Resource Mobilization

(b) The process of identifying, acquiring, and utilizing resources to achieve organizational goals

Resource mobilization means bringing together all the resources a business needs — human, financial, physical and informational — and putting them to productive use for achieving the goals of the organization. The other options describe cost reduction, marketing and accounting, which are only parts of business activity, not resource mobilization.

Business finance refers to the money required to start, operate and expand a business. A business organization can raise funds from several sources, which are broadly classified into owned capital (internal/equity) and borrowed capital (external/debt). Five important sources are explained below, each with one advantage and one limitation.

1. Equity Shares Equity shares represent the ownership capital of a company. The holders are the real owners, bear the business risk, and receive dividend only when profits are earned. The capital raised is permanent and need not be repaid during the life of the company.

• Advantage: It is a permanent source of finance — no repayment and no fixed burden of dividend.
• Limitation: Control of the existing owners is diluted, as new shareholders get voting rights.

2. Preference Shares Preference shares carry a fixed rate of dividend and rank before equity shares for dividend and repayment of capital. Holders generally have no voting rights.

• Advantage: Capital is permanent and the fixed dividend is payable only when profits exist.
• Limitation: Dividend paid on preference shares is not tax-deductible, so it is costlier than debt.

3. Debentures A debenture is an acknowledgement of debt issued by a company, carrying a fixed rate of interest and a fixed maturity date. Debenture holders are creditors, not owners.

• Advantage: Interest is a tax-deductible expense, and control of the company is not diluted.
• Limitation: Fixed interest must be paid even in loss-making years, which increases financial risk.

4. Bank Loan Banks provide short-term and medium-term loans (cash credit, overdraft, term loans) against security. The loan is repaid with interest as per the agreed schedule.

• Advantage: Funds are available quickly and in large amounts without diluting ownership.
• Limitation: Loans are granted against collateral and carry a fixed interest burden.

5. Retained Earnings (Ploughed-back Profit) A portion of profit kept in the business instead of being distributed as dividend is called retained earnings. It is an internal, permanent source of finance.

• Advantage: It is cost-free, requires no formalities, and does not dilute control.
• Limitation: It depends on the level of profit and is available only to established, profitable firms.

Conclusion: A business should carefully combine owned and borrowed capital so that the cost of finance is minimised and financial risk is kept within safe limits.

Resource mobilization means the process of identifying, gathering, organizing and putting to productive use all the resources — human, financial, physical and informational — that a business needs to carry out its activities. It covers arranging capital, recruiting and developing manpower, acquiring raw materials, machinery and technology, and coordinating them so that the business can achieve its objectives. In short, it is the planned effort to bring scattered resources together and channel them towards the goals of the organization.

Importance in the successful operation and growth of a business organization:

1. Ensures availability of required resources: Every business needs money, manpower, materials and machines. Resource mobilization makes sure these are arranged in the right quantity and quality at the right time, so that production and other activities do not stop.

2. Smooth operation of business activities: When resources are properly mobilized and allocated, planning, production, marketing and financing run without interruption. This keeps day-to-day operations regular and efficient.

3. Basis for growth and expansion: Growth requires additional capital, new employees and modern technology. A firm that can mobilize resources can expand its production capacity, enter new markets and diversify its products.

4. Increases productivity and reduces cost: Proper mobilization puts each resource to its best use, avoids idle capacity and wastage, and thereby raises productivity and lowers the cost of production.

5. Helps face competition and change: By mobilizing modern technology and skilled manpower, a business can compete in the market and adapt to changing customer demands and business environment.

6. Supports innovation and quality improvement: Resources set aside for research, training and new equipment help the business improve the quality of its goods and services and bring innovation.

7. Builds confidence of stakeholders: Efficient resource mobilization improves profitability and repayment capacity, which builds the confidence of investors, lenders, employees and customers.

8. Contributes to stability and survival: In times of difficulty or crisis, a business with well-mobilized resources can absorb shocks and continue to survive.

Thus, resource mobilization is not a one-time task but a continuous process. It supplies the energy and means for running the business today and for growing and competing successfully in the future.

Internal Sources of Resource Mobilization: Internal sources are funds generated within the organization from its own operations or internal adjustments. They are owned/self-generated funds and do not require repayment to outside parties. Examples include retained earnings, depreciation provision, sale of idle assets, and owners’ personal savings.

External Sources of Resource Mobilization: External sources are funds arranged from outside the organization, such as from investors, lenders, financial institutions, and the government. They are borrowed or externally contributed funds and usually involve repayment, interest, or dilution of ownership.

Four Internal Sources of Resource Mobilization

1. Retained Earnings (Ploughed-back Profit): A part of profit is not distributed but reinvested in the business. It helps achieve organizational objectives by financing expansion, modernization, and working capital without interest or repayment. It increases net worth and borrowing capacity and preserves control, supporting growth, profitability, and stability objectives.

2. Provision for Depreciation: A part of the value of fixed assets is charged to profit and retained for replacement. It helps by ensuring timely replacement or upgradation of assets, maintaining production capacity and efficiency, and reducing sudden external borrowing. Thus, it supports survival and cost-efficiency objectives.

3. Sale of Surplus or Idle Assets: Old machinery, unused land, obsolete equipment, etc. are sold for cash. It helps by converting non-productive assets into liquid funds, improving liquidity and asset turnover, reducing maintenance costs, and providing funds for productive investment. It supports profitability and efficiency objectives.

4. Personal Savings of Owners/Partners: Owners or partners contribute their own savings as capital. It helps by providing seed and additional capital without interest, repayment, or dilution of ownership. It strengthens the financial base and creditworthiness, helping meet initial and expansion objectives.

Four External Sources of Resource Mobilization

1. Issue of Equity Shares: The company raises permanent capital by issuing shares to investors. It helps by providing large funds for expansion, diversification, and modernization. It spreads risk and improves creditworthiness, though it may dilute ownership/control. It supports growth and financial-strength objectives.

2. Issue of Debentures and Bonds: The company borrows long-term funds from the public as creditors. It helps by raising large funds without diluting control. Interest is tax-deductible, which can improve profitability. It suits stable-earning projects, supporting expansion and capital-structure objectives.

3. Bank Loans: Banks provide short-, medium-, and long-term loans. It helps by meeting working capital needs, purchasing machinery, and managing seasonal gaps. It is quick and flexible and does not dilute ownership. It supports liquidity, smooth operation, and growth objectives.

4. Financial Institutions and Development Banks: Specialized institutions provide long-term loans, equity participation, and technical assistance. It helps by financing large projects, modernization, infrastructure, and priority sectors. It promotes balanced regional development and supports survival, growth, and social-development objectives.

How These Sources Help in Achieving Organizational Objectives

• Retained earnings and depreciation provision provide low-cost internal funds for replacement, expansion, and stability.
• Sale of idle assets and personal savings improve liquidity and financial strength without external dependence.
• Equity shares and debentures raise large long-term capital for growth, diversification, and modernization.
• Bank loans and financial institutions meet working capital and project-finance needs, enabling smooth operations and large-scale investment.
• Together, internal and external sources help the organization achieve survival, profitability, growth, liquidity, control, and social responsibility objectives.

A financial resource is the money, or funds readily convertible into money, that a business uses to buy assets and meet its expenses, such as owners' capital, retained profit, loans and bank balance.

Resources are the inputs a business uses to produce goods and services. The major resources are:

1. Human resource: the people working in the business, with their knowledge, skill and effort. They plan, operate and manage everything else, so they are the most important resource.
2. Physical resource: tangible assets such as land, buildings, machinery, furniture, vehicles and raw materials, which are needed to carry out production and sales.
3. Financial resource: the funds required to start and run the business, coming from owners' capital, retained earnings, bank loans, debentures and trade credit.
4. Technological resource: the tools, methods, software and know-how used to produce and deliver more efficiently, for example computers, accounting software and automated machines.
5. Informational resource: data about customers, markets, competitors and government rules, which helps managers make sound decisions.
6. Natural resource: water, forests, minerals, land and energy supplied by nature, which are the basis of many industries such as hydropower and agriculture.

A business has to combine these resources properly and use them economically to achieve its objectives.