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Chapter 6

The Nature of Management

Because learning changes everything.®

Learning Objectives

6-1 Explain management’s role in the achievement of organizational objectives.

6-2 Describe the major functions of management.

6-3 Distinguish among three levels of management and the concerns of managers at each level.

6-4 Specify the skills managers need in order to be successful.

6-5 Summarize the systematic approach to decision making used by many business managers.

6-6 Recommend a new strategy to revive a struggling business.

The Importance of Management 1

Management

A process designed to achieve an organization’s objectives by using its resources effectively and efficiently in a changing environment.

Effectively means having the intended result.

Efficiently means accomplishing objectives with a minimum of resources.

Management is a process designed to achieve an organization’s objectives by using its resources effectively and efficiently in a changing environment. Effectively means having the intended result; efficiently means accomplishing the objectives with a minimum of resources.

The Importance of Management 2

Managers

Individuals in organizations who make decisions about use of resources.

Use planning, organizing, staffing, directing and controlling to reach organizational objectives.

Managers make decisions about the use of the organization’s resources and are concerned with planning, organizing, directing, and controlling the organization’s activities so as to reach its objectives.

The Importance of Management 3

Staffing—Hiring people to carry out the work of the organization

Downsizing.

Acquiring Suppliers

Ensure products are made available to customers.

Maximizes efficiencies and provides creative solutions.

Financial Resources

Needed to pay for essential activities.

Employees are one of the most important resources in helping a business attain its objectives.

Sometimes, managers must make the difficult decision to reduce the workforce. This is known as downsizing, the elimination of significant numbers of employees from an organization.

Acquiring suppliers is another important part of managing resources and ensuring that products are made available to customers. A good supplier maximizes efficiencies and provides creative solutions to help the company reduce expenses and reach its objectives.

Finally, the manager needs adequate financial resources to pay for essential activities. Primary funding comes from owners and shareholders, as well as banks and other financial institutions. All these resources and activities must be coordinated and controlled if the company is to earn a profit.

Figure 6.1 The Functions of Management

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To harmonize the use of resources so that the business can develop, produce, and sell products, managers engage in a series of activities: planning, organizing, directing, and controlling (Figure 6.1).

Management Functions 1

Planning—Process of determining the organization’s objectives and deciding how to accomplish them

Mission.

Goals.

Objectives.

Planning is a crucial activity because it designs the map that lays the groundwork for the other functions.

A mission, or mission statement, is a declaration of an organization’s fundamental purpose and basic philosophy. It seeks to answer the question: “What business are we in?” Good mission statements are clear and concise statements that explain the organization’s reason for existence.

Goals are expressed in general terms and do not contain specific, quantifiable metrics of where the firm is now or where it is going. Goals are aspirational in nature and should be consistent and comprehensive to achieve an outcome.

Objectives, the ends or results desired by an organization, derive from the organization’s mission and goals. A business’s objectives may be elaborate or simple. Common objectives relate to profit, competitive advantage, and growth. The principal difference between goals and objectives is that objectives are generally stated in such a way that they are measurable.

Management Functions 2

Planning continued

Plans.

Strategic plans.

Tactical plans.

Operational plans.

Crisis management (contingency planning).

A firm’s highest managers develop its strategic plans, which establish the long-range objectives and overall strategy or course of action by which the firm fulfills its mission. Strategic plans generally cover periods of one year or longer.

Tactical plans are short range and designed to implement the activities and objectives specified in the strategic plan. These plans, which usually cover a period of one year or less, help keep the organization on the course established in the strategic plan.

Operational plans are very short term and specify what actions specific individuals, work groups, or departments need to accomplish in order to achieve the tactical plan and, ultimately, the strategic plan. They apply to details in executing activities in one month, week, or even day.

Another element of planning is crisis management (contingency planning), which deals with potential disasters such as product tampering, oil spills, fire, earthquake, computer viruses, global pandemics, or even a reputation crisis due to unethical or illegal conduct by one or more employees. Unfortunately, many businesses do not have updated contingency plans to handle the types of crises that their companies might encounter.

Management Functions 3

Organizing—Structuring of resources and activities to accomplish objectives in an efficient and effective manner

Helps create synergy.

Establishes lines of authority.

Improves communication.

Helps avoid duplication of resources.

Can improve competitiveness by speeding up decision making.

Managers organize by reviewing plans and determining what activities are necessary to implement them; then, they divide the work into small units and assign it to specific individuals, groups, or departments.

Management Functions 4

Directing—Motivating and leading employees to achieve organizational objectives

Telling employees what to do and when to do it by using deadlines.

Determining and administering rewards and recognition.

Motivate employees by providing incentives.

Asking workers to contribute ideas.

During planning and organizing, staffing occurs and management must direct the employees. Directing is motivating and leading employees to achieve organizational objectives. Good directing involves telling employees what to do and when to do it through the implementation of deadlines and then encouraging them to do their work.

Directing also involves determining and administering appropriate rewards and recognition, and motivating employees by providing incentives. Smart managers, therefore, ask workers to contribute ideas for reducing costs, making equipment more efficient, improving customer service, or even developing new products. This participation also serves to increase employee morale. Recognition and appreciation are often the best motivators.

Management Functions 5

Controlling—Process of evaluating and correcting activities to keep the organization on course

Consists of five activities:

Measuring performance

Comparing present performance with standards or objectives

Identifying deviations from standards

Investigating causes of deviations

Taking corrective action when necessary

Planning, organizing, staffing, and directing are all important to the success of an organization, whether its objective is earning a profit or something else. But what happens when a firm fails to reach its goals despite a strong planning effort? Controlling is the process of evaluating and correcting activities to keep the organization on course. Control involves five activities: (1) measuring performance, (2) comparing present performance with standards or objectives, (3) identifying deviations from the standards, (4) investigating the causes of deviations, and (5) taking corrective action when necessary.

Controlling and planning are closely linked. Planning establishes goals and standards. By monitoring performance and comparing it with standards, managers can determine whether performance is on target. When performance is substandard, management must determine why and take appropriate actions to get the firm back on course. In short, the control function helps managers assess the success of their plans.

POLLING QUESTION 1

The local grocery store manager regularly communicates with employees about their sales strategies and goals. This is part of the

function.

A. Planning

B. Organizing

C. Directing

D. Controlling

Answer: B. Organizing

Keeping employees informed is an important part of a manager’s organizing function.

Figure 6.2 Levels of Management Planning

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As we have hinted, many organizations have multiple levels of management—high-level management, middle management, and front-line (or supervisory) management. These levels form a pyramid, as shown in Figure 6.2. As the pyramid shape implies, there are generally more middle managers than high-level managers and still more front-line managers.

Types of Management 1

Levels of Management

High-level management.

High-level managers—Includes the president and other top executives of a business, such as chief executive officer (C E O), chief financial officer (C F O), and chief operations officer (C O O), who have overall responsibility for the organization.

Spend most of their time planning.

Generally have many years of experience.

Compensation committees work with directors and C E Os to keep pay in line with performance.

Workforce diversity is good for workers and bottom line.

High-level managers spend most of their time planning. They make the organization’s strategic decisions, decisions that focus on an overall scheme or key idea for using resources to take advantage of opportunities.

Compensation committees are increasingly working with boards of directors and CEOs to attempt to keep pay in line with performance in order to benefit stockholders and key stakeholders. Successful management translates into happy stockholders who are willing to compensate their top executives fairly and in line with performance.

Workforce diversity an inclusion are important issues in today’s corporations. Effective managers at enlightened corporations have found that diversity is good for workers and for the bottom line.

CEO Compensation

Lowe’s CEO Marvin Ellison has a base salary of approximately $1.45 million.

Types of Management 2

Levels of Management continued

Middle management.

Middle managers—Responsible for tactical and operational planning that implements the general guidelines established by high-level management.

Responsibility is more narrowly focused.

Involved in the specific operations of the organization.

The responsibility of middle managers is more narrowly focused than that of high-level managers. Middle managers are involved in the specific operations of the organization and spend more time organizing than other managers. In business, plant managers, division managers, and department managers make up middle management.

Types of Management 3

Levels of Management continued

Front-line management.

Front-line managers—those who supervise both workers and the daily operations of an organization.

Direct workers’ daily performance.

Spend most of their time directing and controlling.

Common titles for front-line managers are foreman, supervisor, and office manager.

Figure 6.3 Importance of Management Functions to Managers in Each Level

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Managers at all three levels perform all four management functions, but the amount of time they spend on each function varies, as we shall see (Figure 6.3).

Areas of Management 1

Financial manager

Focuses on obtaining the money needed for the successful operation of the organization and using that money in accordance with organizational goals.

Production and operations manager

Develops and administers the activities involved in transforming resources into goods, services, and ideas ready for the marketplace.

Human resources manager

Handles the staffing function and deals with employees in a formalized manner.

At each level, there are managers who specialize in the basic functional areas of business: finance, production and operations, human resources (personnel), marketing, supply chain, IT, and administration.

Areas of Management 2

Financial manager

Responsible for planning, pricing, and promoting products and making them available to customers through distribution.

Information technology (IT) manager

Responsible for implementing, maintaining, and controlling technology applications in business, such as computer networks.

Administrative manager

Manages an entire business or a major segment of a business; does not specialize in a particular function.

IT Managers

IT managers are responsible for implementing, maintaining, and controlling technology applications including cyber defense systems like Darktrace.

Each of these management areas is important to a business’s success. For instance, a firm cannot survive without someone obtaining needed financial resources (financial managers) or staff (human resources managers). The Darktrace advertisement, for example, appeals to information technology (IT) managers who are responsible for technology applications in business such as Google Cloud Platforms. Darktrace is an artificial intelligence (AI) cyber defense company.

POLLING QUESTION 2

Roman is responsible for pricing the new menu items for a national restaurant chain. He manages promotion for the company, creating national and regional ad campaigns. Roman is the

A. Marketing manager

B. HR manager

C. Administrative manager

D. I T manager

Answer: A. Marketing manager

The marketing manager is responsible for planning, pricing, and promoting products and making them available to customers through distribution.

The Highest Paid CEOs

CEO	Company	Compensation
Larry Ellison	Oracle	$78.4 million
Robert Iger	Walt Disney Productions	$34.3 million
Kenneth I. Chenault	American Express	$24.4 million
Randall L. Stephenson	Apple	$20.6 million
Muhtar Kent	Coca-Cola	$20.4 million
James P. Gorman	Morgan Stanley	$18 million
Meg Whitman	Hewlett-Packard	$17.6 million
Virginia Rometty	IBM	$13.97 million
Jeff Bezos	Amazon	$1.68 million
Warren Buffett	Berkshire Hathaway	$485,606

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Given the importance and range of top managements’ decisions, top managers generally have many years of varied experience and command top salaries. In addition to salaries, top managers’ compensation packages typically include bonuses, long-term incentive awards, stock, and stock options. The table on this slide lists the compensation packages of different CEOs. Top management may also get perks and special treatment that is criticized by stakeholders.

Five Rules of Successful Diversity Recruiting

Get everyone involved

Showcase your diversity

Work with diversity groups within your community

Spend money

Sell, sell, sell – and measure your return on investment

A diverse workforce is better at making decisions regarding issues related to consumer diversity

Managers from companies devoted to workforce diversity devised five rules that make diversity recruiting work:

Get everyone involved: Educate all employees on the tangible benefits of diversity recruiting to garner support and enthusiasm for those initiatives.

Showcase your diversity: Prospective employees are not likely to become excited about joining your company just because you say that your company is diversity-friendly; they need to see it.

Work with diversity groups within your community: By supporting community-based diversity organizations, your company will generate the priceless word-of-mouth publicity that will lead qualified diversity candidates to your company.

Spend money: If you are serious about diversity recruiting, you will need to spend some money getting your message out to the right places.

Sell, sell, sell—and measure your return on investment: Employers need to sell their company to prospective diversity employees and present them with a convincing case as to why their company is a good fi t for the diversity candidate.

A diverse workforce is better at making decisions regarding issues related to consumer diversity. Reaching fast-growing demographic groups such as Hispanics, African Americans, Asian Americans, and others will be beneficial to large companies as they begin to target these markets.

Skills Needed by Managers

Technical expertise

Specialized knowledge and training.

Conceptual skills

Thinking in abstract terms.

Seeing how parts come together.

Analytical skills

Identifying relevant issues.

Human relations skills

Ability to deal with people.

Managers need technical expertise, the specialized knowledge and training required to perform jobs related to their area of management.

Conceptual skills, the ability to think in abstract terms, and to see how parts fit together to form the whole, are needed by all managers, but particularly high-level managers.

Analytical skills refer to the ability to identify relevant issues and recognize their importance, understand the relationships between them, and perceive the underlying causes of a situation.

People skills, or human relations skills, are the ability to deal with people, both inside and outside the organization.

Leadership 1

Leadership—Ability to influence employees to work toward organizational goals

Leadership Styles.

Autocratic.

Democratic.

Free-rein.

Authentic.

Twitter CEO Jack Dorsey believes in a democratic leadership style.

Leadership is the ability to influence employees to work toward organizational goals. Strong leaders manage and pay attention to the culture of their organizations and the needs of their employees.

Managers often can be classified into three types based on their leadership style. Autocratic leaders make all the decisions and then tell employees what must be done and how to do it. Democratic leaders involve their employees in decisions. The manager presents a situation and encourages subordinates to express opinions and contribute ideas. Free-rein leaders let their employees work without much interference. The manager sets performance standards and allows employees to find their own ways to meet them.

Another type of leadership style that has been gaining in popularity is authentic leadership. Authentic leadership is a bit different from the other three leadership styles because it is not exclusive. Both democratic and free-rein leaders could qualify as authentic leaders depending upon how they conduct themselves among stakeholders. Authentic leaders are passionate about the goals and mission of the company, display corporate values in the workplace, and form long-term relationships with stakeholders.

Table 6.4 Requirements for Successful Leadership

Communicate objectives and expectations.

Gain the respect and trust of stakeholders.

Develop shared values.

Acquire and share knowledge.

Empower employees to make decisions.

Be a role model for appropriate behavior.

Provide rewards and take corrective action to achieve goals.

Table 6.4 offers some requirements for successful leadership.

Leadership 2

Employee Empowerment—Occurs when employees are provided with the ability to take on responsibilities and make decisions about their jobs

Participative decision making.

Leadership in teams.

Businesses are increasingly realizing the benefits of participative corporate cultures characterized by employee empowerment. Employee empowerment occurs when employees are provided with the ability to take on responsibilities and make decisions about their jobs. Employee empowerment does not mean that managers are not needed. Managers are important for guiding employees, setting goals, making major decisions, and other responsibilities.

Leaders who wish to empower employees adopt systems that support an employee’s ability to provide input and feedback on company decisions. Participative decision making, a type of decision making that involves both manager and employee input, supports employee empowerment within the organization. One of the best ways to encourage participative decision making is through employee and managerial training.

In today’s business world, decisions made by teams are becoming the norm. Teamwork has often been an effective way for encouraging employee empowerment. Although decision making in teams is collective, the most effective teams are those in which all employees are encouraged to contribute their ideas and recommendations.

POLLING QUESTION 3

Cho is a partner at a male-dominated architectural firm. She is very strict with her employees because she’s concerned about their perception of her. To ease tensions and foster a sense of unity, what do you think Cho should do?

A. Continue as she’s been doing

B. Schedule meeting privately with each employee to get to know her team

C. Create an anonymous survey to provide feedback on her leadership

D. Schedule team-building exercises

Student answers will vary. Students should discuss the advantages and disadvantages for each of these strategies.

Figure 6.4 Steps in the Decision-Making Process

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A systematic approach using the following six steps usually leads to more effective decision making: (1) recognizing and defining the decision situation, (2) developing options to resolve the situation, (3) analyzing the options, (4) selecting the best option, (5) implementing the decision, and (6) monitoring the consequences of the decision (Figure 6.4).

Decision Making 1

Recognizing and Defining the Decision Situation

Situations may be positive or negative.

Situations calling for small-scale decisions occur without warning.

Large-scale decisions generally occur after some warning signs.

Once a situation is recognized, management must define it.

The first step in decision making is recognizing and defining the situation. The situation may be negative—for example, huge losses on a particular product—or positive—for example, an opportunity to increase sales. Situations calling for small-scale decisions often occur without warning. Situations requiring large-scale decisions, however, generally occur after some warning signs. Once a situation has been recognized, management must define it.

Decision Making 2

Developing Options

A list of possible courses of actions should include both standard and creative plans.

Brainstorming.

Analyzing Options

Management must look at the practicality and appropriateness of each option.

Does the proposed option adequately address the situation?

Once the decision situation has been recognized and defined, the next step is to develop a list of possible courses of action. The best lists include both standard and creative plans. Brainstorming, a technique in which group members spontaneously suggest ideas to solve a problem, is an effective way to encourage creativity and explore a variety of options.

After developing a list of possible courses of action, management should analyze the practicality and appropriateness of each option. An option may be deemed impractical because of a lack of financial resources, legal restrictions, ethical and social responsibility considerations, authority constraints, technological constraints, economic limitations, or simply a lack of information and expertise. When assessing appropriateness, the decision maker should consider whether the proposed option adequately addresses the situation.

Decision Making 3

Selecting the Best Option

Often a subjective procedure.

The best option always relates to analyzing risks and trade-offs.

Implementing the Decision

Can be fairly simple or very complex.

Prepare for unexpected consequences.

Monitoring the Consequences

Did the decision accomplish the desired result?

When all courses of action have been analyzed, management must select the best one. Selection is often a subjective procedure because many situations do not lend themselves to quantitative analysis. The best option always relates to analyzing risks and trade-offs.

To deal with the situation at hand, the selected option or options must be put into action. Implementation can be fairly simple or very complex, depending on the nature of the decision. No matter how well planned implementation is, unforeseen problems will arise. Management must be ready to address these situations when they occur.

After managers have implemented the decision, they must determine whether it has accomplished the desired result. Without proper monitoring, the consequences of decisions may not be known quickly enough to make efficient changes.

Management in Practice

Management is not an exact process

Managers spend time on:

Working with others.

Establishing and updating an agenda of goals and implementation plans.

Networking.

Confronting complex and difficult challenges of the business world.

Management is not exact and calculated. There is no mathematical formula for managing an organization and achieving organizational goals. Managers spend as much as 75 percent of their time working with others—not only with subordinates but with bosses, people outside their hierarchy at work, and people outside the organization itself.

Managers spend a lot of time establishing and updating an agenda of goals and plans for carrying out their responsibilities. An agenda contains both specific and vague items, covering short-term goals and long-term objectives.

Managers also spend a lot of time networking—building relationships and sharing information with colleagues who can help them achieve the items on their agendas.

Finally, managers spend a great deal of time confronting the complex and difficult challenges of the business world today.

POLLING QUESTION 4

Which of the following is an example of networking?

A. Attending a team meeting

B. Connecting with colleagues on LinkedIn

C. Hiring a new employee

D. Establishing and updating an agenda

Answer: B. Connecting with colleagues on LinkedIn

Websites like LinkedIn help managers and employees network to achieve their professional goals.

Solve the Dilemma Making Infinity Computers Competitive 1

Infinity Computers Inc. produces laptops, which it sells through direct mail companies under the Infinity name and in some retail computer stores under their private brand names.

Products are not significantly different from competitors’.

Do not have extra product-enhancing features.

Very price competitive.

Strength of the company has been the C E O/president (George Anderson) and a highly motivated, loyal staff.

Weakness is having too many employees and too great of a reliance on one product.

This Solve the Dilemma is taken from Chapter 6, Learning Objective 6-6.

Infinity Computers Inc. produces laptops, which it sells through direct mail companies under the Infinity name and in some retail computer stores under their private brand names. Infinity’s products are not significantly different from competitors’, nor do they have extra product-enhancing features, although they are very price competitive. The strength of the company has been its CEO and president, George Anderson, and a highly motivated, loyal workforce. The firm’s weakness is having too many employees and too great a reliance on one product.

Solve the Dilemma Making Infinity Computers Competitive 2

Current strategies are no longer successful

Reorganize company to make it more responsive and competitive.

Cut costs.

Threat of new technological developments and current competitive conditions could eliminate Infinity.

Recognizing that the strategies that initially made the firm successful are no longer working effectively, Anderson wants to reorganize the company to make it more responsive and competitive and to cut costs. The threat of new technological developments and current competitive conditions could eliminate Infinity.

Solve the Dilemma Making Infinity Computers Competitive 3

Critical Thinking Questions

Evaluate Infinity’s current situation and analyze its strengths and weaknesses.

Evaluate the opportunities for Infinity, including its current strategy, and propose alternative strategies.

Suggest a plan for Infinity to compete successfully over the next 10 years

Answers:

Infinity’s strengths include the competitive price of its products, the leadership abilities of its CEO, along with the loyalty and motivation of its employees. Its weaknesses are its tendency to follow its competitors instead of innovating, its overcapacity in terms of workforce, and its reliance on a single product.

Opportunities for Infinity may be emphasizing its price competitiveness or sticking with its current products while reducing the workforce. Other ideas are to create a differentiated product with special features at a lower price than its competitors or to increase product differentiation by incorporating “product-enhancing” features. Infinity could also rely on the loyalty and motivation of its employees to offer outstanding customer service.

Responses will vary, but students should provide the kernel of a strategic plan including such sections as objectives, means to achieve the objectives, and measures of results.

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Accessibility Content: Text Alternatives for Images

Figure 6.1 The Functions of Management – Text Alternative

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Mangers plan activities to achieve the organization's objectives, organize resources and activities to achieve the organization's objectives, direct employees' activities toward achievement of objectives, and control the organization's activities to keep it on course.

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Figure 6.2 Levels of Management Planning – Text Alternative

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Front line management includes foremen, supervisors, and office managers. Middle management includes Plant Managers, Division Managers, and

Department Managers. High level management includes President, C E O, and Executive Vice Presidents.

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Figure 6.3 Importance of Management Functions to Managers in Each Level – Text Alternative

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High level managers spend most of their time on planning, followed by organizing, directing, and controlling. Middle managers spend most of their time organizing, followed by planning, directing, and controlling. Front line managers spend the most time controlling, followed by directing, organizing, and staffing.

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Figure 6.4 Steps in the Decision-Making Process – Text Alternative

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The steps are as follow:

(1) recognizing and defining the decision situation, (2) developing options, (3) analyzing the options, (4) selecting the best option, (5) implementing the decision, and (6) monitoring the consequences.

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