PRINCIPLES OF MANAGEMENT AND LEADERSHIP

Pearson BTEC Level 5 in Management and

Leadership

1. Understand leadership and management theories and

principles

Leadership and management Is a good manager automatically a good leader? What is the difference between

leadership and management?

The main difference between leaders and managers is that leaders have people follow them

while managers have people who work for them.

A successful business owner needs to be both a strong leader and manager to get their team on

board to follow them towards their vision of success. Leadership is about getting people to

understand and believe in your vision and to work with you to achieve your goals while

managing is more about administering and making sure the day-to-day things are happening as

they should.

WHILE THERE ARE MANY TRAITS THAT MAKE UP A STRONG LEADER, SOME OF THE KEY

CHARACTERISTICS ARE:

Honesty & Integrity: are crucial to get your people to believe you and buy in to the

journey you are taking them on

Vision: know where you are, where you want to go and enroll your team in charting a

path for the future

Inspiration: inspire your team to be all they can by making sure they understand their

role in the bigger picture

Ability to Challenge: do not be afraid to challenge the status quo, do things differently and

have the courage to think outside the box

Communication Skills: keep your team informed of the journey, where you are, where you

are heading and share any roadblocks you may encounter along the way

SOME OF THE COMMON TRAITS SHARED BY STRONG MANAGERS ARE:

Being Able to Execute a Vision: take a strategic vision and break it down into a roadmap to be followed by the team

Ability to Direct: day-to-day work efforts, review resources needed and anticipate needs along the way

Process Management: establish work rules, processes, standards and operating procedures

People Focused: look after your people, their needs, listen to them and involve them In order for you to engage your staff in providing the best service to your guests, clients or

partners, you must enroll them in your vision and align their perceptions and behaviors. You need to get them excited about where you are taking them while making sure they know what’s in it for them.

With smaller organizations, the challenge lies in making sure you are both leading your team as well as managing your day to day operation. Those who are able to do both, will create a

competitive advantage. Are you both a leader and a manager; what would your staff say if you were to ask them?

What’s the Difference between Leadership and Management?

Many wonder about the differences between leadership and management. Are they mutually

exclusive? Do professionals have both qualities—or do they learn one or the other over a long period of time? These questions are just the tip of the iceberg. In this article, we will take a look

at both.

What is Leadership? What is Management?

The words “leader” and “manager” are among the most commonly used words in business and

are often used interchangeably. But have you ever wondered what the terms actually mean?

What Do Managers Do?

A manager is the member of an organization with the responsibility of carrying out the four important functions of management: planning, organizing, leading, and controlling. But are all managers leaders?

Most managers also tend to be leaders, but only IF they also adequately carry out the leadership responsibilities of management, which include communication, motivation, providing inspiration

and guidance, and encouraging employees to rise to a higher level of productivity.

Unfortunately, not all managers are leaders. Some managers have poor leadership qualities, and employees follow orders from their managers because they are obligated to do so—not

necessarily because they are influenced or inspired by the leader.

Managerial duties are usually a formal part of a job description; subordinates follow as a result

of the professional title or designation. A manager’s chief focus is to meet organizational goals and objectives; they typically do not take much else into consideration. Managers are held

responsible for their actions, as well as for the actions of their subordinates. With the title comes the authority and the privilege to promote, hire, fire, discipline, or reward employees based on their performance and behavior.

What Do Leaders Do?

The primary difference between management and leadership is that leaders don’t necessarily

hold or occupy a management position. Simply put, a leader doesn’t have to be an authority figure in the organization; a leader can be anyone.

Unlike managers, leaders are followed because of their personality, behavior, and beliefs. A

leader personally invests in tasks and projects and demonstrates a high level of passion for work. Leaders take a great deal of interest in the success of their followers, enabling them to

reach their goals to satisfaction—these are not necessarily organizational goals.

There isn’t always tangible or formal power that a leader possesses over his followers. Temporary power is awarded to a leader and can be conditional based on the ability of the

leader to continually inspire and motivate their followers.

Subordinates of a manager are required to obey orders while following is optional when it comes

to leadership. Leadership works on inspiration and trust among employees; those who do wish to follow their leader may stop at any time. Generally, leaders are people who challenge the status quo. Leadership is change-savvy, visionary, agile, creative, and adaptive.

Are The Traits A Manager Possesses?

Below are four important traits of a manager.

#1 The ability to execute a Vision: Managers build a strategic vision and break it down into a roadmap for their team to follow.

#2 The ability to Direct: Managers are responsible for day-to-day efforts while reviewing necessary resources and anticipating needs to make changes along the way.

#3 Process Management: Managers have the authority to establish work rules, processes,

standards, and operating procedures.

#4 People Focused: Managers are known to look after and cater to the needs of the people they

are responsible for: listening to them, involving them in certain key decisions, and accommodating reasonable requests for change to contribute to increased productivity.

What Are The Traits A Leader Possesses?

Below are five important traits of a leader.

#1 Vision: A leader knows where they stand, where they want to go and tend to involve the team in charting a future path and direction.

#2 Honesty and Integrity: Leaders have people who believe them and walk by their side down

the path the leader sets.

#3 Inspiration: Leaders are usually inspirational—and help their team understand their own

roles in a bigger context.

#4 Communication Skills: Leaders always keep their team informed about what’s happening,

both present and the future—along with any obstacles that stand in their way.

#5 Ability to Challenge: Leaders are those that challenge the status quo. They have their own style of doing things and problem-solving and are usually the ones who think outside the box.

The Three Important Differences Being a manager and a leader at the same time is a viable concept. But remember, just because

someone is a phenomenal leader it does not necessarily guarantee that the person will be an

exceptional manager as well, and vice versa. So, what are the standout differences between the

two roles?

#1 A leader invents or innovates while a manager organizes.

The leader of the team comes up with the new ideas and kickstarts the organization’s shift

or transition to a forward-thinking phase. A leader always has his or her eyes set on the horizon,

developing new techniques and strategies for the organization. A leader has immense knowledge

of all the current trends, advancements, and skillsets—and has clarity of purpose and vision.

By contrast, a manager is someone who generally only maintains what is already established. A

manager needs to watch the bottom line while controlling employees and workflow in the

organization and preventing any kind of chaos.

In his book, The Wall Street Journal Essential Guide to Management: Lasting Lessons from

the Best Leadership Minds of Our Time, Alan Murray cites that a manager is someone who

“establishes appropriate targets and yardsticks, and analyzes, appraises and interprets

performance.” Managers understand the people they work with and know which person is the

best fit for a specific task.

#2 A manager relies on control whereas a leader inspires trust

A leader is a person who pushes employees to do their best and knows how to set an

appropriate pace and tempo for the rest of the group. Managers, on the other hand, are required

by their job description to establish control over employees which, in turn, help them develop

their own assets to bring out their best. Thus, managers have to understand their subordinates

well to do their job effectively.

#3 A leader asks the questions “what” and “why whereas a manager leans more towards

the questions “how” and “when.”

To be able to do justice to their role as leader, some may question and challenge authority to

modify or even reverse decisions that may not have the team’s best interests in mind.

Good leadership requires a great deal of good judgment, especially when it comes to the ability

to stand up to senior management over a point of concern or if there is an aspect in need of

improvement. If a company goes through a rough patch, a leader will be the one who will stand

up and ask the question: “What did we learn from this?”

Managers, however, are not required to assess and analyze failures. Their job description

emphasizes asking the questions “how” and “when,” which usually helps them make sure that

plans are properly executed. They tend to accept the status quo exactly the way it is and do not

attempt a change.

The Three Tests

In the article Three Differences Between Managers And Leaders, Vineet Nayar discusses three

tests he devised to help managers decide if they have successfully made the shift from

managing people to leading them.

#1 Counting Value vs. Creating Value

Managers are the only ones who count value, he says. There are some who cut down on

the value by disabling or otherwise countering ideas and people who add value.

Leaders, however, focus instead on working to generate a certain value that is over and above

that which the team creates—and is as much a creator of value as their followers. Nayar goes on

to say that, “Leading by example and leading by enabling people are the hallmarks of action-

based leadership.”

#2 Circles of Influence vs. Circles of Power

As mentioned previously, managers have subordinates and leaders gain followers, which

implies that managers create a circle of power while leaders create a circle of influence. Nayar

offers advice on how to identify which circle you have around you. He says, “The quickest way to

figure out which of the two you’re doing is to count the number of people outside your reporting

hierarchy who come to you for advice. The more that do, the more likely it is that you are

perceived to be a leader.”

#3 Leading People vs. Managing People

One responsibility of a manager is controlling a group in order to accomplish a certain

goal. Leadership, on the other hand, is the ability of an individual to motivate, influence, and

enable other employees to make a contribution toward the success of an organization.

Inspiration and influence separate leaders from managers—not control and power.

Leadership Principles

There is a great amount of definitions and theories about effective leadership. Each leader

chooses their unique formula of success, but still there are keys to authentic leadership that

can’t be ignored. Below are 10 important principles each leader should know.

1. Leadership Is Behavior, Not Position

Leaders are the ones who take responsibility for making decisions and bringing change. Leaders

are the ones who empower people to discover and use their greatest potential. The executive

position on someone’s visit card won’t do all of these. People are the ones to choose their leader.

And how will they do that? They will judge by behavior, attitude and actions. If you want to be a

leader, then act like a leader and shape a better reality.

2. The Best Way of Influence Is Setting an Example

Each leader wants to get the best out of their team. Excellence orientation is great, as there is

always need for development. But here is the simple truth. Instead of telling your team

members what to do, show it to them by your own example. They are following you each and

every moment. Practice what you preach, and the results will astonish you. Especially during

hard times, when chances to give up are very big, you should be the one who faces obstacles

with confidence and determination towards success. Be sure, that they will do the same and

stand by your side.

3. Leading Means Making an Impact

Think about the greatest leaders in history. What was the one thing they had in common? Yes,

they all made an impact. Leadership is not just setting goals and effectively achieving them with

your team. Leadership is not just brilliant public speaking and great communication skills. If you

want to be an authentic leader, you should have your unique contribution to the welfare of the

society. You should make a positive change.

4. Leadership is Chasing Vision, Not Money

Without a vision, your activities are meaningless. Each person can be very busy implementing

various tasks, but the key is devoting your efforts and time to the realization of your vision.

Vision is what inspires people to take action and go forward. Discover your unique vision and

coordinate all your activities towards it. Inspire each and every member of your team with that

vision.

5. Actions Speak Louder Than Words

It’s not a secret that much talking and less acting has nothing to do with effectiveness. What

people see affects them many times greater than what they hear. So, choose actions. Don’t

waste your and other people’s time on endless conversations about your plans. Just realize that

plans and be sure that everyone will see it.

6. Flexibility May Refer to Behavior, Not Values

Depending on circumstances you may choose a different style of leadership or communication.

Flexibility is a truly effective trait, if it doesn’t affect your values. Each and every decision of

yours, no matter the situation, must be based on your value system. As long as your actions are

value-driven, you will have the trust and respect of people around you.

7. Leadership is All About People

Could you be a leader in an empty room by having profound goals and skills? Of course, not.

Leading means communicating, influencing and engaging. Communication skills are the

foundation of effective leadership. Constantly improve your relationships with people, and the

amazing results won’t make you wait.

8. It Is Fine To Admit Mistakes

If everything has always been done perfectly, we would have somehow lost the ability to analyze

and improve. Mistakes are proof that you are doing something. You won’t become a worse

leader if you admit your mistakes. By doing that, you will show that you are wise enough to

learn from your each and every experience.

9. Unity Is Strength

Team is somehow the most important resource for each leader. Embrace your team and devote

your energy to care about its unity each and every day. As long as your team is splendid,

nothing can stay on your way to success. Make sure that all people in your team consider

themselves as members of a strong, unified family.

10. There Is Always Room for Growth

Remember, satisfaction should be a short-term feeling. Life would become useless without

ongoing improvement. This doesn’t mean that you shouldn’t appreciate what you have. This

means that you should be thankful for everything you have achieved, but still try to do a little

more for this world.

Strategic vision

There are a few common rules that pretty much all good Vision Statements should follow:

1. They should be short – two sentences at an absolute maximum. It’s fine to expand on

your vision statement with more detail, but you need a version that is punchy and easily

memorable.

2. They need to be specific to your business and describe a unique outcome that only you

can provide. Generic vision statements that could apply to any organisation won’t cut it

(see our examples below for more on this point).

3. Do not use words that are open to interpretation. For example, saying you will ‘maximise

shareholder return’ doesn’t actually mean anything unless you specify what it actually

looks like.

4. Keep it simple enough for people both inside and outside your organisation to

understand. No technical jargon, no metaphors and no business buzz-words if at all

possible!

5. It should be ambitious enough to be exciting but not too ambitious that it seems

unachievable. It’s not really a matter of time-framing your vision, because that will vary

by organisation, but certainly anything that has a timeframe outside of 3 to 10 years

should be challenged as to whether it’s appropriate.

6. It needs to align to the Values that you want your people to exhibit as they perform

their work. We’ll talk more about Values in a future article – but once you’ve created

those Values later on, revisit your Vision to see how well they gel.

Following these rules should give you a pretty good starting point for creating your own vision

statement. To help refine things further, we’ll now look at some examples of vision statements

that did not follow these rules.

Some not-so-great Vision Statements (and why) Here are some examples of real-life vision statements that in our opinion, could do with a little

tweaking. For each one, we’ll try to justify our thinking…

Our company vision is to make every brand more inspiring and the world more intelligent.

Well, this one gets a tick on the ‘ambitious’ test if nothing else. But…..is it realistic that ‘every

brand’ will use the services of this company? How about ‘making the world more intelligent.’ –

let’s try to quantify what that might actually look like. Or let’s not. Because it’s impossible. Not

to be too harsh though – there are strong elements here; ‘making brands more inspiring’ makes

a lot of sense and has some depth.

Provide maximum value for our shareholders whilst helping our customers to fulfil their dreams.

This ‘vision’ could pretty much apply to any company, anywhere (it’s an insurance company in

this case – but would you have guessed that?). It’s sort of like saying ‘Our Vision is to succeed

as a business’. Not wrong – but certainly not inspiring or unique.

Last one…

We are committed to achieving new standards of excellence by providing superior human capital

management services and maximizing the potential of all stakeholders – clients, candidates and

employees – through the delivery of the most reliable, responsive….[and it goes on, but

that’s probably enough]…

It would be quite hard to write a vision statement filled with less tangibility and more

subjectivity that this one. ‘New standards of excellence’. ‘Superior human capital management’.

‘Maximising the potential’. There are simply far too many buzz words, intangibles and vaguery

here for this to be either memorable or inspiring.

We are of course being rather harsh. But hopefully the above examples illustrate well some of

the pitfalls to avoid when creating your own vision.

The Process There are literally hundreds of articles out there that will give you examples of good and bad

vision statements as well as a high-level overview of what to consider when creating your

own. But what we noticed was lacking was a concrete process to go through to help you create

one. As such, we’ve outlined a process that we have used with clients in Cascade that might

work for you too.

There are plenty of great vision statements out there that will not conform to the process below

– but if you’re struggling or just need a place to start, then hopefully this will help.

Step 1: Define what you do as an output

Start by being exceptionally clear about what it is your organisation actually does. Be careful to

remain ‘output focused’ rather than ‘input focused’. For example, Microsoft famously had a

vision statement to Put a Microsoft powered computer on every desk in the world (slightly

paraphrased). Strictly speaking what Microsoft ‘do’ is make computer software, but for the

purposes of their Vision, they looked forward to the actual outcome of this process – i.e.

computers on desks.

Let’s look at some other hypothetical examples:

A bakery makes bread. But the outcome is consumers enjoying that bread.

A consulting company gives advice. But the outcome is the success of others based on that

advice.

A government department does…lots of things. But the outcome is better lives for the citizens

they serve.

Whilst this process may seem obvious – you would be surprised by how rarely organisations

actually go through this process in a formal, written way. Doing so will take you a long way

towards creating your vision statement – BUT it’s not enough alone! If it was, all bakeries for

example would have the same vision statement – which is hardly inspiring!

Step 2: Define what unique twist your organisation brings to the above outcome

Very few products or services these days are truly new – most are more like reinventions of

something that exists already, but with a different approach, focus or spin.

At some point in your organisation’s lifespan – someone will have believed that the reason that

THIS organisation would be successful where others have failed, was because of………something.

You need to define that something!

Let’s take our bakery example. So far, our vision statement is looking pretty generic, along the

lines of customers enjoying our bread. But why will they enjoy our bread MORE than the bread

from the place next door? Is it because we use centuries old traditions passed through

generations of our family? Because we only use premium grade locally sourced

ingredients? Whatever your unique selling point is – let it shine through in your vision

statement.

Step 3: Apply some high-level quantification

A common problem with vision statements is ironically, that they are too visionary! With no

possible end in sight (or a totally unrealistic one) – the initial inspiration derived from a great

vision statement can quickly turn to frustration, or even cynicism among employees and

customers.

That said – don’t be too specific or apply specific metrics at this stage (they will come later in

our planning process).

Sticking with our bakery example – we might want to refine our target audience to ‘every

customer who walks through the door’ – that’s fine, or maybe we want to be bolder: ‘every

customer within walking distance of a store’.

The quantification we apply could also be industry specific if you’re a B2B – are you shooting for

SMEs or multinationals for example?

Step 4: Add relatable, human, ‘real world’ aspects

OK, your vision by this point should be getting pretty close to being finished. But one final trick

you can apply to help make it even more memorable is to add a real-life aspect so that people

can conjure up a solid mental image to associate with your vision statement. Let’s look at an

example – which of the following statements is likely to be more memorable:

a) To have every working person in the world using Microsoft product.

or…

b) A Microsoft powered computer on every desk.

I would argue that (b) is more memorable, because as I read this, I’m actually visualising

a computer (in my case) sitting on a wooden desk in a room. There’s nothing wrong with (a)

but it’s highly conceptual and thus difficult to transform into a mental picture. Let’s look at

another example:

Ensure that every customer who leaves our store, does so smiling.

Here, using the word ‘smiling’ as apposed to ‘happy’ is powerful, because it conjures a mental

image of a person smiling.

It won’t always be possible to bring this level of tangibility to your vision statement – but if it is,

I would strongly encourage doing so.

Bringing it all together

Let’s finish off with a look at what a completed vision statement could look like for our bakery,

based on the above:

Producing and selling locally sourced cakes and pies that are so delicious and satisfying, that

every customer who leaves our store does so with a smile.

If we deconstruct this into our various steps, we can see each at work as follows:

Producing and selling locally sourced cakes and pies that are so delicious and satisfying,

that every customer who leaves our store does so with a smile.

Step 1 – The output

Step 2 – The twist

Step 3 – The quantification

Step 4 – The human connection

Let me reiterate – there are other ways to construct great vision statements – but even if yours

doesn’t look quite like this at the end of the day, simply following the process above will help

you to bring structure and purpose to your effort.

Leadership Theories

For decades, leadership theories have been the source of numerous studies. In reality as well as

in practice, many have tried to define what allows authentic leaders to stand apart from the

mass! Hence, there as many theories on leadership as there are philosophers, researchers and

professors that have studied and ultimately published their leadership theory. A great article to

read before diving into the theories is the The Philosophical Foundations of Leadership

Theories are commonly categorized by which aspect is believed to define the leader the most.

The most widespread one's are: Great Man Theory, Trait Theory, Behavioural

Theories, Contingency Theories, Transactional Theories and Transformational Theories.

Great Man Theory (1840s)

The Great Man theory evolved around the mid 19th century. Even though no one was able to

identify with any scientific certainty, which human characteristic or combination of, were

responsible for identifying great leaders. Everyone recognized that just as the name suggests;

only a man could have the characteristic (s) of a great leader.

The Great Man theory assumes that the traits of leadership are intrinsic. That simply means that

great leaders are born...

they are not made. This theory sees great leaders as those who are destined by birth to become

a leader. Furthermore, the belief was that great leaders will rise when confronted with the

appropriate situation. The theory was popularized by Thomas Carlyle, a writer and teacher. Just

like him, the Great Man theory was inspired by the study of influential heroes. In his book "On

Heroes, Hero-Worship, and the Heroic in History", he compared a wide array of heroes.

In 1860, Herbert Spencer, an English philosopher disputed the great man theory by affirming

that these heroes are simply the product of their times and their actions the results of social

conditions.

Trait Theory (1930's - 1940's)

The trait leadership theory believes that people are either born or are made with certain qualities

that will make them excel in leadership roles. That is, certain qualities such as intelligence,

sense of responsibility, creativity and other values puts anyone in the shoes of a good leader. In

fact, Gordon Allport, an American psychologist,"...identified almost 18,000 English personality-

relevant terms" (Matthews, Deary & Whiteman, 2003, p. 3).

The trait theory of leadership focused on analyzing mental, physical and social characteristic in

order to gain more understanding of what is the characteristic or the combination of

characteristics that are common among leaders.

There were many shortfalls with the trait leadership theory. However, from a psychology of

personalities approach, Gordon Allport's studies are among the first ones and have brought, for

the study of leadership, the behavioural approach.

In the 1930s the field of Psychometrics was in its early years.

Personality traits measurement weren't reliable across studies.

Study samples were of low level managers

Explanations weren't offered as to the relation between each characteristic and its impact

on leadership.

The context of the leader wasn't considered.

Many studies have analyzed the traits among existing leaders in the hope of uncovering those

responsible for ones leadership abilities! In vain, the only characteristics that were identified

among these individuals were those that were slightly taller and slightly more intelligent!

Behavioral Theories (1940's - 1950's)

In reaction to the trait leadership theory, the behavioural theories are offering a new

perspective, one that focuses on the behaviours of the leaders as opposed to their mental,

physical or social characteristics. Thus, with the evolutions in psychometrics, notably the factor

analysis, researchers were able to measure the cause an effects relationship of specific human

behaviours from leaders. From this point forward anyone with the right conditioning could have

access to the once before elite club of naturally gifted leaders. In other words, leaders are made

not born.

The behavioural theories first divided leaders in two categories. Those that were concerned with

the tasks and those concerned with the people. Throughout the literature these are referred to

as different names, but the essence are identical.

Associated Theories

The Managerial Grid Model / Leadership Grid

Role Theory

Contingency Theories (1960's)

The Contingency Leadership theory argues that there is no single way of leading and that every

leadership style should be based on certain situations, which signifies that there are certain

people who perform at the maximum level in certain places; but at minimal performance when

taken out of their element.

To a certain extent contingency leadership theories are an extension of the trait theory, in the

sense that human traits are related to the situation in which the leaders exercise their

leadership. It is generally accepted within the contingency theories that leader are more likely to

express their leadership when they feel that their followers will be responsive.

Associated Theories

Fiedler's contingency theory

Hersey-Blanchard Situational Leadership Theory

Path-goal theory

Vroom-Yetton-Jago decision-making model of leadership

Cognitive Resource Theory

Strategic Contingencies Theory

Transactional leadership Theories (1970's)

Transactional theories, also known as exchange theories of leadership, are characterized by a

transaction made between the leader and the followers. In fact, the theory values a positive and

mutually beneficial relationship.

For the transactional theories to be effective and as a result have motivational value, the leader

must find a means to align to adequately reward (or punish) his follower, for performing leader-

assigned task. In other words, transactional leaders are most efficient when they develop a

mutual reinforcing environment, for which the individual and the organizational goals are in

sync.

The transactional theorists state that humans in general are seeking to maximize pleasurable

experiences and to diminish un-pleasurable experiences. Thus, we are more likely to associate

ourselves with individuals that add to our strengths.

Transformational Leadership Theories (1970s)

The Transformational Leadership theory states that this process is by which a person interacts

with others and is able to create a solid relationship that results in a high percentage of trust,

that will later result in an increase of motivation, both intrinsic and extrinsic, in both leaders and

followers.

The essence of transformational theories is that leaders transform their followers through their

inspirational nature and charismatic personalities. Rules and regulations are flexible, guided by

group norms. These attributes provide a sense of belonging for the followers as they can easily

identify with the leader and its purpose.

Management theories

Management theories are implemented to help increase organizational productivity and service

quality. Not many managers use a singular theory or concept when implementing strategies in

the workplace: They commonly use a combination of a number of theories, depending on the

workplace, purpose and workforce. Contingency theory, chaos theory and systems theory are

popular management theories. Theory X and Y, which addresses management strategies for

workforce motivation, is also implemented to help increase worker productivity.

Contingency Theory

This theory asserts that managers make decisions based on the situation at hand rather than a

"one size fits all" method. A manager takes appropriate action based on aspects most important

to the current situation. Managers in a university may want to utilize a leadership approach that

includes participation from workers, while a leader in the army may want to use an autocratic

approach.

Systems Theory

Managers who understand systems theory recognize how different systems affect a worker and

how a worker affects the systems around them. A system is made up of a variety of parts that

work together to achieve a goal. Systems theory is a broad perspective that allows managers to

examine patterns and events in the workplace. This helps managers to coordinate programs to

work as a collective whole for the overall goal or mission of the organization rather than for

isolated departments.

Chaos Theory

Change is constant. Although certain events and circumstances in an organization can be

controlled, others can't. Chaos theory recognizes that change is inevitable and is rarely

controlled. While organizations grow, complexity and the possibility for susceptible events

increase. Organizations increase energy to maintain the new level of complexity, and as

organizations spend more energy, more structure is needed for stability. The system continues

to evolve and change.

Theory X and Theory Y

The management theory an individual chooses to utilize is strongly influenced by beliefs about worker attitudes. Managers who believe workers naturally lack ambition and need incentives to

increase productivity lean toward the Theory X management style. Theory Y believes that workers are naturally driven and take responsibility. While managers who believe in Theory X values often use an authoritarian style of leadership, Theory Y leaders encourage participation

from workers.

Scientific management

Classical management theory was introduced in the late 19th century. It became widespread in the first half of the 20th century, as organizations tried to address issues of industrial

management, including specialization, efficiency, higher quality, cost reduction and management-worker relationships. While other management theories have evolved since then, classical management approaches are still used today by many small-business owners to build

their companies and to succeed.

Hierarchical Structure

One of the advantages of the classical management structure is a clear organizational hierarchy with three distinct management levels. Each management group has its own objectives and

responsibilities. The top management is usually the board of directors or the chief executives who are responsible for the long-term goals of the organization. Middle management oversees the supervisors, setting department goals according to the approved budget. At the lowest level

are the supervisors who oversee day-to-day activities, address employee issues and provide employee training. The levels of leadership and responsibilities are clear and well defined. While

the three-level structure may not be suitable for all small businesses, it can benefit those that are expanding.

Division of Labor

One of the advantages of classical management approach is the division of labor. Projects are broken down into smaller tasks that are easy to complete. Employees' responsibilities and

expectations are clearly defined.

This approach allows workers to narrow their field of expertise and to specialize in one area. The division of labor approach leads to increased productivity and higher efficiency, as workers are

not expected to multitask. Small-businesses owners can benefit from taking this approach if they are looking to increase production with minimal expense.

Monetary Incentive

According to classical management theory, employees should be motivated by monetary rewards. In other words, they will work harder and become more productive if they have an

incentive to look forward to. This gives management easier control over the workforce. Employees feel appreciated when being rewarded for hard work. A small-business owner can

take this approach to motivate the employees to achieve production goals.

Autocratic Leadership

The autocratic leadership approach is the central part of classical management theory. It states that an organization should have a single leader to make decisions, to organize and direct the employees. All decisions are made at the top level and communicated down. The autocratic

leadership approach is beneficial in instances when small-business decisions need to be made quickly by a leader, without having to consult with a large group of people, such a board of

directors. Small businesses, especially sole proprietorships, can have an advantage in taking this approach, as they need a strong leader to grow.

Business performance Business performance management is a set of performance management and analytic

processes that enables the management of an organization's performance to achieve one or

more pre-selected goals. Synonyms for "business performance management"

include "corporate performance management (CPM)" and "enterprise performance

management".

Business performance management is contained within approaches to business process

management.

Business performance management has three main activities:

1. selection of goals,

2. consolidation of measurement information relevant to an organization’s progress against

these goals, and

3. interventions made by managers in light of this information with a view to improving

future performance against these goals.

Although presented here sequentially, typically all three activities will run concurrently, with

interventions by managers affecting the choice of goals, the measurement information

monitored, and the activities being undertaken by the organization.

Because business performance management activities in large organizations often involve the

collection and reporting of large volumes of data, many software vendors, particularly those

offering business intelligence tools, market products intended to assist in this process. As a

result of this marketing effort, business performance management is often incorrectly

understood as an activity that necessarily relies on software systems to work, and many

definitions of business performance management explicitly suggest software as being a definitive

component of the approach.

This interest in business performance management from the software community is sales-

driven- "The biggest growth area in operational BI analysis is in the area of business

performance management."

Since 1992, business performance management has been strongly influenced by the rise of

the balanced scorecard framework. It is common for managers to use the balanced scorecard

framework to clarify the goals of an organization, to identify how to track them, and to structure

the mechanisms by which interventions will be triggered. These steps are the same as those that

are found in BPM, and as a result balanced scorecard is often used as the basis for business

performance management activity with organizations.

In the past, owners have sought to drive strategy down and across their organizations,

transform these strategies into actionable metrics and use analytics to expose the cause-and-

effect relationships that, if understood, could give insight into decision-making.

Definition and scope

Business performance management consists of a set of management and analytic processes,

supported by technology, that enable businesses to define strategic goals and then measure and

manage performance against those goals. Core business performance management processes

include financial planning, operational planning, business modeling, consolidation and reporting,

analysis, and monitoring of key performance indicators linked to strategy.

Business performance management involves consolidation of data from various sources,

querying, and analysis of the data, and putting the results into practice.

Frameworks

Various frameworks for implementing business performance management exist. The discipline

gives companies a top-down framework by which to align planning and execution, strategy and

tactics, and business-unit and enterprise objectives. Reactions may include the Six

Sigma strategy, balanced scorecard, activity-based costing (ABC), Objectives and Key

Results (OKR), Total Quality Management, economic value-add, integrated strategic

measurement and Theory of Constraints.

Metrics and key performance indicators

Some of the areas from which bank management may gain knowledge by using business

performance management include:

customer-related numbers:

new customers acquired

status of existing customers

attrition of customers (including breakup by reason for attrition)

turnover generated by segments of the customers - possibly using demographic filters

outstanding balances held by segments of customers and terms of payment - possibly

using demographic filters

collection of bad debts within customer relationships

demographic analysis of individuals (potential customers) applying to become customers,

and the levels of approval, rejections and pending numbers

delinquency analysis of customers behind on payments

profitability of customers by demographic segments and segmentation of customers by

profitability

campaign management

real-time dashboard on key operational metrics

overall equipment effectiveness

clickstream analysis on a website

key product portfolio trackers

marketing-channel analysis

sales-data analysis by product segments

call center metrics

Though the above list describes what a bank might monitor, it could refer to a telephone

company or to a similar service-sector company.

Items of generic importance include:

1. consistent and correct KPI-related data providing insights into operational aspects of a

company

2. timely availability of KPI-related data

3. KPIs designed to directly reflect the efficiency and effectiveness of a business

4. information presented in a format which aids decision-making for management and

decision-makers

5. ability to discern patterns or trends from organized information

Business performance management integrates the company's processes with CRM or ERP.

Companies should become better able to gauge customer satisfaction, control customer trends

and influence shareholder value.

Improving Business performance

As a business owner, you are probably aware of where your business could improve. Sometimes

business owners want to improve their business, but are not sure how to begin.

This is an overview of some key steps you can take to start improving your business.

Assess your situation

Before you start making changes, it's a good idea to make sure you have a full understanding of

the factors affecting your business success.

These may include your current business practices, market trends or changes to the wider

environment in which you operate.

Tools which can help you assess your business's situation include:

SWOT analysis - helps you identify your business's strengths, weaknesses, opportunities

and threats.

Benchmarking - measures your business's performance against similar-sized businesses in

your industry.

Market research - investigates your business's market and industry to identify trends,

changes and customer or client demands.

Trend analysis - uses business data collected over time to identify consistent results or

trends.

Webinars (web-based seminars) provide useful information to help develop your business

skills.

Set clear goals

Business goals can be as broad or as specific as you want them to be. Writing down your goals

clearly will make it easier for you to achieve them. Make sure your goals are:

specific - state clearly what you want to achieve

measurable - make sure you can evaluate success

achievable - check your objective is something you have the time and resources to meet

relevant - make sure your objectives improve profit drivers and improve some part of

your business

timely - set a specific date for completion.

Once you have written down your goals, you should prioritise them to decide which ones to

focus on first.

Some goals may need be more urgent than others. It's also important to recognise that some

goals will need to be addressed with a long-term strategy as you won't be able to meet them

immediately, because of resources, finances or time.

Identify strategies for achieving your goals

Review your goals and list the factors you think are creating your current circumstances. Think

about what strategy you could use to improve the situation.

Depending on the goals you're trying to meet, you may want to think about using the services of

a business professional, such as a professional trainer, a contractor or a business adviser.

Think realistically about what you can do yourself and where you may benefit from some

support.

Develop a plan for implementing your strategies

To achieve your goals, you need to work out how to implement your strategies. Strategies often

include several specific actions or tasks. It's a good idea to develop a plan for how you will do

this.

Write your plan in a format that suits you. It should include:

a time frame - how long a task will take to complete as well as start and finish dates

actions - state the individual actions as precisely as you can

responsibilities - assign accountability for each action so everyone knows precisely what

you expect of them and who is responsible for ensuring the work is done

resources - list budget, staff or supplies needed to complete each action

a desired outcome - state how you will know that the action has been completed.

When you've developed your plan, you might want to also update your overall business plan.

Measure the results

Establishing how you will measure the results that you want to achieve may be as simple as

checking you've completed an activity.

With larger goals, you may have to establish a more complex measurement process, like

increasing profit by a set percentage, or gaining a particular number of new clients. With these

types of goals, it can also be useful to set points to measure their success as you're working on

them. This will help you keep your plan on track.

Consider how often you want to measure your business achievements. This can also help you set

new goals regularly.

Stakeholder engagement

Stakeholder engagement is the process by which an organisation involves people who may be

affected by the decisions it makes, or can influence the implementation of its decisions. They

may support or oppose the decisions, be influential in the organization or within the community

in which it operates, hold relevant official positions or be affected in the long term.

Stakeholder engagement is a key part of corporate social responsibility (CSR) and achieving

the triple bottom line. Companies engage their stakeholders in dialogue to find out what social

and environmental issues matter most to them about their performance in order to improve

decision-making and accountability. Engaging stakeholders is a requirement of the Global

Reporting Initiative, a network-based organisation with sustainability reporting framework that is

widely used around the world. The International Organisation for Standardization (ISO) requires

stakeholder engagement for all their new standards.

Involving stakeholders in decision-making processes is not confined to corporate social

responsibility (CSR) processes. It's a tool used by mature private and public sector

organisations, especially when they want to develop understanding and agree to solutions on

complex issues or issues of concern.

An underlying principle of stakeholder engagement is that stakeholders have the chance to

influence the decision-making process. This differentiates stakeholder engagement from

communications processes that seek to issue a message or influence groups to agree with a

decision that is already made. The UK organization The Environment Council developed the

Principles of Authentic Engagement. These are intended to provide a framework for genuine

stakeholder engagement.

Jeffrey (2009) in "Stakeholder Engagement: A Road map to meaningful engagement" describes

seven core values for the practices of gaining meaningful participation of which perhaps the

three most critical are:

Stakeholders should have a say in decisions about actions that could affect their lives or

essential environment for life.

Stakeholder participation includes the promise that stakeholders's contribution will

influence the decision

Stakeholder participation seeks input from participants in designing how they participate.

The practitioners in stakeholder engagement are often businesses, non-governmental

organizations (NGOs), labor organizations, trade and industry organizations, governments,

and financial institutions.

Components

Partnerships, in the context of corporate social responsibility interactions, are people and

organizations from some combination of public, business and civil constituencies who engage in

common societal aims through combining their resources and competencies, sharing both risks

and benefits.

Agreeing on the rules of engagement is integral to the process. It is important for everyone to

understand each party's role.

Buy-in is essential for success in stakeholder engagement. Every party must have a stake in the

process and have participating members have decision-making power. Every party must be

committed to the process by ensuring action based on the decisions made through the

engagement.

No decisions should be already made before commencing stakeholder engagement on the issue.

It is integral that the dialogue has legitimacy in influencing the decision.

Benefits

Stakeholder engagement provides opportunities to further align business practices with societal

needs and expectations, helping to drive long-term sustainability and shareholder value.

Stakeholder engagement is intended to help the practitioners fully realize the benefits of

stakeholder engagement in their organization, to compete in an increasingly complex and ever-

changing business environment, while at the same time bringing about systemic change towards

sustainable development.