LU BCOM Business Organisation eNotes For Bcom Entrance Exam 2022


Business operations refer to activities that businesses engage in on a daily basis to increase the value of the enterprise and earn a profit. The activities can be optimized to generate sufficient revenues to cover expenses and earn a profit for the owners of the business. Employees help accomplish the business’ goals by performing certain functions such as marketing, accounting, manufacturing, etc.

Business operations evolve as the business grows, and the management should plan to accommodate the changes to prevent glitches occurring in the system. For example, as a small business grows, it must be ready to handle arising challenges such as legal, marketing, and capacity issues. If the business does not evolve with the changes in business operations, glitches such as errors and omissions will emerge.

Nature and Scope of Production and Operation Management.

Production Management is a process which involves managing and controlling production activities of the business. It involves the application of management principles to the production function of the business to increase productivity. Production management applies planning, directing, organising and controlling for managing production operations. This process is concerned with the conversion of raw materials into business finished products efficiently without any wastage of resources.

Scope of Production Management

Facility location: It involves selecting the right location for setting up production facilities of business that affects its long term growth. This is an important decision to be taken as it involves long term commitment and huge investments in land, building and machinery. Location of facility should be appropriate from where raw materials, labor and other factors of production are easily accessible by business.

Plant layout and Material Handling: Plant layout is concerned with physical arrangement of facilities set up by business. It involves deciding departments, work Centre’s, machines and necessary equipment’s within the facility for ensuring better productivity. Material handling refers to managing the movement of materials from storeroom to machinery and from machinery to another stage of production like packaging and storing. 

Product Designing: Product designing means giving shapes to ideas of products for converting them into a reality. Every organization should come up with innovative products in market after conceiving new ideas based on market requirements. 

Designing of Process: Process design is an overall route followed by business for transforming raw materials into finished products. It is a crucial decision to be taken as it determines the efficiency of business. It involves choosing appropriate technology, deciding sequence of production processes and facilities layout.

Production Planning and Control (PPC): It involves planning and controlling various aspects of production activities. PPC is a process of deciding production in advance, setting up the exact route for each item, deciding the start and finish deadline of each product for directing production orders to shops and following product progress in accordance with the order.

Quality Control: Quality control is a process of checking and maintaining the required quality standards of production activities within the organization. It ensures that goods produced are of high quality by setting up checkpoints and measuring performance from time to time.

Maintenance Management: It refers to evaluation of all business activities for identifying any deviations if there. Maintenance management involves taking all corrective steps for removing these deviations. It focuses on keeping all the processes on track in line with decided quality, predetermined cost schedule and time range. Taking care of all machinery repairs, replacement and servicing are included in this. 

Objectives of Operations Management

Definition: Operations Management can be understood as an area of management which is concerned with the government of system, processes and functions that manufacture goods and renders services to the end user, to provide desired utilities to them while adhering to other objectives of the concern, i.e. efficiency, effectiveness, and productivity.

Objectives of Operations Management

Customer Service: The primary objective of operations management, is to utilize the resources of the organization, to create such products or services that satisfy the needs of the consumers, by providing “right thing at the right price, place and time”.

Resource Utilization: To make the best possible use of the organisation’s resources to satisfy the wants of the consumers, is another important objective of the operations management.

In operations management, the formation of goods or services encompasses conversion of inputs into outputs, wherein different inputs such as capital, labour, material, machinery and information are combined and used to create output, by using the conversion process. For this purpose, the organization measures different points in the process and then compares the same with the set standards, to ascertain whether corrective action is required or not.

Operations Manager responsibilities include:

  • Ensuring all operations are carried on in an appropriate, cost-effective way
  • Improving operational management systems, processes and best practices
  • Helping the organization’s processes remain legally compliant

The Operations Manager role is mainly to implement the right processes and practices across the organization.

The specific duties of an Operations Manager include formulating strategy, improving performance, procuring material and resources and securing compliance. You should be ready to mentor your team members, find ways to increase quality of customer service and implement best practices across all levels.

Ultimately, we’ll trust you to help us remain compliant, efficient and profitable during the course of business.


  • Ensure all operations are carried on in an appropriate, cost-effective way
  • Improve operational management systems, processes and best practices
  • Purchase materials, plan inventory and oversee warehouse efficiency
  • Help the organization’s processes remain legally compliant
  • Formulate strategic and operational objectives
  • Examine financial data and use them to improve profitability
  • Manage budgets and forecasts
  • Perform quality controls and monitor production KPIs
  • Recruit, train and supervise staff
  • Find ways to increase quality of customer service

Manufacturing Vs Service Operations


An organized enterprise does not, of course, exist in a vacuum. Rather, it is dependent on its external environment; it is a part of larger systems such as the industry to which it belongs, the economic system, and society. Thus, the enterprise receives inputs, transforms them, and exports the outputs to the environment. However, this simple model needs to be expanded and developed into a model of operational management that indicates how the various inputs are transformed through the managerial functions of planning, organizing, staffing, leading, and controlling. Clearly, any business or other organization must be described by an open system model that includes interactions between the enterprise and its external environment.

Facility Location

Facility location is the process of determining a geographic site for a firm’s operations. Managers of both service and manufacturing organizations must weigh many factors when assessing the desirability of a particular site, including proximity to customers and suppliers, labor costs, and transportation costs.

Location conditions are complex and each comprises a different Characteristic of a tangible (i.e. Freight rates, production costs) and non-tangible (i.e. reliability, frequency security, quality) nature.

Location conditions are hard to measure. Tangible cost based factors such as wages and products costs can be quantified precisely into what makes locations better to compare. On the other hand non-tangible features, which refer to such characteristics as reliability, availability and security, can only be measured along an ordinal or even nominal scale. Other non-tangible features like the percentage of employees that are unionized can be measured as well. To sum this up, non-tangible features are very important for business location decisions.

Facility location determination is a business critical strategic decision. There are several factors, which determine the location of facility among them competition, cost and corresponding associated effects. Facility location is a scientific process utilizing various techniques.

Location Selection Factors

For a company which operates in a global environment; cost, available infrastructure, labor skill, government policies and environment are very important factors. A right location provides adequate access to customers, skilled labors, transportation, etc. A right location ensures success of the organization in current global competitive environment.


A geographic area becomes a focal point for various facility locations based on many factors, parameters and issues. These factors are can be divided into primary factors and secondary factors. A primary factor which leads to industrialization of a particular area for particular manufacturing of products is material, labor and presence of similar manufacturing facilities. Secondary factors are available of credit finance, communication infrastructure and insurance.

Errors in Location Selection

Facility location is critical for business continuity and success of the organization. So it is important to avoid mistakes while making selection for a location. Errors in selection can be divided into two broad categories behavioral and non-behavioral. Behavioral errors are decision made by executives of the company where personal factors are considered before success of location, for example, movement of personal establishment from hometown to new location facility. Non-behavioral errors include lack of proper investigative practice and analysis, ignoring critical factors and characteristics of the industry.

Location Strategy

The goal of an organization is customer delight for that it needs access to the customers at minimum possible cost. This is achieved by developing location strategy. Location strategy helps the company in determining product offering, market, demand forecast in different markets, best location to access customers and best manufacturing and service location.

Factors Influencing Facility Location

If the organization can configure the right location for the manufacturing facility, it will have sufficient access to the customers, workers, transportation, etc. For commercial success, and competitive advantage following are the critical factors:

Customer Proximity: Facility locations are selected closer to the customer as to reduce transportation cost and decrease time in reaching the customer.

Business Area: Presence of other similar manufacturing units around makes business area conducive for facility establishment.

Availability of Skill Labor: Education, experience and skill of available labor are another important, which determines facility location.

Free Trade Zone/Agreement: Free-trade zones promote the establishment of manufacturing facility by providing incentives in custom duties and levies. On another hand free trade agreement is among countries providing an incentive to establish business, in particular, country.

Suppliers: Continuous and quality supply of the raw materials is another critical factor in determining the location of manufacturing facility.

Environmental Policy: In current globalized world pollution, control is very important, therefore understanding of environmental policy for the facility location is another critical factor.

Facility Layout

For an organization to have an effective and efficient manufacturing unit, it is important that special attention is given to facility layout. Facility layout is an arrangement of different aspects of manufacturing in an appropriate manner as to achieve desired production results. Facility layout considers available space, final product, safety of users and facility and convenience of operations.

An effective facility layout ensures that there is a smooth and steady flow of production material, equipment and manpower at minimum cost. Facility layout looks at physical allocation of space for economic activity in the plant. Therefore, main objective of the facility layout planning is to design effective workflow as to make equipment and workers more productive.

Facility Layout Objective

A model facility layout should be able to provide an ideal relationship between raw material, equipment, manpower and final product at minimal cost under safe and comfortable environment. An efficient and effective facility layout can cover following objectives:

To provide optimum space to organize equipment and facilitate movement of goods and to create safe and comfortable work environment.

To promote order in production towards a single objective

To reduce movement of workers, raw material and equipment

To promote safety of plant as well as its workers

To facilitate extension or change in the layout to accommodate new product line or technology upgradation

To increase production capacity of the organization

An organization can achieve the above-mentioned objective by ensuring the following:

Better training of the workers and supervisors.

Creating awareness about of health hazard and safety standards

Optimum utilization of workforce and equipment

Encouraging empowerment and reducing administrative and other indirect work

Factors affecting Facility Layout

Facility layout designing and implementation is influenced by various factors. These factors vary from industry to industry but influence facility layout. These factors are as follows:

The design of the facility layout should consider overall objectives set by the organization.

Optimum space needs to be allocated for process and technology.

A proper safety measure as to avoid mishaps.

Overall management policies and future direction of the organization

Design of Facility Layout

Principles which drive design of the facility layout need to take into the consideration objective of facility layout, factors influencing facility layout and constraints of facility layout. These principles are as follows:

Flexibility: Facility layout should provide flexibility for expansion or modification.

Space Utilization: Optimum space utilization reduces the time in material and people movement and promotes safety.

Capital: Capital investment should be minimal when finalizing different models of facility layout.

Design Layout Techniques

There are three techniques of design layout, and they are as follows:

Two or Three Dimensional Templates: This technique utilizes development of a scaled-down model based on approved drawings.

Sequence Analysis: This technique utilizes computer technology in designing the facility layout by sequencing out all activities and then arranging them in circular or in a straight line.

Line Balancing: This kind of technique is used for assembly line.

Types of Facility Layout

There are six types of facility layout, and they are as follows:

Line Layout

Functional Layout

Fixed Position Layout

Cellular Technology Layout

Combined Layout, and

Computerized Relative Allocation of Facility Technique

Definition of Material Handling

Material handling is an activity that involves movement of material or products within an organization from one place to another place or the flow of material or products to vehicles or from vehicles. The activities are usually confined within the boundaries of an organization. The movement of material from one organization to another is categorized as transportation work, which is not part of material handling activities.

It is not only about the movement of material. It also involves storage, protection, and control of material while it moves in different departments like a warehouse, production, and manufacturing departments. It is one of the essential tasks for organizations. A poorly handled material become waste before it can be used for production purpose or before it is sent to retail stores.

In the old times, it was mostly done manually because of the lack of technology. Because of that, the number of accidents during handling work was quite high. In present times, with the introduction of technology, almost all of the work is done using automation or semi-automation. The introduction of technology not only reduced the cases of accidents occurred but also made the work fast.

Objectives of Materials Handling Processes

Material handling is one of the most critical activities taking place in an organization. Material handling makes a large portion of the total business expense of a company.

Therefore, achieving the lowest cost and maximum production can be considered as the main objectives of the material handling process.

1. Reduced cost using a material handling

The first and foremost objective of material handling is lowering the cost of production. Because a large portion of the total production cost is spent on material procurement, storage, and movement. Material is crucial for the production process.

The process of production will halt if the material is not provided in sufficient quantity and on time. Therefore, material handling is given the utmost importance. Companies always look for methods that can be used for the optimized use of material.

By the use of sophisticated methods, the cost of production can be reduced to a significant amount.

2. Reduced waste of material

Another significant concern of an organization is to minimize material waste. Sometimes, the material gets wasted because of poor storage, or sometimes it gets wasted while moving it from one place to another.

An appropriate material handling not only concerns about the movement of material but also takes care of placing orders of the right amount, making the use of the material at the right time, keeping the right amount of inventory, and moving material using better techniques and with caution.

All of this is taken care of to reduce the wastage of material. Moreover, lower wastage for material results in lower costs. As a result of which the profit margin of the organization will increase.

3. Improved work condition

Before the inclusion of technology, all movement and storage works were done manually. Some labors were responsible for performing these tasks. They were responsible for all the loading and unloading work.

Poor results in frequent accidents on-site because of poor work conditions. A proper and well-thought material handling also takes care of people performing the work.

4. Enhanced distribution

Distribution means the delivery of final goods to the retailers and wholesalers. A lot of material gets damaged during transportation because of poor packing and poor storage.

It helps in the reduction of damage to products during shipping and handling. In addition to this, it also concerns the storage location of the material. A proper storage location reduced the chances of material gets damaged in the storage house.

5. Optimized warehouse capacity

Warehouse cost also adds to the price of the final product. Warehouse capacity means the ability for storing goods. It is essential to take care of the layout of the warehouse, flooring of the warehouse, and aisle space in the warehouse to have optimized warehouse capacity.

6. Improved flow of material

A smooth flow of material is when material enters the company in raw material form at the time when it is required and exits the organization in the form of final goods. The flow of material gets disturbed when the material is not available when it is needed for the production or gets damaged rather than being used for the production process.

It concerns with the smooth flow of material in the organization. It improves the circulation of material in the organization as a result of which material stays for less time in the warehouse and is used for production at earliest.

7. Full equipment utilization

Expensive machinery and equipment are used for the production process. These equipment fails to perform at their maximum capacity because of poor material handling.

Because the performance of these equipment depends mainly on the speed at which the material is supplied and received. Therefore, material handling also helps in the full utilization of the capacity of the equipment.

8. Workers’ safety

The last but not least objective is the safety of workers. Poor material handling can result in accidents in the factory, which are very risky for workers working there.


The material handling methods are designed based on the principles that you are going to learn in this section. The followings are the principles:

Cost principle: To encourage minimum expenditure while materials handling.

Computerization principle: To encourage maximum use of computers and automation as materials.

Energy principle: This principle is concerns about the consumption of energy.

Ergonomic Principle: To identify the human limitations and capabilities to do the work.

Ecology principle: To ensure the least impact on the ecological system because of material handling work.

Flexibility Principle: To encourage the use of tools and methods which can be used in different types of work conditions.

Gravity Principle: To promote the consideration of gravity principle in materials handling.

Layout Principle: The layout principle is concerned with the sequential order of material handling operations.

Maintenance principle: The maintenance principle is for regular maintenance and repair of machinery and device in materials handling.

Mechanization principle: Mechanization principle is concerned with the deployment of mechanization methods to speed up the work and reduce the efforts of humans.

Orientation principle: To study the existing processes and problems before getting into preliminary planning.

Planning principles: To plan by including basic requirements and alternative approaches in materials handling.

Standardization principle: The standardization principle encourages the standardization of tools and techniques.

Simplification principle: The simplification principle is concerned with making the process of material handling as simple as possible.

Space utilization principle: The space utilization principle encourages the optimized use of available space.

Systems Principle: The system principle is concerned with material and storage activities in materials handling.

System flow principle: The system flow principle is concerned with the integration of physical material flow with the data flow.

Safety principle: The safety principle is concerned with the rules and regulations related to the safety of workers working in materials handling.


The types of material handling have changed because of the enhancement of technology. In this section, I will discuss all kinds of material handling that are used in the companies to receive, store, and move material in the organization.

Let us learn about different types of material handling in the chronological order of their introduction in industries.

1. Manual material handling

The first method is used for material movement is manual material handling. In this type of handling, the whole work of the movement is dependent on the workers. The workers lift, carry, deliver, empty the container of material by their hands. This type of material handling is a prolonged method for material movement as a result of which it causes a delay in the production work and stops efficient machines to deliver up to their full capacity.

Manual handling not only slows down the production work but is also hazardous for workers who do the work. They do a lot of physical labor, which affects their health. The shoulders and lower back of workers get strained which affects not only their work capacity but also the overall work capacity of the organization. Moreover, they are also prone to accidents because of doing a lot of physical work.

Sometimes, workers get seriously injured in the accidents and left with life long injuries. This is not good for the workers as they become incapable of earning their bread and butter, and it puts an extra financial burden on the company too.

2. Semi-automated material handling:

The semi-automated material handling is when workers do the work of material handling with the help of machinery and other carrying trollies and trams. Semi-automation becomes popular in industry in the initial days of the introduction of technology. It is a good alternative for manual handling. Semi-automation not only reduced the physical work of workers but also speed up the production work.

In semi-automation handling, workers do the work of loading and unloading themselves but rather than carrying material on their backs or by holding in hands; they can move the material using trollies or trams.

It is economical for a company as a company hires a smaller number of workers to do the same amount of work. Moreover, it also lowers the rate of mishappenings in the organization as a result of which the medical expenses of the organizations also reduce.

3. Automated material handling:

The next type is automated material handling. Automated handling reduces or eliminates manual work. Automated handling means machines and robots perform work. Robots have replaced the manual work completely. In developed countries like Japan, most industries have replaced their workforce with worker robots.

There are several advantages to automated handling. The first benefit is that it increases the speed of production work. Robots work 100 times faster than a human worker. Moreover, Automation also reduces the chances of accidents during work. Workers are not required to do physical work in the gruesome work conditions. They can sit comfortably and can control robots do all the physical work.

Automation also reduces the production cost for the company. Rather than hiring many workers, companies can employ a few workers who can control the robots. This reduces the expenses of workers’ wages and medical expenses.

For example, Amazon is replacing its fulfillment center jobs with robots. Fulfillment centers were employing a considerable number of employees. Now, at the place of humans, robots will pack orders to send out for delivery.

eaning of Business Combination

Business communication refers to the combination of two or more independent businesses for attaining same objective. This association of business with one another is either temporary or permanent and is meant for pooling production, finance, marketing and profit. Such association of firms is carried out both at local and international level.

For combining together these firms enter into an agreement that is done either in oral form or a written form. Business combination helps firms in eliminating the competition and maximizing their profit. Firms by merging together as one unit are able to enjoy a monopoly position in market.

It enables them in sharing knowledge and ideas with one other which help in achieving better efficiency. This imparts greater health and stability to firms for surviving during tough business cycles. Combination result in joint investment by firms in research and development activities that leads to better innovative products.

Types of Business Combination Circular Combination

Circular combination is a combination of those businesses which belong to different

industry and produce differentiated products. It is also known as mixed combination as two different firms comes together through it. This combination helps firms in taking benefits of

administrative integration. Diagonal Combination

It is the one in which two or more firms providing auxiliary services combines with the

main firm involved in main line of production. Diagonal combination is also termed as service combination. Its main aim is to increase the business size and to make it self-sufficient so that it may not be dependent on any outside firms. Example under this category is combination of firms manufacturing automobiles with those providing spare parts and repairs services.

Vertical Combination

It means combining various department of same business unit to bring under same management. Vertical combination refers to the integration of different stages of firm involved in production of product. Here all steps from conversion of raw material to finished product are linked together.

Horizontal Combination

Horizontal combination is an integration of business units of similar nature producing identical product. They are under one management and serve same geographical market. Integration of two shoe industry or two textile industry is an example of this combination.

Rationalisation and Automation

Methods of remuneration

Labour remuneration methods have an effect on:

The cost of finished products and services. The morale and efficiency of employees.

Time-based pay

Time rates are used when employees are paid for the amount of time they spend at work.

The usual form of time rate is the weekly wage or monthly salary. Usually the time rate is fixed in relation to a standard working week (e.g. 35 hours per week). The employment contract for a time-rate employee will also stipulate the amount of paid leave that the employee can take each year (e.g. 5 weeks paid holiday).

Time worked over this standard is known as overtime. Overtime is generally paid at a higher rate than the standard time-rate – reflecting the element of sacrifice by an employee. However, many employees who are paid a monthly salary do not get paid overtime. This is usually the case for managerial positions where it is generally accepted that the hours worked need to be sufficient to fulfil the role required.

The main advantages of time-rate pay are:

Time rates are simple for a business to calculate and administer

They are suitable for businesses that wish to employ staff to provide general roles (e.g. financial management, administration, maintenance) where employee productivity is not easy to measure It is easy to understand from an employee’s perspective

The employee can budget personal finance with some certainty

Makes it easier for the employer to plan and budget for employee costs (e.g. payroll costs will be a function of overall headcount rather than estimated output)

The main disadvantages of time-rate pay are:

Does little to encourage greater productivity – there is no incentive to achieve greater output

Time-rate payroll costs have a tendency to creep upwards (e.g. due to inflation-related pay rises and employee promotion

Piece Rate System Of Wage Payment

The piece rate system is that system of wage payment in which the workers are paid on the basis of the units of output produced. Piece rate system does not consider the time spent by the workers. Piece rate system is the method of remunerating the workers according to the number of unit produced or job completed. It is also known as payment by result or output. Piece rate system pays wages at a fixed piece rate for each unit of output produced. The total wages earned by a worker is calculated by using the following formula.

Total Wages Earned= Total units of outputs produced x Wage rate per unit of output. OR,

Total Wages Earned= Output x Piece Rate Advantages Of Piece Rate System

The following are some important advantages of piece rate system of wage payment.

  • Piece rate system pays wages according to the output produced by the workers. It encourages efficient workers.
  • Piece rate system helps to reduce idle time.
  • Piece rate system gives incentives to the workers to adopt a better method of production for increasing their production and earning.
  • Piece rate system helps the management to determine the exact labor cost per unit for submitting quotation.
  • Piece rate system reduces per unit cost of production due to increased volume of production.
  • Piece rate system requires less supervision cost. Disadvantages Of Piece Rate System

The following are the notable disadvantages of piece rate system

  • Piece rate system does not help in producing quality output as the workers are concentrated more on quantity instead of quality.
  • Piece rate system does not help for a uniform flow of production and makes difficult to regulate the production schedule.

Stock Exchange

Stock exchange is a market where stocks are bought and sold and traded. In stock exchanges those who are willing to purchase or sell their stocks or bonds need to perform that through an intermediary called the broker. Brokers are individuals who are licensed for performing trading of bonds and stocks in a stock exchange.

the securities are bought and sold as per well-structured rules and regulations. Securities mentioned here includes debenture and share issued by a public company that is correctly listed at the stock exchange, debenture and bonds issued by the government bodies, municipal and public bodies.

Typically bonds are traded Over-the-Counter (OTC), but a few corporate bonds are sold in a stock exchange. It can enforce rules and regulation on the brokers and firms that are enrolled with them. In other words, a stock exchange is a forum where securities like bonds and stocks are purchased and traded. This can be both an online trading platform and offline (physical location).

Functions of Stock Exchange

Following are some of the most important functions that are performed by stock exchange:

Role of an Economic Barometer: Stock exchange serves as an economic barometer that is indicative of the state of the economy. It records all the major and minor changes in the share prices. It is rightly said to be the pulse of the economy, which reflects the state of the economy.

Valuation of Securities: Stock market helps in the valuation of securities based on the factors of supply and demand. The securities offered by companies that are profitable and growth- oriented tend to be valued higher. Valuation of securities helps creditors, investors and government in performing their respective functions.

Transactional Safety: Transactional safety is ensured as the securities that are traded in the

stock exchange are listed, and the listing of securities is done after verifying the company’s position. All companies listed have to adhere to the rules and regulations as laid out by the governing body.

Contributor to Economic Growth: Stock exchange offers a platform for trading of securities of the various companies. This process of trading involves continuous disinvestment and reinvestment, which offers opportunities for capital formation and subsequently, growth of the economy.

Making the public aware of equity investment: Stock exchange helps in providing information about investing in equity markets and by rolling out new issues to encourage people to invest in securities.

Offers scope for speculation: By permitting healthy speculation of the traded securities, the stock exchange ensures demand and supply of securities and liquidity.

Facilitates liquidity: The most important role of the stock exchange is in ensuring a ready platform for the sale and purchase of securities. This gives investors the confidence that the existing investments can be converted into cash, or in other words, stock exchange offers liquidity in terms of investment.

Better Capital Allocation: Profit-making companies will have their shares traded actively, and so such companies are able to raise fresh capital from the equity market. Stock market helps in better allocation of capital for the investors so that maximum profit can be earned.

Encourages investment and savings: Stock market serves as an important source of investment in various securities which offer greater returns. Investing in the stock market makes for a better investment option than gold and silver.

Features of Stock Exchange:

A market for securities- It is a wholesome market where securities of government, corporate companies, semi-government companies are bought and sold.

Second-hand securities- It associates with bonds, shares that have already been announced by the company once previously.

Regulate trade in securities- The exchange does not sell and buy bonds and shares on its own account. The broker or exchange members do the trade on the company’s behalf.

Dealings only in registered securities- Only listed securities recorded in the exchange office can be traded.

Transaction- Only through authorised brokers and members the transaction for securities can be made.

Recognition- It requires to be recognised by the central government.

Measuring device- It develops and indicates the growth and security of a business in the index of a stock exchange.

Operates as per rules– All the security dealings at the stock exchange are controlled by exchange rules and regulations and SEBI guidelines.

What Is a Commodity Market?

A commodity market is a marketplace for buying, selling, and trading raw materials or primary products.

Commodities are often split into two broad categories: hard and soft commodities. Hard commodities include natural resources that must be mined or extracted—such as gold, rubber, and oil, whereas soft commodities are agricultural products or livestock—such as corn, wheat, coffee, sugar, soybeans, and pork.


A commodity market involves buying, selling, or trading a raw product, such as oil, gold, or coffee.

There are hard commodities, which are generally natural resources, and soft commodities, which are livestock or agricultural goods.

Spot commodities markets involve immediate delivery, while derivatives markets entail delivery in the future.

Investors can gain exposure to commodities by investing in companies that have exposure to commodities or investing in commodities directly via futures contracts.

Types of Commodity Markets

Generally speaking, commodities trade either in spot markets or derivatives markets. Spot markets are also referred to as “physical markets” or “cash markets” where buyers and sellers exchange physical commodities for immediate delivery.

Derivatives markets involve forwards, futures, and options. Forwards and futures are derivatives contracts that use the spot market as the underlying asset. These are contracts that give the owner control of the underlying at some point in the future, for a price agreed upon today. Only when the contracts expire would physical delivery of the commodity or other asset take place, and often traders will roll over or close out their contracts in order to avoid making or taking delivery altogether. Forwards and futures are generically the same, except that forwards are customizable and trade over-the-counter (OTC), whereas futures are standardized and traded on exchanges.

Commodity Market Trading vs. Stock Trading

For most individual investors, accessing commodities markets, whether spot or derivatives, is untenable. Direct access to these markets typically requires a special brokerage account and/or certain permissions. Because commodities are considered an alternative asset class, pooled funds that traded commodities futures, such as CTAs, typically only allow accredited investors. Still, ordinary investors can gain indirect access to commodities via the stock market itself.

Stocks on mining or materials companies tend to be correlated with commodities prices, and there are various ETFs now that track various commodities or commodities indexes.

Investors looking to diversify their portfolio can look to these ETFs, but for most long-term investors stocks and bonds will make up the core of their holdings. Moreover, because commodity prices tend by more volatile than stocks and bonds, commodities trading is often most suited for those with higher

Process of Organizing

Organizing is one of the toughest and most important functions of management.

Process of Organizing

First, let us understand the concept of organizing. Organizing essentially consists of establishing a division of labor. The managers divide the work among individuals and group of individuals. And then they coordinate the activities of such individuals and groups to extract the best outcome.

Organizing also involves delegating responsibility to the employees along with the authority to successfully accomplish these tasks and responsibilities. One major aspect of organizing is delegating the correct amounts of responsibilities and authority.

  1. Identifying the Work

The obvious first step in the process of organizing is to identify the work that has to be done by the organization. This is the ground level from which we will begin. So the manager needs to identify the work and the tasks to be done to achieve the goals of the organization.

Identification of the work helps avoid miscommunication, overlapping of responsibilities and wastage of time and effort.

  1. Grouping of Work

For the sake of a smooth flow of work and smooth functioning of the organization, similar tasks and activities should be grouped together. Hence we create departments within the company and divisions within each department. Such an organization makes the functioning of the company way more systematic.

Depending on the size of the organization and the volume of work, an organization can have several department and divisions. And every department has a manager representing them at the top-level of the management.

In smaller organizations sometimes these departments are clubbed together under one manager.

  1. Establish Hierarchy

The next step in the process of organizing is to establish the reporting relationships for all the individual employees of the company. So a manager establishes the vertical and horizontal relationships of the company.

This enables the evaluation and control over the performances of all the employees in a timely manner. So if rectifications need to be made, they can be made immediately.

  1. Delegation of Authority

Authority is basically the right an individual has to act according to his wishes and extract obedience from the others. So when a manager is assigned certain duties and responsibilities, he must also be delegated authority to carry out such duties effectively.

If we only assign the duties, but no authority he will not be able to perform the tasks and activities that are necessary. So we must always assign authority and clearly specify the boundaries of the duties and the authority which has been delegated.

  1. Coordination

Finally, the manager must ensure that all activities carried out by various employees and groups are well coordinated. Otherwise, it may lead to conflicts between employees, duplication of work and wastage of time and efforts. He must ensure all the departments are carrying out their specialized tasks and  there is harmony in these activities. The ultimate aim is to ensure that the goal of the organization is fulfilled.

Importance of Organizing Efficient Administration

It brings together various departments by grouping similar and related jobs under a single specialization. This establishes coordination between different departments, which leads to unification of effort and harmony in work.

Resource Optimization

Organizing ensures effective role-job-fit for every employee in the organization. It helps in avoiding confusion and delays, as well as duplication of work and overlapping of effort.

Benefits Specialization

It is the process of organizing groups and sub-divide the various activities and

jobs based on the concept of division of labor. This helps in the completion of maximum work in minimum time ensuring the benefit of specialization.

Promotes Effective Communication

Organizing is an important means of creating coordination and communication among the various departments of the organization. Different jobs and positions are interrelated by structural relationship. It specifies the channel and mode of communication among different members.

Creates Transparency

The jobs and activities performed by the employees are clearly defined on the written document called job description which details out what exactly has to be done in every job. Organizing fixes the authority-responsibility among employees. This brings in clarity and transparency in the organization.

Expansion and Growth

When resources are optimally utilized and there exists a proper division of work among departments and employees, management can multiply its strength and undertake more activities. Organizations can easily meet the challenges and can expand their activities in a planned manner.

14 Principles of an Organization

  1. Principle of Objective:

The enterprise should set up certain aims for the achievement of which various departments should work. A common goal so devised for the business as a whole and the organization is set up to achieve that goal. In the absence of a common aim, various departments will set up their own goals and there is a possibility of conflicting objectives for different departments. So there must be an objective for the organization.

  1. Principle of Specialisation:

The organization should be set up in such a way that every individual should be assigned a duty according to his skill and qualification. The person should continue the same work so that he specialises in his work. This helps in increasing production in the concern.

  1. Principles of Co-ordination:

The co-ordination of different activities is an important principle of the organization. There should be some agency to co-ordinate the activities of various departments. In the absence of co-ordination there is a possibility of setting up different goals by different departments. The ultimate aim of the concern can be achieved only if proper co-ordination is done for different activities.

  1. Principle of Authority and Responsibility:

The authority flows downward in the line. Every individual is given authority to get the work done. Though authority can be delegated but responsibility lies with the man who has been given the work. If a superior delegates his authority to his subordinate, the superior is not absolved of his responsibility, though the subordinate becomes liable to his superior. The responsibility cannot be delegated under any circumstances.

  1. Principle of Definition:

The scope of authority and responsibility should be clearly defined. Every person should know his work with definiteness. If the duties are not clearly assigned, then it will not be possible to fix responsibility also. Everybody’s responsibility will become nobody’s responsibility. The relationship between different departments should also be clearly defined to make the work efficient and smooth.

  1. Span of Control:

Span of control means how many subordinates can be supervised by a supervisor. The number of subordinates should be such that the supervisor should be able to control their work effectively. Moreover, the work to be supervised should be of the same nature. If the span of control is disproportionate, it is bound to affect the efficiency of the workers because of

slow communication with the supervisors.

  1. Principle of Balance:

The principle means that assignment of work should be such that every person should be given only that much work which he can perform well. Some person is over worked and the other is under-worked, then the work will suffer in both the situations. The work should be divided in such a way that everybody should be able to give his maximum.

  1. Principle of Continuity:

The organization should be amendable according to the changing situations. Everyday there are changes in methods of production and marketing systems. The organization should be dynamic and not static. There should always be a possibility of making necessary adjustments.

  1. Principle of Uniformity:

The organization should provide for the distribution of work in such a manner that the uniformity is maintained. Each officer should be in-charge of his respective area so as to avoid dual subordination and conflicts.

  1. Principle of Unity of Command:

There should be a unity of command in the organization. A person should be answerable to one boss only. If a person is under the control of more than one person then there is a like-hood of confusion and conflict. He gets contradictory orders from different superiors. This principle creates a sense of responsibility to one person. The command should be from top to bottom for making the organization sound and clear. It also leads to consistency in directing, coordinating and controlling.

  1. Principle of Exception:

This principle states that top management should interfere only when something

goes wrong. If the things are done as per plans then there is no need for the interference of top management. The management should leave routine things to be supervised by lower cadres. It is only the exceptional situations when   attention of top management is drawn. This principle relieves top management of many botherations and routine things. Principle of exception allows top management to concentrate on planning and policy formulation. Important time of management is not wasted on avoidable supervision.

  1. Principle of Simplicity:

The organizational structure should be simple so that it is easily understood by each and every person. The authority, responsibility and position of every person should be made clear so that there is no confusion about these things. A  complex organizational structure will create doubts and conflicts among persons. There may also be over-lapping’s and duplication of efforts which may otherwise be avoided. It helps in smooth running of the organization.

  1. Principle of Efficiency:

The organization should be able to achieve enterprise objectives at a minimum cost. The standards of costs and revenue are pre-determined and performance should be according to these goals. The organization should also enable the attainment of job satisfaction to various employees.

  1. Scalar Principle:

This principle refers to the vertical placement of supervisors starting from top and going to the lower level. The scalar chain is a pre-requisite for effective and efficient organization.

Types of Organisation Structure What is Organisation

Organisation refers to a collection of people who are working towards a common goal and objective. In other words, it can be said that organisation is a place

where people assemble together and perform different sets of duties and responsibilities towards fulfilling the organisational goals.

Types of Organisation and their Structure

There are two broad categories of organisation, which are:

  1. Formal Organisation
  1. Informal Organisation

Formal Organisation: Formal organisation is that type of organisation structure where the authority and responsibility are clearly defined. The organisation structure has a defined delegation of authority and roles and responsibilities for the members.

The formal organisation has predefined policies, rules, schedules, procedures and programs. The decision making activity in a formal organisation is mostly based on predefined policies.

Formal organisation structure is created by the management with the objective of attaining the organisational goals.

There are several types of formal organisation based on their structure, which are discussed as follows:

  1. Line Organisation
  1. Line and Staff Organisation
  1. Functional Organisation
  1. Project Organisation
  1. Matrix Organisation

Let us learn about these organisation structures in detail in the following lines.

Line Organisation: Line organisation is the simplest organisation structure and it also happens to be the oldest organisation structure. It is also known as Scalar or military or departmental type of organisation.

In this type of organisational structure, the authority is well defined and it flows vertically from the top to the hierarchy level to the managerial level and subordinates at the bottom and continues further to the workers till the end.

There is a clear division of accountability, authority and responsibility in the line organisation structure.

Advantages of Line organisation

  1. Simple structure and easy to run
  1. Instructions and hierarchy clearly defined
  1. Rapid decision making
  1. Responsibility fixed at each level of the organisation.

Disadvantages of Line organisation:

  1. It is rigid in nature
  1. It has a tendency to become dictatorial.
  1. Each department will be busy with their work instead of focusing on the overall development of the organisation.

Line and Staff Organisation: Line and staff organisation is an improved version of the line organisation. In line and staff organisation, the functional specialists are added in line. The staff is for assisting the line members in achieving the target effectively.

Advantages of Line and Staff organisation

  1. Easy decision making as work is divided.
  1. Greater coordination between line and staff workers.
  1. Provides workers the opportunity for growth.

Disadvantages of Line and Staff Organisation

  1. Conflict may arise between line and staff members due to the improper distribution of authority.
  1. Staff members provide suggestions to the line members and decision is taken by line members, it makes the staff members feel ignored.

Functional Organisation: Functional organisation structure is the type of organisation where the task of managing and directing the employees is arranged as per the function they specialise. In a functional organisation, there are three types of members, line members, staff members and functional members.

Advantages of Functional organisation

  1. Manager has to perform a limited number of tasks which improves the accuracy of the work.
  1. Improvement in product quality due to involvement of specialists.

Disadvantages of Functional organisation

  1. It is difficult to achieve coordination among workers as there is no one to manage them directly.
  1. Conflicts may arise due to the members having equal positions.

Project Organisation: A project organisation is a temporary form of organisation structure that is formed to manage projects for a specific period of time. This form of organisation has specialists from different departments who are brought

together for developing a new product.

Advantages of Project organisation

  1. The presence of many specialists from different departments increases the coordination among the members.
  1. Each individual has a different set of responsibilities which improves control of the process.

Disadvantages of Project Organization

  1. There can be a delay in completion of the project.
  1. Project managers may find it difficult to judge the performance of different specialists.

Matrix Organisation: Matrix organisation is the latest form of organisation that is a combination of functional and project organisation. In such organisations there  are two lines of authority, the functional part of the organisation and project management part of the organisation and they have vertical and horizontal flow   of authority, respectively.

Advantages of Matrix Organisation

  1. Since the matrix organisation is a combination of functional and project management teams, there is an improved coordination between the vertical and horizontal functions.
  1. Employees are motivated as everyone will be working towards one project.

Disadvantages of Matrix Organisation

  1. Due to the presence of vertical and horizontal communication, there will be increased cost and paperwork.
  1. Having multiple supervisors for the workers leads to confusion and difficulty in


Informal Organisation: Informal organisations are those types of organisations which do not have a defined hierarchy of authority and responsibility. In such organisations, the relationship between employees is formed based on common interests, preferences and prejudices.

Centralisation and Decentralisation

Centralization is said to be a process where the concentration of decision making is in a few hands. All the important decision and actions at the lower level, all subjects and actions at the lower level are subject to the approval of top management. According to Allen, “Centralization” is the systematic and  consistent reservation of authority at central points in the organization. The implication of centralization can be.

  • Reservation of decision making power at top level.
  • Reservation of operating authority with the middle level managers.
  • Reservation of operation at lower level at the directions of the top level.

Under centralization, the important and key decisions are taken by the top management and the other levels are into implementations as per the directions of top level. For example, in a business concern, the father & son being the owners decide about the important matters and all the rest of functions like product, finance, marketing, personnel, are carried out by the department heads and they have to act as per instruction and orders of the two people. Therefore in this case, decision making power remain in the hands of father & son.

Decentralization is a systematic delegation of authority at all levels of management and in all of the organization. In a decentralization concern, authority in retained by the top management for taking major decisions and framing policies concerning the whole concern. Rest of the authority may be delegated to the middle level and lower level of management.

The degree of centralization and decentralization will depend upon the amount of authority delegated to the lowest level. According to Allen, “Decentralization

refers to the systematic effort to delegate to the lowest level of authority except that which can be controlled and exercised at central points.

Decentralization is not the same as delegation. In fact, decentralization is all extension of delegation. Decentralization pattern is wider is scope and the authorities are diffused to the lowest most level of management.

Delegation of authority is a complete process and takes place from one person to another. While decentralization is complete only when fullest possible delegation has taken place. For example, the general manager of a company is responsible for receiving the leave application for the whole of the concern. The general manager delegates this work to the personnel manager who is now responsible for receiving the leave applicants. In this situation delegation of authority has taken place.


Meaning of a Committee:

A committee is a group of people who work collectively, discuss, decide and recommend solutions to the problems (of a concern) which possibly cannot be solved by an individual. A committee consists of a group of men conversant with a subject; naturally their advice will be much superior to that of one man.

Committees work very well in large complex corporate organisations having multifaceted problems too big and too complex to be dealt effectively by one person. In a committee, ideas put forth by several persons are pooled and offered for criticism; the ideas are developed and thus recommendations are made as regards procedure and policies.

Advantages of a Committee:

  1. A committee often performs worth-while tasks since two experts are better than one.
  2. A committee coordinates the efforts of the departments which are represented (e.g., sales, production and engineering) in development of a new product.
  3. A committee is of special value in broad policy determination and rounding out plans.
  1. A committee reduces the work load of management.

Limitations of a Committee:

  1. Sometimes it turns out to be true that what a committee finishes in a week, a good individual may complete in a day.
  2. It may be said that committee operations are slow and committees tend to hang on for a considerable time.
  3. An executive afraid to stand behind his own decisions may use a rubber-stamp committee and thereby share his responsibility with others.
  4. In a committee, no individual can be held responsible for anything.
  5. Committee decisions represent generally a compromised position and do not truly reflect the real feelings of the individual committee (or group) members.


Departmentation is a part of the organisation process. It involves the grouping of common activities under a single person’s control. The activities are grouped on the basis of a function of the organisation. This work is done by a chief executive of the concerned organisation.

Departmentation means the process by which similar activities of the business are grouped into units for the purpose of facilitating smooth administration at all levels.

Departmentation means the grouping of similar activities and employees of organisation into various departments for the purpose of facilitating  administration is called departmentation. It implies the division of total work of an organisation into individual functions and sub functions. It is the process of division of organisation into different parts known as departments.

Departmentation is essential/important because of the following reasons:

  1. Specialization:

Departmentation permits an organization to take advantage of specialization. It permits people to work in individual departments and gain experience and expertise in handling things over there. Jobs can be assigned to people who are

best suited for delivering excellent results.

  1. Expansion:

Organisations can cope with heavy work by simply dividing the same among a number of smaller, flexible departments. Organisations can grow only when additional departments are created to handle rush orders and specialized jobs demanding individual attention. In the absence of Departmentation, managers can control only a small group of people under their command.

  1. Autonomy:

Departmentation permits people to think and act independently while working in an individual department. They have enough freedom to think and act on their own putting resources at their command to best use. When people are empowered to act in an autonomous way, they get enthused and begin to put their best foot forward.

  1. Responsibility:

Departmentation helps people know their limitations. They know what to do and what not to do. They also know what they are supposed to do in order to meet targets and deadlines. When they fail to live up to expectations and go off the track it is easy to find out where things have gone wrong. Where job assignments are clear and you know who is responsible for what, accountability can be fixed fairly easily and quickly.

  1. Appraisal:

The performance of people working in a department can be appraised easily against the assigned goals and targets. When they fail to deliver results, you can put the finger on the problem causing trouble. You can separate the wheat from the chaff easily.

  1. Management Development:

Departmentation allows people to grow in a particular area or field. They can put in their best while working in a department fairly independently. They can put their skills, capabilities and talents to best use. Repeated operations in a micro area would help them gain mastery over the discipline. Over the years, they can also offer guidance, assistance and help to the younger executives reporting to them directly and thus, contribute to their growth.

  1. Communication and Control:

Departmentation facilitates communication, coordination and control and contributes to the organizational success. Working in a department permits people to interact freely and communicate without any hurdles. They can coordinate their efforts with others in an attempt to reach goals. It becomes easy to find out where things have gone wrong, who is not able to pick up speed, how to plug the loopholes promptly. This, of course, would facilitate the control process.

Delegation of Authority

Delegation of authority refers to the transfer of authority from the level of supervisor to the level of subordinates. In other words, delegation is the downward transfer of authority from the manager to the subordinate.

Delegation of authority is important as the superior in an organisation is not able to manage all the work by himself. Delegation of authority helps the managers to focus on more important functions of the organisation that need to be taken care of on priority.

Delegation is the transfer of responsibility which is less important and can be performed by the subordinates. This also brings a sense of responsibility to the work done by the subordinates and paves the way for growth of the subordinates.

Transfer of authority to subordinates does not mean that the subordinate is accountable for the actions, it is the superior who will be accountable for all the actions. Only tasks that can be completed effectively by the subordinates are delegated without the actual transfer of accountability.

Elements of Delegation

Delegation consists of the following elements.

  1. Authority
  1. Responsibility
  1. Accountability

Let us discuss all these elements one by one.

Authority: One of the essential elements of delegation is authority which is the power to complete an assigned task. Without authority a subordinate is unable to execute the task perfectly. In order to complete the task as is expected by the manager, the manager has to provide authority of executing that task to the subordinate.

Responsibility: Responsibility is another element of delegation which is assigning the subordinate a task that needs to be executed. When the superior assigns any task to the subordinate it becomes the obligation of the subordinate to perform that task with responsibility.

The feeling of responsibility arises from the superior subordinate relationship where a subordinate is obliged to perform the job as assigned by the superior.

Accountability: Accountability element of delegation refers to the answerability of a subordinate to his superior for the job or task that is assigned. Accountability flows in an upward direction, which means the subordinate is accountable to the superior.

Although the subordinate is accountable to the superior, the actual accountability of that task and its outcome rests with the superior as accountability is not transferred to the subordinate, it is just imposed till the time the task is  completed.

Importance of Delegation

Delegation is important in an organisation due to the following reasons

  1. Delegation of authority allows more time for managers to concentrate on the tasks that are of higher importance for the organisation. Also, delegation allows

for changing of the routine work which brings a sense of freedom.

  1. When authority is delegated by a superior to a subordinate, the subordinate gets to learn new work which helps in the growth of the employee and provides an opportunity to develop new skills that can improve the chances of promotion.
  1. When superiors delegate any function to the subordinates, it motivates the subordinates as they feel trusted and appreciated in the organisation. The direct benefit of this is improvement in employee morale and productivity.

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