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difference in emotion, thoughts between two human beings whether they belong to the
management or labor category. Each of them should be paid due respect to bring a cordial
relation between them and to convert them as valuable assets of an organization so that all
disputes existing can be settled across the table.
Types of Industrial relations
Primarily industrial relation is concerned with the relation between the management and
worker of an organization. It includes labor relations – among themselves, among their
groups, among them and public or community. In other words, the relation between the
community or society and an industry may be referred to industrial relation. In an industry
there may be various groups of workers such as workmen, supervisors, managers, etc. Thus,
industrial life can create a series of social relationships which regulate the relations and
working together of not only workmen and management but also of community and industry.
Good industrial relation not only indicates the cordial atmosphere in the industry but also
helps in quality production and industrial growth.
Labor relation – relation between union and management; this is also known as labormanagement relation.
Group relation – relation among various groups of workmen such as workmen,
supervisors, technical persons, etc.
Employee-employer relation – relation between the management and employees. It
includes all management-employer relations except union-management relation.
Community or Public relations – relation between the industry and the society.
Generally, the last two groups are not studied under industrial relations. They form the part
of the larger subject matter of study under sociology.
Characteristics of industrial relations (IR)
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Fig. 4.16 Effects of TQM
The characteristics of industrial relations are:
Parties in the industrial relations activity: generally, two parties– workers and
management are involved in making the relation. However, the government agencies
regulate or maintain industrial relations.
Interactive process: the interactions between different persons or parties such as
supervisors, workers’ trade unions, employers’ associations, etc. can develop
industrial relation.
Two-way Communication: the industrial relation is the outcome of two-way
communications. One party gives stimuli, other responds to those stimuli. In this way
communication continues. More communication produces better IR.
HRM practice: effective human resource planning system, identification and
stimulating potential employees, designing the most suitable selection procedure to
recruit right kind of people so that the organization remains committed and provide
better working environment.
Approaches to IRs: in industrial organizations there are various approaches that
contribute to shape the IRs pattern. The approaches include sociological,
psychological, socio-ethical, human relations, Gandhian, etc.
State Involvement: State government through its activities can facilitate, guide and
counsel both the parties in an industry. Thus, the state govt. plays a vital role to
influence the industrial relation.
Role of Trade Union: The behavior of the workers is commonly controlled by the
trade unions. Thus, the perception, attitudes of the trade unions towards the
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management can influence the workers to form their mind set that ultimately regulates
interactions with the management.
Organizational climate: The congenial and conducive climate can provide homely
atmosphere to the workers so that they can interact spontaneously with the
management, among themselves, as a result healthy human relations are developed.
This ultimately provides better industrial relations.
Dispute Settlement Process: The workers’ grievances/ disputes can be settled through
bi-lateral negotiation process, depending on the management’s belief. Emphasis
should be given on mutual discussions, sharing responsibilities, collaboration,
partnership, etc. With these the attitudes of the workers and the industrial relation
would be improved very much.
Outcomes of IRs: Outcomes of IRs would be reflected in production with respect to
quality and quantity, services, man-days loss, wastes, accident rate, productivity, labor
turnover rate, absenteeism rate, etc.
Competency Development: For development of skill, knowledge, ability, aptitude of
workers healthy industrial relations are important. These enable them to participate in
collaborative activities.
Policies to maintain Industrial Relations
The policies are:
Monitoring of industrial relations such as loss of man-days due to strikes and lockouts.
Workers are affected by closure or retrenchment. The reasons for labor unrest and
industrial sickness, etc. are to be investigated.
Arranging meetings of Industrial Tripartite Committees and Special Tripartite
Committee.
Applications are to be submitted by Central Public Sector Undertakings for decisions
on closure, retrenchment and lay-off.
Policy matters related to employees in Central Public Sector Undertakings are to be
decided for statutory payment of dues to the workers, impact of disinvestments and
restructuring of PSUs on employee, improvements in Voluntary Retirement Scheme or
Separation Scheme, etc. are also to be decided.
The roles and responsibilities of the Management
The roles and responsibilities of the management are:
To get the things done on time,
To co-operate with the unions and fulfils their requirements,
To maximize the productivity through participation,
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To guarantee the rights to workers,
To consider the union as strength, not as liability,
To help the workers to get used to the change situations,
To involve the workers in decision-making meetings
The extra cost will incur. Extra costs would be incurred if the organization would have
chosen to base their operations on an underforecast although different extra cost incurs in the
two situations
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. The most common types of costs and the impacts are shown in the Table 4.
2 below.
Table 4.2 Types of costs and their impacts
Various simplifications of the more successful methods can be illustrated to reduce the
forecast error. The logic behind the first simplification is that a forecaster needs to be
conservative to reduce forecast error when uncertain.
Budget and Cost Control
Budget is the documented outcome of a process of future planning. Mainly it is related to
business. In fact, the management of money is more important in private as well as in public
enterprises. Hence, budgeting plays the most important role and controls effectively and
efficiently all the operations related to the business. Since the complexity and problems of
business have increased, and in large enterprises movement of decentralization has become
necessary, effective, and efficient planning and control techniques have become most
essential. As a result, budgeting techniques are becoming more and more sound and
prevalent. In the corporate management, the responsibility for budgeting has been placed at
higher levels in the organization; this results in stronger cost control and accountability
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measures. In earlier times, budgeting was considered as customary and had no such
importance in the business. Due to increased complexity of the business and due to extreme
the competition, budgeting has become one of the strategic functions of the top management.
An efficient budgeting system with definite goals can control the business activities
effectively. The budget system must fit the company’s operational requirements. Cost control
is also known as cost management. The cost management team or officer must study the
exact role of cost control and accountability in making sure that the budget has been
effectively implemented. To understand the topic properly following points need to be
understood:
The concept of cost control and its various applications
Budgeting and management process,
The role of accounting in planning and control
Accountability Reporting
Cost control and budget implementation
The concept of cost control and its various applications
Cost control comprises a wide range of cost accounting methods and management
techniques having a common goal of improving business cost-efficiency by reducing the
avoidable expenditures (costs) which can restrict the growth of the business. To monitor,
evaluate, and ultimately enhance the efficiency of operations of some specific areas such as
departments, divisions, production. Corporate restructuring, disinvestment of peripheral
activities, mass layoffs, or outsourcing, strategies for cost control have become necessary to
preserve or improve corporate profits and to achieve the benefit of it. If in an industry the
low cost-production becomes possible, the industry will earn greater profit per unit of sales
than its competitors at a given price level. Such strategy of cost-cutting must be planned very
carefully
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Applications of cost control
In case of complex business, frequent information about operations is required to plan for
the future, to control present activities, and to evaluate the past performance of managers,
employees, and related business segments. To become successful, the management should
guide the activities of its people engaged in the operations of the business as per the preestablished goals and objectives. Management’s guidance requires two types of control:
The behavior of the management and supervisor, and
The evaluation of performance
The behavioral management takes care of the attitudes and actions of employees. Although
ultimately, the behavior of employees leads to success, the behavioral management is
involved in certain issues and assumptions which are not applicable to accounting’s control
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function. On the other hand, performance evaluation measures the outcomes of employee’s
activities by comparing with the actual results of the business outcomes to pre-determined
standards of success. Thus, the management can identify the strengths it requires to increase
and the weakness it should rectify. This process of evaluation and remedy is called cost
control. It is a continuous process and begins with the proposed annual budget. The budget
helps the following:
To organize and coordinate production, sales, distribution, service and administrative
functions,
To avail maximum advantage of available opportunities.
With the progress of the fiscal year, the management starts comparing the actual results with
those projected in the budget and includes in the new plan. Control refers to the effort of the
management to influence the activities of the individuals responsible for performing the
tasks, incurring costs, and generating revenues. Some
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consider the management as a twophased process. Planning refers to the way how the management plans and desires the
people to perform; while control refers to the methods used to determine whether actual
performance complies with these plans.
Through the budget process and accounting control, management sets up overall objectives
of the company, decides the center of responsibility (accountability), and designs methods
and standards for reporting and evaluation.
The budget divides a business into its components or centers where the responsible initiates
and controls action. Responsibility centers represent applicable organizational units,
functions, departments, and divisions. Generally, a single head of responsibility center
exercise considerable control over the activities of people or process within the center and
controls the results of their activity. Cost centers are responsible only for expenses. They do
not generate revenue. Examples are accounting departments, human resources departments,
and similar areas of the business that provide internal services. Profit centers accept
responsibility for both revenue and expenses. For example, a product line or an autonomous
business unit might be thought of profit centers. If the profit center has some assets, it can be
considered as an investment center, against these assets there must be some returns and
returns on investment should be determined. The management can design control reports to
identify accountability by using the responsibility centers; thus, in one hand aiding in profit
planning and facilitating budget implementation. A budget can be considered as a set of
standards that indicate the level of activity desired from each responsible person or decision
unit and amount of resources that a responsible party should use to achieve that level of
activity. A budget sets up the responsibility center, entrusts the associated responsibility, and
decides the decision point within a company. The planning process can give two types of
control:
Feed forward – Presents a basis for control at the point of action (decision point),
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Feedback – Presents a basis for measuring the effectiveness of control after implementation.
The role of the Management is to show a futuristic vision where the company is going and
how it is to reach there, and to make clear decisions coordinating the activities of the
employees. Management also supervises the development procedures to gather record, and
evaluate feedback. Therefore, effective management controls the results from leading people
compulsorily and through persuasion, providing and maintaining proper training, planning,
and resources; and improving quality and result through evaluation and feedback.
Role of accounting in planning and control
Accounting plays an important role in all planning and control system
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. It works in four
key areas:
Collection of data
Analysis of data
Budget control and administration, and
Consolidation and review
Accurate and in-time information is the basis of any accounting system, and detailed cost
data are essential to any cost control effort. Thus, collection of data is highly necessary. In
great detail the Management must understand how the funds have been spent in the past and
how being spent currently. As a result, the companies invest more money onto the
sophisticated and error-free accounting systems to clearly understand the expenditure of
finance.
On analysis of data it is understood that the specialty in accounting is the control function
and its analysis is indispensable to the planning process. Accounting generally adjusts and
interprets the data to allow for changes in company specific and economy-wide conditions.
In case of budget and control administration, accountants play an important role in designing
and protecting support for the procedural features of the planning process. In addition, they
design and distribute forms for the collection and booking of details on all aspects of the
business. The consolidation and review phase simply means that accounting compiles and
coordinates the elements.
Accountability Reporting
Accountability or responsibility reporting requires that all expenditures should be traceable
to some manager within the company. In other words, some managers must be able to
authorize or veto expenditure. Accordingly, the expenditures incurred by a manager and the
organizational unit under his or her control in tracking a performance objective required to
be recorded. Addition of responsibility accounting happened to be the need for budgeting
that could be related to the managers responsible for expenditures. This mainly reveals the
structure of the organization of the company. Controllability indicates the degree; practically
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judgement is to be used. Now the question comes, does this manager have significant
influence over the cost? If the answer is yes, he or she should be asked for the answer
immediately. If the answer is no; someone either at the same level or at a higher level should
be made accountable.
Transactions may be reported in two ways by –
The nature of the expenditure, and
The organizational unit responsible for the action permits the management to identify
responsibilities for the consequences of planning, implementation, and control.
Cost control and Budget implementation
For cost control purposes, a budget provides standard costs. Since the management prepares
the budget, it contains a road map to show its efforts. It speaks about several assumptions
related to the relationships and interaction among the economy, market dynamics, the
abilities of its sales force, and its capacity to supply the desired quality and proper quantity
of products demanded. If the details of budget calculations and assumptions are examined
carefully, it would be found that the management desires the sales force to spend only that
much of money against the sales forecast. It would also be known that the management
expects that required quantity of products should be produced within a certain cost range.
Among several cost control alternatives, the management relies in such accounting data
analysis; or else the management may instruct accounts department to prepare the reports
particularly for evaluating such options. All costs may not be suitable targets for cost-cutting
measures
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Concept of Total Quality Management
The concept of Total Quality Management (TQM) is to ensure the quality with continuous
improvement. The viability of a business is built on certain set of values that promotes the
business; assure customers to retain the existing ones. Quality is one of the most important
aspects of a business or a product associated with many factors such as reliability, delivery,
usability, and as affordable price. The term quality can have different meanings for different
customers. Quality is simply the meeting the customers requirement.
TQM is a set of management practices throughout the organization to ensure the customers’
requirements consistently. The first step of creating quality is implementing the system of
managing the quality. The organization perceives the meaning of the term, quality through
the reliability of its products or services, the effectiveness of processes, efficiency of the
operation. These as a whole are considered as the right step of Total Quality philosophy.
TQM is a slow process, well thought over and relies on gradual changes to every level of the
organization according to the principle of Deming Wheel. Therefore, the TQM can be
expressed as the way of managing the organization to achieve excellence. Total refers to
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everything, Quality refers to degree of excellence, and Management refers to the act of
organizing, controlling, planning, and directing to attain certain goals. The effect of TQM
can be expressed in Fig 4.17.
Fig. 4.17 Six basic concepts of TQM
TQM can improve the quality of a product or service consistently, to make it more
competitive and to stay in business and to provide jobs. It can stop the dependence on mass
inspection to quality. That is, it eliminates the need for inspection on a mass basis by
building quality into the product. It eliminates the practice of awarding the business on the
basis of price, because it minimizes the total cost of the product. A long-term relationship of
loyalty and trust is built up by purchasing any item from a particular supplier. Thus, it can
improve the quality and productivity, and reduces the cost constantly. It creates leadership.
The supervision is required to help the man, machines and records for performing a better
work. It drives out fear, so that people can work freely and effectively for the company. No
barrier between the departments exists. People in research, design, sales, and production can
work as a team. It removes the barriers that deprive the hourly workers of his right to
become proud of workmanship. As a whole, it puts everyone in the company to work to
achieve transformation. That is, transformation becomes everybody’s job.
Vision and mission statement
Vision and plan statement has two aspects – vision statement and plan statement which can
be explained as: a vision statement describes how an organization wants to be seen in its
chosen business. It describes standards values, and beliefs. A vision appears to be an
advertisement of the intention to change. It pushes the organization forward and acts against
satisfaction so that all employees realize how they can contribute to the vision. A statement
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of values and behavior is a powerful motivating force that can drive the process of changing
forward.
A plan statement formalizes the intended vision to happen at some time in the future. A plan
cannot guarantee that an event will happen. It is a statement of the intention “will happen”.
In an organization, there are many types of plans– strategic business performance plan,
quality goal plan, and quality improvement plan. A strategic business performance plan may
be short- and long-term.
Six basic concepts of TQM have been shown in Fig 4.16 and Fig 4.17.
Leadership
Leadership can be expressed as the ability to motivate the confidence and support those
elements required to achieve organizational goals. The concept of leadership can be stated
as: the ability of top management to set up, practice, and lead a long-term vision for the
company, which is driven by changing customer requirements, as opposed to an internal
management control role. Thus, a leader must have clear vision, long-term orientation, and
ability to guide the management style, to participate in the change, to empower employee, to
plan and to implement changes required in the organization.
Characteristics of a good leader
Paying attention to external and internal customers.
Empowering, not controlling the subordinates. A leader should provide resources,
training, and work environment to help the workers for doing their jobs.
Emphasizing improvement rather than maintenance.
Giving importance to prevention.
Encouraging collaboration rather than competition.
Training and coaching, not directing and supervising.
Learning from the problems– opportunity for improvement
Continuous trying to improve communications
Continuous demonstration to the commitment to quality
Choosing suppliers on the basis of quality, not price only.
Establishing organizational systems that supports quality efforts
Customer Satisfaction
Customer satisfaction means the degree to which an organization continuously satisfies its
customers’ needs and expectations. A successful organization knows the requirements to put
the customer first in every decision made. The solution to manage the quality is maintaining
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