EMGT Lecture 2 – Fundamentals of Management (The Management Process)

Planning (Plus Environmental Scanning)

Organizing

Leading

Controlling

In lecture 1 we defined management as the process of PLANNING, ORGANIZING, LEADING AND

CONTROLLING the work of organization members and of using all available organizational resources to
reach stated organizational goals. We shall now learn together these in detail.

From lecture 1 we also learned that planning is applied to all management areas such as such as
OPERATIONS/PRODUCTION, HUMAN RECOURCES, MARKETING, and FINANCE. As such, we have
operations/production, human resources, marketing, and financial planning.

PLANNING AND ENVIRONMENTAL SCANNING (Process)

Process – A systematic method of handling activities

Planning - The process of establishing goals and a suitable course of action for achieving those goals.

The first step in planning is the selection of goals (objectives) for the organization. Goals are then
established for each of the organization’s subunits – its divisions, departments, sections, and so on.
Once there are determined, programs are established for achieving goals in a systematic manner.

Objectives must follow the SMART formula – Specific, measurable, achievable, realistic, time bound.

Relationships and time are central to planning activities. Planning produces a picture of desirable future
circumstances – given the available resources, and past experiences. For example planning for your
student council activities shall involve many relationships with various groups.

Plans made by top management charged with responsibility for the organization as a whole may cover
periods as long as five or ten years (long term planning). In a large organization such as a multinational
energy corporation those plans may involve commitments of billions of dollars. Local example can be
Malayan Colleges extension in Cagayan de Oro or in Laoag. On the other hand, planning in particular
parts of the organization spans much shorter periods (short term planning). For example, such plans
may be for the next weeks or day’s work in a plant.

The Hierarchy of Organization Plans (See Attachment)

Strategic Plans – are designed by high-ranking managers and define the broad goals for the organization.
Operational Plans – contain details for carrying out or implementing, those strategic plans day-to-day

Mission Statement – At the top is the mission statement, a broad organizational goal, based on planning
premises, which justifies an organization’s existence.

Strategic and Operational Plans differ in time horizons, scope, and degree of details.

Strategy – The broad program for defining and achieving an organization’s objectives; the organizations
response to its environment over time.

Strategic Management – The management process that involves an organization’s engaging in strategic
planning and then acting on those plans. (see attachment)

The Levels of Strategy (See Attachment)

Corporate-level strategy – Formulated by top management to oversee the interests and operations of
multiline corporations. (What kind of businesses should the company be engaged in?)

Business-unit strategy – Formulated to meet the goals of a particular business. (How will the business
compete within the market?)

Functional-level strategy – creates a framework for managers in each function such as the marketing or
production – to carry out business-unit strategies and corporate strategies. Operational plans follow
from functional-level strategies.

THE ENVIRONMENT

As strategy is the organization’s response to its environment over time, let us look at a framework in
analyzing industries and competitors – Michael PORTER’S FIVE environmental FORCES (See Attachment)

Threat of new entrants – high when it is easy to enter the business, example low capital is needed.

Bargaining power of buyers (customers) –high when market players are many.

Bargaining power of suppliers – high when supplier is monopoly.

Threat of substitute products – different products but similar in functionality – soda and water

Rivalry among competitors – high when competitors are many and of the same sizes

The organization is in better position when all these five forces are low. Careful study is done to
determine the magnitude of the force from low to high.

To shield the company from these five forces, Porter offered the THREE GENERIC STRATEGIES:

Overall cost leadership – company cost in producing and delivering products and services is lowest
among competitors
Differentiation – literal, be different from competitors in product, or services features, etc.

Focus- literal, concentrate.

Direct-Action and Indirect-Action Environments of Organizations (See Attachment)

Internal stakeholders – Groups of individuals, such as employees, that are not strictly part of an
organization’s environment but for whom an individual manager remains responsible. Include
employees, shareholders, and the board of directors.

External stakeholders – affect an organization’s activities from outside the organization. Include
customers, suppliers, governments, special interest groups, media, labor unions, financial institutions,
competitors.

These are the direct-action environment.

The elements of the indirect-action environment are:

Social variables – such as demographics, lifestyle, and social values that may influence an organization
from its external environment.

Economic variables – general economic conditions that may be factors in an organizations activities.
Wages, prices, government fiscal policies.

Political variables – government policies that may affect an organizations activities.

Technological variables – Developments in products or processes, as well as advance in science that may
affect an organizations activities

The Natural Environments –Preservation and campaigns vs. exploitation

The SWOT Analysis

Internal:

S –Strengths, like financial strength, strong human resources etc.

W – Weaknesses like weak finances

External:

O – Opportunities such as other companies being sold

T – Threats such as presence of strong competitors.

We list and carefully analyze the identified SWOT and formulate strategies like Strength-Opportunity
(SO) strategies, W-T strategies, etc.
Other terms in Planning:

Single-use plan – A detailed course of action used once or only occasionally to solve a problem that does
not occur repeatedly.

Program – A single-use plan that covers a relatively large set of organizational activities, and specifies
major steps, their order and timing, and the unit responsible for each step.

Project – The smaller and separate portions of the programs.

Budgets – Formal quantitative statements of the resources allocated to specific programs or projects for
a given period.

Standing plan – An established set of decisions used by managers to deal with recurring organizational
activities; major types ate policies, procedures and rules.

Policy – A general guideline for decision making. Sets up boundaries around decisions, telling managers
which decisions can be made and which cannot. Example are policies dictating the relative importance
of athletics and extracurricular activities vis-à-vis academic learning and performance. Example is a
policy to label the content of video games

Rules - Standing plans that detail specific action to be taken in a given situation. Example, a rule that an
athlete with a grade of lower than 2.5 cannot be a member of the varsity team.

Procedure – A standing plan that contains detailed guidelines for handling organizational actions that
occur regularly. Most policies are accompanied by detailed procedures, called standard operating
procedures or standard methods, which are just detailed set of instructions for performing a sequence
of actions that occur often or regularly.

ORGANIZING

…If planning is all about setting goals and have directions… organizing gives us ORDER in achieving the
goals…resulting in efficiency in doing things….

Four Building Blocks of Organizing:

Managers take four fundamental steps when they begin to make decisions about organizing

Division of Work – The breakdown of a complex tasks into components so that individuals are
responsible for a limited set of activities instead of the task as a whole. Sometimes referred to as
division of labor. Managers divide the total workload into tasks that can logically and comfortably be
performed by individual or groups. (Job Specialization)

Adam Smith wrote in his “Wealth of Nations” that in the manufacture of pins “one man draws the wire,
another straightens it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head.
Ten men working in this fashion made 48,000 pins in one day. But if they had all wrought separately and
independently each might at best have produced only 20 pins a day.
Departmentalization - The grouping of work activities that are similar and logically connected.
Departmentalization is the result of managers deciding what work activities, once they are divided into
jobs, can be connected in “like” groupings.

Span of management control – The number of subordinates reporting directly to a given manager. Also
called span of control or span of management (generally 6).

Hierarchy - A pattern of multiple levels of an organizational structure, at the top of which is the senior-
ranking manager (or managers) responsible for the operations of the entire organizations; other, lower-
ranking managers are located down the various levels of the organization.

Note: see attachment for tall and flat hierarchies.

Chain of Command - The plan that specifies who reports to whom in an organization; such reporting
lines are prominent features of any ORGANIZATION CHART.

Coordination - Then process of integrating the activities of separate departments in order to pursue
organizational goals effectively. Example – meetings.

Differentiation – Differences in attitudes and working styles, arising naturally among members of
different departments that can complicate the coordination of an organization’s activities.

Integration - designates the degree to which members of various departments work together in a
unified manner.

Approaches to Achieving Effective coordination:

1. Using basic management techniques – like chain of command, rules and procedures, walking
around
2. Boundary Spanning role - A job in which an individual acts as liaison between departments nopf
organizations that are in frequent contact.
3. Reducing the need for coordination.

Organizational Design – is the decision making process by which managers choose an ORGANIZATIONAL
STRUCTURE appropriate to the strategy for the organization and the environment in which members of
the organization carry out that strategy.

Downsizing – A version of organizational restructuring which results in decreasing the size of the
organization and often results in a flatter organizational structure; one way organizations convert to
leaner, more flexible structures that can respond more readily to the pace of change in the global
markets.

ORGANIZATIONAL STRUCTURES - Refers to the way in which an organization’s activities are divided,
grouped, and coordinated into relationships between managers and employees, managers and
managers, and employees and employees. An organization’s departments can be formally structured in
three major ways: by function, by product/market, or in matrix form. (See Attachments)

1. Functional Organization – A form of departmentalization in which individuals engage in one

functional activity, such as marketing or finance, are grouped into one unit.
 2. Product/Market Organization – (Product) The organization of a company into division that bring
together those involved with a certain type of product. (Market) The organization of a company
that brings together those involved with a certain type of market.

Division – Large organization department that resembles a separate business; may be devoted
to making and selling specific products or serving a specific market. (division by product, division
by geography, division by customer)

3. Matrix Structure – An organizational structure in which each employee reports to both a

functional or division manager and to a project or group manager.

Informal Organizational Structure – The undocumented and officially unrecognized relationships

between members of an organization that inevitably emerge out of the personal and group needs of
employees. May emerge from friendship bonds.

Power – The ability to exert influence (managers); that is, the ability to change the attitudes or behavior
of individual or groups. Sources of power are:

1. Reward Power is based on one person (manager) having the ability to reward another person
(subordinate) for carrying out orders or meeting performance requirements.
2. Coercive Power is based on the influencer’s ability to punish the influence for not meeting
requirements, is the negative side of reward power. Punishment may range from reprimand to
loss of a job.
3. Legitimate Power (formal authority) exists when an employee or influencee acknowledges that
the influencer is entitled to exert influence-within certain bounds. (can be upward or downward)
4. Expert Power is based on the perception or belief that the influencer has some relevant
expertise or special knowledge that the influncee does not.
5. Referent Power is based on the desire of the influencee to be like or identify with the influencer.

Authority – A form of power. Specifically, formal authority is legitimate power, associated with
organizational structure and management.

1. Line Authority – The authority of those managers directly responsible throughout the
organization’s chain of command, for achieving organizational goals. (See Attachment)
2. Staff Authority – The authority of those groups of individuals who provide line managers with
advice and services.
3. Functional Authority – The authority of members of staff departments to control the activities of
other departments as they relate to specific staff responsibilities.

Delegation – The act of assigning formal authority and responsibility for completion of specific activities
to a subordinate.

Note: The degree to which formal authority is delegated by managers throughout the organization runs
along a continuum from decentralization to centralization.

Managerial Levels and Skills (See Attachment)

 1. First Line Managers – Supervisors, foremen, etc. – mostly technical skills are needed although
human and conceptual skills are needed to a lesser extent
2. Middle Managers – Managers, etc. – mostly human skills are needed, technical and conceptual
skills are still important.
3. Top Managers – President, CEO, COO, - mostly conceptual skills are needed. Technical and
human skills will help.

LEADING

Leadership is an important subject for managers because of the critical role leader play in group and
organizational effectiveness.

Leadership may be defined as the process of influencing and directing the task-related activities of group
members.

Motivational skills are a critical component of leading, whereas the focus of management is planning
and administration

Four Aspects of Leadership - There are four important implications of our definition of leadership:

1. Leadership involves other people – employees or followers. By their willingness to accept the
directions from the leader, group members help define the leader’s status and make the
leadership process possible.
2. Leadership involves an unequal distribution of power between leaders and group members.
3. Leaders must have the ability to use the different forms of power to influence followers’
behaviors in a number of ways.
4. Leadership is about values. Combination of the first three aspects. Leaders who ignore the moral
components of leadership may well go down in history as a scoundrel, or worse.

Note: Recall above lecture on power and influence

Leadership Styles – The various patterns of behavior favored by leaders during the process of directing
and influencing workers.

1. Task-oriented style – managers closely supervise employees to be sure the task is performed
satisfactorily.
2. Employee-oriented style – managers put more emphasis on motivating rather than
controlling subordinates. They seek friendly, trusting, and respectful relationships with
employees, who are often allowed to participate in decisions that affect them.

Three Forces Affecting Choice of Leadership Styles:

1. Force in the Manager – Manager’s background, knowledge, values, and experiences

2. Forces in Employees – employees crave for independence and freedom of action, want to
have decision-making responsibility, identify with the organization’s goal, and
knowledgeable and experienced enough to deal with a problem efficiently, and have
experiences that lead them to participative management.
 3. Forces in the situation – Organization’s preferred style, the size and cohesiveness of a
specific work group, the nature of the group’s task, the pressure of time, and even
environmental factors – all of which may affect members’ attitude toward authority.

Motivation – The factors that cause, channel, and sustain an individual’s behavior.

Basic Assumptions about Motivation:

1. Motivation is commonly assumed to be a good thing – you cannot feel very good about
yourself if you are unmotivated.
2. Motivation is one of several factors that goes into a person’s performance.
3. Managers and researchers alike assume that motivation is in short supply and in need of
periodic replenishment.
4. Motivation is a tool with which managers can arrange job relationships in organizations.

Thus, knowledge about motivation joins strategic plans as inputs into the process of designing
relationships at organizations and distributing power in those work relationships.

Contemporary Views of Motivation:

1. Need Theory
2. Equity Theory
3. Expectancy Theory
4. Reinforcement Theory
5. Goal – Setting Theory

Need Theory – Theory of motivation that addresses what people need or require to live fulfilling lives,
particularly with regard to work.

Maslow’s Hierarchy of Needs – Theory of motivation that people are motivated to meet five types of
need, which can be ranked in hierarchy starting from – Physiological, safety and security, belongingness,
esteem, to self-actualization needs.

ERG Theory (by Clayton Alderfer)– Theory of motivation that says people strive to meet a hierarchy of
existence (Maslow’s), relatedness, and growth needs ; if efforts to reach one level of need are frustrated,
individual will regress to a lower level

Three Needs (by John W. Atkinson)

1. Need for achievement

2. Need for power
3. Need for affiliation or close association with others

Two-Factor Theory of Motivation (two-factory theory by Herzberg) – Theory that work dissatisfaction
and satisfaction arise from two different sets of factors such as dissatisfiers and satisfiers.

1. Dissatisfiers – (hygiene factors) included salary, working conditions, and company policy.
Positive ratings for these factors did not lead to job satisfaction but merely to the absence of
dissatisfaction.
 2. Satisfiers – (motivating factors) – include achievement, recognition, responsibility, and
advancement – all related to the job content and the rewards of work performance.

Equity Theory – A theory of motivation that emphasizes the role played by an individual’s belief in the
equity or fairness of rewards and punishments in determining his or her performance and satisfaction.

Expectancy Theory – A theory of motivation saying that people choose how to behave from among
alternative courses of behavior, based on their expectations of what there is to gain from each behavior.

Three components of Expectancy Theory:

1. Performance –outcome expectancy - A worker who is thinking of exceeding the sales

quota may expect praise, a bonus, no reaction, or even hostility from colleagues.
2. Valence – The outcome of a particular behavior has a specific valence, or power to
motivate, which differ from individual to individual.
3. Effort-performance expectancy - People’s expectations of how difficult it will be to
perform successfully affect their decisions about behavior.

Intrinsic Reward – Psychological reward that is experienced directly by an individual like feelings of
accomplishment, increased self-esteem, and the satisfaction of developing new skills.

Extrinsic Reward – Reward that is provided by an outside agent such as supervisor or work group.
Examples are bonuses, praises, promotions.

Reinforcement Theory – An approached to motivation based on the “law-of-effect” – the idea that
behavior with positive consequences tends to be repeated, while behavior with negative consequences
tends not to be repeated.

Behavior Modification – The use of reinforcement theory to change human behavior.

Four Common Methods of behavior modification:

1. Positive reinforcement – The use of positive consequences to encourage desirable behavior.

2. Avoidance learning - Employees change behaviors to avoid unpleasant consequences such
as criticisms, or poor evaluation.
3. Extinction - The absence of reinforcement
4. Punishment – The application of negative consequences

Goal-Setting Theory - Individuals are motivated when they behave in ways that move them to certain
clear goals that they accept and can reasonably expect to attain.

Christopher Earley and Christine Shalley describe the goal goal-setting process in terms of four phases of
person’s reasoning:

1. Establishment of a standard to be attained.

2. Evaluation of whether the standard can be achieved
3. Evaluation of whether the standard matches personal goals
4. The standard is accepted, the goal is hereby set, the behavior proceeds toward the goal.
CONTROLLING

The process of ensuring that actual activities conform to planned activities.

Steps in the control process:

1. Establish standards and methods for measuring performance

2. Measuring the performance
3. Determine whether performance matches the standard
4. Take corrective action

Why control is needed:

1. To create better quality

2. To cope with change
3. To create faster cycles
4. To add value
5. To facilitate delegation and teamwork

Designing Control Systems

Control system – Multiple procedure applied to various types of control activities that provide accurate
feedback in a timely, economical fashion that is acceptable to organization members.

1. Identifying key performance areas (or key result areas) – Aspect of a unit or organization
that must function effectively if the entire unit or organization is to succeed.
2. Identify strategic control points – Critical points in a system at which monitoring or
collecting information should occur.

Financial Controls:

Financial Statements – Monetary analysis of the flow of goods and services to, within, and from the
organization

1. Balance sheet – Description of the organization in terms of its assets, liabilities,

and net worth at a particular point in time.
2. Income statement – Summary of the organization’s financial performance over
a given interval of time, loss or gain).
3. Cash flow – Statement of sources and uses of funds

Budgetary Control Methods:

Budget – Formal quantitative statements of resources allocated for activities over stipulated periods of
time.

Responsibility Centers – Any organizational function or unit whose manager is responsible for all its
activities. Typically, responsibility is assigned to as:

1. Revenue centers – Unit in which outputs are measured in monetary terms but not directly
compared to input costs. Example, sales department.
 2. Expense center or cost center – units such as administrative, service, and research
departments where inputs are measured in monetary terms, but outputs are not.
3. Profit center – Unit where performance is measured by numerical differences between
revenues and expenditures.
4. Investment center – unit that not only measures the monetary value of inputs and outputs,
but also compares outputs with assets used in producing them

Auditing – The process of appraisal

To much of the general public, the term auditing is associated with detecting fraud. Although the
discovery of fraud, is, in fact, one important facet of auditing, it is far from the only one.

Auditing has many important uses, from validating the honesty and fairness of financial statements
to providing a critical basis for management decisions. Two types:

1. External Audit – Verification process involving then independent appraisal of financial

accounts and statements.
2. Internal Audit – Audit performed by the organization to ensure that its assets are properly
safeguarded and its financial records reliably kept.