Basic Business Management Functions – Compiled by J.

Langat
07 Basic Business Management Functions
Management is a vast subject that branches into several sub-categories, like “business management”,
“Organization Management”, “Management of Hospitals”, “Management of Educational Institutions” etc.
People have learnt management ever since they grouped themselves into society and thence into a State or
country, to protect and regulate their mutual interests. This has been possible on account of emergence of
“leadership” amongst the group and the ability of such “leaders” to organize others into obeying what was
needed for their common good. The group’s mission and objectives were defined. Codes of ethics and
behaviour and responsibility for specific tasks were then assigned to the individuals of the group. People
learnt to manage the institutions of the State, like the army, revenue collection, the judiciary, municipal or
civic administration etc. All these systems incorporate essentials of good management.

What is implied by the Word “Manage”?

We are all quite familiar with the word “manage” and “management”. The literary meanings ascribed to the
word “manage” are:

• “To direct or conduct business affairs”,

• “To exert control over”
• “To direct the affairs or interests of”
• “To direct affairs; to carry on business or affairs; to administer”
• “To have under control and direction; to conduct; to guide; to administer; to treat; to handle”
• “To succeed in accomplishing or achieving, especially with difficulty;”

We know that to manage “something” is to look after its interest; exercise some kind of “control” over the
“something” that is being managed, and in the process of such “managing” achieve with due effort some
good results, that were aimed in relation to the “something” that is being managed.

What is implied by the Word “Management”?

Similarly, different literary meanings ascribed to the word “management” are:

• The act, manner, or practice of managing; handling, supervision, or control

• The person or persons who control or direct a business or other enterprise. (Manager & managed
entity)
• The act or art of managing; the manner of treating, directing, carrying on, or using, for a
purpose;(objectives of management)
• Judicious use of means to accomplish an end; conduct directed by art or address; skilful treatment;
(management processes)

Management can be defined as a set of activities directed at the efficient and effective utilization of
resources in pursuit of one or more objectives. Organizational resources include people, machines, materials,
time, and managerial know-how. The act of managing has to be with reference to some business, or
enterprise etc. which we identified as the “managed entity”. Further the act of managing has to be towards
some defined standards or purpose. We identify this as the “management objectives” or the “goals of the
business”.

Management is better understood by organizing it into classes on the basis of what managers do. These are
commonly referred to as the managerial functions which are: planning, organizing, staffing, directing, and
controlling.

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 Basic Business Management Functions – Compiled by J. Langat
FUNCTIONS OF MANAGEMENT

Management can be seen as a process consisting of planning, organizing, staffing, directing, and controlling.
These are the functions that comprise the job of a manager, whether in a business concern, political, or
social organization.

I. PLANNING

The first function of the Manager is planning. It is also the foremost and the essential function. Planning
equips the Manager mentally to meet his tasks. Planning is the ongoing process of developing the business’
mission and objectives and determining how they will be accomplished. Planning includes both the broadest
view of the organization, e.g., its mission, and the narrowest, e.g., a tactic for accomplishing a specific goal.
Planning defines the goals and objectives to be reached in the plan period. It also consists of policies,
procedures, methods, budgets, strategy and programmes that are needed to achieve the goals set. Decision-
making is the most important and integral part of planning. Plans should be simple, sensible and
implementable.

Kinds of Plans

Organizational plans can be grouped into three: strategic, tactical, and operational.

Strategic plans are those plans developed by the top-level management to guide the general direction of the
organization. Strategic plans include:
- the corporate mission
- the objectives, and
- the kind of business the firm would like to operate in
Strategic plans are long-range in terms of time span.

Tactical Plans are developed by middle-level management and are intended to indicate how the strategic
plans are to be implemented. Focus is on specific resources and time limits. The time-span is medium-range.
Tactical plans include:
- procedures
- regulations
- programs

Operational Plans are lower-level plans focusing on organizational operations. They have the narrowest
timeframe, usually one year or less. Such plans address routine situations, and events that occur only once.

Steps in Planning

1. Being aware of opportunities: This comes before the actual planning. It refers to organizational
self-evaluation in terms of where the organization stands presently, its strength and weaknesses, and
a vision of where it would like to be in the future.
2. Establishing objectives: This refers to setting the organizational targets of future state of affairs or
what the organization would like have achieved by a specific period in future. Objectives may be
qualitative (such as “improve employee morale”), or quantitative (such as “5% increase in market
share”). Objectives may cover the following areas, among others:
- target profit (in Shs, $, € etc)
- percentage sales
- sales volume
- level of efficiency
- costs

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3. Establishing of planning assumptions (Premises): This involves making premises or assumptions
about the environment in which the organization will be operating. Premises include:
- controllable premises, such as the decisions make by managers entailing policies and programs,
- semi-controllable premises, including organization’s market share, labour turnover, etc, and
- non-controllable premises, including external environment of political, technical, socio-cultural
factors, etc
4. Determining the Alternative Courses of Action: This refers to the various means of accomplishing
the organization’s objectives. There are usually many options available, and all of them need to be
identified and considered. As the saying goes “there are many ways of killing a …”
5. Evaluating the Alternative Courses of Action: Not all available options are practical, cost-
effective, or even reasonable. The options need to be analyzed to determine which alternative is
better. Factors to consider may include the cost of each option, the benefits expected from each
option, the time period for each option, etc.
6. Selection of the Course of Action: This involves choosing the best option from among the
alternatives, after considering the factors in step 5 above.
7. Implementation and Formulation of Derivative Plans: Here, the plan is put into action. Some
plans, such as setting up of a new plant, can be huge. Derivative plans refer to the smaller plans
derived (or extracted) from the main plan, and required to support its implementation. Examples of
the derivative plans in this case include hiring personnel, purchasing the required supplies, etc.

II. ORGANIZING

Organizing is to give a proper shape to the structure that should execute the plan smoothly to achieve its
success. It is the function of putting together different parts forming an enterprise and making it an organic
whole to enable it to carry out defined operations. It is the process of arranging and allocating work,
authority, and resources among an organization’s members so that they can achieve organization’s goals.
Various activities required to fulfil the goals have to be grouped and these are to be assigned to people in-
groups or departments. The authority, responsibility, accountability needed at each level to execute the plan
is to be defined and delegated. Organizing involves:
i. determining and defining the activities required for the achievement of planned goals;
ii. grouping together of related activities necessary to attain the planned organizational objectives;
iii. the assignment of each group to a manager with commensurate authority necessary to supervise it;
and
iv. the provision of coordination, horizontally and vertically, that ties the groups together

Organizing is a never-ending process. All types of organizations are in a continual state of being
reorganized. When goals and programmes are redirected, activities also change.

Principles of Organizing

In carrying out the organizing function, the key components and concepts that must be kept in mind are:
Designing of jobs, delegation of authority and responsibility, span of management, departmentalization, and
decentralization.

1. Job Design

Job design is the determination of what procedures and operations are to be performed by an employee in a
position. The basis of job design is specialization, i.e. employees concentrating on one job only.
Specialization may lead to higher productivity initially, but may also lead to boredom and job
dissatisfaction. For this reason, there are alternatives to specialization. Such alternatives involve redesigning
the job/task in such a way that it becomes less boring and more interesting to the employee. The alternatives
include:
- job rotation
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- job enrichment
The above topics are subjects of other courses that will come later.

2. Delegation of Authority and Responsibility

Authority is legitimized power. Power is the ability to influence others. Delegation is distribution of
authority. Delegation is the process through which the manager assigns part of his tasks to the subordinates.
Delegation frees the manager to use his or her time on high priority activities.

Delegation of authority has three steps: Firstly, responsibility to do something is assigned to a subordinate.
Then the manager must grant the subordinate authority (or right to issue commands) necessary to carry out
the task. Third, the manager creates accountability on the part of the subordinate. Note that delegation of
authority does not free the manager from accountability for the actions and decisions of subordinates.

3. Span of Management (Control)

This refers to the number of subordinates a superior can supervise effectively. The number is a function of:
- the qualification and experience of subordinates (the more qualified the subordinates are the less
supervision they require, and the bigger the number that can be supervised by one person)
- competence and capacity of the supervisor
- the nature of the job
- communication patterns used, etc

There are two basic types of spans: The wide span and the narrow span.

(a) Wide Span

A manager who has a large number of subordinates has a wide span. In this case, there are few managerial
levels and therefore the organization is said to be flat.

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2 3 4 5 6 7 8 9 10 11 12

Wide span (flat organization) has few levels of management.

b) Narrow Span

A manager with only a small number of subordinates has a narrow span of management. A narrow span
leads to a tall organization, i.e. a structure with many levels.
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5 6 7 8
9 10 11
12 13 14 15
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4. Departmentalization

Departmentalization is the grouping of jobs under the authority of a single manager, according to some
rational basis, for the purposes of planning, coordination and control. The number of departments in an
organization depends on the number of different jobs, i.e., the size and complexity of the business.

Farm businesses are most likely to have departments reflecting commodities and services. For example, a
large dairy farm might be organized into dairy, crop, equipment and office departments. The dairy
department might be further divided into milking, mature animal and young stock departments.

Departmentalization may be done on the basis of:

a) Numbers: If the activities to be performed and the personnel to perform them are homogeneous, they
can be grouped on the basis of simple numbers. E.g. soldiers, farm workers (such as tea picking),
trench diggers, and other forms of manual labour.
b) Product departmentalization: Here, activities associated with individual products or closely related
products are grouped together. E.g. detergents, edibles, cosmetics/personal care products.
c) Functions departmentalization: This refers to putting together activities or employees who are
involved in the same or very similar functions, e.g. production, marketing, finance, personnel, etc.
d) Process departmentalization: Some operations in the organization can be grouped together on the
basis of process, and each process makes a department. Examples: cutting, shaping, welding,
painting, quality check, etc, as in the case of a motor vehicle assembly line.
e) Geographic departmentalization: Operations can be grouped into the different geographical regions
in which the business operates. E.g. Nairobi, Central Kenya (or Mt. Kenya), Coast, North Rift, South
Rift, Western, etc, as in the case of Telkom Kenya, and KPLC.
f) Customer departmentalization: Some businesses group their customers into industrial and
individual, as in the case of petroleum companies; corporate and retail, as in the case of banks, etc.

5. Decentralization

Decentralization refers to the extent to which decision-making and authority is given to the lower levels in
the organization. The opposite is centralization, which means that all decision-making is concentrated on
one person or a few people at the top.

Absolute centralization or decentralization makes an organization lose its structure because it means that
there are no subordinates and no managers respectively, and, by extension, no organization. In practice,
some level of decentralization is common in business organizations.

III. STAFFING

Staffing is the process of procuring and managing the human resources an organization requires to
accomplish its goals. The process involves identifying workforce requirements, inventorying the people
available, recruiting, selecting, placing, promoting, appraising, planning careers, compensating, and training.
These functions are often referred to as human resource functions. By carrying the functions of organizing
and staffing the “plan” is transformed from a document level to the operational stage. Some of the staffing
functions are discussed below.

Recruitment and Selection

The organization is forced to hire more people either because it has grown, or just to replace current
employees who leave due to retirement, termination of contracts, or death.

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When recruiting, an organization attracts (through advertisements, etc) a pool of qualified applicants from
within and outside the organization. The inside source is mainly by way of promoting current employees to
occupy positions that have fallen vacant.

Possible sources outside the organization are institutions of learning (e.g. universities and colleges), other
organizations, and private recruitment agencies.

The selection of candidates refers to choosing the best from a pool of interested applicants. It is done
through:
- application blanks (forms) – with details of applicant’s background, education, experience, and other
personal attributes
- tests – may include aptitude tests, intelligence tests, ability tests, etc
- interview – the most common of the techniques, is a face-to-face question-and-answer session with
the applicants

Development and Training of Personnel

Training involves the provision of skills necessary to perform the employee’s job. Commonly use training
techniques include:
- on-the-job training
- case discussions
- business simulations, etc

Staff development refers to enriching employee’s careers and preparing them to perform higher-level tasks.
The commonly used approaches to personnel development include:
- planned progression
- job rotation
- formal programs offered by higher institutions of learning
- conferences, seminars, workshops
- committee membership

Performance Appraisal

Performance Appraisal is the evaluation of employee performance against some goals or set standards.
Performance appraisal has three steps: setting standards, measuring the actual performance, and comparing
performance with the standards.

Performance appraisal is important for three reasons:

- the organization needs to verify the validity of the selection methods (do the methods produce the
right candidates?)
- an organization needs a basis for providing rewards fairly
- it helps employees improve on productivity (appraisal provides employees with feedback on their
performance

IV. LEADING (DIRECTING)

Dozens of participating staff members should learn to think in common for executing the plan and work in
cooperation. It is the duty of the Manager to guide his subordinates by training coaching, instructing and
indicating what to do, when to do and how to do. Thereafter closely monitor the team at work to ensure high
standard and efficiency. Directing is influencing people’s behaviour through motivation, communication,
group dynamics, leadership, and discipline. The purpose of directing is to channel the behaviour of all
personnel to accomplish the organization’s mission and objectives while simultaneously helping them

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accomplish their own career objectives. Managers are considered important, not by what they do, but rather
what they cause others to do (or what they accomplish through others).

Directing entails three elements: motivation, communication, and leadership.

1. Motivation

Motivation is the energizing force or drive that makes people behave in a particular way. This is caused by
either psychological or physiological factors. Highly motivated people perform better than unmotivated
people.

Internal inadequacy (or disequilibrium) caused by feelings of hunger, thirst, cold, desire for power, etc,
creates needs which lead to a behaviour which results in an action. The action may result in satisfaction or
dissatisfaction, which, in turn, determines future choices or actions (a behaviour that leads to satisfaction is
likely to be repeated).

One of the most quoted needs theory was advocated by the famous psychologist Abraham Maslow who
contended that needs are arranged in a hierarchy, and that the low-level needs must be satisfied before the
higher-level needs arise.

• Self-actualisation – reaching your

maximum potential, doing you own best
thing
• Esteem – respect from others, self-
respect, recognition
• Social – affiliation, acceptance, being
part of something
• Safety – physical safety, psychological
security
• Physiological – hunger, thirst, sex, rest

Figure: Maslow’s hierarchy of needs.

2. Communication

Communication is the process of transferring meaning or understanding from one person to another.
Managers spend a lot of their time communicating.

There are at least five components of the communication process:

- the source of the message
- the message itself
- the channel or medium
- the audience or receiver of the message
- feedback

Message vehicle

Message sender Message Message receiver

Feedback

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 Basic Business Management Functions – Compiled by J. Langat
There are factors that may become barriers to effective communication. These factors are collectively
referred to as noise. Noise is anything that disrupts communication process, e.g.
- typing errors on a printed page
- loud music in the background
- language differences, etc

There are three types of communication in an organization: Interpersonal communication, managerial

communication, and informal communication.

a) Interpersonal Communication

Interpersonal communication refers to communication between two people. In an organization, this type of
communication takes three forms:

i) Oral Communication: This type of communication takes place when two or more people talk face-
to-face or through the telephone.
ii) Written Communication: In an organization, written communication includes memos, letters, reports,
and bulletins.
iii) Non-verbal Communication: Non-verbal communication is mainly observable. It includes gestures,
facial expressions, hand movements, tone of the voice, and other expressions that are normally
referred to as body language.

b) Managerial Communication

Managerial communication takes place between various positional levels of the organization. It takes the
form of vertical communication (i.e. communication between two positions at different levels in the
hierarchy), and horizontal communication (i.e. between two positions at the same level).
1

2 3 4

5 6

Communication between 3 and 1 is vertical while that between 3 and 4 is horizontal.

c) Informal Communication

The grapevine is the informal communication network that exists in most organizations. The two most
common types of informal networks are the gossip chain and the cluster chain. In the gossip chain, one
person spreads a message to as many others as possible. They may either keep the information to themselves
or pass it on.

In the cluster chain, one person passes information to a selected few individuals. Some of them pass it on to
a few other individuals; the others keep it to themselves.

3. Leadership

An organization has the greatest chance of being successful when all of the employees work toward
achieving its goals. Since leadership involves the exercise of influence by one person over others, the quality
of leadership exhibited by supervisors is a critical determinant of organizational success. Thus, supervisors

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study leadership in order to influence the actions of employees toward the achievement of the goals of the
organization

Simply put, leading is establishing direction and influencing people to follow that direction. Leading refers
to the management process of providing direction and involvement in every area of the organization’s
development. The staffing function identifies and selects the people who will form the organization. The
leading function provides them with a support system to ensure their success.

V. CONTROLLING

Controlling refers to assessing and monitoring the progress and completion of organizational objectives. It is
the tool for course regulation as the organization marches ahead and correcting it when it diverts off-course.
After filling the vehicle with fuel, kicking it to start and giving a dynamic forward thrust, the next function is
to operate the gears and the brake system judiciously to regulate its onward movement. The results of the
activity must conform to the laid down standards and all variations should be analyzed and root cause
identified. Where possible, hindrances in the growth path are removed. Control also means deviating from
the course to reach the goals if the present one is not taking us there. Control system also identifies non-
performers or low performers. Constant review/appraisal should be carried out and corrective steps initiated
then and there

The process of control involves four steps:

1. Establishment of standards for performance of activities: A standard is a model or level of

performance to be attained. It is the benchmark against which actual performance will be measured
(or compared). Standards may be in the form of product quality, profits earned, product rejection
rate, number of customer complaints, and rate of absenteeism.
2. Measuring and reporting actual performance: Collect records on the actual performance. In many
organizations, the keeping of records on actual performance is part of the normal process of doing
business. Recording of sales, maintaining a log of employee performance and the time they report or
leave the workplace are good examples.
3. Comparing actual performance with set standards: This step involves comparing actual performance
as recorded in 2 above with the standards as set in 1 above. This step is made easy if the standards
are quantitative.
4. Take corrective action as needed: If the actual performance is below the set standards, some
corrective action must be taken. Corrective actions may require the manager to amend, remedy,
rectify, or in some other way, make right what is wrong. The aim of corrective action is to get things
back on track. If the standards were too high or plans unrealistic, those, too, may have to be
modified.

Performance standards come from the planning function. No matter how difficult, standards should be
established for every important task. Although the temptation may be great, lowering standards to what has
been attained is not a solution to performance problems. On the other hand, a manager does need to lower
standards when they are found to be unattainable due to resource limitations and factors external to the
business.