi) Packaging: The products are packed in the 2. None of the activities should be against the
small tradable lots for the convenience of ethics or sentiments of people.
the consumer.
Steps to combat such concerns:
(vii)Assembling / Assortment: Marketing 1. Waste management system in the hotel
channels aim at satisfying the needs of
keeping environmental protection in mind.
the customers. The products desired by
2. Affordable pricing of the accommodation
the consumer may not be available in the
market. They procure such goods from and food.

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62 | CBSE NCERT Question Business Studies– XII
11. What information is generally placed on the Marketing concept helps in effective marketing
package of a food product? Design a label for of goods and services by using the following:
one of the food products of your choice. (i) Identification of market or customer who
Ans. In a packaging of food product following are chosen as the target.
information are generally required: (ii) Understanding needs and wants of
1. Brand mark, Brand name customers in the target market.
2. Registered office address (iii) Development of products or services for
satisfying needs of the target market.
3. Customer service number
(iv) Satisfying needs of target market better than
4. Ingredients details
the competitors.
5. Veg/Non-Veg mark
(v) Doing all this at a profit.
6. Allergen caution details
2. What is marketing mix? What are its main
elements? Explain.
Ans. Marketing mix refers to the combination of four
basic elements known as four P’s— Product,
Price, Promotion and Place.
(i) Product Mix: Product mix basically
concerned with the features related to a
product e.g., range, quality, size, labelling,
packaging, branding etc. All products must
satisfy consumer needs and expectations. It
aims at providing good quality products at
fair prices.
(ii) Price Mix: It includes decisions relating
to price determination, discounts and
12. For buyers of consumer durable products, allowances, credit terms. It covers pricing
what ‘customer care services’ would you plan objectives and pricing policies. Price should
as a manager of a firm marketing new brand of cover not only cost of production and
motorcycle? Discuss. selling expenses but also a reasonable profit
Ans. Customer care services for marketing a new margin. The price policy adopted by the
brand of motorcycles would include: enterprise should not only be cost based but
(i) Providing free and hassle-free servicing for also demand based and competition based.
few initial years from purchase time. (iii) Place Mix: Place mix links the seller and
(ii) Making available the spare parts whenever buyer. The choice of channels of distribution
required. and transport are the two major issues here.
There are various factors which help in
(iii) Facility of servicing (paid) and repairing.
deciding the channel e.g., the time and the
(iv) Lodging complaints of customers using the
place, where the goods have to reach or
product on a regular basis. transportation.
(v) Regular contact with customers for new It is the nature of goods, place of destination,
updates, services, facilities etc. cost and availability etc.
Long Answer Type Questions (iv) Promotion Mix: It refers to all marketing
1. What is the marketing concept? How does it activities to increase the volume of sales of
help in the effective marketing of goods and the product of an enterprise. It consists of
services? means of marketing communication with
Ans. Orientation of marketing implies that focus on a view to informing and persuading the
the satisfaction of customers need, is the key to prospective buyers to buy a certain product.
the success of any organisation in the market. All It includes advertising, personal selling,
the decisions in the firm are taken from the point publicity and sales promotion.
of view of the customers, e.g., What product will 3. How does branding help in creating product
be produced, with what features and at what differentiation? Does it help in marketing of
price shall it be sold or where shall it be made goods and services? Explain.
available for sale will depend on what do the Ans. Branding helps a firm in distinguishing its
customer want. products from that of its competitors. This

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 Marketing | 63
helps the firm to secure and control the market Pricing Objectives: Pricing objectives
for its products. If products were sold by are another important factor affecting the
generic names, it would be very difficult for the fixation of the price of a product or a service.
marketers to distinguish their products from its Apart from price maximisation, the pricing
competitors. Thus, most marketers give a name objectives of a firm may include.
to their product, which helps in identifying (a) Obtaining Market Share Leadership: If
and distinguishing their products from the a firm objective is to obtain larger share
competitors product. This process of giving a of the market, it will keep the price
name or a sign or a symbol etc., to a product is of its products at lower level, so that
called Branding. greater number of people are attracted
4. What are the factors affecting determination of to purchase their products.
the price of a product or service? Explain. (b) Surviving in a Competitive Market:
If a firm is facing difficulties surviving
Ans. There are number of factors which affect the
in the market because of intense
fixation of the price of a product.
competition or introduction of a more
Some of the important factors in this regard
efficient substitute by a competitor.
are discussed as below:
(c) Attaining Product Quality Leadership:
(i) Product Cost: The cost sets the minimum In this case, normally higher prices
level or the floor price at which the product are charged to cover high quality
may be sold. There are broadly three types and high cost of R & D (Research and
of cost—fixed costs, variable costs and Development).
semi variable cost. Total cost is the sum of (vi) Marketing Methods used Price Fixation:
all three. Generally, all firms try to cover Price is also affected by other elements of
all their costs, atleast in the long run. In marketing such as distribution system,
addition, they aim at earning a margin of quality of salesmen employed, quality and
profit over and above the costs. amount of advertising, sales promotion
(ii) The Utility and Demand: The utility efforts, the type of packaging, product
provided by the product and the intensity differentiation, credit facility and customer
of demand of the buyer sets the upper limit service provided.
of price, which a buyer would be prepared 5. Explain the major activities involved in the
to pay. Infact the price must reflect the physical distribution of products.
interest of both the parties to the transaction Ans. Physical distribution covers all the activities
— the buyer and the seller. The buyer may required to move goods physically from
be ready to pay up to the point, where the manufacturer to the customers. Important
utility from the product is atleast equal to activities involved in the physical distribution
the sacrifice made in terms of the price paid. include transportation, warehousing, material
The seller would, however, try to cover handling and inventory control.
the costs. According to the law of demand, (i) Order Processing: In a typical buyer-
consumers generally purchase more units at seller relationship, order placement is
a low price than at a high price. the first step. Products move from the
(iii) The Extent of Competition in the Market: manufacturers to customers via channel
The price is also affected by the nature and members while orders move from customers
degree of competition. The price will tend to manufacturers. Therefore, a good speedy
to reach the upper limit in case there is less and accurate system of order processing
degree of competition while under free becomes a necessity.
competition, the price will tend to be set at (ii) Transportation: Transportation is the means
the lowest level. of carrying goods and raw materials from
(iv) Government and Legal Regulations: In the point of production to the point of sale.
order to protect the interest of public against It is one of the major elements in the physical
unfair practices in the field of price fixing, distribution of goods. It is important unless
government can intervene and regulate the good are physically made available, the
the price of commodities, government can sale can not be completed.
declare a product as essential product and (iii) Warehousing: Warehousing refers to the act
regulate its price. of storing and assorting products in order to
(v)

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64 | CBSE NCERT Question Business Studies– XII
create time utility in them. The basic purpose buyers in the form of high prices of the product.
of warehousing activities is to arrange It is line that advertisement of a product cost lots
placement of goods and provide facilities to of money but it helps to increase the demand for
store them. The need for warehousing arises the product as large number of potential buyers
because there may be difference between the come to know about the availability of the
time, a product is produced and the time it products, its features etc., and are persuaded to
is required for consumption. Generally, the buy it. This increases the demand and therefore
efficiency of a firm in serving its customers the production. As a result, the per unit cost
will depend on, where these warehouses are of production comes down as the total cost is
located and where are these to be delivered. divided by larger number of units.
(iv) Inventory Control: A very important (ii) Undermines Social Values: Advertising
decision in respect of inventory is to decide undermines social values and promotes
the level of inventory. Higher the level of materialism. It breeds discontentment among
inventory, higher will be the level of service people as they come to know about new products
to customers but the cost of carrying the and feel dissatisfied with their present state of
inventory will also be high because lot affairs. Advertisement in fact helps buyer by
of capital would be tied up in the stock. informing them about the new products which
The decision regarding level of inventory may be improvement over the existing products.
involves prediction about the demand (iii) Confuse the Buyers: Another criticism against
for the product. A correct estimate of the advertisements is that so many products are
demand helps to hold inventory and cost being advertised which make similar claims
level down to a minimum. that the buyer gets confused as to which one is
The major factors determining inventory true and or which to be relied upon, e.g., there
levels are: are so many brands of soaps, shampoos, cars,
TVs, cell phones etc. which are advertised. The
(a) Firm’s policy regarding the level of
supporters of advertisement, however argued
customer service. Higher the level of
that we are all rational human beings who
service, greater will be the need to keep
make our decisions for purchase of products on
more inventories.
factors, such as price, style, size, etc. Thus the
(b) Scope of accuracy of the sales forecast.
buyers can clear their confusion by analysing
In case, more accurate estimates are
the information provided on the advertisements
available, the need for keeping very high
and other sources before taking a decision to
level of inventory can be minimised.
purchase a product.
(c) Responsiveness of the distribution
(iv) Encourages Sale of Inferior Product:
system i.e., ability of the system to
Advertising does not distinguish between
transmit inventory needs back to the
superior and inferior products and persuade
factory and get products to the market.
people to purchase even the inferiors products.
(d) Cost of inventory, which includes The desired level of quality will depend on the
holding cost, such as cost of economic states and preferences of the target
warehousing, tied up capital etc. and customers. Advertisements sell products of a
the manufacturing cost. given quality and the buyers will buy, if it suits
6. ‘Expenditure on advertising is a social waste’ their requirements.
Do you agree? Discuss. (v) Some Advertisements are in Bad Taste:
Ans. The opponents of advertising say that the Another criticism against advertising is that
expenditure on advertising is a social waste some advertisements are in bad taste. They
as it adds to the cost, multiplies the needs of show something which is not approved by
the people and undermines social values. The some people. Some advertisements spoil the
proponents, however argue that the advertising relationship between employer and employee,
is very useful as it increases the reach, brings the husband and wife etc.
per unit cost of production down and adds to From the above discussion, we have learnt that
the growth of the economy. though advertisements are crticised but still
Following are the points of criticism: they have their own advantages. It is not a social
(i) Addsto Cost:Theopponentsof advertising argue waste, rather it adds value to the social cause
that advertising unnecessarily adds to the cost by giving a boost to production and generating
of product, which is ultimately passed on to the employment.

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 Marketing | 65
7. Distinguish between advertising and personal selling.
Ans. Difference between Advertising and Personal Selling
Basis Advertising Personal Selling
Nature Advertising is indirect and impersonal in Personal selling is direct or face to face
nature. communication in nature.
Coverage It is a means of mass level of coverage. Only limited number of people can be
contacted at a time.
Medium It involves use of oral, written+visual It is dependent on oral messages.
messages.
Cost It is economical method. It is costly.
Feedback It lacks direct feedback. It facilitates direct, immediate feedback.
Suitability It is suitable for all types of products. It is more suitable for product in the
introductory stages of product life cycle.
8. Explain the factors determining choice of management wants to have greater control
channels of distribution. on the channel number, short channels are
Ans. The decision of choosing channels of distribution used but if the management do not want
depend on various factors, which are discussed more control over the middlemen, it can
as follows: go in for longer channel or large number of
(i) Product Related Factors: The choice of intermediaries.
channels of distribution depends upon (iii) Competitive Factors: The choice of channel
the factors related to product. It includes is also affected by what the competitor has
whether the‘ product is an industrial selected as its channel. Sometimes, firm
product or a consumer product, perishable may decide to go for the same channel and
or non perishable. Industrial products sometimes absolutely opposite.
require shorter channel and consumer (iv) Market Factors: Important market factors
products require longer channel. affecting the choice of channel of distribution
(ii) Company Characteristics: The important include size of market, geographical
company characteristics affecting the choice concentration of potential buyers and
of channels of distribution include the quantity purchased.
financial strength of the company and the (v) Environmental Factors: Sometimes
degree of control it wants to hold on other environmental factors also help in deciding
channel member. Direct selling involves the channel of distribution, e.g., in a
lot of foods to be invested in fixed assets depressed economy, marketers use shorter
say starting own retail outlets or engaging channels to distribute their goods in an
large number of sales force. Similarly, if the economical way.
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