Organization and Management

1
Nature and Concept of Management

Nature and Concept of Management

This lesson discusses about Organizations and Management focuses on
the study of how individuals and groups interact within organizations, and
how firms interact with one another and with consumers, employees,
communities and institutions. The Organization management binds the
employees together and gives them a sense of loyalty towards the
organization.
To start our discussion we may discuss the meaning and functions of
management, explain the various types of management theories, and we
also explain the functions, roles and skills of manager.

Topic Outline:
1. Definition and functions of management
2. Functions roles, and skills of a manager

Definitions
Management
− the process of designing and maintaining an environment in which
individuals, working together in groups, efficiently accomplish
selected aims.
− Management is concerned with productivity, which implies
effectiveness and efficiency.

Productivity, Effectiveness, and Efficiency

Productivity: The output-input ratio within a time period with due
consideration for quality.
Outputs
Productivity 
Inputs
The formula indicates that productivity can be improved by:
a) Increasing outputs with the same inputs
b) Decreasing inputs but maintaining the same outputs
c) Increasing outputs and decreasing inputs to change the ratio
favorably

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 Effectiveness: “Doing the right things”: the task that help an organization
reach its goals.
Efficiency” “Doing things right”: the efficient use of such resources as
people, money and equipment.

Managers
− the term manager is a person who has responsibility for the activities
of other people in an organization.

Three main types of managers

 General
General Managers focus on the entire business
 Functional
Functional managers specialize in a particular unit or department.
 Frontline Managers
Frontline managers oversee primary production activities on a daily basis, so
they need very high interpersonal and technical skills.

Management Levels

Top
Managers

Middle Managers

First line Managers

Non-managerial employees

Figure 1.1
 Top Managers
 Make decisions about the direction of the organization
Examples: President, Chief Executive Officer, Vice-President
 Middle Managers
 Manage the activities of other managers
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Nature and Concept of Management

Examples: District Manager, Division manager

 First-line Managers
 Direct non-managerial employees
Examples: Supervisors, Team leaders
Four Management Functions
Management operates through four basic functions: Planning, Organizing,
Leading, and Controlling.
 Planning involves the choice of the objectives to be pursued, the means
to achieve them, and allocating the resources of the organization.
 Planning requires that managers be aware of environmental
conditions facing their organization and forecast future conditions. It
also requires that managers be good decision-makers.

 Organizing involves identifying, subdividing, grouping and coordinating

the various activities required to achieve the objectives of the institution.
 Decisions must be made about the duties and responsibilities of
individual jobs as well as the manner in which the duties should be
carried out. Decisions made about the nature of jobs within the
organization are generally called "job design" decisions.
 Staffing involves the recruitment, selection, assignments, and
development of the various kinds of human resources required by the
organization.
 Leading involves influencing others toward the attainment of
organizational objectives.
 Effective leading requires the manager to motivate subordinates,
communicate effectively, and effectively use power. If managers are
effective leaders, their subordinates will be enthusiastic about
exerting effort toward the attainment of organizational objectives.
 Controlling involves ensuring that performance does not deviate from
standards.
 Controlling consists of three steps, which include establishing
performance standards, comparing actual performance against
standards, and taking corrective action when necessary. Performance
standards are often stated in monetary terms such as revenue, costs,
or profits, but may also be stated in other terms, such as units
produced, number of defective products, or levels of customer service.
Henry Mintzberg’s Managerial Roles
A. Interpersonal Roles: roles that involve coordination and interaction
with employees

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  Figurehead role: role which s assumed by managers when they
represent their respective units in the outside world in ceremonial and
civic activities. Managers expected to be a source of inspiration. People
look up to you as a person with authority, and as a figurehead.
 Leader role - is the role played by managers when they initiate and
coordinate activities in their units. Provide leadership for the team,
department or perhaps the entire organization.
 Liaison role: is needed by unit heads when they interact with persons in
other units within and outside the organizations. Managers need to be
able to network effectively on behalf of your organization.
B. Informational Roles: roles that involve handling, sharing, and analyzing
information
 Monitor or recipient role (receive information about the operation of
an enterprise) - Managers regularly seek out information related to your
organization and industry, looking for relevant changes in the
environment. You also monitor your team, in terms of both their
productivity, and their well-being.
 Disseminator role (passing information to subordinates) - This is where
you communicate potentially useful information to your colleagues and
your team.
 Spokesperson role (transmitting information to those outside the
organization) - Managers represent and speak for their organization. In
this role you're responsible for transmitting information about your
organization and its goals to the people outside it.
C. Decisional Roles: roles that require decision-making
 Entrepreneur role - As a manager, you create and control change within
the organization. This means solving problems, generating new ideas, and
implementing them.
 Disturbance handler role - When an organization or team hits an
unexpected roadblock, it's the manager who must take charge. You also
need to help mediate disputes within it.
 Resource allocator role - Managers need to determine where
organizational resources are best applied. This involves allocating
funding, as well as assigning staff and other organizational resources.
 Negotiator role - Manager may be needed to take part in, and direct,
important negotiations within your team, department, or organization.

Management Skills
Skill - An ability or proficiency in a specific area. It is to be expected that
managers would need equally varied capabilities and skills.
Robert Katz identified three managerial skills that are essential to successful
management:
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Nature and Concept of Management

 Technical skill involves process or technique knowledge and

proficiency. Managers use the processes, techniques and tools of a
specific area.
 Human skill involves the ability to interact effectively with people. It
involves motivating and disciplining employees, monitoring performance,
providing feedback, improving communication and instructing employees
 Conceptual skill is the ability to analyze complex information. It enables
managers to process information about the internal/external
environment of the organization and determine its implications.
Therefore, technical skill deals with things, human skill concerns people,
and conceptual skill has to do with ideas

References
Rodriguez, R.A., "Fundamentals of Management"
Wiehrich, H., Cannice, M.V., Koontz, H., "Management, A Global and
Entrepreneurial Perspective, 13th Ed."

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 Organization and Management
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Theories and Pioneering ideas in the Management

Theories and Pioneering ideas in the

Management
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.
Topic Outline
1. Basic management theories
2. Different viewpoints in management

Management Theories

Pre-classical Classical Behavioral Quantitative Contingency

Contributors Viewpoint Viewpoint Viewpoint Viewpoint

Scientific Early Management System

management behaviorist science theories

Bureaucratic Hawthorne Operations Contingency

management studies management theories

Administrative Human Management Emerging

management Relations information View
Movement System

Behavioral
science

Pre-classical Contributors
Robert Owen (1771-1858)
− Owen's strength was that he saw his employees as every bit as
important to the success of his enterprise as the machines he owned.
By examining working methods and conditions, and seeking to
improve these, he is justifiably claimed as a father of personnel
management.
Charles Babbage (1792-1871)

− is an English Mathematician, he is known as father of computer. Build the

first practical mathematical calculator and a prototype of modern
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 computer, predicted the specialization of metal work, suggested profit
sharing.
− Babbage's most successful book, On the Economy of Machinery and
Manufacturers, described the tools and machinery used in English
factories. It discussed the economic principles of manufacturing, and
analyzed the operations; the skills used and suggested improved practices.

Henry R. Twne (1844-1924)

− An american Mechanical Engineer and Business. His contribution
known as ealy systemize of management or an OUtline the importance
of management as a science and called for the development
management.
− Towne also published several papers and a book, Evolution of
Industrial Management, on the use of "gain sharing" to increase
worker productivity. In his last book Towne contrasted the status of
scientific management in 1886 and in 1921, noting the establishment
of industrial management courses, and crediting Frederick Taylor as
the apostle of the scientific movement.
SunTze 500 BC
− Chinese Military General, a strategist and philosopher. He is author of
The Art of War, a widely influential work of military strategy that has
impacted both Western and Easter philosophy.
−
Classical Viepoint
Frederick Winslow Taylor (1856-1915)
− Known as the Father of the Scientific Management. His primary
concern was to raise productivity and increase for workers, by
applying the scientific methods. His principles emphasize using
science, creating group harmony and cooperation, achieving
maximum output.
Henry Laurence Gantt (1861-1919)
− An American Engineer and Management Consultant. He is known for
for scientific selection of workers and “harmonious cooperation”
between labor and management. Developed the Gantt chart.
Max Weber (1864-1920)
− A German sociologist, preofessor, consultant and author. He
contribute the Theory of Buraeucracy.
− Weber's ideas of Bureaucracy:
 Specialization of labor
 Formal rules and procedures
 Impersonality
 Well-defined hierarchy
 Career advancement based on merit
Henry Fayol (1841-1925)
− A French Industrialist, and also an Engineer. He is knows as the Father
of Modern Management Theory. Recognized a widespread need for
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Theories and Pioneering ideas in the Management

principles and management and teaching. Formulates 14 principles of

management, such as authority and responsibility, unity of command,
scalar chain, and esprit de corps and so on.
Chester Irving Barnard
− An American, business executive, public administrator, and the author
of pioneering work in management theory and organizational studies.
− The Functions of the Executive (1938): The task of managers is
maintain a system of cooperative effort in a formal organization
− He suggested a comprehensive social systems approach to managing.
− Management theorist Chester Barnard believed organizations need to
be both effective and efficient.
Hugo Mȕnsterberg (1912)
− A German-American Psychologist. He was one of the pioneers in
application of psychology to industry and management
Mary Parker Follet
− An American, Social worker, Management Consultant, Philosopher
and pioneer in the fields of organizational theory and organizational
behavior. She advocated a “pull” rather than “push” approach to
employee motivation, differentiated between “power over” and
“power with” and postulated insightful ideas on negotiation, conflict
resolution and power sharing which helped shape modern
management theory.
Behavioral Viewpoint
Elton Mayo and F.J. Roethlishberger (1927-1932)
− The Hawthorne studies are a group of studies conducted at the
Hawthorne plant of the Western Electric Com. 1920s-1930s
− A behavioral approach concerned for the workers.
− To seeking greater efficiently: tool & methods

Abraham Maslow
− An American, his ideas knows as Maslow's Hierarchy of Needs.
Maslow's Hierarchy of Needs (Figure 2.2)

Self-actualization

Esteem

Love/belonging

Safety

Physiological

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  Self-actualization: truth, justice, wisdom, meaning
 Esteem: self-respect, achievement, attention, recognition,
reputation
 Social needs: friends, belonging, love
 Safety: living in safe area, medical insurance, job security,
financial reserve
 Physiological needs: food, shelter, air, water, nourishment,
sleep, etc.
Douglas MacGregor (1906-1964)
− Theory X and Theory Y
− Theory X : the assumption that employees dislike work, are lazy,
dislike responsibility, and must be coerced to performed.
− Theory Y: the assumption that employees like work, are creative, seek
responsibility, and can exercise self-direction.
Behavioral Science Approach
 Behavioral Science Approach is an extension of the Human Relations
Approach.
 It gave importance to attitudes, behavior and performance of
individuals and groups in the organizations.
Assumptions of Behavioral Science Approach
1. Organizations are socio-technical systems. The management must
integrate both the systems.
2. Work and interpersonal behavior of people in the organization is
influenced by many factors.
3. Employees are motivated not only by physiological needs but also by
social and psychological needs.
4. Different people have different perceptions, attitudes, needs and
values. These differences must be found out and recognized by
management.
5. In an organization conflicts are unavoidable.
6. Personal goals and Organizational goals must be joined together.
Quantitative Viewpoint
The quantitative approach involves the use of quantitative techniques to
improve decision making. This approach has also been labeled operations
research of management science. It includes applications of statistics,
optimization models, information models, and computer simulations.
Management Science (or Operational Research)
Management science (operational research) is an approach aimed at
increasing decision effectiveness through the use of sophisticated
mathematical and statistical methods.
Operations Management
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Operations Management is the function or field of expertise that is primarily

responsible for production and delivery of an organization’s products and
services.
Management Information System (MIS)
 It described as 'lives' in the space that intersects technology and business.
 MIS combines tech with business to get people the information they need
to do their jobs better/faster/smarter.
 MIS professionals work as systems analysts, project managers, systems
administrators, etc.
Contemporary Viewpoint
This school of thought or view about management includes those major ideas
about managing and organizations that have emerged since the 1950s. Some
of the ideas, systems theory for example, are rooted in experience gained
during World War II.
The system theory
The system theory approach is based on the notion that organizations can
be visualized as systems of interrelated parts or subsystems that operate as a
whole in pursuit of common goals.
Contingency Approach
Contingency approach managerial practice depends on circumstances.
Contingency theory recognizes the influence of given solutions on
organizational behavior patterns.
Emerging View
Concepts and practices are shaping today's management and changing the
way that manager do their jobs:
1. Globalization
2. Entrepreneurship
3. Managing in an E-Business World
4. Need for Innovation and Flexibility
5. Quality Management Systems
6. Learning Organization and knowledge management
7. Theory Z : William Ouchi's
A. Globalization
Organizational operations no longer stop at geographic borders.
Managers in all types and sizes of organizations are faced with the
opportunities and challenges of globalization.
B. Entrepreneurship

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 Refers to the process whereby an individual or a group of individuals
uses organized efforts and means to pursue opportunities to create value
and grow by fulfilling wants and needs through innovation and
uniqueness.
C. Managing in an E-Business World.
1. E-business (electronic business): a comprehensive term describing
the way an organization does its work by using electronic (Internet-
based) linkages with key constituencies in order to efficiently and
effectively achieve its goals.
2. E-commerce (electronic commerce): is any form of business exchange
or transaction in which the parties interact electronically.
D. Need for Innovation and flexibility
 The constant flow of new ideas is crucial for an organization to avoid
obsolescence or failure.
 Flexibility is valuable in a context where customers needs may change
overnight, where new competitors come and go, and where
employees and their skills are shifted as need from project to project.
E. Quality Management System
 Total Quality Management is a philosophy of management that is
driven by customer needs and expectations and focuses on continual
improvement in work processes.
 TQM was inspired by a small group of quality experts, of whom W.
Edwards Deming was one of the chief proponents. He has also
developed and presented his quality and theory of profound
knowledge.
 TQM represents a counterpoint to earlier management theorists who
believed that low costs were the only road to increased productivity.
 The objective of TQM is to create organization committed to
continuous improvement.
F. Learning organizations and knowledge management.
Managers now must deal with an environment that is continually
changing. The successful organizations of the 21th century will be
flexible, able to learn and respond quickly, and be led by managers who
can effectively challenge conventional wisdom, manager the
organization's knowledge base, and make needed changes.
1. A learning organization is one that has developed the capacity to
continuously adapt and change.
2. Knowledge management involves cultivating a learning where
organizational members systematically gather knowledge and
share it with others to achieve better performance.
G. Theory Z: William Ouchi's
Theory A combines positive aspects of American and Japanese
management into a modified approach aimed at increasing managerial
effectiveness while remaining compatible with the norms and values of
society and culture.
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References
Rodriguez, R.A., "Fundamentals of Management"
Wiehrich, H., Cannice, M.V., Koontz, H., "Management, A Global and
Entrepreneurial Perspective, 13th Ed."
www.wikipedia.com

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 Organization and Management
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The Firm and It’s Environment

The Firm and its Environment

The purpose of this lesson is to help the student gain a better understanding
of the relationship between the firm and its environment with particular
emphasis on firms manage that relationship. In this lesson we analyze the
various environmental forces affecting the firm and summarize these using
Political Economic Social and Technological Analysis (PEST) and we also
discuss the Internal environment using the Strengths, Weaknesses,
Opportunities and Threats (S.W.O.T).
Topic Outline:
1. Environmental forces and environmental scanning
2. The local and international business environment of the firm
3. Phases of economic organizations
4. Forms of Business Organization

"The pessimist complains about the wind, the optimist expects it to change;

The realist adjusts the sail"

-William A. Ward-

What is an Organizational Environment?

The impact of the external environment on manager's actions and behaviors
cannot be overemphasized. There are forces in the environment that play a
major role in shaping manager's endeavors. The environment is defined as
outside institutions and forces outside the organization that potentially affect
an organization's performance.
Types of Environment

The organization works within the framework provided by various elements

of society.
 The elements which lie outside the organization are called external
environment or simply as environment.
 The organization may create an environment internal to it which affects
the various subsystems of the organization.

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  Organizational environments are composed of forces or institutions
surrounding an organization that affect performance, operations, and
resources. It includes all of the elements that exist outside of the
organization's boundaries and have the potential to affect a portion or all
of the organization.
 The organization needs to properly understand the environment for
effective management.

Factors Controlling Organizational Environment

The different environmental factors that affect the business can be broadly
categorized as internal and has its own external factors.

Figure 3.1
EXTERNAL ENVIRONMENT
− include all those factors which exists outside the firm and are often
regarded as uncontrollable.. These external forces can further be
categorized as:
1. General Environment(Macro)
2. Task Environment (Micro)

A. General Environment
− The general environment - The general environment or macro-
environment is all those forces affecting the organization indirectly.
These external forces are:
1. POLITICAL FACTORS: The political factors are related to the
management of public affairs and their impact on the business. It is
important to have a political stability to maintain stability in the trade.
Inclusive of government regulations, laws, policies and activities
designed to influence organizational performance in an indirect way.

2. ECONOMIC FACTORS: Economic factors includes economic conditions

and economic policies that together constitutes the economic
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The Firm and It’s Environment

environment. These includes growth rate, inflation, restrictive trade

practices etc. Which have a considerable impact on the business.

3. SOCIAL, CULTURAL, DEMOGRAPHIC FACTORS : Social factors includes

the society as a whole alongside its preferences and priorities like the
buying and consumption pattern, beliefs of people their purchasing
power, educational background etc. Demographical factors include:
size of the population, population growth rate, age composition,
ethnic composition, density of population, family size, and income
level. These have very significant implications on business.

4. TECHNOLOGICAL FACTORS: Latest technologies helps in improving

the marketability of the product plus makes it more consumer
friendly. Therefore, it is important for a business to keep a pace with
the changing technologies in order to survive in the long run.

B. Task Environment
The task environment is inclusive of those sectors that have a direct
working relationship with the organization. Critical variables in the tasks
environment are:

1. CUSTOMER: Customers are the final purchasers of a good or service.

 A study of customers will help managers determine what the
customers’ needs are and wants to be satisfied.
 Analysis of customer profiles allows the organization to develop it
organizational strategy and structure in order to deliver a
particular good or service that best suits the needs of the
customer.

2. SUPPLIERS: Suppliers are those people who are responsible for

supplying necessary inputs to the organization and ensure the smooth
flow of production.
 Suppliers pricing strategy does affect the organization's level of
revenue earned.

3. LABOR: Labor markets include the people available for hire.

 well-trained, skilled, and knowledgeable personnel.
 highly competitive that increases the overall performance of the
organization.

4. COMPETITORS: Competitors can be called the close rivals and in

order to survive the competition one has to keep a close look in the
market and formulate its policies and strategies as such to face the
competition.

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 INTERNAL ENVIRONMENT
− Is composed of the elements within the organization, including current
employees, management, and especially corporate culture, which defines
employee behavior

Internal factors are those factors which exist within the premises of an
organization and directly affects the different operations carried out in a
business.

1. VALUE SYSTEM: It implies the culture and norms of the business. In

other words, it means the regulatory framework of a business and
every member of the organization has to act within the limits of this
framework.

2. MISSIONS AND OBJECTIVES: Different priorities, policies and

philosophies of a business is guided by the mission and objectives of a
business.

3. FINANCIAL FACTORS: Financial factors like financial policies, financial

position and capital structure also affects a business performance and
its strategies.

4. INTERNAL RELATIONSHIP: Factors like the amount of support the top

management enjoys from its shareholders, employees and the board
of directors also affects the smooth functioning of a business.

SWOT Analysis

Figure 3.2
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The Firm and It’s Environment

SWOT is a structured planning tool that can be used to evaluate the

Strengths, Weaknesses, Opportunities, and Threats involved in running a
business venture.
 Using a SWOT analysis can be used to help a business determine the
advantages or disadvantages of changes they want to make based on
internal and external factors.
Strengths
 Characteristics of the business or a team that give it an advantage over
others in the industry.
 Positive tangible and intangible attributes, internal to an organization.
 Beneficial aspects of the organization or the capabilities of an
organization, process capabilities, financial resources, products and
services, customer goodwill and brand loyalty.
 Examples - Abundant financial resources, Well-known brand name,
Economies of scale, Lower costs [raw materials or processes], Superior
management talent, Better marketing skills, Good distribution skills,
Committed employees.

WEAKNESSES
 Characteristics that place the firm at a disadvantage relative to others.
 Weaknesses detract the organization from its ability to attain the core
goal and influence its growth.
 Weaknesses are the factors which do not meet the standards we feel they
should meet. However, weaknesses are controllable. They must be
minimized and eliminated.
 Examples - Limited financial resources, Weak spending on R & D, Very
narrow product line, Limited distribution, Higher costs, Out-of- date
products / technology, Weak market image, Poor marketing skills,
Limited management skills, Under- trained employees.

OPPORTUNITIES
 Chances to make greater profits in the environment - External attractive
factors that represent the reason for an organization to exist & develop.
 Opportunities arise when an organization can take benefit of conditions
in its environment to plan and execute strategies that enable it to become
more profitable.

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  Organization should be careful and recognize the opportunities and grasp
them whenever they arise.
 Examples - Rapid market growth, Rival firms are complacent, changing
customer needs/tastes, new uses for product discovered, Economic
boom, Government deregulation, Sales decline for a substitute product.

THREATS
 External elements in the environment that could cause trouble for the
business - External factors, beyond an organization’s control.
 Threats arise when conditions in external environment jeopardize the
reliability and profitability of the organization’s business.
 Compound the vulnerability when they relate to the weaknesses. Threats
are uncontrollable. When a threat comes, the stability and survival can be
at stake. Examples - Entry of foreign competitors, Introduction of new
substitute products, Product life cycle in decline, Changing customer
needs/tastes, Rival firms adopt new strategies, Increased government
regulation, Economic downturn.

International Business
The international business environment can be defined as the
environment in different sovereign countries, with factors exogenous to the
home environment of the organization, influencing decision-making on
resource use and capabilities.
 The buying and selling of the goods and services across the border.
 The national border are crossed by the enterprises to expand their
business activities like manufacturing, mining, construction, agriculture,
banking, insurance, health, education, transportation, communication and
so on.
Differences between Domestic and International Business
 Difference in currencies
 Difference in natural and geographical conditions
 Mobility of factors of production
 Sovereign political entities
 Imposition of tariffs and customs duties on imports and exports;
 Quantitative restrictions like quotas;
 Exchange control;
 Imposition of more local taxes etc.
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The Firm and It’s Environment

 Different legal systems

Importance of International Business Environment

 Helps in expansion: Geographic expansion may be used as a business
strategy. Even though companies may expand their business at home.
 Helps in managing product life cycle: Every product has to pass
through different stages of product life cycle-when the product reaches
the last stages of life cycle in present market, it may get proper response
at other markets.
 Technology advantages: Some companies have outstanding technology
advantages through which they enjoy core competency. This technology
helps the company in capturing other markets.
 New business opportunities: Business opportunities in overseas
markets help in expansion of many companies. They might have reached
a saturation point in domestic market.
 Proper use of resources: Sometimes industrial resources like labor,
minerals etc. are available in a country but are not productively utilized.
 Availability of quality products: When markets are open, better quality
goods will be available everywhere. Foreign companies will market latest
products at reasonable prices. Good product will be available in the
markets.
 Earning foreign exchange: International business helps in earning
foreign exchange which may be used for strategic imports.
 Helps in mutual growth: Countries depend upon each other for meeting
their requirements. Philippines depends on gulf countries for its crude oil
supplies.
 Investment in infrastructure: International business necessitates
proper development of infrastructure.

Role of Business in Relation to the Economy

Business has hugely important impacts on a country’s economy. Simply it is
the main economic engine for the country.
The following are the most important roles of businesses in the economy:
 Jobs – Businesses create jobs. The economy of the country directly is
depends upon the employment provided by big and small businesses.
 Tax revenue - Businesses pay taxes to the government and allows the
government to function on the tax collected from them.

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  Efficient circular flow of the economy - Businesses are a very
important part of the circular flow of any market economy. They buy
resources from households in the resource market and sell to households
in the product market.
 Controlling inflation – Businesses improve economic sustainability and
it can help to control inflation.
 Economic growth - Businesses also allow the economy to work more
efficiently. When businesses compete with one another, they improve
their efficiency and help the economy grow. They also help the economy
grow through innovations.
 Reduced Social welfare system – Businesses generate wealth for
employees and business owners. As consequence it will reduce social
welfare systems.
 Increase standard of living/Quality of life – Businesses increase
employment and circulation of money in the society. When people have
higher income, they tend to have higher standard of living.
 Decrease poverty rate - Businesses employ people, provide income to
the working population. They generates employment at all levels across
the country.

Economic Development
− Economic development refers to process of change in the overall
economic activity.
Three core values serve as standards of development.
1. Sustenance
 Meet basic necessities such as food, clothing, and shelter,
 Citizens have enough or more than enough for their basic necessities,
 There is growth of income;
 Extreme poverty is addressed;
 There is equality among members of society.
2. Self-esteem
 The quality of life is good when there is respect, trust, and self-value.
 A person's worth as an individual cannot simply be measured by the
ownership of material things which is often given emphasis by
progressive capitalist countries such as the United States.
 In the Philippines, material wealth is not the only important thing but
the love for one's family, the family's reputation, and a person's
dignity and self-esteem. A country is developed if this unique need of
the people is addressed.
3. Freedom from Servitude
 This freedom is drawn from liberation from oppressive systems in
society, poverty and abuse, slavery, ignorance, and the absence of the
freedom to choose one's culture or religion. This freedom can be seen
in the range of choices in a society.
 Organization and Management
9
The Firm and It’s Environment

 In general, freedom prevails if people live a comfortable life, if they

have the freedom to choose their religion, to vote and to express their
opinion about administration and governance, and if they enjoy eq ual
opportunities for education and employment.

Stages of Economic Development

High mass
consumption

Drive to maturity

Take-off

Pre-conditions
for take-off
Traditional
society

Figure 3.3 – Rostow's Economic Development Model

.
Walt Rostow took an historical approach in suggesting that developed
countries have tended to pass through 5 stages to reach their current degree
of economic development.
Five (5) Stages of Economic Development
1. Traditional society. This is an agricultural economy of mainly
subsistence farming, little of which is traded. The size of the capital stock
is limited and of low quality resulting in very low labor productivity and
little surplus output left to sell in domestic and overseas markets
2. Pre-conditions for take-off. Agriculture becomes more mechanized and
more output is traded. Savings and investment grow although they are
still a small percentage of national income (GDP). Some external funding
is required - for example in the form of overseas aid or perhaps
remittance incomes from migrant workers living overseas
3. Take-off.Manufacturing industry assumes greater importance, although
the number of industries remains small. Political and social institutions
start to develop - external finance may still be required. Savings and
investment grow, perhaps to 15% of GDP. Agriculture assumes lesser
importance in relative terms although the majority of people may remain
employed in the farming sector. There is often a dual economy apparent
with rising productivity and wealth in manufacturing and other
Course Module
 industries contrasted with stubbornly low productivity and real incomes
in rural agriculture.
4. Drive to maturity. Industry becomes more diverse. Growth should
spread to different parts of the country as the state of technology
improves - the economy moves from being dependent on factor inputs for
growth towards making better use of innovation to bring about increases
in real per capita incomes
5. Age of mass consumption. Output levels grow, enabling increased
consumer expenditure. There is a shift towards tertiary sector activity
and the growth is sustained by the expansion of a middle class of
consumers.

Forms of Business Organization

1. Sole Proprietorship
− is the simplest form of business. It is owned by an individual who has full
control/authority of its own and owns all the assets, as well as personally
answers all liabilities or losses. The fact that it is run by the individual
means that it is highly flexible and the owner retains absolute control
over it.
Advantages:
 Less regulations by government in operating decisions
 Less conflict and disagreements in manner of management
 Easier to increase or decrease capital; hence, greatest flexibility in
decision making
 Best suited for small business
 Tax rate is lower than that of the corporate form or partnership
form
Disadvantages:
 Unlimited liability of owner
 Limited capital
 Limited management expertise especially if there are no other
professional managers
2. Partnership
− is defined in Articles 1767 to 1867 of the Civil Code of the Philippines as
“a contract whereby two or more persons bind themselves to contribute
money, property, or industry into a common fund with the intention of
dividing profits among themselves.

Advantages:
 easy to organize
 unlimited liability
 Organization and Management
11
The Firm and It’s Environment

 huge resources
 better management
 better distribution of profits
Disadvantages:
 Unlimited liability of the partners
 Partners are solidarity liable
 It lacks stability
 Conflict arise
Classification of Partnership
 General partner - one whose liability extends to his separate
property
 Limited partner - one whose liability is limited to his capital
contribution
 Managing partner - one who manages the affairs of the
partnership.
 Industrial partner - one who contributes service only.
3. Corporation
− is an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly
authorized by law or incident to its existence A business’s organizational
structure influences issues, legal issues, financial concerns, and personal
concerns.
Advantages of a corporation
 Generally inexpensive to register.
 All members must be active in the co-operative.
 Members have an equal vote at general meetings regardless of
their level of investment or involvement.
 Other than directors, members can be aged under 18 years. These
members cannot stand for office and don’t have voting rights
Disadvantages of a corporation
 As co-operatives are formed to provide a service to members
rather than a return on investment, it may be difficult to attract
potential members seeking a financial return.
 There is usually limited distribution of profits to members and
some co-operatives may prohibit the distribution of any surplus.
 Members providing greater involvement or investment than
others will still only get one vote.
 Requires ongoing education programs for members.

Course Module
References
Rodriguez, R.A., "Fundamentals of Management"
Wiehrich, H., Cannice, M.V., Koontz, H., "Management, A Global and
Entrepreneurial Perspective“
 Organization and Management
1
Planning 1

Planning 1

In this lesson we will discuss about Planning and Decision Making. The focus
of our discussion is understanding what managerial planning is, we also
identify and analyze the various types of plans and show how they relate to
each other. The discussion will move to the logical steps in planning and see
how these steps are essentially a rational approach to setting objectives and
selecting the means of reaching them. Continuation of the Planning topics
will be discussed in the next session Planning and Decision Making Part 2.
Topic Outline:
 Definition and Nature of Planning
 Types of Plans
 Planning at different levels in the firm

Definition
Planning
− involves selecting missions and objectives as well as the actions to
achieve them, which requires decision making that is, choosing a course
of action from among alternatives.
 Planning is choosing a goal and developing a method of strategy to
achieve that goal.
 Planning bridges the gap from where we are to where we want to go.
 Planning helps management pull the individual to achieve common
goals by provision of well-defined objectives.
 Planning is first and foremost function of management.

Benefits of Planning
Provide Direction: What the organization want to accomplish and how to
reach the establish/sited goals. By planning a clear direction comes that to be
follow, in order to reach and achieve goal.
Reduce Uncertainty: Planning reduce uncertainty by look ahead to
anticipate changes.
• Manager can estimate their consider impact of changes and then they can
develop response to these changes.
Minimizes waste and redundancy: When work activities are coordinated
around established plans redundancy can be minimized.
Course Module
 Provide ability in controlling: Planning helps in controlling and monitoring
the work that either this works is on its right path or not.

Types of Plans
A. Mission or Purpose
The basic purpose or function or tasks of an enterprise or agency or any
part of it.
 In every social system, enterprises have a basic function or task
assigned to them by society.
 Synergy means that the whole is greater than its parts.

B. Objectives and goals

Objectives, or goals are the ends toward which activity is aimed.

 They represent not only the end point of planning, but also the end
toward which organizing, staffing, leading, and controlling are aimed.
 Short term goals are a means to achieve long term goals.
 Verifiable Objectives means at the end of the period it should be
possible to determine whether or not objective has been achieved.
C. Strategies
Strategy is the determination of the basic long-term objectives of an
enterprise and the adoption of courses of action and allocation of
resources necessary to achieve these goals.
D. Policies
Policies are general statements or understandings that guide or channel
thinking in decision making. Policies are, at times, expressions of the
company culture and practices that involved over time.
Example of Policies are:
 Customer policy: Merchandise can be returned by customers
within one week from the date of purchase.
 Personnel policy: Promote from within starting a specific level.
o New hires should not be first-degree relatives of present
employees.
 Pricing policy: Fixed-price policy
 Minimum Cash balance: All funds in excess of a specified minimum
cash balance should be invested in marketable securities.
Policies are usually contained in memos or, more frequently, in
company manuals.
E. Procedures
Procedures are Plans that establish a required method of handling future
activities.
Procedures are guides to action, rather than to thinking, and they detail
the exact manner in which certain activities must be accomplished.
F. Rules
 Rules spell out specific required actions or non-actions, allowing no
discretion.
 Organization and Management
3
Planning 1

 Rules are usually the simplest type of plan.

 Rules are different from policies. While policies are meant to guide
decision making by marking off areas in which managers can use their
discretion, rules allow no discretion in their application.
Example of rules:
 Customer's Refund: No refund will be given for returned
merchandise if, invoice is not returned by the customer.
 Uniform Rule: Employees not in uniform will not be allowed to
render service during the day.
 Gate pass: Equipment brought out of company premises must be
accompanied by a gate pass.
G. Programs
Programs are a complex of goals, policies, procedures, rules, task
assignments, steps to be taken, resources to be employed, and other
elements necessary to carry out a given course of action.
 Programs are ordinarily supported by budgets.
 Budgets
Budget is a statement of expected results expressed in numerical terms.
 Budget may be called a “quantified” plan. In fact the financial
operating budget is often called a Profit plan.
Steps in Planning
Figure 4.1 – Steps in Planning
The practical steps listed below, and diagramed in Figure 4.1, are of general
application. In practice, however, one must study the feasibility of possible
courses of action at each stage.
The practical steps listed below, and diagramed in Figure 4.1, are of general
application. In practice, however, one must study the feasibility of possible
courses of action at each stage.
1. Being aware of opportunities:
This activity involves collecting and analyzing relevant external
information which define opportunities or threat to the firm's business.
Include the following:
 Time market
 Competition
 What customers want
 Our strengths
 Our weaknesses

Course Module
2. Establishing objectives
The second step in planning is to establish objectives for the entire
enterprise and then for each subordinate work unit.
 Determine where we want to be and what we want to accomplish and
when
3. Developing Premises
By considering planning premises: In what environment (internal or
external) –will our plan operate?
Premises: Assumptions about the environment in which the plan is to be
carried out.
Principle of Planning premises: the more thoroughly individuals charged
with planning understand and agree to utilize consistent planning premises,
the more coordinated enterprise planning will be.

Planning Premises

External Variables:
- the rate of growth of the economy and/or the industry
- the rate of inflation and its expected impact costs and prices
- the continuance or discontinuance of certain government policies which have a
favorable or unfavorable impact on the operations of the firm (i.e., high interest
rates).
- the expected market strategies of key competitors.

Internal Variables
- the level of internally generated funds to support investments
- the level of labor productivity in the company's factories.
- the company's total staffing level.
- the continuance of certain operating policies (i.e., rate if dividend, choice of
production technology, supply source, etc.)

4. Determining alternative courses

The fourth step in planning is to search for and examine alternative courses
of action, especially those not immediately apparent. There is seldom a plan
for which reasonable alternatives do not exist, and quite often an alternative
that is not obvious proves to be the best.

5. Evaluating alternative courses

After seeking out alternative courses and examining their strong and weak
points, the next step is to evaluate alternatives by weighing them in light of
premises and goals. One course may appear to be the most profitable but
may require a large cash outlay and have a slow payback; another may look
 Organization and Management
5
Planning 1

less profitable but may involve less risk; still another may better suit the
company’s long-range objectives.
6. Selecting a course
This is the point at which the plan is adopted - the real point of decision
making. An analysis and evaluation of alternative courses will disclose that
two or more are advisable, and the manager may decide to follow several
courses rather than the one best course.
7. Formulating derivative plans
When a decision is made, planning is seldom complete, and a seventh step is
indicated. Derivative plans are almost invariably required to support the
basic plan.
8. Quantifying plans by budgeting
After decision are made and plans are set, the final step in giving them
meaning , as was indicated in the discussion on types of plans, is to quantify
them by converting them into budgets. The overall budget of an enterprise
represents the sum total of income and expenses, with resultant profit or
surplus, and the budgets of major balance sheet items such as cash and
capital expenditures. Each department or program of a business or some
other enterprise can have its own budgets, usually of expenses and capital
expenditures, which tie into the overall budget.

Planning at Different Levels in the Firm

Course Module
 Front Level
Middle Lower Level Management
Top management
Management Management

Corporate Strategic Long-term Formal

planning Planning planning planning

Functional Operational Short-term Informal

planning planning planning planning

Figure 4.2
Planning activity and the responsibility for planning at different levels in the firm.
The scope or coverage of the plans, i.e., whether it covers to the whole firm, a
department or other subunit, or just one individual, generally depends on the level
in the organization at which the planning occurs. At the top management levels, plan
generally covers the whole firm. At the middle or sub-unit levels, the plans may
cover only particular sections or departments.
Corporate Planning
 Corporate Planning denotes planning activities at the top level and cover
the entire organizational activities.
 Determine the long-term objectives.
 Generate plans to achieve the objectives bearing in mind the probable
changes in environment.
 Corporate planning includes:
 The setting of objectives
 Organizing the work, people, and systems to enable those objectives
to be attained.
 Motivating through the planning process of the plan and developing
Functional Planning
 Functional planning is segmental and it is undertaken for each major
function of the organization like:
 Production/operation,
 Marketing, finance,
 Human resource/personnel etc.
 At the second level, functional planning is undertaking for sub-functions
within each major function.
Strategic Planning
 Deciding on objectives of the organization,
 Organization and Management
7
Planning 1

 Deciding on changes on these objectives;

 Deciding on the resources used to attain these objectives;
 Policies that manage the acquisition, use and disposition of these resources.

Operational Planning
 Deciding the most effective use of the resources already allocated
 To develop a control mechanism to assure effective implementation of the
actions.
Long-term Planning
 Long-term plans usually cover all the functional areas of the business and are
affected within the existing and long-term framework of economic, social,
and technological factors.
 Analysis of environmental factors, particularly with respect to how the
organization relates to its competition and environment.
Short-term Planning
 These plan are aimed at sustaining organization in its production and
distribution of current products or services to the existing markets.
Proactive and reactive Planning
 Proactive planning involves designing suitable courses of action in hope of
likely changes in the relevant environment.
 Reactive planning are organizations responses come after the environmental
changes have taken place.
Formal and Informal Planning
 Formal planning is the form of well-structured process involving different
steps.
 Informal planning process is based on managers memory of events,
perception, and got feeling rather than based on systematic evaluation of
environmental happenings.

References
Rodriguez, R.A., "Fundamentals of Management"
Wiehrich, H., Cannice, M.V., Koontz, H., "Management, A Global and
Entrepreneurial Perspective, 13th Ed."

Course Module
 Organization and Management
1
Planning and Decision Making 2

Planning and Decision Making 2

In today's business world is quiet tough as trends and preferences of

customers are constantly changing. In addition, rapidly growing of
technology have greatest impact to changes aligning of the business
strategies. An underlying theme of discussing strategic management or the
tools and techniques of business planning can lead to high organizational
performance.
Topic Outline:
1. Strategic Management
2. Planning techniques and tools
3. Application of tools and techniques
4. Decision making

Strategic Management
Strategic Management
− is the process through which managers formulate and implement
strategies geared to optimizing goal achievement, given available
environmental and internal conditions.
− set of managerial decisions and actions that determines the long-run
performance of an organization. It entails all of the basic management
function-planning, organizing, leading, and controlling.
Purpose of Strategic management
 exploit and create new and different opportunities for tomorrow;
 long-range planning, in contrast, tries to optimize for tomorrow the
trends of today.
Strategic Management is important to organizations because it
1. helps organizations identify and develop a competitive advantage, a
significant edge over the competition in dealing with competitive
forces.
2. Provides a sense of direction so that organization members know
where to expend their efforts.
Strategy
The determination of the mission or purpose and the basic long-term
objectives of an enterprise, followed by the adoption of courses of action and
allocation of resources necessary to achieve these aims.

Course Module
Strategic Planning Process
Stages in planning process:
1. Strategy Formulation
2. Strategy implementation
3. Strategy evaluation
Strategy Formulation includes:
 developing a vision and mission,
 identifying an organization's external opportunities and threats,
 determining internal strengths and weaknesses,
 establishing long-term objectives,
 generating alternative strengths,
 choosing particular strategies to pursue.
Strategy Implementation requires the firm to establish annual objectives,
devise policies, motivate employees, and allocate resources so that
formulated strategies can be executed. These are:
 developing a strategy-supportive culture,
 creating an effective organizational structure
 redirecting marketing efforts,
 preparing budgets,
 developing and utilizing information systems,
 linking employee compensation to organizational performance.
Strategy Evaluation is the final stage in strategic planning. Managers need
to know when particular strategies are not working well, strategy evaluation
is the primary means for obtaining this information.
Three fundamental strategy evaluation activities are constantly changing:
1. reviewing external and internal factors that the bases for current
strategies,
2. measuring performance;
3. taking corrective actions.
Strategy evaluation is needed because success today is no guarantee of
success tomorrow.
Strategic planning is a process undertaken by an organization to develop a
plan for achievement of its overall long-term organizational goal.
 Organization and Management
3
Planning and Decision Making 2

Mission & Objectives

Environmental Scanning

Strategy Formulation

Strategy Implementation

Evaluation & control

A. Mission and Objectives

 Every organization needs a mission, which defines the purpose of the
organization. What is the organization's reason for being in business?
 It's also important to identify the organization's current objectives
and strategies, as well.
B. Environmental Scanning
 It is important to analyze the environment because, it defines
management's strategic option.
 The environmental scanning includes the following components:
o Internal analysis of the firm
o Analysis of the firm's industry (task environment)
o External macro environment (PEST analysis)
C. Strategy Formulation
 Given from the environmental scan, the firm should match its
strengths to the opportunities that it has identified, while addressing
it weaknesses and external threats.
 To attain superior profitability, the firm seeks to develop a
competitive advantage over its rivals.
 A competitive advantage can be based on cost or differentiation (or
formulating strategy such as (Michael Porter's Strategy)
D. Strategy Implementation
 The selected strategy is implemented by means of programs, budgets,
and procedures.
 Implementation involves organization of the firms' resources and
motivation of the staff to achieve objectives.
E. Evaluation & Control

Course Module
 The implementation of the strategy must be monitored and adjustments
made as needed. Evaluation and Control consists of the following steps:
Evaluation and control consists of the following steps:
1. Define parameters to be measured
2. Define target values for those parameters
3. Perform measurements
4. Compare measured results to the pre-defined standard
5. Make necessary changes.
Major Planning Tools and Techniques
The planning tools and techniques that managers use are identified and
described below:
A. FORECASTING: is the process of developing assumptions about the future
that relevant to the predicted level of certain planning variables (i.e.,
company future sales).
 Qualitative forecasting uses expert opinions.
 Quantitative forecasting uses mathematical and statistical analysis.
 All forecast rely on judgment.
 Planning involves deciding on how to deal with the implications of
a forecast.
B. CONTINGENCY PLANNING: involves identifying alternative courses of
action that can be implemented, if and when an original plan proves
inadequate because of changing circumstances.
 Contingency plans anticipate changing conditions.
 Contingency plans contains trigger points.
C. SCENARIO PLANNING: is a long-term version of contingency planning
that involves identifying several alternative future scenarios or states of
affairs that may occur, and then making plans to deal with each scenario
should it actually occur.
 Plans made for each future scenario. Increases organization’s
flexibility and preparation for future shocks.
D. BENCHMARKING: is a technique that makes use of internal and external
comparisons to better evaluate current performance and identify possible
actions to improve the future. Adopting best practices of other
organizations that achieve superior performance.
E. BRAK-EVEN ANALYSIS: this is one of the most widely used planning tools
in business. The technique can be used for analyzing the effect on profits
of different pricing strategies or different alternatives in incurring costs.
F. LINEAR PROGRAMMING: is a quantitative tools for determining the
optimal combination of resources and activities. it can be used for
production scheduling, allocation of marketing personnel to territories or
allocation of production inputs to produce an item at minimum cost.
G. SIMULATION MODEL: are mathematical representations of some aspect
of a business operation. Simulation models are used when the planning
variables, as well as their interrelationships, are so numerous and
complex that it is difficult to analytically assess the net effect of a change
in one or a number of the variables involved.
Simulation is useful in complex situations such as predicting product
demand considering the effect of changes in the pricing policies of
 Organization and Management
5
Planning and Decision Making 2

competitors, or the effect of a change in foreign exchange rate on

company profits considering changes in minimum wage and inflation
rates.
H. STAFF PLANNERS: are persons who take responsibility for leading and
coordinating the planning function for the total organization or one of its
major components.
Staff planners responsibilities include:
 – Assisting line managers in preparing plans.
 – Developing special plans.
 – Gathering and maintaining planning information.
 – Assisting in communicating plans.
 – Monitoring plans in progress and suggesting changes.

Participation and Involvement

Participatory planning requires that the planning process include people
who will be affected by the plans and/or will help implement them.
Benefits of participation and involvement:
 Promotes creativity in planning.
 Increases available information.
 Fosters understanding, acceptance, and commitment to the final plan.

Management by Objectives (MBO)

 MBO was first described by Peter Drucker and consists of four
elements:
o Goal specify
o Participative decision making
o Explicit time period
o Performance feedback
 MBO makes objectives operational through the process by which they
cascade down through the organization

Strengths of MBO
1. Aids coordination of goals and plans
2. Helps clarify priorities and expectations
3. Facilitates vertical and horizontal communications
4. Fosters employee motivation
Weaknesses of MBO
1. Tends to falter without strong continual commitment from top
management.
2. Necessities considerable training of managers
3. Can be misused as a punitive device.
4. May cause overemphasis of quantitative goals.

Course Module
MBO Process
1. Superior communicate to subordinate the higher organizational goals
and the expected subordinate accomplishments;
2. Superiors discuss with subordinate
3. Subordinates goals and both parties should agree on a set of
objectives.
4. Resources required to attain goals
5. Periodic reviews should be conducted to monitor performance and to
discuss reasons for deviations of actual performance from targets.
6. Manager or superior discusses evaluation of subordinate the reward
given or punishment.

Decision making
The selection of a course of action from among alternatives.
• Decision making is the core of planning. A plan cannot be said to exist
unless a decision-a commitment of resources, direction, or reputation-
has been made.
• In decision making process managers respond to opportunities and
threats by analyzing options, and making decisions about goals and
courses of action.
Decisions in response to opportunities:
Managers respond to ways to improve organizational performance.
Decisions in response to threats:
Occurs when managers are impacted by adverse events to the organization.

Types of Decision Making

Programmed (structured) Decision
• These decisions are made by operational managers.
• Used for structured or routine work.
• Managers have made decision many times before.
• There are rules or guidelines to follow.
• It involves operational issues and has a very short time effect.
Example: Deciding to reorder office supplies

Non-Programmed (Unstructured) Decision

• The decision are made by senior management.
• Used for unstructured, novel, and ill-defined situations of a nonrecurring
nature. It is a non routine type decision
• No rules to follow since the decision is new.
• These decisions are made based on information, and a manager’s
intuition, and judgment.
 Organization and Management
7
Planning and Decision Making 2

• It includes strategic issues and long term effect of decision.

Example: should the firm invest in a new technology?

• Semi-Programmed (Semi-Structured) Decision

• Decisions are made by middle management.
• It is both routine and non routine type decisions.
• Usually it gives a clear cut solution of a problem.
• There is both structured and unstructured procedure for decision
making.
Example: Allocate resources to managers; develop a marketing plan.

Decision Making Process Steps

Recognize Generate &

Frame the
need for asses
problem
decision alternatives

Implement
Choose among Learn from
chosen
alternatives feedback
alternative

1. Recognize need for a decision:

Managers must first realize the need for which a decision must be made.
2. Frame the problem:
Managers must frame problem for which decision is to be made.
3. Generate & assess alternatives
Generate alternatives: managers must develop feasible alternative cours es of
action.
 If good alternatives are missed, the resulting decision is poor.
 It is hard to develop creative alternatives, so managers need to look
for new ideas.
Evaluate alternatives: what are the advantages and disadvantages of each
alternatives?
 Managers should specify criteria, then evaluate.
4. Choose among alternatives
Managers rank alternatives and decides.
While ranking, all information needs to be considered.
Course Module
5. Implement chosen alternative
Managers must now carry out alternative.
 Often a decision is made and not implemented.
6. Learn from feedback
Managers should consider what went right and wrong with the decision and
learn for the future.
 Without feedback, managers never learn from experience and might
repeat the same mistake.

Evaluating Alternatives

Legal?

Ethical?

Economical?

Practical?

Figure 5.3

Is it legal? Managers must first be sure that an alternative is legal both in

this country and abroad for exports.
Is it ethical? The alternative must be ethical and not hurt stakeholders
unnecessarily.
Is it economically feasible? Can our organization’s performance goals
sustain this alternative?
Is it practical? Does the management have the capabilities and resources to
do it?

Cognitive Biases
− Suggest decision makers use heuristics to deal with bounded
rationality.
 A heuristic is a rule o thumb to deal with complex situations.
 If the heuristic is wrong, however, then poor decisions result from its
use
 Organization and Management
9
Planning and Decision Making 2

Sometimes when there seem to be too many alternatives to choose from,

managers rely on their own decision rules. These decision rules are called
heuristics, and they allow complex judgments to be made more simply.
Because of theses heuristics, decisions may vary with the characteristics or
biases of the decision maker. Individual biases are product of each decision
maker’s cognitive structures and are necessary to prevent decision makers
from becoming paralyzed when analyzing extensive data. The values and
cognitive biases of the organization’s top managers are seem in the
organization’s strategies and effectiveness.
Systematic errors can result from use of an incorrect heuristic.
 These errors will appear over and over since the rule used to make
decision is flawed.
Types of Cognitive Biases

Representativeness Illusion control

Escalating
Prior hypothesis
commitment

Cognitive
biases

Figure 5.4
 Prior hypothesis bias: manager allows strong prior beliefs about
a relationship between variables and makes decisions based on
these beliefs even when evidence shows they are wrong.
 Representativeness: decision maker incorrectly generalizes a
decision from a small sample or one incident.
 Illusion of control: manager over-estimates their ability to
control events.
 Escalating commitment: manager has already committed
considerable resource to project and then commits more even
after indicates problems.
Course Module
Three Approaches for Selecting and Alternative
When selecting from among alternatives, managers can use three basic
approaches:
1. Experience
Reliance on past experience probably plays a larger part than it deserves in
decision making. Experienced managers usually believe, often without
realizing it, that the things they have successfully accomplished and the
mistakes they have made serve as almost infallible guides to the future. This
attitude is likely to be more pronounced the more experience a manager has
had and the higher he or she has risen in an organization.
Relying on past experience as a guide for future action can be dangerous. In
the first place, most people do not recognize the underlying reasons for their
mistakes or failures. In the second place, the lessons of experience may be
entirely inapplicable to new problems. Good decisions must be evaluated
against future events, while experience belongs to the past.
On the other hand, if a person carefully analyzes experience, rather than
blindly following it, and if he or she distills from experience the fundamental
reasons for success or failure, then experience can be useful as a basis for
decision analysis. A successful program, a well-managed company, a
profitable product promotion, or any other decision that turns out well may
furnish useful data for such distillation. Just as scientists do not hesitate to
build upon the research of others and would be foolish indeed merely to
duplicate it, managers can learn much from others.

2. Experimentation
An obvious way to decide among alternatives is to try one of them and see
what happens. Experimentation is often used in scientific inquiry. People
often argue that it should be employed more often in managing and that the
only way a manager can make sure some plans are right— especially in view
of the intangible factors—is to try the various alternatives and see which is
best.
The experimental technique is likely to be the most expensive of all
techniques, especially if a program requires heavy expenditures of
capital
and personnel and if the firm cannot afford to vigorously attempt
several alternatives. Besides, after an experiment has been tried, there may
still be doubt about what it proved, since the future may not duplicate
the present. This technique, therefore, should be used only after
considering other alternatives.
On the other hand, there are many decisions that cannot be made until
the best course of action can be ascertained by experiment. Even
reflections on experience or the most careful research may not assure
managers of correct decisions. This is nowhere better illustrated than in the
planning of a new airplane.
An airplane manufacturer may draw from personal experience and that
of other plane manufacturers and new plane users. Engineers and
 Organization and Management
11
Planning and Decision Making 2

economists may make extensive studies of stress, vibration, fuel

consumption, speed, space allocation, and other factors. But all these studies
do not answer every question about the flight characteristics and
economics of a successful plane; therefore, some experimentation is
almost always involved in the process of selecting the right course to follow.
Ordinarily, a first-production, or prototype, airplane is constructed and
tested; and on the basis of these tests, production airplanes are made
according to a somewhat revised design.
Experimentation is used in other ways. A firm may test a new product in a
certain market before expanding its sale nationwide. Organizational
techniques are often tried in a branch office or plant before being applied
over an entire company. A candidate for a management job may be tested in
the job during the incumbent's vacation.

3. Research and analysis

One of the most effective techniques for selecting from alternatives when
major decisions are involved is research and analysis. This approach means
solving a problem by first comprehending it. It thus involves a search for
relationships among the more critical of the variables, constraints, and
premises that bear upon the goal sought. It is the pencil-and-paper (or,
better, the computer-and-printout) approach to decision making.
Solving a planning problem requires breaking it into its component parts and
studying the various quantitative and qualitative factors. Study and analysis
is likely to be far cheaper than experimentation. The hours of time and reams
of paper used for analyses usually cost much less than trying the various
alternatives. In manufacturing airplanes, for example, if careful research did
not precede the building and testing of the prototype airplane and its parts,
the resulting costs would be enormous.
A major step in the research-and-analysis approach is to develop a model
simulating the problem. Thus, architects often make models of buildings in
the form of extensive blueprints or three-dimensional renditions. Engineers
test models of airplane wings and missiles in a wind tunnel. But the most
useful simulation is likely to be a representation of the variables in a problem
situation by mathematical terms and relationships. Conceptualizing a
problem is a major step toward its solution. The physical sciences have long
relied on mathematical models to do this,
and it is encouraging to see this method being applied to managerial decision
making.
Decision Making Conditions
Decision Making under Certainty:
• Exact and complete information of the consequence of every decision
option.
Course Module
• Decision maker knows alternatives and their outcomes well.
Decision Making under Risk:
• Available alternatives and their consequences are known but risky.
• Alternatives are assessed by calculating the expected probability value of
their outcomes. The outcome with the maximum payoff is selected.
Decision Making under Uncertainty:
• Decision making is not aware of the risks or outcomes of the decision
alternatives.
• Decision making can use Max-Min or Max-Max criterion.
All intelligent decision makers dealing with uncertainty like to know the
degree and nature of the risk they are taking in choosing a course of action.
One of the deficiencies in using the traditional approaches of operations
research for problem solving is that many of the data used in a model are
merely estimates and others are based on probabilities. The ordinary
practice is to have staff specialists come up with "best estimates.“ Virtually
every decision is based on the interaction of a number of important variables,
many of which have an element of uncertainty but, perhaps, a fairly high
degree of probability. Thus, the wisdom of launching a new product might
depend on a number of critical variables: the cost of introducing the product,
the cost of producing it, the capital investment that will be required, the
price that can be set for the product, the size of the potential market, and the
share of the total market that it will represent.

Creativity and Innovation

• Creativity refers to the ability and power to develop new ideas.
• Innovation, on the other hand, usually means the use of these ideas.
An important factor in managing people is creativity. A distinction can be
made between creativity and innovation. The term creativity usually refers to
the ability and power to develop new ideas.
Innovation, on the other hand, usually means the use of these ideas. In an
organization, this can mean a new product, a new service, or a new way of
doing things.
Although this discussion centers on the creative process, it is implied that
organizations not only generate new ideas but also translate them into
practical applications.

The Creative Process

The creative process is seldom simple and linear. Instead, generally it
consists of four overlapping and interacting phases:
(1) unconscious scanning,
The first phase, unconscious scanning is difficult to explain because it is
beyond consciousness. This scanning usually requires an absorption in
the problem, which may be vague in the mind. Yet managers working
 Organization and Management
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Planning and Decision Making 2

under time constraints often make decisions prematurely rather than

dealing thoroughly with ambiguous, ill-defined problems.

(2) intuition,
The second phase, intuition, connects the unconscious with the conscious.
This stage may involve a combination of factors that may seem
contradictory at first. Intuition needs time to work. It requires that people
find new combinations and integrate diverse concepts and ideas. Thus,
one must think through the problem. Intuitive thinking is promoted by
several techniques, such as brainstorming.

(3) insight, and

Insight, the third phase of the creative process, is mostly the result of
hard work. For example, many ideas are needed in the development of a
usable product, a new service, or a new process. What is interesting is
that insight may come at times when the thoughts are not directly
focused on the problem at hand. Moreover, new insights may last for only
a few minutes, and effective managers may benefit from having paper and
pencil ready to make notes of their creative ideas.

(4) logical formulation.

, The last phase in the creative process is logical formulation or verification.
Insight needs to be tested through logic or experiment. This may be
accomplished by continuing to work on an idea or by inviting critiques from
others. Brown and Sloan's idea of decentralization, for example, needed to be
tested against organizational reality.

Building Group Creativity

There are different techniques for building group creativity:
Brainstorming: managers must face-to-face to generate and debate many
alternatives.
• Group members are not allowed to evaluate alternatives until all
alternatives are listed.
• Be creative and radical in stating alternatives.
• When all are listed, then the pros and cons of each are discussed and a
short list created.
Production blocking: is a potential problem with brainstorming.

Course Module
 • Members cannot absorb all information being presented during the
session and can forget their own alternatives.
Nominal group technique: provides a more structured way to generate
alternatives in writing.
• Avoids the production blocking problem.
• Similar to brainstorming except that each member is given time to first
write down all alternatives he or she would suggest.
• Alternatives are then read aloud without discussion until all have been
listed.
• Then discussion occurs and alternatives are ranked.
Delphi technique: provides for a written format without having all
managers meet face-to-face.
• Problem is distributed in written form to managers who then generate
written alternatives.
• Responses are received and summarized by top managers.
• These results are sent back to participants for feedback, and ranking.
• The process continues until consensus is reached.
Delphi technique allow distant managers to participate.

References:
Rodriguez, R.A., "Fundamentals of Management"
Wiehrich, H., Cannice, M.V., Koontz, H., "Management, A Global and Entrepreneurial
Perspective, 13th Ed."
John Schermerhorn's. Management 11th edition, (2010), John Wiley & Sons ISBN:
 Organization and Management
1
Organizing 1

Organizing 1

Organizing is the function of management that involves developing an

organizational structure and allocating human resources to ensure the
accomplishment of objectives. The structure of the organization is the
framework within which effort is coordinated.
In this lesson we will discuss the nature of organization and see how an
organization structures and their levels are due to the limitation of the span
of management.
Topic Outline:
 Nature of organizing
 Importance of organizing
 Organizational Structure
 Types of organization structures
 Advantages and disadvantages of specialization of labor

Nature of Organizing
What is organizing?
Organizing has been defined as the process of identifying activities needed to
accomplish a goal, subdividing and grouping these activities into meaningful
units, and assigning authority and responsibility to people for their
accomplishment.
Organizing is necessary and important function of Management.
Nature of Organizing
There are two essential Concepts regarding with Organizing:
A. Organization as a Process: The concept of organizing can be considered
as a process, because a large number of events or activities are done
under the process of organizing with-a-view to accomplish the preset
goals in an appropriate way. In fact, organizing involves division of works,
determination of activities, grouping of activities, delegation of authority
and the establishment of proper co-ordination and balance among
various departments of individuals towards the attainment of
predetermined goals. On the whole it is clear that the objectives of
business firm cannot be obtained by doing single activity, so organizing is
set to be a process.
B. Organization as a Structure of Relationship: Organization refers to a
structure of relationship due to involvement of a large number of groups.
Course Module
 In fact, under the process of organizing the relationship of departments to
departments, groups to groups and individuals to individuals are
analyzed carefully through the process of communication system with a
view to establish proper unity and co-ordination among them. So that
everyone can take initiative for the welfare of enterprise. Thus it is clear
that Organization can be considered as a structure of relationship.

Steps of organizing process

Organizing is a process of establishing work relation, flow o f work and
information and grouping of activities, identification of authority and
responsibility of employees in the organization. Various steps of organizing
process are as follows.
 Identification of tasks: all the relevant activities and tasks are identified.
Number of activities depends upon the objectives of the organization. It
should be done effectively such that no important activity is omitted or
repeated.
 Grouping jobs: Once all the activities are identified the next step is
grouping of the related jobs. This leads to set up of the departments and
divisions in the organization like production
department, finance department, marketing department, and personnel
department.
 Assigning work: When activities are divided among departments the
next step would be to appoint suitable persons for the various tasks.
Experts in their fields are appointed as appointed as heads of their
departments and for lower positions peoples are appointed.
 Delegation of authority: When some work is assigned to someone then
he must be given some authority to do that work effectively. Assigning
work and delegation goes parallel to each other. Assigning work without
proper authority is meaningless.
 Coordination: As all activities in organization are distinct but they are
interdependent so there must be coordination among the departments. In
absence of coordination ultimate goal of the organization will not be
achieved. Success of the organization is fully dependent on better
coordination between the different divisions and managers.

Importance of Organizing
 Facilitates Administration: Achievement of the objectives of an
enterprise by providing a framework of coordination and control. It
provides a system of authority and network for effective
communication. Individual goals can be coordinated towards group
goals. A properly balanced organization facilitated both management
and operation of the enterprise.
 Encourages Growth & Diversification: It has enabled organizations
to grow and expand to giant sizes. Systematic division of work and
consistent delegation of authority facilitate taking up of new activities
and meeting new demands. It provides flexibility for growth without
losing control over various activities.
 Organization and Management
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Organizing 1

 Optimum Use of New Technology: It is made through a sound

structure manned with competent employees. In addition, Optimum
use of technology permits optimum utilization of human resources.
Sound organization ensures that every individual is placed on the job
for which one is best suited.
 Stimulates Innovation & Creativity: It stimulates creative thinking
and initiative on the part of employees. It provides for effective
management of change and responds favorably to changes in
environment. It provides recognition for the professional and the
specialist in terms of their achievement.
 Encourages Good Human Relations: The assignment of right jobs to
right person improves job satisfaction and inter-personal relations.
Well-defined jobs and clear lines of authority and responsibility
ensure good human relations.
 Ensures Continuity of Enterprise: It provides scope for the training
and development of future management. It provides avenues for
development and promotions through delegation and
decentralization.
 Coordination: It facilitates order and cohesiveness in the enterprise.
Division of labor, better utility of technology and human talent helps
to improve the efficiency and quality of work. Clear channels of
communication among the members of the organization leads to
coordination.

What is Organization?
An organization is a collection of people who work together and coordinate
their actions to achieve a wide variety of goals.
 Organization is a formalized intentional structure of role or positions.
Organization Structure
 An organizational structure represents a series of activities such as task
allocation, coordination and supervision which helps to achieve
organization’s goals.
 A design of organization movement or blueprint
An organization structure should be designed to clarify who is to do what
tasks and who is responsible for what results in order to remove obstacles to
performance caused by confusion and uncertainty of assignment and to
furnish decision-making and communication networks reflecting and
supporting enterprise objectives.

Course Module
Organizational Chart

President
(Name)

VP- VP-
Marketing Production

Manager Manager Manager

Supervisor Supervisor Supervisor

Staff Staff Staff

Figure 6.1
Organizational Chart is a diagrammatic representation of organization
structure show names designation functions of personnel in the organization.

Span of Control (Management)

Span of management defines clearly the number of the subordinates can be
effectively control by the manager. Figure 6.2

Manager

Assist 1 Assist 2 Assist 3 Assist 4 Assist 5 Assist 6 Assist 7

Common of control 7
• The number of people who report to one manager in a hierarchy.
• The more people under the control of one manager – the wider the span
of control.
• Less means narrower span of control.

Organization structures with narrow and wide span

Tall Organization with narrow spans

 Organization and Management
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Organizing 1

Figure 6.3
Advantages:
• Close supervision
• Close control
• Fast communication between subordinates and superiors
Disadvantages:
• Superiors tend to get too involved in subordinates’ work
• Many levels of management
• High costs due to many levels
• Excessive distance between lowest level and top level
Flat Organization with wide spans
Advantages:
• Superiors are forced to delegate
• Clear policies must be made
• Subordinates must be carefully selected
Disadvantages:
• Tendency of overloaded superiors to become decision bottlenecks
• Danger of superior’s loss of control
• Requires exceptional quality of managers

Factors Affecting Span of Management

Nature of work

Course Module
 Some of the work is repetitive in nature and does not require special talent to
perform .In such a case the supervisor can control a large number of
subordinates
Capacity of superiors
The personnel capacity of superiors can influence the span of control.
If the superiors has more skill to control the subordinates, the span of
management may be increased and vice – versa.
Delegation of authority
If superiors delegates the authority he has to take fewer decisions, therefore
span of management can be increased.
On the other hand, if superior does not delegate the authority he has to take
more decisions, therefore span of management should be reduced.
Fixation of responsibility
In case the responsibility of the subordinate is clearly defined he need not to
contact the supervisor again and again for getting guidance and instruction.
Then supervise can supervise large number of subordinates and vice versa.
Trust of subordinates
If the superior has good faith, trust and confidence in his subordinates then
the span of control can be wider.
If the superior has no faith, trust and confidence in his subordinates then the
span of control can be narrower.
Capacity of subordinates
If the subordinates have enough talent to perform the work assigned to them,
the manager or the supervisor can control more number of subordinates and
vice versa.
Techniques of communication
If face-to-face communication is used, then the span of control will be
narrow. However, if electronic devices are used for communication then the
span of control will be wide.

Types of organization structures

 Organization and Management
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Organizing 1

Figure 6.4
All managers must bear that there are two organizations they must deal
with-one formal and the other informal.
The formal organization in usually delineated by an organizational chart and
job descriptions. The official reporting relationships are clearly known to
every manager.
Alongside the formal organization exists are informal organization which is a
set of evolving relationships and patterns of human interaction within an
organization that are not officially prescribed.

Functional structure

Figure 6.5
Structure is created based on the various functions of an organization.

Functional Structure
Consists of a chief executive officer and limited corporate staff, with
functional line managers in dominant organizational areas such as
production, accounting, marketing, R&D, engineering, and human resources .

Course Module
 • The functional structure groups positions into work units based on
similar activities, skills, expertise, and resources.
• The concept of Functional organization was suggested by F.W. Taylor
who recommended the appointment of specialists at important positions.
Advantages of Functional Organization Structure
1. Specialization: Better division of labor takes place which results in
specialization of function and its consequent benefit.
2. Effective control: Management controls is simplified as the mental
functions are separate from manual functions. Checks and balances keep
the authority within certain limits.
3. Efficiency: Greater efficiency is achieved because of every function
performing a limited number of functions.
4. Economy: Specialization complied with standardization facilitates
maximum production and economical costs.
5. Expansion: Expert knowledge of functional manager facilitates better
control and supervision.
Disadvantages of Functional Organizational Structure
1. Confusion: The functional system is quite complicated to put into
operation, especially when it is carried out at low levels. Therefore,
coordination becomes difficult.
2. Lack of Co-ordination: Disciplinary control becomes weak as a worker is
commanded not by one person but a large number of people. Thus, there
is no unity of command.
3. Difficulty in fixing responsibility: because of multiple authority, it is
difficult to fix responsibility.
4. Conflicts: There may be conflicts among the supervisory staff of equal
ranks. They may not agree on certain issues.
5. Costly: Maintenance of specialist's staff of the highest order is expensive
for a concern

Divisional Structure
The divisional structure is a type of organizational structure that groups
each organizational function into a division. These divisions can correspond
to either products or geographies.
Managers in large companies may have difficulty keeping track of all their
company’s products and services, specialized departments may develop.
These departments are divided according to their organizational outputs.

Sample of Divisional Organizational Structure

 Organization and Management
9
Organizing 1

President

Admin &
Product A Product B Product C Product D
Finance

Figure 6.6

1. Divisional structures are also called "self-contained structures" because

each division contains the major functional resources it needs to pursue
its own goals with little or no reliance on other divisions.
2. The three major forms of divisional structure differ according to the
rationale for forming the divisions.
a. Product divisions are divisions created to concentrate on a single
product or service or at least a relatively homogeneous set of
products or services.
b. Geographic divisions are divisions designed to serve different
geographic areas.
c. Customers divisions are divisions set up to service particular types
of clients or customers.
3. Divisional structure has several major advantages.
Advantages of Divisional Organizational Structure
 Divisions can react quickly to changes in the environment.
 coordination across functions is simplified.
 Each division can focus upon serving its customers.
 The division's goals can be emphasized.
 Performance is more easily measured.
 Managers can be trained in general management skills.
4. The divisional structure is likely to be used in large organizations where
substantial differences exist among products or services, geographic
areas, or customers served.

Course Module
 Disadvantages of Divisional Organizational Structure
 there must still be a corporate organization, which adds more
overhead cost to the business.
 The company as a whole may not be able to take advantage of
economies of scale, unless purchases are integrated across the entire
organization.
 When there are a number of functional areas spread among many
divisions, no one functional area will be as efficient as would have
been the case if there had instead been one central organization for
each function.
 Each division will tend to have its own strategic direction, which may
differ from the strategic direction of the company as a whole.
Matrix Structure
A matrix organizational structure is a company structure in which the
reporting relationships are set up as a grid, or matrix, rather than in the
traditional hierarchy. In other words, employees have dual reporting
relationships - generally to both a functional manager and a product
manager.
Guidelines for Making Matrix Management Effective
1. Define the objectives of the project or task
2. Clarify the roles, authority, and responsibilities of managers and team
members.
3. ensure that influence is based on knowledge ad information, rather than
on rank.
4. Balance the power of functional and project managers.
5. Select an experienced manager for the project who can provide
leadership.
6. undertake organization and team development.
7. Install appropriate cost, time, and quality controls that report deviations
from standards in a timely manner.
8. Reward project managers and team members fairly.
Advantages
 Oriented toward end results
 Professional identification is maintained
 Pinpoints product-profit responsibility
Disadvantages
 conflict in organization authority exists
 Possibility of disunity of command
 Requires manager effective in human relations
Specialization of Labor
− Focusing an individual’s efforts on a particular product or a single task.
− Devotion of resources to a specific task.
The shape of a company is often closely related to the number and
distribution of specialist roles.
 Organization and Management
11
Organizing 1

People who have studied the same subject like to work with one another, as
not only can they discuss common problems but they also can learn from one
another as they professionally develop. Whilst not always necessary, it can
also be helpful if your manager understands you and your work.
In consequence, when companies split into departments, these are often
driven by specialization, and firms which have more specializations will have
more divisions (and possibly sub-divisions too).
Advantages of Specialization:
1. Increased Productivity:
 Better use of scarce resources resulting in a decrease in costs
 Specialized machinery or more proficient staff
2. Increased Efficiency:
 Specialist workers become quicker at producing goods
 Production becomes cheaper per good because of this
3. Standardization:
 Product specifications are constantly met
4. Higher Profit Margins:
 Customers may pay more for more specialized goods or services (for
example: laser eye surgeon; interior designers)
Disadvantages of Specialization:
1. Boredom:
 Repetitive tasks can have a negative effect on employee motivation.
2. Inflexibility:
 Over-specialization may deny workers the opportunity of taking on
different roles and responsibilities.
3. A Lack of Autonomy:
 Results in interdependence in the production process; a breakdown
may grind the gears of business to a halt .
4. Capital Costs:
 Purchasing specialized equipment may be too costly and drain the
businesses finances.

References
Rodriguez, R.A., "Fundamentals of Management"
Wiehrich, H., Cannice, M.V., Koontz, H., "Management, A Global and
Entrepreneurial Perspective, 13th Ed."
www.wikipedia.com
www.msg.com

Course Module
 Organization and Management
1
Organizing 2

Organizing 2

In this lesson we will discuss about Organization theories and application.

We also discuss delegation, centralization and decentralization. And also we
includes in our discussion the distinction between formal and informal
organization.
Topic Outline
1. Organization theories and application
2. Delegation
3. Centralization and Decentralization
4. Formal and informal organization

Organization Theories and Application

There are several theories which explain the organization and its structure.
(Figure 7.1)
Classical
Organization Neoclassical Modern Theory
Theory

Scientific Contingency or
Management Hawthorne Situational
Approach Studies Approach

Weber’s
bureaucratic Socio-technical
approach Approach

Administrative Systems
approach Approach

Course Module
Classical organization theory

Classical Approach

Frederick Taylor
The Gilbreths Max Weber Henry Fayol
Henry Gantt

Scientific Bureaucratic Administrative

Management Management Management

Figure 7.2 – Classical Organization Theory

Classical organization theories (Taylor, 1947; Weber, 1947; Fayol, 1949) deal
with the formal organization and concepts to increase management
efficiency. Taylor presented scientific management concepts, Weber gave the
bureaucratic approach, and Fayol developed the administrative theory of the
organization. They all contributed significantly to the development of
classical organization theory.
Scientific Management Approach
The scientific management approach is based on the concept of planning of
work to achieve efficiency, standardization, specialization and simplification.
The approach to increased productivity is through mutual trust between
management and workers. Taylor (1947) developed the following four
principles of scientific management for improving productivity:
 Science, not rule-of-thumb: Old rules-of-thumb should be supplanted by
a scientific approach to each element of a person's work.
 Scientific selection of the worker Organizational: members should be
selected based on some analysis, and then trained, taught and developed.
 Management and labor cooperation rather than conflict: Management
should collaborate with all organizational members so that all work can
be done in conformity with the scientific principles developed.
 Scientific training of the worker: Workers should be trained by experts,
using scientific methods.
Weber's bureaucratic approach
Considering the organization as a segment of broader society, Weber (1947)
based the concept of the formal organization on the following principles:
 Structure: In the organization, positions should be arranged in a
hierarchy, each with a particular, established amount of responsibility
and authority. · Specialization Tasks should be distinguished on a
functional basis, and then separated according to specialization, each
having a separate chain of command.
 Predictability and stability: The organization should operate according
to a system of procedures consisting of formal rules and regulations.
 Rationality: Recruitment and selection of personnel should be impartial.
 Organization and Management
3
Organizing 2

 Democracy: Responsibility and authority should be recognized by

designations and not by persons.
Weber's theory is infirm on account of dysfunctions (Hicks and Gullett, 1975)
such as rigidity, impersonality, displacement of objectives, limitation of
categorization, self-perpetuation and empire building, cost of controls, and
anxiety to improve status.
Administrative theory
The elements of administrative theory (Fayol, 1949) relate to
accomplishment of tasks, and include principles of management, the concept
of line and staff, committees and functions of management.
 Division of work or specialization: This increases productivity in both
technical and managerial work. · Authority and responsibility These are
imperative for an organizational member to accomplish the
organizational objectives.
 Discipline: Members of the organization should honor the objectives of
the organization. They should also comply with the rules and regulations
of the organization.
 Unity of command: This means taking orders from and being responsible
to only one superior.
 Unity of direction: Members of the organization should jointly work
toward the same goals.
 Subordination of individual interest to general interest: The interest of
the organization should not become subservient to individual interests or
the interest of a group of employees.
 Remuneration of personnel: This can be based on diverse factors such as
time, job, piece rates, bonuses, profit-sharing or non-financial rewards.
 Centralization: Management should use an appropriate blend of both
centralization and de-centralization of authority and decision making.
 Scalar chain: If two members who are on the same level of hierarchy
have to work together to accomplish a project, they need not follow the
hierarchy level, but can interact with each other on a 'gang plank' if
acceptable to the higher officials.
 Order: The organization has a place for everything and everyone who
ought to be so engaged.
 Equity: Fairness, justice and equity should prevail in the organization.
 Stability of tenure of personnel: Job security improves performance. An
employee requires some time to get used to new work and do it well.
 Initiative: This should be encouraged and stimulated.
 Esprit de corps: Pride, allegiance and a sense of belonging are essential
for good performance. Union is strength.
 The concept of line and staff: The concept of line and staff is relevant in
organizations which are large and require specialization of skill to
achieve organizational goals. Line personnel are those who work directly

Course Module
 to achieve organizational goals. Staff personnel include those whose basic
function is to support and help line personnel.
 Committees are part of the organization. Members from the same or
different hierarchical levels from different departments can form
committees around a common goal. They can be given different functions,
such as managerial, decision making, recommending or policy
formulation. Committees can take diverse forms, such as boards,
commissions, task groups or ad hoc committees. Committees can be
further divided according to their functions. In agricultural research
organizations, committees are formed for research, staff evaluation or
even allocation of land for experiments.
 Functions of management: Fayol (1949) considered management as a
set of planning, organizing, training, commanding and coordinating
functions. Gulick and Urwick (1937) also considered organization in
terms of management functions such as planning, organizing, staffing,
directing, coordinating, reporting and budgeting.

Neoclassical theory
• Neoclassical theorists recognized the importance of individual or group
behavior and emphasized human relations.
• Based on the Hawthorne experiments, the neoclassical approach
emphasized social or human relationships among the operators,
researchers and supervisors (Roethlisberger and Dickson, 1943). It was
argued that these considerations were more consequential in
determining productivity than mere changes in working conditions.
Productivity increases were achieved as a result of high morale, which
was influenced by the amount of individual, personal and intimate
attention workers received.
Principles of the neoclassical approach
The classical approach stressed the formal organization. It was mechanistic
and ignored major aspects of human nature. In contrast, the neoclassical
approach introduced an informal organization structure and emphasized the
following principles:
• The individual: An individual is not a mechanical tool but a distinct social
being, with aspirations beyond mere fulfillment of a few economic and
security works. Individuals differ from each other in pursuing these
desires. Thus, an individual should be recognized as interacting with
social and economic factors.
• The work group: The neoclassical approach highlighted the social facets
of work groups or informal organizations that operate within a formal
organization. The concept of 'group' and its synergistic benefits were
considered important.
• Participative management: Participative management or decision
making permits workers to participate in the decision making process.
This was a new form of management to ensure increases in productivity.
Note the difference between Taylor's 'scientific management' - which focuses on
work - and the neoclassical approach - which focuses on workers.
 Organization and Management
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Organizing 2

Modern theories
 Component
 The individual
 The formal and informal organization
 Patterns of Behavior
 Role Perception
 The Physical Environment
 Linking Processes
 Communication
 Balance
 Decision Analysis
 Goals of Organization
 Growth
 Stability
 Interaction
Modern theories tend to be based on the concept that the organization is a
system which has to adapt to changes in its environment. In modern theory,
an organization is defined as a designed and structured process in which
individuals interact for objectives (Hicks and Gullet, 1975).
Some of the notable characteristics of the modern approaches to the
organization are:
 a systems viewpoint,
 a dynamic process of interaction,
 multileveled and multidimensional,
 multi-motivated,
 probabilistic,
 multidisciplinary,
 descriptive,
 multivariable, and
 adaptive.
The systems approach
The systems approach views organization as a system composed of
interconnected - and thus mutually dependent - sub-systems. These sub-
systems can have their own sub-sub-systems. A system can be perceived as
composed of some components, functions and processes (Albrecht, 1983).
Thus, the organization consists of the following three basic elements (Bakke,
1959):

Course Module
 1. Components: There are five basic, interdependent parts of the organizing
system, namely:
 the individual,
 the formal and informal organization,
 patterns of behavior emerging from role demands of the
organization,
 role comprehension of the individual, and
 the physical environment in which individuals work.
2. Linking processes: The different components of an organization are
required to operate in an organized and correlated manner. The
interaction between them is contingent upon the linking processes, which
consist of communication, balance and decision making.
 Communication is a means for eliciting action, exerting control and
effecting coordination to link decision centers in the system in a
composite form. · Balance is the equilibrium between different parts
of the system so that they keep a harmoniously structured
relationship with one another.
 Decision analysis is also considered to be a linking process in the
systems approach. Decisions may be to produce or participate in the
system. Decision to produce depends upon the attitude of the
individual and the demands of the organization. Decision to
participate refers to the individual's decisions to engross themselves
in the organization process. That depends on what they get and what
they are expected to do in participative decision making.
3. Goals of organization: The goals of an organization may be growth,
stability and interaction. Interaction implies how best the members of an
organization can interact with one another to their mutual advantage.
Socio-technical approach
The socio-technical systems approach is based on the premise that every
organization consists of the people, the technical system and the
environment (Pasmore, 1988). People (the social system) use to ols,
techniques and knowledge (the technical system) to produce goods or
services valued by consumers or users (who are part of the organization's
external environment). Therefore, an equilibrium among the social system,
the technical system and the environment is necessary to make the
organization more effective.
The contingency or situational approach
The situational approach (Selznick, 1949; Burns and Stalker, 1961;
Woodward, 1965; Lawrence and Lorsch, 1967) is based on the belief that
there cannot be universal guidelines which are suitable for all situations.
Organizational systems are inter-related with the environment. The
contingency approach (Hellriegel and Slocum, 1973) suggests that different
environments require different organizational relationships for optimum
effectiveness, taking into consideration various social, legal, political,
technical and economic factors.
Delegation
"Delegation is the dynamics of management, it is the process a manager
follows in dividing the work assigned to him so that he performs that part
 Organization and Management
7
Organizing 2

which only he, because of his unique organizational placement, can perform
effectively, and so that he can get others to help him with what remains,
Louis A.Allen "
A manager alone cannot perform all the tasks assigned to him. In order to
meet the targets, the manager should delegate authority.
Delegation is about entrusting someone else to do parts of your job
Elements or Delegation
1. Authority
2. Responsibility
3. Accountability

Authority
 In context of a business organization, authority can be defined as the
power and right of a person to use and allocate the resources
efficiently, to take decisions and to give orders so as to achieve the
organizational objectives.
 Authority must be well- defined. All people who have the authority
should know what is the scope of their authority is and they shouldn’t
misutilize it. Authority is the right to give commands, orders and get
the things done. The top level management has greatest authority.
Concept of Authority
Authority in the organization is the power in a position( and through it,
the person occupying the position) to exercise discretion in making
decisions affecting others.
Responsibility
• is the obligation or expectation to perform and carry out duties and
achieve goals related to a position.
• A person who is given the responsibility should ensure that he
accomplishes the tasks assigned to him. If the tasks for which he was
held responsible are not completed, then he should not give
explanations or excuses. Responsibility without adequate author ity
leads to discontent and dissatisfaction among the person.
Responsibility flows from bottom to top. The middle level and lower
level management holds more responsibility. The person held
responsible for a job is answerable for it. If he performs the tasks
assigned as expected, he is bound for praises. While if he doesn’t
accomplish tasks assigned as expected, then also he is answerable for
that.
Accountability

Course Module
  Is the requirement of being able to answer for significant deviations
from duties or expected results.
 The fact that managers remain accountable for delegated work may
cause them to resist delegation.
Delegation of Authority
 Allowing someone to act on your behalf to perform tasks (consume
resources) that are available to you.
 Delegator should be empowered to delegate to anyone he needs to,
subject to certain organization controls.
 Delegation of authority is one vital organizational process. It is
inevitable along with the expansion and growth of a business
enterprise.
 Delegation means assigning of certain responsibilities along with the
necessary authority by a superior to his subordinate managers.
 Delegation does not mean surrender of authority by the higher level
manager. It only means transfer of certain responsibilities to
subordinates and giving them the necessary authority, which is
necessary to discharge the responsibility properly.
 Authority moves downward, while accountability move upward
within the organization.

Nature of Delegation
• Two-sided relationship
• Act of trust
• Dependency relationship
• A challenging task- on senior’s side mostly
• Forward thinking principle- opens a new chapter for senior subordinate
relationship

Steps in Delegation
1. Assignment of Duties -Clarity of duty as well as result expected has to be
the first step in delegation.
2. Granting of authority - superior divides and shares his authority with
the subordinate.
3. Creation of an obligation- accountability is the liability for the proper
discharge of duties by the subordinates.
 Organization and Management
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Organizing 2

Differences between authority and Responsibility

Authority Responsibility

It is the legal right of a person or a It is the obligation of subordinate to

superior to command his subordinates. perform the work assigned to him.

Authority is attached to the position of a Responsibility arises out of superior-

superior in concern. subordinate relationship in which
subordinate agrees to carry out duty
given to him.

Authority can be delegated by a superior Responsibility cannot be shifted and is

to a subordinate absolute

It flows from top to bottom. It flows from bottom to top.

Centralization
 is the systematic and consistent reservation of authority at central points
in the organization.
 The important and key decisions are taken by the top management and
the other levels are into implementation .
Advantages of centralization
1. It is easier to coordinate the activities of various units and individuals.
2. Top managers have more experience and may therefore make better
decisions.
3. Top managers have a broader perspective on decisions situations.
4. Duplication of effort by various organization units can be avoided.
5. Strong leadership is promoted.

Decentralization
 Is a systematic effort to delegate to the lowest level authority except that
which can be controlled exercised at central points.
Advantages of Decentralization
1. Less burden on the Chief Executive as in the case of centralization.
2. The subordinate get a change to decide and act independently which
develop skills and capabilities. This way the organization is able to
process reserve of talents in it.

Course Module
 3. Diversification and horizontal can be easily implanted.
4. Concern diversification of activities can place effectively since there is
more scope for creating new departments. Therefore, diversification
growth is of a degree.
5. In decentralization structure, operations can be coordinated at
divisional level which is not possible in the centralization set up.
6. There is greater motivation and morale of the employees since they
get more independence to act and decide.
7. Co-ordination to some extent is difficult to maintain as there are lot
many department divisions and authority is delegated to maximum
possible extent.
Delegation and Decentralization

Basis Delegation Decentralization

Meaning Managers delegate some of Right to take decisions is

their function and authority shared by top management and
to their subordinates other level of management.

Scope Scope of delegations Scope in wide as the decision

is limited as superior making is shared by the
delegates the powers to the subordinates also.
subordinates on individual
bases.

Responsibility Responsibility remains of the Responsibility is also delegated

managers and cannot be to subordinates.
delegated

Freedom of Work Freedom is not given to the Freedom to work can be

subordinates as they have to maintained by subordinates as
work as per the instructions they are free to take decision
of their superiors. and to implement it.

Nature It is a routine function It is an important decision of an

enterprise.

Need on purpose Delegation is important in all Decentralization becomes more

concerns whether big or important in large concerns
small. No enterprises can and it depends upon the
work without delegation. decision made by the
enterprise, it is not compulsory.

Grant of Authority The authority is granted by It is a systematic act which

one individual to another. takes place at all levels and at
all functions in a concern.

Grant of Responsibility Responsibility cannot be Authority with responsibility is

delegated delegated to subordinates.

Grant of Authority The authority is granted by It is a systematic act which

takes place at all levels and at
 Organization and Management
11
Organizing 2

one individual to another. all functions in a concern.

Grant of Responsibility Responsibility cannot be Authority with responsibility is

delegated delegated to subordinates.

Principle of Delegation
There are few guidelines in form of principles which can be a help to the
manager to process the delegation.
1. Principle of result expected – Manager should be able clearly define the goals
as well as results expected from them. The goals and targets should be
completely and clearly defined and standards of performance should also be
notified clearly.
2. Principle of Parity of Authority and Responsibility – Manager should keep a
balance between authority and responsibility. Both of them should go hand
and hand.
3. Principle of absolute responsibility – Manager is always responsible to his
superior for carrying out his task by delegating the powers. It does not means
that he can from his responsibility. He will always remain responsible till the
completion of task. Every superior is responsible for the acts of their
subordinates and are accountable to their superior therefore the superiors
cannot pass the blame to the subordinates even if he has delegated certain
powers to subordinates example if the production manager has been given a
work and the machine breaks down.
4. This principle that a manager should exercise his authority within the
jurisdiction/framework given. The manager should be forced to consult their
superiors with those matters of which the authority is not given that means
before a manager takes any important decision, he should make sure that he
has the authority to do that on the other hand, subordinate should also not
frequently o with regards to their complaints as well suggestions to their
superior if they are not asked to do. This principle emphasizes on the degree
of authority and the level up to which it has to be maintained.

Formal and Informal Organization

Formal Organization:
 The intentional structure of roles, in a formally organized enterprise.
 Intentional structure of rules means to ensure that required activities are
done and that activities fit together so that people can work smoothing,
effectively, and efficiently in groups.

Course Module
 A formal organization is the literal structure of the organization including
its organization chart, hierarchical reporting relationships and work
processes.

Characteristics of Formal Organization

 Formal means something systematic.
 It is in an official structure.
 It provides official relationship between individual.
 It is objective oriented.
 It abides with rules and regulations.
Advantages
 The line of communication is very clear.
 It is accuracy of the information.
 Systematic
 It is objective oriented.
 It has a hierarchical pattern.

Informal Organization
It is a network of personal and social relations which aroused spontaneously
as people associate with one another.
 A network of interpersonal relationships that arise when people associate
with each other.
 It is the outcome of personal, social and friendly relationship and it
develops spontaneously.
 It arises naturally on the basis of friendship or some common interest
which may or may not with work.
Characteristics of Informal Organization
 Informal group is created by the member of the organization for their
social and psychological satisfaction.
 Informal organizations are unstable in nature, it is not permanent.
 Informal organizations(groups) are greater in number than the formal
organizations.
 Free interaction.

Differences between Formal and Informal Organization

Final Organization Informal Organization

Consciously deliberate in nature It rises spontaneously

 Organization and Management
13
Organizing 2

Based on delegation of authority It arises on account of social interaction

or it arises from account of personal
factors like friendship

Rules responsibilities are written and Just unwritten rules and regulations
clearly defined

It shown in organization chart It has no place in organization chart

It provides a definite structure It is structure less because it is social

Formal authority is attaches to a position Informal authority attaches to a person

out of social interactions

It flows downwards (top to down level) It flows upwards

It is permanent and stable It is temporary and unstable

It is deliberately impersonal It is personal

Course Module
 Organization and Management
1
Staffing

Staffing (Part 1)

Staffing is a critical organizational function which consists of the process of

acquiring, deploying, and retaining a workforce of sufficient quantity and
quality to create positive impacts on the effectiveness of the organization. It
is one of the significant functions of the management.
In an organization, it is the people which carry out the various jobs which are
needed for its functioning. They are the most important resource of the
organization. They supply the talent, skills, knowledge, and experience to
achieve the organizational goals and objectives. In fact the performance of
the organization largely depends on the quality of its people. Hence the
staffing function of the management is an important function and it involves
in the building of the organizational workforce. In staffing, the management
is faced with the challenge of not only finding the right person for each job
but also to match the personnel with the jobs identified and to provide for
their long-range growth and welfare as members of the organization.
Staffing is that part of the process of management which is concerned with
acquiring, developing, employing, appraising, remunerating and retaining
people so that right type of people are available at the right positions and at
the right time in the organization. In the simplest terms, staffing in
management is ‘putting people to jobs’.

Topic Objectives
• Definition and nature of staffing
• Recruitment
• Selection
• Training and development

Staffing
Staffing is the process of acquiring, deploying, and retaining a workforce of
sufficient quantity and quality to create positive impacts on the organizations
effectiveness.
• The managerial function of staffing is defines as filling and keeping filled,
positions in the organization structure.

Course Module
Nature of Staffing
The following points describe the nature of the staffing function.
• Staffing is an important managerial function. Staffing function is normally
the sub function of the organizing function. All the five functions of the
management viz. planning, organizing, directing, coordinating, and
controlling depend upon the employees of the organization which are
made available through the staffing function.
• Staffing is a pervasive activity. It is carried out in every organization and
at all the levels of the management in the organization.
• Staffing is a continuous activity. This is due to the fact that the function of
staffing continues throughout the life of the organization.
• The basis of staffing function is the efficient management of
personnel. The process involved in the staffing function in the
organization is efficiently managed by a system or with well-tried
procedures.
• The function of staffing helps in placing right men at the right job. It can
be done effectively through proper recruitment procedures and then
finally selecting the most suitable candidate as per the job requirements.
• All the levels of management are involved in the function of staffing
though the personnel department coordinates it.
Main objectives of staffing:
• To understand all function of in an organization.
• To understand manpower planning so that people are available at right
time and at right place.
• To understand issues related to job analysis and to overcome the
problem.
Importance of staffing
The staffing function is a very important function of the management due to
the following reasons.
• Staffing helps in discovering and obtaining competent personnel for
various jobs.
• It helps in the optimum utilization of the human resources.
• It helps in developing professionals in every field of organizational
activity.
• It helps to improve the quantity and quality of the output by putting the
right person on the right job.
• It helps in developing competencies in the organization to face the
challenges.
• It helps to improve job satisfaction of the employees and hence their
morale.
 Organization and Management
3
Staffing

• It facilitates higher productive performance of the organization by

appointing right man for right job.
• It reduces the cost of manpower by eliminating the wastage of the human
resources.
• It facilitates growth and diversification activities in the organization.
• It provides for the development of the employees and through them it
ensures continuous survival and growth of the organization.
Benefits of staffing
The benefits of an effective staffing function are as follows.
• Staffing helps in getting right people for the right job at the right time.
The function of staffing enables the management to find out as to how
many employees are needed and with what qualifications and experience.
• Staffing contributes to improved organizational productivity. Through
proper selection the organization can enhance the quality of the
employees, and through proper training the performances level of the
employees can also be improved.
• Staffing helps in providing job satisfaction to the employees and thus
keeps their morale high. With proper training and development programs
their efficiency improves and they feel assured of their career
advancements.
• Staffing maintains harmony in the organization. Through proper staffing,
individuals are not just recruited and selected but their performance is
regularly appraised and promotions made on merit. For all these, certain
procedures are made and are duly communicated to all concerned. This
fosters harmony and peace in the organization.
Step in the process of staffing function

Placement and
Manpower Recruitment Selection
orientation

Transfer Promotion Development Training

Appraisal Remuneration

Figure 8.1 – Process of staffing function

Course Module
The process of the staffing function involves human resource planning i.e.
estimating the size and nature of the personnel required for the recruitment
and selection of the best candidates to train, to induct, to reward and to have
regular and effective communication with them. The process of staffing
consists of the following steps (Figure 8.1).
 Manpower planning –It involves in creating and evaluating the
manpower inventory after considering the development of the required
talents among the existing employees through their promotion and
advancement.
 Determining manpower needs from company plans and programs.
determining available manpower resources.
 Analyzing, training needs of present employees.
 Recruiting manpower from external sources for those positions
that cannot be filled up by present employees.
 Planning training and development of manpower resources.
 Recruitment – Recruitment is the process of attracting the appropriate
number of qualified individuals to apply for vacant positions in an
organization.
 Selection – It is the screening step of staffing in which the solicited
applications of those candidates which are not found suitable as per the
requirements of the notified post are screened out. It is the process of
elimination of the candidates who appear unpromising for the post.
 Placement and orientation –Once selection process is over, the selected
candidates are appointed. It means putting the appointed employee on
the job for which he is selected. Orientation is the introduction of the
appointed employee with the job. He is made familiar to the work units
and work environment through the orientation programs.
 Training – is defined as an attempt to improve performance by the
attainment of specific skills such as computing, typing, encoding,
designing, driving, and so forth to do the current job. The goal of training
is to ensure that a number of job skills will be performed at prescribed
quality levels by trained employees.
 Development – this is more general than training and refers to learning
opportunities designed to help employees grow. It provides employees
broader learning which may be utilized in a variety of settings and for
future jobs. As global competition increases, training programs for
management are becoming more educational in scope.
 Promotion – it involves the assignment of an employee to a higher level
job. This also refers to the upward or vertical movement of employees in
a organization from lower level jobs to higher level jobs involving
increases in duties and responsibilities, higher pay and privileges.
 Transfer –Employees of the organization who have been identified for
taking up of higher positions in the organization are being transferred to
different departments so that they can learn intricacies of the functioning
of different departments. This helps them when they take up positions in
the higher management.
 Organization and Management
5
Staffing

 Appraisal – it is normally done in order to keep a track or record of the

behavior, attitudes as well as opinions of the employees towards their
jobs. Appraisal of employees reveals as to how efficiently the employee is
performing in his job.
 Remuneration- It is a kind of compensation provided monetarily to the
employees for their work performances. This is given according to the
nature of job- skilled or unskilled, physical or mental, etc. Remuneration
forms an important monetary incentive for the employees.
Recruitment
As what we have been discussed that recruitment is the process of attracting
the appropriate number of qualified individuals to apply for vacant positions
in an organization.
Systematic recruitment requires job analysis and the identification of
application of applicants for vacant positions.
Job Analysis
− The procedure used for determining/collecting information relating
to the operations and responsibility of a specific job. The end result of
this analysis is job description and job specification.
Job description
− organized, factual statements of the duties and responsibilities of a
specific job. It tells what is to be done, how it is done, and why. It is a
list of job duties, responsibilities, reporting relationships, working
conditions, and supervisory responsibilities.
Job specifications
− a written explanation of the minimum acceptable human qualities
necessary for effective performance of a given job. It designates the
qualities required for acceptable performance, that is the requisite
education, skills, personality, and so on.
Stages of the Recruitment
1. Defining requirements, preparing of job description and job
specifications.
2. Attracting potential employees
3. Selecting appropriate people for the job
Sources of application. Applicants can either be sourced internally or
externally.
A. Internal sources means considering present employees as candidates
for job openings.
Referrals: referral system in which present employees are asked to
encourage friends or relatives to apply. This is the most used
recruiting tool in many small organizations.
B. External sources this is used when the organization is unable to fill
its hiring needs from internal sources. One inherent advantage of this
Course Module
 is that the pool of talents is much larger and more diverse than that
available from internal sources plus the new employee bringing new
ideas, different cultural values, and fresh approaches.
1. Job advertisement
2. Employment agencies
3. Walk-ins
4. Campus recruitment
5. Internships
6. Employment databases
7. Special events recruiting
8. Online recruitment
Selection
− The selection process is to gather from applicants information that
will predict their job success and then to hire the candidates likely to
be most successful.
− A good selection requires a methodical approach to the problem of
finding the best matched person for the job.
− Selection involves choosing the best candidate with best abilities,
skills and knowledge for the required job

Selection process
The Employee selection Process takes place in following order:
Preliminary Interviews- It is used to eliminate those candidates who do not
meet the minimum eligibility criteria laid down by the organization. The
skills, academic and family background, competencies and interests of the
candidate are examined during preliminary interview.
Application blanks- The candidates who clear the preliminary interview are
required to fill application blank. It contains data record of the candidates
such as details about age, qualifications, reason for leaving previous job,
experience, etc.
Employment interviews - it provides the opportunity to review candidates'
qualifications and to determine their suitability for the position. It also
provides candidates with the chance to learn about the position and its
requirements and to present information on their skills and experience.
Written Tests- Various written tests conducted during selection procedure
are aptitude test, intelligence test, reasoning test, personality test, etc. These
tests are used to objectively assess the potential candidate. They should not
be biased.
Background testing - this is to verify the accuracy of factual information
previously provided by the applicant and to uncover damaging background
information such as criminal records, and suspended driver's licenses.
Medical examination- Medical tests are conducted to ensure physical
fitness of the potential employee. It will decrease chances of employee
absenteeism.
 Organization and Management
7
Staffing

Final employment decision - this is the decision to accept or reject the

application on the results of the Physical Examination and a value judgment
based on all the gathered in the previous steps.

Training and Development

Training
− Is a systematic process that will help the employees acquire the
right knowledge, attitude, skills, and habits to improve current
performance.
Development
− It refers to learning opportunities designed to help employees
grow.
− It provides employees broader learning which may be utilized in a
variety of settings and for future jobs.
Objective of Training and Development
1. Improve the quantity and quality of productivity. This can lead to an
increase in an individual's skills in one or more areas of expertise.
2. Effectiveness in the present jobs this involves increasing an
individual's motivation to perform is job well.
3. Create more favorable attitudes, loyalty, and cooperation.
4. Help employees in their personal development and advancement by
helping them acquire additional qualifications for a better job.
5. Help organization respond to dynamic market conditions and
changing consumer demands.
6. Satisfy human resource planning requirements.
Importance of Training
• Improvement in skill and knowledge .
• Higher production and productivity .
• Job satisfaction.
• Better use of resources.
• Stability and growth : if an org. has a team of trained employees it can
face future challenges easily.
• Reduction in complaints and accidents.
• Adaptability.
• Reduced supervision : well trained employees don’t need much
supervision.
• Greater flexibility

Course Module
 Types of Training
Orientation training- It is a systematic and planned introduction and it’s
concerned with inducting or orienting a new employee to the organization
and it’s procedure, Rules and regulations.
– The main purpose is to give a ‘bird’s eye view ‘ of the organization where he
has to work .
– It’s very short informative training given immediately after recruitment
– It’s creates a feeling of involvement in the mind of newly appointed
employees.
– It reduce anxiety and employee turnover.
Apprenticeship training- is one of the traditional method of training and is
meant to give trainees sufficient knowledge and skill in technical jobs.
– This types of training is very common in skilled trades such as electricians,
plumbers, carpenters, etc.
Internship training
– Under this method, the vocational or educational institute enters into
arrangement with an industrial enterprise for providing practical knowledge
to it’s students.
On job training- is a training technique that involves allowing the person to
learn the job by actually performing it own the job.
Off-job training - Off the job types of training is imparted off the job outside
the work premises.

References
Rodriguez, R.A., Echanis, E.S., "Fundamentals of management"
Weihrich, H., Cannice, M.V., Koontz, H., "Management. A global and Entrepreneurial
Perspective, 13th Ed."
Corpuz, C.R. "Human Resource Management, 2006 Revised Ed."
www. managementstudyguide.com
 Organization and Management
1
Staffing Part II

Staffing Part II
This lesson is continuation of our previous discussion about Staffing. We will
discuss the concepts of wages and salary administration. Base wages and
salaries are defined as the hourly, weekly and monthly pay that employees
receive for their work in an organization.
In a capitalistic system, employees are supposed to be compensated fairly for
services that they render to the firm. Total compensation earned by
employees may consist of wages, salaries, fringe benefits and a form of profit-
sharing. Compensation levels of companies may differ even if they are in the
same type of business.
then our discussion will move to performance evaluation and appraisal,
employee relation, employee movements and reward.
Topic Outline:
1. Concepts of wages and salary administration
2. Performance evaluation and appraisal
3. Employee relations
4. Employee movements (promotion and transfer)
5. Rewards systems

Compensation
Compensation is the set of rewards that organizations provide to
individuals in return for their willingness to perform various jobs and tasks
within the organization.
• The person receiving a salary is not paid a smaller amount for working
fewer hours, nor is he paid more for working overtime. Someone who is
paid wages receives a pay rate per hour, multiplied by the number of
hours worked. This person is considered to be a "non-exempt" employee.

Factors Affecting Compensation Levels

The factors that influence the setting of compensation levels are:
Attitude of Management – some firms have the policy of attracting the best
qualifies applicants. In order to do this, management offers higher
compensation which could include housing benefits and/or profit sharing
schemes than the other firms in the industry. It is the belief of these firms
that better qualified applicants mean lower training costs and possibly, lower
employee turnover. Furthermore, firms which do this often believe that the
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 higher pay is offset by higher productivity. In general, multinationals and the
large Filipino-owned firms offer higher compensation levels than the
smaller-sized firms.
Job Specifications – job specification can be used to access the worth of each
job relative to other jobs. Using the job specification, positions in the firm
may be ranked or classified.
Environmental factors – the setting of wage or salary levels is not entirely
within the full control of management. In the Philippines, the law prescribes
a minimum wage. In the past, in addition to this minimum wage, a cost of
living allowance (COLA) per month was required by law. Furthermore, the
supply of and demand for labor for certain company positions is a significant
factor to consider in setting compensation levels.
Principles Governing Salary Administration
• Maintaining Competitiveness
• Matching Employee Expectations
• Reinforcing positive employee behavior
• Eliminating any discrepancy
• Optimization of management and employee interests
• Maintaining good IR and harmony
Purpose of Wage & Salary
• Attracting talented resources
• Retaining and motivating employees
• Financial Management
• Legal Requirements
Different forms of Compensation
 Payment for timed worked
 Incentive forms of compensation
 performance incentives
 spot bonuses
 skill and knowledge-based pay/competency-based pay
 merit pay plans profit sharing
 stock ownership plans
 executive compensation
Performance Evaluation/Appraisal
The identification, measurement, and management of human performance in
organizations.
There two types of performance appraisal:
• Informal Appraisal – conducted on a day to day basis.
• Systematic appraisal – occurs semi-annually or annually on a formalized
basis.
Four Major Purposes of Systematic Appraisal
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Staffing Part II

1. It lets subordinates know formally how their current performance is

being rated
2. It identifies those subordinates who deserve merit raises
3. It locates those subordinates who require additional training
4. It plays an important role in identifying those subordinates who are
candidates for promotion
Performance criteria
1. Relevance - relevance performance dimension are determined by the
duties and responsibilities contained in the job description.
2. Reliability - should produce consistent and repeatable evaluation
3. Freedom from contamination - should measure each employee's
performance without being contaminated by factors that an employee
cannot control such as: economic condition, material shortage, poor
equipment.
Sources of data in appraisal
1. Production data - evaluate the degree of dependable task
accomplishment by measuring quantity and quality of performance.
Example: peso volume of sales, return on investment, etc.
2. Personnel data - type of information found in an individual's
personnel files. Example: absenteeism, tardiness, etc.
3. Judgement of others - the spontaneous and innovative behavior of
an employee be assessed by the judgement of others. s
Employee Relations
Provides support to staff employees and supervisors regarding:
• Policies and procedures
• Work related issues
• Mediation and conflict resolution
• Disciplinary process
• Grievance process

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Employee Movement

Promotion - Involves the reassignment of an employee to a higher level job.

This also refers to the upward or vertical movement of employees in an
organization from lower level jobs to higher level jobs involving increases in
duties and responsibility, higher pay and privileges.
Reasons for Employee Promotions
• An effective way to keep good men in the firm
• As recognition of and reward for good performance
• To boost employee morale and encourage the employees to render to the
company the best service they are capable of
Basis or Criteria Used for Promotion
1. Seniority – length of service
a. Straight seniority – the length of service of an employee is the sole basis
for determining who gets the promotion.
b. b. Qualified seniority – the more competent employee as compared to
another employee with longer service will be the one promoted.
2. Current and past performance
3. Assessment centres evaluate the qualified candidates for promotion, w/c
focus on the kinds of skills and abilities to effectively perform the higher level
jobs that the candidates seek.
4. Competency or merit determined by the ratings or evaluations received by
the employees.
Unofficial Promotion Criteria
 Personal Characteristics
 Nepotism – showing of favoritism or patronage to relatives
 Social Factors
 Friendship
Promotion from Within
Filling up vacancies in upper level management positions by promoting
lower level managers.
A major advantage of this policy is its positive effect upon employee
motivation. Knowing that they have opportunity to be promoted tends to
 Organization and Management
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motivate employee’s performance with the company and to solidify their

feelings of loyalty toward the company.
Promotion from within
Advantages:
• Provides greater motivation thinking for good performance
• Provides greater promotion opportunities for present employees
Disadvantages:
• Creates a narrowing of and stale of ideas
• Creates political infighting
Demotion
The reassignment of an employee to a lower job involving fewer skills and
responsibilities. The movement of an employee to a less important job from a
higher level job in the organization which may not involve a reduction in pay
but a reduction in status or privileges.
Basis or Criteria for Demotion
1. Reorganizations, company merger or business contractions may result in
fewer jobs, forcing some employees to accept lower positions.
2. Inability of the employees to perform their jobs according to acceptable
standards.
3. As a form of disciplinary action or a way to handle disciplinary problems,
also viewed as a routine form of punishment for wrongdoing.
4. The tool used to communicate to employees that they are beginning to be
“liabilities” rather than assets to an organization.

Transfer
This is the reassignment of employee to a job with similar pay, status, duties,
and responsibilities. It also involves horizontal movement from one job to
another.
Reasons for Transfer
• Because personnel placement practices are not perfect, an employee -job
mismatch may have resulted.
• An employee becoming unsatisfied with his job for one or a variety of
reasons
• Organizations sometimes initiate transfers to further the development
and advancement of the employee especially at management and staff.
• Due to business expansion, retrenchment erroneous placement, the need
to meet departmental requirement during peak season.
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 • For personal enrichment/greater convenience and for more interesting
jobs.
• For employee to be better suited or adjusted to his job (remedial
transfer)
There are 2 Kinds of Transfer
Permanent – made to fill vacancies requiring the special skills or abilities of
the employee being transferred.
Temporary – made due to the temporary absence of an e employee, e.g., in
case of sick, leave, vacation leave, or shifts in the work load during peak
periods.
Employee Separation
Different kinds of separation occur depending on whether the employee or
the employee decides to terminate the employment relationship.
Layoff
The separation of an employee initiated by the employer due to business
reverses, the introduction of labor saving devices, or the reduction in the
demand for particular skills. Management as temporary measures during
periods of business recession, industrial depression or seasonal fluctuation
resorts
Resignation
This is when employees voluntarily decide to end their employment with an
organization.
Causes of Resignation
• Dissatisfaction about wages and working conditions
• Misunderstandings with supervisors or fellow workers
• Inconvenient work hours are among the chief reasons employee
resignation.
Retirement
This is when employees having satisfied certain conditions under existing
laws and/or provisions of the collective bargaining agreements or upon
reaching the age of 65 are separated from employment with entitlement to
retirement benefits. This is given either in a lump sum amount or in a form of
a monthly pension for life.
Termination/Discharge or Dismissal
The practice of putting an end to the employer- employee relations initiated
by the employer with prejudice to the worker. A discharge is due to some
fault of the employee such as inability to meet the company’s standards of
performance, incompetence, violation of company rules, insubordination, etc.

Rewards Systems
• Each element of compensation and benefits, is known as reward.
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• Total rewards include everything the employee perceives to be of value

resulting from employment relationship.
• This intervention involves the design of organizational rewards to
improve employee satisfaction and performance.
• Reward systems should take a holistic approach to achieving optimum
performance.
• Rewards can be monetary and non-monetary.
A company’s reward system refers to the totality of the inducements that a
firm provides in order to:
1. Attract people to work for the company
2. Motivate them to perform well while working with the company, and
3. Induce them to remain with the company over time.

- Salaries
Direct (cash) - Incentives
- bonuses

Financial

-insurance
-holidays
Indirect (benefits) -Medical and health
- Child care
- Employee assistance

Total Rewards

- Good policies and practices

- Competent supervision
Environment
- Safe and healthy work environment
-fair treatment

Non-Financial

- Interesting work
- Challenge
Job - Responsibility
- Recognition
advancement

Figure 9.1

The company’s reward system is made up not only of the compensation

system, but also includes such elements as recognition and symbolic
rewards, and other non-economic inducements such as good working
environment, pleasant climate of work, etc.
A company’s compensation system refers to all forms of economic
remuneration, whether in financial form or otherwise, which it provide to
employees. Compensation thus refers not only the salaries or wages, but also
to the other monetary and non-monetary benefits received by employees
from their employer.

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Total Rewards
• All of the tools available to the employer those may be used to attract,
motivate and retain employees.
• Total rewards include everything the employee perceives to be of value
resulting from the employment relationship.
• There are five elements of total rewards, each of which includes
programs, practices, elements & dimensions
• Those collectively define an organization's strategy to attract, motivate
and retain employees.
Five Elements of Total Rewards
Compensation - Pay provided by an employer to an employee for services
rendered (i.e., time, effort and skill)
Benefits - Programs an employer uses to supplement the cash compensation
that employees receive. - These programs are designed to protect the
employee and his or her family from financial risks.
Work-Life - A specific set of organizational practices, policies, programs,
plus a philosophy, which actively supports efforts to help employees achieve
success at both work and home. - Work-life strategies address the key
intersections of the worker, his or her family, the community and the
workplace.
Performance - Alignment of organizational, team and individual
performance is assessed in order to understand what was accomplished, and
how it was accomplished. - Performance involves the alignment effort
toward the achievement of business goals and organizational success.
Recognition - Acknowledges or gives special attention to employee efforts
or performance. - It meets an intrinsic psychological need for appreciation
and can support business strategy by reinforcing certain behaviors that
contribute to organizational success. - Awards can be cash or non-cash (e.g.,
verbal recognition, trophies, certificates, plaques, dinners, tickets, etc.).
Developmental Opportunities —A set of learning experiences designed to
enhance employees’ applied skills and competencies;
 Development engages employees to perform better and leaders to
advance their organizations’ people strategies.
Career Opportunities A plan for an employee to advance their own career
goals and may include advancement into a more responsible position in an
organization.
 The organization supports career opportunities internally so that
talented employees are deployed in positions that enable them to deliver
their greatest value to their organization.
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References
Rodriguez, R.A., Echanis, E.S., "Fundamentals of management"
Weihrich, H., Cannice, M.V., Koontz, H., "Management. A global and Entrepreneurial
Perspective, 13th Ed."
Corpuz, C.R. "Human Resource Management, 2006 Revised Ed."
www. managementstudyguide.com`
www.accountingtools.com

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 Organization and Management
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Leading (Part1)

Leading (Part 1)

Leading is the third element of management, one of the management core

functions. Here, a manager spends time connecting with his/her
employees. Leadership skills include inspiring, communicating, motivating,
and influencing employees for efficient output. All managers are not leaders,
but all leaders are managers. An employee follows all the directions a
manager gives because they have to, because managers have all the
legitimate powers. But an employee voluntarily follows the direction of a
leader because they have believed in him/her.

Topic Outline:
1. Scope of directing and leading
2. Characteristics of a good leader
3. Leadership function
4. Leadership styles
5. Motivation
6. Theories of motivation
7. Leadership theories

Scope of Directing and Leading

Directing:
Refers to instructing, guiding, communicating and inspiring people so that
the objectives can be achieved.
• It is part of management process which ensures the efficiency and
effectiveness of the employees.
• It is also called management in action.
• The function of directing is concerned with employee orientation, issuing
instructions, supervision, motivation, communication and leadership.
• Employee Orientation: An employee must be properly oriented to the
enterprise in which they are working. This orientation is necessary for
them to accomplish the objectives of the enterprise.
• Instructions: An instruction is an order or command by a senior
directing a subordinate to act or refrain from acting under a given
situation. The right to issue orders should be with the superior by virtue
of his position.
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• Supervision: In order to see that the work is done according to the
instructions the superior must observe the activities of the subordinates.
Supervision is done at all levels of management. However, supervision is
more important at lower levels.
• Motivation: One of the most challenging problems for management is to
motivate people. Management has to induce the employee to utilise his
talent and skill to contribute to the organisational goal.
Nature and Characteristics of Directing:
Directing is characterized by the following distinguishing features:

1. Element of management. Directing is one of the important functions of

management. It is through direction that management initiates action in the
organization.

2. Continuing function. Direction is continuous process and it continues

throughout the life of an organization. A manager never ceases to guide,
inspire and supervise his subordinates. A manager cannot get things done
simply by issuing orders and instruction. He must continually provide
motivation and leadership to get the orders and instructions executed.

3. Pervasive function. Direction initiates at the top and follows right up to

the bottom of an organization. Every manager in the organization gives
direction to his subordinates as superior and receives direction as
subordinates from his superior. Direction function is performed at every
level of management and in every department of the organization.

4. Creative function. Direction makes things happen and converts plans into
performance it is the process around which all performance revolves.
Without direction, human forces in an organization become inactive and
consequently physical factors become useless. It breathes life into
organization.

5. Linking function. Planning, organizing and staffing are merely

preparation for doing the work and work actually starts when managers
perform the directing function. Direction puts plans into an action and
provides performance for measurement and control. In this way, directing
serves as a connecting link between planning and control.

6. Management of human factor. Direction is the interpersonal aspects of

management. It deals with the human aspect of organization. Human
behaviour is very dynamic and is conditioned by a complex of forces about
which not much is known. Therefore, direction is a very difficult and
challenging function.
Principles of Directing
Directing is a complex function as it deals with people whose behaviour is
unpredictable. Effective direction is an art which a manager can learn and
perfect through practice. However, managers can follow the following
principles while directing their subordinates.
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1. Harmony of objectives. Individuals join the organization to satisfy their

physiological and psychological needs. They are expected to work for the
achievement of organizational objectives. They will perform their tasks
better if they feel that it will satisfy their personal goals.
2. Maximum individual contribution. Organizational objectives are
achieved at the optimum level when every individual in the organization
makes maximum contribution towards them. Managers should, therefore, try
to elicit maximum possible contribution from each subordinate.

3. Unity of command. A subordinate should get orders and instruction from

one superior only. If he is made accountable to two bosses simultaneously,
there will be confusion, conflict, disorder and indiscipline in the organization.
Therefore, every subordinate should be asked to report to only one manager.

4. Appropriate techniques. The manager should use correct direction

techniques to ensure efficiently of direction. The technique used should be
suitable to the superior, the subordinates and the situation.

5. Direct supervision. Direction becomes more effective when there is a

direct personal contact between the superior and his subordinates. Such
contact improves the morale and commitment of the employees. Therefore,
whenever possible direct supervision should be used.

6. Managerial communication. A good system of communication between

the superior and his subordinates helps to improve mutual understanding.
Upwards communication helps a manager to understand the subordinates to
express their feeling.

Leading:
• The process of influencing people so that they will contribute to
organizational and group goals.
• Managing requires the creation and maintenance of an environment in
which individuals work together toward the accomplishment of common
objectives.
Leading function has three basic components:
• Motivating Employees – They motivate their employees and
subordinates.
• Influencing Employees – They influence their employees and
subordinates to reach the desired goals of the organization.
• Forming Effective Groups – They form effective groups in the
organization.

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 The leading function helps any organization go forward to attain its goals and
objectives.

Importance of Leading in Management

Commencing an Action – Leaders are the people who start an action. They
generally take the risk of any action.
Providing Instructions – They provide instructions to conduct and finish a
job.
Motivating Others – They do motivate their subordinates.
Improve Confidence – when employees are frustrated, demotivated, and
stressed by lengthy working pressure, leaders help to redevelop their
confidence.
Building Morale – leaders develop the code of ethics that help to develop
the morality of the employees.
Building an Efficient Working Environment – they build the working
environment in such way that employees can work there very comfortably.
Coordination – after any type of conflict of interest or chaos in
an organization, it is very important to reinstall the normal environment in
that organization. Leaders reinstall the working environment.

Leadership
Leadership – The art or process of influencing people so that they will strive
willingly and enthusiastically toward the achievement of group goals.
Peter Ducker stated – “Management is doing the right things and Leadership
is doing the things right”
 Ideally people should be encouraged to develop not only willingness
to work but also willingness to work with zeal and confidence.
 Leaders act to help a group attain objectives through the maximum
application of its capabilities.
Characteristics of a Good Leader
Honesty – your business and its employees are a reflection of yourself, and if
you make honest and ethical behavior a key value, you team will follow suit.
Ability to delegate – Trusting your team with your idea is a sign of strength,
not weakness. Delegating tasks to the appropriate departments is one of the
most important skills you can develop.
Communication – Being able to clearly describe what you want done is
extremely important. If you can’t relate your vision to your team, you won’t
all be working towards the same goal.
Sense of humor – If you are constantly learning to find the humor in the
struggles, your work environment will become a happy and healthy space,
where your employees look forward to working in.
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Leading (Part1)

Confidence – Assure everyone that setbacks are natural and the important
thing is to focus on the larger goal. By staying calm and confident, you will
help keep the team feeling the same.
Commitment – If you expect your team to work hard and produce quality
content, you’re going to need to lead by example.
Positive attitude – Keep your team motivated towards the continued
success of the company, and keep the energy levels up.
Creativity – it is during these critical situations that your team will look to
you for guidance and you may be forced to make a quick decision. It is
important to learn to think outside the box.
Ability to inspire – Being able to inspire your team is great for focusing on
the future goals. It is your job to keep spirits up, and that begins with an
appreciation for the hard work.
Intuition – When leading a team through uncharted waters. There is no
roadmap on what to do. Everything is uncertain, and the higher the risk, the
higher the pressure.

Leadership Functions
Following are the important functions of a leader:
1. Setting Goals:
A leader is expected to perform creative function of laying out goals and
policies to persuade the subordinates to work with zeal and confidence.
2. Organizing:
The second function of a leader is to create and shape the organization on
scientific lines by assigning roles appropriate to individual abilities with the
view to make its various components to operate sensitively towards the
achievement of enterprise goals.
3. Initiating Action:
The next function of a leader is to take the initiative in all matters of interest
to the group. He should not depend upon others for decision and judgment.
He should float new ideas and his decisions should reflect original thinking.
4. Co-Ordination:
A leader has to reconcile the interests of the individual members of the group
with that of the organization. He has to ensure voluntary co -operation from
the group in realizing the common objectives.
5. Direction and Motivation:

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 It is the primary function of a leader to guide and direct his group and
motivate people to do their best in the achievement of desired goals, he
should build up confidence and zeal in the work group.
6. Link between Management and Workers:
A leader works as a necessary link between the management and the
workers. He interprets the policies and programmes of the management to
his subordinates and represents the subordinates’ interests before the
management. He can prove effective only when he can act as the true
guardian of the interests of his subordinates.

Leadership styles based on use of authority

1. Authoritarian or autocratic leader - the leader tells his or her
employees what to do and how to do it, without getting their advice.
2. Participative or democratic leader - the leader includes one or more
employees in the decision making process, but the leader normally
maintains the final decision making authority.
3. Laissez-fair (free-rein) leader - the leader allows the employees to
make the decisions, however, the leader is still responsible for the
decisions that are made.
Motivation
What is Motivation?
Motivation refers to the process by which a person’s efforts are energized
directed and sustained towards attaining a goal.
Three key elements:
Energy - The energy element is a measure of intensity or drive. A motivated
person puts forth effort and works hard however the quality of effort must
also be considered.
Direction - High levels of effort do not necessarily need to favorable job
performance unless the effort is channeled in a direction that benefits the
organization.
Persistence - Effort that is directed toward and consistent with organization
goals is the kind of effort we want from employees.
Finally motivation includes a persistence dimension. We want employees to
persist in putting forth effort to achieve those goals.

Theories of Motivation
• Maslow’s Hierarchy Of Needs Theory
• McGregor’s Theory X and Theory Y
• Herzberg’s Two-Fact Theory
• McClelland’s Three-Needs Theory
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Leading (Part1)

Maslow’s Hierarchy of Needs Theory

Self-actualization
(personal growth
and fulfilment)

Self-esteem
(achievement, status,
responsibility,
reputation)

Belongingness and Love needs

(family, affection, relationships,
work group, etc.)

Safety needs (security, law, limits, stability ,

protection, etc.)

Physiological needs (basic life needs: food, shelter, clothing,

air, water, etc.)

Figure 10.1 – Maslow’s hierarchy of Needs

Maslow's hierarchy is a flawed model, which has never been proven to apply
in workplace settings, indeed Maslow himself saw no evidence that it worked
in a workplace setting (Maslow, 2000). It should thus be treated with caution.
However it does at least indicate that people are motivated differently, for
example pay motivated differently depending on which the level of hierarchy
people worked in.
1. Self-actualization: highest need in his hierarchy. it is the desire to
become what one is capable of becoming - to maximize one's potential
and to accomplish something.
2. Self-esteem: According to Maslow, once people begin to satisfy their
need to belong, they tend o want to be held in esteem both by
themselves and by others. this kind of need produces such satisfaction
as power, prestige, status, and self-confidence.
3. Belongingness and Love needs: since people are social beings, they
need to belong, to be accepted by others.
4. Safety needs: People want to be free of physical danger and of the fare
of losing a job, property, food, or shelter.
5. Physiological needs: these are the basic needs for sustaining human
life itself, such as food, water, warmth, shelter, and sleep. Maslow took
the position that, until these needs are satisfied to the degree
necessary to maintain life, other needs will not motivate people.
McGregor’s Theory X And Theory Y
• Theory X: the assumption that employees dislike work, are lazy, dislike
responsibility, and must be coerced to perform
• Theory Y: the assumption that employees like work, are creative, seek
responsibility, and can exercise self-direction

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Comparison:
Labeled theory X (Negative)
• Employees inherently dislike work and, whenever possible, will attempt
to avoid it.
• Since employees dislike work, they must be coerced, controlled, or
threatened with punishment to achieve goals.
• Employees will avoid responsibilities and seek formal direction whenever
possible.
• Most workers place security above all other factors associated with work
and will display little ambition.
Labeled theory Y (Positive)
• Employees can view work as being as natural as rest or play.
• People will exercise self-direction and self-control if they are committed
to the objectives.
• The average person can learn to accept, even seek, responsibility.
• The ability to make innovative decision is widely dispersed throughout
the population and is not necessarily the sole province of those in
management positions.

Herzberg’s Motivation-Hygiene theory

• Developed by Fredrick Herzberg.
• Also known as Two Factor Theory.
• Portrays two different factors – hygiene factors and motivator factors – as
the primary causes of job dissatisfaction and job satisfaction.

Figure 10.2 – Two Factor Theory

Two Factor Theory also known as Motivation-Hygiene Theory was developed
by Herzberg.
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Leading (Part1)

The popularity of Herzberg’s Theory of Motivation is explained by the fact

that his theory touches on factors that are often used by managers to
motivate people in the work setting. Herzberg’s classifies the job factors
which motivates into two – the motivators and the satisfiers.
 Hygiene factors. (Mostly Extrinsic)
Source of job dissatisfaction.
Associated with the job context or work setting.
Improving hygiene factors prevent people from being dissatisfied but do not
contribute to satisfaction.
 Motivator factors. (Mostly Intrinsic)
Source of job satisfaction.
Associated with job content.
Building motivator factors into the job enables people to be satisfied.
Absence of motivator factors in the job results in low satisfaction, low
motivation, and performance.
Hygiene or maintenance factors
• Focuses on outcomes that lead to higher motivation and job satisfaction,
and those outcomes that can prevent dissatisfaction.
• Unsatisfied hygiene needs create dissatisfaction; satisfaction of hygiene
needs does not lead to motivation or job satisfaction.
• Motivator needs relate to the nature of the work itself—autonomy,
responsibility, interesting work.
• Hygiene needs are related to the physical and psychological context of the
work—comfortable work environment, pay, job security

McClelland’s Three-Needs Theory

David C. McClelland has contributed to the understanding of motivation by
identifying three types of basic motivating needs.
He classified three basic motivating needs to:
Need for achievement: people with a high need for achievement have an
intense desire for success and an equally intense fear failure. They want to be
challenged, and they set moderately difficult goals for themselves. They take
a realistic approach to risk. They tend to be restless, like to work long hours,
do not worry unduly about failure if it does occur, and tend to like to run
their own shows.
Need for Power: McClelland and other researchers have found that people
with a high need for power have a great concern with exercising influence

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 and control. Such individuals generally are seeking positions of leadership;
they are frequently good conversationalists, though often argumentative;
they are forceful, outspoken, hardheaded, and demanding, and they enjoy
teaching and public speaking.
Need for Affiliation: people with a high need for affiliation usually derive
pleasure from being loved and tend to avoid the pain of being rejected by a
social group. As individuals, they are likely to be concerned with maintaining
pleasant social relationships, to enjoy a sense of intimacy and understanding,
to be ready to console and help others in trouble, and to enjoy friendly
interaction with others.

Leadership Theories
Great Man Theory
 Leaders are born, not made.
 This approach emphasized that a person is born with or without the
necessary traits of leaderships.
Early explanations of leadership studied the “traits” of great leaders
 “Great man” theories (Gandhi, Lincoln, Napoleon)
 Belief that people were born with these traits and only the great
people possessed them
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,
 Great Man approach actually emphasis “charismatic” leadership.
charisma being the Greek word for gift.
 No matter what group such a natural leader finds himself in, he will
always be recognized for what he is.
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 According to the great man theory of leadership, leadership calls for

certain qualities like commanding personality, charm, courage
,intelligence, persuasiveness and aggressiveness.

Trait Theory
Theories that consider personality, social, physical, or intellectual traits to
differentiate leaders from non-leaders.
Leadership Traits are include of:
 Ambition and energy
 The desire to lead
 Honesty and integrity
 Self-confidence
 Intelligence
 Job-relevant knowledge

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.

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Trait Theories Limitations:
 No universal traits that predict leadership in all situations.
 Traits predict behavior better in “weak” than “strong” situations.
 Unclear evidence of the cause and effect of relationship of leadership
and traits.
 Better predictor of the appearance of leadership than distinguishing
effective and ineffective leaders.

Behavioral Theory
Theories proposing that specific behaviors differentiate leaders from non
leaders.
 Pattern of actions used by different individuals determines leadership
potential
Examples
− Autocratic, democratic and laissez-faire
− Michigan Studies: Employee centred versus task centred
Behavioural 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.
Behavioural Theory In contrast with trait theory, behavioural theory
attempts to describe leadership in terms of what leaders do, while trait
theory seeks to explain leadership on the basis of what leaders are.
Leadership according to this approach is the result of effective role
behaviour. Leadership is shown by a person’s acts more than by his traits.
This is an appropriate new research strategy adopted by Michigan
Researchers in the sense that the emphasis on the traits is replaced by the
emphasis on leader behaviour (which could be measured).
 Theories that attempt to isolate behaviors that differentiate effective
leaders from ineffective leaders.
 Behavioral studies focus on identifying critical behavioral determinants
of leadership that, in turn, could be used to train people to become
leaders.
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Behavioral Leadership Studies

The Ohio State Studies sought to identify independent dimensions of leader
behavior
 Initiating structure
 Consideration
The University of Michigan Studies sought to identify the behavioral
characteristics of leaders related to performance effectiveness
 Employee oriented
 Production oriented.

Contingency theory of leadership

People become leaders not only because of their personality attributes but
also because of various situational factors and the interactions between
leaders and group members.
 Any condition to be taken into account when designing the whole or
part of an organization.
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.
Contingency theory of leadership
 In contingency theory of leadership, the success of the leader is a
function of various contingencies in the form of subordinate, task,
and/or group variables. The effectiveness of a given pattern of
leader behavior is contingent upon the demands imposed by the
situation. These theories stress using different styles of leadership
appropriate to the needs created by different organizational
situations.
Fiedler’s contingency theory:
 Fielders' theory is the earliest and most extensively researched.
Fiedler’s approach departs from trait and behavioral models by
asserting that group performance is contingent on the leader’s
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 psychological orientation and on three contextual variables: group
atmosphere, task structure, and leader’s power position.

Path-goal theory
The main function of the leader is to clarify and set goals with subordinates,
help them find the best path for achieving the goals, and remove obstacles.
The Path-Goal model is a theory based on specifying a leader's style or
behavior that best fits the employee and work environment in order to
achieve a goal (House, Mitchell, 1974). The goal is to increase your
employees' motivation, empowerment, and satisfaction so they become
productive members of the organization.
Path-Goal is based on Vroom's (1964)expectancy theory in which an
individual will act in a certain way based on the expectation that the act will
be followed by a given outcome and on the attractiveness of that outcome to
the individual. The path-goal theory was first introduced by Martin Evans
(1970) and then further developed by House (1971).
The path-goal theory can best be thought of as a process in which leaders
select specific behaviors that are best suited to the employees' needs and the
working environment so that they may best guide the employees through
their path in the obtainment of their daily work activities (goals)
(Northouse, 2013).
The theory categorizes leader behavior into four groups:
Supportive leadership behavior gives consideration to the needs of
subordinates, shows concern for their well-being, and creates a pleasant
organizational climate.
Participative leadership allows subordinates to influence the decisions of
their superiors, which may increase motivation.
Instrumental leadership gives subordinate rather specific guidance and
clarifies what is expected of them. It involves aspects of planning, organizing,
coordinating, and controlling by the leader.
Achievement-oriented leadership involves setting challenging goals,
seeking improvement of performance, and having confidence that
subordinates will achieve high goals.

Types of Leaders:
Transactional leaders identify what needs to be done to achieve goals,
including clarifying roles and tasks, rewarding performance, and providing
for the social needs of followers.
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.
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Transactional leadership styles are more concerned with maintaining the

normal flow of operations. Transactional leadership can be described as
"keeping the ship afloat." Transactional leaders use disciplinary power and
an array of incentives to motivate employees to perform at their best. The
term "transactional" refers to the fact that this type of leader essentially
motivates subordinates by exchanging rewards for performance. A
transactional leader generally does not look ahead in strategically guiding an
organization to a position of market leadership; instead, these managers are
solely concerned with making sure everything flows smoothly today.
Transformational leaders articulate a vision, inspire and motivate
followers, and create a climate favorable for organizational change.
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
A transformational leader goes beyond managing day-to-day operations and
crafts strategies for taking his company, department or work team to th e
next level of performance and success. Transformational leadership styles
focus on team-building, motivation and collaboration with employees at
different levels of an organization to accomplish change for the better.
Transformational leaders set goals and incentives to push their subordinates
to higher performance levels, while providing opportunities for personal and
professional growth for each employee.
Advantages
Both leadership styles are needed for guiding an organization to success.
Transactional leaders provide distinct advantages through their abilities to
address small operational details quickly. Transactional leaders handle all
the details that come together to build a strong reputation in the
marketplace, while keeping employees productive on the front line.
Transformational leadership styles are crucial to the strategic development
of a small business. Small businesses with transformational leaders at the
helm shoot for ambitious goals, and can they achieve rapid success through
the vision and team-building skills of the leader.

References
Rodriguez, R.A., "Fundamentals of Management"
Wiehrich, H., Cannice, M.V., Koontz, H., "Management, A Global and Entrepreneurial
Perspective, 13th Ed."
John Schermerhorn's. Management 11th edition, (2010), John Wiley & Sons ISBN:

Course Module
Other sources:
www.wisdomjobs.com
www.gotabout.info
http://visual.ly/characteristics-good-leader
www.utwente.nl
http://smallbusiness.chron.com
http://www.yourarticlelibrary.com
http://www.leadership-central.com
http://www.slideshare.net/kesarinandan96
http://nwlink.com
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Leading (Part 2)

Communication applies to all phases of managing, it is particularly important

in the function of leading. Communication is the transfer of information from
a sender to a receiver, with the information being understood by receiver.
This definition forms the basis for the communication process model
discussed in this lesson. the model focuses on the sender, the transmission,
and the good communication, and feedback, that facilitates communication.
Topic Outline:
1. Definition of communication
2. Communication process model
3. Different types of communication
4. Communication flow
5. Management change and diversity
6. Change management process
7. The difference between Filipino and Foreign Cultures: A Leadership
Challenge
8. The difference between Cross-cultural and intercultural communication

Definition of Communication
Communication
The transfer of information from a sender to a receiver, with the information
being understood by receiver.
What is Managerial Communication?
Managerial communication enables people to exchange information and
feedbacks within the organization and enables people to pursue the
organizational goals.
Why communication is needed in management?
 To establish and disseminate the goals of an enterprise;
 To develop plans for their achievement;
 To organize human and other resources in the most effective and efficient
way;
 To select, develop, and appraise members of the organization;
 To lead, direct, motivate, and create a climate in which people want to
contribute; and
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 To control performance.

The Purpose of Communication

The purpose of communication in an enterprise is to effect change – to
influence action toward the welfare of the enterprise. Communication is
essential for the internal functioning of enterprises because it integrates the
managerial functions.
1. to establish and disseminate the goals of an enterprise;
2. to develop plans for their achievement;
3. to organize human and other resources in the most effective and
efficient way;
4. to select, develop, and appraise members of the organization;
5. to lead, direct, motivate, and create a climate in which peo ple want to
contribute; and
6. to control performance

Figure 11.1 – The purpose and function of communication

Graphically shows not only that communication facilitated the managerial
functions but also that communication relates an enterprise to its external
environment. It is through information exchange that managers become
aware of the needs of customers, the availability of suppliers, the claims of
stockholders, the regulations of governments, and the concerns of the
community. It is communication that any organization becomes an open
system interacting with its environment.
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The Communication Process Model

Figure 11.2 – The Communication Process

Sender of the message: Communication begins with the sender, who has a
thought or an idea, which is then encoded in a way that can be understood by
both the sender and the receiver. While it is usual to think of encoding a
message into a spoken language, there are many other ways of encoding,
such as translating the thought into computer language.
Use of a channel to transmit the message: the information is then
transmitted over a channel that links the sender with the receiver. The
message may be oral or written, and its transmission may be through a
memorandum, a computer, telephone, a telegram, email, television, or other
media. The proper selection of the channel is vital for effective
communication.
Receiver of the message: the receiver has to be ready for the reception of
the message so that it can be decoded into thoughts. The next step in the
process is decoding, in which the receiver converts the message into
thoughts. Accurate communication can occur only when both the sender and
the receiver attach the same, or at least similar meanings to the symbols that
compose the message. Communication is not complete unless it is
understood. Understanding is in the mind of both the sender and the
receiver. Persons with closed mind will normally not completely understand
messages, especially if the information is a contrary to their value system.
Noise: Anything – whether in the sender, the transmission, or the receiver –
that hinders communication.
Feedback: to check the effectiveness of communication, a person must have
feedback. One can never be sure whether or not a message has been
effectively encoded, transmitted, decoded, and understood until it is
confirmed by feedback. Similarly, feedback indicates whether individual or
organizational change has taken place as a result of communication.

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Types of Communication

1. Verbal communication: Face-to-face, telephone, radio, television and

other media.
2. Written communication: Letters, e-mails, books, magazines, the
Internet or via other media.
3. Non-Verbal communication: Body language, gestures, how we dress
or act - even our scent.
4. Visualization: Graphs, charts, maps, logos.
Barriers and Breakdowns in Communication
1. Lack of planning
2. Unqualified Assumption
3. Semantic distortion
4. Poorly expressed message
Communication barriers in the International environment
1. Loss by transmission and poor retention
2. Poor listening and pre-mature evaluation
3. Impersonal communication
4. Distrust, Threat, and Fair
5. Insufficient period for adjustment to change
6. Information Overload
Organizational Communication Types
Formal Communication – communication that takes place within
prescribed organizational work arrangements.
Informal Communication – communication that is not defined by the
organization’s structural hierarchy.

Formal communication Informal communication

Official channel Unofficial channel

Planned and systematic Unplanned and spontaneous

Part of organization str Cuts across formal relationships

Oriented towards goals and task of the Directed towards goals and need
enterprise satisfaction of individual

Impersonal Personal and social

Stable and rigid Flexible and instable

Slow and structured Fast and unstructured

Table 11.1
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Direction of Communication Flow

Upward communication: travel from subordinates to superiors and
continues up the organizational hierarchy.
Downward communication: flows from people at higher levels to those at
lower levels in the organizational hierarchy.
Horizontal: flow of information is among people on the same or similar
organizational levels.

Guidelines for Improving Communication

Effective communication is the responsibility of all persons in the
organization, managers as well as non-managers, in working toward a
common aim. Whether communication is effective can be evaluate by the
intended results. The following guidelines can help overcome the barriers to
communication.
1. Clarify the purpose of the message
Senders of messages must clarify in their minds what they want to
communicate. This means that one of the first steps in communicating is to
clarify the purpose of the message and to make a plan to achieve the
intended end.
2. Use intelligible encoding
Effective communication requires that encoding and decoding be done with
symbols that are familiar to both the sender and the receiver of the message.
Thus, the manager (and specially the staff specialist) should avoid
unnecessary technical jargon, which is intelligible only to experts in the their
particular field.
3. Consult others’ views
The planning communication should not be done in the vacuum. Instead,
other people should be consulted and encouraged to participate: to collect
the facts, analyze the message, and select the appropriate media.
4. Consider receivers’ needs
It is important to consider the needs of the receivers of the information.
Whenever appropriate, one should communicate something that is of value
to them, in the short run as well as in the more distant future. At times,
unpopular actions that affect employees in the short run may be more easily
accepted if they are beneficial to them in the long run.
5. Use appropriate tone and language and ensure credibility
There is a saying that the tone makes the music. Similarly, in communication,
the tone of voice, the choice of language, and the congruency between what is
said and how it is said influence the reaction of the receiver of the message.
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 An autocratic manager ordering subordinate supervisors to practice
participative management will create a credibility gap that will be difficult to
overcome.
6. Get feedback
Too often, information is transmitted without communicating.
Communication is complete only when the message is understood by the
receiver. And the sender never knows whether the message is understood
unless he or she gets feedback. This is accomplished by asking questions,
requesting a reply to a letter, and encouraging receivers to give their reaction
to the message.
7. Consider receivers’ emotions and motivations
The function of communication is more than transmitting information. It also
deals with emotions, which are very important in interpersonal relationships
between superiors, subordinates, and colleagues in an organization.
Furthermore, communication is vital for creating an environment in which
people are motivated to work toward the goals of the enterprise while they
achieve their personal aims. Another function of communication is control.
As explained in the discussion of management by objectives (MBO), control
does not necessarily mean top-down control. Instead, the MBO philosophy
emphasizes self-control, which demands clear communication with an
understanding of the criteria against which performance is measured.
8. listen
Effective communicating is the responsibility not only of the sender but also
of the receiver of the information. Thus, listening is an aspect that needs
additional comment.

Management of Change and Diversity

Change Management:
Change management is an approach to shifting or transitioning individuals,
teams & organisations from a current state to a desired future state.
Change management is the process, tools & techniques to manage the
people-side of change to achieve the required business outcome(s)

Change Management Process

The change management process is the sequence of steps or activities that a
change management team or project leader would follow to apply change
management to a project or change.
Change management processes contain the following three phases:
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Figure 11.3
1) Preparing for change (Assessment)
 Identifying the problem: Opportunity that necessitates change
(symptoms)
 Data collection: Gathering structural, technological and people
information and effects of these elements on the process
 Data analysis: Summarizing the data ( advantages, dis-advantages, risks,
and consequences)
 Strategic determination: Identifying possible solutions, barriers,
strategies
 Decide if the change is necessary.
 Make others aware of the need for the change.
 Swot analysis and basic 4 forces models: (environmental forces
,organizational forces , task demand , personal need.)
2) Managing change (Planning and Implementation)
 State goal and specific measurable objectives and also the time allotted.
 Establishing the who, how, what, and when of change.
 Allocating resources, budget and evaluation methods.
 Plan for resistance management.
 Identify areas of support & resistance.
 Include everyone in the planning that will be affected.
 Establish target dates for implementation.
 Develop appropriate strategy for alteration.
 Be available to support others through the process.
 Evaluate the change then modify if necessary.
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3) Reinforcing change (Evaluation)
 Determining effectiveness of change.
 Achieved objectives and benefits - qualitative as well as financial and the
documented evidences of being achieved.
Stabilize the change: - taking measures to reinforce and maintain the
change.

Kurt Lewin’s Change Management Process

Moving
Unfreezing

Refreezing
Creating the Designing and Reinforcing and
motivation and implementing stabilizing new
desire for change actual change methods,
procedures and
behaviors

Figure 11.4
Unfreeze
 The existing equilibrium. Motivate persons by getting them ready for
change and increase willing to change.
 Build trust and recognition for the need to change.
 Actively participate in identifying problems and generate alternative
solutions.
 Is the development through problem awareness of a need for change.
Moving
 Work toward change by identifying the problem or the need for change.
 Explore the alternatives,
 Defining goals & objectivities
 Plan how to accomplish the goal &
 Implement the plan for change.
 Get persons to agree that the status quo is not beneficial to them.
Refreezing
 Does the integration of the change happened into ones personality &
consequently stabilization of the change happened?
 Then reinforce the new patterns of behavior. (Positive change)
 New level of equilibrium.
 Frequently person tries to return to old behavior after the change effort
ceases.(Negative change)
Steps for Successful Change Management
 Increase urgency: inspire people to move
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 Build the guiding team: the right people

 Get the vision right: simple vision and strategy
 Empower action: Remove obstacles
 Create short-term wins: Set aims that are easy to achieve
 Don't let up: highlight achieved and future milestones
 Make change stick: Weave change into culture

Types of Change
There are two types of change in an organization:
Planned change - refers to initiatives that are driven “top-down” in an
organization.
“Emergent” change - refers to a situation in which change can originate from
any level in the organization.

Areas of Change in an Organization

Strategic Change
Sometimes in the course of normal business operation it is necessary for
management to adjust the firm's strategy to achieve the goals of the
company, or even to change the mission statement of the organization in
response to demands of the external environments.
 Adjusting a company's strategy may involve changing its fundamental
approach to doing business: the markets it will target, the kinds of
products it will sell, how they will be sold, its overall strategic orientation,
the level of global activity, and its various partnerships and other
joint‐business arrangements.
Structural Change
 Organizations often find it necessary to redesign the structure of the
company due to influences from the external environment.
 Structural changes involve the hierarchy of authority, goals, structural
characteristics, administrative procedures, and management systems.
 Almost all change in how an organization is managed falls under the
category of structural change.
 A structural change may be as simple as implementing a no‐smoking
policy, or as involved as restructuring the company to meet the customer
needs more effectively.
Process‐oriented Change
 Organizations may need to reengineer processes to achieve optimum
workflow and productivity.

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 Process‐oriented change is often related to an organization's production
process or how the organization assembles products or delivers services.
 The adoption of robotics in a manufacturing plant or of laser‐scanning
checkout systems at supermarkets are examples of process‐oriented
changes.
People‐centred Change
 This type of change alters the attitudes, behaviors, skills, or performance
of employees in the company.
 Changing people‐centered processes involves communicating,
motivating, leading, and interacting within groups.
 This focus may entail changing how problems are solved, the way
employees learn new skills, and even the very nature of how employees
perceive themselves, their jobs, and the organization.
 Some people‐centered changes may involve only incremental changes or
small improvements in the process.

Causes for Employee Resistance to Change

In some cases, employees resist change for the following reasons:
• Lack of trust
• Perception that change is not necessary
• Perception that change is not possible
• Relatively high cost
• Fear of personal failure
• Loss of status or power
• Threats to values and ideas
• Social, cultural or organizational disagreements
• Resentment of interference

Managing Resistance to Change

1. Participation and Involvement:
Participation ensure commitment in implication of changes. Secondly,
participation will be easier when individual recognizes his personal benefit
to be gained from change
2. Communication and Education:
If information is inaccurate and not adequate then it is necessary to educate
employees through training classes , meetings and conferences. changes
must be communicated clearly without doubt in these meetings.
3. Leadership:
A leader with stronger influence and have command from the members to
exert emotional pressure on its followers to bring about the change.
4. Negotiation and Agreement:
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Negotiation is a technique used to balance the point of difference within

parties. Such negotiation happened in bargaining with Labor Unions. In such
case individual or group end up in losers as a result of change where
individual or group have considerable power to resist.
5. Willingness Of The Sake Of The Group:
Some individuals may be willing to accept changes when group belonging to
willing to accept the change. This especially true when the individual has a
Continuous Psychological Relationship with Group.
6. Timing Of Change:
Timing of introduction of change can have a considerable impact on
resistance. Management must be careful in choosing the time when
organizational climate is highly favorable to change.

Filipino and Foreign Cultures: A Leadership Challenge

Cross cultural differences in business culture and everyday living in the
Philippines can cause many obstacles to successful business endeavours if
not carefully considered.
Cross cultural training courses such as Doing Business in the Philippines and
Living and Working in the Philippines give an in-depth understanding of the
cultural behaviour and perception patterns and provide strategies and
solutions on how to deal with challenges if they occur.
The key cultural differences between Filipino and International
organizations:
HIERARCHY
Power relations in Philippine organisations are very hierarchical with the
senior manager taking a patriarchal role at the tip of the pyramid. Employees
rarely correct or challenge authority figures but follow their instructions
uncommented. They are also reluctant to say “no” to superior s even when
they know they won’t meet the deadline. Foreigners doing business in the
Philippines tend to be irritated by this dependent working attitude and often
misinterpret it as indifference or a lack of interest.
MAKING DECISIONS
Filipinos place a lot of emphasis on group harmony. Consensus is therefore
crucial when making decisions so a lot of time is dedicated to hearing and
considering opinions. Empirical data and rules are usually not considered a
liable source in this process but attention is mainly given to intuition and
immediate feelings. Not adhering to this style of negotiation can result in
severe misunderstandings and even unsuccessful business outcomes. An
intercultural training course on business and social culture in the Philippines
will prepare you thoroughly to feel comfortable when discussing business
issues with Filipino counterparts.
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 PERSONAL RELATIONSHIPS
Closely linked to the need for group harmony is the high importance Filipinos
attribute to personal relationships and relationship building. Most business
relations in the Philippines are established through friends or colleagues and
before business matters are discussed Filipinos like to engage in personal
small talk. Foreigners often get frustrated and feel meetings do not run
efficiently because so much time is designated to establishing and cultivating
relationships. They tend to underestimate the importance of socialising and
rapport building.
FACE
The concept of face in the sense of personal reputation has a large impact on
everyday behaviour patterns in the Philippines. Maintaining self-control is of
utmost importance in this regard and failure to do so can result in a huge
degradation of status. Filipinos therefore have a very indirect style of
communication and try to remain calm and refrain from criticising people in
public. For the same reason “no” as a sign of disagreement is rarely used.
Foreigners often struggle to understand the importance of face. A cross
cultural training course on Doing Business in the Philippines will give you an
in-depth insight into acceptable communication and behaviour to avoid
misunderstandings and offenses.
TIME
Filipinos have a very relaxed approach to time which determines pace of life
at work and outside. Deadlines and appointments are perceived as flexible
rather than definite and finishing off a conversation properly is usually
regarded more important than arriving on time. Foreigners often find it
difficult to deal with this mañana lifestyle and the many delays they
encounter when dealing with counterparts in the Philippines. A Doing
Business in the Philippines intercultural training course provides the
necessary insight that international business people need to be able to adjust
their expectations accordingly beforehand and forego any feeling of
frustration and discontent.

Cross-cultural Vs. Intercultural Communication

Cross-cultural Communication - implies a comparison of and contrast
between particular aspects of communication between cultures.
Cross-cultural communication has become strategically important to
companies due to the growth of global business, technology, and the Internet.
Understanding cross-cultural communication is important for any company
that has a diverse workforce or plans on conducting global business. This
type of communication involves an understanding of how people from
different cultures speak, communicate, and perceive the world around them.
Cross-cultural communication in an organization deals with understanding
different business customs, beliefs and communication strategies. Language
differences, high-context vs. low-context cultures, nonverbal differences, and
power distance are major factors that can affect cross-cultural
communication.
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Intercultural Communication - the communication between people from

different cultures (it refers to what happens when these culturally-different
groups come together, interact and communicate).
Intercultural communication refers to the effective communication
between people/ workers/ clients of different cultural background. It also
includes managing thought patterns and non verbal communication.

Culture Shock
A sense of confusion and uncertainty sometimes with feelings of anxiety that
may affect people exposed to an alien culture or environment without
adequate preparation.

Stages of Culture Shock:

Most people experience culture shock in stages. Some people go through the
stages of this process multiple times, and some may only partially apply to
you. The stages are:
The Honeymoon Stage
During this stage, everything about the new culture is exciting to you. You are
optimistic and will generally focus on the positive aspects of your new home.
You will study your new language with enthusiasm and make great progress.
During this stage, memories of home are still recent and form a kind of
protective shield.
The Disintegration Stage
This stage can be triggered without warning by a small incident or by no
cause at all. You will start to view cultural differences as a source of conflict.
You might feel isolated, confused, and depressed, and miss familiar supports.
The Reintegration Stage
During this stage, you may begin to compare the new culture unfavorably
with your home culture. You might begin to reject the differences you
encounter, and experience feelings of anger, frustration, and hostility
towards the new culture. You might seek out comfort feed from your home
country in an attempt to reconnect with what you value about yourself and
your own culture.
The Acceptance Stage
During this stage, you will learn to accept both differences and similarities
between your home culture and the new one. You will become more relaxed
and confident while you become more familiar with new situations and more
experiences become enjoyable.

Course Module
References
Rodriguez, R.A., "Fundamentals of Management"
Wiehrich, H., Cannice, M.V., Koontz, H., "Management, A Global and Entrepreneurial
Perspective, 13th Ed."

Other sources:
www.communicaid.com
www.slideshare.net
www.study.com
www.internationalstudentinsurance.com
 Organization and Management
1
Controlling

Controlling

An organization is a group of persons working together for specified

purposes or goals. Top management defines these as “organizational goals”.
The behavioral aspect of control should not only narrow the gap between
personal goals and organizational goals but should motivate employees to
strive toward these organizational goals.
The design of a control system can facilitate coordination and coope ration.
The control system consists of the control process and the control structure.

Topic Outline:
• Definition and nature of management control
• The link between planning and control
• Control methods and systems
• Application of management control in accounting and marketing concepts
and techniques
• Role of budgets in planning and control.

Nature of Management Control

Controlling - The measurement and correction of performance in order to

make sure that enterprise objectives and the plans devised to attain them are
being accomplished.
In controlling, the manager evaluates how well the organization is achieving
its goals and takes corrective action to improve performance.
The outcome of controlling function is the accurate measurement of
performance and regulation of efficiency and effectiveness.

Management Control – managers influence other members of the

organization to implement the organization’s strategies.

Course Module
The Basic Control Process
Control techniques and systems are essentially the same for controlling cash,
office procedures, morale, product quality, and anything else. The basic
control process involves three steps:
1. Establishing standards
Standards are simply criteria of performance. They are the selected points in
an entire planning program at which measures of performance are made of
that managers can receive signals about how things are going and thus do
not have to watch every step in the execution of plans.
Measurement of performance
The measurement of performance against standards should ideally be done
on a forward-looking basis so that deviations may be detected in advance of
their occurrence and avoided by appropriate actions. The alert, forward-
looking manager can sometimes predict probable departures from
standards. In the absence of such ability, however, deviation should be
disclosed as early as possible.
Correlation of deviations
Standards should reflect the various positions in an organization structure. If
performance I measured accordingly, it is easier to correct deviations.
Managers know exactly where, in the assignment of individual or group
duties, the corrective measures must be applied.
Correction of deviations is the point at which control can be seen as a part of
the whole system of management and can be related to the other managerial
functions.

Importance of Controlling:
The significance of the controlling function in an organization is as follows:
1. Accomplishing Organizational Goals:
Controlling helps in comparing the actual performance with the
predetermined standards, finding out deviation and taking corrective
measures to ensure that the activities are performed according to plans.
Thus, it helps in achieving organizational goals.
2. Judging Accuracy of Standards:
An efficient control system helps in judging the accuracy of standards. It
further helps in reviewing & revising the standards according to the changes
in the organization and the environment.
3. Making Efficient Use of Resources:
Controlling checks the working of employees at each and every stage of
operations. Hence, it ensures effective and efficient use of all resources in an
organization with minimum wastage or spoilage.
4. Improving Employee Motivation:
Employees know the standards against which their performance will be
judged.
 Organization and Management
3
Controlling

Systematic evaluation of performance and consequent rewards in the form of

increment, bonus, promotion andetc. motivate the employees to put in their
best efforts.
5. Ensuring Order and Discipline:
Controlling ensures a close check on the activities of the employees. Hence, it
helps in reducing the dishonest behavior of the employees and in creating
order and discipline in an organization.
6. Facilitating Coordination in Action:
Controlling helps in providing a common direction to the all the activities of
different departments and efforts of individuals for attaining the
organizational objectives.

The Link between Planning and Controlling

Planning and Controlling are inter-related within any organization. Planning
sets the goals for the organization and controlling ensures its
accomplishment.
The relationship between them is explained as under:
• Planning Originates Controlling: In planning process, the objectives or
targets are to be set, and for achieving these goals, control process is
required. So we can say that planning precedes controlling.
• Control sustains planning: Controlling directs the course of planning.
Controlling spots the areas where planning is required.
• Controlling provides information for planning: In controlling, the
performance is compared with standards and deviations. The information
collected during any type of controlling should be used for planning also.
• Planning and control are inter-related: Planning is the initial step and
controlling is in the process and required at every step. That is why both
are dependent upon each other and inter-related.

Control Methods and Systems

Principles of Critical Point Control
− control, one the more important control principle, states that effective
control requires attention to those factors critical to evaluating
performance against plans. another way of controlling is comparing
company performance with that of other firms through
benchmarking.

Course Module
Different types of critical points standards:
1. Physical standards
Physical standards are nonmonetary measurements and are common at the
operating level, where materials are used, labor is employed, services are
rendered, and goods are produced. They may reflect quantities, such as
labor-hours per unit of output, units of production per machine-hour, or feet
of wire per ton of copper. Physical standards may also reflect quality, such as
hardness of bearings, durability of a fabric, or fastness of color.
2. Cost standards
Cost standards are monetary measurements, and like physical standards, are
common at the operating level. They attach monetary values to specific
aspects of operations. Illustrative of cost standards are such widely used
measures as direct and indirect costs per unit produced, labor cost per unit
or per hour, material cost per unit, machine-hour costs, and cost per seat-
mile.
3. Capital standards
There are a variety of capital standards, all arising from the application of
monetary measurements to physical items. They have to do with the capital
invested in the firm rather than with operating costs and are therefore
primarily related to the balance sheet rather than to the income statement.
Perhaps the most widely used standard for new investment, as well as for
overall control, is return on investment. The typical balance sheet will
disclose other capital standards, such as the ratios of current assets to
current liabilities, debt to the net worth, fixed investment to total investment,
cash and receivables to payables, and bonds to stocks, as well as the size and
turnover of inventories.
4. Revenue standards
Revenue standards arise from attaching monetary values to sales. They may
include such standards as revenue per bus passenger-mile, average sales per
customer, and sales per capita in a given market area.
5. Program standards
A manager may be assigned to install a variable budget program, a program
for formally following the development of new products, or a program for
improving the quality of sales force. Although some subjective judgment may
have to be applied in appraising program performance, timing and other
factors can be used as objective standards.
6. Intangible standards
More difficult to set are standards not expressed in either physical or
monetary measurements. What standard can a manager use for determining
whether the advertising program meets both short and long-term objectives?
Or whether the public relations program is successful? Are supervisors loyal
to the company’s objectives? Such questions show the difficulty of
establishing standards or goals for clear quantitative or qualitative
measurement.
7. Goals as standards
 Organization and Management
5
Controlling

With the present tendency for better managed enterprises to establish an

entire network of verifiable qualitative or quantitative goals at every level of
management. The use of intangible standards, while still important, is
diminishing. In complex program operations, as well as in the performance of
managers themselves, modern managers are finding that through research
and thinking it is possible to define goals that can be used as performance
standards. While the quantitative goals are likely to take the form of the
standards outlined above, the definition of qualitative goals represents an
important development in the area of standards.
8. Strategic plans as control points for strategic control
Strategic control requires systematic monitoring at strategic control points
and modifying the organization’s strategy based on this evaluation. As
pointed out earlier, planning and controlling are closely related. Therefore,
strategic plans require strategic control. Moreover, since control facilitates
comparison of intended goals with actual performance, it also provides
opportunities for learning, which in turn is the basis for organizational
change. Finally, through the use of strategic control, o ne gains insights not
only about organizational performance but also about the ever -changing
environment by monitoring it.
Strategic control – Systematic monitoring at strategic control points and
modifying the organization’s strategy based on this evaluation.

Benchmarking
Benchmarking is an approach for setting goals and productivity measures
based on best industry practices.
There are three types of benchmarking:
Strategic benchmarking – compares various strategies and identifies the
key strategic elements of success.
Operational benchmarking – compares relative costs or possibilities for
product differentiation.
Management benchmarking – focuses on support functions such as market
planning and information systems, logistics, human resource management,
and so on.

Course Module
Management control
Management control is usually perceived as a feedback system similar to the
common household thermostat.

Figure 12. 2 – Feedback Loop of Management Control

This system places control in a more complex and realistic light than if it is
regarded merely as a matter of establishing standards, measuring
performance, and correcting for deviations. Managers do measure actual
performance, compare this measurement against standards, and identify and
analyze deviations. But then, to make the necessary corrections, they must
develop a program for corrective action and implement this program in
order to arrive at the performance desired.

Real-time information and Control – Information about what is happening

while it is happening.
Feed forward, or Preventive, Control – Managers need for effective control
a system that will tell them potential problems, giving them time to take
corrective action before those problems occur.
Feed-forward versus Feedback Systems
• Feedback systems measure outputs of a process and feed into the system
or the inputs of the system corrective actions to obtain desired outputs.
• Feed-forward systems monitor inputs into a process to ascertain if the
inputs are as planned; if they are not, the inputs or the process is changed
in order to obtain the desired result.
Requirements for Feed-Forward Control
1. Make a thorough and careful analysis of the planning and control system,
and identify the more important input variables.
2. Develop a model of the system.
3. Take care to keep the model up to date.
 Organization and Management
7
Controlling

4. Collect data on input variables regularly, and put them into the system.
5. Regularly assess variation of actual input data from planned-for inputs,
and evaluate the impact on the expected end results.
6. Take action.

Reasons for Control of Overall Performance

• Overall planning must apply to enterprise or major division goals.
• Decentralization of authority-especially in product of territorial divisions-
creates semi-independent units.
• Overall control permits the measurements of an integrated area
manager’s total effort.
Profit and Loss Control
• Income statement is useful for determining the immediate revenue or
cost factors that have accounted for success or failure.
• The profit and Loss statement shows all revenues and expenses for a
given time, so it is a true summary of the results of business operations.
• Profit and loss control, when applied to divisions or departments, is
based on the premise that, if it is the purpose of the entire business to
make a profit, each part of the enterprise should contribute to this
purpose. Thus, the liability of a part to make an expected profit becomes a
standards for measuring its performance.
• Limitation of Profit and Loss Control
• Profit and loss control suffers from the cost of the accounting and paper
transactions involving intra-company transfer of costs and revenues. But
the use of computers has greatly reduced this cost. Duplication of
accounting records, efforts involved in allocating the many overhead
costs, and the time and effort required to calculate intra-company sales
can make this control costly if it is carried too far.

Control through Return on Investments

ROI Control measures both the absolute and the relative success of a
company or company unit by the ratio of earnings to investment of capital.
This tool regards profit not as an absolute but as a return on capital
employed in the business. The goal of a business seen, accordingly, not
necessarily as optimizing return from capital devoted to business purposes.
This standard recognizes the fundamental fact that capital is a critical factor
in almost any enterprise and, through its scarcity, limit progress. It also
Course Module
emphasizes the fact that the job of managers is to make the best possible use
of assets entrusted to them.

Bureaucratic and Clan Control

Bureaucratic Control is characterized by the wide used of rules, regulations,
policies, procedures and formal authority.
 Rules and standard operating procedures (SOPs) tell the worker what to
do.
 Still need output control to correct mistakes.
Clan Control is based on norms, shared values, expected behavior and other
cultural variables.
Requirements for Effective Controls
1. Tailoring controls to plans and positions:
Control techniques should reflect the plans they follow, and reflect the
place in the organization where responsibility for action lies. This enables
managers to take action when controls differ from their plans.
2. Tailoring controls to individual managers:
When controls are tailored to individual managers, individual managers
carry out their functions of control more effectively. The system of
control shouldn't be too ambiguous to people who will utilize it.
3. Making sure the control point up expectations at critical points:
Controls that point out exceptions help managers detect areas that
require attention. It is best to look for exceptions at critical points, and
the exception principle should be accompanied by principle of critical
point control.
4. Seeking objectivity of controls:
An objective, accuracy, and suitable standards are required for effective
control technique.
5. Ensuring flexibility of controls:
Controls should remain in place despite unexpected plans, unforeseen
circumstances, or outright failures.
6. Fitting the control system to the organizational culture:
Systems that fit within the organizational culture are deemed to do best.
7. Achieving economy of controls:
Control techniques are most effective when they achieve maximum
output at minimum cost.
8. Establishing controls that lead to corrective action:
Controls are useful only if they can correct plans through better planning,
organization, staffing and leadership.
 Organization and Management
9
Controlling

Application of Management Control in Accounting and Marketing Concepts

and Techniques
Operation Control Tools or Techniques
− are concerned with the process that the organization uses in the
performance of an activity related to specific operations such as
production scheduling, determination inventory level or
determination of minimum cash balance for the firm.
Management Control Tools or Techniques
− monitor and evaluate overall operations of the firm and are
commonly financial in nature.
Operational control Tools
Control tools have been develop that are applicable to practically all aspects
of a firm’s operating task. Table 12.1 lists some control tools for some
operating tasks of a manufacturing firm.

Operating tasks General Specific

• Selling • Internal control for • Merchandise claim

cash and counter system
merchandise
• Office uniform
• Stock cards

• Production  Linear programming • EOQ and Re-Order

Point
• internal control for
raw materials, factory • PERT/Gantt Chart
supplies and spare • Critical Path Method
parts
• Quality control
• Scheduling system

• Accounting • Internal control • Voucher system

for cash
• Petty cash fund
disbursements

Table 12.1

Merchandise Claim Counter System

− assures management that all sales are recorded in the cash register at
the merchandise claim counter area. At the end of each working day,
cash should equal the recorded sales. The system also protect stocks
Course Module
 from shoplifters because only those stocks claimed at the counter are
wrapped with the invoice attached to the package.
Office uniform
− Employees commonly are required to wear uniforms. This
requirement could be viewed by management as an employee benefit
because the costs are borne by the company. It also serves as a control
tool since it identify employees in the work area.

Stock cards
− in the production area, the internal control system should focus on the
protection of raw materials, work-in process inventory, finished
goods inventory, factory supplies, and machine spare parts. Inventory
records, (i.e., stock cards, should be maintained). Stock cards show the
record of all receipts and releases for each items in the inventory. The
balance shown in the stock card can be compare with the physical
count from time to time.
Economic Order Quantity
− Economic Order Quantity (EOQ): identify the optimal order quantity
by minimizing the sum of certain annual cost that vary with order
size.

Assumptions of EOQ Model

 Only one product is involved.
 Annual demand requirements known.
 Demand is even throughout the year.
 Lead time does not vary.
 Each order is received in a single delivery.
 There are no quantity discounts.

Annual carrying cost is computed by multiplying the average amount of

inventory on hand by the cost to carry one unit for one year, even though any
given unit would not necessarily be held for a year. The average inventory is
simply half of the order quantity. The amount on hand decreases steadily
from Q units to 0, for an average of (Q + 0)/2. Using the symbol H represent
the average carrying cost per unit.

Annual ordering cost is a function of the number of orders per year and the
ordering cost per order.
Formula:
Total Cost = Annual carrying cost + Annual Ordering cost
𝑸 𝑫
𝑻𝑪 = 𝑯 + 𝑺
𝟐 𝑸
where:
Q = Order quantity in units
H = Holding (carrying) cost
D = Demand, usually in units per year
 Organization and Management
11
Controlling

S = Ordering cost

To Derived EOQ formula:

2DS 2(Annual Demand)(Order or Setup Cost)
Q = =
H Annual Holding Cost

When to Reorder with EOQ Ordering

 Reorder Point - When the quantity on hand of an item drops to this
amount, the item is reordered. It is also to note that when the reorder
point has been reach, a perpetual inventory is required.
 Safety Stock - Stock that is held in excess of expected demand due to
variable demand rate and/or lead time.
 Service Level - Probability that demand will not exceed supply during
lead time.
Determinants of the Reorder Point
 The rate of demand
 The lead time
 Demand and/or lead time variability
 Stockout risk (safety stock)
 If demand and lead time are both constant, the reorder point is
simply:
ROP = d x LT
Where;
d = demand rate (units per day or week)
LT = lead time in days or weeks
Note: demand and lead time must be expressed in the same time units.
Safety Stock
When variability is present in demand or lead time, it creates the possibility
that actual demand will exceed demand. Consequently, it becomes necessary
to carry additional inventory called safety stock.
 Safety stock and safety lead time are both hedges.
 Safety lead time is more based on the uncertainty in the timing rather
than the quantity.

Course Module
  Safety stock tends to be used in MRP where uncertainty about
quantities is the problem-scarp.
o Safety stock reduce the risk of running out of inventory (a
stockout) during lead time.
o Safety stock challenges
 Safety stock set because of a onetime event.
 Safety stock still active on an obsolete item
 Safety stock levels inconsistent.
o ROP = Expected demand during lead time + safety stock
Linear Programming
− typically deals with the problem of allocating limited resources among
competing activities in the best possible way or optimal way.
− LP could be used by a manufacturing firm in allocating production
facilities to products or in allocating common raw materials use in
several products.
− The control function of linear programming is to optimize the
objectives by the simultaneous solution to a set of linear equations
representing objectives and constraints.
Gantt Chart
− it developed by Henry L. Gantt. The Gantt chart can be use to compare
actual progress in production with scheduled progress.
− is popular tool for planning and scheduling simple projects. It enables
a manager to initially schedule project activities and then to monitor
progress over time by comparing planned progress to actual progress.
The advantage of Gantt chart is its simplicity. However, Gantt chart
fail to reveal certain relationships among activities that can be crucial
to effective project management.

Figure 12.3

Critical Path Method (CPM)

 Organization and Management
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Controlling

− This control tool is appropriate for large and complex projects in

which many interdependent tasks are involved. For example
construction of a building. Its objective is to identify the most time
consuming series of tasks which is calling the critical path. The
minimum amount of time to complete the project will be determined
by the most time consuming sequence of job. Every job in the path is
considered critical since any delay in the completing of this jobs will
increase the total time require to complete the whole project.

Total Job Description Required Time Immediate task

(Days) Predecessor
0 -
A - Start
4 A
B - Purchasing &
Preparation of Materials
3 A
C - Typesetting/ Lay
outing
6 B
D -Printing of Cover
5 C
E - Printing of Inside
Pages
2 D and E
F - Sorting
1 F
G - Binding
0 G
H - Finish
Table 12.2 - Critical Path Method Application In Job Analysis

B, 4 D, 6

A, 0 F, 2 G, 1 A, 0

C, 3 E, 5

Critical Path
Figure 12.5 - Critical Path Chart
PERT

Course Module
 PERT(Program Evaluation and Review Techniques) was developed by the
United States Navy for the Planning and control of the Polaris Weapon
System in 1958.
− it is reinforcement of the Critical Path Method (CPM) in the sense that
three time estimates are made for each task:
1. the earliest possible time of completion,
2. the target completion time, and
3. the latest possible time of completion.
These estimates are made because it is not possible to determine
accurately the exact time of completing a task, especially for new
projects. The average time, te, is computed using the three time estimates
as follows:
te = 𝑎 +4𝑚+𝑐
6
Where:
a = earliest completion time
m = target completion time
c = latest possible time

The "critical path" for the project is then determined by using the
computed "average" times for each task - the sequence of events which
takes the longest time and which involves, therefore, zero slack time.
Voucher System
this system requires that every liability should be recorded as soon as it is
incurred and that only checks be used in payment of approved liabilities.
− a voucher is prepared for each expenditure assuming that every
expenditure is systematically reviewed and verified before payment is
made.
− the verification process includes the examination of documents like
Purchase Orders, Sales Invoices and Delivery Receipts.

Petty Cash Fund System

 if a voucher system is maintained, it will be convenience to have a
small amount of cash on hand with which to make some expenditures
in small amounts. for example, transportation expenses, postage
stamps and emergency supply purchases. internal control over these
small cash payments can best be achieved through a petty cash fund
system.
 The Petty cash fund should always contain cash and/or vouchers
totalling the exact amount of the amount of the fund originally
established. expenditures are replenish regularly by check.
Role of Budgets in Planning and Control
Budget
A budget is a quantitative expression of a plan for a defined period of time.
• It may include planned sales volumes and revenues, resource quantities,
costs and expenses, assets, liabilities and cash flows.
 Organization and Management
15
Controlling

Zero-base Budgeting – dividing enterprise programs into packages

composed of goals, activities, and needed resources and calculating the costs
for each package from base zero.
Key Purposes of Budgets in management
• A method of planning the use of resources
• A vehicle for forecasting
• A means of controlling the activities of various groups within the firm
• A means of motivating individuals to achieve performance levels agreed
and set.
• A mean of communicating the wishes and aspirations of senior
management
• A mean of resolving conflicts of interest between groups with the
organization.
Budgeting as a Control Tool:
A budget serves as a control tool to provide standards for evaluating
performance.
A budget can cover any of the following:
• Profit planning – forecast of revenues and expenses
• Cash budgeting – forecast of cash needs and sources
• Balance sheet forecasting – anticipating future assets, liability and net
worth position of the business
Types of Control Reports

Financial Accounting Measurements Reports Responsibility

Reports Accounting Reports

Balance sheet Budget reports Cost center reports

Income statement Variance Analysis reports Profit center reports

Investment center report

Table 12.3
Balance sheet
as a Financial Accounting report is a statement of the company's financial
condition as of the date of the statement. this report consists of the total
assets of the firm and the corresponding claims against these assets as
represented by the liabilities and stockholder's equity.

Course Module
Balance sheet as a control tool can be used to appraise performance of
managers by comparing the current statement with those of the
corresponding period of previous years.

Pro-forma Balance sheet

XYZ Company
Balance Sheet
As of December 31, 2015

Assets

Current assets:

Cash Pxxx

Account Receivable xxx

Inventories Xxx

Other current assets Pxxx

Long-term investment xxx

Property, plant and equip. xxx

Total Asset Pxxx

Liabilities and stockholder's equity

Current Liabilities xxx

Long-term debt xxx

Stockholder's Equity

Capital Stock xxx

Retained Earnings xxx

Total stockholder's Equity xxx

Total Liabilities and stockholders' Equity Pxxx

 Organization and Management
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Controlling

Table 12.4
Income Statement
− summarize the results of operations of the company for a period of
time.
− This statement reports the revenues and expenses of the company for
that period. Revenues are the amount earned by the company from
the goods and services that the company provides to each customers.
Expenses are the cost of the resources used in providing the goods
and services. Net income (net loss) is the most important item
reported in the income statement. Net income (net loss) is the
difference between revenues and expenses.

Pro-Forma Income Statement

XYZ Company
Income Statement
For the Year Ended 2015

Sales P350,596.00
Cost of sales 207,811.00
Gross Profit P142,785.00
Operating Expenses
General Administrative Expenses 46,950.00
Selling expenses 10,984.00
Depreciation 12,235.00 70,269.00

Operating Income P72,516.00

Interest and Other changes 1,095.00
Income Before Tax 71,421.00
Provision for Income Tax (35%) 24,997.00
Net Income P46,234.00
Table 12.5
Cash Budgeting
A Cash Budget is used to determine anticipated cash inflows and outflows so
that the business maintains the optimum level of cash (cash on hand being a
non-earning asset). It also provides information on whether or not
additional financing is required to address cash shortfalls.

Course Module
 Pro-Forma Statement of Cash Flows (Table 12.6)
XYZ Company
Statement of Cash Flows
For the Year Ended December 31, 2015
Cash flow from operating activities:
Cash flow received from client P560,750
Cash paid for operating expenses (320,445) P240,305
Cash flow from investing activities:
Proceeds from sale of equipment at a gain of P5,000 P25,500
Purchase of tools and equipment (37,540) (12,040)
Cash flow from financing activities:
Payment of loan to the bank P(151,200)
Additional Investment of the proprietor 100,00
Withdrawals of the proprietor (150,000) (201,200)
Net income in cash balance P27,065
Cash balance, January 1,2015 48,260
Cash balance, December 31, 2015 P75,325

References
Rodriguez, R.A., "Fundamentals of Management"
Wiehrich, H., Cannice, M.V., Koontz, H., "Management, A Global and Entrepreneurial
Perspective, 13th Ed."

Other sources
http://www.businessmanagementideas.com
http://www.slideshare.net
http://www2.ivcc.edu
http://www.smetoolkit.org
 Organization and Management
1
Introduction to the Different Functional Areas of Management

Introduction to the Different Functional Areas

of Management

There are five main functional areas of management viz., human resource,
marketing, operations, financial and information & communication
technology. These topics are discussed in this lesson.
Topic Outline:
• Human Resource Management
• Marketing Management
• Operations Management
• Financial management
• Information and Communication technology management

Human Resource Management

What is Human resource Management (HRM)?
The process of acquiring, training, appraising, and compensating employees,
and of attending to their labor relations, health and safety, and fairness
concerns.
Human resource is the most important asset in the business. The heart of an
organization lies on its people. Without people, the day-to-day operation of a
business would cease to function. The success of a business relies fully on the
hands of the employees working in the company. In order to achieve the
company’s goals and objectives, the company’s Human Resource Department
is responsible in recruiting the right people with the required skills,
qualifications and experience. They’re responsible for determining the salary
and wages of different job positions in the company. They’re also involved in
training employees for their development.

HRM Discipline
• The discipline of HRM is based on a unique integration of: psychology,
economic, and system theories, and has undergone a change since the
early days of the Hawthorne experiment.

Course Module
HR Departments' Organization Charts and Structures
Organization historically divided into two groups, line management and staff
management, and HRM was traditionally considered to be a staff function.
Line Managers were directly responsible for the production of goods and
services.
Staff Managers were responsible for an indirect or support function that
would have cost but whose bottom line contributions where less direct.
Centralization
Some organizations centralize HR. A centralized strategy locates design and
administration responsibility in a single organizational unit. Administration
generally will fall to those working in various units, who often HR generalist.
Generalist handle all HR activities rather than specializing in a single
area, such as: compensation or recruiting.
Decentralization
Decentralization gives each organization unit the responsibility to design and
administer each own personnel system.
Organization Chart
Organization can use chart for a number of purposes. For example, HR
administrator, as well as Chief Executive Officers, Corporate Planners,
Marketing Representative, and others, can use such organization charts to:
1. Design their department or division charts.
2. Monitor reporting relationships.
3. Gain access to information about newly created job titles, staff duties,
and reporting relationships.
4. Find out how leading agencies organize their management teams and
work forces.
5. Assess industry patterns.
6. Examine the competition.
7. Use in business presentations and to facilitates placement decisions.
Human Resource and Information Technology
 The advent of "computer age" has greatly altered, not only the
availability of information but also the manner in which it is identified
and acquired.
 Information technology deals with how information is accessed,
gathered, analyzed, and communicated.
The Beginning
the Philippines has all the potential to be an active player in the digital
domain At present, join government and private sector groups such as the
Information Technology and Electronic Commerce Council (ITECC) are
unified in pushing for the development of E-commerce in the Philippines. It
is seen as an important driving force that could fuel the country's economic
growth and development.
 Organization and Management
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Introduction to the Different Functional Areas of Management

IT Application in HR
1. Use of job boards and other similar recruitment web-based
application to provide accessibility to applications for the job usually
communicate job vacancies and applicant processing.
2. Employee kiosks provide updates in employee status and other
pertinent information initiated and made by the employee themselves
via theses kiosks.
3. E-learning facilitate the learning process by providing a just-in-time
learning opportunities. the use of a learning management system (LMS)
will allow the HRD manager to focus on the more important aspects of his
job rather than being concerned with course registration and following
up attendance to training programs.
4. Electronic Performance Support System (EPSS) will provide on-line
coaching and mentoring services. managers and employees can access
organizational knowledge through an EPSS application.
5. Salary and Payroll Administration for some companies this is now a
link to performance management systems, time and attendance, and
other employee benefits to the pay systems. This ensures timely pay-out
of salaries, wages, bonuses, and other similar compensation. An example
of this is the timesheets.
6. Telecommuting/Teleworking - Teleworking is any form of substitution
of information technologies (such as: telecommunications and/or
computers) for normal work related travel moving the work to the
workers instead of moving the workers to work.
7. HR and the Internet the Internet is an excellent source for finding many
types of information related to HRM and for keeping up with new
development in the field. Cyberspace and the Internet are changing the
way many Human Resource managers operate. Today, a growing number
of HR managers are using the internet to recruit personnel, conduct
research, access electronic databases, send email, conduct training and
network with colleagues. The real value of Internet to manager is the
information that is makes available.
8. e-Enterprise Human Resources provides a comprehensive solution for
managing applicant and employee information, paying employees, and
tracking payroll information that is as easy to implement and to use as it
is powerful.
9. Intranets this is a private computer network that uses internet products
and technologies to provide multimedia applications within the
organizations. (Paul, Barker, Telecommunications, December, 1997). An
internet connect people to people and people to information and
knowledge within the organization.
10. Client/Server Networks this is a new system that uses personal
computers linked together to process information in a very efficient
manner (Samuel, Greengard. "The Netxt generation". Personnel Journal,
March 1994.) At the hub of each network is a computer that controls the
traffic on the network and stores data in a rational database. This central
Course Module
 computer, called the server, maybe anything from a large main frame to a
powerful PC. The clients are desktop PCs used by individuals to enter or
extract data or to do analysis.
Implementing an HRIS (Human Resource Information System): Albert
Leaderer, Information Technology: Planning and Developing a Human
Resource Information System, Personnel Journal. May 1994).
As with any major change, proper planning and communications are absolute
necessities for the successful implementation or major upgrade of an HRIS.
The steps outlined below described the specific procedures when attempting
to implement or upgrade an HRIS.
1. Inception of idea prepare a preliminary report showing the need for an
HRIS and what it can do for the organization. This must illustrate how an
HRIS can assist management in making certain decisions.
2. Feasibility study evaluate the present system and details the benefits of
an HRIS, with comparison of the costs and benefits.
3. Top management support once the FS recommends going ahead with
an HRIS, it is essential to obtain the support of top management.
4. Selecting a project team should consist of an HR representative who is
knowledgeable about the organization's HR functions and activities.
5. Defining the requirements specify in details exactly what the HRIS will
do including the reports that will be produced by the system.
6. Software/Hardware selection when evaluating available systems, used
the same cost benefit analysis that would be used for any significant
purchase.
7. Training all the personnel that will make use the system.
8. Tailoring the system involves making changes to the system to best fit
the specific needs of the organization.
9. Collecting the data - data must collected and entered into the system.
10. Testing the system
11. Starting-up
12. Running in parallel even with the new HRIS comma it is desirable it is
desirable to run the new system in parallel with the old system for a
period of time to be compared and examined for any accuracies.
13. Maintenance
14. Evaluation should be done to find out if it is right for the organization
and if it is being properly used.
All of the above mentioned continue to dramatically change the human
resource profession.
Human Resource Management Activities
The central focus for HR management must be on contributing to
organizational success. Key to enhancing organizational performance is
ensuring that human resources activities support organizational efforts
focusing on productivity, service, and quality.
 Productivity: As measured by the amount of output per employee,
continuous improvement of productivity has become even more
important as global competition has increased. The productivity of the
 Organization and Management
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Introduction to the Different Functional Areas of Management

human resources in an organization is affected significantly by

management efforts, programs, and systems.
 Quality: The quality of products and services delivered significantly
affects organizational success over the long term. If an organization gains
a reputation for providing poor-quality products and services, it reduces
its organizational growth and performance. An emphasis on quality
requires continuous changes aimed at improving work processes. That
need opens the door for reengineering the organizational work done by
people. Customer value received and satisfaction become the bases for
judging success, along with more traditional HR measures of performance
and efficiency.
 Service: Because people frequently produce the products or services
offered by an organization, HR management considerations must be
included when identifying service blockages and redesigning operational
processes.
Involving all employees, not just managers, in problem solving often requires
changes in corporate culture, leadership styles, and HR policies and practices.
To accomplish these goals, HR management is composed of several groups
of interlinked activities. However, the performance of the HR activities must
be done in the context of the organization. Additionally, all managers with HR
responsibilities must consider external environmental forces—such as legal,
political, economic, social, cultural, and technological ones—when
addressing these activities. These external considerations are especia lly
important when HR activities must be managed internationally.
The HR activities for which a brief overview follows are:
 HR Planning and Analysis
 Equal Employment Opportunity
 Staffing
 HR Development
 Compensation and Benefits
 Health, Safety, and Security
 Employee and Labor/Management Relations
1. HR Planning and Analysis
HR planning and analysis activities have several facets. Through HR planning,
managers attempt to anticipate forces that will influence the future supply of
and demand for employees. Having adequate human resource information
systems (HRIS) to provide accurate and timely information for HR planning
is crucial. The importance of human resources in organizational
competitiveness must be addressed as well. As part of maintaining
organizational competitiveness, HR analysis and assessment of HR
effectiveness must occur. The internationalization of organizations has
resulted in greater emphasis on global HR management.
2. Equal Employment Opportunity

Course Module
Compliance with equal employment opportunity (EEO) laws and regulations
affects all other HR activities and is integral to HR management. For
instance, strategic HR plans must ensure sufficient availability of a diversity
of individuals to meet affirmative action requirements. In addition, when
recruiting, selecting, and training individuals, all managers must be aware of
EEO requirements.
3. Staffing
The aim of staffing is to provide an adequate supply of qualified individuals
to fill the jobs in an organization. By studying what workers do, job analysis
is the foundation for the staffing function. From this, job descriptions and job
specifications can be prepared to recruit applicants for job openings. The
selection process is concerned with choosing the most qualified individuals
to fill jobs in the organization.
4. HR Development
Beginning with the orientation of new employees, HR training and
development also includes job-skill training. As jobs evolve and change,
ongoing retraining is necessary to accommodate technological changes.
Encouraging development of all employees, including supervisors and
managers, is necessary to prepare organizations for future challenges. Career
planning identifies paths and activities for individual employees as they
develop within the organization. Assessing how employees perfor m their
jobs is the focus of performance management.
5. Compensation and Benefits
Compensation rewards people for performing organizational work through
pay, incentives, and benefits. Employers must develop and refine their basic
wage and salary systems. Also, incentive programs such as gain sharing and
productivity rewards are growing in usage. The rapid increase in the costs of
benefits, especially health-care benefits, will continue to be a major issue.
6. Health, Safety, and Security
The physical and mental health and safety of employees are vital concerns.
The traditional concern for safety has focused on eliminating accidents and
injuries at work. Additional concerns are health issues arising from
hazardous work with certain chemicals and newer technologies.
Through a broader focus on health, HR management can assist employees
with substance abuse and other problems through employee assistance
programs (EAP) in order to retain otherwise satisfactory employees.
Employee wellness programs to promote good health and exercise are
becoming more widespread.
Workplace security has grown in importance, in response to the increasing
number of acts of workplace violence. HR management must ensure that
managers and employees can work in a safe environment.
7. Employee and Labor/Management Relations
The relationship between managers and their employees must be handled
effectively if both the employees and the organization are to prosper
together. Whether or not some of the employees are represented by a union,
employee rights must be addressed.
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Introduction to the Different Functional Areas of Management

It is important to develop, communicate, and update HR policies and rules so

that managers and employees alike know what is expected. In some
organizations, union/management relations must be addressed as well.

Major Functions of Human Resource Management

Human resource management is all about increasing employee performance
to their highest level corresponding to their role in the organization. In short,
HRM is concerned with the management of employees from recruitment to
retirement. Although there are many functions of human resource
management, following is the list of five major functions.
1. Recruitment and selection
Recruitment is the process of captivating, screening, and selecting potential
and qualified candidates based on objective criteria for a particular job. The
goal of this process is to attract the qualified applicants and to encourage the
unqualified applicants to opt themselves out.
Recruitment and selection process is very important to every organization
because it reduces the costs of mistakes such as engaging incompetent,
unmotivated, and under qualified employees. Firing the unqualified
candidate and hiring the new employee is again an expensive process.
2. Orientation
This is the fundamental step to help a new employee to adjust himself with
the employer and with his new job. Employee orientation program should
include the objectives and goals of the organization and how the employee
can help to achieve the long-term and short-term goals of the organization.
3. Maintaining good working conditions
It is the responsibility of the human resource management to provide good
working conditions to the employee so that they may like the workplace and
the work environment. It is the fundamental duty of the HR department to
motivate the employees. Human resource management should come up with
a system to provide financial and non-financial benefits to the employee from
the various departments. Employee welfare is another concept which should
be managed by HR team. Employee welfare promotes job satisfaction.
4. Managing Employee relations
Employees are the pillars of any organization. Employee relationship is a
very broad concept and it is one of the crucial functions of human resource
management. It also helps to foster good employee relations. They have the
ability to influence behaviors and work outputs.
Management should organize activities which will help to know an employee
at the personal and professional level. Well-planned employee relations will

Course Module
 promote a healthy and balanced relation between the employee and the
employer. It is the key for the organization to be successful.
5. Training and development
Training and development are the indispensable functions of human
resource management. It is the attempt to improve the current or future
performance of an employee by increasing the ability of an employee
through educating and increasing one’s skills or knowledge in the particular
subject.

Marketing Management
According to Philip Kotler,
“Marketing Management is the process of planning and executing the
conception, pricing and promotion and distribution of goods, services and
ideas to create exchanges with target groups that satisfy customer and
organizational objectives.”
Promotional activities and advertising are the best ways to communicate
with your target customers for them to be able to know the company’s
products and services. Effective marketing and promotional activities will
drive long-term success, profitability and growth in market shares. This
department is responsible for promoting the business to generate sales and
help the company grow. Its function involves creating various marketing
strategy and planning promotional campaigns. They are also responsible for
monitoring competitor’s activities.
Objectives of Marketing Management
• Creating New Customers.
• Satisfying the Needs of Customers.
• Enhancing the Profitability of Business.
• Raising the standards of living People.
• Determining the Marketing Mix.
Steps in Marketing Management Process
• Setting the Marketing Objectives.
• Analyzing Marketing Opportunities.
• Researching and selecting Targets Markets.
• Designing Marketing Strategies.
• Planning Marketing Programs.
• Organizing, Implementing and Controlling the Marketing Efforts.

Functions of Marketing Management

 Organization and Management
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Introduction to the Different Functional Areas of Management

Selling

Market Buying &

information assembling

Risk taking Transportation

Financing Storage

Grading Grading

Figure 13. 1 – Functions of Marketing Management

The following are some of the major functions of marketing management:
Selling
Selling is the crux of marketing. It involves convincing the prospective buyers
to actually complete the purchase of an article. It includes transfer of
ownership of products to the buyer.
Selling plays a very vital part in realizing the ultimate aim of earning profit.
Selling is groomed by means of personal selling, advertising, publicity and
sales promotion. Effectiveness and efficiency in selling determines the
volume of the firm’s profits and profitability.
Buying and Assembling
It deals with what to buy, of what quality, how much from whom, when and
at what price. People in business purchase to increase sales or to decrease
costs. Purchasing agents are much tempted by quality, service and price. The
products that the retailers buy for resale are selected as per the
requirements and preferences of their customers.
Assembling means buying necessary component parts and to fit them
together to make a product. ‘Assembly line’ marks a production line made up
of purely assembly functions. The assembly operation includes the arrival of
individual component parts at the work place and issuing of these parts for
assembling.
Assembly line is an arrangement of employees and machines in which each
individual has a particular job and the work is passed directly from one
employee to the next until the product is complete.
Transportation

Course Module
Transportation is the physical means through which products are moved
from the places where they are produced to those places where they are
needed for consumption. It creates location utility.
Transportation is very important from the procurement of raw material to
the delivery of finished products to the customer’s places. Transportation
depends mainly on railroads, trucks, waterways, pipelines and airways.
Storage
It includes holding of products in proper, i.e., usable or saleable, condition
from the time they are produced until they are required by customers in case
of finished products or by the production department in case of raw
materials and stores.
Storing protects the products from deterioration and helps in carrying over
surplus for future consumption or usage in production.
Standardization and Grading
Standardization means setting up of certain standards or specifications for
products based on the intrinsic physical qualities of any item. This may
include quantity like weight and size or quality like color, shape, appearance,
material, taste, sweetness etc. A standard gives rise to uniformity of products.
Grading means classification of standardized items into certain well defined
classes or groups. It includes the division of products into classes made of
units possessing similar features of size and quality.
Grading is very essential for raw materials; agricultural products like fruits
and cereals; mining products like coal, iron and manganese and forest
products like timber.
Financing
Financing involves the application of the capital to meet the financial
requirements of agencies dealing with various activities of marketing. The
services to ensure the credit and money needed and the costs of getting
merchandise into the hands of the final user are mostly referred to as the
finance function in marketing.
Financing is required for the working capital and fixed capital, which may be
secured from three sources — owned capital, bank loans and advance &
trade credit. In other words, different kinds of finances are short-term,
medium-term, and long-term finance.
Risk Taking
Risk means loss due to some unforeseen situations. Risk bearing in
marketing means the financial risk invested in the ownership of goods held
for an anticipated demand, including the possible losses because of fall in
prices and the losses from spoilage, depreciation, obsolescence, fire and
floods or any other loss that may occur with the passage of time.
They may also be due to decay, deterioration and accidents or due to
fluctuation in the prices induced by changes in supply and demand. The
different risks are usually termed as place risk, time risk, physical risk, etc.
Market Information
 Organization and Management
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Introduction to the Different Functional Areas of Management

The importance of this facilitating function of marketing has been recently

marked. The only sound foundation on which marketing decisions depend is
timely and correct market information.

Operations Management
Operations Management
OM is the process which combines and transforms various resources used in
the production of the organization into value added products/services in a
controlled manner as per the policies of the organization
Operations Management affects:
 Companies’ ability to compete
 Nation’s ability to compete internationally
The Operations department is held responsible for overseeing, designing and
controlling the process of production and redesigning business operations if
necessary. In a manufacturing company, operations department designs
processes to produce the product efficiently. They also have to acquire
materials and maintenance of equipment, supplies and more.
Operations function: The operations function includes many interrelated
activities, such as forecasting, capacity planning, scheduling, managing
inventories, assuring quality, motivating employees, deciding where
to locate facilities, and more. The operations function consists of all activities
directly related to producing goods or services.
Objectives of production management may be amplified as under:
• Producing the right kind of goods and services that satisfy customers’
needs (effectiveness objective).
• Maximizing output of goods and services with minimum resource inputs
(efficiency objective).
• Ensuring that goods and services produced conform to pre-set quality
specifications (quality objective).
• Minimizing throughput-time- the time that elapses in the conversion
process- by reducing delays, waiting time and idle time (lead time
objective).
• Maximizing utilization of manpower, machines, etc. (Capacity utilization
objective).
• Minimizing cost of producing goods or rendering a service (Cost
objective).

Financial Management
Course Module
Financial management is generally defined as those activities that create or
preserve the economic value of the assets of an individual, small business, or
corporation.
• Financial management comes down to making sound financial decisions.
Financial management is primarily concerned with investment and
financing decisions.
Investment decision making involves the preparation of long-range plans
and budgets for major investment such as plant expansion and replacement
of existing production facilities. The investment decision determines the total
amount of assets held by the firm, the composition of these assets and the
business risk complexion of the firm as perceived by suppliers of capital. The
capital budgeting process is one example of investment decisio n making. In
the financing decision, the finance manager determines the financing mix and
sources appropriate for the requirements of the firm. This involves decisions
on when to issue common stocks, preferred stocks or bonds or when to
borrow long-term or short-term.
Capital budgeting is an important financial policy area of concern in all
businesses. It is primarily a top-level management concern because it
involves the allocation of funds. The capital budgeting process involves the
choice of capital projects to the undertaken by the firm. It aids business firms
in evaluating capital investments in relation to future benefits.
The critical steps in capital budgeting are the identification and the
prioritization of various capital expenditure proposals given specific
acceptance criteria. Several tools of analysis are available in the final
selection of projects that should be undertaken by the firm. All these tools for
analysis attempt to find the difference between the net benefits that accrue
for each project and the financial burden incurred to secure the benefits.
In the performance of day-to-day finance activities, the chief finance officer
and other managers of the department are concerned with employee
motivation in order to influence employee behavior toward the attainment of
department, the ultimately, company goals. This is why directing aspect of
the management process is integrated with planning, organizing, staffing and
controlling.
Finance
It is a body of facts, principles and theories relating to raising and using
money by individuals, business and government.
It can be divided to:
• Corporate form
• Individuals/government
Goals of Financial Management
• Profit-oriented businesses: Make money and value for the owners
• Financial manager acts in the owners or shareholder’s “best interest”.
 Organization and Management
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Introduction to the Different Functional Areas of Management

Types of Financial Decisions

3 Major Decision:
Investment decisions
• Which determine how scarce or limited resources are committed to
projects
• It should consider profitability that will lead to the creation of wealth
Financing decisions
• Assets the mix of debt and equity or capital structure decision
• Principle of financial leverage must be consider when selecting debt-
equity mix.
• Financial leverage refers to the use of debt to acquire additional assets.
Financial leverage is also known as trading on equity.
Dividend decisions
• Concerned with the determination of quantum of profits to be distributed
to owners, the frequency and the amount to be retained.

Information and Communication Technology Management

Information and Communication Technology (ICT) definition:
The efficient management of hardware and software. ICT highlights the use
of devices and media to achieve optimum and efficient communication of
information.
• ICT is generally defined as technology functioning to support the process
of conveying information and communication.
• With the development of ICT, the communicator and communicant can
communicate through telephone, internet, email, satellite, television,
video conference and the like.
Impact of ICT:
• Reduced need for movement of people
• Fast communication around the organization
• Reduced need to accommodate people in specific areas
• Fewer layers of management
• Reduced amount of lost/misplaced documents
• Less time wasted
• Reduced costs

Course Module
References
http://www.slideshare.net/kashifse1
http://foundersguide.com
http://bloghresources.blogspot.com
https://www.keka.com/5-major-functions-human-resource-management/
https://www.tutorialspoint.com/marketing_management/
http://www.mbaknol.com
https://prezi.com
http://ictdefitionmanavmatai.blogspot.com
 Organization and Management
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Special Topics in Management

Special Topics in Management

By legal definition, small businesses are privately owned entities and

operated by small number of individuals with relatively low volume of
sales. It could be a corporation, a partnership or a sole proprietorship. In the
Philippines, small businesses thrive everywhere: from small sari-sari store
(convenience store type), bakeries, beauty parlors, dressmakers, food stands,
etc. In procedures in putting them up are the same as large scale businesses.
The backbone of Philippines local economy are these small businesses. They
require small capital and there is always a demand for any product and
service we could imagine in this highly populated archipelago. The
government has always been pushing the entrepreneur spirit among the
Filipinos, after all they are known for their ingeniousness and hard work.
Topic Outline:
• Small Business and Entrepreneurship
• Family Business Enterprise
• Starting a Business: Legal Forms and Requirements

Small Business Management and Entrepreneurship

What is Small Business?

A small business is a privately owned and operated business.

• A small business typically has a small number of employees.

In Philippines
Agency: Small and Medium Enterprise Development (SMED) Council.
Legal Definition: Small and Medium Enterprise Development (SMED)
Council Resolution No. 01 Series of 2003 dated 16 January 2003.
Interpretation:
MSMEs Defined
Micro, small, and medium enterprises (MSMEs) are defined as any business
activity/enterprise engaged in industry, agri-business/services, whether
single proprietorship, cooperative, partnership, or corporation whose total
assets, inclusive of those arising from loans but exclusive of the land on
which the particular business entity's office, plant and equipment are
situated, must have value falling under the following categories:

Course Module
 By Asset Size
Micro: Up to P3,000,000
Small: P3,000,001 - P15,000,000
Medium: P15,000,001 - P100,000,000
Large: above P100,000,000
Alternatively, MSMEs may also be categorized based on the number of
employees:
Micro: 1 - 9 employees
Small: 10 - 99 employees
Medium: 100 - 199 employees
Large: More than 200 employees
Agency: Philippine Congress.
Legal Definition:
“Magna Carta for Micro, Small and Medium Enterprises (Republic Act 6977,
as amended by RA 8289 and further amended by RA 9501 in 2008).
SEC. 3. Micro, Small and Medium Enterprises (MSMEs) as Beneficiaries. —
MSMEs shall be defined as any business activity or enterprise engaged in
industry, agribusiness and/or services, whether single proprietorship,
cooperative, partnership or corporation whose total assets, inclusive of those
arising from loans but exclusive of the land on which the particular business
entity’s office, plant and equipment are situated, must have value falling
under the following categories:
micro : not more than P3,000,000
small : P3,000,001 - P 15,000,000
medium : P15,000,001 - P100,000,000
“The above definitions shall be subject to review and adjustment by the
Micro, Small and Medium Enterprises Development (MSMED) Council under
Section 6 of this Act or upon recommendation of sectoral organizations
concerned, taking into account inflation and other eco nomic indicators. The
Council may use other variables such as number of employees, equity capital
and assets size. “The Council shall ensure that notwithstanding the plans and
programs set for MSMEs as a whole, there shall be set and implemented
other plans and programs varied and distinct from each other, according to
the specific needs of each sector, encouraging MSMEs to graduate from one
category to the next or even higher category.” (RA 9501 through Sec. 3
amended Sec. 3 of RA 6977, as amended by RA 8289)”

What is Entrepreneurship?
Entrepreneurship – the process of starting and operating your own
business.
Entrepreneur – the people who create, launch, organize and manage a new
business and take the risk of business ownership.
 Organization and Management
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Special Topics in Management

What are the risks?

 Business failure
 Financial loss
 Loss of employment
 Loss of time
33% of all new businesses fail within 2 years. 50% fail within 4 years.
Advantages of Entrepreneurship
 Personal freedom and satisfaction
 Increased self-esteem and income

Important Personal Characteristics of Successful Entrepreneurs

They’re goal-oriented
Entrepreneurs are all about setting goals and putting their all into achieving
them; they’re determined to make their business succeed and will remove
any encumbrances that may stand in their way. They also tend to be strategic
in their game plans and always have a clear idea in mind of exactly what they
want to achieve and how they plan to achieve it.
They’re committed to their business
Entrepreneurs are not easily defeated; they view failure as an opportunity
for future success, and if they don’t succeed the first time, they’ll stay
committed to their business and will continue to try and try again until it
does succeed. A true entrepreneur doesn’t take ‘no’ for an answer.
They’re hands-on
Entrepreneurs are inherently proactive, and know that if something really
needs to get done, they should do it themselves. They’re ‘doers’, not thinkers,
and tend to have very exacting standards. They view their business as an
extension of themselves and like to be integral in its day-to-day operations—
even when they don’t have to be.
They thrive on uncertainty
Not only do they thrive on it—they also remain calm throughout it.
Sometimes things go wrong in business, but when you’re at the helm of a
company and making all the decisions, it’s essential to keep your cool in any
given situation. True entrepreneurs know this and secretly flourish and grow
in the wake of any challenges.
They continuously look for opportunities to improve
Entrepreneurs realize that every event or situation is a business opportunity,
and they’re constantly generating new and innovative ideas. They have the
Course Module
 ability to look at everything around them and focus it toward their goals in
an effort to improve their business.
They’re risk taker
A true entrepreneur doesn’t ask questions about whether or not they’ll
succeed—they truly believe they will. They exude this confidence in all
aspects of life, and as a bi-product, they’re never afraid to take risks due to
their unbinding faith that ultimately they will triumph.
They’re willing to listen and learn
The most important part of learning is listening—and a good entrepreneur
will do this in abundance.
They have great people skills
Entrepreneurs have strong communication skills, and it’s this strength that
enables them to effectively sell their product or service to clients and
customers. They’re also natural leaders with the ability to motivate, inspire
and influence those around them.
They’re inherently creative
This is one trait that, due to their very nature, entrepreneurial business
people have by the bucket load. They’re able to not only come up with
ingenious ideas, but also turn those ideas into profits.
They’re passionate and always full of positivity
Passion is perhaps the most important trait of the successful entrepreneur.
They genuinely love their job and are willing to put in those extra hours to
make their business grow; they get a genuine sense of pleasure from their
work that goes way beyond just cash.

Entrepreneurship Vs. Small Business

Many people use the terms “entrepreneur” and “small business owner”
synonymously. While they may have much in common, there are significant
differences between the entrepreneurial venture and the small business.
Entrepreneurial ventures differ from small businesses in these ways:
1. Amount of wealth creation – rather than simply generating an income
stream that replaces traditional employment, a successful
entrepreneurial venture creates substantial wealth.
2. Speed of wealth creation – while a successful small business can
generate several million pesos of profit over a lifetime, entrepreneurial
wealth creation often is rapid.
3. Risk – the risk of an entrepreneurial venture must be high, otherwise,
with the incentive of sure profits many entrepreneurs would be pursuing
the idea and the opportunity no longer would exist.
4. Innovation – entrepreneurship often involves substantial innovation
beyond what a small business might exhibit. This innovation gives the
venture the competitive advantage that results in wealth creation. The
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innovation may be in the product or service itself, or in the business

processes used to deliver it.

Advantages and Disadvantages of Small Business

Advantages:
• Can be managed and controlled by the owner.
• Often able to adapt quickly to meet changing customer needs.
• Offer personal service to customers.
• Find it easier to know each worker; many staff prefers to work for
smaller more “human” businesses.
• If family-owned the business culture is often informal. Employee’s well-
motivated and family members perform multiple roles.
Disadvantages:
• May have limited access to sources of finance.
• Owner has to carry a large burden of responsibility if unable to afford to
employ specialist managers.
• May not be diversified. Greater risks of negative impact of external
change.
• If family-owned, the original owner may restrict innovation, family
rivalries, and keeping control may take priority over business expansion.

Types of Entrepreneur
According to the type of business:
Business entrepreneurs: who start business units after developing ideas
for new products/services.
Trading entrepreneurs: who undertake buying & selling of goods, but not
engage in manufacturing.
Corporate entrepreneurs: who establish and manage corporate form of
organization which has separate legal existence.
Agricultural entrepreneurs: who undertake activities like raising and
marketing of crops, fertilizers and other allied activities.

Reasons to Become an Entrepreneur:

1. Creativity: Using your creativity and energy to achieve something that
inspires you can be very rewarding. Starting, running and growing a business
can provide a high level of satisfaction.
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2. Independence: The freedom that comes with operating a business can
lure many people. You don't need to convince your boss - you are the boss.
You make the products you believe in and you can offer the services your
clients want.
3. Solutions: You have a solution to a common problem or a big problem?
Whether the solution relates to the environment, communications, food or
services, wanting to see your solution used by all can be a driving factor to
becoming an entrepreneur.
4. Time: Entrepreneurs ultimately decide on their shifts and their pay
checks. Usually, the more hours you invest in your business, the more money
you will make. As an entrepreneur, you get to choose how you want to
balance work and personal time.
5. Money: Many businesses make enough profit to pay modest salaries, pay
bills and even grow. On the other hand, some start-ups turn into multi-
million peso enterprises. The possibilities are endless.

10 Biggest Challenges Facing Small Businesses

There are many problems that are encountered by business owners
throughout the course of managing their business. All entrepreneurs must be
prepared for solving problems that come their way. However, creating a
start-up is not an easy task.
New entrepreneurs are usually not prepared for the problems coming their
way. The first thing to do is to understand that problems are an everyday
part of every business and then face each problem with determination and a
proper solution.
Here are some common faced problems in new businesses and their
solutions.
1. Money
Money is known to be one of the major causes of problems that can lead
business to failure. For a new business, the biggest mistake is expecting
instant profit. Young and eager entrepreneurs start up a business with little
money, assuming they will earn big and then invest that money again in their
business. It is significant to understand that you cannot get an instant profit
at the start of your business. Experts advise not to expect much profit for at
least two years. Always prepare for the worst case scenario. Before starting a
business, ensure that you have enough money to sustain you at least up to
two years. Start slowly and patiently.
2. Time
The phrase ‘time is money’ holds true, especially for a business. It is essential
for new businesses to manage their time wisely. Planning everything in
advance and ensuring everything is done on time is very important for the
prosperity of any business. Ensure the schedule you are making is achievable
and stick to it. Give yourself enough time to perform a task with accuracy.
Plan your future projects. Make adjustments accordingly. Utilize calendar s
and planners to make sure you don’t miss an appointment or a deadline.
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Spending time effectively can actually save you money and even earn you
more revenue.
3. Lack of Knowledge/Skills
This is one of the top most mistakes made by entrepreneurs. It is important
that you have ample knowledge about the industry you are entering, your
competitors, your target market, current trends, advertising and marketing
techniques as well as financial know-how. You must possess the skills needed
to start up a new business. If you are not prepared, educate yourself. Do
proper research, ask other business owners, read relevant books and
websites. You may end up with a huge loss if you start your business without
having the required knowledge and skills.
4. Information Overload
The only thing constant is change! This phrase is true as well as change is
continuous and we witness it happening all around us. Today, information
keeps changing. New facts and data keeps emerging and replacing old beliefs
and trends. Due to this information overload, it gets difficult to find effective
solutions. It becomes a challenge for a new business to sort through this data
and come up with good decisions. However, one easy solution is to look for
the authenticity of the data. Check its references, and the writer. Learn to use
keywords to narrow a research topic. Start asking successful businessmen
about their experiences. Learn from them.
5. Lack of Direction and Planning
This problem prevails because of not creating a thorough and detailed
business plan. Many young entrepreneurs are so excited about setting up
their very own business that they fail to prepare a proper business plan. It
helps in focusing on the goal and mission of the business. It determines the
financial situation of the business, the roadmap to follow, market research
and analysis of the competition. A business plan is basically an investment to
your business.
6. Working in the Business rather than Working on the Business
Usually entrepreneurs get so worked up with the paperwork, satisfying
customers and doing all the necessary things in keeping the business
running. They fail to fulfill some other equally crucial tasks. It is important
that you take a day or even a few hours to analyze your business. Determine
which area needs attention, do an inventory review, review cash flow of your
business, review payrolls and employee benefits. It is also important to
update your corporate minutes, your contracts and your agreements with
stakeholders annually. Hold meetings with your managers and other
employees to connect with them.
7. Innovation
Unfortunately, there are many new start-up companies that stick to the age
old book rules. They don’t try to create an innovative culture, even majority
of the big businesses struggle with innovation. People get accustomed to the
work culture and they don’t think outside the box. Businessmen and
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employees stay away from change and resist whatever changes that take
place in the company. The best thing to do is to be open to innovation. When
bringing a change, ensure that all your employees are prepared for it. Discuss
it with them in a meeting, tell them how important it is to be innovative,
make them understand how beneficial it will be.
8. Trying to Do It Alone
Coping with everything alone is also one of the most common mistake new
business owners make. They believe that they can manage everything and
don’t need any advice or help form anyone. Initially, they do seem to be
successful in this strategy as the cost is low since they handle everything.
However, as the work starts growing gradually, the workload takes a toll on
the new entrepreneur. Mistakes start being made and the quality of work
starts decreasing. You may even start losing customers soon. This is why this
strategy is not successful in the long run. Hiring two to three employees is
more beneficial for a start up business. It is better to pay a small amount to
your workers than lose double the amount in the future.
9. Getting Clients
For a new business, it is difficult to attract prospects and retain customers.
With a small marketing and advertising budget, new entrepreneurs are
unable to reach out to a wider audience. Potential customers are usually
hesitant to going for a new business. They prefer going for companies that
have experience and a large customer following. However, the good news is
big companies charge more. There are many clients and customers who are
looking for companies that provide cheaper, but good quality service.
Providing excellent service to them will ensure that they remain your
customers and even recommend you to others.
10. Poor Marketing
Apart from a detailed business plan, a marketing plan is also important for
any business. Once you have a clear idea about your target market and your
competition, you can allocate a budget for advertising and promoting your
business and decide which medium to advertise through. You can also decide
your product pricing through target market analysis. Make sure you that
your pricing can be easily afforded by your target market and that your
advertising effectively reaches them.
What Causes Small Businesses to Fail?
The short answer is, regardless of the industry, failure is the result of either
the lack of management skills or lack of proper capitalization or both.
Eleven Common Causes of Failure:
Choosing a business that isn't very profitable. Even though you generate
lots of activity, the profits never materialize to the extent necessary to
sustain an on-going company.
Inadequate cash reserves. If you don't have enough cash to carry you
through the first six months or so before the business starts making money,
your prospects for Success are not good. Consider both business and
personal living expenses when determining how much cash you will need.
Failure to clearly define and understand your market, your customers,
and your customers‘ buying habits. Who are your customers? You should
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be able to clearly identify them in one or two sentences. How are you going
to reach them? Is your product or service seasonal? What will you do in the
off-season? How loyal are your potential customers to their current supplier?
Do customers keep coming back or do they just purchase from you one time?
Does it take a long time to close a sale or are your customers more driven by
impulse buying?
Failure to price your product or service correctly. You must clearly define
your pricing strategy. You can be the cheapest or you can be the best, but if
you try to do both, you'll fail.
Failure to adequately anticipate cash flow. When you are just starting out,
suppliers require quick payment for inventory (sometimes even COD). If you
sell your products on credit, the time between making the sale and getting
paid can be months. This two-way tug at your cash can pull you down if you
fail to plan for it.
Failure to anticipate or react to competition, technology, or other
changes in the marketplace. It is dangerous to assume that what you have
done in the past will always work. Challenge the factors that led to your
Success. Do you still do things the same way despite new market demands
and changing times? What is your competition doing differently? What new
technology is available? Be open to new ideas. Experiment. Those who fail to
do this end up becoming pawns to those who do.
Overgeneralization. Trying to do everything for everyone is a sure road to
ruin. Spreading yourself too thin diminishes quality. The market pays
excellent rewards for excellent results, average rewards for average results,
and below average rewards for below average results.
Overdependence on a single customer. At first, it looks great. But then you
realize you are at their mercy. Whenever you have one customer so big that
losing them would mean closing up shop, watch out. Having a large base of
small customers is much preferred.
Uncontrolled growth. Slow and steady wins every time. Dependable,
predictable growth is vastly superior to spurts and jumps in volume. Going
after all the business you can get drains your cash and actually reduces
overall profitability. You may incur significant up-front costs to finance large
inventories to meet new customer demand. Don't leverage yourself so far
that if the economy stumbles, you'll be unable to pay back your loans. When
you go after it all, you usually become less selective about customers and
products, both of which drain profits from your company.
Believing you can do everything yourself. One of the biggest challenges for
entrepreneurs is to let go. Let go of the attitude that you must have hands -on
control of all aspects of your business. Let go of the belief that only you can
make decisions. Concentrate on the most important problems or issues
facing your company. Let others help you out. Give your people responsibility
and authority.
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 Putting up with inadequate management. A common problem faced by
Successful companies is growing beyond management resources or skills. As
the company grows, you may surpass certain individuals' ability to manage
and plan. If a change becomes necessary, don't lower your standards just to
fill vacant positions or to accommodate someone within your organization.
Decide on the skills necessary for the position and insist the individual has
them.
So, the founder's attitude, ability to be objective, willingness to bring in
needed help, and share power are all crucial to success. "Most start-ups
make the mistake of falling in love with their product or service," says
Shukla. "Ultimately, it is this lack of self-criticism that causes many
companies, start-ups and their more mature counterparts, to fail. Start-ups
suffer this fate more often because there are more dreamers than doers."
I think that fact speaks for itself," says Jonathan Goldhill, a small-business
consultant and former director of an economic development center in
California's San Fernando Valley. "I would say that the primary reason for
failure of start-ups within three years is usually...management's failure
to act, or management's failure to react, or management's failure to
plan."
Other reasons why businesses fail in their early years include: poor business
location, poor customer service, unqualified/untrained employees, fraud,
lack of a proper business plan, and failure to seek outside professional
advice.
While poor management is cited most frequently as the reason
businesses fail, inadequate or ill-timed financing is a close
second. Whether you're starting a business or expanding one, sufficient
ready capital is essential. It is not, however, enough to simply have sufficient
financing; knowledge and planning are required to manage it well. These
qualities ensure that entrepreneurs avoid common mistakes like securing the
wrong type of financing, miscalculating the amount required, or
underestimating the cost of borrowing money.

Family Business Enterprise

• Family business is a corporation that is entirely owned and managed by
members of a single family.
• Family firm is a corporation that is entirely owned by members of single
family. It is also known as company owned, controlled and operated by
members of one or several families.
Family business is one in which one or more members of one or more families
have ownership, interest and significant commitment towards business.
Characteristics of Family Business:
• Family businesses are ideal in nature as they are loyal to the principles of the
founder and thus ensure uniformity in their operations.
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• Succession is one important decision which determines future effectiveness

in terms of company operation.
• Family business comprises of family members in business operations
ensuring effective utilization of in house talent in family.
• Single minded dedication of family members ensures survival of family
business through toughest times.
• Effectiveness and existence of family business is determined depending on
understanding persisting within the family.
• Family business may be comprised of one or more than one family in
business operations.
• Family members who are not contributing or not involved in business are
part of business.
• Family business values are reflection of values possessed and followed by
family members.
• Members of family have legal control over business.
Importance of Family Business:
• Contributing to economic development: family business play crucial role
in economic development of most of the countries. Retail sector, small scale
industry, and service sector are owned by family business.
• Spirit of entrepreneurship: family business as contributes towards
development and has been successful in country like Philippines it paves way
to various families to initiate and bring up new ventures in country.
• Philanthropy : family business in Philippines along with their development
have also concentrated towards welfare of general public by investing on
hospitals, educational institutions, construction of roads etc.
• Trust Lowers transaction cost: partnership and other forms of business
involving outsiders usually leads to conflict in long run. In case of family
business as all the parties in family are affected by loss incurred in company
do not involve any sought of conflict and difference in point of view arises
they try and solve it internally in the family ensuring business is not affected
by the same.
• Small, nimble and quick to react : as managing team size in family business
is small compare to other form of business decision making process involves
less period of time which helps to take timely decision.
• Information as source of advantage : as family business is private firm it is
not required to take decision in accordance with pressure from other sources
and strategies of business need not be revealed to outsiders of business.

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Types of Family Business

Figure 14.1 - Types of family Business

• Family owned business : is a profit organization were number of voting
shares, but not necessarily majority of shares are owned by members of
single extended family but significantly influenced by other members of
family.
• Family owned and managed business : is a profit organization were
number of voting shares, but not necessarily majority of shares are owned by
members of single extended family but significantly influenced b y other
members of family. In this business has active participation by one family
member in the top management of company so that one or more family
members have ultimate management control.
• Family owned and led company : is a profit organization were number of
voting shares, but not necessarily majority of shares are owned by members
of single extended family but significantly influenced by other members of
family. In this business has active participation by one family member in the
top management of company so that one or more family members have
ultimate management control. But in this method one member has major
influence on business activities who in charge of regulating activities of
business and members of family business.

Strategies for Improving Capability of Family Business

• Inculcate professionalism in family firms: professionalism in business
refers to retaining of effective talent in company, proper documentation of
business transaction, planning and implementation of efficient strategies for
success of business.
• Replenishing entrepreneurship: basically refers to expand existing
business and be role model for their families to open business of their own.
• Good management: refers to proper communication of information among
family members about present business and utilization of available resources
in business.
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• Ability to change: business environment is dynamic in nature for which

business have to renew their strategies on regular basis to meet demand of
changing situation to compete in market.
• Have strategic plan: situations of business are unpredictable in nature in
nature so present plans of business should be designed keeping in point
about future strategy in picture.
• Have active board of directors: refers to have competent employees in
business that can assess future requirements and accordingly management
business resources and take decisions in business.

Starting a Business: Legal Forms and Requirements

Business Operation:
Activities involved in the day to day functions of the business conducted for the
purpose of generating profits.

Business Plan:
Document that describes a business along with it’s objectives, strategies, the
market in which it operates and the businesses’ financial forecasts.
A business plan is a blue print of step by step process that would be followed to
convert business idea into successful business venture.
Business Plan Purposes:
• Plans for future
• Allocate resources
• Identify and prepare for problems and opportunities
• Useful for start up businesses applying for finance or growth
• Improves entrepreneur’s understanding of business and the market
Audience
• Banks, Financial lenders.
• Venture Capitalists: people who invest for a share of the business.
• Business Angels: people who invest in start up businesses which are high
risk, high growth market.
• Providers of grants
• Potential purchaser of the business

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Business Plan Process :

Idea generation: is the first step in the business planning process. This step
differentiates entrepreneur from usual business. An entrepreneur may come up
with new business idea or may bring in value addition to existing product in the
market. Sources of new idea for entrepreneurs are:
 Consumers/ customers
 Existing companies
 Research and development
 Employees
 Dealers, retailers.
Environmental scanning: once the entrepreneur is through the idea generation
stage, next entrepreneur is required to conduct environmental scanning which
includes analyzing external and internal environment that affects business idea.
1. External environment comprises of :
 Socio cultural appraisal : it gives brief overview about the culture and
tradition existing in society. It is comprised of values and beliefs of people
which determines the acceptance of product by customer in the market.
 Technological appraisal : it assess various technological options available
to convert an idea to product. It also provides an brief overview about
technological updates.
 Economic appraisal : it assess the status of the society in terms of economic
development, per capita income, national income, consumption pattern in
the business.
 Demographic appraisal : it assess the population pattern of given
geographic area. Which includes sex, age profile, distribution etc.
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 Economic appraisal : it assess the status of the society in terms of economic

development, per capita income, national income, consumption pattern in
the business.
 Demographic appraisal : it assess the population pattern of given
geographic area. Which includes sex, age profile, distribution etc.
 Government appraisal : it assess the various legislation, policies, incentives
formulated for particular industry. Flexibility of these rues determine ease
for entrepreneur in terms of opening venture in particular area.
2. Internal environment :
 Raw material: it refers to in terms of availability of raw material required
for the process of production. If the material availability is at distance place
and is very expensive then entrepreneur should give second thought to the
same.
 Production/ operation: it assesses the availability of various machineries,
equipment's, tools and techniques that would be required for production.
 Finance: it studies total requirement of finance in terms of start up expenses,
fixed expenses, running expenses etc.
 Market: refers to study on potential customer and target customers in
market.
 Human resource: refers to demand and supply of required human resource
in market and estimation of expenses to be incurred on human resource.
Feasibility analysis: refers to conducting detailed analysis in relation to every
aspect relevant to business and determining credibility of business.
 Market analysis: is conducted to estimate the demand and market share for
proposed product and service in future. Demand and market analysis is
based on factors like consumption pattern, availability of substitute goods
and services etc.
 Technical and operational analysis: is to assess operational ability of
proposed business enterprise. Technical or operational analysis collects data
on following parameters :
1. Material availability
2. Material requirement planning
3. Plant location
4. Plant capacity
5. Machinery and equipment.
 Marketing plan: lays down the strategies of marketing which can lead to
success of business plan. Strategies are in terms of marketing mix which
includes (product, price, place, promotion) which determines the potential
demand of customers for product in the market.
Course Module
  Production plan / operational plan: production plan is drafted for
manufacturing sector where as operation plan is designed for business into
service sector. It comprises of strategies on parameters such as location
layout, cost, availability of material, human resource etc.
 Organizational plan: defines type of ownership pattern in company, sole
trading concern, family business, private or public limited company etc.
 Financial plan: financial plan indicates the requirement of proposed
business enterprise. Which includes fund flow, cash flow statement,
breakeven point, projected ratio, projected balance sheet.
Project report preparation: project report is a written document that
describes step by step strategies involved in starting and running business.
Evaluation, control and review: as company operates in dynamic environment
company has to monitor and review strategies and policies to stay in line with
competition existing in market.

List of Business Permits and Licenses in the Philippines

People do business to make a living, serve their community, and pursue their
dreams. It is good to hear a person who’s taking risk to start his or her business,
whether small, medium or big. However, the process of starting and registering a
business can be one of the most crucial stages of doing business. Getting the
right permits and licenses should be done before running a business, otherwise,
you may end up operating a business without a license, which can be punishable
under certain business laws. That is why if you are an aspiring business person
or entrepreneur, and if you want to conform with the government’s rules on
establishing and legalizing a business, you have to be aware of the following list
of business permits and licenses in the Philippines.
Basic permits:
The following are the business permits and licenses that are generally required
to all business industries.
1. Barangay Clearance – The barangay clearance is a certificate that your
business complies with the requirements of the barangay where your
business is located. To get a barangay clearance, you may visit the barangay
office where your business is located.
2. DTI Business Name (BN) Registration Certificate – This is the certificate
of registration of your business trade name. It gives you the power to use
your registered business trade name for business operation. It also protects
your business name against being used and registered by other business
establishments. However, take note that DTI registration only gives you the
authority to use your business trade name, but it doesn’t give you the license
to start operating your business without getting the required licenses from
other government offices, such as BIR and Local Government Office (Mayor’s
Office).
3. SEC Certificate of Registration – Corporations (stock or non-stock) and
partnerships have to secure a certificate of incorporation or certificate of
partnership with the Securities and Exchange Commission (SEC) to be
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considered as legal or juridical entities. These certificates are also used as a

requirement for registering with the BIR, Mayor’s Office, and other
government offices. Take note that sole proprietorship businesses are not
registered with SEC, but they are registered with the DTI. To register with
SEC, you may reach the following SEC address and contact information.
SEC Building, Edsa, Greenhills, Mandaluyong City
Tel. Nos.: (+632) 726.0931 to 39
Email: [email protected]
Website: www.sec.gov.ph
or http://iregister.sec.gov.ph/MainServlet (for online registration)
4. Mayor’s Business Permit. Businesses have to secure a Mayor’s Business
Permit or the Local Government Office where their business are located and
operated. Requirements in obtaining a Mayor’s Business permit vary from
different cities or municipalities. This permit is also a requirement by the BIR
in issuing a BIR certificate of registration.
5. BIR Certificate of Registration. Any business must be registered with the
Bureau of Internal Revenue to comply with the Philippine tax requirements.
BIR registration will assign a TIN (Taxpayer Identification Number) to the
company or business owner, will give the business authority to print its
official receipts and invoices, and registered its books of accounts. To regis ter
with the BIR, you have to go to the BIR office which has the jurisdiction of the
place where your business is located.
6. SSS Employer’s Registration. Republic Act No. 8282 or otherwise known as
the Social Security Act of 1997 requires businesses or business owners who
use the services of another person or employees in business, trade, industry,
or any undertaking to be registered with the SSS (Social Security System).
7. Phil-Health Employer’s Registration. All businesses and employers are
also required to register with Phil-Health to enable them to provide social
health insurance coverage to their employees.
8. Pag-IBIG Employer’s Registration. Employers also have to register with the
Home Development Mutual Fund (HDMF) to secure their Pag-IBIG Employer
ID Number and to provide the required benefits to their employees, who
should be Fund members.
9. DOLE Registration. Businesses with five or more employees are encouraged
to register with the Department of Labor of Employment (DOLE) for the
purpose of monitoring their compliance with labor regulations. For
companies with 50 or more workers, they are required to register with
DOLE, under the Bureau of Local Employment which administers the
registration of establishments.
Special permits
The following are the special or secondary permits that are usually required for
business establishments with special operation or industry.
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10. Bangko Sentral ng Pilipinas (BSP) – for banks, financing companies,
pawnshops, money changers, and other financial institutions.
11. Bureau of Food and Drugs (BFAD) – for business related in the
manufacturing, trading, repacking, importing, exporting, distributing of any
products related to food and drugs.
12. Bureau of Animal Industry (BAI) – for business related to animals.
13. Bureau of Fisheries and Aquatic Resources (BFAR) – for business related
in fishing and aquatics products.
14. Bureau of Forest Development – for exporters of forest products (e.g. logs,
lumber products, plywood, etc.).
15. Bureau of Plant Industry (BPI) – for business related to plants and
vegetable crops.
16. Commission on Higher Education (CHED) and Department of Education
(DepEd) – for entities involved in providing education.
17. DTI-Bureau of Product Standards (BPS) – For commodity clearance for
producers, manufacturers or exporters, whose product quality after due
inspection, sampling, and testing, is found to meet established standards.
18. Fiber Industry Development Authority (FIDA) – for business related in
fiber producing products.
19. Forest Management Bureau (FMB) – for business related in lumber, logs,
and other wood product.
20. Garments and Textile Industry Development Office (GTIDO) – For all
manufacturers of garments and textile for exports.
21. Insurance Commission (IC) – for insurance and other IC regulated entities.
22. Intellectual Patent Office (IPO) – for registering your trademarks, logos,
slogans, processes and secret formulas.
23. National Food Authority (NFA) – for rice, corn and flour dealers.
24. National Subcontractors Exchange (SUBCONEX) – for those interested to
tie up with export oriented firms as sub-contractors/suppliers, provided they
fall under any of the following sectors: garments and handwoven fabrics,
gifts and house wares, furniture and fixtures, foot ware and leather goods,
fresh and processed foods, and jewelry.
25. National Tobacco Administration (NTA) – for business related to tobacco
products.
26. Philippine Coconut Authority (PCA) – for businesses related in grain-rice
farming and trading.
27. Technical Education and Skills Development Authority (TESDA) – for
institutions involve in technical education and skills development.
There are maybe other business permits that are required for certain types of
businesses aside from what we have listed and mentioned above. Legalizing
your business doesn’t only extend to registering it and securing a license or
permit. A legalized and compliant business is one that consistently complies with
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Special Topics in Management

the government’s laws and regulations from registration, to operation, and until
cessation

References
http://www.in-the-philippines.com
http://www.webopedia.com
http://www.ifc.org
http://www.hiscox.com
http://www.quickmba.com
http://www.slideshare.net -
http://www.slideshare.net/greeshmamohanp/types-of-auntrepreneurs
http://canadabusiness.ca/blog/
http://gabrielataylor.com
http://www.moyak.coml
http://www.businessdictionary.com
http://businesstips.ph/

Course Module