Competency 2.00

Analyze the management functions and their implementation and integration within the business environment.

Management Functions

Planning Organizing Leading Controlling

Objective 2.01

Explain the planning function and how the decision-making process is applied in business

Planning

Analyzing information and making decisions about what needs to be done

The Importance of Planning

Sets direction for the business Establishes specific goals Serves as a guide for making decisions Helps determine if the business is making

progress Helps managers communicate with each

other and their employees

Levels of Planning

Strategic Planning– Long-term planning– Provides broad goals and direction for the entire

business– SWOT analysis – internal and external analysis

Examination Strengths, Weaknesses, Opportunities and Threats

Steps in Strategic Planning

External Analysis– Managers study factors outside firm that can affect effective operations – customers,

competitors, economy government Internal Analysis

– Managers study factors inside the business that can affect success – finances, personnel, resources

Mission Statement – a short specific statement of the purpose and direction of the business

– Managers agree on the most important direction for the business based on the information gathered. Write a short

Goals– Managers develop outcomes for the business to achieve that fit within the mission

Strategies– Managers determine the efforts expected from each part of the firm if goals are to be

achieved

Operational Planning

Determines how work will be done Determines who will do the work Determines what resources will be needed to

complete the work Examples:

– developing department budgets– planning inventory levels– developing employee schedules

Formal Planning

Systematic studying of an issue and the preparation of a written document to deal with the problem

3 Basic Time Spans for Business Plans– Short-range plans – cover a one year period of time– Long-range plans – cover a 3-5 year period of time– Intermediate plans – cover time span between short and

long-range plans, either from 1-3 years or 1-5 years

Planning Tools

Goals– Provide the direction for a business

Budgets– Help determine the best way to use available money to reach goals

Schedules– Identify the tasks to be completed and the approximate time required to complete

each task Standards

– Used to compare products and services for quality Policies

– General rules to be followed by a business or department Procedures

– Steps to be followed when implementing policies Research

– Used to collect data for managers and provide information needed to improve planning decisions

Decision-making Process

Identify the problem List possible solutions for solving the

problem Analyze possible solutions Select the best solution Evaluate the decision

Barriers to Effective Decision-Making

Complacency– Manager thinks that making the decision is easier that it

really is

Avoidance– Manager denies the importance of a problem

Panic– Manger becomes frantic trying to make a decision

Indecisiveness– Manager becomes unable to make a final decision

Objective 2.02

Discuss the importance of goals setting within the context of the business environment.

Characteristics of Effective Goals

Goals must be specific and meaningful– Should relate to activities and operations of business so

employees see how their jobs relate to goals Factors to consider when setting goals

– General economic conditions facing the business– Past sales and profits– The demand for products and services– Reactions of current and prospective customers– Resources of the business– The actions of competitors

Characteristics of Effective Goals

Goals must be achievable Goals should be clearly communicated

– Goals should be communicated to all employees– Communication will help employees understand

that they are part of team effort

Goals should be consistent with each other and with the overall company goals

Common Goal Setting Areas

Profitability – measures the level of profits the company is making Markets – reflects the company’s position in the marketplace Productivity – measures the efficiency of internal operations Products – describes the introduction or elimination of products and services Financial Resources – reflects goals relating to the funding needs of the

company Physical Facilities – describes the physical facilities of the company Research and Innovation – reflects the research, development, and/or

innovation objectives Organization Structure – describes objectives relating to changes in the

company’s structure and related activities Human Resources – describes the human resource assets of the company Social Responsibility – refers to the commitments of the firm regarding society

and the environment

Objective 2.03

Compare/contrast the basic forms of business ownership and their organizational variations

Organizing

Determining how plans can most effectively be accomplished; arranging resources to complete work

Sole Proprietorships

Owned by a single individual, or proprietor Easy to start

Sole Proprietorships

Advantages– Owners control business

and keep profits– Can make decisions

quickly– Pay fewer taxes than

other kinds of business

Disadvantages– Owner may lack

necessary skills and abilities

– Owner may not have necessary funds when needed

– Owner has full liability for all debts

– Business can fail if owner becomes ill or disabled

Partnerships

Owned by two or more people Partners must share the profits from their

business Allows partners to combine their talents and

financial resources

Partnerships

Advantages– partners combine their

talents and skills– have increased sources

of capital– pay less in taxes than a

corporation

Disadvantages– unlimited financial

liability– disagreement among

partners– partners bound by

contracts and decisions of other partners

Corporations

Formed under state or federal statutes – corporate charter

Authorized to act as a legal person, separate from its owners

Owners are called stockholders Owners have limited liability Board of directors is the ruling body Officers of corporation are hired to manage the

business

Corporations

Advantages– limited liability of

stockholders– can raise capital by

selling stock– easy to transfer

ownership– able to get credit easier

than other types of businesses

Disadvantages– must comply with more

federal and state laws– pay more taxes than any

other types of businesses

– must register within a state government to begin business

Franchise

Right to sell parent company’s product or service under the company’s name and trademark.

Franchisee pays initial fee and a percentage of weekly sales

Franchisor helps in start up and operation of business

Franchise

Advantages– gets help of franchisor in

establishing business– gets exclusive rights to

sell franchised product or service in a specified geographical area

Disadvantages– must follow strict

guidelines in running business

– requires large amount of money to purchase franchise

E-Commerce

Dot.com businesses– A company that does most of its business activities through the

Internet Use of Internet to buy and sell products Businesses progress through 3 stages of Internet use

– Information Stage – customers use Web site to get information only about the business

– Interaction Stage – Web site offers information and interaction with business in form of e-mail and data bases to search within the Web sit

– Integration Stage – entire customer transaction can be completed using the Internet. Customers can get pricing, ordering, shipping information and place order over the Internet

Limited Liability Company (LLC)

Formerly called an “S-Corporation” Company must meet certain conditions to qualify as LLC

– no more than 35 stockholders– cannot own 80% of stock of another corporation– no more than 25% of income of corporation can be from other

sources Stockholders must be permanent citizens of US Company taxed as a sole proprietorship Owners have limited liability Profits go directly to stockholders Lower taxes than corporation

Joint Venture

agreement among two or more businesses to work together to provide a good or service

each partner brings management skills and/or money to the project

Examples:– America Online, Phillips Electronic & Direct TV formed joint

venture to develop and offer interactive TV that lets customers access the Internet through their TVs

– Ford Motor Company produces cars with Mazda

Strategic Alliances

cooperative agreements between potential or actual competitors agree to cooperate on certain aspects of business but remain

competitors on other aspects Strategic alliances allow companies to:

– gain access to new markets– share research– expand product lines– learn new skills

Examples:– American Airlines-British Airways One World Alliance – airlines share

seating on some flights and let passengers use the alliance members’ airport lounges

– Daimier-Benz (Mercedes-Benz) and Chrysler – both companies gained access to the partners market in Germany and US

Virtual Corporation

Network of independent companies that form alliances to take advantage of fast-changing market conditions

Relationships are usually temporary Information technology helps world-wide companies carry out

their alliance Examples

– Puma Athletic Shoe Co – 80 companies world-wide make and sell the shoes – marketed in Germany, Asian companies purchase materials, companies in China, Taiwan, Indonesia, Korea manufacture the shoes, separate companies on all continents sell the shoes

– AT&T and Japan’s Marubeni Trading Company linked with another company to produce the Safari notebook computer

Objective 2.04

Explain the organizing function and how it is used to align resources and relationships to achieve business goals

Organizing

Arranging resources and relationships between departments and employees

Defining responsibilities employees have for accomplishing work

Characteristics of Good Organization

Responsibility – assigned tasks are clearly defined

Authority– Right to make decisions about

assigned work– Right to make assignments to

others concerning that work– Each employee and each

manager show know the following

Description and duties of each job

What authority accompanies the job

The manager in charge Who reports to the manager What is considered

satisfactory performance

Accountability– Employee is accountable to

manager for performing assigned tasks

– Manager is accountable to his/her boss for the outcomes of all work

Unity of command– No employee reports to more

than one supervisor– Confusion and poor work

relations result when an employee is accountable to more than one supervisor

Characteristics of Good Organization

Span of management– The number of employees a

manager can effectively control– Manager who supervises too

many people is overworked and unable to perform all duties effectively

– Manager who supervises too few people is a waste of valuable time

– Factors used to determine how many employees a manager supervises

The complexity of the jobs being performed

The quality of the employees being supervised

The ability of the manager

Delegating– Task may be too time-

consuming for a manager to handle alone

– Some tasks are too routine for a manager to do – better use of the manager’s time

– Some tasks require special skills the manager may not possess

Types of Organizational Structure

Line structure– Authority starts at the top and moves downward in a line– All managers perform functions that contribute directly to the profits of the company– Common form of structure among small businesses– President has direct control over all units of business

Line and staff structure– Adds staff specialists to the line organization– Designed to solve the problem of complexity – Staff specialists give advice and assistance to line personnel– Staff personnel have no authority over line personnel

Matrix structure – project organization– Combines workers into temporary work teams to complete specific projects– Employees report to a project manager with authority and responsibility for project– No permanent organizational structure – employees work for a manager until the project is

finished then they are assigned to a new project and manager Team structure

– Divides employees into permanent work teams– Teams have responsibility and authority for business activities with limited management control

over daily work– Team leaders replace the traditional supervisor and act as facilitators

Types of Organizational Structure

Flat Structure– Small number of levels with broad span of management at each level– Requires a great deal of delegation by manager– Employees have more power within the company

Tall Structure– Many levels with small spans of management– Power centralized at the top levels– More control over the employees

Centralized Organization– Top managers do all major planning and decision making– Requires many policies and rules to control the organization

Decentralized Organization– Large businesses divided into smaller operating units– Unit managers have almost total responsibility and authority for operation

of their units

Objective 2.05

Differentiate between leading and managing and identify appropriate leadership styles used in business situations

Leading

Influencing individuals and groups to cooperatively achieve organizational goals

Leadership

Ability to influence individuals and groups to cooperatively achieve organizational goals

Managing – deciding how to best use a business’s resources to produce goods or provide services

Sources of Power

Position power – position in the organization Reward power – ability to provide rewards Expert power – skill, expertise, knowledge Identity power – employee’s perception of

manager Personality power – characteristics that

attract others Coercive power – ability to punish

Leadership Styles

The general way a manager treats and supervises employees.

Autocratic Leadership

Leader gives direct, clear, precise orders Employees usually do not make decisions about their work Disadvantages

– Discourages employees from thinking of better ways to do their work

– May lead to employee dissatisfaction and decrease work performance– Does not prepare employees for leadership opportunities or promotion

Advantages– Best style to use in emergencies– Can be used with temporary employees– Efficient – employees know how the manager expects them to perform the

task

Laissez-faire leadership

Leader gives little or no direction to employees Decisions are left to individual employees or team Works best with experienced workers and in

businesses where there are few major changes Should be used very carefully and when employees

are prepared and comfortable with the responsibility

Democratic leadership

Leader encourages workers to share in making decisions in planning work, solving work problems, and making decisions

Disadvantages– All employees do not like to participate in decision making– Time consuming because planning and discussing problems

takes time– Employees will be upset if they are only asked about unimportant

decisions Advantages

– Effective when employees are committed to jobs and want to have more responsibility

– Employees more likely to carry plans and decisions they helped to create

Situational leadership

Leader understands employees and job requirementsMatches actions and decisions to the circumstances

Objective 2.06

Relate management theories to the leading/directing functions of management.

Management Theories

Scientific Management

Developed by Frederick Winslow Taylor Study work procedures and determine best methods

for performing particular tasks Based on four main ideas

– Jobs should be designed according to specific rules – determine “one best way” of performing a task

– Employees should be selected and trained according to scientific methods

– Principles of scientific management should be explained to workers

– Management and workers should be interdependent so that they cooperate

Hawthorne Studies of Productivity

Looked at relationship between working conditions and productivity

Tested different variables and productivity increased Hawthorne effect – change of any kind increases

productivity Other results of study

– Productivity increased because workers worked harder when they received any kind of attention

– Factors other than physical environment affected workers productivity – psychological and social conditions at work

– Effective supervision greatly affected productivity and employee morale

Theory X and Y

Theory X

People are basically lazy and will avoid work if they can

Managers will impose strict rules to make sure they make all important rules

Theory Y

People find satisfaction in their work

Managers think people will work productively if put in the right environment

Managers give employees more freedom and allow them to make mistakes

People are creative and will come up with good ideas

Theory Z

Integrates Japanese and American business practices

Incorporates Japanese emphasis on collective decision-making and concern for employees

Incorporates American emphasis on individual responsibility

Total Quality Management

Developed by W. Edwards Deming Mathematical approach to quality control System of management based on involving

all employees in a constant process of improving quality and productivity by improving how they work

Focuses totally on satisfying both customers and employees

Deming’s Fourteen Points of TQM

Create consistent purpose for improving products and services in order to remain competitive.

Adopt a new philosophy. Stop spending on mass production. Consider quality as well as price in awarding business. Constantly improve the system of production and service. Institute a vigorous program of job training. Adopt and implement leadership. Drive out fear so that everyone may work effectively for the company Break down barriers between departments. Eliminate numerical goals, posters, and slogans for the workforce that ask for new levels

of productivity without providing new methods. Eliminate work standards that prescribe numerical quotas. Remove barriers that stand between the hourly worker and his/her right to pride of

workmanship. Encourage education and self-improvement for everyone. Create a structure in top management that will work every day to achieve the above 13

points.

Motivation Theories

Maslow’s Hierarchy of Needs

People seek to satisfy needs in a certain order from lowest to highest

People will only move to next level after lowest levels are fulfilled

Managers can influence employee behavior by recognizing the levels that are motivating employee behavior

Hierarchy Levels – (from lowest to highest)– Physical or physiological needs– Safety or security needs– Love or social needs– Ego or status needs– Self-actualization, self-realization, self-fulfillment

McClelland’s Achievement Theory

Developed by David McClelland People influenced most strongly by 3 specific needs

– achievement need– affiliation need– power need

Managers who believe this theory can help fulfill these needs by assigning duties based on employee needs

– Achievement need – provide opportunities for employees to make decisions and control own work

– Affiliation need – assign employees to group projects and teams– Power need – employees will work best when they can be a

project leader or be involved in planning and decision-making

Herzberg’s Two-factor Theory

Developerd by Frederick Herzberg Studied employees to see what satisfied and dissatisfied them Identified two distinct groups of factors related to motivation Hygiene factors – dissatisfy when absent but do not contribute to satisfaction

when present– Amount of pay– Fringe benefits– Working conditions– Rules– Supervision

Motivators – factors that increase motivation– Challenging work– Recognition– Achievement– Accomplishment– Increased Responsibility– Personal development

Objective 2.07

Discuss the importance of the evaluating/ controlling function and determine adaptations when goals are not being achieved

Controlling

Evaluating the results to determine if the company’s objectives have been accomplished as planned

Controlling

Determining whether goals are being met and what actions to take if performance falls short of the goals.

Provides information needed to improve the management process and business operations.

Why Controls are Needed

Prevent crisis – solve small problems before they become big problems

Standardize outputs – processes and procedures can be used to improve products

Appraise employee performance – goods controls are objective so employees can be evaluated fairly

Update plans – managers can react quickly to a changed environment

Protect the organization’s assets – protect assets from waste and theft

Basic Steps in Controlling

Setting Standards

Part of planning goals for the company Outline what is expected of employees or

organizational unit

Types of Standards

Quantity standards– Take different forms depending on the tasks being performed– Examples

Minimum number of units to produce in each hour, day, or month Number of prospective customers to contact by sales representative Number of lines of information to be keyed per hour by information processing personnel

Quality standards– Quality of work performed– Work with no errors may be the only acceptable standard for some products and services

Time standards– Amount of time it takes to complete an activity

Cost standards– Businesses pay more attention to cost standards – must be cost conscious at all times– Wasting material or taking more time than necessary increases costs– Increasing costs with an increase in sales decreases profits– Most widely used controlling device is the budget– Actual cost information is collected and compared with budgeted amounts

Quantity standards– Take different forms depending on the tasks being performed– Examples

Minimum number of units to produce in each hour, day, or month Number of prospective customers to contact by sales representative Number of lines of information to be keyed per hour by information processing personnel

Quality standards– Quality of work performed– Work with no errors may be the only acceptable standard for some products and services

Time standards– Amount of time it takes to complete an activity

Cost standards– Businesses pay more attention to cost standards – must be cost conscious at all times– Wasting material or taking more time than necessary increases costs– Increasing costs with an increase in sales decreases profits– Most widely used controlling device is the budget– Actual cost information is collected and compared with budgeted amounts

Monitoring Performance

Standards basis for effective performance Managers monitor performance to gather data and

detect problem areas then they compare performance to standards

Variance – difference between performance and standard

– Variance can be positive – performance exceeds standard– Variance can be negative – performance falls short of

standard Managers must identify reasons for variance

Causes of Performance Deviation

Faulty planning Insufficient communication – employees may not

know what is expected of them, manager may not know issues affecting performance

Training – performance may decline during training period

Lack of motivation – reduces efficiency and prevents employees from meeting objectives

Unforeseen forces –new government regulations, natural disasters

Tools for Control

Budgets Financial controls – income statements, balance

sheets Direct Observation Written Reports Audits – detailed look at an organization’s financial

or other practices– external audit – performed by outside accountants– internal audit – performed by members of the organization

Taking Corrective Action

Managers can take 3 possible actions when performance is not meeting standards

– Take steps to improve performance Make sure supplies and materials are available Make sure work is organized Make sure employees are well-trained

– Change policies and procedures Policies and procedures may not be appropriate Major changes such as new equipment or new procedures

– Revise standard When it is clear standards will not accurately reflect performance When attempts to improve performance have not been successful New standards and reasons for change should be clearly

communicated to employees affected