Republic of the Philippines

Polytechnic University of the Philippines

Office of the Vice President for Academic Affairs
SENIOR HIGH SCHOOL DEPARTMENT
Sta. Mesa Manila

INSTRUCTIONAL MATERIAL FOR

ABM 1107:
ORGANIZATION AND
MANAGEMENT

Compiled by:

Prof. Mark Christian Catapang

Prof. Ivee C. Cobarrubias

(This instructional material for educational purposes only)

PUP A. Mabini Campus, Anonas Street, Sta. Mesa, Manila 1016

Direct Line: 335-1730 | Trunk Line: 335-1787 or 335-1777 local 000
Website: www.pup.edu.ph | Email: inquire@pup.edu.ph

THE COUNTRY’S 1st POLYTECHNIC

 TABLE OF CONTENTS

Page Number
Overview 3
Module Objectives 3
Grading System 3
Course Materials
Chapter 1 Nature and Concept of Management 4
Chapter 2 The Firm and Its Environment 19
Chapter 3 Planning 35
Chapter 4 Organizing 50
Chapter 5 Staffing 60
Chapter 6 Leading 86
Chapter 7 Controlling 112
Introduction to The Different Functional Areas Of 130
Chapter 8
Management
Chapter 9 Special Topics in Management 146
References 154

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 OVERVIEW
Organization and Management refers to the art of getting people together on a common
platform to make them work towards a common predefined goal. It enables the optimum use of
resources through meticulous planning and control at the workplace.

This course is designed to familiarize the students with the basic concepts, principles, and
processes related to business organization, and the functional areas of management. Emphasis
will be given to the study of management functions like planning, organizing, leading, and
controlling, and orient the students on the importance of these functions and the role of each area
in entrepreneurship.

 MODULE OBJECTIVES
Upon the completion of this module, you have an understanding of:
• basic concepts and theories of management;
• the role of business in the environment, and how the environment affects the firm;
• the importance of planning concepts in business success;
• the significance of organization structures for effective business management;
• the process of recruiting, selecting, and training employees;
• how motivation, leadership, and communication work in an organization,
• different controlling methods and techniques;
• the different functional areas of management; and
• the basic concepts of small-family business.

 GRADING SYSTEM
Upon the completion of this module, you will be evaluated based on the following grading
system:

Written Work 25%

Performance Task 45%
Quarterly Assessment 30%
Total 100%

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 COURSE MATERIALS

CHAPTER 1. NATURE AND CONCEPT OF MANAGEMENT

At end of this chapter, you should be able to:
• discuss the meaning and functions of management;
• explain the various types of management theories; and
• explain the functions, roles, and skills of a manager.

DEFINITION AND FUNCTIONS OF MANAGEMENT

Definition of Terms
Management Functions - functions required to carry out the management process of
organizing and monitoring the work performance of individuals working together in
organizations.
Coordination – harmonious, coordinated operation of the different parts and processes of the
organization.
Efficiency – the character of being able to produce the maximum output of the minimum input.
Effectiveness – being adapted to produce an effect that will help the organization to achieve
its objectives.

“The simplest definition of management is getting things done through people.”

Management is the process of organizing and managing the activities of people working
together in organizations so that they can successfully achieve their preferred objectives or goals.
It is also known as the process of designing and maintaining the environment to achieve the
selected objectives efficiently (Heinz, Weihrich, and Koontz, 2005).

MANAGEMENT FUNTIONS

Management analysis is carried out by breaking it down into five major management
activities, making management knowledge more understandable. The management functions
include the following:

Planning. Involve the identification of the goals or performance objectives of the organization,
the specification of the strategic steps to be taken to achieve them, and the implementation of
planning and integration activities.

Organizing. Demands assigning responsibilities, setting aside funds, and bringing in harmonious
relationships between individuals and working groups or teams within the organization.

Staffing. Indicates the filling of different job positions in the structure of the organization; factors
that affect this function include the size of the organization, the types of job, the number of
individuals to be hired, and other internal or external pressures.

Leading. It includes encouraging or motivating subordinates to do their best to help the company
achieve its objectives.

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Controlling. It includes reviewing and, if necessary, correcting the performance of individuals or
working groups or teams to ensure that they are all working towards the objectives and goals of
the organization previously set.

Figure 1. The Management Functions

Planning

Controlling Organizing

Leading Staffing

Coordination, Efficiency, and Effectiveness: Intrinsic to the Nature of Management

Management functions — planning, organizing, staffing, leading, and controlling — are all
going to waste if coordination, efficiency and effectiveness are not carried out by the assigned
managers of the organization. In other words, top-level managers, middle-level managers and
team leaders or supervisors must all be aware of the activities of successful organizations as they
execute their management functions.

Coordination, as defined by Webster’s Dictionary, is the harmonious, integrated action of

the various parts and processes of an organization; efficiency is being able to yield the maximum
output from a minimum amount of input; and effectiveness as being adopted to produce an effect,
or being able to do things correctly. When applied to management functions, coordination
ensures that all individuals, groups, or teams are harmoniously working together and moving
toward the accomplishment of the organization’s vision, mission, goals, and objectives; efficiency,
meanwhile, refers to the optimal use of scarce resources—human, financial, physical, and
mechanical—in order to bring maximum productivity; and effectiveness means “doing things
correctly” when engaged in activities that will help the organization attain its aims.

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ACTIVITY

On the space provided, answer the following.

1. In your own words, define management. Compare your definition with the given definitions in
this lesson and point out the differences and similarities.

2. Explain why coordination, efficiency, and effectiveness are intrinsic to the nature of
management.

3. Enumerate and describe the five functions of management.

4. What is productivity? Is high productivity possible if efficiency is low? Explain your answer.

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5. Select two organizations (one public and one private, or one big and one small). Describe
how they are structured and explain why a study of management functions is necessary for
their managers.

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 THE EVOLUTION OF MANAGEMENT THEORIES

Definition of Terms
Management Theories - theories that help to enhance the management process.

Management Process - the coordinating and overseeing of the work performance of

individuals working together in organizations so that they could efficiently and effectively
accomplish their chosen goals

Evolution is generally characterized as a slow stage of growth and development, starting

from simple forms to more complex forms. It may also apply to management theories that have
developed from the simple improvement of work methods to more complex ones that focus not
just on improving the work method, but also on customer satisfaction and the conduct of people
at work.

Studying the evolution of management theories will allow you to understand the
beginnings of modern management practices; why some are still prevalent and why others are
no longer in use; and why the expansion and development of these theories is important to
respond to changing times.

Scientific Management Theory

This management theory uses step-by - step, empirical

methodology to find the best way to do a job. Frederick W.
Taylor (1856-1915) is known as the Father of Scientific
Management. This management theory focused on increasing
productivity and efficiency through standadization, division of
labor, centralization, and hierarchy.

Taylor’s Scientific Management Principles

1. Develop a science for each element of an individual’s work
to replace the old rule of thumb method.
2. Scientifically select and then train, teach, and develop the
workers.
3. Cooperate cordially with employees and ensure that all work
is carried out in accordance with the principles of science that
have been established.
4. Divide work and responsibility almost equally between
management and workers.

General Administrative Theory

The General Administrative Theory focuses on the role of the manager and what
constitutes good management practice or implementation.

Henri Fayol (1841–1925) believed that management is an activity that all organizations
had to participate in and consider as separate from all other organizational tasks, such as
marketing, finance, research and development, and others.

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Henri Fayol’s Management Principles

1. Work Division or Specialization - The whole work is divided

into small tasks. The work depends on the skills of the
person, creating specific personal and professional
development within the labor force therefore increasing
productivity.

2. Authority and Responsibility - refers to the issue of

commands followed by responsibility for their consequences.

3. Discipline - refers to obedience, proper conduct in relation to

others, respect of authority, etc.

4. Unity of Command - states that each subordinate should

receive orders and be accountable to one superior.

5. Unity of Direction - those who are working for the same line of activity must understand and
pursue the same objectives.

6. Subordination of Individual Interest to General Interest - management must put aside personal
considerations and put company objectives first.

7. Remuneration or Pay - Workers must be paid sufficiently as this is a chief motivation of

employees and therefore greatly influences productivity.

8. Centralization - the amount of power wielded with the central management depends on
company size.

9. Scalar Chain of Authority - refers to having a clear line of authority and the chain of superiors
ranges from top management to the lowest rank.

10. Order - ensured the fluid operation of a company through authoritative procedure.

11. Equity - employees must be treated kindly, and justice must be enacted to ensure a just
workplace.

12. Stability of Tenure of Personnel - the period of service should not be too short, and employees
should not be moved from positions frequently.

13. Initiative - having this principle on the part of the employees is a source of strength for an
organization for it produces new and better ideas.

14. Esprit de Corps - refers to the need of managers to ensure and develop morale in the
workplace.

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 Max Weber (1864 - 1920) believed that organizations must have authority structures and
coordination with others based on what he called bureaucracy. It is an organizational form
distinguished by the following components.
• Division of labor
• Hierarchical identification of job positions
• Detailed rules and regulations
• Impersonal connections with one another

Total Quality Management (TQM)

Total Quality Management or TQM is a management theory that focuses on customer

satisfaction, needs and expectations. W. Edwards Deming (1900–1993) and Joseph M. Juran
(1904–2008) introduced this customer-oriented idea in the 1950s, however, the concept had few
supporters. It has been the foundation of today's quality management practices. The Americans
did not instantly take up the idea because the US enjoyed the dominance of the global economy
at that time. Japanese manufacturers, on the other hand, took notice of it and experimented
enthusiastically on its application. As Japanese companies started to be known for their quality
goods, Western managers were forced to give more serious consideration to Deming's and
Juran's modern management philosophy, which gradually became the basis of today's quality
management practices.

TQM Pointers for Deming and Juran

Deming’s 14 Point for Top Management

1. Create constancy of purpose for improvement of products and services.

2. Adopt the new TQM philosophy
3. Cease dependence on mass inspection by doing things right and doing it the first time.
4. End the practice of awarding business based on price tag alone.
5. Constantly improve the system of production and services.
6. Institute training.
7. Adopt and institute leadership.
8. Drive out fear.
9. Break down barriers between staff areas.
10. Eliminate slogans, focus on correction of defects in the system.
11. Eliminate numerical quota for the work force.
12. Remove barriers that rob people of “pride of workmanship.”
13. Encourage education and self-improvement for everyone.
14. Take action to accomplish the transformation.

Juran’s Fitness of Quality

1. Quality of Design – through market research, product, and concept

2. Quality of Conformance – through management, manpower, and technology
3. Availability – through reliability, maintainability, and logistic support
4. Full service – through promptness, competence, and integrity

Juran’s Quality Planning Roadmap

1. Identify your customers.

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 2. Determine their needs.
3. Translate them into one’s language.
4. Develop a product that can respond to their needs.
5. Develop processes which can produce those product features.
6. Prove that the process can produce the product.
7. Transfer the resulting plans to the operating forces.

Organizational Behavior (OB) Approach

The Organizational Behavior (OB) approach includes observing the conduct, demeanor,
or action of people at work. Research on behavior helps managers execute their functions —
leading, team building, dispute resolution, and others. Robert Owen, Mary Parker Follett, Hugo
Munsterberg, and Chester Barnard were the early followers of the OB approach. In the late 1700s,
Owen found feeble working conditions and suggested ideal ways to change those conditions.
Follett, in the early 1900s, came up with the concept that individual or group actions should be
included in organizational management. Similarly, in the early 1900s, Munsterberg suggested
the administration of psychological tests for the selection of new workers in companies. In the
1930s, Barnard indicated that collaboration is needed in organizations, because it is primarily a
social structure.

The GEMS of Management

GEMS stand for Goal Setting, Executing the Plan, Measuring Results, and Sustaining
Growth.

Stage 1: Goal Setting - Establishing objectives for a company or organization.

1. Synthesizing Information - in this

primary stage, the manager engages
in DATA GATHERING.
2. Formulating Alternatives - through
effective data gathering and
synthesis, the manager arrives at a
decision on whether to pursue the
business.
3. Deciding on Courses of Action -
decide on what you decision you will
pursue.
4. Establishing Goals - put decision in
more concrete, short term, and long-
term goals.

Stage 2: Executing the Plan - involves

directing the attainment of project or business
goals.

1. Organizing - identifying your network

of suppliers, developing an inventory, identifying staff and their roles, etc.
2. Communicating - orienting the workforce about the business plans, goals, policies, and
systems.

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 3. Guiding - teaching the workforce to properly relate to customers, how to interact especially
to difficult and demanding ones, etc.

Stage 3: Measuring Results - requires the manager to evaluate how the project or business is
progressing toward its goals.

Stage 4: Sustaining Growth - Determines the success of the business.

1. Promoting Change - change is synonymous with improvement. Practice welcoming
changes in the company.
2. Develop People - start with the right people. Delegate tasks, empower, continuous
guidance, and have rewards.

Activity

1. What is the main concern of Henri Fayol’s Management Theory? How does his management
theory differ from that of Max Weber?

2. In your opinion, who among the management theorists discussed had the best contribution to
management practices? Explain your answer.

3. Think of a difficult task which you, as a student, must accomplish. What are the steps needed
to complete the said task? Will the management theories discussed earlier help you to be
more efficient in completing the task? Explain your answer.

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4. Use the Internet and choose a website offering current management news. Choose one good
news item or a negative news item and relate it to the management theories discussed in the
lesson.

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 FUNCTIONS, ROLES, AND SKILLS OF A MANAGER

Definition of Terms
Manager - An individual engaged in management tasks such as the supervision, sustaining,
upholding, and assurance of obligations for the work of others within their workgroup, team,
department, the organization in general.

Managerial Roles - are the different roles of managers, such as interpersonal, informational,
and decision-making roles.

Managerial skills - are the different skills that managers could acquire, such as conceptual
human and technical skills.

The managers are one of the key persons in an organization. Organizational success
depends on managers who make the best possible use of their human and material resources
and who promote high levels of results, productivity, and quality among the individuals under their
control.

Managerial Levels

Organizations usually have three levels of

management for their corresponding managers. Top-Level
Managers
These are the top-level managers, middle-level (Corporate Managers)
managers, and front-line or lower-level managers.
Middle-Level
Managers
Top-level Managers. Top-level managers are the (Tactical Managers)
general or strategic managers who focus on long-
term organizational concerns and emphasize the
organization’s stability, development, progress, and Frontline Managers
(Operational Managers)
overall efficiency and effectiveness. They are also
concerned with the organization’s inter-relationships
with their external environment. Chief executive
officers (CEOs), chief operating officers (COOs), presidents, and vice presidents are examples of
top-level managers in big corporations; they have authority over all other human resources of
their organization. Traditionally, top-level executives set the company’s general direction by
designing strategies and by controlling various resources. At present, however, they, too, must
act as organizational guides who must elaborate on the wider purpose of their organizational
existence, so that their subordinates could identify and be committed to its success in the three
levels of management.

Middle-level Managers. Middle-level managers are the tactical managers in charge of the
organization’ s middle levels or departments. They formulate specific objectives and activities
based on the strategic or general goals and objectives developed by top-level managers. Their
traditional role is to act as go-betweens between higher and lower levels of the organization; they
announce and interpret top management priorities to human resources in the middle hierarchical
level of the company. It has been observed that the middle-level managers are more aware of the
company’s problems compared to managers in the higher level because of their closer contacts
with customers, frontline managers, and other subordinates. To be an ideal middle-level manager,
one must be creative so that they could provide sound ideas regarding operational skills as well
as problem-solving skills that will help keep the organization afloat.

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Frontline or Lower-level Managers. Lower-level managers are also known as operational
managers and are responsible for supervising the organization’s day-to-day activities; they are
the bridges between management and non-management employees. Traditionally, they are
controlled and instructed by top-level and middle-level managers to follow their orders in support
of the organization’s major strategy. Lately, however, their role has been expanded in some large
companies, as they are now encouraged to be more creative and intuitive in the exercise of their
functions, so that they, too, could contribute to their company’s progress and the development of
new projects.

Managerial Roles

Managerial roles are classified into three types: interpersonal, informational, and decision-
making. Henry Mintzberg, professor at McGill University, conducted a research on what real
managers do.

Categories of Managerial Roles according to Mintzberg

Definition of Terms

Leader - one who possesses • Leader

good leadership qualities or a
combination of good moral Interpersonal • Liaison
character, strong professional • Figurehead
will, humility that builds enduring
greatness, and commands loyalty
and respect among subordinates.

Liaison - one who can maintain • Spokesperson

unity of action in the organization
Informational • Monitor
Figurehead - one who has • Disseminator
nominal leadership but without
real power, as this power is
possessed only by the company’s
President or Owner. • Disturbance Handler
Decisional or Decision- • Resource Allocator
Spokesperson - one who speaks
in the name and behalf of making • Negotiator
another; as on behalf of the • Entrepreneur
company President or Owner.

Managerial Skills

Managerial skills may be classified as conceptual, human, and technical.

Conceptual Skills. Conceptual skills enable managers to think of possible solutions to complex
problems. Through their ability to visualize abstract situations, they develop a holistic view of their
organization and its relation to the wider external environment surrounding it. Top-level managers
must have these conceptual skills to be successful in their work.

Human Skills. Human skills enable managers in all levels to relate well with people.
Communicating, leading, inspiring, and motivating them become easy with the help of human
skills. Dealing with people, both in the organization’s internal and external environment, is
inevitable, so it is necessary for managers to develop these human skills.

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Technical Skills. Technical skills are also important for managers for them to perform their tasks
with proficiency with the use of their expertise. Lower-level managers find these skills very
important because they are the ones who manage the non-management workers who employ
varied techniques and tools to be able to yield good quality products and services for their
company.

Managerial Responsibilities

Staffing

Includes writing job descriptions, putting ads for open positions, reviewing resumes,
interviewing applications, and prospective applicants, hiring and, firing. Managers oversees his
or her employees and ensures that they are trained properly, follow company rules, perform jobs
satisfactorily, and receive feedback regularly. The manager may also be responsible for the
payroll function depending on the size of the company.

Communication

May be one of the most important responsibilities of a manager to keep the workplace
running efficiently. Managers should be able to resolve conflicts, motivate employees, interact
with the public on behalf of the company, and preserve customer relations.

Training

Managers schedules orientation of new employees and subsequent training to perform

better in their jobs and must also evaluate their progress on a regular basis to determine whether
additional training is required. It is also the responsibility of the manager to identify who are
candidates for promotions or advanced positions in the company and should create career goals
and plans to attain them.

Administrative Investigation and Discipline

It is the job of the manager to investigate any employee who violates company rules and
discipline them when proven guilty. He or she may also terminate and employee, after due
process, who habitually fails to perform under the known and agreed standards established by
the company.

Employee Relations

Maintenance of good employer-employee relations is very important. Happy employees

are proven to be motivated and more productive in the workplace.

Business Growth and Sustainability

It is a manager’s primary responsibility to ensure the success of the company. His or her
actions should be geared toward business growth and sustainability. Managers must also
constantly review the company’s financial, budgetary, and production goals. They must also make
necessary adjustments to get back on track if ever the company falls short of its goals.

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Activity

1. How do organizations classify managers according to their functions? Describe the respective
functions of each type of manager.

2. Among the different types of managers discussed in this lesson, which type of managers are
more aware of their organization’s problems? Explain your answer.

3. Enumerate the three classifications of managerial roles suggested by Mintzberg. Are they
equal in importance? Explain your answer.

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4. Name five CEOs or presidents of known corporations. Describe their work as top-level
managers of their respective corporations. Relate your description of their work with the
functions, roles, and skills of managers discussed in this lesson.

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CHAPTER 2. NATURE AND CONCEPT OF MANAGEMENT
At end of this chapter, you should be able to:
• identify various forces/elements of the firm’s environment;
• summarize these forces using the PESTEL and SWOT analyses;
• describe the local and international business environment of a firm;
• explain the role of business in relation to the economy;
• discuss the different phases of economic development; and
• differentiate the various forms of business organizations.

ENVIRONMENTAL FORCES AND ENVIRONMENTAL SCANNING

Definition of Terms
Environmental Scanning – looking for and sorting out data about the environment.

External Business Environment – refers to the factors or elements outside the organization
that may have a positive or negative effect on the performance of the organization.

Internal Business Environment – refers to the factors or elements within the organization that
may have a positive or negative effect on the performance of the organization.

Inflation – a period of above normal general price increases, as reflected in the consumer and
wholesale price indexes

Interest Rates – the total amount that a borrower must pay annually to the lender and above
the total amount borrowed

Changing Options – the consumers change in preference of goods and services offered

People’s Spending Habits – consumers’ changing ways of spending their money on goods
and services

Economic Situations – includes inflation rates of interest, people’s spending habits, changing
options, etc.

Business Environment refers to the factors or elements that affect a business organization.
It can be categorized into external and internal business environments. External Business
Environment refers to the factors or elements outside the organization that may have a positive
or negative effect on the performance of the organization. Conversely, Internal Business
Environment refers to the factors or elements within the organization that may have a positive or
negative effect on the performance of the organization.

Components of the External Business Environment: General and Specifics

The general business environment includes the Political, Economic, Social,

Technological, Environmental, Legal Factors (PESTEL).

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 Political Factors are all about how and to what degree a government intervenes in the
economy.
• Political stability or instability in overseas markets
• Government Policy
• Tax Policy
• Labor Law
• Foreign Trade Policy
• Trade Restrictions

Economic Factors have a significant impact on how an organization does business and how
profitable they are.
• Economic Growth
• Interest Rates
• Exchange Rates
• Disposable income of consumers and businesses
• Inflation

Social Factors (Socio-cultural Factors) are the areas that involve the shared belief and
attitudes of the population.
• Population Growth
• Health Consciousness
• Age Distribution
• Career Attitude

Technological Factors affect marketing and the management thereof in three distinct ways:
• New ways of producing goods and services
• New ways of distributing goods and services
• New ways of communicating with target markets

Environmental Factors become important due to:

• increasing scarcity of raw materials
• pollution targets
• doing business as an ethical and sustainable company
• carbon footprint targets set by governments

Legal Factors companies need to know what is and what is not legal in order to trade
successfully.
• health and safety
• advertising standards
• consumer rights and laws
• product labelling and product safety
• equal opportunities

The specific business environment includes stakeholders, customers, pressure groups, and
investors or owners and their employees.

Stakeholders are parties likely to be impacted by the activities of the organization, while
customers are those who purchase the products and services of the organization.

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 Suppliers are those who ensure the continuous flow of the essential and reasonably priced
inputs or materials needed to produce goods and rendering their services. The inputs mentioned
also cover the financial and labor supply.

Pressure groups are special-interest groups that try to exert influence on the organization’s
decisions or actions.

The organization’s investors or owners provide the company with the financial support it
needs.

Employees are comprised of those who work for another or for an employer in exchange of
salaries/wages or other considerations.

Components of the Internal Business Environment

An organization’s internal business environment is composed of its resources, research and

development, production, procurement of supplies, and the products and services it offers.

The organization’s internal environment must also be subjected to internal analyses. Internal
strengths and weaknesses, opportunities, and threats (SWOT) with regards to its resources
(financial, physical, mechanical, technological, and human resources), research and development
endeavors, production of goods, procurement of supplies (materials, inputs, and finance), and
products and services must all be considered prior to organizational planning.

Components of Environmental Scanning: Developing a Competitive Mindset, Considering

Future Business Scenarios, Business Prediction, SWOT Analysis, and Benchmarking

Adapting to environmental uncertainties must start with developing a competitive mindset.

Ignorance of present-day realities may cause individuals or organizations to do certain things that
they may regret in the future; hence, environmental scanning is necessary. By seeking for and
sorting through data about the environment, you may be able to understand and predict the
various changes, opportunities, and threats that may affect organizations in the future. Knowing
the present-day competitors, the possible number of barriers to entering your chosen business
industry, the existence or nonexistence of substitutes to your planned product or service, and
possible dependence on powerful suppliers and customers will be helpful in developing a
competitive mindset.

You must also consider future business scenarios. By realistic consideration of both
worst-case scenario or unfavorable future conditions and best-case scenario or favorable future
conditions, as well as middle-ground possible conditions, you will have an idea of what to do in
the future.

Meanwhile, business prediction, also known as business forecasting, is a method of

predicting how variables in the environment will alter the future of business. It could be used in
making decisions regarding offshoring, branching out locally, and expanding or downsizing the
company. However, the accuracy of such business predictions may not always be assured.

Benchmarking is defined as the process of measuring or comparing one’s own products,

services, and practices with those of the recognized industry leaders to identify areas for
improvement. Best practices of said industry leaders are observed so that understanding their
competitive advantage would be easier. This is followed by gathering information about the

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company’s own operations and those of the other company to identify gaps; this in, turn, could be
used to find out the underlying reasons for performance differences. From these said reasons, a
set of best practices in one’s own company will be listed down and that, ultimately, leads to the
company’s improved performance.

Activity

1. What is the difference between the terms “external business environment” and “internal
business environment”? Which of the two has greater influence on business organizations?
Explain your answer.

2. How does customer satisfaction affect the competitive mindset of business organization?

3. Why is customer satisfaction important in all types of businesses?

ABM 1107 22
4. Who are the stakeholders of your school? Give specific examples and state why they are
important for the maintenance of your school’s stability as a business organization.

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 The Local and International Business Environment of the Firm

Definition of Terms
Inflation rate – rate reflected during a period of above normal general price increases

Gross National Product (GNP) – total domestic and foreign output claimed by the residents
of a country

Gross Domestic Product (GDP) – total final output of goods and services produced by the
country’s economy, within the country’s territory

Currency Exchange Product – the rate at which central banks will exchange the country’s
currency for another

Understanding the local and international business environment of the firm requires
managers of organizations to sharpen their cultural intelligence. Cultural intelligence is an
individual’s ability to favorably receive and adjust to an unfamiliar way of doing things. This will
enable them to develop their ability to accept and adapt to different cultures, both local and
international, that may affect the organization to which they belong.

Anthropologist Edward T. Hall, as cited by Schermerhorn (2008), noted that the way
people approach and deal with time varies across cultures. Monochronic cultures refer to cultures
wherein people tend to do one thing at a time; also, these cultures emphasize punctuality and
sticking to set rules. Polychronic cultures, on the other hand, are more flexible as regards time;
accomplishing many different things at once is also common for these cultures. It may be very
frustrating for one who is influenced by a monochronic culture to be dealing with one who is
influenced by a polychronic culture if he or she does not possess cultural intelligence.

Geert Hofstede, also cited by Schermerhorn (2008), showed how selected countries
ranked on the five cultural dimensions he studied:

Power Distance – the degree to which a society accepts or rejects the unequal distribution
of power among people in organizations and the institutions of society. For example: India and
the Philippines have high power distance, while the US and Australia have low power distance.
The use of the terms “Sir” and “Madam” to refer to the boss/superior by subordinate employees
in the Philippines shows respect for authority figures, or high-power distance. In the US,
subordinates just use the name or nickname of the boss when addressing him or her, indicating
low power distance.

1. Uncertainty Avoidance – the degree to which society is uncomfortable with risk, change, and
situational uncertainty. Managers in the US are risk takers. Filipinos are seguristas that are
afraid of taking risks within business endeavors in the market.

2. Individualism-Collectivism – the degree to which a society emphasizes individual

accomplishments versus collective accomplishments. Individualistic cultures like those of the
US and Australia are characterized as “I” and “me” cultures where employees prefer to work
alone without help from others. Mexico, Thailand, and the Philippines exhibit collectivism or
preference for group or teamwork.

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3. Masculinity-Femininity – the degree to which a society values assertiveness and feelings of
material success versus concern for relationships. The Japanese and Mexicans do not
hesitate to push or express what they want, unmindful of hurting others’ feelings, thus showing
masculinity. Filipinos, Thais, and Swedes would rather keep quiet and accept defeat if what
they want is not acceptable to others, thus, exhibiting femininity.

4. Time Orientation – the degree to which a society emphasizes short-term thinking versus
greater concern for the future or long-term thinking. The Americans, who are risk-takers,
prefer short-term thinking. On the other hand, Filipinos, and the Japanese, who are not risk-
takers, are long-term thinkers.

The local culture of a particular country also influences the management practices of firms.
An example is the mañana habit which is part of local Filipino culture and practiced by some
Filipino workers. It is counterproductive since it encourages the postponement of performing
tasks that can be done immediately to another day.

Managing and disciplining workers who practice this habit would be easier for managers
if they are able to identify the workers who adhere to such negative work habit and prevent
them from doing it. This, however, is easier said than done because it is difficult to explain a
country’s unique cultural characteristics.

Managing in a Worldwide Environment: Cultural, Politico-legal, and Economic

Environments

The call for businesses to go global is hard to resist as this is the trend prevailing in the
21st century. The economic and social benefits that come with globalization are said to be among
the positive outcomes. Globalization advocates, however, fail to realize the very serious
challenges faced by managers in adjusting to the cultural differences among different countries
where they intend to do business. The culture of different countries is rooted in their history,
religion, traditions, beliefs, and deep-seated values, and because of these, managing globally can
be very complicated.

Besides the cultural environment, the politico-legal and economic environments must also
be considered. The politico-legal environment refers to the laws and political climate of different
countries. Some countries have stable laws and good political climate while others have the
opposite—unstable laws and risky political climate. Awareness of the economic issues of
countries where organizations intend to establish business is also very important. For instance,
do they have a free market or a planned economy? Answering this question is the first step
because the country’s economic system has the potential to influence the organization’s decision-
making. Other economic matters that must be considered are the inflation rates, the gross national
product/gross domestic product, the currency exchange rates, taxation system, and others.

Activity

1. Define cultural intelligence. How important is it in terms of doing business globally?

ABM 1107 25
2. Is it easier to manage business in countries with high power distance rating? Explain your
answer.

3. Which is valued by members of a Filipino society: masculinity or femininity? Explain your

choice.

4. How would you describe Philippine culture? Do you think it would be easy for a foreign or
expatriate manager to manage his or her company in the Philippines? Explain your answer.

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 PHASES OF ECONOMIC DEVELOPMENT

Definition of Terms
Economic Development – is a total process which includes not only economic growth or the
increase in the given amount of goods and services produced by the country’s economy, but
also considers the social, political, cultural, and spiritual aspects of the country’s growth.

Economic Development Phases – are the distinct stages involved in the total process of
economic development in a particular country. These include economic growth, improvement
of the Human Development Index (HDI), availability of benefits provided by science and
technology, and the societal improvement of the opportunities and general welfare of its
members.

Economic Growth – increase in the given amount of goods and services produced by the
country’s earning

Although material wealth accumulation is among the concerns of genuine economic

development, its greater concern is the total improvement of the quality of people’s lives. This, in
turn, is related to sustainable economic development issues in a country which greatly influences
business management.

Sustainable economic development ensures that the present needs of a particular

generation are fully met without endangering the ability of future generations to also fully meet
their own needs. Business managers must be conscious of their decisions to avoid the abuse of
ecological elements—air, water, and soil—as this will threaten sustainable economic
development.

Different countries have different management strategies to encourage ecological respect

and prevent damage to the environment. Common environmental and ecological problems that
have to be dealt with by business managers include destruction of natural habitats, depletion of
clean water resources, urban, industrial, and agricultural pollution, and many more.

In September 2000, world leaders gathered for the Millennium Summit, and thus adopted
the United Nations (UN) Millennium Declaration. By doing so, they had committed their nations to
a global partnership toward the reduction of extreme poverty and the pursuit of the Millennium
Development Goals (MDG).

The MDGs, according to the UN, are “the world’s time-bound and quantified targets for
addressing extreme poverty in its many dimensions — income poverty, hunger, disease, lack of
adequate shelter, and exclusion — while promoting gender equality, education, and
environmental stability.” The deadline for the fulfillment of the MDGs was set for 2015. The
following are the MDGs:
• Eradicate extreme hunger and poverty
• Achieve universal primary education
• Promote gender equality and empower women
• Reduce child mortality
• Improve maternal health
• Combat HIV/AIDS, Malaria, and other diseases
• Ensure environmental sustainability
• Develop a global partnership for development

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 The National Economic and Development Authority (NEDA) has laid out the Philippine
Development Plan (PDP) 2017 – 2022. It is evident from the PDP focus areas that it covers not
only the economic and industrial goals of the Philippines, but the social, environmental, and peace
and security aspect as well.

The MDGs and PDP can help guide the management of business in the Philippine setting.
In particular, the PDP must be taken into consideration in order to deem management as
appropriate or country specific.

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 Another potential means for economic growth and development is the planned integration
of the 10 Southeast Asian nations in 2015 which include the Philippines. The Association of
Southeast Asian Nations (ASEAN) Economic Community (AEC) could help the Philippines
achieve its goal of inclusive growth that creates jobs and reduces poverty.

Formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand to

promote political and economic cooperation and regional stability. Brunei joined in 1984, and
Vietnam joined ASEAN as its seventh member in 1995. Laos and Burma were admitted into full
membership in July 1997 as ASEAN celebrated its 30th anniversary. Cambodia became
ASEAN’s tenth member in 1999.

According to a joint study by the International Labor Organization (ILO) and the Asian
Development Bank (ADB) titled “ASEAN Community 2015: Managing Integration for Better Jobs
and Shared Prosperity,” released in October 2014, the success of the AEC lies in decisive actions
taken by member states regarding policy recommendations, strengthening regional cooperation
that may bring about structural changes, improvement of business and job opportunities and job
quality, enhancement of skills boosting productivity, better wages, and management of labor
migration. These may ensure that the benefits of equitable growth and development are shared
among member countries and sectors.

Since the AEC is envisioned to become a single common market and production base for
an estimated 600 million people of different nationalities, it means freer flow of goods, services,
investments, and labor. The study concluded that “new opportunities for growth and prosperity
may emerge, but the challenge is to ensure that growth is inclusive, and prosperity is shared.”

Obviously, managers of businesses here in the Philippines must be concerned about the
findings of the study, as these are new challenges for them. The improvement of management

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style and the skills training and education of their human resources are needed in order to cope
with the possible changes that will be brought about by the ASEAN integration in 2015.

Activity

1. Is the term “economic development” synonymous with “economic growth?” Explain your
answer.

2. What are the phases of economic development? Why is it important to understand the specific
steps related to these?

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3. Choose another Asian country and discuss how factors in its economic development differ
from those in the Philippines.

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 FORMS OF BUSINESS ORGANIZATIONS

Definition of Terms
Organization – a collection of people working together to achieve a common purpose

Business Organization – a collection of people working together to achieve a common

purpose in relation to their organization’s mission, vision, goals, and objectives, sharing a
common organizational culture

Organizational Culture – the set of beliefs and values shared by organization members which
guide them as they work together to achieve their common purpose

Changing Forms of Business Organizations

Change is constant and organizations continue to undergo various changes to ensure

effectiveness, efficiency, and relevance in the world of business.

Business organizations may be traditional (simple, functional, divisional, profit, or

nonprofit) or open/flexible in form according to Robbins and Coulter (2009).

• Simple Business Organizations – these refer to business organizations with few departments,
centralized authority with a wide span of control, and with few formal rules and regulations.
These are easy to manage because of their simple form. However, change of form follows
as the company expands its operations.

• Functional Business Organizations – these pertain to business organizations that group

together those with similar or related specialized duties that introduce the concept of
delegation of authority to functional managers like the personnel manager, sales manager, or
financial manager but allow CEOs to retain authority for strategic decisions.

• Divisional Business Organizations – these are business organizations made up of separate

business units that are semi-autonomous or semi-independent, with a division head
responsible for his or her unit’s performance. In other words, each division has its own
functional organization and its own general manager; however, the central headquarters
management maintains responsibility for the delineation of organizational goals of the
individual divisions.

• Profit Business Organizations – these are business organizations designed for the purpose
of achieving their organizations’ mission, vision, goals, and objectives and maintaining their
organizational stability through income generation and profit-making activities. Immediate
revenues or cost factors account for their success or failure.

• Nonprofit Organizations – these are business organizations designed for the purpose of
achieving their organizations’ mission, vision, goals, and objectives, providing service to
clients without expecting monetary gains or financial benefits for their endeavors. Their
success or failure may be measured by the high or low evaluation scores they obtain.

• Open/Flexible Business Organizations – these are formed to meet today’s changing work
environment.

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 Business organizations affect and are affected by the environment; therefore, change
becomes inevitable. Other forms of business organizations:

• Team Structures – where the organization as a whole is made up of work teams (small, but
focused) that work together to achieve the organization’s purpose; popular in collectivist
culture.

• Matrix Business Organizations – those which assign experts or specialists belonging to

different functional departments to work together on one or more projects; exhibit dual
reporting relationships in which managers report to two superiors—the functional manager
and the divisional manager.

• Project Business Structure – a business organizational form with a flexible design, where the
employees continuously work on projects assigned to them; projects may be short-term or
long-term and members disband when the project is completed.

• Boundaryless Business Organization – a business organization whose design eliminates

vertical, horizontal, or external boundaries, and is described to be flexible and unstructured;
there are no barriers to information flow and, therefore, completion of work is fast.

• Virtual Business Organization – made up of a small group of full-time workers and outside
experts who are hired on a temporary basis to work on assigned projects; members usually
communicate online.

Activity

1. What is a business organization?

2. What is the difference between a profit and nonprofit business organization? Which, in your
opinion, is easier to manage? Explain your answer.

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3. Research on the Internet or the school library; name five profit business organizations and
five nonprofit business organizations.

ABM 1107 34
CHAPTER 3. PLANNING
At the end of this chapter, you should be able to:
• discuss the nature of planning;
• compare and contrast the different types of plans;
• describe planning at different levels in the firm;
• apply appropriate planning techniques and tools; and
• formulate a decision from several alternatives

DEFINITION AND NATURE OF PLANNING

Definition of Terms
Planning – is a process that involves the setting of the organization’s goals, establishing
strategies for accomplishing those goals, and developing plans of action or means that
managers intend to use to achieve organizational goals

Goal-setting – the identification of targets or desired ends that management wants to reach
Vision – a mental image of what the organization will be in the future, as desired by the company
management and employees

Mission – basic purpose of an organization and range of their operations

Objectives – steps needed to attain desired ends

Planning is the first management function and a very essential component of

management. The following present the importance of planning:

• Planning provides direction to all the organization’s human resources—both managers as

well as employees. If they know what their firm or their work unit is trying to achieve and
what activities they should engage in to be able to contribute to the achievement of the
firm’s set vision, mission, goals, and objectives, they would coordinate their actions and
collaborate well with one another.

• Planning is important because it reduces uncertainty; it compels managers to consider

future events that may affect their company. Anticipating changes and their impact will
help managers and other workers to react to such changes appropriately.

• Minimizing of wastes will result if there is proper coordination of activities due to planning;
negative practices, ineffectiveness, and inefficiencies could be easily detected and can be
corrected or eliminated.

• Establishing goals and standards during planning may be used for controlling, another
necessary managerial function.

Without planning, goals and standards will be absent and controlling will not be possible.

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Relationship of Planning to Individual and Organizational Performance

Is there a clear relationship between planning and performance? Although numerous

researchers have shown a generally positive relationship between planning and performance, it
would not be advisable, however, to judge that organizations or individuals who formally plan
have better performance compared to those who do not plan.

There are other environmental factors that also affect individual or organizational
performance, thus, result in reducing the impact of planning to performance. It is safer to say that
the relationship between planning and performance is mainly due to association of systematic
planning with the excellent financial status of the organization and higher return of investments,
higher income, and profit that could be traced to the excellent performance of its human
resources.

Finally, the planning-performance relationship could also be associated with the time spent in
preparing and executing a formal organizational or individual plan. A well-thought-out plan
requires a longer period of preparation; its execution or application must also be done for a certain
period—months or years—before it begins to affect performance.

Difference between Goals and Plans

Goals are the targets or desired ends that management wants to reach, while plans are
the actions or means that administrators/managers intend to use to achieve organizational goals.
In short, goals serve as the foundation of planning. Goals precede plans because knowing the
desired targets is a must before establishing plans for reaching them.

Activity

1. How important is planning to organization managers?

2. Which comes first, goal setting or planning? Explain your answer.

ABM 1107 36
3. Set goals or targets for a fast food business. List them down.

4. Look ahead, list down possible future changes in the fast food business in which you made
these goals for in exercise number one.

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 TYPES OF PLANS

Definition of Terms
Organizational Plan – a comprehensive plan for the entire organization covering time frame,
specific purpose, frequency of use, and others

Strategic Plan – plans that establish the organization’s overall goals and apply to the entire
firm; they are broad in scope and are the responsibility of the organization’s President or Chief
Operating Officer, and several managers

Operational Plan – plans that apply to a particular unit area only; their scope is narrow and
prepared by lower level managers

Organizational plans can be generally described in terms of comprehensiveness, length

of time covered or time frame, specificity, and frequency of use.

Comprehensiveness refers to the completeness of planning coverage; for example: it may

start from plans that cover the entire organization, called strategic plans, up to operational plans
that apply to a particular operational area only. The more comprehensive the plan is, the better,
as this could completely guide both the employer and employee toward the fast achievement of
company goals.

A plan may be long-term, or covering more than three years, or short-term, covering one
year or less. Top-level management usually sets the long-range plans, while lower-level
management focuses on short-term goals.

Specificity refers to very detailed, clearly defined plans wherein objectives are clearly
stated and could easily be understood. Simple language must be used in order to facilitate
understanding of the plan.

Frequency of use refers to the number of times or instances a plan may be used. For
example, strategical plans have single use, while operational plans are usually standing or are
used frequently or for several times. Referring to set plans is often necessary to ensure that all
plans are carried out, thus, hastening the achievement of the organization’s goals. Managers
meet many planning challenges as they go about their tasks and direct their company’s affairs. In
some organizations, the planning environment is steady, but in others, it is dynamic, so, different
types of plans are made to meet organizational needs. Different types of planning include the
following:

• Strategic Plans – plans that establish the organization’s overall goals and apply to the entire
firm; they are broad in scope and are the responsibility of the CEO, president, and general
manager of the company.

• Operational Plans – plans that apply to a particular unit area only; their scope is narrow;
achievement of company goals may not be achieved if operational plans are not clear.

• Long-Term Plans – plans that go beyond three years; everyone must understand the
organization’s long-term plans to avoid confusion that may divert the organization members’
attention.

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• Short-term Plans – plans that cover one year or less; such plans must lead toward the
attainment of long-term goals and are the responsibility of the unit/department heads.

• Directional Plans – plans that are flexible or give general guidelines only; although flexible and
general, these plans must still be related to the strategic plans.

• Specific Plans – plans that are clearly stated and which have no room for interpretation;
language used must be very understandable

• Single-use Plans – plans used or stated once only as this applies to the entire organization;
refer to the operational plans of the firm.

• Standing Plans – plans that are ongoing; provide guidance for different activities done
repeatedly; refer to the identified activities of operational plans.

Steps in Planning

Planning is a process and, as such, involves steps—from carrying out its purpose, setting
of goals/objectives, and determining what should be done to accomplish them. Schermerhorn
(2008) gave five steps in the planning process:

1. Define your goals/objectives by identifying desired outcomes/results in very specific ways.

2. Determine where you stand in relation to set goals/objectives; know your strengths and
weaknesses.

3. Develop premises regarding future conditions; anticipate future events, generate alternative
“scenarios” for what may happen; identify for each scenario things that may help or hinder
progress toward your goals/objectives.

4. Analyze and choose among action alternatives; list and carefully evaluate possible actions
and choose the alternative most likely to accomplish goals/objectives.

5. Implement the plan and evaluate results; take corrective action and revise plans as needed.

Activity

1. What are the bases for describing organizational plans?

ABM 1107 39
2. Which plan is described to be short-term, specific, and narrow? Explain your answer.

3. Name the five steps in planning. Is there a particular step that could be bypassed or
eliminated? Explain your answer.

4. Choose one of the formal goals set for your school/college. List down three operational plans
that will enable school/college managers to achieve this chosen goal.

ABM 1107 40
 PLANNING AT DIFFERENT LEVELS IN THE FIRM

Definition of Terms
Strategic Planning – is top-level planning which involves making decisions about the
organization’s long-term goals

Tactical Planning – is middle-level management planning which refers to procedures and

transformation of strategic goals/plans with specific goals

Operational Planning – is lower-level management planning which involves routine tasks

repeatedly done by the firm’s lower level units

Different levels in the firm are all engaged in planning; however, all the resulting plans
must be related to one another and directed toward the same goals. Planning at the different
levels of management include strategic planning, tactical planning, and operational planning.

Top-level Management Planning (Strategic Planning)

As earlier mentioned, top-level managers are responsible for the organization’s strategic
planning which involves making decisions about the organization’s long-term goals and
strategies. CEOs, company presidents, or the organization’s senior executives develop and
execute the said strategic plan. They, however, do not formulate or execute the plan on their own;
a management team supports and helps top-level managers in carrying out these tasks.

Strategic planning starts with defining the organization’s goals/objectives, the major
targets related to the maintenance of the organization’s stability, and its organizational culture,
values, and growth improving its productivity, profitability, effectiveness, and efficiency, among
others.

Middle-level Management Planning (Tactical Planning)

Tactical planning refers to a set of procedures for changing or transforming broad strategic
goals and plans into specific goals and plans that are applicable and needed in one unit/portion
of the organization. It is focused on major actions that must be done by a unit to contribute its
share for the achievement of the strategic plan.

Frontline/Lower-level Management Planning (Operational Planning)

Operational planning involves identifying the specific procedures and processes required
at the lower levels of the organization. This also involves routine tasks or tasks repeatedly done
by the organization’s lower level units.

Integrating Strategic, Tactical, and Operational Planning

The present organizational planning is not as rigid as the hierarchical planning earlier
discussed in this chapter. Managers in different hierarchical levels of the organization may
contribute their ideas or suggestions in developing the strategic plan, a task originally assigned
to the senior executives. Also, frontline managers may make decisions that could influence
strategy formulation in the higher levels. All plans, however, must be directed toward the
achievement of the organization’s strategic goals.

ABM 1107 41
 Finally, CEOs or company presidents must see to it that all communication lines in their
organization are open, that there is excellent dissemination of information to all levels, and they
are aware of everything that is happening in their firm.

Planning Hierarchy

Activity

1. If the strategic goal of your organization is the improvement of its profitability, what routine
tasks could be included in your operational planning? Name some of these tasks.

2. Describe present-day organizational planning. Is it rigid or flexible? Explain your answer.

ABM 1107 42
3. Instead of using traditional planning and goal-setting methods there are organizations that
use the management by objectives (MBO) system. Research about this topic using the
Internet. Define MBO and explain how this could be used in planning and goal-setting and its
relation to employee performance and organizational productivity.

4. Research on the characteristics of well-written goals. Name at least five characteristics.

ABM 1107 43
 PLANNING TECHNIQUES AND TOOLS AND THEIR APPLICATIONS

Definition of Terms
Trigger point – change in an attribute, condition, factor, parameter, or value that represents
crossing a threshold and actuates or initiates a mechanism or reaction that may lead to a
radically different state of affairs

Forecasting – an attempt to predict what may happen in the future

Benchmarking – planning technique that involves comparison of company’s practices or

technologies with those of other companies

For effective planning in today’s dynamic environments, different techniques and tools
must be used, such as forecasting, contingency planning, scenario planning, benchmarking, and
participatory planning.

According to Schermerhorn (2008), forecasting is an attempt to predict what may happen

in the future. All planning types, without exception, make use of forecasting. Business periodicals
publish forecasts such as employment and unemployment rates, increase or decrease of interest
rates, stock market data, GNP/GDP data, and others. Forecasts used may either be quantitative
or qualitative. Opinions of prominent economists are used in qualitative forecasts while
mathematical calculations and statistical analyses of surveys/researches are used in quantitative
forecasts. These, however, are just aids to planning and must be treated with caution. As the
name implies, forecasts are predictions and may be inaccurate, at times, due to errors of human
judgment.

Contingency factors may offer alternative courses of action when the unexpected happens
or when things go wrong. Contingency plans must be prepared by managers, ready for
implementation when things do not turn out as they should be. Contingency factors called “trigger
points” indicate when the prepared alternative plan should be implemented.

Meanwhile, planning for future states of affairs is a long-term version of contingency

planning and is also known as scenario planning. Several future states of affairs must be
identified, and alternative plans must be prepared to meet the changes or challenges in the future.
This is a big help for organizations because it allows them to plan and make necessary
adjustments in their strategies and operations. Some examples of changes or challenges that
may arise in future scenarios are environmental pollution, human rights violations, climate and
weather changes, earthquake damages to communities, and others.

Benchmarking is another planning technique that generally involves external comparisons

of a company’s practices and technologies with those of other companies. Its main purpose is to
find out what other people and organizations do well and then plan how to incorporate these
practices into the company’s operations. A common benchmarking technique is to search for best
practices used by other organizations that enabled them to achieve superior performance. This
is known as external benchmarking. Internal benchmarking is also practiced by some
organizations when they encourage all their employees working in their different work units to
learn and improve by sharing one another’s best practices.

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 Participatory planning is a planning process that includes the people who will be affected
by the plans and those who will be asked to implement them in all planning steps. Creativity,
increased acceptance and understanding of plans, and commitment to the success of plans are
the positive results of this planning technique.

Activity

1. Which is a better planning tool: forecasting or benchmarking? Explain your answer.

2. Why are “trigger points” important in contingency plans?

3. Name some examples of changes or challenges, other than those mentioned in this lesson,
that may occur in future scenarios.

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4. Give at least five business forecasts that may occur here in the Philippines three years from
now. Use either qualitative or quantitative forecasting.

5. How can planning through benchmarking be used by the owner/manager of a five-star hotel?
Explain your answer.

ABM 1107 46
 DECISION-MAKING
Decision-making a process which begins with problem identification and ends with the
evaluation of implemented solutions. All managers and workers/employees in organizations
make decisions or make choices that affect their jobs and the organization they work for. This
lesson’s focus is on how they make decisions by going through the eight steps of the decision-
making process suggested by Robbins and Coulter (2009).

The Decision-making Process according to Robbins and Coulter

Step 1: Identify the Problem. The problem may be defined as a puzzling circumstance or a
discrepancy between an existing and a desired condition.

Step 2: Identify the Decision Criteria. These are important or relevant to resolving the identified
problem.

Step 3: Allocate Weights to the Criteria. This is done to give the decision maker the correct priority
in making the decision.

Step 4: Develop Alternatives. This step requires the decision maker to list down possible
alternatives that could help resolve the identified problem.

Step 5: Analyze the Alternatives. Alternatives must be carefully evaluated by the decision maker
using the criteria identified in Step 2.

Step 6: Select an Alternative. This is the process of choosing the best alternative or the one which
has the highest total points in Step 5.

Step 7: Implement the Chosen Alternative. This step puts the decision into action. Changes in the
environment must be observed and assessed, especially in cases of long-term decisions, to see
if the chosen alternative is still the best one.

Step 8: Evaluate Decision Effectiveness. This is the last step and involves the evaluation of the
outcome or result of the decision to see if the problem was resolved. If the problem still exists, the
manager must assess what went wrong and, if needed, repeat a step or the whole process.

Types of Decisions

A decision is a choice among possible alternative actions. Like planning, decision-making

is a challenge and requires careful consideration for both types of decisions, namely:

Structured or Programmed Decision – a decision that is repetitive and can be handled using a
routine approach.

Such repetitive decision applies to resolving structured problems which are

straightforward, familiar, and easily defined. For example, a restaurant customer complains about
the dirty utensils the waiter has given him. This is not an unusual situation, and, therefore,
standardized solutions to such a problem may be readily available.

Unstructured or Nonprogrammed Decisions – applied to the resolution of problems that are new
or unusual, and for which information is incomplete.

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 Such nonprogrammed decisions are described to be unique, nonrecurring and need
custom-made decisions. For example, a hotel manager is asked to decide regarding the building
of a new hotel branch in another city to meet the demands of businessmen there. This is an
unstructured problem and, therefore, needs unstructured or nonprogrammed decisions to resolve
it.

Types of Decision-making Conditions

Conditions, under which decisions are made, also vary. These are:

Certainty Conditions – ideal conditions in deciding problems; these are situations in which a
manager can make precise decisions because the results of all alternatives are known.

For example, bank interests are made known to clients, so it is easier for business
managers to decide on the problem of where to deposit their company’s funds. The bank which
offers the highest interest rate, therefore, is the obvious choice of the manager when asked to
decide.

Risk or Uncertainty Conditions – a more common condition in deciding problems.

Risk or uncertainty conditions compel the decision maker to do estimates regarding the
possible occurrence of certain outcomes that may affect his or her chosen solution to a problem.
Historical data from his or her own experiences and other secondary information may be used as
bases for decisions to be made by the decision maker under such risk conditions. For example,
a manager is asked to invest some of their company funds in the money market offered by a
financial institution. Risk factors must be considered, because of the uncertainty conditions
involved, before deciding—whether to invest or not in the said money market.

ACTIVITY

1. Enumerate the steps involved in decision-making. Which is the most important step? Explain
your answer.

2. Why is it easier to make a structured or programmed decision?

ABM 1107 48
3. Choose one problem in a ready-to-wear garments manufacturing company. Solve your
identified problem by going through the eight steps of the decision-making process.

ABM 1107 49
CHAPTER 4. ORGANIZING
At the end of this chapter, you should be able:
• discuss the nature of organizations;
• distinguish the various types of organization structures;
• apply organization theories in solving business cases;
• identify the different elements of delegation; and
• differentiate formal from informal organization.

AFTER PLANNING, organizing follows. The goals and objectives established during planning
will all go to waste without effective organizing, through the development of a designed structure
of roles for effective performance. It requires an interlacing of decision and communication work
units to coordinate efforts toward the organizational goals and objectives that were set earlier. To
function well, organization structures and their specific roles must be understood by all members
of the organization. Rules and regulation principles must also be put into practice. However, that
organizing depends on the specific situation of the firm.

NATURE OF ORGANIZATIONS
Differentiation of the Organization’s Internal Environment

Differentiation in organizations involves division of labor and specialization according to

Bateman and Snell (2008). These necessarily result from the organization’s composition—many
different work units with different kinds of tasks, using different skills and work activities
coordinating with one another for a common end.

Division of labor involves assigning different tasks to different people in the organization’s
different work units. Related to it is specialization, the process in which different individuals and
units perform different tasks. An organization’s overall work is complex and would be too much
for any individual, therefore, the bigger the organization, the more work units or work divisions
and specializations are to be expected.

Integration of Work Units

Integration is another process in the organization’s internal environment which involves

the collaboration and coordination of its different work units or work divisions. Coordination refers
to the procedures that connect the work activities of the different work divisions/units of the firm
to achieve its overall goal. Structural mechanisms may be devised to increase collaboration and
coordination. The more highly differentiated one’s organization is, the greater the need for
integration among the different units.

TYPES OF ORGANIZATION STRUCTURES

Definition of Terms
Vertical Organization Structure – clears out issues related to authority rights, responsibilities,
and reporting relationships

Horizontal Organization Chart – refers to a selection of independent, usually single-function

organizations that work together to produce a product or service

ABM 1107 50
 An organization structure is a system made up of tasks to be accomplished, work
movements from one work level to other work levels in the system, reporting relationships, and
communication passageways that unite the work of different individual persons and groups. The
types of organizational structures include:
a. vertical structure
b. horizontal structure
c. network structure

According to Bateman and Snell (2008), a vertical structure clears out issues related to
authority rights, responsibilities, and reporting relationships. Authority rights refer to the legitimate
rights of individuals, appointed in positions like president, vice president, manager, and the like,
to give orders to their subordinates, who in turn, report to them what they have done.

Vertical Organizational Structure Example

Owners of private business companies are said to have absolute authority, even if other
persons are appointed as managers in their companies. In corporations, the owners are the
stockholders and they elect a board of directors to manage the organization’s activities. The board
has a chairman who acts as the leader, while the members act as the corporation’s authority
figures, responsible for making major decisions affecting their organizations, subject to the
corporation’s constitution and by-law provisions. Besides the chairman of the board, a chief
executive officer (CEO) is appointed to occupy the top post in the organization pyramid and is
personally accountable to the members of the board and other owners for the organizational
performance.

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 Below the top-level managers are the middle-level managers in charge of departments
who, as earlier mentioned, report to them. Under the middle-level managers are the lower-level
managers which include office managers, sales managers, and supervisors who directly report to
the former. Employees under the lower-level managers also have reporting relationships with their
respective department managers.

A horizontal structure refers to the departmentalization of an organization into smaller work

units as tasks become increasingly varied and numerous.

Types of Department

Line Departments – deal directly with the firm’s primary goods and services; responsible for
manufacturing, selling, and providing services to clients.

Staff Departments – support the activities of the line departments by doing research, attending to
legal matters, performing public relations duties, etc. Meanwhile, departmentalization may be
done using three approaches:

• Functional Approach – where the subdivisions are formed based on specialized activities
such as marketing, production, financial management, and human resources
management.

• Divisional Approach – where departments are formed based on management of their

products, customers, or geographic areas covered.

• Matrix Approach – is a hybrid form of departmentalization where managers and staff

personnel report to the superiors, the functional manager, and the divisional manager.

Finally, a network structure is a collection of independent, usually single function

organizations/companies that work together to produce a product or service. Such network
organizations are each capable of doing their own specialized work activities independently, like
producing, distributing, designing, etc., but can work effectively at the same time with other
network members.

Often their communication is by electronic means where sharing of information is speedy.

This results to their ability to respond at once to their customers’ demands. Organizational

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structure is needed to keep employees needed, to build a learning organization and to manage
global structural problems.

Activity

1. Why should organizations be encouraged to have an organization chart?

2. Construct an organization chart of your school’s high school department.

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3. In your opinion, who have greater responsibilities, the line department managers or the staff
department managers? Explain your choice.

4. Research on the CEO’s work details. What are the advantages and disadvantages of being a
CEO?

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 Organization Theories and Applications

Definition of Terms
Organizational Design – the way a management achieves the right combination of
differentiation and integration of the organization’s operations, in response to the level of
uncertainty in its external environment

Traditional Theories – are the usual, old fashioned ways

Modern Theories – are contemporary or new design theories

There are two main classifications of theories regarding organizational design according
to Robbins and Coulter (2009): traditional and modern. Traditional pertains to the usual or old-
fashioned ways, while modern refers to contemporary or new design theories. Traditional
organizational design theories include:

Simple

This organizational design has few departments, wide spans of control, or a big number
of subordinates directly reporting to a manager; has a centralized authority figure and has very
little formalization of work; usually used by companies that start out as entrepreneurial ventures.

Simple Organizational Design

Strengths Weaknesses
• flexible • risk that overdependence with over-
• fast decision-making and results dependence on a single person
• clear accountability • no longer appropriate as the company
grows

Functional

This organizational design groups together similar or related specialties. Generally,

functional departmentalization is utilized and put into practice in an entire organization. For
example: A marketing firm that markets cars and related products like tires, car batteries, and
accessories.

Functional Organizational Design

Strengths Weaknesses
• cost-saving advantages • managers have little knowledge of
• management is facilitated because other units’ functions
workers with similar tasks are grouped
together

Divisional

This organizational design is made up of separate business divisions or units, where the
parent corporation acts as overseer to coordinate and control the different divisions and provide
financial and legal support services.

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 Divisional Organizational Design
Strengths Weaknesses
• focused on results • possible duplication of activities and
• managers are responsible for what resources
happens to their products and services • increased cost and reduced efficiency

Modern organizational design theories include:

Team Design

In team design, the entire organization is made up of work groups or teams. Its advantages
include empowerment of team members and reduced barriers among functional areas. It also has
disadvantages, including a clear chain of command and great pressure on teams to perform.

Matrix-Project Design

Matrix design refers to an organization design where specialists from different

departments work on projects that are supervised by a project manager. This design results in a
double chain of command wherein workers have two managers—their functional area manager
and their project manager—who share authority over them. Advantage: specialists are involved
in the project. Disadvantage: task and personality conflicts.

Project design refers to an organizational design where employees continuously work on

a project. Advantages: flexible designs and fast decision-making. Disadvantages: complexity of
assigning people to projects and tasks and personality conflicts.

Boundary-less Design

This is another modern organizational design where the design is not defined or limited
by vertical, horizontal, and external boundaries. In other words, there are no hierarchical levels
that separate employees, no departmentalization, and no boundaries that separate the
organization from customers, suppliers, and other stakeholders. Virtual organization designs are
often used in this design; small groups of full-time employees and outside specialists are
temporarily hired to work on projects. Its advantages include being highly flexible and responsive,
while its disadvantages are lack of control and problems in communication.

Activity

1. What are the advantages and disadvantages of the simple organizational design? Do you
agree or disagree with these advantages and disadvantages? Explain your answer.

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2. Task and personality conflicts are said to be the disadvantages to the use of the matrix-project
design. Explain the rationale of this statement.

3. Choose one popular fast food chain company. Name some teams that may be organized
within the company to help achieve its goals.

4. Give two of your own examples of a functional organizational design.

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 DELEGATION

Definition of Terms
Delegation – refers to assigning in a new or additional task to a subordinate; or getting the
work done through others by giving them the right to make decisions or act

Authority – the right to act legally or officially

Responsibility – the state of being answerable legally and morally for the discharge of duty

Accountability – is to be liable to be called to explain

Delegation refers to assigning a new or additional task to a subordinate; it may also refer
to getting work done through others by giving them the right to make decisions and take action.
Elements of delegation include: authority or the right to set officially or legally, responsibility or the
state of being answerable legally/morally for the discharge of a duty, and accountability is to be
liable to be called to explain. Steps in delegation include:

1. Defining the goal clearly. Managers must clearly explain the task objective and the work or
duties someone else is expected to do.

2. Selecting the person who will be given the task. The selected subordinate must be competent
and must share the manager’s task objectives.

3. Assigning of responsibility. Managers must explain that the responsibility assigned to the
selected subordinate is an expectation for him or her to perform the assigned tasks well.

4. Asking the person assigned about his or her planned approaches to accomplish the task
objectives. It is expected that the person chosen to do the task already has a tentative plan of
action that may be presented to the manager, to assure him or her that the person assigned could
achieve the task objective.

5. Granting the assigned person the authority to act. If the manager is satisfied with the tentative
plan of action presented, granting of the authority to act immediately follows. Authority is a right
to act in ways needed to carry out the assigned task.

6. Giving the assigned person enough time and resources to do the task, while at the same time
emphasizing his or her accountability. Accountability is the assigned person’s willingness to
complete the job, as agreed upon.

7. Checking the task accomplishment progress. Following up and dis- cussing the task
accomplishment progress at regular intervals is necessary.

8. Making sure that the task objective has been achieved. The above steps of delegation were
given by Weihrich and Krontz (2005).

Delegation has advantages and disadvantages as well.

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 Advantages of Delegation Disadvantages of Delegation
It prevents work overload among organization It may cause laziness among organization
managers. managers.
It provides opportunities for employee or It may encourage too much dependence on
subordinates assigned to do the task to fully others.
utilize their talents on the job.
It leads to empowerment of employees or It may cause lack of control over priority
subordinates assigned to do the task, as it management problems.
allows them to perform their job in the best
possible way.
It increases job satisfaction among the It may cause low self-confidence among
assigned employees or subordinates, that managers.
may lead to better job performance.

Activity
1. Define the term “delegation.”

2. Give specific examples of formal and informal organizations.

3. Do informal organizations help in the achievement of the company’s set goals? Explain
your answer.

4. How could informal organizations lessen its members’ insecurities?

ABM 1107 59
CHAPTER 5. STAFFING
At the end of this chapter, you should be able:

• discuss the nature of staffing’

• explain the steps in the recruitment and selection process;
• recognize the different training programs;
• identify the policy guidelines on compensation and wages and performance evaluation or
appraisal;
• discuss the importance of employee relations;
• differentiate various employee movements; and
• realize the importance of adopting an effective rewards system.

MANAGERS OFTEN CONSIDER human resources as their organization’s most important

resource. Very few administrators would argue with the fact that human resources are very
important for the efficient and effective operation of a company. To emphasize their importance,
human resources are also called human capital, intellectual assets, or management or company
talents. These terms imply that human resources are the drivers of the organization’s
performance; hence, staffing is a crucial function of managers.

DEFINITION AND NATURE OF STAFFING

Staffing, according to Dyck and Neubert (2012), is the Human Resource function of
identifying, attracting, hiring, and retaining people with the necessary qualifications to fill the
responsibilities of current and future jobs in the organization. The number of managerial personnel
or nonmanagerial human resources needed by an organization depends upon the size and
complexity of its operations, its plans for branching out or increasing products, and turnover rates
of both types of human resources, among others. Besides considering their number, the
qualifications for the individual positions must be identified, so that the best-suited individuals for
the job positions may be selected for hiring.

The Management and Non-managerial Human Resources Inventory

Awareness of the management potential within an organization can be accomplished with

the use of an inventory chart, also called management succession/replacement chart. This chart
is similar to the general organization chart used by the company but limited to managerial
positions and the names of potential successors (promotable, satisfactory but not promotable,
dismissed, etc.). Recruitment by external means may follow if there are no qualified successors.

The need for non-managerial human resources may be ascertained by the use of a
general organization chart to identify vacant job positions that need to be filled or by direct reports
from department/unit heads or supervisors. Managers need not make detailed succession
planning, as these job positions are less sensitive. Suggestions for internal replacements or
successors for vacant nonmanagerial positions are usually done as the need arises. External
recruitment also follows if no one within the organization is fitted for the job position that was
declared vacant.

Staffing has two main components: recruitment and selection. The process of identifying
and attracting the people with the necessary qualifications is called recruitment while selection is
choosing who to hire.

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 Staffing steps include:
1. the identifying of job position vacancies, job requirements, as well as work force
requirements;
2. checking internal environment of the organization for human resources;
3. external recruiting;
4. selecting those with essential qualifications for the job opening;
5. placing the selected applicant;
6. promoting;
7. evaluating performance;
8. planning of employee’s career;
9. training of human resources; and
10. compensating human resources

External and Internal Forces Affecting Present and Future Needs for Human
Resources

Present and future needs for managers and other human resources are affected by both
external and internal forces. External forces include economic, technological, social, political, and
legal factors. For example, economic progress in a particular country may bring about increased
needs and wants among people, resulting, in turn, in increased demand for certain products,
followed by the expansion of the company and its work- force, as well as increased demand for
managers. Information explosion coming from the Internet, from business publications, or from
the labor department of countries may give either encouraging or discouraging long-term trends
in the world labor market, thus causing an increase or a decrease in demand for managers and
other human resources.

The firm’s goal and objectives, technology, the types of work that have to be done, salary
scales, and the kinds of people employed by the company are among the internal factors or forces
that affect staffing. For example: salary scales offered by a company may not be high enough to
attract personnel who are really qualified for the job. Also, this may encourage fast managerial
and labor turnover.

Activity

1. Define staffing.

2. Give at least four activities or processes involved in staffing.

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3. Give your own example of an external technology change that may affect staffing.

ABM 1107 62
 RECRUITMENT

Definition of Terms
Recruitment – a set of activities designed to attract qualified applicants for job position
vacancies in an organization.

Staffing – refers to filling in all organizational job positions

Systems approach to staffing – is the step-by-step way of filling job positions in organizations,
considering variables such as numbers and kinds of human resources needed, open
managerial and nonmanagerial positions, potential successors to open job positions, etc.

External Recruitment – refers to recruitment from outside sources

Internal Recruitment – refers to recruitment done within the organization

In the event of a job opening, administrators must be careful when recruiting and choosing
who to bring into the organization. They must see to it that their new recruit possesses the
knowledge and skills needed to be successful in helping their company achieve their set goals
and objectives and that he/ she is suited for the job position and the job design.

Recruitment may either be external or internal. In external recruitment, outside sources

are considered in the process of locating potential individuals who might want to join the
organization and encouraging them to apply for actual or anticipated job vacancies. Unsolicited
applications and referrals from employment agencies and schools are examples of sources
outside the company from which management could select an applicant who best fits the job
opening.

In internal recruitment, filling job vacancies can be done through promotions or transfer of
employees who are already part of the organization. In other words, recruitment is within the
organization.

Methods of External and Internal Recruitment

External recruitment methods include:

Advertisements – through websites, newspapers, trade journals, radio, television, billboards,

posters, and e-mails among others.

Unsolicited applications – received by employers from individuals who may or may not be
qualified for the job openings.

Internet recruiting – independent job boards on the Web commonly used by job seekers and
recruiters to gather and disseminate job opening information.

Employee referrals – are recommendations from the organization’s present employees who
usually refer friends and relatives who they think are qualified for the job.

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Executive search firms – also known as “head hunters;” help employers find the right person for
a job. Such firms seek out candidates with qualifications that match the requirements of the job
openings that their client company hopes to fill.

Educational institutions – good sources of young applicants or new graduates who have formal
training but with very little work experience. For technical and managerial positions, schools may
refer some of their alumni who may have the necessary qualifications needed for the said job
positions.

Professional associations – may offer placement services to their members who seek
employment. Employers may make use of the listings that they publish in their journals regarding
members who are available for possible recruitment or hiring.

Labor unions – possible sources of applicants for blue-collar and professional jobs.

Public and private employment agencies – may also be good sources of applicants for different
types of job vacancies for they usually offer free services while private ones charge fees from
both the job applicant and the employers soliciting referrals from them.

As mentioned earlier, internal recruitment is done within the organization. Most managers
prefer to follow a policy of filling job openings through promotions and transfer. In this way, they
lessen the chances of losing the organization’s top performers. Recruitment may be done by using
company bulletin boards, company intranet, company newsletters, and recommendations from
department or unit heads, among others.

Both external and internal recruitment have their own advantages and disadvantages.

External Recruitment Advantages

1. Advertising and recruiting through the Internet reach a large number of possible applicants,
thus, increasing the possibility of being able to recruit applicants suited for the job.

2. Applicants who submit applications and resumes through their own initiative are believed to be
better potential employees because they are serious about getting the job.

3. Employee referrals from outside sources are believed to be high quality applicants because
employees are generally hesitant to recommend persons who are not qualified for job
openings.

4. Executive search firms usually refer highly qualified applicants from outside sources because
they make an effort to check applicants’ qualifications before recommending them to client
firms who pay for their services.

5. Educational institutions know the capabilities and qualifications of their graduates, hence,
increasing the chances of their ability to refer qualified applicants to potential employers.

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External Recruitment Disadvantages

1. The cost and time required by external recruitment are the typical disadvantages of using this
recruitment method. Advertising job openings and the orientation and training of newly hired
employees from outside sources, as well as sorting out large volumes of solicited or unsolicited
job applications present challenges in budgeting time and money.

2. Another disadvantage of external recruitment is the possibility of practicing bias or entertaining

self-serving motives in the referral of friends and relatives by current employees and in the
recommendation of private employment agencies of job applicants.

Internal Recruitment Advantages

1. Less expenses are required for internal recruitment advertising; news- letters, bulletin boards,
and other forms of internal communication may disseminate information to current employees
interested to apply for job openings within the company.

2. Training and orientation of newly promoted or transferred current employees are less
expensive and do not take too much time since they are already familiar with company policies.

3. The process of recruitment and selection is faster because the candidate for transfer or
promotion is already part of the organization.

Internal Recruitment Disadvantages

1. The number of applicants to choose from is limited.

2. Favoritism may influence a manager to recommend a current employee for promotion to a

higher position.

3. It may result in jealousy among other employees who were not considered for the position.
Some may also accuse the management of bias for choosing an employee who is perceived
to be less qualified for the job opening.

Activity

1. Differentiate internal and external recruitment.

ABM 1107 65
2. Name at least five external recruitment methods. Which is the best method? Explain your
choice.

3. What are the advantages of external and internal recruitment?

4. What are the disadvantages of external and internal recruitment?

ABM 1107 66
 SELECTION

Definition of Terms
Selection – the process of choosing individuals who have the required qualifications to fill
present and expected job openings.

Interview – the determining of an applicant’s qualifications in order to gauge his or her ability
to do the job

In many companies, selection is continuous because of fast turnover, resulting in

vacancies that have to be filled. Another reason for this is the review of applicants on the waiting
list. The selection process typically includes the following steps:

1. Establishing the selection criteria – Selecting human resources in an organization requires

understanding of the nature and purpose of the job position which has to be filled. Job design
must be based on the objective analysis of position requirements and must meet both
organizational and individual needs. Skills must also be considered depending on the job position
and its position in the organizational hierarchy.

2. Requesting applicants to complete the application form – Application forms must be completed
because these provide the needed information about the applicant. Management will find it easier
to decide whether an applicant meets the minimum requirements for experience, education, etc.,
if the application forms are accurately filled out by the applicant.

3. Screening by listing applicants who seem to meet the set criteria – This involves the preparation
of a shortlist of applicants who meet the minimum requirements of the job position to be filled. It
is done to avoid wasting of time by conducting interviews with applicants who do not meet the set
criteria for the job opening.

4. Screening interview to identify more promising applicants – Here, a shortlist of applicants is

prepared. Included in the list are the applicants who will be asked to undergo formal interview by
the supervisor/ manager; applicants who are deemed to be the most fitted for the job opening
belong to this shorter list.

5. Interview by the supervisor/manager or panel interviewers – Through formal interview of the

most promising applicants, other characteristics of the applicants may be revealed or observed
by the supervisor/man- ager or panel interviewers. Such characteristics include the applicants’
self-confidence, positive or negative self-esteem, honesty, ability to relate well with others, and
positive or negative life experiences which may affect his or her job performance, among others.
Interviewers must be trained so that they will know what to look for.

6. Verifying information provided by the applicant – To make sure that the applicant has not given
false information about himself or herself, verification is necessary. Background checking must
also be done to avoid the hiring of applicants with criminal record and to ascertain that he or she
has good moral character.

7. Requesting the applicant to undergo psychological and physical examination – Having a

healthy mind and a healthy body is important for good job performance. Hence, applicants must
be requested to undergo psychological and physical examinations prior to hiring.

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8. Informing the applicant that he or she has been chosen for the position applied for – Informing
the applicant may be done verbally or in writing by the managers who give the final decision
regarding the applicant’s hiring. Final instructions regarding the company’s rules and regulations
for hiring an applicant must be given in this step.

Interviews are important in determining the qualifications of an applicant and gauging his
or her ability to perform a job. Interviews may come in different forms.

Step 1 - Determining a need

Job analysis

Step 2 - Application search and selection

a. Recruitment
b. Screening and selection
c. Interviews

Step 3 - Decision-making process

a. Making a decision
b. Notification and employment offer

Step 4 - Adaptation to the workplace

Orientation

Types of Job Interviews

Structured interview – the interviewer asks the applicant to answer a set of prepared questions—
situational, job knowledge, job simulation, and worker requirement questions

Unstructured interview – the interviewer has no interview guide and may ask questions freely

One-on-one interview – one interviewer is assigned to interview the applicant

Panel interview – several interviewers or a panel interviewer may con- duct the interview of
applicants; three to five interviewers take turns in asking questions.
Similarly, there are different kinds of employment tests administered to measure or test an
applicant’s specific skill or capacity.

Types of Employment Tests

Intelligence test – designed to measure the applicant’s mental capacity; tests his or her cognitive
capacity, speed of thinking, and ability to see relationships in problematic situations

Proficiency and aptitude tests – tests his or her present skills and potential for learning other skills

Personality tests – designed to reveal the applicant’s personal characteristics and ability to relate
with other

ABM 1107 68
Vocational tests – tests that show the occupation best suited to an applicant.

Limitation of the Selection Process

In reality, there is no one perfect way to select a firm’s human resources. Predicting
performance is difficult as there is a difference between what individuals can do at present
and what they will do in the future. This is because a persons’ needs and wants change,
and so do an organization’s climate and environment. The fact that many selection
approaches and tests have been devised is enough proof that management experts are
still in search of what could be done to improve the present selection process.

Activity

1. Define selection.

2. Enumerate briefly the steps involved in the selection process.

3. In your opinion, which is a better method of job interview, structured or unstructured? Explain
your choice.

ABM 1107 69
4. If you were a job applicant, which would you prefer, the one-on-one or the panel interview?
Explain your choice.

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 TRAINING AND DEVELOPMENT

Definition of Terms
Training – refers to learning given by organizations to its employees that concentrates on short-
term job performance and acquisition or improvement of job-related skills

Development – refers to learning given by organizations to its employees that is geared toward
the individual’s acquisition and expansion of his or her skills in preparation for future job
appointments and other responsibilities

Both training and development are essential to achieve success in today’s organizations.
In order to have an edge over their rival organizations, managers must see to it that their human
resources have the necessary knowledge and expertise; training and development work toward
this end by providing continuous learning activities and opportunities. The typical scope of training
covers the following procedures:

Conducting the Training Needs Assessment

Training needs assessment must be done systematically in order to ascertain if there

really is a need for training. Managers must first try to observe the business condition and the
economic, strategic, and technological changes that are happening in the organization’s
environment before proceeding to the analyses of the organization, tasks, and persons/
individuals, as all these are determinants of training types required for the maintenance of the
firm’s stability.

Examples of organization analyses include the analyses of effects of downsizing,

branching out, conflicts with rival companies, and others that may require training or retraining of
employees.

Task analysis involves, for example, a checking of job requirements to find out if all these
are being done to meet company goals. If not, this may be a go-signal to train or retrain personnel.

Person analysis determines who among the employees need training or retraining. This
is to avoid spending for the training of employees who no longer need it. For example, a
department manager pirated from a rival company to occupy a vacancy in one of the
organization’s departments in the same capacity (department manager) may not need managerial
skills training anymore.

Designing the Training Program

This phase involves stating the instructional objectives that describe the knowledge, skills,
and attitudes that have to be acquired or enhanced to be able to perform well. In short, these are
performance-centered objectives that must be aligned with the firm’s objectives. Another thing to
be considered is trainee readiness and motivation. This refers to the trainees’ background
knowledge and experience, so that the training to be given to them will not go to waste. Different
learning principles, like using modeling, feedback and reinforcement, massed vs. distributed
learning, and others influence the training design’s effectiveness.

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Implementing the Training Program

Various types of training program implementation include: on-the-job training,

apprenticeship training, classroom instruction, audio-visual method, simulation method, and e-
learning.

Evaluating the Training

The positive effects of the training program may be seen by assessing the participants’
reactions, their acquired learnings, and their behavior after completing the said training. The
effects of training may also be reflected by measuring the return on investment (ROI) or through
the benefits reaped by the organization, which were about by their training investment.

Employee Development

Developing employees is a part of an organization’s career management program and its

goal is to match the individual’s development needs with the needs of the organization. The
individual employee must know himself or herself well, identify his or her own knowledge, skills,
abilities, values, and interests, so that he or she could also identify the career pathway that he or

ABM 1107 72
she would like to take. Although he or she is encouraged to take responsibility for his or her own
career, the organization must, at regular intervals, provide him or her with the results of his or her
performance evaluations and the organization’s plans or direction that may be related to his or
her own career plans. This scheme establishes a favorable career development climate for him
or her, which may lead, ultimately, to the blending of his or her career development goals with
organizational goals.

Activity

1. Give the difference between “training” and “development.”

2. How should the training needs assessment be done? Describe the process.

3. Which should be analyzed first in training needs assessment organization, the tasks, or the
persons? Explain your answer.

4. Which is your preference, massed learning, or distributed learning? Explain your choice.

ABM 1107 73
 COMPENSATION/WAGES AND PERFORMANCE EVALUATION

Definition of Terms
Compensation/wages – all forms of pay given by employers to their employees for the
performance of their jobs

Performance evaluation – a process undertaken by the organization, usually done once a

year, designed to measure employees’ work performance

Compensation/wages and performance evaluation are related to each other because the
employees’ excellent or poor performance also determines the compensation given to them, after
considering other internal and external factors like the actual worth of the job, compensation
strategy of the organization, conditions of the labor market, cost of living, and area wage rates,
among others.

Types of Compensation

Direct compensation – includes workers’ salaries, incentive pays, bonuses, and commissions

Indirect compensation – includes benefits given by employers other than financial remunerations;
for example: travel, educational and health benefits, and others

Nonfinancial compensation – includes recognition programs, being assigned to do rewarding jobs,

or enjoying management support, ideal work environment, and convenient work hours

Connecting Compensation to Organizational Objectives

Worker compensation/wages had tremendously changed in the 21st century due to

increased market competitions (both local and global), required skills from workers, and changes
in technology, among others. Along with these, organizations’ pay philosophies have also
changed. Instead of paying employees based mainly on their job positions or titles, they are now
given pay according to their individual competencies or according to how much they could
contribute or have contributed to their company’s success. Wage experts now prepare
compensation packages that create value for both the organization and its employees.

Compensation: A Motivational Factor for Employees

Compensation pay represents a reward that an employee receives for good performance
that contributes to the company’s success. In relation to this, the following must be considered:

Pay Equity – related to fairness; the Equity Theory is a motivation theory focusing on employees’
response to the pay that they receive and the feeling that they receive less or more than they
deserve.

Employees generally feel that their pay must be commensurate to the effort exerted in the
performance of their job. In other words, pay equity is achieved when the pay given to them by
their employers is equal to the value of the job performed; thus, this motivates them to perform
well and to do their jobs to the best of their abilities.

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Expectancy Theory – another theory of motivation which predicts that employees are motivated
to work well because of the attractiveness of the rewards or benefits that they may possibly
receive from a job assignment.

The employee’s perception of the compensation or pay attached to a job position is an

important factor in ascertaining the motivational value of compensation.

Bases for Compensation

Employees may be compensated based on the following:

Piecework basis – when pay is computed according to the number of units produced.

Hourly basis – when pay is computed according to the number of work hours rendered.

Daily basis – when pay is computed according to the number of work days rendered.

Weekly basis – when pay is computed according to the number of work weeks rendered.

Monthly basis – when pay is computed according to the number of work months rendered

Compensation rates are influenced by internal and external factors. Among the internal
factors are the organization’s compensation policies, the importance of the job, the employees’
qualifications in meeting the job requirements, and the employer’s financial stability.

External factors, on the other hand, include local and global market conditions, labor
supply, area/regional wage rates, cost of living, collective bargaining agreements, and national
and international laws, among others.

Purposes of Performance Evaluation: Administrative and Developmental

Improving individual job performance through performance evaluation is just one of the
reasons why employees are subjected to assessments on a continuous basis. There are other
purposes behind employee assessment that are beneficial to the company and employees:

Administrative Purposes – These are fulfilled through appraisal/ evaluation programs that provide
information that may be used as basis for compensation decisions, promotions, transfers, and
terminations.

Human resource planning may also make use of it for recruitment and selection of
potential employees.

Developmental Purposes – These are fulfilled through appraisal/ evaluation programs that provide
information about employees’ performance and their strengths and weaknesses that may be used
as basis for identifying their training and development needs. Through this approach, the workers
become more receptive to the explanations given by the organization’s management regarding
the importance of having evaluations at regular intervals—that these are conducted to improve
their competencies in order to prepare them for future job assignments.

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 Different performance appraisal methods are used depending on the information an
evaluator aims to find out.

Performance Appraisal Methods

Methods of evaluating workers have undergone development in order to adapt new legal
employment requirements and technical changes. Some appraisal methods used today are the
following:

Trait methods – performance evaluation method designed to find out if the employee possesses
important work characteristics such as conscientiousness, creativity, emotional stability, and
others.

Graphic rating scales – performance appraisal method where each characteristic to be evaluated
is represented by a scale on which the evaluator or rater indicates the degree to which an
employee possesses that characteristic.

Forced-choice method – performance evaluation that requires the rater to choose from two
statements purposely designed to distinguish between positive or negative performance; for
example: works seriously— works fast; shows leadership—has initiative.

Behaviorally anchored rating scale (BARS) – a behavioral approach to performance appraisal

that includes five to ten vertical scales, one for each important strategy for doing the job and
numbered according to its importance

Behavior observation scale (BOS) – a behavioral approach to performance appraisal that

measures the frequency of observed behavior

Why Some Evaluation Programs Fail

Performance appraisals (such as manager/supervisor appraisal, self-appraisal,

subordinate appraisal, customer appraisal, peer appraisal, team appraisal, or 360-degree
appraisal) may sometimes fail due to various reasons including the following:

• inadequate orientation of the evaluatees regarding the objectives of the program;

• incomplete cooperation of the evaluatees (e.g. proper answering of evaluation
questionnaire);
• bias exhibited by evaluators;
• inadequate time for answering the evaluation forms;
• ambiguous language used in the evaluation questionnaire;
• employee’s job description is not properly evaluated by the evaluation questionnaire used;
• inflated ratings resulting from evaluator’s avoidance of giving low scores;
• evaluator’s appraisal is focused on the personality of the evaluatee and not his or her
performance;
• unhealthy personality of the evaluator; and
• evaluator may be influenced by organizational politics.

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Activity

1. Identify the different compensation types. Briefly define each.

2. Will the compensation package offered by a company determine the kind of applicants
attracted by their advertisement for a certain job opening in their organization? Explain your
answer.

3. What is the relationship between the Pay Equity Theory and the employee’s motivation to
perform well?

4. Do you agree with the statement that the evaluator’s bias may cause evaluation programs to
fail? Explain your answer.

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 EMPLOYEE RELATIONS

Definition of Terms
Employee relations – the connection created among employees/workers as they do their
assigned tasks for the organization to which they belong.
o measure employees’ work performance

Employee relations applies to all phases of work activities in organizations, and managers,
to be effective, must be able to encourage good employee relations among all human resources
under his or her care. Employees/workers are social beings who need connections or relations
with other beings—other employees/workers—who are capable of giving them social support as
they carry out their tasks in the organization where all of them belong. Talking to a coworker,
perceived to be a friend, or working on a delicate task with others can be comforting during times
of stress, fear, or loneliness. When these negative feelings are overcome, employees will be able
to work better toward the achievement of their organization’s goals.

Social support is the sum total of perceived assistance or benefits that may result from
effective social employee relationships. The quantity and quality of an employee’s relationship
with others determine social support (esteem support, informational support, or financial support).
In short, social support and effective employee relations must always go together like “a horse
and carriage,” where one would be useless without the other. Therefore, without social support,
effective employee relations is not possible; and without effective social employee relationships,
social support, likewise, is not possible.

Below are some barriers to good employee relations:

• Anti-social personality; refusal to share more about oneself to co-employees; being a loner
• Lack of trust in others
• Selfish attitude; too many self-serving motives
• Lack of good self-esteem
• Not a team player
• Being conceited
• Cultural/subcultural differences
• Lack of cooperation
• Communication problems; refusal to listen to what others seek to communicate
• Lack of concern for others’ welfare

Here are some ways to overcome barriers to good employee relations:

• Develop a healthy personality to overcome negative attitudes and behavior
• Find time to socialize with coworkers.
• Overcome tendencies of being too dependent on electronic gadgets.
• Develop good communication skills and be open to others’ opinions.
• Minimize cultural/subcultural tension.

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 Three Types of Employees
Employees who work with passion and feel a deep connection with their
Engaged company
They drive innovation and move the organization forward
Employees who are essentially “checked out”
Not Engaged
They put time, but not energy or passion, into their work
Employees who are not only unhappy at work, but also act out their
Actively
unhappiness
Disengaged
They undermine what their engaged coworkers accomplish

Activity

1. Do you agree that social support and effective employee relations always go together?
Explain your answer.

2. How important is effective employee relations in achieving the goals of the company?

3. Choose any three barriers to good employee relations mentioned in this lesson and explain
their adverse effects to the attainment of the organization’s objectives.

4. Is there any positive effect of using social media in promoting good employee relations? Why?
Cite some examples.

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 EMPLOYEE MOVEMENTS

Definition of Terms
Employee movements – series of actions initiated by employee groups toward an end or
specific goal

Unionism – the principle of combination for unity of purpose and action

A labor union is a formal union of employees/workers that deals with employers,

representing workers in their pursuit of justice and fair- ness and in their fight for their collective
or common interests.
Employees or workers unionize because of financial needs, unfair management practices, or
social and leadership concerns.

Financial needs – complaints regarding wages or salaries and benefits given to them by the
management are the usual reasons why employees join labor unions

Unfair management practices – perceptions of employees regarding unfair or biased managerial

actions are also reasons why they join mass movements; examples of lack of fairness in
management are favoritism related to promotion and giving of training opportunities and
exemption from disciplinary action

Social and leadership concerns – some join unions for the satisfaction of their need for affiliation
with a group and for the prestige associated with coworkers’ recognition of one’s leadership
qualities

Steps in Union Organizing

Terry Moser, an expert union organizer, was credited by Snell and Boh- lander (2011) for
the following union-organizing steps:

Step 1. Employee/union contact – To explore unionization possibilities, employees weigh the

advantages and disadvantages of seeking labor representation while the union officers gather
more data about the employees’ complaints, as well as data about the employer’s management
styles, financial stability, policies, etc. These actions by employees and union officers are
necessary to build a case against the employer and a defense for the employees’ decision to
unionize.

Step 2. Initial organizational meeting – This is conducted to attract more supporters and select
potential leaders among the employees who can help the union organizers. Information or data
obtained in Step 1 will be used by the organizers to meet the employees’ need to explain the
means to accomplish their goals.

Step 3. Formation of in-house organizing committee – This starts with identification of employees
who are ready to act as leaders in campaigning for their goals, in trying to get the interest of the
other employees to join their movement, and in convincing employees to sign an authorization
card to show their willingness to be represented by a labor union in collective bargaining with their
employer. The strength of the union is shown by the number of employees who signed the
authorization card. At least 30 employees must sign the said card before the National Labor
Relations Commission (NLRC) approves the holding of a representation election.

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Step 4. If a sufficient number of employees support the union movement, the organizer requests
for a representation election or certification election – A representation petition is filed with the
NLRC asking for the holding of a secret ballot election to determine the employees’ desire for
unionization. Before the election, leaders campaign for employees’ support of the election and
encourage them to cast their votes. Intense emotions are shown by employees, the labor group,
and the employers during this period.

Step 5. End of union organizing – When the sufficient number of votes is garnered, the NLRC
certifies the union as the legal bargaining representative of the employees. Contract negotiations
or collective bargaining agreement (CBA) negotiations follow the certification. The CBA process
involves the following procedures:

a. Prepare for negotiations – Data to support bargaining proposals are collected and arranged in
an orderly manner by both parties—the union and the employer’s groups. This is followed by the
selection of the members of their respective bargaining teams. Usually, each side has four to six
representatives at the bargaining table. The chief negotiator for the union is the union president
while the chief negotiator for management is the organization’s vice president or the labor
relations manager. Supporting data to back up the positions of each group are gathered.
Economic data are very important. Other internal organization data needed include: records of
promotions, transfer, overtime work, grievances, disciplinary actions, and arbitration.

b. Develop strategies – Management proposals are developed and limits of concessions are
determined, while also considering the union’s goals and their possible strike plans. The union,
on the other hand, tries to develop better strategies to convince the management group to accept
its proposals.

c. Conduct negotiations – This consists of bargaining, analyzing proposals, resolving issues

related to the proposals, and remembering to stay within their respective bargaining zone. If no
agreement is reached at this point, a deadlock may result.
The union’s bargaining power may be exercised by holding a strike, picketing, or boycotting the
employer’s products or services. The management’s bargaining power, on the other hand, may
be exercised either by continuing operations or shutting down operations. Another method is by
lockout of its employees, or denying employees the opportunity to work.

Unions and employers may try to resolve bargaining deadlocks by mediation and
arbitration. Mediation is the use of a neutral third party to reach a compromise decision in
employment disputes. Arbitration also uses a neutral third party who resolves the labor dispute
by issuing a final decision in the disagreement.

d. Formalize agreement – After the negotiation process, the union and management groups have
to formalize their agreement. This agreement is a formal binding document which lists down the
terms, conditions, and rules under which employees and managers agree to operate; clear
language must be used in the contract, which has to be ratified by the majority of the employees.
After ratification, all members of the union and the management bargaining teams as well as the
president or chief executive officer of the organization must sign the document, before its
dissemination to all parties concerned.
CBA activities, ideally, must be a continuous process (although it is held every five years in many
companies). Right after the formalization of the agreement and its ratification and signing,
preparations for negotiations for the next CBA must begin again. This will allow negotiators to

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review weaknesses and mistakes committed during the previous negotiations while these are still
fresh in their minds.

Grievance Procedure

The grievance procedure is a formal procedure that authorizes the union to represent its
members in processing a grievance or complaint. Such grievance must be expressed orally or in
writing to the employee’s immediate supervisor and the union steward. If the immediate
supervisor shows willingness to discuss the complaint with the employee and the union steward,
the grievance may be resolved immediately.

This is possible especially if the supervisor has formal training in handling grievances. If
not resolved within ten work days, the employee forwards the grievance to the department
manager and the chief steward of the union. Again, resolution of the grievance is possible at this
point if the department manager is willing to discuss the matter with the employee and the chief
steward. However, if it remains unresolved, the next step is for the employee to forward the
complaint to the vice president for labor relations and the local union president after 15 work days.
Resolution of the matter is possible, but if nothing happens within 30 work days, the employee
may now forward the complaint, with the aid of the local union president, to the NLRC for
arbitration. The arbitrator is a neutral third party who resolves the grievance by issuing a final
decision which both parties—the employee, represented by the union president, and the
employer—have to follow.

Activity

1. Give the reasons why employees organize a labor union. Support your answer.

2. Enumerate the steps involved in union organizing.

3. What is the purpose of representation election: Is this done through the supervision of a
private agency?

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4. Why is it necessary to have collection bargaining agreements among unionized
organizations?

ABM 1107 83
 REWARDS SYSTEM

Definition of Terms
Reward – gift, prize or recompense for merit, service, or achievement, which may have a
motivating effect on the employees

Monetary reward – refers to money, finance, or currency reward

Non-monetary reward – refers to intrinsic rewards which do not pertain to money or finance

Organizations offer competitive rewards systems to attract knowledgeable and skilled

people and to keep them motivated and satisfied once they are employed in their firm. Further,
rewards promote personal growth and development and present fast employee turnover.
Managements offer different types of rewards:

Monetary Rewards – rewards which pertain to money, finance, or currency.

a. pay/salary – financial remuneration given in exchange for work performance that will help the
organization attain its goals; examples: weekly, monthly, or hourly pay, piecework compensation,
etc.

b. benefits – indirect forms of compensation given to employees/ workers for the purpose of
improving the quality of their work and personal lives; health care benefits, retirement benefits,
educational benefits, and others are examples of these

c. incentives – rewards that are based upon a pay-for-performance philosophy; it establishes a

baseline performance level that employees or groups of employees must reach in order to be
given such reward or payment; examples: bonuses, merit pay, sales incentives, etc.

d. executive pay – a compensation package for executives of organizations which consists of five
components: basic salary, bonuses, stock plans, benefits, and perquisites

e. stock options – are plans that grant employees the right to buy a specific number of shares of
the organization’s stock at a guaranteed price during a selected period of time

Nonmonetary Rewards – rewards which do not pertain to money, finance, or currency; refer to
intrinsic rewards that are self-granted and which have a positive psychological effect on the
employee who receives them.

a. award – nonmonetary reward that may be given to individual employees or groups/teams for
meritorious service or outstanding performance; trophies, medals, or certificates of recognition
may be given instead of cash or extrinsic rewards

b. praise – a form of nonmonetary, intrinsic reward given by superiors to their subordinates when
they express oral or verbal appreciation for excellent job performance

ABM 1107 84
Activity

1. What is the positive effect of giving rewards to employees?

2. Enumerate and define the types of monetary rewards discussed in this lesson.

3. Give your own examples of employee benefits given by employers. Do you think all
companies give the same kinds of benefits? Explain.

4. Which king of reward would you prefer to receive, cash or stock options? Explain your
preference.

ABM 1107 85
CHAPTER 6. LEADING
At the end of this chapter, you should be able:

• discuss the nature of leading or directing;

• differentiate leading from managing;
• identify the different theories of motivation;
• differentiate the various styles of leadership;
• appreciate the role of communication in directing people within the organization;
• explain the management of change and diversity in the workplace; and
• recognize the inter relationship of Filipino and foreign cultures.

LEADING
Successful leading must begin with focusing on the psychological capital of both the
employer/leader and the employee/subordinate. Looking for what is right with people rather than
for what is wrong is suggested to prevent mental and behavioral problems which are barriers to
achieving both organizational and individual goals.

Definition of Terms
Leading – a management function that involves inspiring and influencing people in the
organization to achieve a common goal

Managing – the process of working with and through others to achieve organizational
objectives efficiently and ethically amid constant change. It also deals with planning,
organizing, staffing leading, and controlling.

Personality of Human Resources

Personality pertains to the unique combination of physical and mental characteristics that
affect how individuals react to situations and interact with others, and if unhealthy or not fully
functioning could cause conflicts/problems among individuals.

A person is said to possess a healthy personality if he or she is fully functioning in mind,

body, and spirit; he or she is an optimal person functioning at the highest level. Ideally, individual
human resources of organizations must have a healthy personality because when one is
functioning at the highest level, one, inevitably, becomes efficient in his or her work, cooperative
with managers and coworkers, and, therefore, could easily be influenced by organization leaders
to work toward the achievement of a common organizational goal. Leading individuals in
organizations becomes effortless for the manager and leader, especially if he or she has a healthy
and fully functioning personality.

Big Five Personality Characteristics

According to Robbins and Coulter (2009), “research has shown that five basic personality
dimensions underlie all others and encompass most of the significant variation in human
personality.”

The five personality traits in the Big Five Model are:

ABM 1107 86
Extraversion – the degree to which someone is sociable, talkative, and assertive
Agreeableness – the degree to which someone is good natured, cooperative, and trusting
Conscientiousness – the degree to which someone is responsible, dependable, persistent, and
achievement-oriented
Emotional Stability – the degree to which someone is calm, enthusiastic, and secure (positive),
or tense, nervous, depressed, and insecure (negative)
Openness to experience – the degree to which someone is imaginative, artistically sensitive, and
intellectual

The Big Five Model provides more than just a personality framework. Research has shown
that important relationships exist between these personality dimensions and job performance.

Meanwhile, emotional intelligence (EI) pertains to the ability to manage one’s self and
interact with others in a positive way. Kreitner and Kinicki (2013) gave four key components of
EI—self-awareness, self management, social awareness, and relationship management—based
on a study by Daniel Goleman (1995) who tried to associate these characteristics with leadership
effectiveness. EI, at present, is still a controversial topic because it cannot be measured, hence
making its validity in connection with leadership questionable. However, EI has come to be
associated with jobs that require social interaction. Tactless individuals who do not have much
concern for others’ feelings or those who are low in emotional intelligence are not well-liked and
they get involved in trouble often. They are, therefore, not suited to jobs that are socially
interactive.

Leading an Organization

Key work attitudes exhibited by groups/teams of workers must be taken into consideration
in leading organizations because of the diversity of their attitudes toward things and events at
work.

Managers and leaders must focus their leadership strategies on the following key work
attitudes in order to avoid distraction caused by varied reactions and behaviors.
Organizational Citizenship Behavior (OCB) – refers to employee behavior that exceeds work role
requirements and also behaviors that go beyond the call of duty.

Leading organizations becomes easy for managers and leaders when employees exhibit
OCB and show efficiency, personal interest in the work of others, care for organizational property,
punctuality, and attendance that go beyond standard levels. Such behavior brings about
organizational level outcomes (productivity, lower costs, and customer satisfaction among
others).

Organizational Commitment – refers to the extent to which an individual employee identifies with
an organization and its goals.

Leading employees with organizational commitment is a plus factor for managers and
leaders of organizations as it results in faster attainment of organizational goals. Having
organizational commitment is an important work attitude because committed individuals are
expected to display willingness to work harder to achieve organizational goals and to remain
employed in the firm for a long period of time. Since commitment is significantly related to job
performance, managers and leaders can increase productivity by trying to enhance workers’
organizational commitment.

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Job Satisfaction and Productivity – job satisfaction refers to employees’ general attitude toward
their respective jobs.

Those with high level of job satisfaction have a positive attitude toward their respective
jobs. On the other hand, those with low level of job satisfaction have a negative attitude toward
their respective jobs, thus affecting their productivity and the profits for their organization.

According to the Hawthorne Studies, cited by Robbins and Coulter (2009), “Managers
believed that happy workers were productive workers.” Some researchers expressed doubts
about this statement; however, there were those who said that “the correlation between job
satisfaction and productivity is fairly strong. Organizations with more satisfied employees tend to
be more effective than organizations with fewer satisfied employees.” Therefore, managers are
advised to find ways and means to make their employees happy at work.

Activity

1. Discuss the nature of the managerial function leading or directing.

2. Give the difference between the terms “managing” and “leading.”

3. What is the relationship f the managerial function of leading to the personality of an employee.
Explain your answer.

4. Enumerate and define the Big Five Personality characteristics.

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 MOTIVATION

Definition of Terms
Motivation – refers to psychological processes that arouse and direct goal-directed behavior

Theory – a body of fundamental principles verifiable by experiment or observation

Motivation encourages individuals to work enthusiastically, often performing more work

than what is required. What could managers do to ensure such motivated and enthusiastic
performance among their subordinates? What could be done to inspire employees whose work
performance is limited to the minimum need? Understanding individual human needs,
perceptions, thoughts, and beliefs may provide good answers to such questions that are often
asked in different work settings.

According to Kreitner and Kinicki (2013), early Theories of Motivation revolved around the
idea that motivation is brought about by the employees’ desire to fulfill their need, their work
habits, and their job satisfaction. Among these are:

Maslow’s Hierarchy of Needs Theory – refers to Maslow’s Hierarchy of Five Human

Needs: physiological, safety, social, esteem, and self-actualization.

a. Physiological Needs refer to the human need for food, water, shelter, and other physical
necessities.

b. Safety Needs refer to human needs for security and protection from physical and
psychological harm.

c. Social Needs pertain to the human desire to be loved and to love, as well as the need for
affection and belongingness.

d. Esteem Needs include the human need for self-respect, self-fulfillment, and become the best
according to one’s capability.

e. Self-actualization Needs are the final

needs in Maslow’s hierarchy. The
Hierarchy of Needs was published
by Abraham Maslow in 1943.
According to him, physiological
needs must be satisfied first. Once a
need is satisfied, it activates the next
higher need in the hierarchy. The
process continues until the need for
self-actualization is activated. It is
important for managers and leaders
to focus on satisfying employee
needs related to self-respect, self-
esteem, and self-actualization

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 because their satisfaction is related to many outcomes such as academic achievement, job
performance, work problems/success, and others.

McGregor’s Theory X and Theory Y – refers to the theory that was proposed by Douglas
McGregor. Theory X is a negative view of workers which assumes that workers have little
ambition, dislike work, and avoid responsibilities; they need to be closely monitored or controlled
in order for them to work effectively. Theory Y is a positive view of workers which assumes that
employees enjoy work, seek out and accept responsibility, and are self-directed. Managers must
be guided by Theory Y, so McGregor proposed that they must give employees a chance to
participate in decision-making, assign them challenging jobs to exercise their responsibility in
handling complex situations, and allow them to have good work relations with others, which would
enhance their motivation.

Herzberg’s Two Factor Theory – was proposed by Frederick Herzberg This theory is
also known as the Motivation-Hygiene Theory which states that intrinsic factors (achievement,
recognition, growth, and responsibility) are associated with job satisfaction, while extrinsic factors
(company policy, salary, security, and supervision) are associated with job dissatisfaction.
Intrinsic factors are the motivators while the extrinsic factors are called hygiene factors.

Managers were advised to emphasize motivators in order to motivate their subordinates.

Employees who showed job satisfaction are more motivated and productive. This theory enjoyed
popularity from the middle of the 1960s to the early 1980s.

McClelland’s Three Needs Theory – was proposed by David McClelland and states that
individuals have three needs that serve as motivators at work.

The three needs McClelland referred to are: the need for achievement (nAch), the need
for power (nPow), and the need for affiliation (nAff). Managers are advised to be observant of
these needs among their sub- ordinates so that they could be given job assignments that would
satisfy their highest needs, if possible. In doing so, they may be more motivated to work well.

Alderfer’s ERG Theory – was developed by Clayton Alderfer in the 1960s. For Alderfer,
a set of core needs explains behavior. E stands for existence needs, R refers to relatedness
needs, and G pertains to growth needs. The needs or desire for physiological and materialistic
well-being, to have meaningful relationships with others, and to grow as a human being are similar
to the needs presented in Maslow’s Theory.
Five Core Job Dimensions
Skill variety – the degree by which a job requires different activities, so employees may be
able to use their different skills

Task identity – the degree by which a job requires completion of an identifiable piece of work

Task significance – the degree by which a job has a significant impact on the lives or work of
others

Autonomy – the degree by which a job provides enough freedom and discretion to employees

Feedback – the degree by which performing job requirements results in the employee’s receipt
of information about his or her performance effectiveness

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 Modern Theories of Motivation are process theories that focus on the notion that
motivation is a function of employees’ perceptions, thoughts, and beliefs. Among these are:

Goal Setting Theory – a theory stating that specific goals motivate performance and that
more difficult goals, when accepted by employees, result in greater motivation to perform well, as
compared to easy goals.

Managers are advised to set goals for their subordinates as this is a major source of job
motivation. Doing well also helps increase their motivation.

Reinforcement Theory – a theory which states that behavior is a function of its

consequences.
If the result or consequences that immediately follow a behavior is good, then there is a probability
that the individual will be motivated to repeat the behavior. Using this theory, managers can
motivate employees’ positive behavior by using positive reinforcement for actions that help the
company achieve its goal.

Job Design Theory – a theory which states that employees are motivated to work well by
combining tasks to form complete jobs.

Managers are advised to design jobs that will meet the requirements of the ever-changing
environment, the firm’s technology, and the workers’ skills, abilities, and preferences. In doing so,
employees are motivated to perform well. Examples are: job enlargement—the horizontal
expansion of a job by increasing job scope; job enrichment—the increasing of job depth by
empowering employees to assume some tasks usually done by their managers; and job
characteristics model—where employees are motivated to perform well because the task
assigned to them have the five core job dimensions that serve as motivators.

Equity Theory – a theory developed by J. Stacey Adams which states that employees assess
job outcomes in relation to what they put into it and then compare these with their co-workers.
If the employee perceives that his job is equitable in comparison to those of his coworkers, there
is no problem. However, if the opposite is true, this will become a demotivator to his or her job
performance. Man- agers must see to it that they exercise fairness or equity in their company.

Expectancy Theory – states that an individual tends to act in a certain way, based on the
expectation that the act will be followed by an outcome which may be attractive or unattractive to
him or her.

Managers are advised to understand an employee’s goal so that he or she would be able
to link the rewards or outcomes to be offered with the said goals.

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 How Maslow’s, Herzberg’s and Alderfer’s theories relate

Activity

1. Discuss Maslow’s Hierarchy of Needs Theory. In your opinion, is it a good motivator for
employees to do their job well? Explain your answer.

2. Besides Maslow’s Hierarchy of Needs Theory, what are the other early theories of
motivation? Describe each.

3. Which theory of motivation involves the combining of tasks to form complete jobs? Give
examples and explain each.

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4. What are the five core dimensions of the Job Characteristics Model? Define each.

ABM 1107 93
 LEADERSHIP STYLES AND THEORIES

Definition of Terms
Leadership – the process of inspiring and influencing a group of people to achieve a common
goal

Ideally, leadership should result in the willingness of individuals to work with zest, ardor,
and self-reliance. The leader guides them and facilitates their progress toward the attainment of
organizational vision, mission, goals, and objectives. Leadership theories emerged in order to
respond to the need by explaining certain aspects of leadership, and to better understand what
drives success in this area.

The following are the early leadership theories given by Kreitner and Kinicki (2013).

Trait Theory – a theory based on leader traits or personal characteristics that differentiate leaders
from followers.

The Trait Theory of Leadership evolved from the earlier Great Man Theory, which was
based on the assumption that leaders were born with some innate ability to lead. Trait theorists,
however, had a contrasting assumption—that leadership traits were not inborn and could be
learned through experience and knowledge gained through studies. Traits like intelligence, self-
confidence, assertiveness, high energy and activity level, task-relevant knowledge, honesty and
integrity, being charismatic, being a visionary, and others were proposed as leadership traits by
researchers from the 1940s to the present.

Behavioral Theory – a theory that focuses on the behavior, action, conduct, demeanor, or
deportment of a leader instead of his or her personality traits.

Studies on this theory began during the Second World War or in the early 1940s because
of the belief that the leader’s behavior affects work group effectiveness. Further studies on this
theory emphasized that since behavior is learned, leader behaviors can also be learned. In short,
leaders are made and not born.

Leadership Continuum

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Contemporary Theories of Leadership

Leadership theories evolved along with the development of man- agement thought
throughout time, giving rise to contemporary theories such as follows:

Fiedler Model – it is a situational leadership theory proposed by Fred Fiedler, an organizational

behavior scholar

This theory is based on the assumption that a leader’s effectiveness is contingent or

dependent on the extent to which a leader’s style is fitted to actual situations in the organization’s
internal and external environment. Fiedler described such leader’s style as either task-motivated
or relationship-motivated, either focused on the achievement of goals or more concerned about
having good relationships with subordinates. Situational control, which may be low or high, is also
exhibited. High control means that the leader has the capability to influence work results while
low control implies very little influence.

Hersey-Blanchard Model – another situational leadership theory proposed by Paul Hersey and
Ken Blanchard.

The theory focused on subordinates’ readiness or extent to which the said subordinates
have the ability and willingness to accomplish a specific work assignment. Hersey and Blanchard
gave four stages of subordinate readiness as shown on the table below

Four Stages of Subordinate Readiness

R1 Where the subordinates are both unable to unwilling to accomplish the task
R2 Where the subordinates are unable but willing to do the task
R3 Where the subordinates are able but unwilling to do their assigned tasks
Where the subordinates are both able and willing to do what the leader wants to
R4
complete the task

Path-Goal Theory – a theory developed by Robert House which states that the leader’s task is
to lead his other followers or subordinates in achieving their goals by providing them direction
needed in order to ensure compatibility of these said goals with the organization’s goal
Effective leaders show their subordinates the path they must take to help them achieve their work
goals. House identified four leadership behaviors:

1. Directive leadership – where the leader gives specific guidelines to followers so that task
accomplishment would be easier;
2. Supportive leadership – where the leader shows concern and friendliness to subordinates;
3. Participative leadership – where the leader asks for suggestions from followers before
decision-making; and
4. Achievement-oriented leadership – where the leader sets the goals that subordinates must
try to achieve.

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Modern Leadership Views

Similarly, views on leadership evolved over time. Among the modern views on and
approaches to leadership are the following:

1. Transactional Leadership Model – a theoretical model which states that leaders guide their
subordinates toward the achievement of their organization’s goals by using social exchange or
transactions and by offering rewards in exchange for their productivity.

2. Transformational Leadership Model – a view that developed from transactional leadership.

It states that leaders inspire or transform follow- ers to achieve extraordinary outcomes. Through
their leadership, they are able to excite and inspire followers to exert extra effort to achieve group
goals.

Transformational leadership is strongly correlated with lower turnover rates and higher
levels of productivity, employee satisfaction, creativity, goal attainment, and follower well-being
(Robbin and Coulter, 2009).

3. Charismatic Leadership Theory – another modern theory of leadership which states that
leaders who have a charismatic personality are able to influence their subordinates to follow them.

Charismatic leaders pertain to leaders who are self-confident, enthusiastic, and sensitive
to both environmental constraints and subordinates’ needs. Charismatic leaders take risks to
achieve their vision, and have the ability to communicate well—verbally or nonverbally—through
their behavior, among others. Researchers have shown evidences that correlate charismatic
leadership with high levels of performance and satisfaction among followers.

4. Visionary Leadership Theory – is a theory which states that leaders are able to make their
subordinates follow because of their ability to create and articulate a realistic, credible, and
attractive vision that may improve present conditions or circumstances.

Visions that are clearly explained are easily grasped and accepted by sub-
ordinates/followers, thus giving them high energy to perform their tasks well.

5. Team Leadership Theory – is a theory that emerged because of the fact that leadership is
increasingly taking place within a team context and that more companies are now utilizing work
teams led or guided by leaders.

Many managers are now trying to learn how to become effective team leaders. Among the
skills that they must learn are information sharing, trusting others, lessening their authority by
empowering subordinates, and proper timing for mediation, among others.

6. Servant Leadership Theory – a theory proposed by Robert Greenleaf in 1970 stating that
servant-leaders must focus on increased service to others rather than to one’s self.

Servant-leaders focus on commitment to the growth of people, building community,

stewardship of the material resources and the people they lead, their ability to listen to what others
seek to communicate, their ability to empathize with others’ feelings and emotions, and their ability
to foresee future circumstances associated with present courses of action and conditions.
Researchers have gathered proof that this leadership model is positively associated with workers’

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job satisfaction, organizational commitment and citizenship, creativity, and perception of fairness,
among others.

Activity

1. Name and define the early leadership theories mentioned in this lesson. Which theory is more
acceptable to you? Explain your answer.

2. Will you choose to be a talk-motivated or a relationship-motivated leader? What are your

present qualities that may be associated with your choice?

3. Name and describe the four stages of subordinate readiness.

4. Who is the author of the Path-Goal Theory? Give the basis for the name of this theory on
leadership.

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 COMMUNICATION

Definition of Terms
Communication – the exchange of information and understanding

Verbal communication – refers to oral and written communication

Non-verbal communication – refers to communication through body movements, gestures,

facial expressions, eye contact, or body contact

Communication applies to all management functions and its general purpose for the
organization to bring positive changes that influence activities leading to the firm’s welfare.
The communication process starts with the sender who has an idea or a message, which is then
transmitted through a selected channel to the receiver, who in turn has to be ready for the
reception of the message, so that it could be decoded into thoughts. Accurate communication
occurs when the sender and the receiver understand one another, according to Hobbins and
Coulter (2009).

Types of Communication

Communication may be verbal (through the use of oral and written words) or non-verbal
(through body movements, gestures, facial expressions, eye contact, and by touching).
It may also be classified as formal, if communication takes place within prescribed, routine
organizational work arrangements, or informal, if communication is not defined by an
organization’s hierarchical structure. Communication is formal when the manager gives an
assignment to a subordinate and informal when employees talk to their friends in the office about
a weekend party or a vacation which they plan to take.

Direction and Flow of Communication

Communication flows in different directions within an organization. Communication may

be vertical, upward, downward, horizontal/lateral, or diagonal.

Vertical communication involves communication flow between people belonging to different

organizational levels.

Upward communication is the flow of information from an employee who belongs to a lower
hierarchical level to the boss/manager who belongs to a higher hierarchical level.
Employees/subordinates may communicate upward regarding their personal problems, requests
that they would like the boss to approve, issues with coworkers, and others.

Upward Communication

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Downward communication is the flow of information from the manager, who belongs to a higher
hierarchical level, to the subordinates/employees, who belong to lower hierarchical levels.
Examples are when the boss gives orders to subordinates to finish certain tasks, communicates
organizational policies and practices, and comments about work performance among others.

Downward Communication

Horizontal/lateral communication takes place among employees belonging to the same

hierarchical level. Members of cross-functional teams who belong to different units/departments
but occupy the same organizational level make use of this type of communication in order to save
time and facilitate coordination.

Horizontal Communication

Diagonal communication entails

communicating with someone or others
who belong to different departments/units
and different hierarchical levels. For
example, an employee belonging to the
company’s financial management
department communicates directly with the
head of the human resource department
about his personal complaint against a
marketing department employee. Take
note of the different departments and
different organizational levels of the

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persons communicating with each other. Diagonal communication is said to be beneficial because
of its efficiency and speed; however, it may also cause some confusion.

Communication Networks in Organizations

Communication networks are varied patterns of combined horizontal and vertical flows of
organizational communication. Types of communication networks include the following:

Chain network – where communication flows according to the usual

formal chain of command, downward and upward. Elements of
Communication
Wheel network – where communication flows between a leader and Process
other members of their group/team.
1. Input
All-channel network – where communication flows freely among all 2. Sender
members of a team. 3. Code
4. Channel
It has been observed by communication researchers that there 5. Noise
is no single network that could be considered applicable or fit for all 6. Receiver
circum- stances in an organization. 7. Output
Organization members also communicate through other networks and 8. Feedback
means such as the grapevine and computer networks.

The grapevine is an informal communication network in an organization. An example is

gossip/rumor which could quickly disseminate information. Managers must stay aware of the
grapevine’s flow and pat- terns, and could use it to transmit important information. They, however,
should also be conscious of the negative effects of gossip as these may cause conflicts in their
company. Negative effects of rumors may be minimized by practicing transparency and
communicating openly with employees.

Meanwhile, computer networks present another means of communication among

organization members. Information technology has made it possible for managers to
communicate with each other and with subordinates and for employees to communicate with each
other anytime, regardless of distance. Examples of computer communication applications are e-
mail, blogging, teleconferencing, and intranet.

Barriers to Communication

Organization members may encounter various types of barriers that can alter the meaning
of communications that they receive. These barriers include filtering, emotions, information
overload, defensiveness, language, and national culture.
Filtering – the shaping of information communicated in order to make it look good or advantageous
to the receiver.

For example, a sales agent may report to his manager the big amount of sales that he
was able to make with one of their customers, but fails to report the complaints he received from
other customers regarding their products.

Emotions – the interpretation of communications which may be influenced by extreme emotions

felt by the receiver. For example, a manager who is in a very bad mood and receives good news

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may not see the positive aspect of it because his rational thinking process is affected by his
emotional judgment.

Information overload – another barrier to good communication since there are too many pieces
of information received by an individual may have a negative effect on a person’s processing
capacity. For example, the hundreds of job applications received by human resource managers
through e-mail may be too many for them to read fully and respond to accurately.

Defensiveness – the act of self-protection when people are threatened by something or someone.
Due to this feeling, people may resort to communicating lies in order to protect themselves or to
interpret communications differently to defend their interests, thus, reducing mutual
understanding.

Language – could also hamper good communications because words used may have different
meanings to different people belonging to different age, educational background, or cultural
group. Diversity of background of organization members may influence the language or the words
that they use. For example the word “hello” may just be an ordinary greeting to the older members
of an organization; but the same word, “hello” may have a negative connotation to the younger
group of employees depending on the context.

National culture – just like language, the prevailing national culture may also cause problems in
communication among members of an organization, especially if it is multinational company
Certain office practices, like sending formal memoranda to employees, may be negatively
interpreted by employees coming from another country with a different culture that values face-
to-face interpersonal communication. Such negative interpretation may, in turn, cause employee
dissatisfaction and less motivation to perform their work well.

Barriers to Communication

Organization members may encounter various types of barriers that can alter the meaning
of communications that they receive. These barriers include filtering, emotions, information
overload, defensiveness, language, and national culture.
Filtering – the shaping of information communicated in order to make it look good or advantageous
to the receiver.

For example, a sales agent may report to his manager the big amount of sales that he
was able to make with one of their customers, but fails to report the complaints he received from
other customers regarding their products.

Emotions – the interpretation of communications which may be influenced by extreme emotions

felt by the receiver. For example, a manager who is in a very bad mood and receives good news
may not see the positive aspect of it because his rational thinking process is affected by his
emotional judgment.

Information overload – another barrier to good communication since there are too many pieces
of information received by an individual may have a negative effect on a person’s processing
capacity. For example, the hundreds of job applications received by human resource managers
through e-mail may be too many for them to read fully and respond to accurately.

Defensiveness – the act of self-protection when people are threatened by something or someone.

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Due to this feeling, people may resort to communicating lies in order to protect themselves or to
interpret communications differently to defend their interests, thus, reducing mutual
understanding.

Language – could also hamper good communications because words used may have different
meanings to different people belonging to different age, educational background, or cultural
group. Diversity of background of organization members may influence the language or the words
that they use. For example the word “hello” may just be an ordinary greeting to the older members
of an organization; but the same word, “hello” may have a negative connotation to the younger
group of employees depending on the context.

National culture – just like language, the prevailing national culture may also cause problems in
communication among members of an organization, especially if it is multinational company
Certain office practices, like sending formal memoranda to employees, may be negatively
interpreted by employees coming from another country with a different culture that values face-
to-face interpersonal communication. Such negative interpretation may, in turn, cause employee
dissatisfaction and less motivation to perform their work well.

Observing body language – This also influences how communication is interpreted. Actions of the
message receiver, like throwing away a letter delivered to him, betrays his negative feelings
regarding its message, even if he says “yes” or “okay” to what is requested. Nonverbal cues must
always be watched because, as the saying goes, actions speak louder than words.

Activity

1. Differentiate verbal from nonverbal communication.

2. Enumerate and define the different barriers to communication. As a student, have you ever
encountered any of these barriers? Explain your answer.

3. Define active listening. Is hearing the same as active listening? Explain your answer.

ABM 1107 102

4. Which informal communication network disseminates information very quickly? What are its
positive and negative effects?

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 MANAGEMENT OF CHANGE AND DIVERSITY IN ORGANIZATIONS

Definition of Terms
Organizational change – any alteration of people, structure or technology in organizations
brought by external or internal forces which they encounter

Organizational diversity – the host of individual differences that make people in organizations
different from and similar to each other

Management of change and organizational diversity are two related activities/functions of

management because trying to bring change in organizations is dependent on the kind and the
behavior of the people within them. Bringing about organizational innovations or changes in order
to respond to future competitors may threaten the firm’s members and, thus, cause resistance.
Understanding and managing diversity in the workplace may, therefore, be necessary to help
manage change in organizations.

Types of Change

An organization and its members must undergo constant improvement along with its
achievement of growth. Changes may be implemented to bring development in an organization.
Among the changes that typically occur or are implemented in an organization are the following:

Changes in people. People’s attitudes, values, wants and needs, expectations, perceptions, and
behaviors change as time goes by, but changing them for the better is not easy to do. In order to
address this need for change, organizational development (OD) techniques are used. OD is used
to describe organizational change methods related to people, their nature, and the quality of their
interpersonal relationships as they work and collaborate with one another. Team building,
sensitivity training, intergroup development, process consultation, and survey feedback are
popular OD techniques. Managers, however, must use techniques that are suitable to the
prevailing organizational culture in their respective companies.

Kurt Lewin’s description of the process of change

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Changes in Structure. Due to changing conditions/situations and changing strategies used,
organizational structures may also change according to work specialization, departmentalization,
change of com- mand, span of control, centralization, formalization, and job redesign, among
others. Managers are advised to alter one or more of these structural components, depending on
the needs of their organization.

Changes in Technology. Technology changes usually refer to changes in work processes and
methods used, introduction of new equipment and work tools, automation, or computerization.
Competitive factors or innovations in industries require administrators of companies to consider
such technological changes.

Computerization is the most popular example of technological change. With the use of
computer networks, large amounts of data can be stored, retrieved, and utilized in many different
ways—from the simple keeping of employees’ records to controlling complex equipment. Both
large and small companies now use the Internet to transact business, hence the rise of e-
commerce as standard practice in many firms. It has also created a new group of workers called
“virtual workers” who work from their homes or elsewhere.

Managing Resistance to Change

Change is considered by many organization members as a threat. It is common for people

to fear changing the status quo, even if doing so might bring beneficial effects. The possible
reasons for this fear of change are uncertainty, concern about personal loss, pessimism, the belief
that it will have negative effects on the organization, and change in their habitual practices, among
others. The following are required to manage resistance to change:

This diagram above demonstrates how leaders are liable to communicate downward and
decide and execute upward when change permeates the organization.

Education – employees have to be educated regarding the reasons for and the relevance of
change

Participation – allow organization members to participate in deci- sion-making related to bringing

change in their company

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Facilitation and support – facilitate and provide new skills training and counselling for employees
to minimize their fear of change

Manipulation of information – withhold damaging information about change to make it acceptable

to organization members

Selection of people – select people who are open to change to help disseminate the beneficial
effects of change, resistance to change is lessened Coercion – the use of direct threats or force
to make people accept change; however, this method is perceived as a form of bullying, so it is
used only when extremely necessary

New Issues in Change Management

Understanding Situational Factors

Waiting for the appropriate time and situation is suggested when bringing change in
organizations. For example, the induction of new administrators/leaders is a good time to
introduce changes in the organization’s strategies, policies, and core values. Employees may
show less resistance to change because they may perceive their new leaders as more capable
of responding to their needs and the organization’s needs. Another example is when a crisis
situation has just occurred. A big financial crisis in the organization could trigger a clamor for
change. In this situation, there would be less resistance to the acceptance of new investment,
marketing, and human resource policies.

Making Changes in Organizational Culture

Change in organizational culture cannot be done easily because it is highly valued and
ingrained among the firm’s members. Thus, this must be done slowly to avoid violent resistance.
Robbins and Coulter (2009) suggest the following steps:

• Set the tone through management behavior—top managers, particularly, need to be positive
role models.
• Create new stories, symbols, and rituals to replace those currently in use. • Select and
promote employees who adapt the new values.
• Redesign socialization processes to align with the new values
• Change the rewards system to encourage acceptance of new values.
• Replace unwritten norms with clearly specified expectations.
• Shake up current subcultures through job transfers, job rotation, and/ or termination.
• Work to get consensus through employee participation and create a climate with a high level
of trust.

Managing Workplace Diversity

Workforce diversity in organizations is inevitable. It is a fact that organization members

may differ in age, gender, physical ability, ethnicity/ race, culture, values, attitudes, beliefs, and
personality. Since workgroup diversity is associated with positive and negative outcomes,
managers must try to reduce the potential negative effects of diversity through: a.) encouraging
employees to accept the organization’s culture or its dominant values and b.) encouraging
employees to accept differences in the workplace.

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 These, in turn, may be accomplished by training in order to improve the inherent negative
relationship regarding a workgroup’s diversity or between its deep level values and the
organization’s culture and dominant values. Training can also be used to help employees
understand demography differences. Other ways to handle workplace diversity is by creating
support groups that can help employees ease the tensions of working in diverse groups and
reducing unconscious stereotyping related to associating low performance to women, the
disabled, or some ethnic group members.

Activity

1. Name and describe the three types of organizational change.

2. Why do people fear changes in the “status quo?” As an individual, are you also afraid of
changes? Explain your answer.

3. Enumerate and explain the different ways of managing resistance to change/s.

4. Define workplace diversity. Why should employees be encouraged to accept differences

among organization members?

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 FILIPINO AND FOREIGN CULTURES IN ORGANIZATIONS
Filipino-owned organizations exhibit a different organizational culture as compared to their
foreign counterparts. Filipino and foreign culture in organizations exert big influence on how
managers do their functions and how their subordinates respond to rules/regulations and
leadership styles. Therefore, organizational culture is a critical factor in numerous organizational
endeavors.

Definition of Terms
Culture – a set of beliefs and values about how a community should act and do things

Organizational culture – a set of shared values and norms/standards for behavior and
expectations that influence the interaction of organization members in order to achieve their set
mission, vision, goals, and objectives

Shared Values and Beliefs of Filipinos

Different people from around the world have their own set of values or beliefs that they
share and consider significant as a group or a community. As Filipinos, we are no different from
other groups around the world. Our unique culture also influences our attitudes about work, as
well as our habits.

Three primary Filipino values:

Social Acceptance – This value focuses on the desire of Filipinos to be accepted and treated
well by others—his or her family, relatives, friends, and the members of
communities/organizations where he or she belongs—in accordance with his or her status, for
what he or she is, and for what he or she has accomplished.

Economic Security – This value emphasizes that one must have financial stability and that he
or she must be able to stand on his or her own two feet, without incurring debt in order to meet
his or her basic material needs.

Social Mobility – This value is concerned with his or her desire to move up the social ladder, to
another higher economic level, to a higher job position, to a position of respect in his or her family
or in the community where he or she lives or in the organizations where he or she belongs.
Among the examples of Filipino beliefs and practices are the mañana habit, ningas cogon, and
Filipino time.

The mañana habit pertains to the belief that it is alright to postpone work or finish tasks to
another day. Instead of finishing the task at hand, one opts to rest or engage in leisurely activity.
On the other hand, ningas cogon is a Filipino practice that refers to the initial show of enthusiasm
over a project during its beginning and the waning of this interest. Similarly, the energy level of
the worker lowers in the course of the project, hence work slows down.

Filipino time pertains to the common Filipino practice wherein arriving 15 to 30 minutes
late to work or meetings with associates and friends is considered acceptable.

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Influence of Filipinos’ Shared Values and Beliefs on Organizational Management

The Filipino values of social acceptance, economic security, and social mobility may have
both positive and negative implications to organizational management. All these values may
motivate the Filipino worker to work hard and to be really serious in trying to help achieve the
organization’s goals as these will lead to the fulfillment of his primary values. Managers of
organizations will find it easy to manage their firm when their Filipino workers are guided by the
primary values earlier mentioned. However, an exaggerated valuing of social acceptance,
economic security, and social mobility may influence the Filipino worker to be self-centered,
selfish, and unmindful of whether he or she “steps on the toes” of his or her coworkers, just so he
or she could fulfill these values quickly.

Managers of organizations may have a problem managing some obsessive and selfish
Filipino workers since these workers may also be unmindful of following the company’s rules on
ethical behavior, on respect for the rights of others, and on maintaining good interpersonal
relations to avoid conflicts.

The mañana habit, ningas cogon, and Filipino time all have negative implications to
organizational management. Postponing the completion of tasks, being energetic and
enthusiastic only at the beginning of projects, and coming 15 to 30 minutes late for work or
meetings are all counter- productive and will delay the achievement of company goals. Managers
may also find it difficult to manage Filipino workers with negative beliefs/ practices as it will
inevitably result in endless conflicts.

Influence of Foreign Culture on Organizational Management

As earlier mentioned in Chapter 2, a country’s culture impacts on the behavior of both

administrators. Knowing their beliefs and values and their cultural dimensions will make it easier
for administrators to manage subordinates and for subordinates to know the management style
of their superiors; also, employees belonging to one culture will have better relations with co-
employees belonging to other cultures because of this.
Some examples cited by Kreitner and Kinicki (2013) are the following cultural dimensions:

Gender Egalitarianism – refers to the amount of effort which must be put into minimizing gender
discrimination and role inequalities. It is highest in Hungary, Poland, Slovenia, Denmark, and
Sweden, and lowest in South Korea, Egypt, Morocco, India, and China.

Assertiveness – refers to how confrontational and dominant individuals should be in social

relationships. It is highest in Germany, Austria, Greece, US, and Spain, and lowest in Sweden,
New Zealand, Switzerland, Japan, and Kuwait.

Performance Orientation – refers to how much individuals should be rewarded for improvement
and excellence. It is highest in Singapore, Hong Kong, New Zealand, Taiwan, US, and lowest in
Russia, Argentina, Greece, Venezuela, and Italy.

Humane Orientation – refers to how much society should encourage and reward people for
being kind, fair, friendly, and generous. It is highest in the Philippines, Ireland, Malaysia, Egypt,
and Indonesia, and lowest in Germany, Spain, France, Singapore, and Brazil.

So, for example, if one is a manager in South Korea, Egypt, Morocco, India, or China, he
or she may not worry too much about gender discrimination and role inequalities since female

ABM 1107 109

employees do not mind receiving a job assignment that will make them subordinates of male
employees. By looking at the cultural dimensions and their scores, managers and employees
would have an idea on how to act and handle situations.

Cultural Relativism vs Ethnocentrism

Refers to the different interpretations of the The belief that one’s own way of life or
same or similar behavior by members of culture is superior to others
different cultures

• It is important to interpret the actions • It is important to understand that

of the members of other groups in people develop culture through
terms of their particular cultures adaptation to their surroundings.

Example: Example:
An American manager’s direct and brusque A Chinese manager who is ethnocentric may
manner of reprimanding a Filipino not have high regard for Filipino managers
subordinate is acceptable in the American who have different management techniques.
culture; this, however, is considered insulting
when he is judged according to the Filipino
culture
A comparison between Cultural Relativism and Ethnocentrism

Activity

1. Differentiate Filipino culture from Filipino organizational culture.

2. What are the three primary values of Filipinos? Are these related to the Filipino workers’ job
performance? Explain your answer.

3. How are ningas cogon, mañana habit, and Filipino time related to organizational
management?

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4. Are Filipinos high on gender egalitarianism, assertiveness, and performance orientation?
Support your answers by citing actual experiences.

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CHAPTER 7. CONTROLLING
A luxurious car without gasoline is similar to a viable business without carefully managed
funds. Who needs a nonrunning vehicle that is good for display only? How can a business be
successful without the well-managed funds required for its operation and expansion? This is
where controlling comes in. Essentially, controlling is all about the acquisition of money and its
useful disbursement. It requires identification and reinforcement of the firm’s priorities and
understanding how its operations are going to ascertain where improvement is needed.

At the end of this chapter, you should be able:

• discuss the nature of controlling;

• describe the link between planning and controlling; and
• distinguish control methods and systems.

Definition of Terms
Controlling – a management function involves ensuring the work performance of the
organization’s members are aligned with the organization’s values and standards through
monitoring, comparing, and correcting their actions.

Standard – any established measure of extent quantity, quality, or value

Importance of Management Control

Management control makes sure that the firm’s operating cash flow is sufficient, efficient,
and, if possible, profitable when invested.

Working capital, when properly controlled, must be adequate enough for daily operations
such as financing, inventories, credit payments to suppliers, reinvestment of cash surplus, and
salaries of employees, or, in general, maintaining an acceptable capital structure. The decision to
seek funds should be appropriate, so as not to incur expenses since borrowing would be
subjected to payment of interest.

Spending without thinking of how it could be regained in the future could put any starting
business or even a well established one in jeopardy. There should be a continuous monitoring of
the organization’s activities, followed by corrective actions based on previously planned programs
of action. Moreover, tasks should be completed with less errors. This could be achieved by
comparing tasks with previously set standards or with competitor’s standards or standards
prevailing in a particular industry setting.

The Control Process

Control techniques used for controlling financial resources, office management, quality
assurance, and others are essentially the same. The typical control process involves establishing
standards, measuring and reporting actual performance, and comparing it with standards, and
taking action.

Establishing standards means setting criteria for performance. Man- agers must identify
priority activities that have to be controlled, followed by determining how these activities must be
properly sequenced. In doing so, managers will be able to set key performance standards that

ABM 1107 112

need to be achieved. The value chain, or the proper sequencing of activities needed to convert
the company’s raw materials into finished products, is a valuable instrument for helping managers
determine and establish key performance standards.

Measuring and reporting actual performance and comparing it with set standards is
essentially the monitoring of performance. To be able to do this, managers must develop
appropriate information systems which will help them identify, collect, organize, and disseminate
information. Managers are able to control facts and figures called data, and information, which
have been given meaning and considered to have value. Analyses of data/information gathered
measure actual performance and comparing it with set standards serves as a means for detecting
deviations. Deviations must be revealed as early as possible in order to correct them.

Taking action involves the correction of deviations from set standards. This activity clearly
shows the control function of management. Managers may rectify deviations by modifying their
plans or goals, by improving the training of employees, by firing inefficient subordinates, or by
practicing more effective leadership techniques.

Activity

1. Define the term “controlling.”

2. What is the difference between old and new controlling practices?

3. Is management control important for all types of businesses? Why or why not?

4. Name the activities involved in the control process.

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 THE LINK BETWEEN PLANNING AND CONTROLLING

Definition of Terms
Double entry accounting – accounting strategy of some firms which requires the preparation
of two different accounting reports, on for internal use and another for external use

Double entry – the process of journalizing with debit and credit entries

Liquidity – the organization’s ability to meet short-term obligations

The relationship between planning and controlling could be easily established. Control is
integrated planning. Planning involves a thorough process which is essential to the creation and
refinement of a blue print or its integration with other plans that may combine forecasting of
developments in preparation for future scenarios.

As one plans, the elements of control immediately take place to consider how every
turnout of the plan may be evaluated and rectified. On a periodic basis, it is useful to create a pro
forma financial statement which serves as a forecast of the balance sheet, income statement, and
cash flow statement in order to make projections. This may be used as an aid to present plans to
creditors and future investors, but, primarily, it is used for internal planning and control purposes.

As Smart (2013) cited, “by making projections of sales volume, profits, fixed asset
requirements, working capital needs, and sources of financing, the firm can predict any liquidity
problems with enough lead time to have additional financing sources available when needed.”

Shim et al. (2012), emphasized that “any CFO (chief financial officer) must prepare short-
term, company-wide, or division-wide planning reports. These reports may relate to product
distribution by territory and market, product line mix analysis, warehouse handling, salesperson
performance, and logistics. Long-range planning reports may include five- to ten-year projections
for the company and its major business segments.” Specialized planning and control reports may
include effects of cost-reduction programs, production issues in cost or quality terms, cash flow
plans for line-of-credit agreements, evaluation of pension or termination costs in plant costing,
contingency and downsizing plans, and appraisal of risk factors in long-term contracts.

Planning and control at different levels

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The Balance Sheet

Balance sheet is a financial statement which is defined by most accounting books as the
“snapshot” of any entity’s financial condition because it presents the financial balances of a
particular period. It follows a pro forma accounting entry: A = L + C, or that the total assets (A)
must be equivalent to the aggregate summation of liabilities (L) and capital (C) or owners’ equity.
Thus, others may also call this as either the statement of financial position or statement of
condition.

The asset side keeps track of all the properties, tangible and intangible, owned by the
organization, while the other side (liabilities) records all the obligations to settle and actual
capitalization of the firm. It must be noted that there must always be a dual entry respective of the
account titles.

For newly established smaller business organizations with budget constraints, planning
and control starts with available dedicated capital which needs monitoring and would serve as the
budget with posting entry in the balance sheet as cash and owner’s equity. For example, one who
has a 500,000 capitalization may have a pro forma entry of:

For this setup, with the assumption that the capital is all in cash, the latter amount may
diminish depending on what was spent for. Assuming you would purchase equipment to be used
in the business amounting to 100,000, you would now have:

One has to note that it did not change the total amount of capital which is 500,000 since
it was just deducted from cash. The pro forma accounting entry which is Assets = Liabilities plus
Capital is still intact and balanced on both sides.

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 Further, if you placed orders or suppliers on credit terms or for future payments amounting
to 30,000:

The presentation on the balance sheet would clearly state what had been the allocation
of the capital in its business operation. Thus, its appearance may depend on how the entity plans
to progress, but through strict monitoring and recording, a simple control function is applied and
implemented. However, the account titles must be in accordance to its liquidity.

Income Statement

The income statement is also known as the profit and loss statement, revenue and
expenses statement, statement of financial performance, or earnings statement. It displays the
cost and expenses charged to recognize revenues in a specific period. Basically, it shows whether
the company made money or lost money.

Any business entity in progress may incur expenses and later on garner income or profit.
Its pro forma statement may start on how many units of quantity it plans to sell in a given period.
For example, if the final product would cost 50 each for sale in the market and the projected
number of units to be sold would be 1,000, it would follow that the gross sale would be 50,000
for a particular period derived as 50 × 1,000 units.

If in its operation, there would be anticipation of expenses such as operating expenses

(OPEX) of 25,000 or administrative costs of 20,000, the gross income would then be 5,000.
The income statement may appear to have an initial pro forma of:

The complexity of the financial statements would depend also on how complicated the
business transactions are. As transactions progress, additional expenses, accounts, and taxes
imposed may be included. The process of creating pro forma financial statements varies from firm
to firm, but you may observe some common elements among them.

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Cash Flow Statement

Without adequate cash for the timely payment of obligations, funding operations and
growth, and for compensating owners, the firm will fail. The statement of cash flow summarizes
the inflow and outflow of cash during a given period. Inflow activities are those that result in
providing the firm with sources of funds, while outflows result in cash leaving the firm due to
disbursements or expenses that utilize cash. It is important to note that this statement includes
and recognizes only the movement of cash in its entire operations.

What information should financial forecasts and financial projections contain? According
to the book CFO Fundamentals by Shim, Siegel, and Shim (2012), financial statements must
contain the following minimum items:

Summaries of Significant Accounting Policies and Assumptions

The management’s intent of preparing the prospective financial statements should be

stated and it must be mentioned that prospective results may not materialize. It should be clearly
stated that the assumptions used by management are based on information and circumstances
that existed at the time the financial statements were prepared.

Organizational Performance Control

All managers must know which measures will give them data and information about overall
organizational performance control. The usual measures are organizational productivity,
organizational effectiveness, and rankings in industry.

Organizational productivity is the amount of goods or services produced (output) divided

by the inputs needed to produce the said output. In general, all organizations and their work units
aim to be productive. In other words, they want to produce the biggest amount of outputs, using
the least input.

Output may be measured by the sales income which an organization gains when goods
are sold. Inputs, on the other hand, may be measured by the amount spent on acquiring and
transforming resources into out- puts. Decreasing inputs by being more efficient in work
performance will decrease the organization’s expenses, thus, increasing the ratio of output to
input and achieving what management wants.

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 Organizational effectiveness is a measure of the organizational goals’ suitability to
organizational needs and how well these said goals are being attained. Managers make use of
this in their decision-making regarding the design of organizational strategies and work activities,
and in linking the various work endeavors of their employees.

Rankings in industry is a way commonly used by managers to measure organizational

performance. Being in Fortune Magazine’s list of Most Admired Companies, 100 Best Companies
to Work For, 100 Fastest Growing Companies, and others is a good measure of an organization’s
success in the business world. Being ranked high, middle, or low indicates the company’s
performance in comparison with others.

Other Performance Controls in Organizations

Computer-based control systems are common in many companies today. Managers have
easy access to their firms’ databases which could provide meaningful information for performance
evaluation. Performance may be controlled by quantifiable measures such as the number of
customer transactions handled, the frequency of errors committed by their human resources, or
the length of time taken to deliver goods to customers.

Bureaucratic control makes use of strict rules, regulations, policies, procedures, and
orders from formal authority. Negative performance evaluation is given to human resources who
do not comply with the said control measures.

Clan control is based on compliance with norms, values, expected behavior related to the
firm’s organizational culture, and other cultural variables of the country where the company is
located. Positive performance evaluation ratings are given to employees or teams who quickly
adapt to possible changes of norms and values in the firm’s internal and external environment.

Activity

1. Are control and planning related to each other? Why or why not?

2. What is a balance sheet? Describe how it is presented.

3. What is the purpose of the income statement?

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4. What is the importance of the cash flow statement?

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 CONTROL METHODS AND SYSTEMS
Control methods are techniques used for measuring an organization’s financial stability,
efficiency, effectiveness, production output, and organization members’ attitudes and morale.
From the general point of view, managerial effectiveness must be concerned with the maximizing
of the above mentioned factors that are measured by the control methods. Therefore, the
challenge for present-day managers is to devise control methods and systems that are aligned
and consistent and will help attain these concerns.

Definition of Terms
Control Methods – techniques used for measuring an organization’s financial stability,
efficiency, effectiveness, production, output, and organization members’ attitudes and morale.

Quantitive Control Methods – methods which make use of data and different tools expressed
in members for monitoring and controlling production output

Non-quantitive Control Methods – methods which make use of tools such as inspections,
reports, direct supervision, performance evaluation, and on-the-spot checking to accomplish
goals

Methods of Control

A firm may apply control techniques or methods which are either quantitative or
nonquantitative.

Quantitative Methods

Quantitative methods make use of data and different quantitative tools for monitoring and
controlling production output. Budgets and audits are among the most common quantitative tools.
The most widely recognized quantitative tool is the chart. Charts used as control tools
normally contrast time and performance. The visual impact of a chart often provides the quickest
method of relating data. A difference in numbers is much more noticeable when displayed
graphically.

Budgets. The budget remains the best known control device. Budget and control are, in
fact, synonymous. An organization’s budget is an expression in financial terms of a plan for
meeting the organization’s goals for a specific period. A budget is an instrument of planning,
management, and control.

Budgets are used in two ways: to establish facts that must be taken into account during
planning and to prepare a description and financial information to be used by the chain of
command to request for and manage funds. At present, two major budget systems are used;
these are zero-based budgeting (ZBB) and the planning, programming, and budgeting system
(PPBS).

Audits. Internal auditing involves the independent review and evaluation of the
organization’s nontactical operations, such as accounting and finances. As a management tool,
the audit measures and evaluates the effectiveness of management controls. Audit service
provides an independent audit of programs, activities, systems, and procedures. It also provides

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an independent audit of other operations which involve the utilization of funds and resources as
well as the fulfilment of management goals.

Non-quantitative Methods

Non-quantitative methods refer to the overall control of performance instead of only those
of specific organizational processes. These methods use tools such as inspections, reports, direct
supervision, and on-the-spot checking and performance evaluation or counseling to accomplish
goals.

Other control methods include feedforward control, concurrent control, feedback control,
employee discipline, and project management control.

Feedforward control prevents problems because managerial action is taken before the
actual problem occurs.

Concurrent control takes place while work activity is happening. The best example of this
type of control is direct supervision or management by walking around.

Feedback control is control that takes place after the occurrence of the activity. It is
disadvantageous because by the time the manager receives the information, the problem had
already occurred.

When the above three control methods are compared, managers choose the feedforward
method as the most desirable because of its preventive action. The concurrent control’s
advantage is that it can help managers correct problems before they become too costly or
damaging. Feedback control’s advantage is the exhibiting of variance between the standard and
the actual work performance. Little variance indicates that planning is successful while significant
variance may give managers an idea of how to plan better.

Employee discipline is a control challenge for managers. Enforcing discipline in the

workplace is not easy. Concerns regarding this include workplace privacy, employee theft, and
workplace violence, among others. From simple monitoring of employees’ computer usage at
work to protecting employees at work from psychologically unstable workers who may have
hidden desires to harm them, managers need discipline control to ensure that tasks can be
efficiently and effectively carried out as planned.

Project management control ensures that the task of getting a project’s activities done on
time, within the budget, and according to specifications, is successfully carried out. Project
managers need technical and interpersonal skills to control the implementation of the project
efficiently and effectively. The project planning process controls include: defining objectives,
identifying activities and resources, establishing sequence and estimating time for activities,
determining the project completion date, and comparing with objectives and determining
additional resource requirements.

ABM 1107 121

Activity

1. Name and briefly define the quantitative methods of control.

2. What are non-quantitative methods of control?

3. Define and compare feedforward, concurrent, and feedback control methods.

4. What is the importance of project management control?

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 APPLICATION OF MANAGEMENT CONTROL IN ACCOUNTING AND
MARKETING CONCEPTS AND TECHNIQUES
Management control in accounting and finance is the control that makes use of the
balance sheet, income statement, and cash flow statement to analyze and examine financial
statements in order to deter- mine the company’s financial soundness and viability, as well as
financial ratios to determine the company’s stability. On the other hand, management control in
marketing is the control that makes use of projected sales or forecasts, statistical models,
econometric modeling, surveys, historical demand data, and actual consumption of their products.

Definition of Terms
Management Control – control that makes use of balance sheets, income statements, cash
flow statements to analyze and examine financial statements in order to determine the
company’s financial soundness and viability, as well as financial ratios to determine the
organization’s stability.

Strategic Control – a systematic monitoring at control points in strategic at control points in

strategic plans that may tend to change in the organization’s strategies.

Macroeconomic Environment – business environment that includes or considers economic

aggregates such as national income, total volume of savings, and money supply

Sales is considered to be the “lifeblood of the business.” No matter how good the product
is, if it is not sold in the market, there is no way that a business can survive. Thus, the projected
sales often guide the sales manager or the marketing head on how much the target or the quota
must be. In a way, this will also serve as a guide for the operations manager in determining the
number of units to be produced. Excess production may mean cost, and unsold items may resort
to inventory expenses or worse, the obsolescence or degradation of the product. Indeed, the
sales forecast requires consideration.

For more established businesses, or those that had been in the industry for quite some
time, the most commonly used technique is to look at the historical demand and actual
consumption, with the assumption of the same economic condition.

A company’s assets and liabilities report presented in charts.

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 A firm may generate a set of assumptions regarding the macroeconomic environment to
which all divisions must adhere as their guide, but forecasts can still be generated from the
customer level and taken into account. Some firms produce two sets of forecasts, one that uses
a statistical approach and another that relies on customer feedback. Senior managers then
compare the two forecasts to see how far apart they are before setting a final sales objective.

Accounting/Financial Control Ratios

The goal of businesses is to gain profit. In order to achieve this, managers need
accounting/financial controls. Managers must also analyze the organization’s financial condition,
which is done with the help of the following financial ratios.
Liquidity ratio – tests the organization’s ability to meet short term obligations; it may also refer to
acid tests done when inventories turn over slowly or are difficult to sell.

current ratio = current assets + current liabilities

Leverage ratio – determines if the organization is technically insolvent, meaning that the
organization’s financing is mainly coming from borrowed money or from the owners’ investments.
debt-to-assets ratio = total debt + total assets

Activity ratio – determines if the organization is carrying more inventory than what it needs;
the higher the ratio, the more efficiently inventory assets are being used

inventory turnover = cost of goods sold + average inventory

Profitability ratio – determines the profits that are being generated;

Net profit after taxes + total sales

or it measures the efficiency of assets to generate profits.

return on investment = net profit after taxes + total assets

In addition to the above ratios, asset management is also practiced to achieve

organizational goals. Asset management is the ability to use resources efficiently and operate at
minimum cost.

inventory turnover = sales + average inventory

Strategic Control

As mentioned earlier, planning and controlling are closely related. Strategic plans serve
as control points for strategic control—a systematic monitoring at control points that leads to
change in the organization’s strategies based on assessments done on the said strategic plans.

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Control provides a chance for comparing the plan’s intended goals with the actual organizational
performance. This becomes the basis for modifications in the firm’s strategies.

Benchmarking

Benchmarking is an approach or process of measuring a company’s own services and

practices against those of recognized leaders in the industry in order to identify areas for
improvement. It is a widely used and well-accepted approach because it helps organizations
gather data and information against which performance can be measured and controlled.

Weihrich and Koontz (2005) gave three types of benchmarking: a.) strategic
benchmarking which compares various strategies and identifies the key strategic elements of
success; b.) operational benchmarking which compares relative costs or possibilities for product
differentiation; and c.) management benchmarking which focuses on support functions such as
market planning and information systems, logistics, and human resource management, among
others.

Many companies use benchmarking. Some prefer to benchmark only the top 10 or the
best companies in their particular industry. Others benchmark best global practices and go further
away from their own industry and reason out that their goal is competitive superiority and not just
competitive parity.

The benchmarking process begins with determining which company functions are to be
benchmarked and the key performance indicators to be measured. Then, the best industry
performers have to be identified. Data gathering and analysis follows and these become the
foundations for performance goals. New programs are implemented, and during this step,
performance is measured at regular intervals.
Corrective actions are taken to close the gap between the organization and the best-in-class
companies. The monitoring of results must be continuous to ensure benchmarking success.

Example of a chart showing gaps in performance ratings

ABM 1107 125

Activity

1. Enumerate and define each of the four accounting/financial control ratios commonly used in
organizations.

2. Why is sales considered as the “lifeblood of the business?”

3. What is the relationship between strategic plans and strategic control?

4. Define benchmarking and give its three types.

ABM 1107 126

 ROLES OF BUDGETS IN PLANNING AND CONTROL
An organization’s ability to have a good control system is also dependent on its budget process.
Budgets are plans to monitor, control, and implement the resource of the firm on its operation
based on its objectives or goals. Adjustments are made by top-level management on a periodic
basis, if necessary, to remedy conflicts, difficult situations, or unrealistic settings, or when
unforeseen events transpire.

Definition of Terms
Budget – are plans to monitor, control, and implement the firms resources on its operation
based on its objectives or goals

Fixed Budget – allocation of a fixed amount of resources for a specific purpose

A fixed budget allocates a fixed amount of resources for a specific pur- pose. Meanwhile,
a flexible or variable budget allows allocation of resources to change depending on different levels
of activity in the organization.

According to Sawyers et al (2013) in the book Managerial Accounting, budgeting serves

as an integral part of a manager’s planning, operating, and control activities, illustrated as:

Planning is the initial step and it includes the development of the firm’s objectives and the
creation of the budget. Operating takes on the decision-making that is guided by budgeting. The
control process then checks and guarantees whether the set objectives are accomplished.

Budgeting is the responsibility and activity of the management which requires extensive
planning throughout the organization’s entire units and departments. Producing a budget requires
time, prudence, and diligence. The final budget must be justified by its originator and must be
realistic.

The budget may be presented in aggregated values for the entire year, but there is often
a monthly budget that puts into detail the expectations to be met. Deviations on the budget may
be adjusted as the need for them arises (such as those caused by unforeseen circumstances),
and it is subject to the approval of the higher authority.

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 Budget preparation may either utilize historical budgeting or zero- based budgeting. The
former uses the past data or actual figures of previous periods based on actual experiences of
the firm. Certain percentage adjustments are made to formulate the new forecast. The latter is
created by starting from nothing and relying on the expertise, anticipations, and experiences of
each head. Indeed, it appears to be more challenging to produce a budget applying the zero-
based method, hence, it may require the full participation and cooperation of organization
members.

In every organization, there must only be one concrete and recognized budget for a certain
period of time. It may be considered as the master budget since it comprises of the submitted and
justified budgets of different units and is approved by the top-management for implementation.
The sales department or the marketing division may create its sales budget for purchases
and selling expenses to eventually determine the value of the actual products or services to be
sold. This, in turn, may serve as the quota for its sales force. It may regard sales trends for the
company, its competitors, or even the industry of its category. This budget may also include the
factors that may affect sales, price changes, advertising plans, political and legal events, and the
like.

The operations and production departments usually generate short- term budgets, which
customarily cover less than a year since it must take into account economic trends such as
inflation, costs, and personal spending for the desired inventory and final production.
It is important to keep in mind that, regardless of the size of the company, the cash budget must
be focused. A manager who disregards this would most likely suffer from illiquidity or cash
shortage. Such scenario may adversely affect the whole organization since it may impede its
entire operation. The worst case would be that the anticipated obligations may not be fully settled
leading to legal cases.

As Sawyers et al. presented, a basic summary of a cash budget may have the following
format:

Steps toward Better Budget-making

The budget may be improved upon to address the needs of the organization and consider
the input of all concerned. Below are the steps in improving the budget.

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 • Collaborate and communicate with organization administrations and selected members
so that the budget becomes more acceptable to all.
• Practice flexibility as the budget adapts to the organization’s needs.
• Relate the budget to company goals since their achievement is the primary objective/goal
of the firm; deviation from goals will prolong achievement and will not be good for the firm’s
stability.
• Coordinate the budget with all the company departments so that they may be able to make
full use of the budget allocations given to their respective units.
• Use computer software or applications when needed to facilitate accurate computations
and proper dissemination of information related to the budget.

Activity
1. Define the term “budget.”

2. Differentiate fixed budget from flexible budget.

3. How is budgeting related to the planning and control functions of management?

4. Why should the budget be aligned with organizational goals?

ABM 1107 129

CHAPTER 8. INTRODUCTION TO THE DIFFERENT FUNCTINAL AREAS
OF MANAGEMENT
To prepare you to become future leaders and managers, you must become familiar with
the functional areas of management—Human Resource Management, Marketing Management,
Operations Management, Financial Management, and Information and Communication
Technology Management. In doing so, you will be ready for the local and global challenges that
you will inevitably meet in tomorrow’s workplace. Managerial and leadership functions are
essentially the same because all these aim to establish an environment for the effective and
efficient performance of individuals and cooperate with one another in teams/groups of different
organizations. Therefore, reading and understanding this chapter will be beneficial to all persons
who will one day join organizations—not just business companies but also nonbusiness
organizations such as government, educational and health care institutions, and other nonprofit
organizations.

At the end of this chapter, you must be able to explain the nature and role in the firm of the
following functional areas of management:

• Human Resource Management;

• Marketing Management;
• Operations Management;
• Financial Management;
• Information and Communication Technology Management

HUMAN RESOURCES MANAGEMENT (HRM)

Definition of Terms
Human resource management – the process of attracting, training, developing, and
maintaining an excellent work force

Job – a specific piece of work done for a certain fee

Job Analysis – the process of obtaining information about jobs needed to achieve the
organization’s goals/objectives

Human resources, also known as human capital, drive the performance of organizations
along with other resources; hence, understanding the HRM functions of management is very
important. These include:

Conducting job analysis. Job analysis is the process of obtaining information about jobs
needed to achieve the organization’s goals/ objectives by determining the duties, tasks, or
activities involved in jobs. Job analysis data may be gathered through interviews, questionnaires,
observation, and diaries. They may also be collected through position analysis, critical incident
method, task inventory analysis, and competency-based analysis. Decision-making regarding
job-related problems is done objectively by analyzing the requirements of each job.

Planning labor need and recruiting. It is important to determine the number and kind of
people that may be attracted for employment. External recruitment enables the organization to fill

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job openings with special qualifications and to employ persons with new knowledge, skills, values,
ideas, and perspectives. Internal recruitment may also be done if management finds it more
advantageous to promote or transfer present employees to fill the available job openings.
Recruitment from within the company is said to be less expensive as existing employees no longer
need extensive orientation programs.

Selecting candidates for the job. This involves the matching of people and jobs. Job
specifications help identify the person-job fit and identify their individual competencies, their
knowledge, skills, abilities, and other factors that may lead to excellent performance. Managers
may use different selection methods such as interviews, psychological tests, and calling
references, among others.
Orienting and training new employees. This is done in organizations so that they could
contribute to the achievement of their organizational goals/objectives. The phases involved in this
function are:

• conducting needs assessment of the organization, of the person, and of the task/work;
• designing the training program by
considering the institutional Organizational Behavior
objectives, the trainees’ readiness
and motivation, and the principles is a field of study closely related to human resources
of learning; management. It is the study of how people interact
within groups. Its areas of research include
• implementation of the training
improving job performance, increasing job
program for nonmanagerial
satisfaction, promoting innovation, and encouraging
employees using on-the-job
leadership. Theories of organizational behavior are
training, apprenticeship training,
used in human resources management
cooperative training, internship,
government training, classroom
http://www.investopedia.com/terms/o/organizational-
instruction, and e-learning;
behavior.asp
• evaluating the training program in
order to determine effectiveness,
considering reactions, learning, behavior of the trainees, return on investment (ROI) or
results, and benchmarking.

Managing compensation or pay. Compensation or pay represents a reward received by

employees in exchange for their contributions to the achievement of organizational goals. In doing
so, pay equity must be considered. It must be fair and just, acceptable to all concerned parties,
and commensurate to the value of the work performed. It is important as it determines job
performance motivation of workers.

Providing incentives and benefits. Incentives are generally based upon a pay-for-
performance philosophy which means that a performance “threshold” or a baseline performance
level must be reached by an employee or group of employees in order to qualify for incentive
payments. Examples of individual incentives are bonuses, merit pay, and sales incentives. Group
incentives include team compensation, scanlon plan, and improshare. Enterprise incentives are
profit sharing, stock options, and employee stock ownership plans. Benefits, on the other hand,
include social security, workers’ compensation, health care and medical and educational
assistance, vacation leave, sick leave, life insurance, retirement benefits, and travel benefits. It is
important that incentives and benefits programs be based on specific objectives compatible with
the organizational philosophy and policies and the organization’s financial standing.

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 Evaluating employees’ performance. Appraisal of employees is done on a regular basis
to find out who are doing their jobs well and who are not. The purposes of such evaluations are
administrative and developmental. Administrative purposes include: to aid in decision-making
regarding employees’ pay and promotions, transfers, or layoffs, which are based on their
achievements and performance. The developmental purpose of appraisal are the use of results
for discussing employees’ strengths and weaknesses and for listing down performance
improvement needs.

Communicating. To be effective, managers must have good communication skills, both

oral and written and information technology proficiently. This is necessary to receive and
disseminate pertinent information needed by all organization members in carrying out activities
that will lead to the achievement of company goals/objectives. Besides carrying out internal
communication, managers must also have good communication with customers, suppliers, and
other stakeholders in the external environment. Communication may be hindered by barriers and
breakdowns in the communication process. Identifying these barriers and learning how to listen
well will facilitate both understanding and managing process.

Developing employees. Programs should be designed to meet the special needs of

employees which will prepare them for future jobs or roles that they may be assigned to do. These
may include: graduate studies, cross-training, which refers to the process of developing
employees to do multiple jobs within an organization; or ethics training, the process of developing
employees’ moral judgments that will help them determine right and wrong behavior which they
could use in jobs that require more decision-making functions.

Building employee commitment. This is another important function of HR practitioners

which will bind them to engage in activities that will ensure the achievement of organizational
goals/objectives. This must be followed by employee accountability or accepting responsibility for
one’s actions.

Providing good working conditions. This includes giving a clear statement of the
company’s mission, vision, goals, and objectives; offering a good compensation and benefits
package; preparing a well-ventilated, well-lit, and pollution-free work area for employees; and
practicing ethical management styles.

Handling grievances and industrial relations. When differences arise between labor
unions and management, these are usually settled through the grievance procedure, wherein the
feelings, needs, and desires of both parties are aired. Managers must try to master the art of
handling grievances and industrial relations to bring peace in their organization. Again, it must be
emphasized that satisfied workers are more motivated workers, which in turn, makes them more
effective and efficient in per- forming their assigned tasks; thus, they hasten the attainment of
their company’s set goals/objectives.

Importance of Human Resources Management

Human resources management deals with the management of people—the most

important business resource. Money, materials, and information resources are not capable of
moving the business activities without the aid of the primary performance drivers, human
resources. Therefore, mastering the activities involved in human resources management
(recruitment, selection, placement, training, and development) is a must since all other
management activities (planning, organizing, staffing, leading, and controlling) could be done
easily if organization managers practice proper human resources management.

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 Activities involved in human resources management

Activity

1. Define and describe job analyses in organizations.

2. What are the two types of recruitment? Define each and explain their advantages.

3. What is pay equity? How is it related to employee motivation?

4. Is communication important in human resources management? Explain your answer.

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 MARKETING MANAGEMENT
As marketing expert Philip Kotler puts it, marketing management “is essentially demand
management.” This is because it involves “influencing the level, timing, and composition of
demand” so that an organization may reach its goals.

The marketing management functions of management include the following:

Analyzing, planning, implementing, and controlling of goods, services, and ideas to create
exchanges that satisfy customer needs and company goals. Analyses of demand management
starts with the gathering of data through marketing research. Activities under marketing planning
include decision-making on target markets, market positioning, product development, pricing,
distribution channels, physical distribution, communication, and promotion. The implementation
of the marketing plan is formally carried out by sales managers, sales people, advertising and
promotion managers, and customer service managers.

Definition of Terms
Marketing management – the process of managerial planning and carrying out of the
conception, pricing, promotion, and distribution of ideas, goods, and services in order to bring
about exchanges to satisfy individual and organizational goals (as defined by the American
Marketing Association)

Controlling refers to monitoring of the marketing plan’s progress. Goals and budgets are
set for each month or quarter. A review of the results follows in order to identify businesses that
are not attaining their goals. Managers of unsuccessful businesses must explain what the problem
is and propose contingency plans that the management has to take in response to such negative
developments.

Management of marketing resources. Marketing resources include: sales people,

advertising, and marketing research.

a. Management of sales people involves inculcating the establishment of satisfying long-term

relations with customers, suppliers, and distributors in order to help their long-term preference
and business. Good marketers are able to maintain win-win relationships by seeing to it that they
always deliver high quality, good service, and fair and reasonable prices to the key parties that
they deal with over a long period of time.

The marketing mix is an important

consideration in marketing management.

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b. Management of advertising. Although used less frequently than sales calls in business
markets, it is still important in marketing. It can perform different functions such as: build
awareness; build comprehension of the good features of the product or service; remind
prospective customers about the product; provide the company’s contact information to
customers; and lead customers to get in touch with sales representatives. c. Management of
marketing research. This involves identifying the seven characteristics of good marketing
research characteristics:

1. the principles of the scientific method are used;

2. research creativity is practiced by using innovative ways to solve marketing problems;
3. multiple methods of research are used in order to adapt the method to the problem;
4. interdependence of models and data which recognize that data are interpreted from
underlying models;
5. value and cost of information is concerned with estimating the value of the information
against the cost; which helps the marketing research department determine which projects
to prioritize;
6. healthy skepticism enables researchers to show a healthy questioning of the hurried
assumptions made by managers about how a market works; and
7. ethical marketing research which is concerned with research that benefits both the
sponsoring company and the consumers; self-serving results may mislead consumers to
buy the company’s product which, in reality, is not good or effective.

Analyze, plan, and implement marketing programs that aim to bring about an expected
level and mix of business deals with target markets. It is important that analysis and planning
precede the implementation of the marketing program, in order to ensure that its aim will be
achieved. Strategic planning for individual business entails defining the business mission,
analyzing the business’ external and internal strengths and weaknesses, and formulating goals
and strategies. In doing so, the implementation of the marketing program will go smoothly and
the chances that it will achieve its aim of bringing an expected level and mix of business deals
with target markets will be increased.

Stimulate demands for the products of the company. This is achieved by influencing the
level, timing, and composition of demand, bearing in mind the attainment of the company’s
objectives.

Make crucial decisions that will ensure the company’s competitiveness. These are
decisions regarding target markets, development of products, distribution of goods, market
positioning, and setting of right prices for their products.

Make sure that marketing techniques employed are efficient, effective, and socially
responsible or ethical. Marketing managers and their team members must balance their own best
interests (big sales commissions, recognition, or promotion) with the best interests of their
company, consumers, and society.

Importance of Marketing Management

Marketing management is important because it is the key to organizational goal

attainment, customer satisfaction, and profit gain. Without major marketing management
processes—planning, execution, pricing, and promotion and distribution of goods, services, and
ideas to create exchanges with target groups—satisfying customers and achieving organizational
goals will not be possible.

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 Marketing in the World Wide Web
Many businesses, garage-based startups, and established companies have set up shop online
by creating a page or website in the vast electronic medium known as the World Wide Web.
Although many of them have already made money online, there are some disadvantages that
managers must consider:

Security problems – since they are exposed to possible unauthorized use or electronic attack
by criminals and other parties

Legal issues – as plenty of problems may arise due to lack of clear, well-defined laws
governing electronic commerce

Maintenance cost – thousands of pesos must be paid to make full use of the Internet for
business, such as utility bills, fees for website or service developers and other specialists, high-
powered computers, and others

Technology problems – sendless research endeavors must be undertaken to cater to the

demands of the growing e-commerce business

Cultural issues – problems may arise due to different cultural norms and values of
multinational clients

Activity

1. Define marketing management.

2. Briefly state and describe the marketing management functions of management.

3. Give the importance of advertising.

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4. Is marketing practiced by profit organizations only? Explain your answer.

OPERATIONS MANAGEMENT

Definition of Terms
Operations Management – the study of how goods and services are produced in organizations

Value chain – the actual sequence of activities that results in the production of goods and
services that have value for customers

Business managers today focus on productivity, technology use, quality of goods and
services, customer satisfaction, and speed. They are conscious that they need to innovate on
their processes and activities in order to succeed in a highly competitive globalized market.
Because of these needs, the operations management functions of management must include the
following:

a. Overseeing the transformation processes that change resources into finished goods and
services. In order to do this, managers must address resource acquisition inventories,
facilities, work flows, technologies, and quality. In doing so, productivity and competitive
advantage will be ensured as they accomplish the multiple processes that transform the
various resources—in the form of people, material, equipment, and capital—into quality
finished products and services.

b. Improvement of productivity and competitive advantage. Productivity measures the efficiency

by which inputs are turned into outputs. The basic equation for productivity is:

productivity = output + input

Competitive advantage is the competency of an organization to out- perform a competitor

or competitors. To ensure productivity, work processes must be subjected to complete
analysis and redesigned, if necessary, through process engineering. Other ways to ensure
productivity are process value analysis and reengineering. In process value analysis, all
elements of a process and their workflows are analyzed to be able to know their contributions
to key performance results. Reengineering discards work steps that are not needed,
combines other work steps, uses technological know-how to reduce costs, and ensures
efficiency and effectiveness. Competitive advantage follows when organizations improve
their productivity.

c. Managing the sequence of activities and information along the whole course of the value
chain. Proper management of these activities and information results in the creation of
finished products and services that have value to customers. Elements in an organization’s

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 value chain include inflow of resources and materials, organizing of resources and materials,
creating goods or services, distributing finished products or services, and serving of target
customers.

The Plan-Do-Check-Act cycle is one of the methods that may help managers improve business
processes and production.

Importance of Operations Management

Through the study of the essentials of operations management, businesses of different

types and sizes may increase their chances for survival and success in today’s business
environment which is characterized as highly competitive and fast-paced in producing quality
products and services.

Activity

1. Define operations management.

2. Briefly enumerate and describe the operations management functions of organization

managers.

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3. What is the importance of process engineering?

4. Give the difference between process value analysis and reengineering. State also their
relation to productivity and competitive advantage.

FINANCIAL MANAGEMENT

Definition of Terms
Financial management – the management and custody of the organization’s funds, seeing to
it that funds are effectively and efficiently utilized in order to provide for all the needs of the
organization’s various operating units

Financial Planning – the process of setting financial objectives and determining what should
be done to accomplish them

Gaining profit is the main goal of businesses. To attain this goal, managers must practice
good financial management and this, of course, starts with understanding the financial
management functions of management. These functions include:

Taking charge of the company’s financial policies and strategies, investments, capital
structures, and dividend policies. Financial managers of organizations must formulate sound
financial standing plans that will communicate broad guidelines for their financial decisions and
strategies. These plans include typical financial policies that address the organization’s
investments, capital structures, and dividend policies. Investment policy covers choice of product
lines and capital project. Capital structure policy covers a working capital policy (for the balancing
of assets and liabilities) and leverage policy (for balancing long-term financing). Dividend policy
considers the use of either a systematic pattern of earnings retention or dividend distribution.

Financial management and control. The management and custody of the organization’s
funds also include control which gives an assurance that funds are properly utilized in order to
provide for all the organization’s needs. Examples of standard financial management and control
practiced by organizations are the following: project management, which makes sure that long-
term projects are implemented according to previously planned budgets and checks if these have
yielded forecasted cash returns; working capital management, which includes cash, accounts

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receivable, and inventory management; cash management, which gives an assurance that there
is enough cash balance that may be used for daily operating needs, that idle cash is invested
through marketable securities, and that proper cash control rules are instituted; and accounts
receivable management, which ensures the optimization of accounts receivable investments and
the formulation of sound credit evaluation and collection procedures. Meanwhile, inventory
management determines inventory levels by making maximum use of trade-off between inventory
carrying cost, ordering cost, and lost sales opportunities; it also institutes good stable inventory
control procedures. Fund sources management identifies short-and long-term funds that may be
available, and transacts and keeps watch of credit facilities with banks and other financial
institutions. Dividend policy implementation determines the form and amounts of dividends and
schedules their payments.

Financial planning. Financial planning is the process of setting financial objectives and
determining what should be done to accomplish them. This includes financial forecasting, financial
analysis, and financial performance evaluation.

Financial forecasting involves cash budgeting, profit planning, and balance sheet
forecasting. Cash budgeting is a forecast of cash needs and sources. Profit planning is a forecast
of revenues and expenditures. Balance sheet forecasting considers future assets, liabilities, and
the organization’s net worth position. On the other hand, financial analysis involves capital
budgeting techniques, operating leverage analysis,
financial leverage analysis, and analysis of pricing and Definition of Terms
costs. Capital budgeting involves the assessment of Accounts receivables – outstanding
long-term investments. Operating leverage analysis accounts/funds to be received and
critically examines cost-volume profit relationships. listed among the assets of a business
Financial leverage analysis studies the effect of debt on
income to the organization’s common stockholders. Inventory – the value of the goods or
Analysis of pricing and costs of products, materials, stocks of a business
sup- plies, and production/manufacturing also fall under
financial analysis. Financial performance evaluation Inventory carrying cost – the
refers to the assessment of financial ratios to indicate cost/price of keeping or maintaining
the overall performance of the organization, as well as goods or merchandise
the assessment of market-wide financial indicators.
Ordering cost – purchase or
Importance of Financial Management procurement price

Financial management facilitates the choice of Sales opportunity – fit or convenient

investments, financial policies, and operating time for trading or selling goods and
mechanism of the organization in order to effectively services
achieve its goals and objectives. It includes maximizing
its profits as well as those of its shareholders and stockholders. In doing so, financial managers
are able to maximize the wealth of the organization and its stockholders/shareholders and satisfy
other goals like providing good customer service, minimizing bankruptcy risks, and actively
participating in present societal concerns.

To accomplish the abovementioned functions that give importance to financial

management in organizations, control techniques, that measure the company’s financial
soundness, management effectiveness, production and service efficiency, and human resource
attitudes and morale must also be considered. These include the following:

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 Break-even chart – is used by the organization’s financial management planners and
accountants to identify how the various sales levels affect the income and profits of the firm. The
break-even point is the level of operations which shows equal income and expenses incurred by
the company.

Definition of Terms
Investment policy – the financial policy of placing money, capital, or other resources in business
ventures/projects to gain profit or interest.

Capital structure policy – the financial policy covering the value of the entire property of a
business and strategies used to balance assets and liabilities and long-term financing

Dividends – a sum of money to be distributed according to a fixed scheme, as profits on

business shares, shares of surplus, or assets

Dividend policy – a financial policy which considers whether to follow a systematic pattern of
earnings retention or dividend distribution

Break-even chart

Financial statements – include income statements, balance sheets, and cash flow statements
which are carefully analyzed.

Financial ratios – make use of the above mentioned financial statements to determine the
formulation of a series of ratios that will, in turn, determine if the company is stable or unstable,
strong or weak and on the road to bankruptcy; examples of such ratios are rate of return on capital
invested, rate of return on assets, and rate of return on sales, among others.

Another functional statement used in financial management that also emphasizes its
importance is the organization’s budget. This states the amount of money that the company will
spend and receive during a future period of time. At the end of the period of operations, actual
expenses and budgeted amounts are compared to see whether the company has operated under
or over budget. Differences allow management to examine specific expenditures and the reasons
behind such. Managers and department heads will then be forced to quantify their sales objectives

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and other company targets because these must be expressed in pesos and not in general
statements or hopeful or optimistic expressions. Budget preparation in financial management,
therefore, is important in management decision-making, and this must be prepared well on a
regular basis by all organizations.

Activity

1. Define financial management.

2. Briefly state and describe the three financial management functions.

3. Is financial planning possible without financial forecasting. Explain your answer.

4. Give the relationship between financial management to the managerial function of

controlling. Explain your answer.

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 INFORMATION AND COMMUNICATION TECHNOLOGY
MANAGEMENT (ICTM)

Management in the 21st century is driven by Definition of Terms

information and communication, and digital network..
Information and
Computers quickly provide more information to a greater
communication technology
number of people, groups, and organizations than ever
management (ICTM) – the
before. Hence, the study of the information and
management of information and
communication technology management (ICTM) functions
communication technology that
of management is relevant:
collects, organizes, and
distributes data to be used in the
The ICTM functions of management include the
organization’s decision-making
following:
functions.
Developing the organization’s hardware,
e-business – electronic
software, and other computing and communicating
business which involves
technology. Information technology (IT) encompasses
business to business (B2B) and
different kinds of technology, such as various types of
business to customer (B2C)
hardware (e.g. computers and printers), software (e.g.
transactions.
operating systems), and computing and communication
earnings retention or dividend
technology (e.g. telecommunications and management of
distribution
databases). The fast and ever changing nature of ICT
requires managers to become flexible and open to change.

Developing the organization’s management information system (MIS) tailored to the

needs of the firm’s units. IT has developed management information systems which gather,
process, and disseminate internal and external information to the company on a timely basis order
to support managers in their tasks. Electronic equipment makes fast and reasonably priced
processing of voluminous amounts of data possible. The computer can process data and provide
logical conclusions, and classify and prepare them for use in decision-making.

B2C B2B
“low involvement” “high involvement”
Target market larger smaller, niche
Purchase(s) Single Multiple
Buying process Single step Multiple step
Sales cycle shorter longer
sales driver recognition and repetition relationship and detailed
information

Encouraging e-commerce through Internet use. Through e-business strategies, the

company gains competitive advantage over competitors. Common e-business strategies involve
business to business (B2B) and business to customer (B2C) transactions. B2B transactions use
IT and web portals to link companies with members of their supply chains or those dealing with
their resource supplies. B2C transactions also use IT and web portals, but in this case, the link
created is one between the company and its customers. A common example is e-tailing or the
sale of goods directly to customers via the Internet. Other web-based business models are
brokerage, which brings buyers and sellers together; advertising, which provides information while
generating revenue from advertisement; merchant model, or selling products through the web;
subscription model, the selling of access to a website; infomediary model, the collecting of

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information on users and selling it to other businesses; and the community model which supports
websites by asking for donations from users.

Importance of Information and Communication Technology Management

The widespread use of ICT has brought about the emergence of a “knowledge-based
society” due to easy access to information at low costs through the Internet. Management may
use it for its different managerial functions. It may be used for scenario planning or identifying
future scenarios in the business environment, which may need careful planning; decision-making
through the use of information generated by IT; aiding team work; facilitating productivity
measurement; easy, low-cost communication; worldwide selling through the Internet; and many
others. It may be said, therefore, that ICT has revolutionized the business world.

E-commerce transaction

Activity

1. Give the meanings of the acronyms ICTM and MIS.

ABM 1107 144

2. Enumerate and describe the ICTM functions of management.

3. What is e-tailing? Have you tried this Internet activity? Explain your answer.

4. How important is ICTM in today’s business world?

ABM 1107 145

CHAPTER 9. SPECIAL TOPICS IN MANAGEMENT
It may not be instantly apparent, but our daily activities—from the time we wake up in the
morning up to bedtime at night—are ruled by the ventures of entrepreneurs. The toothbrush,
toothpaste, towel, soap, shampoo/conditioner, clothes, shoes, food and drink varieties, home
appliances, electronic gadgets, office equipment, transportation vehicles, and other things we use
or consume daily are all products of entrepreneurial ventures. Hence, it is important to
acknowledge our dependence on the innovative and creative nature of entrepreneurs. The
important role of entrepreneurs, therefore, is to continuously look into the needs and wants of
society and to find the best possible way, beyond those currently offered.

At the end of this chapter, you should be able:

• explain how to start a small/family business;
• identify legal business forms and requirements; and
• appreciate the role of small family business operation in the improvement of economic
status.

SMALL BUSINESS MANAGEMENT AND ENTREPRENEURSHIP

Innovative, creative, and intuitive thinking in business management helps entrepreneurs

come up with great ideas or new strategies that may lead to the successful achievement of their
goals—service, growth,
and profitability. The same entrepreneurial mindset is valuable in today’s highly competitive and
ever-changing business world. It answers the need for the creation of new products and the
development of new services for society’s benefit.
In addition, entrepreneurship also has socio-economic contributions. It provides employment, not
only to the entrepreneur, but to fellow Filipinos. Thus helping ease unemployment.
Entrepreneurship provides additional sources of taxes for the government, hence contributing to
Philippine economic progress.

The Entrepreneurial Procedure

Business opportunities are waiting for people who have creative and innovative minds.
However, following a systematic process is crucial in the pursuit of entrepreneurial ventures. This
entrepreneurial procedure involves the following steps:

Formulate the business vision and mission statements. The business vision of the
organization provides a picture of where the entrepreneurial venture is headed and what the
organization can become in the future. Its mission states the basic purpose and scope of the
organization’s operations.

Segment of the Market. A business cannot entertain or offer goods and services to
society at the onset in a large scale. It first must identify a specific segment or group of people it
may cater to or what is called a target market. The basis for segmenting the market to find the
target market may be geographical, demographical, psychographical, or behavioral.

ABM 1107 146

 The Overall Planning Process

Geographical. Market segmentation may be used on location (city, province, region, or

country; north, south, east, or west).

Demographical. Demographical bases consider population and can further be extended

to include age, income, education, marital status, and other related information.

Psychographical. Psychographics looks into people’s interests, values, attitudes,

opinions, and lifestyles.

Behavioral. Segmentation may be based on people’s behavior toward purchasing or

spending, or toward a product or service.

Find the Target Market. After getting enough information about the overall market, the
firm can use statistical tools to analyze this information and help them decide which part of the
whole market they can serve using their resources in the best possible manner. That part of the
market which the company is willing and capable of servicing is known as the target market of the
business.

Understand the Environment. Why should we study the environment? Things around us
are not permanent and everything changes. These changes greatly impact business. In some
situations, businesses control the consequences of change, however, this is not always the case.
When businesses can no longer control the situation, they are left with no option but to change in
consideration of the environment surrounding them. Environmental factors that affect business
may either be internal or external.
Internal factors are environmental factors within the company and can be controlled. These
include the employees, management, physical facilities, and so on. On the other hand, external
factors have two types: microenvironment and macroenvironment. Microenvironment includes
customers and suppliers, whereas macroenvironment includes economic, sociocultural,
technological, legal, political, and natural factors, as stated by Kotler (1997).

Develop the Business Plan. We can define a business plan as the roadmap which the
business must follow utilizing the resources at hand while keeping the environment in mind. A
business plan has the following contents:

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 • executive summary – contains the overview of the business and its major plans
• environmental analysis – includes study of internal and external organizational
surroundings
• industry analysis – includes study of trends in the economy, legal requirements, and
possible risks
• market analysis – includes analysis of market size, business competitors’
strengths/weaknesses, and short-term sales goals
• company description – mentions ownership, mission and vision of the organization,
registration legalities, etc.
• marketing and sales activities – strategies for distribution, promotion, and pricing of
products/services

Components of a Business Plan

• products and services – refers to descriptions of good/services and their unique features
• operation – refers to descriptions of manufacturing and service methods, supplies and
suppliers, and control processes
• management and ownership – refers to identification of owners and administrators
• financial data – includes capital needs, financial projections for one to five years, available
funds, and possible loan services
• time table – refers to estimated completion dates of ventures

Business planning is important as it helps minimize business risks and expenses needed
for the production of goods and carrying out services. It may also determine financial requirements
and programs of activities in advance.

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 Implement and Monitor the Business Venture. This step follows after careful business
planning. Choosing the right people to work with and considering the correct timing for the
business implementation are important. Monitoring the business venture’s progress is also a must
to check if its implementation is proceeding in the right direction or if modifications are needed
along the way.

Maximize the Utilization of Business Resources. Consider the basic ways of financing
business ventures such as debt financing by taking loans from reputable institutions and equity
financing which exchanges ownership shares
in return for an outside investment if additional Definition of Terms
capital is needed. Human resources and other Entrepreneurship – innovative, creative, risk-
material or physical resources must also be taking, growth-oriented behavior that brings
fully utilized. new opportunities for individuals or
organizations to start new businesses and to
Aside from the procedure mentioned produce new products or services that are
above, business success is also determined beneficial to society
by certain traits that are required of an
entrepreneur. Some of these entrepreneurial Entrepreneurial ventures – organizations
characteristics are listed below. Entrepreneurs that persistently pursue opportunities and are
must be: characterized by creative, innovative activities
that have service, growth, and profitability as
Creative and Innovative. their principal goals
Entrepreneurs must have a creative and
innovative mindset and must think out of the Small business – a business that has fewer
box to survive competition and at the same than 100 to 500 workers (depending on the
time have competitive advantage over rival prevailing commercial law in a particular
organizations. These are the characteristics country), independently owned, operated, and
that differentiate entrepreneurs from financed; not always entrepreneurial in
businessmen. orientation and does not dominate its industry;
capital is low but capable of producing goods
Good planners. Planning, on the part or rendering services designed to satisfy
of the entrepreneur, bridges the gap between particular needs of customers
where they are and where they want to go. In
other words, it shows the right business direction that would lead them to success.

Customer-oriented. Entrepreneurs must be customer-oriented to shape their market

offerings and create value in their customers’ minds.

Open-minded. Entrepreneurs must always be open and willing to entertain the

suggestions of team players/employees to encourage the generation of ideas which may be
beneficial when implemented. Learning is a never-ending process and entrepreneurs can also
learn by being receptive to the ideas of people around them.

Flexible. Entrepreneurs must be flexible in order to adapt to changing environmental

conditions. Flexibility comes in relation to changing the strategies, policies, and utilization of
business resources.

Persistent. There is no shortcut to success, and that is why it takes time to attain the
objectives of the company. In the long run, things will not always fall under the control of the
business managers. During times of change and hardship, the entrepreneur must not give up,

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especially when things are not favorable for business. Entrepreneurs must be persistent until their
goals are achieved.

Confident. Entrepreneurs must be confident about their own abilities, together with the
abilities of their other team members. They must think positively and believe in their capabilities
and they must not doubt that they can accomplish the most challenging tasks at hand.

Organized. Entrepreneurs must be well-organized when it comes to all activities of the

business. A well-organized entrepreneur makes sure that their organizational structure furnishes
an environment where individual performance, both present and future, contributes effectively
and efficiently to group endeavors.

Updated/Well-informed. To ensure achievement of entrepreneurial goals, entrepreneurs

must continuously seek important, up-to-date information regarding their market customers, rivals
in business, and suppliers. Expert opinion must also be sought to be well-informed.

Team players. Entrepreneurs must be able to work well with others. In unity, there is
strength; good coordination with others will ensure
business success.

Knowledgeable. Entrepreneurs must have expert knowledge about the product or service
they want to sell, their competitors, and local/regional/ national markets so that they will have
better chances of succeeding.

Risk-takers. Entrepreneurs are not afraid of risks and are ready to meet business
challenges. However, they prefer calculated risks since they are aware that business
undertakings may result in either success or failure, profit or loss.

Definition of Terms

Family business – a business owned and financially controlled by members of a family

Enterprise – any projected task or work; an undertaking

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Activity

1. Differentiate entrepreneurial ventures from other forms of small businesses.

2. What is the importance of entrepreneurship in the Philippine setting?

3. Enumerate and briefly explain the entrepreneurial process.

4. Name at least five entrepreneurial characteristics and briefly discuss each.

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 FAMILY BUSINESS ENTERPRISE
Globally, there are many successful family businesses run by entrepreneurs who have
different stories to tell and different formulas for their business success. However, they possess
some common characteristics such as creativity, innovativeness, service orientation, and the
ability to take risks and do hard work, among others. Slowly, but surely, these characteristics
paved the way toward their success in the world of business. The stories in this chapter feature
ordinary family members who, despite of starting with meager capital, have persevered to produce
competitive products or render good services that brought them success in their chosen business
endeavor.

Success Stories of Filipino Family Business Ventures

Filinvest Group
Andrew Gotianun Sr. defied certain norms in life and business
when he nurtured his company to become one of the
Philippines’ biggest con- glomerates, the Filinvest Group.

Andrew Sr. and his wife, Mercedes, saw potential business

opportunities during their trips abroad. They interviewed small
bank owners in the US and followed their business models;
from these, they adjusted the models to fit the Philippine
setting. They made use of ideas that they got from their trips
to Florida, US for another business venture which is guarded
subdivisions for the middle class in the mid 1960s.

Mr. Gotianun revealed that aside from hard work, one needs
to have the right attitude to succeed in life and in business. In
his belief that women also deserve a place in the boardroom, he broke the family tradition when
he involved his wife, Mercedes, in business management. He admitted that Mercedes was the
one who implemented and executed some of his business plans and turned many of his visions
and entrepreneurial ideas into realities, interestingly, she did all these while raising their children.
Mr. Gotianun continues to search for new business opportunities, particularly through the use of
the Internet.

Metrobank
George S.K. Ty, one of Asia’s top bankers and a recipient of an
honorary doctorate degree from the University of Santo Tomas,
started to work at an early age. He was only 18 years old when
he dropped out of school to help his father put up their family
business, the Wellington Flour Mills. He had to endure many
hardships as a young businessman in what he described as an
unfamiliar industry. In spite of inadequate bank financing and
his limitations in the said business, he was able to help his father
steer their flour mill to success.

Inspired by their success and the experiences he gained in

managing a business, George, at age 29, founded Metrobank
in 1962 and, like before, he again had to undergo many

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difficulties in building it into one of the Philippines’ largest and most trusted banks. The Metrobank
Group (PS Bank, Toyota Philippines, AXA Life Insurance, etc.) in 2013 paid over 20 billion in
taxes, proving that they, indeed, are very successful, and that entrepreneurial traits like
innovativeness, creativity, and ability to take calculated risks must be nurtured. Dr. George Ty
believes that lessons learned from experiences are lessons that you will never forget; that trust is
not given and must be earned; and that good banking is about trust and helping other people
achieve their dreams.

Activity

1. Define entrepreneurship.

2. Differentiate entrepreneurial ventures from other small business endeavors.

3. Why is it important to develop creativity and innovativeness in entrepreneurial

management?

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REFERENCE

Cabrera, H., Altajeros, A., & Benjamin, R. (2016) Organization and Management. VibalGroup,
Inc. Quezon City, Philppines

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