Basic Functions of Management
Table of Contents
When Lee Iacocca took the reins at Chrysler Corporation in 1978, the firm was on the brink of bankruptcy. One of Iacocca’s first moves was to establish specific goals for sales growth and a written plan for achieving them. He changed the basic structure of the organization. Then he provided effective leadership by working for $1 a year until he had turned the company around. He also developed an elaborate control system to keep Chrysler on track.
Iacocca performed at least four different management functions while at the helm of Chrysler. First, he established goals and developed plans to achieve those goals. Next, he organized people and other resources into an efficient “well-oiled machine.” Then, he led and motivated employees to work effectively to help achieve Chrysler’s goals. Finally, he maintained control to ensure that the organization was working steadily toward its goals.
Management functions like those described above do not occur according to some rigid, preset timetable. Managers don’t plan in January, organize in February, lead and motivate in March, and control in April. At any given time, managers may engage in a number of functions at the same time. However, each function tends to lead naturally to others. How well managers perform these key functions determines whether a corporation is successful. The five “world-class” corporations described in the Business Journal are not only successful, they are among also the most admired corporations in North America. Their managers, you can be sure, are largely responsible for their esteemed status.
Planning, in its simplest form, is establishing organizational goals and deciding how to accomplish them. It is often referred to as the “first” management function because all other management functions depend on planning.
The start of the planning process usually involves the writing of the company’s mission statement. An organization’s mission is a statement of the basic purpose that makes this business different from other firms. The mission of an oil company may be to earn a profit for its owners by refining and selling petroleum products. A college or university’s mission may be to provide an education for local citizens. Once an organization’s mission has been described in a mission statement, the next step is to develop organizational goals and objectives.
Establishing Goals and Objectives
A goal is an end result that the organization is expected to achieve over a one-to-ten-year period of time. An objective is a specific statement detailing what the organization intends to accomplish over a shorter period of time. Compared to goals, objectives have a much narrower time frame — usually one year or less. For McDonald’s, one objective might be to increase sales of French fries by 5 percent over the next nine months. Home Depot stores might adopt the objective of increasing sales by 7 percent this year. For IBM, one objective might be to reduce the average delivery time for personal computers to retailers by four days next year.
Goals and objectives can deal with a variety of factors, such as sales, company growth, costs, customer satisfaction, and employee morale. Whereas a small manufacturer may focus primarily on sales objectives for the next six months, Shell may be more interested in goals for the year. Finally, goals are set at every level of the organization. Every member of the organization — the president of the company, the head of a department, and an operating employee at the lowest level — has a set of goals he or she hopes to achieve.
The goals developed for these different levels must be consistent with one another. However, it is likely that some conflict will arise. A production department, for example, may have a goal of minimizing costs. One way to do this is to produce only one type of product and offer “no frills.” Marketing, on the other hand, may have a goal of maximizing sales. And one way to implement this goal is to offer prospective customers a wide range of products with many options. As part of his or her own goal setting, the manager who is ultimately responsible for both departments must achieve some sort of balance between conflicting goals. This balancing process is called optimization.
The optimization of conflicting goals requires insight and ability. Faced with the marketing-versus-production conflict just described, most managers would probably not adopt either viewpoint completely. Instead, they might decide on a reasonably diverse product line offering only the most widely sought-after options. Such a compromise would seem to be best for the organization as a whole.
Establishing Plans to Accomplish Goals and Objectives
Once goals and objectives have been set for the organization, managers must develop plans for achieving them. A plan is an outline of the actions by which the organization intends to accomplish its goals and objectives. Just as it has different goals and objectives, the organization also develops several types of plans.
An organization’s strategy is its broadest set of plans, developed as a guide for major policy setting and decision making. These plans are set by the board of directors and top management and are generally designed to achieve the long-term goals of the organization. Thus, a firm’s strategy defines what business the company is in or wants to be in and the kind of company it is or wants to be. As the medical research reports linking the health dangers associated with smoking in the 1950s began circulating, the future growth of tobacco sales seemed unlikely. Some forward-looking top managers recognized that the very survival of their firms were threatened and developed a strategy to diversify into non-tobacco products.
In addition to strategies, most organizations also employ several narrower kinds of plans. A tactical plan is a smaller-scale plan developed to implement a strategy. Most tactical plans cover a one-to-three-year time period. If a strategic plan will take five years to complete, the firm may develop five tactical plans, one covering each year. Tactical plans may be updated periodically as conditions and experience dictate. Their more limited scope permits them to be changed more easily than strategies.
An operational plan is a type of plan designed to implement tactical plans. Operational plans are usually established for one year or less and deal with how to accomplish the organization’s specific objectives. Management must develop an operational plan that describes certain activities the firm can undertake over the next year to bring about, for example, an increase in sales. Specific components of the operational plan might include newspaper and television advertising, reduced prices, and coupon offers — all designed to increase consumer sales.
Regardless of how hard managers try, sometimes business activities don’t go as planned. Today, most corporations also develop contingency plans along with strategies, tactical plans, and operational plans. A contingency plan is a plan that outlines alternative courses of action that may be taken if the organization’s other plans are disrupted or become ineffective.
Organizing the Enterprise
After goal setting and planning, the second major function of the manager is organization. Organizing is the grouping of resources and activities to accomplish some end result in an efficient and effective manner. Consider the case of an inventor who creates a new product and goes into business to sell it. At first, she will probably do everything herself — purchase raw materials, make the product, advertise it, sell it, and keep her business records up to date. Eventually, as business grows, she will find that she needs help. To begin with, she might hire a professional sales representative and a part-time bookkeeper. Later she might need to hire full-time sales staff, other people to assist with production, and an accountant. As she hires new personnel, she must decide what each person will do, to whom that person will report, and generally how that person can best take part in the organization’s activities.
Leading and Motivating
The leading and motivating function is concerned with the human resources within the organization. Specifically, leading is the process of influencing people to work toward a common goal. Motivating is the process of providing reasons for people to work in the best interests of the organization. Together, leading and motivating are often referred to as directing.
We have already noted the importance of an organization’s human resources. Because of this importance, leading and motivating are critical activities. Obviously, different people do things for different reasons — that is, they have different motivations. Some are primarily interested in earning as much money as they can. Others may be spurred on by opportunities to get ahead in an organization. Part of the manager’s job, then, is to determine what factors motivate workers and to try to provide those incentives in a way that encourages effective performance.
Quite a bit of research has been done on both motivation and leadership. Research on motivation has yielded very useful information. Research on leadership has been less successful. In spite of decades of study, no one has discovered a general set of personal traits or characteristics that makes a good leader.
Controlling Ongoing Activities
Controlling is the process of evaluating and regulating ongoing activities to ensure that goals are achieved. The control function includes three steps. The first is setting standards to which performance can be compared. The second is measuring actual performance and comparing it with the standard. And the third is taking corrective action as necessary. Notice that the control function is circular in nature. The steps in the control function must be repeated periodically until the goal is achieved. For example, suppose that American Airlines establishes a goal of increasing its profit by 12 percent next year. To ensure that this goal is reached, American Airlines’s management might monitor its profit on a monthly basis. After three months, if profit has increased by 3 percent, management might be able to assume that plans are going according to schedule. Probably no action will be taken. However, if profit has increased by only 1 percent after three months, some corrective action would be needed to get the firm on track. The particular action that is required depends on the reason for the small increase in profit.