April 30, 2018

Cost Information for Pricing Decisions

Pricing decisions are normally market based and they are based on analysis of demand curves.

But product cost information is required in the pricing decision to arrive at the profit available at a proposed price. If the profit available is insufficient, a firm can't sustain its production and marketing. Only for short periods of time, the firms may be in market even though profits are inadequate in the light of expected long term profits.

Some of the pricing decision moments are:

1. Pricing decisions at the time of preparing a new catalogue.
2. Price increase decision in response to inflation.
3. Pricing for new or improved products.
4. Pricing for selling under private label.
5. Pricing in response to a new price by competitor
6. Pricing bids in both closed and open bidding decisions.

Pricing decision rules and procedures depends on the characteristics of the market in which the firm operates.

In perfect competition markets, a firm is a price taker. In these markets, marginal cost information determines the quantity produced by a firm. Because, as per the description of perfectly competitive market, a firm sell as much as it wants to produce without affecting the market price.

In imperfect competition, the price charged by a firm will influence the quantity of units it sells. Additional sales can be sold only when price is reduced.

Updated on 1 May 2018, 
8 December 2011

April 23, 2018

Organization Behavior Dilemma - Why There is no Expected Behavior from Organization Associates?

Organization behavior is related to leadership. If leaders in the organization do not show effective leadership, there will not be expected behavior in the organization.

What is going wrong with leadership that is giving  rise to unexpected or inappropriate organization behavior?

Communication  may be the first reason. Leaders are not communicating the required tasks. There is content of communication, context of communication, clarity of communication and style of communication.

Motivation can be the problem. Leaders are not able to assess the personal needs of the group members and make organization provide them the need satisfying environment and means.

Stress and Conflict can be more in the organization.

 Power and Politics may become dominant behavior in the organization. Politics signify personal interests and leaders and other associates dominating in the organization.

Groups  especially informal groups may be in conflict with the line being advocated by the leader.

Effective Leadership Process  that is style of leadership may be the reason. Leader may be using authoritarian style or close directing and controlling style when it is not appropriate especially when the associates are mature and have similar experience profiles. Such a leadership style develops only conflict and difference of opinion.

Leaders are expected to be masters in managing behavior based on the relations that they established with their followers. Whenever in an organization, expected behavior is missing, back to basics and application of behavioral science theories has to be attempted afresh by leaders themselves, or their superiors or external consultants and mentors.

 Attitudes can be formed against individuals also. If the current leaders have  developed negative attitudes in the organization associates, they may themselves try to change them. They may take the help of their superiors or consultants.

Important Organization Behavior Chapters

4. Organizational Context: Design and Culture

5. Organizational Context:: Reward Systems

Cognitive Processes

6. Perception and Attribution

7. Personality and Attitudes

8. Motivational Needs and Processes

9. Positive Psychology Approach to OB

Dynamics of Organizational Behavior

10. Communication

11. Decision Making

12. Stress and Conflict - Negotiation Process (in more detail)

13. Power and Politics

14. Groups and Teams

17. Effective Leadership Process

April 12, 2018

Health of Organization



Uploaded Mile Madinah  - A Management Institute
Presentation by Jim Laub

Organizational health is also a concept of importance for top management.

Definitions of Organizational Health

For the organi­zation, the definition of health  may be stated as: a healthy organization is an organization which establishes and maintains a mutually beneficial relationship with its environment.

Organizational health is  the capacity to deliver—over the long term—superior financial and operating performance. (McKinsey)

The capacity to deliver has to be improved along with using it deliver performance.

Even though many authors have not mentioned it, we can describe some characteristics of the organization as disease. An organization where the CEO is despised is a sick organization. No body can be a healthy CEO, who develops hatred in the employees of the organization. Leaders that means managers in the organization must have the capability to assemble followers. They should not become group leaders in organizations and create conflict between employees and create a context for fights, cases and dismissals. In majority of the commercial organizations where conflict among employees is started by the leaders are doomed to fail. There are leaders who join organizations of relative peace and stability but convert them into organizations of strife, mistrust and dissatisfaction.

Shaomin Huang and  Gerald Ramey have proposed a method of measurement of organizational health through four propositions

PROPOSITION 1 (organizational effectiveness):
a)  Strong attention to task orientation will lead to higher organization effectiveness.
b)  A more involved work force will lead to higher organization effectiveness.
c)  An increase in innovative practices among workers will lead to higher organization effectiveness.
d)  Optimal interaction among the variables of innovation, involvement and task orientation (collectively, not individually) within  the work force will improve organization

PROPOSITION 2 (leadership):
a)  An increase in appropriate supervisor support will lead to more leadership within the
b)  A decrease in excessive control mechanisms will create more leadership within the
c)  An increase in autonomy will increase leadership within the organization.
d)  Optimal interaction among the variables of autonomy, control, and supervisor support
(collectively, not individually) within the work force will improve leadership in the

PROPOSITION 3 (team work efficiency):
a)  Increased clarity in all communication will reduce destructive conflict in the organization.
b)  An increase in cohesiveness among peers within the work force will decrease destructive
conflict in the organization.
c)  A reasonable release in work pressure  will decrease destructive conflict in the organization.
d)  Optimal interaction among the variables of clarity, peer cohesion,and work pressure (collectively, not individually) within  the work force will reduce excessive and
destructive conflict in the organization.

Assessment on organization effectiveness, leadership, and team work efficiency showing multiple causalty effects is a valid and appropriate method of evaluating organizational health.

McKinsey - Measurement of Health of Organizations

McKinsey helps you to measure your Organizational Health Index

Healthy organizations perform better. In healthy companies, employees know where the organization is headed; understand how they fit into the strategy to get there; have the tools, capabilities, and motivation to execute; and are empowered to innovate and change.

The Organizational Health Index is a survey-based diagnostic. It  has been deployed by more than 1,300 organizations worldwide. The data collected from employees and executive, provide the consultants and company managers  to understand the underlying mind-sets and behaviors that drive performance. Country- and industry-specific benchmarks are available  to compare like with like.


A detailed article


For the CEO


Shaomin Huang and  Gerald Ramey,    "Organizational Health Assessment: a Romania Firm Case Study"

This article is part of #AtoZChallenge 2017 for Blogging Posts. My Theme for the Challenge is Top Management Challenges - Full List of Articles  http://nraomtr.blogspot.com/2016/12/a-to-z-2017-blogging-challenge-top.html

To Know More About A to Z Blogging Challenge

Blog posts visited today

Homemade: Theme values

A to Z of Happiness: H - Hope #atozchallenge @AprilA2Z

#AtoZchallenge Healthy Minds and Healthy Writers

H for Happiness- What is it like to be in the state of happiness and how to attain it?

H is for HORIZONS #AtoZ Poetry

#atozchallenge Letters to my Embryos: H is for Hospital

Updated on 13 April 2018, 10 April 2017

April 8, 2018

Managing Economies of Scale in the Supply Chain: Cycle Inventory

Chopra and Meindl's book, Supply Chain Management: Strategy, Planning, and Operation, is a comprehensive introduction on supply chain management.

Economies of Scale in Buying and Production Lots

Producing or purchasing in large lots allows a stage of supply chain to exploit economies of scale and lower cost. These economies of scale result due to fixed costs associated with ordering and transportation, quantity discounts on buying larger lots, and short-term discounts or trade promotions.

*It is important at this stage to point out that Toyota Production System has shown that there are economies of small lot sizes or lot size of one. Hence the discussion in this chapter has to be interpreted along with the content related to economies of small lot sizes.

Cycle Inventory

If purchasing is done in large lots and consumption is done in smaller lots, when the order is received there is a sharp increase in stock or inventory. This inventory or stock gets depleted as consumption takes place gradually and once again a big lot may be ordered and received. Thus the cycle repeats and the average inventory held by a firm during each cycle is termed cycle inventory.

The inventory holding results in costs for a firm and this cost is called inventory holding cost or inventory carrying cost.

Economic Order Quantity or Production Quantity Formulas

(1) Q = SQRT(2RS/hC)

R = demand in a period (usually a year)
S = Ordering cost
h = holding cost per year per dollar of inventory
C = unit price of the item

To reduce lot sizes that arise due to presence of ordering costs, a number of individual items are ordered in a single order. This will distribute the transportation cost over a number of items and lot sizes for individual items can be small.

To take decisions in case of quantity discounts, the total inventory cost when discount is taken is compared with total inventory cost when discount is not taken and appropriate decision is taken.

In case of trade promotions also retailers compare the total inventory cost when the trade promotion is used to accumulate inventory with the total inventory cost when the trade promotion is not utilized.

Estimating Cycle Inventory Related Costs

Inventory holding cost

Cost of capital
Obsolescence cost
Handling cost
Occupancy cost
Miscellaneous cost

Order Cost

Buyer time
Transportation cost
Receiving cost
Other costs


Sunil Chopra and Peter Meindl, Supply Chain Management: Strategy, Planning and Operations, Prentice Hall, 2001. Supply Chain Management: Chopra and Meindl - Book Information and Review

Lee, Hau L., and Corey Billington, "Managing Supply Chain Inventories: Pitfalls and Opportunities," Sloan Management Review, Spring 1992, pp. 65-73

First posted in Knol by Narayana-rao  Number  2utb2lsm2k7a/ 1367

Updated on 9 April 2018, 9 December 2011