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Business Management & Ethics – Chapter 5

Functions of Management:

Background:

Henri Fayol, the father of the school of Systematic Management, was motivated to create a theoretical

foundation for a managerial educational program based on his experience as a successful managing

director of a mining company. He observed that the increasing complexity of organisations would require

more professional management.

Fayol's legacy is his generic Principles of Management. Of Fayol's six generic activities for industrial

undertakings (technical, commercial, financial,

security, accounting, managerial), the most

important were The Five Functions of

Management that focused on the key

relationships between personnel and its

management.

Functions of management were proposed by

Henri Fayol who with Luther Gullick who coined

the word PODSCoRB (discussed in Chapter 1).

Out of the seven proposed functions, Henri

Fayol focused on the five important ones-

Planning, Organizing, Staffing, Directing, and

Controlling.

1. Planning:

It is the basic management function which includes formulation of one or more detailed plans to achieve

optimum balance of needs or demands with the available resources. Planning (is also called forethought)

is the process of thinking about and organizing the activities required to achieve a desired goal.

Planning also solves as standard for control. It is a mental exercise and intellectual process. It may be long

term and short term. Planning may be strategic, tactical, and operational.

Importance of Planning: Planning is important in management because it provides security and

organization to the company. A manager needs to plan the expectations and regulations that the

company needs.

Types of Planning:

Strategic Planning: Strategic planning involves two important factors: Top level management and long

term planning. Strategic plans devise the planning strategies for a company keeping in view its essential

objectives. CEOs and top level managers carry out strategic planning for longer terms (usually from three

to five to ten years).

Tactical Planning: Tactical plans support strategic plans by translating them into specific plans relevant to

a distinct area of the organization. Tactical plans are concerned with the responsibility and functionality of

lower-level departments to fulfill their parts of the strategic plan.

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Operational Planning: Operational plans sit at the bottom of the totem pole; they are the plans that are

made by frontline, or low-level, managers. All operational plans are focused on the specific procedures

and processes that occur within the lowest levels of the organization. Managers must plan the routine

tasks of the department using a high level of detail.

Contingency Planning: Contingency plans allow a manager to be flexible and change-savvy by providing

an alternative course of action, which can be implemented if and when an original plan fails to produce

the anticipated result. Having a contingency plan might seem like extra work, but much like a reserve

parachute when skydiving, it's better to have it and not need it than to need it and not have it.

Characteristics of Planning:

Intellectual process, Future Oriented, Goal Focused, Pervasiveness of Plan, Increased Efficiency,

Decision Making.

Principles of Planning by John C. Maxwell:

John Calvin Maxwell (born 1947) is an American author, speaker, and pastor who has written many

books, primarily focusing on leadership. Titles include The 21 Irrefutable Laws of Leadership and The 21

Indispensable Qualities of a Leader: Becoming the Person Others Will Want to Follow. He proposed 7

principles of planning which account for a ‘centered planning’. These are:

Principle of Passion: When we're passionless, we procrastinate on the plan or burnout trying to execute

it. With passion, we approach our plans with excitement and a sense of urgency. Passion gives planning

energy. Passion also gives planning focus. Passion narrows our vision so that the plan dominates our

attention and distractions fade into the background.

Principles of Creativity: Of the seven planning principles, we violate the principle of creativity the most.

By gravitating to concreteness, we sacrifice creativity. We settle for what's easy to wrap our minds

around, and we neglect to wrestle with harder, more difficult dilemmas. Leaders are too busy doing to

think and provide ideas. Even the rare leaders who think creatively often neglect to encourage the people

around them to do the same. Consequently, a majority of teams rely on one person for creative thought

and end up starved with good ideas.

Principle of Influence: To accomplish your plan, you'll need influence over people, finances, and you

schedule. The support of people, especially other influencers, can make or break your plan. Make a

priority to build relationships with them. In particular, find the key to their lives by learning what matters

most to them. If you continually add value to the influencers around you in meaningful ways, then you'll

be more likely to receive their assistance when you need it.

Principle of Priorities: Giving importance to the things you have to do or deal with, or must be done or

dealt with before everything else you have to do. You have no right, nor any reason, to start planning your

life until you know what you're living for and what you're willing to die for. It's important to find your

purpose so that you run, not on the fast track, but on your track. The key to a prioritized life is

concentration followed by elimination.

Principle of Flexibilities: In leadership, be mentally prepared that not everything will go according to your

plans. Then, when plans unfold unexpectedly, you'll be prepared to see new opportunities. Some of the

best things we received in life have been surprises that we could never have planned in advance. When

plans go awry, don't just stand there. By staying in motion, you create movement. Be resourceful enough

to improvise when circumstances push you off course.

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Principle of Timing: Most of the time, our decisions are based on our emotional environment rather than

reality. When we're in the valleys of life, we don't see clearly. Our perspective is limited, and all we see

are the problems around us. In the valleys we make decisions, not to better ourselves, but to escape our

problems. Never make a major decision in the valleys. Wait until you get to the peak where you can see

clearer and farther. By reserving big choices for the peaks, you'll avoid making rash decisions that you’ll

regret later.

Principle of Teamwork: A worthwhile plan ought to be bigger than your abilities. You shouldn't be able to

accomplish it alone. Each of us has areas of weakness, blind spots, and shortcomings. Unless we rely on a

team to help us, our plans succumb to our personal limitations.

Barriers or Limitations of Planning:

Planning is an expensive and time consuming process.

Planning sometimes restricts the organization to the most rational and risk free opportunities.

The scope of planning is said to be limited in the case of organizations with rapidly changing situations.

Flexibility of planning cannot be maintained when there are unforeseen changes in the environment.

Another limiting factor in planning is the difficulty of formulating accurate premises.

Planning may sometimes face people’s resistance to it.

2. Organizing:

ALLEN defines “Organizing” is the process of identifying and grouping the work to be performed defining

and delegating responsibility and authority and establishing relationship for the purpose of enabling

people to work most effectively together in accomplishing objectives”.

Organizing follows “planning”- in a general sense means systematic arrangement of activities”.

Organizing in Management: Organizing in management refers to the relationship among people, work

and resources used to achieve the common objectives

Organizational Structure: A design of

organization movement or blueprint.

Organization structure explains the position

and official relationship between various

individuals in the organization.

Organizational Chart: It is a diagrammatic

representation of organization structure show

names designation functions of personnel in an

organization. Shown on right.

Nature of Organizing: Learning objectives,

Identifying the task , Grouping the activities,

Delegation of authority, Coordination,

Perform an analysis about the work,,

organization structure, division of labor,

assignment of work (communication),

delegation of authority (authority structure).

Purpose of Organizing: Aids to management, it

facilitates growth and creativity, it ensures optimum use of resources, establishes relationship among

individual groups, clusters job into units, coordinates.

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Formal and Informal Groups:

Formal Groups Informal Groups Definition:

A formal group is a structured group which has a plan and positions of each job’s objective and functions.

Characteristics:

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 has a hierarchical pattern.

Definition:

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 be related with work

Characteristics:

Informal group is created by the member of the organization for their social and psychological satisfaction.

Informal groups are unstable in nature, it is not permanent.

Informal groups are greater in numbers than the formal groups.

Free interaction.

Types of Organizational Structures:

Line Structure

o Definition: It flows from top to lower level. It is the simplest and oldest method followed in many

organizations. It is also called as military organization.

o Merits: Simple and easy to establish, authority and responsibility is clearly defined, prompts

decision, speedy action taken, unity of command since each will have full control over

subordinates, ensures Better discipline, it is very economical since it is less elaborate, and it

provides better scope for supervision.

o Demerits: Lacks specialization, overburden with lots of administrative work, it may result in

autocratic control, manager enjoys monopoly in the matter of decision making (he himself takes

the decision), always downward communications is possible, lacks upward communication, it is

suitable for small concerns employing few persons.

Line and Staff Structure

o Definition: The staff is attached to line, staff is the experts specialized in specific areas; they give

ideas to personnel and support the line personnel.

o Merits: Expert advice, relief to top executives, quality decisions, flexible, specialization is not

violated, and unity of command is not violated.

o Demerits: Conflicts often arise between line and staff, leads to confusion since responsibility is

not well defined, ineffective staff, suitability (in large organization).

Functional Structure

o Definition: There will be a separate department for different actions or activities.

o Merits: Specialization is possible, work load is less, better control over subordinates, scope for

expansion, and higher efficiency.

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o Demerits: Unity of command is violated, interdepartmental conflicts, and delay in decision

making.

Committee Structure

o Definition: A group of persons entrusted in a task.

o Types: Standard or permanent committee, temporary or ad hoc (for some purpose) committee,

executive committee, advisory committee, formal committee, and Informal committee.

o Merits: Scope of group judgment, proper coordination and control among individuals and

departments, motivation through participation is possible, various interest groups, check against

misuse of powers.

o Demerits: Expensive affair to constitute a committee, time consuming or slow decision,

compromises decision, and causes suppression of ideas.

Project Structure

o Definition: It varies from one organization to another. Any organization executing a large project

for a long period of time can adopt this project organization. Usually some companies have large

number of small projects, and the term leader of the organization is the expert or specialist.

o Merits: Maximum use of specialized knowledge and skills, unity of command exist in this

organization, flexibility of operation, fixation of individual responsibility for results, focuses

attention on the specific projects, and provides better coordination.

o Demerits: Difficulty in decision making, pressure and uncertainty due to some several specialists,

difficulty in coordination, and evaluation of performance of various specialists is difficult.

Matrix Structure

o Definition: It is suitable where there is large number of small projects. It is also called as multiple

command system. It is also called as linking pins.

o Merits: Best utilization of organizational resources, benefit to both functional and technical

specialists, promotes communication, and permits higher degree of flexibility and adaptability.

o Demerits: It is against principle of unity of command, quick decision may not be possible, and it

gives scope for conflicts.

Span of Management:

It is also called as span of control or span of supervision. It refers to the number of subordinates that

report directly to a single manager or supervisor.

Types of Span of Management: There are two types of span of management. These are:

o Narrow Span of Management: Used for tall organizations, manager oversees “few”

subordinates, and has better communication. Example: Handicraft, ivory work, etc.

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o Wide Span of Management: It has a flat organization, manager oversees “large” number of

subordinates, less overhead cost, example: large firms.

3. Staffing:

According to Knootz and O'Donnell," The managerial function of staffing involves manning the

organizational structure, through proper and effective selection, appraisal and development of personnel

to fill the roles designed into the structure.”

The staffing function of management pertains to recruitment, selection, training, development, appraisal

and remuneration of personnel.

Features of Staffing:

o Staffing is an important function of management.

o The basic concern of staffing is management of manpower and human resource.

o Staffing helps in getting right types of persons on right places (in organization).

o Staffing is a pervasive function. Staffing is performed by the managers at all levels of

management.

Importance of Staffing:

o To ensure efficient performance of planning, organizing, directing and controlling functions of

management.

o To ensure effective use of technology and other physical resources.

o To ensure optimum utilization of human resources.

o To develop human capital.

o To motivate human resource for better performance.

o To develop higher employee morale.

Staffing Process:

Pre-Staffing Stage: Before staffing, Human Resource Planning is required as a pre-selection stage. It

involves two sub-stages:

o Job Analysis: It basically helps in understanding the nature of specific job. It is identification of

various activities performed in a job & the characteristics of the person, the worst situations, the

material & equipment necessary for performing the job effectively.

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o Manpower Planning: The next step after the job analysis is manpower planning. Manpower

planning is a process of determining & ensuring that the organization will have an adequate

number of qualified personnel. It helps to ensure the right number & right kind of people at the

right place at the right time doing the right things for which they are best suited for achievement

of organizational goals.

Staffing Process Steps:

o Estimating manpower requirement – Calculation of staff and people required.

o Recruitment – Invitations for candidates aspiring for the job.

o Selection – Selection of qualified candidates.

o Orientation and placement – Introduction to company, rules and regulation, and allocation.

o Training & development – Training and development of skills and job duties.

o Remuneration – Incentives, salaries, and bonuses.

o Performance appraisal – Assessment and evaluation of work.

o Promotion – Promotion on the basis of performance appraisal and seniority.

o Compensation/Retirement – Monetary compensation paid after retirement.

4. Directing:

Directing is said to be a process in which the managers instruct, guide and oversee the performance of the

workers to achieve predetermined goals. Directing is said to be the heart of management process.

Planning, organizing, staffing has got no importance if direction function does not take place.

Advantages of Directing:

o Initiates actions to get the desired results in an organization.

o Attempts to get maximum potential out of employees by identifying their capabilities.

o Essential to keep the elements like supervision, motivation, leadership and communication

effective.

o Ensures that every employee work for organizational goals.

o Coping up with the changes in the organization is possible through effective direction.

o Stability and balance can be achieved through directing.

Elements of Directing:

Supervision: “Supervision is the function of

assuring that the work is being done as per

plan and instruction.” – Davis

o Roles of a supervisor include:

Planner, Manager, Guide and

Leader, Mediator, Inspector and

Counselor.

o Duties of a supervisor include:

Planning and Organizing, Provision of

working conditions, Leadership and

Guidance, Motivation, Controlling,

Linking Pin, Grievance Handling,

Reporting, Introducing new work

methods, Enforcing Discipline etc.

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Leadership: A Leader is someone in authority to lead others to accomplish a goal(s). A leader needs to be

able to motivate others to accomplish a goal(s) while at the same time encourage others to work toward

their own professional goals. The duties of a Leader involve: Leading people, influencing people,

commanding people, and guiding people.

Definitions:

o “Leadership is influencing people to follow in the achievement of specialized goal.” – Koontz &

O’Donnell

o “Leadership is the activity of influencing people to strive willingly for group objectives.” – George

R. Terry

Skills of a Leader:

o Personal Skills: Managing Stress, developing self-awareness, and solving problems creatively.

o Interpersonal Skills: Gaining power and skills, communicating supportively, motivating others,

management conflict etc.

Types of Leader:

o Autocratic: Concentrated authority leader.

o Democratic: Participative leader.

o Laissez Faire: Power lies with the worker.

5. Controlling:

Definition:

o Process of regulating organizational activities, so that actual performance conforms to expected

organizational standards and goal.

o Controlling means that managers develop appropriate standards, compare ongoing

performances against those standards, and take steps to ensure that corrective actions are taken

where necessary.

Importance of Controlling:

o Controls let managers know whether their goals and plans are on target and what future actions

to take.

o Control systems provide managers with information and feedback on employee performance.

o Help minimize workplace disruptions.

Levels of Control:

o Strategic Control: Involves monitoring critical environmental factors to ensure that strategic

plans are implemented as

intended, assessing the effects of

organizational strategic actions,

and adjusting such plans when

necessary.

o Tactical Control: Focuses on

assessing the implementation of

tactical plans at department

levels, monitoring associated

periodic results, and taking

corrective action as necessary.

o Operational Control: Involves overseeing the implementation of operating plans, monitoring

day-to-day results, and taking corrective action when required.

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The Control Process:

o Establishment of Standards: Criteria or standards against which performance is measured. These

are made in terms of: Profitability Standards, Market Position, and Productivity Standards.

Types of Control:

o Feed Forward Control: Regulates inputs to ensure that they meet the standards, necessary for

transformation process.

o Concurrent Control: Regulates ongoing activities to ensure that they conform to standards.

o Feedback Control: Regulates product or service after completion to ensure final output meets

organizational standards and goals.

The Balance Scorecard:

o A strategic planning and

management system that is used

extensively in business and

industry, government and non-

profit organizations worldwide

to:

o Align business activities to the

vision and strategy of an

organization.

o Improve internal and external

communications.

o Monitor organization

performance against strategic

goals.

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Balance Scorecard Perspectives:

o Learning and Growth Perspective: Companies need to increase their performance align to

company’s vision. Includes employee training and corporate cultural attitudes related to both

individual and corporate self-improvement.

o Business Process Perspective: Refers to internal business processes. Metrics based on this

perspective allow managers to know how well their business is running, and whether its products

and services conform to customer requirements (the organization’s mission). Measure – How

they manage their fixed and current asset – sale.

o Customer Perspective: The importance of customer focus and customer satisfaction in any

business. Measure – customer complaint, average collection period, average payment period.

o Financial Perspective: Timely and accurate funding data will always be a priority and managers

will do whatever necessary to provide it. Companies have a good performance if they get positive

financial ratios. (ROA-Return on Assets, NPR-No Purchase Required).

Objectives, Measures, Targets, and Initiatives:

o Objectives: Major objectives to be achieved, for example, profitable growth.

o Measures: Observable parameters that will be used to measure progress, toward reaching the

objective. For example, the objective of profitable growth might be measured by growth in net

margin.

o Targets: The specific target values for the measures, for example, +2% growth in net margin.

o Initiatives: Action programs to be initiated in order to meet the objectives.

o These can be adjusted in the following table: