Organization And Management

ORGANIZATION AND MANAGEMENT TEXTBOOK •

Helena Ma. F. Cabrera, PhD • Anthony DC Altarejos, PhD • Riaz Benjamin Authors •

Clarence Darro B. Del Castillo

Editor

Department of Education • Republic of the Philippines

Organization and Management Textbook for Senior High School ISBN 978-971-07-3860-1 Copyright © 2016 by Vibal Group Inc. and Helen Ma. F. Cabrera, Anthony DC. Altarejos, and Riaz Benjamin. All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means—electronic or mechanical, including photocopying, recording, or any information storage and retrieval system without permission in writing from the publisher and authors. Published by Vibal Group, Inc. with main office at 1253 Gregorio Araneta Avenue, Quezon City, Philippines. Regional Offices: 0290 Nivel Hills, Lahug, Cebu City, and Kalamansi St. cor. 1st Ave., Juna Subdivision, Matina, Davao City Editors: Clarence Darro B. del Castillo Reviewers: Wilson T. Ojales and Gregorio R. Sismondo Printed in the Philippines by:_________________________________

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Preface

T

his textbook is about the management and managers of organizations. All organizations—no matter the kind, size, or location—need good mana­gers in order to successfully achieve their organizational goals and objectives. As future managers, you must realize that managers have to deal with the ever-changing world, hence, management styles must also be dynamic in order to adapt to these inevitable changes. The course Organization and Management and this textbook reflect those changes and will help you prepare to become ideal managers who will be ready to face the world’s varying challenges. This management course and this textbook are described as an introduction to the realm of management, covering many topics that are discussed quickly—without delving too deeply into each topic—to provide the basic information that could guide you to succeed in your future management tasks. The authors of this textbook and your classroom teachers act as your leaders and partners to help you understand in this preparatory course what it would take for you to be successful as future managers of organizations. You are expected to fulfill your class requirements, to read and understand the contents of this textbook, to realize the importance of the topics discussed, and to apply the simple management problems presented in this textbook in real life situations. Finally, you are encouraged to apply the learning experiences you acquired from the contents of this textbook, from class discussions and from assignments done, as these will strongly influence the kind of manager you will become.

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FEATURES

of the BOOK

Chapter Opener

Introduces the chapter and presents the learning objectives for the chapter.

Lesson Enders: Fast Learning Review Presents questions to assess the students’ understanding of the key concepts in the lesson.

Exercises Gives suggested activities and presents situations that engage the different skills of the students and aim to help them demonstrate their ability to relate these concepts with reallife organizational practice.

Lesson Opener

Introduces the lesson proper.

Definition of Terms

Presents the definition of important concepts or terms found in the lesson.

Chapter Ender: Integration Reinforces students’ learnings on these are linked to real-life situations by encouraging them to share what they have realized and to commit by applying what they have learned.

TABLE of

Contents CHAPTER 1 Nature and Concept of Management 2 Lesson 1: Definition and Functions of Management 3 Coordination, Efficiency, and Effectiveness: Intrinsic to the Nature of Management 3 Lesson 2: Evolution of Management Theories 5 Lesson 3: Functions, Roles, and Skills of a Manager 9 Managerial Roles and Functions 9 • Top-level Managers 9 • Middle-Level Managers 10 • Frontline or Lower-level Managers 10 Managerial Skills 11 • Conceptual Skills 11 • Human Skills 11 • Technical Skills 11

CHAPTER 2 The Firm and Its Environment 12 Lesson 1: Environmental Forces and Environmental Scanning 13 Components of the External Business Environment: General and Specific 13 Components of the Internal Business Environment 15 Components of Environmental Scanning: Developing a Competitive Mindset, Considering Future Business Scenarios, Business Prediction, and Benchmarking 15 Lesson 2: The Local and International Business Environment of the Firm 17 Managing in a Worldwide Environment: Cultural, Politicolegal, and Economic Environments 18

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Lesson 3: Phases of Economic Development 20 Lesson 4: Forms of Business Organizations 23 Changing Forms of Business Organizations 23

CHAPTER 3 Planning 26 Lesson 1: Definition and Nature of Planning 27 Relationship of Planning to Individual or Organizational Performance 27 Difference between Goals and Plans 28 Lesson 2: Types of Plans 29 Steps in Planning 30 Lesson 3: Planning at Different Levels in the Firm 32 Top-level Management Planning (Strategic Planning) 32 Middle-level Management Planning (Tactical Planning) 32 Frontline/Lower-level Management Planning (Operational Planning) 33 Integrating Strategic, Tactical, and Operational Planning 33 Lesson 4: Planning Techniques and Tools and their Applications 34 Lesson 5: Decision-making 36 Types of Decisions 36 Types of Decision-making Conditions 36

CHAPTER 4 Organizing 38 Lesson 1: Nature of Organizations 39 Differentiation of the Organization’s Internal Environment 39 Integration of Work Units 39 Lesson 2: Types of Organization Structures 40

Lesson 3: Organization Theories and Applications 44 Simple 44 Functional 44 Divisional 44 Team Design 45 Matrix-Project Design 45 Boundary-less Design 46 Lesson 4: Delegation 47 Lesson 5: Formal and Informal Organizations 49

CHAPTER 5 Staffing 51 Lesson 1: Definition and Nature of Staffing 52 The Management and Nonmanagerial Human Resources Inventory 52 External and Internal Forces Affecting Present and Future Needs for Human Resources 53 Lesson 2: Recruitment 54 Methods of External and Internal Recruitment 54 • External Recruitment Advantages 55 • External Recruitment Disadvantages 56 • Internal Recruitment Advantages 56 • Internal Recruitment Disadvantages 56 Lesson 3: Selection 58 Types of Job Interviews 59 Types of Employment Tests 60 Limitation of the Selection Process 60 Lesson 4: Training and Development 61 Employee Development 63 Lesson 5: Compensation/Wages and Performance Evaluation 64 Types of Compensation 64 Connecting Compensation to Organizational Objectives 64 Compensation: A Motivational Factor for Employees 65

Bases for Compensation 65 Purposes of Performance Evaluation: Administrative and Developmental 66 Performance Appraisal Methods 66 Why Some Evaluation Programs Fail 67 Lesson 6: Employee Relations 68 Effective Employer Relations and Social Support 68 Lesson 7: Employee Movements 70 Steps in Union Organizing 70 Grievance Procedure 72 Lesson 8: Rewards System 74

CHAPTER 6 Leading 76 Lesson 1: What Leading Is 77 Personality of Human Resources 77 Big Five Personality Characteristics 77 Leading an Organization 78 Lesson 2: Motivation 80 Lesson 3: Leadership Theories 84 Contemporary Theories of Leadership 85 Modern Leadership Views 86 Lesson 4: Communication 88 Types of Communication 88 Direction and Flow of Communication 88 Communication Networks in Organizations 89 Barriers to Communication 90 Overcoming Communication Barriers 92 Lesson 5: Management of Change and Diversity in Organizations 93 Types of Change 93 • Changes in People 93 • Changes in Structure 94 • Changes in Technology 94 Managing Resistance to Change 94 New Issues in Change Management 95 • Understanding Situational Factors 95 Making Changes in Organizational Culture 95

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• Managing Workplace Diversity 96 Lesson 6: Filipino and Foreign Cultures in Organizations 97 Shared Values and Beliefs of Filipinos 97 Influence of Filipinos’ Shared Values and Beliefs on Organizational Management 98 Influence of Foreign Culture on Organizational Management 99

Lesson 2: Marketing Management 125 Importance of Marketing Management 127 Lesson 3: Operations Management 128 Importance of Operations Management 129

CHAPTER 7 Controlling 101

Lesson 4: Financial Management 130 Importance of Financial Management 131

Lesson 1: Definition and Nature of Management Control 102 Importance of Management Control 102 The Control Process 102

Lesson 5: Information and Communication Technology Management (ICTM) 133 Importance of Information and Communication Technology Management 134

Lesson 2: The Link between Planning and Controlling 104 The Balance Sheet 105 The Income Statement 106 The Cash Flow Statement 107 Summaries of Significant Accounting Policies and Assumptions 108 Organizational Performance Control 108 Lesson 3: Control Methods and Systems 110 Methods of Control 110 Lesson 4: Application of Management Control in Accounting and Marketing Concepts and Techniques 113 Accounting/Financial Control Ratios 114 Strategic Control 115 Benchmarking 115

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Lesson 1: Human Resources Management (HRM) 121 Importance of Human Resources Management 123

CHAPTER 9 Special Topics in Management 136 Lesson 1: Small Business Management and Entrepreneurship 137 The Entrepreneurial Procedure/Process 137 Lesson 2: Family Business Enterprise 142 Success Stories of Filipino Family Business Ventures 142 • Filinvest Group 142 • Metrobank 142

Lesson 5: Role of Budgets in Planning and Control 117 Steps toward Better Budget-making 119

Lesson 3: Starting a Business: Legal Forms and Requirements 144 Why and Where Should a Business be Registered? 144 Differences in the Registration of the Legal Forms of Business 145 Advantages and Disadvantages of the Legal Forms of Business 146

CHAPTER 8 Introduction to the Different Functional Areas of Management 120

Case Studies 148 Glossary 154 Bibliography 167 Photo Credits 168

ORGANIZATION AND MANAGEMENT TEXTBOOK

CHAPTER 1

Nature and Concept of Management IN THIS CHAPTER, you will discover that all organizations—public or private, large, medium-size, or small, profit or nonprofit—need good managers in order to accomplish their goals; that organizational management is, definitely, not an easy task; and that coordination, efficiency, and effectiveness are required to carry it out. As you read and study this chapter, concentrate on the following objectives, and at the end of the chapter, be able to: 1. discuss the meaning and functions of management; 2. explain the various types of management theories; 3. explain the functions, roles, and skills of a manager; and 4. understand the basic concepts and theories of management.

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LESSON 1

Definition and Functions of Management

M

anagement is the process of coordinating and overseeing the work performance of individuals working together in organizations, so that they could efficiently accomplish their chosen aims or goals. It is also defined as the process of designing and maintaining an environment for efficiently accomplishing selected aims (Heinz, Weihrich, and Koontz, 2005). Management analysis is done by breaking it down into five major managerial duties; thus, making managerial knowledge more understandable. Management functions include the following: Planning. Involves determining the organization’s goals or performance objectives, defining strategic actions that must be done to accomplish them, and developing coordination and integration activities. Organizing. Demands assigning tasks, setting aside funds, and bringing harmonious relations among the individuals and work groups or teams in the organization. Staffing. Indicates filling in the different job positions in the organization’s structure; the factors that influence this function include: size of the organization, types of jobs, number of individuals to be recruited, and some internal or external pressures. Leading. Entails influencing or motivating subordinates to do their best so that they would be able to help the organization’s endeavor to attain their set goals. Controlling. Involves evaluating and, if necessary, correcting the performance of the individuals or work groups or teams to ensure that they are all working toward the previously set goals and plans of the organization.

Definition of Terms Management Functions functions needed in order to accomplish the management process of coordinating and overseeing the work performance of individuals working together in organizations Coordination  – harmonious, integrated action of the various parts and processes of an organization Efficiency – the character of being able to yield the maximum output from a minimum amount of input Effectiveness – being adapted to produce an effect that will help the organization attain it aims

FIGURE 1.1 The Five Functions of Management

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Coordination, Efficiency, and Effectiveness: Intrinsic to the Nature of Management Management functions—planning, organizing, staffing, leading, and controlling—will all go to waste if coordination, efficiency, and effectiveness are not practiced by an organization’s appointed managers. In other words, top-level managers, middle-level managers, and team leaders or supervisors must all be conscious of the said practices of successful organizations as they perform their management functions. Webster’s Dictionary defines coordination as the harmonious, integrated action of the various parts and processes of an organization; efficiency is being able to yield the maximum output from a minimum amount of input; and effectiveness as being adopted to produce an effect, or being able to do things correctly. When applied to management functions, coordination ensures that all individuals, groups, or teams are harmoniously working together and moving toward the accomplishment of the organization’s vision, mission, goals, and objectives; efficiency, meanwhile, refers to the optimal use of scarce resources—human, financial, physical, and mechanical—in order to bring maximum productivity; and effectiveness means “doing things correctly” when engaged in activities that will help the organization attain its aims.

Fast Learning Review 1. In your own words, define management. Compare your definition with the given definitions in this lesson and point out the differences and similarities. 2. Explain why coordination, efficiency, and effectiveness are intrinsic to the nature of management. 3. Enumerate and describe the five functions of management. 4. What is productivity? Is high productivity possible if efficiency is low? Explain your answer.

Exercise 1. Interview two department chairpersons in your school and ask if they make use of all of the five management functions. Compare their answers and try to explain why there are similarities or differences. 2. Select two organizations (one public and one private, or one big and one small). Describe how they are structured and explain why a study of management functions is necessary for their managers.

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CHAPTER 1

LESSON 2

Evolution of Management Theories

E

volution is usually defined as slow stages of growth and development, starting from simple forms to more complex forms. This, too, could be applied to management theories which have evolved from simple improvement of work methods to more complex ones which focus not only on work method improvement, but also on customer satisfaction and the conduct of people at work. Studying the evolution of management theories will help you understand the beginnings of present-day management practices; why some are still popular and why others are no longer in use; and why the expansion and development of these theories are necessary in order to adapt to the changing times. Management theories include the following:

Definition of Terms Management Theories - theories that help improve the management process Management Process - the coordinating and overseeing of the work performance of individuals working together in organizations so that they could efficiently and effectively accomplish their chosen goals

FIGURE 1.2 Frederick W. Taylor

Scientific Management Theory This management theory makes use of the step by step, scientific methods for finding the single best way for doing a job. Frederick W. Taylor (1856-1915) is known as the Father of Scientific Management. While working as a mechanical engineer in a steel company in Pennsylvania in the United States of America (USA) he could not help but notice the workers’ mistakes and inefficiencies in doing their routine jobs. Their lack of enthusiasm, the discrepancy between their abilities and aptitudes, and their job assignments result to low output. Because of these observations, he tried to identify clear guidelines for the improvement of their productivity. Taylor’s Scientific Management Principles (Robbins and Coulter, 2009) are as follows: 1. develop a science for each element of an individual’s work to replace the old rule of thumb method; 2. scientifically select and then train, teach, and develop the workers; 3. heartily cooperate with the workers so as to ensure that all work is done in accordance with the principles of the science that has been developed; and 4. divide work and responsibility almost equally between management and workers.

FIGURE 1.3 Henri Fayol

General Administrative Theory The General Administrative Theory concentrates on the manager’s functions and what makes up good management practice or implementation. Henri Fayol (1841–1925) and Max Weber (1864–1920) are the personalities most commonly associated with it. Fayol’s 19th century writings Nature and Concept of Management 5

were concerned with managerial activities which he based on his actual experience as a managing director in a big coal mining company. He believed that management is an activity that all organizations must practice and viewed it as separate from all other organizational activities such as marketing, finance, research and development, and others. Weber, a German sociologist wrote in the early 1900s that ideal organizations, especially large ones, must have authority structures and coordination with others based on what he referred to as bureaucracy. Present-day organizations still make use of Weber’s structural design. TABLE 1.1 Fayol’s and Weber’s contributions to General Administrative Theory

Henri Fayol’s Management Principles

Weber’s Bureaucracy

1. Work division or specialization 2. Authority 3. Discipline 4. Unity of command 5. Unity of direction 6. Subordination of individual interest to general interest

According to Weber, bureaucracy is an organizational form distinguished by the following components:

7. Remuneration/pay

• division of labor

8. Centralization

• hierarchical identification of job positions • detailed rules and regulations

9. Scalar chain of authority FIGURE 1.4 W. Edwards Deming

10. Maintenance of order

• impersonal connections with one another

11. Equity/fairness 12. Stability/security of tenure of workers 13. Employee initiative 14. Promotion of team spirit or esprit de corps

Total Quality Management (TQM) Total Quality Management is a management philosophy that focuses on the satisfaction of customers, their needs, and expectations. Quality experts W. Edwards Deming (1900–1993) and Joseph M. Juran (1904– 2008) introduced this customer-oriented idea in the 1950s, however, the concept had few supporters. The Americans did not immediately take to the idea since the US was enjoying supremacy in the global market at the

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CHAPTER 1

time. Japanese manufacturers, on the other hand, took notice of it and enthusiastically experimented on its application. When Japanese firms began to be recognized for their quality products, Western managers were forced to give a more serious consideration of Deming’s and Juran’s modern management philosophy that eventually became the foundation of today’s quality management practices. Deming’s 14 Points for Top Management 1. Create constancy of purpose for improvement of products and services. 2. Adopt the new TQM philosophy. 3. Cease dependence on mass inspection by doing things right and doing it right the first time. 4. End the practice of awarding business on the basis of price tag alone.

Juran’s Fitness of Quality 1.

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

2.

Quality of Conformance – through management, manpower, and technology

3.

Availability – through reliability, maintainability, and logistic support

4.

Full Service – through promptness, competence, and integrity Juran’s Quality Planning Roadmap

5. Constantly improve the system of production and services. 6. Institute training.

1.

Identify your customers.

7. Adopt and institute leadership.

2.

Determine their needs.

3.

Translate them into one’s language.

4.

Develop a product that can respond to needs.

5.

Develop processes which are able to produce those product features.

11. Eliminate numerical quota for the work force.

6.

Prove that the process can produce the product.

12. Remove barriers that rob people of “pride of workmanship.”

7.

Transfer the resulting plans to the operating forces.

8. Drive out fear. 9. Break down barriers between staff areas. 10. Eliminate slogans, focus on correction of defects in the system.

13. Encourage education and self-improvement for everyone.

FIGURE 1.5 Joseph M. Juran

TABLE 1.2 TQM Pointers from Deming and Juran (Ramasamy 2009)

14. Take action to accomplish the transformation.

Nature and Concept of Management 7

Organizational Behavior (OB) Approach The Organizational Behavior (OB) approach involves the study of the conduct, demeanor, or action of people at work. Research on beha­ vior helps managers carry out their functions—leading, team building, resolving conflict, and others. Robert Owen, Mary Parker Follett, Hugo Munsterberg, and Chester Barnard were the early supporters of the OB approach. During the late 1700s, Owen noticed lamentable conditions in workplaces and proposed ideal ways to improve the said conditions. Follett, in the early 1900s, introduced the idea that individual or group behavior must be considered in organizational management. Likewise, in the early 1900s, Munsterberg proposed the administering of psychological tests for the selection of would-be employees in companies. Barnard, in the 1930s, suggested that cooperation is required in organizations since it is, mainly, a social system.

Fast Learning Review 1. Who is considered as the Father of Scientific Management? Briefly enumerate his contributions to scientific management. 2. What is the main concern of Henri Fayol’s Management Theory? How does his management theory differ from that of Max Weber? 3. What do the acronyms TQM and OB stand for? Discuss these management theories and give your comments regarding their usefulness to present-day management practices. 4. In your opinion, who among the management theorists discussed had the best contribution to management practices? Explain your answer.

Exercise 1. Think of a difficult task which you, as a student, must accomplish. What are the steps needed to complete the said task. Will the management theories discussed earlier help you to be more efficient in completing the task? Explain your answer. 2. Use the Internet and choose a website offering current management news. Choose one good news item or a negative news item and relate it to the management theories discussed in the lesson.

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CHAPTER 1

LESSON 3

Functions, Roles, and Skills of a Manager

A

n individual engaged in management activities is called a manager. Managers supervise, sustain, uphold, and assume responsibility for the work of others in his or her work group, team, department, or the organization, in general. Therefore, it is safe to assume that organizational success depends upon managers who practice optimal utilization of their human and material resources, and who encourage high levels of performance, effectiveness, and efficiency among the individuals under their care.

➤ Top-level management is typically composed of the organization’s chairman or chairwoman, chief executive officer, president, managing director, and other high-ranking company executives.

Managerial Levels Organizations typically have three levels of management with their respective managers—top-level managers, middle-level managers, and frontline or lower-level managers. Top-level Managers. Top-level managers are the general or strategic managers who focus on long-term organizational concerns and emphasize the organization’s stability, development, progress, and overall efficiency and effectiveness. They are also concerned with the organization’s inter-relationships with their external environment. Chief executive officers (CEOs), chief operating officers (COOs), presidents, and vice presidents are examples of top-level managers in big corporations; they have authority over all other human resources of their organization. Traditionally, top-level executives set the company’s general direction by designing strategies and by controlling various resources. At present, however, they, too, must act as organizational guides who must elaborate on the wider purpose of their organizational existence, so that their subordinates could identify and be committed to its success in the three levels of management in Figure 1.6. Top-level Managers (Corporate Managers)

Definition of Terms Manager - an individual engaged in management activities such as supervising, sustaining, upholding, and assuring responsibilities for the work of others in his/her work group, team, department, on the organization in general Managerial Roles - the various roles played by managers, such as interpersonal, informational, and decision-making roles Managerial Skills - the various skill that managers must posses, such as conceptual human and technical skills

FIGURE 1.6 The three levels of management are best illustrated in an organization chart.

Middle-level Managers (Tactical Managers)

Frontline Managers (Operational Managers)

Nature and Concept of Management 9

➤ Middle-level managers lead frontline or lower-level managers and are accountable to top-level management.

➤ Frontline or lower-level managers are responsible for dealing with operating personnel. It requires high level of interpersonal and technical skills.

Definition of Terms Leader - one who possesses good leadership qualities or a combination of good moral character, strong professional will, humility that builds enduring greatness, and commands loyalty and respect among subordinates Liaison - one who is capable of maintaining unity of action in the organization Figurehead - one who has nominal leadership but without real power, as this power is possessed only by the company’s President/Owner Spokesperson - one who speaks in the name and behalf of another; as in behalf of the company President/ Owner

Middle-level Managers. Middle-level managers are the tactical managers in charge of the organization’ s middle levels or departments. They formulate specific objectives and activities based on the strategic or general goals and objectives developed by top-level managers. Their traditional role is to act as go-betweens between higher and lower levels of the organization; they announce and interpret top management priorities to human resources in the middle hierarchical level of the company. It has been observed that the middle-level managers are more aware of the company’s problems compared to managers in the higher level because of their closer contacts with customers, frontline managers, and other subordinates. To be an ideal middle-level manager, one must be creative so that they could provide sound ideas regarding operational skills as well as problem-solving skills that will help keep the organization afloat. Frontline or Lower-level Managers. Lower-level managers are also known as operational managers and are responsible for supervising the organization’s day-to-day activities; they are the bridges between management and nonmanagement employees. Traditionally, they are controlled and instructed by top- and middle-level managers to follow their orders in support of the organization’s major strategy. Lately, however, their role has been expanded in some large companies, as they are now encouraged to be more creative and intuitive in the exercise of their functions, so that they, too, could contribute to their company’s progress and the development of new projects. Managerial roles are classified into three types: interpersonal, informational, and decision-making. Henry Mintzberg, professor at McGill University, conducted a research on what real managers do. See Table 1.3 for the managerial roles by Mintzberg.

Categories of Managerial Roles according to Mintzberg • leader Interpersonal

• liaison • figurehead • spokesperson

Informational

• monitor • disseminator • disturbance handler

TABLE 1.3 Managerial Roles Identified by Mintzberg

Decisional or Decision-making

• resource allocator • negotiator • entrepreneur

10 CHAPTER 1

Managerial Skills Managerial skills may be classified as conceptual, human, and technical. Conceptual Skills. Conceptual skills enable managers to think of possible solutions to complex problems. Through their ability to visualize abstract situations, they develop a holistic view of their organization and its relation to the wider external environment surrounding it. Top-level managers must have these conceptual skills in order to be successful in their work. Human Skills. Human skills enable managers in all levels to relate well with people. Communicating, leading, inspiring, and motivating them become easy with the help of human skills. Dealing with people, both in the organization’s internal and external environment, is inevitable, so it is necessary for managers to develop these human skills. Technical Skills. Technical skills are also important for managers for them to perform their tasks with proficiency with the use of their expertise. Lower-level managers find these skills very important because they are the ones who manage the nonmanagement workers who employ varied techniques and tools to be able to yield good quality products and services for their company.

Fast Learning Review 1. How do organizations classify managers according to their functions? Describe the respective functions of each type of manager. 2. Among the different types of managers discussed in this lesson, which type of managers are more aware of their organization’s problems? Explain your answer. 3. Enumerate the three classifications of managerial roles suggested by Mintzberg. Are they equal in importance? Explain your answer. 4. Have the managerial functions remained the same through time? Why do you say so?

Exercise Get hold of the newest edition of a business magazine. Name five CEOs or presidents of known corporations whose accomplishments are discussed in the magazine. Describe their work as top-level managers of their respective corporations. Relate your description of their work with the functions, roles, and skills of managers discussed in this lesson.

Integration At the end of the chapter, write two or three sentences to complete the following: I realized that: I resolved that:

Nature and Concept of Management 11

CHAPTER 2

The Firm and Its Environment ALL MANAGERS, without exception, must consider their organizations’ external and internal environments before planning anything. Responding to the various forces/elements of the firm’s external and internal business environments is a must because failure to do so may bring about negative effects. However, managers must make sure that they respond based on the proper identification and evaluation of these forces/elements in their surrounding environments. As you read and study this chapter, concentrate on the following objectives, and at the end of the chapter, be able to: 1. identify the various forces/elements of the firm’s environment and summarize these forces using the SWOT analysis; 2. describe the local and international business environment of a firm; and 3. explain the role of business in relation to the economy, discuss the different phases of economic development, and differentiate the various forms of business organizations.

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LESSON 1

Environmental Forces and Environmental Scanning

B

usiness Environment refers to the factors or elements affecting a business organization. It may be divided into the External and Internal Business Environments. The External Business Environment includes the factors anf elements outside the organization which may affect its performance, either positively or negatively while the Internal Business Environment refers to the factors or elements within the organization which may also affect its performance, either positively or negatively. The environment in which a business operates is a major consideration in determining an organization’s design or structure. Considerations such as uncertainty, procurement, and competition are linked with the external environment. A company’s strategy and approach to operations must also be aligned with the limitations of its external environment as well as its internal environment.

Components of the External Business Environment: General and Specific

Systematic monitoring of the major external forces influencing organizations is necessary to improve the management of companies. Failure to consider a company’s general and specific business environments may affect the strategies that management will make and use. The general business environment includes the economic, sociocultural, politico-legal, demographic, technological, and world and ecological situations. All these must be considered as managers plan, organize, staff, lead, and control their respective organizations. Inflation, rates of interest, changing options in stock markets, and people’s spending habits are some examples of factors/elements of economic situations. Economic situations may affect management practices in organizations. For example, companies may postpone expansion plans if bank loan interests are too high. Sociocultural situations include the customers’ changing values and preferences; customs could also affect management practices in companies. For example, Filipino customers are now conscious about the importance of avoiding fatty foods, so many food companies now make sure that the products they offer are cholesterol-free or are low in cholesterol. In doing so, they avoid losing their customers. Politico-legal situations refer to national or local laws, international laws, and rules and regulations that influence organizational management. For example, labor laws related to preventing employers from firing their employees without due process require the former to allow the latter to exercise their right to present their position during disciplinary action before their employment can be terminated.

Definition of Terms Environmental scanning – seeking for and sorting through data about the environment External business environment  – refers to the factors/elements outside the organization which may affect, either positively or negatively, the performance of the organization Internal business environment – refers to the factors/elements within the organization which may effect, either positively or negatively, the performance of the organization Inflation – a period of above normal general price increases, as reflected in the consumer and wholesale price indexes Interest rates – the total amount that a borrower must pay annually to the lender and above the total amount borrowed Changing options – the consumers change in preference of goods and services offered People’s spending habits – consumers’ changing ways of spending their money on goods and services economic situations – includes inflation rates of interest, people’s spending habits, changing options, etc.

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Demographic situations such as gender, age, education level, income, number of family members, geographic origin, etc., may also influence some managerial decisions in organizations. For example, decisions regarding hiring of human resources may be affected by an organization’s management policy that shows prejudice to the hiring of married females who are in the child-bearing age because they would like to minimize payment of maternity leave benefits. The technological situations of companies involve the use of varied types of electronic gadgets and advanced technology such as computers, robotics, microprocessors, and others that have revolutionized business management; e-commerce, teleconferencing, and sophisticated information systems have rapidly changed the ways that business is conducted in the 21st century. World and ecological situations are related to the increasing number of global compe­titors and markets, as well as the nature and conditions of the changing natural environment. Products produced by companies, of course, must cater to the changing needs of people in the global community, while, at the same time, considering their impact on the natural environment. For example, car manufacturing managers must give the go signal for the development of vehicles that are environmental friendly instead of only being focused on the product’s speed, fuel economy, and design. Meanwhile, the specific business environment focuses on stakeholders, customers, pressure groups, and investors or owners and their employees. Stakeholders are parties likely to be affected by the activities of the organization, while customers are those who patronize the organization’s products and services. Increasing customer sophistication makes it necessary for managers of organizations to make crucial decisions regarding the development of products with higher value and the improvement of their services to meet their patrons’ increasing demands. Also, this has prompted companies to solicit feedback from their customers to avoid dissatisfaction that may lead them to patronize another company offering similar products and services instead. Suppliers are those who ensure the organization’s continuous flow of needed and reasonably priced inputs or materials required for producing their goods and rendering their services. Inputs mentioned also include financial and labor supply. Managers decide what, where, and when to buy their supplies and which supplier to favor with their organization’s supply orders. Pressure groups are special-interest groups that try to exert influence on the organization’s decisions or actions. For instance, pressure from the Food and Drug Administration on some department stores and drug stores led them to stop selling beauty products containing lead and to stop ordering or importing such products from their suppliers.

14 CHAPTER 2

The organization’s investors or owners provide the company with the financial support it needs. The company, of course, cannot exist without them; thus, they greatly influence organizational management. Top-level, middle-level, and lower-level managerial decisions are all influenced, in one way or another, by the investors or owners of organizations. Branching out, offering new products and services, and applying for needed loans are all affected by the investors’ or owners’ way of thinking. Employees are comprised of those who work for another or for an employer in exchange of salaries/wages or other considerations. Employees execute the company’s strategies and are important for the maintenance of the company’s stability. For example, managerial decisions are influenced by the company’s knowledge workers.

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

Components of Environmental Scanning: Developing a Competitive Mindset, Considering Future Business Scenarios, Business Prediction, SWOT Analysis, and Benchmarking Adapting to environmental uncertainties must start with developing a competitive mindset. Ignorance of present-day realities may cause individuals or organizations to do certain things that they may regret in the future; hence, environmental scanning is necessary. By seeking for and sorting through data about the environment, you may be able to understand and predict the various changes, opportunities, and threats that may affect organizations in the future. Knowing the present-day competitors, the possible number of barriers to entering your chosen business industry, the existence or nonexistence of substitutes to your planned product or service, and possible dependence on powerful suppliers and customers will be helpful in developing a competitive mindset. You must also consider future business scenarios. By realistic consideration of both worst-case scenario or unfavorable future conditions and best-case scenario or favorable future conditions, as well as middle-ground possible conditions, you will have an idea of what to do in the future. The Firm and Its Environment 15

Meanwhile, business prediction, also known as business forecasting, is a method of predicting how variables in the environment will alter the future of business. It could be used in making decisions regarding offshoring, branching out locally, and expanding or downsizing the company. However, the accuracy of such business predictions may not always be assured. Benchmarking is defined as the process of measuring or comparing one’s own products, services, and practices with those of the recognized industry leaders in order to identify areas for improvement. Best practices of said industry leaders are observed so that understanding their competitive advantage would be easier. This is followed by gathering information about the company’s own operations and those of the other company in order to identify gaps; this in, turn, could be used to find out the underlying reasons for performance differences. From these said reasons, a set of best practices in one’s own company will be listed down and that, ultimately, leads to the company’s improved performance.

Fast Learning Review 1. What is the difference between the terms “external business environment” and “internal business environment”? Which of the two has greater influence on business organizations? Explain your answer. 2. How does customer satisfaction affect the competitive mindset of business organization? 3. Why is customer satisfaction important in all types of businesses? 4. Give your own example of a sociocultural environmental influence on a business organization. 5. Why should business professionals consider future business scenarios? Will you make use of these as a business professional in the future? Explain your answer.

Exercise 1. Who are the stakeholders of your school? Give specific examples and state why they are important for the maintenance of your school’s stability as a business organization. 2. Practice benchmarking by comparing your school’s practices with the best practices of a leading school in the Philippines. Are there performance gaps? What are the underlying reasons for the identified performance diffe­rences? List down your suggested best practices to improve the performance of your school.

16 CHAPTER 2

LESSON 2

The Local and International Business Environment of the Firm

PDI

IDV

MAS

UAI

LTO

Zealand

United Kingdom New

United States Canada Australia

Philippines

Zealand

United Kingdom New

Australia

United States Canada

Philippines

Zealand

United Kingdom New

United States Canada Australia

Philippines

Zealand

United Kingdom New

United States Canada Australia

Philippines

Zealand

United Kingdom New

United States Canada Australia

Philippines

Hofstede Five Dimensions:

Definition of Terms Inflation rate – rate reflected during a period of above normal general price increases Gross national product (GNP)  – total domestic and foreign output claimed by the residents of a country Gross domestic product (GDP) – total final output of goods and services produced by the country’s economy, within the country’s territory Currency exchange product – the rate at which central banks will exchange the country’s currency for another

Internal origin

attributes of the organization

Helpful

External origin

to achieving the environment

U

nderstanding the local and international business environment of the firm requires managers of organizations to sharpen their cultural intelligence. Cultural intelligence is an individual’s ability to favorably receive and adjust to an unfamiliar way of doing things. This will enable them to develop their ability to accept and adapt to different cultures, both local and international, that may affect the organization to which they belong. Anthropologist Edward T. Hall, as cited by Schermerhorn (2008), noted that the way people approach and deal with time varies across cultures. Monochronic cultures refer to cultures wherein people tend to do one thing at a time; also, these cultures emphasize punctuality and sticking to set rules. Polychronic cultures, on the other hand, are more flexible as regards time; accomplishing many different things at once is also common for these cultures. It may be very frustrating for one who is influenced by a monochronic culture to be dealing with one who is influenced by a polychronic culture if he or she does not possess cultural intelligence. Geert Hofstede, also cited by Schermerhorn (2008), showed how selected countries ranked on the five cultural dimensions he studied: Power Distance – the degree to which a society accepts or rejects the unequal distribution of power among people in organizations and the institutions of society. For example: India and the Philippines have high power distance, while the US and Australia have low power distance. The use of the terms “Sir” and “Madam” to refer to the boss/superior by subordinate employees in the Philippines shows respect for authority figures, or high power distance. In the US, subordinates just use the name or nickname of the boss when addressing him or her, indicating low power distance.

Harmful

to achieving the objectives

to achieving the objectives

Strengths

Weaknesses

Opportunities

Threats

FIGURE 2.1 The SWOT analysis or matrix is one of the most structured and used planning method to evaluate a business venture.

FIGURE 2.2 This bar graph shows the comparative scores of a few countries based on Hofstede’s cultural dimensions theory.

The Firm and Its Environment 17

TABLE 2.1 Dimension scores differ in different countries. Philippine Scores in the Different Geert Hofstede Cultural Dimensions Dimension

Score

• Power Distance

94

• Uncertainty Avoidance

44

• Individualism-Collectivism

32

• Masculinity

64

• Time Orientation

19

http://www.clearlycultural.com/

Uncertainty Avoidance – the degree to which society is uncomfortable with risk, change, and situational uncertainty Managers in the US are risk takers. Filipinos are seguristas that are afraid of taking risks within business endeavors in the market. Individualism-Collectivism – the degree to which a society emphasizes individual accomplishments versus collective accomplishments Individualistic cultures like those of the US and Australia are characterized as “I” and “me” cultures where employees prefer to work alone without help from others. Mexico, Thailand, and the Philippines exhibit collectivism or preference for group or team work. Masculinity-Femininity – the degree to which a society values assertiveness and feelings of material success versus concern for relationships The Japanese and Mexicans do not hesitate to push or express what they want, unmindful of hurting others’ feelings, thus showing masculinity. Filipinos, Thais, and Swedes would rather keep quiet and accept defeat if what they want is not acceptable to others, thus, exhibiting femininity. Time Orientation – the degree to which a society emphasizes shortterm thinking versus greater concern for the future or long-term thinking The Americans, who are risk-takers, prefer short-term thinking. On the other hand, Filipinos and the Japanese, who are not risk-takers, are long-term thinkers. The local culture of a particular country also influences the management practices of firms. An example is the mañana habit which is part of local Filipino culture and practiced by some Filipino workers. It is counter productive since it encourages the postponement of performing tasks that can be done immediately to another day. Managing and disciplining workers who practice this habit would be easier for managers if they are able to identify the workers who adhere to such negative work habit and prevent them from doing it. This, however, is easier said than done because it is difficult to explain a country’s unique cultural characteristics.

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

18 CHAPTER 2

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

Definition of Terms Worldwide Environment – refers to the external business environment (i.e. sociocultural, natural, politico-legal, and economic technological factors) around the world Globalization  – refers to changes in the dimensions of external environment that result to increased interdependence and integration among people and organizations around the world

Fast Learning Review 1. Define cultural intelligence. How important is it in terms of doing business globally? 2. Is it easier to manage business in countries with high power distance rating? Explain your answer. 3. Which is valued by members of a Filipino society: masculinity or femininity? Explain your choice. 4. Why should a country’s politico-legal issues be considered when managing in a worldwide environment?

Exercise 1. How would you describe Philippine culture? Do you think it would be easy for a foreign or expatriate manager to manage his or her company in the Philippines? Explain your answer. 2. Interview a schoolmate who is from another country. Ask him or her to describe what the business world is like in his or her country. Write a brief paper describing the result of your interview.

The Firm and Its Environment 19

LESSON 3

Phases of Economic Development Definition of Terms Economic development –

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

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

the given amount of goods and services produced by the country’s earning

A

lthough material wealth accumulation is among the concerns of genuine economic development, its greater concern is the total improvement of the quality of people’s lives. This, in turn, is related to sustainable economic development issues in a country which greatly influences business management. Sustainable economic development ensures that the present needs of a particular generation are fully met without endangering the ability of future generations to also fully meet their own needs. Business managers must be conscious of their decisions to avoid the abuse of ecological elements—air, water, and soil—as this will threaten sustainable economic development. Different countries have different management strategies to encourage ecological respect and prevent damage to the environment. Common environmental and ecological problems that have to be dealt with by business managers include destruction of natural habitats, depletion of clean water resources, urban, industrial, and agricultural pollution, and many more. In September 2000, world leaders gathered for the Millennium Summit, and thus adopted the United Nations (UN) Millennium Declaration. By doing so, they had committed their nations to a global partnership toward the reduction of extreme poverty and the pursuit of the Millennium Development Goals (MDG). HDI, 2012

Korea, Rep

0.9

FIGURE 2.3 United Nations Development Programme (UNDP) reported that in 2012 almost all countries improved their human development status. This figure identifies the 40 countries from the south with notable improvements since 1990. Note: Countries above the 45 degree line had a higher HDI value in 2012 than in 1990. Black and gray markers indicate countries with significantly larger than predicted increases in HDI value between 1990 and 2012 given their HDI value in 1990. These countries were identified based on residuals obtained from a regression of the change in log of HDI between 2012 and 1990 on the log of HDI in 1990. Countries that are labelled are a selected group of rapid HDI improvers. Source: HDRO calculations

20 CHAPTER 2

Turkey Tunisia Thailand China

0.7

Mexico Malaysia

Chile

Brazil Mauritius

Indonesia Vietnam Lao PDR Bangladesh

0.5

India

Ghana

Uganda Rwanda

0.3 DI

90

=H

12

20

I 19

HD

0.1 0.1

0.3

0.5

0.7

0.9 HDI, 1990

Highlighted 18

Big improvers

Others

The MDGs, according to the UN, are “the world’s time-bound and quantified targets for addressing extreme poverty in its many dimensions — income poverty, hunger, disease, lack of adequate shelter, and exclusion — while promoting gender equality, education, and environmental stability.” The deadline for the fulfillment of the MDGs was set for 2015. The following are the MDGs: 1. Eradicate extreme hunger and poverty 2. Achieve universal primary education 3. Promote gender equality and empower women 4. Reduce child mortality 5. Improve maternal health 6. Combat HIV/AIDS, Malaria, and other diseases 7. Ensure environmental sustainability 8. Develop a global partnership for development

➤ Adam Smith was the first “development economist.” His work, The Wealth of Nations, was published in 1776. The scientific study of the processes and problems of society in Asia, Africa, and North America has emerged only over the past 50 years.

Meanwhile, the National Economic and Development Authority (NEDA) has laid out the Philippine Development Plan (PDP) 2011-2016, which “adopts a framework of inclusive growth, which is high growth that is sustained, generates mass employment, and reduces poverty.” The PDP is focused on the following areas: 1. Pursuit of Inclusive Growth 2. Macroeconomic Policy 3. Competitive Industry and Services Sectors 4. Competitive and Sustainable Agriculture and Fisheries Sector 5. Accelerating Infrastructure Development 6. Resilient and Inclusive Financial Sector 7. Good Governance and the Rule of Law 8. Social Development 9. Peace and Security 10. Conservation, Protection, and Rehabilitation of the Environment and Natural Resources It is evident from the PDP focused areas that they cover not only the economic and industrial goals of the Philippines but also the social, environmental, and peace and security aspects. The MDGs and the PDP can help guide the management of businesses in the Philippine setting. In particular, the PDP must be taken into consideration in order to deem management as appropriate or country-specific. Another potential means for economic growth and development is the planned integration of the 10 Southeast Asian nations in 2015 which include the Philippines. The Association of Southeast Asian Nations (ASEAN) Economic Community (AEC) could help the Philippines achieve its goal of inclusive growth that creates jobs and reduces poverty. According to a joint study by the International Labor Organization (ILO) and the Asian Development Bank (ADB) titled “ASEAN Community 2015: Managing Integration for Better Jobs and Shared Prosperity,”

“Inclusive growth means, first of all, growth that is rapid enough to matter, given the country’s large population, geographical differences, and social complexity. It is a sustained growth that creates jobs, draws the majority into the economic and social mainstream, and continuously reduces mass poverty.” NEDA The Firm and Its Environment 21

released in October 2014, the success of the AEC lies in decisive actions taken by member states regarding policy recommendations, strengthening regional cooperation that may bring about structural changes, improvement of business and job opportunities and job quality, enhancement of skills boosting productivity, better wages, and management of labor migration. These may ensure that the benefits of equitable growth and development are shared among member countries and sectors. Since the AEC is envisioned to become a single common market and production base for an estimated 600 million people of different nationalities, it means freer flow of goods, services, investments, and labor. The study concluded that “new opportunities for growth and prosperity may emerge, but the challenge is to ensure that growth is inclusive and prosperity is shared.” Obviously, managers of businesses here in the Philippines must be concerned about the findings of the study, as these are new challenges for them. The improvement of management style and the skills training and education of their human resources are needed in order to cope with the possible changes that will be brought about by the ASEAN integration in 2015.

Fast Learning Review 1. Is the term “economic development” synonymous with “economic growth?” Explain your answer. 2. What are the phases of economic development? Why is it important to understand the specific steps related to these? 3. What do you think are the adverse effects when sustainable economic development practices in a country are not implemented? 4. Name at least three business management decisions that could be affected by the Human Development Index in a country’s economic development phases.

Exercise 1. Interview two of your Economics teachers. Ask them why economic development is important in the study of business management. Compare and contrast their answers. 2. Choose another Asian country and discuss how factors in its economic development differ from those in the Philippines.

22 CHAPTER 2

LESSON 4

Forms of Business Organizations

T

he form of a business organization may depend on its purpose, nature of operations, and resources. However, a business organization’s form may change with the changing times and the demands they present.

Changing Forms of Business Organizations Change is constant and organizations continue to undergo various changes to ensure effectiveness, efficiency, and relevance in the world of business. Business organizations may be traditional (simple, functional, divisional, profit, or nonprofit) or open/flexible in form according to Robbins and Coulter (2009). Simple business organizations – these refer to business organizations with few departments, centralized authority with a wide span of control, and with few formal rules and regulations. These are easy to manage because of their simple form. However, change of form follows as the company expands its operations. Functional business organizations – these pertain to business organizations that group together those with similar or related specialized duties that introduce the concept of delegation of authority to functional managers like the personnel manager, sales manager, or financial manager but allow CEOs to retain authority for strategic decisions. Divisional business organizations – these are business organizations made up of separate business units that are semi-autonomous or semi-independent, with a division head responsible for his or her unit’s performance In other words, each division has its own functional organization and its own general manager; however, the central headquarters management maintains responsibility for the delineation of organizational goals of the individual divisions. Profit business organizations – these are business organizations designed for the purpose of achieving their organizations’ mission, vision, goals, and objectives and maintaining their organizational stability through income generation and profit-making activities. Immediate revenues or cost factors account for their success or failure. Nonprofit organizations – these are business organizations designed for the purpose of achieving their organizations’ mission, vision, goals, and objectives, providing service to clients without expecting monetary gains or financial benefits for their endeavors. Their success or failure may be measured by the high or low evaluation scores they obtain. Open/flexible business organizations – these are formed to meet today’s changing work environment.

Definition of Terms Organization – a collection of people working together to achieve a common purpose Business organization ­–­a collection of people working together to achieve a common purpose in relation to their organization’s mission, vision, goals, and objectives, sharing a common organizational culture Organizational culture  –­the set of beliefs and values shared by organization members which guide them as they work together to achieve their common purpose

The Firm and Its Environment 23

FIGURE 2.4 Starting out as a simple shoe store in the 1950s, Shoe Mart (SM) has evolved into one of the largest supermall chains in the country today. Among its supermalls is SM Mall of Asia in Pasay City, one of the biggest malls in the Philippines.

Business organizations affect and are affected by the environment; therefore, change becomes inevitable. Other forms of business organizations: 1. Team structures – where the organization as a whole is made up of work teams (small, but focused) that work together to achieve the organization’s purpose; popular in collectivist culture. 2. Matrix business organizations – those which assign experts or specialists belonging to different functional departments to work together on one or more projects; exhibit dual reporting relationships in which managers report to two superiors—the functional manager and the divisional manager. 3. Project business structure – a business organizational form with a flexible design, where the employees continuously work on projects assigned to them; projects may be short-term or long-term and members disband when the project is completed. 4. Boundaryless business organization – a business organization whose design eliminates vertical, horizontal, or external boundaries, and is described to be flexible and unstructured; there are no barriers to information flow and, therefore, completion of work is fast. 5. Virtual business organization – made up of a small group of full-time workers and outside experts who are hired on a temporary basis to work on assigned projects; members usually communicate online.

24 CHAPTER 2

Other basic forms of business that are legal in the Philippines are: single proprietorship, partnership, corporation, and cooperative; these are defined and discussed on p. 142, Lesson 2 of chapter 9. Different organizations have different preferences as to the business form that is appropriate for their needs and the purpose of their existence. Managers, therefore, must be creative in finding ways to structure or design and organize work in their respective firms.

Fast Learning Review 1. What is a business organization? 2. What is the difference between a profit and nonprofit business organization? Which, in your opinion, is easier to manage? Explain your answer. 3. Name one strength and one weakness of each of the traditional business organization forms. 4. Name one strength and one weakness of each of the open/flexible business organization forms.

Exercise 1. Research on the Internet or the school library; name five profit business organizations and five nonprofit business organizations. 2. Choose one known manufacturing company. Name at least five work teams which help the company achieve their mission, vision, goals, and objectives.

Integration At the end of the chapter, write two or three sentences to complete the following: I realized that: I resolved that:

The Firm and Its Environment 25

CHAPTER 3

Planning IN THIS CHAPTER, you will begin to study planning, the first management function, which sets an organization’s agenda. Establishing plans based on set goals will provide direction to the organization’s activities and, thus, reduce uncertainties and wastage. Planning is an extremely complex process since it requires a systematic method for recognizing and analyzing the elements of the organization’s external environment and matching them with the firm’s internal environment’s factors and capabilities. Since plans are done in an environment of uncertainty, you will also begin to understand how assumptions are formulated based on forecasts of expected future situations. As you read and study this chapter, concentrate on the following objectives, and at the end of the chapter be able to: 1. discuss the nature of planning; 2. compare and contrast the different types of plans; 3. describe planning at different levels of the firm; 4. apply appropriate planning techniques and tools; and 5. formulate a decision from several alternatives.

26

LESSON 1

Definition and Nature of Planning

P

lanning is the first management function and a very essential component of management. The following present the importance of planning: • Planning provides direction to all of the organization’s human resources— both managers as well as employees. If they know what their firm or their work unit is trying to achieve and what activities they should engage in to be able to contribute to the achievement of the firm’s set vision, mission, goals, and objectives, they would coordinate their actions and collaborate well with one another. • Planning is important because it reduces uncertainty; it compels managers to consider future events that may affect their company. Anticipating changes and their impact will help managers and other workers to react to such changes appropriately. • Minimizing of wastes will result if there is proper coordination of activities due to planning; negative practices, ineffectiveness, and inefficiencies could be easily detected and can be corrected or eliminated. • Establishing goals and standards during planning may be used for controlling, another necessary managerial function. Without planning, goals and standards will be absent and controlling will not be possible.

Definition of Terms Planning – is a process that involves the setting of the organization’s goals, establishing strategies for accomplishing those goals, and developing plans of action or means that managers intend to use to achieve organizational goals Goal-setting – the identification of targets or desired ends that management wants to reach Vision – a mental image of what the organization will be in the future, as desired by the company management and employees Mission – basic purpose of an organization and range of their operations Objectives – steps needed in order to attain desired ends

Relationship of Planning to Individual and Organizational Performance Is there a clear relationship between planning and performance? Although numerous researchers have shown a generally positive relationship between planning and performance, it would not be advisable, however, to judge that organizations or individuals who formally plan have better performance compared to those who do not plan. There are other environmental factors that also affect individual or organizational performance, thus, result in reducing the impact of planning to performance. It is safer to say that the relationship between planning and performance is mainly due to association of systematic planning with the excellent financial status of the organization and higher return of investments, higher income, and profit that could be traced to the excellent performance of its human resources. Finally, the planning-performance relationship could also be associated with the time spent in preparing and executing a formal organizational or individual plan. A well-thought-out plan requires a longer period of preparation; its execution or application must also be done for a certain period of time—months or years—before it begins to affect performance. 27

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

Fast Learning Review 1. How important is planning to organization managers? 2. In your own opinion, is there a clear relationship between planning and performance? Explain. 3. Which comes first, goal-setting or planning? Explain your answer. 4. Explain the relationship between planning and controlling.

Exercise 1. Set goals or targets for a fast food business. List them down. 2. Look ahead, list down possible future changes in the fast food business in which you made these goals for in exercise number one.

28 CHAPTER 3

LESSON 2

Types of Plans

O

rganizational plans can be generally described in terms of comprehensiveness, length of time covered or time frame, specificity, and frequency of use. Comprehensiveness refers to the completeness of planning coverage; for example: it may start from plans that cover the entire organization, called strategic plans, up to operational plans that apply to a particular operational area only. The more comprehensive the plan is, the better, as this could completely guide both the employer and employee toward the fast achievement of company goals. A plan may be long-term, or covering more than three years, or short-term, covering one year or less. Top-level management usually sets the long-range plans, while lower-level management focuses on short-term goals. Specificity refers to very detailed, clearly defined plans wherein objectives are clearly stated and could easily be understood. Simple language must be used in order to facilitate understanding of the plan. Frequency of use refers to the number of times or instances a plan may be used. For example, strategical plans have single use, while operational plans are usually standing or are used frequently or for several times. Referring to set plans is often necessary to ensure that all plans are carried out, thus, hastening the achievement of the organization’s goals. Managers meet many planning challenges as they go about their tasks and direct their company’s affairs. In some organizations, the planning environment is steady, but in others, it is dynamic, so, different types of plans are made to meet organizational needs. Different types of planning include the following: Strategic plans – plans that establish the organization’s overall goals and apply to the entire firm; they are broad in scope and are the responsibility of the CEO, president, and general manager of the company.

Definition of Terms Organizational Plan – a comprehensive plan for the entire organization covering time frame, specific purpose, frequency of use, and others Strategic Plan – plans that establish the organization’s overall goals and apply to the entire firm; they are broad in scope and are the responsibility of the organization’s President or Chief Operating Officer, and several managers Operational Plan – plans that apply to a particular unit area only; their scope is narrow and prepared by lower level managers

FIGURE 3.1 In case of emergencies, organizations should have alternative plans.

Planning 29

Operational plans – plans that apply to a particular unit area only; their scope is narrow; achievement of company goals may not be achieved if operational plans are not clear. Long-term plans – plans that go beyond three years; everyone must understand the organization’s long-term plans to avoid confusion that may divert the organization members’ attention. Short-term plans – plans that cover one year or less; such plans must lead toward the attainment of long-term goals and are the responsibility of the unit/department heads. Directional plans – plans that are flexible or give general guidelines only; although flexible and general, these plans must still be related to the strategic plans. Specific plans – plans that are clearly stated and which have no room for interpretation; language used must be very understandable Single-use plans – plans used or stated once only as this applies to the entire organization; refer to the operational plans of the firm. Standing plans – plans that are ongoing; provide guidance for different activities done repeatedly; refer to the identified activities of operational plans.

Steps in Planning Planning is a process and, as such, involves steps—from carrying out its purpose, setting of goals/objectives, and determining what should be done to accomplish them. Schermerhorn (2008) gave five steps in the planning process: 1. Define your goals/objectives by identifying desired outcomes/results in very specific ways. 2. Determine where you stand in relation to set goals/objectives; know your strengths and weaknesses. 3. Develop premises regarding future conditions; anticipate future events, generate alternative “scenarios” for what may happen; identify for each scenario things that may help or hinder progress toward your goals/ objectives; 4. Analyze and choose among action alternatives; list and carefully evaluate possible actions and choose the alternative most likely to accomplish goals/objectives. 5. Implement the plan and evaluate results; take corrective action and revise plans as needed.

30 CHAPTER 3

FIGURE 3.2 Planning, when done carefully, can lead an individual to success.

Fast Learning Review 1. What are the bases for describing organizational plans? 2. Name at least five types of plans. Which, in your opinion, is the hardest to prepare? 3. Which plan is described to be short-term, specific, and narrow? Explain your answer. 4. Name the five steps in planning. Is there a particular step that could be bypassed or eliminated? Explain your answer.

Exercise 1. Choose one of the formal goals set for your school/college. List down three operational plans that will enable school/college managers to achieve this chosen goal. 2. Describe how your school/college managers can effectively prepare the three operational plans listed down in exercise number one.

Planning 31

LESSON 3

Planning at Different Levels in the Firm ➤ Bateman and Snell (2008) stated that an effective strategy provides a basis for answering five broad questions about how organizations will meet its goals/objectives: 1. Where will we be active? 2. How will we get there? 3. How will we win in the marketplace? 4. How fast will we move and in what sequence will we make changes? 5. How will we obtain financial returns?

Definition of Terms Strategic Planning – is top-level planning which involves making decisions about the organization’s long term goals Tactical Planning – is middle-level management planning which refers to procedures and transformation of strategic goals/plans with specific goals Operational Planning – is lower-level management planning which involves routine tasks repeatedly done by the firm’s lower level units

D

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

Top-level Management Planning (Strategic Planning) As earlier mentioned, top-level managers are responsible for the organization’s strategic planning which involves making decisions about the organization’s long-term goals and strategies. CEOs, company presidents, or the organization’s senior executives develop and execute the said strategic plan. They, however, do not formulate or execute the plan on their own; a management team supports and helps top-level managers in carrying out these tasks. Strategic planning starts with defining the organization’s goals/objectives, the major targets related to the maintenance of the organization’s stability, and its organizational culture, values, and growth improving its productivity, profitability, effectiveness, and efficiency, among others.

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

FIGURE 3.3 Planning hierarchy Strategic Planning

Organization mission Organization goals Organization objectives

Tactical Planning

Department objectives Division objectives

Operational Planning

32 CHAPTER 3

Department objectives Individual objectives

Frontline/Lower-level Management Planning (Operational Planning) Operational planning involves identifying the specific procedures and processes required at the lower levels of the organization. This also involves routine tasks or tasks repeatedly done by the organization’s lower level units.

Integrating Strategic, Tactical, and Operational Planning The present organizational planning is not as rigid as the hierarchical planning earlier discussed in this chapter. Managers in different hierarchical levels of the organization may contribute their ideas or suggestions in developing the strategic plan, a task originally assigned to the senior executives. Also, frontline managers may make decisions that could influence strategy formulation in the higher levels. All plans, however, must be directed toward the achievement of the organization’s strategic goals. Finally, CEOs or company presidents must see to it that all communication lines in their organization are open, that there is excellent dissemination of information to all levels, and they are aware of everything that is happening in their firm.

Fast Learning Review 1. Name and define the three planning types that take place in the three hierarchical levels of managerial planning. 2. If the strategic goal of your organization is the improvement of its profitability, what routine tasks could be included in your operational planning? Name some of these tasks. 3. Describe present-day organizational planning. Is it rigid or flexible? Explain your answer. 4. Explain the relationship between planning and communication.

Exercise 1. Instead of using traditional planning and goal-setting methods there are organizations that use the management by objectives (MBO) system. Research about this topic using the Internet. Define MBO and explain how this could be used in planning and goal-setting and its relation to employee performance and organizational productivity. 2. Research on the characteristics of well-written goals. Name at least five characteristics.

Planning 33

LESSON 4

Planning Techniques and Tools and their Applications Definition of Terms Trigger point – change in an attribute, condition, factor, parameter, or value that represents crossing a threshold and actuates or initiates a mechanism or reaction that may lead to a radically different state of affairs Forecasting – an attempt to predict what may happen in the future Benchmarking – planning technique that involves comparison of company’s practices/ technologies with those of other companies http://www.businessdictionary. com/definition/trigger-point. html#ixzz3RUccexQd

FIGURE 3.4 Some organizations use a Gantt chart to properly schedule production processes and allocate resources.

ID

Task Name

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Start

Predecessors

Duration 0 days

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34 CHAPTER 3

0 days

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or effective planning in today’s dynamic environments, different techniques and tools must be used, such as forecasting, contingency planning, scenario planning, benchmarking, and participatory planning. According to Schermerhorn (2008), forecasting is an attempt to predict what may happen in the future. All planning types, without exception, make use of forecasting. Business periodicals publish forecasts such as employment and unemployment rates, increase or decrease of interest rates, stock market data, GNP/GDP data, and others. Forecasts used may either be quantitative or qualitative. Opinions of prominent economists are used in qualitative forecasts while mathematical calculations and statistical analyses of surveys/researches are used in quantitative forecasts. These, however, are just aids to planning and must be treated with caution. As the name implies, forecasts are predictions and may be inaccurate, at times, due to errors of human judgment. Contingency factors may offer alternative courses of action when the unexpected happens or when things go wrong. Contingency plans must be prepared by managers, ready for implementation when things do not turn out as they should be. Contingency factors called “trigger points” indicate when the prepared alternative plan should be implemented. Meanwhile, planning for future states of affairs is a long-term version of contingency planning and is also known as scenario planning. Several future states of affairs must be identified and alternative plans must be prepared in order to meet the changes or challenges in the future. This is a big help for organizations because it allows them to plan ahead and make necessary adjustments in their strategies and operations. Some examples of changes or challenges that may arise in future scenarios are environmental pollution, human rights violations, climate and weather changes, earthquake damages to communities, and others.

July 23, 2006 S

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Benchmarking is another planning technique that generally involves external comparisons of a company’s practices and technologies with those of other companies. Its main purpose is to find out what other people and organizations do well and then plan how to incorporate these practices into the company’s operations. A common benchmarking technique is to search for best practices used by other organizations that enabled them to achieve superior performance. This is known as external benchmarking. Internal benchmarking is also practiced by some organizations when they encourage all their employees working in their different work units to learn and improve by sharing one another’s best practices. Participatory planning is a planning process that includes the people who will be affected by the plans and those who will be asked to implement them in all planning steps. Creativity, increased acceptance and understanding of plans, and commitment to the success of plans are the positive results of this planning technique.

Fast Learning Review 1. What are the useful planning tools and techniques that are currently used in many organizations. Define each. 2. Which is a better planning tool: forecasting or benchmarking? Explain your answer. 3. Why are “trigger points” important in contingency plans? 4. Name some examples of changes or challenges, other than those mentioned in this lesson, that may occur in future scenarios.

Exercise 1. Give at least five business forecasts that may occur here in the Philippines three years from now. Use either qualitative or quantitative forecasting. 2. How can planning through benchmarking be used by the owner/manager of a five-star hotel? Explain your answer.

Planning 35

LESSON 5

Decision-making Definition of Terms Decision-making – is a process which begins with problem identification and ends with the evaluation of implemented solutions ➤ The Decision-making Process according to Robbins and Coulter Step 1: Identify the Problem. The problem may be defined as a puzzling circumstance or a discrepancy between an existing and a desired condition. Step 2: Identify the Decision Criteria. These are important or relevant to resolving the identified problem. Step 3: Allocate Weights to the Criteria. This is done in order to give the decision maker the correct priority in making the decision. Step 4: Develop Alternatives. This step requires the decision maker to list down possible alternatives that could help resolve the identified problem. Step 5: Analyze the Alternatives. Alternatives must be carefully evaluated by the decision maker using the criteria identified in Step 2. Step 6: Select an Alternative. This is the process of choosing the best alternative or the one which has the highest total points in Step 5. Step 7: Implement the Chosen Alternative. This step puts the decision into action. Changes in the environment must be observed and assessed, especially in cases of long-term decisions, to see if the chosen alternative is still the best one. Step 8: Evaluate Decision Effectiveness. This is the last step and involves the evaluation of the outcome or result of the decision to see if the problem was resolved. If the problem still exists, the manager has to assess what went wrong and, if needed, repeat a step or the whole process.

36 CHAPTER 3

A

ll managers and workers/employees in organizations make decisions or make choices that affect their jobs and the organization they work for. This lesson’s focus is on how they make decisions by going through the eight steps of the decision-making process suggested by Robbins and Coulter (2009).

Types of Decisions A decision is a choice among possible alternative actions. Like planning, decision-making is a challenge and requires careful consideration for both types of decisions, namely: Structured or programmed decision – a decision that is repetitive and can be handled using a routine approach. Such repetitive decision applies to resolving structured problems which are straightforward, familiar, and easily defined. For example, a restaurant customer complains about the dirty utensils the waiter has given him. This is not an unusual situation, and, therefore, standardized solutions to such a problem may be readily available. Unstructured or nonprogrammed decisions – applied to the resolution of problems that are new or unusual, and for which information is incomplete. Such nonprogrammed decisions are described to be unique, nonrecurring and need custom-made decisions. For example, a hotel manager is asked to make a decision regarding the building of a new hotel branch in another city to meet the demands of businessmen there. This is an unstructured problem and, therefore, needs unstructured or nonprogrammed decisions to resolve it.

Types of Decision-making Conditions Conditions, under which decisions are made, also vary. These are: Certainty conditions – ideal conditions in deciding problems; these are situations in which a manager can make precise decisions because the results of all alternatives are known. For example, bank interests are made known to clients so it is easier for business managers to decide on the problem of where to deposit their company’s funds. The bank which offers the highest interest rate, therefore, is the obvious choice of the manager when asked to make a decision. Risk or uncertainty conditions – a more common condition in deciding problems.

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

Fast Learning Review 1. Enumerate the steps involved in decision-making. Which is the most important step? Explain your answer. 2. Why is it easier to make a structured or programmed decision? 3. Describe the characteristics of an unstructured or nonprogrammed decision. 4. Compare the two types of decision-making conditions. Do you agree with the statement that risk conditions in decision-making are more common?

Exercise 1. Choose one problem in a ready-to-wear garments manufacturing company. Solve your identified problem by going through the eight steps of the decision-making process. 2. Give your own three examples of decision-making under risk or uncertainty conditions.

Integration At the end of the chapter, write two or three sentences to complete the following: I realized that: I resolved that:

Planning 37

CHAPTER 4

Organizing AFTER PLANNING, organizing follows. The goals and objectives established during planning will all go to waste without effective organizing, through the development of a designed structure of roles for effective performance. It requires an interlacing of decision and communication work units to coordinate efforts toward the organizational goals and objectives that were set earlier. To function well, organization structures and their specific roles must be understood by all members of the organization. Rules and regulation principles must also be put into practice. However, that organizing depends on the specific situation of the firm. As you read and study this chapter, concentrate on the following objectives, and at the end of the chapter be able to: 1. discuss the nature of organizations; 2. distinguish the various types of organization structures; 3. apply organization theories in solving business cases; 4. identify the different elements of delegation; and 5. differentiate formal from informal organizations.

38

LESSON 1

Nature of Organizations Differentiation of the Organization’s Internal Environment Differentiation in organizations involves division of labor and specialization according to Bateman and Snell (2008). These necessarily result from the organization’s composition—many different work units with different kinds of tasks, using different skills and work activities coordinating with one another for a common end. Division of labor involves assigning different tasks to different people in the organization’s different work units. Related to it is specialization, the process in which different individuals and units perform different tasks. An organization’s overall work is complex and would be too much for any individual, therefore, the bigger the organization, the more work units or work divisions and specializations are to be expected.

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

Fast Learning Review 1. Give the importance of organizing in business companies. 2. What is the negative effect of not having division of labor in organizations? 3. Why should organizations be encouraged to have an organization chart? 4. Is the term “specialization” synonymous with the term “differentiation?” Explain.

Exercise 1. Construct an organization chart of your school’s high school department. 2. Get a copy of a big business organization’s organization chart through the Internet and compare it with your school’s high school department’s organization chart. List down the similarities and/or differences that you observed.

39

LESSON 2

Types of Organization Structures Definition of Terms Vertical Organization Structure– clears out issues related to authority rights, responsibilities, and reporting relationships Horizontal Organization chart – refers to a selection of independent, usually single-function organizations that work together to produce a product or service

FIGURE 4.1 Organizational Chart with Vertical Structure

A

n organization structure is a system made up of tasks to be accomplished, work movements from one work level to other work levels in the system, reporting relationships, and communication passageways that unite the work of different individual persons and groups. The types of organizational structures include: a. vertical structure b. horizontal structure c. network structure According to Bateman and Snell (2008), a vertical structure clears out issues related to authority rights, responsibilities, and reporting relationships. Authority rights refer to the legitimate rights of individuals, appointed in positions like president, vice president, manager, and the like, to give orders to their subordinates, who in turn, report to them what they have done.

Top Manager

Middle Manager

Manager

Specialist

40 CHAPTER 4

Specialist

Middle Manager

Manager

Specialist

Specialist

Manager

Specialist

Specialist

Manager

Specialist

Specialist

President

Vice President Operation

Vice President Production

Vice President Marketing

Owners of private business companies are said to have absolute authority, even if other persons are appointed as managers in their companies. In corporations, the owners are the stockholders and they elect a board of directors to manage the organization’s activities. The board has a chairman who acts as the leader, while the members act as the corporation’s authority figures, responsible for making major decisions affecting their organizations, subject to the corporation’s constitution and by-law provisions. Besides the chairman of the board, a chief executive officer (CEO) is appointed to occupy the top post in the organization pyramid and is personally accountable to the members of the board and other owners for the organizational performance. Below the top-level managers are the middle-level managers in charge of departments who, as earlier mentioned, report to them. Under the middle-level managers are the lower-level managers which include office managers, sales managers, and supervisors who directly report to the former. Employees under the lower-level managers also have reporting relationships with their respective department managers. A horizontal structure refers to the departmentalization of an organization into smaller work units as tasks become increasingly varied and numerous. Types of Department: Line departments – deal directly with the firm’s primary goods and services; responsible for manufacturing, selling, and providing services to clients. Staff departments – support the activities of the line departments by doing research, attending to legal matters, performing public relations duties, etc. Meanwhile, departmentalization may be done using three approaches: Functional approach – where the subdivisions are formed based on specialized activities such as marketing, production, financial management, and human resources management. Divisional approach – where departments are formed based on management of their products, customers, or geographic areas covered. Matrix approach – is a hybrid form of departmentalization where managers and staff personnel report to the superiors, the functional manager, and the divisional manager.

Vice President Finance

FIGURE 4.2 Sample of Functional Organization

Organizing 41

Finally, a network structure is a collection of independent, usually single function organizations/companies that work together in order to produce a product or service. Such network organizations are each capable of doing their own specialized work activities independently, like producing, distributing, designing, etc., but are capable of working effectively at the same time with other network members. FIGURE 4.3 Example of Organizational Chart with Divisional Structure

President

Product A Division

Product B Division

Product C Division

Product D Division

Administration and Finance Division

Research and Development

Research and Development

Research and Development

Research and Development

Human Resources

Manufacturing

Manufacturing

Manufacturing

Manufacturing

Manufacturing

Accounting/ Finance

Accounting/ Finance

Accounting/ Finance

Accounting/ Finance

Accounting/ Finance

Marketing

Marketing

Marketing

Marketing

Marketing

Customer Service

Customer Service

Customer Service

Customer Service

Training/ Safety

Legal

42 CHAPTER 4

Often their communication is by electronic means where sharing of information is speedy. This results to their ability to respond at once to their customers’ demands. Organizational structure are needed to keep employees needed, to build a learning organization and to manage global structural problems.

Fast Learning Review 1. What are the types of organization structures? Briefly define each. 2. Summarize how authority operates in the vertical organization structure. 3. Give the difference between a line department and staff department. 4. In your opinion, who have greater responsibilities, the line department managers or the staff department managers? Explain your choice.

Exercise 1. Research on the CEO’s work details. What are the advantages and disadvantages of being a CEO? 2. Interview one of your school’s department heads. Discuss his/her perspectives on role, authority, responsibilities, and accountability to superiors.

Organizing 43

LESSON 3

Organization Theories and Applications Definition of Terms Organizational design – the manner in which a management achieves the right combination of differentiation and integration of the organization’s operations, in response to the level of uncertainty in its external environment Traditional Theories – are the usual, old fashioned ways Modern Theories – are contemporary or new design theories http://www.businessdictionary.com/ definition/organizational-design. html#ixzz3RUnVe6OL

T

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

Simple

This organizational design has few departments, wide spans of control, or a big number of subordinates directly reporting to a manager; has a centralized authority figure and has very little formalization of work; usually used by companies that start out as entrepreneurial ventures. When applied, its strengths and weaknesses are revealed. See Table 4.1 below. Simple Organizational Design Strengths • flexible

TABLE 4.1 Strengths and Weaknesses of Simple Organizational Design

• fast decision-making and results • clear accountability

Weaknesses • risk that overdependence with over-dependence on a single person • no longer appropriate as the company grows

Functional

This organizational design groups together similar or related specialties. Generally, functional departmentalization is utilized and put into practice in an entire organization. For example: A marketing firm that markets cars and related products like tires, car batteries, and accessories. It also has strengths and weaknesses as seen in Table 4.2. Functional Organizational Design Strengths • cost-saving advantages TABLE 4.2 Strengths and Weaknesses of Functional Organizational Design

• management is facilitated because workers with similar tasks are grouped together

Divisional

Weaknesses • managers have little knowledge of other units’ functions

This organizational design is made up of separate business divisions or units, where the parent corporation acts as overseer to coordinate and control the different divisions and provide financial and legal support services. 44 CHAPTER 4

Table 4.3 shows its strengths and weaknesses. Divisional Organizational Design Strengths • focused on results • managers are responsible for what happens to their products and services

TABLE 4.3 Strengths and Weaknesses of Divisional Organizational Design

Weaknesses • possible duplication of activities and resources • increased cost and reduced efficiency

Modern organizational design theories include:

Team Design

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

Matrix-Project Design

Matrix design refers to an organization design where specialists from different departments work on projects that are supervised by a project manager. This design results in a double chain of command wherein workers have two managers—their functional area manager and their project manager—who share authority over them. Advantage: specialists are involved in the project. Disadvantage: task and personality conflicts. Project design refers to an organizational design where employees continuously work on a project. Advantages: flexible designs and fast decision-making. Disadvantages: complexity of assigning people to projects and tasks and personality conflicts. FIGURE 4.4 Teamwork and cooperation are two essential factors for an organization’s success.

Organizing 45

Boundary-less Design

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

Fast Learning Review 1. What are the three traditional organizational design theories? Briefly define each. 2. What are the advantages and disadvantages of the simple organizational design? Do you agree or disagree with these advantages and disadvantages? Explain your answer. 3. Name the different modern organizational design theories. Briefly define each. 4. Task and personality conflicts are said to be the disadvantages to the use of the matrix-project design. Explain the rationale of this statement.

Exercise 1. Choose one popular fast food chain company. Name some teams that may be organized within the company to help achieve its goals. 2. Give two of your own examples of a functional organizational design.

46 CHAPTER 4

LESSON 4

Delegation

D

elegation refers to assigning a new or additional task to a subordinate; it may also refer to getting work done through others by giving them the right to make decisions and take action. Elements of delegation include: authority or the right to set officially or legally, responsibility or the state of being answerable legally/morally for the discharge of a duty, and accountability is to be liable to be called to explain. Steps in delegation include: 1. Defining the goal clearly. Managers must clearly explain the task objective and the work or duties someone else is expected to do. 2. Selecting the person who will be given the task. The selected subordinate must be competent and must share the manager’s task objectives. 3. Assigning of responsibility – Managers must explain that the responsibility assigned to the selected subordinate is an expectation for him or her to perform the assigned tasks well.

Definition of Terms Delegation – refers to assigning in a new or additional task to a subordinate; or getting the work done through others by giving them the right to make decisions or take action Authority – the right to act legally or officially Responsibilty – the state of being answerable legally and morally for the discharge of duty Accountability – is to be liable to be called to explain

4. Asking the person assigned about his or her planned approaches to accomplish the task objectives. It is expected that the person chosen to do

the task already has a tentative plan of action that may be presented to the manager, to assure him or her that the person assigned could achieve the task objective. 5. Granting the assigned person the authority to act. If the manager is satisfied with the tentative plan of action presented, granting of the authority to act immediately follows. Authority is a right to act in ways needed to carry out the assigned task.

FIGURE 4.5 Kanban Board This board is used to implement the Kanban method for a specific project. Kanban is a Japanese word which means “signboard” or “billboard”. David J. Anderson later on used this term to name his own method for delegating a team’s workload and deliverables without overloading its members.

Organizing 47

6. Giving the assigned person enough time and resources to do the task, while at the same time emphasizing his or her accountability. Accountability

is the assigned person’s willingness to complete the job, as agreed upon. 7. Checking the task accomplishment progress. Following up and discussing the task accomplishment progress at regular intervals is necessary. 8. Making sure that the task objective has been achieved. The above steps of delegation were given by Weihrich and Krontz (2005). Delegation has advantages and disadvantages as well. See Table 4.4 below. TABLE 4.4 The Advantages and Disadvantages of Delegation

Advantages of Delegation

Disadvantages of Delegation

It prevents work overload among organization managers.

It may cause laziness among organization managers.

It provides opportunities for employee or subordinates assigned to do the task to fully utilize their talents on the job.

It may encourage too much dependence on others.

It leads to empowerment of employees or subordinates assigned to do the task, as it allows them freedom to contribute ideas and to perform their job in the best possible way.

It may cause lack of control over priority management problems.

It increases job satisfaction among the assigned employees or subordinates, that may lead to better job performance.

It may cause low self-confidence among managers.

Fast Learning Review 1. Define the term “delegation.” 2. What are the steps involved in delegating tasks to others? 3. What are the positive effects of delegating tasks? 4. What will be the possible result if managers frequently delegate their task to others? Justify your answer.

Exercise 1. Interview the president of any recognized student organization in your school regarding his or her perspective on delegation of tasks. List down his/ her comments and discuss these in class. 2. Case Study: Engineer Jose Santos is a supervisor of a group of light project engineers. His unit is burdened with heavy workload because of increase in orders of their company’s computer components. Following up customer’s orders and the availability of these said products by himself is too much work for him. As a consultant for the company, what would you advice Engineer Santos? Explain your answer.

48 CHAPTER 4

LESSON 5

Formal and Informal Organizations

W

hether an organization is formal or informal is determined by the kind of relationships that prevail in each organization type. Formal organizations are characterized by hierarchical and reporting relationships among groups or members. On the other hand, informal organizations consist of informal groups born out of the need for social affiliation. Both formal and informal organizations may exist in the same organization structure. Formal organizations and informal organizations both have functions and advantages that benefit the organization and its members. Formal organizations have the following function: 1. Accomplish goals that require cooperation or collaboration among formal groups in the organization; 2. Produce or bring about new and creative ideas and solutions to company problems; 3. Coordinate interdepartmental activities; 4. Implement company rules/regulations and policies; and 5. Orient/train new employees. Meanwhile, informal organizations’ function include the following: 1. Satisfy the members’ need for affiliation; 2. Give the individual members a chance to develop their self-esteem; 3. Give individual members an opportunity to share their ideas; 4. Lessen individual members’ insecurities; and 5. Provide a mechanism to solve members’ personal and interpersonal problems.

Formal organizations – refer to organizations formed by the company owner or manager to help the firm accomplish its goals; made up of formal groups (work groups/ project team/committee) similarly formed by company authorities to support their activities and achieve their objectives Informal organizations – refer to organizations that exist because of friendship or common interest; made up of informal groups which exist for the members’ need for social affiliation

TABLE 4.5 Advantages and Disadvantages of Formal and Informal Organizations.

Advantages

Informal

1. Working systematically 2. Established on and for the organization’s objectives 3. No duplication or overlapping of work 4. Efficient coordination among departments 5. Implementation of chain of command and professional relationship

1. Fast communication due to the absence of standard operating procedures and protocols 2. Gives importance to the psychological and social needs of employees 3. Top managers can solicit feedback directly from the employees on new policies and plans

Disadvantages

Formal

Definition of Terms

1. Delay in feedback and action due to the established chain of command 2. Ignores the psychological and social needs of employees 3. Emphasis on work only and overlooks the human relations, talents, and creativity of employees

1. More susceptible to rumor mongering 2. There is no systematic workflow in place 3. Difficulty in implementing new rules and policies 4. More emphasis on the individual interest of each employee rather than the overall goal of the company

Organizing 49

Fast Learning Review 1. Define formal and informal organizations. 2. Give specific examples of formal and informal organizations. 3. Do informal organizations help in the achievement of the company’s set goals? Explain your answer. 4. How could informal organizations lessen its members’ insecurities?

Exercise 1. Interview your school’s guidance counselor regarding the beneficial effects of developing positive self-esteem among organization administrators and employees. List down his or her answers and prepare for classroom discussion. 2. Interview one school clerk and ask if he or she is a member of a formal or informal group. If he or she answered yes, also ask whether he or she found advantages for such group membership. List down his or her answers and prepare for class discussion.

Integration At the end of the chapter, write two or three sentences to complete the following: I realized that: I resolved that:

50 CHAPTER 4

CHAPTER 5

Staffing MANAGERS OFTEN CONSIDER human resources as their organization’s most important resource. Very few administrators would argue with the fact that human resources are very important for the efficient and effective operation of a company. To emphasize their importance, human resources are also called human capital, intellectual assets, or management or company talents. These terms imply that human resources are the drivers of the organization’s performance; hence, staffing is a crucial function of managers. In this chapter, we define the concept of staffing and discuss the various processes involved in systematic staffing. As you read and study this chapter, concentrate on the following objectives, and at the end of the chapter be able to: 1. discuss the nature of staffing; 2. explain the steps in the recruitment and selection process; 3. recognize the different training programs; 4. identify the policy guidelines on compensation and wages and performance evaluation or appraisal; 5. discuss the importance of employee relations; 6. differentiate various employee movements; and 7. realize the importance of adopting an effective rewards system.

51

LESSON 1

Definition and Nature of Staffing

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

The Management and Non-managerial Human Resources Inventory Awareness of the management potential within an organization can be accomplished with the use of an inventory chart, also called management succession/replacement chart. This chart is similar to the general organization chart used by the company but limited to managerial positions and the names of potential successors (promotable, satisfactory but not promotable, dismissed, etc.). Recruitment by external means may follow if there are no qualified successors. The need for non-managerial human resources may be ascertained by the use of a general organization chart to identify vacant job positions that need to be filled or by direct reports from department/unit heads or supervisors. Managers need not make detailed succession planning, as these job positions are less sensitive. Suggestions for internal replacements or successors for vacant nonmanagerial positions are usually done as the need arises. External recruitment also follows if no one within the organization is fitted for the job position that was declared vacant. Staffing has two main components: recruitment and selection. The process of identifying and attracting the people with the necessary qualifications is called recruitment while selection is choosing who to hire. Staffing steps include: 1.) the identifying of job position vacancies, job requirements, as well as work force requirements; 2.) checking internal environment of the organization for human resources; 3.) external recruiting; 4.) selecting those with essential qualifications for the job opening; 5.) placing the selected applicant; 6.) promoting; 7.) evaluating performance; 8.) planning of employee’s career; 9.) training of human resources; and 10.) compensating human resources

52 CHAPTER 5

External and Internal Forces Affecting Present and Future Needs for Human Resources Present and future needs for managers and other human resources are affected by both external and internal forces. External forces include economic, technological, social, political, and legal factors. For example, economic progress in a particular country may bring about increased needs and wants among people, resulting, in turn, in increased demand for certain products, followed by the expansion of the company and its workforce, as well as increased demand for managers. Information explosion coming from the Internet, from business publications, or from the labor department of countries may give either encouraging or discouraging long-term trends in the world labor market, thus causing an increase or a decrease in demand for managers and other human resources. The firm’s goal and objectives, technology, the types of work that have to be done, salary scales, and the kinds of people employed by the company are among the internal factors or forces that affect staffing. For example: salary scales offered by a company may not be high enough to attract personnel who are really qualified for the job. Also, this may encourage fast managerial and labor turnover.

Fast Learning Review 1. Define staffing. 2. Give at least four activities or processes involved in staffing. 3. Give your own example of an external technology change that may affect staffing.

Exercise 1. Construct a management succession/replacement chart for one department or unit of your school. Present this in class and ask your teacher for his or her comments. 2. Interview two department chairpersons in your school regarding their information gathering methods for identifying present and future needs for human resources. List down their answers and give your comments.

Staffing 53

LESSON 2

Recruitment Definition of Terms Recruitment – a set of activities designed to attract qualified applicants for job position vacancies in an organization Staffing – refers to filling in all organizational job positions Systems approach to staffing – is the step-by-step way of filling job positions in organizations, considering variables such as numbers and kinds of human resources needed, open managerial and nonmanagerial positions, potential successors to open job positions, etc.

I

n the event of a job opening, administrators must be careful when recruiting and choosing who to bring into the organization. They must see to it that their new recruit possesses the knowledge and skills needed to be successful in helping their company achieve their set goals and objectives and that he/ she is suited for the job position and the job design. Recruitment may either be external or internal. In external recruitment, outside sources are considered in the process of locating potential individuals who might want to join the organization and encouraging them to apply for actual or anticipated job vacancies. Unsolicited applications and referrals from employment agencies and schools are examples of sources outside the company from which management could select an applicant who best fits the job opening. In internal recruitment, filling job vacancies can be done through promotions or transfer of employees who are already part of the organization. In other words, recruitment is within the organization.

Methods of External and Internal Recruitment External recruitment methods include: Advertisements – through websites, newspapers, trade journals, radio, television, billboards, posters, and e-mails among others. Unsolicited applications – received by employers from individuals who may or may not be qualified for the job openings. Internet recruiting – independent job boards on the Web commonly used by job seekers and recruiters to gather and disseminate job opening information. FIGURE 5.1 Philjob.net.dole.gov.ph is the Philippines’ official job market and labor information portal.

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Employee referrals – are recommendations from the organization’s present employees who usually refer friends and relatives who they think are qualified for the job. Executive search firms – also known as “head hunters;” help employers find the right person for a job. Such firms seek out candidates with qualifications that match the requirements of the job openings that their client company hopes to fill. Educational institutions – good sources of young applicants or new graduates who have formal training but with very little work experience. For technical and managerial positions, schools may refer some of their alumni who may have the necessary qualifications needed for the said job positions. Professional associations – may offer placement services to their members who seek employment. Employers may make use of the listings that they publish in their journals regarding members who are available for possible recruitment or hiring. Labor unions – possible sources of applicants for blue-collar and professional jobs. Public and private employment agencies – may also be good sources of applicants for different types of job vacancies for they usually offer free services while private ones charge fees from both the job applicant and the employers soliciting referrals from them. As mentioned earlier, internal recruitment is done within the organization. Most managers prefer to follow a policy of filling job openings through promotions and transfer. In this way, they lessen the chances of losing the organization’s top performers. Recruitment may be done by using company bulletin boards, company intranet, company newsletters, and recommendations from department or unit heads, among others. Both external and internal recruitment have their own advantages and disadvantages.

➤ The Department of Labor and Employment (DOLE) is the national government agency mandated to formulate policies and implement programs in the field of labor and employment.

Definition of Terms External Recruitment – refers to recruitment from outside sources Internal Recruitment – refers to recruitment done within the organization

External Recruitment Advantages

1. Advertising and recruiting through the Internet reach a large number of possible applicants, thus, increasing the possibility of being able to recruit applicants suited for the job. 2. Applicants who submit applications and resumes through their own initiative are believed to be better potential employees because they are serious about getting the job. 3. Employee referrals from outside sources are believed to be high quality applicants because employees are generally hesitant to recommend persons who are not qualified for job openings. 4. Executive search firms usually refer highly qualified applicants from outside sources because they make an effort to check applicants’ qualifications before recommending them to client firms who pay for their services.

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FIGURE 5.2 Posting advertisements in newspapers remains a popular method of external recruitment.

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

External Recruitment Disadvantages

1. The cost and time required by external recruitment are the typical disadvantages of using this recruitment method. Advertising job openings and the orientation and training of newly hired employees from outside sources, as well as sorting out large volumes of solicited or unsolicited job applications present challenges in budgeting time and money. 2. Another disadvantage of external recruitment is the possibility of practicing bias or entertaining self-serving motives in the referral of friends and relatives by current employees and in the recommendation of private employment agencies of job applicants.

Internal Recruitment Advantages

1. Less expenses are required for internal recruitment advertising; newsletters, bulletin boards, and other forms of internal communication may disseminate information to current employees interested to apply for job openings within the company. 2. Training and orientation of newly promoted or transferred current employees are less expensive and do not take too much time since they are already familiar with company policies. 3. The process of recruitment and selection is faster because the candidate for transfer or promotion is already part of the organization.

Internal Recruitment Disadvantages

1. The number of applicants to choose from is limited. 2. Favoritism may influence a manager to recommend a current employee for promotion to a higher position.

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FIGURE 5.3 Time and energy can be saved in Internal Recruitment.

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

Fast Learning Review 1. Differentiate internal and external recruitment. 2. Name at least five external recruitment methods. Which is the best method? Explain your choice. 3. What are the advantages of external and internal recruitment? 4. What are the disadvantages of external and internal recruitment?

Exercise 1. Devise an advertisement for a job opening in a first-class, fine dining restaurant. Be ready to present it in class. 2. Browse through the classified ads section of a leading newspaper. Choose an advertisement for a job opening that has caught your attention. Cut and paste it on a piece of bond paper. Give an estimate of its cost and do a simple cost-benefit analysis. Again, be ready for class presentation.

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LESSON 3

Selection Definition of Terms Selection – the process of choosing individuals who have the required qualifications to fill present and expected job openings Interview – the determining of an applicant’s qualifications in order to gauge his or her ability to do the job

I

n many companies, selection is continuous because of fast turnover, resulting in vacancies that have to be filled. Another reason for this is the review of applicants on the waiting list. The selection process typically includes the following steps: 1. Establishing the selection criteria – Selecting human resources in an organization requires understanding of the nature and purpose of the job position which has to be filled. Job design must be based on the objective analysis of position requirements and must meet both organizational and individual needs. Skills must also be considered depending on the job position and its position in the organizational hierarchy. 2. Requesting applicants to complete the application form – Application forms must be completed because these provide the needed information about the applicant. Management will find it easier to decide whether an applicant meets the minimum requirements for experience, education, etc., if the application forms are accurately filled out by the applicant. 3. Screening by listing applicants who seem to meet the set criteria – This involves the preparation of a shortlist of applicants who meet the

FIGURE 5.3 Steps in hiring employees effectively Step 1 – Determining a need Job analysis

Step 2 – Application search and selection a. Recruitment b. Screening and selection c. Interviews

Step 3 – Decision-making process a. Making a decision b. Notification and employment offer

Step 4 – Adaptation to the workplace Orientation

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minimum requirements of the job position to be filled. It is done to avoid wasting of time by conducting interviews with applicants who do not meet the set criteria for the job opening. 4. Screening interview to identify more promising applicants – Here, a shortlist of applicants is prepared. Included in the list are the applicants who will be asked to undergo formal interview by the supervisor/ manager; applicants who are deemed to be the most fitted for the job opening belong to this shorter list. 5. Interview by the supervisor/manager or panel interviewers – Through formal interview of the most promising applicants, other characteristics of the applicants may be revealed or observed by the supervisor/manager or panel interviewers. Such characteristics include the applicants’ self-confidence, positive or negative self-esteem, honesty, ability to relate well with others, and positive or negative life experiences which may affect his or her job performance, among others. Interviewers must be trained so that they will know what to look for. 6. Verifying information provided by the applicant – To make sure that the applicant has not given false information about himself or herself, verification is necessary. Background checking must also be done to avoid the hiring of applicants with criminal record and to ascertain that he or she has good moral character. 7. Requesting the applicant to undergo psychological and physical examination – Having a healthy mind and a healthy body is important for good job performance. Hence, applicants must be requested to undergo psychological and physical examinations prior to hiring. 8. Informing the applicant that he or she has been chosen for the position applied for – Informing the applicant may be done verbally or in writing by the managers who give the final decision regarding the applicant’s hiring. Final instructions regarding the company’s rules and regulations for hiring an applicant must be given in this step. Interviews are important in determining the qualifications of an applicant and gauging his or her ability to perform a job. Interviews may come in different forms.

Types of Job Interviews Structured interview – the interviewer asks the applicant to answer a set of prepared questions—situational, job knowledge, job simulation, and worker requirement questions Unstructured interview – the interviewer has no interview guide and may ask questions freely One-on-one interview – one interviewer is assigned to interview the applicant Panel interview – several interviewers or a panel interviewer may conduct the interview of applicants; three to five interviewers take turns in asking questions. Staffing 59

Similarly, there are different kinds of employment tests administered to measure or test an applicant’s specific skill or capacity.

Types of Employment Tests Intelligence test – designed to measure the applicant’s mental capacity; tests his or her cognitive capacity, speed of thinking, and ability to see relationships in problematic situations Proficiency and aptitude tests – tests his or her present skills and potential for learning other skills Personality tests – designed to reveal the applicant’s personal characteristics and ability to relate with others Vocational tests – tests that show the occupation best suited to an applicant.

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

Fast Learning Review 1. Define selection. 2. Enumerate briefly the steps involved in the selection process. 3. In your opinion, which is a better method of job interview, structured or unstructured? Explain your choice. 4. If you were a job applicant, which would you prefer, the one-on-one or the panel interview? Explain your choice.

Exercise 1. Role-playing through video recording: With you acting as the interviewer, conduct an interview for selection purposes with one of your classmates acting as the job applicant. Use the one-on-one unstructured interview format and limit dialogue exchange to 15 minutes. Present this video in class for critiquing. 2. Using the Internet, search for psychological personality tests that may be used in companies for selection purposes. Describe how such tests will be conducted.

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LESSON 4

Training and Development

B

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

Training needs assessment must be done systematically in order to ascertain if there really is a need for training. Managers must first try to observe the business condition and the economic, strategic, and technological changes that are happening in the organization’s environment before proceeding to the analyses of the organization, tasks, and persons/ individuals, as all these are determinants of training types required for the maintenance of the firm’s stability. Examples of organization analyses include the analyses of effects of downsizing, branching out, conflicts with rival companies, and others that may require training or retraining of employees. Task analysis involves, for example, a checking of job requirements to find out if all these are being done to meet company goals. If not, this may be a go-signal to train or retrain personnel. Person analysis determines who among the employees need training or retraining. This is to avoid spending for the training of employees who no longer need it. For example, a department manager pirated from a rival company to occupy a vacancy in one of the organization’s departments in the same capacity (department manager) may not need managerial skills training anymore.

Definition of Terms Training – refers to learning given by organizations to its employees that concentrates on short-term job performance and acquisition or improvement of job-related skills Development – refers to learning given by organizations to its employees that is geared toward the individual’s acquisition and expansion of his or her skills in preparation for future job appointments and other responsibilities

FIGURE 5.4 It is the managers’ responsibilty to train their employees.

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➤ What are the different learning principles? Modeling – the use of personal behavior to demonstrate the desired behavior or method to be learned Feedback and reinforcement – learning by getting comments or feedback from the trainees themselves, from trainers, or fellow trainees, which can help the individual realize what they are doing right or what they are doing wrong; reinforcement is accomplished through verbal encouragement or by giving rewards such as prizes, awards, and others Massed vs. distributed learning – learning by giving training through either few, long hours of training (massed) or series of short hours of training (distributed) Goal-setting – learning through the explanation of training goals and objectives by the trainers to the trainees Individual differences – training programs that take into account and accommodate the individual differences of the trainees in order to facilitate each person’s style and rate of learning Active practice and repetition – learning through the giving of frequent opportunities to trainees to do their job tasks properly

FIGURE 5.5 Training needs analysis template/model

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Designing the Training Program

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

Various types of training program implementation include: on-the-job training, apprenticeship training, classroom instruction, audio-visual method, simulation method, and e-learning. Evaluating the Training

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

Employee Development Developing employees is a part of an organization’s career management program and its goal is to match the individual’s development needs with the needs of the organization. The individual employee must know himself or herself well, identify his or her own knowledge, skills, abilities, values, and interests, so that he or she could also identify the career pathway that he or she would like to take. Although he or she is encouraged to take responsibility for his or her own career, the organization must, at regular intervals, provide him or her with the results of his or her performance evaluations and the organization’s plans or direction that may be related to his or her own career plans. This scheme establishes a favorable career development climate for him or her, which may lead, ultimately, to the blending of his or her career development goals with organizational goals.

Fast Learning Review 1. Give the difference between “training” and “development.” 2. How should the training needs assessment be done? Describe the process. 3. Which should be analyzed first in training needs assessment organization, the tasks, or the persons? Explain your answer. 4. Which is your preference, massed learning or distributed learning? Explain your choice.

Exercise 1. Interview the faculty development committee chairperson of your school. Ask him or her questions related to his or her role in the said committee. Request for a list of training and development programs initiated by your school’s management for teachers or faculty members. Comment on his or her answers and the list given to you. 2. Identify your own knowledge, skills, abilities, values, and interests. What individual career goals or pathways would you like to pursue or take in the future? Devise your own individual career development plan. Be ready to present this in class.

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LESSON 5

Compensation/Wages and Performance Evaluation Definition of Terms Compensation/wages – all forms of pay given by employers to their employees for the performance of their jobs Performance evaluation – a process undertaken by the organization, usually done once a year, designed to measure employees’ work performance

C

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

Types of Compensation Direct compensation – includes workers’ salaries, incentive pays, bonuses, and commissions Indirect compensation – includes benefits given by employers other than financial remunerations; for example: travel, educational and health benefits, and others Nonfinancial compensation – includes recognition programs, being assigned to do rewarding jobs, or enjoying management support, ideal work environment, and convenient work hours

Connecting Compensation to Organizational Objectives Worker compensation/wages had tremendously changed in the 21st century due to increased market competitions (both local and global), required skills from workers, and changes in technology, among others. Along with these, organizations’ pay philosophies have also changed. Instead of paying employees based mainly on their job positions or titles, they are now given pay according to their individual competencies or

FIGURE 5.6 Pay equity is among the important considerations in preparing compensation packages. As illustrated in this diagram, pay equity is based on the idea that an employee’s pay must be commensurate to his or her effort.

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EFFORT

PAY

according to how much they could contribute or have contributed to their company’s success. Wage experts now prepare compensation packages that create value for both the organization and its employees.

Compensation: A Motivational Factor for Employees Compensation pay represents a reward that an employee receives for good performance that contributes to the company’s success. In relation to this, the following must be considered: Pay Equity – related to fairness; the Equity Theory is a motivation theory focusing on employees’ response to the pay that they receive and the feeling that they receive less or more than they deserve. Employees generally feel that their pay must be commensurate to the effort exerted in the performance of their job. In other words, pay equity is achieved when the pay given to them by their employers is equal to the value of the job performed; thus, this motivates them to perform well and to do their jobs to the best of their abilities. Expectancy Theory – another theory of motivation which predicts that emplo­yees are motivated to work well because of the attractiveness of the rewards or benefits that they may possibly receive from a job assignment. The employee’s perception of the compensation or pay attached to a job position is an important factor in ascertaining the motivational value of compensation.

➤ The daily minimum wage rate differs in relation to factors such as geographical area and industry or sector. The National Wages and Productivity Commission is the government agency concerned with minimum wage determination in the country.

Bases for Compensation Employees may be compensated based on the following: Piecework basis – when pay is computed according to the number of units produced Hourly basis – when pay is computed according to the number of work hours rendered Daily basis – when pay is computed according to the number of work days rendered Weekly basis – when pay is computed according to the number of work weeks rendered Monthly basis – when pay is computed according to the number of work months rendered Compensation rates are influenced by internal and external factors. Among the internal factors are the organization’s compensation policies, the importance of the job, the employees’ qualifications in meeting the job requirements, and the employer’s financial stability. External factors, on the other hand, include local and global market conditions, labor supply, area/regional wage rates, cost of living, collective bargaining agreements, and national and international laws, among others. Staffing 65

Purposes of Performance Evaluation: Administrative and Developmental Improving individual job performance through performance evaluation is just one of the reasons why employees are subjected to assessments on a continuous basis. There are other purposes behind employee assessment that are beneficial to the company and employees: Administrative Purposes – These are fulfilled through appraisal/ evaluation programs that provide information that may be used as basis for compensation decisions, promotions, transfers, and terminations. Human resource planning may also make use of it for recruitment and selection of potential employees. Developmental Purposes – These are fulfilled through appraisal/ evaluation programs that provide information about employees’ performance and their strengths and weaknesses that may be used as basis for identifying their training and development needs. Through this approach, the workers become more receptive to the explanations given by the organization’s management regarding the importance of having evaluations at regular intervals—that these are conducted to improve their competencies in order to prepare them for future job assignments. Different performance appraisal methods are used depending on the information an evaluator aims to find out.

Performance Appraisal Methods Methods of evaluating workers have undergone development in order to adapt new legal employment requirements and technical changes. Some appraisal methods used today are the following: Trait methods – performance evaluation method designed to find out if the employee possesses important work characteristics such as conscientiousness, creativity, emotional stability, and others Graphic rating scales – performance appraisal method where each characteristic to be evaluated is represented by a scale on which the evaluator or rater indicates the degree to which an employee possesses that characteristic Forced-choice method – performance evaluation that requires the rater to choose from two statements purposely designed to distinguish between positive or negative performance; for example: works seriously— works fast; shows leadership—has initiative Behaviorally anchored rating scale (BARS) – a behavioral approach to performance appraisal that includes five to ten vertical scales, one for each important strategy for doing the job and numbered according to its importance Behavior observation scale (BOS) – a behavioral approach to performance appraisal that measures the frequency of observed behavior

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Why Some Evaluation Programs Fail Performance appraisals (such as manager/supervisor appraisal, self-appraisal, subordinate appraisal, customer appraisal, peer appraisal, team appraisal, or 360-degree appraisal) may sometimes fail due to various reasons including the following: • inadequate orientation of the evaluatees regarding the objectives of the program; • incomplete cooperation of the evaluatees (e.g. proper answering of evaluation questionnaire); • bias exhibited by evaluators; • inadequate time for answering the evaluation forms; • ambiguous language used in the evaluation questionnaire; • employee’s job description is not properly evaluated by the evaluation questionnaire used; • inflated ratings resulting from evaluator’s avoidance of giving low scores; • evaluator’s appraisal is focused on the personality of the evaluatee and not his or her performance; • unhealthy personality of the evaluator; and • evaluator may be influenced by organizational politics.

Fast Learning Review 1. Identify the different compensation types. Briefly define each. 2. Will the compensation package offered by a company determine the kind of applicants attracted by their advertisement for a certain job opening in their organization? Explain your answer. 3. What is the relationship between the Pay Equity Theory and the employee’s motivation to perform well? 4. Do you agree with the statement that the evaluator’s bias may cause evaluation programs to fail? Explain your answer.

Exercise 1. Using the definition given in this lesson, devise a Behavior Observation Scale (BOS). Be ready for class presentation. 2. Interview your school’s assistant dean or principal and ask his or her preferences regarding the different performance appraisal types. Also ask for the types that are being used by your school. List down his or her answer and give your opinion about them.

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LESSON 6

Employee Relations Definition of Terms Employee relations – the connection created among employees/workers as they do their assigned tasks for the organization to which they belong

E

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

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

FIGURE 5.7 According to a study on employee engagement published by www.gallup.com, there are three types of employees, as shown in this table. Employee engagement may be influenced by the kind of relationships employees have in the workplace.

Below are some barriers to good employee relations: • Anti-social personality; refusal to share more about oneself to co-employees; being a loner • Lack of trust in others • Selfish attitude; too many self-serving motives • Lack of good self-esteem • Not a team player • Being conceited • Cultural/subcultural differences • Lack of cooperation • Communication problems; refusal to listen to what others seek to communicate • Lack of concern for others’ welfare Here are some ways to overcome barriers to good employee relations: • Develop a healthy personality to overcome negative attitudes and behavior • Find time to socialize with coworkers. • Overcome tendencies of being too dependent on electronic gadgets.

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• Develop good communication skills and be open to others’ opinions. • Minimize cultural/subcultural tension. Three Types of Employees

Engaged

• employees who work with passion and feel a deep connection with their company • they drive innovation and move the organization forward

Not Engaged

• employees who are essentially “checked out” • they put time, but not energy or passion, into their work

Actively Disengaged

• employees who are not only unhappy at work, but also act out their unhappiness • they undermine what their engaged coworkers accomplish

Fast Learning Review 1. Do you agree that social support and effective employee relations always go together? Explain your answer. 2. How important is effective employee relations in achieveing the goals of the company? 3. Choose any three barriers to good employee relations mentioned in this lesson and explain their adverse effects to the attainment of the organization’s objectives. 4. Is there any positive effect of using social media in promoting good employee relations? Why? Cite some examples.

Exercise 1. Research some Filipino subcultural practices that may affect or influence employee relations. List down and explain your answers. 2. Perform the following tasks: a. Interview one employee regarding his or her work values. List them down. b. List down your own work values and compare these with your classmate’s. c. Answer this question: Will you be able to have good employee relations with him or her if he or she becomes your officemate in the future. Explain your answer.

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LESSON 7

Employee Movements Definition of Terms Employee movements – series of actions initiated by employee groups toward an end or specific goal Unionism – the principle of combination for unity of purpose and action

A

labor union is a formal union of employees/workers that deals with employers, representing workers in their pursuit of justice and fairness and in their fight for their collective or common interests. Employees or workers unionize because of financial needs, unfair management practices, or social and leadership concerns. a. Financial needs – complaints regarding wages or salaries and benefits given to them by the management are the usual reasons why employees join labor unions b. Unfair management practices – perceptions of employees regarding unfair or biased managerial actions are also reasons why they join mass movements; examples of lack of fairness in management are favoritism related to promotion and giving of training opportunities and exemption from disciplinary action c. Social and leadership concerns – some join unions for the satisfaction of their need for affiliation with a group and for the prestige associated with coworkers’ recognition of one’s leadership qualities

FIGURE 5.8 Company owners have to make sure that they make their employees satisfied in order to prevent a labor strike.

Steps in Union Organizing Terry Moser, an expert union organizer, was credited by Snell and Bohlander (2011) for the following union-organizing steps: Step 1. Employee/union contact – To explore unionization possibilities, employees weigh the advantages and disadvantages of seeking labor representation while the union officers gather more data about the employees’ complaints, as well as data about the employer’s management styles, financial stability, policies, etc. These actions by employees and union officers are necessary to build a case against the employer and a defense for the employees’ decision to unionize. Step 2. Initial organizational meeting – This is conducted to attract more supporters and select potential leaders among the employees who can help the union organizers. Information or data obtained in Step 1 will be 70 CHAPTER 5

used by the organizers to meet the employees’ need to explain the means to accomplish their goals. Management Proposal

Union Claim

Negotiations 3rd Party Referral Collective Agreement

Step 3. Formation of in-house organizing committee – This starts with identification of emplo­yees who are ready to act as leaders in campaigning for their goals, in trying to get the interest of the other employees to join their movement, and in convincing employees to sign an authorization card to show their willingness to be represented by a labor union in collective bargaining with their employer. The strength of the union is shown by the number of employees who signed the authorization card. At least 30 employees must sign the said card before the National Labor Relations Commission (NLRC) approves the holding of a representation election. Step 4. If a sufficient number of employees support the union movement, the organizer requests for a representation election or certification election – A representation petition is filed with the NLRC asking for the holding of a secret ballot election to determine the employees’ desire for unionization. Before the election, leaders campaign for employees’ support of the election and encourage them to cast their votes. Intense emotions are shown by employees, the labor group, and the employers during this period. Step 5. End of union organizing – When the sufficient number of votes is garnered, the NLRC certifies the union as the legal bargaining representative of the employees. Contract negotiations or collective bargaining agreement (CBA) negotiations follow the certification. The CBA process involves the following procedures: a. Prepare for negotiations – Data to support bargaining proposals are collected and arranged in an orderly manner by both parties—the union and the employer’s groups. This is followed by the selection of the members of their respective bargaining teams. Usually, each side has four to six representatives at the bargaining table. The chief negotiator for the union is the union president while the chief negotiator for management is the organization’s vice president or the labor relations manager. Supporting data to back up the positions of each group are gathered. Economic data are very important. Other internal organization data needed include: records of promotions, transfer, overtime work, grievances, disciplinary actions, and arbitration.

FIGURE 5.9 The Collective Bargaining Process

➤ The National Labor Relations Commission (NLRC) is an attached agency of the DOLE. The NLRC is a quasi-judicial body that is tasked to resolve disputes between the labor force and management in order to preserve industrial peace.

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b. Develop strategies – Management proposals are developed and limits of concessions are determined, while also considering the union’s goals and their possible strike plans. The union, on the other hand, tries to develop better strategies to convince the management group to accept its proposals. c. Conduct negotiations – This consists of bargaining, analyzing proposals, resolving issues related to the proposals, and remembering to stay within their respective bargaining zone. If no agreement is reached at this point, a deadlock may result. The union’s bargaining power may be exercised by holding a strike, picketing, or boycotting the employer’s products or services. The management’s bargaining power, on the other hand, may be exercised either by continuing operations or shutting down operations. Another method is by lockout of its employees, or denying employees the opportunity to work. Unions and employers may try to resolve bargaining deadlocks by mediation and arbitration. Mediation is the use of a neutral third party to reach a compromise decision in employment disputes. Arbitration also uses a neutral third party who resolves the labor dispute by issuing a final decision in the disagreement. d. Formalize agreement – After the negotiation process, the union and management groups have to formalize their agreement. This agreement is a formal binding document which lists down the terms, conditions, and rules under which employees and managers agree to operate; clear language must be used in the contract, which has to be ratified by the majority of the employees. After ratification, all members of the union and the management bargaining teams as well as the president or chief executive officer of the organization must sign the document, before its dissemination to all parties concerned. CBA activities, ideally, must be a continuous process (although it is held every five years in many companies). Right after the formalization of the agreement and its ratification and signing, preparations for negotiations for the next CBA must begin again. This will allow negotiators to review weaknesses and mistakes committed during the previous negotiations while these are still fresh in their minds.

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

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

Fast Learning Review 1. Give the reasons why employees organize a labor union. Support your answer. 2. Enumerate the steps involved in union organizing. 3. What is the purpose of a representation election? Is this done through the supervision of a private agency? 4. Why is it necessary to have collective bargaining agreements among unionized organizations?

Exercise 1. Organize two role playing groups by asking for volunteers from your classmates who will act out: a. The CBA Process – for Group 1 b. The Grievance Procedure – for Group 2 2. Give your comments regarding your classmates’ performances. Which group was able to act out their roles well? Explain your comments or observations.

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LESSON 8

Rewards System Definition of Terms Reward – gift, prize or recompense for merit, service or achievement, which may have a motivating effect on the employee Monetary reward – refers to money, finance or currency reward Non-monetary reward – refers to intrinsic rewards which do not pertain to money or finance

➤ A research on effective rewards systems by the Center for Effective Organizations revealed that rewards systems can influence six factors or areas that impact organization effectiveness. These are: • attention and retention; • motivation of performance; • skills and knowledge; • culture; • reinforce and define structure; and • cost. Read the research text at http:// ceo.usc.edu/pdf/G935225.pdf.

FIGURE 5.10 The The Philippine government has implemented a law that requires business establishments to give 13th month pay to all employees that have worked for them for at least a month.

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O

rganizations offer competitive rewards systems to attract knowledgeable and skilled people and to keep them motivated and satisfied once they are employed in their firm. Further, rewards promote personal growth and development and present fast employee turnover. Managements offer different types of rewards: Monetary Rewards – rewards which pertain to money, finance, or currency. a. pay/salary – financial remuneration given in exchange for work performance that will help the organization attain its goals; examples: weekly, monthly, or hourly pay, piecework compensation, etc. b. benefits – indirect forms of compensation given to employees/ workers for the purpose of improving the quality of their work and personal lives; health care benefits, retirement benefits, educational benefits, and others are examples of these c. incentives – rewards that are based upon a pay-for-performance philosophy; it establishes a baseline performance level that employees or groups of employees must reach in order to be given such reward or payment; examples: bonuses, merit pay, sales incentives, etc. d. executive pay – a compensation package for executives of organizations which consists of five components: basic salary, bonuses, stock plans, benefits, and perquisites e. stock options – are plans that grant employees the right to buy a specific number of shares of the organization’s stock at a guaranteed price during a selected period of time

Nonmonetary Rewards – rewards which do not pertain to money, finance, or currency; refer to intrinsic rewards that are self-granted and which have a positive psychological effect on the employee who receives them. a. award – nonmonetary reward that may be given to individual employees or groups/teams for meritorious service or outstanding performance; trophies, medals, or certificates of recognition may be given instead of cash or extrinsic rewards b. praise – a form of nonmonetary, intrinsic reward given by superiors to their subordinates when they express oral or verbal appreciation for excellent job performance

Fast Learning Review 1. What is the positive effect of giving rewards to employees? 2. Enumerate and define the types of monetary rewards discussed in this lesson. 3. Give your own examples of employee benefits given by employers. Do you think all companies give the same kinds of benefits? Explain. 4. Which kind of reward would you prefer to receive, cash or stock options? Explain your preference.

Exercise 1. Research on the employee benefits given by a certain company (Company A) as compared with the employee benefits given by another company (Company B). If given the chance to be recruited by Company A or Company B, which company would you prefer? Explain your choice. 2. Recall a past event in your life when you were praised by your parents, teachers, or friends for accomplishing something. Did their praise or positive remark have any effect on your psychological well-being? Explain your answer.

Integration At the end of the chapter, write two or three sentences to complete the following: I realized that: I resolved that:

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CHAPTER 6

Leading THIS CHAPTER HIGHLIGHTS another important management function—leading. It is important because it involves the organization’s people who possess different attitudes, behaviors, personalities, and motivations, among others. Influencing them to achieve a common goal is quite challenging because of their many diverse characteristics. Therefore, understanding leading or directing begins with understanding how people behave, what their motivations are, and how to communicate with them. As you read and study this chapter, concentrate on the following objectives, and at the end of the chapter be able to: 1. discuss the nature of leading or directing; 2. differentiate leading from managing; 3. identify the different theories of motivation; 4. differentiate the various styles of leadership; 5. appreciate the role of communication in directing people within the organization; 6. explain the management of change and diversity in the workplace; and 7. recognize the interrelationship of Filipino and foreign cultures.

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LESSON 1

What Leading Is

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

Personality of Human Resources Personality pertains to the unique combination of physical and mental characteristics that affect how individuals react to situations and interact with others, and if unhealthy or not fully functioning could cause conflicts/problems among individuals. A person is said to possess a healthy personality if he or she is fully functioning in mind, body, and spirit; he or she is an optimal person functioning at the highest level. Ideally, individual human resources of organizations must have a healthy personality because when one is functioning at the highest level, one, inevitably, becomes efficient in his or her work, cooperative with managers and coworkers, and, therefore, could easily be influenced by organization leaders to work toward the achievement of a common organizational goal. Leading individuals in organizations becomes effortless for the manager and leader, especially if he or she has a healthy and fully functioning personality.

Definition of Terms Leading – a management function that involves inspiring and influencing people in the organization to achieve a common goal Managing – the process of working with and through others to achieve organizational objectives efficiently and ethically amid constant change. It also deals with planning, organizing, staffing, leading, and controlling

Big Five Personality Characteristics According to Robbins and Coulter (2009), “research has shown that five basic personality dimensions underlie all others and encompass most of the significant variation in human personality.” The five personality traits in the Big Five Model are: Extraversion – the degree to which someone is sociable, talkative, and assertive Agreeableness – the degree to which someone is good natured, cooperative, and trusting Conscientiousness – the degree to which someone is responsible, dependable, persistent, and achievement-oriented Emotional Stability – the degree to which someone is calm, enthusiastic, and secure (positive), or tense, nervous, depressed, and insecure (negative) Openness to experience – the degree to which someone is imaginative, artistically sensitive, and intellectual The Big Five Model provides more than just a personality framework. Research has shown that important relationships exist between these personality dimensions and job performance. 77

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

Leading an Organization Key work attitudes exhibited by groups/teams of workers must be taken into consideration in leading organizations because of the diversity of their attitudes toward things and events at work. Managers and leaders must focus their leadership strategies on the following key work attitudes in order to avoid distraction caused by varied reactions and behaviors. Organizational Citizenship Behavior (OCB) – refers to employee behavior

FIGURE 6.1 Psychologist Daniel Goleman is the author of the book Emotional Intelligence (1995). The book was named as one of the 25 “Most Influential Business Management Books” by TIME Magazine, while Goleman was recognized by the Financial Times, Wall Street Journal, and Accenture Institute for Strategic Change as among the most influential business thinkers. http://www.danielgoleman.info/biography/ cc by: common.wikipedia.org

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that exceeds work role requirements and also behaviors that go beyond the call of duty. Leading organizations becomes easy for managers and leaders when emplo­yees exhibit OCB and show efficiency, personal interest in the work of others, care for organizational property, punctuality, and attendance that go beyond standard levels. Such behavior brings about organizational level outcomes (productivity, lower costs, and customer satisfaction among others). Organizational Commitment – refers to the extent to which an individual employee identifies with an organization and its goals. Leading employees with organizational commitment is a plus factor for managers and leaders of organizations as it results in faster attainment of organizational goals. Having organizational commitment is an important work attitude because committed individuals are expected to display willingness to work harder to achieve organizational goals and to remain employed in the firm for a long period of time. Since commitment is significantly related to job performance, managers and leaders can increase productivity by trying to enhance workers’ organizational commitment. Job Satisfaction and Productivity – job satisfaction refers to employees’ general attitude toward their respective jobs.

Those with high level of job satisfaction have a positive attitude toward their respective jobs. On the other hand, those with low level of job satisfaction have a negative attitude toward their respective jobs, thus affecting their productivity and the profits for their organization. According to the Hawthorne Studies, cited by Robbins and Coulter (2009), “Managers believed that happy workers were productive workers.” Some researchers expressed doubts about this statement; however, there were those who said that “the correlation between job satisfaction and productivity is fairly strong. Organizations with more satisfied employees tend to be more effective than organizations with fewer satisfied employees.” Therefore, managers are advised to find ways and means to make their employees happy at work.

Fast Learning Review 1. Discuss the nature of the managerial function leading or directing. 2. Give the difference between the terms “managing” and “leading.” 3. What is the relationship of the managerial function of leading to the personality of an employee. Explain your answer. 4. Enumerate and define the Big Five Personality characteristics.

Exercise 1. Prepare a short dialogue between an emotionally intelligent organization director/leader and his subordinate who violated a company policy prohibiting employees to access social networking websites during office hours. Compare it with the dialogue prepared by your classmate. Are there similarities (or differences) regarding leadership qualities shown in your respective prepared dialogues? 2. Get to know yourself by listing down your personality’s strengths and weaknesses. Examine the characteristics which you included in your lists, and draw a conclusion about yourself and the kind of personality that you have. Do you have characteristics that will enable you to lead in the future? Explain your answer.

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LESSON 2

Motivation Definition of Terms Motivation – refers to psychological processes that arouse and direct goal-directed behavior Theory – a body of fundamental principles verifiable by experiment or observation

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otivation encourages individuals to work enthusiastically, often performing more work than what is required. What could managers do to ensure such motivated and enthusiastic performance among their subordinates? What could be done to inspire employees whose work performance is limited to the minimum need? Understanding individual human needs, perceptions, thoughts, and beliefs may provide good answers to such questions that are often asked in different work settings. According to Kreitner and Kinicki (2013), early Theories of Motivation revolved around the idea that motivation is brought about by the employees’ desire to fulfill their need, their work habits, and their job satisfaction. Among these are: Maslow’s Hierarchy of Needs Theory – refers to Maslow’s Hierarchy of Five Human Needs: physiological, safety, social, esteem, and self-actualization a. Physiological Needs refer to the human need for food, water, shelter, and other physical necessities. b. Safety Needs refer to human needs for security and protection from physical and psychological harm. c. Social Needs pertain to the human desire to be loved and to love, as well as the need for affection and belongingness. d. Esteem Needs include the human need for self-respect, self-fulfillment, and become the best according to one’s capability.

FIGURE 6.2 Characteristics of a selfactualized person Realism and acceptance

Spontaneity

Problem centering

Peak experiences

Continued freshness of appreciation

Autonomy

SELF-ACTUALIZED PERSON

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e. Self-actualization Needs are the final needs in Maslow’s hierarchy. The Hierarchy of Needs was published by Abraham Maslow in 1943. According to him, physiological needs must be satisfied first. Once a need is satisfied, it activates the next higher need in the hierarchy. The process continues until the need for self-actualization is activated. It is important for managers and leaders to focus on satisfying employee needs related to self-respect, self-esteem, and self-actualization because their satisfaction is related to many outcomes such as academic achievement, job performance, work problems/success, and others. McGregor’s Theory X and Theory Y – refers to the theory that was proposed by Douglas McGregor. Theory X is a negative view of workers which assumes that workers have little ambition, dislike work, and avoid responsibilities; they need to be closely monitored or controlled in order for them to work effectively. Theory Y is a positive view of workers which assumes that employees enjoy work, seek out and accept responsibility, and are self-directed. Managers must be guided by Theory Y, so McGregor proposed that they must give employees a chance to participate in decision-making, assign them challenging jobs to exercise their responsibility in handling complex situations, and allow them to have good work relations with others, which would enhance their motivation. Herzberg’s Two Factor Theory – was proposed by Frederick Herzberg This theory is also known as the Motivation-Hygiene Theory which states that intrinsic factors (achievement, recognition, growth, and responsibility) are associated with job satisfaction, while extrinsic factors (company policy, salary, security, and supervision) are associated with job dissatisfaction. Intrinsic factors are the motivators while the extrinsic factors are called hygiene factors. Managers were advised to emphasize motivators in order to motivate their subordinates. Employees who showed job satisfaction are more motivated and productive. This theory enjoyed popularity from the middle of the 1960s to the early 1980s. McClelland’s Three Needs Theory – was proposed by David McClelland and states that individuals have three needs that serve as motivators at work. The three needs McClelland referred to are: the need for achievement (nAch), the need for power (nPow), and the need for affiliation (nAff). Managers are advised to be observant of these needs among their subordinates so that they could be given job assignments that would satisfy their highest needs, if possible. In doing so, they may be more motivated to work well. Alderfer’s ERG Theory – was developed by Clayton Alderfer in the 1960s. For Alderfer, a set of core needs explains behavior. E stands for existence needs, R refers to relatedness needs, and G pertains to growth needs. The needs or desire for physiological and materialistic well-being, to have meaningful relationships with others, and to grow as a human being are similar to the needs presented in Maslow’s Theory.

➤ Five Core Job Dimensions Skill variety – the degree by which a job requires different activities, so employees may be able to use their different skills Task identity – the degree by which a job requires completion of an identifiable piece of work Task significance – the degree by which a job has a significant impact on the lives or work of others Autonomy – the degree by which a job provides enough freedom and discretion to employees Feedback – the degree by which performing job requirements results in the employee’s receipt of information about his or her performance effectiveness

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FIGURE 6.3 How Maslow’s, Herzberg’s, and Alderfer’s theories relate

Modern Theories of Motivation are process theories that focus on the notion that motivation is a function of employees’ perceptions, thoughts, and beliefs. Among these are: Goal Setting Theory – a theory stating that specific goals motivate performance and that more difficult goals, when accepted by employees, result in greater motivation to perform well, as compared to easy goals. Managers are advised to set goals for their subordinates as this is a major source of job motivation. Doing well also helps increase their motivation. Reinforcement Theory – a theory which states that behavior is a function of its consequences. If the result or consequences that immediately follow a behavior is good, then there is a probability that the individual will be motivated to repeat the behavior. Using this theory, managers can motivate employees’ positive behavior by using positive reinforcement for actions that help the company achieve its goal. Job Design Theory – a theory which states that employees are motivated to work well by combining tasks to form complete jobs. Managers are advised to design jobs that will meet the requirements of the ever-changing environment, the firm’s technology, and the workers’ skills, abilities, and preferences. In doing so, employees are motivated to perform well. Examples are: job enlargement—the horizontal expansion of a job by increasing job scope; job enrichment—the increasing of job depth by empowering employees to assume some tasks usually done by their managers; and job characteristics model—where employees are motivated to perform well because the task assigned to them have the five core job dimensions that serve as motivators. Equity Theory – a theory developed by J. Stacey Adams which states that employees assess job outcomes in relation to what they put into it and then compare these with their co-workers. If the employee perceives that his job is equitable in comparison to those of his coworkers, there is no problem. However, if the opposite is

Growth Motivators

Self-actualization Self-esteem Social

Hygiene Factors

Relatedness

Safety Existence Physiological

Herzberg’s Motivation-Hygiene Theory

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Maslow’s Hierarchy of Needs

Alderfer’s ERG Theory

true, this will become a demotivator to his or her job performance. Managers must see to it that they exercise fairness or equity in their company. Expectancy Theory – states that an individual tends to act in a certain way, based on the expectation that the act will be followed by an outcome which may be attractive or unattractive to him or her. Managers are advised to understand an employee’s goal so that he or she would be able to link the rewards or outcomes to be offered with the said goals.

Fast Learning Review 1. Discuss Maslow’s Hierarchy of Needs Theory. In your opinion, is it a good motivator for employees to do their job well? Explain your answer. 2. Besides Maslow’s Hierarchy of Needs Theory, what are the other early theories of motivation? Describe each. 3. Which theory of motivation involves the combining of tasks to form complete jobs? Give examples and explain each. 4. What are the five core dimensions of the Job Characteristics Model? Define each.

Exercise 1. Read and understand the Equity Theory. Give your own example of how ma­nagers could apply this in the workplace. 2. Read and understand the Expectancy Theory. Give your own example of how managers could apply this in the workplace.

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LESSON 3

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

FIGURE 6.4 Leadership Continuum

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deally, leadership should result in the willingness of individuals to work with zest, ardor, and self-reliance. The leader guides them and facilitates their progress toward the attainment of organizational vision, mission, goals, and objectives. Leadership theories emerged in order to respond to the need by explaining certain aspects of leadership, and to better understand what drives success in this area. The following are the early leadership theories given by Kreitner and Kinicki (2013). Trait Theory – a theory based on leader traits or personal characteristics that differentiate leaders from followers. The Trait Theory of Leadership evolved from the earlier Great Man Theory, which was based on the assumption that leaders were born with some innate ability to lead. Trait theorists, however, had a contrasting assumption—that leadership traits were not inborn and could be learned through experience and knowledge gained through studies. Traits like intelligence, self-confidence, assertiveness, high energy and activity level, task-relevant knowledge, honesty and integrity, being charismatic, being a visionary, and others were proposed as leadership traits by researchers from the 1940s to the present. Behavioral Theory – a theory that focuses on the behavior, action, conduct, demeanor, or deportment of a leader instead of his or her personality traits Studies on this theory began during the Second World War or in the early 1940s because of the belief that the leader’s behavior affects work group effectiveness. Further studies on this theory emphasized that since behavior is learned, leader behaviors can also be learned. In short, leaders are made and not born.

(Autocratic style)

(Freestyle) Manager/Employee leadership Manager-centered Employee-centered (Democratic style) leadership leadership Use of authority by manager

High autocratic

Manager makes decision and implements it

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Area of freedom for employees

Manager decides

Manager presents ideas and invites questions from employees

Manager presents tentative decision subject to change by employees

Manager presents problem, gets suggestions, makes decision based on feedback

High democratic

Manager defines limits, asks employees to make decision

Manager permits employees to function within limits defined by him/ herself

Contemporary Theories of Leadership Leadership theories evolved along with the development of management thought throughout time, giving rise to contemporary theories such as follows: Fiedler Model – it is a situational leadership theory proposed by Fred Fiedler, an organizational behavior scholar This theory is based on the assumption that a leader’s effectiveness is contingent or dependent on the extent to which a leader’s style is fitted to actual situations in the organization’s internal and external environment. Fiedler described such leader’s style as either task-motivated or relationship-motivated, either focused on the achievement of goals or more concerned about having good relationships with subordinates. Situational control, which may be low or high, is also exhibited. High control means that the leader has the capability to influence work results while low control implies very little influence. Hersey-Blanchard Model – another situational leadership theory proposed by Paul Hersey and Ken Blanchard. The theory focused on subordinates’ readiness or extent to which the said subordinates have the ability and willingness to accomplish a specific work assignment. Hersey and Blanchard gave four stages of subordinate readiness as shown on Table 6.1. Four Stages of Subordinate Readiness R1

Where the subordinates are both unable and unwilling to accomplish the task

R2

Where the subordinates are unable but willing to do the task

R3

Where the subordinates are able but unwilling to do their assigned tasks

R4

Where the subordinates are both able and willing to do what the leader wants to complete the task

Path-Goal Theory – a theory developed by Robert House which states that the ​lead­er’s task is to lead his other followers or subordinates in achieving their goals by providing them direction needed in order to ensure compatibility of these said goals with the organization’s goal Effective leaders show their subordinates the path they must take to help them achieve their work goals. House identified four leadership behaviors: 1. directive leadership – where the leader gives specific guidelines to followers so that task accomplishment would be easier; 2. supportive leadership – where the leader shows concern and friendliness to subordinates; 3. participative leadership – where the leader asks for suggestions from followers before decision-making; and

TABLE 6.1 The Four Stages of Subordinate Readiness by Hersey and Blanchard

➤ Situational control – is a leadership control/style dependent on the specific circumstances in which the leadership occurs; an effective leadership style in one situation may not be effective in another situation

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4. achievement-oriented leadership – where the leader sets the goals that subordinates must try to achieve.

FIGURE 6.5 Peter Drucker

“Effective leadership is not about making speeches or being liked; leadership is defined by results not attributes.”

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Modern Leadership Views Similarly, views on leadership evolved over time. Among the modern views on and approaches to leadership are the following: 1. Transactional Leadership Model – a theoretical model which states that leaders guide their subordinates toward the achievement of their organization’s goals by using social exchange or transactions and by offering rewards in exchange for their productivity. 2. Transformational Leadership Model – a view that developed from transactional leadership. It states that leaders inspire or transform followers to achieve extraordinary outcomes. Through their leadership, they are able to excite and inspire followers to exert extra effort to achieve group goals. Transformational leadership is strongly correlated with lower turnover rates and higher levels of productivity, employee satisfaction, creativity, goal attainment, and follower well-being (Robbin and Coulter, 2009). 3. Charismatic Leadership Theory – another modern theory of leadership which states that leaders who have a charismatic personality are able to influence their subordinates to follow them. Charismatic leaders pertain to leaders who are self-confident, enthusiastic, and sensitive to both environmental constraints and subordinates’ needs. Charismatic leaders take risks to achieve their vision, and have the ability to communicate well—verbally or nonverbally—through their behavior, among others. Researchers have shown evidences that correlate charismatic leadership with high levels of performance and satisfaction among followers. 4. Visionary Leadership Theory – is a theory which states that leaders are able to make their subordinates follow because of their ability to create and articulate a realistic, credible, and attractive vision that may improve present conditions or circumstances. Visions that are clearly explained are easily grasped and accepted by subordinates/followers, thus giving them high energy to perform their tasks well. 5. Team Leadership Theory – is a theory that emerged because of the fact that leadership is increasingly taking place within a team context and that more companies are now utilizing work teams led or guided by leaders. Many managers are now trying to learn how to become effective team leaders. Among the skills that they must learn are information sharing, trusting others, lessening their authority by empowering subordinates, and proper timing for mediation, among others. 6. Servant Leadership Theory – a theory proposed by Robert Greenleaf in 1970 stating that servant-leaders must focus on increased service to others rather than to one’s self.

Servant-leaders focus on commitment to the growth of people, building community, stewardship of the material resources and the people they lead, their ability to listen to what others seek to communicate, their ability to empathize with others’ feelings and emotions, and their ability to foresee future circumstances associated with present courses of action and conditions. Researchers have gathered proof that this leadership model is positively associated with workers’ job satisfaction, organizational commitment and citizenship, creativity, and perception of fairness, among others.

Fast Learning Review 1. Name and define the early leadership theories mentioned in this lesson. Which theory is more acceptable to you? Explain your answer. 2. Will you choose to be a talk-motivated or a relationship-motivated leader? What are your present qualities that may be associated with your choice? 3. Name and describe the four stages of subordinate readiness. 4. Who is the author of the Path-Goal Theory? Give the basis for the name of this theory on leadership.

Exercise 1. Interview the presidents of two student organizations in your school. Ask them to describe their respective leadership styles and compare these with the leadership theories discussed in this lesson. Classify their styles and explain your answer. 2. Define Servant Leadership on a piece of bond paper. Below the definition, prepare two columns. Label one column “In favor” and other column “Not in favor.” Conduct a mini-survey by asking, at random, ten classmates to check their preference on the columns in the bond paper which will be handed to them. Count the number of those in favor and those who are not in favor. Try to explain their preferences. 3. How can a transactional leader become a transformational leader? Support your statement.

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LESSON 4

Communication Definition of Terms Communication – the exchange of information and understanding Verbal communication – refers to oral and written communication Non-verbal communication – refers to communication through body movements, gestures, facial expressions, eye contact, or body contact

➤ Elements of Communication Process 1. Input 2. Sender 3. Code 4. Channel 5. Noise 6. Receiver 7. Output

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

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

8. Feedback

Direction and Flow of Communication Communication flows in different directions within an organization. Communication may be vertical, upward, downward, horizontal/lateral, or diagonal. Vertical communication involves communication flow between people belonging to different organizational levels. Upward communication is the flow of information from an employee who belongs to a lower hierarchical level to the boss/manager who belongs to a higher hierarchical level. Employees/subordinates may communicate upward regarding their FIGURE 6.6 Downward communication

Manager

Employee 1

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Employee 2

Employee 3

Employee 4

Manager

Employee 1

Employee 2

Employee 3

Employee 4

FIGURE 6.7 Upward communication

personal problems, requests that they would like the boss to approve, issues with coworkers, and others. Downward communication is the flow of information from the manager, who belongs to a higher hierarchical level, to the subordinates/employees, who belong to lower hierarchical levels. Examples are when the boss gives orders to subordinates to finish certain tasks, communicates organizational policies and practices, and comments about work performance among others. Horizontal/lateral communication takes place among employees belonging to the same hierarchical level. Members of cross-functional teams who belong to different units/departments but occupy the same organizational level make use of this type of communication in order to save time and facilitate coordination. Diagonal communication entails communicating with someone or others who belong to different departments/units and different hierarchical levels. For example, an employee belonging to the company’s financial management department communicates directly with the head of the human resource department about his personal complaint against a marketing department employee. Take note of the different departments and different organizational levels of the persons communicating with each other. Diagonal communication is said to be beneficial because of its efficiency and speed; however, it may also cause some confusion.

Communication Networks in Organizations Communication networks are varied patterns of combined horizontal and vertical flows of organizational communication. Types of communication networks include the following: Chain network – where communication flows according to the usual formal chain of command, downward and upward. Wheel network – where communication flows between a leader and other members of their group/team. All-channel network – where communication flows freely among all members of a team. It has been observed by communication researchers that there is no single network that could be considered applicable or fit for all circumstances in an organization. Leading 89

Organization members also communicate through other networks and means such as the grapevine and computer networks. The grapevine is an informal communication network in an organization. An example is gossip/rumor which could quickly disseminate information. Managers must stay aware of the grapevine’s flow and patterns, and could use it to transmit important information. They, however, should also be conscious of the negative effects of gossip as these may cause conflicts in their company. Negative effects of rumors may be minimized by practicing transparency and communicating openly with employees. Meanwhile, computer networks present another means of communication among organization members. Information technology has made it possible for managers to communicate with each other and with subordinates and for employees to communicate with each other anytime, regardless of distance. Examples of computer communication applications are e-mail, blogging, teleconferencing, and intranet.

Barriers to Communication Organization members may encounter various types of barriers that can alter the meaning of communications that they receive. These barriers include filtering, emotions, information overload, defensiveness, language, and national culture. Filtering – the shaping of information communicated in order to make it look good or advantageous to the receiver. For example, a sales agent may report to his manager the big amount of sales that he was able to make with one of their customers, but fails to report the complaints he received from other customers regarding their products. Emotions – the interpretation of communications which may be influenced by extreme emotions felt by the receiver. For example, a manager who is in a very bad mood and receives good news may not see the positive aspect of it because his rational thinking process is affected by his emotional judgment. FIGURE 6.8 Horizontal communication Manager

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Production Manager

Finance Manager

Employee 1

Employee 2

Marketing Manager

Employee 1

Service Manager

Employee 2

Manager

Production Manager

Finance Manager

Marketing Manager

Service Manager

Supervisor A

Supervisor B

Supervisor C

Supervisor D

FIGURE 6.9 Diagonal or cross communication

Information overload – another barrier to good communication since there are too many pieces of information received by an individual may have a negative effect on a person’s processing capacity. For example, the hundreds of job applications received by human resource managers through e-mail may be too many for them to read fully and respond to accurately. Defensiveness – the act of self-protection when people are threatened by something or someone. Due to this feeling, people may resort to communicating lies in order to protect themselves or to interpret communications differently to defend their interests, thus, reducing mutual understanding. Language – could also hamper good communications because words used may have different meanings to different people belonging to different age, educational background, or cultural group. Diversity of background of organization members may influence the language or the words that they use. For example the word “hello” may just be an ordinary greeting to the older members of an organization; but the same word, “hello” may have a negative connotation to the younger group of employees depending on the context. National culture – just like language, the prevailing national culture may also cause problems in communication among members of an organization, especially if it is multinational company Certain office practices, like sending formal memoranda to employees, may be negatively interpreted by employees coming from another country with a different culture that values face-to-face interpersonal communication. Such negative interpretation may, in turn, cause employee dissatisfaction and less motivation to perform their work well.

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Overcoming Communication Barriers To avoid conflicts resulting from communication problems, managers try to overcome communication barriers though the following means: Using feedback – This is usually done by asking questions about a memo sent to subordinates or by asking them to give their comments or suggestions. In doing so, they are able to determine whether the communication they sent out was understood the way they originally intended. Using simple language – This is done by avoiding uncommon terms and flowery words that may just cause misinterpretation. Language used must fit the level of understanding of the intended recipients of the communication. Effective communication is achieved when the message is understood by those who received it. Active listening – This means listening well in order to grasp the full meaning of the communication. Hearing without giving full attention to what others seek to communicate usually results in misinterpretations and communication distortions. Controlling emotions – This is another method of overcoming communication misinterpretation. When the receiver is affected by extreme anger, his interpretation of a message received may not be accurate. On the other hand, when the sender is affected by extreme emotions, he/ she may also send or transmit inaccurate information. Therefore, it is important to practice emotional restraint. Observing body language – This also influences how communication is interpreted. Actions of the message receiver, like throwing away a letter delivered to him, betrays his negative feelings regarding its message, even if he says “yes” or “okay” to what is requested. Nonverbal cues must always be watched because, as the saying goes, actions speak louder than words.

Fast Learning Review 1. Differentiate verbal from nonverbal communication. 2. Enumerate and define the different barriers to communication. As a student, have you ever encountered any of these barriers? Explain your answer. 3. Define active listening. Is hearing the same as active listening? Explain your answer. 4. Which informal communication network disseminates information very quickly? What are its positive and negative effects?

Exercise 1. Write an upward formal communication letter. 2. Make a diagram of vertical and horizontal communication flow. Use arrows to indicate directions.

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LESSON 5

Management of Change and Diversity in Organizations

M

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

Types of Change

Definition of Terms Organizational change – any alteration of people, structure, or technology in organizations brought by external or internal forces which they encounter Organizational diversity – the host of individual differences that make people in organizations different from and similar to each other

An organization and its members must undergo constant improvement along with its achievement of growth. Changes may be implemented to bring development in an organization. Among the changes that typically occur or are implemented in an organization are the following: Changes in people. People’s attitudes, values, wants and needs, expectations, perceptions, and behaviors change as time goes by, but changing them for the better is not easy to do. In order to address this need for change, organizational development (OD) techniques are used. OD is used to describe organizational change methods related to people, their nature, and the quality of their interpersonal relationships as they work and collaborate with one another. Team building, sensitivity training, intergroup development, process consultation, and survey feedback are popular OD techniques. Managers, however, must use techniques that are suitable to the prevailing organizational culture in their respective companies.

UNFREEZING

Faced with a dilemma or issue, the individual or group becomes aware of a need for change.

CHANGING

The situation is diagnosed and new models of behavior are explored and tested.

REFREEZING

Application of new behavior is evaluated, and if it proves to be reinforcing, the behavior is adapted.

FIGURE 6.10 Kurt Lewin’s description of the process of change

Leading 93

Changes in Structure. Due to changing conditions/situations and changing strategies used, organizational structures may also change according to work specialization, departmentalization, change of command, span of control, centralization, formalization, and job redesign, among others. Managers are advised to alter one or more of these structural components, depending on the needs of their organization. Changes in Technology. Technology changes usually refer to changes in work processes and methods used, introduction of new equipment and work tools, automation, or computerization. Competitive factors or innovations in industries require administrators of companies to consider such technological changes. Computerization is the most popular example of technological change. With the use of computer networks, large amounts of data can be stored, retrieved, and utilized in many different ways—from the simple keeping of employees’ records to controlling complex equipment. Both large and small companies now use the Internet to transact business, hence the rise of e-commerce as standard practice in many firms. It has also created a new group of workers called “virtual workers” who work from their homes or elsewhere.

Managing Resistance to Change Change is considered by many organization members as a threat. It is common for people to fear changing the status quo, even if doing so might bring beneficial effects. The possible reasons for this fear of change are uncertainty, concern about personal loss, pessimism, the belief that it will have negative effects on the organization, and change in their habitual practices, among others. The following are required to manage resistance to change: FIGURE 6.11 This diagram demonstrates how leaders are liable to communicate downward and decide and execute upward when change permeates the organization.

MISSION Define

Accomplish

WORK PROCESSES Execute

Guide

DECISIONS Consider

Support

INFORMATION Employ

Process

TECHNOLOGY

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Education – employees have to be educated regarding the reasons for and the relevance of change Participation – allow organization members to participate in decision-making related to bringing change in their company Facilitation and support – facilitate and provide new skills training and counselling for employees to minimize their fear of change Manipulation of information – withhold damaging information about change to make it acceptable to organization members Selection of people – select people who are open to change to help disseminate the beneficial effects of change, resistance to change is lessened Coercion – the use of direct threats or force to make people accept change; however, this method is perceived as a form of bullying, so it is used only when extremely necessary

New Issues in Change Management Understanding Situational Factors

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

Making Changes in Organizational Culture Change in organizational culture cannot be done easily because it is highly valued and ingrained among the firm’s members. Thus, this must be done slowly to avoid violent resistance. Robbins and Coulter (2009) suggest the following steps: • Set the tone through management behavior—top managers, particularly, need to be positive role models. • Create new stories, symbols, and rituals to replace those currently in use. • Select and promote employees who adapt the new values. • Redesign socialization processes to align with the new values. • Change the rewards system to encourage acceptance of new values. • Replace unwritten norms with clearly specified expectations. • Shake up current subcultures through job transfers, job rotation, and/ or termination. • Work to get consensus through employee participation and create a climate with a high level of trust.

Leading 95

Managing Workplace Diversity

Workforce diversity in organizations is inevitable. It is a fact that organization members may differ in age, gender, physical ability, ethnicity/ race, culture, values, attitudes, beliefs, and personality. Since workgroup diversity is associated with positive and negative outcomes, managers must try to reduce the potential negative effects of diversity through: a.) encouraging employees to accept the organization’s culture or its dominant values and b.) encouraging employees to accept differences in the workplace. These, in turn, may be accomplished by training in order to improve the inherent negative relationship regarding a workgroup’s diversity or between its deep level values and the organization’s culture and dominant values. Training can also be used to help employees understand demography differences. Other ways to handle workplace diversity is by creating support groups that can help employees ease the tensions of working in diverse groups and reducing unconscious stereotyping related to associating low performance to women, the disabled, or some ethnic group members.

Fast Learning Review 1. Name and describe the three types of organizational change. 2. Why do people fear changes in the “status quo?” As an individual, are you also afraid of changes? Explain your answer. 3. Enumerate and explain the different ways of managing resistance to change/s. 4. Define workplace diversity. Why should employees be encouraged to accept differences among organization members?

Exercise Go to the school library and research on: 1. the advantages and disadvantages of rapid technological changes 2. the advantages and disadvantages of workplace diversity. Comment on your findings and prepare for a class discussion on these topics.

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LESSON 6

Filipino and Foreign Cultures in Organizations

F

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

Shared Values and Beliefs of Filipinos Different people from around the world have their own set of values or beliefs that they share and consider significant as a group or a community. As Filipinos, we are no different from other groups around the world. Our unique culture also influence our attitudes about work, as well as our habits. Three primary Filipino values: Social Acceptance – This value focuses on the desire of Filipinos to be accepted and treated well by others—his or her family, relatives, friends, and the members of communities/organizations where he or she belongs—in accordance with his or her status, for what he or she is, and for what he or she has accomplished. Economic Security – This value emphasizes that one must have financial stability and that he or she must be able to stand on his or her own two feet, without incurring debt in order to meet his or her basic material needs. Social Mobility – This value is concerned with his or her desire to move up the social ladder, to another higher economic level, to a higher job position, to a position of respect in his or her family or in the community where he or she lives or in the organizations where he or she belongs. ies

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

bo ls

The Paradigm

Co sy ntro ste l ms

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

Sy m

l na tio s a z e ni ga tur Or truc s

Power structures

Rituals and routines

r Sto

Definition of Terms

FIGURE 6.12 Gerry Johnson’s cultural web illustrates how an organization’s culture responds to and reflects influencing factors which include those seen in this model.

Leading 97

Among the examples of Filipino beliefs and practices are the mañana habit, ningas cogon, and Filipino time. The mañana habit pertains to the belief that it is alright to postpone work or finish tasks to another day. Instead of finishing the task at hand, one opts to rest or engage in leisurely activity. On the other hand, ningas cogon is a Filipino practice that refers to the initial show of enthusiasm over a project during its beginning and the waning of this interest. Similarly, the energy level of the worker lowers in the course of the project, hence work slows down. Filipino time pertains to the common Filipino practice wherein arriving 15 to 30 minutes late to work or meetings with associates and friends is considered acceptable. FIGURE 6.13 Time management is one of the most common problems of Filipinos.

Influence of Filipinos’ Shared Values and Beliefs on Organizational Management The Filipino values of social acceptance, economic security, and social mobility may have both positive and negative implications to organizational management. All these values may motivate the Filipino worker to work hard and to be really serious in trying to help achieve the organization’s goals as these will lead to the fulfillment of his primary values. Managers of organizations will find it easy to manage their firm when their Filipino workers are guided by the primary values earlier mentioned. However, an exaggerated valuing of social acceptance, economic security, and social mobility may influence the Filipino worker to be self-centered, selfish, and unmindful of whether he or she “steps on the toes” of his or her coworkers, just so he or she could fulfill these values quickly. Managers of organizations may have a problem managing some obsessive and selfish Filipino workers since these workers may also be unmindful of following the company’s rules on ethical behavior, on respect for the rights of others, and on maintaining good interpersonal relations to avoid conflicts.

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

Influence of Foreign Culture on Organizational Management As earlier mentioned in Chapter 2, a country’s culture impacts on the behavior of both administrators. Knowing their beliefs and values and their cultural dimensions will make it easier for administrators to manage subordinates and for subordinates to know the management style of their superiors; also, employees belonging to one culture will have better relations with co-employees belonging to other cultures because of this. Some examples cited by Kreitner and Kinicki (2013) are the following cultural dimensions: Gender Egalitarianism – refers to the amount of effort which must be put into minimizing gender discrimination and role inequalities. It is highest in Hungary, Poland, Slovenia, Denmark, and Sweden, and lowest in South Korea, Egypt, Morocco, India, and China. Assertiveness – refers to how confrontational and dominant individuals should be in social relationships. It is highest in Germany, Austria, Greece, US, and Spain, and lowest in Sweden, New Zealand, Switzerland, Japan, and Kuwait. Performance Orientation – refers to how much individuals should be rewarded for improvement and excellence. It is highest in Singapore, Hong Kong, New Zealand, Taiwan, US, and lowest in Russia, Argentina, Greece, Venezuela, and Italy. Humane Orientation – refers to how much society should encourage and reward people for being kind, fair, friendly, and generous. It is highest in the Philippines, Ireland, Malaysia, Egypt, and Indonesia, and lowest in Germany, Spain, France, Singapore, and Brazil. So, for example, if one is a manager in South Korea, Egypt, Morocco, India, or China, he or she may not worry too much about gender discrimination and role inequalities since female employees do not mind receiving a job assignment that will make them subordinates of male employees. By looking at the cultural dimensions and their scores, managers and employees would have an idea on how to act and handle situations.

Leading 99

TABLE 6.2 A comparison between Cultural Relativism and Ethnocentrism

Cultural Relativism Refers to the different interpretations of the same or similar behavior by members of different cultures. • it is important to interpret the actions of the members of other groups in terms of their particular cultures. Example: An American manager’s direct and brusque manner of reprimanding a Filipino subordinate is acceptable in the American culture; this, however, is considered insulting when he is judged according to the Filipino culture.

Ethnocentrism

vs.

The belief that one’s own way of life or culture is superior to others. • it is important to understand that people develop culture through adaptation to their surroundings. Example: A Chinese manager who is ethnocentric may not have high regard for Filipino managers who have different management techniques.

Fast Learning Review 1. Differentiate Filipino culture from Filipino organizational culture. 2. What are the three primary values of Filipinos? Are these related to the Filipino workers’ job performance? Explain your answer. 3. How are ningas cogon, mañana habit, and Filipino time related to organizational management? 4. Are Filipinos high on gender egalitarianism, assertiveness, and performance orientation? Support your answers by citing actual experiences.

Exercise 1. Research on Japanese and American management styles. Which, in your opinion, is better? Explain your answer. 2. Based on what you learned in this lesson regarding the influence of foreign culture on organizational management, are you interested in getting a foreign job assignment someday? Explain your answer.

Integration At the end of the chapter, write two or three sentences to complete the following: I realized that: I resolved that:

100 CHAPTER 6

CHAPTER 7

Controlling

A LUXURIOUS CAR without gasoline is similar to a viable business without carefully managed funds. Who needs a nonrunning vehicle that is good for display only? How can a business be successful without the well-managed funds required for its operation and expansion? This is where controlling comes in. Essentially, controlling is all about the acquisition of money and its useful disbursement. It requires identification and reinforcement of the firm’s priorities and understanding how its operations are going to ascertain where improvement is needed. As you read and study this chapter, concentrate on the following objectives, and at the end of this chapter be able to: 1. discuss the nature of controlling; 2. describe the link between planning and controlling; and 3. distinguish control methods and systems.

101

LESSON 1

Definition and Nature of Management Control Definition of Terms Controlling – a management function involves ensuring the work performance of the organization’s members are aligned with the organization’s values and standards through monitoring, comparing, and correcting their actions Standard – any established measure of extent quantity, quality, or value

I

n earlier times, controlling was associated with the concept of just being a corrective action. Present-day management, however, applies it as a foreseeing activity that sets standards in determining actual performance to correct previous decisions or actions. Therefore, management must focus on management control and the control process.

Importance of Management Control Management control makes sure that the firm’s operating cash flow is sufficient, efficient, and, if possible, profitable when invested. Working capital, when properly controlled, must be adequate enough for daily operations such as financing, inventories, credit payments to suppliers, reinvestment of cash surplus, and salaries of employees, or, in general, maintaining an acceptable capital structure. The decision to seek funds should be appropriate, so as not to incur expenses since borrowing would be subjected to payment of interest. Spending without thinking of how it could be regained in the future could put any starting business or even a well established one in jeopardy. There should be a continuous monitoring of the organization’s activities, followed by corrective actions based on previously planned programs of action. Moreover, tasks should be completed with less errors. This could be achieved by comparing tasks with previously set standards or with competitor’s standards or standards prevailing in a particular industry setting.

The Control Process Control techniques used for controlling financial resources, office management, quality assurance, and others are essentially the same. The typical control process involves establishing standards, measuring and reporting actual performance, and comparing it with standards, and taking action. Establishing standards means setting criteria for performance. Managers must identify priority activities that have to be controlled, followed by determining how these activities must be properly sequenced. In doing so, managers will be able to set key performance standards that need to be achieved. The value chain, or the proper sequencing of activities needed to convert the company’s raw materials into finished products, is a valuable instrument for helping managers determine and establish key performance standards.

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Measuring and reporting actual performance and comparing it with set standards is essentially the monitoring of performance. To be able to do this, managers must develop appropriate information systems which will help them identify, collect, organize, and disseminate information. Managers are able to control facts and figures called data, and information, which have been given meaning and considered to have value. Analyses of data/information gathered measure actual performance and comparing it with set standards serves as a means for detecting deviations. Deviations must be revealed as early as possible in order to correct them. Taking action involves the correction of deviations from set standards. This activity clearly shows the control function of management. Managers may rectify deviations by modifying their plans or goals, by improving the training of employees, by firing inefficient subordinates, or by practicing more effective leadership techniques.

Fast Learning Review 1. Define the term “controlling.” 2. What is the difference between old and new controlling practices? 3. Is management control important for all types of businesses? Why or why not? 4. Name the activities involved in the control process.

Exercise 1. Design a control system for measuring your progress in your school work. Apply the activities involved in the control process discussed in this lesson. 2. Interview two managers about the controls used in their companies. Are their control techniques similar to or different from the control techniques enumerated in this lesson? Explain your answer.

Controlling 103

LESSON 2

The Link between Planning and Controlling Definition of Terms Double entry accounting – accounting strategy of some firms which requires the preparation of two different accounting reports, one for internal use and another for external use Dual entry – the process of journalizing with debit and credit entries Liquidity – the organization’s ability to meet short-term obligations

T

he relationship between planning and controlling could be easily established. Control is integrated planning. Planning involves a thorough process which is essential to the creation and refinement of a blue print or its integration with other plans that may combine forecasting of developments in preparation for future scenarios. As one plans, the elements of control immediately take place to consider how every turnout of the plan may be evaluated and rectified. On a periodic basis, it is useful to create a pro forma financial statement which serves as a forecast of the balance sheet, income statement, and cash flow statement in order to make projections. This may be used as an aid to present plans to creditors and future investors, but, primarily, it is used for internal planning and control purposes. As Smart (2013) cited, “by making projections of sales volume, profits, fixed asset requirements, working capital needs, and sources of financing, the firm can predict any liquidity problems with enough lead time to have additional financing sources available when needed.” Shim et al. (2012), emphasized that “any CFO (chief financial officer) must prepare short-term, company-wide, or division-wide planning reports. These reports may relate to product distribution by territory and market, product line mix analysis, warehouse handling, salesperson

FIGURE 7.1 Planning and control at different levels Top-level management Strategic planning

Strategic control

Organization-wide perspective Long time frame

Middle-level management Tactical planning

Tactical control

Department perspective Periodic time frame

Lower-level management Operational planning

Operational control

Unit/Individual perspective Short time frame

104 CHAPTER 7

performance, and logistics. Long-range planning reports may include fiveto ten-year projections for the company and its major business segments.” Specialized planning and control reports may include effects of cost-reduction programs, production issues in cost or quality terms, cash flow plans for line-of-credit agreements, evaluation of pension or termination costs in plant costing, contingency and downsizing plans, and appraisal of risk factors in long-term contracts.

The Balance Sheet Balance sheet is a financial statement which is defined by most accounting books as the “snapshot” of any entity’s financial condition because it presents the financial balances of a particular period. It follows a pro forma accounting entry: A = L + C, or that the total assets (A) must be equivalent to the aggregate summation of liabilities (L) and capital (C) or owners’ equity. Thus, others may also call this as either the statement of financial position or statement of condition. The asset side keeps track of all the properties, tangible and intangible, owned by the organization, while the other side (liabilities) records all the obligations to settle and actual capitalization of the firm. It must be noted that there must always be a dual entry respective of the account titles. For newly established smaller business organizations with budget constraints, planning and control starts with available dedicated capital which needs monitoring and would serve as the budget with posting entry in the balance sheet as cash and owner’s equity. For example, one who has a 500,000 capitalization may have a pro forma entry of:

Assets

Liabilities and Equities

Cash on Hand

xxxxx

Accounts Payable

xxxxx

Marketable Securities

xxxxx

Accruals

xxxxx

Prepaid Expenses

xxxxx

Total Current Liabilities

xxxxxx

Accounts Receivable

xxxxx

Total Current Assets

xxxxx

Long-term Debts

xxxxx



Mortgages

xxxxx

Property and Equipment

xxxxx

Total Long-term Liabilities

xxxxx

Land

xxxxx

Total Liabilities

xxxxx

Total Fixed Assets

xxxxx

Debit Cash........................................................ 500,000 Credit Owner’s Capital................................. 500,000

Controlling 105

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

Liabilities and Capital

Cash.......................................... 400,000

Owner’s Capital................................. 500,000

Equipment............................. 100,000 Total Assets............................ 500,000

Total Liabilities and Capital........... 500,000

One has to note that it did not change the total amount of capital which is 500,000 since it was just deducted from cash. The pro forma accounting entry which is Assets = Liabilities plus Capital is still intact and balanced on both sides. Further, if you placed orders or suppliers on credit terms or for future payments amounting to 30,000: Assets

Liabilities and Capital

Cash.................................... 400,000

Owner’s Capital................................. 500,000

Equipment....................... 100,000

Accounts Payable................................ 30,000

Supplies.............................. 30,000 Total Assets...................... 530,000

Total Liabilities and Capital........... 530,000

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

Income Statement The income statement is also known as the profit and loss statement, revenue and expenses statement, statement of financial performance, or earnings statement. It displays the cost and expenses charged to recognize revenues in a specific period. Basically, it shows whether the company made money or lost money. Any business entity in progress may incur expenses and later on garner income or profit. Its pro forma statement may start on how many units of quantity it plans to sell in a given period. For example, if the final product would cost 50 each for sale in the market and the

106 CHAPTER 7

projected number of units to be sold would be 1,000, it would follow that the gross sale would be 50,000 for a particular period derived as 50 × 1,000 units. If in its operation, there would be anticipation of expenses such as operating expenses (OPEX) of 25,000 or administrative costs of 20,000, the gross income would then be 5,000. The income statement may appear to have an initial pro forma of: Gross Sales

50,000

Less: Operating Expenses

25,000



20,000

Administrative Costs

Gross Income

45,000 5,000

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

Cash Flow Statement Without adequate cash for the timely payment of obligations, funding operations and growth, and for compensating owners, the firm will fail. The statement of cash flow summarizes the inflow and outflow of cash during a given period. Inflow activities are those that result in providing the firm with sources of funds, while outflows result in cash leaving the firm due to disbursements or expenses that utilize cash. It is important to note that this statement includes and recognizes only the movement of cash in its entire operations. What information should financial forecasts and financial projections contain? According to the book CFO Fundamentals by Shim, Siegel, and Shim (2012), financial statements must contain the following minimum items: • Sales or gross revenues • Net income • Gross profit • Income from continuing/discontinuous operations • Usual income statement items • Tax provision • Material changes in financial positions

Controlling 107

Summaries of Significant Accounting Policies and Assumptions The management’s intent of preparing the prospective financial statements should be stated and it must be mentioned that prospective results may not materialize. It should be clearly stated that the assumptions used by management are based on information and circumstances that existed at the time the financial statements were prepared.

Organizational Performance Control All managers must know which measures will give them data and information about overall organizational performance control. The usual measures are organizational productivity, organizational effectiveness, and rankings in industry. Organizational productivity is the amount of goods or services produced (output) divided by the inputs needed to produce the said output. In general, all organizations and their work units aim to be productive. In other words, they want to produce the biggest amount of outputs, using the least input. Output may be measured by the sales income which an organization gains when goods are sold. Inputs, on the other hand, may be measured by the amount spent on acquiring and transforming resources into outputs. Decreasing inputs by being more efficient in work performance will decrease the organization’s expenses, thus, increasing the ratio of output to input and achieving what management wants. Organizational effectiveness is a measure of the organizational goals’ suitability to organizational needs and how well these said goals are being attained. Managers make use of this in their decision-making regarding the design of organizational strategies and work activities, and in linking the various work endeavors of their employees. Rankings in industry is a way commonly used by managers to measure organizational performance. Being in Fortune Magazine’s list of Most Admired Companies, 100 Best Companies to Work For, 100 Fastest Growing Companies, and others is a good measure of an organization’s success in the business world. Being ranked high, middle, or low indicates the company’s performance in comparison with others.

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

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Bureaucratic control makes use of strict rules, regulations, policies, procedures, and orders from formal authority. Negative performance evaluation is given to human resources who do not comply with the said control measures. Clan control is based on compliance with norms, values, expected behavior related to the firm’s organizational culture, and other cultural variables of the country where the company is located. Positive performance evaluation ratings are given to employees or teams who quickly adapt to possible changes of norms and values in the firm’s internal and external environment.

Fast Learning Review 1. Are control and planning related to each other? Why or why not? 2. What is a balance sheet? Describe how it is presented. 3. What is the purpose of the income statement? 4. What is the importance of the cash flow statement?

Exercise 1. Describe briefly the three frequently used organizational performance measures. Which, in your opinion, is the best measure of organizational performance? Defend your opinion by explaining your choice. 2. Prepare an income statement if your company’s gross sales is 300,000, with operating expenses of 100,000, and administrative costs of 30,000. What is its gross income?

Controlling 109

LESSON 3

Control Methods and Systems Definition of Terms Control Methods – techniques used for measuring an organization’s financial stability, efficiency, effectiveness, production, output, and organization members’ attitudes and morale Quantitive Control Methods – methods which make use of data and different tools expressed in members for monitoring and controlling production output Non-quantitive Control Methods – methods which make use of tools such as inspections, reports, direct supervision, performance evaluation, and on-the-spot checking to accomplish goals

C

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

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

Quantitative Methods

Quantitative methods make use of data and different quantitative tools for monitoring and controlling production output. Budgets and audits are among the most common quantitative tools. The most widely recognized quantitative tool is the chart. Charts used as control tools normally contrast time and performance. The visual impact of a chart often provides the quickest method of relating data. A difference in numbers is much more noticeable when displayed graphically. Budgets. The budget remains the best known control device. Budget and control are, in fact, synonymous. An organization’s budget is an expression in financial terms of a plan for meeting the organization’s Existing Home Sales

million units

FIGURE 7.2 A chart showing sales trends is among the quantitative tools used in organizations.

million units

8

7

1.6

1.4

Total (L-axis)

1.2

6

Singles Family (L-axis)

5

1.0

0.8

4

Condo and Coop (R-axis) 3

0.6

2

0.4

1

0.2

0

0.0 99

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10

11

goals for a specific period. A budget is an instrument of planning, management, and control. Budgets are used in two ways: to establish facts that must be taken into account during planning and to prepare a description and financial information to be used by the chain of command to request for and manage funds. At present, two major budget systems are used; these are zero-based budgeting (ZBB) and the planning, programming, and budgeting system (PPBS). Audits. Internal auditing involves the independent review and evaluation of the organization’s nontactical operations, such as accounting and finances. As a management tool, the audit measures and evaluates the effectiveness of management controls. Audit service provides an independent audit of programs, activities, systems, and procedures. It also provides an independent audit of other operations which involve the utilization of funds and resources as well as the fulfilment of management goals.

Nonquantitative Methods

Nonquantitative methods refer to the overall control of performance instead of only those of specific organizational processes. These methods use tools such as inspections, reports, direct supervision, and on-the-spot checking and performance evaluation or counseling to accomplish goals. Other control methods include feedforward control, concurrent control, feedback control, employee discipline, and project management control. Feedforward control prevents problems because managerial action is taken before the actual problem occurs. Concurrent control takes place while work activity is happening. The best example of this type of control is direct supervision or management by walking around. Feedback control is control that takes place after the occurrence of the activity. It is disadvantageous because by the time the manager receives the information, the problem had already occurred. When the above three control methods are compared, managers choose the feedforward method as the most desirable because of its preventive action. The concurrent control’s advantage is that it can help managers correct problems before they become too costly or damaging. Feedback control’s advantage is the exhibiting of variance between the standard and the actual work performance. Little variance indicates that planning is successful while significant variance may give managers an idea of how to plan better. Employee discipline is a control challenge for managers. Enforcing discipline in the workplace is not easy. Concerns regarding this include workplace privacy, employee theft, and workplace violence, among others. From simple monitoring of employees’ computer usage at work to protecting employees at work from psychologically unstable workers who may

Controlling 111

have hidden desires to harm them, managers need discipline control to ensure that tasks can be efficiently and effectively carried out as planned. Project management control ensures that the task of getting a project’s activities done on time, within the budget, and according to specifications, is successfully carried out. Project managers need technical and interpersonal skills to control the implementation of the project efficiently and effectively. The project planning process controls include: defining objectives, identifying activities and resources, establishing sequence and estimating time for activities, determining the project completion date, and comparing with objectives and determining additional resource requirements.

Fast Learning Review 1. Name and briefly define the quantitative methods of control. 2. What are nonquantitative methods of control? 3. Define and compare feedforward, concurrent, and feedback control methods. 4. What is the importance of project management control?

Exercise 1. Interview two department heads in your school regarding their preferred employee discipline control. Explain the similarities or differences in their methods. 2. Prepare your personal budget for the present school year. Apply or use zero-based budgeting (ZBB) which starts from nothing and does not consider past data.

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LESSON 4

Application of Management Control in Accounting and Marketing Concepts and Techniques

M

anagement control in accounting and finance is the control that makes use of the balance sheet, income statement, and cash flow statement to analyze and examine financial statements in order to determine the company’s financial soundness and viability, as well as financial ratios to determine the company’s stability. On the other hand, management control in marketing is the control that makes use of projected sales or forecasts, statistical models, econometric modeling, surveys, historical demand data, and actual consumption of their products. Sales is considered to be the “lifeblood of the business.” No matter how good the product is, if it is not sold in the market, there is no way that a business can survive. Thus, the projected sales often guide the sales manager or the marketing head on how much the target or the quota must be. In a way, this will also serve as a guide for the operations manager in determining the number of units to be produced. Excess production may mean cost, and unsold items may resort to inventory expenses or worse, the obsolescence or degradation of the product. Indeed, the sales forecast requires consideration. For more established businesses, or those that had been in the industry for quite some time, the most commonly used technique is to look at the historical demand and actual consumption, with the assumption of the same economic condition.

Definition of Terms Management Control – control that makes use of balance sheets, income statements, cash flow statements to analyze and examine financial statements in order to determine the company’s financial soundness and viability, as well as financial ratios to determine the organization’s stability Strategic Control – a systematic monitoring at control points in strategic plans that may tend to change in the organization’s strategies Macroeconomic Environment – business environment that includes or considers economic aggregates such as national income, total volume of savings, and money supply FIGURE 7.3 A company’s assets and liabilities report presented in charts.

COMPOSITION OF ASSETS

COMPOSITION OF LIABILITIES Other Interest Earnings Assets 8.2%

Loans 54.7%

Interbank Money Markets 7.8%

Funds Borrowed 14.2% Bonds Issued 3.3%

2012 TL 180 Billion

Non-Interest Earnings Assets 17.1%

2012 TL 180 Billion Time Deposits 41.9%

Securities 20.0%

Other 8.5%

Shareholders’ Equity 12.0% Demand Deposits 12.2%

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➤ The sales forecast may be derived either from a “top-down” or “bottom-up” approach. Smart (2013) stated that: “The top-down sales forecast relies heavily on macroeconomic and industry forecasts with the use of statistical models thru econometric modeling to achieve the firm’s growth target. The bottom-up sales forecast begins by talking with customers in a form of survey or ‘traffic count,’ by assessing the demand in the coming periods. The current practice blends these two approaches.”

A firm may generate a set of assumptions regarding the macroeconomic environment to which all divisions must adhere as their guide, but forecasts can still be generated from the customer level and taken into account. Some firms produce two sets of forecasts, one that uses a statistical approach and another that relies on customer feedback. Senior managers then compare the two forecasts to see how far apart they are before setting a final sales objective.

Accounting/Financial Control Ratios The goal of businesses is to gain profit. In order to achieve this, managers need accounting/financial controls. Managers must also analyze the organization’s financial condition, which is done with the help of the following financial ratios. Liquidity ratio – tests the organization’s ability to meet short term obligations; it may also refer to acid tests done when inventories turn over slowly or are difficult to sell. current ratio = current assets ÷ current liabilities

Leverage ratio – determines if the organization is technically insolvent, meaning that the organization’s financing is mainly coming from borrowed money or from the owners’ investments. debt-to-assets ratio = total debt ÷ total assets

Activity ratio – determines if the organization is carrying more inventory than what it needs; the higher the ratio, the more efficiently inventory assets are being used. inventory turnover = cost of goods sold ÷ average inventory

Profitability ratio – determines the profits that are being generated; net profit after taxes ÷ total sales

or it measures the efficiency of assets to generate profits. return on investment = net profit after taxes ÷ total assets

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In addition to the above ratios, asset management is also practiced to achieve organizational goals. Asset management is the ability to use resources efficiently and operate at minimum cost. inventory turnover = sales ÷ average inventory

Strategic Control As mentioned earlier, planning and controlling are closely related. Strategic plans serve as control points for strategic control—a systematic monitoring at control points that leads to change in the organization’s strategies based on assessments done on the said strategic plans. Control provides a chance for comparing the plan’s intended goals with the actual organizational performance. This becomes the basis for modifications in the firm’s strategies.

Benchmarking Benchmarking is an approach or process of measuring a company’s own services and practices against those of recognized leaders in the industry in order to identify areas for improvement. It is a widely used and well-accepted approach because it helps organizations gather data and information against which performance can be measured and controlled. Weihrich and Koontz (2005) gave three types of benchmarking: a.) strategic benchmarking which compares various strategies and identifies the key strategic elements of success; b.) operational benchmarking which compares relative costs or possibilities for product differentiation; and c.) management benchmarking which focuses on support functions such as market planning and information systems, logistics, and human resource management, among others. Many companies use benchmarking. Some prefer to benchmark only the top 10 or the best companies in their particular industry. Others benchmark best global practices and go further away from their own industry and reason out that their goal is competitive superiority and not just competitive parity. The benchmarking process begins with determining which company functions are to be benchmarked and the key performance indicators to be measured. Then, the best industry performers have to be identified. Data gathering and analysis follows and these become the foundations for performance goals. New programs are implemented, and during this step, performance is measured at regular intervals.

Controlling 115

Corrective actions are taken to close the gap between the organization and the best-in-class companies. The monitoring of results must be continuous to ensure benchmarking success. FIGURE 7.4 Example of a chart showing gaps in performance ratings

0 1 2 3 4 5 6 7 8 9 10 Wikimedia Foundation

6.95

Wikimedia volunteers overall

6.75

Wikimedia Chapters Own contribution

6.04

5.73

Fast Learning Review 1. Enumerate and define each of the four accounting/financial control ratios commonly used in organizations. 2. Why is sales considered as the “lifeblood of the business?” 3. What is the relationship between strategic plans and strategic control? 4. Define benchmarking and give its three types.

Exercise 1. Compute the liquidity ratio of a fast food restaurant. Its current assets amount to ₱3 million while its current liabilities are at ₱2 million. Analyze and interpret your answer. 2. What is the return on investment if a jewelry store’s net profit after taxes is ₱6 million and its total assets is ₱100 million. Analyze and interpret your answer.

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LESSON 5

Role of Budgets in Planning and Control

A

n organization’s ability to have a good control system is also dependent on its budget process. Budgets are plans to monitor, control, and implement the resource of the firm on its operation based on its objectives or goals. Adjustments are made by top-level management on a periodic basis, if necessary, to remedy conflicts, difficult situations, or unrealistic settings, or when unforeseen events transpire. A fixed budget allocates a fixed amount of resources for a specific purpose. Meanwhile, a flexible or variable budget allows allocation of resources to change depending on different levels of activity in the organization. According to Sawyers et al (2013) in the book Managerial Accounting, budgeting serves as an integral part of a manager’s planning, operating, and control activities, illustrated as:

Definition of Terms Budget – are plans to monitor, control, and implement the firm’s resources on its operation based on its objectives or goals Fixed Budget – allocation of a fixed amount of resources for a specific purpose

FIGURE 7.5 Budgeting as an Integral Part Planning Operating Control Activities

Planning

Budgetting

Operating

Control

Planning is the initial step and it includes the development of the firm’s objectives and the creation of the budget. Operating takes on the decision-making that is guided by budgeting. The control process then checks and guarantees whether the set objectives are accomplished. Budgeting is the responsibility and activity of the management which requires extensive planning throughout the organization’s entire units and departments. Produ­cing a budget requires time, prudence, and diligence. The final budget must be justified by its originator and must be realistic. The budget may be presented in aggregated values for the entire year, but there is often a monthly budget that puts into detail the expectations to be met. Deviations on the budget may be adjusted as the need for them arises (such as those caused by unforeseen circumstances), and it is subject to the approval of the higher authority.

Controlling 117

Budget preparation may either utilize historical budgeting or zerobased budgeting. The former uses the past data or actual figures of previous periods based on actual experiences of the firm. Certain percentage adjustments are made to formulate the new forecast. The latter is created by starting from nothing and relying on the expertise, anticipations, and experiences of each head. Indeed, it appears to be more challenging to produce a budget applying the zero-based method, hence, it may require the full participation and cooperation of organization members. In every organization, there must only be one concrete and recognized budget for a certain period of time. It may be considered as the master budget since it comprises of the submitted and justified budgets of different units and is approved by the top-­management for implementation. The sales department or the marketing division may create its sales budget for purchases and selling expenses to eventually determine the value of the actual products or services to be sold. This, in turn, may serve as the quota for its sales force. It may regard sales trends for the company, its competitors, or even the industry of its category. This budget may also include the factors that may affect sales, price changes, advertising plans, political and legal events, and the like. The operations and production departments usually generate shortterm budgets, which customarily cover less than a year since it must take into account economic trends such as inflation, costs, and personal spending for the desired inventory and final production. It is important to keep in mind that, regardless of the size of the company, the cash budget must be focused. A manager who disregards this would most likely suffer from illiquidity or cash shortage. Such scenario may adversely affect the whole organization since it may impede its entire operation. The worst case would be that the anticipated obligations may not be fully settled leading to legal cases. As Sawyers et al. presented, a basic summary of a cash budget may have the following format: +

Beginning cash balance Cash receipts

__________________________________________ =

Total cash available

–

Cash disbursements

__________________________________________ =

Cash balance before borrowing/repayment

+/–

Borrowing from/repayment of line of credit

–

Interest of line of credit

__________________________________________ =

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Ending cash balance

Steps toward Better Budget-making The budget may be improved upon to address the needs of the organization and consider the input of all concerned. Below are the steps in improving the budget. • Collaborate and communicate with organization administrations and selected members so that the budget becomes more acceptable to all. • Practice flexibility as the budget adapts to the organization’s needs. • Relate the budget to company goals since their achievement is the primary objective/goal of the firm; deviation from goals will prolong achievement and will not be good for the firm’s stability. • Coordinate the budget with all the company departments so that they may be able to make full use of the budget allocations given to their respective units. • Use computer software or applications when needed to facilitate accurate computations and proper dissemination of information related to the budget.

Fast Learning Review 1. Define the term “budget.” 2. Differentiate fixed budget from flexible budget. 3. How is budgeting related to the planning and control functions of management? 4. Why should the budget be aligned with organizational goals?

Exercise 1. Organize a team of three students with the help of your teacher. Prepare a detailed budget that covers the schooling and school-related expenses of a student for one semester. Be prepared for a class presentation and get feedback from your classmates. 2. Interview the treasurer of any officially recognized student organization in your school regarding the preparation of their budget. Comment on his or her answers.

Integration At the end of the chapter, write two or three sentences to complete the following: I realized that: I resolved that:

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CHAPTER 8

Introduction to the Different Functional Areas of Management TO PREPARE YOU to become future leaders and managers, you must become familiar with the functional areas of management—Human Resource Management, Marketing Management, Operations Management, Financial Management, and Information and Communication Technology Management. In doing so, you will be ready for the local and global challenges that you will inevitably meet in tomorrow’s workplace. Managerial and leadership functions are essentially the same because all these aim to establish an environment for the effective and efficient performance of individuals and cooperate with one another in teams/groups of different organizations. Therefore, reading and understanding this chapter will be beneficial to all persons who will one day join organizations—not just business companies but also nonbusiness organizations such as government, educational and health care institutions, and other nonprofit organizations. At the end of this chapter, you must be able to explain the nature and role in the firm of the following functional areas of management: a. Human Resource Management b. Marketing Management c. Operations Management d. Financial Management e. Information and Communication Technology Management

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LESSON 1

Human Resources Management (HRM)

H

uman resources, also known as human capital, drive the performance of organizations along with other resources; hence, understanding the HRM functions of management is very important. These include: Conducting job analysis. Job analysis is the process of obtaining information about jobs needed to achieve the organization’s goals/ objectives by determining the duties, tasks, or activities involved in jobs. Job analysis data may be gathered through interviews, questionnaires, observation, and diaries. They may also be collected through position analysis, critical incident method, task inventory analysis, and competency-based analysis. Decision-making regarding job-related problems is done objectively by analyzing the requirements of each job. Planning labor need and recruiting. It is important to determine the number and kind of people that may be attracted for employment. External recruitment enables the organization to fill job openings with special qualifications and to employ persons with new knowledge, skills, values, ideas, and perspectives. Internal recruitment may also be done if management finds it more advantageous to promote or transfer present employees to fill the available job openings. Recruitment from within the company is said to be less expensive as existing employees no longer need extensive orientation programs. Selecting candidates for the job. This involves the matching of people and jobs. Job specifications help identify the person-job fit and identify their individual competencies, their knowledge, skills, abilities, and other factors that may lead to excellent performance. Managers may use different selection methods such as interviews, psychological tests, and calling references, among others. Orienting and training new employees. This is done in organizations so that they could contribute to the achievement of their organizational goals/objectives. The phases involved in this function are: • conducting needs assessment of the organization, of the person, and of the task/work; • designing the training program by considering the institutional objectives, the trainees’ readiness and motivation, and the principles of learning; • implementation of the training program for nonmanagerial employees using on-the-job training, apprenticeship training, cooperative training, internship, government training, classroom instruction,and e-learning; • evaluating the training program in order to determine effectiveness, considering reactions, learning, behavior of the trainees, return on investment (ROI) or results, and benchmarking.

Definition of Terms Human resource management  – the process of attracting, training, developing, and maintaining an excellent work force Job  – a specific piece of work done for a certain fee Job Analysis – the process of obtaining information about jobs needed to achieve the organization’s goals/objectives

Introduction to the Different Functional Areas of Management 121

➤ Organizational behavior is a field of study closely related to human resources management. It is the study of how people interact within groups. Its areas of research include improving job performance, increasing job satisfaction, promoting innovation, and encouraging leadership. Theories of organizational behavior are used in human resources management. http://www.investopedia.com/ terms/o/organizational-behavior.asp

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Managing compensation or pay. Compensation or pay represents a reward received by employees in exchange for their contributions to the achievement of organizational goals. In doing so, pay equity must be considered. It must be fair and just, acceptable to all concerned parties, and commensurate to the value of the work performed. It is important as it determines job performance motivation of workers. Providing incentives and benefits. Incentives are generally based upon a pay-for-performance philosophy which means that a performance “threshold” or a baseline performance level must be reached by an employee or group of employees in order to qualify for incentive payments. Examples of individual incentives are bonuses, merit pay, and sales incentives. Group incentives include team compensation, scanlon plan, and improshare. Enterprise incentives are profit sharing, stock options, and employee stock ownership plans. Benefits, on the other hand, include social security, workers’ compensation, health care and medical and educational assistance, vacation leave, sick leave, life insurance, retirement benefits, and travel benefits. It is important that incentives and benefits programs be based on specific objectives compatible with the organizational philosophy and policies and the organization’s financial standing. Evaluating employees’ performance. Appraisal of employees is done on a regular basis to find out who are doing their jobs well and who are not. The purposes of such evaluations are administrative and developmental. Administrative purposes include: to aid in decision-making regarding employees’ pay and promotions, transfers, or layoffs, which are based on their achievements and performance. The developmental purpose of appraisal are the use of results for discussing employees’ strengths and weaknesses and for listing down performance improvement needs. Communicating. To be effective, managers must have good communication skills, both oral and written and information technology proficiently. This is necessary to receive and disseminate pertinent information needed by all organization members in carrying out activities that will lead to the achievement of company goals/objectives. Besides carrying out internal communication, managers must also have good communication with customers, suppliers, and other stakeholders in the external environment. Communication may be hindered by barriers and breakdowns in the communication process. Identifying these barriers and learning how to listen well will facilitate both understanding and managing process. Developing employees. Programs should be designed to meet the special needs of employees which will prepare them for future jobs or roles that they may be assigned to do. These may include: graduate studies, cross-training, which refers to the process of developing employees to do multiple jobs within an organization; or ethics training, the process of developing employees’ moral judgments that will help them determine right and wrong behavior which they could use in jobs that require more decision-making functions.

Building employee commitment. This is another important function of HR practitioners which will bind them to engage in activities that will ensure the achievement of organizational goals/objectives. This must be followed by employee accountability or accepting responsibility for one’s actions. Providing good working conditions. This includes giving a clear statement of the company’s mission, vision, goals, and objectives; offering a good compensation and benefits package; preparing a well-ventilated, well-lit, and pollution-free work area for employees; and practicing ethical management styles. Handling grievances and industrial relations. When differences arise between labor unions and management, these are usually settled through the grievance procedure, wherein the feelings, needs, and desires of both parties are aired. Managers must try to master the art of handling grievances and industrial relations to bring peace in their organization. Again, it must be emphasized that satisfied workers are more motivated workers, which in turn, makes them more effective and efficient in performing their assigned tasks; thus, they hasten the attainment of their company’s set goals/objectives.

Importance of Human Resources Management Human resources management deals with the management of people—the most impor­tant business resource. Money, materials, and information resources are not capable of moving the business activities without the aid of the primary performance drivers, human resources. Therefore, mastering the activities involved in human resources management (recruitment, selection, placement, training, and development) is a must since all other management activities (planning, organizing, staffing, leading, and controlling) could be done easily if organization managers practice proper human resources management. RECRUITMENT

TRAINING AND DEVELOPMENT

HUMAN RESOURCES MANAGEMENT

FIGURE 8.1 Activities involved in human resources management

SELECTION

PLACEMENT

Introduction to the Different Functional Areas of Management 123

Fast Learning Review 1. Define and describe job analyses in organizations. 2. What are the two types of recruitment? Define each and explain their advantages. 3. What is pay equity? How is it related to employee motivation? 4. Is communication important in human resources management? Explain your answer.

Exercise 1. Research on the different types of individual, group, and team incentives mentioned in this lesson. Define each and choose the specific types of incentive that you would like to enjoy in the future. 2. Interview a faculty member in your school and find out the types of benefits provided to them by the school management. Ask him or her if he or she is satisfied with the said benefits and if these influence his or her work performance.

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LESSON 2

Marketing Management

A

s marketing expert Philip Kotler puts it, marketing management “is essentially demand management.” This is because it involves “influencing the level, timing, and composition of demand” so that an organization may reach its goals. The marketing management functions of management include the following: Analyzing, planning, implementing, and controlling of goods, services, and ideas to create exchanges that satisfy customer needs and company goals. Analyses of demand management starts with the gathering of data through marketing research. Activities under marketing planning include decision-making on target markets, market positioning, product development, pricing, distribution channels, physical distribution, communication, and promotion. The implementation of the marketing plan is formally carried out by sales managers, sales people, advertising and promotion managers, and customer service managers. Controlling refers to monitoring of the marketing plan’s progress. Goals and budgets are set for each month or quarter. A review of the results follows in order to identify businesses that are not attaining their goals. Managers of unsuccessful businesses must explain what the problem is and propose contingency plans that the management has to take in response to such negative developments. Management of marketing resources. Marketing resources include: sales people, advertising, and marketing research. a. Management of sales people involves inculcating the establishment of satisfying long-term relations with customers, suppliers, and distributors in order to help their long-term preference and business. Good marketers are able to maintain win-win relationships by seeing to it that they always deliver high quality, good service, and fair and reasonable prices to the key parties that they deal with over a long period of time. • Product variation • Product differentiation • Product innovation • Product elimination

Product

• Cost recovery pricing • Penetration pricing • Price Skimming

Definition of Terms Marketing management – the process of managerial planning and carrying out of the conception, pricing, promotion, and distribution of ideas, goods, and services in order to bring about exchanges to satisfy individual and organizational goals (as defined by the American Marketing Association)

FIGURE 8.2 The marketing mix is an important consideration in marketing management.

Price MARKETING MIX Place

• Distribution channel • Direct sales • Indirect sales • E-commerce

Promotion

• Individual communication • Mass communication • Brand management • Corporate identity

Introduction to the Different Functional Areas of Management 125

➤ Marketing in the World Wide Web Many businesses, garage-based startups, and established companies have set up shop online by creating a page or website in the vast electronic medium known as the World Wide Web. Although many of them have already made money online, there are some disadvantages that managers must consider: Security problems – since they are exposed to possible unauthorized use or electronic attack by criminals and other parties Legal issues – as plenty of problems may arise due to lack of clear, well-defined laws governing electronic commerce Maintenance cost – thousands of pesos must be paid to make full use of the Internet for business, such as utility bills, fees for website or service developers and other specialists, high-powered computers, and others Technology problems – sendless research endeavors must be undertaken to cater to the demands of the growing e-commerce business Cultural issues – problems may arise due to different cultural norms and values of multinational clients

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b. Management of advertising. Although used less frequently than sales calls in business markets, it is still important in marketing. It can perform different functions such as: build awareness; build comprehension of the good features of the product or service; remind prospective customers about the product; provide the company’s contact information to customers; and lead customers to get in touch with sales representatives. c. Management of marketing research. This involves identifying the seven characteristics of good marketing research characteristics: 1) the principles of the scientific method are used; 2) research creativity is practiced by using innovative ways to solve marketing problems; 3) multiple methods of research are used in order to adapt the method to the problem; 4) interdependence of models and data which recognize that data are interpreted from underlying models; 5) value and cost of information is concerned with estimating the value of the information against the cost; which helps the marketing research department determine which projects to prioritize; 6) healthy skepticism enables researchers to show a healthy questioning of the hurried assumptions made by managers about how a market works; and 7) ethical marketing research which is concerned with research that benefits both the sponsoring company and the consumers; self-serving results may mislead consumers to buy the company’s product which, in reality, is not good or effective. Analyze, plan, and implement marketing programs that aim to bring about an expected level and mix of business deals with target markets. It is important that analysis and planning precede the implementation of the marketing program, in order to ensure that its aim will be achieved. Strategic planning for individual business entails defining the business mission, analyzing the business’ external and internal strengths and weaknesses, and formulating goals and strategies. In doing so, the implementation of the marketing program will go smoothly and the chances that it will achieve its aim of bringing an expected level and mix of business deals with target markets will be increased. Stimulate demands for the products of the company. This is achieved by influencing the level, timing, and composition of demand, bearing in mind the attainment of the company’s objectives. Make crucial decisions that will ensure the company’s competitiveness. These are decisions regarding target markets, development of products, distribution of goods, market positioning, and setting of right prices for their products.

Make sure that marketing techniques employed are efficient, effective, and socially responsible or ethical. Marketing managers and their team members must balance their own best interests (big sales commissions, recognition, or promotion) with the best interests of their company, consumers, and society.

Importance of Marketing Management Marketing management is important because it is the key to organizational goal attainment, customer satisfaction, and profit gain. Without major marketing management processes—planning, execution, pricing, and promotion and distribution of goods, services, and ideas to create exchanges with target groups—satisfying customers and achieving organizational goals will not be possible.

Fast Learning Review 1. Define marketing management. 2. Briefly state and describe the marketing management functions of management. 3. Give the importance of advertising. 4. Is marketing practiced by profit organizations only? Explain your answer.

Exercise 1. Visit your school’s admission office and library; observe their operations and interview an administrator and some students to identify the following: a. what is being exchanged in each unit and b. whether the unit is marketing-oriented. Explain your answer. 2. Name two service firms which, in your opinion, are doing a good marketing job. Also, name two service firms which you think are the opposite of the first two. Explain your reasoning in each case.

Introduction to the Different Functional Areas of Management 127

LESSON 3

Operations Management Definition of Terms Operations management  – the study of how goods and services are produced in organizations Value chain – the actual sequence of activities that results in the production of goods and services that have value for customers

B

usiness managers today focus on productivity, technology use, quality of goods and services, customer satisfaction, and speed. They are conscious that they need to innovate on their processes and activities in order to succeed in a highly competitive globalized market. Because of these needs, the operations management functions of management must include the following: a. Overseeing the transformation processes that change resources into finished goods and services. In order to do this, managers must address resource acquisition inventories, facilities, work flows, technologies, and quality. In doing so, productivity and competitive advantage will be ensured as they accomplish the multiple processes that transform the various resources—in the form of people, material, equipment, and capital—into quality finished products and services. b. Improvement of productivity and competitive advantage. Productivity measures the efficiency by which inputs are turned into outputs. The basic equation for productivity is: productivity = output ÷ input

Competitive advantage is the competency of an organization to outperform a competitor or competitors. To ensure productivity, work processes must be subjected to complete analysis and redesigned, if necessary, through process engineering. Other ways to ensure productivity are process value analysis and reengineering. In process value analysis, all elements of a process and their workflows are analyzed to be able FIGURE 8.3 The Plan-Do-Check-Act cycle is one of the methods that may help managers improve business processes and production.

PLAN

ACT

DO

CHECK

128 CHAPTER 8

to know their contributions to key performance results. Reengineering discards work steps that are not needed, combines other work steps, uses technological know-how to reduce costs, and ensures efficiency and effectiveness. Competitive advantage follows when organizations improve their productivity. c. Managing the sequence of activities and information along the whole course of the value chain. Proper management of these activities and information results in the creation of finished products and services that have value to customers. Elements in an organization’s value chain include inflow of resources and materials, organizing of resources and materials, creating goods or services, distributing finished products or services, and serving of target customers.

Importance of Operations Management Through the study of the essentials of operations management, businesses of different types and sizes may increase their chances for survival and success in today’s business environment which is characterized as highly competitive and fast-paced in producing quality products and services.

Fast Learning Review 1. Define operations management. 2. Briefly enumerate and describe the operations management functions of organization managers. 3. What is the importance of process engineering? 4. Give the difference between process value analysis and reengineering. State also their relation to productivity and competitive advantage.

Exercise 1. Choose two competing products: Product A, a bottle of liquid breath freshener, and Pro­duct B, chewable breath fresheners. Study the two products, their plus and minus factors in terms of attracting customer interest. Which company will have competitive advantage, the manufacturer of Product A or Product B? Explain your answer. 2. A small doll manufacturing company produces 500 dolls per week; with only two full-time workers as input measure. Compute the company’s productivity. A bigger company with three full-time workers produces 600 dolls per week. Which is more productive, the small doll manufacturer or the big doll manufacturer? Explain your answer.

Introduction to the Different Functional Areas of Management 129

LESSON 4

Financial Management Definition of Terms Financial management – the management and custody of the organization’s funds, seeing to it that funds are effectively and efficiently utilized in order to provide for all the needs of the organization’s various operating units Financial Planning – the process of setting financial objectives and determining what should be done to accomplish them

G

aining profit is the main goal of businesses. To attain this goal, managers must practice good financial management and this, of course, starts with understanding the financial management functions of management. These functions include: Taking charge of the company’s financial policies and strategies, investments, capital structures, and dividend policies. Financial managers of organizations must formulate sound financial standing plans that will communicate broad guidelines for their financial decisions and strategies. These plans include typical financial policies that address the organization’s investments, capital structures, and dividend policies. Investment policy covers choice of product lines and capital project. Capital structure policy covers a working capital policy (for the balancing of assets and liabilities) and leverage policy (for balancing long-term financing). Dividend policy considers the use of either a systematic pattern of earnings retention or dividend distribution. Financial management and control. The management and custody of the organization’s funds also include control which gives an assurance that funds are properly utilized in order to provide for all the organization’s needs. Examples of standard financial management and control practiced by organizations are the following: project management, which makes sure that long-term projects are implemented according to previously planned budgets and checks if these have yielded forecasted cash returns; working capital management, which includes cash, accounts receivable, and inventory management; cash management, which gives an assurance that there is enough cash balance that may be used for daily operating needs, that idle cash is invested through marketable securities, and that proper cash control rules are instituted; and accounts receivable management, which ensures the optimization of accounts receivable investments and the formulation of sound credit evaluation and collection procedures. Meanwhile, inventory management determines inventory levels by making maximum use of trade-off between inventory carrying

FIGURE 8.4 Break-even chart

Sales

Profit

Total Costs $

Break-Even Point

Loss

Units

130 CHAPTER 8

cost, ordering cost, and lost sales opportunities; it also institutes good stable inventory control procedures. Fund sources management identifies short-and long-term funds that may be available, and transacts and keeps watch of credit facilities with banks and other financial institutions. Dividend policy implementation determines the form and amounts of dividends and schedules their payments. Financial planning. Financial planning is the process of setting financial objectives and determining what should be done to accomplish them. This includes financial forecasting, financial analysis, and financial performance evaluation. Financial forecasting involves cash budgeting, profit planning, and balance sheet forecasting. Cash budgeting is a forecast of cash needs and sources. Profit planning is a forecast of revenues and expenditures. Balance sheet forecasting considers future assets, liabilities, and the organization’s net worth position. On the other hand, financial analysis involves capital budgeting techniques, operating leverage analysis, financial leverage analysis, and analysis of pricing and costs. Capital budgeting involves the assessment of long-term investments. Operating leverage analysis critically examines cost-volume profit relationships. Financial leverage analysis studies the effect of debt on income to the organization’s common stockholders. Analysis of pricing and costs of products, materials, supplies, and production/manufacturing also fall under financial analysis. Financial performance evaluation refers to the assessment of financial ratios to indicate the overall performance of the organization, as well as the assessment of market-wide financial indicators.

Importance of Financial Management Financial management facilitates the choice of investments, financial policies, and operating mechanism of the organization in order to effectively achieve its goals and objectives. It includes maximizing its profits as well as those of its shareholders and stockholders. In doing so, financial managers are able to maximize the wealth of the organization and its stockholders/shareholders and satisfy other goals like providing good customer service, minimizing bankruptcy risks, and actively participating in present societal concerns. To accomplish the abovementioned functions that give importance to financial management in organizations, control techniques, that measure the company’s financial soundness, management effectiveness, production and service efficiency, and human resource attitudes and morale must also be considered. These include the following: Break-even chart – is used by the organization’s financial management planners and accountants to identify how the various sales levels affect the income and profits of the firm. The break-even point is the level of operations which shows equal income and expenses incurred by the company.

Definition of Terms Investment policy – the financial policy of placing money, capital, or other resources in business ventures/projects to gain profit or interest Capital structure policy – the financial policy covering the value of the entire property of a business and strategies used to balance assets and liabilities and long-term financing Dividends – a sum of money to be distributed according to a fixed scheme, as profits on business shares, shares of surplus, or assets Dividend policy – a financial policy which considers whether to follow a systematic pattern of earnings retention or dividend distribution

Introduction to the Different Functional Areas of Management 131

Definition of Terms Accounts receivables – outstanding accounts/funds to be received and listed among the assets of a business Inventory – the value of the goods or stocks of a business Inventory carrying cost – the cost/price of keeping or maintaining goods or merchandise Ordering cost – purchase or procurement price Sales opportunity – fit or convenient time for trading or selling goods and services

Financial statements – include income statements, balance sheets, and cash flow statements which are carefully analyzed. Financial ratios – make use of the above mentioned financial statements to determine the formulation of a series of ratios that will, in turn, determine if the company is stable or unstable, strong or weak and on the road to bankruptcy; examples of such ratios are rate of return on capital invested, rate of return on assets, and rate of return on sales, among others. Another functional statement used in financial management that also emphasizes its importance is the organization’s budget. This states the amount of money that the company will spend and receive during a future period of time. At the end of the period of operations, actual expenses and budgeted amounts are compared to see whether the company has operated under or over budget. Differences allow management to examine specific expenditures and the reasons behind such. Managers and department heads will then be forced to quantify their sales objectives and other company targets because these must be expressed in pesos and not in general statements or hopeful or optimistic expressions. Budget preparation in financial management, therefore, is important in management decision-making, and this must be prepared well on a regular basis by all organizations.

Fast Learning Review 1. Define financial management. 2. Briefly state and describe the three financial management functions. 3. Is financial planning possible without financial forecasting. Explain your answer. 4. Give the relationship between financial management to the managerial function of controlling. Explain your answer.

Exercise 1. Search the Internet for the term “return on investment.” Is this term related to financial management? Explain your answer. 2. Design a personal financial plan. Apply some of the suggested activities for a business financial plan in this lesson. Be ready to present this in your class.

132 CHAPTER 8

LESSON 5

Information and Communication Technology Management (ICTM)

M

anagement in the 21st century is driven by information and communication, and digital network.. Computers quickly provide more information to a greater number of people, groups, and organizations than ever before. Hence, the study of the information and communication technology management (ICTM) functions of management is relevant: The ICTM functions of management include the following: Developing the organization’s hardware, software, and other computing and communicating technology. Information technology (IT) encompasses different kinds of technology, such as various types of hardware (e.g. computers and printers), software (e.g. operating systems), and computing and communication technology (e.g. telecommunications and management of databases). The fast and ever changing nature of ICT requires managers to become flexible and open to change. Developing the organization’s management information system (MIS) tailored to the needs of the firm’s units. IT has developed management information systems which gather, process, and disseminate internal and external information to the company on a timely basis order to support managers in their tasks. Electronic equipment makes fast and reasonably priced processing of voluminous amounts of data possible. The computer can process data and provide logical conclusions, and classify and prepare them for use in decision-making.

B2C ‘low involvement’

B2B ‘high involvement’

Target market

Larger

Smaller, niche

Purchaser(s)

Single

Multiple

Buying process

Single step

Multiple step

Sales cycle

Shorter

Longer

Sales driver

Recognition and repetition

Relationship and detailed information

Definition of Terms Information and communication technology management (ICTM)  – the management of information and communication technology that collects, organizes, and distributes data to be used in the organization’s decision-making functions e-business – electronic business which involves business to business (B2B) and business to customer (B2C) transactions

FIGURE 8.5 A comparison between business to business and business to customer

Introduction to the Different Functional Areas of Management 133

➤ Other Web-based Models • brokerage • advertising • merchant model • subscription model • infomediary model • community model

Encouraging e-commerce through Internet use. Through e-business strategies, the company gains competitive advantage over competitors. Common e-business strategies involve business to business (B2B) and business to customer (B2C) transactions. B2B transactions use IT and web portals to link companies with members of their supply chains or those dealing with their resource supplies. B2C transactions also use IT and web portals, but in this case, the link created is one between the company and its customers. A common example is e-tailing or the sale of goods directly to customers via the Internet. Other web-based business models are brokerage, which brings buyers and sellers together; advertising, which provides information while generating revenue from advertisement; merchant model, or selling products through the web; subscription model, the selling of access to a website; infomediary model, the collecting of information on users and selling it to other businesses; and the community model which supports websites by asking for donations from users.

Importance of Information and Communication Technology Management The widespread use of ICT has brought about the emergence of a “knowledge-based society” due to easy access to information at low costs through the Internet. Management may use it for its different managerial functions. It may be used for scenario planning or identifying future scenarios in the FIGURE 8.6 E-commerce transaction

Buyer

Merchant

Payment Service Provider

Credit card company

Acquirer

Issuer

Make purchase Request for application

Request for authorization

Authorization response

Request for authorization

Authorization response

Authorization response Deliver goods

Request for payment

Credit merchant account

Transaction amount

11 Debit acquirer account

Bill transaction amount

134 CHAPTER 8

11 Debit issuer account

business environment, which may need careful planning; decision-making through the use of information generated by IT; aiding team work; facilitating productivity measurement; easy, low-cost communication; worldwide selling through the Internet; and many others. It may be said, therefore, that ICT has revolutionized the business world.

Fast Learning Review 1. Give the meanings of the acronyms ICTM and MIS. 2. Enumerate and describe the ICTM functions of management. 3. What is e-tailing? Have you tried this Internet activity? Explain your answer. 4. How important is ICTM in today’s business world?

Exercise 1. Interview two faculty members or teachers regarding their perceived advantages and disadvantages of ICT. Compare their answers with your own perceptions. Do you agree or disagree with them? Explain your answer. 2. Name three web-based merchant model businesses. Compare and contrast their strategies and list down the similarities and differences that you have observed.

Integration At the end of the chapter, write two or three sentences to complete the following: I realized that: I resolved that:

Introduction to the Different Functional Areas of Management 135

CHAPTER 9 Successful business

Entrepreneurship Process

Controlling the business Overcoming obstacles

Exploiting opportunities Spotting opportunities Motivation to make a difference

Special Topics in Management IT MAY NOT be instantly apparent, but our daily activities—from the time we wake up in the morning up to bedtime at night—are ruled by the ventures of entrepreneurs. The toothbrush, toothpaste, towel, soap, shampoo/conditioner, clothes, shoes, food and drink varieties, home appliances, electronic gadgets, office equipment, transportation vehicles, and other things we use or consume daily are all products of entrepreneurial ventures. Hence, it is important to acknowledge our dependence on the innovative and creative nature of entrepreneurs. The important role of entrepreneurs, therefore, is to continuously look into the needs and wants of society and to find the best possible way, beyond those currently offered.

As you read and study this chapter, concentrate on the following objectives, and at the end of the chapter be able to: 1. explain how to start a small/family business; 2. identify legal business forms and requirements; and 3. appreciate the role of small family business operation in the improvement of economic status.

136

LESSON 1

Small Business Management and Entrepreneurship

I

nnovative, creative, and intuitive thinking in business management helps entrepreneurs come up with great ideas or new strategies that may lead to the successful achievement of their goals—service, growth, and profitability. The same entrepreneurial mindset is valuable in today’s highly competitive and ever-changing business world. It answers the need for the creation of new products and the development of new services for society’s benefit. In addition, entrepreneurship also has socio-economic contributions. It provides employment, not only to the entrepreneur, but to fellow Filipinos. Thus helping ease unemployment. Entrepreneurship provides additional sources of taxes for the government, hence contributing to Philippine economic progress.

The Entrepreneurial Procedure Business opportunities are waiting for people who have creative and innovative minds. However, following a systematic process is crucial in the pursuit of entrepreneurial ventures. This entrepreneurial procedure involves the following steps: Formulate the business vision and mission statements. The business vision of the organization provides a picture of where the entrepreneurial venture is headed and what the organization can become in the future. Its mission states the basic purpose and scope of the organization’s operations. Segment of the Market. A business cannot entertain or offer goods and services to society at the onset in a large scale. It first must identify a specific segment or group of people it may cater to or what is called a target market. The basis for segmenting the market to find the target market may be geographical, demographical, psychographical, or behavioral.

Definition of Terms Entrepreneurship – innovative, creative, risk-taking, growthoriented behavior that brings new opportunities for individuals or organizations to start new businesses and to produce new products or services that are beneficial to society Entrepreneurial ventures  – organizations that persistently pursue opportunities and are characterized by creative, innovative activities that have service, growth, and profitability as their principal goals Small business – a business that has fewer than 100 to 500 workers (depending on the prevailing commercial law in a particular country), independently owned, operated, and financed; not always entrepreneurial in orientation and does not dominate its industry; capital is low but capable of producing goods or rendering services designed to satisfy particular needs of customers

Goal

sion Mis

Pla

ns

Goal attainment (organizational efficiency and effectiveness)

FIGURE 9.1 The Overall Planning Process

137

Geographical. Market segmentation may be used on location (city, province, region, or country; north, south, east, or west). Demographical. Demographical bases consider population and can further be extended to include age, income, education, marital status, and other related information. Psychographical. Psychographics looks into people’s interests, values, attitudes, opi­nions, and lifestyles. Behavioral. Segmentation may be based on people’s behavior toward purchasing or spending, or toward a product or service. Find the Target Market. After getting enough information about the overall market, the firm can use statistical tools to analyze this information and help them decide which part of the whole market they can serve using their resources in the best possible manner. That part of the market which the company is willing and capable of servicing is known as the target market of the business. Understand the Environment. Why should we study the environment? Things around us are not permanent and everything changes. These changes greatly impact business. In some situations, businesses control the consequences of change, however, this is not always the case. When businesses can no longer control the situation, they are left with no option but to change in consideration of the environment surrounding them. Environmental factors that affect business may either be internal or external. Internal factors are environmental factors within the company and can be controlled. These include the employees, management, physical facilities, and so on. On the other hand, external factors have two types: microenvironment and macroenvironment. Microenvironment includes customers and suppliers, whereas macroenvironment includes economic, sociocultural, technological, legal, political, and natural factors, as stated by Kotler (1997). Develop the Business Plan. We can define a business plan as the roadmap which the business must follow utilizing the resources at hand while keeping the environment in mind. A business plan has the following contents: • executive summary – contains the overview of the business and its major plans • environmental analysis – includes study of internal and external organizational surroundings • industry analysis – includes study of trends in the economy, legal requirements, and possible risks • market analysis – includes analysis of market size, business competitors’ strengths/weaknesses, and short-term sales goals • company description – mentions ownership, mission and vision of the organization, registration legalities, etc. • marketing and sales activities – strategies for distribution, promotion, and pricing of products/services

138 CHAPTER 9

Research and development Innovation Current projects Investment Financing Milestones Production Supplies Procurement Production resources Competition/Market National/International Market description

Management summary Strengths/Weaknesses Opportunities/Risks Company Purpose/Mission statement Entrepreneurial team/Organization Legal Form Curriculum vitae Projected profit and loss statement Liquidity plan Marketing Customers/Markets Products/Services Distribution

FIGURE 9.2 Components of a business plan

• products and services – refers to descriptions of good/services and their unique features • operation – refers to descriptions of manufacturing and service methods, supplies and suppliers, and control processes • management and ownership – refers to identification of owners and administrators • financial data – includes capital needs, financial projections for one to five years, available funds, and possible loan services • time table – refers to estimated completion dates of ventures Business planning is important as it helps minimize business risks and expenses needed for the production of goods and carrying out services. It may also determine financial requirements and programs of activities in advance. Implement and Monitor the Business Venture. This step follows after careful business planning. Choosing the right people to work with and considering the correct timing for the business implementation are important. Monitoring the business venture’s progress is also a must to check if its implementation is proceeding in the right direction or if modifications are needed along the way.

Special Topics in Management 139

Maximize the Utilization of Business Resources. Consider the basic ways of financing business ventures such as debt finan­cing by taking loans from reputable institutions and equity financing which exchanges ownership shares in return for an outside investment if additional capital is needed. Human resources and other material or physical resources must also be fully utilized. Aside from the procedure mentioned above, business success is also determined by certain traits that are required of an entrepreneur. Some of these entrepreneurial characteristics are listed below. Entrepreneurs must be: Creative and Innovative. Entrepreneurs must have a creative and innovative mindset and must think out of the box to survive competition and at the same time have competitive advantage over rival organizations. These are the characteristics that differentiate entrepreneurs from businessmen. Good planners. Planning, on the part of the entrepreneur, bridges the gap between where they are and where they want to go. In other words, it shows the right business direction that would lead them to success. Customer-oriented. Entrepreneurs must be customer-oriented to shape their market offerings and create value in their customers’ minds. Open-minded. Entrepreneurs must always be open and willing to entertain the suggestions of team players/employees to encourage the generation of ideas which may be beneficial when implemented. Learning is a ne­ver-ending process and entrepreneurs can also learn by being receptive to the ideas of people around them. Flexible. Entrepreneurs must be flexible in order to adapt to changing environmental conditions. Flexibility comes in relation to changing the strategies, policies, and utilization of business resources. Persistent. There is no shortcut to success, and that is why it takes time to attain the objectives of the company. In the long run, things will not always fall under the control of the business managers. During times of change and hardship, the entrepreneur must not give up, especially when things are not favorable for business. Entrepreneurs must be persistent until their goals are achieved. Confident. Entrepreneurs must be confident about their own abilities, together with the abilities of their other team members. They must think posi­tively and believe in their capabilities and they must not doubt that they can accomplish the most challenging tasks at hand. Organized. Entrepreneurs must be well-organized when it comes to all activities of the business. A well-organized entrepreneur makes sure that their organizational structure furnishes an environment where individual performance, both present and future, contributes effectively and efficiently to group endeavors. Updated/Well-informed. To ensure achievement of entrepreneurial goals, entrepreneurs must continuously seek important, up-to-date information regarding their market customers, rivals in business, and

140 CHAPTER 9

suppliers. Expert opinion must also be sought to be well-informed. Team players. Entrepreneurs must be able to work well with others. In unity, there is strength; good coordination with others will ensure business success. Knowledgeable. Entrepreneurs must have expert knowledge about the product or service they want to sell, their competitors, and local/regional/ national markets so that they will have better chances of succeeding. Risk-takers. Entrepreneurs are not afraid of risks and are ready to meet business challenges. However, they prefer calculated risks since they are aware that business undertakings may result in either success or failure, profit or loss.

Fast Learning Review 1. Differentiate entrepreneurial ventures from other forms of small businesses. 2. What is the importance of entrepreneurship in the Philippine setting? 3. Enumerate and briefly explain the entrepreneurial process. 4. Name at least five entrepreneurial characteristics and briefly discuss each.

Exercise 1. Research on the contributions of at least three Filipino entrepreneurs to the Philippine economy. 2. Do a self-examination. Find out if you have some or all entrepreneurial attributes or characteristics discussed in the lesson. Briefly explain why you say so.

Special Topics in Management 141

LESSON 2

Family Business Enterprise Definition of Terms Family business – a business owned and financially controlled by members of a family Enterprise – any projected task or work; an undertaking

G

lobally, there are many successful family businesses run by entrepreneurs who have different stories to tell and different formulas for their business success. However, they possess some common characteristics such as creativity, innovativeness, service orientation, and the ability to take risks and do hard work, among others. Slowly, but surely, these characteristics paved the way toward their success in the world of business. The stories in this chapter feature ordinary family members who, despite of starting with meager capital, have persevered to produce competitive products or render good services that brought them success in their chosen business endeavor.

Success Stories of Filipino Family Business Ventures FIGURE 9.3 Andrew Gotianun, Sr.

FIGURE 9.4 George S.K. Ty

Filinvest Group

Andrew Gotianun Sr. defied certain norms in life and business when he nurtured his company to become one of the Philippines’ biggest conglomerates, the Filinvest Group. Andrew Sr. and his wife, Mercedes, saw potential business opportunities during their trips abroad. They interviewed small bank owners in the US and followed their business models; from these, they adjusted the models to fit the Philippine setting. They made use of ideas that they got from their trips to Florida, US for another business venture which is guarded subdivisions for the middle class in the mid 1960s. Mr. Gotianun revealed that aside from hard work, one needs to have the right attitude to succeed in life and in business. In his belief that women also deserve a place in the boardroom, he broke the family tradition when he involved his wife, Mercedes, in business management. He admitted that Mercedes was the one who implemented and executed some of his business plans and turned many of his visions and entrepreneurial ideas into realities, interestingly, she did all these while raising their children. Mr. Gotianun continues to search for new business opportunities, particularly through the use of the Internet.

Metrobank

George S.K. Ty, one of Asia’s top bankers and a recipient of an honorary doctorate degree from the University of Santo Tomas, started to work at an early age. He was only 18 years old when he dropped out of school to help his father put up their family business, the Wellington Flour Mills. He had to endure many hardships as a young businessman in what he described as an unfamiliar industry. In spite of inadequate bank financing and his limitations in the said business, he was able to help his father steer their flour mill to success.

142 CHAPTER 9

Inspired by their success and the experiences he gained in managing a business, George, at age 29, founded Metrobank in 1962 and, like before, he again had to undergo many difficulties in building it into one of the Philippines’ largest and most trusted banks. The Metrobank Group (PS Bank, Toyota Philippines, AXA Life Insurance, etc.) in 2013 paid over 20 billion in taxes, proving that they, indeed, are very successful, and that entrepreneurial traits like innovativeness, creativity, and ability to take calculated risks must be nurtured. Dr. George Ty believes that lessons learned from experiences are lessons that you will never forget; that trust is not given and must be earned; and that good banking is about trust and helping other people achieve their dreams.

Fast Learning Review 1. Define entrepreneurship. 2. Differentiate entrepreneurial ventures from other small business endeavors. 3. Why is it important to develop creativity and innovativeness in entrepreneurial management?

Exercise 1. Choose one entrepreneurial venture that you would like to engage in the future. Summarize the steps you will take to transform your chosen entrepreneurial venture into reality. 2. Interview two classmates to find out if they are interested in becoming entrepreneurs someday. Find out the specific entrepreneurial venture that they are planning to pursue and the reason for their choice. If they are not interested in becoming entrepreneurs in the future, ask them to explain why.

Integration At the end of the chapter, write two or three sentences to complete the following: I realize that: I resolve that:

Special Topics in Management 143

LESSON 3

Starting a Business: Legal Forms and Requirements Definition of Terms Business registration – a government requirement that orders new business owners to furnish government agencies with necessary information prior to the legal operation of their business organization Single proprietorship – a business owned by one person only Partnership – a business formed when two or more partners formally agree to be joint owners of a business Corporation – a business entity involving five or more persons owning it Cooperative – a group enterprise made up of several traders, consumers, or producers who are interested to produce or trade as a group

T

he legal form of business is determined by its ownership or proprietorship. A business may be a single proprietorship, a partnership, a corporation, or a cooperative. In single or sole proprietorship, the owner and the business are considered as one, meaning the owner’s income and the business income are one and the same and the business income is taxed as a personal income. Decision-making is the sole responsibility of the owner and if the business succeeds, he or she gets all the profits. If it fails, then he or she suffers all the losses and must pay whatever debts are incurred. The business ends upon the death of the owner or single proprietor. In a business partnership, the resources (money and other assets) and talents (skills, experience, and management expertise) of all involved may be pooled together. All partners share the profits equally, unless otherwise specified in their partnership agreement. A corporation is registered and is recognized by law as a “legal person” that has legal rights and responsibilities, can sue or be sued in court, can own and sell properties, and can transact or enter into contracts. Corporation ownership is divided into units known as shares of stocks and owners of these are called stockholders. A board of directors, elected by the stockholders on a regular basis, manage the corporation which is run according to terms specified by their by-laws and articles of incorporation. The corporation’s life does not end with the death of a stockholder or by the selling of the stocks of a particular stockholder. The cooperatives’ original purpose was to supply those involved with goods or services at lower costs compared to those bought from retailers. Later types of cooperative have emerged that include farmers, producers, and credit cooperatives. A group of officers, called board of directors and committees, headed by a chairman, manage the cooperative’s activities. The cooperative office that runs the daily office work is usually hired. The cooperative’s life is not affected by the death of any of its members nor by the selling of a member’s shares. It can, however, be dissolved by a majority vote of the board of directors and a resolution signed by at least two-thirds of the general membership.

Why and Where Should a Business be Registered? Businesses or entrepreneurial ventures have to be registered in compliance to Philippine laws. Without proper registration in authorized government agencies, the business cannot operate legally. Registering also gives credibility to businesses, hence, helping earn the trust of customers, suppliers, partners, and other stakeholders. 144 CHAPTER 9

Registration documents have to be submitted to the Department of Trade and Industry (DTI) and the Securities and Exchange Commission (SEC) for commercial registry; barangay office for clearance and securing a community tax certificate; city mayor’s office for mayor’s permit and license to operate; city or national government agencies for sector-specific licenses/permits; Bureau of Fire Protection (BFP) for fire safety clearance; Bureau of Internal Revenue (BIR) for taxation purposes; Pag-IBIG Fund (Home Development Mutual Fund) office for employees’ housing needs/security; and the Department of Labor and Employment (DOLE) for labor statistics.

Differences in the Registration of the Legal Forms of Business Future entrepreneurs must contact the government agencies concerned regarding their updated or revised rules and regulations as well as the latest legislations that may have to be complied with. Registration of different legal forms of business call for the requirements and involve the procedures in Table 9.1. Single Proprietorship Registration • business name registration with the DTI • submission of two recent 2 × 2 ID pictures • submission of Filipino citizenship proofs (if applicant is a naturalized Filipino citizen or if applicant is a Filipino with a non-Filipino sounding family name); examples of needed evidences are birth certificate, passport, and voter’s ID, among others

TABLE 9.1 Requirements and Procedures Involved in Registration of Different Legal Business Forms

Partnership Registration • filing of the previously prepared partnership agreement by two or more applicants with the SEC • payment of the filing fee • valuation of the application by the lawyer and staff of the Corporate and Legal Department of the SEC • release of the approved registration (within 15 to 30 days).

• Payment of application fee or processing fee plus documentary stamp amount Corporation Registration

Cooperative Registration

• filing of the previously prepared articles of incorporation and by-laws and bank certification regarding stockholders’ shares of stocks with the SEC

• submission of four copies of previously prepared economic survey with a general statement that describes the cooperative’s structure, purpose, economic feasibility, operation area, and membership size, among others to the Cooperative Development Authority (CDA)

• payment of the registration fee • evaluation of the application by the lawyer and staff of the Corporate and Legal Department of the SEC • release of the approved registration (within 15 to 30 days).

• submission of four copies of previously prepared articles of cooperative agreement together with the bonds paid for accountable officers • submission of four copies of the cooperative’s by-laws • payment of registration fee prescribed by the CDA • release of approved registration on specified dates

Special Topics in Management 145

Advantages and Disadvantages of the Legal Forms of Business Summarizing the advantages and disadvantages of the legal forms of business will help potential entrepreneurs decide which form to choose. See Table 9.2 below. Form

Single Proprietorship

Advantages • creation is simple and low-cost

• owner is liable to all risks and losses

• owner gets all the profits

• limited capital and other resources

• decision-making is the sole responsibility of the owner

• solo owner has to do long hours of work

• establishment is easy

• business control is limited since it has to be shared with other partners

• equal division of profits based on their agreement as partners Partnership availability of bigger capital due to pooling of TABLE 9.2 Advantages • and resources of partners Disadvantages of Different Legal Forms

of Business

• less liability of stockholders

• major decisions cannot be done easily, even if urgent, without the approval of the board of directors

• transfer of stock ownership is easier • large pool of talents, skills, and knowledge

• it is a group enterprise where members may avail themselves of economics of scale which they will not be able to obtain as individuals • different types may be formed (farmers’, producers’, or credit cooperatives) • some registered cooperatives may apply for tax exemption • large pool of talents, skills, and knowledge • limited liability of members

146 CHAPTER 9

• wrong decisions made by a partner are binding to other partner/s • invested property becomes the joint property of both/all partners

• division of profits is fair, depending on number of stock units owned

Cooperative

• profits are shared

• availability of a pool of skills, knowledge, and talents

• capability to attract larger amount of capital Corporation

Disadvantages

• corporate and individual profits are taxed separately, resulting in double taxation and additional expenses • more rules and regulations have to be complied with • business control is shared • ideas and decisions made by the board of directors have to be accepted by the general membership

Fast Learning Review 1. Enumerate and briefly define the different legal forms of business. 2. Why and where should a business be registered? 3. In your opinion, which is the best legal form of business? Explain your answer. 4. Are there differences in the registration procedure of the different legal forms of business? Explain your answer.

Exercise 1. Research on the top 10 business corporations in the Philippines. Discuss the businesses they are engaged in. 2. Find out and discuss if your school is classified as a single proprietorship, partnership, or corporation.

Special Topics in Management 147

Case Studies CASE 1

➤ In June 2012, Zeta Furniture Company, a leading furniture store in the Philippines, hired a salesman who looked perfect for the job opening based on the application form which he filled out and submitted to the company’s human resources department. After working in the company for a few months, the man raped a female customer in her home, when he went there to follow up her phone order for a bed. ➤ Mang Donald’s Fast Food Restaurant’s cook had a nervous breakdown, in November 2013. Without provocation, he stabbed and seriously wounded two of his kitchen helpers. The restaurant’s administrators and workers/employees were all shocked when they were informed about this unfortunate happening; they never suspected that this man who quietly went about doing his daily chores had a history of mental illness. ➤ In 2010, a female teacher in an elementary school in Pasay City, in a fit of anger, slapped the face of one of her students when she caught him cheating during a written examination.

Questions

CASE 2

148 ORGANIZATION AND MANAGEMENT

1. What do these different situations tell us regarding specific managerial functions? 2. If you are the employer, what are the steps you would tak in order to avoid these negative situations?

➤ Attorney Lorna Corona was the general manager of their family-owned publishing company. Subordinates described her as an ideal boss who knew the “ins and outs” of their business; who focused on long-term concerns of their company, emphasizing maintenance of stability, development, progress, and overall efficiency and effectiveness. She, too, exhibited emotional intelligence that enabled her to maintain positive interpersonal relationships with everyone, in both the internal and external environments of their organization. Since everyone was happy and satisfied, their company succeeded in achieving their goals. In 1999, Lorna had to give up her position because of severe injuries she suffered after a vehicular accident. Her parents gave the task of managing their company to her younger brother, Gerald, who was her assistant general manager before the said vehicular accident. Despite being knowledgeable in managing their publishing company, Gerald did not show emotional intelligence. He often had conflicts with other managers and subordinates; lacked good public relations with customers and other companies’ managers; and could not calm himself quickly when angry and under pressure during problematic situations. These circumstances caused dissatisfaction among the employees of their company, hence, affecting their efficiency and productivity. Other stakeholders, too, were negatively affected. In 2009, their company had to close shop.

Questions 1. Examine your tendencies. Do you have emotional intelligence? Explain your answer. 2. As a company owner, what will you do if you were the one confronted with the abovementioned situation?

➤ Marciano Aquino works for a pharmaceutical company manufacturing generic medicines which sell at lower costs compared to branded medicines. In his eagerness to sell their low-cost drugs to increase company revenues, he used social media to spread negative rumors and gossip regarding the manufacturer of the branded equivalents of their generic products; this became viral on the Internet after a few weeks. As coemployee, Christopher, became aware of what Marciano was doing and reported this to their supervisor, who in turn, reported Marciano’s unethical way of competing with their rival company to their department head for sales. For fear of being sued for unethical competition by their rival company, the department head called Marciano, a tenured employee, and without asking for any explanation, asked him to write a voluntary resignation letter immediately, explaining orally that this was the order of their company owner because of his irresponsible behavior. Marciano, who felt bad about this unexpected order from his superior, decided to write a voluntary resignation and submitted this to the department head the next day. He felt that the said company superior did not see his good intentions and that it was not worth it to continue serving them. After a month, he realized that he acted in anger and he should not have followed the department head’s order; and upon the advise of some of his friends, he decided to file a complaint for illegal dismissal and termination without due process with the National Labor Relations Commission (NLRC).

CASE 3

Questions 1. Was the department head right in asking Marciano to resign immediately? Explain your answer. 2. In your opinion, will the complaint/case Marciano filed at the NLRC against the pharmaceutical company prosper? Explain your answer.

➤ Mr. Conrad Rafferty, an American, was assigned by a multinational company to act as general manager of their branch office in the Philippines. Being used to the American way of managing, he emphasized that “time is gold” and, therefore, everyone must be able to do their tasks efficiently and must be punctual in reporting to their office, which is open from 7:00 a.m. to 5:00 p.m., and in attending company meetings/activities. Some Filipino cultural orientations are ningas cogon, mañana habit, and the so-called Filipino time. In ningas cogon, leaders, or workers show a lot of enthusiasm at the start of a project, however this interest dies down after sometime and the project is neglected. The mañana habit pertains to procrastination or putting off for tomorrow what can be done today. Meanwhile, Filipino time

CASE 4

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refers to the habit of accepting 15 to 30 minutes of tardiness, as a common practice in appointments, meetings, or reporting for work. All these go against Mr. Rafferty’s “time is gold” policy. Conflict due to cultural differences resulted. There was a fast turnover of Filipino managers and workers because of Mr. Rafferty’s inability to adjust to the abovementioned cultural orientations; the Filipinos, too, could not understand why Mr. Rafferty was almost always angry. They interpreted his behavior as a form of racial discrimination and this general feeling against their American boss negatively affected their work performance, productivity, and, ultimately, their company’s income generation. To remedy the situation, Mr. Rafferty was transferred to another country, after three years of trying to manage their Philippine branch.

Questions 1. Define “culture shock.” Did Mr. Rafferty experience this? Explain your answer. 2. Will you apply the same solution to the abovementioned problem? Explain your answer.

CASE 5

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➤ Mr. Edward Viceral was a middle-level manager in a rent-a-car business. He did not believe in empowering his subordinates, so, most of the time, he was very busy and had no time to socialize with others and bond with his family members. Although financially stable, he and his family members were not happy. In the workplace, he was alienated from others. Willingness to delegate work to others and to allow them to decide on their own, on certain matters, are essential in empowering subordinates. Failure to believe in empowering others is now considered negative in the new workplace and has many adverse effects on the individuals and, ultimately, on members of the family and on coworkers and superiors. On noticing that something was lacking in his life, Edward consulted an industrial psychologist, who gave him a set of questions to answer. The main objectives of the psychologist were for Edward to know himself better and to make him realize that through delegation, he could have more quality time with others in his workplace and with his family. Among the questions asked were: “Do you prefer to do things by yourself because most of the time people are too inexperienced to do things?” “Do you think that mistakes by others are too costly, so you do not assign much work to them?” “Do you often feel that you get quicker action by doing a job by yourself?” “Do you trust others?” More consultations followed for several weeks. A few months later, Edward became a happier person because of his new mindset. Trusting others and willingness to delegate and empower others enabled him to spend more time with his family and others, which, in turn, made them all happier—both at work and in life. Edward’s coworkers also became happy upon being empowered and trusted; members of his family felt that they were important to Edward and this made them happy, too.

Questions 1. Explain the relationship between empowerment in the workplace and happiness or satisfaction among concerned individuals. 2. Give your personal comment on the following statement: “Some things simply should not be delegated to others.” Explain your answer.

➤ The minimum wage, legally speaking, is a just wage. It is set by the government to protect employees/workers in the low income bracket from exploitation by employers. In a certain cigarette manufacturing company in Bulacan, Carlos and his coworkers agreed to a wage that was way below the minimum wage, all because there were no other job opportunities or means of livelihood available to them. It was not a just wage because after spending their earnings on food, they were left with no means to enjoy life. Carlos and his coworkers sign a daily record certifying that they receive the required minimum wage and overtime pay after ten hours of work. So, besides the violation of the minimum wage and the overtime pay policies, there was also violation in the number of hours of work that they were required to render. Although there was a workers’ union in their company, the union leaders, instead of protecting the workers, connived with management in their illegal practices. One day, Carlos, who could no longer bear the unfair treatment they received, shot to death the son of the company owner, who acted as its chief executive officer. Carlos was caught and sentenced to 25 years of imprisonment.

CASE 6

Questions 1. Define minimum wage. Why should the Minimum Wage Law be respected by all employers? 2. Was Carlos fighting for justice and fairness when he shot their chief executive officer to death? Explain your answer.

➤ Daniel Ramiscal and Clodualdo Perez were good friends. They were hired together in 2001 by a big candy factory in Batangas as salesmen. Daniel, who had a better educational background, became the company’s marketing department manager after two years while Clodualdo continued as a salesman. Clodualdo envied Daniel because of the better opportunities and appointments given to him by the company administrators. Quietly, Clodualdo enrolled in evening classes so that he would be able to finish his college education and hopefully be appointed as a department manager like Daniel. After two years, Clodualdo succeeded in getting a college diploma, but since there was no vacancy in any of the supervisory or managerial positions, he still remained as a salesman. Promotion to a higher ranking position became an obsession for him and this affected his work performance. He was not happy anymore because he felt that he was not being given the recognition that was

CASE 7

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due to him. He kept comparing himself to Daniel, who, by 2011, was already the company’s vice-president for administration.

Questions 1. If you were in Clodualdo’s position, what will you do? Explain your answer. 2. What, in your opinion, could be the possible reasons why the company management failed to give Clodualdo the recognition which he felt was due him? Explain your answers.

CASE 8

➤ Hotel Prima is a four-star hotel employing 700 people. Peter, Lawrence, and Alex are the major owners/top-level managers, and it follows that they control the company. For several years, their hotel made big profits, so they were inspired to introduce a scheme that allowed their employees to buy stocks of their company which increased in value after five years, and would continue to increase as the years went by. Their employees, because of satisfaction for the way the three handled the hotel’s finances, treated the company as their own and did their best in doing their respective jobs. Although the hotel was doing well and the three major owners/top-level managers practiced corporate social responsibility through the abovementioned scheme, the company was not law-abiding; this was because it did not pay the correct taxes to the government. The company heads ordered their accountants to practice the so-called double accounting system. Through this practice they were able to save millions of pesos which they used to increase their capital and give additional benefits to their employees. Peter, Lawrence, and Alex had shared the belief that the government was not using taxpayers’ money properly, so the three agreed that their company should not pay some of its taxes.

Questions 1. In your opinion, do you consider the three top-level managers of Hotel Prima as ideal managers? Explain your answer. 2. Are you aware of the saying “the end does not justify the means?” What does it mean? Explain your answer.

CASE 9

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➤ Michelle Go began employment with Luxor Tours Company when she was hired as a probationary employee as tourist guide in 2005. Her application form showed that she was a BS Tourism graduate of the University of Singapore and had no previous expe­rience in tour-guiding. Michelle’s performance as tourism guide was satisfactory, but she had difficulty building positive relationships with supervisors, peers, or subordinates. “Michelle is weird” was a comment given by a peer when asked if she was getting along well with her. On the fifth month of her probationary employment, a written performance evaluation was done and the result was poor; “lack of focus,” “tactless remarks,”

and “chronic tardiness” were comments that appeared in many evaluation sheets. At the end of the fifth month of her employment, Michelle was given a “thank you letter” by the Luxor management, terminating her probationary employment. Three years later, Luxor Tours acquired a smaller tour agency. Luxor HR manager Lynn Sotto, while preparing for the merger, saw Michelle’s name in the employees’ list of the said tour agency. Upon checking, she verified that, indeed, it was Michelle Go whose service they terminated a few years ago. She held a middle-management position and her personal files, when reviewed, showed some questionable entries like the following: that she was a BS Tourism graduate of Tokyo University; that from 2001 to 2004 she managed a tour agency in Tokyo; her employment with Luxor was not mentioned at all. Lynn had a dilemma: should she report the false claims in Michelle’s files to the owner/general manager of Luxor Tours?

Questions 1. If you were in Lynn’s position, will you report what you found out about Michelle to Luxor’s management? Explain your answer. 2. As the owner/general manager of Luxor Tours, how will you handle this case if the information was reported to you? Explain your answer.

➤ Ricardo Cortez and Josie Hernandez were partners in a footwear factory in Marikina. They had 200 workers in the 1990s, who helped them manufacture different designs of shoes, slippers, etc. which they displayed and sold by the thousands in their store at the Cubao Expo. They were considered very successful at that time. Their footwear business slowed down when low-priced Chinese shoe imports became popular in the Philippine market. Ricardo and Josie often quarreled about money matters and management styles. Ricardo had more entrepreneurial characteristics: creative/innovative, flexible, updated on new trends, and was willing to take risks. Josie belonged to the “old school” of businessmen who could not understand Ricardo’s propositions regarding the rehabilitation of their business: getting business loans, introducing unique footwear designs, opening “tiangge” stalls, online selling, etc. She was contented with the small profits they were making. Since their business is a partnership, Ricardo cannot carry out his plans without Josie’s consent. Josie’s pessimism, for him, is unacceptable and he foresees the closure of their business in a few more years if Josie will go on with her way of thinking.

CASE 10

Questions: 1. If you are in Ricardo’s place, what will you do to solve their business problem? Explain your answer. 2. In the future, what legal form of business would you like to set up? Explain your answer.

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Glossary A achievement-oriented leadership – a leadership type where the leader sets the goals that subordinates must try to achieve active listening – refers to the act of listening well in order to grasp the full meaning of the communication received activity ratio – a financial control ratio which determines whether the organization is carrying more inventory than what it needs advertisements – announcements of companies regarding their products/services, job openings, etc. through newspapers, websites, radio, television, billboards, posters, and other media agreeableness – the degree to which someone is good-natured, cooperative, and trusting all-channel network – refers to communication that flows freely among all members of a team application form – forms filled out by job applicants which provide needed information about them assertiveness – refers to how confrontational and dominant individuals should be in social relationships asset management – the ability of an organization to use resources efficiently and operate at minimum cost assets – refer to all the properties, tangible and intangible, owned by the organization audits – independent reviews and appraisal of accounting, financial, and other nontactical operations award – a nonmonetary reward that may be given to individual employees or groups for meritorious service or outstanding performance (e.g. trophy, medal, certificate of recognition, etc.) B balance sheet – financial statement showing the organization’s financial condition and presents the financial balances of a particular

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period, following a pro forma accounting entry (A = L + C) behavior observation scale (BOS) – a behavioral approach to performance appraisal that measures the frequency of observed behavior behavioral theory of leadership – a leadership theory that focuses on the behavior, action, conduct, demeanor, or deportment of a leader instead of focusing on personality traits behaviorally anchored rating scale (BARS) – a behavioral approach to performance appraisal that includes five to ten vertical scales, one for each important strategy for doing the job and numbered according to importance benchmarking – the process of measuring or comparing one’s own products, services, and practices with those of the recognized industry leaders to identify areas for improvement Big Five Personality Model – features personality traits/dimensions that influence job performance, i.e. extraversion, agreeableness, conscientiousness, emotional stability, and openness to experience boundaryless business organization – a business organization form whose design eliminates vertical, horizontal, or external boundaries, and is described to be flexible/ unstructured; there are no barriers to information flow and completion of work is fast bottom-up sales forecast – sales forecast that relies on customer interviews in the form of surveys or “traffic count” to assess the demand in the coming periods brokerage – a web-based business model which brings buyers and sellers together budget – an expression in financial terms of a plan for meeting the organizational goals for a specific period business environment – refers to the factors/ elements affecting a business organization business organization – a collection of people

working together to achieve a common purpose related to their organization’s vision, mission, goals, and objectives and sharing a common organizational culture business plan – the “road map” which the business must follow utilizing the resources at hand and keeping in mind the influences of its organization’s environment business prediction – a method of forecasting how variables in the environment will alter the future of business organizations business registration – a government requirement that orders new business owners to furnish government agencies with necessary information, prior to the legal operation of their business organization business vision – that which provides a picture of where the entrepreneurial venture is headed and what the organization can become in the future C cash flow statement – a summary of the inflows and outflows of cash in an organization during a given period certainty condition – is an ideal condition in deciding problems because the results of all alternative solutions are known chain network – a communication network wherein communication flows according to the usual formal chain of command—downward and upward Charismatic Leadership Theory – a leadership theory which states that leaders who have a charismatic personality are able to influence their subordinates to follow them collective bargaining agreement (CBA)  – contract negotiations between workers’ union and management groups, usually held every five years in companies, and which end with the formalization and ratification of their agreement collectivism – the degree to which society emphasizes group accomplishments or the

preference for working with others as a group or team communication – the interpersonal exchange of information and understanding communication networks – varied patterns of combined horizontal and vertical flows of organizational communication community model – a web-based business model in which support for the website comes from donations from users compensation – wages or all forms of pay given by employers to their employees for the performance of their jobs compensation rate influence – refers to the internal and external factors that influence wage/salary rates competitive advantage – is the competency of an organization to outperform a competitor or competitors competitive mindset – a mindset that encourages people to do their best; encourages organizations to continuously improve, promote efficiency and reduce opportunities to take advantage of the consumers comprehensiveness – refers to the completeness of planning coverage computer networks – type of organizational communication network that uses computer communication applications such as e-mail, blogs, teleconferencing, intranets, Internet, etc. conceptual skills – skills that enable managers to think of possible solutions to complex problems concurrent control – a control method that takes place while work activity is happening conscientiousness – the degree to which someone is responsible, dependable, persistent, and achievement-oriented contingency plan – a plan prepared by managers that may offer alternative courses of action when the unexpected happens or when things go wrong control process – a process which involves the establishing of standards, measuring and

Glossary 155

reporting actual performance, and comparing it with standards set and taking action controlling – involves evaluating and correcting, if necessary, of the work performance of individuals or work groups/teams to make sure that they are all working toward a common direction or toward the previously set goals/plans of the organization coordination – the harmonious, integrated action of the various parts and processes of an organization cooperative – a group enterprise made up of several traders, consumers, and producers who are interested in producing or trading as a group and is managed by a board of directors corporation – a business company owned by five or more persons, is registered and recognized by law as a “legal person” that has legal rights and responsibilities, can sue or be sued in court, can own and sell properties, and can transact/enter into contracts creativity – ability to think of new ways of doing things cultural intelligence – enables organization managers to develop their ability to accept and adapt to new cultures, both local and international, that may affect the organization to which they belong culture – set of beliefs and values about how to act and do things shared by a group of people customers – those who patronize an organization’s products and services and can affect or be affected by the activities of the organization customer-oriented – an entrepreneurial characteristic that enables entrepreneurs to shape their service and market offerings according to their customers’ needs D daily pay – pay given to workers, computed according to the number of work days rendered decision-making – a process which begins with problem identification, followed by making solution choices, and ends with the evaluation of

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implemented solutions defensiveness – the act of self-protection in the event of a threat delegation – assigning new or additional task/s to a subordinate, or getting work done through others by giving them the right to make decisions and take action demographic situations – factors/elements related to gender, age, education level, income, number of family members, geographic origin, and others that can affect organizational management development – learning given by organizations to its employees that is geared toward the individual’s acquiring and widening of his/her skills for future job appointments and other responsibilities diagonal communication – is communicating with someone or others who belong to different departments/units and different hierarchical levels direct compensation – compensation of workers which includes salaries, incentive pays, bonuses, and commissions directional plans – plans that give general guidelines only; must be related to the organization’s strategic plan directive leadership – leadership where leaders give guidelines to followers so that task accomplishment would be easier division of labor – is the assigning of different tasks to different people in the organization’s different work units divisional approach – approach where departments are formed based on management of their products, customers, or geographic areas covered downward communication – flow of communication from the manager who belongs to a higher hierarchical level to the subordinates who belong to lower hierarchical level divisional business organization – is a business organization made up of separate

business units that are semiautonomous and which have a division head responsible for his unit’s performance E e-commerce – refers to doing business through Internet use e-business strategies – refers to various techniques used in conducting business through Internet use: e.g. business to business (B2B) or business to customer (B2C) transactions economic development – is a total process which includes not only economic growth but also considers the social, political, cultural, and spiritual aspects of the country’s growth economic development phases – are the distinct stages involved in the total process of economic development in a particular country and which includes: economic growth, improvement of Human Development Index, availability of benefits provided by science and technology, and societal improvement of the opportunities and general welfare of its members economic growth – the increase in the given amount of goods and services produced by the country’s economy economic security – a Filipino value which refers to a Filipino citizen’s desire to be financially stable, to have the basic necessities of life, and to stand on his or her own two feet, without asking help or support from others economic situations – factors/elements such as: inflation, rates of interest, changing options in stock markets, and spending habits of people that can affect management practices in organizations efficiency – the ability to yield the maximum output from a minimum amount of input emotional intelligence – the ability to manage one’s self and interact with others in a positive way emotional stability – the degree to which someone is calm, enthusiastic, and secure

employee movement – series of actions initiated by employee groups tending toward an end or specific goals employee referrals – refers to external recruitment of potential job applicants through recommendations coming from present employees of the company employee relations – refers to the connection shared by workers/employees as they perform their assigned tasks for the organization to which they belong employment agencies – private or public agencies that help companies in recruiting potential job applicants entrepreneurial ventures – organizations that persistently pursue opportunities characterized by creative, innovative activities that have service, growth, and profitability as their principal goals entrepreneurship – innovative, creative, risk-taking, and growth-oriented behavior that bring new opportunities for individuals or organizations to start businesses and to produce new products that are beneficial for society environmental scanning – involves seeking for and sorting through data about the environment equities – actual capitalization of the firm/ company Equity Theory – a theory developed by J. Stacey Adams which states that employees compare job outcomes in relation to what they put into it and then compare these with their coworkers ERG Theory – a theory proposed by Clayton Alderfer which states that a set of core needs (existence needs, relatedness needs, and growth needs) explains the behavior of human beings including workers’ behavior esteem needs – refer to the human need for self-respect and self-fulfillment or to become the best according to one’s capability executive search firms – firms that seek out candidates with qualifications that match the

Glossary 157

requirements of the job openings that their client company hopes to fill Expectancy Theory – a motivation theory which predicts that employees are motivated to work well because of the attractiveness of the rewards or benefits that they may possibly receive from a job assignment. extraversion – refers to the degree to which someone is sociable, talkative, and assertive external business environment – refers to factors or elements outside the organization which may positively or negatively affect its performance external recruitment – the process of locating potential individuals who might want to join the organization through sources outside the company F family business – a business owned and financially controlled by members of a family feedback control – control method that takes place after the occurrence of the activity feedforward control – control method that prevents problems because managerial action is taken before the actual problem occurs femininity – qualities, attributes, and characteristics associated with the female sex; womanliness Fiedler Model of Leadership – a situational leadership theory that is based on the assumption that a leader’s effectiveness is contingent or dependent on the extent to which a leader’s style is fitted to actual situations in their organization’s internal and external environment filtering – the shaping of information communicated to make it look good or advantageous to the receiver financial management – the management and custody of the organization’s funds, seeing to it that these are effectively and efficiently utilized to provide for all the needs of its various operating units

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fixed budget – budget that allocates a fixed amount or resources for a specific purpose flexibility – adaptability to various changes in an organization’s environment flexible budget – budget that allows change of allocation of resources, depending on or in proportion to difficult levels of activity in the organization forced choice method – a method of performance evaluation that requires the rater to choose from two statements purposely designed to distinguish between positive or negative performance formal communication – communication which takes place within prescribed, routine organizational work arrangements formal interview – interview of most promising job applicants conducted by supervisor/manager or panel interviewers to bring out the characteristics that were not reflected in an applicant’s application form forecasting – prediction of what may happen in the future functional business organization – a business organization that groups together workers/ employees with similar or related specialized duties, introduce the concept of delegation of authority to functional managers while still allowing chief executive officers to retain authority over strategic decisions G gender egalitarianism – refers to the amount of effort which must be put into minimizing gender discrimination and role inequalities General Administrative Theory – a theory which concentrates on the manager’s functions and what makes up good management practice or implementation general business environment – includes the economic, sociocultural, politicolegal, demographic, technological, global, and ecological situations that managers must consider in planning, organizing, leading, and

controlling their organizations Goal Setting Theory – states that specific goals motivate performance and that more difficult goals, when accepted by employees, result in greater motivation to perform well, as compared to easy goals goals – the targets or desired ends that management desires to reach grapevine – an informal communication network in organizations graphic rating scales – a performance appraisal method where each characteristic to be evaluated is represented by a scale on which the evaluator indicates the degree to which an employee possesses that characteristic grievance procedure – a formal procedure that authorizes the workers’/employees’ union to represent its members in processing a grievance or complaint H healthy personality – personality possessed by persons who are fully-functioning in mind, body, and spirit; possessed by optimal persons functioning at the highest level Hersey-Blanchard Model of Leadership – a situational leadership theory focused on subordinates’ readiness or the extent to which they have the ability and willingness to accomplish a specific work assignment Hierarchy of Needs Theory – refers to Maslow’s Hierarchy of Five Human Needs: physiological, safety, social, esteem, and self-actualization horizontal/lateral communication – communication that takes place among employees belonging to the same hierarchical level horizontal organizational structure – refers to the departmentalization of an organization into smaller work units, like departments and staff departments, as their tasks become increasingly varied and numerous hourly pay – pay of workers computed

according to the number of work hours rendered human resources management – management of the organization’s personnel and includes recruitment, selection, placement, and training and development, among others human skills – skills that enable managers in all levels to relate well with people humane orientation – refers to how much society should encourage and reward people for being kind, fair, friendly, and generous I income statement – also known as the profit and loss statement, which displays the cost and expenses charged in order to recognize an organization’s revenues in a specific period indirect compensation – compensation or benefits given by employers other than financial remunerations individualism – the degree to which a society emphasizes individual accomplishments or the preference for working alone informal communication – communication which does not take place within prescribed, routine organizational work arrangement informal organizations – organizations that exist because of friendship or common interest information and communication technology management – is the management of information and communication technology, that collect, organize, and distribute data for use in the organization’s decision-making functions information overload – occurs when too much information is received by an individual infomediary model – refers to the process of collecting information on product and service users and selling it to other businesses innovative mindset – ability to think out of the box in order to survive business competition and have competitive advantage over rival organizations integration – a process which involves the

Glossary 159

cooperation and coordination of an organization’s different work units internal business environment – refers to the factors or elements within the organization which may positively or negatively affect its performance internal recruitment – recruitment of potential candidates for a job opening from within the company intelligence test (or IQ test) – a preemployment test to assess the applicant’s mental capacity investors – those who provide the company with the necessary financial support J job characteristics model – refers to a job design where the employees are motivated to perform well because the task assigned to them have five core dimensions that serve as motivators: skill variety, task identity, task significance, autonomy, and feedback Job Design Theory – a theory which states that employees are motivated to work well through the combination tasks to form complete jobs job enlargement – the horizontal expansion of a job by increasing the job scope job satisfaction – refers to employees’ general attitude toward their respective jobs L labor planning – involves determining of the number and kind of people that an organization needs for carrying out its various functions and achieving its goals leadership – the process of inspiring and influencing a group of people to achieve a common goal leading – is the influencing or the motivating of subordinates to do their best, so that they would be able to help the organization’s endeavor to attain their set goals leverage ratio – a financial control ratio which

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determines if the organization is technically insolvent liabilities – refers to obligations that have to be settled by the organization line departments – departments under the horizontal organizational structure that deal with the firm’s primary goods/services and are responsible for manufacturing, selling, and providing service to their clients liquidity ratio – a financial control ratio which tests the organization’s ability to meet shortterm obligations long-term plans – plans that go beyond a period of three years lower-level managers – frontline managers, also known as operational managers, who are responsible for the supervising of the organization’s day-to-day activities M management – the process of coordinating and overseeing the work performance of individuals working together in organizations so that they could efficiently and effectively accomplish their chosen aims/goals manager – an individual engaged in management activities such as supervising, sustaining, upholding, and assuming responsibility for the work of others in his or her work group, team, department, or the organization, in general managing – process of working with and through others to achieve organizational objectives, efficiently and ethically, amid constant change mañana habit – refers to common Filipino belief that it is alright to postpone the completion of tasks to another day market analysis – involves the analysis of market size, business competitors’ strengths and weaknesses, short-term goals, among others marketing management – the process of managerial planning and executing of the

conception, pricing, promotion, and distribution of ideas, goods, and services in order to bring about exchanges to satisfy individual and organizational goals masculinity – the degree to which society values assertiveness and feelings of material success matrix approach – an approach described as a hybrid form of departmentalization where managers and staff personnel report to the superiors, the functional manager, and the divisional manager matrix business organization – a flexible business organization which assigns experts/ specialists belonging to different functional departments to work together on one or more projects; exhibits dual reporting relationships in which managers report to two superiors, the functional manager and the divisional manager merchant model – a web-based business model that involves selling products through the web middle-level managers – are the tactical managers in charge of the organization’s departments mission statement – a statement of the basic purpose and scope of the organization’s operations monetary reward – reward which pertains to money, finance, or currency monochronic culture – a culture where people tend to do one thing at a time, with emphasis on punctuality and sticking to rules monthly pay – pay given to workers based on the number of work months rendered motivation – refers to psychological processes that arouse and direct goal-directed behavior N network organizational structure – is a collection of independent, usually single function organizations that work together to produce a product or service ningas cogon – the Filipino practice of being

energetic and enthusiastic at the start of projects but losing interest and slowing down in the projects’ course nonfinancial compensation – compensation given to workers by employers that includes recognition programs, management support, giving of rewarding jobs, ideal work environment, and convenient work hours nonmonetary rewards – rewards which do not pertain to money, finance, or currency; refer to intrinsic rewards that have a positive psychological effect on the employee who receives them nonprofit organization – a business organization designed for the achievement of the organization’s mission, vision, goals and objectives, and providing service to clients without expecting monetary gains or financial benefits for their endeavors nonquantitative control methods – refer to control methods that use tools such as inspections, reports, direct supervision, spot checking, and performance evaluation nonverbal communication – communication through body movements, gestures, facial expressions, eye contact, and by touch O one-on-one interview – an interview wherein only one interviewer is assigned to an interviewee online recruitment – recruitment of potential job applicant by the use of the Internet or websites open business organizations – flexible business organizations formed to meet today’s changing work environment openness to experience – the degree to which someone is imaginative, artistically sensitive, and intellectual operational plans – plans prepared by lower level-managers and identifies specific procedures and processes applicable to a particular area only operations management – the management of

Glossary 161

activities related to the production of goods and services in organizations organization – a collection of people working together to achieve a common purpose organizational behavior approach – is the study of the conduct, demeanor, or action of people at work organization chart – a visual representation of the organization’s structure showing the different job positions in the firm and their hierarchical arrangement organizational citizenship behavior – refers to employee behavior that exceeds work-role requirements; behaviors that go beyond the call of duty organizational change – any alteration of people, structure, or technology in an organization brought about by external or internal forces which it encounters organizational commitment – refers to the extent to which an individual employee identifies with an organization and its goals organizational culture – the set of beliefs and values shared by organization members and which guide them as they work together to achieve their common purpose organizational effectiveness – a measure of the organizational goals’ suitability to organizational needs and how well these said goals are being attained organizational development (OD) – refers to organizational change methods related to people, their nature, and quality of interpersonal relationships as they work and colla­borate with each other organizational diversity – refers to the host of individual differences that make people in organizations different from and similar to each other organizational productivity – the amount of goods or services produced (outputs) divided by the raw materials (inputs) needed to produce the said outputs organizing – involves assigning tasks, setting

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apart or allocating funds, and bringing harmonious relations among the individuals and work groups/teams in the organization P panel interview – a type of interview wherein several interviewers are assigned to interview an interviewee participative leadership – a leadership type which involves asking for suggestions from followers participatory planning – a planning process that involves the people who will be affected by the plans and those who will be asked to implement them in all the planning steps partnership – a business entity that is formed when two or more persons formally agree to be joint owners of a business Path-Goal Theory – a leadership theory formulated by Robert House which states that leaders must provide their subordinates with direction to achieve their goals, which must be compatible with their organizations’ goals pay equity – a concept related to fairness in giving just wages to employees performance evaluation – a process (usually done once a year by an organization) designed to measure employees’ work performance performance orientation – refers to how much individuals should be rewarded for improvement and excellence personality – the unique combination of physical and mental characteristics that affect how individuals react to situations and interact with others personality test – preemployment test designed to reveal the applicant’s personal characteristics and ability to relate with others physiological needs – refers to the human need for food, water, shelter, and other physical necessities piecework pay – pay computed according to the number of units that the worker produced planning – the process of determining the

organization’s goals or performance objectives, defining the strategic actions that must be done to accomplish them, and developing coordination and integration activities plans – the actions or means that administrators/managers intend to use to achieve organizational goals politicolegal situations – factors/elements related to international/national/local laws; rules and regulations that can influence organizational management polychronic culture – a culture in which people would like to accomplish many different things at once, are more flexible with regards to time and rules power distance – the degree to which a society accepts or rejects the unequal distribution of power among people in organizations and institutions of society praise – a form of nonmonetary intrinsic reward given by superiors to subordinates when they express verbal appreciation for excellent job performance pressure groups – special interest groups who try to exert influence on the organization’s decisions/actions productivity – the ability to produce quality products and, ultimately, profits for the organization proficiency and aptitude test – a preemployment test conducted to test the applicant’s present skills and potentials for learning other skills profit business organization – a business organization designed for the purpose of achieving its mission, vision, goals, and objectives, and maintaining stability through income generation and profit-making activities profitability ratio – determines the profits that are being generated project business structure – a business organizational form with a flexible design, where the employees continuously work on short-term or long-term projects assigned to

them; members disband when the project is completed project management control – a control method than ensures that the task of getting a project’s activities is done on time, within the budget, and according to specifications is carried out successfully Q quantitative control method – refers to quantitative tools (budgets/audits) to monitor and control production output R rankings (in industry) – a common basis used by managers to measure organizational performance compared to other organizations in industry recruitment – a set of activities designed to attract qualified applicants for the job position vacancies in an organization reinforcement theory – the theory which states that behavior is a function of its consequences reward – something given or done in return for good work or accomplishment and which may have a motivating effect on the employee risk conditions – uncertainty conditions; in deciding regarding problems, the results of all alternatives are not known S safety needs – refers to the human need for security and protection from physical and psychological harm sales forecast – prediction of projected sales which often guide marketing heads/sales managers self-actualization needs – refer to the need of people for continued personal growth Scientific Management Theory – a management theory that makes use of a step-by-step method for finding the single best way for doing a job

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screening interview – an interview conducted to prepare a shorter list of applicants who will be asked to undergo a formal interview by the supervisor/manager selection – the process of choosing individuals who have the required qualifications to fill present and expected future job openings Servant Leadership Theory – a theory proposed by Robert Greenleaf which states that leaders must focus on increased service to others rather than to one’s self, commitment to the growth of people, and building community, and stewardship of material resources, among others short-term plans – plans that cover a period of one year or shorter simple business organization – a business organization with few departments, centralized authority with a wide span of control, with few rules and regulations, and which is easy to manage because of its simple form simple organizational design – an organizational design with few departments, wide spans of control, and very little formalization of work single (or sole) proprietorship – a business owned by one person only single use plans – plans that are used only once small business – a business that has fewer than 100 to 500 workers (depending on the prevailing commercial law in a particular country), independently owned, operated, and financed, not always entrepreneurial social acceptance – a Filipino value which refers to a Filipino citizen’s desire to move upward in the social ladder or change his or her status within the same social class sociocultural situations – factors/elements related to customers’ changing values or preferences that can affect management practices in organizations specific business environment – refer to the stakeholders, customers, pressure groups, and

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investors/owners of business and their employees that can affect organizational management specific plans – plans that are clearly stated and use very understandable language specification – the process in which different individuals and work units perform different tasks staff departments – departments under the horizontal organization structure that support the activities of the line departments by doing research, attending to legal matters, doing public relations work, and others staffing – the filling in of the different job positions in the organization’s structure stakeholders – parties likely to affect and be affected by the activities of the organization standing plans – plans that are ongoing strategic control – a systematic monitoring that leads to the changing of the organization’s strategies based on assessments done on strategic plans that serve as control points strategic plans – plans that establish the organization’s overall goals and apply to the entire firm structured decision – a programmed decision that is repetitive and can be executed using a routine approach structured interview – an interview that makes use of a set of prepared questions subscription model – refers to the web-based business model involving the selling of access to a website supportive leadership – a leadership type where leaders show concern and friendliness to subordinates T tactical plan – created at middle-level manager’s planning and is applicable and needed in one unit/portion of the organization target market – the segment of the market which the company is willing and capable of servicing

Team Leadership Theory – a theory that emerged because of the fact that leadership is increasingly taking place within a team context and that more companies are now utilizing work teams led or guided by effective leaders team structure – a flexible business organization structure made up of work teams that work together to achieve the organization’s purpose technical skills – skills that enable managers to use their expertise in performing their tasks with proficiency technological situations – factors/elements related to the use of varied types of electronic gadgets, such as computers, robotics, microprocessors, and others that can affect organizational management technology change – refers to changes in work processes and methods used, introduction of new equipment, work tools, automations, or computerization Theory X – a negative view of workers which assumes that they have little ambition, dislike work, and avoid responsibilities, so they need to be monitored/controlled to work effectively Theory Y – a positive view of workers which assumes that they enjoy work, seek out and accept responsibility, and are self-directed, so they do not need to be monitored/controlled closely Three Needs Theory – a theory proposed by David McClelland which states that individuals have three needs (need for achievement, need for power, and need for affiliation) that serve as motivators in doing work time orientation – the degree to which a society emphasizes short-term thinking versus greater concern for the future long-term thinking top-down sales forecast – refers to sales forecasts that rely heavily on macroeconomic and industry forecasts top-level manager – refer to the general or strategic managers who focus on long-term organizational concerns and emphasize the

organization’s stability, development, progress, and overall efficiency and effectiveness Total Quality Management – a philosophy of management that focuses on the satisfaction of customers, their needs and expectations training – the learning given by organizations to its employees that concentrates on shortterm job performance and acquisition or improvement of job-related skills training needs assessment – a systematic evaluation done to ascertain if there really is a need for employee training training program evaluation – involves assessing the positive or negative effects of the training program after employees have completed it transactional leadership model – a leadership model which states that leadership guide their subordinates toward the achievement of the organization’s goals by using social exchange or transactions, by offering rewards in exchange for their productivity transformational leadership model – a leadership model which states that a leader inspires or transforms followers to achieve extraordinary outcomes trait method for performance appraisal – evaluation designed to find out if the employee possesses important characteristics like conscientiousness, creativity, and emotional stability, among others Trait Theory of Leadership – a leadership theory focused on the leader’s trait or personal characteristics Two Factor Theory – a theory proposed by Frederick Herzberg (also known as the Motivation-Hygiene Theory) which states that intrinsic factors (achievement, recognition, growth, and responsibility) are associated with job satisfaction and could motivate employees, while extrinsic factors (company policy, salary, security, and supervision) are associated with job dissatisfaction and could demotivate employees

Glossary 165

U uncertainty avoidance – the degree to which society is uncomfortable with risk, change, and situational uncertainty unionizing – refers to the grouping of employees who want to express their resentment over what is happening in their organization for the purpose of rectifying negative relationships with their employer unsolicited applications – applications received by employers from individuals who may or may not be qualified for job openings in a company unstructured decision – decisions applied to the resolution of problems that are new or unusual and for which information is incomplete unstructured interview – an interview conducted without using an interview guide or prepared set of questions upward communication – the flow of communication from an employee who belongs to a lower hierarchical level to the boss/manager who belongs to a higher hierarchical level V verbal communication – communication through the use of spoken and written words vertical communication – communication flow between people belonging to different organization levels vertical organization structure – an organizational structure that clears out issues related to authority rights, responsibilities, and reporting relationships

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Visionary Leadership Theory – a theory which states that leaders are able to make their subordinates follow because of their ability to create and articulate a realistic, credible, and attractive vision that may improve present conditions/circumstances virtual business organization – a flexible business organization that is made up of a small group of fulltime workers and outside experts who are hired on a temporary basis to work on assigned projects; members are physically dispersed and usually communicate electronically vocational test – a preemployment test designed to show the occupation most suited to an applicant W weekly pay – pay given to workers that is computed according to the number of workweeks rendered wheel network – refers to communication that flows between a leader and other members of their group/team world and ecological situations – factors and elements related to the increasing number of global competitions and markets; the nature and conditions of the changing natural environment that can affect organizational management

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