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AN OVERVIEW OF PRINCIPLES OF MANAGEMENT

Introduction to general management

Management is a set of activities that are carried out to enable a business accomplish its goals
and objectives by employing human and material resources. It is a process directed at the
efficient and effective utilization of resources in order to achieve organizational objectives.

Management does four things:

• It decides what has to be done
• How this should be done
• It orders that it be done
• It checks that its orders have been carried out.

The management terms used to define the above fundamental tasks are: Planning,
Organizing, Directing and Control respectively

These are the basic tasks of a manager and they’re linked up in the sequencing shown
below:

Activities Terminology

• Management decides what should be done Planning

• Management decides how it should be done Organizing

• Management says how and when it should be Directing /Leading

done

• Management ascertains/checks whether the Control

tasks have been carried out

It wouldn’t make sense to perform these tasks in any other sequence, for managers cannot
decide to do something unless they know what should be done. They cannot order a task to
be done until they have decided how it should be done, and they cannot check the results
before the orders have given.

Management is an integrated process. The following brief description of the fundamental

management activities explains the concepts of management and the management functions.

1) Planning

This determines the mission and the goals of the business including the ways in which the
goals are to be attained and resources needed for this task. It includes determining the future
position of the business and strategies or plans on how that position is to be reached

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2) Organizing

After goals and plans have been determined, the human and physical resources of the
business have to be allocated by the management to the relevant departments or persons,
duties defined and procedures fixed to enable the business to attain its goals. It therefore
includes developing the framework or organizational structure to indicate how personnel,
equipment and material are to be employed to attain the pre-determined goals.

Because the goals and the resources of different businesses differ greatly, then, it should be
expected that each organization would have an organizational structure suited to its own
particular needs.

3) Directing/Leading

This entails giving orders to the human resources of the business and motivating them to
direct their actions in conformity with the goals and plans. The part played by leadership in
getting and keeping things going in, motivating and influencing staff through good
communication between management and staff and among staff has a decisive/paramount
effect on the culture prevailing in the business.

4) Control

This means that managers should constantly check whether the business is properly on-
course towards the accomplishment of its goals. At the same time it forces management to
ensure that activities and performance conform to the plans for attaining the pre-determined
goals. Controls also enable management to detect any deviations from the plans and to
correct them. It obliges management to constantly re-consider its goals and plans.

LEVELS OF MANAGEMENT

A typical business organization has the following three levels of management:

i) Top management ii)
Middle management
iii) Lower
management
1. Top management
This comprises the relatively small group of executives who control the business and in whom
the final authority and responsibility for the execution of the management process rests e.g.
the board of directors, partners, the managing directors e.t.c. It is normally responsible for the
business as a whole and for determining its mission and goals. It is concerned mainly with
longterm planning and with organizing as so far as the broad business structure is concerned,
providing leadership and controlling the business by means of reports submitted to them by
the functional heads.

2. Middle management
These are responsible for specific functional areas of the business such as the marketing manager,
financial manager, human resource manager etc. They are primarily accountable for executing the
policies and strategies determined by top management. This level of management is therefore

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responsible for medium term planning, organizing within its own functional areas as well as for control
of its management activities

3. Lower management

These are responsible for smaller segments of the business e.g. the various sub-sections that form part
of a department. For instance, the marketing department may have a brand manager, promotions
manager or a sales manager. Supervisors and foremen are included in lower level of management of an
organization. Their duties involve mainly day-to-day activities and tasks of the particular section, short-
term planning and implementing the plans of middle management. They supervise the finer details of
organizing such as allocating tasks on daily basis. Lower management is often called line management
as it is the first management level which subordinates from operational ranks are promoted

SKILLS REQUIRED AT THE DIFFERENT LEVELS OF MANAGEMENT

Although management is found at all levels and in all functions of the business skills needed
to do the job differ at each level. The skills and abilities necessary for top management to carry
out the functions of general management are different from those required by lower
management. Three key skills can be identified as prerequisites for sound management

Skills needed at various management levels

i) Conceptual skills
This is the mental capacity to view the business and its part in holistic manner i.e. diagnostic and
analytical skills. These skills are required more by top management, followed by middle management
and then by lower management.

ii) Interpersonal skills

Also referred to as people skills, this is the ability to work effectively with other people. Since
management is about dealing with people, approximately 60% of the time, then this skill is required
equally by all the three management levels.

iii) Technical skills

This is the ability to use the knowledge or techniques of a particular discipline to accomplish tasks.
Knowledge of accountancy, engineering, marketing and finance is an example of technical skills to be
used in the execution of managerial duties. Managers at lower levels in particular should have sufficient
knowledge of the technical activities of the functional areas they have to supervise. For instance,
auditors cannot effectively supervise staff under their dockets they themselves do not have a proper
understanding of accounting. However, the time spent on technical activities decreases as a manager
moves up the managerial ladder where conceptual skills become more important.

Where do managers acquire these skills?

• One source is management education at business schools
• Some business provide their own management training
• Formal academic education in management is a prerequisite for success in business
• Another source of managerial concepts is practical experience
• A natural aptitude for management, self-motivation and ambition also play a
considerable part in the development of managerial skills
KEY SCHOOLS OF THOUGHT IN MANAGEMENT

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Existing knowledge about management is derived from a combination of on-going research

by experts and practical experience. This knowledge can be grouped into five schools of
thought or perspectives:

• The scientific school

• The classical school
• The human relations school
• The quantitative school
• Contemporary management theory

Each school believed at some stage that it had formed the key to the productive attainment
of the goals of an organization. Latter assessments of their prescriptions however would
demonstrate that the so-called answers to the problems of management were at best only
partially correct. Nevertheless, each school has made some contribution to the theoretical
body of knowledge on management

I) SCIENTIFIC SCHOOL

The contribution of the scientific school is especially associated with they works of f F.W
Taylor (1856-1919). Taylor was an engineer at steel works in Philadelphia, USA, and he
believed that the scientific approach to any task could greatly increase the productivity
with which it was carried out.

Through the scientific application of observation, job analysis, re-designing of jobs and
financial incentives by paying workers according to their output, he proved that
productivity of the business could indeed be increased. Although his research was
confined to manual workers and those at the lower management levels, this school made
valuable conceptual contributions in that managers and academicians became convinced
that scientific approaches and methods could be applied in productive ways to attain an
organization’s goals.

II) THE CLASSICAL SCHOOL

This concentrated on top management. Its approach was to identify the most important
function in a firm and the most important elements so that universal principles of
management could be developed. The theory was that the application of universal
management principles would take any business towards its goals. Henri Fayol (1841-
1925) was the originator of this approach. His personal contribution includes the
identification of six functions of a business, namely:

• Technical - issues about production and operation

• Commercial – purchasing and marketing
• Financial- sources and applications of funds
• Accountancy- recording and analyzing of economic data
• Security -protection of property
• General management

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This functional approach still receives wide support in modern organizations and offers the
following advantages:

1. It systemizes the great variety of activities and problems in a business

2. It facilitates the internal organization of a business by classifying activities into
departments according to their functions
3. It facilitates management by making possible to appoint people with the right
qualifications to the various functional departments

Fayol also identified the following fundamental elements of the management process:
• Planning
• Organizing
• Leading
• Coordinating
• Control

His description of the management process is still accepted today.

III) THE HUMAN RELATIONS/ BEHAVIORAL SCHOOL

This came into being because of the failure of the scientific and classical schools to make an
adequate study of the human element as an important factor in the effective
accomplishment of the goals of the business.

Elton Mayo (1880-1949) found that increased productivity was not always attributable as
the scientific school believed to a well-designed task and sufficiently high wages. It could
also be attributed to such factors as the relationship between the people in the firm i.e.
between management and workers and between workers themselves in a particular group.
The basic premise of this school is that psychological and sociological factors are no less
important than physical factors in the attainment of the goals of the business.
Research into social interactions (group dynamics), motivation, patterns of power,
organizational design and communication forms the basis for the contributions by this
school, which are particularly valuable in the area of personnel management

IV) QUANTITATIVE SCHOOL

This sees management primarily as a system of mathematical models and processes.

It is largely composed of operational researchers and decision experts who believe that if
management or any elements of it are at all a logical process, then this should be expressible
as mathematical relations. The contribution of this school particularly in the development
of models for the running of complex organizational processes is important but should be
regarded as an aid to management rather than as separate school of management.

V) CONTEMPORARY APPROACHES TO MANAGEMENT

The recent past has witnessed the emergence of the following approaches to management:

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i) The systems approach

This system was developed in the 1950s, to counter the more serious errors of each of the
earlier different schools, mainly that they studied aspects and functions of business in
isolation. Compelled by the need to combine the separate components of the business into
a whole, the systems approach considers the business as an integrated system consisting
of related systems. From a systems point of view, management is seen as a balancing factor
between the business as a whole and its environment.

ii) The contingency approach

This also seeks to make good the defects of other theories. It attempts to integrate the ideas
of different schools. The basic premise is that the application of the principles of
management depends essentially on a particular situation confronting management at a
particular moment

LESSON TWO:
AN OVERVIEW OF THE HUMAN RESOURCE MANAGEMENT
FUNCTION
The Human Resource function is a specialized management area just as financial function,
marketing function, production function etc are specialized organizational functional
areas on which management is practiced. A typical organizational chart would therefore
place the Human Resource function as follows:

CEO

Finance Marketing Production Human

Function/De Function/Dept Function/ Resource
pt Dept Function/Dept

The HR function is carried out in every business with employees but usually it is only bigger
business organizations that have stand-alone human resource department since the scope
of their human resource needs is so broad that it is a full-time task.

In a smaller businesses, employee recruitment, training of employees etc (which are some
of the main tasks of the HR officers) is usually handled by one of the other functional
managers e.g. the Financial and Administration Manager, but as the business grows, this
task requires more time and attention until eventually a person is appointed especially to
perform this task namely the Human Resource Officer or the Personnel Officer. As the
business develops however, the HR function can no longer be handled by one person and
when additional people are appointed, the Human Resource Department is established with

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the Human Resources Manager as its head. Other titles such as the Manpower Manager and
Director of Personnel are also used as titles of the head of human resources in a firm.

There is a distinction between the management of human resource and human resource
management. The management of human resource refers to the task or responsibility that is
part of every manager’s job regardless of the functional area involved. Thus a marketing
manager for instance is responsible for the management of marketing personnel and a
factory foreman as the head of production department is responsible for managing the
production staff.

THE TASK OF THE HUMAN RESOURCE MANAGER

Every business uses resources in the pursuit of its objectives. These resources (also known
as production factors) must be efficiently managed in accordance with the economic
principles. One of the most important resources in any business is its employees (i.e. labor).
It is therefore the duty of every manager regardless of his or her function to apply this
resource in an optimal manner.

The task of the HR manager in a business is to help other managers in the business to fully
utilize employees allocated to them. HR management can therefore be regarded as an aid or
staff function i.e. it advices other line functions.

Line functions are usually directly involved in the pursuit of the primary objectives of the
business. HR managers help other managers utilize labor in an optimal way by:

1. Helping them to recruit and appoint the most suitable staff

2. Ensuring that conditions of employment are such that staff will want to remain with
the business, and
3. Taking steps to train staff to a higher level of skill so that they can make a greater
contribution to the business or organization.

These three main Human resource activities are technically referred as

1) Human Resource Acquisition
2) Human Resource Retention
3) Human Resource Development

These activities as well as their sub-activities may be depicted in the following figure

Human Resource Manager

Human Resource Human Resource Human Resource

Acquisition Retention Development
____________________ _____________________ __________________
__ _
• Human • Training &
Resource • Compensation Developmen
Planning • Health & Safety t
• Recruitment • Labor Relations • Performance
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• Placement & appraisals
• Induction
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a) Attracting Human Resource

Every firm must have the necessary human resource to perform its activities continuously.
One of the main activities of the HR function is to ensure a continuous flow of human
resources to the business. This is achieved through:

i) Human resource planning

HR Planning involves estimating the quantity and quality of employees who will be required
for the business in the future. This estimate depends on a number of factors and methods. HR
Planning can be divided into three specific steps.
a) Identify and describe the work being done in the business at present ( i.e job analysis
and job description)
b) Identify the type of employees needed to do the work i.e job specification
c) Identify the number of employees who will be needed in the future (i.e HR forecasting
and planning

ii) Recruiting

The express purpose of recruitment is to ensure that sufficient numbers of applicants apply
for the various jobs in the business as and when required. Therefore as soon as vacancies
occur, the HR manager must decide from where suitable candidates for the job will be
obtained.

There are two basic sources from where potential employee can be recruited.
a) Internally- from inside the business through promotions, transfers etc
b) Externally-from outside the business through new recruits
Both of these sources have their own advantages and disadvantages.

iii) Selection

The selection process varies from a very short interview usually to obtain a general impression
of the applicant to an intensive assessment that entails aptitude, technical and personality
(psychometric) assessments. However, this differs from business to business and depends
especially on the level of appointment

iv) Placement and induction

Once the job offer is accepted, the new employee must report for duty as soon as possible.
With the placement of the person in the job, a number of outstanding matters can be finalized
e.g. in some cases arrangements must be made for the relocation of the employee, collection
of missing information e.g. copies of education certificates etc. The new employee must also
go through a process of induction (orientation) or socialization. Experience has shown that

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when employees do not go through an orientation phase, it takes much longer for them to
start working productively.

b) Retaining Human Resource

1) Employee compensation

The most critical dimension of the employment relationship is the economic aspect. The
relationship between employers and employees is usually based on the principle that
employees make their services available to employers in exchange for certain economic
rewards. Rewards in the form of pay and benefits motivate the behavior of people in business.
Remuneration of employees is a very important part of human resources management and it
is usually the single largest cost factor in most business budgets. Objectives of a remuneration
system include.

a) Attracting the right quality of employees

Businesses paying the best salaries normally attract the highest number of candidates and
sometimes the best. Market related salaries are normally used as input to determine
competitive pay levels. This is achieved through benchmarking a firm’s compensation against
the competition. A salary survey is important in determining the industry compensation
levels.

b) Retaining suitable employees

The remuneration system of a business must be flexible enough to reward employees so that
they feel satisfied when they compare their rewards with other individuals doing the same
job elsewhere.

c) Maintaining equity among employees

There must be fairness in the distribution of rewards. There should be external equity i.e.
comparison of rewards across similar jobs in the labor market; internal equity i.e. comparison
of rewards across different jobs in the same business and individual equity i.e. the extent to
which an individuals remuneration reflects his or her contribution.

Types of compensation include;

• Basic pay- monthly salary
• Fringe benefits-housing, loans, leave allowances etc
• Performance related rewards-bonuses, commissions

2) Health and safety issues

An organization should also care for its employees and provide a healthy and safe work place.
From a managerial point of view, it is important that a business draws up a policy focusing

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on employee health and safety in the work place by ensuring adequate medical coverage and
appropriate coverage of workplace accidents and disaster preparedness.

3) Labor Relations

This entails ensuring that employees’ welfare is catered for especially as articulated
by the labor laws, labour unions and collective bargaining etc

c) Developing employees

This ensures that employees remain relevant to the dynamic and competitive business
environment and can be achieved through:

1) Training

Employees are trained because both the individual and the organization benefit.

Individuals benefit from training in the following ways:

a) they can make better decisions and solve problems more effectively
b) job satisfaction is increased and knowledge, communication skills and attitudes
improved
c) they learn to handle stress, tensions and conflicts

A business benefits from training in the following ways;

a) Job knowledge and skills of employees at all levels are improved
b) Training leads to improved profitability and better services
c) The morale of the work force is improved
d) Corporate image is enhanced

2) Performance management

Businesses that endeavor to gain a competitive advantage through their employees must be
able to measure employees’ performance as objectively as possible through formal systems.
One of the most challenging issues facing managers today is how to manage the performance
of employees to ensure organizational goal achievement. Proper performance management is
considered to be an important solution to this challenge.

Employee performance management is defined as the means by which managers ensure that
employee’ activities and outputs are in-line with the business goals. A performance
management system consists mainly of three parts:
a) Determining the desired performance standards of the business
b) Measuring the performance by using performance appraisals
c) Feedback to employees on their performance

Conclusion
The HR manager is responsible for managing the development of the firm’s human resource
capital. This includes the development and implementation of comprehensive programs that
support performance management, competence development, succession planning, retention
of talent etc.

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LESSON THREE:

AN OVERVIEW OF THE ACCOUNTING FUNCTION

Background

It is almost impossible to run a business effectively without being able to understand and
analyze accounting reports and financial statements. Financial reports and statements are
prepared from the information that bookkeepers and accountants gather and record.

Accountants also do a series of calculations using the recorded data to measure how well a
business is doing relative to similar businesses and to make recommendations for
strengthening the business and making it grow. The fact is that you have to know accounting
if you want to understand and effectively manage a business.

Meaning and importance of accounting

Accounting is the recording, classifying, summarizing and interpreting of financial events and
transactions to provide management and other interested parties with the information they
need to make better decisions.

Transactions include the buying and selling of goods and services, using inputs/supplies,
acquiring insurance etc. Transactions are recorded by hand or by computer systems.
However, the trend today is using computers since the process is often repetitive and tedious
and computers greatly simplify the task. After the transactions are recoded they’re usually
classified into books that have common characteristics e.g. all purchases are grouped together
as are all sales transactions in frameworks referred to as ledgers. A businessperson is therefore
able to quickly obtain needed information about purchases, sales and other transactions that
occur at given period of time. The methods used to record and summarize accounting data
into reports are called accounting systems.

The Accounting System

Input data for an accounting system is obtained from the sales documents, purchasing
documents etc. The data is recorded, classified and summarized and is finally put into
summary financial statements e.g. income statement and balance sheet. This system is
illustrated as follows:

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INPUTS PROCESSING OUTPUTS

A/c documents Entries made Financial statements

• Sale documents into journals (recording) • Balance sheet
• Purchasing • The effects of these • Income statement
documents entries (P&L a/c)
• Bank documents Are then posted into • Cash Flow statement
• Payroll documents ledgers
• All ledgers are then
summed and posted
to the relevant
statements

Systems that use computers enable an organization to get financial reports daily if they so
desire.

One purpose of accounting is to help managers evaluate the financial condition and the
operating performance of the firm so that they may make better decisions, hence accounting
empowers managers. Accounting also reports financial information to people outside the
firm such as shareholders, creditors, suppliers, employees and the government.

Therefore, accounting efforts/tasks can be divided into two major categories:

• Managerial accounting
• Financial accounting
An accountant working for an organization is likely to do both these tasks.

i) Managerial Accounting

This is a branch of accounting which provides management with information about the
company’s operations for internal use only. It uses guidelines and rules as established by
management according to their needs.

This is used to provide information and analysis to managers within the organization to assist
them in decision-making. Its main concern includes:

• Measuring and reporting costs incurred by departments e.g

production, marketing, and other departments i.e cost accounting
• Preparing operational budgets
• Checking whether or not the organizational departments are staying
within their budgets i.e internal control or internal auditing
• Designing strategies to minimize taxes i.e tax accounting

Questions that managerial accounting reports answer include:

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• How quickly are we selling what we buy and how does that compare with other firms
in the same industry?
• What are our major expenses and are they inline with other firms? i.e. Cost control.
• How much money are we paying in taxes and how can we legally minimize that
amount? i.e. tax avoidance

ii) Financial Accounting

This is a branch of accounting which provides outside parties such as investors, shareholders
and government agencies, with information about a company’s operations. It provides the
results of a company at a consolidated level. This follows the rules established by professional
governing bodies e.g International Accounting Standards (IAS), Institute of Certified Public
Accountants of Kenya (ICPAK) etc.

This differs from managerial accounting because the information and analysis are for people
outside the organization. This information goes to existing shareholders and potential
shareholders, creditors and lenders, labor unions, customers, suppliers, government and the
general public. These external users are interested in the organizations profits, its ability to
pay its bills and other financial information.

BOOKEEPING Vs ACCOUNTING

Bookkeeping involves the recording of business transactions. It is a rather mechanical process

and does not demand the financial training and insights of accounting. Bookkeeping is an
integral part of accounting but accounting goes for beyond the mere recording of data.

Accountants classify and summarize data provided by bookkeepers. They interpret the data
and report them to management. They also suggest strategies for improving the financial
position and progress of the firm. Accountants are especially valuable in such critical areas as
income tax preparations and financial analysis.

KEY ACCOUNTING ITEMS

a) Journals

These are books where accounting data are first entered. It is derived from the French
word ‘jour’, which means day. A journal is therefore where the day’s transactions are
recorded.

b) Double entry bookkeeping

The principles of double entry book-keeping have changed little since the days when
Italian monk and mathematician Luca Parciolli (1455-1515) published his treatise
“summa de arithmetica”.

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It’s quite possible when recording financial transactions that you could make a mistake
e.g. you could easily write shillings 10.98 as shillings 10.89. For this reason,
accountants record all their transactions in two places so as to check one list against
the other to make sure that they add up to the same amount. If they don’t equal the
same amount, then the accountant knows that he/she has made a mistake. The concept
of writing every transaction in two places is called double-entry bookkeeping. Two
entries in the journal are required for each transaction.

c) Ledgers
Suppose that a businessperson wanted to determine how much was paid for office
stationery in the first quarter of the year; that would be difficult even in accounting
journals. A manager would have to go through each transaction seeking out those
involving stationery and adding them up. What a manager needs would be a set of
books that has pages labeled ‘office stationery’ then entries in the journal would be
transferred/ posted in these pages and information about various accounts would be
found quickly and easily. A ledger then is a specialized account book in which
information from accounting journals is accumulated into specific categories (e.g.
office stationery, motor vehicles etc) so that managers can find all the information
about one account in the same place. All the journals are summarized and posted into
ledgers on a weekly, monthly or quarterly basis. However, computerized accounting
programs often post ledgers daily or instantaneously with journal entries.

MAJOR ACCOUNTING ACCOUNTS

When recording original transaction documents in the journal, the bookkeeper places them in

certain accounts, hence the term accounting. Accountants use six major accounts to prepare

financial statements:

1. Assets
These are things owned by the firm, e.g. land, building, machinery, copyrights

2. Liabilities

These are amounts owed by the organization to others

3. Owners equity or capital

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These account shows how much money will be available to the firm’s owners if all its assets
were sold and all its liabilities paid off, hence; Assets – Liabilities= Capital

4. Revenues

This is the value for what is received for goods sold, services rendered and from other sources
e.g. earnings from investments

5. Expenses

These are money spent on operating the business e.g. rent, salaries, utilities (electricity, phone
bills, water) e.t.c

6. Cost of goods sold/ cost of goods manufactured

This is the total cost of buying goods and storing them until they are sold to others or the cost
of finished goods manufactured by the firm for sale to customers

THE ACCOUNTING CYCLE

The accounting cycle is a six step procedure resulting in the preparation and analysis of the
two major financial statements namely the income statement ( P&L a/c) and the balance sheet.

The cycle generally involves the work of both the bookkeeper and accountant.

Steps in the cycle

Analyze the source
documents e.g. sales
slips

Record transactions in
the journals

Transfer (post) journal

entries to ledgers

Trial Balance

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Prepare P & L a/c, the

Balance Sheet and other
statements

Analyze the financial

statements

The first three steps are continuous; the forth step involves preparing a trial balance. The trial
balance involves summarizing all the data in the ledgers to see that the figures are correct and
that they balance-which is actually the purpose of double entry. If they are not correct they
must be corrected before the P & L statement and balance sheet are prepared

COMPUTERS IN ACCOUNTING

Given the number of accounts a firm must keep and the reports that need to be generated,
computers can no doubt help in the process. Even relatively small retailers and other small
business owners are learning that data processing, bookkeeping and analyzing accounting
records is usually best done by a computer.

Computers can record and analyze data and print out financial reports. It’s now possible to
have continuous auditing i.e. testing the accuracy and validity of financial statements using a
computer. Such continuous auditing can help prevent frauds and business bankruptcy by
spotting trouble early. But no computer has yet to be programmed to make good financial
decisions by itself although computers can be programmed to help in such decisions e.g using
accounting Expert Systems software.

Computers are however a powerful tool in the hands of a trained accountant who can
understand the accounting data and is therefore able to formulate the best accounting
strategies. Software is available which allows even novices to do sophisticated analysis within
seconds. However it is important that business owners understand exactly what system is
best suited for their particular needs to avoid purchasing sophisticated and irrelevant
computer programs/software for minor business operations.

AN OVERVIEW OF THE FINANCIAL FUNCTION AND FINANCIAL MANAGEMENT

Background

A business must have the necessary assets, such as land, building, machinery, vehicles,
equipment, raw materials and trade inventories, at its disposal if it is to function efficiently.

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In addition, business organizations need resources such as management acumen and labor,
as well as services such as power supply and communication facilities.

A business needs funds, also called capital, to obtain these assets, resources and services. The
people (including shareholders) or institutions that make funds available to a business lose
the right to use these funds in the short or long term and also run the risk of permanently
losing some or all of the funds should the business fail. As a result, suppliers of funds expect
compensations (and also repayment in the case of a loan) when the business starts to generate
funds through the sale of its products or services. Thus there is a continuous flow of funds to
and from business.

The financial function is concern with this flow of funds, and in particular with the following:
• The acquisition of funds, which is known as financing
• The application of funds for the acquisition of assets, which is known as investment
• The administration of, and reporting on, financial matters

The financial management is responsible for the efficient management of all areas of the
financial function and, within the broad framework of the strategies and plans of the business,
its objective is to make the highest possible contribution to the objectives of the business
through the performance of the following tasks:
• Efficient financial analysis, reporting, planning and control
• The management of the acquisition of funds, also known as the management of
the financing or capital structure
• The management of the application of funds, also known as the management
of the asset structure

The objectives and fundamental principles of financial management

The long-term objective should be to increase the value of the business. This may be
accomplished by:
• Investing in assets that add value to the business
• Keeping the cost of capital of the business as low as possible

The short-term financial objective should be to ensure the profitability, liquidity and solvency
of the business. Profitability is the ability of a business to generate income that will exceed
cost. Liquidity is the ability of a business to satisfy its short-term obligation as they become
due, in other words, to be able to pay trade creditors by due dates. Solvency is the extent to
which the assets of the business exceed its liabilities. Solvency differs from liquidity in that
liquidity pertains to the settlements of short-term liabilities, while solvency pertains to long-
term liabilities such as debentures and mortgage loans.
Financial management is based on three principles:

1. The cost benefit principle

Decision-making based on the cost of resources only does not necessarily lead to the
most economic utilization of resources. Sound financial decision-making requires an
analysis of the total cost and the total benefits, and ensuring that the benefits always
exceed the cost i.e. optimum decisions.

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2. The risk return principle

Risk is the probability that the actual result of a decision may deviate from the planned
end result, with an associated financial loss or waste of funds. Risk differs from
uncertainty; risk is measurable by means of statistical techniques, but in the case of
uncertainty there is no probability or measure of the chances that an event will take place.
Like the cost-benefit principle, the risk-return principle is a trade-off between risk and
return. The higher the risk, the higher the required rate of return will be.

3. The time value of money principle

The time value of money principle means a person can increase the value of any amount
of money by earning interest on it if well invested. In principle the time value of money is
directly related to the opportunity of earning interest on an investment. This is called the
opportunity rate of return on an investment. The opportunity to earn interest in the
interim period is forfeited if the amount is expected some time in the future rather than
received immediately. The time value of money can be approached from two perspectives.
The first is the calculation of the future value of some given present value or amount, and
the second is calculation of the present value of some expected future amount.

1) Asset Management: The Investment Decisions

Management of the asset structure is identified as one of the main tasks of financial
management.

To successfully pursue the main objective, management of the asset structure requires that
decisions regarding investment in current and fixed assets be taken as effectively as
possible. This decision-making has a direct influence on the scope of the investment in
current assets and acquisition of fixed assets that will maximize the wealth of the
stakeholders.

a) The management of current assets

The cost and risk of investing in current assets

Current assets include items such as cash, marketable securities, debtors and inventories.
These items are needed to ensure the continuous and smooth functioning of the business.
Cash, for example is needed to pay bills that are not perfectly matched by current cash
inflows, while an adequate supply of raw materials is required to sustain the
manufacturing process. Sales may be influenced by the credit the business is prepared to
allow.
Current assets are therefore a necessary and significant component of the total assets
of the business. In managing current assets, management should always keep in mind the
consequences of having too much or too little invested in them
An over investment in current assets means a low degree of risks, in that more than
adequate amounts of cash are available to pay bills when they come due, or sales are
amply supported by more than sufficient levels of inventory. However, over investment
causes profit to be less than the maximum-first, because of the cost associated with the
capital invested in the additional current assets, and second, because of income foregone
which could have been earned elsewhere-the so-called “opportunity cost of capital``. The
funds invested in excess inventory could, for example, have been invested in a short-term
deposit at the prevailing interest rate.

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An under investment in current assets, however, increases the risk of cash and
inventory shortages and the cost associated with these shortages, but it decreases the
opportunity cost. For example, a business which is short of cash may have to pay high
interest rates to obtain funds on short notice, while a shortage of inventory may result in
a loss of sales, or even mean that the business has to buy inventory from competitors at
high prices to keep customers satisfied

b) Long-term investment decisions and capital budgeting

The nature of capital investments

Capital investment involves the use of funds of a business to acquire fixed assets such as
land, building and equipment, the benefits of which accrue over periods longer than one
year.

Long-term investment decisions determine the type, size, and composition of the
business’s fixed assets as well as the amount of permanent working capital required for
the implementation and continued operation of capital investment projects.

The evaluation of investment projects

The basic principle underlying the evaluation of investment decision-making is cost-
benefit analysis, in which the cost of each project is compared to its benefits.
Projects in which benefits exceed the costs add value to the business and increase
stakeholders’ wealth.
Two additional factors require further consideration when comparing benefits and
costs. The first is that benefits and cost occur at different times. Any comparison of benefits
and costs should therefore take the time value of money into account.

Second, ``cost” and ``benefits” (income) are accounting concepts that do not necessarily
reflect the timing and amounts of payments to the business. The concept ``cash flow” is
therefore used instead, which minimizes accounting ambiguities associated with concepts
relating to income and costs.

The following three cash flow components are distinguished for capital budgeting
purposes:
1. The initial investment. The initial investment is the money paid at the beginning
of a project for the acquisition of equipment or the purchase of a production plant.
The net cash flow during this phase is negative and represents a net cash outflow.
2. The expected annual cash flows over the life of the project. The annual net cash
flow can be positive or negative. The net cash flow is positive when cash income
exceeds cash disbursements and this represents a cash inflow for the business. The
opposite is true when disbursements exceed income. This may happen for example
when expensive refurbishing is required after a number of years of operation and
cash income is sufficient to cover these cash expenses.
3. The expected terminal cash flow, related to the termination of the project. This
terminal net cash flow is usually positive. The plant is sold and cash income exceeds
cash expenses. It may happen however that the terminal net cash flow is negative

The magnitude of the expected net cash flows of a projecting and timing of these cash
flows are crucial in the evaluation of investment proposals on the basis of the present value

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or discounted cash-flow approach, where the net cash flow (the cash inflow minus cash
out flow) can occur during a specific period or at a specific time

2) Financing Decisions.

The management of financing structure is one of the tasks of the financial manager.
This entails making decisions about the forms of financing (types of finance) and the
sources of finance (the suppliers of finance) to minimize the cost and the risk to the
business

Financial markets

Financial markets and financial institutions play an important role in the financing of
businesses.

At a given point in time, an economic system consists of individuals and institutions

with surplus funds (i.e. the savers) and those with a shortage of funds. Growing
businesses require funds for new investments or to expand their existing production
capacity. These businesses have a shortage of funds and to grow they must have access
to the funds of individuals and institutions that do not have an immediate need of
them.
Financial markets are channels through which holders of surplus funds (the
savers) make their funds available to those who require additional finance.
Financial institutions play an important role in this regard. They act as
intermediaries on financial markets between the savers and those with a shortage of
funds. This financial service is referred to as finance intermediation.
Financial intermediation is the process through which financial institutions
pool funds from savers and make these funds available to those (e.g. businesses)
requiring finance.
Through financial intermediation the individual saver with relatively smaller
savings is given the opportunity to invest in a large capital intensive business, such as
chemical plant. The saver who invest in a business is referred to as a financier. The
business rewards the financier for the use of funds, so that the financier shares in the
wealth created by the business.
The financier receives an asset in the form of financial claim in exchange for his
or her money. Financial claims have different names and characteristics and include
saving and current (call) accounts, fixed deposits, debentures and ordinary and
preferred shares. In everyday usage, these financial claims are referred to as securities
or financial instruments.

Types of financial markets

1. Primary and secondary markets

As discussed above a saver receives an asset in the form of financial claim against
the institution to which money was made available. These claims are also referred
to as securities or financial instruments. New issues of financial claims are referred
to as issues on the primary market.

Some types of financial claims are negotiable and can be traded on financial
markets. Trading in these securities after they have been issued takes place in the
secondary market. These means that a saver who needs money can trade the claim

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on the secondary market to obtain cash. Nairobi stock exchange is an example of a

market where savers can virtually immediately convert their investments to cash.
The trade ability of securities ensures that traders with surplus funds continue to
invest. Once issued, they can be traded on the market and the holder may again
obtain cash.

Company shares and debentures are example of negotiable financial instruments,

and savings and call accounts are non-negotiable claims.

2. Money and capital markets

The money market is the market for financial instruments with the short-term maturity:
funds are borrowed and lent in the money market in the periods of one day (i.e. overnight)
or for months. It is where interest bearing assets are traded e.g. bank loans, deposits,
treasury bills, foreign currency etc. The periods for the transactions depend on the
particular needs of savers and institutions with the shortage of funds. The money market
has no central physical location and transactions are conducted from the premises of
various participants, for example, banks using telephones or on-line computer terminals.

Funds required for long term investments are raised and traded by investors on the capital
market. In Kenya much of this trading takes place on the Nairobi stock Exchange (NSE).
However long term investments transactions are also done privately. An investor may, for
example, sale shares held in private company directly to another investor, without
channeling the transaction through a stock exchange

Short- term financing

The short-term financing decision requires finding the optimal combination of long term
and short-term financing to finance current assets.

Short-term financing means that repayment has to be made within one year.
As in the management of current assets, risks and costs must be weighed against each
other when making this decision.

The following are the most common forms or sources of short-term financing:
• Trade credit
• Accruals
• Bank overdraft
• Promissory notes
• Factoring (i.e. selling accounts receivable at a discounted rate to ‘a
factor’ who is a party that pays cash for those accounts).
• Family and friends.

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Long-term financing

Sources and forms of long term financing for a business in the form of a company

Source Balance sheet Form

Classification
1. Owners or ordinary share- Owners equity or -Ordinary shares
holders own capital -Reserve
-Undistributed
Preference share-holders profit (i.e.
2. Preference share- retained profits)
holders capital -Preference
shares
1+2 Share capital Share-holders’ Total of the
interest above
3. Suppliers of debt capital/ Long term debt -Debentures
credit suppliers or borrowed -Bonds
capital over a -Registered term
long term loans
-Financial leases
-commercial
papers
1+2+3 Total long term
capital

The cost of capital

Profitable and growing businesses continually need capital to finance expansion and new
investment. Because of the cost involved in using capital, namely dividends to shareholders
and interest paid to credit suppliers; financial management must ensure that only the
necessary amount of capital is obtained, and that the cost and risk are kept to a minimum.

In attracting capital, one of its main tasks, financial management must combine the various
form of financing in a mix that result in the lowest possible cost and lowest risk for the
business. The concept cost of capital and risks are critical in determining the optimal capital
structure

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AN OVERVIEW OF THE OPERATIONS/PRODUCTION MANAGEMENT FUNCTION

The Nature and Definitions of Operations Management

A business transforms inputs from the environment into outputs to the environment. The
operation function is that function of the business aimed at executing the transformation
process. The operation function and its management (i.e. operations management) are
therefore directly concerned with creating products and providing services in order to realize
the objectives of the business. The functional role of the production is to department is to
ensure effective and efficient creation of goods and services.

Some management experts notably Peter Drucker stresses the primacy of marketing over all
other management functions. Others scholars sees production as the cornerstone of the
organization. This has given rise to the two competing orientations, the production and
customer orientations.
• The production orientation gives top priority to production and its role in designing,
developing and producing a given product. Having sep up the means of producing
goods, the firm set out to sell them. The rationale behind this is that if the firm is an
expert in producing something, then it is confident that customers will be impressed
by its quality, design and value for money.
• The customer orientation stresses the importance of the market and what the
customers say they want. They stress the marketing process. They set out to discover
what the customers want using market research and product research and set their
production based on this.

The importance of operations management

1. It improves productivity
2. It helps the business to satisfy the needs of its customers more effectively
3. It enhances the corporate reputation or the general image of the business organization.

AN OPERATIONS MANAGEMENT MODEL

An operations management model that can be used for the management of the operations
function is depicted in figure below

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Fig. An operations management model

Environment

Material Operations
management
strategies and
objectives
Customers/clients

Information
Products and
Transformation services
process Outputs
Inputs

Management activities
Human
resources

Operations Operations
Operatio
planning improvement
Equipment ns design
and s
and
control
facilities

Technology Environment

Generally, an organization’s operations management strategies and objectives as well as other

management activities influence the transformation process to produce output.

Operations management strategies and objectives

All businesses formulate business objectives, and for a business to survive in the long-term,
satisfied customers/clients should be a priority objective. The operations management
function should take into account customers/clients needs and should continually formulate
its strategies and objectives so that it’s competitive position and customer/client base not only
remain intact, but, where necessary, are also strengthened and expanded.
Although there are many customers/client needs, they can be reduced to these six main
elements:
1. High quality
2. Low costs

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3. Shorter lead time (quicker manufacturing or provision of services)

4. Greater adaptability (flexibility)
5. Lower variability with regard to specifications (reliability)
6. High level of service (better overall service)
With these requirements as a basis, operations management objectives can be formulated to
give a business an ``operations-based advantage” over other businesses.
Operations management objective therefore indicate the specific areas within the operations
function which will be emphasized when services or products are produced or provided

Quality planning and control

Quality is today regarded as being so important in many businesses that responsibility for it
is not confined to the operations management function only.

Definition of quality
From an operations management perspective quality is defined as ``continuous conformance
to customers’/clients’ expectations

Basic principles of quality

Management have at their disposal a set of technique which assist the smooth running of the
production process and help to ensure reliability in terms of quality and meeting delivery
dates. This sets of techniques is known as the ‘3 Ss’ standardization, simplification, and
specialization.
• Standardization is the process of determining the best sizes, types, qualities etc. of
materials, components and products, and consistently using these once they have been
established.
• Simplification is closely linked to standardization and involves a reduction in the
number of types manufactured or used, in the case of internal supplies, tools,
consumables etc.
• Specialist ion involves a company only carrying out only a part of the total production
process.

Benefits of Quality control

• Improved customer satisfaction and confidence, which can result in increased
sales and profits.
• Improved design of products and gains through simplification
• Increased workers’ pride in their products
• A favorable corporate image for quality.

Dynamic quality control and assurance concentrates on proactive systems

i. Identifying where the problems may arise. Quality deficiencies may be
located in three main areas:
• Workers problems-this is due to careless or disinterested workers. Also
poorly trained workers may lack the ability to produce good quality even
when trying very hard.
• Management problems-poor quality may arise from inadequate leadership
or planning, poor training or lack of interest in quality.

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• Working conditions-good working conditions are pre-requisite for high

quality, good heating, lighting and layout provide an environment
conducive for quality.
ii. Taking action to ensure quality-management experts put forward a strong
case to make quality systems more dynamic than mere inspection although
inspection remains a crucial part of quality assurance. Responsibility for self
inspection is preferable.

The concept of Total quality Management (TQM)

TQM is a management philosophy, a method of ``thinking and doing’’ with the primary aim
of satisfying customer/client needs and expectations by means of high quality products or
services. It endeavors to shift the responsibility for quality from merely the operations
management functions to the entire business (i.e. all other functional management areas and
their employees).

TQM is further primarily aimed at:

1. Making each and every employee in the business quality conscious and holding them
responsible to contribute to the achievement of TQM
2. Identifying and accounting for all costs of achieving quality (both prevention and
failure cost)
3. Doing things right the first time (proactive rather than reactive action)
4. Developing and implementing systems and procedures for quality and its
improvement
5. Establishing a continuous process for improvement

The essence of TQM is that the emphasis should permeate the whole organization. Peter
Druckers identified eight performance areas which are critical to the long-term success of an
enterprise.
Performance Area TQM concerns
Marketing standing How high is the reputation for quality of the firm in the eyes of its
customers, its competitors, its own employees and the public?
Innovation Are innovations and research and development activities geared
towards the continual improvements of quality?
Productivity Is any increased productivity compatible with maintaining and
increasing quality?
Resources Are the resources of the firm being directed to the pursuit of
quality?
Profitability Are adequate profit levels being combined with quality goods and
services?
Manager Are managers giving quality the priority it deserves?
performance
Worker performance Are workers imbued with the idea of quality and are they putting
and attitude this into practice in their work?
Public responsibility Do ideas of quality apply to the public good, e.g. high quality of
environmental concern, product safety, etc.

Quality Circles

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This is used by management to improve quality. It is a voluntary group of employees who

regularly meet with the objective of improving the way in which their organization provides
quality of goods and services for its customers.

The roots of quality circle concept are in suggestion schemes, where employees put forward
their ideals on how to improve the performance of the organization. The basic idea of quality
circles is that people of an organization are capable of making useful contribution to its
success. This contribution can be accomplished by putting forward ideas and taking on
planning and decision-making actions. The supporters argue that circle members have first-
hand experience of the problems at the grass-root level in their own organization. These
employees may have many useful ideas for increasing efficiency, innovation, safety, etc.

Quality circle members receive training in the analysis of problems and decisions making
techniques. Quality circles are a group activity and can act as a strong motivator for employees
to improve the quality of goods and services.

Introduction of quality circles can change the whole atmosphere of an organization, it breaks
down the “them and us“ barriers as employees come to feel that they are important and
valued members of the organization. The changed attitude can provide a framework within
which quality can be improved. QC membership also improves the problem-solving skills of
all those involved.

The basic requirements to ensure best results from QCs are

• Management must be enthusiastic about the idea of quality circles and make it crystal
clear that they value the views of their employees and respect the expertise that comes
from practical experience.
• Management has to give full information about the quality circle concept to all staff.
The role and function of the circles should be explained and workers encouraged to
join.
• Management should good meeting rooms and conditions for regular circle meetings
• It is advisable for membership of quality circles to be voluntary, because compulsion
is not a good way to bring out the best in circle members.
• QCs should not be large that they become unwieldy nor so small that there is too
restricted a pool of talent. Between 8-10 advisable.
• Management to ensure that when QCs makes sound decisions, they are implemented.
If QCs members see management as paying lip service to their ideas, they will soon
lose interest in the quality circle concept.
• Management should provide appropriate training opportunities for circle leaders and
members to acquire necessary skills of debate.
• The role of QC leader is crucial; this may be taken by supervisor or senior employee.
The leader should have problem solving skills.

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LESSO FOUR:

6.0 ORGANISATION STRUCTURE AND DESIGN

6.1 ORGANISATION STRUCTURE

All organisations arrange/design their structures around the key activities appropriate to
their mission and strategies. They attempt to design structures depending on their activities,
size, technology and strategies. The best structure will not guarantee results and performance
but the wrong structure is a guarantee of non-performance. All it produces is friction and
frustration. The right organisation is thus a prerequisite of performance.

Organisation structure can be defined broadly as mechanisms that serve to co-ordinate and
control activities of organisational members. The key elements of a structure are: tasks, people,
technology and procedures. Formal specifications of an organisation structure:

Organisation structure must satisfy minimum requirements with respect to:

a) Clarity - All managerial components and all individuals within an organisation
especially managers, need to know where they belong, where they stand, where they
have to go for whatever is needed, whether information, cooperation or decision.
b) Enhancing communication - An organisation structure should enable all individuals
especially all managers and professionals to understand their own tasks, and at the
same time understand the common task i.e the task of the entire organisation. All
members of the organisation, in order to relate their effort to the common good, must
understand how their tasks will fit in with the task of the whole.
c) Decision-making - An organisation structure needs to be tested to find out whether
it impedes or strengthens the decision making process. A structure that forces the
highest possible level of organisation rather than be settled at the lowest possible level
clearly hampers decision-making.
d) Succession (Development) - An organisation must be capable of producing
tomorrow’s leaders from within. An organisation structure should be able to prepare
and test an individual on each level for level above.

The main purpose of the organising function is to achieve coordinated effort through the
design of a structure of task and authority relationships. The organising function involves
breaking down the overall task into individual jobs with specific duties and assigning
authority to carry out these duties, and aggregating the individual jobs into departments. The
greatest challenge of the organising function is to design the most appropriate organisation
structure by making the appropriate decisions about jobs, authority and departments.

6.1.1 Dimensions of structure

a.Formalisation - This dimension refers to the extent to which expectations regarding the
means and ends of work are specified, written and enforced. A highly formalised is one in
which rules and procedures are available to prescribe what each individual should be doing.
Such organisations would have standard operating procedures, specified directives and
explicit policy.

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b.Centralization - This refers to the location of decision-making authority in the top hierarchy
of the organisation. More specifically, the concept refers to the delegation of authority among
the jobs in the organisation. A highly centralized organisation is one where most decisions are
left to the top or upper level management. In some organisations, strategic decisions are
centralised while operating decisions are de-centralised i.e. delegated to lower levels
management.

c. Complexity - This dimension refers to the number of different job titles and different units
or departments. The fundamental idea is that organisations with many different types of jobs
and units create more complicated managerial and organisational problems. The concept of
complexity is what is referred to as differentiation of an organisation ie the differences among
jobs and units.

There are two dimensions of differentiation - horizontal and vertical.

(i) Horizontal differentiation refer to the number of different jobs at the same level.
(ii) Vertical differentiation refers to the number of levels in the organisation.

Managers can affect the extent to which their organisations re formal, centralised and complex
through the decisions regarding division of labour, delegation of authority and
departmentalisation.

6.1.2 Division of labour

This concerns the extent to which jobs are specialised. Managers divide the total task of the
organisation into specific jobs having specified activities. The activities define what the
person performing of job is to do and how to get it done.

Management most important organising responsibility is to design jobs that enable people to
do the right tasks at the right time, and the major decision is to determine the extent to which
jobs will be specialist.

Aspects of job specialisation

a. Work place -The more control the individual has over the working pace the less
specialised the job.
b. Job repetitiveness - The greater the number of different tasks to perform, the less
specialised the job.
c. Skill requirements - The more skilled the jobholder must be, the less specialised the job.
d. Methods specification - The more latitude the jobholder has in using methods and tools,
the less specialised the job.
e. Required attention - The more mental attention a job requires, the less specialised it is.

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Specialised continuum
High Low
1. No control over pace 1. Control over pace
2. Repetitive 2. Varied tasks
3. Low skill requirements 3. High skill requirements
4. Specified methods 4. Unspecified methods
5. No required attention 5. Required attention

Traditionally attention has been the content of individual’s jobs. In recent years, attention has
been directed to alternative ways of designing jobs that focus on teams doing work rather
than on individuals doing work.

This alternative of job designed reflects increasing respect for the power of teams and
teamwork to get work done. The team approach to job design results in individual jobs, which
enable employees to exercise relatively more discretion over pace and methods. The jobs
designed using the approach also reduce the amount of supervision needed and require
considerably more skill.

6.1.3 Summary
Organisations that utilise highly specialised jobs are relatively formal complex and centralised
compared to those that use less specialised jobs, such as team-based jobs. Highly specialised
jobs are usually rather narrow in scope, with predictable outcomes thus lending themselves
to standardised, written procedures and highly centralised.

6.2 DELEGATION OF AUTHORITY

Delegation refers to the right of individuals to make decisions and to give orders without
approval of higher management. Similar to other organising issues, delegated authority is a
relative not absolute, concept. All individuals whether managers or non-managers have some
authority. The question is whether they have enough to do their jobs.

6.2.1 Why delegate authority

(i) Relatively high delegation of authority encourages the development of professional managers.
Organisations that decentralise (delegate) authority enable managers to make significant
decisions and therefore develop expertise and hence advance in the company.

(ii) High delegation of authority improves the overall performance of the organisation. This results
from the competitive climate which is created. The managers are motivated to competitive
climate which is created. The managers are motivated to contribute in this competitive
environment since their performance measures are based on the decisions they make compared
with their peers.

(iii) Relatively high delegation of authority improves the organisation ability to respond to change.
Managers who have relatively high authority are able to exercise more authority and thus satisfy
their desires to participate in problem solving.

(iv) This autonomy can lead to managerial creativity and attribute that contribute to organisations
ability to respond to change.

6.2.2 Why should authority not be delegated?

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(i) Lower level managers should be trained to make decisions that go with delegated authority.
Formal training programs can be quite expensive.
(ii) Managers resist delegating authority to subordinates because many managers are accustomed
to making decisions. Other managers are unwilling to take risks, fearing that lower level
managers might make serious mistakes.
(iii) Administrative costs are incurred in creating monitoring and evaluation systems that inform
higher management the outcomes of the decisions made at lower levels in the organisation.
(iv) Decentralisation means duplication of some functions. Each autonomous unit make
independent decisions and these decision could have been made by a centralised unit.

6.2.3 Getting managers to delegate

(i) Make the manager feel secure by giving a good title, pay, special facilities etc
(ii) Let the managers realise the need for delegation
(iii) Determine what to delegate and provide adequate authority by listing all the types of decision
to be made and rate them according to relative importance and time required to perform.
(iv) Determine procedures for monitoring delegated duties e.g weekly progress report from
subordinates, meetings for giving feedback and for performance review.

Note: Managers should not delegate work which they are avoiding.

6.3 DEPARTMENTALIZATION

Departmentalisation is specialisation concerned with the division of labour within an

organisation. It relates more specifically to the way jobs are grouped in the organisation. The
grouping of jobs into departments requires the selection of common bases such as function,
product, customers and geographical region. Each basis has advantages and disadvantages
that must be evaluated in terms of overall organisational effectiveness.

6.3.1 Functional departmentalisation

Organisational activities are divided into functional groups. It provides indepth task
specialisation and a simple communication network. The common functions of a
manufacturing firm include; production, marketing, finance, personnel etc. The major
disadvantage of this departmentalisation is that the organisational goals may be sacrificed in
favour of department because specialist working with and encouraging one another in their
area of interest and expertise.

6.3.2 Product specialisation

This is popular with large organisations having a wide range of products or services. The
grouping of activities along product lines permits the utilisation of specialised skills of those
people affiliated with a particular product or product line. The main disadvantage is that each
product line manager may promote his own product in a way that creates problems with other
parts of the company. This implies that top management must exercise careful controls at the
same time motivating product managers to produce results. The advantage of a product
organisation is that it enables diversification to take place.

It is common practice however to have a group of senior functional managers in order to

provide direction and guidance for the product managers in the performance of their line role.

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6.3.3 Customer departmentalisation

This is grouping of activities according to the customers served. This is common in service
organisations like as banks, educational institutions etc.

6.3.4 Geographical departmentalisation

This is grouping of activities according to physical or geographical location. This is usually

adopted where the realities of a national or international network of activities make some kind
of regional structure essential for decision making and control. As in product organisation,
there is a group of senior functional managers located at headquarters to provide direction
and control.

6.3.5 Mixed Structures

With increasing complexity and size, many companies are opting for mixed structures that
combine the benefits of two or more of functions, products, customer and geographical forms
of organisation.

6.3.5.1 Divisional structures (multiple structures)

The organisation is divided up into divisions based on products and or geographical region
and each is operated in a functional form, but with certain key functions retained at the
company headquarters. The regions or divisions act very must like self-standing companies.
The decisions made by managers regarding division of labour, delegation of authority,
departmentation and span of control affects the organisation structure.

6.3.5.2 Matrix Structure

A matrix structure usually combines a functional form of structure with a project-based

structure. A project form of organisation is where work groups are organised around
particular projects or products and allowed to make day-to-day operational decisions
i.e.(highly delegation). This form organisation has identifiable project or products that are
large enough to justify special attention.

The main feature of a matrix structure is that it combines the lateral structure of authority and
communication with the vertical structure. This has the important advantage of combining
the relative stability and efficiency of an hierarchical structure with the flexibility and
informality of an organic form of structure.

The flexibility results in quicker response to competitive conditions, technological

breakthroughs, and other environmental changes. A matrix form focuses on the requirements
of the project group, which is in direct contact with the clients. It helps to clarify who is
responsible for the success of the project. It encourages functional managers to understand
their contributory role in the organisations’ productive efforts, and thus offsets one of the
principle disadvantages of the purely functional structure.

However, like all organisational forms, matrix structure do have their disadvantages:

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(i) The potential conflict that can arise concerning the allocation of resources and the division
of authority between projects groups and functional specialists.
(ii) The relative dilution of functional management responsibilities throughout the
organisation.
(iii) The possibility of divided loyalties on the part of members of projects teams in relation to
their own managers and their functional superiors.

6.4 SPAN OF CONTROL

This refers to the number of employees reporting directly to one person. The question is
basically concerned with determining the volume of interpersonal relationships that the
departments manager is able to handle. More important in determining the span of control is
the frequency and intensity of the actual relationships.

The factors considered in determining span of control are:

(i) The policy of top management towards the relative shape of the organisation i.e preferred
levels of managements (flat or tall).
(ii) The complexity of the work unit and the degree of change of tasks. More complex task
requires narrow spans of control.
(iii) Degree of specialisation. The more specialised and less complicated the wider the span of
control.
(iv) The level of ability of management i.e they are capable of producing results with spans of
certain number. The critical factor here is the ability of management to communicate.

Span of control determines the size of departments or units.

6.5 ORGANISATION CHART

This is a diagram that shows the organisation structure of a company. Its purpose is to show
all concerned as to what is organisational structure, how the company has been divided into
departments and departments into sections, and most important as to what responsibility and
duties assigned to each officer. An organisation chart serves several purposes.

(i) The whole organisation structure can be seen at a glance

(ii) It is easier to analyse and review the structure when it is presented diagrammatically.
(iii) Management relationships are visible
(iv) Spheres of responsibility and authority are defined
(v) Lines of communication are visible
(vi) The span of control of each manager can be seen.

6.6 ORGANISATION DESIGN

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The decision to design or redesign an organisation structure involves choosing from among a
number of alternatives. These alternatives designs are based upon the assumption that there
is one best way to organise regardless of the situation.

The Universal Approach

The best way can be either a classical design defined by complexity, written rules and policies
(formalisation) or neo-classical design defined by simplicity, information and centralisation.

The classical design, with its high degree of specialisation (complexity), written rules and
policies (formalism) and low degree of delegation, centralisation, places emphasis on
obtaining maximum production and efficiency.

The neoclassical design, with it low degree of specialisation, unwritten but implicit rules and
policies (in formalism), and high degree of delegation (decentralisation) emphasise on
obtaining maximum flexibility and adaptability and employee satisfaction.

The classical design concepts come from classical school of management thought and the
theory bureaucracy.

I The classical organisation design concepts The important principles are:

• Division of labour – i.e Job specialisation. Work should be divided and subdivided to the highest
possible degree consistent with economic efficiency.
• Chain of command - This refers to the vertical authority structure ie reporting
relationships between superiors and subordinates throughout the organisation. An
important principle is the principle of unity of command ie each job holder should report
to one and only one superior. Another important principle is span of control.
• Unity of Direction - Jobs should be grouped according to function or process ie jobs should
be grouped into departments on some efficient, logical basis.
• Centralisation of authority - accountability for use of authority is retained at the higher
levels of management.
• Authority and responsibility - A job holder must have authority commensurate with
responsibility.

II. Bureaucratic organisational design - This design has the following features
• Well defined hierarchy of authority i.e formal chain of command exists.
• Division of labour. Each job is made up of a set of simple, specialised tasks.
• Formal system of rules and procedures. The rules and procedures serves as guides to
behaviour, ensuring uniformity throughout.
• Employment and promotion based on technical training competence and performance on
the job. Using these criteria assures that each job is held by the most qualified person.
• Impersonal conduct. Superiors make rational decisions in dealing with subordinates,
avoiding emotions and personalities.
• Ownership and Management separation. This is to prevent decisions that may be made
to promote one’s own personal interest to the detriment of the organisation.

b. Neoclassical organisation design

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In a historical sense, neoclassical design is a relation to classical design.

The characteristics of neoclassical design describe organisation structures in which jobs are
relatively low specialised, departments contain heterogeneous mix of jobs, spans of control
are wide and authority is decentralised. The characteristics are:
(i) Low specialisation/complexity
(ii) Low formalization
(iii) Low centralization
(iv) High flexibility
This design emphasis on the employee satisfaction, flexibility and adaptability to
environmental changes. The arguments supporting neoclassical design are based on two
assumptions:
a. The uniqueness and importance of individual needs cannot be ignored
b. The organisations are operating in ever changing environment and as such should be
able to adopt appropriately.

The Contingency Approach

The alternative to the universalistic approach is the contingency approach. Contingency
designs are based on the assumption that the best way to organise depends upon the situation
or setting. The best design can tend toward either classical or neo-classical one.

The contingency approach is more widely accepted in contemporary management theory and
practice. The major factors, which affect the design, are:

1. Technology - Firms that use either job order or process technology will be more
effective and productive if their designs tend toward neoclassical characteristics.
Firms that use mass-production technology will benefit from classical characteristics.

2. Environmental uncertainty - Organisations facing uncertain environments require

flexibility and adaptability to survive and should therefore use neoclassical designs.
In contrast, firms facing certain environments must seek high levels of production and
efficiency, thus the classical design is appropriate.

3. Corporate strategy - The strategy the organisation undertakes implies a particular

organisation structure. Cost leadership strategy can best be undertaken through the
application of classical principles, design that facilitates and encourages efficiency and
productivity.

Differentiation strategy which emphasis on unique and quality products or services,

can best be undertaken with neoclassical principles because differentiation requires
flexible response to changing customer preferences and perceptions.

4. Size of the organisation

5 Individuals working in the organisation

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Review questions
1. What managerial and organisational purposes does the structure of an organisation
accomplish?
2. Explain the differences between potential and actual relationships among
subordinates and managers and why actual, not potential relationships are important
for assessing the appropriate span of control.
3. Contrast the main features of the classical and neoclassical organisation designs.
4. Explain why an organisation with classical design characteristics is likely to be more
efficient, and productive but less flexible and adaptable than an organisation with
neoclassical design characteristics.
5. Explain the advantages of matrix organisation design.
6. a. What are the contributions of the contingency theory to organisation design?
b. What factors should be considered when establishing an organisation structure.

LESSSON FIVE: LEADERSHIP

6.0 Introduction
Leadership is an essential aspect of any organization's function. For an organization
to achieve its objectives, it requires a leader to shape the behaviour of employees and
lead them to the desired direction. This lesson focuses on the essence of leadership in
a business environment.

6.1 Objectives
At the end of this lesson, you should be able to:
a) Define leadership
b) List and define theories of leadership
c) List and discuss attributes of a leader
d) Describe the source of power

6.2 Definition of Leadership

Leadership is a special case of interpersonal influence that gets the individual or group
to do what the leader wants done. In other words, it is the ability to influence people
to willingly follow one's guidance or adhere to one's decision. A leader, therefore, is
one who obtains followers and influences in setting and achieving objectives. A leader
is able to influence his followers because of perceived authority and power.

6.3 Theories of Leadership

There are many theories of leadership some of which include:
(a) Trait approach
(b) Human relationship approach
(c) Theory X and Theory Y
(d) Contingency approach
(e) Path-goal theory

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(f) Maturity of subordinate approach

6.3.1 Trait approach

This is the first of leadership theories. It asserts that ability to lead is dependent on
innate characteristics. It states that leadership is natural and not need to be learned.
It is naturally possessed by certain individuals with particular personality/physical
traits such as personality traits (initiative, self assurance, decisiveness, assertiveness,
intelligence, tolerance, compassion, etc); physical traits (tall, good looking, melodious
voice, etc).

Problems (disadvantages) with this theory is that there are extremely large numbers
of physical and personality traits.

6.3.2 Human Relations approach

Suggest that leadership ability depends more on how a person behaves than her/his
personality traits. The theory advocates democratic/participative leadership
approach where subordinates are encouraged to contribute ideas and suggest
solutions to situations. The leader (manager) ordinarily plays coordinating role.

6.3.3 Theory X and Theory Y

Developed by Dauglas McGregor. These theories express that a person's leadership
style is largely influenced by that person's perception of what people are like.
Theory X stipulates:
i) The average person dislikes work and must therefore be coerced into making
the maximum effort, with inducements, sanctions and close supervision over
her work.
ii) Workers are naturally reluctant to take responsibility preferring the security of
being controlled by others.
iii) People are happier with clearly defined tasks than broadly defined objectives.
iv) Employees are normally resistant to change so that change must be imposed on
them by higher authority.
Theory Y:
i) Individuals will usually work hard without coercion.
ii) Employees can be relied upon to exercise self direction and self control.
iii) People seek rather than avoid responsibility.
iv) Most employees possess substantial potential for creative work, no matter how
difficult their duties.

6.3.4 Contingency approach

These approaches stipulate that leaders should be flexible enough to adopt to specific
situations because no single approach can ever be fully effective in all circumstances.
Therefore a leader must be prepared to change behaviour as circumstances change.
Thus different work situations call for different leadership styles.

Advantages
• Leader allowed to make own decision appropriate (leadership) style

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• Leader encouraged to analyze logically the characteristics of situations to deal

with.
Disadvantages
• Leader may appear to his subordinates as inconsistent and insincere (because of
frequently changing)
• Individual manager may not be sufficiently skilled to adapt his leadership style
from one sit of circumstances to the next.
• There might be some underlying principles that should always be applied
regardless of the situation at hand.

6.3.5 Path-goal Theory (a type of contingency theory)

The leader is seen (by subordinates) as their source of reward (goals).
• Leaders' major task is to clarify the path to be followed by the subordinate
• Leader determines which rewards are attractive to the people
• Leader changes style according to:
i) characteristics of subordinates
ii) the nature of their work
iii) clarity of the organization's formal authority system
iv) physical environment in which work is done.

6.3.6 Maturity of subordinates Hersey - Blanchard model)

Leadership style is dependent on the maturity of subordinates. Four styles of this type
of approach are included:
i) telling only-leader simply instructs subordinates and expects him to follow;
ii) telling and selling-leader tells subordinate and persuades him to accept a
decision;
iii) participating-leader shares ideas and involves subordinates who are able but
unwilling
iv) the delegating style-leader lets subordinate to make a decision on his own.

6.4 Authority
The right to control, the right to make decisions and commit (the organization's)
resources. The exercise of authority might involve:
• determination of subordinate's workload and specific duties
• taking decisions on behalf of the group
• giving orders
• allocating rewards to subordinates (pay rises, granting overtime)
• imposing penalties on subordinates (suspension, dismissal, etc)
Authority can be said to be formal when it is accompanied by outward displays of
status e.g.
• types of attire between managers and subordinates
• office outlay and furnishings, etc

6.5 Power
Power is related to authority
• It is a measure of a person's potential to get others do what he want them to do.

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• Can be seen in the form of dominance, punishment and control.

• Can have both positive and negative form: positive when the individuals
involved in the exchange do so freely, and negative form when the individuals
involved feel a sense of being forced or controlled to exchange.
Power can be exercised upward, downward and horizontally in organizations. (Power does
not necessarily follow the organizational hierarchy from top to down).
Power exercised from a position of command (such as a manager in an organization,
an elected community chairman, a class prefect, etc).
Appointed leaders may be powerful because of the positions they occupy. An official
leader, however, may not necessarily possess real power.

6.5.1 Sources of power

6.5.1.1 Legitimate or position power

This type of power comes with a position held. Holding a managerial position, for
example, will provide authority, which carries in itself "positional power". The higher
the position in the organizational hierarchy the greater the power of the individual.

6.5.1.2 Reward/punishment power

Ability to grant favours or cause discomfort to others can serve as power. One can
most likely influence people's behaviour when they need favours or when they fear
some discomfort will be inflicted.
Examples:
i) A teacher punishing and students, granting of overtime by supervisor,
ii) A class may obey orders of college administration more than a class representative.

6.5.1.3 Charisma (referent) power

This is power that is derived from personality an individual has and how that
personality is perceived by others. An individual may be adored by others who also
want to identify with him/her.

6.5.1.4 Expert power

Possessed by people who have demonstrated their superior skills and knowledge.
They know what to do and how to do it. People will tend to identify with an expert.
6.6 Leadership Roles
There are several roles that a manager, as a leader, must play; some of which include:
(a) Educator
(b) Counselor
(c) Judge
(d) Spokesperson

6.6.1 Educator
• All managers perform the role of educator
• Managers teach employees job skills, acceptable behaviour and organizational
values
• Managers work habits, attitudes, and behaviour serve as a role model

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• Managers are responsible for formal training of employees.

6.6.2 Counselor
This role involves listening, giving advice and preventing and solving employees
problems. A leader is expected to fulfill two expectations of those being led:
i) Awareness of and concern for the employees (the led)
ii) Assistance in solving a problem

6.6.3 Judge
This role involves; appraising subordinates performances; enforcing policies,
procedures and regulations; settling disputes and dispensing justice

6.6.4 Spokesman
Managers speak for their subordinates who relay their suggestions, concerns and
views to higher authority.

6.7 The Nature of Leadership

There are three basic elements of leadership: The leader; The led; The environment.
Leadership is a result of interaction among the superior (leader), the subordinate (the
led), and the organizational environment (work and the work situation).
For the leader (manager) every situation is different and unique in that works and in
one situation may not work in another situation. Leaders must therefore be flexible
enough to adopt to the changing situations, for them to be successful.

6.7.1 The leader

The leader (manager) afflicts the leadership situation by his managerial philosophy,
values, needs and strengths or preferences for a leadership style. The style a leader
chooses will be influenced by these variables (philosophy, values, needs). A leader's
philosophy about work and people who perform the work will influence her approach
to leadership.

6.7.2 The led

The essence of leadership is followership, yet, not all managers are leaders. A
manager has people to supervise, but if they do not accept and follow his supervisory
authority, then the manager is not a leader. Subordinates may comply with the
supervisory command out of fear, but such compliance is not a response to leadership.
On the other hand, a leader may have followers, but if he lacks the formal authority
to manage, he is not a manager.

Those who are led interact with the leader and the environmental consideration in
determining leadership style. The led (employees) have values, needs, abilities and
style preference or expectations. These (subordinates) expectations ultimately
influences the managers' leadership approach. The values of the work group
influences leadership style.

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The need of individual requires a manager's leadership response. An employee

concerned about security in the work environment will require different leadership
style than an employee who is adventures and seeks new areas of challenges.

Ability level of employees (the led) can also influence leadership style. An employee
who has just been hired without previous work experience will function better with
close, directive supervision. This will result in:
- less confusion
- increase learning rate
- sense of security
An experienced worker would resist such leadership style.

6.7.3 The Environment

This refers to the work (task) to be done and the situation under which it has to be
performed. Variables in work environment include:
- the degree of which a task is structured
- the amount of technology involved in the work
- the influence of upper level manager
Highly structured jobs are those with severe limitations on individual decision
making. These types of task are:
• those that are highly automated may call for a directive leadership approach
• where job is creative (research oriented) or result is team-centered, a
participative style may be called for.

6.8 Attributes of a Leader

(a) Emotional appeal

A manager is expected to be a rational decision-maker and problem-solver and is
expected to use his or her analytical skills in the process of establishing and achieving
organizational goals. A leader is expected to be a charismatic person with great
visions which can alter the mood of his followers and their hopes and expectations.

(b) Needs of followers

Both a manager and a leader are responsible for meeting the demands of the
organization and their subordinates respectively. However, whereas a manager is
expected to be more concerned with attaining organizational goals, a leader is
expected to be more concerned with fulfilling the needs of his followers. A manager
cannot be said to be a good manager if he does not meet organizational goals.
Likewise, a leader cannot be said to be a good leader without satisfying his followers'
needs.
A manager uses both leadership and managership in the process of managing
employees. Managership gives him the formal authority while leadership gives him
a means of securing voluntary compliance.

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6.9 The Leadership Process

Leadership can be affected by a number of personal, interpersonal and organizational
factors such as the personal traits of the leader's behaviour and situational factors such
as subordinates, tasks and organizational practices.
Figure 4.1 The leadership process model

1 Personal traits 2 Leader behaviour

- Attitudes - Directive
- Motivation - Supportive
- Personality - Participative
- Achievement oriented

3 Situational factors 4 Leadership matches 5 Effectiveness

- Task structure Is the behaviour - Satisfaction
- Group members appropriate to the - Motivation
- Position power situation. - Productivity
-
1. Personal traits
Managers should have certain personal traits, such as attitudes, motivation and
personality. These influences their behaviour as leaders. A manager who trust other
people is more likely to consult with his subordinates than one who does not.

2. Leader Behaviour
Most managers exhibit certain behavioural patterns in dealing with their
subordinates. These leadership behaviors reflect their own personal traits and the
institutional demands. The common leadership behaviors include being directive,
supportive, participative and achievement-oriented.

3. Situational factors
The environment in which a manager operates influences his behaviour. These
environmental influences are referred to as situational factors and the most important
ones include group tasks, group members and organizational practices such as the
formal authority granted to a manager.

4. Leadership matches
For any manager to function effectively as a leader, he has to demonstrate a leadership
behaviour that is suitable to his personal traits and the situational demands. If these
are mismatched, he is not likely to function effectively. A leadership match can be
realized by:
i) Finding leadership situations that are suitable to the manager's personal traits
and behaviours;
ii) Modifying situational factors to suit them to the manager's traits and behaviour;
ii) Increasing versatility of leadership styles to match varying situations

1. Leadership Effectiveness

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The effectiveness of a leader's behaviour is expected to increase when there is a match

between leadership styles and situations. Leadership effectiveness can be measured
by the degree to which the manager meets both the organizational goals and satisfies
the employees' needs.

6.10 Leadership Styles

There are different leadership styles and the most common are: authoritarian,
democratic and free-reign (laissez-faire).

(a) Authoritarian leader

The authoritarian type of leadership holds all authority and responsibility in an
organization with communication almost exclusively moving from top to bottom. The
manager assigns workers to specific tasks and expects orderly and precise results. The
manager sets goals, tells workers what to do, and how and when to do it. He may, or
may not give any explanations and also exercises close supervision. This style is
similar to autocratic or dictatorial leadership which involves forcing or threatening
employees.

i. Autocratic styles
These involve close supervision of subordinates, leader issues precise and detailed
instructions to cover every task undertaken. Types of autocratic style
- Dictatorial: where the leader tells the subordinates exactly what to do without
comment or discussion. There are rewards/penalties for success or failure;
leader/subordinate relationship is highly formal; there is strict control; there is
little or no respect at all is shown by the leader.
- Paternalistic style: as in dictatorial, it is characterized by: close supervision;
detailed instruction; highly structured leader/subordinate relationship.
However, the leader genuinely attempts to gain respect and allegiance of
subordinates, limited dissent is tolerated and reward is always given to those who
follow instructions.

Advantages of autocratic approach

i) Allows managers to adequately coordinate work, thereby facilitating completion
of assignments.
ii) Provides for clear definition of tasks, situations and relationships.
iii) Provides for faster decision making with management at the centre of activities.
iv) Allows subordinates to receive immediate assistance towards achieving their
goals.

Disadvantages
i) Employees' knowledge, skills and experiences are not fully applied to their work.
ii) It suppresses workers' initiative
iii) Staff cannot develop to their maximum potential.
iv) In the absence of the leader (in case of sickness, holiday, etc) some work may not
be accomplished.
Autocratic approach may be appropriate for the following situations:

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- where employees have low motivation

- where employees show little concern for their work
- where employees make no attempt to communicate with colleagues or
management

(b) Democratic leader

A democratic type of leader obtains ideas and opinions from workers. He gives them
a chance to express their feelings about how things should be done. While the
manager considers the ideas and opinions of workers, he still makes the final decision.
This is done in an attempt to minimize differences and get commitment from
employees before taking action. In this type of leadership, communication is usually
both upward and downward.

Advantages of Democratic Styles

i) Can improve employee morale by involving them in forward planning, decision-
making and control
ii) Increases subordinates job satisfaction through broadening their responsibilities
and making their work more interesting.
iii) Uses subordinates' specialized knowledge and skills in achieving objectives
iv) Ensures that only responsible targets are set because the people who attain them
are involved in their formulation.

Disadvantages of Democratic style

i) Decision taking may be slow because of the time consumed by the need to consult
subordinates, leader/subordinate disagreement may occur, making the
subordinates to shy away from the decision-making process.
i) Lack of positive direction may prevent objectives being attained.
ii) Subordinates might not be capable of working without close supervision.
iii) Resentment by subordinates may occur if they are involved in minor matters and
excluded in major ones.

(C). Free-reign (Laissez-faire)

The leader waives responsibility and allows subordinates to work as they choose with
minimum interference. The employees are given the authority to make a decision or
determine a course of action. Within the limits of authority given, they (subordinates)
structure their own activities. They may consul with the manager, but he is not
directly involved in making the decision. The manager indicate what needs to be
done, and when it must be accomplished but lest employees decide how to accomplish
it as they wish. In this style of leadership, communication flows horizontally among
group members.

6.11 Characteristics of Successful Leaders

There is no universally acceptable traits that would make leaders effective in all
situations. However, successful leaders are generally expected to possess some if not
all of the following qualities:
• a strong desire for task accomplishments
• persistent pursuit of the organizational goals

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• creativity and intelligence to solve problems

• initiative applicable to social situation
• willingness to accept behavioural consequences
• low susceptibility to interpersonal stress
• high tolerance for ambiguity
• ability to influence other people and
• ability to structure social interactions
Systematic studies of the personal traits associated with unsuccessful leaders have not
been covered exhaustively. However, it can strongly be suggested that ineffective
leadership is probably associated with personal characteristics such as aggression,
depression, disorganization, paranoia, neurosis and procrastination. Some attitudinal
factors are also associated with ineffective leadership and may include over concern
with morale, failure to maintain an objective attitude, practising polarization or seeing
things either good or bad, idealism in decision-making, and anxiety to do the right
thing.

6.12 Effective Leadership

A manager has a lot to do with organizational effectiveness. However, due to the
many factors influencing organizational performance, it is questionable as to whether
a single leader can make a major difference in the organization's performance. A
manager can apply a combination of the following for effective leadership:
• General supervision rather than close, detailed supervision of employees
• Devote more time to supervisory activities than in doing production work
• Pay more attention to planning work and special tasks
• Willingness to permit employees to participate in the decision-making process
• Use the employee-centered approach; showing a sincere interest in the needs and
problems of employees as individuals as well as being interested in high output.
The characteristic of a manager will affect the way he leads his employees. His values,
need for security in uncertain situations and flexibility will influence which styles he
will be comfortably be using.

6.13 Summary
In this lesson, leadership as the ability to influence others towards the achievement of
goals has been discussed. It has been noted that managers’ influence through formal
authority unlike leaders who influence others to perform willingly beyond the actions
dictated by formal authority. Secondly, managers are appointed while leadership may
be through inheritance, personal power, election or recognition by peers. For effective
management, a manager should also possess leadership characteristics. Thirdly, the
common types of leadership styles are authoritarian, democratic and lassiez-faire.
However, the use of any styles is dependent on the situation one finds himself in.

Review Exercise
1. List the traits of a successful leader you know and explain how they are related to
the leaders success.

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2. Explain how followers of a leader you are familiar with have influenced his
leadership style.
3. All managers can be leaders but not all leaders can be managers. Discuss.

LESSON SIX: STRATEGIC MANAGEMENT

The word strategy has become one of the most commonly misused words in business writing.
In its original form, the word strategy borrowed from Greek word strategies meant the art of
the general or commander – of- the armies.

Strategy in its strictest sense refers to means and not ends. Strategy is all about how the
organization will achieve its objectives. The original meaning concentrated on how the key
decision making unit of the organization or the board was going to Marshall its resources in
order to achieve its stated objectives.

Since strategy is about marshalling resources of an organization to match the needs of the
market place and achieve the business objective, this cannot be a short-term activity. Every
organization is complex and any change takes time to accomplish.

Alfred D Chadler defined strategy as the basic long-term goals and objectives of an enterprise
and the adoption of the courses of action and allocation of resources necessary for carrying
the goals.

Ansoff (1965) a well known authority in the field of strategic management defined strategy as
“as the common thread among organisation activities and product markets”

Henry Mintzberg (1987) advocated the idea that strategies are not always the outcome of
rational planning. They can emerge from what an organisation does without any formal plans.
He defined strategy as a ‘pattern in a stream of decisions and actions’.

He distinguishes between intended and emergent strategies. Intended strategies refer to plans
that managers develop while emergent are the actions that actually take place over a period
of time. In this manner an organisation may start with a deliberate design of strategy and end
up with another form of strategy that is actually realized

Michael Porter (1996), argues that the core of general management is strategy which he
elaborates as “developing and communicating the company’s unique position, making trade-
off and forging fit among activities.

Strategic position are based on customers needs, customers accessibility or variety of a

company‘s product and services. A company unique position involves choosing activities in
different ways. However, sustainable competitive position requires a trade-off when activities
pursued by a firm are incompatible. Creation of fit among the many activities is done to
ensure that they relate to each other.

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Strategic decisions like the general choosing his battleground will have long-term
implications. Strategic decisions such as which business area to enter, cannot be reversed at a
moment notice. Momentum has to be built over a planned period of time.

Without clear guiding strategy, managers will spend a lot of time agonizing over decisions
that could be made in a minutes if only they knew what their organizations was trying to do.

A well-communicated strategy brings the organization together and provides common

purpose. If people and departments are not all looking in the same direction, they cannot help
but be working against each other. In more competitive days ahead, it is less and less
reasonable to expect customers to pay for our inefficiency.

Strategic management
Strategic management is the art and science of formulating, implementing and evaluating cross-
functional decisions that will enable an organization to achieve its objectives. It is the process
of specifying the organization’s objectives, developing policies and plans to achieve these
objectives, and allocating resources to implement the policies and plans to achieve the
organization's objectives. Strategic management, therefore, combines the activities of the
various functional areas of a business to achieve organizational objectives.
It is the highest level of managerial activity, usually formulated by the Board of directors and
performed by the organization's Chief Executive Officer (CEO) and executive team. Strategic
management provides overall direction to the enterprise and is closely related to the field of
organization studies.
Strategic management is a combination of three main processes which are as follows:

i) Strategy formulation
• Performing a situation analysis, self-evaluation and competitor analysis: both internal and
external; both micro-environmental and macro-environmental.

• Concurrent with this assessment, objectives are set. These objectives should be parallel to a
timeline; some are in the short-term and others on the long-term. This involves crafting vision
statements (long term view of a possible future), mission statements (the role that the
organization gives itself in society), overall corporate objectives (both financial and strategic),
strategic business unit objectives (both financial and strategic), and tactical objectives.

• These objectives should, in the light of the situation analysis, suggest a strategic plan.
This three-step strategy formulation process is sometimes referred to as determining where you
are now, determining where you want to go, and then determining how to get there. These three
questions are the essence of strategic planning. SWOT Analysis: I/O Economics for the
external factors and RBV for the internal factors.

ii) Strategy implementation

• Allocation and management of sufficient resources (financial, personnel, time,
technology support)
• Establishing a chain of command or some alternative structure (such as cross
functional teams)
• Assigning responsibility of specific tasks or processes to specific individuals or groups

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• It also involves managing the process. This includes monitoring results, comparing to
benchmarks and best practices, evaluating the efficacy and efficiency of the process,
controlling for variances, and making adjustments to the process as necessary.
• When implementing specific programs, this involves acquiring the requisite resources,
developing the process, training, process testing, documentation, and integration with
(and/or conversion from) legacy processes.

iii) Strategy evaluation

• Measuring the effectiveness of the organizational strategy. It's extremely important to
conduct a SWOT analysis to figure out the strengths, weaknesses, opportunities and threats
(both internal and external) of the entity in question. This may require to take certain
precautionary measures or even to change the entire strategy.

Policy and Strategy

The success of an organization is strongly linked to how the management perceives the goals
to be achieved and the ways devised to achieve those goals. These are two different but
interrelated concepts of policy and strategy

Organizational success or failure is largely dependent on how the various functional areas in
the organization are combined to produce and deliver value to different stakeholders. This
integration of functions is taking place in a continuously changing and complex environment.
The formulation and implementation of policies and strategies is an important issue as the
organization strives to remain successful and grow in an increasingly complex, competitive
and globalised world. It is therefore interdisciplinary by nature and requires an
understanding of all functional areas.

Organizational policy refers to the roles and responsibilities of top level management, the
significant issues affecting organization wide performance and the decisions affecting
organization in the long run. Organizational strategy is the strategy developed and
implemented to the goals set by the organizational policy. More specifically, organizational
strategy can be defined as the way a company creates value through the configuration and
coordination of its various multi activities.
Organizational policies and strategy provide guidelines for action. Unfavorable and
ambiguous policies or strategy may affect the functioning of the employees adversely and
they may experience stress. Organization wide policies are designed to achieve major
organizational objectives.

If an organization think about achieving something as involving ways, means and ends –
policy is often engaged with the ‘ways’; strategy is concerned with the ‘means’; and finally
planning is focused on the delivery of the ‘ends’.

Fig 1 shows relationship of policy and strategy as compared with vision and mission.

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Policy
Policy is a course or principle of action adopted or proposed by an organization. It is a guiding
principle used to set direction in the organization. A policy contains the ‘what’ and the ‘why’.
It is developed within (i) a legal framework, (ii) an organizational mission, and an ideological
framework.

Policies are general statements that help guide management thought process in decision
making. Policies are guidelines and help the organization to achieve its goals. Policies are
normally developed within the following regulatory environment.

• Statute, laws, and regulations governing the sector and general business environment
under which the organization operates
• Mandatory standards of practice
• Voluntary codes of best practice
• Voluntary codes of conduct and ethics
• Stake holder’s expectations from the organization

There are constants in good policy making. They are an intellectual rigour about issues, a
commitment to procedural integrity and a willingness to experiment and learn through
implementation and adaptation. Established practice (‘we have always done it this way’) should
not be mistaken for policy.

Policy is an intentional, designed to achieve a stated or understood purpose. It involves

decisions and their consequences. It is structured and orderly, political in nature, and dynamic.
It is a statement by the organization about its intentions.

A policy includes the following.

• The source of mandate and authority to implement the policy

• Aims and objectives of the policy
• Statements about (i) who is responsible for implementing the policy, (ii) how the policy
will be implemented (strategies), (iii) how the policy will be communicated, (iv) codes,

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standards and benchmarks by which the policy implementation can be evaluated, and
(v) when and how the policy will be reviewed.

In an organization it is necessary that a policy must be implemented and communicated for

which a strategy is needed. In a policy everyone must know his responsibilities and his
accountabilities. Also the responsibility for the implementation of the policy must be assigned
to someone who will be primarily accountable for the implementation of the policy.

Policies align with the vision of the organization. They set the organization’s overarching
direction and drive the way the organization performs. Like a compass pointing north, policies
lead the way to the organization’s mission. By delineating a corridor of navigation or fields of
interest and the linkages among them, these policies reduce uncertainty in strategy formulation
and further downstream along the value chain. Policies should be mission driven rather in
reaction to surprise events or undue pressure from change advocates. They should delineate the
coping mechanisms to deal within unexpected issues, and the conditions under which ad hoc
decisions can, within limits, override policy, as in major crises or pilot experiments. Policies
must be coherent with equitable, accountable and effective governance.

Policies permit the organization to focus the efforts on the most promising environmentally
friendly avenues and on the combination of value propositions.

A policy tells employees what they should and should not do in order to contribute to the
achievement of organizational goals. It says something about how goals will be attained. It is
a helpful guide that makes the strategy of the organization explicit and provides direction to
the employees.

A policy lies at the core of all decisions taken by the management of the organization. It serves
as a guide while taking decisions though the policy is not a statement that is written in black
and white that has to be applied in day to day operations. Policy statement is like a guidebook
that helps management to take important decisions and clears all doubts as to the direction the
organization should take.

The characteristics of a policy are given below.

• It offers guidelines for management to take appropriate decisions.
• It is a general course of action with no defined time limits.
• It is a guide to action in areas of repetitive activity.
• Once policy decisions are formulated these can be delegated and implemented by
others independently.

Strategy

Strategy is viewed as the value based (longer term) approach to how a vision (policy goal) can
be realized in broad terms e.g. specification and setting up of action directions and various
programmes.

Strategy is a plan of action designed to achieve a long term or overall aim. It is a methodology
used consistently to achieve a long term or overall objective or aim. It is a plan for
implementing a policy.

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Strategy is meant to achieve the organizational mission and objectives by the adoption of
various and different courses of action with proper allocation of resources.

The plan of action devised by the management to achieve the goals set forward is termed as
the strategy of the organization. There can be different strategies to achieve the goals set by the
organization following the policy guidelines though the policy is a long term concept that
remains the same in a constant manner. Strategy is better labeled as plan of action while the
policy is a guideline that is to be kept in mind all the time.

Strategies define the overall character, mission and direction of an enterprise. The focus on an
organization’s long term relationship with its external environment specifies what an
organization will be doing in future, reflecting the kind of enterprise the managers envision.
Strategies are formulated and implemented with a view to achieve specific goals. An
appropriate strategy will give the organization an advantage over the competitors. It will enable
the organization to marshal the resources so that they are more effectively utilized. In other
words, the basic purposes of a strategy are to deploy human as well as physical resources in
order to maximize the chances of achieving a selected objective in the face of difficulties.

The characteristics associated with the strategy are given below.

• It deals with strategic decisions that decide the long term health of the organization. It
is a comprehensive plan of action designed to meet certain specific goals.
• It is a means of putting a policy into effect within certain time limits.
• It deals with those decisions which have not been encountered before in quite the same
form, for which no predetermined and explicit set or ordered responses exist in the
organization and which are important in terms of the resources committed or the
precedent set’
• It deals with crucial decisions whose implementation requires constant attention of
top management.

Strategy of the organization is reflective of the thinking of those at the top of its management
and the action that the management plans to take. It is the job of the management to set goals
that are sought to be achieved and the strategy is a statement that lets stakeholders know the
thinking of the management as to how they plan to achieve these goals. To an investor or a
shareholder, the strategy document is an important reminder regarding the thinking process of
men who matter in the organization. Usually strategies are made beforehand where there are
plan A, plan B, and plan C ready to be applied in different circumstances.

Competitive advantage is a key driver to forming an organizational strategy. Strategy consists

of a set of long range decisions which establish actions to exploit opportunities or combat
threats in response to environmental forces and developments. These decisions are the result
of a complex decision making process designed to establish organizational goals and long range
plans for resource allocation. A valid strategy can gain extraordinary results for the
organization whose general level of competence is only average. The following are the
important issues related to the strategy.

• Internal consistency – It refers to the cumulative impact of individual policies on

organizational goals, and in a well worked out strategy, each policy fits into an
integrated pattern. A strategy must be judged on the basis of its relationships to the
policies and goals of the organization.

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• Consistency with the environment – The strategy should be consistent with the
environment, that is, this should make sense with respect to what is going on outside.
Consistency with the environment has both static and dynamic aspects. In a static
sense, it implies judging the strategy with its suitability to the existing environment.
• Appropriateness in the light of available resources – The strategy must be appropriate
in the light of available resources. Resources are those things that help an organization
achieve its objectives. There are two basic issues which management must decide in
relating strategy and resources. The three critical resources in an organization are
money, competence, and physical facilities.
• Satisfactory degree of risk – Strategy and resources, taken together, determine the
degree of risk which the organization is under taking. Thus, each organization must
decide the degree of risk it can take. This, in turn, depends upon several factors.
• Appropriate time horizon: A good strategy not only provides what objectives would
be achieved, it also indicates when objective would be achieved. This is due to the fact
that a significant part of every strategy is the time horizon on which it is based. In
choosing an appropriate time horizon, the organization must pay careful attention to
the goals being pursued. Goals have time based utility and must be established far
enough in advance to allow the organization to adjust to them.
• Workability – The strategy must have enough degree of workability. The workability
of a strategy can be measured in terms of results which are obtained. However, the
results measure two factors namely the strategy selected and the skill with which it is
being executed. If the results are not up to standards, both these factors can be
examined.

Differentiation between policy and strategy

Policies are guidelines. They give the function its license and character. Policies often cover
staff expectations, roles and processes in an organization. A strategy is a high level plan. It sets
out aims to achieve, how it will respond to organizational requirements, type of training and
development that will be provided, and how the budget will be allocated

Policy is the spheres or scope within which decisions are taken by the employees in the
organization. Strategy is an action that managers and directors take to achieve one or more of
the organizational goals.

A policy is a guide to thinking and action for those responsible for making decisions. On the
other hand, a strategy deals with the allocation and deployment of physical and human
resources so as to achieve the desired goals in the face of environmental pressures.

A strategy may exist without a policy. Strategy and policy may in some cases be coexisting. A
strategy deals primarily with environmental constraints and opportunities whereas a policy is
concerned mainly with internal management.

A policy is a contingent decision and it lays down the response to be made whenever the
specified contingency arises. But a strategy is designed to deal with situations about which all
facts are not known and, therefore, alternatives cannot be evaluated in advance.

The implementation of policy can be delegated but the execution of strategy cannot be
delegated because it requires a last minute executive-decision.

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However, both policy and strategy are designed to achieve organizational objectives. The
process of their formulation is similar. In strategic decisions the identification and analysis of
the factors bearing on the problem are more difficult than in case of policy decisions.

How to Develop a Change Management Strategy

A change management strategy includes a plan and roadmap to implement the changes and
reduce resistance. It also includes incentives to motivate team members to adopt the changes
and a communication plan to keep everyone in the loop throughout the changes.

Managing change during digital transformation combats resistance and ensures that the
transformation achieves the expected business value. Beyond using popular change
management models, change leaders must build trust and empathy with the employees and
managers.

Keep reading to find out how organizations get employees and stakeholders onboard their
change initiatives.

What Is Change Management?

Change management in digital transformation is everything a company does to help its people
adopt new technology. It is the process of helping people understand why they need to change
to another system and how their jobs and business processes will change—then helping them
kickstart and continue in the new way of doing things.

A digital transformation may not achieve the expected business value without a change
management strategy.

If employees struggle to learn how to use a new ERP system, the support team will have more
support tickets to help the employees through mundane tasks on the system. The employees
lose valuable time not doing the tasks they’re paid to do — equating to lower productivity and
return on investment from the workforce and the digital transformation.

A change management strategy is an approach that guides how a company helps the people
move to a new system and use it to its full potential. It involves company culture change, clear
communication, effective training and ongoing support.

Resistance to change is the key reason we need a change strategy in digital transformation.
And as organisation roll out an average of 5major changes every three years, we need a
strategy to transition people to new systems without disruption. Resistance can boil from
employees with a low resistance to change, those with different perspectives or self-interest
in the project, or a misunderstanding of what the change is about.

A change management strategy looks into possible resistance areas to address them before
they cripple the digital transformation program.

Change management also deals with one of the biggest challenges to digital transformation
disengaged employees. Sometimes employees understand the need for change but don’t
believe that the costs outweigh the benefits. And some employees are curious and embrace
change, while others doubt their abilities or fear making mistakes.

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Most importantly, change management can increase a digital transformation’s ROI by 143%.
And even with the worst change management initiatives, organizations still capture 35% of
the expected value.

An effective change management strategy has a plan and roadmap, involves stakeholders and
employees, effective training, transparency, constant communication, and incentives.

Transparency
Transparency in change management means having open conversations about what’s going on,
the choices management has made and why, how things will look after the changes and
everything else that matters to the employees.

Instead of portraying a facade that management knows what they’re doing, how about being
real? Meet the employees as humans rather than gods. The average person is pretty intelligent,
and they see through the facade. They’ll naturally root for the changes to fail, passively or
aggressively. In addition, when there’s no official information on important matters, there’ll be
speculations and rumors.

So leaders need to be straightforward and clear with what’s going on, what they know and
don’t know, the plan to fill in the missing information, what they expect, and how things will
change. Honest conversations build trust and empathy between management and employees.
And these lead to employee commitment and ownership of the changes.

Of course, some business information is better not divulged. For such information, then leaders
can mention that they’ve deliberately withheld the information and for what purpose.
Employees will appreciate the honesty.

But the biggest problem is that leaders often withhold information regarding the negative
impacts of the change.

As Tribe Inc’s CEO, Elizabeth Baskin, puts it, “The mistake that so many companies make is
to withhold information regarding negative impacts on the workforce. Equally offensive is
sugarcoating the negative news with an artificially positive spin.”

When management is open about changes and possible problems, employees can help find
solutions.

Planning
A change management plan documents the activities and roles to manage and control change
when deploying the new system. It includes change management roles and responsibilities
(who’s involved and at what level), change managers (who authorize or decline change
requests), and the process for submitting, evaluating, authorizing, and controlling change
requests. And to keep the change processes consistent, a change request is appropriate. And a
change log to monitor all the change requests and change decisions.

The type of planning for change management depends on the company’s strategy. Some change
management strategies include:

• Planned itinerary change strategy– where the company knows the goals and clear
steps to achieve the goals.

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• River crossing change management strategy – where the company knows the goal, but
the steps to get there are unclear. So instead of planning the change in detail, the
change team may opt for an experimental approach to find the best steps – e.g.,
running pilot programs for different paths to identify the best path.
• Hill-climbing change strategy – when you know the steps, but the end goal is unclear.
So instead of defining a clear end goal, the team works with a few minimum viable
products to build out a clear end goal as you go.
• Scouting and wandering strategy – when the company seeks change, but you know
neither the steps nor the end goal. So the team will have to explore different ideas, for
example, gathering ideas from employees.
• Escape the swamp strategy – when the company has to change, or it’ll die, like when
facing a disruptive threat. So the company would make the necessary changes to
escape the tragedy, even without in-depth evaluation.

A complete plan doesn’t just focus on high-level change aspects like communication. We need
to think strategically, tactically, and operationally. Besides defining the change strategy, we
also need to plan for resistance.

Companies can avoid employee resistance through:

• continuous training
• rewarding early adopters
• ongoing adoption support
• gathering employee feedback throughout
• A Fully Fledged Roadmap

The typical change management roadmap includes these phases:

• Assess the current state (current change initiatives, their successes, failures, risks, and
obstacles. Identify possible areas of resistance and their root causes)
• Define the future state (establish maturity goals, define future technical elements and
people elements, future state metrics, and a vision statement)
• Design the transition on both people and technical sides (creating awareness, building
knowledge, developing skills, etc.)
• Implement the “technical” future state.
• Implement the “people” future state.

When developing a roadmap for change management, CIOs recommend the following:
• Executive leaders should support the change process actively throughout
• Ensure that employees understand the reason for the change from the beginning and
the expected benefits
• Use all possible communication channels to communicate with your employees
throughout (receive and address feedback)
• Keep the roadmap flexible to adapt to changes as you assess employee engagement
during the change (regular assessments)
• Be transparent about the change processes

Communication
Beyond the high-level stuff (town halls, newsletters, etc., explaining why we’re doing the
changes, what changes will happen, and when they go live), we need to get to the nitty-gritty
within the department’s workgroups and individuals. For example, how their jobs will change,

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team changes, performance evaluation, career progression, and how we’ll help them through
the changes.

The four steps for communicating organizational change:

1. Share a vision with the entire organization (where you are, what motivations drove
the transformation, how things will look like and work after the transformation)
2. Create and share a story of your change initiatives and how you intend to reach the
goals
3. Help everyone understand where the organization is going and each person’s specific
roles towards that (empower everyone to become a change agent).
4. Show the path that will get everyone to the future state organization.

Communication Tips In Change Management:

• Give the employees all the details of the changes
• Recognize the employees’ fear of being replaced and address it – emphasize the digital
transformation is a chance to upskill to suit the current and future marketplace.
• Create an open, collaborative environment to encourage people to speak out,
especially when they fall silent
• Encourage two-way communication for engaging conversations
• Use digital and one-to-one communication strategies (town halls, all-hands meetings,
email, team meetings, videos, anonymous surveys, etc.)
• Keep communicating even after the changes are live – gather feedback and improvise
Employee & Stakeholder Involvement
Involve the employees, stakeholders, and process owners who’ll be impacted by the change in
designing, deciding, learning, and implementing the changes. Gather their feedback as much
as possible. And involve people who understand the technicalities of the transformation in the
change management team.

Tips for engaging employees:

• Involve every affected employee as early as possible and leave no one behind. Have
everyone at per to have enough time to analyze and adjust to the new ideas
• When making decisions about work units and responsibilities, involve each affected
employee whenever possible.
• Have a measurement system in place coupled with rewards and recognition
• Gather employee feedback throughout.
• Address those who resist the changes directly and individually
• Provide full explanations for rejected ideas
• Managers should be open-minded to receive different ideas
• Only involve employees on issues within their sphere of understanding
• Communicate clearly which aspects of change are open to discussion and those that
aren’t.
• Implement recommendations from employees
• Managers should give employees constant feedback on the status of change initiatives

Tips for involving stakeholders:

• Early stakeholder awareness is key to getting them onboard
• Have a strong case supporting the need for change
• Identify the influential stakeholders with an interest in the transformational change.
• Communicate the change’s vision continuously to the stakeholders

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• Involve customers if the changes will affect the product or service (e.g., using focus
groups, product tests, surveys, etc.)
• Involve all the key stakeholders in training and follow-up training
• Monitor stakeholders’ participation and performance to optimize over time.
• Senior leaders should initiate, lead and champion the changes
• Middle managers should facilitate the change processes and help employees
understand the changes

Adequate Training
HR may have to bring in new talents or upskill the current staff. Nonetheless, training should
continue during the change process and after. Beyond being timely, it should be personalized
to suit the knowledge, skills, and behaviors required to implement the change.

Quick training tips in change management:

• Detail who will conduct training, in what formats, and how often.
• Use a mix of learning channels to meet employees where they are (webinars, video
tutorials, live sessions, conference calls, round tables, knowledge bases, etc.)
• Provide ongoing training and support
• Match the high performers to the most crucial change initiatives (or high).
Besides training employees to use the new system, we also need change management
competency training in top-and middle-level management. Top management needs the training
to be effective change sponsors and demonstrate commitment. Middle-level managers need the
training to coach employees through their change processes.

Incentives
An incentive program rewards change adopters to motivate others and improve performance.
It targets metrics or desired behaviors to enforce them positively. Beyond recognizing achieved
goals, also reward exceeded expectations. For example, rewarding 25% of base pay for
achieving a goal and the possibility to earn up to 40% of the base salary for exceeding
expectations.
Rewarding managers for achieved initiatives and top-performing employees boosts morale.
McKinsey found that rewarding managers and employees is one success factor in change
management.

Here’s how to create an incentive program:

• Align performance-based rewards with the overall business strategy
• Set the performance goals and their metrics (or KPIs)
• Communicate the expectations throughout the organization clearly
• Choose suitable incentives (money, recognition, awards, development opportunities,
etc.)
• Monitor the program
• Adjust as needed
• The change process owner, the change advisory board, change managers, and change
management teams work together to develop the change management process.
• The change managers design, support, and lead change operations. They also evaluate
the organization’s readiness for change, the change impact, and resistance areas.
• The change process owner defines and supports the process for change management,
evaluates and improves it, and reports performance to the change manager and change
advisory board. They also communicate change guidelines to stakeholders.

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• The change advisory board assesses, approves, and rejects change requests. It’s made
up of high-level IT strategists. They also evaluate failed changes and provide a forum
for shared learning from the change processes.
• The Change management team comprises change approvers, change assignees and
change requesters. The team manages changes within their department.
Change Management measurements are typically surveys, assessments, tests, and observations
of the change activities and business outcomes. So organizations use both qualitative ad
quantitative metrics to determine a successful change management strategy.

Quantitative Measurements Include:

• Time taken to adopt the changes
• Number of people who have adopted the changes successfully
• ROI and benefit realization
• Adherence to the project timeline
• Employee engagement
• Support requests
• Error logs
• Training attendance numbers and participation
• Project KPIs
• User login volume
• Audit and compliance findings
• Transaction volume

Qualitative Measurements Include:

• Employee satisfaction survey results
• Employee readiness assessment results
• Communication effectiveness
• Training effectiveness
• Employee feedback
• Quality of work after implementing the changes
Implement Change Management With The Right Strategy
The right change management strategy depends on the overall business strategy. But the key
elements of a successful change management strategy are effective communication, change
management plans and roadmaps, adequate training, involved employees and stakeholders, and
incentives. In addition, transparency throughout the change process builds trust and empathy
with the employees, which increases the likelihood of success.

The typical metrics for measuring a change management strategy include user logins, support
requests, adherence to the project KPIs and timeline, time to adopt the changes, and benefits
realization.

The Stakeholder Approach to Corporate Social Responsibility

“Few trends could so thoroughly undermine the very foundation of our free society as the
acceptance by the corporate official’s o a social responsibility other then to make as much
money for their stockholders as possible” Milton Friedman, capitalism and freedom,1962

Since Milton wrote these words, the issues of social responsibility has remained highly
contentious one. But manager recognize that deciding to what extent to accept social
responsibility is a strategic decision.

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In defining the mission statement, the management must recognize the legitimate claimant.
These will include all the stakeholders of the organisation. Social responsibility is the
obligation of decision-makers to take actions that protect and improve the welfare of society
as a whole along with their own interest. It is in other words the social responsibility
obligations that a business has. At any one time in any society there is a set of generally
accepted relationship obligations and duties between the major institutions.

Social responsibility concept developed as a result of business growth, increase in social

consciousness, growth in the level of education and concentration of economic power in
hands of big corporation

The evolution of social responsibility has taken place since the 2nd world war. The modern
business organization must consider the impact of their actions on whom they interact. This
is the traditional standard of performance that is profit ethics is being challenged that the
modern business can no longer make decisions solely on basis of profits.

Stakeholder’s View
The view is that many groups have a stake in what the organization does. Shareholder’s own
the business but employees, customer’s, and government also have particular interest. It is
argued that modern corporations are so powerful that unrestrained use of their power will
inevitably damage other people’s rights.

If the stakeholder’s concept is upheld, then the public is a stakeholder in the business. A
business only succeeds because it is part of a wider society. Giving to charity is one way of
encouraging this relationship. Donations to charity are a useful medium of Public relations
and can reflect well on business.

An organization might accept the legitimacy of the expectations of shareholder’s other than
shareholder’s and build those expectations into shared purpose. This is because without
appropriate relationships with these groups, the organization will not be able to function.
Why has there been this shift towards social responsibility?
• The very success of the modern businessman has created new responsibility for him.
• Decline in public support of the power hungry and power seeking type of businessman.
• The situation and knowledge of both the modern manager and modern consumer on
society concern and goals.
• Also increasing depersonalization of corporation resulting from corporate growth i.e.
Separation of ownership and control giving managers more autonomy.
• Corruption rather than competition is gaining importance as a way of getting things done.
• Translation of corporation from producer of goods and services to modern purpose social
institution.
• The modern businessman has earned a high place among national leaders making his
responsibility more social to keep pace with his new social role.

Support for Doctrine of Corporate Social Responsibility

The supporters of this concept agree on two basic hold.
• The industrial society faces serious human and social problems brought about by the rise
of large enterprises.
• Managers must conduct the affairs of their corporation in ways which will serve or reduce
its problems.

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Besides they argue that social responsibility in business will improve shareholders returns; in
that;
• It is essential to being a sustainable enterprise- a sustainable enterprise is one whose
competitive strategy does not conflict with the long-term needs and values of the society.
• Attract socially conscious investors i.e. think about oil, tobacco, car, armaments, mining,
brewing and assess the level of their sustainability.
• Attracts socially conscious consumers-consumers ready to pay premium for products they
regard as sound.
• Improves relations with governments and other regulatory bodies. To a great extent, a
firm depends of the goodwill of governments.
• Reduces stress on management and staff and permits improved morale. Socially
responsible firm may attract staff who are conscious of ethics and social responsibility.

These supporters contend that democratic capitalism has failed because it did not develop a
functioning society i.e. a society that gives each individual a respectable status based on social
functions he performs. They further contend that an economy is a means to an end therefore
the way it is organized should be a function of the value systems of a society in which it exists.

Arguments against Corporate Social Responsibility

• It reduces the corporate profits i.e. it takes money out of the pockets of the shareholders.
Some economists have argued that such practices rank counter to the free market
economy.
• Businesses are not directly accountable to the public thus to give them social obligation is
to give them activities for which they are not responsible for the performance or results.
• Business organizations have no expertise in social responsibility.
• Management and staff expertise may be wasted in social project.
• Shareholders funds may be diverted to socially worth project
• Social responsibility gives organizations more power.
• Social responsibility is a redundant concept that is the existing laws sufficiently constrain
the corporate activities.
The doctrine is incompatible with the prices system where sellers carry on the rational
calculation in order to maximize their profits and the buyers to maximize satisfaction. As
such the only control visible should be the marketplace and nowhere else.

The business enterprise must assume the single role of profit maximization for the price
system to work at maximum efficiency. If business takes on other roles then the price system
may loose in production of goods and services for profit and leave other goals/roles for the
family for host government and any other entity.

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