Question No. 2 - IBO - 04 - Export Import Procedure and Documentation - Master of Commerce (M.Com)

Solutions to Assignments 

IBO - 04 - Export Import Procedure and Documentation

Master of Commerce (M.Com) - 1st Year

Question No. 2  Distinguish between: 

(a) Insurance policy and Insurance Certificate. 

Insurance Certificate 

A certificate of insurance (COI) is issued by an insurance company or broker. The COI verifies the existence of an insurance policy and summarizes the key aspects and conditions of the policy. For example, a standard COI lists the policyholder's name, policy effective date, the type of coverage, policy limits, and other important details of the policy.

Without a COI, a company or contractor will have difficulty securing clients; most hirers will not want to assume the risk of any costs that might be caused by the contractor or provider.

Certificates of Insurance is used in situations where liability and significant losses are of concern and require one, which is most business contexts. What is a certificate of insurance used for? Small-business owners and contractors often have a COI granting protection against liability for workplace accidents or injuries. The purchase of liability insurance will usually trigger the issuance of an insurance certificate.

Without a COI, a business owner or contractor may have difficulty winning contracts. Because many companies and individuals hire contractors, the client needs to know that a business owner or contractor has liability insurance so that they will not assume any risk if the contractor is responsible for damage, injury, or substandard work.

Typically, a client will request a certificate directly from the insurance company rather than the business owner or contractor. The client should confirm that the name of the insured on the certificate is an exact match of the company or contractor they are considering.

Also, the client should check the policy coverage dates to ensure that the effective date of the policy is current. The client should secure a new certificate if the policy is set to expire before the contracted work is complete.

Certificates of insurance contain separate sections for different types of liability coverage listed as general, auto, umbrella, and workers' compensation. “Insured” refers to the policyholder, the person, or company who appears on the certificate as being covered by the insurance.

In addition to coverage levels, the certificate includes the policyholder's name, mailing address, and describes the operations the insured performs. The address of the issuing insurance company is listed, along with contact information for the insurance agent or the insurance agency’s contact person. If several insurance companies are involved, all names and contact information are listed.

When a client requests a COI, they become a certificate holder. The client's name and contact information appear in the bottom left-hand corner along with statements showing the insurer's obligation to notify the client of policy cancellations.

The certificate briefly describes the insured’s policies and limits provided for each type of coverage. For example, the general liability section summarizes the six limits the policy offers by category and indicates whether coverage applies on a per claim or per occurrence basis. Because state laws determine the benefits provided to injured workers, the worker’s compensation coverage will show no limit. However, an employer’s liability coverage limits should be listed.

Insurance policy

Import Export Insurance is a type of insurance cover that relates to goods that are transported to and from countries. If your company is an exporter or importer – or both – then having the relevant insurance cover in place is essential to ensure the continuing success of your company in the future.

The coverage is generally defined by reference to clauses known as Institute Cargo  Clauses. The ICC (C), ICC (B) and ICC (A) Clauses define different levels of coverage against marine risks and the cargo may be covered subject to any one of these clauses.

It is a primary obligation under every international sale of goods contracts that either the seller or the buyer will have to arrange adequate insurance for the goods in accordance with the agreed shipment terms (INCOTERMS).

Cargo may be exposed to risks specific to the mode of transport and the route taken, as well as perils beyond the reasonable control of all parties to the contract, for instance:

Fire

Explosion

Armed Robbery

Storm, flood and other weather hazards

Washing overboard in the heavy sea

Leakage

General Average Claims

(b) Liner and Tramp Shipping Services. 

How can you ship goods from one international destination to another? Yes, it’s via air or ocean transport through which freight forwarders or shippers transport the consignment to the final delivery point.  Unlike air freight, sea freight has some options, a shipper can choose between Liner and Tramp Services. In this article let’s understand both these terms and their differences.

The Liners

The name liners have been derived from the word ‘Line Voyages’ that means a voyage or trip that follows a set schedule and route.  The ships that move shipments across the routes are called liners, following strict routes, schedules and delivering on time under all circumstances unless there is a delay caused by natural events.

These liner ships not only carry shipment through containers, but provide other services also from RORO services, bulk cargo service to break bulk service.

Do you how many types of liner service are available:

Independent service

Conference service

Consortia service

Alliance service 

Tramp Service

A tramp service, also called a tramper is a service that is even available at a short notice, so it does not follow any strict schedule or routes. With tramp service, goods can be on and off loaded at any port. Trampers are also used to carry bulk cargo, apart from usual cargoes.

1. Liner service follows a fixed route and schedule as well as the destination. Tramp service does not have a fixed schedule or route, and is even available at a short notice. It is less expensive and even has the capability to fit in ships with lesser speed.
2. The liner owners follow pre-defined rules, terms and conditions related to the carriage and delivery of the cargo. There are no such conditions for tramp services.
3. The liners have modern equipment through which loading and unloading can be faster. Trampers generally do not take a huge load, they prefer to transport one or two shippers consignment and limit their loading and loading to a lesser number of ports.
4. The liner ship is huge enough with many facilities to carry even refrigerated items. They can carry a variety of goods. As the liner has many cabins and compartments, it has the capability to contain consignment from multiple shippers and can place them accordingly. Tramps are a little smaller and can carry only simple and uniform cargo in larger quantities. It can carry only one kind of specific goods at a time.

Question No. 1 - IBO - 04 - Export Import Procedure and Documentation - Master of Commerce (M.Com)

Solutions to Assignments 

IBO - 04 - Export Import Procedure and Documentation

Master of Commerce (M.Com) - 1st Year

Question No. 1 What are the steps involved in the processing of an Export order? Explain them briefly.

An export exercise is concluded successfully only after the exporter has been able to deliver the consignment in accordance with the export contract and receive payment for the goods.

This involves practice of prescribed procedure to be performed (Branch 2000). The fact is that one does not need only to be very well informed about his/her export company, his/her products, his/her suppliers, his/her export chain, his/her market, the world market, but one also needs to know the export rules and terms, the different cultures that one targets and the final customers’ needs.

Then comes fulfilling these needs by the most competitive way and by adding value to one’s services. This is so because all sell the same products with minor changes , but what makes the difference is the method and the value added services one provides to the ultimate consumers. Simply speaking, that making an export company is an easy process, but making d successful and long lasting export company is a very difficult task. 

Therefore, it seems pertinent now to make you learn the various steps’ involved in the processing of an export order.

These are listed as follows:

1. Having an Export Order:

Processing of an export order starts with the receipt of an export order. An export order, simply stated, means that there should be an agreement in the form of a document, between the exporter and importer before the exporter actually starts producing or procuring goods for shipment. Generally an export order may take the form of proforma invoice or purchase order or letter of credit. You have already learnt these just in the preceding section.

2. Examination and Confirmation of Order:

Having received an export order, the exporter should examine it with reference to the terms and conditions of the contract. In fact, this is the most crucial stage as all subsequent actions and reactions depend on the terms and conditions of the export order.

The examination of an export order, therefore, includes items like product description, terms of payment, terms of shipment, inspection and insurance requirement, documents realising payment and the last date of negotiation of documents with the bank. Having being satisfied with these, the export order is confirmed by the exporter.

3. Manufacturing or Procuring Goods:

The Reserve Bank of India (RBI), under the export credit (interest subsidy) scheme, extends pre-shipment credit to exporter to finance working capital needs for purchase of raw materials, processing them and converting them into finished goods for the purpose of exports. The exporter approaches the bank on the basis of laid down procedures for the pre-shipment credit. Having received credit, the exporter starts to manufacture / procure and pack the goods for shipment overseas.

4. Clearance from Central Excise:

As soon as goods have been manufactured/ procured, the process for obtaining clearance from central excise duty starts. The Central Excise and Sale Act of India and the related rules provide the refund of excise duty paid. There are two alternative schemes whereby 100 per cent rebate on duty is given to export products on the submission of the proof of shipment.

The first scheme is to make payment of the excise duty at the time of removing the export consignment from the factory and file a claim for rebate of duty after exportation of goods. The second scheme is to remove goods from factory/warehouse without payment but under an appropriate bond with the excise authorities. The exporter needs to apply on a form known as AR4 or AR4A to the Central Excise Range Superintendent for obtaining excise clearance.

Form A is filed when goods are to be cleared after examination by the excise inspector. In all other cases, form AR4A is filed.

5. Pre-Shipment Inspection:

There are number of-goods whose export requires quality certification as per the Government of India’s notification. Consequently, the Indian custom authorities will require the submission of an inspection certificate issued by the competent and designated authority before permitting the shipment of goods takes place.

Inspection of export goods may be conducted under:

(i) Consignment-wise Inspection

(ii) In-process Quality Control, and

(iii) Self-Certification.

The Inspection Certificate is issued in triplicate. The original copy is for the customs verification. The second copy of the certificate is sent to the importer and the third copy remains with the exporter for his reference purpose.

6. Appointment of Clearing and Forwarding Agents:

On completion of the process of obtaining the Inspection Certificate from the custom agencies, the exporter appoints clearing and forwarding agents who perform a number of functions on behalf of the exporter.

The main functions performed by these agents include packing, marking and labeling of consignment, arrangement for transport to the port arrangement for shipment overseas, customs clearance of cargo, procurement of transport and other documents.

In order to facilitate the exporter in discharging his duties, the following documents are submitted to the agent:

(i) Commercial invoice in 8-10 copies

(ii) Customs Declaration Form in triplicate

(iii) Packing list

(iv) Letter of Credit (original)

(v) Inspection Certificate (original)

(vi) G.R. Form (in original and duplicate)

(vii) AR4/ AR4A (in original and duplicate)

(viii) GP-l/GP-2 (original)

(ix) Railway Receipt/Lorry Way Bill, as the case may be

7. Goods to Port of Shipment:

After the excise clearance and pre-shipment inspection formalities are completed, the goods to be exported are packed, marked and labeled. Proper marking, labeling and packing help quick and safe transportation of goods. The export department takes steps to reserve space on the ship through which goods are to be sent to the importer.

The shipping space can be reserved either through the clearing and forwarding agent or freight broker who works on behalf of the shipping company or directly from the shipping company. Once the space is reserved, the shipping company issues a document known as Shipping Order. This order serves as a proof of space reservation.

If goods are sent through a road carrier to the port, no specific formality is involved. In case, the goods are sent by rail to the port of shipment, allotment of wagon needs to be obtained from the Railway Board.

The following documents are submitted to the booking railway yard/station:

(i) Forwarding Note (A Railway Document)

(ii) Shipping Order

(iii) Wagon Registration Fee Receipt

Once wagons have been allotted, goods are loaded, for which railways will issue Railway Receipt (RR). Then, this receipt and other documents are sent to the clearing and forwarding agent at the port town. At the same time, the production/export department takes insurance policy in duplicate for risk coverage (internal as well as overseas) for the goods to be exported.

8. Port Formalities and Customs Clearance:

Having received the documents from the export department, the clearing and forwarding agent takes delivery of the cargo from the railway station or the road transport company and stores it in the warehouse. He also obtains customs clearance and permission from the port authorities to bring the cargo into the shipment shed.

The custom department grants permission for export at the office of the customs and physical verification of goods in the shipment shed. The clearance for export is given on the Shipping Bill.

The clearing and forwarding agent is required to submit the following documents with the Customs House for obtaining customs clearance and permission:

(i) Shipping Bill

(ii) Contract Form

(iii) Letter of Credit, if applicable

(iv) Commercial Invoice

(v) GR Form

(vi) Inspection Certificate

(vii) AR4/AR4A Form

(viii) Packing List, if needed

After receiving documents from the export department, the clearing and forwarding agent presents the Port Trust Document to the Shed Superintendent of the port. He obtains carting order bringing the cargo to the transit shed for physical examination by the Dock Appraiser.

The Dock Appraiser is presented the following documents to facilitate him in physical examination of export goods:

(i) Shipping Bill

(ii) Commercial Invoice

(iii) Packing List

(iv) AR4/ AR4A Form and Gate Pass

(v) GR Form (duplicate)

(vi) Inspection Certificate (original)

The Dock Appraiser, after making examination, makes ‘Let Export’ endorsement on the duplicate copy of the Shipping Bill and hands over it to the Forwarding Agent. All these documents are presented to the Preventive Officer who puts an endorsement ‘Let Ship’ on the duplicate copy of the Shipping Bill. The preventive officer supervises the loading of cargo on board the vessel.

After the goods are loaded on board the vessel, the captain of the ship issues a receipt known as ‘Mate’s Receipt’ to the Shed Superintendent of the port concern. The forwarding, agent after paying port charges, takes the delivery of the ‘Mate Receipt’. He submits to Shipping Company and requests it to issue the Bill of Lading.

9. Dispatch of Documents by Forwarding Agent to the Exporter:

After obtaining the Bill of Lading from the Shipping Company, the clearing and forwarding agent dispatches all the documents to his / her exporter.

These documents include:

(i) Commercial Invoice (attested by the customs)

(ii) Export Promotion Copy

(iii) Drawback Copy

(iv) Clean on Board Bill of Lading

(v) Letter of Credit

(vi) AR4/ AR4A and Gate Pass

(vii) GR Form (in duplicate)

10. Certificate of Origin:

On receipt of above documents from the forwarding agent, the exporter now applies to the Chamber of Commerce for a Certificate of Origin and obtains it. If the goods are exported to countries offering GSP concessions, the exporter needs to procure the GSP Certificate of Origin from the concerned authority like Export Inspection Agency.

11. Dispatch of Shipment Advice to the Importer:

At last, the exporter sends ‘Shipment Advice’ to the importer intimating the date of shipment of the consignment by a named vessel and its expected time of arrival at the destination port of the importer.

The following documents are also sent to the importer to facilitate him for taking delivery of the’ consignment:

(i) Bill of Lading (non-negotiable copy)

(ii) Commercial Invoice

(iii) Packing List

(iv) Customs Invoice

12. Submission of Documents to Bank:

At the end of the process, the exporter presents the following documents to his bank for realisation of his amount due to the importer:

(i) Commercial Invoice’

(ii) Certificate of Origin

(iii) Packing List

(iv) Letter of Credit

(v) Marine Insurance Policy

(vi) GR Form

(vii) Bill of Lading

(viii) Bill of Exchange

(ix) Bank Certification

(x) Commercial Invoice

13. Claiming Export Incentives:

On completion of the processing of an export order at the three levels of shipment i.e., pre-shipment, shipment and post-shipment, the exporter claims for export incentives admissible to him / her.

IBO - 04 - Export Import Procedure and Documentation - Master of Commerce (M.Com)

Solutions to Assignments 

IBO - 04 - Export Import Procedure and Documentation

Master of Commerce (M.Com) - 1st Year

Question No. 1 What are the steps involved in the processing of an Export order? Explain them briefly.

                                                                                        CLICK HERE

Question No. 2  Distinguish between: 

(a) Insurance policy and Insurance Certificate. 

(b) Liner and Tramp Shipping Services.                         CLICK HERE

Question No. 3

(a) Describe the process of preparing goods for exports and their transit to the port of shipment along with documentation formalities. 

(b) Explain the customs clearance via sea along with documentation formalities.    

                                                                                        CLICK HERE

Question No. 4 Comment on the following statements: 

(a) Export houses do not get any strategic advantages through EDI. 

(b) Documents against acceptance do not have a usage period. 

(c) Credit is a major weapon of international competition but it involves risk. 

(d) Export incentives do not promote export.                 CLICK HERE

Question No. 5 Write notes on the following: 

(a) General Provisions for imports. 

(b) Foreign Currency Account. 

(c) Financing under Deferred Payment Arrangement. 

(d) ISO 9000.                                                                    CLICK HERE

Question No. 4 - MCO-01 - Organisation Theory and Behaviour - Master of Commerce (M.Com)

Solutions to Assignments 

MCO-01 - Organisation Theory and Behaviour

Master of Commerce (M.Com) - 2nd Year 

Question No. 4 Differentiate between the following: 
(a) Classical conditioning and Operant conditioning 

Classical and operant conditioning are two important concepts central to behavioral psychology. While both result in learning, the processes are quite different. To understand how each of these behavior modification techniques can be used, it is also essential to understand how classical and operant conditioning differ from one another.

Classical Conditioning

Even if you are not a psychology student, you have probably at least heard about Pavlov's dogs. In his famous experiment, Ivan Pavlov noticed dogs began to salivate in response to a tone after the sound had repeatedly been paired with presenting food. Pavlov quickly realized that this was a learned response and set out to further investigate the conditioning process.

Classical conditioning is a process that involves creating an association between a naturally existing stimulus and a previously neutral one. Sounds confusing, but let's break it down:

The classical conditioning process involves pairing a previously neutral stimulus (such as the sound of a bell) with an unconditioned stimulus (the taste of food).

This unconditioned stimulus naturally and automatically triggers salivating as a response to the food, which is known as the unconditioned response. After associating the neutral stimulus and the unconditioned stimulus, the sound of the bell alone will start to evoke salivating as a response. The sound of the bell is now known as the conditioned stimulus and salivating in response to the bell is known as the conditioned response.

Classical conditioning is much more than just a basic term used to describe a method of learning; it can also explain how many behaviors form that can impact your health. Consider how a bad habit might form. Even though you have been working out and eating healthy, nighttime overeating keeps tripping up your dieting efforts.

Thanks to classical conditioning, you might have developed the habit of heading to the kitchen for a snack every time a commercial comes on while you are watching your favorite television program.

While commercial breaks were once a neutral stimulus, repeated pairing with an unconditioned stimulus (having a delicious snack) has turned the commercials into a conditioned stimulus. Now every time you see a commercial, you crave a sweet treat.

Operant Conditioning

Operant conditioning (or instrumental conditioning) focuses on using either reinforcement or punishment to increase or decrease a behavior. Through this process, an association is formed between the behavior and the consequences of that behavior.

Imagine that a trainer is trying to teach a dog to fetch a ball. When the dog successfully chases and picks up the ball, the dog receives praise as a reward. When the animal fails to retrieve the ball, the trainer withholds the praise. Eventually, the dog forms an association between the behavior of fetching the ball and receiving the desired reward.

For example, imagine that a schoolteacher punishes a student for talking out of turn by not letting the student go outside for recess. As a result, the student forms an association between the behavior (talking out of turn) and the consequence (not being able to go outside for recess). As a result, the problematic behavior decreases.

A number of factors can influence how quickly a response is learned and the strength of the response. How often the response is reinforced, known as a schedule of reinforcement, can play an important role in how quickly the behavior is learned and how strong the response becomes. The type of reinforcer used can also have an impact on the response.

For example, while a variable-ratio schedule will result in a high and steady rate of response, a variable-interval schedule will lead to a slow and steady response rate.

In addition to being used to train people and animals to engage in new behaviors, operant conditioning can also be used to help people eliminate unwanted ones. Using a system of rewards and punishments, people can learn to overcome bad habits that might have a negative impact on their health such as smoking or overeating.

Classical vs. Operant Conditioning

One of the simplest ways to remember the differences between classical and operant conditioning is to focus on whether the behavior is involuntary or voluntary.

Classical conditioning involves associating an involuntary response and a stimulus, while operant conditioning is about associating a voluntary behavior and a consequence.

In operant conditioning, the learner is also rewarded with incentives, while classical conditioning involves no such enticements. Also, remember that classical conditioning is passive on the part of the learner, while operant conditioning requires the learner to actively participate and perform some type of action in order to be rewarded or punished.

For operant conditioning to work, the subject must first display a behavior that can then be either rewarded or punished. Classical conditioning, on the other hand, involves forming an association with some sort of already naturally occurring event.

Today, both classical and operant conditioning are utilized for a variety of purposes by teachers, parents, psychologists, animal trainers, and many others. In animal conditioning, a trainer might utilize classical conditioning by repeatedly pairing the sound of a clicker with the taste of food. Eventually, the sound of the clicker alone will begin to produce the same response that the taste of food would.

In a classroom setting, a teacher might utilize operant conditioning by offering tokens as rewards for good behavior. Students can then turn in these tokens to receive some type of reward, such as a treat or extra playtime. In each of these instances, the goal of conditioning is to produce some sort of change in behavior.

(b) Formal and Informal Work Groups 

Definition of Formal Group

A formal group is a collection of persons, who came together for achieving a specified goal. They are always created with intent to fulfil some official requirement. Formation of the group is done by the management. It possesses a systematic structure, in hierarchical form.

In general, the employees of the organisation are divided into groups, and a task is a hand over to each group. In this way, the task of the group is accomplished along with the fulfilment of organisational goals. The given are the types of formal groups:

Command groups: The groups that consist of managers and their subordinates.

Committees: The group of people who are appointed by an organisation, to resolve the matters, referred to them are known as Committee. For example Advisory Committee, Standing Committee, etc.

Task Forces: The group form to carry out a particular task is known as Task Forces.

Definition of Informal Groups

The groups that are created naturally, within the organisation, due to social and psychological forces are known as Informal groups. Under this group, the employees of the organisation, themselves enter into groups, without the approval of the management to satisfy their social needs on the job.

Nobody wants to live in isolation; people generally create a circle around themselves so that they can interact and share their feelings, opinions, experiences, information, etc. These circles are known as informal groups at the workplace. These groups are formed on the basis of common likes, dislikes, prejudices, contacts, language, interests, attitudes of the members. It includes interest group and friendship group. The communication is faster in such groups, as they follow grapevine chain.

There are no defined rules; that applies to the informal group. Moreover, the group possesses a loose structure. The bond between the members of the group is quite strong, which can be seen when one of the employees is kicked out of the job and all co-members his group goes on strike just to support him.

Key Differences Between Formal and Informal Groups

The following are the differences between formal and informal groups:

• The groups formed by the management of the organisation for accomplishing a specific task are known as Formal Groups. The groups that are formed by the employees themselves as per their likes and prejudices is known as Informal Groups.
• The formal groups are deliberately created by the organisation, whereas the informal groups are established voluntarily.
• The formal groups are big in size as compared to an informal group. Moreover, there can be sub-groups in a single formal group.
• The structure of a formal group is designed in a hierarchical manner while the informal group lacks structure or say it has no structure.
• In a formal group, the position of a member defines its importance in the group, but in an informal group, every member is as important as any other member.
• In a formal group, the relationship between the members is professional, they gather just to accomplish the task allotted to them. On the other hand, in an informal group, there is a personal relationship between members, they share their opinions, experiences, problems, information with each other.
• In a formal group, the flow of communication is restricted due to the unity of command. In contrast to an informal group, the flow of communication stretches in all directions; there is no such restriction.

We generally enter into groups, without knowing that Which kind of group is it? From the above post, hope you have understood the differences between the two kinds of group. Sometimes the members of formal groups and informal groups are same. The basic distinguishing feature between the two is that formal groups are always formed with an objective, but when an informal group is created, there is no such kind of intention at all.

(c) Power and Authority 

When the question is about influencing or manipulating others, two things go that side by side in the field of management are Power and Authority. These two are used to make people respond in the manner directed. Power is referred to as the capacity of an individual to influence the will or conduct of others. As against, authority is termed as the right possessed by a person to give the command to others.

Many of us think that these two terms are one and the same thing, but there exists a fine line of difference between power and authority. While the former is exercised in a personal capacity, the latter is used in a professional capacity. So, on this topic, we are going to throw light on the basic differences between the two, have a look.

Definition of Power

By the term power, we mean the personal capacity of an individual to influence others to do or not to do an act. It is independent and informal in nature derived from charisma and status. It is an acquired ability that comes from knowledge and expertise. It is the right to control other’s actions, decisions and performances.

Power is not hierarchical, i.e. it can flow in any direction like it can flow from superior to subordinate (downward) or junior to senior (upward), or between the persons working at the same level, but different departments of the same organization (horizontal), or between the persons working at different levels and departments of the same organization (diagonal). In this way, it is not confined to any boundaries. Moreover, the element of politics is usually attached to it.

Definition of Authority

Authority is legal and formal right to a person, who can take decisions, give orders and commands to others to perform a particular task. It is conferred to high officials, to accomplish organisation’s objectives. It is hierarchical in nature, it flows downward, i.e. delegated from superior to the subordinate.

In general, authority is exercised to get things done through others. It is attached to the position, i.e. any person who gets the position enjoys the authority attached to it, the higher the position, the higher would be his authority. As the authority lies in the designation, in the absence of authority, the position offered to the person would be of no use. Moreover, it is restricted to the organisation only.

Key Differences Between Power and Authority

The difference between power and authority can be drawn clearly on the following grounds:

• Power is defined as the ability or potential of an individual to influence others and control their actions. Authority is the legal and formal right to give orders and commands, and take decisions.
• Power is a personal trait, i.e. an acquired ability, whereas authority is a formal right, that vest in the hands of high officials or management personnel.
• The major source of power is knowledge and expertise. On the other hand, position and office determine the authority of a person.
• Power flows in any direction, i.e. it can be upward, downward, crosswise or diagonal, lateral. As opposed to authority, that flows only in one direction, i.e. downward (from superior to subordinate).
• The power lies in person, in essence, a person acquires it, but authority lies in the designation, i.e. whoever get the designation, get the authority attached to it.
• Authority is legitimate whereas the power is not.

After reviewing the above points, it is quite clear that power and authority are two different things, where power has nothing to do with level or management or position. On the other hand, authority completely depends on these two, i.e. the position level determines the level of authority a person has. In addition to this, the authority relationships, i.e. the relationship between superior and subordinate are depicted on the organisational chart. Conversely, the power relationship is not shown in the organisation chart.

(d) Organisation Culture and Organisation Climate

Organizational Culture vs Climate

 

Difference between organizational culture and organizational climate is that the culture is about the norms, values and behaviour adopted by the employees within the organization while the climate is about the atmosphere of the organization that is created based on the culture. Organizational culture and climate differ from one organization to another. This article presents you with a brief description of the two concepts and an analysis of the difference between organizational culture and climate.

What is Organizational Culture?

Organizational culture is a set of values, beliefs, behaviors, customs and attitudes that govern how people behave within organizations. The culture of an organization provides boundaries and guidelines that help the employees of the organization to know the correct way of performing their jobs.

The culture of an organization is ingrained in the behavior of the employees within an organization and in a way it shows the ‘personality’ of the organization. The unique culture of an organization creates a distinct atmosphere that is felt by the people who are a part of the group, and this atmosphere is known as the climate of an organization.

Types of Organizational Culture

There are four types of cultures that can be identified in organizations as follows:

• Clan culture – It is where employees are behaving as an extended family, mentoring, nurturing and participation can be seen.

• Adhocracy culture – It is where employees of the organization are dynamic, risk-taking and innovative.

• Market Oriented culture – It is where employees are result oriented and focus on the job, competition and achievements.

• Hierarchically oriented culture – It is where the employees undergo a rigid structure, controls, former rules and policies. They expect to maintain stability, consistency and uniformity in their processes.

For example, an educational institute has a hierarchically oriented culture. It is the way all the activities function and also people perceive, think, and feel about things at the institute. 

What is Organizational Climate?

Organizational climate is about the the perception and feeling of each regarding the culture of a particular organization. The climate of an organization is subject to change frequently with the direct influence of top management within the organization. Organizational climate is much easier to experience and measure than organizational culture.

Types of Organizational Climate

There are different types of climates that have been created by the culture of an organization that can be categorized as follows:

• People-oriented climate – It is a climate that focuses on perceptions of individuals who are working in the organization.

• Rule-oriented climate – It is a climate based on established rules, policies and procedures in an organization.

• Innovation-oriented climate – It is a climate that encourages creative or new ways of doing tasks.

• Goal-oriented climate – It is a climate that focuses on achieving organizational goals.

What is the difference between Organizational Culture and Climate?

• Organizational climate can be clearly identified with the perceptions of individuals regarding the quality and characteristics of the organizational culture.

• Culture represents the true image of the organization, whereas climate represents individuals’ perceptions, although there might be differences between each of their ideas.

• Organizational culture is concerned with the macro vision of an organization, whereas organizational climate is very much concerned with the micro image of the organization.

Question No. 3 - MCO-01 - Organisation Theory and Behaviour - Master of Commerce (M.Com)

Solutions to Assignments 

MCO-01 - Organisation Theory and Behaviour

Master of Commerce (M.Com) - 2nd Year 

Question No.  3 Write short notes on the following: 
 (a) Bureaucratic theory 

Bureaucracy is defined in the dictionary as, “a system for controlling or managing a country, company, or organization, that is operated by a large number of officials employed to follow rules carefully”.

These days the word bureaucracy is often associated with negative connotations, but at the time bureaucratic theory was developed by Weber it was designed to solve some big problems with the way organizations were being run.

What is Bureaucratic Theory?

Because of the problems Weber saw with traditional authority he favored a more rational approach to running an organization and helping it to achieve its goals. There are two parts to Weber’s Bureaucratic Theory:

1. A clear organizational hierarchy

An organizational hierarchy defines how people are structured and fit within an organization. For example, a typical company will have the CEO at the top of the hierarchy, followed by the executive board. Each board member will then be responsible for managers, who in turn will manage employees.

Weber wanted each hierarchy to have what he called legal-rational authority. This means that defined authority sits with a position, not with a person. For example, your subordinate would never be able to tell you what to do even if they happened to be the son of the CEO because their formal position doesn’t hold that power. Basically, your authority comes from the position you hold in the hierarchy.

2. Clear rules for decision making

Weber referred to this as rational-legal decision-making rules. This means that there should be a set of explicit rules and procedures defining how the organization functions, and that these rules should be consistent with the rules and laws of wider society.

six characteristics of bureaucracy in turn.

1. Hierarchical Management Structure

One of the hallmarks of a bureaucracy is a hierarchical management structure. In a hierarchy, each level within the organizational structure controls the level below but is controlled by the level above.

Power and authority are clearly and explicitly defined for each position within the hierarchy. Job responsibilities and duties are also clearly defined for each position.

2. Division of Labor

Division of labor means that tasks are divided between the employees of the organization. Each employee will be responsible for specific tasks and each department will be responsible for specific functional areas.

As an example of this think about how your salary is set and paid within a large organization. Your salary will be set by your line manager, but you will be paid by the Payroll department, rather than the money being paid to your boss who would then give it to you. There are advantages to breaking things up in this way. First, your manager is the person in the best position to set your salary as they observe your performance much more closely than the payroll department. Second, the payroll department are specialists in payroll and ensure you get paid on the same day each month.

3. Formal Selection Process

All employees are treated equally and are hired and promoted on the basis of qualifications, expertise, performance, and experience. There are formal rules and regulations to ensure this selection process isn’t abused. For example, your manager can’t hire someone simply because they’re friends from the golf club.

4. Career Orientation

The organization is career orientated, meaning that if you follow the rules and regulations and perform well you will not be arbitrarily fired. In fact, if you perform well you may even have the chance to be promoted or receive a pay rise. In this way, the organization offers each employee the opportunity for a long term career, provided they follow the rules and perform well.

5. Formal Rules and Regulations

There are rules in place that govern how all employees should behave. Managers cannot simply appraise their employees according to their whims. Instead, they must assess employees according to the rules. For example, if you’ve been set a target to make 10 widgets and you make 10 widgets then you’ve achieved your target. Your manager can’t simply decide retrospectively that you should have really made 15 widgets and then fire you for not making 15 widgets. The rules protect employees against this type of behavior.

Similarly, there are rules surrounding how we behave, treat, and interact with other employees.

6. Impersonality

The rules are well defined and clear and are applied in the same way to everyone. The rules are there to prevent favoritism or nepotism.

If two employees were to enter into a relationship together whilst working within the same department, then often one of them will be moved to a different department or different part of the organization to avoid favoritism and help keep in-work relationships impersonal.

(b) Team effectiveness 

Team effectiveness is the capacity of a group of people, usually with complementary skills, to work together to accomplish goals set out by an authority, members, or leaders of the team. Team effectiveness models help us understand the best management techniques to get optimal performance from our teams. There are several critical factors to achieve maximum group effectiveness as the six models of team working below will show. 

Smart leaders and project managers should be aware of unique dynamics and relationships within their teams and create room to consistently improve team performance. Google, a company known for their innovative models of team effectiveness, spent years analyzing what makes some teams better than others. Their findings? It's less about who's on the team and more about how well they work together.

Understanding these team effectiveness models will help you figure out which of the team models would be best to optimize your team by shedding a light on what works and what needs to be improved.

Rubin, Plovnick, and Fry's GRPI Model of Team Effectiveness

This model of team effectiveness was proposed by Rubin, Plovnick, and Fry as early as 1977. It is also known by the acronym GRPI, which stands for Goals, Roles, Processes, and Interpersonal relationships. Represented as a pyramid diagram, this model outlines four parts teams need to be effective:

Goals: well-defined objectives and desired results, plus clearly communicated priorities and expectations

Roles: well-defined responsibilities and acceptance of a leader

Processes: clear decision-making processes as well as work procedures

Interpersonal relationships: good communication, trust, and flexibility

Because of its simplicity, the GRPI model is great when starting a team or when encountering a team-related problem with an unknown cause.

Choosing the right team effectiveness model for your team

If you have read this far, you may be wondering why there are so many team effectiveness models. Yet this list only scratches the surface. High-performance teams are a unique blend of individual perspectives, group dynamics, and organizational support. 

The different team effectiveness models help you identify specific gaps that hinder your team from collaborating and producing successful results. Remember that the way a team works together determines their success much more than the strength of individual team members. 

Therefore, leaders who focus on creating effective teamwork models elevate the work of everyone involved, and thus the success of their organizations.

(c) Theory of Attribution 

Attribution theory is intended to help a person understand the causes of human behavior, be it their own or someone else's. The basis of attribution theory is that people want to know the reasons for the actions that they and others take; they want to attribute causes to behaviors they see rather than assuming that these behaviors are random. This allows people to assume some feeling of control over their own behaviors and over situations. Psychologist Fritz Heider (1896–1988) first developed attribution theory in his 1958 book The Psychology of Interpersonal Relations. Heider proposed that what people perceived and believed about what they saw dictated how they would act, even if their beliefs about what they perceived were invalid.

Heider's proposed theory of attribution was further developed by psychologist Bernard Weiner and colleagues in the 1970s and 1980s, and this new theoretical framework has been used primarily in current attribution research. A final development to attribution theory was provided by psychologist Harold Kelley, who examined how consistency, distinctiveness, and consensus could be used by individuals to establish the validity of their perceptions.

Attributions are critical to management because perceived causes of behavior may influence managers' and employees' judgments and actions. For instance, managers must often observe employee performance and make related judgments. If a manager attributes an employee's poor performance to a lack of effort, then the outcome is likely to be negative for that employee; he or she may receive a poor performance appraisal rating or even be terminated from the job. Conversely, if a manager perceives that an employee's poor performance is due to a lack of skill, the manager may assign the employee to further training or provide more instruction or coaching. Making an inaccurate judgment about the causes of poor performance can have negative repercussions for the organization.

Attributions also may influence employee motivation. Employees who perceive the cause of their success to be outside of their control may be reluctant to attempt new tasks and may lose motivation to perform well in the workplace. Conversely, employees who attribute their success to themselves are more likely to have high motivation for work. Thus, understanding attributions that people make can have a strong effect on both employee performance and managerial effectiveness.

ATTRIBUTION PROCESS AND THE CAUSES OF BEHAVIOR

Attribution is considered to be a three-stage process. First, the behavior of an individual must be observed. Second, the perceiver must determine that the behavior they have observed is deliberate. That is, the person being observed is believed to have behaved intentionally. Finally, the observer attributes the observed behavior to either internal or external causes. Internal causes are attributed to the person being observed, while external causes are attributed to outside factors. The two internal attributions one can make are that a person's ability or a person's effort determined the outcome. Task difficulty and luck are the external causes of behavior. When perceiving behavior, an observer will make a judgment as to which of these factors is the cause of behavior. However, when making a determination between internal and external causes of behavior, the perceiver must examine the elements of consistency, distinctiveness, and consensus.

Consistency describes whether the person being observed behaves the same way when faced with the same set of circumstances. If the person being observed acts the same way in the same type of situation, consistency is high; if they act differently each time, then consistency is low. Distinctiveness is whether the observed person acts the same way in different types of situations. If the person being observed exhibits the same behavior in a variety of contexts, then distinctiveness is low; if they have different behavior depending on the context, then distinctiveness is high. Finally, consensus is the degree to which other people, if in the same situation, would behave similarly to the person being observed. If the observer sees others acting the same way that the person being perceived acts, then consensus is high. However, if others behave differently in the type of situation, then consensus is low. Consistency, distinctiveness, and consensus are evaluated when observing behavior, and then a judgment about an internal versus external cause of behavior is made. When consistency, distinctiveness, and consensus are all high, the perceiver concludes that there is an external cause of behavior. When consistency is high, distinctiveness is low, and consensus is low, the perceiver will attribute the cause of behavior to internal factors.

To better understand consistency, distinctiveness, and consensus, consider a workplace example. Nancy, a manager, has assigned a team of employees to develop a custom sales training program for a client. As the project progresses, Nancy continues to see problems in the work produced by Jim, one of the team members. In order to determine why Jim's performance is not satisfactory, Nancy first considers consistency, or whether Jim has performed poorly on other similar team projects. A review of his past performance appraisals indicates that he has not had prior performance problems when creating custom sales training programs. This would lead Nancy to conclude that there was an external cause of the poor performance. Second, Nancy considers distinctiveness; she wants to know if Jim has performed poorly on different types of tasks. Again, in checking Jim's performance reviews, she finds that when he is on a team to accomplish a different type of task, such as developing a selection interview, he has excelled. This further points to an external cause of Jim's poor performance. Finally, Nancy assesses consensus, or the behavior of others in this similar task. In asking the team members about their experiences with the current project, she finds that many of them have had difficulty in developing this custom sales training program. Thus, all indicators point to Jim's poor performance being caused by an external factor, such as a difficult task or a demanding client. Based on this attribution, Nancy may explore ways in which to minimize the negative effects of the external factors on Jim's performance rather than attempting to influence his level of effort or ability.

The prior example illustrated how consistency, distinctiveness, and consensus might point toward an external cause. However, these three factors also may lead an observer to attribute behavior to an internal cause, such as the observed person's effort or ability. Nancy, the observer from the previous example, also has experienced difficulties with a secretary named Kelly. Another manager has complained to Nancy that Kelly has not completed work on time and turns in work full of errors. Nancy observes Kelly for several days and finds that, when given work by this particular manager, Kelly continues to perform poorly, which indicates an internal cause (i.e., high consistency). Second, when performing work for other managers on other tasks, Kelly continues to do substandard work; this is distinctiveness, and it again points to an internal cause. Finally, Nancy observes that when other secretaries perform the work assigned by the manager who complained about Kelly, they are able to successfully perform their duties in a timely manner. This is consensus, and it also points to an internal cause. Based on these observations, Nancy can attribute Kelly's poor performance to an internal cause, or namely to Kelly's own lack of skill or effort.

(d) Models of men

The five important models of individual behavior, i.e, (1) Rational Economic Man, (2) Social Man, (3) Organizational Man, (4) The Self Actuating Man, and (5) Complex Man.

1. Rational Economic Man:

From the organisational perspective, managers had, for a long time, viewed their employees as rational beings who are primarily motivated by money. They took the ‘ECONOMIC MAN’ and ‘RATIONAL MAN’ approach to understand and predict the human behaviour. This model is based on classical organisation theory.

The Scientific Management Movement was based on the belief that by rationally explaining the one best way to do things and offering incentives to workers in the form of piece rates and bonuses, organisational output can be increased. Psychologists have also studied this model for predicting human behaviour. For example, McGregor’s assumptions of Theory X reflect this model.

The basic assumptions of the concept of ‘Rational Economic Man’ are as follows:

(i) People are motivated primarily by economic incentives. They will do things which get them the greatest economic gain.

(ii) As the organisation controls the economic incentives, human beings are essentially passive agents, who are manipulated, motivated and controlled by the organisation.

(iii) The feelings of the people are essentially irrational and must be controlled to achieve rationality and self interest.

(iv) Organisations can and must be designed in such a way so as to neutralize and control people’s feelings and therefore their unpredictable traits.

In this model, people are induced to produce more by providing them with economic incentives. In this case, there is no organisation-employees conflict because both are satisfying their needs simultaneously. Management is getting more production and people are getting more money.

2. Social Man:

With the passage of time, the advocates of human relations school recognized that there is a lot more to human behaviour than just being social man economic and rational. Advocates of this school considered the worker as a social man. They recognized that man is a part of the social group he is influenced by the social forces and seeks satisfaction of the needs which are related to the maintenance of his social relationships. Eltan Mayo conceived the concept of the social man when he carried out Hawthorne studies during 1927-32.

From the reports of Hawthorne experiments the following assumptions about human beings can be drawn:

(i) Human beings are basically motivated by social needs and all their efforts are directed towards getting this satisfaction by maintaining relationships with others.

(ii) A human being is more responsive to the pressures and sanctions of his social group than to the incentives and controls of the management. The reason is that he values social relationship higher than his economic motives which are directly under the control of management.

(iii) The amount of work to be done by a worker is not determined by his physical capacity or by the management but by the social norms.

(iv) Generally people do not act or react as individuals but as members of a group.

(v) Informal leaders play an important role in setting and enforcing the group norms.

(vi) Management should change and organize work in such a way that it provides more belongingness not only in terms of interpersonal and group relationships, but also man’s relationship with his job.

The type of managerial strategy that is to be applied in the case of social man is quite different as compared to the strategy to be applied in case of Economic-Rational man. The total system of social man is directed towards people.

3. Organisational Man:

Organisation man is an extension of social man. The concept of organisation man was introduced by William Whyte. He believed that it is very important for a person to be loyal to the organisation and cooperative with the fellow workers. Any person who believes in this value system and acts in this way is an organisation man. The basis of this concept is and that every individual should sacrifice his individuality for the sake of the group and the organisation.

This idea was initially suggested by Henry Fayol, when he suggested that individual interest should be subordinated to the general interest. Whyte had explained three major propositions, on which this concept of organisation man is based.

These propositions are as follows:

(i) The first proposition is that individual by himself is isolated and meaningless. The group is the source of activity. Individuals create only when they move in a group. A group helps to produce a whole that is greater than the sum of its parts.

(ii) The ultimate need of every individual is belongingness. He wants to belong to his families, friends, relatives, colleagues and other members of the society as a whole. Whyte says that there should be no conflict between man and society.

(iii) The goal of belongingness is achieved with the help of science. Whenever there is a conflict between the needs of the society and the needs of the individual, an equilibrium can be created by applying the methods of science. Science can help in removing all the obstacles to consensus.

The organisation man concept emphasis, that there is no conflict between the individual interest and the interest of the organisation. Even if there is any conflict, individual interest will be sacrificed in favour of the group interest to remove the conflict. However, there is a basic assumption behind this concept.

The assumption is that management will take care of the individual interests. It would be the duty of the management to satisfy the needs of the individuals. People will be willing to sacrifice their interests for the organisation only if they are positive that the organisation would take care of them.

4. The Self Actuating Man:

The concept of self actuating man is a further extension of social man and the organisation man models. The social man concept assumes that the formation of social groups is the basis of satisfaction for the individuals. But as against this the self actuating man assumes that man’s inherent need is to use his capabilities and skills in such a way that he should have the satisfaction of creating certain things. The earlier models do not allow him to satisfy his self actuating needs.

Following are the main assumptions about the self actuating man:

(i) The basic assumption about this concept is that the various needs of a man can be put in the order of priority. For example, MASLOW has put various needs in a hierarchy: Every unsatisfied need is a motivational factor for him. Self actualization according to this diagram is the ultimate goal, because it is last in the hierarchy and by the time his goal is achieved, all the other needs of the man are also satisfied.

(ii) In the process of self actualization, there are various changes in the behaviour of the individual and he moves from immaturity to maturity.

(iii) Another assumption is that a man is primarily self motivated and self controlled. Any incentives given by the management cannot motivate him after a certain level and any control imposed on him cannot threaten him.

(iv) The earlier models were based on the assumption that a man has got immature personality. However, the reality is that if a man is left free, he will put in his maximum efforts.

These assumptions are generally based upon McGregor’s theory Y and Argyris’s immaturity-maturity theory. To satisfy a self actuating man what are required are all the managerial actions meant to satisfy the social man with some additional features.

5. Complex Man:

Complex man presents the real picture of human picture of human behavior. All the previous models make very simplistic assumptions about people and their behaviour.

Researchers have proved that these assumptions are not correct as explained below:

(i) The earlier models assume that man will always behave according to certain set patterns. But research has indicated that there are many complex variables, which determine the human behaviour. These variables are quite unpredictable. So the human behaviour which is based on these variables cannot follow a set pattern.

(ii) The behaviour of man can be understood and predicted in the given conditions, depending upon the assumptions made. But research has indicated that even if cause-effect relationship is established between the variables and behaviour, it is not easy to understand and predict the individual behaviour because of the individual differences. It is not necessary that everyone will behave accordingly.Most behaviour in the organisation can be understood by taking assumptions of complex man.