1.1: Principles of Management

1.1.1: Defining Management

Management is the act of engaging with an organization’s human talent and its resources to accomplish desired goals and objectives.

Learning Objective

Outline the theoretical scope and basic function that represent managerial responsibilities within a company

Key Points

Management comprises planning, organizing, staffing, leading/directing, and controlling an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal.
In for-profit work, the primary function of management is meeting the needs of various stakeholders of the organization, such as customers, debtors, and owners.
In the public sector of countries that are representative democracies, voters elect politicians to public office, who then hire managers and administrators to oversee the everyday responsibilities that support those elected to office.
Since an organization can be viewed as a type of system, managers provide the necessary human action, so the organizational system produces planned outcomes or goals desired by the various stakeholders.

Key Terms

shareholder: Through owning stock, the real owner of a publicly traded business that is run by management.
theoretical: Of or relating to the underlying principles or methods of a given technical skill, art, etc., as opposed to its practice.
stakeholders: Persons or organizations with a legitimate interest in a given situation, action, or enterprise which are directly affected by the organization’s actions.

Overview

Management is the act of engaging with an organization’s human talent and using the physical resources at a manager’s disposal to accomplish desired goals and objectives efficiently and effectively. Management comprises planning, organizing, staffing, leading, directing, and controlling an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal.

One of the most important duties for a manager is effectively using an organization’s resources. This duty involves deploying and manipulating human resources (or human capital), as well as efficiently allocating the organization’s financial, technological, and natural resources.

Since organizations can be viewed as systems, management can also be defined as human action, such as product design, that enables the system to produce useful outcomes. This view suggests that we must manage ourselves as a prerequisite to attempting to manage others.

Theoretical Scope

At first, management may be considered as a type of function, one which measures financial metrics, adjusts strategic plans, and meets organizational goals. This applies even in situations where planning does not take place. From this perspective, Henri Fayol (1841–1925) considers management to consist of six functions: forecasting, planning, organizing, commanding, coordinating, and controlling. He was one of the most influential contributors to modern concepts of management.

In another way of thinking, Mary Parker Follett (1868–1933) defined management as “the art of getting things done through people.” She described management as philosophy. Some people, however, find this definition useful but far too narrow. The phrase “management is what managers do” occurs widely, suggesting the difficulty of defining management, the shifting nature of definitions, and the connection of managerial practices with the existence of a managerial cadre or class.

Another perspective regards management as equivalent to “business administration” and thus excludes management in places outside commerce, for example in charities and in the public sector. More realistically, however, every organization must manage its work, people, processes, technology, etc. to maximize effectiveness and accomplish its goals.

Nature of Managerial Work

In the for-profit environment, management is tasked primarily with meeting the needs of a range of stakeholders. This typically involves making a profit (for the shareholders), creating valued products at a reasonable cost (for customers), and providing rewarding employment opportunities (for employees). Nonprofit management has the added importance of attracting and retaining donors.

In most models of management/governance, shareholders vote for the board of directors, and the board then hires senior management. Some organizations have experimented with other methods (such as employee-voting models) of selecting or reviewing managers, but this occurs only very rarely. In the public sector of countries that are representative democracies, voters elect politicians to public office. Such politicians hire managers and administrators.

Several historical shifts in management have occurred throughout the ages. Towards the end of the 20th century, business management came to consist of six separate branches, namely:

Human resource management
Operations management or production management
Strategic management
Marketing management
Financial management
Information technology management (responsible for the management information systems)

Basic Functions

Management operates through various functions, such as planning, organizing, staffing, leading/directing, controlling/monitoring, and motivating.

Planning: Deciding what needs to happen in the future (today, next week, next month, next year, over the next five years, etc.) and generating plans for action.
Organizing: Implementing a pattern of relationships among workers and making optimum use of the resources required to enable the successful carrying out of plans.
Staffing: Job analysis, recruitment, and hiring of people with the necessary skills for appropriate jobs. Providing or facilitating ongoing training, if necessary, to keep skills current.
Leading/directing: Determining what needs to be done in a situation and getting people to do it.
Controlling/monitoring: Checking current outcomes against forecast plans and making adjustments when necessary so that goals are achieved.
Motivating: Motivation is a basic function of management because without motivation, employees may feel disconnected from their work and the organization, which can lead to ineffective performance. If managers do not motivate their employees, they may not feel their work is contributing to the overall goals of the organization (which are usually set by top-level management).

Mary Parker Follett

Mary Parker Follett defined management as “the art of getting things done through people.”

1.1.2: Fulfilling the Organizing Function

Management organizes by creating patterns of relationships among workers, optimizing use of resources to accomplish business objectives.

Learning Objective

Define the organizing function within a business framework, specifically the generation of structure and authority

Key Points

The organizing function typically follows the planning stage. Specific organizing duties involve the assignment of tasks, the grouping of tasks into departments, the assignment of authority, and the allocation of resources across the organization.
Authority is a manager’s formal and legitimate right to make decisions, issue orders, and allocate resources to achieve organization’s objectives. Types of authority include line, functional, and staff.
Organizations will use different structural strategies, which significantly affects the chain of command and decision-making process within an organization. These structures include centralized, decentralized, tall, and flat.
When approaching an organization within a company or institution, it is important to understand the implications of different structures as they pertain to the strategy and operations of the company.

Key Terms

controller: A person who audits and manages the financial affairs of a company or government; a comptroller.
delegation: The act of commiting a task to someone, especially a subordinate.
organizing: To constitute in parts, each having a special function, act, office, or relation.
capital expenditure: Funds spent by a company to acquire or upgrade a long-term asset.

Management and Organization

Management operates through various functions, often classified as planning, organizing, staffing, leading/directing, controlling/monitoring, and motivating. The organizing function creates the pattern of relationships among workers and makes optimal use of resources to enable the accomplishment of business plans and objectives.

The organizing function typically follows the planning stage. Specific organizing duties involve the assignment of tasks, the grouping of tasks into departments, and the assignment of authority and allocation of resources across the organization.

The management process

The management process involves tasks and goals of planning, organizing, directing, and controlling.

Structure

Structure is the framework in which the organization defines how tasks are divided, resources are deployed, and departments are coordinated. It is a set of formal tasks assigned to individuals and departments. Formal reporting relationships include lines of authority, decision responsibility, number of hierarchical levels, and span of managers’ control. Structure is also the design of systems to ensure effective coordination of employees across departments.

Authority/Chain of Command

Authority is a manager’s formal and legitimate right to make decisions, issue orders, and allocate resources to achieve desired outcomes for an organization. Responsibility is an employee’s duty to perform assigned tasks or activities. Accountability means that those with authority and responsibility must report and justify task outcomes to those above them in the chain of command.

Through delegation, managers transfer authority and responsibility to their subordinates. Organizations today tend to encourage delegation from the highest to lowest possible levels. Delegation can improve flexibility to meet customers’ needs and to adapt to competitive environments. Managers may find delegation difficult, since control over the task assigned (and eventual outcome) is relinquished.

One critical risk of command chains is micromanagement, where managers fail to delegate effectively and exercise excessive control over their subordinates’ projects. Micromanagement reduces efficiency and limits autonomy, thus limiting the adaptability of a given organization. Effective chains of command must allow for flexibility and efficient delegation.

Types of Authority (and Responsibility)

Line authority: Managers have the formal power to direct and control immediate subordinates executing specific tasks within a chain of command, usually within a specific department. The superior issues orders and is responsible for the result; the subordinate obeys and is responsible only for executing the order according to instructions.
Functional authority: Managers have formal power over a specific subset of activities that include outside departments. For instance, a production manager may have the line authority to decide whether and when a new machine is needed, but a controller with functional authority requires that a capital expenditure proposal be submitted first, showing that the investment in a new machine will yield a minimum return. The legal department may also have functional authority to interfere in any activity that could have legal consequences. For example, a purchase contract for a new machine cannot be approved without a review of the machine’s safety standards.
Staff authority: Staff specialists manage operations in their areas of expertise. Staff authority is not real authority because a staff manager does not order or instruct but simply advises, recommends, and counsels in the staff specialists’ area of expertise; the manager is responsible only for the quality of the advice (in line with the respective professional standards, etc.). Staff authority represents a communication relationship with management. It has an influence that derives indirectly from line authority at a higher level.

Organizational Structure and Control/Decision-Making

Tall structure: A management structure characterized by an overall narrow span of management, a relatively large number of hierarchical levels, tight control, and reduced communication overhead. Decision-making can be quite rapid, if it occurs from the top down.
Flat structure: A management structure characterized by a wide span of control and relatively few hierarchical levels, loose control, and ease of delegation. Decision-making is often slower, as it involves a high degree of integration across the company.
Centralization: The location of decision making authority near top organizational levels. Similar to a tall structure, this expedites decision-making from the top down.
Decentralization: The location of decision making authority is relatively evenly dispersed across the company. This works well when creativity and independent operations create value for the organization.

As each structure will create a different organizational approach to operations, it is critical to consider how the selection of a structure will affect the business process. Enabling creativity and minimizing control often comes at the cost of speed and efficiency, and vice versa.

1.1.3: Fulfilling the Controlling Function

Management control can be defined as a systematic effort to compare performance to predetermined standards and address deficiencies.

Learning Objective

Outline the characteristics and elements of the controlling function

Key Points

Control is a continuous and forward-looking process designed to objectively benchmark operations with the projected plan or projections.
The four basic elements in a control system are: the characteristic or condition to be controlled, the sensor, the comparator, and the activator.
Control is a continuous process.
Control is a continuous and forward-looking process designed to benchmark operations with the projected plan or projections.

Key Terms

Systematic: Methodical, regular, and orderly.
control: Influence or authority over.
hierarchy: An arrangement of items in which the items are represented as being “above,” “below,” or “at the same level as” one another.

Control

In 1916, Henri Fayol formulated one of the first definitions of control as it pertains to management: “Control consists of verifying whether everything occurs in conformity with the plan adopted, the instructions issued, and principles established. It’s object is to point out weaknesses and errors in order to rectify [them] and prevent recurrence.”

Management control can be defined as a systematic effort by business management to compare performance to predetermined standards, plans, or objectives in order to determine whether performance is in line with these standards. It is also used to determine if any remedial action is required to ensure that human and other corporate resources are being used in the most effective and efficient way possible to achieve corporate objectives.

Control can also be defined as “that function of the system that adjusts operations as needed to achieve the plan, or to maintain variations from system objectives within allowable limits.” The control subsystem functions in close harmony with the operating system. The degree to which they interact depends on the nature of the operating system and its objectives. Stability concerns a system’s ability to maintain a pattern of output without wide fluctuations. Rapidity of response pertains to the speed with which a system can correct variations and return to expected output.

From these definitions, the close link between planning and controlling can be seen. Planning is a process by which an organization’s objectives and the methods to achieve the objectives are established, and controlling is a process that measures and directs the actual performance against the planned goals of the organization. Therefore, goals and objectives are often referred to as the siamese twins of management: the managerial function of management and the correction of performance in order to ensure that enterprise objectives and the goals devised to attain them are being accomplished.

Characteristics of Control

Control has several characteristics. It may be described as being:

A continuous process.
A management process.
Embedded in each level of organizational hierarchy.
Forward-looking.
Closely linked with planning.
A tool for achieving organizational activities.
An end process.

The Elements of Control

The four basic elements in a control system:

The characteristic or condition to be controlled – We select a specific characteristic because a correlation exists between it and how the system is performing. The characteristic may be the output of the system during any stage of processing or it may be a condition that is the result of the system. For example, in an elementary school system, the hours a teacher works or the gain in knowledge demonstrated by the students on a national examination are examples of characteristics that may be selected for measurement, or control.
The sensor – This is the means for measuring the characteristic or condition. For example, in a home-heating system, this device would be the thermostat; and in a quality-control system, this measurement might be performed by a visual inspection of the product.
The comparator – This determines the need for correction by comparing what is occurring with what has been planned. Some deviation from the plan is usual and expected, but when variations are beyond those considered acceptable, corrective action is required. It involves a sort of preventative action to indicate that good control is being achieved.
The activator – This is the corrective action taken to return the system to expected output. The actual person, device, or method used to direct corrective inputs into the operating system may take a variety of forms. It may be a hydraulic controller positioned by a solenoid or electric motor in response to an electronic error signal, an employee directed to rework the parts that failed to pass quality inspection, or a school principal who decides to buy additional books to provide for an increased number of students. As long as a plan is performed within allowable limits, corrective action is not necessary; however, this seldom occurs in practice.

These occur in the same sequence and maintain a consistent relationship to each other in every system.

1.1.4: Fulfilling the Leading Function

Managers lead their organizations and can vary their style and approach to achieve the desired outcome.

Learning Objective

Identify the key characteristics and considerations of the leadership function within the organizational framework

Key Points

Leaders who demonstrate persistence, tenacity, determination, and synergistic communication skills will bring out the same qualities in their groups.
Leadership can be viewed as either individualistic or group-based and can be considered “transactional” (i.e. procedures, rewards, etc.) or “transformational” (i.e. charisma, creativity, etc. ).
A leadership style is often determined by context, whereas the degree of control (autocratic or democratic) may alter based upon the situation or process being managed.
Positive reinforcement is an example of a leadership technique. This reinforcement occurs when a positive stimulus is presented in response to a behavior, increasing the likelihood of that behavior in the future.

Key Term

laissez-faire: In business, an environment in which an organization’s employees are free from excessive oversight or management, with sufficient control only to ensure organizational goals are met.

Defining Leadership

Over the years the philosophical terms “management” and “leadership” have been used both as synonyms and with clearly differentiated meanings. Debate is fairly common about whether the use of these terms should be restricted and generally reflects an awareness of the distinction made by Burns (1978) between “transactional” leadership (characterized by emphasis on procedures, contingent reward, management by exception) and “transformational” leadership (characterized by charisma, personal relationships, creativity). Management is often associated with the former and leadership with the latter.

Leaders who demonstrate persistence, tenacity, determination, and synergistic communication skills will bring out the same qualities in their groups. Good leaders use their own inner mentors to energize their team and organizations and lead a team to achieve success.

Group Leadership

In contrast to individual leadership, some organizations have adopted group leadership. In this situation, more than one person provides direction to the group as a whole. Some organizations have taken this approach in hopes of increasing creativity, reducing costs, or downsizing. Others may see the traditional leadership of a boss as costing too much in team performance. In some situations, the team members best able to handle any given phase of the project become the temporary leaders. Additionally, staff experiences energy and success when each team member has access to elevated levels of empowerment.

Leadership Styles

A leadership style is a leader’s approach towards providing direction, implementing plans, and motivating people. It is the result of the philosophy, personality, and experience of the leader. Rhetoric specialists have also developed models for understanding leadership (Robert Hariman, Political Style; Philippe-Joseph Salazar, L’Hyperpolitique. Technologies politiques De La Domination).

Engaging Style of Leadership

Different styles of leadership can achieve the leading function.

Different situations call for different leadership styles. In an emergency, when there is little time to reach an agreement and where a designated authority has significantly more experience or expertise than the rest of the team, an autocratic leadership style may be most effective. However, in a highly motivated and aligned team, with a homogeneous level of expertise, a more democratic or laissez-faire style may be more effective. The leadership style adopted should be the one that most effectively achieves the objectives of the group while balancing the interests of its individual members.

Positive Reinforcement

Anyone thinking about managing a team must consider positive reinforcement. B.F. Skinner, the father of behavior modification, developed this concept. Positive reinforcement occurs when a positive stimulus is presented in response to a behavior, increasing the likelihood of that behavior in the future.

The following is an example of how positive reinforcement can be used in a business setting. Assume praise is a positive reinforcement for a particular employee. This employee does not show up to work on time every day. The manager of this employee decides to praise the employee for showing up on time when the employee actually does so. As a result, the employee comes to work on time more often because the employee likes to be praised. In this example, praise (the stimulus) is a positive reinforcement for this employee because the employee arrives at work on time (the behavior) more frequently after being praised for it.

The use of positive reinforcement is a successful and growing technique used by leaders to motivate and attain desired behaviors from subordinates. Organizations, such as Frito-Lay, 3M, Goodrich, Michigan Bell, and Emery Air Freight, have all used reinforcement to increase productivity. Empirical research covering the last 20 years suggests that reinforcement theory has a 17% increase in performance. Additionally, many reinforcement techniques, such as the use of praise, are inexpensive and provide higher performance and employee satisfaction for lower costs.

1.1.5: Fulfilling the Planning Function

Planning is the process of thinking about and organizing the activities required to achieve strategic objectives.

Learning Objective

Illustrate the primary considerations and influencing factors for organizations when pursuing strategic planning

Key Points

Planning involves the maintenance and organizational approach of achieving strategic objectives.
To meet objectives, managers may develop plans such as a business plan or a marketing plan.
Strategic planning is an organization’s process of defining its strategy or direction and making decisions about how to allocate its resources to pursue this strategy.
When pursuing strategic planning, organizations should ask themselves what they do, for whom do they do it, and how they can excel (or differentiate from) competitors.
The execution of the planning function requires a comprehensive understanding (or generation of) a vision, mission, set of values, and general strategy.

Key Terms

strategy: A plan of action intended to accomplish a specific goal.
allocating: The act of distributing a given set of resources according to a plan.
forecasting: The act of estimating future outcomes.

Planning

Planning is the process of thinking about and organizing the activities required to achieve a desired goal. Planning involves the creation and maintenance of a given organizational operation. This thought process is essential to the refinement of objectives and their integration with other plans. Planning combines forecasting of developments with preparing scenarios for how to react to those developments. An important, albeit often ignored, aspect of planning is the relationship it holds with forecasting. Forecasting can be described as predicting what the future will look like, whereas planning predicts what the future should look like.

Research planning

Planning involves the creation and maintenance of a plan.

Planning is also a management process, concerned with defining goals for a company’s future direction and determining the missions and resources to achieve those targets. To meet objectives, managers may develop plans, such as a business plan or a marketing plan. The purpose may be achievement of certain goals or targets. Planning revolves largely around identifying the resources available for a given project and utilizing optimally to achieve best scenario outcomes.

Strategic Planning

Strategic planning is an organization’s process of defining its strategy or direction and making decisions about allocating its resources to pursue this strategy. To determine the direction of the organization, it is necessary to understand its current position and the possible avenues through which it can pursue a particular course of action. Generally, strategic planning deals with at least one of three key questions:

What do we do?
For whom do we do it?
How do we excel?

The key components of strategic planning include an understanding of the firm’s vision, mission, values, and strategies. (Often a “vision statement” and a “mission statement” may encapsulate the vision and mission. )

Vision: This outlines what the organization wants to be or how it wants the world in which it operates to be (an “idealized” view of the world). It is a long-term view and concentrates on the future. It can be emotive and is a source of inspiration. For example, a charity working with the poor might have a vision statement that reads “A World without Poverty.”
Mission: It defines the fundamental purpose of an organization or an enterprise, succinctly describing why it exists and what it does to achieve its vision. For example, the charity above might have a mission statement as “providing jobs for the homeless and unemployed.”
Values: These are beliefs that are shared among the stakeholders of an organization. Values drive an organization’s culture and priorities and provide a framework in which decisions are made. For example, “knowledge and skills are the keys to success,” or “give a man bread and feed him for a day, but teach him to farm and feed him for life.” These example values place the priorities of self-sufficiency over shelter.
Strategy: Strategy, narrowly defined, means “the art of the general”—a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there. A strategy is sometimes called a roadmap, which is the path chosen to move towards the end vision. The most important part of implementing the strategy is ensuring the company is going in the right direction, which is towards the end vision.

Tools and Approaches

There are many approaches to strategic planning, but typically one of the following is used:

Situation-Target-Proposal: Situation – Evaluate the current situation and how it came about. Target – Define goals and/or objectives (sometimes called ideal state). Path/Proposal – Map a possible route to the goals/objectives.
Draw-See-Think-Plan: Draw – What is the ideal image or the desired end state? See – What is today’s situation? What is the gap from ideal and why? Think – What specific actions must be taken to close the gap between today’s situation and the ideal state? Plan – What resources are required to execute the activities?

Among the most useful tools for strategic planning is a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats). The main objective of this tool is to analyze internal strategic factors (strengths and weaknesses attributed to the organization) and external factors beyond control of the organization (such as opportunities and threats).

1.2: Management Levels and Types

1.2.1: Top-Level Management

Top-level managers determine broad strategic strokes for the organization in general, and focus on the big picture.

Learning Objective

Understand the responsibilities and characteristics of top-level management

Key Points

Vertically ordering managerial functions allows managers at different tiers to focus on different ranges or scopes of organizational behavior and strategy.
One of the weaknesses of this type of managerial organization is that it can polarize power and salary, as well as create a rigid structure that reduces information flow.
Top-level managers (such as CEOs) tend to be big-picture strategic thinkers with a substantial amount of experience in the industry and/or function they manage.
The executive team focuses on determining long-term strategy, strategic alliances, large financial decisions, and management of stakeholders (and the board of directors).

Key Term

hierarchical: Ranked in some order, often order of importance or power.

Some views on management revolve around vertical differentiation, or creating an hierarchical view of managers. This is useful to visualize in a chart, where top management is logically at the top, overseeing the entire organization. Middle managers are in the middle, acting as a bridge between upper management and certain work groups. Lower managers are task or process oriented, managing functional specialists and projects.

The Pros and Cons of Vertical Thinking

The primary advantage of this perspective is that different management professionals can view the organization from different angles. Top-level managers tend to focus mostly on strategy and bigger picture thinking, while middle managers focus on aligning a large work group towards shared objectives. Frontline management thrives in pursuing operational efficiency, hiring on entry and mid-level talent, and assessing performance.

On the downside, this tends to consolidate power at the top of the organization, of building steep corporate ladders and often heavily polarized income. It can also create one-way information flows, where top management creates plans without understanding the core processes of the organization. Managing organizations vertically can reduce flexibility and agility.

FedEx Organizational Structure

This is an organizational structure example that cleanly demonstrates a vertical delegation of managerial responsibilities. The higher the level of management, the broader their scope. This means that lower level managers have a high degree of detail-orientation.

This is an organizational structure example which cleanly demonstrates a vertical delegation of managerial responsibilities. The higher the level of management, the broader their scope. This means that lower level managers have a high degree of detail-orientation.

Top-level Management

Core Characteristics

High level managers tend to have a substantial amount of experience, ideally across a wide variety of functions. Many high-level managers become part of an executive team by mastering their functional disciplines across various roles, becoming the Chief Operations Officer (COO), Chief Marketing Officer (CMO), Chief Technology Officer (CIO or CTO), Chief Financial Officer (CFO) or Chief Executive Officer (CEO).

Top management teams are also often industry experts, having a close association with the long term trajectory of the businesses they operate in. They often benefit from being charismatic, powerful communicators with a strong sense of accountability, confidence, integrity, and a comfort with risk.

Responsibilities

The primary role of the executive team, or the top-level managers, is to look at the organization as a whole and derive broad strategic plans. Company policies, substantial financial investments, strategic alliances, discussions with the board, stakeholder management, and other top-level managerial tasks are often high-risk high return decision-making initiatives in nature. Top-level management roles are therefore often high stress and high influence roles within the organization.

1.2.2: Middle-Level Management

Middle management is the intermediate management level accountable to top management and responsible for leading lower level managers.

Learning Objective

Recognize the specific responsibilities and job functions often assigned to middle-level management professionals

Key Points

Middle management is at the center of a hierarchical organization, subordinate to the senior management but above the lowest levels of operational staff.
Middle managers are accountable to top management for their department’s function. They provide guidance to lower-level managers and inspire them to perform better.
Middle-management functions generally revolve around enabling teams of workers to perform effectively and efficiently and reporting these performance indicators to upper management.
Middle management may be reduced in organizations as a result of reorganization. Such changes can take the form of downsizing, “delayering,” and outsourcing.

Key Terms

delayering: A planned reduction in the number of layers of a management hierarchy.
mentoring: Acting as a teacher or guide; providing advice and direction for one less experienced.

Defining Middle Management

Most organizations have three management levels: first-level, middle-level, and top-level managers. These managers are classified according to a hierarchy of authority and perform different tasks. In many organizations, the number of managers in each level gives the organization a pyramid structure.

Middle management is the intermediate leadership level of a hierarchical organization, being subordinate to the senior management but above the lowest levels of operational staff. For example, operational supervisors may be considered middle management; they may also be categorized as non-management staff, depending upon the policy of the particular organization.

Four-tier pyramid: Workers, middle managers, senior managers, and executives

This figure illustrates the hierarchy of management within an IT department. Note that middle management is tasked with (1) their tier of technical skills, i.e. information management systems, as well as (2) communication of system efficacy upward to senior managers and (3) delegating tasks downward to workers.

Middle-Management Roles

Middle-level managers can include general managers, branch managers, and department managers. They are accountable to the top-level management for their department’s function, and they devote more time to organizational and directional functions than upper management. A middle manager’s role may emphasize:

Executing organizational plans in conformance with the company’s policies and the objectives of the top management;
Defining and discussing information and policies from top management to lower management;
Most importantly, inspiring and providing guidance to lower-level managers to assist them in performance improvement and accomplishment of business objectives.

Middle managers may also communicate upward by offering suggestions and feedback to top managers. Because middle managers are more involved in the day-to-day workings of a company, they can provide valuable information to top managers that will help them improve the organization’s performance using a broader, more strategic view.

Middle-Management Functions

Middle managers’ roles may include several tasks depending on their department. Some of their functions are as follows:

Designing and implementing effective group work and information systems
Defining and monitoring group-level performance indicators
Diagnosing and resolving problems within and among work groups
Designing and implementing reward systems
Supporting cooperative behavior
Reporting performance statistics up the chain of command and, when applicable, recommending strategic changes

Because middle managers work with both top-level managers and first-level managers, middle managers tend to have excellent interpersonal skills relating to communication, motivation, and mentoring. Leadership skills are also important in delegating tasks to first-level managers.

Middle management may be reduced in organizations as a result of reorganization. Such changes include downsizing, ‘delayering’ (reducing the number of management levels), and outsourcing. The changes may occur in an effort to reduce costs (as middle management is commonly paid more than junior staff) or to make the organization flatter, which empowers employees, leaving the organization more innovative and flexible.

1.2.3: Frontline Management

Frontline management balances functional expertise with strong interpersonal skills to optimize specific operational processes.

Learning Objective

Recognize the core competencies and common responsibilities of frontline management

Key Points

Management is sometimes viewed through a hierarchical frame, dividing management groups by frontline, middle, and upper levels.
Separating management vertically allows different management groups to focus on different organizational scopes. Frontline managers are more zoomed in, whereas executives are more zoomed out.
Frontline managers often balance a functional or technical understanding of those who report to them with the interpersonal skills of a manager.
This form of leadership requires a strong ability to communicate, mentor, train, hire, organize, optimize processes, and prioritize.

One perspective that can be taken on management is a hierarchical view. Under this perspective, managers are responsible for different degrees of organizational scope, which can be visualized as having responsibility over a larger volume of processes and people. When illustrating this concept, the lower level managers are at the bottom of the chart (often shaped something like a pyramid) while the executives are at the top.

USCG Organization Chart

This is a simple example of an organizational chart, in this case for the U.S. Coast Guard. This is a particularly good example of hierarchical thinking, as the military functions with a high degree of hierarchical authority.

This is a simple example of an organizational chart, in this case the U.S. Coast Guard. This is a particularly good example of hierarchical thinking, as militarizes often function with a high degree of hierarchical authority.

Why Differentiate Management

When looking at different levels of management from a vertical frame, the value of separating management this way essentially allows different amounts of scope. The expression ‘seeing the forest for the trees’ is a particularly useful anecdote for the purpose of the upper managerial teams.

The objective at the top of the hierarchy is to consider mid and long term strategy for the organization at large. Middle managers usually take a more specific aspect of this larger strategy, and ensure a more detailed implementation. Managers on the front line focus almost exclusively on effective execution, and are often much more short-term oriented. This allows each class of management to narrow their focus enough for the work to actually be manageable.

Front Line Management

At the front line, managers are often highly skilled and even functional specialists. A front line manager is best positioned when they focus on controlling and directing specific employees (think in terms of supervisors, team leaders, line managers, and project managers).

Skill Sets

A front line manager needs to have two distinctive skill sets: the interpersonal skills to manage people as well as the technical expertise to be among the front lines actively executing functional tasks. As a result, frontline managers are often highly valuable team members with the versatility to contribute in various ways.

Core skill sets for frontline managers can change depending on what function they are overseeing. However, on the interpersonal side they should be effective at:

Communicating
Observing and actively listening
Giving and receiving feedback
Prioritizing
Aligning resources
Organizing processes and tasks

Responsibilities

Responsibilities of a frontline manager will therefore come in two flavors. The first is the expertise required to do whatever it is they are managing. If we are talking about an accounting manager, they must be able to balance the books and understand enough of everyone’s specific function to fill the gaps. If it is a frontline manager on an automobile manufacturing facility, the manager should be aware of how to run most of the machines and how to assess the productivity of different positions (ideally from experience).

On the managerial side, frontline managers are often tasked with hiring, assessing performance, providing feedback, delegating functional tasks, identifying gaps, maximizing efficiency, scheduling, and aligning teams. As the primary point of contact for most employees, frontline managers must be careful listeners capable of understanding employee needs, removing blockers, and optimizing performance.

1.2.4: Functional vs. General Management

General managers focus on the entire business, while functional managers specialize in a particular unit or department.

Learning Objective

Differentiate between functional management and general management from a business perspective

Key Points

General management focuses on the entire business as a whole (a top-down organizational view).
A functional manager is a person who has management authority over an organizational unit—such as a department—within a business, company, or other organization. Under functional management, direct reports reside in the same department.
A general manager is responsible for all areas and oversees all of the firm’s functions and day-to-day business operations. The general manager has to communicate with all departments to make sure the organization performs well.
General management and functional management have many similarities; the primary difference is that a functional manager focuses on one facet of an organization, while the general manager must keep everything in view.

Key Terms

delegating: Assigning a task to somebody, usually a subordinate.
staffing: The practice of hiring and firing staff.

Functional management and general management represent two differing responsibility sets with an organization. Functional managers are most common in larger organizations with many moving parts, where different business functions are led by managers within those respective fields (i.e. marketing, finance, etc.). General management is more common in smaller, more versatile, environments where the general manager can actively engage in every facet of the business

Functional Management

Besides the heads of a firm’s product and/or geographic units, the company’s top management team typically consists of several functional heads (such as the chief financial officer, the chief operating officer, and the chief strategy officer). A functional manager is a person who has management authority over an organizational unit—such as a department—within a business, company, or other organization. Functional managers have ongoing responsibilities and are not usually directly affiliated with project teams, other than ensuring that goals and objectives are aligned with the organization’s overall strategy and vision.

Functional vs. general management

This chart shows a particular organizational hierarchy employing both general and functional management. Each functional manager is in control of a particular area of expertise—e.g., operations or policy and planning—and the general manager supervises all the functional managers.

General Management

General management focuses on the entire business as a whole. General management duties and responsibilities include formulating policies, managing daily operations, and planning the use of materials and human resources. However, general managers are too diverse and broad in scope to be classified in any one functional area of management or administration such as personnel, purchasing, or administrative services.

General managers include owners and managers who head small-business establishments with duties that are primarily managerial. Most commonly, the term general manager refers to any executive who has overall responsibility for managing both the revenue and cost elements of a company’s income statement. This means that a general manager usually oversees most or all of the firm’s marketing and sales functions, as well as the day-to-day operations of the business. Frequently, the general manager is responsible for effective planning, delegating, coordinating, staffing, organizing, and decision making to attain profitable results for an organization.

While both general and functional management involve similar skills (interpersonal skills, communication, multitasking, etc.), the critical difference is that a functional manager often “zooms in” to one particular aspect of a broader operational paradigm. The general manager must be more of a jack-of-all-trades, understanding enough about various different gears in the machine to ensure it is running properly.

McDonald’s offers an example of ways to understand both types of management. McDonald’s has functional managers at the corporate level who discuss advertising strategies, assess financials, discuss expansion, and so forth. Meanwhile, general managers run individual stores, focusing on the quality of service, operational efficiency, local tastes, etc. at their store.

1.2.5: Management in Different Types of Business: For-Profit, Non-Profit, and Mutual-Benefit

Managers must adjust their management style to fit the type of organization.

Learning Objective

Apply managerial styles within different business types and to accomplish different objectives

Key Points

For-profit corporations are administered to earn profit to increase the wealth of their owners. Managers in for-profit organizations focus on the system and production.
A non-profit organization must dedicate its operations to achieve a charitable or educational goal. A manager must ensure that the organization’s operations are solely dedicated to achieving that goal. A manager of such an organization is not focused on generating profit.
Mutual-benefit corporations are usually formed for non-profit purposes, such as managing a condo association. The managers of such an organization are concerned about improvements in human and environmental well-being rather than maximizing profits for external shareholders.
While all types of organizations are tasked with managing resources efficiently, for-profits and non-profits have differentiated management styles, in many instances, because of differences in motivation (e.g., non-profits must rely on fewer monetary rewards).

Key Terms

mutual-benefit non-profit corporation: A type of nonprofit corporation chartered by a state government that exists to serve its members.
non-profit: An organization that exists for reasons other than to make a profit, such as a charitable, educational, or service organization.
for-profit: An organization engaged in the trade of goods, services, or both to customers with the goal of earning profit to increase the wealth of the business’s owners.

Management style is influenced by the goals and purpose of the organization, which are in large part established by the type of business being managed.

Management in For-Profit Organizations

A for-profit business is an organization engaged in the trade of goods, services, or both to customers with the goal of earning profit to increase the wealth of the business’s owners. Managers have to direct their efforts towards achieving that goal.

Management in Non-Profit Organizations

In contrast, a non-profit organization is legally prohibited from making a profit for owners. All income generated by a non-profit’s activities must be used to achieve the charitable or educational purpose defined in the organization’s bylaws. The managers of non-profits must always be aware of that charitable purpose and ensure that the organization’s operations conform to those purposes.

One component of nonprofit management that contrasts with the for-profit model is the existence of volunteer workers. Non-profits’ lack of free-flowing capital means they rarely have the resources to staff the organization sufficiently. In this scenario, managers often reach out to individuals passionate about the organization’s mission to contribute through monetary donations or volunteer hours. Managing volunteers is different than managing employees, as there is essentially no contract or agreement governing the relationship. This means managers must motivate by community-building and a sense of shared accomplishment.

Management in Mutual-Benefit Organizations

A mutual-benefit non-profit corporation can be non-profit or for profit. However, mutual benefit corporations are usually formed for nonprofit purposes like managing a condo association, a downtown business district, or a homeowners association. A mutual is therefore owned by its members and run for their benefit; it has no external shareholders to pay in the form of dividends, and as such does not usually seek to generate large profits or capital gains. Managers in mutual benefit organizations are, therefore, more concerned about improvements in human and environmental well-being than maximizing profits for external shareholders.

Comparing Management in For-Profit, Non-Profit, and Mutual-Benefit Organizations

The management of all three types of organizations (for-profit, non-profit, and mutual-benefit) may have similar responsibilities, such as drafting a budget and ensuring that the organization generates enough revenue to fulfill its operational needs. Management will need to plan, organize, direct and control the business’s activities. All three types require that management motivate employees.

Management processes

Management styles vary among types of organizations, but they still follow the main steps of planning, organizing, directing, and controlling.

However, the approach managers take will vary based on the type of organization. For example, a manager of a for-profit company may be able to motivate employees through bonuses for sales targets or profit sharing. This strategy cannot work for a non-profit or mutual-benefit corporation. In those cases, management must either appeal to the employees’ sense of duty to the mission of the non-profit or to the benefit they would receive from a well-run mutual-benefit corporation. While every organization poses different challenges, effective managers consider the type of organization and adjust their style to fit those circumstances.

1.3: Core Requirements of Successful Managers

1.3.1: The Importance of Accountability

Being accountable simply means being responsible for decisions made, actions taken, and assignments completed.

Learning Objective

Discuss the role accountability plays in driving managerial performance.

Key Points

Accountability in business is critical, as the concept enhances the ethics of managers.
Being accountable means standing by decisions, actions, and the overall well-being of projects.
Accountability is also a management process that ensures employees answer to their superior for their actions and that supervisors behave responsibly as well.
Accountability addresses both the organization’s expectation of the employee and the employee’s expectation of the organization.
Accountable employees help to increase performance of business as a whole and to maintain a positive company culture, vision, and ethics.
Accountability on a global scale, particularly in the case of NGOs, is complicated by the fact that different countries have varying legislative perspectives when it comes to accountability.

Key Terms

accountability: Being responsible for one’s own work and answering for the repercussions of one’s own actions.
paradigmatic: Pertaining to a given template, context or model.

Example

The United States Department of Organization provides specific guidelines for managerial accountability. Managers are responsible for the quality and timeliness of program performance, for increasing productivity, for controlling costs and mitigating adverse aspects of agency operations, and for assuring that programs are managed with integrity and in compliance with applicable law.

Introduction

In organizations, accountability is a management control process in which responses are given for a person’s actions. These responses can be positive or negative. Depending on the response, the person might need to correct his or her error. In other words, accountability refers to individual responsibility for the work performed and answering to peers and superiors for performance.

Accountability is often used synonymously with responsibility, blameworthiness, and liability. As an aspect of governance, accountability has been central to discussions related to problems in the public, non-profit, and corporate sectors.

In leadership roles, accountability is the acknowledgment and assumption of responsibility for actions, products, decisions, and policies including the administration, governance, and implementation within the scope of the role or employee position. Accountability also encompasses the obligation to report, explain, and answer for resulting consequences. As leaders often make decisions with far-reaching consequences, accountability has a substantial ethical component.

Government accountability

Governing authorities have the obligation to report, explain, and answer for resulting consequences of their actions.

Accountability in Companies

Accountability also has a strong connection to expectations. Employees who do not meet the expectations of their supervisor are held accountable for their actions and must answer for their inability to do so.

Accountability is crucial to ensuring high performance within an organization. However, managers must clearly communicate their expectations to the person who is responsible for the specified action or task. Clear communication of expectations and well defined goals is a very effective tool to enhancing performance at every level of organization.

Without defined goals, employees lack a frame of reference for how they are performing in the workplace. They are unable to rely on guidelines or a structure that helps them achieve their performance goals. In many organizations, the management team and board of directors create goals for themselves and the general manager, while the general manager creates goals for department managers. This process is replicated throughout the organization, down to the department managers who create goals for entry-level employees.

Both subordinates and supervisors should have a clear idea of how their projects should be handled and delivered. A clear expectation level and the understanding that all employees are accountable for their performance boosts employee morale and productivity in the workplace. However, because different individuals in large organizations contribute in various ways to a company’s decisions and policies, it is often difficult to identify who should be accountable for the results.

Global Accountability

Recently, accountability has become an important topic in the discussion about the legitimacy of international institutions. Because there is no global, democratically elected body to which organizations must account, global organizations from all sectors’ bodies are often criticized as having large accountability gaps.

One emblematic problem in the global context is that of institutions such as the World Bank and the International Monetary Fund, which are founded and supported by wealthy nations and provide aid in the form of grants and loans to developing nations. The question persists as to whether these institutions should be accountable to their founders and investors or to the persons and nations they help.

In the debate over global justice and its distributional consequences, those in highly developed, heavily populated areas tend to advocate greater accountability to traditionally marginalized populations and developing nations. On the other hand, those who adopt a more nationalistic or provincial view deny the tenets of moral universalism; they argue that beneficiaries of global development initiatives have no substantive entitlement to call international institutions to account. The One World Trust Global Accountability Report, published in a first full cycle from 2006 to 2008, is one attempt to measure the capability of global organizations to be accountable to their stakeholders.

Examples

Example 1

The United States Department of Organization provides specific guidelines about accountability of managers. Managers are responsible for the quality and timeliness of program performance, increasing productivity, controlling costs and mitigating adverse aspects of agency operations, and assuring that programs are managed with integrity and in compliance with applicable law.

Example 2

The situation at Enron is another strong example of accountability – where the actions of a few unethical individuals caused great harm to the broader corporation and all stakeholders. In the case of Enron, the individuals involved in the negative actions are held accountable for the subsequent consequences, which reduces the likelihood similar things will happen again in the future.

1.3.2: The Importance of Leverage

Management roles are defined by the capacity to motivate and leverage human capital in the organization to achieve efficiency in operations.

Learning Objective

Describe how general managerial functions gain leverage in the workplace and how this relates to motivation

Key Points

While there are different ways to view the concept of gaining leverage as a manager, the underlying principle should be one of synergy.
Managers are responsible for planning, organizing, staffing, directing, monitoring, and motivating employees to create leverage in an operational system. Leverage primarily revolves around effective delegation and motivation.
Effective managers must have a thorough understanding of each employee’s strengths and weaknesses, as well as their aspirations and motivators, to appropriately carry out essential tasks.
Through combining delegation and motivation skills, managers effectively leverage human capital to achieve high levels of efficiency and employee satisfaction.

Key Terms

Synergy: Benefits resulting from combining two different groups, people, objects, or processes.
incentives: Ways to promote a desired action.
leverage: A technique used to multiply gain or loss.

Why Leverage Matters

Management roles are defined by the capacity of the manager to motivate and leverage the human resources in the organization to achieve efficiency in operations. As a result, effective managers are capable of optimizing the time and effort of employees to attain the highest possible value. This optimization requires a thorough understanding of basic managerial functions and the way in which incentives can be applied according to motivational theories in the workplace.

Although there are different ways of understanding the concept of gaining leverage as a manager, the underlying principle should be one of synergy. The concept of synergy emphasizes that one additional employee’s output is greater than an arithmetic expectation. More simply put, synergy means that 1 + 1 > 2 (a common adage in business for synergy is 1 + 1 = 3). Leverage, therefore, is about getting more out of a system than is put in, resulting in a value-added proposition.

Design management

Teams can create solutions through integration, giving the manager the ability to solve problems more complex than one individual can handle.

Managerial Functions and Leverage

Managers are responsible for planning, organizing, staffing, directing, monitoring, and motivating employees through the use of highly developed decision-making and interpersonal skills.

Delegation

Planning, organizing, and staffing are the preliminary steps to carrying out a project, setting schedules and constructing a team with the appropriate skills to execute the project effectively. This half of the managerial responsibilities falls largely within the decision-making realm, which correlates to a manager’s ability to organize tasks and delegate these tasks effectively to gain leverage.

The concept of delegation enables managers to minimize their own time commitment to specific elements of a process, as well as improve quality and efficiency through the use of specialists (managers are typically generalists). Delegation therefore allows managers to optimize team structures and skill-set distributions to allow for synergy in operations. Effective managers are able to juggle a number of teams of specialists, empowering their autonomy and controlling the workflow in a way that aligns with organizational objectives. Delegation sounds easy on paper, but it requires a number of intrinsic skills such as communication, organization, multitasking, and the ability to “zoom out” and observe the bigger picture (and identify the critical components that enable it).

Motivation

Planning, organizing, and staffing are followed by the more interpersonal elements of management: directing, monitoring, and motivating the staff. At this point, managers face the challenging task of assessing the skills of employees, assigning relevant tasks, monitoring progress, and providing incentives to drive productivity. Managers must have a thorough understanding of each employee’s strengths and weaknesses, as well as aspirations and motivators, to appropriately carry out these tasks. As a result, understanding motivational theories is at the heart of effectively managing employees.

Motivating employees to leverage the human resources within an organization is central to a manager’s responsibilities; it is achieved by understanding what drives productivity. Generally, positive incentives far outweigh negative ones in leveraging employees. To gain leverage, managers must ascertain what opportunities will drive the highest level of productivity in their work groups.

By effectively combining this motivational understanding with the expectations and responsibilities of managing employees, managers effectively leverage human capital to achieve high levels of efficiency and employee satisfaction.

Example

A business with high liquid capital may invest in information structure to reduce the cost of production and increase automation. These changes will ultimately achieve a higher productivity.

1.3.3: The Importance of Performance Targets

Performance standards motivate employees and management to use their time efficiently by setting achievable objectives.

Learning Objective

Explain the importance of performance targets in the business framework and the approaches to communicating and achieving them

Key Points

A key performance indicator (KPI) sets a performance standard for an organization, a business unit, or an employee.
Goal setting means establishing what a person or an organization wants to achieve. Goals should be specific, measurable, achievable, realistic, and time-targeted (SMART).
Motivation is the key component to effective goal setting. Organizations must consider performance targets within the context of creating motivated employees, who will in turn perform more effectively.
Performance targets are particularly useful due to their quantitative nature, which allows the measurement of outcomes and assessment of operations.

Key Terms

KPI: Key Performance Indicator; a tool to measure performance.
motivation: Willingness to perform an action, especially a behavior; an incentive or reason for doing something.

Managerial effectiveness is often assessed on the ability to achieve performance targets. Three basic concepts are involved in communicating and achieving targets: key performance indicators, goal setting, and motivation.

Performance Indicators

A key performance indicator is a tool for performance measurement used by organizations. It is used to set a performance standard for an organization, a business unit, or an employee. It is also used to evaluate the overall success of the organization and the success of a specific activity in the organization.

Success can be defined as progress towards strategic or operational goals such as zero defects, percentage of customer satisfaction (or retention), profitability margins, etc. KPIs are usually understandable, meaningful, and measurable. For the employee to achieve them, objectives should be clear and simple to understand.

Goal Setting

Goal setting is an effective tool for progressive organizations, because it provides a sense of direction and purpose. Employees benefit greatly from understanding what is expected of them and how they can measure this success (or lack thereof). A clear concept of achievement leads to independent personal development, and goal setting can improve the organization’s performance. Challenging goals tend to result in higher performance than easy or no goals.

Goal setting means establishing what a person or an organization wants to achieve. In setting these objectives, managers must ensure the goals are both understandable and achievable to meet performance targets. The SMART model is a good framework to keep in mind when generating goals and objectives. It aims to design goals that are specific, measurable, achievable, realistic, and time-targeted (SMART).

SMART criteria

Each component of the SMART model describes an effective attribute of a performance objective. Objectives should be Specific, Measurable, Achievable, Relevant, and Time-bound.

The SMARTER framework expands upon this model by noting that objectives should be evaluated and reviewed consistently as well.

Motivation

Motivation elicits, controls, and sustains certain goal-directed behaviors. There are a number of approaches to motivation: physiological, behavioral, cognitive, and social. Motivated employees are also more quality oriented and more productive.

1.3.4: Financial Rewards for Managers

Career success and fulfillment hinge on effective human-resource management and empowering employees with the necessary tools and skills.

Learning Objective

Describe how managers and human resource professionals can effectively empower employees to achieve success and fulfillment

Key Points

Understanding an employee’s needs and future objectives is critical in assigning them the responsibilities that align with their goals and that will serve to develop their skill set in a desired direction.
When assigning tasks, managers must keep career success and development in mind. It is beneficial to plan and implement employee objectives based upon career aspirations and skills.
Managers are also tasked with monitoring and reviewing employee outcomes with an eye for improvement opportunities. Performance monitoring allows for active skill development through constructive feedback.
Managers may employ numerous tools in developing employees in a meaningful and fulfilling way to ensure their future success. These tools include case studies, consultation, mentoring, and technical assistance.

Key Terms

empower: To give someone the strength and/or the means to accomplish something.
Consultation: A conference for the exchange of information and advice.

From a human-resources framework, managers are largely responsible for the well-being of their employees in regards to providing opportunities for career development and personal fulfillment.

Understanding an employee’s needs and future objectives is critical in assigning them responsibilities that align with their goals and that will serve to develop their skill set in a desired direction. A manager is also a leader, and leadership is a complex facet of the managerial process. Leading employees in an empowering way and enabling career success and fulfillment are central tasks in improving employee outcomes and creating more value for the organization.

When assigning tasks, managers must keep career success and development in mind. A reasonable rule of thumb is the plan-implement-monitor-review model illustrated in the figure below. Planning (based on employee objectives) and implementing (based upon shared expertise) provide a framework to move the employee in the direction of success. Monitoring progress and reviewing it will allow the employee to remain meaningfully engaged, working towards the common goal of success while gaining experience and skills from managerial expertise.

Facilitating employee success

By employing these steps, a manager can help their employees be successful.

Combining this model for success with a working understanding of a given employee’s objectives and fulfillment needs helps to ensure that employees remain motivated and satisfied with their current roles. Empowering employees in a developmental direction and providing them with challenges that stretch their abilities are substantial motivators. These are important developmental tools companies can use to obtain the highest possible value from their human resource investments.

Strategies for Promoting Employee Success

Promoting career success for employees and managers involves the creation of developmental goals that build stronger skills and aim toward fulfillment. Goal creation is generally achieved using varying approaches and experiences. These may include coaching, higher education, mentoring, reflective supervision, technical training, and consultation. When to apply which particular approach is the primary responsibility of a manager, as is assessing employees’ progress and trajectory towards the completion of their personal career objectives. Following are a few tools managers may use to optimize returns on career development:

Case Study Method – Case studies are an excellent way to drive employee experience in a realistic and meaningful way. These incorporate real-life situations that have happened in the past as a method for practicing decision making and assessing performance. Conclusions can then be applied by the employee or manager by assuming the role of the decision makers.
Consultation – Consulting assesses employee abilities through observing performance, reflecting upon these observations, and suggesting methods for improvement. This process is an important responsibility of any manager.
Mentoring – Mentoring is an excellent approach to enhance career success in which a manager matches two employees of different experience levels to learn from one another. Mentoring is usually accomplished by allowing an outside observer to evaluate and suggest improvements for newer employees who have had less time to develop in a particular role.
Technical Assistance – Helping employees implement new technologies and acquire modern skill sets is a growing field in career development. Technical training is provided to enable employees to be more effective with newer methodologies, tools, and equipment. This approach can be of particularly high importance to career development for older demographics, who may have extensive experience in more traditional methods.

1.4: Additional Roles and Skills of Managers

1.4.1: Mintzberg’s Management Roles

Mintzberg defined ten management roles within three categories: interpersonal, informational, and decisional.

Learning Objective

Outline the ten management roles under their three categorical headings, as devised by McGill University professor Henry Mintzberg

Key Points

Mintzberg characterizes management using three categories and ten roles, each of which exhibits critical managerial skill sets useful for business leaders in a variety of contexts.
Interpersonal roles include: figurehead, leader, and liason.
Informational roles include: mentor, disseminator, and spokesman.
Decisional roles include: entrepreneur, disturbance handler, resource allocator, and negotiator.
It is important to recognize that no single manager can be all things to all people at once. Good management requires assessing which role is appropriate when and determining if new talent is required to complement a skill set.

Key Terms

Informational: Designed or able to impart information.
decisional: Having the power or authority to make decisions.

Management is incorporated into every aspect of an organization and involves different roles and responsibilities. Henry Mintzberg (1973), the Cleghorn Professor of Management Studies at McGill University, defined ten management roles within three categories: interpersonal, informational, and decisional.

Each of the three categories embraces the different roles.

Interpersonal

Figurehead: symbolic head; performs a number of routine duties of a legal or social nature.
Leader: motivates and activates subordinates; performs staffing, training, and associated duties.
Liaison: maintains a self-developed network of outside contacts and informers who provide favors and information.

Informational

Mentor: seeks and receives a wide variety of special information (much of it current) to develop a thorough understanding of the organization and environment; emerges as the nerve center of internal and external information for the organization.
Disseminator: transmits information received from outsiders or from other subordinates to members of the organization. Some information is factual; some involves interpretation and integration of diverse value positions of organizational influences. Disseminating what is of value, and how, is a critical informational role.
Spokesman: transmits information (plans, policies, results, etc.) within and outside of the organization; serves as an expert on the organization’s industry.

Decisional

Entrepreneur: searches the organization and its environment and initiates improvement projects to bring about change; supervises design of certain projects as well.
Disturbance Handler: takes corrective action when the organization faces important, unexpected disturbances.
Resource Allocator: allocates the organization’s resources; makes or approves of all significant organizational decisions.
Negotiator: represents the organization at major negotiations.

A manager’s job is never static; it is always dynamic. At any given time, a manager may carry out some combination of these roles to varying degrees, from none of the time to 100 percent of the time. Throughout an individual’s working life, a person may hold various management positions that call upon different roles.

No one person can be all things to all people. While these ten roles are highly useful in framing organizational leadership, to expect one person to fill each role in a large organization is impractical. Instead, astute hiring managers will hire people with one or two specific roles in mind, thereby creating a team of managers capable of handling the wide variety of challenges in the business world today.

1.4.2: Managing Organizational Priorities

Agendas help to organize, prioritize, and facilitate discussion about a given set of points in an organizational pursuit.

Learning Objective

Explain the process of pursuing agendas, particularly from the perspective of change management, through the implementation of strategies and policies

Key Points

An agenda, particularly within an organization or business, is loosely defined as an organized approach toward accomplishing a series of objectives or discussing a series of points.
In business, an agenda is commonly brought to a meeting to ensure everyone understands what will be discussed.
Public companies have an important relationship with agendas, as they are often tasked with keeping meeting minutes, a verbatim overview of what was discussed for public viewing and consideration.
Skilled managers may both construct and implement an agenda in an organizational setting.
Good managers can balance the various interests, operations, and technical skills of a given team to ensure the objectives and timelines set forward by the agenda are carried out.

Key Terms

agenda: A temporally organized plan for matters for discussion or tasks to be carried out.
project management: The discipline of organizing and handling resources (e.g., people) in such a way that an endeavor is completed within defined scope, quality, time, and cost constraints.

Defining Agendas

An agenda, particularly from the perspective of an organization or business, is loosely defined as a organized approach toward accomplishing a series of objectives or discussing a series of points. Agendas are most commonly used in a short-term setting, such as a meeting or a given week’s work plan; however, they can also be used as a longer-term strategic planning component.

Example of an agenda

An agenda sometimes combines a process flow and a checklist, where employees and management involved in a given operational process track progress and provide updates. The image above illustrates a Gantt chart, which uses a bar graph to show progress toward completion.

Business Application

In business, an agenda is commonly brought to a meeting to ensure everyone understands what will be discussed. Agendas should be distributed well before the meeting or discussion to ensure individuals attending have time to prepare their discussion points and to familiarize themselves with what others will be discussing. Reading the agenda in advance ensures that the overarching goals of a given meeting are clear and understood by all participants prior to the discussion.

Agendas may also be used as a means of highlighting current progress and projecting future progress. This type of agenda provides a timeline and tracking mechanisms for participants involved in a given project and may or may not require onsite meetings. Agendas showing project progress are often used by contractors and those in the field of project management.

Keeping Minutes

Agendas are also used broadly in the political and public domain, where meetings held by public institutions, NGOs, or political groups are approached and organized via a given agenda. Public companies have a more important relationship with agendas than private companies, as they are usually required to record meeting minutes. These minutes are essentially a verbatim record of what was discussed and are made available for public viewing and consideration. As these discussions are accessible by any and all stakeholders, the outline and preparation of a valid and relevant agenda is of particularly high importance.

Relevance to Management

Skilled managers may construct and implement an agenda in an organizational setting. Building an agenda requires broad familiarity with all critical components of a given department, project, or organizational objective. Creating a relevant agenda and distributing it to concerned parties in a timely fashion requires organizational ability, communication skills (including the ability to write clearly and concisely), and strategic know-how (knowing what to discuss and in what order). Managers must be skilled in controlling the pace, tone, and trajectory of discussions at meetings. Agendas are an excellent tool for organizing thoughts and leading discussion.

The pursuit of agendas requires a similar set of managerial skills. Ensuring follow-through and keeping employees on task and on schedule requires an ability to multitask—to oversee various aspects of a given operational area simultaneously. Good managers can balance the various interests, operations, and technical skills of a given team to ensure the objectives and timelines set forth in the agenda are carried out.

1.4.3: Technical Skills of Successful Managers

Successful managers must possess certain technical skills that assist them in optimizing managerial performance.

Learning Objective

Outline the four critical technical skills commonly utilized by successful managers and supervisors in optimizing organizational performance

Key Points

Robert Katz identifies three critical skill sets for successful management professionals: technical skills, human skills, and conceptual skills.
Of the three skill sets identified by Katz, technical skills are the broadest category and the most easily defined. A technical skill is defined as a learned capacity in just about any given field of work, study, or even play.
Front-line managers represent a substantial portion of management; they rely on their technical skills daily.
Office environments require a complex set of communicative, technological, and data-organization skills to optimize managerial performance.

Key Terms

technical skill: The learned capacity or ability to carry out predetermined results using tools, machines, techniques, crafts, systems, and methods of organization.
delegation: The act of committing a task to someone, especially a subordinate.

Defining Technical Skills

Robert Katz identifies three critical skill sets for successful management professionals: technical skills, human skills, and conceptual skills. While these three broad skill categories encompass a wide spectrum of capabilities, each category represents a useful bucket for these skills to fall into and describes the way in which these skills interact with management at various levels.

Of the three skill sets identified by Katz, technical skills are the broadest, most easily defined category. A technical skill is defined as a learned capacity in just about any given field of work, study, or even play. For example, the quarterback of a football team must know how to plant his feet and how to position his arm for accuracy and distance—both technical skills. A mechanic, meanwhile, needs to be able to deconstruct and reconstruct an engine, to employ various machinery (lifts, computer scanning equipment, etc.), and to install a muffler.

Front-Line Managers’ Technical Skills

Managers also need a broad range of technical know-how. All industries need management, and management must exist at various organizational levels. Front-line managers represent a substantial part of management who must use their technical skills daily. Front-line managers must communicate up the chain of command while still speaking the language of the workers who are executing the hands-on components of the industry. A technical skill for a front-line manager might include a working understanding of a piece of equipment: the manager must be able to coach the employee on its operation, as well as communicate to upper managers the basic functions of the machinery.

Technical Skills in Upper Management

In addition to front-line managers, managers in other corporate roles and at higher levels require critical technical skills. These can include office-based competencies such as typing, programming, website maintenance, writing, giving presentations, and using software such as Microsoft Office or Adobe. Office environments require a complex set of communicative, technological, and data-organization skills in order to optimize managerial performance.

Successful managers in an organization must therefore learn to use the technological assets at their disposal, collecting critical information and data to communicate upward for strategic planning. An example of information management is a mid-level manager in the automotive industry who is responsible for recognizing global marketing potential. This individual must be capable of realizing the legal, demographic, social, technological, and economic considerations of entering a market; the manager will use effective research and delegation skills and also consolidate the information into a useful presentation using technological and communicative skills.

Katz postulates that the higher up in the organization an individual rises, the more conceptual skills (and fewer technical skills) are necessary. Senior managers need fewer technical skills because strategic decision-making is inherently more conceptual; mid- and lower-level skills such as data collection, assessment, and discussion are all more technical. Even so, all disciplines of management require a broad range of skill sets for effective business processes to occur.

Example

A technical skill for a front-line manager might include a working understanding of a piece of equipment: the manager must be able to coach the employee on its operation, as well as communicate to upper managers the basic functions of the machinery.

1.4.4: Intellectual Skills of Successful Managers

Conceptual skills revolve around generating ideas through creative intuitions and a comprehensive understanding of a given context.

Learning Objective

Recognize the inherent value of encouraging cooperation among teams as a management professional

Key Points

Conceptual skills of management represent one of the three skill sets identified by Robert Katz as critical to managerial success in an organization; the other two include technical skills and human skills.
Conceptual thinking is difficult to define but could generally be considered as the ability to formulate ideas or mental abstractions in the mind.
While all levels of management benefit from conceptual thinking, upper management spends the most time within this frame of mind.
Conceptual skills include the ability to forecast, think innovatively, and combine seemingly disparate information; they also include the communicative capacity to discuss and debate in pursuit of a good strategy.
Conceptual skills are important in empowering managers in all levels of an organization to observe the operations of an organization and frame them conceptually as an aspect of that organization’s strategy, objectives, or policies.

Key Term

conceptual: Pertaining to the ability to apprehend or form an idea in the mind; the ability to create a mental abstraction.

Defining Conceptual Thinking

Conceptual skills represent one of the three skill sets identified by Robert Katz as critical to managerial success in an organization; the other two include technical skills and human skills. While each skill set is useful in different circumstances, conceptual skills tend to be most relevant in upper-level thinking and broad strategic situations (as opposed to lower-level and line management). As a result, conceptual skills are often viewed as critical success factors for upper managerial functions.

Conceptual thinking is difficult to define but could generally be considered as the ability to formulate ideas or mental abstractions in the mind. Conceptual skills primarily revolve around generating ideas, utilizing a combination of creative intuitions and a comprehensive understanding of a given context (i.e., incumbent’s industry, organizational mission and objectives, competitive dynamics, etc.). When combined with a variety of information, as well as a degree of creativity, conceptual thinking can result in new ideas, unique strategies, and differentiation.

Conceptual Skills in Upper Management

While all levels of management benefit from conceptual thinking, upper management spends the most time within this frame of mind (as opposed to thinking more technically—looking at and working with the detailed elements of a given operation or business process). Upper management is largely tasked with identifying and drafting a strategy for the broader operational and competitive approach of an organization.

This strategic planning includes generating organizational values, policies, mission statements, ethics, procedures, and objectives. Creating this complex mix of concepts to use as an organizational foundation requires a great number of conceptual skills—formulating concepts and predicting their effects in an organizational setting.

Conceptual Skills in Lower and Middle Management

While upper management may use the conceptual skill set most, middle managers and lower managers must also both understand and participate in the generation of company objectives and values. Of particular importance are the ability to communicate these critical concepts to subordinates and the ability to gather useful information to convey to upper management so that the concepts can evolve.

Collecting the results of conceptual thinking represent a feedback loop. Conceptual skills are important in empowering managers in all levels of an organization to observe the operations of an organization and frame them conceptually as an aspect of that organization’s strategy, objectives, and policies. Conceptual thinking allows for accurate and timely feedback and organizational adaptability.

1.4.5: Interpersonal Skills of Successful Managers

A manager must be both analytical and personable when it comes to managing time, resources, and personnel.

Learning Objective

Demonstrate the integral human skills that enable effective management and leadership capacity in the organizational frame

Key Points

According to management theorist Robert Katz, management comprises three critical skill sets: technical skills, human skills, and conceptual skills.
Human skills are broadly perceived as a combination of social, interpersonal, and leadership skills. These skills are increasingly important in business and relevant to all levels of management (lower, middle, and upper).
Human skills differentiate a manager from a leader. A manager is simply manipulating resources to achieve a given objective, while a leader appeals to the human side of employees to generate creativity and motivation.
Interpersonal skills and communication skills lie at the center of human-based managerial considerations. Good managers understand not only what they are trying to say but also the broader context and implications of saying it.

Key Terms

empathy: The intellectual identification of the thoughts, feelings, or state of another person.
interpersonal: Between two or more people.

According to management theorist Robert Katz, management comprises three critical skill sets: technical, human, and conceptual. The development of human skills—which could be perceived as a combination of social, interpersonal, and leadership skills—is central to the success of a manager.

Leadership

Over the years, the common definition of management has become less specific, as managerial functions can include staffing, directing, and reporting. Modern companies have fewer layers of management, as these companies instead rely on the delegation of responsibilities and authority to achieve goals. As a result, businesses often speak of “leading,” or guiding, people rather than giving instructions for every action. Leading people represents a central component of human skills.

Under this definition of management, leadership is actually a subcategory of management. Management characterizes the process of leading and directing all or part of an organization, often a business, through the deployment and manipulation of resources (human, financial, material, intellectual or intangible).

Human skills differentiate a manager from a leader. A manager is simply manipulating resources to achieve a given objective, while a leader appeals to the human side of employees to generate creativity and motivation.

These concepts of “manager” and “leader” can be distinguished within a team setting. A team leader who is unconcerned with team members’ needs or who has a personal agenda that is perceived to be more important than the team’s goals may be considered more of a manager than a leader, with the possible outcome of being estranged from team members. Conversely, team leaders who are admired and loyally followed are those who show concern for the team members as individuals with real needs and who place their team above their own personal agendas.

Communication

Realistically, most organizations need leaders who can view their teams analytically and objectively, evaluating inefficiencies and making unpopular choices. However, it is misleading to think that a manager has to be distant from or disliked by subordinates to execute these responsibilities. Creating a healthy environment conducive to development, criticism, and higher degrees of achievement simply requires strong human skills, particularly in the realm of communication.

The “four sides” communication model

This model provides a theoretical framework for the act of communicating, which lies at the heart of effective management. A sender communicating a message to a receiver is not simply transmitting factual information; self-image, context, charisma, and the relationship between the two people also impact the reception of the message.

Interpersonal skills and communication skills lie at the center of human-based managerial considerations. Good managers understand not only what they are trying to say but also the broader context and implications of saying it. Empathy, self-reflection, situational awareness, and charisma all play integral roles in communicating effectively and positively.

1.4.6: Experiential Learning for Managers

Experiential learning is the process of making meaning from direct experience.

Learning Objective

Define the process, role and implementation of experiential learning as it pertains to managerial skill set development

Key Points

Experiential learning involves learning through reflection on direct actions and experiences; it is often contrasted with rote or didactic learning.
Experiential learning does not require a teacher; instead, it relates to the process of making meaning based on individual experience.
In this learning technique, a cycle of concrete experience, reflective observation, abstract conceptualization, and active experimentation generates realistic learning outcomes.
Management requires a wide variety of skills that are largely intangible and not easily learned via textbooks, so experiential learning serves as a useful focal point for study.

Key Terms

genuine: Belonging to, or proceeding from the original stock; native; hence, not counterfeit, spurious, false, or adulterated; authentic; real; natural; true; pure.
Experiential: Of, related to, encountered in, or derived from an activity or event.

Defining Experiential Learning

Aristotle once said, “For the things we have to learn before we can do them, we learn by doing them.” Experiential learning is the process of making meaning from direct experience. The experience can be staged or left unstructured. David A. Kolb, an American educational theorist, helped to popularize the idea of experiential learning, drawing heavily on the work of John Dewey, Kurt Lewin, and Jean Piaget. Kolb’s work on experiential learning has contributed greatly to expanding the philosophy of experiential education.

The Process

Experiential learning involves learning through reflection on doing; it is often contrasted with rote or didactic learning. Experiential learning is related to—though not fully synonymous with—experiential education, action learning, adventure learning, free-choice learning, cooperative learning, and service learning.

Experiential learning focuses on the learning process for the individual (unlike experiential education, which focuses on the transaction between teachers and students). An example of experiential learning is going to the zoo and observing and interacting with the zoo environment, as opposed to reading about animals in a book. It is the difference between firsthand knowledge and hearing or reading about other people’s experiences.

Experiential learning does not require a teacher; instead, it draws solely upon the process of making meaning based on direct individual experience. According to Kolb, knowledge is continuously gained through both personal and environmental experiences. While gaining knowledge is an inherent process that occurs naturally, certain elements must be present for a genuine learning experience to occur. Kolb states that to gain genuine knowledge from an experience requires the following abilities:

the learner must be willing to be actively involved in the experience
the learner must be able to reflect on the experience
the learner must possess and use analytic skills to conceptualize the experience
the learner must possess decision-making and problem-solving skills in order to use the new ideas gained from the experience

Experiential learning

The process of experiential learning is cyclical, with no required starting or end point. Learning through experiences requires observation, conceptualization, and experimentation to engage the mind.

Experiential learning can be a highly effective way to learn new skills, new attitudes, or even entirely new ways of thinking. It engages the learner on a more personal level by addressing the needs and wants of the individual. It requires initiative and the ability to self-evaluate. To be truly effective, it should span goal-setting, experimenting and observing, reviewing, and planning future action.

Role in Business

Experiential learning plays an important role in business learning and managerial training. It is an integral component to many training programs, as it engages both the intellect and the senses much more comprehensively than lectures, books, or videos. For example, a computer simulation of change management can be a useful application of experiential learning, as can a board game simulating operational efficiency in a factory.

Business skills are inherently intangible, evading the capture of most textbooks without external materials to create context. Management spans a wide variety of personal capabilities and requires different skills based upon the specific role and context, making it a challenging subject to teach. Motivating others and navigating a complex organizational structure are not skills individuals can learn via textbooks; experiential learning in business may therefore serve a useful focal point for study.

This principle is particularly noticeable in business programs that utilize a cohort or group-based educational structure for students. These programs enable students to select leaders and actively practice delegation, communication, and multitasking as they work on projects. Case studies offer another effective method of capturing these complex managerial skill sets in a real-life setting. Cases place students in the shoes of managers and allow them to experience and apply the variety of skills and considerations necessary for success in a specific situation and industry.

Example

A computer simulation of change management can be a useful application of experiential learning, as can a board game simulating operational efficiency in a factory.

1.5: Current Challenges in Management

1.5.1: PESTEL: A Framework for Considering Challenges

The PESTEL framework highlights six critical factors for management to consider when approaching the general business environment.

Learning Objective

Assess opportunities and threats within the context of external factors using the PESTEL framework

Key Points

Politics play a role in business, as there is a balance between free markets and systems of control.
Economic factors are metrics which measure and assess the health of a given economic region or environment.
Social factors, or demographic factors, assess the mentality of the individuals/consumers within a given market.
Recognizing the potential technologies available to optimize internal efficiency, or to avoid letting a product or service become technologically obsolete, is a large challenge for management.
Consumers and governments both penalize companies who have a large adverse affect on the environment (or reward those who have a positive impact).
Understanding the varying laws and regulations in a given region of operation is critical to avoiding unnecessary legal costs.

Key Terms

gross domestic product: A fiscal measure of an entire region’s economic production over a specific time frame.
anti-trust: A set of laws that ensures no company dominates an industry (i.e. creates a monopoly).
macro environment: As pertaining to the macro-environment, these factors are indicative of the entire business environment as a whole.

Organizations are faced with a variety of external factors that provide potential opportunities and threats for short-term and long-term success in any given environment. Encompassing a macro-environmental perspective, these factors can be effectively summarized with the acronym PESTEL.

PESTEL Analysis Diagram

This chart illustrates the PESTEL factors an organization faces.

PESTEL stands for the political, economic, social, technological, environmental, and legal influences a businesses encounters as it pursues its objectives. Analyzing the entirety of the macro-environment is an extensive and complex task, but understanding the framework of basic influences allows for an organized and strategic approach to isolating each opportunity or threat. It is common to conduct a PESTEL assessment before any serious decisions are made or any large projects undertaken. Understanding each of these influencing factors is the first step to addressing them properly.

Political

Politics play a role in business, as there is a balance between free markets and systems of control. Political factors affecting business specifically revolve around taxes, import and export tariffs, environmental and labor laws, potential subsidies, and the stability of a given operational region. As global economics now supersede domestic economics for many businesses, companies must consider a number of opportunities and threats when expanding into new regions or identifying optimal areas for production, sales, or corporate headquarters.

Economic

Economic factors are metrics that measure and assess the health of a given economic microcosm within the entire global economy. These factors incorporate exchange rates, gross domestic product (GDP), consumer purchasing indices, interest rates, inflation, and a number of other indicators of economic health or direction. These indicators are critical to management, as they can reveal a good time to borrow, as well as whether an economy will be friendly to an industry where businesses fluctuate substantially with GDP or spending power, etc.

Social

Social factors could loosely be defined as a demographic analysis, where specific groups display preferences or tendencies that can be leveraged or that can threaten a given incumbent. For example, in the United States, consumers are becoming more health-conscious. This trend affords the food industry opportunities to create products that meet this social desire; as a result, candy manufacturers may want want to consider diversification. The social movement of living “green” is another example of this kind of macro-environmental opportunity or potential threat.

Technological

Technology plays a larger and larger role each year in business and will continue to do so as research and development drive new innovations. Recognizing the potential technologies available to optimize internal efficiency is a powerful asset in management. Technology also presents a number of threats, as CD-player manufacturers and Blockbuster Video can attest. These companies were hurt by “disruptive innovations” such as the MP3 player and Netflix. Keeping pace with technology and adapting accordingly are important strategies to sidestep threats and embrace opportunities.

Environmental

The impact of business upon the environment is a growing concern, and companies must consider both the social and political segments of PESTEL in conjunction with environmental factors. Consumers and governments both penalize companies that adversely affect the environment. Governments levy enormous fines upon companies that pollute beyond given specifications, and consumers are more than willing to switch brands if they perceive that a business is ignoring its environmental responsibilities. The environment can also be a source of benefit to a company, such as running water for a hydro-power plant.

Legal

The last factor in PESTEL concerns legal elements, which can also be tied to the political framework. Legal issues such as affirmative action, patent infringements (a recent example being Apple vs. Samsung), antitrust laws (see Microsoft), health regulations, and safety regulations can all significantly affect a company that does not act responsibly. Understanding this legal landscape is important for businesses that want to avoid legal pitfalls and remain within the confines of established regulations.

1.5.2: The Challenge of Globalization

Globalization is the international integration of intercultural ideas, perspectives, products/services, culture, and technology.

Learning Objective

Assess the evolution of globalization in the business world and the challenges this has created

Key Points

Globalization is an influential modern topic that highlights the growing interdependence between different countries worldwide, necessitating managers to appropriately incorporate this trend within their strategies.
The speed of modern globalization is often attributed to technological developments in communication and transportation, tasking managers with appropriately leveraging these technologies internally.
Multinational companies cumulatively employ nearly half of the world’s population, creating a need for managers with a strong international awareness.
Managers must understand that some processes can be performed universally and internationally, while others must be done in a localized fashion to adhere to each specific region’s tastes and customs.
Critics of globalization cite the way in which it motivates an international culture over established domestic ones, as well as the negative environmental effects that result from business expansion.
Being mindful of the potential opportunities in a global economy, along with knowledge of how to localize and sidestep the negatives in an international marketplace, can capture large value for effective managers.

Key Terms

Localizing: The act of altering a product or service to better acclimate to a local environment.
Multinational Enterprises: Businesses that operate in more than one country.
Intercultural: Representative of many different cultures simultaneously.

Example

The 2008 financial collapse is a wonderful yet terrifying example of exactly what can go wrong and why corporate governance and ethics is of such importance to both a business and the society in which it operates. Leading up to the mortgage-backed security fallout of 2008, banks and investors began to move down the path of profitability over ethical concern. Banks eliminated certain rules and regulations (though the government did as well), allowing employees to sell mortgages that were unlikely to be repaid. Following this, upper management deemed it fit to package these risky securities into bundles and sell them as safe investments, in order to capture yet more value. Though only a simplified and small analysis of a complicated issue, this oversight in corporate management saw each echelon of leadership ignore the core responsibility of ensuring ethical standards in lieu of capital gains. Management is at fault for this oversight; it was a failure in corporate governance.

Globalization is a hot topic in the business world today, garnering enormous attention as imports and exports continue to rise with companies expanding across the global marketplace. Understanding the basic overview of the global economy underlines highly relevant managerial and business level applications that provide useful insights to modern-day managers.

In general terms, globalization is the international integration of intercultural ideas, perspectives, products/services, culture, and technology. This has resulted in large scale interdependence between countries, as specialization (arguably the root cause of globalization) allows for specific regions to leverage their natural resources and abilities to efficiently produce specific products/services with which to trade for another country’s specialization. This allows for a higher standard of living across the globe through higher efficiency, lower costs, better quality, and a more innovative and dynamic workforce.

Growth of Globalization

The ease of modern globalization is often attributed to rapid technological developments in transportation and communication. These form the central system of international exchange, allowing businesses to create meaningful relationships worldwide with minimal time investment and costs. Management is tasked with ensuring these resources are available to employees and properly leveraged to optimize the geographic reach of a business’s operations. This has led to the existence of many multinational enterprises (MNEs), who argue that survival in the newly globalized economy requires sourcing of raw materials, services, production, and labor.

From a managerial perspective, the global workplace implies an enormous amount of diversity management. Estimates of the world labor pool in 2005 noted that multinational companies employed a stunning 3 billion workers cumulatively, which is nearly half of the entire world population. As a manager, this means developing a globally aware perspective that lends itself well to the specific geographic needs, values, and customs in which the business operates. Developing this global skill set is a powerful managerial skill.

Challenges of Globalization

Managers should also be aware of the best way to approach global demographics from a business to consumer perspective, taking an international product or service and localizing it successfully. This is a significant challenge, necessitating consideration for different tastes and branding strategies during the implementation process. This chart illustrates the process of moving from an international product to a localized product step by step, making note of the element of production that can be universally applied compared to those that need a localized touch.

Globalization Process

This chart illustrates the complementary localizing and internationalizing responsibilities of a globalizing organization. The organization must place an international focus on product design, development, and QA to ensure its broad relevance while also localizing marketing to tailor its appeal to individual markets.

Managers must also be particularly aware of the current criticisms of a highly global society, particularly as it pertains to ethical and environmental considerations. A global economy is, in many ways, enforcing a global culture. This global culture is often criticized for taking the place of previously established domestic cultures (and motivating consumerism).

As a result, managers should carefully consider how to best localize products to retain cultural identity in the regions they operate. Environmental concerns are of large importance as well, as the constant energy utilization required for this interchange pollutes the environment and uses high quantities of valuable energy-creating resources. Minimizing the damage done to the environment, and offsetting it as best as possible through philanthropic giving, is not only a wise marketing move but also a critical ethical consideration.

Conclusion

Combining these points, the globalized society presents enormous opportunity for businesses. Intercultural marketplaces allow for differing demographics, larger market potential, a more diverse customer base (and therefore more diverse product offering) and a highly valuable human resource potential. On the other end of the bargain, managers are tasked with localizing products and services effectively in a way that minimizes the adverse cultural and environmental effects caused by this rapid global expansion to maintain an ethical operation.

1.5.3: The Challenge of Ethics and Governance

Ethics is at the core of corporate governance, and management must reflect accountability for their actions on a global community scale.

Learning Objective

Explain the role of management in setting strategic governance policies that conform to ethical and legal standards

Key Points

Business itself cannot be ethical: only the managers and corporate strategists can implement ethics within the framework of the business strategy.
Corporate ethics and shareholder desires for profitability are not always aligned, and it is the responsibility of executive management to ensure ethics supersede profitability.
In its simplest form, corporate ethics is a legal matter. Abiding by laws protecting workers’ rights and appropriate compensation is a top priority for management.
Corporate governance and ethics become more difficult with the indirect implications of particular practices, making it important to assess the way in which certain operations may adversely affect the community at large.
Managers are the primary decision makers, and therefore must hold themselves accountable for the way in which a business operates and affects stakeholders, shareholders, employees, and the community at large.

Key Terms

profitability: The capacity to generate capital.
accountability: Individuals’ responsibility for their own work and acceptance of the repercussions of their actions.

Accountability

First and foremost in corporate governance is the strict adherence to business ethics on a professional level. The figure highlights the primary responsibilities of corporate managers; the upper left corner—accountability—is of particular significance. Understanding the rules and regulations in place, along with societal and personal expectations of ethical actions, is an absolutely critical and fundamental concern for all managers. The complexities and responsibilities of running a business and managing employees is the first priority for managers, as it holds the highest repercussions, both personal and fiscal, for all parties involved.

Economist Milton Friedman makes an insightful observation when he states “…the only entities who can have responsibilities are individuals…A business cannot have responsibilities.” Though this sounds like common sense, it is a fact often overlooked that the only parties capable of acting ethically are those in charge. Furthermore, ethics often contrasts with the basic premise of capitalism and the demands of shareholders: profitability. Therefore, the most difficult decisions in corporate governance—those at the ethical level—must be made through the more complex assessment of societal, corporate, and personal values.

Legal Foundations

At its most basic, ethical behavior can first be derived via the laws, rules, and regulations of the country in which a business operates. In the United States, workers are imbued with very specific rights regarding the risks they take, the hours they work, the breaks they deserve, and the benefits they are provided. Managers are the responsible parties in ensuring these are delivered to the employees in an equitable and legal way. When working over 40 hours a week, hourly employees are entitled to overtime pay. When working long shifts, employees are entitled to breaks. When working in dangerous conditions, employees are entitled to protective gear and training.

At their core, these regulations approach the fundamental dissonance alluded to above: profit-maximizing behavior as it contrasts with non-economic concerns. This dissonance is exacerbated by the global economy, which sees businesses operating within communities towards which they have no dependence or direct sensitivity. As a result, to ask the question, “What does this practice mean for the people in the area in which we operate?” is crucial in ensuring adherence to a community-first action plan.

The 2008 Financial Collapse

Complexities begin to arise as the the ethical implications within an economic system become more subtle. The 2008 financial collapse is a wonderful yet terrifying example of exactly what can go wrong and why corporate governance and ethics is of such importance to both a business and the society in which it operates. Leading up to the mortgage-backed security fallout of 2008, banks and investors began to prioritize profitability over ethics. Banks eliminated certain rules and regulations (though the government did as well), allowing employees to sell mortgages that were unlikely to be repaid. Following this, upper management deemed it fit to package these risky securities into bundles and sell them as safe investments (though they were in fact risky derivatives), in order to capture yet more value. Though this is only a simplified and small analysis of a complicated issue, it succinctly describes how corporate management saw each echelon of leadership ignore the core responsibility of ensuring ethical standards in lieu of capital gains. Management is at fault for this oversight; it was a failure in corporate governance.

The 2008 collapse is a powerful reminder that managers must keep in mind that their primary goal for shareholders is to maximize profits, while their primary goal to the community at large is to provide products without adverse effects on that community. Managing employees responsibly and putting their well-being first is an important step in this process, as is considering the wider implications of opening a new factory that pollutes or selling a highly unhealthy food product. Managers must be responsible because businesses as a whole cannot, and this responsibility towards integrity lies at the heart of management.

1.5.4: The Challenge of Diversity

Globalization demands a diverse workforce, and assimilating varying cultures, genders, ages, and dispositions is of high value.

Learning Objective

Explain the inherent value diversity generates in the competitive landscape and the challenges globalization presents

Key Points

In the 1960s, the U.S. begin identifying trends in workplace diversity and addressed them with legislation. This evolved into a societal change that embraces diversity as both valuable and ethical.
Diversity poses various challenges in communication, from differences in language to differences in culture. Understanding these cultural differences and what they may accidentally communicate is critical to effective communication.
Majority cultures have a tendency to create a homogeneous environment, possibly limiting the potential diverse opinions can provide.
Groupthink is a threat of which managers must be aware, particularly in meetings where dominant opinions steal most of the spotlight. Different perspectives are where the highest value can be captured in diverse environments.
The ability to manage diversity, as well as refine actions to communicate accurately and intentionally, are valuable and necessary aspects of effective management.

Key Terms

groupthink: Decision making that is often characterized by a high degree of conformity.
Hegemony: The dominance of one social group over another.

The Value of Diversity

Globalization has resulted in enormous cross-cultural relationships, along with high percentages of domestic diversity. As globalization creates higher potential value in approaching diverse markets and demographics, understanding how to manage a diverse community internally is a priority for management.

Through creating a more international community and increasing variety among workforces, companies stand to benefit enormously from meaningful diversity in opinions and perspectives. This opportunity, if not properly utilized, becomes a threat as the competition grows more effective at leveraging diversity to create synergy. Therefore, staying competitive requires the creation of an effectively diverse workplace.

Ethnic diversity map

This map illustrates the level of diversity worldwide. Areas like sub-Saharan Africa tend to be more heterogenous than, for instance, states in Europe.

Stemming from various legislative initiatives in the 1960s, the concept of equality and a fair distribution of opportunity became a domestic focus in the United States. As the decades passed, this focus shifted from a legal requirement to a social expectation. Finally the idea of equality became a societal norm that recognizes both the importance and the value of diversity. This evolving outlook on a diverse workplace has ultimately resulted in the recognition and implementation of diversity management and intercultural understandings within organizations, creating stronger and more ethical business practices.

Challenges of Diversity

Despite this successful trajectory, challenges to diversity naturally occur as a result of communication (languages and values), majority hegemony, and groupthink.

Communication

Communication is at the heart of diversity management, but not necessarily for obvious reasons. Linguistic differences, while certainly a challenge, are tangible and straightforward. Learning new languages or translating materials is a reasonably effective approach to addressing these difficulties.

The more difficult challenge is the intangibles in communication that arise not from literal words but from cultural expectations. Different cultures not only speak different languages but adhere to different values, draw different assumptions, and define different actions as appropriate or inappropriate. Overlooking these cultural differences can result in miscommunication that may go unrecognized. For example, in China it is quite important to understand the concept of guanxi (face), particularly as it pertains to paying respect to guests or superiors. Overlooking these customs sends unintentional messages that can do irreversible damage.

Majority Hegemony

Majorities in businesses creating a homogeneous culture is also a substantial threat, as company culture is a direct product of the participants (employees). This can result in a business that creates and promotes a particular culture over other minority cultures, usually unintentionally as a result of numbers. This hegemony can create tension between different groups, ultimately resulting in the smaller groups moving towards the culture of the larger ones to close the dissonance, a practice called assimilation. Assimilation should be a shared responsibility, not simply assumed by those in the minority group.

Groupthink

The most substantial threat these communicative barriers and homogeneous tendencies create could loosely be defined as groupthink. Groupthink is when many people within the same organization begin to adopt similar perspectives, usually to simplify meetings and minimize discord. On the surface, this consensus sounds like a good thing. However, as the global economy requires businesses to understand varying perspectives, it also necessitates the cultivation of these diverse perspectives internally. Groupthink will often result in the assimilation of dissenting perspectives. The opportunity cost is precisely these different viewpoints. Without differences in perspective, companies have little room to expand into new demographics or innovate new solutions.

The Role of Management

Different cultural norms offer an interesting study in diversity management. Etiquette for receiving a business card in China requires accepting it with both hands and taking a full moment to read it. Following this, recipients place the card face up on the table in front of them during the meeting, referring to it when necessary. In the U.S., a strong handshake and self-introduction is a polite start to a meeting. Conversely, in Japan, it is appropriate to wait to be introduced and then bow following the greeting.

Managers must be not only aware of diversity in the workplace but also open-minded and empathetic to perspectives other than their own. Effective managers in diverse situations have a highly developed degree of cultural competence that empowers them to use careful observation skills to determine what gestures, phrases, customs and values would be most appropriate in a given circumstance. Adroit management must also work actively against groupthink, empowering everyone not only to speak but to be brave enough to go against the majority opinion. The goal for management is to ensure everyone is working to assimilate to everyone else in a balanced and effective manner that harvests differences rather than smoothing them over.t

Example

1.5.5: The Challenge of Technology

Technology management is crucial in offsetting the risks of new technology while acquiring the operational benefits it provides.

Learning Objective

Recognize the opportunities and threats inherent in the technological landscape from a business perspective, and how to manage these

Key Points

Managing new technology requires a thorough understanding of business technology management, which consists of four general parts.
Managers must understand how to achieve internal efficiency by applying new technology to operational processes.
Businesses should create strategic business units focused solely upon managing a company’s technological strategy.
Keeping pace technologically requires extensive research and strategic analysis of the potential value of acquiring innovations.
Implementing new technology requires retraining staff and eliminating the natural friction that results from making operational changes.
Managers should be aware of the value in research, development, and forecasting future technological innovations to keep ahead of the competition.

Key Terms

competitive advantage: Something that places a company or a person ahead of a competing business.
evolves: Constantly changes and develops.
Synergy: The concept that a whole can derive more value than the combination of the individual parts.

Technology and Management

Managing technology is an intrinsic part of managing a business, and effectively balancing resources to optimize efficiency is an important operational objective for all managers. Varying perspectives and strategies in technology management abound, all revolving around a few simple needs being filled to move the business towards a competitive advantage. The reason behind the prioritization of technology management is that new, disruptive technology constantly threatens to result in higher efficiency of competitors. On the other hand, effectively managed technology affords businesses the opportunity to outpace the competition (see figure below).

Disruptive technology

This graph underscores the concept that technology advancement is both a constant opportunity and a constant threat.

Business Technology Management (BTM)

From a general standpoint, business technology management focuses on understanding how technology fits into an organization’s processes and structure. It provides the opportunity to streamline operations and produce higher quantities of quality information. BTM can therefore be divided into four elements:

Process: Businesses, whether they provide products or services, always have a set of processes that define how deliverables are generated. These processes need to be assessed for efficiency and effectiveness, particularly as they allow for optimal potential modern technology.
Organization: Businesses are constructed under the assumption of synergy. Each of the strategic business units (SBUs), or facets of the organization, complements one another to create an ability greater than the sum of its parts. Establishing an information technology (IT) department within a business that will function with upper management and throughout the ranks allows for proper implementation of BTM.
Information:Technology evolves exponentially, often changing faster than businesses can easily monitor. Performing appropriate research and analysis of the current technological environment generates the highest return on the (often expensive) investments demanded by keeping pace technologically.
Implementation: After a business organization has a mature IT department that understands the company processes, the department can work with an understanding of the available technologies to upgrade and implement these innovations. Implementation includes training employees, monitoring the return on investment, maintaining new technology, and eliminating friction from the necessary operational changes. Change is always complicated, and businesses benefit greatly by adopting change-management techniques when integrating new technology.

Keeping up with Technological Progress

While managers are focused upon these four aspects of BTM, they must also keep future growth and technology scaling in mind. As innovation continues to demand a central role in businesses, research and development will continue to be critical to a healthy organization. Appropriately funding research initiatives that not only keep track of new innovation but actively seek out strategic solutions creatively offers companies the best chance of survival in the global marketplace.

Managers must also realize the importance of acquiring technology talent that can keep pace with the environment. This is important for two reasons:

The potential to uncover new competitive advantages through internal development
The capacity to forecast up-and-coming technologies to construct an investment road map that always keeps the competition a technological step behind

Developing new technologies in-house is particularly relevant to industries on the cutting edge (e.g., semiconductors, green energy initiatives, TVs, etc.), while forecasting is more critical for the users/consumers of these industries on the business level.

Combining BTM with research and development will ensure managers are properly equipped to tackle the challenges of modern-day innovations, leveraging these capabilities to differentiate from the competition and derive stronger margins. Managers across the board must be aware of the importance of these technological developments, as well as the operational challenges in researching and implementing them.

1.5.6: The Challenge of Competition

Managers must understand a company’s competitive advantage and build a strategy that takes into account the competitive landscape.

Learning Objective

Describe competitive strategies such as low cost, differentiation, and internal competition and the role of the external competitive landscape in developing them

Key Points

Managers must know their business’s strengths and integrate them into the appropriate strategy to remain competitive.
Low-cost strategies are when companies sell a product or service at the lowest possible price point to stay competitive.
Differentiation is an alternative strategy to low cost in which companies fill a specific need that is not being filled or generate a brand image that increases their value-added proposition.
High quality is the antithesis of low cost; instead of efficiency, the strategy focuses on effectiveness, creating the best possible product to capture market share.
Companies also compete internally, either developing naturally competitive products or battling for funding based upon unit success.
Managers must understand all of these competitive strategies and align them with their perceived strategic advantage to stay competitive.

Key Terms

competitive advantage: Something that places a company or a person ahead of competing businesses.
differentiation: A strategy focused on creating a distinct product for a specific population.
Branding: A business’s ability to communicate a specific image, generally one that will entice consumers or add value.

Competitive Strategies

From a managerial perspective, competition generally falls into the external environment, though it can also take shape in the internal environment through rivalry between strategic business units (SBUs). For managers, understanding the external competitive landscape is a critical factor in assessing company strategies and benchmarking appropriately to ensure the competitiveness of the firm. Businesses that fail to keep pace with their rivals will eventually be overpowered and often forced to develop an exit strategy.

Avoiding the risks of competitive factors demands a strong understanding of operational efficiency (low cost), quality production, differentiation, and competitive advantage—or who you target and whether or not you have a cost or quality advantage (see figure below).

Cost vs. quality

Companies generally achieve either a cost or a quality advantage (very rarely, both). In panel A, both companies’ products have the same cost, but Company I’s product has higher value. In panel B, both companies’ products have the same value, but Company I’s product has lower cost. In panel C, Company I’s product has both higher value and lower cost (this is the rarest situation).

Low-Cost and Branding

The simplest perspective on competition is in industries where products are homogeneous (or very alike). In such a situation, companies compete directly. For example, bottled-water producers are directly involved in such a framework and thus adopt two basic competitive strategies: low-cost and branding.

Low-cost suppliers find ways to optimize their production and distribution to offer consumers the lowest possible price on one bottle of water. Low-cost suppliers often benefit largely from economies of scale. Branding, on the other hand, aims to convince the consumer that a higher price point is worth paying based upon the company’s name, reputation, or other distinguishing characteristic. For example, Dasani brand water costs more than generic store brand water, despite being essentially the same product. Commercials, aesthetic presentation, goodwill, and factors other than price may then influence a consumer’s purchasing decision.

Differentiation

Most products and services are not homogeneous, however, allowing incumbents in an industry to compete with one another by means of various competitive strategies. Differentiation is a competitive tactic wherein companies approach certain niche needs within an industry to capture a segment of the market share.

An example of differentiation might be cereal. There are hundreds of different kinds of cereals. The need being filled is sustenance: people need to eat. The producers of these cereals use differentiation to capture a share of the cereal market: some brands focus on their organic nature, others their sugary appeal, and still others on being “cool.” Branding plays an important role here as well, though assessing niche consumer needs and filling them is the principal focus.

Quality

Finally, there is the potential to compete externally based upon quality. Toyota makes both the Corolla and the Lexus, thereby targeting both ordinary automobile drivers and those in the luxury-car consumer bracket. Quality competitive strategies, while related to branding, provide a particular level of quality to capture a specific income or interest demographic. The opportunity cost of efficiency is associated with quality, which generally sees higher price points. Quality is therefore a strong antithesis to the low-cost strategy.

Internal Competition

Businesses also compete internally, an intrinsically complex issue. On the surface, internal competition involves either direct product substitutes or funding competition (among different business units). An example of internal competition is PepsiCo. Pepsi makes both colas and sports drinks, all of which sit on the shelf next to one another. When a customer sees the sports drink and chooses it over the cola, the cola has lost a sale to an internal competitor. Pepsi, however, did not lose a sale; it merely lost one segment of the business while gaining another.

With these points in mind, managers must thoroughly understand the products they are pitching and which strategy will help them avoid going toe-to-toe with other businesses with whom they cannot compete. Starting up a car manufacturing business to compete with Hyundai in the low-cost market is extremely difficult, as Hyundai has economies of scale in place that will almost always beat smaller competition on a low-cost strategy. This example illustrates an extremely important point in business: rely on strengths. Managers must understand their own competitive advantage (what they do better than the competition) to adopt the appropriate competitive strategy to gain market share and remain profitable.

1.6: Entrepreneurship

1.6.1: Introduction to Entrepreneurship

Entrepreneurship relates to the pursuit of risky and innovative business ventures to capture new opportunities.

Learning Objective

Define entrepreneurship within the context of standard activities and organizational support

Key Points

Entrepreneurs are innovators, willing to take risks and generate new ideas to create unique and potentially profitable solutions to modern-day problems. Entrepreneurship is not so much a skill as a habitual state of mind.
When entrepreneurship describes activities within a firm or large organization, it is referred to as intrapreneurship and may include corporate venturing, when large entities spin off organizations.
Entrepreneurship employs what Schumpeter called the gale of creative destruction to replace wholly or partly inferior innovations across markets and industries. This destruction simultaneously creates new products and new business models.
Entrepreneurship ranges in scale from solo projects (even involving the part-time entrepreneur) to major undertakings that create many job opportunities.
Entrepreneurial activities can be incremental or disruptive. Incremental innovations are a number of small changes that transform process flows while disruptive innovations are entirely new approaches.

Key Terms

entrepreneurship: The art or science of innovation and risk-taking for profit in business.
entrepreneur: A person who organizes and operates a business venture and assumes much of the associated risk.

Entrepreneurs

Entrepreneurs are innovators, willing to take risks and generate new ideas to create unique and potentially profitable solutions to modern-day problems. This innovation may result in new organizations or revitalize mature organizations in response to a perceived opportunity. The most obvious form of entrepreneurship is starting a new business (referred as a startup company). In recent years, the term has been extended to include social and political forms of entrepreneurial activity, which are often referred to as social entrepreneurship.

Entrepreneurial activities differ substantially depending on the type of organization and creativity involved. Entrepreneurship ranges in scale from solo projects (that can even involve the entrepreneur working only part-time) to major undertakings that create many job opportunities. Many high-value entrepreneurial ventures seek venture capital or angel funding (seed money) to raise capital for building the business.

Fostering Entrepreneurship

When entrepreneurship describes activities within a firm or large organization, it is referred to as intrapreneurship and may include corporate venturing, in which large entities create spin-off organizations. Corporations have become aware of the potential advantages of internal entrepreneurial activity and often have innovation specialists in their organizations to develop creative solutions for complex problems. Google has become well known for allowing all employees to dedicate 20 percent of their time to any new project of their choosing. Entrepreneurs have become an integral part of business.

Many kinds of organizations now exist to support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some non-governmental organizations. More recently, the term entrepreneurship has been extended to include elements unrelated to business formation activity. Concepts of entrepreneurship as a specific mindset have emerged, resulting in initiatives like social entrepreneurship, political entrepreneurship, and knowledge entrepreneurship.

Disruptive and Incremental

Joseph Schumpeter describes an entrepreneur as “a person who is willing and able to convert a new idea or invention into a successful innovation.” Entrepreneurship employs what Schumpeter called the gale of creative destruction. Schumpeter’s idea encompasses more than single innovations, as he further explains how innovative thinking allows for a sustainable and long-term economic growth for societies that enable it. Creating new goods and new ways of doing things allows for consistent job growth, more consumption, and more economic dynamism. Innovative thinking allows for so-called disruptive innovations—innovations which make leaps and bounds over existing products. One classic example is the iPhone.

Schumpeter’s view is not the only one, however. Incremental innovation is also largely recognized as a vital entrepreneurial pursuit. The idea of incremental innovation is simple: large change is a byproduct of small innovations compounded with others. Incremental innovators find ways to improve the efficiency of established processes to drive efficiency. An example of this kind of innovation is Toyota’s just-in-time inventory management. Incremental innovations are often process-based, while disruptive innovations are usually new goods or processes themselves.