Category: Commerce Notes PPT

The budget line definition is held to be a straight line with a downward slope indicating the different combination of two commodities. These two commodities are purchased by a consumer by the given market price with income allocation. It is also termed as a budget constraint. It’s important to remember that the slope of the budget line corresponds to the cost ratio of two commodities. The slope of the budget limitation is particularly significant.

Budget line in economics is based on two essential components – (a) purchasing power or the income of the consumer, and (b) market price of the two commodities that have been considered.

 

Budget Line Equation 

Budget line is also termed as a budget constraint due to the fact that even though a consumer will strive to achieve maximum utility across the indifference curve, he or she faces two very robust constraints – market price of commodities and limited income.

Income acts as a major constraint because there is only a particular height which may be reached in the indifference curve, given the income. It is this budgetary constraint that is exhibited in the budget line equation below. 

Here, 

PX  = Price of commodity X

PY  = Price of commodity Y

QX  = Quantity of commodity X

QY  = Quantity of commodity Y

S     = Consumer income 

The equation indicated above shows that the expenditure incurred by a consumer for purchasing commodity X and Y can never exceed his or her income (S). 

Example of Budget Line 

Suppose a consumer has an income of Rs.50, and it will be used to buy commodities X and Y. To derive maximum utility from the said income, only the following options are available.

The required budget line is obtained by plotting the above budget against the following graph. In the graph, the X-axis represents commodity X, and Y-axis represents commodity Y.

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Features of Budget Line 

The features or properties of the budget line have been indicated below. 

• Real Income Line – The real income line is dependent on the aspect of income and expenditure capacity of an individual.

• Straight Line – The straight line indicated in the budget line signifies the existing market exchange rate for every combination shown.

• Negative Slope – The negative downward slope of the budget line shows the inverse relationship between the purchase of two commodities.

For example – Consider A and B are two commodities, and both are to be purchased in 10 units each within an income of Rs.200.  If 15 units of A is purchased, then only 5 units of B can be purchased. It is due to the fact that income remains constant at Rs.200.

Assumptions of Budget Line

The budget line is primarily based on assumptions rather than facts. However, to achieve clear and exact results and a summary, the economist considers the following criteria in terms of a budget line:

• The consumer’s income is given and remains consistent.

• Commodity prices are provided and remain constant.

• The customer is aware of the price of each commodity.

• It is expected that the customer spends and consumes the entire income.

When you have a clarity of a pricing and consumer’s income, you can easily design a budget line for that consumer by establishing the combination of the two commodities that a consumer can ‘just afford’ and creating a straight line that crosses through both points.

Requirements of a Budget Line

The concept of the budget line, like most economic theories, is based on assumptions in order to produce simplified and clear analytic results. Some of them are:

• A consumer’s income is spent solely on the purchase of two commodities.

• A consumer’s total monetary earnings are constrained and known.

• Both products’ market prices are known to the customer.

• A consumer’s total spending equals his or her total income.

What is Meant by a Shift in the Budget Line?

The consistency in budget line is controlled by the following factors –

While the quantity of the commodities purchased is, to a certain extent, in the control of the consumer, its price and consumer income changes with time. It is this change that leads to the shift in the budget line. 

• Impact of Change in Income – Reduction in income means contraction of his or her purchasing power and vice versa, causing the budget line to shift.

• Impact of Change in Price – Commodity price experiences volatility, and that it is inversely proportional to the purchases made by the consumer. If the commodity prices reduce, it is likely that it may be purchased in greater quantities. 

Different Premises of Budget Line 

The budget line assumes that the market prices of the two commodities taken into consideration will always be in the knowledge of the consumer. Any alterations in that regard will make the line infeasible.

It presumes that the income of the consumer pertains to a limited amount and that it is known accurately. Also, the allocation of resources is undertaken only for a known number of commodities.

The concept of a budget line is established based on only two commodities. It assumes that the demand of a consumer will be necessarily limited to only two commodities and not more. It can be understood that this is clearly not the case. 

Do You Know? There are other simple assumptions as well, which are adopted for determining the budget line. What parameter can you think of that is taken as an assumption? 

(Hint: Expenditure considered to be equal to income, without any provision of savings or investment)

To know more about the budget line and other chapters of basic economy, visit our online classes today! You can also download the app to assist with your studies.

Consumer Budget

Consumer budget refers to a consumer’s actual purchasing power, or the amount of money he or she can spend on a total of two commodities at their current pricing. It depicts an equilibrium between a family’s revenue and expenditure, based on their sources of income and costs, and is a direct depiction of their living standards.

Budget Set

Provided a fixed income, the consumer budget leaves buyers with the solitary alternative of determining the quantity of their purchase. Given that they can only purchase two commodities, a customer’s preference toward the number of units to purchase from both commodities is influenced by two factors: his or her money income and the price of each item. The cost of a good is calculated by multiplying the price by the amount purchased. There are two commodities in our analysis. As a result, the consumer’s expenditure on both commodities must be less than or equal to his or her monetary income.

To understand the topics of capital expenditures and revenue expenditures, first of all, it is very prime to go through the meaning of expenditure itself. Expenditure is primarily spending of money or funds for buying or availing service. It can be an exchange of valuable things in exchanges for foods and services also. It is a procedure of acquiring commodities by liability. Expenditures and expenses are quite identical words but expenditure simply denotes the acquiring of assets while the deduction in the value of assets is shown by expenses.

Types of Expenditure

Expenditure is basically subdivided into two types that are capital and revenue expenditure. 

Capital Expenditures

This refers to the money spent to buy, maintain or in enhancement in fix assets such as land, building, apparatus, automobile. This outflow of money is known as capital expenses or capital expenditure.

There are many sub-types of capital expenditure, such as:

• Cash money spent on business purposes.

• Purchasing of  Plants and machinery items

• IT items

• Electric power equipment

• Permanent additions to existing fixed assets

Revenue Expenditure 

In distinction to capital, revenue expenditure is money spent in accounting period or duration, when the expenditure takes places. Recurring or revenue expenditure happens after a fixed asset (after purchase and installation) which is performing consistently and is serviced or repaired to make it work consistently in future as well. It usually comes into discussion during circumstances of fixed assets. 

In contrast to the capital expenditure revenue expenditure is not gradient and stays constant in revenue expenditure. No further benefits are available as the assets get consumed in an accounting year. It is basically a recurring type of expenditure. There are two subtypes of revenue expenditure:

1. Direct Expenditure

Direct expenditure includes the price of raw material and to turn it into a finalized product.

2. Indirect Expenditure

Indirect expenditure relates to selling and distribution of goods rather than manufacturing.

Difference between Capital Expenditure and Revenue Expenditure

To differentiate between capital expenditure and revenue expenditure is very important when it comes to studying the concept of expenditure.

Each method has its own advantages and shortcomings that are separate. When we go through capital expenditure and revenue expenditure difference, we will actually be clarifying both the concepts and their variations as well.

Revenue expenditure is a regular money investment that does not cause any welfare in business neither leads to a loss in any means. On the other hand, talking about capital expenditure is long time money investment that only benefits business.

The points given below further distinguish between capital expenditure and revenue expenditure:

• Capital expenditure is incurred in obtaining or enhancing permanent assets and is not meant for exchange. They may add value to the existing ones. But, revenue expenditure is a routine expenditure that incurs in the normal coerces of business and includes the cost of sales and maintenance of fixed assets.

• Capital expenditure increases earning capacity and revenue expenditure maintain the earning capacity.

• Capital expenditure produces benefits over several years. Thus, small parts of income statements are subjected to change leading to the deprecation and the rest appears in the balance sheet. Revenue expenditure is consumed within an accounting year i.e. benefits of only one year is of concern here. Thus the entire amount is changed into the income statement and it does not appear in the balance sheet. This is one point worth mentioning when asked to distinguish between revenue expenditure and capital expenditure.

Examples of Capital Expenditure and Revenue Expenditure

When you have successfully learnt how to distinguish between capital and revenue expenditure, it is now time for more clarification. To do that, we bring to you some general examples of sub-types of expenditure:

Examples of Capital Expenditure:

• Buying of property, plant and equipment

• Raising long term finance associates with paying fees

• Improvement of assets and making more additions to them; installing an air conditioner or extension of an existing building are examples of such expenditure. 

Example of Revenue Expenditure:

• Buying of goods meant for resale in the normal course of business.

• Expenditure is made to sell and distribute among customers.

• Buying unprocessed material and components used to manufacture goods.

Advanced students of commerce and other disciplines often come across the terms centralisation and decentralisation in the course of study. These are generally socio-economic and political decisions and are impacted by reigning economic theories of an era. 

 

You must understand these terms thoroughly before you can proceed to the broader aspects of the Indian and other global economies.

Centralisation and Decentralisation Explained

Both these terms can also apply to any organisation, leaving aside broader economic scales. Simply put, centralisation happens when only the top management of an enterprise are involved in decision-making, creating strategies and setting goals. These individuals have all the powers vested in themselves and they alone control the fortunes of that enterprise.

 

Decentralisation is its polar opposite. Decision-making and other endeavours are delegated by the top management to subordinates, who in turn are the mid-tier management authorities. Delegation is the key to decentralisation. 

 

Once lower and mid-level management takes decisions which may impact an entire entity, employee empowerment enters the act. The mid-level employees and management have more at stake, and their attention and responsibilities increase automatically.

 

The primary difference between centralisation and decentralisation lies in how decision-making and strategy-shaping occurs in an organisation. There are various merits and demerits to these two opposing approaches, some of which are discussed below.

 

For advanced students: Find out how organisations used to work in India prior to 1991 and economic reforms. You will see a wider degree of decentralisation post-1991. Relate it to how the modern economic climate is shaping up. 

 

For foreign examples, you can study the economy of China and that of Venezuela during and post the presidency of Hugo Chavez.

Advantages of Centralisation

The merits of centralisation and decentralisation in management have been discussed by eminent economists for several decades. There are inherent advantages and disadvantages to both ideas. The primary elements in favour of centralisation are the following.

1. There is greater uniformity in policy and procedures when an organisation is centralised. Several different departments have to work in conformity. There is a top-down approach in decision-making which creates no room for confusion.

2. Centralisation has been effective in saving costs and unnecessary overheads since any overlapping or duplicate activities are eliminated. Given that cost-saving is one of the many targets of any organisation and that various companies approach the principles of management centralisation and decentralisation differently, it is a great advantage.

3. The control on operations is outstanding in centralised entities because the mechanism of decision-making is in a single core. This reduces internal wastage and jettisons unwarranted activities.

4. Lastly, centralised entities can recognise outstanding talent and enable preferred promotions or other sops to deserving employees. In decentralised companies, merit may go unrecognised.

 

Advantages of Decentralisation

When it comes to centralisation vs decentralisation, the latter approach boasts these advantages in its favour.

1. Both mid and low-level management are involved in a decision-making process of a decentralised company. It boosts morale, helps employees and managers take independent calls on slippery real-world business situations and also helps delegation of duties.

2. Very importantly, decentralisation improves the quality of management in any company. If there is rapid employee attrition in company ‘A’, for example, the blame often lies with the immediate management. Weeding out any problems is thus easier.

3. There is enough data from research to suggest that decentralised companies take better decisions in crucial situations. The same idea is also true for an entire economy.

 

The Task for Students 

Form 2 different groups among yourselves and pretend that Group A owns a centralised company while Group B has a decentralised entity. Start with Rs 1000 and try selling home-made lemonade, for example. 

 

You will have a tough time finding customers initially, so suggests you approach people you know in your neighbourhood. Inform them you are participating in a real-world study for your knowledge.

 

You will likely get a taste of the difference between centralised and decentralised approaches within 1-2 week of ‘operations.’

Factors Determining the Degree of Decentralization

Although there are multiple factors that can influence the decision of decentralization, here is a common list of major factors:

1. Importance of the decision-making process

Decisions can be costly to the concerned organization, especially in terms of money, goodwill of the company, and employee morale. In such cases, for the decisions that are significant to the organization, a centralized approach at the top levels of the organization is beneficial.

Therefore, even in a decentralized organization, these decisions are increasingly made in a centralized manner even if the argument does not fully support logic. One must remember that even high-level managers are prone to faulty decision-making and can commit mistakes.

Even in such cases, it is expected by the enterprise that they would commit fewer and less-critical mistakes because of their good training, experience, expertise in handling controversial situations, and ability to use the right information and arrive at the best possible deal.

From several real-world observations, it has become obvious that the main reason behind centralizing a company’s authority is the heavy burden of responsibility since delegating power in a company does not automatically imply delegating responsibility for it.

2. Size of the Enterprise

The size of the organization is another crucial factor that can change the degree of decentralization. In a larger firm more and quicker decisions are needed for its survival. Coordinating between various departments and managerial levels and then consulting several specialists and executives can take a lot of time for one decision, delaying the whole process in turn.

And delayed decisions tend to cost more in a fast-paced dynamic world. Therefore, segregation of the organization into smaller decentralized units can make them efficient and act as a superb cost-cutting strategy.

3. The Attitude and Philosophy of the Management

Decentralization is the dispersal of authority in an organization and if the central and senior manager level authorities are averse to decentralization, it is more likely there will be a lack of free will in the company. Generally, senior executives with a traditional mindset hold less welcoming opinions about decentralizing authority.

While executives with a rational managerial temperament encourage a healthy participative approach to do work. These executives try to make the best out of individual initiatives and opt for greater levels of decentralization.

4. Control Techniques

Many small and large organizations prefer constancy for some vital aspects like the price of the product, credit offered, etc., and stress on a uniform company policy.

This can be easily achieved with the help of centralization. This then prevents regional heads from making any formative change that may be suitable to the particular branch. One can not fully ignore the positive side of such uniformity. However, the organizations must not overlook the costs involved in all the decisions that are made in a centralized manner.

Also, low and mid-level managers can feel demotivated as their initiatives are arrested and see fewer opportunities to grow within the rigid organization.

Differences Between Centralisation and Decentralisation

To fully grasp the concept of centralised and decentralised entities, you must analyse them on level terms. To keep it simple, we have tabulated these elements of comparison.

 

 

Delegation Versus Decentralisation

There is considerable difference between decentralisation and delegation. Only the prime elements of difference have been tabulated below.

 

 

For Commerce Students 

Track how the management of PSUs like Indian Oil Corporation Limited, SBI, and National Thermal Power Corporation functions. Then compare it against how proprietary, private, and partnership firms operate. 

 

It will be an exercise to identify real-world differences between delegation and decentralisation. You can also read up on the New Economic Policy (NEP) which came into existence after 1991 on our website, or access the study material via app.

When two or more people come together, a group is formed. Dynamics is derived from a Greek word that means force. Hence the literal meaning of group dynamics is the interaction of forces between members of a group in a social situation. In organizations, groups are a component of measuring organizational behavior. 

Whether it is a small group or a large group in an organization, they affect and influence the development of an individual as well as the entire organization. Let us look at some of the definitions of a group and the classification of group dynamics.

Informal Groups According to Mayo and Lombard

Elton Mayo, an Australian psychologist, showed that people in an organization come together in informal groups that are aimed at job satisfaction and effectiveness. Informal Groups according to Mayo and Lombard, can be classified into the below-mentioned categories:

There is no internal structure involved in such groups and are formed naturally.

In such a group, the regular members influence each other’s functioning.

In this group, there are designated leaders, and they are highly structured. The leaders of the group maintain the unity and integrity of the group with their skills and intelligence.

Informal Groups According to Sayles

L.R.Sayles categorized groups based on the pressure that is prevalent in a group. The informal groups according to Sayles are:

In an apathetic group, leaders do not pressurize other members of the group, and leadership is spread across. The low skilled workers who get low wages mostly form this group. These people are mostly discontent and lack unity and power. 

If the members of a group are quick to get enraged and also quickly calm down, then such a group is called an erratic group. The semi-skilled workers of an organization form such groups as they need to communicate with each other as part of performing their job. There is considerable unity in this group, but with management, their behavior is erratic.

This group has skilled workers who perform technological tasks independently. They hold various key job positions and can have a suitable strategy to apply pressure to the management. Members of this group are usually productive, and there is a strong unity in this group.

This consists of highly skilled and influential individuals who can regulate the functioning of the organization. This group usually exists at the top level of the organization, and the members of this group are very self-confident. 

Why Do People Form Groups?

People in an organization mostly join groups to satisfy mutual interests which can be related to any of the following factors:

People feel safe and are more resistant to threats when part of a group. A group provides its members’ protection from a common enemy. When in a group, a person feels stronger and has fewer self-doubts.

If someone is a part of a group that is deemed prestigious, it provides recognition and a certain status to that individual.

It fulfills social needs by having enjoyable regular interactions with those who share your interests. By relating with others in terms of feelings, thoughts, and behavior a group serves as a primary source for fulfilling the need for association with others.

• Power and Goal Achievement  

There is power in numbers and what cannot be accomplished by one person can be achieved as a group. A group has multiple skills, knowledge,  and talents that can be pooled to achieve a common goal.

Characteristics of Groups Dynamics

Group dynamics is all about the attitudes and behavioral patterns within a group. It is concerned with how the groups are formed, their structure, and the processes they follow in their functioning. Group dynamics applies to groups of all types; both the informal and formal groups. The image below depicts the main characteristics of a group.

Common Types of Groups

Groups are categorized based on purpose, process of formation, extent of structure in it, and size. Listed below are some of the most common groups:

Primary and Secondary Groups

A primary group is smaller in size and members of the group usually interact face-to-face. The main features of a primary group are:

• Intimacy

• Regular interaction

• Cooperation

• Small in size

A primary group impacts individual behavior heavily.

A secondary group is more formal in nature and remote. The members of this group might not be closely involved with each other and have very little interest in the problems or pleasures of other members of the group. 

Membership Groups and Reference Groups

• A membership group is the one to which a person either belongs or would qualify to be a member. Few examples are doctor’s associations, tennis clubs, etc. People need to get a membership card to become members of this type of group.

• A reference group, also called a symbolic group, is the one to which an individual wants to belong to or identifies. There might not be a real association of an individual with a reference group. For example, those who love cricket might want to belong to a group of well-known cricketers.

Command and Task Groups

• Command groups are given by the organizational chart where usually there is a supervisor and subordinates who report to that supervisor. An example of such a group is a production manager and the staff in his department.

• Task groups are also determined by the organization and are formed when members of the group are working together on a common task. The task group can break the command hierarchy where members from various levels and departments join to complete a job in a specified period of time. Few examples where task groups are formed in an organization are the development of a new product, enhancing the production process, etc. 

With the increasing growth of business and trade, several problems emerge which cannot be solved by traditional businesses. For example, sole proprietorship comes with unlimited liability, as a result of which people opt for partnerships. However, such partnerships can prove to be risky or inadequate to meet the demands of the growing liabilities. To cope up with such problems, private companies offered the best example.

Definition of Private Company

Private companies are best described in Section 2(68) of the Companies Act, 2013. These companies have restricted their association and transferability of shares. These companies also have granted limited accessibility to the public for subscription. This meaning of private companies differentiates them from public companies.

Moreover, the Section also has restricted the number of members of the company to 200. This rule, however, is not applicable to One Person Companies. Additionally, this restriction also excludes the former employees of the company. Lastly, if two persons jointly own shares, they will be considered as a single unit. The Section previously made it compulsory for private companies to have minimum Rs. 1 lakh paid-up share capital, but such requirements were later scrapped by an amendment in 2005. There is no minimum restriction for paid-up capitals for any private sector companies.

What are the features of Private Companies?

Every private company has unique features that distinguish them from other types. The private limited company characteristics that are different from the key features of a public limited company are:

• No minimum requirement of capital.

• The company must have a minimum of two employees and a maximum of 200 employees. However, this feature does not stand true for one-person companies.

• They cannot freely transfer shares to the public.

• The name private limited has to be added to the name of the companies. Pvt ltd meaning adds this definition to the name of the company.

• The law grants several privileges to a private limited company.

What are the types of Private Companies?

On the basis of member liabilities, there are three types of private limited companies:

• Private limited companies limited by shares- the amount unpaid by the company in terms of shares is the liability of its members.

• Private ltd company limited by guarantee: the amount that the members guarantee to pay when the company stops functioning is their liability.

• Private businesses with unlimited liability for members, where even personal assets of the members will be considered when the company stops functioning.

According to the private sector examples, a private company can also be a one-person company if the number of members or shareholders is one. Such a provision is added to the New Company Act, 2013.

Additionally, according to the meaning of a private limited company, a small company with restricted turnover amounts and paid-up share capitals can be considered to be a private limited company. 

How is a Private Limited Company formed?

If you follow a list of private company examples, you will understand how it is formed.
A company can be started by a minimum of two and a maximum of 200 members. The details of the company have to be submitted to the Registrar of Companies during the application process. The application must also contain a subscribed version of the Memorandum of Association of the company as well as other related documents. The application also requires payment of fees.

If you see the private sector examples, you will find that the memorandum contains the company name (containing the term ‘private limited’), the address of the company’s registered office, the objectives of the company, and the member’s liability description. The memorandum must also contain the complete subscriber’s details. Also, the company has to disclose information about their articles of association, full details of the assigned members, share transferability, and other requirements.

Privileges of Private Companies

According to the private limited company definition, advantages and disadvantages are synonymous with the Pvt ltd meaning. The privileges are:

• A minimum of only two directors is required.

• There is no requirement for preparing annual general meeting reports, as you would say in several public limited company examples.

• The company does not have to appoint independent directors.

• According to the private limited company definition, the company can disqualify a director by adopting any additional grounds.

• The companies can also pay greater remunerations and salaries to their directors than other companies.

Limitations of Private Companies

The private limited company meaning also comes with certain limitations. These are:

• Different private sector examples cannot transfer shares of the company freely to the public.

• The Pvt ltd meaning restricts the access of the companies to outside financial support than the public companies.

• Shareholders have greater liabilities and risks.

The principle of Management refers to all those guidelines that are majorly implied in the workplace. They are the general guidelines that will help the organizations to function effectively.

Why Do We Need the Principles of Management?

There are certain guidelines that you are required to follow in the workplace and they are certainly designed for maintaining a social environment at a place.

• The Principles guide the managers to make rational decisions. There is a huge importance of the Principles of Management, the following are the key points. The Principles of Management helps in understanding the organizational functions better.

• When we talk about training the employees or even interns these guidelines are strictly to be followed.

• This not only trains the employees but it also believes in training the managers as managers are further going to manage most of the work.

• It is necessary to make the work of managers concrete, so for that, these principles are necessary.

• In different scenarios, the organization functions differently, and these principle guidelines help the organization to function differently in all the different scenarios.

Proceeding further, we will know about the basic concept of Management and the main principles of management.  

Basic Concept of Management

The basic concept of management is best detailed out in the words of famous writers and thinkers. Different writers and philosophers have different points of view on this management concept. So let us have a look at what different thinkers have a say in management. 

• According to Harold Koontz and Heinz Weihrich, management is the process of designing and maintaining the environment. Here the individuals work together in a group and thus they accomplish the selected goals by this. When we work in a group the work becomes easier the more people will indulge in a conversation or any discussion, the more work will be done more efficiently and easily. As the more brains will work together better is the result going to be.

•  According to Robert l. Trewely and M. Gene Newport, management can be defined as the process of planning, organizing, analyzing, and controlling the operations of the enterprise. This is done to achieve coordination of the human and the material resources which helps in the efficient and effective attainment of objectives.

• According to Kreitner, management is a process of working together to achieve the organizational objectives by efficiently using the resources which are limited in the hands. 

Key Terms in the Above Definitions 

So, from the definitions already illustrated above, we can sum the definition as – Management is a process of getting things done with a certain aim of achieving the goals effectively and efficiently. Important terms in this definition are as follows.

• Process: Process is the primary function or activities which the management performs to get the things done, to achieve the desired goals. To achieve any desired health you have to follow a particular process then only your work will be done properly. These guidelines help you to work in an effective way and get things done in a particular way as it is required by the employers.

•  Effectiveness: Effectiveness is focused on the end result. This basically means completing the given work.  In a workplace, if you are assigned any work it is your duty to complete the work on time and effectively. Principle management helps you to manage your time and work so that you can effectively work and submit your assignments and work before the deadlines. These management guidelines basically help you in this working effectively as you are aware if the rules and to follow it becomes your duty.

• Efficient: Efficiency does not only mean that the work is to be done correctly but also with minimum cost. Management is thus concerned with the efficient use of limited resources. Working using minimum resources is as important as working correctly. Because it is not like that the conditions are always going to be favorable. Many times we are going to face instances where it will be difficult to arrange resources but you are required to do the work with only that much resources. If you are working efficiently in the team then you can solve this problem easily. The resources may be less but if you are efficient at work the results are going to be best.

Basic Principles of Management

The basic principles of management are as follows

1. Division of work

Division of Work, this principle is associated with specializing the tasks of the employees. The employees are divided into their specialization and interest to harness the best result out of them.

2. Authority

Authority should be known to the whole organization; the managers should use the authority analytically. They should maintain a balance of authority over the organization structure.

3. Discipline

The organization must maintain the decorum of the workplace. The employees foremostly must be disciplined. Undisciplined employees can not give good results so discipline needs to be the top priority.

4. Unity of command

Order or command must come from one manager or leader to achieve the best results and the employees are required to follow the commands.

5. Unity of Direction

Their goals must be unified and directed. All the employees should be directed toward their common clear goal. They must not fuss with the organizational goals.

6. Subordination of Individual Interest to group Interest

The employees must be clearly stated about the organizational goals firstly. They should be explained that giving priority to the organizational goals will automatically secure their individual interest.

7. Remuneration

A correct remuneration policy must be initiated in the organization. The employees must be encouraged with the correct pay scale. Employees only put applications when they find that they will get good pay and not less than what they deserve.

8. Centralization

The orders must be centralized. Priority orders must come down from the top level. For effective and accurate work the centralization of order is super necessary.

9. Scalar Chain

The scalar chain of the organization must be well defined. This will help in the easy functioning of the organization. As of now the employees will know whom to report and to whom to be accountable for. And the employer will also have the information that to whom they should connect for the work and they do not need to connect with the employers separately for the work. One person will be enough for transmitting information to him.

10. Order

The order must be clear and must avoid any confusion. Confusing orders will lead to improper work that is highly not applicable. Thus for effective work orders should be clear

11. Equity

Equity is mandatory for the organization to work in peace. All the employees regardless of the level must be treated fairly. There should not be any discrimination among the employees in the workplace. Only if all are treated equally a peaceful working environment can be created. For employers, all employees should be equally important and he needs to work with them on a fair basis.

12. Stability of Tenure of Personnel

There should not be a fear in the mind of employees to get removed, only then they can work properly without any fear and with full concentration. The employee should be regular and his absentee ratio is required to be low because those who are regular show how much interest they are taking in doing the work and how effectively they can perform.

13. Initiative

The basic quality that an employer searches for in his employee is that the person can initiate new ideas to work effectively on the work. Employers always prefer those employees who are challenging enough and are ready to take initiative to make their workplace a better and more challenging one.

14. Morale 

Any company, whether small or large, always looks for those employees that have high morale. Because only these kinds of employees can maintain a decent environment in the workplace. Thus, making it a better place to work in.