People - Theories of Motivation There are a number of different views as to what motivates workers.

The most commonly held views or theories are discussed below and have been developed over the last 100 years or so. Unfortunately these theories do not all reach the same conclusions! Taylor Frederick Winslow Taylor (1856 1917) put forward the idea that workers are motivated mainly by pay. His Theory of Scientific Management argued the following: Workers do not naturally enjoy work and so need close supervision and control Therefore managers should break down production into a series of small tasks Workers should then be given appropriate training and tools so they can work as efficiently as possible on one set task. Workers are then paid according to the number of items they produce in a set period of time- piece-rate pay. As a result workers are encouraged to work hard and maximise their productivity. Taylors methods were widely adopted as businesses saw the benefits of increased productivity levels and lower unit costs. The most notably advocate was Henry Ford who used them to design the first ever production line, making Ford cars. This was the start of the era of mass production. Taylors approach has close links with the concept of an autocratic management style (managers take all the decisions and simply give orders to those below them) and Macgregors Theory X approach to workers (workers are viewed as lazy and wish to avoid responsibility). However workers soon came to dislike Taylors approach as they were only given boring, repetitive tasks to carry out and were being treated little better than human machines. Firms could also afford to lay off workers as productivity levels increased. This led to an increase in strikes and other forms of industrial action by dis-satisfied workers. Mayo Elton Mayo (1880 1949) believed that workers are not just concerned with money but could be better motivated by having their social needs met whilst at work (something that Taylor ignored). He introduced the Human Relation School of thought, which focused on managers taking more of an interest in the workers, treating them as people who have worthwhile opinions and realising that workers enjoy interacting together.

Mayo conducted a series of experiments at the Hawthorne factory of the Western Electric Company in Chicago He isolated two groups of women workers and studied the effect on their productivity levels of changing factors such as lighting and working conditions. He expected to see productivity levels decline as lighting or other conditions became progressively worse What he actually discovered surprised him: whatever the change in lighting or working conditions, the productivity levels of the workers improved or remained the same. From this Mayo concluded that workers are best motivated by: Better communication between managers and workers ( Hawthorne workers were consulted over the experiments and also had the opportunity to give feedback) Greater manager involvement in employees working lives ( Hawthorne workers responded to the increased level of attention they were receiving) Working in groups or teams. ( Hawthorne workers did not previously regularly work in teams) In practice therefore businesses should re-organise production to encourage greater use of team working and introduce personnel departments to encourage greater manager involvement in looking after employees interests. His theory most closely fits in with a paternalistic style of management. Maslow Abraham Maslow (1908 1970) along with Frederick Herzberg (1923-) introduced the Neo-Human Relations School in the 1950s, which focused on the psychological needs of employees. Maslow put forward a theory that there are five levels of human needs which employees need to have fulfilled at work. All of the needs are structured into a hierarchy (see below) and only once a lower level of need has been fully met, would a worker be motivated by the opportunity of having the next need up in the hierarchy satisfied. For example a person who is dying of hunger will be motivated to achieve a basic wage in order to buy food before worrying about having a secure job contract or the respect of others. A business should therefore offer different incentives to workers in order to help them fulfill each need in turn and progress up the hierarchy (see below). Managers should also recognise that workers are not all motivated in the same way and do not all move up the hierarchy at the same pace. They may therefore have to offer a slightly different set of incentives from worker to worker.

Herzberg Frederick Herzberg (1923-) had close links with Maslow and believed in a two-factor theory of motivation. He argued that there were certain factors that a business could introduce that would directly motivate employees to work harder (Motivators). However there were also factors that would de-motivate an employee if not present but would not in themselves actually motivate employees to work harder (Hygienefactors) Motivators are more concerned with the actual job itself. For instance how interesting the work is and how much opportunity it gives for extra responsibility, recognition and promotion. Hygiene factors are factors which surround the job rather than the job itself. For example a worker will only turn up to work if a business has provided a reasonable level of pay and safe working conditions but these factors will not make him work harder at his job once he is there. Importantly Herzberg viewed pay as a hygiene factor which is in direct contrast to Taylor who viewed pay, and piece-rate in particular Herzberg believed that businesses should motivate employees by adopting a democratic approach to management and by improving the nature and content of the actual job through certain methods. Some of the methods managers could use to achieve this are: Job enlargement workers being given a greater variety of tasks to perform (not necessarily more challenging) which should make the work more interesting.

Job enrichment - involves workers being given a wider range of more complex, interesting and challenging tasks surrounding a complete unit of work. This should give a greater sense of achievement. Empowerment means delegating more power to employees to make their own decisions over areas of their working life.

McGregor Theory X
In this theory, which has been proven counter-effective in most modern practice, management assumes employees are inherently lazy and will avoid work if they can and that they inherently dislike work. As a result of this, management believes that workers need to be closely supervised and comprehensive systems of controls developed. A hierarchical structure is needed with narrow span of control at each and every level. According to this theory, employees will show little ambition without an enticing incentive program and will avoid responsibility whenever they can. According to Michael J. Papa, if the organizational goals are to be met, theory X managers rely heavily on threat and coercion to gain their employee's compliance. Beliefs of this theory lead to mistrust, highly restrictive supervision, and a punitive atmosphere. The Theory X manager tends to believe that everything must end in blaming someone. He or she thinks all prospective employees are only out for themselves. Usually these managers feel the sole purpose of the employee's interest in the job is money. They will blame the person first in most situations, without questioning whether it may be the system, policy, or lack of training that deserves the blame. A Theory X manager believes that his or her employees do not really want to work, that they would rather avoid responsibility and that it is the manager's job to structure the work and energize the employee. One major flaw of this management style is it is much more likely to cause Diseconomies of Scale in large businesses.

[edit] Theory Y
In this theory, management assumes employees may be ambitious and self-motivated and exercise self-control. It is believed that employees enjoy their mental and physical work duties. According to Papa, to them work is as natural as play[1]. They possess the ability for creative problem solving, but their talents are underused in most organizations. Given the proper conditions, theory Y managers believe that employees will learn to seek out and accept responsibility and to exercise self-control and self-direction in accomplishing objectives to which they are committed. A Theory Y manager believes that, given the right conditions, most people will want to do well at work. They believe that the satisfaction of doing a good job is a strong motivation. Many people interpret Theory Y as a positive set of beliefs about workers. A close reading of The Human Side of Enterprise reveals that McGregor simply argues for managers to be open to a more positive view of workers and the possibilities that this creates. He thinks that Theory Y

managers are more likely than Theory X managers to develop the climate of trust with employees that is required for human resource development. It's human resource development that is a crucial aspect of any organization. This would include managers communicating openly with subordinates, minimizing the difference between superiorsubordinate relationships, creating a comfortable environment in which subordinates can develop and use their abilities. This climate would include the sharing of decision making so that subordinates have say in decisions that influence them. This theory is a positive view to the employees, meaning that the employer is under a lot less pressure than some one who is to influenced by a theory X management style.

What is Autocratic Leadership?

Autocratic leadership is a classical leadership style with the following characteristics: 1. Manager seeks to make as many decisions as possible 2. Manager seeks to have the most authority and control in decision making 3. Manager seeks to retain responsibility rather than utilise complete delegation 4. Consultation with other colleagues in minimal and decision making becomes a solitary process 5. Managers are less concerned with investing their own leadership development, and prefer to simply work on the task at hand. The autocratic leadership style is seen as an old fashioned technique. It has existed as long as managers have commanded subordinates, and is still employed by many leaders across the globe. The reason autocratic leadership survives, even if it is outdated, is because it is intuitive, carries instant benefits, and comes natural to many leaders. Many leaders who start pursuing leadership development are often trying to improve upon their organisations autocratic leadership style.

What Are The Benefits Of The Autocratic Leadership Style?

Despite having many critics, the autocratic leadership styles offer many advantages to managers who use them. These include: Reduced stress due to increased control. Where the manager ultimately has significant legal and personal responsibility for a project, it will comfort them and reduce their stress levels to know that they have control over their fate. A more productive group while the leader is watching. The oversight that an autocratic manager exerts over a team improves their working speed and makes them less likely to slack. This is ideal for poorly motivated employees who have little concern or interest in the quality or speed of work performed.

Improved logistics of operations. Having one leader with heavy involvement in many areas makes it more likely that problems are spotted in advance and deadlines met. This makes autocratic leadership ideal for one-off projects with tight deadlines, or complicated work environments where efficient cooperation is key to success. Faster decision making. When only one person makes decisions with minimal consultation, decisions are made quicker, which will allow the management team to respond to changes in the business environment more quickly.

What Are The Disadvantages Of The Autocratic Leadership Style?

Short-termistic approach to management. While leading autocratically will enable faster decisions to be made in the short term, by robbing subordinates of the opportunity to gain experience and start on their own leadership development, and learn from their mistakes, the manager is actually de-skilling their workforce which will lead to poorer decisions and productivity in the long run. Manager perceived as having poor leadership skills. While the autocratic style has merits when used in certain environments (as highlighted below), autocratic leadership style is easy yet unpopular. Managers with poor leadership skills with often revert to this style by default. Increased workload for the manager. By taking on as much responsibility and involvement as possible, an autocratic leader naturally works at their full capacity, which can lead to long term stress and health problems and could damage working relationships with colleagues. This hyper-focus on work comes at the expense of good leadership development. People dislike being ordered around. They also dislike being shown very little trust and faith. As a result, the autocratic leadership style can result in a demotivated workforce. This results in the paradox that autocratic leadership styles are a good solution for demotivated workers, but in many cases, it is the leadership style alone that demotivates them in the first place. Generation Y employees particularly dislike this style. Teams become dependent upon their leader. After becoming conditioned to receive orders and act upon them perfectly, workers lose initiative and the confidence to make decisions on their own. This results in teams of workers who become useless at running operations if they loose contact with their leader. This is the result of a lack of time dedicated to leadership development on the employees part.

When is the Autocratic Leadership Style Effective?

Following on from the merits and drawbacks listed above, the autocratic leadership style is useful in the following work situations: 1. Short term projects with a highly technical, complex or risky element.

2. Work environments where spans of control are wide and hence the manager has little time to devote to each employee. 3. Industries where employees need to perform low-skilled, monotonous and repetitive tasks and generally have low levels of motivation. 4. Projects where the work performed needs to be completed to exact specifications and/or with a tight deadline. 5. Companies that suffer from a high employee turnover, i.e. where time and resources devoted to leadership development would be largely wasted. Although one could argue that a lack of leadership development in the first place caused the high turnover.

What is Democratic Leadership?

Democratic Leadership is the leadership style that promotes the sharing of responsibility, the exercise of delegation and continual consultation. The style has the following characteristics: 1. Manager seeks consultation on all major issues and decisions. 2. Manager effectively delegate tasks to subordinates and give them full control and responsibility for those tasks. 3. Manager welcomes feedback on the results of intiatives and the work environment. 4. Manager encourages others to become leaders and be involved in leadership development.

What Are The Benefits Of The Democratic Leadership Style?

Positive work environment. A culture where junior employees are given fair amount of responsibility and are allowed to challenge themselves is one where employees are more enthused to work and enjoy what they do. Successful initiatives. The process of consultation and feedback naturally results in better decision making and more effective operations. Companies run under democratic leadership tend to run into fewer grave mistake and catastrophes. To put it simply people tell a democratic leader when something is going badly wrong, while employees are encouraged to simply hide it from an autocrat. Creative thinking. The free flow of ideas and positive work environment is the perfect catalyst for creative thinking. To further their leadership education, people often check the online MBA rankings to see whether MBA online is a match for them. The benefits of this arent just relevant for creative industries, because creative thinking is required to solve problems in every single organisation, whatever its nature. Reduction of friction and office politics. By allowing subordinates to use their ideas and even more importantly gain credit for them, you are neatly reducing the amount of tension employees generate with their manager. When autocratic leaders refuse to listen to their workers, or blatantly ignore their ideas, they are effectively asking for people to talk behind their back and attempt to undermine or supercede them. Reduced employee turnover. When employees feel empowered through leadership development, a company will experience lower rates of employee turnover which has numerous benefits. A company that invests in leadership development for its employees, is investing in their future, and this is appreciated by a large majority of the workforce.

What Are The Disadvantages Of The Democratic Leadership Style?

Lengthy and boring decision making. Seeking consultation over every decision can lead to a process so slow that it can cause opportunities to be missed, or hazards avoided too late. Danger of pseudo participation. Many managers simply pretend to follow a democratic leadership style simply to score a point in the eyes of their subordinates. Employees are quick to realise when their ideas arent actually valued, and that the manager is merely following procedure in asking for suggestions, but never actually implementing them. In other words, theyre simply exerting autocratic leadership in disguise.

When Is The Democratic Leadership Style Effective?

Now youve heard about the benefits and drawbacks of this leadership style, lets look at where its actually implemented in the business world. 1. Democratic leadership is applied to an extent in the manufacturing industry, to allow employees to give their ideas on how processes can become leaner and more efficient. While Fordism is still applied in some factories across the country, truth is that production managers are now really starting to harness the motivational bonuses associated with not treating employees like robots anymore. 2. Democratic leadershp is effective in proffessional organisations where the emphasis is clearly on training, professional & leadership development and quality of work performed. Democratic procedures are simply just one cog in the effective leadership mechanisms firms like The Big Four have created over the years. 3. Non profit organisations also tremendously benefit from drawing upon the creative energies of all their staff to bring about cost cutting techniques or fund raising ideas. 4. As previously mentioned, creative industries such as advertising and television enjoy alot of benefits from the free flow of ideas that democratic leadership brings.

What Is Bureaucratic Leadership?

The bureaucratic leadership style is concerned with ensuring workers follow rules and procedures accurately and consistently. Bureaucratic leadership normally has the following characteristics: 1. Leaders expect a employees to display a formal, businesslike attitude in the workplace and between each other. 2. Managers gain instant authority with their position, because rules demand that employees pay them certain priveledges, such as being able to sign off on all major decisions. As a result, leaders suffer from position power. Leadership development becomes pointless, because only titles and roles provide any real control or power. 3. Employees are rewarded for their ability to adhere to the rules and follow procedure perfectly. 4. Bureaucratic systems usually gradually develop over a long period of time, and hence are more commonly found in large & old businesses.

What Are The Benefits Of The Bureaucratic Leadership Style?

Increased safety. In dangerous workplaces where procedures save lives, a bureaucratic management style can help enforce health and safety rules. Quality work. Some tasks,

such as completing proffessional work or medical examinations, need to be done in a meticulous fashion to be done correctly. Laziness can result in poor work, and hence one solution is to enforce the rules via the bureacratic leadership style. Ultimate control. An environment whereby employees are intrinsically motivated to follow rules in order to be promoted and succeed results in the tightest control management can ever assume over a company. This control can be used to cut costs or improve productivity.

What Are The Disadvantages Of The Bureaucratic Leadership Style?

Dehumanises the business. Bureacratic companies tend to remove as much potential for human error out of the picture as possible. Unfortunately this also has the effect of removing all the enjoyment and reward that comes from deciding how to do a task and accomplishing it. Lack of self-fulfillment. The bureaucratic way of working hampers employees efforts to become successful and independent, because the system becomes too contraining. Parkinsons Law. Cyril Northcote Parkinson made the scientific observation that the number of staff in bureaucracies increased by an average of 5%-7% per year irrespective of any variation in the amount of work (if any) to be done.". He explains this growth by two forces: (1) An official wants to multiply subordinates, not rivals and (2) Officials make work for each other. Parkinsons findings suggest that bureaucratic leadership encourages inefficiency and waste of internal resources in the long run. Position power obessession. After working in an environment that reinforces the idea that authority is created by rules which in turn support senior positions. Employees become attached to the idea that simply being in a job position creates authority. This can lead to intense office politics, arrogant leaders and little incentive to perform well once an employee has landed a top job. Lack of creativity. It goes without saying that a rule-based culture hinders creativity and encourages workers to simply perform puppet-like work rather than think independently. This may result in a lack of growth in the business due to employees simply not thinking out of the box or looking for new areas to develop. Poor communication. A common feature of a bureaucratic system is a complicated network of communication lines. Managers who dont want to be bothered by junior staff simply create procedures that allow them to avoid communicating with those below them. Go through the formal process, Talk to my secretary and My schedule is full are common rule-based excuses for blocked contact. Barriers to communication can hinder the success of any company. For example, the board may be charging ahead with a doomed product simply because their shop floor workers cannot pass on the message that customers are giving very negative feedback.

When Is The Bureaucratic Leadership Style Effective?

Bureaucratic leadership is found in extremely large corporations such as General Electric, Daimler and General Motors. However these cultures have evolved due to the age and size of these companies, and are generally blamed for the slow growth and recent failures at these companies. 1. Governmental bodies often have bureaucratic systems, and while these are often despised by the public, they ensure accountability to the tax payer and fair treatment for all. Excessive form-filling also serves the purpose of passing effort from the government authority (with a tight budget) onto the individual, helping to save costs. 2.

Dangerous workplaces such as mines, oil rigs, construction sites and film sets all benefit from the tight control over health and safety that rules offer. Question: WHAT IS HUMAN RESOURCE MANAGEMENT Answer: Human Resource Management (HRM) is the function within an organization that focuses on recruitment of, management of, and providing direction for the people who work in the organization. Human Resource Management can also be performed by line managers. Human Resource Management is the organizational function that deals with issues related to people such as compensation, hiring, performance management, organization development, safety, wellness, benefits, employee motivation, communication, administration, and training. Human Resource Management is also a strategic and comprehensive approach to managing people and the workplace culture and environment. Effective HRM enables employees to contribute effectively and productively to the overall company direction and the accomplishment of the organization's goals and objectives. Human Resource Management is moving away from traditional personnel, administration, and transactional roles, which are increasingly outsourced. HRM is now expected to add value to the strategic utilization of employees and that employee programs impact the business in measurable ways. The new role of HRM involves strategic direction and HRM metrics and measurements to demonstrate value. ORGANISATIONAL STRUCTURE Organizational structure refers to the way that an organization arranges people and jobs so that its work can be performed and its goals can be met. When a work group is very small and face-to-face communication is frequent, formal structure may be unnecessary, but in a larger organization decisions have to be made about the delegation of various tasks. Thus, procedures are established that assign responsibilities for various functions. It is these decisions that determine the organizational structure. In an organization of any size or complexity, employees' responsibilities typically are defined by what they do, who they report to, and for managers, who reports to them. Over time these definitions are assigned to positions in the organization rather than to specific individuals. The relationships among these positions are illustrated graphically in an organizational chart (see Figures 1a and 1b). The best organizational structure for any organization depends on many factors including the work it does; its size in terms of employees, revenue, and the geographic dispersion of its facilities; and the range of its businesses (the degree to which it is diversified across markets).

There are multiple structural variations that organizations can take on, but there are a few basic principles that apply and a small number of common patterns. The following sections explain these patterns and provide the historical context from which some of them arose. The first section addresses organizational structure in the twentieth century. The second section provides additional details of traditional, vertically-arranged organizational structures. This is followed by descriptions of several alternate organizational structures including those arranged by product, function, and geographical or product markets. Next is a discussion of combination structures, or matrix organizations. The discussion concludes by addressing emerging and potential future organizational structures.

organizational structure
The framework, typically hierarchical, within which an organization arranges its lines of authority and communications, and allocates rights and duties. Organizational structure determines the manner and extent to which roles, power, and responsibilities are delegated, controlled, and coordinated, and how information flows between levels of management. An structure depends entirely on the organization's objectives and the strategy chosen to achieve them. In a centralized structure, the decision making power is concentrated in the top layer of the management and tight control is exercised over departments and divisions. In a decentralized structure, the decision making power is distributed and the departments and divisions have varying degrees of autonomy. An organizational chart illustrates the organizational structure. SPAN OF CONTROL This term is used to describe the number of employees that each manager/supervisor is responsible for. FORMAL AND INFORMAL ORGNAL STRUCTURE The span of control is said to be wide if a superior is in charge of many employees and narrow if the superior is in charge of a few employees. A formal organisation structure shows a recognisable chain of command, it also has many levels of management. This make comunication slower and decision making harder to implement. An informal structure is much more relaxed, with very few levels of management. This makes comunication much easier between levels and decisions anr made faster.

Formal organization is a fixed set of rules of intra-organization procedures and structures. As such, it is usually set out in writing, with a language of rules that ostensibly leave little discretion for interpretation. In some societies and in some organization, such rules may be strictly followed; in others, they may be little more than an empty formalism. Informal organization is the interlocking social structure that governs how people work together in practice. It is the aggregate of behaviors, interactions, norms, personal and professional connections through which work gets done and relationships are built among people who share a common organizational affiliation or cluster of affiliations. It consists of a dynamic set of personal relationships, social networks, communities of common interest, and emotional sources of motivation. The informal organization evolves organically and spontaneously in response to changes in the work environment, the flux of people through its porous boundaries, and the complex social dynamics of its members. Tended effectively, the informal organization complements the more explicit structures, plans, and processes of the formal organization: it can accelerate and enhance responses to unanticipated events, foster innovation, enable people to solve problems that require collaboration across boundaries, and create footpaths showing where the formal organization may someday need to pave a way Functions of Informal Organization: They perpetuate the cultural and social values that the group holds dear, They provide social status and satisfaction that may not be obtained from the formal organization, They promote communication among members, They provide social control by infjuencing and regulating behavior inside and outside the Group Disadvantage of informal Groups: Resistance to change. Role conflict Rumor

Conformity Benefits to the Formal Organization: 1. Blend with formal system 2. Lighten management workload 3. Fill gaps in managemnt abilities The nature of the informal organization becomes more distinct when its key characteristics are juxtaposed with those of the formal organization. Formal rules are often adapted to subjective interests social structures within an enterprise and the personal goals, desires, sympathies and behaviors of the individual workers so that the practical everyday life of an organization becomes organizations represent some mix of formal and informal. Consequently, when attempting to legislate for an organization and to create a formal structure, it is necessary to recognize informal organization in order to create workable structures. However, informal organization can fail, or, if already set in order, can work against mismanagement. Formal organizations are typically understood to be systems of coordinated and controlled activities that arise when work is embedded in complex networks of technical relations and boundary-spanning exchanges. But in modern societies, formal organizational structures arise in highly institutional contexts Key characteristics of the informal organization: evolving constantly grass roots dynamic and responsive excellent at motivation requires insider knowledge to be seen treats people as individuals flat and fluid cohered by trust and reciprocity

difficult to pin down essential for situations that change quickly or are not yet fully understood Key characteristics of the formal organization: enduring, unless deliberately altered top-down static excellent at alignment plain to see equates person with role hierarchical bound together by codified rules and order easily understood and explained critical for dealing with situations that are known and consistent Historically, some have regarded the informal organization as the byproduct of insufficient formal organizationarguing, for example, that it can hardly be questioned that the ideal situation in the business organization would be one where no informal organization existed. However, the contemporary approachone suggested as early as 1925 by Mary Parker Follett, the pioneer of community centers and author of influential works on management philosophyis to integrate the informal organization and the formal organization, recognizing the strengths and limitations of each. FEATURES OF FORMAL STRUCTURE (i) (ii) (iii) (iv) Organization structure is laid down by the top management to achieve organizational goals. Organization structure is based on division of labor and specialization to achieve efficiency in the operations. Organization structure concentrates on the jobs to be performed and not the individuals who are to perform jobs. The organization does not take into consideration the sentiments of organizational members.

(v)

The authority and responsibility relationships created by the organization structure are to be honored by everyone.

Main characteristics of formal organisation

Deliberately planned and created Concerned with the co-ordination of activities Hierarchically structured with stated objectives Based on certain principles such as the specification of tasks Organization structure is laid down by the top management to achieve organizational goals. Organization structure is based on division of labor and specialization to achieve efficiency in the operations. The authority and responsibility relationships created by the organization structure are to be honored by everyone. Developed through delegation of authority Organization structure concentrates on the jobs to be performed and not the individuals who are to perform jobs. The organization does not take into consideration the sentiments of organizational members.

Main characteristics of informal organisation

The informal organisation is flexible and loosely structured Relationships may be left undefined Membership is spontaneous and with varying degrees of involvement Involves two or more people Informal relationships, groupings & interactions Repeated contacts but without any conscious joint purpose Involves the human need to socialize Includes both friendly and hostile relationships and interactions Informal association precedes formal organization, as it requires preliminary (informal) contact and interaction before establishment

chain of command
Definition The order in which authority and power in an organization is wielded and delegated from top management to every employee at every level of the organization. Instructions flow downward along the chain of command and accountability flows upward. According to its proponent Henri Fayol (1841-1925), the more clear cut the chain of command, the more effective the decision making process and greater the efficiency.

Military forces are an example of straight chain of command that extends in unbroken line from the top brass to ranks. Also called line of command. A system whereby authority passes down from the top through a series of executive positions or military ranks in which each is accountable to the one directly superior. DIFFERENCE BTWN A CHAIN OF COMMAND AND SPAIN OF CONTROL Span of control has to do with how many people report to one supervisor or manager. Chain of command concerns how many levels of manager exist from the CEO to the lowest level of management.

What causes failure to new products

Would the sole reason you would be starting your own business be that you would want to make a lot of money? Do you think that if you had your own business that you'd have more time with your family? Or maybe that you wouldn't have to answer to anyone else? If so, you'd better think again. On the other hand, if you start your business for these reasons, you'll have a better chance at entrepreneurial success:

You have a passion and love for what you'll be doing, and strongly believe -based on educated study and investigation -- that your product or service would fulfill a real need in the marketplace. You are physically fit and possess the needed mental stamina to withstand potential challenges. Often overlooked, less-than-robust health has been responsible for more than a few bankruptcies. You have drive, determination, patience and a positive attitude. When others throw in the towel, you are more determined than ever. Failures don't defeat you. You learn from your mistakes, and use these lessons to succeed the next time around. Head, SBA economist, noted that studies of successful business owners showed they attributed much of their success to "building on earlier failures;" on using failures as a "learning process." You thrive on independence, and are skilled at taking charge when a creative or intelligent solution is needed. This is especially important when under strict time constraints. You like -- if not love -- your fellow man, and show this in your honesty, integrity, and interactions with others. You get along with and can deal with all different types of individuals.

2. Poor ManagementMany a report on business failures cites poor management as the number one reason for failure. New business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, and hiring and managing employees. Unless they recognize what they don't do well, and seek

help, business owners may soon face disaster. They must also be educated and alert to fraud, and put into place measures to avoid it. Neglect of a business can also be its downfall. Care must be taken to regularly study, organize, plan and control all activities of its operations. This includes the continuing study of market research and customer data, an area which may be more prone to disregard once a business has been established. A successful manager is also a good leader who creates a work climate that encourages productivity. He or she has a skill at hiring competent people, training them and is able to delegate. A good leader is also skilled at strategic thinking, able to make a vision a reality, and able to confront change, make transitions, and envision new possibilities for the future. 3. Insufficient CapitalA common fatal mistake for many failed businesses is having insufficient operating funds. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. They also may have an unrealistic expectation of incoming revenues from sales. It is imperative to ascertain how much money your business will require; not only the costs of starting, but the costs of staying in business. It is important to take into consideration that many businesses take a year or two to get going. This means you will need enough funds to cover all costs until sales can eventually pay for these costs. This business startup calculator will help you predict how much money you'll need to launch your business. 4. Location, Location, LocationYour college professor was right -- location is critical to the success of your business. Whereas a good location may enable a struggling business to ultimately survive and thrive, a bad location could spell disaster to even the bestmanaged enterprise. Some factors to consider:

Where your customers are Traffic, accessibility, parking and lighting Location of competitors Condition and safety of building Local incentive programs for business start-ups in specific targeted areas The history, community flavor and receptiveness to a new business at a prospective site

5. Lack of PlanningAnyone who has ever been in charge of a successful major event knows that were it not for their careful, methodical, strategic planning -- and hard work -success would not have followed. The same could be said of most business successes.

It is critical for all businesses to have a business plan. Many small businesses fail because of fundamental shortcomings in their business planning. It must be realistic and based on accurate, current information and educated projections for the future. Components may include:

Description of the business, vision, goals, and keys to success Work force needs Potential problems and solutions Financial: capital equipment and supply list, balance sheet, income statement and cash flow analysis, sales and expense forecast Analysis of competition Marketing, advertising and promotional activities Budgeting and managing company growth

In addition, most bankers request a business plan if you are seeking to secure addition capital for your company. 6. OverexpansionA leading cause of business failure, overexpansion often happens when business owners confuse success with how fast they can expand their business. A focus on slow and steady growth is optimum. Many a bankruptcy has been caused by rapidly expanding companies. At the same time, you do not want to repress growth. Once you have an established solid customer base and a good cash flow, let your success help you set the right measured pace. Some indications that an expansion may be warranted include the inability to fill customer needs in a timely basis, and employees having difficulty keeping up with production demands. If expansion is warranted after careful review, research and analysis, identify what and who you need to add in order for your business to grow. Then with the right systems and people in place, you can focus on the growth of your business, not on doing everything in it yourself. 7. No WebsiteSimply put, if you have a business today, you need a website. Period. In the U.S. alone, the number of internet users (approximately 77 percent of the population) and e-commerce sales ($165.4 billion in 2010, according to the US Department of Commerce) continue to rise and are expected to increase with each passing year. At the very least, every business should have a professional looking and well-designed website that enables users to easily find out about their business and how to avail themselves of their products and services. Later, additional ways to generate revenue on the website can be added; i.e., selling ad space, drop-shipping products, or recommending affiliate products.

Remember, if you don't have a website, you'll most likely be losing business to those that do. And make sure that website makes your business look good, not bad -- you want to increase revenues, not decrease them. When it comes to the success of any new business, you -- the business owner -- are ultimately the "secret" to your success. For many successful business owners, failure was never an option. Armed with drive, determination, and a positive mindset, these individuals view any setback as only an opportunity to learn and grow. Most self-made millionaires possess average intelligence. What sets them apart is their openness to new knowledge and their willingness to learn whatever it takes to succeed. 1. Failure to understand your market, your customers, and your customers' buying habits. Two easy questions: Who are your customers? And why do they spend their money with you? You should be able to clearly answer in one or two sentences. Customers are the only people that put money in your account. Without them, you will not survive. 2. Failure to understand and communicate what you are selling. You must clearly define your value proposition. What do you do that can help or benefit me? Once you understand it, ask yourself if you are communicating it effectively. Does your market connect with what you are saying? 3. Inadequate financing. Cash is king. If you don't have enough cash to carry you through the sales cycles and downward trends, your prospects for success are not good. When businesses go looking for lenders to provide that cash, they quickly find that funding sources are finicky and difficult to please. 4. Failure to anticipate or react to competition, technology, or other changes in the marketplace. It is dangerous to assume that what you have done in the past will always work. Challenge the factors that led to your success. Do you still do things the same way despite new market demands and changing times? What is your competition doing differently? What new technology is available? Those who fail to do this end up obsolete. 5. Overdependence on a single customer. Pay attention to your revenue sources. If you have a customer that is providing a majority of your income, ask yourself what would happen if they left or went out of business. Where would you be? Whenever you have one customer so big that losing them would mean closing up shop, watch out. Having a large base of small customers is a safer beat. 6. Failure to define your product/service offering. Trying to do everything for everyone is a sure road to failure. Spreading yourself too thin diminishes quality. The market pays excellent rewards for excellent results. Excellent results come from doing what you do and doing it well over and over again. 7. Poor management. Management of a business encompasses a number of activities: planning, organizing, controlling, directing and communicating. The

cardinal rule of small business management is to know exactly where you stand at all times. A common problem faced by successful companies is growing beyond management resources or skills. DECENTRALISATION Decentralisation means diffusion of authority. The dispersal of authority of decisionmaking to the lower level management is termed as decentralisation. Decentralisation of authority is a fundamental phase of delegation and the extent to which authority is not delegated is called centralisation. According to Fayol "Everything that goes to increase the importance of the subordinate's role is called decentralisation." Decentralisation in relation to office denotes disperse of office services and activities. The necessity of decentralisation of office services occurs when official activities are performed at functional departmental level. Thus, decentralisation in relation to office may include departmentation of activities. When authority is dispersed, decentralisation is present. The need for decentralisation is felt when the business grows in its size which necessiates diversification of office activities. Decentralisation occurs at the time of decisions of routine nature but if decisions are vital, the authority is not decentralised. The technological development, political factors, availability of managers also affects the degree of decentralisation. Decentralisation does not exist in its pure sense. There is a mixture of the two because some activities are centralised and some are decentralised. Advantages of Decentralisation Advantages of Decentralisation: 1. Distribution of burden of top executiveDecentralisation enables to its executive to share his burden with others at lower levels because here authority is delegated. The top executive is relieved of some burden and concentrates his activities to think for the future of the organisation. 2. Increased motivation and morale The morality of the employees are increased because of delegation of authority. Decentralisation helps to increase employees morale because it involves delegation. The employees are motivated to work. 3. Greater efficiency and outputDecentralisation gives emphasis on care, caution and enthusiastic approach to the work which in turn results in increased efficiency and output. This is possible because it involves delegation of authority and responsibility. 4. Diversification of ActivitiesDecentralisation helps in diversification of activities. It crests more employment opportunities because new managers are to be entrusted with new assignments.

5. Better Co-ordinationThe various operations and activities are co-ordinated in a decentralised set up. 6. Maintenance of Secrecy Decentralisation enables to maintain secrecy without much cost and unnecessary trouble. 7. Facilitate effective control and quick decision-Decentralisation enables to measure the work according to standard easily and quickly. This facilitate taking up quick decision. Disadvantages of Decentralisation: A decentralised organisation suffers from the following disadvantages: 1. More costDecentralisation is costly because it encourages duplication of functions and equipments. As it is costly, it cannot be adopted by small organisations. 2. No specialisation Specialisation suffers in decentralisation because everyone becomes jack-of-all-trades but master of none. So specialisation is affected. 3. Need more specialists-In decentralisation more specialists are needed. The services of specialists are not utilised effectively and efficiently, as they are large in numbers. 4. No uniform action It becomes difficult to maintain uniformity in action because routine and methods differ from organisation to organisation and department to department. 5. No equitable distribution of work It becomes difficult to distribute workload equitably among different employees. DECENTRALISATION VS CENTRELISATION In a centralised organisation head office(or a few senior managers) will retain the major responsibilities and powers. Conversely decentralised organisations will spread responsibility for specific decisions across various outlets and lower level managers, including branches or units located away from head office/head quarters. An example of a decentralised structure is Tesco the supermarket chain. Each store of Tesco has a store manager who can make certain decisions concerning their store. The store manager is responsible to a regional manager . Organisations may also decide that a combination of centralisation and decentralisation is more effective. For example functions such as accounting and purchasing may be centralised to save costs. Whilst tasks such as recruitment may be decentralised as units away from head office may have staffing needs specific only to them. Certain organisations implement vertical decentralisation which means that they have handed the power to make certain decisions, down the hierarchy of their organisation.

Vertical decentralisation increases the input, people at the bottom of the organisation chart have in decision making. Horizontal decentralisation spreads responsibility across the organisation. A good example of this is the implementation of new technology across the whole business. This implementation will be the sole responsibility of technology specialists

Advantages of Centralised Structure For Organisations Senior managers enjoy greater control over the organisation.

Advantages of Decentralised Structure For Organisations Senior managers have time to concentrate on the most important decisions (as the other decisions can be undertaken by other people down the organisation structure. The use of standardised procedures Decision making is a form of can results in cost savings. empowerment. Empowerment can increase motivation and therefore mean that staff output increases. Decisions can be made to benefit the People lower down the chain have a organisations as a whole. Whereas a greater understanding of the decision made by a department environment they work in and the manager may benefit their people (customers and colleagues) department, but disadvantage other that they interact with. This departments. knowledge skills and experience may enable them to make more effective decisions than senior managers. The organisation can benefit from Empowerment will enable the decision making of experienced departments and their employees to senior managers. respond faster to changes and new challenges. Whereas it may take senior managers longer to appreciate that business needs have changed. In uncertain times the organisation Empowerment makes it easier for will need strong leadership and pull people to accept and make a success in the same direction. It is believed of more responsibility. that strong leadership is often best given from above.

Centralisation and Decentralisation

Centralisation implies the concentration of authority at the top level of the organisation while decentralisation means dispersal of authority throughout the organisation According to Allen

Centralisation is systematic and consistent reservation of authority at central points within an organisation. Decentralisation applies to the systematic delegation of authority in an organisation context.

Advantages of Decentralisation

Decentralisation reduces the workload of top executives. It improves job satisfaction and morale of lower level managers by satisfying their needs for independence, participation and status. Decision making is quicker. It facilitates growth and diversification. As each product division is given sufficient autonomy for innovation and creativity. It gives opportunity to subordinates to exercise their own judgment. They develop managerial skills which will be useful to the organisation in the longer run. Decentralisation requires wider span of control and fewer levels of organisation. It speeds up communication. Decentralisation increases the administrative expenses and each division or department has to be sufficient in terms of physical facilities and trained personnel. As each department or division enjoys substantial autonomy it might lead to coordination problems. There might be lack of uniformity and inconsistent procedures as each department might have the authority to formulate its own policies and procedures.

Disadvantages of Decentralisation

Decentralisation increases the administrative expenses and each division or department has to be sufficient in terms of physical facilities and trained

MAN POWER PLANNING Manpower Planning, also referred as Human Resource Planning, is a very important concept today for the success of an organization. When we talk about manpower planning, it implies the entire process of selecting and putting right number of people, right kind of people at the right time, right place, doing the right things for which they are selected which in turn help in achieving the goals of the organization. Today, this concept has occupied an important place in the corporate world and industrialization.

Importance of Manpower Planning

Forming a base to managerial functions: The four managerial functions like planning, organizing, directing and controlling are based upon the manpower. It is the HR of an organization that helps in the implementation of all these managerial activities. Efficient utilization of resources: With manpower planning, there is an efficient management of personnels in the organization. Motivation: Through manpower planning, you not only put the right men on right job, but also it helps in overall motivating the employees of the organization. Like for instance, incentive plans are an important part of manpower planning. Better human relations: Human relations become strong through efficient control, clear communication, efficient supervision and leadership in any company. Manpower planning also looks after training and development of the employees which leads to co-operation and better human relations. Higher productivity: Last, but not the least, productivity level increases when proper resources are used in the right way. This results into minimum waste of time, money, efforts and energies.

Why is Manpower Planning Needed?

Manpower Planning is needed for a variety of reasons like as follows:

Any shortage or surplus can easily be identified and the problem can be rectified. All the recruitments in any organization are based on manpower planning. Reduce the labor cost as overstaffing is avoided. Identify the available talents. Growth and diversification of business. Helps in the stability of a concern.

Manpower Planning Process and Steps

Analysing the present manpower inventory: Before recruiting new personnel, the current manpower inventory should be carefully studied and analyzed, which include factors like type of organization, total number of departments, number of employees in such departments etc. Planning and forecasting for future manpower: Once the present scenario is known, the future manpower forecasts and planning can be done. Developing employment programs: Once the forecast program is made, the employment programs can be developed accordingly, which include factors like recruitment, selection procedures and placement plans. Design training programs: The training programs depend on the extent of advancement in technology to take place, which include diversification, expansion plans, development programs etc. Training needs to be imparted to improve upon the knowledge, skills, capabilities of the employees.

Manpower Forecasting Techniques

The Manpower forecasting techniques usually applied are as follows:

Expert Forecasts: Formal expert surveys, Informal decisions. Trend Analysis: Projecting past trends, using base year as basis, and statistical analysis. Work Load Analysis: Nature of work load in a department. Work Force Analysis: Due allowances have to be made for getting net manpower requirements. Other methods: Budget, regression, new venture analysis.

Manpower planning is advantageous to firm in following manner. 1. Shortages and surpluses can be identified so that quick action can be taken wherever required. 2. All the recruitment and selection programmes are based on manpower planning. 3. It also helps to reduce the labor cost as excess staff can be identified and thereby overstaffing can be avoided. 4. It also helps to identify the available talents in a concern and accordingly training programmes can be chalked out to develop those talents. 5. It helps in growth and diversification of business. Through manpower planning, human resources can be readily available and they can be utilized in best manner. 6. It helps the organization to realize the importance of manpower management which ultimately helps in the stability of a concern. Objectives of Human Resource Planning

(a)

To recruit and retain the human resource of required quality and quantity

(b) To foresee the employee turnover and make the arrangements for minimizing turnover and filling up of consequent vacancies (c) To meet the needs of the programmes of expansion, diversification

(d) To foresee the impact of technology on work, existing employees and future human resource requirements (e) To improve the standards, skills, knowledge, ability, discipline etc.,

(f) To minimize imbalances caused due to non-availability of human resources of the right kind, right number in right time and right place, (g) (h) To make best use of its human resources and To estimate the cost of human resources

Advantages of Manpower Planning: Manpower planning ensures optimum use of available human resources. 1. It is useful both for organization and nation. 2. It generates facilities to educate people in the organization. 3. It brings about fast economic developments. 4. It boosts the geographical mobility of labor. 5. It provides smooth working even after expansion of the organization. 6. It opens possibility for workers for future promotions, thus providing incentive. 7. It creates healthy atmosphere of encouragement and motivation in the organization. 8. Training becomes effective. 9. It provides help for career development of the employees. Benefits of Human Resource Planning

Human Resource Planning(HRP) does not stop with finding the required kind and number of employees but also determines the action plan for all the function of personnel management. The major benefits of human resource planning are:

It offsets uncertainty and change. But HRP offsets uncertainties and changes to the maximum extent possible and enables the organization to have right men at the right place and in right time.

It provides scope for advancement and development of employees through training, development etc,

It helps to anticipate the cost of salary, benefits and all the cost of human resources, facilitating the formulation of budgets in an organization etc,

To foresee the changes in values, aptitude, and attitude of human resource and to change the techniques of interpersonal management etc,

It gives an idea of the type of tests to be used and interview techniques in selection based on the level of skills, qualifications, intelligence, values etc. of future human resources. It causes the development of various sources of human resources to meet the organizational needs. It helps to take steps to improve human resources contributions in the form of increased productivity, sales, turnover etc, It facilitates the control of all the functions, operations, contribution and cost of human resources.

Advantages of manpower planning: Manpower planning ensures optimum use of available human resources. 1. It is useful both for organization and nation. 2. It generates facilities to educate people in the organization. 3. It brings about fast economic developments. 4. It boosts the geographical mobility of labor.

5. It provides smooth working even after expansion of the organization. 6. It opens possibility for workers for future promotions, thus providing incentive. 7. It creates healthy atmosphere of encouragement and motivation in the organization. 8. Training becomes effective. 9. It provides help for career development of the employees.

Importaance of training
Training your employees do have a significant role in modern business era. Not just to equip them with latest tools your company has implemented, there is a lot more to it.I have sorted down them in a list. This is a must read if you employ or mean to employ in future atleast one person.

Training your emplyess is important because

1. Rapid technological innovations impacting the workplace have made it necessary for people to consistently update their knowledge and skills 2. People have to work in multidimensional areas , which usually demand far more from their area of specialisation. 3. Change in the style of management. 4. Due to non-practical collage education. 5. Lack of proper and scientific selection procedure. 6. For career advancement. 7. For higher motivation and productivity. 8. To make the job challenging and interesting 9. For self and development 10. For employee motivation and retention 11. To improve organisational climate 12. Prevention of obsolescence 13. To help an organisation to fulfil its future manpower needs. 14. To keep in pace with times 15. To bridge gap between skills requirement and skills availability 16. For survival and growth of organisation and nation Importance Of Training and Development Optimum Utilization of Human Resources - Training and Development helps in optimizing the utilization of human resource that further helps the employee to achieve the organizational goals as well as their individual goals.

 Development of Human Resources - Training and Development helps to provide an opportunity and broad structure for the development of human resources' technical and behavioral skills in an organization. It also helps the employees in attaining personal growth. Development of skills of employees - Training and Development helps in increasing the job knowledge and skills of employees at each level. It helps to expand the horizons of

human intellect and an overall personality of the employees. Productivity - Training and Development helps in increasing the productivity of the employees that helps the organization further to achieve its long-term goal. Team spirit - Training and Development helps in inculcating the sense of team work, team spirit, and inter-team collaborations. It helps in inculcating the zeal to learn within the employees. Organization Culture - Training and Development helps to develop and improve the organizational health culture and effectiveness. It helps in creating the learning culture within the organization. Organization Climate - Training and Development helps building the positive perception and feeling about the organization. The employees get these feelings from leaders, subordinates, and peers. Quality - Training and Development helps in improving upon the quality of work and work-life. Healthy work-environment - Training and Development helps in creating the healthy working environment. It helps to build good employee, relationship so that individual goals aligns with organizational goal. Health and Safety - Training and Development helps in improving the health and safety of the organization thus preventing obsolescence. Morale - Training and Development helps in improving the morale of the work force. Image - Training and Development helps in creating a better corporate image. Profitability - Training and Development leads to improved profitability and more positive attitudes towards profit orientation. Training and Development aids in organizational development i.e. Organization gets more effective decision making and problem solving. It helps in understanding and

carrying out organisational policies Training and Development helps in developing leadership skills, motivation, loyalty, better attitudes, and other aspects that successful workers and managers usually display.

Training and Development demonstrates a commitment to keeping employees on the cutting edge of knowledge and practice.

Optimum Utilization of Human Resources Training and Development helps in optimizing the utilization of human resource that further helps the employee to achieve the organizational goals as well as their individual goals. Development of Human Resources Training and Development helps to provide an opportunity and broad structure for the development of human resources technical and behavioral skills in an organization. It also helps the employees in attaining personal growth. Development of skills of employees Training and Development helps in increasing the job knowledge and skills of employees at each level. It helps to expand the horizons of human intellect and an overall personality of the employees.

Productivity Training and Development helps in increasing the productivity of the employees that helps the organization further to achieve its long-term goal. Team spirit Training and Development helps in inculcating the sense of team work, team spirit, and inter-team collaborations. It helps in inculcating the zeal to learn within the employees. Organization Culture Training and Development helps to develop and improve the organizational health culture and effectiveness. It helps in creating the learning culture within the organization. Organization Climate Training and Development helps building the positive perception and feeling about the organization. The employees get these feelings from leaders, subordinates, and peers. Quality Training and Development helps in improving upon the quality of work and work-life. Healthy work environment Training and Development helps in creating the healthy working environment. It helps to build good employee, relationship so that individual goals aligns with organizational goal.

 Health and Safety Training and Development helps in improving the health and safety of the organization thus preventing obsolescence. Morale Training and Development helps in improving the morale of the work force. Image Training and Development helps in creating a better corporate image. Profitability Training and Development leads to improved profitability and more positive attitudes towards profit orientation. Training and Development aids in organizational development i.e. Organization gets more effective decision making and problem solving. It helps in understanding and carrying out organisational policies Training and Development helps in developing leadership skills, motivation, loyalty, better attitudes, and other aspects that successful workers and managers usually display.

Why Merge?
44

Financial Motives: Financial Motives:

to reduce risk (the portfolio effect). to reduce risk (the portfolio effect).

to increase operating efficiency. to increase operating efficiency.

to improve access to financial markets. to improve access to financial markets.

to obtain a tax carry-forward benefit. to obtain a tax carry-forward benefit.

to eliminate competition & enhance profitability. to eliminate competition & enhance profitability. Other Motives: Other Motives:

to expand marketing and management capabilities. to expand marketing and management capabilities.

to allow for new product development through R & D. to allow for new product development through R & D.

to provide synergistic benefits (the 2+2=5 effect). to provide synergistic benefits (the 2+2=5 effect).

To revive sick industry and render accelerated economic growth. To revive sick industry and render accelerated economic growth
ACQUISATION
77

Acquisition comes from the word acquire which means to get as ones own or to come into possession of something. Acquisitions happen in business all the time. It is often referred to as a takeover. It is the process that a company will go through to purchase another company the target company. There are several types of takeovers or acquisitions that can occur. In a friendly acquisition, a bidder would contact the Board of Directors of that company to inform them that they are making a bid on the company. If the board thinks that the offer is in the best interest of the shareholders then the Board will recommend that the offer be accepted. In a private company, the shareholders and the board are usually made up of the same people so private acquisitions are usually friendly. In a hostile takeover or acquisition, a bidder will bypass the target companys board who is already rejected their bid. Once this has happened, the acquisition is now considered hostile. It can also be considered hostile if the bidding company does not inform the target companys board before the offer is made. A hostile takeover involves more risk. If the board does not cooperate with the bidder then the only information that is available to the bidding company is what is available to the public. Because of this risk, banks are not as willing to back hostile bids in order to finance a takeover. There are some investors, however, who will want to proceed if they have reliable knowledge of the Boards mismanagement and want to hold them to public and legal scrutiny. WHAT IS MERGE A merger occurs when two companies combine to form a single company. A merger is very similar to an acquisition or takeover, except that in the case of a merger existing stockholders of both companies involved retain a shared interest in the new corporation. By contrast, in an acquisition one company purchases a bulk of a second company's stock, creating an uneven balance of ownership in the new combined company. WHY DO COMPANIES MERGE

1. to eliminate a competitor that may merge with another competitor and so they can stop racing to the bottom on pricing due to competition with each other 2. So that the top 10 stockholders in the co can make a killing as well as the few bankers and insiders on the deal... 2. Diversification / Sharpening Business Focus: These two conflicting goals have been used to describe thousands of M&A transactions. A company that merges to diversify may acquire another company in a seemingly unrelated industry in order to reduce the impact of a particular industry's performance on its profitability. Companies seeking to sharpen focus often merge with companies that have deeper market penetration in a key area of operations. 3. Growth: Mergers can give the acquiring company an opportunity to grow market share without having to really earn it by doing the work themselves - instead, they buy a competitor's business for a price. Usually, these are called horizontal mergers. For example, a beer company may choose to buy out a smaller competing brewery, enabling the smaller company to make more beer and sell more to its brand-loyal customers. 4. Increase Supply-Chain Pricing Power: By buying out one of its suppliers or one of the distributors, a business can eliminate a level of costs. If a company buys out one of its suppliers, it is able to save on the margins that the supplier was previously adding to its costs; this is known as a vertical merger. If a company buys out a distributor, it may be able to ship its products at a lower cost. 5. Eliminate Competition: Many M&A deals allow the acquirer to eliminate future competition and gain a larger market share in its product's market. The downside of this is that a large premium is usually required to convince the target company's shareholders to accept the offer. It is not uncommon for the acquiring company's shareholders to sell their shares and push the price lower in response to the company paying too much for the target company.