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CHAPTER 6: MANAGING THE BUSINESS ENTERPRISE WHO ARE MANAGERS All organizations depend on effective management No matter the

he type of organization, managers perform the same basic function; are responsible for many of the same tasks and have many of the same responsibilities All managers plan, organize, direct, and control day-to-day operations Principles of management apply to all kinds of organizations Managers bring the same kind of skills; the ability to make decisions and to respond to a variety of challenges Regardless of size of organization, managers are among its most important resources THE MANAGEMENT PROCESS Management: the process of planning, organizing, leading, and controlling an enterprises financial, physical, human, and information resources to achieve the organizations goal of supplying various products and services Two important overall points to keep in mind when thinking about the management process The planning, organizing, leading, and controlling aspects of a managers job are interrelated Its important to make the distinction between management efficiency achieving the greatest level of output with a given amount of input and management effectiveness achieving the organizational goals that have been set In other words, efficiency means doing things right, while effectiveness means doing the right things A manager who focuses on being effective will likely also be efficient, but a manager who focuses on being efficient may or may not be effective Planning: Planning: the process of determining the firms goals and developing a strategy for achieving them Has five basic steps: Step 1: goals are established for the organization Step 2: managers identify whether a gap exists between the companys desire and actual position Step 3: managers develop plans to achieve the desired goal Note that goals indicate WHAT results are required and plans indicate HOW these goals are to be achieved Step 4: the plans that have been decided upon are implemented Step 5: the effectiveness of the plan is assessed One example of such planning is Yahoo researched what search engine users want and tried to implement it through alliances with others when needed and making Yahoo search engine simple and versatile for almost all of peoples needs It may be difficult to predict which plans will be successful One tool that helps managers assure future possibilities is called prediction markets Prediction Markets: creating a market where people can buy shares in various answers to important questions that need to be answered 1. A Hierarchy of Plans Plans can be made on three general levels, with each level reflecting plans for which managers at that level are responsible These levels constitute a hierarchy because implementing plans is practical only when there is a logical flow from one level to the next Strategic Plans: set by top management; reflect decisions about resource allocations, company priorities, and the steps needed to meet strategic goals Example: General Electrics plan to be number one or two in all the markets in which it competes Tactical Plans: shorter-range plans concerned with implementing specific aspects of the companys strategic plans, typically involve upper and middle management Example: Coca Colas plan to increase sales in Europe by building European bottling facilities Operational Plans: plans developed by middle and lower-level managers that set short-term targets for daily, weekly, or monthly performance

Example: McDonalds stipulates precisely how Big Macs are to be cooked, warmed, and served Organizing: Organizing: mobilizing the resources that are required to complete a particular task Very important for firms Leading: Leading (or Directing): involves the interaction between managers and their subordinates as they both work to meet the firms objectives By definition, managers have the power to give orders and demand results, but leading goes beyond merely giving orders Leaders attempt to guide and motivate employees to work in the best interests of the organization Controlling: Controlling: the process of monitoring a firms performance to make sure that it is meeting its goals Look at The Control Process Control process helps organizations see where they need adjustments and do just that Control can also show where performance is better than expected and thus, can serve as a basis for providing rewards or reducing costs TYPES OF MANAGERS Although all managers plan, organize, lead, and control, not all managers have the same degree of responsibility for each activity Managers differ in the specific application of these activities Managers can be divided by their level of responsibility or by their area of responsibility Levels of Management: Three basic levels of management are top, middle, and first-line management In most firms, there are more middle managers than top managers, and more first-line managers than middle managers The power and complexity of managers duties increases as you move up the managerial pyramid 1. Top Managers Top Managers: are responsible for a firms overall performance and effectiveness and for developing long-range plans for the company Common titles = president, vice-president, chief operating officer (COO), chief executive officer (CEO), and chief financial officer (CFO) Are responsible to the board of directors and shareholders of the firm for its overall performance and effectiveness Set general policies, formulate strategies, oversee significant decisions, and represent the company in dealings with other businesses and government In some companies, top managers temporarily do the job of front-line workers in order to get insights into what employees are actually doing each day and to think of ways to help employees do their jobs better Middle Managers Middle Managers: are responsible for implementing the decisions, strategies, and policies made by top management Common titles = plant manager, operations manager, and divisions manager


3. First-Line Managers First-Line Managers: are responsible for supervising the work of employees Spend most of their time working with and supervising employees who report to them Common titles = supervisor, office manager, and group leader Areas of Management: Within any large company, the top, middle, and first-line managers work in a variety of areas, including human resources, operations, information, marketing, and finance


Human Resource Managers Provide assistance to other managers when they are hiring employees, training them, evaluating their performance, and determining their compensation level In unionized companies, human resource managers are also involved in negotiations with the union Smaller firms may have a single department for recruiting, hiring, wage and salary levels, etc, while very small organizations may have only a single person responsible for all human resource activities Operations Managers Are responsible for the production systems that create goods and services include production control, inventory control, and quality control, among others Information Managers Are responsible for designing and implementing systems that gather, process, and disseminate information Dramatic increases in both the amount of information available to managers and the ability to manage it have led to the emergence of this important function Middle managers engaged in information management help design information systems for divisions or plants Computer systems managers within smaller businesses or operations are first-line managers Marketing Managers Are responsible for getting products and services to buyers Firms that produce industrial products such as machinery and janitorial supplies tend to put less emphasis on marketing and have fewer marketing managers


3. 4.


Financial Managers Management of a firms finances, including its investments and accounting functions, is extremely important to its survival Nearly every company has financial managers to plan and oversee its financial resources BASIC MANAGEMENT SKILLS Degree of success that managers enjoy is determined by the skills and abilities they posses Effective managers must have five key skills: technical, human relations, conceptual, time management, and decisionmaking skills Technical Skills: Are skills associated with performing specialized tasks within a company I.e. animators ability to draw a cartoon, accountants ability to audit a companys records, etc. Develop technical skill through education and experience Technical skills are especially important for first-line managers and decreasingly important as you move up the management pyramid, conceptual = opposite Most first-line managers spend considerable time helping employees solve work-related problems, monitoring their performance, and training them in more efficient work procedures They need a basic understanding of the jobs they supervise Human Relation Skills: Enable managers to understand and get along with other people Manager with poor human relation skills trouble getting along with employees employees quit or transfer poor morale Human relation skills are important at all levels of management, but probably most important for middle managers, who must often act as bridges between top managers, first-line managers, and managers from other areas of the organization Effective managers posses communication skills that help them to understand others (and to get others to understand) and that can do a long way in maintaining good relations in an organization Conceptual Skills:

Refers to a persons ability to think in the abstract, to diagnose and analyze different situations, and to see beyond the present situation Help managers recognize new market opportunities and threats and analyze the probable outcomes of their decisions Top managers depend most on conceptual skills, first-line managers the least Time Management Skills: The productive use that managers make of their time To manage time effectively, managers must address the four leading causes of wasted time: 1. 2. Paperwork Some managers spend too much time deciding what to do with letters and reports Managers must learn to recognize those documents that require more attention The Telephone Managers are interrupted by the telephone every 5 minutes experts estimate To manage time effectively, have an administrative assistant screen all calls and setting aside a certain block of time each day to return the important ones


Meetings Many managers spend as much as 4 hours per day in meetings To keep time productive, person handling the meetings should specify a clear agenda, start on time, keep everyone focused on the agenda, and end on time 4. Email More and more managers are relying heavily on email and other forms of electronic communication Some of these are trivial and unimportant Time is wasted when managers have to sort through a variety of electronic folders, in-baskets, and archives Decision-Making Skills: Decision-Making: choosing one alternative from among several options Decision-Making Skills: skills in defining problems and selecting the best course of action and are critical for managers Managers can improve their decision-making effectiveness by following a rational decision-making process The Rational Decision-Making Process STEP Recognizing and defining the decision situation Identifying alternatives DETAIL Some stimulus indicates that a decision must be made. The stimulus may be positive or negative Both obvious and creative alternatives are desired. In general, the more important the decision, the more alternatives should be generated Each alternatives is evaluated to determine its feasibility, its satisfactoriness, and its consequences Consider all situational factors and choose the alternative that best fits the managers situation The chosen alternative is implemented into the organizational system EXAMPLE The plant manager sees that employee turnover has increased by 5% The plant manager can increase wages, increase benefits, or change hiring standards




Evaluating alternatives


Selecting the best alternative


Implementing the chosen alternative

Increasing benefits may not be feasible. Increasing wages and changing hiring standards may satisfy all conditions Changing hiring standards will take an extended period of time to cut turnover, so increase wages The plant manager may need permission from corporate headquarters. The human resource department establishes a new wage


Following up and evaluating the results

At some time in the future, the manager should ascertain the extent to which the alternative chosen (4) and implemented (5) has worked

structure. The plant manager notes that six months later, turnover dropped to its previous level


Problem Decision: a decision that is necessary when actual results do not conform to those expected Opportunity Decision: taking new initiatives or doing a current activity more effectively even if no problem exists Behavioural Aspects of Decision Making Many managers make decisions with too little consideration for logic and rationality Even when managers try to be logical, they sometimes fail Non-logical and emotional factors often influence managerial decision making; organizational politics, intuition, escalation of commitment, and risk propensity Organizational Politics Refers to the actions that people take as they try to get what they want These actions may or may not be beneficial to the organization, but they do influence decision making, especially if the person taking the action is powerful and can get his/her way Intuition An inner sense or hunch usually based on years of experience and practice in making decisions in similar situations Helps managers make an occasional decision without going through a rational sequence of steps Occasional successes can be very dramatic, but managers shouldnt rely too heavily on intuition Escalation of Commitment When a manager makes a decision and then remains committed to its implementation in spite of clear evidence that it was a bad decision Managers can avoid over-commitment by setting specific goals ahead of time that deal with how much time and money they are willing to spend on a given project


b) c)

d) Risk Propensity Refers to how much a manager is willing to gamble when making decisions Managers who are very cautious when making decisions are more likely to avoid mistakes and are unlikely to make decisions that lead to big losses or big gains Other managers are extremely aggressive in making decisions and are willing to take big risks These aggressive managers rely heavily on intuition, reach decisions quickly, and often risk big money on their decisions Are more likely to achieve big success with their decisions, but are also more likely to incur greater losses STRATEGIC MANAGEMENT: SETTING GOALS AND FORMULATING STRATEGY Strategic Management: the process of aligning the organization with its external environment The starting point in effective strategic management is setting strategic goals the overall objectiveness that a business wants to achieve Deciding what it intends to do = organizations first step Managers must also make decisions about what actions will and will not achieve company goals Decisions are made based on a strategy the broad set of organizational plans for implementing the decisions made for achieving organizational goals Setting Goals: Goals: performance targets, the means by which organizations and their managers measure success or failures at every level

1. The Purpose of Goal Setting Four main purposes in organization goal setting: Provides direction, guidance, and motivation for all managers Helps firms allocate resources Helps to define corporate culture Helps managers assess performance 2. Kinds of Goals Goals differ from company to company, depending on the firms purpose and mission Every enterprise has a purpose a reason for being Most enterprises also have a mission statement an organizations statement of how it will achieve its purpose in the environment in which it conducts its business Two business firms may have the same purpose, but very different mission statements Regardless of a companys purpose and mission, every firm needs to set long-term, intermediate, and short-term goals Long-Term Goals: goals set for extended periods of time, typically 5+ years into the future Intermediate Goals: goals set for a period of 1-5 years Short-Term Goals: goals set for the very near future, typically less than one year Whatever the time frame of the goals that are set, research shows that managers who set SMART goals goals that are Specific, Measurable, Achievable, Relevant, and Time-Framed have higher performance than managers who dont Formulating Strategy: After firm sets its goals, it must develop a strategy for achieving them Unlike planning, strategy is wider in scope and is a broad program that describes how a business intends to meet its goals, how it will respond to new challenges, and how it will meet new needs Strategy Formulation: creation of a broad program for defining and meeting an organizations goals It involves three basic steps; setting strategic goals, analyzing the organization and its environment, and matching the organization and its environment 1. Setting Strategic Goals Are long-term goals derived directly from the firms mission statement 2. Analyzing the Organization and its Environment After setting strategic goals, managers asses both their organization and its environment using a SWOT analysis identification and analysis of organizational Strengths and Weaknesses and environmental Opportunities and Threats as part of strategy formulation Strengths and weaknesses are factors INTERNAL to the firm and are assessed using organizational analysis the process of analyzing a firms strength and weaknesses Strengths might include surplus cash, a dedicated workforce, an ample supply of managerial talent, technical expertise, or weak competitors Weaknesses might include a cash shortage, aging factories, and a poor public image Opportunities and threats are factors EXTERNAL to the firm and are assessed using environmental analysis the process of scanning the environment for threats and opportunities Opportunities might include things like market demand for new products, favourable government legislation, or shortages of raw materials that the company is good at producing Threats include new products and processes developed by competitor, changes in government regulations, and shifting consumer tastes Matching the Organization and its Environment Is the final in strategy formulation Is the heart of strategy formulation Lays the foundation for successfully planning and conducting business


Over the long term, this process may also determine whether a firm typically takes risks or behaves more conservatively Level of Strategies: Three levels of strategy in a business firm: corporate-level strategy, business-level (competitive) strategy, and functional strategies Corporate-Level Strategy: identifies the various businesses that a company will be in and how these businesses will relate to each other Business-Level (Competitive) Strategies: identifies the ways a business will compete in its chosen line of products or services Functional Strategies: identify the basic courses of action that each department in the firm will pursue so that it contributes to the attainment of the business overall goals 1. Corporate-Level Strategies several different corporate-level strategies that a company might pursue, including concentration, growth, integration, diversification, and investment reduction

a) b) c)

Concentration Concentration Strategy: focusing the company on one product or product line Main advantage of concentration strategy is that the company can focus on its strengths on the one business it knows well Main disadvantage is the risk inherent in putting all of ones eggs in one basket Growth Several growth strategies are available, all of which focus on INTERNAL activities that will result in growth These strategies include market penetration, product development, and geographic expansion Market Penetration: boosting sales of present products by more aggressive selling in the firms current market Product Development: developing improved products for current markets Geographic Expansion: expanding operations in new geographic areas or countries Integration Integration strategies focus on EXTERNAL activities that will result in growth Horizontal Integration: acquiring control of competitors in the same or similar markets with the same or similar products Vertical Integration: owning or controlling the inputs to the firms processes and/or the channels through which the products or services are distributed Diversification Means expanding into related or unrelated products or market segments Helps the firm avoid the problem of having all its eggs in one basket by spreading risk among several products or markets Related Diversification: adding new, but related, products or services to an existing business Conglomerate Diversification: diversifying into products or markets that are not related to the firms present businesses Investment Reduction Means reducing the companys investment in one or more of its lines of business Retrenchment: an investment-reduction strategy which means the reduction of activity or operations Divestment: an investment-reduction strategy which involves selling or liquidating one or more of a firms businesses Business-Level (Competitive) Strategies Firm must have a competitive strategy alongside a corporate-level strategy Competitive Strategy: a plan to establish a profitable and sustainable competitive position

d) e) 2.

There are three competitive strategies: Cost Leadership: becoming the low-cost leader in an industry Differentiation Strategy: a firm seeks to be unique in its industry along some dimension that is valued by buyers Focus Strategy: selecting a market segment and serving the customers in that market niche better than competitors

3. Functional Strategies Is the basic course of action that each department follows so that the business accomplishes its overall goals CONTINGENCY PLANNING AND CRISIS MANAGEMENT Since business environments are unpredictable because unexpected events may occur, managers often develop alternative plans in case things go awry Two common methods of dealing with the unknown and unforeseen are contingency planning and crisis management Contingency Planning: Contingency Planning: identifying aspects of a business or its environment that might entail changes in strategy and the ways a business will respond to changes Crisis Management: Crisis Management: an organizations plan for dealing with emergencies that require an immediate response Disruption Management (DM): stresses internal self-reliance in planning for and preparing responses to disruptions in an organizations external environment MANAGEMENT AND THE CORPORATE CULTURE Just as every individual has a unique personality, every company has a unique identity, called its corporate culture the shared experiences, stories, beliefs, norms, and ethical stance that characterize an organization Corporate culture helps define the work and business climate that exists in an organization Strong corporate culture guides everyone to work toward the same goals and helps newcomers learn accepted behaviours Forces Shaping Corporate Culture: A number of forces shape corporate culture The values held by top management help set the tone of the organization and influence its business goals and strategies Firms history also helps shape its culture Shared experiences resulting from norms sustain culture Stories and legends are also important in shaping corporate culture Strong behavioural norms help define and sustain corporate cultures Communicating the Culture and Managing Change: Managers must carefully consider the kind of culture they want for their organization, then work to nourish that culture by communicating with everyone who works there 1. Communicating the Culture To use culture to firms advantage, managers must have a clear understanding of the culture, must transmit the culture to others in the organization, by rewarding and promoting those who understand it and work towards maintaining it (all of this depends on effective communication) Managing Change Organizations must sometimes change their cultures When cultural change is required, the process usually goes through three stages: At the highest level, analysis of the companys environment highlights extensive change as the most effective response to its problems. Conflict and resistance typically characterize this period Top management begins to formulate a new vision and culture for the company The firm sets up new systems for appraising and compensating employees, systems that enforce its new values