Chapter 5: Managing the Business

The Management Process

All corporations depend on effective management. Whether they run a multibillion-

dollar business such as Google or a small local fashion boutique, managers perform
many of the same functions and have many of the same responsibilities. These
include analyzing their competitive environments and planning, organizing,
directing, and controlling day-to-day operations of their business. Ultimately, they
are also responsible for the performance and effectiveness of the teams, divisions,
or companies that they head.

Although our focus is on managers in business settings, remember that the principles
of management apply to all kinds of organizations. Managers work in charities,
churches, social organizations, educational institutions, and government agencies.
The prime minister of Canada, curators at the Museum of Modern Art, the dean of
your college, and the chief administrator of your local hospital are all managers.
Remember, too, that managers bring to small organizations much the same kinds of
skills—the ability to make decisions and respond to a variety of challenges—that
they bring to large ones. Regardless of the nature and size of an organization,
managers are among its most important resources.

A. Basic Management Functions

Management itself is the process of planning, organizing, leading, and

controlling an organization’s financial, physical, human, and information resources
to achieve its goals.
Managers oversee the use of all these resources in their respective firms. All aspects
of a manager’s job are interrelated. Any given manager is likely to be engaged in
each of these activities during the course of any given day. Consider the management
process at Google. Brin and Page must first create goals and plans that articulate
what they want the company to accomplish. Then they rely on effective organization
to help make those goals and plans reality. Brin and Page also pay close attention to
the people who work for the company, and they keep a close eye on how well the
company is performing.

Each of these activities represents one of the four basic managerial functions: (1)
setting goals is part of planning, (2) setting up the organization is part of organizing,
(3) managing people is part of leading, and (4) monitoring performance is part of
controlling.

Planning

Determining what the organization needs to do and how best to get it done requires
planning. Planning has three main components. It begins when managers determine
the firm’s goals. Next, they develop a comprehensive strategy for achieving those
goals. After a strategy is developed, they design tactical and operational plans for
implementing the strategy.

Organizing

Managers must also organize people and resources. For example, some businesses
prepare charts that diagram the various jobs within the company and how those jobs
relate to one another. These organization charts help everyone understand roles
and reporting relationships, key parts of the organizing function. Some businesses
go so far as to post their organization chart on an office wall. But in most larger
businesses, roles and reporting relationships, although important, may be too
complex to draw as a simple box-and-line diagram.

Leading

Managers have the power to give orders and demand results. Leading, however,
involves more complex activities. When leading, a manager works to guide and
motivate employees to meet the firm’s objectives. Legendary management figures
such as Walt Disney, Sam Walton (of Walmart), and Herb Kelleher (of Southwest
Airlines) had the capacity to unite their employees in a clear and targeted manner
and motivate them to work in the best interests of their employer. Their employees
respected them, trusted them, and believed that by working together, both the firm
and themselves as individuals would benefit.

Controlling

Controlling is the process of monitoring a firm’s performance to make sure that it is

meeting its goals. All CEOs must pay close attention to costs and performance.
Managers at United Airlines, for example, focus almost relentlessly on numerous
indicators of performance that they can constantly measure and adjust. Everything
from on-time arrivals to baggage-handling errors to the number of empty seats on
an airplane to surveys of employee and customer satisfaction are regularly and
routinely monitored. If on-time arrivals start to slip, managers focus on the problem
and get it fixed. If customers complain too much about the food, catering managers
figure out how to improve it. As a result, no single element of the firm’s performance
can slip too far before it’s noticed and fixed.

B. The Science and the Art of Management

Given the complexity inherent in the manager’s job, one may ask whether
management is more of a science or an art. In fact, effective management is a blend
of both science and art. And successful executives recognize the importance of
combining both the science and the art of management as they practice their craft.
 • The Science of Management

Many management problems and issues can be approached in ways that are rational,
logical, objective, and systematic. Managers can gather data, facts, and objective
information. They can use quantitative models and decision-making techniques to
arrive at “correct” decisions. They need to take such a scientific approach to solving
problems whenever possible, especially when they are dealing with relatively
routine and straightforward issues.

When Starbucks considers entering a new market, its managers look closely at a
wide variety of objective details as they formulate their plans. Technical, diagnostic,
and decision-making skills (which we will discuss later in the chapter) are especially
important when approaching a management task or problem from a scientific
perspective.

• The Art of Management

Even though managers may try to be scientific as often as possible, they must
frequently make decisions and solve problems on the basis of intuition, experience,
instinct, and personal insights. Relying heavily on conceptual, communication,
interpersonal, and time-management skills, for example, a manager may have to
decide among multiple courses of action that look equally attractive. And even
“objective facts” may prove to be wrong. When Starbucks was planning its first store
in New York City, market research clearly showed that New Yorkers preferred drip
coffee to more exotic espresso-style coffees. After first installing more drip
coffeemakers and fewer espresso makers than in their other stores, managers had to
backtrack when New Yorkers lined up, clamoring for espresso.
Starbucks now introduces a standard menu and layout in all its stores, regardless of
presumed market differences, and then makes necessary adjustments later. Thus,
managers must blend an element of intuition and personal insight with hard data and
objective facts.

C. Becoming a Manager

Although there are as many variations as there are managers, the most common path
involves combination of education and experience.

1. The Role of Education

A college degree has become almost a requirement for career advancement in

business, and virtually all CEOs in the United States have a college degree; an MBA
is common.

2. The Role of Experience

Management skills must also be learned through experience. Most managers

advanced to their present positions from other jobs. Only by experiencing the day-
to-day pressures a manager faces and by meeting a variety of managerial challenges
can an individual develop insights into the real nature and character of managerial
work.

Types of Managers

Although all managers plan, organize, lead, and control, not all managers have the
same degree of responsibility for these activities. Thus, it is helpful to classify
managers according to levels and areas of responsibility.
 A. Levels of Management

The three basic levels of management are top, middle, and first-line. The power of
managers and the complexity of their duties increase as they move up the ladder.

1. Top Managers. This level is responsible for the firm’s overall performance
and effectiveness. Top managers set general policies and formulate strategies,
approve all significant decisions, and represent the company in dealing with
stockholders, the board of directors, other businesses, and government bodies.
Common titles for top managers include president, vice president, treasurer,
chief executive officer (CEO), and chief financial officer (CFO).
2. Middle Managers. This level is responsible for implementing the strategies,
policies, decisions, and goals set by top managers. Titles such as plant
manager, operations manager, and division manager designate middle-
management slots.
3. First-Line Managers. Duties of managers at this level depend on the job,
though first-line managers spend most of their time working with and
supervising the employees who report to them. Those who hold such titles as
supervisor, office manager, project manager, and group leader are first-line
managers.
 B. Areas of Management

In any large company, top, middle, and first-line managers work in a variety of areas.

1. Human Resource Managers. These managers hire and train

employees, evaluate performance, and determine compensation.
2. Operations Managers. These managers are responsible for the
production system in which a firm produces goods and/or services,
inventory and inventory control, and quality control.
3. Marketing Managers. These managers are responsible for the
development, pricing, promotion, and distribution of goods and
services.
4. Information Managers. These managers design and implement
systems to gather, organize, and distribute information.
5. Financial Managers. These managers are responsible for the firm’s
accounting functions and financial resources.
 6. Other Managers. Some firms employ various types of specialized
managers, such as public relations managers.

Management Roles and Skills

Regardless of their levels or areas within an organization, all managers must play
certain roles and exhibit certain skills if they are to be successful.

A. Managerial Roles

Research offers a number of interesting insights into the nature of managerial roles.
Based on detailed observations of what executives do, it appears that many of their
activities fall into 10 different roles.

1. There are three interpersonal roles inherent in the manager’s job. First, the
manager is often expected to serve as a figurehead—taking visitors to dinner,
attending ribbon-cutting ceremonies, and the like. The manager is also
expected to serve as a leader—hiring, training, and motivating employees.
Managers can have a liaison role. This role often involves serving as a
coordinator or link among people, groups, or organizations.

2. Informational Roles

The three informational roles flow naturally from the interpersonal roles just
discussed. The process of carrying out the interpersonal roles places the manager at
a strategic point to gather and disseminate information. The first informational role
is that of monitor, one who actively seeks information that may be of value. The
manager is also a disseminator of information, transmitting relevant information
back to others in the workplace. These two roles combined illustrate the manager’s
role as a vital link in the organization’s chain of communication. The spokesperson
formally relays information to people outside the unit or outside the organization.

3. Decisional Roles

The manager’s informational roles typically lead to the decisional roles. First, the
manager has the role of entrepreneur, the voluntary initiator of change. The
manager is acting as a disturbance handler when handling such problems as strikes,
copyright infringements, or problems in public relations or corporate image. As
resource allocator, the manager decides how resources are distributed and with
whom he or she will work most closely. Finally, as negotiator, the manager enters
into negotiations with other groups or organizations as a representative of the
company.
 B. Basic Management Skills

Effectiveness in management results from the development of a variety of skills

among managers.

1. Technical Skills

Technical skills are the skills needed to perform specialized tasks. These skills are
developed through a combination of education and experience. Technical skills are
especially important for first-line managers who spend most of their time with the
day-to- day operations of the production system.

2. Human Relations Skills

Absolutely necessary for managerial success, human relations skills are skills in
under-standing and getting along with people. These skills are important at all
management levels, though most important for middle managers. Good
communications skills are key to understanding others and maintaining good
relations.

3. Conceptual Skills

Especially prevalent among top managers, conceptual skills involve the ability to
think in the abstract, to diagnose and analyze different situations and to see beyond
the present situation.

4. Decision-Making Skills

Decision-making skills include the ability to define problems and to select the best
course of action. These skills involve gathering facts, identifying solutions,
evaluating alternatives, and implementing the chosen alternative.
 5. Time Management Skills

Time management skills involve the productive use of managers’ time. Leading
causes of wasted time are paperwork, telephone calls, meetings, and e-mail.

Competing globally and managing technology are two major challenges facing
managers today.

6. Global Management Skills.

Businesses now demand managers who can understand foreign markets, cultural
differences, and the motives and practices of foreign competitors. Managers must
also understand how to collaborate with others around the world on a real-time basis,
and understand international operations.

7. Management and Technology Skills.

While new forms of technology have added to a manager’s ability to process

information, these new forms have also made it even more important to organize and
interpret an ever-increasing wealth of input, by developing effective technology
skills.

Strategic Management: Setting Goals and Formulating Strategy

Strategic management is the process of helping an organization maintain an

effective alignment with its environment. Goals are objectives that a business hopes
and plans to achieve. A strategy is a broad set of organizational plans for
implementing the decisions made for achieving organizational goals.
 A. Setting Business Goals

Goals are performance targets—the means by which organizations and their

managers measure success or failure at every level.

1. Purposes of Goal Setting. An organization functions systematically when it

sets goals and plans accordingly. The four main purposes of organizational
goal setting include: (a) providing direction and guidance for managers at all
levels; (b) helping firms allocate resources; (c) helping to define corporate
culture; and (d) helping managers assess performance.
2. Kinds of Goals. Every firm has a purpose and a mission. A mission statement
is a statement of how the firm will achieve its purpose in the environment in
which it operates. In addition, every firm needs long-term goals, which look
at five years or more into the future; intermediate goals, which focus on a
period of one to five years; and short-term goals, which are set for one year.

B. Types of Strategy

A company usually considers three types of strategy:

1. Corporate Strategy. The purpose of corporate strategy is to determine the

firm’s overall attitude toward growth and the way it will manage its businesses
or product lines.
2. Business (or Competitive) Strategy. Business (or competitive) strategy
focuses on improving the company’s competitive position.
3. Functional Strategy. With functional strategy, managers in specific areas
decide how best to achieve corporate goals by performing their functional
activities as productively as possible.
 C. Formulating Strategy

Strategy tends to be wider in scope than planning; strategy describes what an

organization intends to do. Strategy formulation involves three basic steps.

Step 1: Setting Strategic Goals. Strategic goals are long-term goals derived from
the firm’s mission statement.

Step 2: Analyzing the Organization and Its Environment: SWOT Analysis. After
strategic goals have been established, managers usually attempt to assess both their
organization and its environment. A common framework for this assessment is
called a SWOT analysis. This process involves assessing organizational strengths
and weaknesses (the S and W) and environmental opportunities and threats (the O
and T). Environmental analysis involves scanning the external environment for
threats and opportunities. Threats include changing consumer tastes, hostile
takeovers, and some competitor actions. Opportunities are areas in which the firm
can potentially expand, grow, or take advantage of existing strengths.
Organizational analysis involves scanning the internal environment for strengths
and weaknesses. Strengths include surplus cash, a dedicated workforce, technical
expertise, or little competition. Weaknesses include a cash shortage, aging factories,
a heavily unionized workforce, or a poor public image.

Step 3: Matching the Organization and Its Environment. This step-in strategy
formulation involves matching a firm’s strengths and weaknesses to its opportunities
and threats. This step is at the heart of strategy formulation. A firm should attempt
to leverage its strengths so as to capitalize on opportunities and counteract threats. It
should attempt to shield its weaknesses. Understanding strengths and weaknesses
also impact whether a firm takes risks or behaves more conservatively.

D. A Hierarchy of Plans

Plans can be viewed on three levels: strategic, tactical, and operational.

Managerial responsibilities are defined at each level. The levels constitute a
hierarchy because implementing plans is practical only when there is a logical flow
from one level to the next. Usually set by the board of directors and top management
with input from others in the organization, strategic plans focus on steps needed to
meet strategic goals. Usually involving upper and middle managers, tactical plans
are concerned with implementing certain aspects of the strategic plans; tactical plans
are shorter-term plans. Middle and lower-level managers develop operational
plans, geared toward short-term goals.

Contingency Planning and Crisis Management

Because business environments are often difficult to predict and because the
unexpected can create major problems, most managers recognize that even the best-
laid plans sometimes simply do not work out. Two common methods of dealing with
the unknown and unforeseen are contingency planning and crisis management.

A. Contingency Planning

Contingency planning is planning for change; it identifies ways in which a company

will respond to change. It involves identifying aspects of a business or its
environment that might entail changes in strategy and identifying alternatives.

B. Crisis Management

Crisis management involves an organization’s methods for dealing with

emergencies.

Management and the Corporate Culture

Corporate culture is the shared experiences, stories, beliefs, and norms that
characterize an organization. It helps to define the work and business climate in an
organization. It is the unique identity of the company and helps to direct employees’
efforts toward the company goals.

A. Building and Communicating Culture

This involves having an understanding of the culture, transmitting the culture to

others in the organization, and maintaining the culture. Corporate culture influences
management philosophy, style, and behavior. Managers, therefore, must carefully
consider the kind of culture they want for their organizations and then work to
nourish that culture by communicating with everyone who works there. Effective
communication is a key task.

B. Changing Culture

Organizations must sometimes change their cultures. This involves analyzing the
company’s environment, formulating a vision of a new company, and setting up
appraisal and compensation systems for employees who enforce the new values.