ACLC College of Ormoc

2020
Learning Module: Organization
and Management

Prepared by: Jerelyn C. Panis

 CHAPTER 1: Nature and Concept of Management

TIME FRAME: Week 1

OVERVIEW:

This lesson discusses about Organizations and Management focuses on the study
of how individuals and groups interact within organizations, and how firms interact
with one another and with consumers, employees, communities and institutions.
The Organization management binds the employees together and gives them a
sense of loyalty towards the organization.

LEARNING COMPETENCIES:

The learners should be able to apply management theories and concepts in

solving business cases.

SPECIFIC OBJECTIVES:

At the end of the lesson, learners should be:

1. Discuss the meaning and functions of management

2. Explain the various types of management theories
3. Explain the functions, roles, and skills of manager

DISCUSSION

Definition and Functions of Management

The word management is derived from the Italian word Maneggiare, which
means ―to train horses‖ or literally ―to handle‖, from the French words, Maneger,
meaning ―to direct a household, i.e., ―to economize‖, and Menager, ―an act of guiding
or leading‖. Etymologically, therefore, it means to handle, direct economically, guide,
and lead.
In the same way that the word organization may be defined to mean either a
group of individuals and factors or their relationships or to the process itself, the term
management can also assume varying shades of meaning.
Again, management may be denotes a field of activity. Management is the process
of designing and maintaining an environment in which individuals, working together in

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groups, efficiently accomplish selected aims. Management is concerned with
productivity, which implies effectiveness and efficiency.

Productivity, Effectiveness, and Efficiency

Productivity: The output-input ratio within a time period with due consideration for
quality.

Productivity =

The formula indicates that productivity can be improved by:

a) Increasing outputs with the same inputs
b) Decreasing inputs but maintaining the same outputs
c) Increasing outputs and decreasing inputs to change the ratio favorably
Effectiveness: ―Doing the right things‖: the task that help an organization reach its
goals.
Efficiency: ―Doing things right‖: the efficient use of such resources as people,
money and equipment.

Managers
The term manager is a person who has responsibility for the activities of other
people in an organization.
Three main types of managers
 General Managers - focus on the entire business
 Functional managers - specialize in a particular unit or department.
 Frontline managers - oversee primary production activities on a daily basis, so
they need very high interpersonal and technical skills.
Management Levels

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Top Managers - Make decisions about the direction of the organization. Examples:
President, Chief Executive Officer, Vice-President.
Middle Managers – Manage the activities of other managers. Examples: District
Manager, Division manage
First-line Managers – They direct non-managerial employees. Examples:
Supervisors, Team leaders

Functions of Management
The functions of management are said to be the weaving together of the various
parts so that all factors will function properly and all persons will cooperate for the
common purpose. Specifically, management has the following functions:
 Planning: It involves the choice of the objectives to be pursued, the means to
achieve them, and allocating the resources of the organization. Planning requires
that managers be aware of environmental conditions facing their organization
and forecast future conditions. It also requires that managers be good decision-
makers.

 Organizing: It involves identifying, subdividing, grouping and coordinating the

various activities required to achieve the objectives of the institution. Decisions
must be made about the duties and responsibilities of individual jobs as well as
the manner in which the duties should be carried out. Decisions made about the
nature of jobs within the organization are generally called "job design" decisions.

 Staffing: It involves the recruitment, selection, assignments, and development

of the various kinds of human resources required by the organization.

 Leading: It involves influencing others toward the attainment of organizational

objectives. Effective leading requires the manager to motivate subordinates,
communicate effectively, and effectively use power. If managers are effective
leaders, their subordinates will be enthusiastic about exerting effort toward the
attainment of organizational objectives.

 Controlling: It involves ensuring that performance does not deviate from

standards. Controlling consists of three steps, which include establishing
performance standards, comparing actual performance against standards, and
taking corrective action when necessary. Performance standards are often stated
in monetary terms such as revenue, costs, or profits, but may also be stated in

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 other terms, such as units produced, number of defective products, or levels of
customer service.

Henry Mintzberg’s Managerial Roles

A. Interpersonal Roles: these are roles that involve coordination and interaction
with employees.

a. Figurehead Role: Is a role which is assumed by managers when they

represent their respective units in the outside world in ceremonial and civic
activities. Managers expected to be a source of inspiration. People look up to
you as a person with authority, and as a figurehead.

b. Leader Role: Is the role played by managers when they initiate and
coordinate activities in their units. Provide leadership for the team,
department or perhaps the entire organization.

c. Liaison Role: is needed by unit heads when they interact with persons in
other units within and outside the organizations. Managers need to be able to
network effectively on behalf of your organization.

B. Informational Roles: These are roles that involve handling, sharing, and
analysing information.

a. Monitor or Recipient Role (receive information about the

operation of an enterprise): Managers regularly seek out information
related to your organization and industry, looking for relevant changes in
the environment. You also monitor your team, in terms of both their
productivity, and their well-being.

b. Disseminator Role (passing information to subordinates): This is

where you communicate potentially useful information to your colleagues
and your team.

c. Spokesperson Role (transmitting information to those outside

the organization): Managers represent and speak for their organization.
In this role you're responsible for transmitting information about your
organization and its goals to the people outside it.

C. Decisional Roles: These are roles that require decision-making.

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 a. Entrepreneur Role: As a manager, you create and control change
within the organization. This means solving problems, generating new
ideas, and implementing them.

b. Disturbance Handler Role: When an organization or team hits an

unexpected roadblock, it's the manager who must take charge. You also
need to help mediate disputes within it.

c. Resource Allocator Role: Managers need to determine where

organizational resources are best applied. This involves allocating funding,
as well as assigning staff and other organizational resources.

d. Negotiator Role: Manager may be needed to take part in, and direct,
important negotiations within your team, department, or organization.

Management Skills
Skill is an ability or proficiency in a specific area. It is to be expected that
managers would need equally varied capabilities and skills.
Robert Katz identified three managerial skills that are essential to successful
management:
 Technical Skill: It involves process or technique knowledge and
proficiency. Managers use the processes, techniques and tools of a specific
area.

 Human Skill: It involves the ability to interact effectively with people. It

involves motivating and disciplining employees, monitoring performance,
providing feedback, improving communication and instructing employees.

 Conceptual Skill: It is the ability to analyze complex information. It

enables managers to process information about the internal/external
environment of the organization and determines its implications.
Therefore, technical skill deals with things, human skill concerns people, and
conceptual skill has to do with ideas.

Evolution of Management Theories

Management theories are implemented to help increase organizational
productivity and service quality. Not many managers use a singular theory or concept

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when implementing strategies in the workplace. They commonly use a combination of a
number of theories, depending on the workplace, purpose and workforce.

Pre – classical Classical Behavioral Quantitative Contingency

Contributors Viewpoint Viewpoint Viewpoint Viewpoint

Scientific Early Management System Theories

Management Behaviorist Science

Bureaucratic Hawthorne Operations Contingency

Management Studies Management Theories

Administrative Human Management Emerging View

Management Relations Information
Movement System

Behavioral
Science

Pre-classical Contributors
Robert Owen (1771-1858)
Owen's strength was that he saw his employees as every bit as
important to the success of his enterprise as the machines he owned. By
examining working methods and conditions, and seeking to improve these,
he is justifiably claimed as a father of personnel management.
Charles Babbage (1792-1871)
Charles Babbage is as an English Mathematician, he is known as father of
computer. Build the first practical mathematical calculator and a prototype of
modern computer, he predicted the specialization of metal work, and suggested
profit sharing. Babbage's most successful book is ―On the Economy of Machinery
and Manufacturers‖. It described the tools and machinery used in English
factories. It discussed the economic principles of manufacturing and analyzed
the operations; the skills used and suggested improved practices.
Henry R. Towne (1844-1924)
Henry R. Towne is an American Mechanical Engineer and Business. His
contribution known as early systemize of management or an Outline the
importance of management as a science and called for the development
management. Towne also published several papers and a book, Evolution of
Industrial Management, on the use of "gain sharing" to increase worker
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 productivity. In his last book Towne contrasted the status of scientific
management in 1886 and in 1921, noting the establishment of industrial
management courses, and crediting Frederick Taylor as the apostle of the
scientific movement.
SunTze 500 BC
SunTze is a Chinese Military General, a strategist and philosopher. He is
author of The Art of War, a widely influential work of military strategy that has
impacted both Western and Easter philosophy.

Classical Viewpoint
Frederick Winslow Taylor (1856-1915)
Taylor is also known as the Father of the Scientific Management. His
primary concern was to raise productivity and increase for workers, by applying
the scientific methods. His principles emphasize using science, creating group
harmony and cooperation, achieving maximum output.
Henry Laurence Gantt (1861-1919)
Gantt is an American Engineer and Management Consultant. He is known
for scientific selection of workers and ―harmonious cooperation‖ between labor
and management. He developed the Gantt chart.
Max Weber (1864-1920)
Max Weber is a German sociologist, professor, consultant and author. He
contributes the Theory of Bureaucracy. Weber's ideas of Bureaucracy:
 Specialization of labor
 Formal rules and procedures
 Impersonality
 Well-defined hierarchy
 Career advancement based on merit

Henry Fayol (1841-1925)

Henry Fayol is a French Industrialist, and also an Engineer. He is known as

the Father of Modern Management Theory. He recognized a widespread need
for principles and management and teaching and formulated 14 principles of
management, such as authority and responsibility, unity of command, scalar
chain, and esprit de corps and so on.

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 Chester Irving Barnard
Barnard is an American, business executive, public administrator, and the
author of pioneering work in management theory and organizational studies. He
suggested a comprehensive social systems approach to managing. Management
theorist Chester Barnard believed organizations need to be both effective and
efficient.
Hugo Mȕnsterberg (1912)
He is German-American Psychologist. He was one of the pioneers in
application of psychology to industry and management.
Mary Parker Follet
Follet is an American, Social worker, Management Consultant,
Philosopher and pioneer in the fields of organizational theory and organizational
behavior. She advocated a ―pull‖ rather than ―push‖ approach to employee
motivation, differentiated between ―power over‖ and ―power with‖ and
postulated insightful ideas on negotiation, conflict resolution and power
sharing which helped shape modern management theory.

Behavioral Viewpoint
Elton Mayo and F.J. Roethlisberger (1927-1932)
Elton Manyo, J.F. Roethlisberger, and others undertook the famous
experiments at the Hawthorne plant of the Western Electric Company between
1927 and 1932. Earlier, from 1924 to 1927 the National Research Council made a
study in collaboration with western Electric to determine the effect of
illumination and other conditions on workers and their productivity. Finding that
productivity improved when illumination was either increased of decreased for a
test group, the researchers were about to declare the whole experiment a failure.
However, Mayo of Harvard saw in it something unusual and, with Roethlisberger
and others, continued the research. What Mayo and his colleagues found, partly
on the basis of the earlier thinking of Vilfredo Pareto, was to have a dramatic
effect on management thought. Changing illumination for the test group,
modifying rest periods, shortening workdays, and varying incentive pay systems
did not seem to explain changes in productivity. Mayo and his researchers then
came to the conclusion that other factors were responsible. They found, in
general, that the improvement in productivity was due to such social factors as
moral, satisfactory interrelationships between members of a work group (a sense
of belonging), and effective management-- a kind of managing that takes into
account human behavior, especially group behavior, and serves it through such
interpersonal skills as motivating, counseling, and communicating. This

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 phenomenon, arising basically from people being "noticed," has been named the
Hawthorne effect.
Abraham Maslow
Maslow is an American who his developed the Maslow's Hierarchy of
Needs. One of Maslow's lasting and most significant contributions to psychology
is what he calls the "hierarchy of needs." In his quest to understand human
motivation and the pursuit of happiness, he formulated a list of basic human
needs that had to be fulfilled for maximum psychological health.

 Self-actualization: truth, justice, wisdom, meaning

 Esteem: self-respect, achievement, attention, recognition, reputation
 Social needs: friends, belonging, love
 Safety: living in safe area, medical insurance, job security, financial
reserve
 Physiological needs: food, shelter, air, water, nourishment, sleep, etc.
Douglas MacGregor (1906-1964)
Douglas McGregor (1906 - 1964) is one of the forefathers of
management theory and one of the top business thinkers of all time. He
was a social psychologist who became the President of Antioch College.
He later became a professor of management at Massachusetts Institute of
Technology (he was succeeded by Warren Bennis). His book The Human
Side of Enterprise (1960) had a profound influence on the management
field, largely due to his Theory X and Theory Y.

Behavioral Science Approach

Behavioral Science Approach is an extension of the Human Relations Approach.
It gave importance to attitudes, behavior and performance of individuals and groups in
the organizations.

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Assumptions of Behavioral Science Approach
1. Organizations are socio-technical systems. The management must integrate both
the systems.
2. Work and interpersonal behavior of people in the organization is influenced by
many factors.
3. Employees are motivated not only by physiological needs but also by social and
psychological needs.
4. Different people have different perceptions, attitudes, needs and values. These
differences must be found out and recognized by management.
5. In an organization conflicts are unavoidable.
6. Personal goals and Organizational goals must be joined together.

Quantitative Viewpoint
The quantitative approach involves the use of quantitative techniques to improve
decision making. This approach has also been labeled operations research of
management science. It includes applications of statistics, optimization models,
information models, and computer simulations.

Management Science (Operational Research)

Management science (operational research) is an approach aimed at

increasing decision effectiveness through the use of sophisticated
mathematical and statistical methods.

Operations Management

Operations Management is the function or field of expertise that is

primarily responsible for production and delivery of an organization‘s products
and services.

Management Information System (MIS)

Management Information System (MIS) described as 'lives' in the space

that intersects technology and business. MIS combines tech with business to get
people the information they need to do their jobs better/faster/smarter. MIS
professionals work as systems analysts, project managers, systems
administrators, etc.

Contemporary Viewpoint

This school of thought or view about management includes those major ideas
about managing and organizations that have emerged since the 1950s. Some of the
ideas, systems theory for example, are rooted in experience gained during World War II.
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The System Theory

The system theory approach is based on the notion that organizations can
be visualized as systems of interrelated parts or subsystems that operate as a
whole in pursuit of common goals.

The Contingency Approach

The Contingency approach managerial practice depends on circumstances.

Contingency theory recognizes the influence of given solutions on organizational
behavior patterns.

Emerging View

Concepts and practices are shaping today's management and changing the
way that managers do their jobs:
o Globalization
o Entrepreneurship
o Managing in an E-Business World
o Need for Innovation and Flexibility
o Quality Management Systems
o Learning Organization and knowledge management
o Theory Z : William Ouchi's

Globalization: Organizational operations no longer stop at geographic

borders. Managers in all types and sizes of organizations are faced
with the opportunities and challenges of globalization.

Entrepreneurship: Refers to the process whereby an individual or a

group of individuals uses organized efforts and means to pursue
opportunities to create value and grow by fulfilling wants and needs
through innovation and uniqueness.

Managing in an E-Business World:

i. E-business (electronic business): a comprehensive term

describing the way an organization does its work by using electronic
(Internet- based) linkages with key constituencies in order to
efficiently and effectively achieve its goals.
ii. E-commerce (electronic commerce): is any form of business
exchange or transaction in which the parties interact electronically.

Need for Innovation and flexibility: The constant flow of new ideas is
crucial for an organization to avoid obsolescence or failure. Flexibility is
valuable in a context where customers‘ needs may change overnight,
where new competitors come and go, and where employees and their skills
are shifted as need from project to project.

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 Quality Management System: Total Quality Management is a
philosophy of management that is driven by customer needs and
expectations and focuses on continual improvement in work processes.
TQM was inspired by a small group of quality experts, of whom W.
Edwards Deming was one of the chief proponents. He has also developed
and presented his quality and theory of profound knowledge. TQM
represents a counterpoint to earlier management theorists who believed
that low costs were the only road to increased productivity. The objective
of TQM is to create organization committed to continuous
improvement.

Learning organizations and knowledge management: Managers

now must deal with an environment that is continually changing. The
successful organizations of the 21th century will be flexible, able to learn
and respond quickly, and be led by managers who can effectively challenge
conventional wisdom, manager the organization's knowledge base, and
make needed changes.

Theory Z: William Ouchi's: Theory Z combines positive aspects of

American and Japanese management into a modified approach aimed at
increasing managerial effectiveness while remaining compatible with the
norms and values of society and culture.

ACTIVITY: RESEARCH

Instructions:
 Identify one business entity in your locality and ask about their management
level.

 What is/are the position in each level of management, what are the names of the
person/s in each level management and what their functions are?

 Discuss what management skills are being applied or needed in each position.

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 ASSESSMENT: MULTIPLE CHOICE

Instruction: Encircle the letter of your answer.

1. They make decisions about the direction of the organization.

a. Top Managers
b. Middle Managers
c. First line Managers
d. Project Managers

2. They oversee primary production activities on a daily basis, so they need very high
interpersonal and technical skills.
a. Top Managers
b. Middle Managers
c. First line Managers
d. Frontline Managers

3. According to Henry Mintzberg‘s Managerial Roles, interpersonal role are roles

that:
a. involve handling, sharing, and analysing information.
b. that involve coordination and interaction with employees.
c. require decision-making.
d. None of the above.

4. It is a skill that involves the ability to interact effectively with people. It involves
motivating and disciplining employees, monitoring performance, providing
feedback, improving communication and instructing employees.
a. Human Skill
b. Technical Skill
c. Conceptual Skill
d. Behavioral Skill

5. It is a skill that involves the ability to analyze complex information. It enables

managers to process information about the internal/external environment of the
organization and determines its implications.
a. Human Skill
b. Technical Skill
c. Conceptual Skill
d. Behavioral Skill

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6. It is a skill that involves process or technique knowledge and proficiency.
a. Human Skill
b. Technical Skill
c. Conceptual Skill
d. Behavioral Skill

7. The Father of the Scientific Management.

a. Frederick Winslow Taylor
b. Henry R. Towne
c. Charles Babbage
d. Robert Owen

8. A German sociologist, professor, consultant and author who contributes the

Theory of Bureaucracy.
a. Henry R. Towne
b. Charles Babbage
c. Max Weber
d. Robert Owen

9. The Father of Modern Management Theory.

a. Henry R. Towne
b. Charles Babbage
c. Henry Fayol
d. Max Weber

10. According to Behavioral Science Approach employees are:

a. motivated not only by physiological needs but also by social and psychological
needs.
b. motivated not only by physiological needs but also by behavioral and
psychological needs.
c. motivated not only by physiological needs but also by behavioral and
interpersonal need.
d. motivated not only by physical needs but also by behavioral and psychological
needs.

11. Management Science is an approach aimed at

a. increasing decision effectiveness through the use of sophisticated
mathematical and intuitive methods.
b. increasing decision effectiveness through the use of sophisticated
mathematical and statistical methods.
c. increasing employee productivity
d. lowering financial risk.

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12. Refers to the process whereby an individual or a group of individuals uses
organized efforts and means to pursue opportunities to create value and grow by
fulfilling wants and needs through innovation and uniqueness.
a. Globalization
b. Business Diversification
c. Strategic Management
d. Entrepreneurship

13. It is the function of management that involves employee recruitment and

selection.
a. Leading
b. Staffing
c. Directing
d. Planning

14. It is the function of management that requires the manager to motivate

subordinates and communicate effectively.
a. Leading
b. Staffing
c. Directing
d. Controlling

15. It is the function of management that involves that performance should always be
in accordance to company standards.
a. Leading
b. Staffing
c. Directing
d. Controlling

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 CHAPTER 2: The Firm and Its Environment

TIME FRAME: Week 2 – 3

OVERVIEW:

The purpose of this lesson is to help the student gain a better understanding of
the relationship between the firm and its environment with particular emphasis on
firms‘ manage that relationship. In this lesson we analyze the various environmental
forces affecting the firm and summarize these using Political Economic Social and
Technological Analysis (PEST) and we also discuss the Internal environment using
the Strengths, Weaknesses, Opportunities and Threats (S.W.O.T).

LEARNING COMPETENCIES:

At the end of the lesson, learners should be to design an appropriate organization

structure for a specific business.

SPECIFIC OBJECTIVES:

At the end of the lesson, learners should be:

1. Discuss the nature of the organization.
2. Distinguish the types of organization structure.
3. Apply organization theories in solving business problems.
4. Identify the different elements of delegation

DISCUSSION

Organizational Environment

The impact of the external environment on manager's actions and behaviors

cannot be overemphasized. There are forces in the environment that play a major role in
shaping manager's endeavors. The environment is defined as outside institutions and
forces outside the organization that potentially affect an organization's performance.

Types of Environment

The organization works within the framework provided by various elements of society.

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  The elements which lie outside the organization are called external environment
or simply as environment.
 The organization may create an environment internal to it which affects the
various subsystems of the organization.
 Organizational environments are composed of forces or institutions
surrounding an organization that affect performance, operations, and
resources. It includes all of the elements that exist outside of the
organization's boundaries and have the potential to affect a portion or all of the
organization.
 The organization needs to properly understand the environment for effective
management.

Factors Controlling Organizational Environment

The different environmental factors that affect the business can be broadly
categorized as internal and has its own external factors.

EXTERNAL ENVIRONMENT

External factors include all those factors which exist outside the firm and are
often regarded as uncontrollable. These external forces can further be categorized as:

1. General Environment(Macro)
2. Task Environment (Micro)

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General Environment

The general environment or macro- environment is all those forces affecting

the organization indirectly. These external forces are (PEST):

1. POLITICAL FACTORS: The political factors are related to the management of

public affairs and their impact on the business. It is important to have a political
stability to maintain stability in the trade. Inclusive of government regulations,
laws, policies and activities designed to influence organizational performance in
an indirect way.

2. ECONOMIC FACTORS: The economic factors include economic conditions

and economic policies that together constitute the economic environment.
These include growth rate, inflation, restrictive trade practices etc. Which have a
considerable impact on the business.

3. SOCIAL, CULTURAL, DEMOGRAPHIC FACTORS : Social factors includes

the society as a whole alongside its preferences and priorities like the buying and
consumption pattern, beliefs of people their purchasing power, educational
background etc. Demographical factors include: size of the population,
population growth rate, age composition, ethnic composition, density of
population, family size, and income level. These have very significant
implications on business.

4. TECHNOLOGICAL FACTORS: Latest technologies helps in improving the

marketability of the product plus makes it more consumer friendly.
Therefore, it is important for a business to keep a pace with the changing
technologies in order to survive in the long run.

Task Environment

The task environment is inclusive of those sectors that have a direct

working relationship with the organization. Critical variables in the tasks
environment are:

1. CUSTOMER: Customers are the final purchasers of a good or service. A study

of customers will help managers determine what the customers‘ needs are
and wants to be satisfied. Analysis of customer profiles allows the organization to
develop it organizational strategy and structure in order to deliver a
particular good or service that best suits the needs of the customer.

2. SUPPLIERS: Suppliers are those people who are responsible for supplying
necessary inputs to the organization and ensure the smooth flow of production.
Suppliers pricing strategy does affect the organization's level of revenue earned.

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 3. LABOR: Labor markets include the people available for hire. These people
should be well-trained, skilled, and knowledgeable personnel. They should also
be highly competitive that increases the overall performance of the organization.

4. COMPETITORS: Competitors can be called the close rivals and in order to

survive the competition one has to keep a close look in the market and formulate
its policies and strategies as such to face the competition.

INTERNAL ENVIRONMENT

Internal environment is composed of the elements within the organization,

including current employees, management, and especially corporate culture, which
defines employee behaviour. Internal factors are those factors which exist within the
premises of an organization and directly affect the different operations carried out in a
business. These factors are:

1. VALUE SYSTEM: It implies the culture and norms of the business. In other
words, it means the regulatory framework of a business and every member of
the organization has to act within the limits of this framework.

2. MISSIONS AND OBJECTIVES: Different priorities, policies and

philosophies of a business are guided by the mission and objectives of a
business.

3. FINANCIAL FACTORS: Financial factors like financial policies, financial

position and capital structure also affect a business performance and its
strategies.

4. INTERNAL RELATIONSHIP: Factors like the amount of support the top

management enjoys from its shareholders, employees and the board of
directors also affects the smooth functioning of a business.

SWOT Analysis

SWOT Analysis is a structured planning tool that can be used to evaluate

the Strengths, Weaknesses, Opportunities, and Threats involved in running a
business venture. Using a SWOT analysis can be used to help a business determine the
advantages or disadvantages of changes they want to make based on internal and
external factors.

Strengths
 Characteristics of the business or a team that give it an advantage over
others in the industry.
 Positive tangible and intangible attributes, internal to an organization.

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  Beneficial aspects of the organization or the capabilities of an
organization, process capabilities, financial resources, products and
services, customer goodwill and brand loyalty.

Examples:

Abundant financial resources, Well-known brand name, Economies of scale,

Lower costs [raw materials or processes], Superior management talent, Better
marketing skills, Good distribution skills, Committed employees.

WEAKNESSES
 Characteristics that place the firm at a disadvantage relative to others.
 Weaknesses detract the organization from its ability to attain the core goal
and influence its growth.
 Weaknesses are the factors which do not meet the standards we feel they
should meet. However, weaknesses are controllable. They must be
minimized and eliminated.

Examples:

Limited financial resources, Weak spending on R & D, Very narrow product line,
Limited distribution, Higher costs, Out-of- date products / technology, Weak
market image, Poor marketing skills, Limited management skills, Under- trained
employees.

OPPORTUNITIES
 Chances to make greater profits in the environment - External attractive
factors that represent the reason for an organization to exist & develop.
 Opportunities arise when an organization can take benefit of conditions in
its environment to plan and execute strategies that enable it to become
more profitable.
 Organization should be careful and recognize the opportunities and grasp
them whenever they arise.

Examples:

Rapid market growth, Rival firms are complacent, changing customers‘

needs/tastes, new uses for product discovered, Economic boom, Government
deregulation, Sales decline for a substitute product.

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 THREATS

 External elements in the environment that could cause trouble for the
business - External factors, beyond an organization‘s control.
 Threats arise when conditions in external environment jeopardize the
reliability and profitability of the organization‘s business.
 Compound the vulnerability when they relate to the weaknesses. Threats
are uncontrollable. When a threat comes, the stability and survival can be
at stake.

Examples:

Entry of foreign competitors, Introduction of new substitute products, Product

life cycle in decline, Changing customer needs/tastes, Rival firms adopt
new strategies, Increased government regulation, Economic downturn.

International Business

The international business environment can be defined as the environment in

different sovereign countries, with factors exogenous to the home environment of the
organization, influencing decision-making on resource use and capabilities. It is
buying and selling of the goods and services across the border. The national border are
crossed by the enterprises to expand their business activities like manufacturing,
mining, construction, agriculture, banking, insurance, health, education, transportation,
communication and so on.

Differences between Domestic and International Business

 Difference in currencies
 Difference in natural and geographical conditions
ACLC College of Ormoc | Organization and Management 21
  Mobility of factors of production
 Sovereign political entities
o Imposition of tariffs and customs duties on imports and
exports;
o Quantitative restrictions like quotas;
o Exchange control;
o Imposition of more local taxes etc.
 Different legal systems

Importance of International Business Environment

 Helps in expansion: Geographic expansion may be used as a business

strategy. Even though companies may expand their business at home.

 Helps in managing product life cycle: Every product has to

pass through different stages of product life cycle-when the product
reaches the last stages of life cycle in present market, it may get proper
response at other markets.
 Technology advantages: Some companies have outstanding technology
advantages through which they enjoy core competency. This technology
helps the company in capturing other markets.

 New business opportunities: Business opportunities in overseas

markets help in expansion of many companies. They might have reached a
saturation point in domestic market.

 Proper use of resources: Sometimes industrial resources like labor,

minerals etc. are available in a country but are not productively utilized.

 Availability of quality products: When markets are open, better

quality goods will be available everywhere. Foreign companies will market
latest products at reasonable prices. Good product will be available in the
markets.

 Earning foreign exchange: International business helps in earning

foreign exchange which may be used for strategic imports.

 Helps in mutual growth: Countries depend upon each other for

meeting their requirements. Philippines depends on gulf countries for its
crude oil supplies.

 Investment in infrastructure: International business

necessitates proper development of infrastructure.

ACLC College of Ormoc | Organization and Management 22

Role of Business in Relation to the Economy

Business has hugely important impacts on a country‘s economy. Simply it is the

main economic engine for the country. The following are the most important roles of
businesses in the economy:

 Jobs – Businesses create jobs. The economy of the country directly depends
upon the employment provided by big and small businesses.

 Tax revenue - Businesses pay taxes to the government and allows the
government to function on the tax collected from them.

 Efficient circular flow of the economy - Businesses are a very

important part of the circular flow of any market economy. They buy resources
from households in the resource market and sell to households in the product
market.

 Controlling inflation – Businesses improve economic sustainability and it can

help to control inflation.

 Economic growth - Businesses also allow the economy to work more

efficiently. When businesses compete with one another, they improve their
efficiency and help the economy grow. They also help the economy grow through
innovations.

 Reduced social welfare system – Businesses generate wealth for employees

and business owners. As consequence it will reduce social welfare systems.

 Increase standard of living/Quality of life – Businesses increase

employment and circulation of money in the society. When people have higher
income, they tend to have higher standard of living.

 Decrease poverty rate - Businesses employ people, provide income to the

working population. They generate employment at all levels across the country.

Economic Development

Economic development refers to process of change in the overall

economic activity. It is the process by which the economic well-being and quality of
life of a nation, region, or local community are improved according to targeted goals and
objectives.

ACLC College of Ormoc | Organization and Management 23

Three Core Values Serve as Standards of Development

1. Sustenance
 Meet basic necessities such as food, clothing, and shelter,
 Citizens have enough or more than enough for their basic necessities,
 There is growth of income;
 Extreme poverty is addressed;
 There is equality among members of society.

2. Self-esteem
 The quality of life is good when there is respect, trust, and self-value.
 A person's worth as an individual cannot simply be measured by the
ownership of material things which is often given emphasis by
progressive capitalist countries such as the United States.
 In the Philippines, material wealth is not the only important thing but the
love for one's family, the family's reputation, and a person's dignity and
self-esteem. A country is developed if this unique need of the people is
addressed.

3. Freedom from Servitude

 This freedom is drawn from liberation from oppressive systems in society,

poverty and abuse, slavery, ignorance, and the absence of the freedom to
choose one's culture or religion. This freedom can be seen in the range of
choices in a society.

 In general, freedom prevails if people live a comfortable life, if they have the
freedom to choose their religion, to vote and to express their opinion about
administration and governance, and if they enjoy equal opportunities for
education and employment.

Stages of Economic Development

ACLC College of Ormoc | Organization and Management 24

Rostow's Economic Development Model

Walt Rostow took an historical approach in suggesting that developed countries

have tended to pass through 5 stages to reach their current degree of economic
development.

Five (5) Stages of Economic Development

1. Traditional society
This is an agricultural economy of mainly subsistence farming, little of
which is traded. The size of the capital stock is limited and of low quality resulting
in very low labor productivity and little surplus output left to sell in domestic and
overseas markets.

2. Pre-conditions for take-off

Agriculture becomes more mechanized and more output is traded.
Savings and investment grow although they are still a small percentage of
national income (GDP). Some external funding is required - for example in the
form of overseas aid or perhaps remittance incomes from migrant workers
living overseas.

3. Take-off
Manufacturing industry assumes greater importance, although the
number of industries remains small. Political and social institutions start to
develop - external finance may still be required. Savings and investment grow,
perhaps to 15% of GDP. Agriculture assumes lesser importance in relative terms
although the majority of people may remain employed in the farming sector.
There is often a dual economy apparent with rising productivity and wealth in
manufacturing and other industries contrasted with stubbornly low productivity
and real incomes in rural agriculture.

4. Drive to maturity.
Industry becomes more diverse. Growth should spread to different parts
of the country as the state of technology improves - the economy moves from
being dependent on factor inputs for growth towards making better use of
innovation to bring about increases in real per capita incomes.

5. Age of mass consumption

Output levels grow, enabling increased consumer expenditure. There is a shift
towards tertiary sector activity and the growth is sustained by the expansion of
a middle class of consumers.

ACLC College of Ormoc | Organization and Management 25

Forms of Business Organization

1. Sole Proprietorship
Sole Proprietorship is the simplest form of business. It is owned by an
individual who has full control/authority of its own and owns all the assets, as
well as personally answers all liabilities or losses. The fact that it is run by the
individual means that it is highly flexible and the owner retains absolute control
over it.

Advantages:
 Less regulations by government in operating decisions
 Less conflict and disagreements in manner of management
 Easier to increase or decrease capital; hence, greatest flexibility in decision
making
 Best suited for small business
 Tax rate is lower than that of the corporate form or partnership form

Disadvantages:
 Unlimited liability of owner
 Limited capital
 Limited management expertise especially if there are no other
professional managers

2. Partnership
Partnership is defined in Articles 1767 to 1867 of the Civil Code of the
Philippines as ―a contract whereby two or more persons bind themselves to
contribute money, property, or industry into a common fund with the intention
of dividing profits among themselves.

Advantages:
 easy to organize
 unlimited liability
 huge resources
 better management
 better distribution of profits

Disadvantages:

 Unlimited liability of the partners

 Partners are solidarity liable
 It lacks stability
 Conflict arise

ACLC College of Ormoc | Organization and Management 26

 Classification of Partnership

1. General Partner - one whose liability extends to his separate property.

2. Limited Partner - one whose liability is limited to his capital contribution.
3. Managing Partner - one who manages the affairs of the partnership
4. Industrial Partner - one who contributes service only

3. Corporation

Corporation is an artificial being created by operation of law, having the

right of succession and the powers, attributes and properties expressly
authorized by law or incident to its existence A business‘s organizational structure
influences issues, legal issues, financial concerns, and personal concerns.

Advantages:
 Can easily raise additional funds by selling shares of stock to the public.
 Shareholders are not personally liable for the debt of the corporation. The
extent of their liability is limited to their equity in the corporation.

Disadvantages
 It is relatively complicated to set up
 Subject to several legal restrictions as listed in the Corporation Code of the
Philippines.

ACTIVITIES

ACTIVITY 1: Identifying Environment Factors

Instruction: Determine each environmental factor in the box and write it inside the
circle if it is an external factor and inside the rectangle f it is an internal factor.

 Good Compensation Package

 Company Policies
 Customer’s Preference
 New Technologies
 High Inflation Rate
 War
 Cost of raw materials
 Competitors
ACLC College of Ormoc | Organization and Management 27
ACTIVITY 2: SWOT Analysis

Instruction: Perform a SWOT Analysis for ACLC College of Ormoc

ACTIVITY 3: Research and PEST Analysis

Instruction: Identify one sole proprietorship business in your locality

and determine the external factors affecting its business using the PEST
Analysis.

ACLC College of Ormoc | Organization and Management 28

 ASSESSMENT: TRUE OR FALSE

Instruction: Write “F” if the statement is TRUE and write “T” if the statement is
“FALSE”. Please correct the false statement.

1. One of the disadvantage of a Corporation is it is difficult to establish.

2. One of the advantage of a sole proprietorship is it is easy to organize.
3. Industrial Partner is the one whole manage the daily operation of the business.
4. Business is very helpful in the economy because it provides job opportunities and
decrease poverty rate.
5. Businesses also allow the economy to work more efficiently.
6. Geographic expansion cannot be used as a business strategy.
7. Competitor is one of the internal environment factors.
8. International business environment means selling your products across different
countries.
9. Economic development refers to process of change in the overall
economic activity.
10. Partnership is a contract whereby two or more persons bind themselves to
contribute money, property, or industry into a common fund with the intention
of dividing profits among themselves.

ACLC College of Ormoc | Organization and Management 29

 CHAPTER 3: Planning

TIME FRAME: Week 4 – 6

OVERVIEW:

In this lesson we will discuss about Planning and Decision Making. The focus of
our discussion is understanding what managerial planning is, we also identify and
analyze the various types of plans and show how they relate to each other. The
discussion will move to the logical steps in planning and see how these steps are
essentially a rational approach to setting objectives and selecting the means of reaching
them.

LEARNING COMPETENCIES:

At the end of the lesson, learners should be to formulate effective plans for a specific
business endeavour.

SPECIFIC OBJECTIVES:

At the end of the lesson, learners should be:

1. Discuss the nature of planning.
2. Compare and contrast the different types of plans.
3. Describe planning at different levels in the firm.
4. Apply appropriate planning techniques and tools.
5. Formulate a decision from several alternatives.

DISCUSSION

Planning

Planning is the first function of management. It involves selecting missions and

objectives as well as the actions to achieve them, which requires decision making that
is, choosing a course of action from among alternatives. Planning is choosing a goal and
developing a method of strategy to achieve that goal.

Benefits of Planning
 Provide Direction: What the organization wants to accomplish and how to
reach the establish/sited goals. By planning a clear direction comes that to be
follow, in order to reach and achieve goal.

ACLC College of Ormoc | Organization and Management 30

  Reduce Uncertainty: Planning reduces uncertainty by look ahead to
anticipate changes. Manager can estimate their consider impact of changes and
then they can develop response to these changes.

 Minimizes waste and redundancy: When work activities are coordinated

around established plans redundancy can be minimized.

 Provide ability in controlling: Planning helps in controlling and monitoring

the work that either this works is on its right path or not.

Types of Plans

1. Mission or Purpose: The basic purpose or function or tasks of an enterprise

or agency or any part of it.

2. Objectives and goals: Objectives or goals are the ends toward which activity
is aimed. They represent not only the end point of planning, but also the end
toward which organizing, staffing, leading, and controlling are aimed. Short
term goals are created to achieve long term goals. Verifiable Objectives means at
the end of the period it should be possible to determine whether or not objective
has been achieved.

3. Strategies: Strategy is the determination of the basic long-term objectives

of an enterprise and the adoption of courses of action and allocation of
resources necessary to achieve these goals.

4. Policies: Policies are general statements or understandings that guide or

channel thinking in decision making. Policies are, at times, expressions of the
company culture and practices that involved over time. Policies are usually
contained in memos or, more frequently, in company manual such as:
 Customer Policy: Merchandise can be returned by customers within one
week from the date of purchase.
 Personnel policy: Promote from within starting a specific level.
 Pricing policy: Fixed-price policy
 Minimum Cash balance: All funds in excess of a specified minimum cash
balance should be invested in marketable securities.

5. Procedures: Procedures are plans that establish a required method of handling

future activities. Procedures are guides to action, rather than to thinking, and
they detail the exact manner in which certain activities must be accomplished.

6. Rules: Rules spell out specific required actions or non-actions, allowing no

discretion. Rules are different from policies. While policies are meant to guide
decision making by marking off areas in which managers can use their

ACLC College of Ormoc | Organization and Management 31

 discretion, rules allow no discretion in their application. Examples of rules are as
follows:
 Customer's Refund: No refund will be given for returned
merchandise if, invoice is not returned by the customer.
 Uniform Rule: Employees not in uniform will not be allowed to render
service during the day.
 Gate pass: Equipment brought out of company premises must be
accompanied by a gate pass.

7. Programs: Programs are a complex of goals, policies, procedures, rules,

task assignments, steps to be taken, resources to be employed, and other
elements necessary to carry out a given course of action. Programs are ordinarily
supported by budgets.

8. Budgets: Budget is a statement of expected results expressed in numerical

terms. Budget may be called a ―quantified‖ plan. In fact the financial operating
budget is often called a Profit plan.

Steps in Planning

1. Being aware of opportunities: This activity involves collecting and analyzing

relevant external information which define opportunities or threat to the firm's
business. Include the following:
 Time market
 Competition
 What customers want
 Our strengths
 Our weaknesses

2. Establishing objectives : The second step in planning is to establish

objectives for the entire enterprise and then for each subordinate work unit.
Determine where we want to be and what we want to accomplish and when.

3. Developing Premises: Premises are assumptions about the environment in

which the plan is to be carried out. The more thoroughly individuals charged with
planning understand and agree to utilize consistent planning premises, the more
coordinated enterprise planning will be.

Planning Premises

 External Variables
o the rate of growth of the economy and/or the industry
o the rate of inflation and its expected impact costs and prices

ACLC College of Ormoc | Organization and Management 32

 o the continuance or discontinuance of certain government policies
which have a favorable or unfavorable impact on the operations of
the firm (i.e., high interest rates).
o the expected market strategies of key competitors.

 Internal Variables
o the level of internally generated funds to support investments
o the level of labor productivity in the company's factories.
o the company's total staffing level.
o the continuance of certain operating policies (i.e., rate if
dividend, choice of production technology, supply source, etc.).

4. Determining alternative courses: The fourth step in planning is to search

for and examine alternative courses of action, especially those not immediately
apparent. There is seldom a plan for which reasonable alternatives do not exist,
and quite often an alternative that is not obvious proves to be the best.

5. Evaluating alternative courses: After seeking out alternative courses and

examining their strong and weak points, the next step is to evaluate alternatives
by weighing them in light of premises and goals. One course may appear to be the
most profitable but may require a large cash outlay and have a slow payback;
another may look less profitable but may involve less risk; still another may
better suit the company‘s long-range objectives.

6. Selecting a course: This is the point at which the plan is adopted - the real
point of decision making. An analysis and evaluation of alternative courses will
disclose that two or more are advisable, and the manager may decide to follow
several courses rather than the one best course.

7. Formulating derivative plans: When a decision is made, planning is seldom

complete, and a seventh step is indicated. Derivative plans are almost invariably
required to support the basic plan.

8. Quantifying plans by budgeting: After decision are made and plans are
set, the final step in giving them meaning , as was indicated in the discussion
on types of plans, is to quantify them by converting them into budgets. The
overall budget of an enterprise represents the sum total of income and expenses,
with resultant profit or surplus, and the budgets of major balance sheet items
such as cash and capital expenditures. Each department or program of a
business or some other enterprise can have its own budgets, usually of expenses
and capital expenditures, which tie into the overall budget.

ACLC College of Ormoc | Organization and Management 33

Planning at Different Levels in the Firm

The diagram above shows the planning activity and the responsibility for
planning at different levels in the firm. The scope or coverage of the plans, i.e., whether
it covers to the whole firm, a department or other subunit, or just one individual,
generally depends on the level in the organization at which the planning occurs. At the
top management levels, plan generally covers the whole firm. At the middle or sub-unit
levels, the plans may cover only particular sections or departments.

Corporate Planning

Corporate Planning denotes planning activities at the top level and cover
the entire organizational activities. It determines the long-term objectives.
Corporate planning also generates plans to achieve the objectives bearing in mind
the probable changes in environment. Corporate planning includes:
 The setting of objectives
 Organizing the work, people, and systems to enable those objectives to be
attained.
 Motivating through the planning process of the plan and developing.

Functional Planning

Functional planning is segmental and it is undertaken for each major

function of the organization like:
 Production/operation,
 Marketing, finance,
 Human resource/personnel etc.

At the second level, functional planning is undertaking for sub-functions

within each major function.

ACLC College of Ormoc | Organization and Management 34

 Strategic Planning

Strategic planning is deciding on objectives of the organization,

establishing on ones or changing already established ones. It also includes
deciding on the resources used to attain these objectives and policies that manage
the acquisition, use and disposition of these resources.

Operational Planning

Operational planning is deciding the most effective use of the resources

already allocated. It is to develop a control mechanism to assure effective
implementation of the actions.

Long-term Planning

Long-term plans usually cover all the functional areas of the business and
are affected within the existing and long-term framework of economic, social, and
technological factors. It includes analysis of environmental factors, particularly
with respect to how the organization relates to its competition and environment.

Short-term Planning

These plans are aimed at sustaining organization in its production and

distribution of current products or services to the existing markets.

Proactive and reactive Planning

Proactive planning involves designing suitable courses of action in hope of

likely changes in the relevant environment. While reactive planning are
organizations responses come after the environmental changes have taken place.

Formal and Informal Planning

Formal planning is the form of well-structured process involving different

steps. While informal planning process is based on managers memory of
events, perception, and got feeling rather than based on systematic evaluation of
environmental happenings.

Strategic Management

Strategic management is the process through which managers formulate and

implement strategies geared to optimizing goal achievement, given available
environmental and internal conditions. It is a set of managerial decisions and actions
that determines the long-run performance of an organization. It entails all of the basic
management function-planning, organizing, leading, and controlling. The purpose of

ACLC College of Ormoc | Organization and Management 35

strategic management is to exploit and create new and different opportunities for
tomorrow and to prepare long-range planning, in contrast, tries to optimize for
tomorrow the trends of today. Strategic Management is important to organizations
because it helps organizations identify and develop a competitive advantage, a
significant edge over the competition in dealing with competitive forces. It also provides
a sense of direction so that organization members know where to expend their efforts.

Strategy

The determination of the mission or purpose and the basic long-term

objectives of an enterprise, followed by the adoption of courses of action and allocation
of resources necessary to achieve these aims.

Stages in Planning Process:

1. Strategy Formulation
It includes:
 developing a vision and mission,
 identifying an organization's external opportunities and threats,
 determining internal strengths and weaknesses,
 establishing long-term objectives,
 generating alternative strengths,
 choosing particular strategies to pursue.

2. Strategy Implementation: It requires the firm to establish annual objectives,

devise policies, motivate employees, and allocate resources so that formulated
strategies can be executed. These are:
 developing a strategy-supportive culture,
 creating an effective organizational structure
 redirecting marketing efforts,
 preparing budgets,
 developing and utilizing information systems,
 linking employee compensation to organizational performance.

3. Strategy Evaluation: It is the final stage in strategic planning. Managers need

to know when particular strategies are not working well, strategy evaluation is the
primary means for obtaining this information. Three fundamental strategy
evaluation activities are constantly changing:
 reviewing external and internal factors that the bases for current
strategies,
 measuring performance;
 taking corrective actions.

ACLC College of Ormoc | Organization and Management 36

Mission and Objectives

Every organization needs a mission, which defines the purpose of the

organization. What is the organization's reason for being in business? It's also important
to identify the organization's current objectives and strategies, as well.

Environmental Scanning

It is important to analyze the environment because, it defines management's

strategic option. The environmental scanning includes the following components:

 Internal analysis of the firm

 Analysis of the firm's industry (task environment)
 External macro environment (PEST analysis)

Strategy Formulation

Given from the environmental scan, the firm should match its strengths to the
opportunities that it has identified, while addressing it weaknesses and external threats.
To attain superior profitability, the firm seeks to develop a competitive
advantage over its rivals. A competitive advantage can be based on cost or
differentiation (or formulating strategy such as (Michael Porter's Strategy).

ACLC College of Ormoc | Organization and Management 37

Strategy Implementation

The selected strategy is implemented by means of programs, budgets, and

procedures. Implementation involves organization of the firms' resources and
motivation of the staff to achieve objectives.

Evaluation & Control

The implementation of the strategy must be monitored and adjustments made as

needed. Evaluation and Control consists of the following steps:
 Define parameters to be measured
 Define target values for those parameters
 Perform measurements
 Compare measured results to the pre-defined standard
 Make necessary changes.

Major Planning Tools and Techniques

The planning tools and techniques that managers use are identified and
described below:

 FORECASTING: is the process of developing assumptions about the

future that relevant to the predicted level of certain planning
variables (i.e., company future sales).
o Qualitative forecasting uses expert opinions.
o Quantitative forecasting uses mathematical and statistical analysis.
o All forecast rely on judgment.
o Planning involves deciding on how to deal with the implications of a
forecast.

 CONTINGENCY PLANNING: involves identifying alternative

courses of action that can be implemented, if and when an original
plan proves inadequate because of changing circumstances. Contingency
plans anticipate changing conditions. Contingency plans also contain
trigger points.

 SCENARIO PLANNING: is a long-term version of contingency

planning that involves identifying several alternative future scenarios or
states of affairs that may occur, and then making plans to deal with each
scenario should it actually occur. Plans made for each future scenario.
Increases organization‘s flexibility and preparation for future shocks.

 BENCHMARKING: is a technique that makes use of internal and

external comparisons to better evaluate current performance and identify
possible actions to improve the future. Adopting best practices of other
organizations that achieve superior performance.

ACLC College of Ormoc | Organization and Management 38

  BRAK-EVEN ANALYSIS: this is one of the most widely used planning
tools in business. The technique can be used for analyzing the effect on
profits of different pricing strategies or different alternatives in incurring
costs.

 LINEAR PROGRAMMING: is a quantitative tools for determining

the optimal combination of resources and activities. It can be used for
production scheduling, allocation of marketing personnel to territories or
allocation of production inputs to produce an item at minimum cost.

 SIMULATION MODEL: are mathematical representations of some

aspect of a business operation. Simulation models are used when the
planning variables, as well as their interrelationships, are so numerous
and complex that it is difficult to analytically assess the net effect of a
change in one or a number of the variables involved. Simulation is useful
in complex situations such as predicting product demand considering
the effect of changes in the pricing policies of competitors, or the
effect of a change in foreign exchange rate on company profits
considering changes in minimum wage and inflation rates.

 STAFF PLANNERS: are persons who take responsibility for leading and
coordinating the planning function for the total organization or one of its
major components. Staff planners responsibilities include:
o Assisting line managers in preparing plans.
o Developing special plans.
o Gathering and maintaining planning information.
o Assisting in communicating plans.
o Monitoring plans in progress and suggesting changes.

Management by Objectives (MBO)

Management by objectives (MBO) is a strategic management model that aims to

improve the performance of an organization by clearly defining objectives that are
agreed to by both management and employees. According to the theory, having a say in
goal setting and action plans encourages participation and commitment among
employees, as well as aligning objectives across the organization.

Management by objectives (MBO) is the establishment of a management

information system to compare actual performance and achievements to the defined
objectives. Practitioners claim that the major benefits of MBO are that it improves
employee motivation and commitment and allows for better communication between
management and employees. However, a cited weakness of MBO is that it unduly
emphasizes the setting of goals to attain objectives, rather than working on a systematic
plan to do so.

ACLC College of Ormoc | Organization and Management 39

 Management by objectives is consists of four elements such as goal specify,
participative decision making, explicit time period and performance feedback.

Strengths of Management by Objectives (MBO)

 Aids coordination of goals and plans

 Helps clarify priorities and expectations
 Facilitates vertical and horizontal communications
 Fosters employee motivation

Weaknesses of Management by Objectives (MBO)

 Tends to falter without strong continual commitment from top

management.
 Necessities considerable training of managers
 Can be misused as a punitive device.
 May cause overemphasis of quantitative goals

Management by Objectives (MBO) Process

1. Superior communicate to subordinate the higher organizational goals and the

expected subordinate accomplishments;
2. Superiors discuss with subordinate
3. Subordinates goals and both parties should agree on a set of objectives.
4. Resources required to attain goals
5. Periodic reviews should be conducted to monitor performance and to discuss
reasons for deviations of actual performance from targets.
6. Manager or superior discusses evaluation of subordinate the reward given or
punishment.

Decision Making

Decision making is the core of planning. A plan cannot be said to exist unless a
decision-a commitment of resources, direction, or reputation- has been made. In
decision making process managers respond to opportunities and threats by
analyzing options, and making decisions about goals and courses of action.

Types of Decision Making

 Programmed (structured) Decision: Example: Deciding to reorder

office supplies
o These decisions are made by operational managers.

ACLC College of Ormoc | Organization and Management 40

 o Used for structured or routine work.
o Managers have made decision many times before.
o There are rules or guidelines to follow.
o It involves operational issues and has a very short time effect.

 Non-Programmed (Unstructured) Decision: Example: should the

firm invest in a new technology?
o The decision are made by senior management
o Used for unstructured, novel, and ill-defined situations of a
nonrecurring nature. It is a non-routine type decision
o No rules to follow since the decision is new
o These decisions are made based on information, and a
manager‘s intuition, and judgment
o It includes strategic issues and long term effect of decision

 Semi-Programmed (Semi-Structured) Decision: Example: Allocate

resources to managers; develop a marketing plan.
o Decisions are made by middle management.
o It is both routine and non-routine type decisions.
o Usually it gives a clear cut solution of a problem.
o There is both structured and unstructured procedure for decision
making

Decision Making Process Steps

1. Recognize need for a decision: Managers must first realize the need for
which a decision must be made.

ACLC College of Ormoc | Organization and Management 41

 2. Frame the problem: Managers must frame problem for which decision is
to be made.

3. Generate & assess alternatives: Managers must develop feasible

alternative courses of action. If good alternatives are missed, the resulting
decision is poor. It is hard to develop creative alternatives, so managers need
to look for new ideas. Managers should specify criteria, then evaluate.

4. Choose among alternatives: Managers rank alternatives and decides.

While ranking, all information needs to be considered.

5. Implement chosen alternative: Managers must now carry out alternative.

Often a decision is made and not implemented.

6. Learn from feedback: Managers should consider what went right and
wrong with the decision and learn for the future. Without feedback,
managers never learn from experience and might repeat the same mistake.

Cognitive Biases

A cognitive bias is a systematic error in thinking that occurs when people are
processing and interpreting information in the world around them and affects the
decisions and judgments that they make. Systematic errors can result from use of an
incorrect heuristic. These errors will appear over and over since the rule used to make
decision is flawed.

Types of Cognitive Biases

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  Prior hypothesis bias: manager allows strong prior beliefs about a
relationship between variables and makes decisions based on these beliefs
even when evidence shows they are wrong.

 Representativeness: decision maker incorrectly generalizes a decision

from a small sample or one incident.

 Illusion of control: manager over-estimates their ability to control

events.
 Escalating commitment: manager has already committed
considerable resource to project and then commits more even after
indicates problems.

Three Approaches for Selecting and Alternative

When selecting from among alternatives, managers can use three basic
approaches:

1. Experience

Reliance on past experience probably plays a larger part than it deserves in

decision making. Experienced managers usually believe, often without
realizing it, that the things they have successfully accomplished and the
mistakes they have made serve as almost infallible guides to the future. This
attitude is likely to be more pronounced the more experience a manager has
had and the higher he or she has risen in an organization.

Relying on past experience as a guide for future action can be dangerous.

In the first place, most people do not recognize the underlying reasons for
their mistakes or failures. In the second place, the lessons of experience may
be entirely inapplicable to new problems. Good decisions must be evaluated
against future events, while experience belongs to the past.

On the other hand, if a person carefully analyzes experience, rather than

blindly following it, and if he or she distils from experience the fundamental
reasons for success or failure, then experience can be useful as a basis for
decision analysis. A successful program, a well-managed company, a
profitable product promotion, or any other decision that turns out well may
furnish useful data for such distillation. Just as scientists do not hesitate to
build upon the research of others and would be foolish indeed merely to
duplicate it, managers can learn much from others.

2. Experimentation

An obvious way to decide among alternatives is to try one of them and see
what happens. Experimentation is often used in scientific inquiry. People
often argue that it should be employed more often in managing and that the

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 only way a manager can make sure some plans are right— especially in view of
the intangible factors—is to try the various alternatives and see which is best.

The experimental technique is likely to be the most expensive of all

techniques, especially if a program requires heavy expenditures of capital
and personnel and if the firm cannot afford to vigorously attempt
several alternatives. Besides, after an experiment has been tried, there may
still be doubt about what it proved, since the future may not duplicate
the present. This technique, therefore, should be used only after
considering other alternatives.

On the other hand, there are many decisions that cannot be made
until the best course of action can be ascertained by experiment. Even
reflections on experience or the most careful research may not assure
managers of correct decisions. This is nowhere better illustrated than in the
planning of a new airplane.

An airplane manufacturer may draw from personal experience and

that of other plane manufacturers and new plane users. Engineers and
economists may make extensive studies of stress, vibration, fuel
consumption, speed, space allocation, and other factors. But all these studies
do not answer every question about the flight characteristics and
economics of a successful plane; therefore, some experimentation is
almost always involved in the process of selecting the right course to follow.
Ordinarily, a first-production, or prototype, airplane is constructed and
tested; and on the basis of these tests, production airplanes are made
according to a somewhat revised design.

Experimentation is used in other ways. A firm may test a new product in a

certain market before expanding its sale nationwide. Organizational
techniques are often tried in a branch office or plant before being applied over
an entire company. A candidate for a management job may be tested in the
job during the incumbent's vacation.

3. Research and Analysis

One of the most effective techniques for selecting from alternatives when
major decisions are involved is research and analysis. This approach means
solving a problem by first comprehending it. It thus involves a search for
relationships among the more critical of the variables, constraints, and
premises that bear upon the goal sought. It is the pencil-and-paper (or,
better, the computer-and-printout) approach to decision making.

Solving a planning problem requires breaking it into its component parts

and studying the various quantitative and qualitative factors. Study and analysis
is likely to be far cheaper than experimentation. The hours of time and reams of
paper used for analyses usually cost much less than trying the various

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 alternatives. In manufacturing airplanes, for example, if careful research did not
precede the building and testing of the prototype airplane and its parts, the
resulting costs would be enormous.

A major step in the research-and-analysis approach is to develop a model

simulating the problem. Thus, architects often make models of buildings in the
form of extensive blueprints or three-dimensional renditions. Engineers test
models of airplane wings and missiles in a wind tunnel. But the most useful
simulation is likely to be a representation of the variables in a problem situation
by mathematical terms and relationships. Conceptualizing a problem is a major
step toward its solution. The physical sciences have long relied on mathematical
models to do this, and it is encouraging to see this method being applied to
managerial decision making.

Decision Making Conditions

 Decision Making under Certainty:

o Exact and complete information of the consequence of every decision
option.
o Decision maker knows alternatives and their outcomes well.

 Decision Making under Risk:

o Available alternatives and their consequences are known but risky.
o Alternatives are assessed by calculating the expected probability value of
their outcomes. The outcome with the maximum payoff is selected.

 Decision Making under Uncertainty:

o Decision making is not aware of the risks or outcomes of the decision
alternatives.
o Decision making can use Max-Min or Max-Max criterion.

Creativity and Innovation

Creativity refers to the ability and power to develop new ideas. An important
factor in managing people is creativity. A distinction can be made between creativity and
innovation. The term creativity usually refers to the ability and power to develop new
ideas Innovation, on the other hand, usually means the use of these ideas. In an
organization, this can mean a new product, a new service, or a new way of doing things.
Although this discussion centers on the creative process, it is implied that organizations
not only generate new ideas but also translate them into practical applications.

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The Creative Process

The creative process is seldom simple and linear. Instead, generally it

consists of four overlapping and interacting phases:

1. Unconscious Scanning

The first phase, unconscious scanning is difficult to explain because it is

beyond consciousness. This scanning usually requires an absorption in the
problem, which may be vague in the mind. Yet managers working under time
constraints often make decisions prematurely rather than dealing thoroughly
with ambiguous, ill-defined problems.

2. Intuition

The second phase, intuition, connects the unconscious with the conscious.
This stage may involve a combination of factors that may seem
contradictory at first. Intuition needs time to work. It requires that people find
new combinations and integrate diverse concepts and ideas. Thus, one must
think through the problem. Intuitive thinking is promoted by several techniques,
such as brainstorming.

3. Insight

Insight, the third phase of the creative process, is mostly the result of hard
work. For example, many ideas are needed in the development of a usable
product, a new service, or a new process. What is interesting is that insight may
come at times when the thoughts are not directly focused on the problem at
hand. Moreover, new insights may last for only a few minutes, and effective
managers may benefit from having paper and pencil ready to make notes of their
creative ideas.

4. Logical Formulation

The last phase in the creative process is logical formulation or verification.

Insight needs to be tested through logic or experiment. This may be accomplished
by continuing to work on an idea or by inviting critiques from others. Brown and
Sloan's idea of decentralization, for example, needed to be tested against
organizational reality.

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Building Group Creativity

There are different techniques for building group creativity:

1. Brainstorming: managers must face-to-face to generate and debate many

alternatives.
o Group members are not allowed to evaluate alternatives until all
alternatives are listed.
o Be creative and radical in stating alternatives.
o When all are listed, then the pros and cons of each are discussed and a
short list created.

2. Production blocking: is a potential problem with brainstorming.

o Members cannot absorb all information being presented during the
session and can forget their own alternatives.

3. Nominal group technique: provides a more structured way to generate

alternatives in writing.
o Avoids the production blocking problem.
o Similar to brainstorming except that each member is given time to first
write down all alternatives he or she would suggest.
o Alternatives are then read aloud without discussion until all have been
listed.
o Then discussion occurs and alternatives are ranked.

4. Delphi technique: provides for a written format without having all

managers meet face-to-face. Delphi technique allows distant managers to
participate.
o Problem is distributed in written form to managers who then generate
written alternatives.
o Responses are received and summarized by top managers.
o These results are sent back to participants for feedback, and ranking.
o The process continues until consensus is reached.

ACTIVITY: EVENT PLANNING

Instruction: Choose one from the issues below, using the different planning techniques
and tools; plan an event to raise awareness of about your chosen issue.
Proper Waste Segregation
Anti – Smoking Campaign
Barangay or Community Cleaning
Dengue Prevention
COVID – 19 Prevention

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 ASSESSMENT: IDENTIFICATION

Instruction: Write your answer on the space provided.

_______________ 1. It is the basic purpose or function or tasks of an enterprise.
_______________ 2. It is the determination of the basic long-term objectives of
an enterprise and the adoption of courses of action and
allocation of resources necessary to achieve these goals.
_______________3. It is a statement of expected results expressed in numerical
terms.
_______________4. It denotes planning activities at the top level and cover the
entire organizational activities.
_______________5. It is deciding on objectives of the organization, establishing on
ones or changing already established ones.
_______________6. These plans are aimed at sustaining organization in its
production and distribution of current products or services to
the existing markets.
_______________7. It is the final stage in strategic planning.
_______________8. It is the process of developing assumptions about the future
that relevant to the predicted level of certain planning
variables.
_______________9. It involves identifying alternative courses of action that can
be implemented, if and when an original plan proves
inadequate because of changing circumstances.

_______________10. These are mathematical representations of some aspect of a

business operation.
_______________11. It is a strategic management model that aims to improve the
performance of an organization by clearly defining objectives
that are agreed to by both management and employees.
_______________12. It is the core of planning.
_______________13. It refers to the ability and power to develop new ideas.
_______________14. It is a systematic error in thinking that occurs when people are
processing and interpreting information in the world around
them and affects the decisions and judgments that they make.
_______________15. It is a technique that makes use of internal and external
comparisons to better evaluate current performance and
identify possible actions to improve the future.

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 CHAPTER 4: Organizing

TIME FRAME: Week 7 – 9

OVERVIEW:

Organizing is the function of management that involves developing an

organizational structure and allocating human resources to ensure the
accomplishment of objectives. The structure of the organization is the framework
within which effort is coordinated.

In this lesson we will discuss the nature of organization and see how an
organization structures and their levels are due to the limitation of the span of
management.

LEARNING COMPETENCIES:

The learners should be able to design an appropriate organization structure for a

specific business.

SPECIFIC OBJECTIVES:

At the end of the lesson, learners should be:

1. Discuss the nature of organizations.

2. Distinguish the various types of organization structure.
3. Apply organization theories in solving business cases.
4. Identify the different elements of delegation.

DISCUSSION

Organizing

Organizing has been defined as the process of identifying activities needed to

accomplish a goal, subdividing and grouping these activities into meaningful units, and
assigning authority and responsibility to people for their accomplishment.

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Nature of Organizing

There are two essential Concepts regarding with Organizing:

 Organization as a Process

The concept of organizing can be considered as a process, because a large

number of events or activities are done under the process of organizing with-a-
view to accomplish the present goals in an appropriate way. In fact, organizing
involves division of works, determination of activities, grouping of activities,
delegation of authority and the establishment of proper co-ordination and
balance among various departments of individuals towards the attainment of
predetermined goals. On the whole it is clear that the objectives of business
firm cannot be obtained by doing single activity, so organizing is set to be a
process.

 Organization as a Structure of Relationship

Organization refers to a structure of relationship due to involvement of a

large number of groups. In fact, under the process of organizing the relationship
of departments to departments, groups to groups and individuals to
individuals are analyzed carefully through the process of communication system
with a view to establish proper unity and co-ordination among them. So that
everyone can take initiative for the welfare of enterprise. Thus it is clear that
Organization can be considered as a structure of relationship.

Steps of Organizing Process

Organizing is a process of establishing work relation, flow of work and

information and grouping of activities, identification of authority and responsibility
of employees in the organization. Various steps of organizing process are as follows.

 Identification of tasks: all the relevant activities and tasks are identified.
Number of activities depends upon the objectives of the organization. It should
be done effectively such that no important activity is omitted or repeated.

 Grouping jobs: Once all the activities are identified the next step is
grouping of the related jobs. This leads to set up of the departments and divisions
in the organization like production department, finance department, marketing
department, and personnel department.

 Assigning work: When activities are divided among departments the next
step would be to appoint suitable persons for the various tasks. Experts in
their fields are appointed as appointed as heads of their departments and for
lower positions peoples are appointed.

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  Delegation of authority: When some work is assigned to someone then he
must be given some authority to do that work effectively. Assigning work and
delegation goes parallel to each other. Assigning work without proper authority is
meaningless.

 Coordination: As all activities in organization are distinct but they are

interdependent so there must be coordination among the departments. In
absence of coordination ultimate goal of the organization will not be
achieved. Success of the organization is fully dependent on better coordination
between the different divisions and managers.

Importance of Organizing

 Facilitates Administration: Achievement of the objectives of an enterprise by

providing a framework of coordination and control. It provides a system of
authority and network for effective communication. Individual goals can be
coordinated towards group goals. A properly balanced organization facilitated
both management and operation of the enterprise.

 Encourages Growth & Diversification: It has enabled organizations to grow

and expand to giant sizes. Systematic division of work and consistent delegation
of authority facilitate taking up of new activities and meeting new demands. It
provides flexibility for growth without losing control over various activities.

 Optimum Use of New Technology: It is made through a sound structure

manned with competent employees. In addition, Optimum use of technology
permits optimum utilization of human resources. Sound organization ensures
that every individual is placed on the job for which one is best suited.

 Stimulates Innovation & Creativity: It stimulates creative thinking and

initiative on the part of employees. It provides for effective management of
change and responds favorably to changes in environment. It provides
recognition for the professional and the specialist in terms of their achievement.

 Encourages Good Human Relations: The assignment of right jobs to right

person improves job satisfaction and inter-personal relations. Well-defined jobs
and clear lines of authority and responsibility ensure good human relations.

 Ensures Continuity of Enterprise: It provides scope for the training and

development of future management. It provides avenues for development and
promotions through delegation and decentralization.

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  Coordination: It facilitates order and cohesiveness in the enterprise. Division
of labor, better utility of technology and human talent helps to improve the
efficiency and quality of work. Clear channels of communication among the
members of the organization leads to coordination.

Organization

An organization is a collection of people who work together and coordinate their

actions to achieve a wide variety of goals. Organization is a formalized intentional
structure of role or positions.

Organization Structure

An organizational structure represents a series of activities such as task

allocation, coordination and supervision which helps to achieve organization‘s goal. It is
a design of organization movement or blueprint.

An organization structure should be designed to clarify who is to do what tasks

and who is responsible for what results in order to remove obstacles to performance
caused by confusion and uncertainty of assignment and to furnish decision-making
and communication networks reflecting and supporting enterprise objectives.

Organizational Chart

Organizational Chart is a diagrammatic representation of organization structure

show names designation functions of personnel in the organization.

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Types of Organization Structures
All managers must bear that there are two organizations they must deal with-one
formal and the other informal.
The formal organization, it is usually delineated by an organizational chart and
job descriptions. The official reporting relationships are clearly known to every
manager.
Alongside the formal organization exists are informal organization which is a set
of evolving relationships and patterns of human interaction within an organization that
are not officially prescribed.

Functional structure
The concept of functional organization was suggested by F.W. Taylor who
recommended the appointment of specialists at important positions. The structure is
created based on the various functions of an organization. The functional structure
consists of a chief executive officer and limited corporate staff, with functional line
managers in dominant organizational areas such as production, accounting,
marketing, R&D, engineering, and human resources. Also, the functional structure
groups positions into work units based on similar activities, skills, expertise, and
resources.

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Advantages of Functional Organization Structure
1. Specialization: Better division of labor takes place which results in
specialization of function and its consequent benefit.

2. Effective Control: Management control is simplified as the mental functions

are separate from manual functions. Checks and balances keep the authority
within certain limits.

3. Efficiency: Greater efficiency is achieved because of every function performing

a limited number of functions.

4. Economy: Specialization complied with standardization facilitates

maximum production and economical costs.

5. Expansion: Expert knowledge of functional manager facilitates better control

and supervision.
Disadvantages of Functional Organizational Structure
1. Confusion: The functional system is quite complicated to put into
operation, especially when it is carried out at low levels. Therefore,
coordination becomes difficult.

2. Lack of Co-ordination: Disciplinary control becomes weak as a worker is

commanded not by one person but a large number of people. Thus, there is no
unity of command.

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 3. Difficulty in fixing responsibility: because of multiple authority, it is
difficult to fix responsibility.

4. Conflicts: There may be conflicts among the supervisory staff of equal ranks.
They may not agree on certain issues.

5. Costly: Maintenance of specialist's staff of the highest order is expensive for a

concern

Divisional Structure
The divisional structure is a type of organizational structure that groups each
organizational function into a division. These divisions can correspond to either
products or geographies. The divisional structure is likely to be used in large
organizations where substantial differences exist among products or services,
geographic areas, or customers served.
Managers in large companies may have difficulty keeping track of all their
company‘s products and services, specialized departments may develop. These
departments are divided according to their organizational outputs.
Divisional structures are also called "self-contained structures" because each
division contains the major functional resources it needs to pursue its own goals with
little or no reliance on other divisions.
There are three major forms of divisional structure. These are product divisions,
geographic division and customers divisions. These forms differ according to the
rationale for forming the divisions. Product divisions are divisions created to
concentrate on a single product or service or at least a relatively homogeneous set
of products or services. Geographic divisions are divisions designed to serve different
geographic areas. While customers divisions are divisions set up to service particular
types of clients or customers.

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 Advantages of Divisional Organizational Structure
 Divisions can react quickly to changes in the environment.
 Coordination across functions is simplified.
 Each division can focus upon serving its customers.
 The division's goals can be emphasized.
 Performance is more easily measured.
 Managers can be trained in general management skills.
Disadvantages of Divisional Organizational Structure
 There must still be a corporate organization, which adds more overhead
cost to the business.
 The company as a whole may not be able to take advantage of
economies of scale, unless purchases are integrated across the entire
organization.
 When there are a number of functional areas spread among many
divisions, no one functional area will be as efficient as would have been the
case if there had instead been one central organization for each function.
 Each division will tend to have its own strategic direction, which may
differ from the strategic direction of the company as a whole.

Matrix Structure
A matrix organizational structure is a company structure in which the reporting
relationships are set up as a grid, or matrix, rather than in the traditional hierarchy. In
other words, employees have dual reporting relationships - generally to both a
functional manager and a product manager.
Guidelines for Making Matrix Management Effective:
1. Define the objectives of the project or task
2. Clarify the roles, authority, and responsibilities of managers and team
members.
3. Ensure that influence is based on knowledge ad information, rather than on
rank.
4. Balance the power of functional and project managers.
5. Select an experienced manager for the project who can provide
leadership.
6. Undertake organization and team development.
7. Install appropriate cost, time, and quality controls that report deviations from
standards in a timely manner.
8. Reward project managers and team members fairly.

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 Advantages of Matrix Structure
 Oriented toward end results
 Professional identification is maintained
 Pinpoints product-profit responsibility
Disadvantages of Matrix Structure
 Conflict in organization authority exists
 Possibility of disunity of command
 Requires manager effective in human relations

Specialization of Labor
The shape of a company is often closely related to the number and
distribution of specialist roles. People who have studied the same subject like to work
with one another, as not only can they discuss common problems but they also can learn
from one another as they professionally develop. Whilst not always necessary, it can also
be helpful if your manager understands you and your work.
In consequence, when companies split into departments, these are often driven
by specialization, and firms which have more specializations will have more divisions
(and possibly sub-divisions too).

Advantages of Specialization:
 Increased Productivity:
o Better use of scarce resources resulting in a decrease in costs
o Specialized machinery or more proficient staff
 Increased Efficiency
o Specialist workers become quicker at producing goods
o Production becomes cheaper per good because of this
 Standardization
o Product specifications are constantly met
 Higher Profit Margins
o Customers may pay more for more specialized goods or services (for
example: laser eye surgeon; interior designers).
Disadvantages of Specialization:
 Boredom
o Repetitive tasks can have a negative effect on employee motivation.
 Inflexibility:

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 o Over-specialization may deny workers the opportunity of taking on
different roles and responsibilities.
 A Lack of Autonomy:
o Results in interdependence in the production process; a breakdown
may grind the gears of business to a halt.
 Capital Costs:
o Purchasing specialized equipment may be too costly and drain the
businesses finances.

Organization Theories and Application

There are several theories which explain the organization and its structure.

Classical Organization Theory

Classical organization theories (Taylor, 1947; Weber, 1947; Fayol, 1949) deal with
the formal organization and concepts to increase management efficiency. Taylor
presented scientific management concepts, Weber gave the bureaucratic approach, and
Fayol developed the administrative theory of the organization. They all contributed
significantly to the development of classical organization theory.

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Scientific Management Approach
The scientific management approach is based on the concept of planning
of work to achieve efficiency, standardization, specialization and simplification.
The approach to increased productivity is through mutual trust between
management and workers. Taylor (1947) developed the following four principles
of scientific management for improving productivity:
 Science, not rule-of-thumb: Old rules-of-thumb should be supplanted
by a scientific approach to each element of a person's work.
 Scientific selection of the worker Organizational: members should
be selected based on some analysis, and then trained, taught and
developed.
 Management and labor cooperation rather than conflict:
Management should collaborate with all organizational members so that
all work can be done in conformity with the scientific principles developed.
 Scientific training of the worker: Workers should be trained by
experts, using scientific methods.
Weber's Bureaucratic Approach
Considering the organization as a segment of broader society, Weber
(1947) based the concept of the formal organization on the following principles:
 Structure: In the organization, positions should be arranged in a
hierarchy, each with a particular, established amount of responsibility and
authority. · Specialization Tasks should be distinguished on a
functional basis, and then separated according to specialization, each
having a separate chain of command.

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  Predictability and stability: The organization should operate
according to a system of procedures consisting of formal rules and
regulations.
 Rationality: Recruitment and selection of personnel should be impartial.
 Democracy: Responsibility and authority should be recognized by
designations and not by persons.

Administrative Theory
The elements of administrative theory (Fayol, 1949) relate to
accomplishment of tasks, and include principles of management, the concept of
line and staff, committees and functions of management.
 Division of work or specialization: This increases productivity in
both technical and managerial work. · Authority and responsibility. These
are imperative for an organizational member to accomplish the
organizational objectives.

 Discipline: Members of the organization should honor the objectives of

the organization. They should also comply with the rules and regulations
of the organization.

 Unity of command: This means taking orders from and being

responsible to only one superior.

 Unity of direction: Members of the organization should jointly work

toward the same goals.

 Subordination of individual interest to general interest: The

interest of the organization should not become subservient to individual
interests or the interest of a group of employees.

 Remuneration of personnel: This can be based on diverse factors such

as time, job, piece rates, bonuses, profit-sharing or non-financial rewards.

 Centralization: Management should use an appropriate blend of both

centralization and de-centralization of authority and decision making.

 Scalar chain: If two members who are on the same level of hierarchy
have to work together to accomplish a project, they need not follow the
hierarchy level, but can interact with each other on a 'gang plank' if
acceptable to the higher officials.

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  Order: The organization has a place for everything and everyone who
ought to be so engaged.

 Equity: Fairness, justice and equity should prevail in the organization.

 Stability of tenure of personnel: Job security improves performance.

An employee requires some time to get used to new work and do it well.

 Initiative: This should be encouraged and stimulated.

 Esprit de corps: Pride, allegiance and a sense of belonging are essential

for good performance. Union is strength.

 The concept of line and staff: The concept of line and staff is relevant
in organizations which are large and require specialization of skill to
achieve organizational goals. Line personnel are those who work directly
to achieve organizational goals. Staff personnel include those whose basic
function is to support and help line personnel.

 Committees: are part of the organization. Members from the same or

different hierarchical levels from different departments can form
committees around a common goal. They can be given different functions,
such as managerial, decision making, recommending or policy
formulation. Committees can take diverse forms, such as boards,
commissions, task groups or ad hoc committees. Committees can be
further divided according to their functions. In agricultural research
organizations, committees are formed for research, staff evaluation or
even allocation of land for experiments.

 Functions of management: Fayol (1949) considered management as a

set of planning, organizing, training, commanding and coordinating
functions. Gulick and Urwick (1937) also considered organization in
terms of management functions such as planning, organizing, staffing,
directing, coordinating, reporting and budgeting.

Neoclassical Theory
Neoclassical theorists recognized the importance of individual or group
behavior and emphasized human relations.
Based on the Hawthorne experiments, the neoclassical approach
emphasized social or human relationships among the operators, researchers
and supervisors (Roethlisberger and Dickson, 1943). It was argued that these

ACLC College of Ormoc | Organization and Management 61

considerations were more consequential in determining productivity than
mere changes in working conditions. Productivity increases were achieved as a
result of high morale, which was influenced by the amount of individual,
personal and intimate attention workers received.

Principles of the Neoclassical Approach

The classical approach stressed the formal organization. It was
mechanistic and ignored major aspects of human nature. In contrast, the
neoclassical approach introduced an informal organization structure and
emphasized the following principles:
 The individual: An individual is not a mechanical tool but a
distinct social being, with aspirations beyond mere fulfilment of a
few economic and security works. Individuals differ from each other
in pursuing these desires. Thus, an individual should be recognized
as interacting with social and economic factors.

 The work group: The neoclassical approach highlighted the social

facets of work groups or informal organizations that operate within
a formal organization. The concept of 'group' and its synergistic
benefits were considered important.

 Participative management: Participative management or

decision making permits workers to participate in the decision
making process. This was a new form of management to ensure
increases in productivity.

Modern Theories
Modern theories tend to be based on the concept that the organization is a
system which has to adapt to changes in its environment. In modern theory, an
organization is defined as a designed and structured process in which individuals
interact for objectives (Hicks and Gullet, 1975).
The Systems Approach
The systems approach views organization as a system composed of
interconnected - and thus mutually dependent - sub-systems. These sub-
systems can have their own sub-sub-systems. A system can be perceived as
composed of some components, functions and processes (Albrecht, 1983). Thus,
the organization consists of the following three basic elements (Bakke, 1959):

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 1. Components: There are five basic, interdependent parts of the
organizing system, namely:
 the individual,
 the formal and informal organization,
 patterns of behavior emerging from role demands of the
organization,
 role comprehension of the individual, and
 the physical environment in which individuals work.

2. Linking processes: The different components of an organization

are required to operate in an organized and correlated manner.
The interaction between them is contingent upon the linking processes,
which consist of communication, balance and decision making.
 Communication is a means for eliciting action, exerting
control and effecting coordination to link decision centers in
the system in a composite form. · Balance is the equilibrium
between different parts of the system so that they keep a
harmoniously structured relationship with one another.
 Decision analysis is also considered to be a linking process in
the systems approach. Decisions may be to produce or
participate in the system. Decision to produce depends upon
the attitude of the individual and the demands of the
organization. Decision to participate refers to the individual's
decisions to engross themselves in the organization process.
That depends on what they get and what they are expected to do
in participative decision making.

3. Goals of organization: The goals of an organization may be growth,

stability and interaction. Interaction implies how best the members of
an organization can interact with one another to their mutual
advantage.

Socio-technical Approach
The socio-technical systems approach is based on the premise that every
organization consists of the people, the technical system and the
environment (Pasmore, 1988). People (the social system) use tools,
techniques and knowledge (the technical system) to produce goods or
services valued by consumers or users (who are part of the organization's external
environment). Therefore, an equilibrium among the social system, the technical
system and the environment is necessary to make the organization more
effective.

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 The Contingency or Situational Approach
The situational approach (Selznick, 1949; Burns and Stalker, 1961;
Woodward, 1965; Lawrence and Lorsch, 1967) is based on the belief that there
cannot be universal guidelines which are suitable for all situations.
Organizational systems are inter-related with the environment. The
contingency approach (Hellriegel and Slocum, 1973) suggests that different
environments require different organizational relationships for optimum
effectiveness, taking into consideration various social, legal, political,
technical and economic factors.

Delegation
"Delegation is the dynamics of management, it is the process a manager
follows in dividing the work assigned to him so that he performs that part which only he,
because of his unique organizational placement, can perform effectively, and so that he
can get others to help him with what remains, Louis A. Allen ".
A manager alone cannot perform all the tasks assigned to him. In order to meet
the targets, the manager should delegate authority. Delegation is about entrusting
someone else to do parts of your job.

Elements of Delegation

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1. Authority
In context of a business organization, authority can be defined as
the power and right of a person to use and allocate the resources
efficiently, to take decisions and to give orders so as to achieve the
organizational objectives. Authority must be well- defined. All people who
have the authority should know what is the scope of their authority is and
they shouldn‘t misutilize it. Authority is the right to give commands,
orders and get the things done. The top level management has greatest
authority.
Authority in the organization is the power in a position( and
through it, the person occupying the position) to exercise discretion in
making decisions affecting others.
2. Responsibility
It is the obligation or expectation to perform and carry out duties and
achieve goals related to a position. A person who is given the responsibility
should ensure that he accomplishes the tasks assigned to him. If the tasks
for which he was held responsible are not completed, then he should not give
explanations or excuses. Responsibility without adequate authority leads to
discontent and dissatisfaction among the person. Responsibility flows from
bottom to top. The middle level and lower level management holds more
responsibility. The person held responsible for a job is answerable for it. If he
performs the tasks assigned as expected, he is bound for praises. But if he
doesn‘t accomplish tasks assigned as expected, then also he is answerable for
that.
3. Accountability

Is the requirement of being able to answer for significant deviations from

duties or expected results. The fact that managers remain accountable for
delegated work may cause them to resist delegation.

Delegation of Authority
 Allowing someone to act on your behalf to perform tasks (consume
resources) that are available to you.
 Delegator should be empowered to delegate to anyone he needs to, subject
to certain organization controls.
 Delegation of authority is one vital organizational process. It is
inevitable along with the expansion and growth of a business
enterprise.

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  Delegation means assigning of certain responsibilities along with the
necessary authority by a superior to his subordinate managers.
 Delegation does not mean surrender of authority by the higher level
manager. It only means transfer of certain responsibilities to
subordinates and giving them the necessary authority, which is
necessary to discharge the responsibility properly.
 Authority moves downward, while accountability move upward
within the organization.
Nature of Delegation
 Two-sided relationship
 Act of trust
 Dependency relationship
 A challenging task- on senior‘s side mostly
 Forward thinking principle- opens a new chapter for senior subordinate
relationship

Steps in Delegation
1. Assignment of Duties -Clarity of duty as well as result expected has to be
the first step in delegation.
2. Granting of authority - superior divides and shares his authority with the
subordinate.
3. Creation of an obligation - accountability is the liability for the proper
discharge of duties by the subordinates.

Differences between authority and Responsibility

Authority Responsibility
It is the legal right of a person or a It is the obligation of subordinate to
superior to command his subordinates. perform the work assigned to him.
Authority is attached to the position of a Responsibility arises out of superior-
superior in concern. subordinate relationship in which
subordinate agrees to carry out duty given
to him.
Authority can be delegated by a superior to Responsibility cannot be shifted and is
a subordinate absolute
It flows from top to bottom. It flows from bottom to top.

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Centralization
It is the systematic and consistent reservation of authority at central points in the
organization. The important and key decisions are taken by the top management and
the other levels are into implementation.
Advantages of centralization
 It is easier to coordinate the activities of various units and individuals.
 Top managers have more experience and may therefore make better
decisions.
 Top managers have a broader perspective on decisions situations.
 Duplication of effort by various organization units can be avoided.
 Strong leadership is promoted.
Decentralization
Is a systematic effort to delegate to the lowest level authority except that which
can be controlled exercised at central points.
Advantages of Decentralization
 Less burden on the Chief Executive as in the case of centralization.
 The subordinate get a change to decide and act independently which
develop skills and capabilities. This way the organization is able to process
reserve of talents in it.
 Diversification and horizontal can be easily implanted.
 Concern diversification of activities can place effectively since there is
more scope for creating new departments. Therefore, diversification
growth is of a degree.
 In decentralization structure, operations can be coordinated at
divisional level which is not possible in the centralization set up.
 There is greater motivation and morale of the employees since they get
more independence to act and decide.
 Co-ordination to some extent is difficult to maintain as there are lot many
department divisions and authority is delegated to maximum possible
extent.

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Principle of Delegation
There are few guidelines in form of principles which can be a help to the
manager to process the delegation.
1. Principle of result expected – Manager should be able clearly define the
goals as well as results expected from them. The goals and targets should be
completely and clearly defined and standards of performance should also be
notified clearly.

2. Principle of Parity of Authority and Responsibility – Manager should

keep a balance between authority and responsibility. Both of them should go
hand and hand.

3. Principle of absolute responsibility – Manager is always responsible to his

superior for carrying out his task by delegating the powers. It does not means
that he can from his responsibility. He will always remain responsible till the
completion of task. Every superior is responsible for the acts of their
subordinates and are accountable to their superior therefore the superiors cannot
pass the blame to the subordinates even if he has delegated certain powers to
subordinates example if the production manager has been given a work and the
machine breaks down.

4. This principle that a manager should exercise his authority

within the jurisdiction/framework given. The manager should be forced
to consult their superiors with those matters of which the authority is not given
that means before a manager takes any important decision, he should make sure
that he has the authority to do that on the other hand, subordinate should also
not frequently o with regards to their complaints as well suggestions to their
superior if they are not asked to do. This principle emphasizes on the degree of
authority and the level up to which it has to be maintained.

Formal and Informal Organization

Formal Organization
A formal organization is the literal structure of the organization including
its organization chart, hierarchical reporting relationships and work processes.

Characteristics of Formal Organization

 Formal means something systematic.
 It is in an official structure.
 It provides official relationship between individual.
 It is objective oriented.

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  It abides with rules and regulations.

Informal Organization
It is a network of personal and social relations which aroused
spontaneously as people associate with one another. It arises naturally on the
basis of friendship or some common interest which may or may not with work.
Characteristics of Informal Organization
 Informal group is created by the member of the organization for their
social and psychological satisfaction.
 Informal organizations are unstable in nature, it is not permanent.
 Informal organizations (groups) are greater in number than the formal
organizations.
 Free interaction.

Differences between Formal and Informal Organization

Formal Organization Informal Organization
Consciously deliberate in nature It rises spontaneously
Based on delegation of authority It arises on account of social interaction
or it arises from account of personal
factors like friendship
Rules responsibilities are written and Just unwritten rules and regulations
clearly defined
It shown in organization chart It has no place in organization chart
It provides a definite structure It is structure less because it is social
Formal authority is attaches to a position Informal authority attaches to a person
out of social interactions
It flows downwards (top to down level) It flows upwards
It is permanent and stable It is temporary and unstable
It is deliberately impersonal It is personal

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 ACTIVITY: RESEARCH

Instruction: Identify a formal organization in your locality and ask about their
organizational structure. Discuss what type of organizational structure is used.

ASSESSMENT

I. True or False
Instruction: Write “T” if the statement is TRUE and write “F” if the statement is
“FALSE”. Please correct the false statement.

1. Organizing is a process of establishing work relation, flow of work and

information and grouping of activities, identification of authority and
responsibility of employees in the organization.
2. Organizing stimulates creative thinking and initiative on the part of
employees.
3. An organization is a collection of people who work independently to achieve
his/her goal.
4. An organizational structure represents a series of activities such as task
allocation, coordination and supervision which helps to achieve organization‘s
goal. It is a design of organization movement or blueprint.
5. Functional organizational structure is quite complicated to put into
operation, especially when it is carried out at low levels.
6. Functional organizational structure is cost efficient.
7. A matrix organizational structure is a company structure in which the reporting
relationships are set up as a grid, or matrix, rather than in the traditional
hierarchy.
8. Classical organization theories deal with the formal organization and concepts
to increase management efficiency.
9. Workers should be trained by experts, using scientific methods.
10. Modern theories tend to be based on the concept that the organization is a
system which has to adapt to changes in its environment.
11. Decision analysis is a means for eliciting action, exerting control and effecting
coordination to link decision centers in the system in a composite form.
12. In context of a business organization, delegation can be defined as the power
and right of a person to use and allocate the resources efficiently, to take
decisions and to give orders so as to achieve the organizational objectives.
13. Responsibility is the legal right of a person or a superior to command his

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 subordinates.
14. Decentralization is the systematic and consistent reservation of authority at
central points in the organization.
15. Manager should be able clearly define the goals as well as results expected from
them.

II. Discussion

Instruction: Briefly answer the question below. Write your answer on the space
provided.

What is the difference between responsibility and accountability? Give example.

________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________

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 WEEK 10: FIRST QUARTER EXAMINATION

Name:_________________ Date:_________________
Section: ________________ Score: ________________

Test I. Multiple Choice

Instruction: Encircle the letter of your answer.

1. It is an ability or proficiency in a specific area.

a. Skill
b. Responsibility
c. Accountability
d. Efficiency

2. He is the Father of Personnel Management.

a. Robert Owen
b. Charles Babbage
c. Henry R. Towne
d. Henry Fayol

3. He is the Father of Scientific Management.

a. Charles Babbage
b. Frederick Winslow Taylor
c. SunTze
d. Henry Towne

4. He is the Father of Modern Management Theory.

a. Robert Owen
b. Charles Babbage
c. Henry R. Towne
d. Henry Fayol

5. It implies the culture and norms of the business.

a. Mission
b. Value System
c. Vission
d. Employee Relation

6. In partnership, the one whose liability extends to his separate property is a:

a. General Partner
b. Limited Partner
c. Managing Partner
d. Industrial Partner

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7. In partnership, the one who contributes service only is a:
a. General Partner
b. Limited Partner
c. Managing Partner
d. Industrial Partner

8. It is the determination of the basic long-term objectives of an enterprise and

the adoption of courses of action and allocation of resources necessary to
achieve these goals.
a. Objectives
b. Mission
c. Strategy
d. Policies

9. These are general statements or understandings that guide or channel thinking in

decision making.
a. Objectives
b. Procedures
c. Strategies
d. Policies

10. These are plans that establish a required method of handling future activities.
a. Budget
b. Procedures
c. Strategies
d. Policies

11. It is a statement of expected results expressed in numerical terms.

a. Budget
b. Procedures
c. Strategies
d. Policies

12. This planning deciding on objectives of the organization.

a. Functional Planning
b. Strategic Planning
c. Operational Planning
d. Corporate Planning

13. It denotes planning activities at the top level and covers the entire organizational
activities.
a. Proactive and Reactive
b. Strategic Planning
c. Operational Planning
d. Corporate Planning

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14. It involves designing suitable courses of action in hope of likely changes in the
relevant environment.
a. Proactive and Reactive
b. Strategic Planning
c. Operational Planning
d. Corporate Planning

15. It requires the firm to establish annual objectives.

a. Strategy Evaluation
b. Strategy Implementation
c. Strategy Formulation
d. Environmental Scanning

16. It is the process of developing assumptions about the future that relevant to the
predicted level of certain planning variables.
a. Contingency Planning
b. Scenario Planning
c. Forecasting
d. Benchmarking

17. It is a technique that makes use of internal and external comparisons to better
evaluate current performance and identify possible actions to improve the future.
a. Contingency Planning
b. Scenario Planning
c. Forecasting
d. Benchmarking

18. It is making decisions when decision maker knows alternatives and their
outcomes well.
a. Decision Making under Certainty
b. Decision Making under Risk
c. Maximax Decision Making
d. Decision Making under Uncertainty

19. It is a long-term version of contingency planning that involves identifying several

alternative future scenarios or states of affairs that may occur, and then making
plans to deal with each scenario should it actually occur.
a. Contingency Planning
b. Scenario Planning
c. Forecasting
d. Benchmarking

20. It is when managers need to know when particular strategies are not working
well.
a. Strategy Evaluation
b. Strategy Implementation
c. Strategy Formulation

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 d. Environmental Scanning

Test. II. True or False

Instruction: Draw  if the statement is TRUE and  if the statement is FALSE.

Please correct the false statement. Write your answer on the space provided.

1. Effectiveness is doing the right things while efficiency is doing things

right.________________________________________________
2. Social factors include the society as a whole alongside its preferences and
priorities like the buying and consumption
pattern.__________________________________________________
____________________________________________________
3. Latest technologies helps in improving the marketability of the product plus
makes it more consumer friendly.
_________________________________________________
4. International business environment helps business in earning foreign exchange.
______________________________________________________
5. Partnership is an artificial being created by operation of law.
______________________________________________________
6. Linear programming is a strategic management model that aims to improve the
performance of an organization by clearly defining objectives that are agreed to
by both management and employees.
_______________________________________________________
_______________________________________________________
7. Managers choose alternatives and decide.
_______________________________________________________
8. Organization refers to a structure of relationship due to involvement of a large
number of groups.
______________________________________________________
9. Organizing is a process of establishing work relation, flow of work and
information and grouping of activities, identification of authority and
responsibility of employees in the organization.
_______________________________________________________
_______________________________________________________
10. Organizational structure is a diagrammatic representation of organization
structure show names designation functions of personnel in the organization.
_______________________________________________________
_______________________________________________________
11. By using functional organization structure greater efficiency is achieved because
of every function performing a limited number of functions.
_______________________________________________________
_______________________________________________________
12. The functional system is quite complicated to put into operation.
_______________________________________________________

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13. The matrix structure is a type of organizational structure that groups each
organizational function into a division.
_______________________________________________________
_______________________________________________________
14. Matrix Structure pinpoints product-profit responsibility.
_______________________________________________________
15. Accountability is the requirement of being able to answer for significant
deviations from duties or expected results.
_______________________________________________________
_______________________________________________________

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 CHAPTER 5: Staffing

TIME FRAME: Week 11 – 13

OVERVIEW:

Staffing is a critical organizational function which consists of the process of

acquiring, deploying, and retaining a workforce of sufficient quantity and quality to
create positive impacts on the effectiveness of the organization. It is one of the
significant functions of the management.

In an organization, it is the people which carry out the various jobs which are
needed for its functioning. They are the most important resource of the organization.
They supply the talent, skills, knowledge, and experience to achieve the organizational
goals and objectives. In fact the performance of the organization largely depends on
the quality of its people. Hence the staffing function of the management is an
important function and it involves in the building of the organizational workforce. In
staffing, the management is faced with the challenge of not only finding the right person
for each job but also to match the personnel with the jobs identified and to provide for
their long-range growth and welfare as members of the organization.

Staffing is that part of the process of management which is concerned with

acquiring, developing, employing, appraising, remunerating and retaining people so
that right type of people are available at the right positions and at the right time in the
organization. In the simplest terms, staffing in management is ‗putting people to jobs‘.

LEARNING COMPETENCIES:

At the end of the lesson, learners should be able to conduct and prepare job
analysis

SPECIFIC OBJECTIVES:

At the end of the lesson, learners should be:

1. Discuss the nature of staffing.

2. Explain the steps in the recruitment and selection process.
3. Recognize the different training programs.
4. Identify the policy guidelines on compensation /wages and performance
evaluation/appraisal.
5. Discuss the importance of employee relations.
6. Differentiate various employee movements.
7. Adopt effective rewards system.
ACLC College of Ormoc | Organization and Management 77
 DISCUSSION

Staffing
Staffing is the process of acquiring, deploying, and retaining a workforce of
sufficient quantity and quality to create positive impacts on the organizations
effectiveness. The managerial function of staffing is defines as filling and keeping filled,
positions in the organization structure.

Nature of Staffing
The following points describe the nature of the staffing function.
 Staffing function is normally the sub function of the organizing function. All the
five functions of the management viz. planning, organizing, directing,
coordinating, and controlling depend upon the employees of the organization
which are made available through the staffing function.
 Staffing is a pervasive activity. It is carried out in every organization and at all the
levels of the management in the organization.
 Staffing is a continuous activity. This is due to the fact that the function of
staffing continues throughout the life of the organization.
 The basis of staffing function is the efficient management of personnel. The
process involved in the staffing function in the organization is efficiently
managed by a system or with well-tried procedures.
 The function of staffing helps in placing right men at the right job. It can be done
effectively through proper recruitment procedures and then finally selecting the
most suitable candidate as per the job requirements.
 All the levels of management are involved in the function of staffing though
the personnel department coordinates it.

Main Objectives of Staffing:

 To understand all function of in an organization.
 To understand manpower planning so that people are available at right time and
at right place.
 To understand issues related to job analysis and to overcome the problem.
Importance of Staffing
The staffing function is a very important function of the management due to the
following reasons.
 Staffing helps in discovering and obtaining competent personnel for various jobs.
ACLC College of Ormoc | Organization and Management 78
 It helps in the optimum utilization of the human resources.
 It helps in developing professionals in every field of organizational activity.
 It helps to improve the quantity and quality of the output by putting the right
person on the right job.
 It helps in developing competencies in the organization to face the
challenges.
 It helps to improve job satisfaction of the employees and hence their morale.
 It facilitates higher productive performance of the organization by appointing
right man for right job.
 It reduces the cost of manpower by eliminating the wastage of the human
resources.
 It facilitates growth and diversification activities in the organization.
 It provides for the development of the employees and through them it ensures
continuous survival and growth of the organization.

Benefits of Staffing
The benefits of an effective staffing function are as follows.
 Staffing helps in getting right people for the right job at the right time. The
function of staffing enables the management to find out as to how many
employees are needed and with what qualifications and experience.
 Staffing contributes to improved organizational productivity. Through proper
selection the organization can enhance the quality of the employees, and
through proper training the performances level of the employees can also be
improved.
 Staffing helps in providing job satisfaction to the employees and thus keeps
their morale high. With proper training and development programs their
efficiency improves and they feel assured of their career advancements.
 Staffing maintains harmony in the organization. Through proper staffing,
individuals are not just recruited and selected but their performance is
regularly appraised and promotions made on merit. For all these, certain
procedures are made and are duly communicated to all concerned. This
fosters harmony and peace in the organization.

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Step in the Process of Staffing Function

The process of the staffing function involves human resource planning i.e.
estimating the size and nature of the personnel required for the recruitment and
selection of the best candidates to train, to induct, to reward and to have regular and
effective communication with them.
 Manpower Planning –It involves in creating and evaluating the
manpower inventory after considering the development of the required
talents among the existing employees through their promotion and
advancement. It also involves determining manpower needs from
company plans and programs, determining available manpower resources,
analyzing, training needs of present employees, recruiting manpower from
external sources for those positions that cannot be filled up by present
employees and planning training and development of manpower
resources.
 Recruitment – Recruitment is the process of attracting the appropriate
number of qualified individuals to apply for vacant positions in an
organization.
 Selection – It is the screening step of staffing in which the solicited
applications of those candidates which are not found suitable as per the
requirements of the notified post are screened out. It is the process of
elimination of the candidates who appear unpromising for the post.
 Placement and Orientation –Once selection process is over, the
selected candidates are appointed. It means putting the appointed
ACLC College of Ormoc | Organization and Management 80
 employee on the job for which he is selected. Orientation is the
introduction of the appointed employee with the job. He is made familiar
to the work units and work environment through the orientation
programs.
 Training – is defined as an attempt to improve performance by the
attainment of specific skills such as computing, typing, encoding,
designing, driving, and so forth to do the current job. The goal of training
is to ensure that a number of job skills will be performed at prescribed
quality levels by trained employees.
 Development – this is more general than training and refers to learning
opportunities designed to help employees grow. It provides employees
broader learning which may be utilized in a variety of settings and for
future jobs. As global competition increases, training programs for
management are becoming more educational in scope.
 Promotion – it involves the assignment of an employee to a higher level
job. This also refers to the upward or vertical movement of employees in
an organization from lower level jobs to higher level jobs involving
increases in duties and responsibilities, higher pay and privileges.
 Transfer –Employees of the organization who have been identified for
taking up of higher positions in the organization are being transferred to
different departments so that they can learn intricacies of the functioning
of different departments. This helps them when they take up positions in
the higher management.
 Appraisal – it is normally done in order to keep a track or record of the
behavior, attitudes as well as opinions of the employees towards their jobs.
Appraisal of employees reveals as to how efficiently the employee is
performing in his job.
 Remuneration- It is a kind of compensation provided monetarily to the
employees for their work performances. This is given according to the
nature of job- skilled or unskilled, physical or mental, etc. Remuneration
forms an important monetary incentive for the employees.

Recruitment
As what we have been discussed that recruitment is the process of attracting the
appropriate number of qualified individuals to apply for vacant positions in an
organization.
Systematic recruitment requires job analysis and the identification of application
of applicants for vacant positions.

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 Job Analysis
The procedure used for determining/collecting information relating to the
operations and responsibility of a specific job. The end result of this analysis is
job description and job specification.
Job Description
It is the organized and factual statements of the duties and responsibilities of a
specific job. It tells what is to be done, how it is done, and why. It is a list of job
duties, responsibilities, reporting relationships, working conditions, and
supervisory responsibilities.
Job Specifications
It is a written explanation of the minimum acceptable human qualities necessary
for effective performance of a given job. It designates the qualities required for
acceptable performance that is the requisite education, skills, personality, and so
on.

Stages of the Recruitment

1. Defining requirements, preparing of job description and job
specifications.
2. Attracting potential employees
3. Selecting appropriate people for the job

Sources of Application
Applicants can either be sourced internally or externally. Internal sources
means considering present employees as candidates for job openings. While
external sources this is used when the organization is unable to fill its hiring
needs from internal sources. One inherent advantage of this is that the pool of
talents is much larger and more diverse than that available from internal sources
plus the new employee bringing new ideas, different cultural values, and fresh
approaches.

Selection
The selection process is to gather from applicants information that will predict
their job success and then to hire the candidates likely to be most successful. Selection
involves choosing the best candidate with best abilities, skills and knowledge for the
required job.

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 Selection Process
The Employee selection Process takes place in following order:

 Preliminary Interviews - It is used to eliminate those candidates who

do not meet the minimum eligibility criteria laid down by the organization.
The skills, academic and family background, competencies and interests of
the candidate are examined during preliminary interview.

 Application Blanks - The candidates who clear the preliminary

interview are required to fill application blank. It contains data record of
the candidates such as details about age, qualifications, reason for
leaving previous job, experience, etc.

 Employment Interviews - it provides the opportunity to review

candidates' qualifications and to determine their suitability for the
position. It also provides candidates with the chance to learn about
the position and its re

 Written Tests - Various written tests conducted during selection

procedure are aptitude test, intelligence test, reasoning test, personality
test, etc. These tests are used to objectively assess the potential candidate.
They should not be biased.

 Background Testing - this is to verify the accuracy of factual

information previously provided by the applicant and to uncover
damaging background information such as criminal records, and
suspended driver's licenses.

 Medical Examination- Medical tests are conducted to ensure

physical fitness of the potential employee. It will decrease chances of
employee absenteeism.

 Final Employment Decision - this is the decision to accept or reject

the application on the results of the Physical Examination and a value
judgment based on all the gathered in the previous steps.

Training and Development

Training is a systematic process that will help the employees acquire the right
knowledge, attitude, skills, and habits to improve current performance. While
development refers to learning opportunities designed to help employees growth.
Development provides employees broader learning which may be utilized in a variety of
settings and for future jobs.

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Objective of Training and Development

 Improve the quantity and quality of productivity. This can lead to an

increase in an individual's skills in one or more areas of expertise.
 Effectiveness in the present jobs this involves increasing an
individual's motivation to perform is job well.
 Create more favorable attitudes, loyalty, and cooperation.
 Help employees in their personal development and advancement by
helping them acquire additional qualifications for a better job.
 Help organization respond to dynamic market conditions and
changing consumer demands.
 Satisfy human resource planning requirements.

Importance of Training
 Improvement in skill and knowledge
 Higher production and productivity
 Job satisfaction
 Better use of resources
 Stability and growth: if an organization has a team of trained employees it
can face future challenges easily
 Reduction in complaints and accidents
 Adaptability
 Reduced supervision : well trained employees don‘t need much
supervision
 Greater flexibility

Types of Training

Orientation Training

It is a systematic and planned introduction and it‘s concerned with

inducting or orienting a new employee to the organization and its
procedure, rules and regulations. The main purpose is to give a ―bird‘s eye
view‖ of the organization where he has to work. It is very short informative
training given immediately after recruitment.

Apprenticeship Training

It is one of the traditional methods of training and is meant to give

trainees sufficient knowledge and skill in technical jobs. This type of
training is very common in skilled trades such as electricians, plumbers,
carpenters, etc.

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 Internship Training

Under this method, the vocational or educational institute enters

into arrangement with an industrial enterprise for providing practical
knowledge to its students.

On Job Training

It is a training technique that involves allowing the person to learn

the job by actually performing its own the job.

Off Job Training

Off the job types of training is imparted off the job outside the work
premises.

Compensation

Compensation is the set of rewards that organizations provide to individuals in

return for their willingness to perform various jobs and tasks within the organization.
The person receiving a salary is not paid a smaller amount for working fewer hours, nor
is he paid more for working overtime. Someone who is paid wages receives a pay rate
per hour, multiplied by the number of hours worked. This person is considered to be a
"non-exempt" employee.

Factors Affecting Compensation Levels

The factors that influence the setting of compensation levels are:

 Attitude of Management – some firms have the policy of attracting the

best qualifies applicants. In order to do this, management offers higher
compensation which could include housing benefits and/or profit sharing
schemes than the other firms in the industry. It is the belief of these firms
that better qualified applicants mean lower training costs and possibly,
lower employee turnover. Furthermore, firms which do this often believe
that the higher pay is offset by higher productivity. In general,
multinationals and the large Filipino-owned firms offer higher
compensation levels than the smaller-sized firms.

 Job Specifications – job specification can be used to access the worth of

each job relative to other jobs. Using the job specification, positions in the
firm may be ranked or classified.

 Environmental Factors – the setting of wage or salary levels is not

entirely within the full control of management. In the Philippines, the law
prescribes a minimum wage. In the past, in addition to this minimum

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 wage, a cost of living allowance (COLA) per month was required by law.
Furthermore, the supply of and demand for labor for certain company
positions is a significant factor to consider in setting compensation levels.

Principles Governing Salary Administration

 Maintaining Competitiveness
 Matching Employee Expectations
 Reinforcing positive employee behavior
 Eliminating any discrepancy
 Optimization of management and employee interests
 Maintaining good IR and harmony

Purpose of Wage & Salary

 Attracting talented resources

 Retaining and motivating employees
 Financial Management
 Legal Requirements

Different Forms of Compensation

 Payment for timed worked
 Incentive forms of compensation
 Performance incentives
 Spot bonuses
 Skill and knowledge-based pay/competency-based pay
 Merit pay plans profit sharing
 Stock ownership plans
 Executive compensation

Performance Evaluation/Appraisal

A performance appraisal is a regular review of an employee's job performance

and overall contribution to a company. Also known as an annual review, performance
review or evaluation, or employee appraisal, a performance appraisal evaluates an
employee‘s skills, achievements, and growth--or lack thereof. Companies use
performance appraisals to give employees big-picture feedback on their work and to
justify pay increases and bonuses, as well as termination decisions. They can be
conducted at any given time but tend to be annual, semi-annual, or quarterly.

Two types of Performance Appraisal

A performance appraisal can occur in two ways – informally or more

formally (or systematically).

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 Informal Appraisal

Informal appraisals can be carried out whenever the supervisor

feels it is necessary. The day-to-day working relationship between a
manager and an employee offers an opportunity for the employee‘s
performance to be assessed. This assessment is communicated through
conversation on the job, over coffee, or by on-the-spot examination of a
particular piece of work. Informal appraisals are especially appropriate
when time is an issue. The longer feedback is delayed, the less likely it is to
encourage a change in behaviour. Frequent informal feedback to
employees can also prevent surprises when the formal evaluation is
communicated.

Formal/Systematic Appraisal

These are used when the contact between a manager and an

employee is more formal. This could be when they don‘t see each other on
a daily or even weekly basis. It requires a system to be in place to report
managerial impressions and observations on employee performance.

Four Major Purposes of Systematic Appraisal:

1. It lets subordinates know formally how their current

performance is being rated
2. It identifies those subordinates who deserve merit raises
3. It locates those subordinates who require additional training
4. It plays an important role in identifying those subordinates
who are candidates for promotion

Performance Criteria

1. Relevance - relevance performance dimension are determined by the duties

and responsibilities contained in the job description.
2. Reliability - should produce consistent and repeatable evaluation
3. Freedom from contamination - should measure each employee's
performance without being contaminated by factors that an employee cannot
control such as: economic condition, material shortage, poor equipment.

Sources of Data in Appraisal

1. Production Data - evaluate the degree of dependable task accomplishment

by measuring quantity and quality of performance. Example: peso volume of
sales, return on investment, etc.
2. Personnel Data - type of information found in an individual's personnel
files. Example: absenteeism, tardiness, etc.

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 3. Judgement of others - the spontaneous and innovative behavior of an
employee is assessed by the judgement of others.

Employee Relations

Employee relations refer to the relationship shared among the employees in an

organization. The employees must be comfortable with each other for a healthy
environment at work.

Every individual shares a certain relationship with his colleagues at the

workplace. The relationship is either warm, so-so or bad. The relationship can be
between any one in the organization - between co - workers, between an employee and
his superior, between two members in the management and so on. It is important that
the employees share a healthy relationship with each other to deliver their best
performances.

An individual spends his maximum time at the workplace and his fellow workers
are the ones with whom he spends the maximum hours in a day. No way can he afford to
fight with his colleagues. Conflicts and misunderstandings only add to tensions and in
turn decrease the productivity of the individual. One needs to discuss so many things at
work and needs the advice and suggestions of all to reach to a solution which would
benefit the individual as well as the organization.

No individual can work alone. He needs the support and guidance of his fellow
workers to come out with a brilliant idea and deliver his level best.

Employee Movement

Promotion

It involves the reassignment of an employee to a higher level job. This also

refers to the upward or vertical movement of employees in an organization from
lower level jobs to higher level jobs involving increases in duties and
responsibility, higher pay and privileges.

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Reasons for Employee Promotions

 An effective way to keep good men in the firm

 As recognition of and reward for good performance
 To boost employee morale and encourage the employees to render
to the company the best service they are capable of

Basis or Criteria Used for Promotion

1. Seniority – length of service

 Straight seniority – the length of service of an employee is the
sole basis for determining who gets the promotion.
 Qualified seniority – the more competent employee as
compared to another employee with longer service will be the
one promoted.
2. Current and past performance
3. Assessment centres evaluate the qualified candidates for promotion,
w/c focus on the kinds of skills and abilities to effectively perform the
higher level jobs that the candidates seek.
4. Competency or merit determined by the ratings or evaluations received
by the employees.

Unofficial Promotion Criteria

 Personal Characteristics
 Nepotism – showing of favoritism or patronage to relatives
 Social Factors
 Friendship

Promotion from Within

It is filling up vacancies in upper level management positions by

promoting lower level managers.

A major advantage of this policy is its positive effect upon employee

motivation. Knowing that they have opportunity to be promoted tends to
motivate employee‘s performance with the company and to solidify their
feelings of loyalty toward the company.

Advantages of Promotion from Within:

 Provides greater motivation thinking for good performance

 Provides greater promotion opportunities for present
employees

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 Disadvantages of Promotion from Within:

 Creates a narrowing of and stale of ideas

 Creates political infighting

Demotion

Demotion is the reassignment of an employee to a lower job involving

fewer skills and responsibilities. The movement of an employee to a less
important job from a higher level job in the organization which may not involve a
reduction in pay but a reduction in status or privileges.

Basis or Criteria for Demotion

1. Reorganizations, company merger or business contractions may

result in fewer jobs, forcing some employees to accept lower
positions.
2. Inability of the employees to perform their jobs according to
acceptable standards.
3. As a form of disciplinary action or a way to handle disciplinary
problems, also viewed as a routine form of punishment for
wrongdoing.
4. The tool used to communicate to employees that they are beginning
to be ―liabilities‖ rather than assets to an organization.

Transfer

This is the reassignment of employee to a job with similar pay, status,

duties, and responsibilities. It also involves horizontal movement from one job to
another.

Reasons for Transfer:

 Because personnel placement practices are not perfect, an

employee-job mismatch may have resulted.
 An employee becoming unsatisfied with his job for one or a variety
of reasons
 Organizations sometimes initiate transfers to further the
development and advancement of the employee especially at
management and staff.
 Due to business expansion, retrenchment erroneous placement, the
need to meet departmental requirement during peak season.
 For personal enrichment/greater convenience and for more
interesting jobs.

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  For employee to be better suited or adjusted to his job (remedial
transfer).

Two Kinds of Transfer

1. Permanent – made to fill vacancies requiring the special skills or

abilities of the employee being transferred.

2. Temporary – made due to the temporary absence of an e employee,

e.g., in case of sick, leave, vacation leave, or shifts in the work load
during peak periods.

Employee Separation

Different kinds of separation occur depending on whether the employee or

the employee decides to terminate the employment relationship.

Lay Off

The separation of an employee initiated by the employer due to

business reverses, the introduction of labor saving devices, or the
reduction in the demand for particular skills. Management as temporary
measures during periods of business recession, industrial depression or
seasonal fluctuation resorts.

Resignation

This is when employees voluntarily decide to end their employment

with an organization.

Causes of Resignation

• Dissatisfaction about wages and working conditions

• Misunderstandings with supervisors or fellow workers
• Inconvenient work hours are among the chief reasons employee
resignation.

Retirement

This is when employees having satisfied certain conditions under

existing laws and/or provisions of the collective bargaining agreements or
upon reaching the age of 65 are separated from employment with
entitlement to retirement benefits. This is given either in a lump sum
amount or in a form of a monthly pension for life.

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 Termination/Discharge or Dismissal

It is the practice of putting an end to the employer- employee

relations initiated by the employer with prejudice to the worker. A
discharge is due to some fault of the employee such as inability to meet the
company‘s standards of performance, incompetence, violation of company
rules, insubordination, etc.

Rewards Systems

The company‘s reward system is made up not only of the compensation

system, but also includes such elements as recognition and symbolic rewards, and
other non-economic inducements such as good working environment, pleasant
climate of work, etc.

A company‘s compensation system refers to all forms of economic remuneration,

whether in financial form or otherwise, which it provide to employees. Compensation
thus refers not only the salaries or wages, but also to the other monetary and non-
monetary benefits received by employees from their employer.

A company‘s reward system refers to the totality of the inducements that a firm
provides in order to:

1. Attract people to work for the company

2. Motivate them to perform well while working with the company, and
3. Induce them to remain with the company over time.

Elements of Total Rewards

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 Compensation - Pay provided by an employer to an employee for
services rendered (i.e., time, effort and skill).

 Benefits - Programs an employer uses to supplement the cash

compensation that employees receive. These programs are designed
to protect the employee and his or her family from financial risks.

 Work-Life - A specific set of organizational practices, policies,

programs, plus a philosophy, which actively supports efforts to help
employees achieve success at both work and home. - Work-life
strategies address the key intersections of the worker, his or
her family, the community and the workplace.

 Performance – Alignment of organizational, team and individual

performance is assessed in order to understand what was
accomplished, and how it was accomplished. Performance involves
the alignment effort toward the achievement of business goals and
organizational success.

 Recognition - Acknowledges or gives special attention to

employee efforts or performance. It meets an intrinsic psychological
need for appreciation and can support business strategy by
reinforcing certain behaviors that contribute to organizational
success. Awards can be cash or non-cash (e.g., verbal recognition,
trophies, certificates, plaques, dinners, tickets, etc.).

 Developmental Opportunities — A set of learning experiences

designed to enhance employees‘ applied skills and competencies.
Development engages employees to perform better and leaders to
advance their organizations‘ people strategies.

 Career Opportunities - A plan for an employee to advance their

own career goals and may include advancement into a more
responsible position in an organization. The organization supports
career opportunities internally so that talented employees are
deployed in positions that enable them to deliver their greatest
value to their organization.

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 ACTIVITY: RESEARCH

Instructions: Identify one business organization in your locality and ask about their:

Selection and Recruitment Process

Job description and job specification of three positions in their
organization.

ASSESSMENT: MULTIPLE CHOICE

Instruction: Encircle the letter of your answer.

1. It is the practice of putting an end to the employer- employee relations initiated
by the employer with prejudice to the worker.
a. Retirement
b. Termination
c. Lay off
d. Promotion

2. The separation of an employee initiated by the employer due to business reverses,

the introduction of labor saving devices, or the reduction in the demand for
particular skills.
a. Retirement
b. Transfer
c. Lay off
d. Promotion

3. This is the reassignment of employee to a job with similar pay, status, duties, and
responsibilities. It also involves horizontal movement from one job to another.

a. Retirement
b. Transfer
c. Lay off
d. Demotion

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4. It is the reassignment of an employee to a lower job involving fewer skills and
responsibilities.
a. Retirement
b. Transfer
c. Lay off
d. Demotion

5. It involves the reassignment of an employee to a higher level job.

a. Retirement
b. Transfer
c. Lay off
d. Promotion

6. It is the organized and factual statements of the duties and responsibilities of a

specific job.
a. Job description
b. Job specification
c. Job Analysis
d. Appraisal

7. What is the process of staffing which involves in creating and evaluating the
manpower inventory after considering the development of the required talents
among the existing employees through their promotion and advancement?
a. Manpower Planning
b. Recruitment
c. Selection
d. Training

8. What is the first step in the selection process?

a. Written test
b. Preliminary Interview
c. Background Testing
d. Application Blanks

9. It is systematic process that will help the employees acquire the right knowledge,
attitude, skills, and habits to improve current performance.
a. Development
b. Training
c. Appraisal
d. Promotion

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10. It refers to learning opportunities designed to help employees grow.
a. Development
b. Training
c. Appraisal
d. Promotion

11. It is a type of training that is concerned with inducting or orienting a new

employee to the organization and its procedure, Rules and regulations.
a. Apprenticeship Training
b. On the Job Training
c. Orientation Training
d. Off Job Training

12. It is the set of rewards that organizations provide to individuals in return for their
willingness to perform various jobs and tasks within the organization.
a. Appraisal
b. Rating
c. Promotion
d. Compensation

13. It is a regular review of an employee's job performance and overall contribution

to a company.
a. Appraisal
b. Rating
c. Promotion
d. Compensation

14. All are purposes of systematic appraisal except for:

a. It lets subordinates know formally how their current performance is

being rated
b. It identifies those subordinates who deserve merit raises
c. It identifies those subordinates who are candidates for promotion
d. It provides greater motivation thinking for good performance

15. This is to verify the accuracy of factual information previously provided by the
applicant and to uncover damaging background information such as criminal
records, and suspended driver's licenses.
a. Background Testing
b. Medical Examination
c. Written Tests
d. Interview

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 CHAPTER 6: Leading

TIME FRAME: Week 14 – 15

OVERVIEW:

Leading is the third element of management, one of the management core

functions. Here, a manager spends time connecting with his/her employees. Leadership
skills include inspiring, communicating, motivating, and influencing employees for
efficient output. All managers are not leaders, but all leaders are managers. An
employee follows all the directions a manager gives because they have to, because
managers have all the legitimate powers. But an employee voluntarily follows the
direction of a leader because they have believed in him/her.

LEARNING COMPETENCIES:

At the end of the lesson, learners should be to demonstrate knowledge in motivation,

leadership, and communication by solving business cases.

SPECIFIC OBJECTIVES:

At the end of the lesson, learners should be:

1. Discuss the nature of directing.
2. Differentiate leading to managing.
3. Identify the different theories of motivation.
4. Differentiate styles of leadership.
5. Appreciate the role of communication in directing people within the organization.
6. Explain the management of change and diversity in the workplace.
7. Recognize the interrelationship of Filipino from foreign cultures.

DISCUSSION

Scope of Directing and Leading

Directing refers to instructing, guiding, communicating and inspiring people so

that the objectives can be achieved. It is part of management process which ensures
the efficiency and effectiveness of the employees. It is also called management in
action. The function of directing is concerned with employee orientation, issuing
instructions, supervision, motivation, communication and leadership.

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 Employee Orientation: An employee must be properly oriented to the
enterprise in which they are working. This orientation is necessary for
them to accomplish the objectives of the enterprise.

Instructions: An instruction is an order or command by a senior

directing a subordinate to act or refrain from acting under a given
situation. The right to issue orders should be with the superior by virtue of
his position.

Supervision: In order to see that the work is done according to the

instructions the superior must observe the activities of the subordinates.
Supervision is done at all levels of management. However, supervision is
more important at lower levels.

Motivation: One of the most challenging problems for management is to

motivate people. Management has to induce the employee to utilise his
talent and skill to contribute to the organizational goal.

Nature and Characteristics of Directing:

Directing is characterized by the following distinguishing features:

1. Element of Management: Directing is one of the important functions of

management. It is through direction that management initiates action in the
organization.

2. Continuing Function: Direction is continuous process and it continues

throughout the life of an organization. A manager never ceases to guide,
inspire and supervise his subordinates. A manager cannot get things done
simply by issuing orders and instruction. He must continually provide
motivation and leadership to get the orders and instructions executed.

3. Pervasive Function: Direction initiates at the top and follows right up to

the bottom of an organization. Every manager in the organization gives
direction to his subordinates as superior and receives direction as
subordinates from his superior. Direction function is performed at every
level of management and in every department of the organization.

4. Creative Function: Direction makes things happen and converts plans into
performance it is the process around which all performance revolves.
Without direction, human forces in an organization become inactive and
consequently physical factors become useless. It breathes life into
organization.

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5. Linking Function: Planning, organizing and staffing are merely
preparation for doing the work and work actually starts when managers
perform the directing function. Direction puts plans into an action and
provides performance for measurement and control. In this way, directing
serves as a connecting link between planning and control.

6. Management of human factor: Direction is the interpersonal aspects of

management. It deals with the human aspect of organization. Human
behaviour is very dynamic and is conditioned by a complex of forces about
which not much is known. Therefore, direction is a very difficult and
challenging function.

Principles of Directing

Directing is a complex function as it deals with people whose behaviour is

unpredictable. Effective direction is an art which a manager can learn and perfect
through practice. However, managers can follow the following principles while
directing their subordinates.

1. Harmony of Objectives. Individuals join the organization to satisfy

their physiological and psychological needs. They are expected to work
for the achievement of organizational objectives. They will perform
their tasks better if they feel that it will satisfy their personal goals.

2. Maximum Individual Contribution. Organizational objectives are

achieved at the optimum level when every individual in the
organization makes maximum contribution towards them. Managers
should, therefore, try to elicit maximum possible contribution from
each subordinate.

3. Unity of Command. A subordinate should get orders and instruction

from one superior only. If he is made accountable to two bosses
simultaneously, there will be confusion, conflict, disorder and
indiscipline in the organization. Therefore, every subordinate should
be asked to report to only one manager.

4. Appropriate Techniques. The manager should use correct

direction techniques to ensure efficiently of direction.

5. Direct Supervision. Direction becomes more effective when

there is a direct personal contact between the superior and his
subordinates. Such contact improves the morale and commitment of
the employees. Therefore, whenever possible direct supervision should
be used.

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 6. Managerial Communication. A good system of communication
between the superior and his subordinates helps to improve mutual
understanding. Upwards communication helps a manager to
understand the subordinates to express their feeling.

Leading

The process of influencing people so that they will contribute to

organizational and group goals. Managing requires the creation and maintenance of an
environment in which individuals work together toward the accomplishment of
common objectives. The leading function helps any organization go forward to attain its
goals and objectives.

Three Basic Components of Leading:

1. Motivating Employees – They motivate their employees and

subordinates.
2. Influencing Employees – They influence their employees and
subordinates to reach the desired goals of the organization.
3. Forming Effective Groups – They form effective groups in the
organization.

Importance of Leading in Management

 Commencing an Action – Leaders are the people who start an action.

They generally take the risk of any action.
 Providing Instructions – They provide instructions to conduct and
finish a job.
 Motivating Others – They do motivate their subordinates.
 Improve Confidence – when employees are frustrated, demotivated,
and stressed by lengthy working pressure, leaders help to redevelop
their confidence.
 Building Morale – leaders develop the code of ethics that help to
develop the morality of the employees.
 Building an Efficient Working Environment – They build the
working environment in such way that employees can work there very
comfortably.
 Coordination – after any type of conflict of interest or chaos in an
organization, it is very important to reinstall the normal environment in
that organization. Leaders reinstall the working environment.

Leadership

Leadership is the art or process of influencing people so that they will

strive willingly and enthusiastically toward the achievement of group goals.

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According to Peter Ducker ―Management is doing the right things and Leadership
is doing the things right‖.

Characteristics of a Good Leader

 Honesty – your business and its employees are a reflection of

yourself, and if you make honest and ethical behavior a key value,
you team will follow suit.

 Ability to Delegate – Trusting your team with your idea is a sign

of strength, not weakness. Delegating tasks to the appropriate
departments is one of the most important skills you can develop.

 Communication – Being able to clearly describe what you want

done is extremely important. If you can‘t relate your vision to your
team, you won‘t all be working towards the same goal.

 Sense of Humor – If you are constantly learning to find the

humor in the struggles, your work environment will become a
happy and healthy space, where your employees look forward to
working in.

 Confidence – Assure everyone that setbacks are natural and the

important thing is to focus on the larger goal. By staying calm and
confident, you will help keep the team feeling the same.

 Commitment – If you expect your team to work hard and produce

quality content, you‘re going to need to lead by example.

 Positive Attitude – Keep your team motivated towards the

continued success of the company, and keep the energy levels up.

 Creativity – it is during these critical situations that your team will

look to you for guidance and you may be forced to make a quick
decision. It is important to learn to think outside the box.

 Ability to Inspire – Being able to inspire your team is great for

focusing on the future goals. It is your job to keep spirits up, and
that begins with an appreciation for the hard work.

 Intuition – When leading a team through uncharted waters. There

is no roadmap on what to do. Everything is uncertain, and the
higher the risk, the higher the pressure

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Leadership Functions

1. Setting Goals: A leader is expected to perform creative function of

laying out goals and policies to persuade the subordinates to work with
zeal and confidence.

2. Organizing: The second function of a leader is to create and shape the

organization on scientific lines by assigning roles appropriate to
individual abilities with the view to make its various components to
operate sensitively towards the achievement of enterprise goals.

3. Initiating Action: The next function of a leader is to take the

initiative in all matters of interest to the group. He should not depend
upon others for decision and judgment. He should float new ideas and
his decisions should reflect original thinking.

4. Co-Ordination: A leader has to reconcile the interests of the

individual members of the group with that of the organization. He has
to ensure voluntary co-operation from the group in realizing the
common objectives.

5. Direction and Motivation: It is the primary function of a leader to

guide and direct his group and motivate people to do their best in the
achievement of desired goals, he should build up confidence and zeal in
the work group.

6. Link between Management and Workers: A leader works as a

necessary link between the management and the workers. He
interprets the policies and programmes of the management to his
subordinates and represents the subordinates‘ interests before the
management. He can prove effective only when he can act as the true
guardian of the interests of his subordinates.

Leadership Styles Based on Use of Authority

1. Authoritarian or autocratic leader - the leader tells his

or her employees what to do and how to do it, without getting their
advice.

2. Participative or democratic leader - the leader includes one or

more employees in the decision making process, but the leader
normally maintains the final decision making authority.

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 3. Laissez-fair (free-rein) leader - the leader allows the
employees to make the decisions, however, the leader is still
responsible for the decisions that are made.

Motivation

Motivation refers to the process by which a person‘s efforts are energized

directed and sustained towards attaining a goal.

Three Key Elements of Motivation:

1. Energy - The energy element is a measure of intensity or drive. A motivated

person puts forth effort and works hard however the quality of effort must
also be considered.

2. Direction - High levels of effort do not necessarily need to favorable job

performance unless the effort is channelled in a direction that benefits the
organization.

3. Persistence - Effort that is directed toward and consistent with organization

goals is the kind of effort we want from employees. Finally motivation
includes a persistence dimension. We want employees to persist in putting
forth effort to achieve those goals.

Theories of Motivation

 Maslow‘s Hierarchy Of Needs Theory

 McGregor‘s Theory X and Theory Y
 Herzberg‘s Two-Fact Theory
 McClelland‘s Three-Needs Theory

Maslow’s Hierarchy of Needs Theory

Maslow's hierarchy is a flawed model, which has never been proven

to apply in workplace settings, indeed Maslow himself saw no evidence
that it worked in a workplace setting. It should thus be treated with
caution. However it does at least indicate that people are motivated
differently, for example pay motivated differently depending on which the
level of hierarchy people worked in.

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 Self-actualization: highest need in his hierarchy. It is the desire
to become what one is capable of becoming - to maximize one's
potential and to accomplish something.

 Self-esteem: According to Maslow, once people begin to satisfy

their need to belong, they tend to want to be held in esteem
both by themselves and by others. This kind of need produces such
satisfaction as power, prestige, status, and self-confidence.

 Belongingness and Love needs: since people are social beings,

they need to belong, to be accepted by others.

 Safety needs: People want to be free of physical danger and of the

fare of losing a job, property, food, or shelter.

 Physiological needs: these are the basic needs for sustaining

human life itself, such as food, water, warmth, shelter, and sleep.
Maslow took the position that, until these needs are satisfied to
the degree necessary to maintain life, other needs will not motivate
people.

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McGregor’s Theory X and Theory Y

Theory X (Negative) assumes that managers tend to take a

pessimistic view of their people, and assume that they are naturally
unmotivated and dislike work. As a result, they think that team members
need to be prompted, rewarded or punished constantly to make sure that
they complete their tasks.

Theory Y (Positive) assumes that managers have an optimistic,

positive opinion of their people, and they use a decentralized, participative
management style. This encourages a more collaborative , trust-
based relationship between managers and their team members.

Herzberg’s Motivation-Hygiene Theory

Herzberg‘s Motivation Theory model or Two Factor Theory argues

that there are two factors that an organization can adjust to influence
motivation in the workplace.

The first set of job conditions has been referred to

as maintenance or hygiene factor, wherein the same job conditions
provide the same level of dissatisfaction, in case the conditions are absent,
however, their presence does not motivate in a strong way.

The second set of job conditions is referred to as motivational

factors, which primarily operate to build strong motivation and high job
satisfaction, but their absence does not result in strong dissatisfaction.

Hygiene Factors: Herzberg identified ten maintenance or

hygiene factors that are not intrinsic parts of a job, but are related to the
conditions in which the job has to be performed. These are company policy
and administration, technical supervision, job security, working
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conditions, interpersonal relationship with peers, subordinates and
supervisors, salary, job security, personal life, etc.

Motivational factors: These factors have a positive effect on the

functioning of the employees in the organization. There are six factors that
motivate employees: Achievement, Recognition, Advancement, Work-
itself, Possibility of growth and Responsibility. An increase in these factors
satisfies the employees and the decrease in these will not affect the level of
satisfaction.

McClelland’s Three-Needs Theory

David C. McClelland has contributed to the understanding of

motivation by identifying three types of basic motivating needs. He
classified three basic motivating needs to:

 Need for achievement: people with a high need for achievement

have an intense desire for success and an equally intense fear
failure. They want to be challenged, and they set moderately
difficult goals for themselves. They take a realistic approach to risk.
They tend to be restless, like to work long hours, do not worry
unduly about failure if it does occur, and tend to like to run their
own shows.

 Need for Power: McClelland and other researchers have found

that people with a high need for power have a great concern with
exercising influence and control. Such individuals generally are
seeking positions of leadership; they are frequently good
conversationalists, though often argumentative; they are forceful,
outspoken, hard headed, and demanding, and they enjoy teaching
and public speaking.

 Need for Affiliation: people with a high need for affiliation

usually derive pleasure from being loved and tend to avoid the pain
of being rejected by a social group. As individuals, they are likely to
be concerned with maintaining pleasant social relationships, to
enjoy a sense of intimacy and understanding, to be ready to
console and help others in trouble, and to enjoy friendly
interaction with others.

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Leadership Theories

Great Man Theory (1840s)

The Great Man theory evolved around the mid - 19th century. Even
though no one was able to identify with any scientific certainty, which
human characteristic or combination of, were responsible for
identifying great leaders. Everyone recognized that just as the name
suggests; only a man could have the characteristic (s) of a great leader.

The Great Man theory assumes that the traits of leadership are
intrinsic. That simply means that great leaders are born they are not made.
This theory sees great leaders as those who are destined by birth to
become a leader. Furthermore, the belief was that great leaders will rise
when confronted with the appropriate situation. The theory was
popularized by Thomas Carlyle, a writer and teacher. Just like him, the
Great Man theory was inspired by the study of influential heroes. In his
book "On Heroes, Hero-Worship, and the Heroic in History", he compared
a wide array of heroes.

In 1860, Herbert Spencer, an English philosopher disputed the

great man theory by affirming that these heroes are simply the product of
their times and their actions the results of social conditions:

 Great Man approach actually emphasis

―charismatic‖ leadership. Charisma being the Greek word
for gift.
 No matter what group such a natural leader finds
himself in, he will always be recognized for what he is.
 According to the great man theory of leadership,
leadership calls for certain qualities like commanding
personality, charm, courage ,intelligence, persuasiveness
and aggressiveness.

Trait Theory

Trait theory considers personality, social, physical, or intellectual

traits to differentiate leaders from non-leaders. The trait leadership theory
believes that people are either born or are made with certain qualities that
will make them excel in leadership roles.
The trait theory of leadership focused on analyzing mental,
physical and social characteristic in order to gain more understanding
of what is the characteristic or the combination of characteristics that are
common among leaders.

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 There were many shortfalls with the trait leadership theory.
However, from a psychology of personalities approach, Gordon Allport's
studies are among the first ones and have brought, for the study of
leadership, the behavioural approach.

Leadership Traits include of:

 Ambition and energy

 The desire to lead
 Honesty and integrity
 Self-confidence
 Intelligence
 Job-relevant knowledge

Behavioural Theories (1940's - 1950's)

In reaction to the trait leadership theory, the behavioural

theories are offering a new perspective, one that focuses on the behaviours
of the leaders as opposed to their mental, physical or social characteristics.
Thus, with the evolutions in psychometrics, notably the factor analysis,
researchers were able to measure the cause an effects relationship of
specific human behaviours from leaders. From this point forward
anyone with the right conditioning could have access to the once
before elite club of naturally gifted leaders. In other words, leaders are
made not born.

The behavioural theories first divided leaders in two categories.

Those that were concerned with the tasks and those concerned with
the people. Throughout the literature these are referred to as different
names, but the essence are identical.

Behavioural Theory In contrast with trait theory, behavioural

theory attempts to describe leadership in terms of what leaders do,
while trait theory seeks to explain leadership on the basis of what
leaders are. Leadership according to this approach is the result of
effective role behaviour. Leadership is shown by a person‘s acts more than
by his traits. This is an appropriate new research strategy adopted by
Michigan Researchers in the sense that the emphasis on the traits is
replaced by the emphasis on leader behaviour (which could be measured).

Contingency Theories (1960's)

The Contingency Leadership theory argues that there is no single

way of leading and that every leadership style should be based on certain
situations, which signifies that there are certain people who perform at the
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maximum level in certain places; but at minimal performance when taken
out of their element.

To a certain extent contingency leadership theories are extension of

the trait theory, in the sense that human traits are related to the situation
in which the leaders exercise their leadership. It is generally accepted
within the contingency theories that leader are more likely to express their
leadership when they feel that their followers will be responsive.

In contingency theory of leadership, the success of the leader is a

function of various contingencies in the form of subordinate, task, and/or
group variables. The effectiveness of a given pattern of leader behavior is
contingent upon the demands imposed by the situation. These theories
stress using different styles of leadership appropriate to the needs created
by different organizational situations.

Fiedler’s Contingency Theory

Fielders' theory is the earliest and most extensively researched.

Fiedler‘s approach departs from trait and behavioral models by asserting
that group performance is contingent on the leader‘s psychological
orientation and on three contextual variables: group atmosphere, task
structure, and leader‘s power position.

Path-goal Theory

The main function of the leader is to clarify and set goals with
subordinates, help them find the best path for achieving the goals, and
remove obstacles.

The Path-Goal model is a theory based on specifying a leader's

style or behavior that best fits the employee and work environment in
order to achieve a goal (House, Mitchell, 1974). The goal is to
increase your employees' motivation, empowerment, and satisfaction
so they become productive members of the organization.

Path-Goal is based on Vroom's (1964) expectancy theory in which

an individual will act in a certain way based on the expectation that the act
will be followed by a given outcome and on the attractiveness of that
outcome to the individual. The path-goal theory was first introduced by
Martin Evans (1970) and then further developed by House (1971).

The path-goal theory can best be thought of as a process in which

leaders select specific behaviors that are best suited to the employees'
needs and the working environment so that they may best guide the
employees through their path in the obtainment of their daily work
activities (goals) (Northouse, 2013).

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 The theory categorizes leader behavior into four groups:

 Supportive leadership behavior gives consideration to the

needs of subordinates, shows concern for their well-being, and
creates a pleasant organizational climate.
 Participative leadership allows subordinates to influence the
decisions of their superiors, which may increase motivation.
 Instrumental leadership gives subordinate rather specific
guidance and clarifies what is expected of them. It involves aspects
of planning, organizing, coordinating, and controlling by the leader.
 Achievement-oriented leadership involves setting challenging
goals, seeking improvement of performance, and having
confidence that subordinates will achieve high goals.

Types of Leaders

Transactional leaders identify what needs to be done to achieve goals,

including clarifying roles and tasks, rewarding performance, and providing for
the social needs of followers.

Transactional leadership Theories (1970's)

Transactional theories, also known as exchange theories of

leadership, are characterized by a transaction made between the leader
and the followers. In fact, the theory values a positive and mutually
beneficial relationship.

Transactional leadership styles are more concerned with

maintaining the normal flow of operations. Transactional leadership can
be described as "keeping the ship afloat." Transactional leaders use
disciplinary power and an array of incentives to motivate employees to
perform at their best. The term "transactional" refers to the fact that this
type of leader essentially motivates subordinates by exchanging rewards
for performance. A transactional leader generally does not look ahead in
strategically guiding an organization to a position of market leadership;
instead, these managers are solely concerned with making sure everything
flows smoothly today.

Transformational leaders articulate a vision, inspire and motivate

followers, and create a climate favorable for organizational change.

The Transformational Leadership theory states that this process is by

which a person interacts with others and is able to create a solid relationship that
results in a high percentage of trust, that will later result in an increase of
motivation, both intrinsic and extrinsic, in both leaders and followers

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 A transformational leader goes beyond managing day-to-day operations
and crafts strategies for taking his company, department or work team to the next
level of performance and success. Transformational leadership styles focus on
team-building, motivation and collaboration with employees at different
levels of an organization to accomplish change for the better.
Transformational leaders set goals and incentives to push their subordinates to
higher performance levels, while providing opportunities for personal and
professional growth for each employee.

Definition of Communication

Communication

Communication is the transfer of information from a sender to a receiver,

with the information being understood by receiver. Managerial communication
enables people to exchange information and feedbacks within the
organization and enables people to pursue the organizational goals.

Why communication is needed in management?

 To establish and disseminate the goals of an enterprise;

 To develop plans for their achievement;
 To organize human and other resources in the most effective and
efficient way;
 To select, develop, and appraise members of the organization;
 To lead, direct, motivate, and create a climate in which people want
to contribute; and
 To control performance.

The Purpose of Communication

The purpose of communication in an enterprise is to effect change –

to influence action toward the welfare of the enterprise. Communication is
essential for the internal functioning of enterprises because it integrates the
managerial functions. Communication facilitated not only the managerial
functions but also that communication relates an enterprise to its external
environment. It is through information exchange that managers become
aware of the needs of customers, the availability of suppliers, the claims of
stockholders, the regulations of governments, and the concerns of the
community. It is communication that any organization becomes an open system
interacting with its environment.

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The Communication Process Model

Sender of the message: Communication begins with the sender, who

has a thought or an idea, which is then encoded in a way that can be
understood by both the sender and the receiver. While it is usual to think
of encoding a message into a spoken language, there are many other ways
of encoding, such as translating the thought into computer language.

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 Use of a channel to transmit the message: the information is
then transmitted over a channel that links the sender with the
receiver. The message may be oral or written, and its transmission
may be through a memorandum, a computer, telephone, a telegram,
email, television, or other media. The proper selection of the channel is
vital for effective communication.
Receiver of the message: the receiver has to be ready for the reception
of the message so that it can be decoded into thoughts. The next step in the
process is decoding, in which the receiver converts the message into
thoughts. Accurate communication can occur only when both the sender
and the receiver attach the same, or at least similar meanings to the
symbols that compose the message. Communication is not complete
unless it is understood. Understanding is in the mind of both the
sender and the receiver. Persons with closed mind will normally not
completely understand messages, especially if the information is a
contrary to their value system.
Noise: Anything – whether in the sender, the transmission, or the
receiver – that hinders communication.
Feedback: to check the effectiveness of communication, a person must
have feedback. One can never be sure whether or not a message has
been effectively encoded, transmitted, decoded, and understood until
it is confirmed by feedback. Similarly, feedback indicates whether
individual or organizational change has taken place as a result of
communication.

Types of Communication
1. Verbal Communication: Face-to-face, telephone, radio, television
and other media.
2. Written Communication: Letters, e-mails, books, magazines, the
Internet or via other media.
3. Non-Verbal Communication: Body language, gestures, how we
dress or act - even our scent.
4. Visualization: Graphs, charts, maps, logos.

Barriers and Breakdowns in Communication

1. Lack of planning
2. Unqualified Assumption
3. Semantic distortion
4. Poorly expressed message

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 Communication barriers in the International environment
1. Loss by transmission and poor retention
2. Poor listening and pre-mature evaluation
3. Impersonal communication
4. Distrust, Threat, and Fair
5. Insufficient period for adjustment to change
6. Information Overload

Organizational Communication Types

 Formal Communication – communication that takes place
within prescribed organizational work arrangements.

 Informal Communication – communication that is not defined by

the organization‘s structural hierarchy.

Formal Communication Informal Communication

Official channel Unofficial channel
Planned and systematic Unplanned and spontaneous
Part of organization Cuts across formal relationships
Oriented towards goals and task of the Directed towards goals and need
enterprise satisfaction of individual
Impersonal Personal and social
Stable and rigid Flexible and instable
Slow and structured Fast and unstructured

Direction of Communication Flow

 Upward communication: travel from subordinates to superiors and
continues up the organizational hierarchy.
 Downward communication: flows from people at higher levels to those at
lower levels in the organizational hierarchy.
 Horizontal: flow of information is among people on the same or similar
organizational levels.

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Guidelines for Improving Communication
Effective communication is the responsibility of all persons in the
organization, managers as well as non-managers, in working toward a common
aim. Whether communication is effective can be evaluate by the intended results. The
following guidelines can help overcome the barriers to communication.
1. Clarify the purpose of the message
Senders of messages must clarify in their minds what they want to
communicate. This means that one of the first steps in communicating is to
clarify the purpose of the message and to make a plan to achieve the
intended end.
2. Use intelligible encoding
Effective communication requires that encoding and decoding be done
with symbols that are familiar to both the sender and the receiver of the message.
Thus, the manager (and specially the staff specialist) should avoid
unnecessary technical jargon, which is intelligible only to experts in the their
particular field.
3. Consult others’ views
The planning communication should not be done in the vacuum. Instead,
other people should be consulted and encouraged to participate: to collect the
facts, analyze the message, and select the appropriate media.
4. Consider receivers’ needs
It is important to consider the needs of the receivers of the information.
Whenever appropriate, one should communicate something that is of value to
them, in the short run as well as in the more distant future. At times, unpopular
actions that affect employees in the short run may be more easily accepted if they
are beneficial to them in the long run.
5. Use appropriate tone and language and ensure credibility
There is a saying that the tone makes the music. Similarly, in
communication, the tone of voice, the choice of language, and the congruency
between what is said and how it is said influence the reaction of the receiver of
the message. An autocratic manager ordering subordinate supervisors to practice
participative management will create a credibility gap that will be difficult to
overcome.
6. Get feedback
Too often, information is transmitted without communicating.
Communication is complete only when the message is understood by the
receiver. And the sender never knows whether the message is understood unless
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 he or she gets feedback. This is accomplished by asking questions, requesting a
reply to a letter, and encouraging receivers to give their reaction to the message.
7. Consider receivers’ emotions and motivations
The function of communication is more than transmitting information. It
also deals with emotions, which are very important in interpersonal relationships
between superiors, subordinates, and colleagues in an organization.
Furthermore, communication is vital for creating an environment in which
people are motivated to work toward the goals of the enterprise while they
achieve their personal aims. Another function of communication is control. As
explained in the discussion of management by objectives (MBO), control does not
necessarily mean top-down control. Instead, the MBO philosophy emphasizes
self-control, which demands clear communication with an understanding of the
criteria against which performance is measured.
8. Listen
Effective communicating is the responsibility not only of the sender but
also of the receiver of the information. Thus, listening is an aspect that needs
additional comment.

Management of Change and Diversity

Change management is the process, tools and techniques to manage the people
side of change to achieve its required business outcomes. It is the systematic
management of employee engagement and adoption when the organization changes
how work will be done. Ultimately, change management focuses on how to help
employees embrace, adopt and utilize a change in their day-to-day work.
Change Management Process
The change management process is the sequence of steps or activities that
a change management team or project leader would follow to apply change
management to a project or change.
Change management processes contain the following three phases:

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1. Preparing for change (Assessment)
 Identifying the problem: Opportunity that necessitates
change (symptoms)
 Data collection: Gathering structural, technological and
people information and effects of these elements on the process
 Data analysis: Summarizing the data ( advantages, dis-advantages,
risks, and consequences)
 Strategic determination: Identifying possible solutions,
barriers, strategies
 Decide if the change is necessary.
 Make others aware of the need for the change.
 Swot analysis and basic 4 forces models: (environmental
forces , organizational forces , task demand , personal need.)

2. Managing change (Planning and Implementation)

 State goal and specific measurable objectives and also the time allotted.
 Establishing the who, how, what, and when of change.
 Allocating resources, budget and evaluation methods.
 Plan for resistance management.
 Identify areas of support & resistance.
 Include everyone in the planning that will be affected.

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  Establish target dates for implementation.
 Develop appropriate strategy for alteration.
 Be available to support others through the process.
 Evaluate the change then modify if necessary

3. Reinforcing change (Evaluation)

 Determining effectiveness of change.
 Achieved objectives and benefits - qualitative as well as financial and the
documented evidences of being achieved.

Types of Change
There are two types of change in an organization:
 Planned change - refers to initiatives that are driven ―top-
down‖ in an organization.

 ―Emergent” change - refers to a situation in which change can

originate from any level in the organization

Areas of Change in an Organization

Strategic Change
Sometimes in the course of normal business operation it is necessary for
management to adjust the firm's strategy to achieve the goals of the
company, or even to change the mission statement of the organization in
response to demands of the external environments.
Adjusting a company's strategy may involve changing its fundamental
approach to doing business: the markets it will target, the kinds of products
it will sell, how they will be sold, its overall strategic orientation, the level of
global activity, and its various partnerships and other joint‐business
arrangements.

Structural Change
 Organizations often find it necessary to redesign the structure of the
company due to influences from the external environment.
 Structural changes involve the hierarchy of authority, goals, structural
characteristics, administrative procedures, and management systems.

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  Almost all change in how an organization is managed falls under the
category of structural change.
 A structural change may be as simple as implementing a no‐smoking
policy, or as involved as restructuring the company to meet the customer
needs more effectively.
Process‐oriented Change
 Organizations may need to reengineer processes to achieve optimum
workflow and productivity.
 Process‐oriented change is often related to an organization's production
process or how the organization assembles products or delivers services.
 The adoption of robotics in a manufacturing plant or of laser‐scanning
checkout systems at supermarkets is an example of process‐oriented
changes.
People‐centred Change
 This type of change alters the attitudes, behaviors, skills, or performance
of employees in the company.
 Changing people‐centered processes involves communicating,
motivating, leading, and interacting within groups.
 This focus may entail changing how problems are solved, the way
employees learn new skills, and even the very nature of how employees
perceive themselves, their jobs, and the organization.
 Some people‐centered changes may involve only incremental changes or
small improvements in the process.

Causes for Employee Resistance to Change

In some cases, employees resist change for the following reasons:
 Lack of trust
 Perception that change is not necessary
 Perception that change is not possible
 Relatively high cost
 Fear of personal failure
 Loss of status or power
 Threats to values and ideas
 Social, cultural or organizational disagreements
 Resentment of interference

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Managing Resistance to Change
1. Participation and Involvement:
Participation ensure commitment in implication of changes. Secondly,
participation will be easier when individual recognizes his personal benefit to be
gained from change
2. Communication and Education:
If information is inaccurate and not adequate then it is necessary to
educate employees through training classes, meetings and conferences. Changes
must be communicated clearly without doubt in these meetings.
3. Leadership:
A leader with stronger influence and have command from the members to
exert emotional pressure on its followers to bring about the change.
4. Negotiation and Agreement:

Negotiation is a technique used to balance the point of difference within

parties. Such negotiation happened in bargaining with Labor Unions. In such
case individual or group end up in losers as a result of change where
individual or group have considerable power to resist.

5. Willingness Of The Sake Of The Group:

Some individuals may be willing to accept changes when group belonging to
willing to accept the change. This is especially true when the individual has a
Continuous Psychological Relationship with Group.

6. Timing of Change:
Timing of introduction of change can have a considerable impact on
resistance. Management must be careful in choosing the time when
organizational climate is highly favorable to change.

Filipino and Foreign Cultures: A Leadership Challenge

Cross cultural differences in business culture and everyday living
in the Philippines can cause many obstacles to successful business
endeavours if not carefully considered.
Cross cultural training courses such as Doing Business in the Philippines
and Living and Working in the Philippines give an in-depth understanding of
the cultural behaviour and perception patterns and provide strategies and
solutions on how to deal with challenges if they occur.

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The key cultural differences between Filipino and International
organizations:

 HIERARCHY
Power relations in Philippine organisations are very hierarchical
with the senior manager taking a patriarchal role at the tip of the pyramid.
Employees rarely correct or challenge authority figures but follow their
instructions uncommented. They are also reluctant to say ―no‖ to
superiors even when they know they won‘t meet the deadline. Foreigners
doing business in the Philippines tend to be irritated by this dependent
working attitude and often misinterpret it as indifference or a lack of
interest.

 MAKING DECISIONS
Filipinos place a lot of emphasis on group harmony. Consensus is
therefore crucial when making decisions so a lot of time is dedicated to
hearing and considering opinions. Empirical data and rules are usually not
considered a liable source in this process but attention is mainly given to
intuition and immediate feelings. Not adhering to this style of negotiation
can result in severe misunderstandings and even unsuccessful business
outcomes. An intercultural training course on business and social culture
in the Philippines will prepare you thoroughly to feel comfortable when
discussing business issues with Filipino counterparts.
 PERSONAL RELATIONSHIPS
Closely linked to the need for group harmony is the high
importance Filipinos attribute to personal relationships and relationship
building. Most business relations in the Philippines are established
through friends or colleagues and before business matters are discussed
Filipinos like to engage in personal small talk. Foreigners often get
frustrated and feel meetings do not run efficiently because so much time is
designated to establishing and cultivating relationships. They tend to
underestimate the importance of socialising and rapport building.
 FACE
The concept of face in the sense of personal reputation has a large
impact on everyday behaviour patterns in the Philippines. Maintaining
self-control is of utmost importance in this regard and failure to do so can
result in a huge degradation of status. Filipinos therefore have a very
indirect style of communication and try to remain calm and refrain from
criticising people in public. For the same reason ―no‖ as a sign of
disagreement is rarely used. Foreigners often struggle to understand the
importance of face. A cross cultural training course on Doing Business in
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the Philippines will give you an in-depth insight into acceptable
communication and behaviour to avoid misunderstandings and
offenses.
 TIME
Filipinos have a very relaxed approach to time which determines
pace of life at work and outside. Deadlines and appointments are
perceived as flexible rather than definite and finishing off a
conversation properly is usually regarded more important than
arriving on time. Foreigners often find it difficult to deal with this
mañana lifestyle and the many delays they encounter when dealing
with counterparts in the Philippines. A Doing Business in the
Philippines intercultural training course provides the necessary insight
that international business people need to be able to adjust their
expectations accordingly beforehand and forego any feeling of
frustration and discontent.

Cross-cultural Vs. Intercultural Communication

Cross-cultural Communication implies a comparison of and
contrast between particular aspects of communication between cultures.
Cross-cultural communication has become strategically important to
companies due to the growth of global business, technology, and the
Internet. Understanding cross-cultural communication is important for
any company that has a diverse workforce or plans on conducting global
business. This type of communication involves an understanding of how
people from different cultures speak, communicate, and perceive the
world around them.
Cross-cultural communication in an organization deals with
understanding different business customs, beliefs and communication
strategies. Language differences, high-context vs. low-context cultures,
nonverbal differences, and power distance are major factors that can
affect cross-cultural communication.
Intercultural Communication is the communication between
people from different cultures (it refers to what happens when these
culturally-different groups come together, interact and communicate).
Intercultural communication refers to the effective communication
between people/ workers/ clients of different cultural background. It also
includes managing thought patterns and non - verbal communication.

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Culture Shock
A sense of confusion and uncertainty sometimes with feelings of anxiety
that may affect people exposed to an alien culture or environment without
adequate preparation.

Stages of Culture Shock:

Most people experience culture shock in stages. Some people go
through the stages of this process multiple times, and some may only
partially apply to you. The stages are:
The Honeymoon Stage
During this stage, everything about the new culture is exciting to
you. You are optimistic and will generally focus on the positive aspects of
your new home. You will study your new language with enthusiasm and
make great progress. During this stage, memories of home are still recent
and form a kind of protective shield.
The Disintegration Stage
This stage can be triggered without warning by a small incident or
by no cause at all. You will start to view cultural differences as a source of
conflict. You might feel isolated, confused, and depressed, and miss
familiar supports.
The Reintegration Stage
During this stage, you may begin to compare the new culture
unfavorably with your home culture. You might begin to reject the
differences you encounter, and experience feelings of anger, frustration,
and hostility towards the new culture. You might seek out comfort feed
from your home country in an attempt to reconnect with what you value
about yourself and your own culture.
The Acceptance Stage
During this stage, you will learn to accept both differences and
similarities between your home culture and the new one. You will become
more relaxed and confident while you become more familiar with new
situations and more experiences become enjoyable.

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 ACTIVITIES

ACTIVITY 1: CASE ANALYSIS

Instruction: Read the case and answer the discussion questions below.
Case Scenario:

Laura is the associate director of a nonprofit agency that provides assistance to

children and families. She is the head of a department that focuses on evaluating the
skill-building programs the agency provides to families. She reports directly to the
agency leadership. As a whole, the agency has been cautious in hiring this year because
of increased competition for federal grant funding. However, they have also suffered
high staff turnover. Two directors, three key research staff, and one staff person from
the finance department have left.

Laura has a demanding schedule that requires frequent travel; however, she supervises
two managers who in turn are responsible for five staff members each. Both managers
have been appointed within the last six months.

Manager 1: Kelly has a specific background in research. She manages staff who
provide research support to another department that delivers behavioral health
services to youth. Kelly supports her staff and is very organized; however, she
often takes a very black and white view of issues. Upper level leadership values
Kelly‘s latest research on the therapeutic division‘s services. Kelly is very
motivated and driven and expects the same from her staff.

Manager 2: Linda has a strong background in social science research and

evaluation. She manages staff that work on different projects within the agency.
She is known as a problem solver and is extremely supportive of her staff. She is
very organized and has a wealth of experience in evaluation of family services.
Linda is very capable and can sometimes take on too much.

The managers are sensing that staff are becoming overworked as everyone takes on
increased responsibilities due to high staff turnover. Staff have also mentioned that
Laura‘s "glass half-empty" conversation style leaves them feeling dejected. In addition,
Laura has not shared budgets with her managers, so they are having difficulty
appropriately allocating work to staff. Laura said she has not received sufficient
information from the finance department to complete the budgets. The finance
department said they have sent her all the information they have available.

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As staff become distressed, the managers are becoming frustrated. They feel like they
are unable to advocate for their staff or solve problems without key information like the
departmental budget.

DISCUSSION QUESTIONS:

1. How can Laura most effectively use leadership skills in her role as associate
director? What combination of the two do you think would work best in this
setting?
2. What steps could be taken to build staff confidence?
3. What advice would you give Laura on improving her leadership skills and to the
managers on improving their management skills?
4. Which leadership style do you think a leader would need to be effective in this
situation?

ACTIVITY 2: DIAGRAM CONSTRUCTION

Instruction:
Create a diagram of the communication you made with ACLC during the
enrolment process.

ASSESSMENT: IDENTIFICATION

Instruction: Write your answer on the space provided.

1. Refers to the initiatives that are driven ―top-down‖ in an
organization._______________
2. Refers to a situation in which change can originate from any level in the
organization._______________
3. It is the process, tools and techniques to manage the people side of change to
achieve its required business outcomes. __________________
4. It is the responsibility of all persons in the organization, managers as well
as non-managers, in working toward a common aim. ________________
5. It is a communication that flows from people at higher levels to those at lower
levels in the organizational hierarchy. _______________

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6. Communication that takes place within prescribed organizational work
arrangements. _______________
7. It is a communication done through email. _______________
8. Refers to the process by which a person‘s efforts are energized directed and
sustained towards attaining a goal. _______________
9. It is the art or process of influencing people so that they will strive willingly and
enthusiastically toward the achievement of group goals. ______________
10. It is the process of influencing people so that they will contribute to
organizational and group goals. ________________
11. It refers to instructing, guiding, communicating and inspiring people so that the
objectives can be achieved. _______________
12. It is the measure of intensity. ______________
13. This theory argues that there are two factors that an organization can adjust to
influence motivation in the workplace._________________
14. This theory assumes that the traits of leadership are intrinsic. ____________
15. This argues that there is no single way of leading and that every leadership style
should be based on certain situations, which signifies that there are certain
people who perform at the maximum level in certain places; but at minimal
performance when taken out of their element. _______________

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 CHAPTER 7: CONTROLLING

TIME FRAME: Week 16 – 17

OVERVIEW:

An organization is a group of persons working together for specified

purposes or goals. Top management defines these as ―organizational goals‖. The
behavioral aspect of control should not only narrow the gap between personal goals and
organizational goals but should motivate employees to strive toward these
organizational goals.

The design of a control system can facilitate coordination and cooperation. The
control system consists of the control process and the control structure.

LEARNING COMPETENCIES:

The learners should be able to apply appropriate control measures for a specific
business situation.

SPECIFIC OBJECTIVES:

At the end of the lesson, learners should be:

1. Discuss the nature of controlling.

2. Describe the link between planning and controlling.
3. Distinguish control methods and system.
4. Apply management control in accounting and marketing concepts and
techniques.
5. Prepare budget plan.

DISCUSSION

Nature of Management Control

Controlling is the measurement and correction of performance in order to make
sure that enterprise objectives and the plans devised to attain them are being
accomplished. In controlling, the manager evaluates how well the organization is

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achieving its goals and takes corrective action to improve performance. The outcome
of controlling function is the accurate measurement of performance and
regulation of efficiency and effectiveness.
In Management Control the managers influence other members of the
organization to implement the organization‘s strategies.

The Basic Control Process

Control techniques and systems are essentially the same for controlling cash, office
procedures, morale, product quality, and anything else. The basic control process
involves three steps:
1. Establishing Standards

Standards are simply criteria of performance. They are the selected points
in an entire planning program at which measures of performance are made of
that managers can receive signals about how things are going and thus do not
have to watch every step in the execution of plans.

2. Measurement of Performance

The measurement of performance against standards should ideally be

done on a forward-looking basis so that deviations may be detected in advance of
their occurrence and avoided by appropriate actions. The alert, forward - looking
manager can sometimes predict probable departures from standards. In the
absence of such ability, however, deviation should be disclosed as early as
possible.

3. Correlation of Deviations

Standards should reflect the various positions in an organization structure.

If performance I measured accordingly, it is easier to correct deviations.
Managers know exactly where, in the assignment of individual or group
duties, the corrective measures must be applied. Correction of deviations is the
point at which control can be seen as a part of the whole system of management
and can be related to the other managerial functions.

Importance of Controlling
The significance of the controlling function in an organization is as follows:

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1. Accomplishing Organizational Goals:
Controlling helps in comparing the actual performance with the predetermined
standards, finding out deviation and taking corrective measures to ensure that the
activities are performed according to plans. Thus, it helps in achieving organizational
goals.

2. Judging Accuracy of Standards:

An efficient control system helps in judging the accuracy of standards. It further
helps in reviewing & revising the standards according to the changes in the organization
and the environment.
3. Making Efficient Use of Resources:
Controlling checks the working of employees at each and every stage of
operations. Hence, it ensures effective and efficient use of all resources in an
organization with minimum wastage or spoilage.
4. Improving Employee Motivation:
Employees know the standards against which their performance will be judged.
The systematic evaluation of performance and consequent rewards in the form of
increment, bonus, promotion and etc. motivates the employees to put in their best
efforts.
5. Ensuring Order and Discipline:
Controlling ensures a close check on the activities of the employees. Hence, it
helps in reducing the dishonest behavior of the employees and in creating order and
discipline in an organization.
6. Facilitating Coordination in Action:
Controlling helps in providing a common direction to the all the activities of
different departments and efforts of individuals for attaining the organizational
objectives.

The Link between Planning and Controlling

Planning and Controlling are inter-related within any organization. Planning sets
the goals for the organization and controlling ensures its accomplishment.
The relationship between them is explained as under:
1. Planning Originates Controlling: In planning process, the objectives or
targets are to be set, and for achieving these goals, control process is required. So
we can say that planning precedes controlling.

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 2. Control sustains planning: Controlling directs the course of planning.
Controlling spots the areas where planning is required.

3. Controlling provides information for planning: In controlling, the

performance is compared with standards and deviations. The information
collected during any type of controlling should be used for planning also.

4. Planning and control are inter-related: Planning is the initial step and
controlling is in the process and required at every step. That is why both are
dependent upon each other and inter-related.

Control Methods and Systems

Principles of Critical Point Control

One of the more important control principle, states that effective control
requires attention to those factors critical to evaluating performance against
plans. Another way of controlling is comparing company performance with that
of other firms through benchmarking.

Different types of critical points standards:

1. Physical Standards

Physical standards are nonmonetary measurements and are common at

the operating level, where materials are used, labor is employed, services are
rendered, and goods are produced. They may reflect quantities, such as labor-
hours per unit of output, units of production per machine-hour, or feet of wire
per ton of copper. Physical standards may also reflect quality, such as hardness of
bearings, durability of a fabric, or fastness of color.

2. Cost Standards

Cost standards are monetary measurements, and like physical standards,

are common at the operating level. They attach monetary values to specific
aspects of operations. Illustrative of cost standards are such widely used
measures as direct and indirect costs per unit produced, labor cost per unit or per
hour, material cost per unit, machine-hour costs, and cost per seat- mile.

3. Capital Standards

There are a variety of capital standards, all arising from the application of
monetary measurements to physical items. They have to do with the capital
invested in the firm rather than with operating costs and are therefore
primarily related to the balance sheet rather than to the income statement.

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Perhaps the most widely used standard for new investment, as well as for overall
control, is return on investment. The typical balance sheet will disclose other
capital standards, such as the ratios of current assets to current liabilities,
debt to the net worth, fixed investment to total investment, cash and receivables
to payables, and bonds to stocks, as well as the size and turnover of inventories.

4. Revenue standards

Revenue standards arise from attaching monetary values to sales. They

may include such standards as revenue per bus passenger-mile, average sales per
customer, and sales per capita in a given market area.

5. Program Standards

A manager may be assigned to install a variable budget program, a

program for formally following the development of new products, or a program
for improving the quality of sales force. Although some subjective judgment may
have to be applied in appraising program performance, timing and other factors
can be used as objective standards.

6. Intangible Standards

More difficult to set are standards not expressed in either physical or

monetary measurements. What standard can a manager use for determining
whether the advertising program meets both short and long-term objectives? Or
whether the public relations program is successful? Are supervisors loyal to the
company‘s objectives? Such questions show the difficulty of establishing
standards or goals for clear quantitative or qualitative measurement.

7. Goals as Standards

With the present tendency for better managed enterprises to establish an

entire network of verifiable qualitative or quantitative goals at every level of
management. The use of intangible standards, while still important, is
diminishing. In complex program operations, as well as in the performance of
managers themselves, modern managers are finding that through research
and thinking it is possible to define goals that can be used as performance
standards. While the quantitative goals are likely to take the form of the
standards outlined above, the definition of qualitative goals represents an
important development in the area of standards.

8. Strategic plans as control points for strategic control

Strategic control requires systematic monitoring at strategic control points

and modifying the organization‘s strategy based on this evaluation. As
pointed out earlier, planning and controlling are closely related. Therefore,
strategic plans require strategic control. Moreover, since control facilitates

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 comparison of intended goals with actual performance, it also provides
opportunities for learning, which in turn is the basis for organizational
change. Finally, through the use of strategic control, one gains insights not
only about organizational performance but also about the ever-changing
environment by monitoring it. Strategic control is the systematic monitoring
at strategic control points and modifying the organization‘s strategy based on
this evaluation.

Benchmarking

Benchmarking is an approach for setting goals and productivity measures based

on best industry practices.

There are three types of benchmarking:

1. Strategic benchmarking – compares various strategies and identifies the key

strategic elements of success.

2. Operational benchmarking – compares relative costs or possibilities for

product differentiation.

3. Management benchmarking – focuses on support functions such as market

planning and information systems, logistics, human resource management, and
so on.

Management Control

Management control is usually perceived as a feedback system similar to the

common household thermostat.

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 This system places control in a more complex and realistic light than if it is
regarded merely as a matter of establishing standards, measuring performance,
and correcting for deviations. Managers do measure actual performance, compare this
measurement against standards, and identify and analyze deviations. But then, to make
the necessary corrections, they must develop a program for corrective action and
implement this program in order to arrive at the performance desired.

Feed Forward or Preventive Control

Managers need for effective control a system that will tell them potential
problems, giving them time to take corrective action before those problems occur.

Feed-forward versus Feedback Systems

Feedback systems measure outputs of a process and feed into the system or the
inputs of the system corrective actions to obtain desired outputs. While feed-forward
systems monitor inputs into a process to ascertain if the inputs are as planned; if they
are not, the inputs or the process is changed in order to obtain the desired result.

Requirements for Feed-Forward Control

1. Make a thorough and careful analysis of the planning and control system, and
identify the more important input variables.
2. Develop a model of the system.
3. Take care to keep the model up to date.
4. Collect data on input variables regularly, and put them into the system.
5. Regularly assess variation of actual input data from planned-for inputs, and
evaluate the impact on the expected end results.
6. Take action.

Reasons for Control of Overall Performance

1. Overall planning must apply to enterprise or major division goals.

2. Decentralization of authority-especially in product of territorial divisions- creates
semi-independent units.
3. Overall control permits the measurements of an integrated area
manager‘s total effort.

Profit and Loss Control

 Income statement is useful for determining the immediate revenue or cost factors
that have accounted for success or failure
 The profit and Loss statement shows all revenues and expenses for a given time,
so it is a true summary of the results of business operations.
 Profit and loss control, when applied to divisions or departments, is based
on the premise that, if it is the purpose of the entire business to make a profit,
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 each part of the enterprise should contribute to this purpose. Thus, the
liability of a part to make an expected profit becomes a standard for measuring its
performance.

Limitation of Profit and Loss Control

Profit and loss control suffers from the cost of the accounting and paper
transactions involving intra-company transfer of costs and revenues. But the use
of computers has greatly reduced this cost. Duplication of accounting records,
efforts involved in allocating the many overhead costs, and the time and effort
required to calculate intra-company sales can make this control costly if it is
carried too far.

Control through Return on Investments

ROI Control measures both the absolute and the relative success of a
company or company unit by the ratio of earnings to investment of capital. This tool
regards profit not as an absolute but as a return on capital employed in the
business. The goal of a business seen, accordingly, not necessarily as optimizing return
from capital devoted to business purposes. This standard recognizes the fundamental
fact that capital is a critical factor in almost any enterprise and, through its scarcity,
limit progress. It also emphasizes the fact that the job of managers is to make the best
possible use of assets entrusted to them.

Bureaucratic and Clan Control

Bureaucratic Control is characterized by the wide used of rules, regulations,

policies, procedures and formal authority. Rules and standard operating procedures
(SOPs) tell the worker what to do. And clan control is based on norms, shared values,
expected behavior and other cultural variables.

Requirements for Effective Controls

1. Tailoring controls to plans and positions: Control techniques should

reflect the plans they follow, and reflect the place in the organization where
responsibility for action lies. This enables managers to take action when controls
differ from their plans.

2. Tailoring controls to individual managers: When controls are tailored to

individual managers, individual managers carry out their functions of control
more effectively. The system of control shouldn't be too ambiguous to people
who will utilize it.

3. Making sure the control point up expectations at critical points:

Controls that point out exceptions help managers detect areas that require
attention. It is best to look for exceptions at critical points, and the exception
principle should be accompanied by principle of critical point control.

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 4. Seeking objectivity of controls: An objective, accuracy, and suitable
standards are required for effective control technique.

5. Ensuring flexibility of controls: Controls should remain in place despite

unexpected plans, unforeseen circumstances, or outright failures.

6. Fitting the control system to the organizational culture: Systems that fit
within the organizational culture are deemed to do best.

7. Achieving economy of controls: Control techniques are most effective when

they achieve maximum output at minimum cost.

8. Establishing controls that lead to corrective action: Controls are useful

only if they can correct plans through better planning, organization, staffing and
leadership.

Application of Management Control in Accounting and Marketing Concepts

and Techniques:

Operation Control Tools or Techniques

Are concerned with the process that the organization uses in the
performance of an activity related to specific operations such as production
scheduling, determination inventory level or determination of minimum cash
balance for the firm.

Management Control Tools or Techniques

Monitor and evaluate overall operations of the firm and are

commonly financial in nature.

Operational Control Tools

Control tools have been developed that are applicable to practically all
aspects of a firm‘s operating task. Table below lists some control tools for some
operating tasks of a manufacturing firm.

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Merchandise Claim Counter System

It assures management that all sales are recorded in the cash register at
the merchandise claim counter area. At the end of each working day, cash should
equal the recorded sales. The system also protects the stocks from shoplifters
because only those stocks claimed at the counter are wrapped with the invoice
attached to the package.

Office Uniform

Employees commonly are required to wear uniforms. This requirement

could be viewed by management as an employee benefit because the costs are
borne by the company. It also serves as a control tool since it identifies employees
in the work area.

Stock Cards

In the production area, the internal control system should focus on the
protection of raw materials, work-in process inventory, finished goods inventory,
factory supplies, and machine spare parts. Inventory records, (i.e., stock cards,
should be maintained). Stock cards show the record of all receipts and releases
for each item in the inventory. The balance shown in the stock card can be
compare with the physical count from time to time.

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Economic Order Quantity

Economic Order Quantity (EOQ) identifies the optimal order quantity by

minimizing the sum of certain annual cost that varies with order size. Annual
carrying cost is computed by multiplying the average amount of inventory on
hand by the cost to carry one unit for one year, even though any given unit would
not necessarily be held for a year. The average inventory is simply half of the
order quantity. The amount on hand decreases steadily from Q units to 0, for an
average of (Q + 0)/2. Using the symbol H represent the average carrying cost per
unit. Annual ordering cost is a function of the number of orders per year and
the ordering cost per order. ECQ formula:

Total Cost = Annual Carrying Cost + Annual Ordering Cost

where:
Q = Order quantity in units
H = Holding (carrying) cost
D = Demand, usually in units per year
S = Ordering cost

Assumptions of EOQ Model:

 Only one product is involved.

 Annual demand requirements known.
 Demand is even throughout the year.
 Lead time does not vary.
 Each order is received in a single delivery.
 There are no quantity discounts.

When to Reorder with EOQ Ordering

 Reorder Point - When the quantity on hand of an item drops to

this amount, the item is reordered. It is also to note that when the
reorder point has been reach, a perpetual inventory is required.

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  Safety Stock - Stock that is held in excess of expected demand due
to variable demand rate and/or lead time.
 Service Level - Probability that demand will not exceed supply
during lead time.

Determinants of the Reorder Point

 The rate of demand

 The lead time
 Demand and/or lead time variability
 Stock out risk (safety stock)
 If demand and lead time are both constant, the reorder point
is simply:

ROP = d x LT

Where;
d = demand rate (units per day or week)
LT = lead time in days or weeks

*Note: demand and lead time must be expressed in the same

time units.

Safety Stock

When variability is present in demand or lead time, it creates the

possibility that actual demand will exceed demand. Consequently, it
becomes necessary to carry additional inventory called safety stock.

 Safety stock and safety lead time are both hedges.

 Safety lead time is more based on the uncertainty in the timing
rather than the quantity.
 Safety stock tends to be used in MRP where uncertainty about
quantities is the problem-scarp.
Safety stock reduce the risk of running out of inventory
(a stock out) during lead time.
Safety stock challenges
 Safety stock set because of a onetime event.
 Safety stock still active on an obsolete item
 Safety stock levels inconsistent
ROP = Expected demand during lead time + safety stock

Linear Programming

 Typically deals with the problem of allocating limited resources among

competing activities in the best possible way or optimal way.

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  LP could be used by a manufacturing firm in allocating production
facilities to products or in allocating common raw materials use in several
products.
 The control function of linear programming is to optimize the objectives
by the simultaneous solution to a set of linear equations representing
objectives and constraints.

Gantt Chart

 it was developed by Henry L. Gantt. The Gantt chart can be used to

compare actual progress in production with scheduled progress.
 is popular tool for planning and scheduling simple projects. It enables
a manager to initially schedule project activities and then to monitor
progress over time by comparing planned progress to actual progress.
The advantage of Gantt chart is its simplicity. However, Gantt chart fail
to reveal certain relationships among activities that can be crucial to
effective project management.

Critical Path Method (CPM)

This control tool is appropriate for large and complex projects in

which many interdependent tasks are involved, for example construction of a
building. Its objective is to identify the most time consuming series of tasks
which is calling the critical path. The minimum amount of time to complete
the project will be determined by the most time consuming sequence of job.
Every job in the path is considered critical since any delay in the completing of
this jobs will increase the total time require to complete the whole project.

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 Critical Path Method Application In Job Analysis

Program Evaluation and Review Techniques (PERT)

PERT(Program Evaluation and Review Techniques) was developed
by the United States Navy for the Planning and control of the Polaris
Weapon System in 1958.
It is reinforcement of the Critical Path Method (CPM) in the sense
that three time estimates are made for each task:
1. the earliest possible time of completion,

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 2. the target completion time, and
3. the latest possible time of completion.
These estimates are made because it is not possible to determine
accurately the exact time of completing a task, especially for new
projects. The average time, te, is computed using the three time estimates as
follows:

Where:
a = earliest completion time
m = target completion time
c = latest possible time
The "critical path" for the project is then determined by using
the computed "average" times for each task - the sequence of events which
takes the longest time and which involves, therefore, zero slack time.

Voucher System
This system requires that every liability should be recorded as soon as it is
incurred and that only checks be used in payment of approved liabilities. A
voucher is prepared for each expenditure assuming that every expenditure is
systematically reviewed and verified before payment is made. The verification
process includes the examination of documents like Purchase Orders, Sales
Invoices and Delivery Receipts.

Petty Cash Fund System

 If a voucher system is maintained, it will be convenience to have a small
amount of cash on hand with which to make some expenditure in small
amounts. For example, transportation expenses, postage stamps and
emergency supply purchases. Internal control over these small cash
payments can best be achieved through a petty cash fund system.
 The Petty cash fund should always contain cash and/or vouchers
totalling the exact amount of the amount of the fund originally
established. Expenditures are replenished regularly by check.

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Role of Budgets in Planning and Control

Budget
A budget is a quantitative expression of a plan for a defined period of time. It may
include planned sales volumes and revenues, resource quantities, costs and expenses,
assets, liabilities and cash flows.
Zero-base Budgeting
It is dividing enterprise programs into packages composed of goals,
activities, and needed resources and calculating the costs for each package from
base zero.
Key Purposes of Budgets in Management
 A method of planning the use of resources
 A vehicle for forecasting
 A means of controlling the activities of various groups within the firm
 A means of motivating individuals to achieve performance levels agreed
and set.
 A mean of communicating the wishes and aspirations of senior
management
 A mean of resolving conflicts of interest between groups with the
organization.

Budgeting as a Control Tool

A budget serves as a control tool to provide standards for evaluating
performance. A budget can cover any of the following:
 Profit planning – forecast of revenues and expenses
 Cash budgeting – forecast of cash needs and sources
 Balance sheet forecasting – anticipating future assets, liability and net
worth position of the business.

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Types of Control Reports

Balance sheet
A Financial Accounting report is a statement of the company's financial
condition as of the date of the statement. this report consists of the total assets of
the firm and the corresponding claims against these assets as represented by
the liabilities and stockholder's equity. Balance sheet as a control tool can be
used to appraise performance of managers by comparing the current
statement with those of the corresponding period of previous years.

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Income Statement
 Summarize the results of operations of the company for a period of time.

 This statement reports the revenues and expenses of the company for that period.
Revenues are the amount earned by the company from the goods and services
that the company provides to each customer. Expenses are the cost of the
resources used in providing the goods and services. Net income (net loss) is
the most important item reported in the income statement. Net income (net
loss) is the difference between revenues and expenses.

Cash Budgeting
A Cash Budget is used to determine anticipated cash inflows and outflows
so that the business maintains the optimum level of cash (cash on hand being a
non-earning asset). It also provides information on whether or not additional
financing is required to address cash shortfalls.

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 ACTIVITY: GANTT CHART CONSTRUCTION

Instruction: Construct a Gantt chart for the following set of activities and indicate the
project completion time.

1.

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 2.

ASSESSMNET: TRUE OR FALSE

Instruction: Write “F” if the statement is TRUE and write “T” if the statement is
“FALSE”. Please correct the false statement.

1. Benchmarking is an approach for setting goals and productivity measures

based on best industry practices.
2. Strategic control requires systematic monitoring at strategic control points
and modifying the organization‘s strategy based on this evaluation.
3. Operational benchmarking compares various strategies and identifies the
key strategic elements of success.
4. Feedback systems measure outputs of a process and feed into the system
or the inputs of the system corrective actions to obtain desired outputs.
5. The profit and Loss statement shows all assets for a given time, so it is a
true summary of the results of business operations.
6. Employees commonly are required to wear uniforms because it serves as a
control tool since it identifies employees in the work area.
7. Economic Order Quantity (EOQ) identifies the optimal order quantity by
maximizing the sum of certain annual cost that varies with order size.
8. EOQ assumes that there are no quantity discounts.
9. EOQ assumes that lead time varies.
10. Safety stock reduce the risk of running out of inventory during lead
time.
11. Voucher system requires that every liability should be recorded as soon as
it is incurred and that only checks be used in payment of approved
liabilities.
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12. A budget is a quantitative expression of a plan for a defined period of
time.
13. Profit planning forecast of cash needs and sources.
14. Balance sheet forecasting forecast of revenues and expenses.
15. Balance Sheet is a Financial Accounting report is a statement of the
company's financial condition as of the date of the statement.

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 CHAPTER 8: Special Topics in Management

TIME FRAME: Week 18 – 19

OVERVIEW:

By legal definition, small businesses are privately owned entities and

operated by small number of individuals with relatively low volume of sales. It
could be a corporation, a partnership or a sole proprietorship. In the Philippines, small
businesses thrive everywhere: from small sari-sari store (convenience store type),
bakeries, beauty parlors, dressmakers, food stands, etc. In procedures in putting them
up are the same as large scale businesses.

The backbone of Philippines‘ local economy is the small businesses. They require
small capital and there is always a demand for any product and service we could
imagine in this highly populated archipelago. The government has always been
pushing the entrepreneur spirit among the Filipinos, after all they are known for their
ingeniousness and hard work.

LEARNING COMPETENCIES:

The learners should be able to initiate an appropriate small – family business.

SPECIFIC OBJECTIVES:

At the end of the lesson, learners should be:

1. Explain how to start a small – family business.

2. Identify the business legal forms and requirements.
3. Appreciate the role of small – family business in an improving economic status.

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 DISCUSSION

Small Business Management and Entrepreneurship

What is Small Business?
A small business is a privately owned and operated business. A small
business typically has a small number of employees.

MSMEs Defined
Micro, small, and medium enterprises (MSMEs) are defined as any
business activity/enterprise engaged in industry, agri-business/services,
whether single proprietorship, cooperative, partnership, or corporation whose
total assets, inclusive of those arising from loans but exclusive of the land
on which the particular business entity's office, plant and equipment are
situated, must have value falling under the following categories:

Legal Definition:
―Magna Carta for Micro, Small and Medium Enterprises (Republic Act
6977, as amended by RA 8289 and further amended by RA 9501 in 2008).
SEC. 3. Micro, Small and Medium Enterprises (MSMEs) as Beneficiaries.
SMEs shall be defined as any business activity or enterprise engaged in industry,
agribusiness and/or services, whether single proprietorship, cooperative,
partnership or corporation whose total assets, inclusive of those arising from
loans but exclusive of the land on which the particular business entity‘s office,
plant and equipment are situated, must have value falling under the
following categories:

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 ―The above definitions shall be subject to review and adjustment by
the Micro, Small and Medium Enterprises Development (MSMED) Council under
Section 6 of this Act or upon recommendation of sectoral organizations
concerned, taking into account inflation and other economic indicators. The
Council may use other variables such as number of employees, equity capital and
assets size. ―The Council shall ensure that notwithstanding the plans and
programs set for MSMEs as a whole, there shall be set and implemented other
plans and programs varied and distinct from each other, according to the specific
needs of each sector, encouraging MSMEs to graduate from one category to the
next or even higher category.‖ (RA 9501 through Sec. 3 amended Sec. 3 of
RA 6977, as amended by RA 8289)‖

What is Entrepreneurship?
Entrepreneurship is the process of starting and operating your own business.
Entrepreneur is the people who create, launch, organize and manage a new business and
take the risk of business ownership.
What are the risks of entrepreneurship?
 Business failure
 Financial loss
 Loss of employment
 Loss of time

33% of all new businesses fail within 2 years. 50% fail within 4 years.

Advantages of Entrepreneurship
 Personal freedom and satisfaction
 Increased self-esteem and income

Important Personal Characteristics of Successful Entrepreneurs:

They’re goal-oriented
Entrepreneurs are all about setting goals and putting their all into achieving
them; they‘re determined to make their business succeed and will remove any
encumbrances that may stand in their way. They also tend to be strategic in their game
plans and always have a clear idea in mind of exactly what they want to achieve and how
they plan to achieve it.

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They’re committed to their business
Entrepreneurs are not easily defeated; they view failure as an opportunity for
future success, and if they don‘t succeed the first time, they‘ll stay committed to
their business and will continue to try and try again until it does succeed. A true
entrepreneur doesn‘t take ‗no‘ for an answer.
They’re hands-on
Entrepreneurs are inherently proactive, and know that if something really needs
to get done, they should do it themselves. They‘re ‗doers‘, not thinkers, and tend to have
very exacting standards. They view their business as an extension of themselves and like
to be integral in its day-to-day operations— even when they don‘t have to be.
They thrive on uncertainty
Not only do they thrive on it—they also remain calm throughout it.
Sometimes things go wrong in business, but when you‘re at the helm of a company and
making all the decisions, it‘s essential to keep your cool in any given situation. True
entrepreneurs know this and secretly flourish and grow in the wake of any challenges.
They continuously look for opportunities to improve
Entrepreneurs realize that every event or situation is a business opportunity, and
they‘re constantly generating new and innovative ideas. They have the ability to look at
everything around them and focus it toward their goals in an effort to improve their
business.
They’re risk taker
A true entrepreneur doesn‘t ask questions about whether or not they‘ll
succeed—they truly believe they will. They exude this confidence in all aspects of life,
and as a bi-product, they‘re never afraid to take risks due to their unbinding faith that
ultimately they will triumph.
They’re willing to listen and learn
The most important part of learning is listening—and a good entrepreneur will do
this in abundance.
They have great people skills
Entrepreneurs have strong communication skills, and it‘s this strength that
enables them to effectively sell their product or service to clients and customers.
They‘re also natural leaders with the ability to motivate, inspire and influence those
around them.

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They’re inherently creative
This is one trait that, due to their very nature, entrepreneurial business
people have by the bucket load. They‘re able to not only come up with ingenious
ideas, but also turn those ideas into profits.
They’re passionate and always full of positivity
Passion is perhaps the most important trait of the successful entrepreneur. They
genuinely love their job and are willing to put in those extra hours to make their
business grow; they get a genuine sense of pleasure from their work that goes way
beyond just cash.

Entrepreneurship vs. Small Business

Many people use the terms ―entrepreneur‖ and ―small business owner‖
synonymously. While they may have much in common, there are significant differences
between the entrepreneurial venture and the small business. Entrepreneurial ventures
differ from small businesses in these ways:
1. Amount of wealth creation – rather than simply generating an income stream
that replaces traditional employment, a successful entrepreneurial venture creates
substantial wealth.
2. Speed of wealth creation – while a successful small business can generate several
million pesos of profit over a lifetime, entrepreneurial wealth creation often is rapid.
3. Risk – the risk of an entrepreneurial venture must be high, otherwise, with the
incentive of sure profits many entrepreneurs would be pursuing the idea and the
opportunity no longer would exist.
4. Innovation – entrepreneurship often involves substantial innovation beyond what a
small business might exhibit. This innovation gives the venture the competitive
advantage that results in wealth creation. The innovation may be in the product or
service itself, or in the business processes used to deliver it.

Advantages and Disadvantages of Small Business

Advantages:
 Can be managed and controlled by the owner.
 Often able to adapt quickly to meet changing customer needs.
 Offer personal service to customers.
 Find it easier to know each worker; many staff prefers to work for
smaller more ―human‖ businesses.

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  If family-owned the business culture is often informal. Employee‘s well-
motivated and family members perform multiple roles.
Disadvantages:
 May have limited access to sources of finance.
 Owner has to carry a large burden of responsibility if unable to afford to
employ specialist managers.
 May not be diversified. Greater risks of negative impact of external
change.
 If family-owned, the original owner may restrict innovation, family
rivalries, and keeping control may take priority over business expansion.

Types of Entrepreneur
According to the type of business:
 Business Entrepreneurs: who start business units after developing
ideas for new products/services.

 Trading Entrepreneurs: who undertake buying & selling of goods, but

not engage in manufacturing.

 Corporate Entrepreneurs: who establish and manage corporate form

of organization which has separate legal existence.

 Agricultural Entrepreneurs: who undertake activities like raising and

marketing of crops, fertilizers and other allied activities

Reasons to Become an Entrepreneur:

1. Creativity: Using your creativity and energy to achieve something that

inspires you can be very rewarding. Starting, running and growing a
business can provide a high level of satisfaction.

2. Independence: The freedom that comes with operating a business can

lure many people. You don't need to convince your boss - you are the boss.
You make the products you believe in and you can offer the services your
clients want.
3. Solutions: You have a solution to a common problem or a big problem.
Whether the solution relates to the environment, communications, food or

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 services, wanting to see your solution used by all can be a driving factor to
becoming an entrepreneur.

4. Time: Entrepreneurs ultimately decide on their shifts and their pay

checks. Usually, the more hours you invest in your business, the more
money you will make. As an entrepreneur, you get to choose how you
want to balance work and personal time.

5. Money: Many businesses make enough profit to pay modest salaries, pay
bills and even grow. On the other hand, some start-ups turn into multi-
million peso enterprises. The possibilities are endless.

10 Biggest Challenges Facing Small Businesses

There are many problems that are encountered by business owners
throughout the course of managing their business. All entrepreneurs must be
prepared for solving problems that come their way. However, creating a start-up
is not an easy task.
New entrepreneurs are usually not prepared for the problems coming their
way. The first thing to do is to understand that problems are an everyday part of
every business and then face each problem with determination and a proper
solution.
Here are some common faced problems in new businesses and their solutions.
1. Money
Money is known to be one of the major causes of problems that can lead
business to failure. For a new business, the biggest mistake is expecting instant
profit. Young and eager entrepreneurs start up a business with little money,
assuming they will earn big and then invest that money again in their business. It
is significant to understand that you cannot get an instant profit at the start of
your business. Experts advise not to expect much profit for at least two years.
Always prepare for the worst case scenario. Before starting a business, ensure
that you have enough money to sustain you at least up to two years. Start slowly
and patiently.
2. Time
The phrase ‗time is money‘ holds true, especially for a business. It is
essential for new businesses to manage their time wisely. Planning everything in
advance and ensuring everything is done on time is very important for the
prosperity of any business. Ensure the schedule you are making is achievable and
stick to it. Give yourself enough time to perform a task with accuracy. Plan your
future projects. Make adjustments accordingly. Utilize calendars and planners to

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make sure you don‘t miss an appointment or a deadline. Spending time
effectively can actually save you money and even earn you more revenue.
3. Lack of Knowledge/Skills
This is one of the top most mistakes made by entrepreneurs. It is
important that you have ample knowledge about the industry you are entering,
your competitors, your target market, current trends, advertising and marketing
techniques as well as financial know-how. You must possess the skills needed to
start up a new business. If you are not prepared, educate yourself. Do proper
research, ask other business owners, read relevant books and websites. You may
end up with a huge loss if you start your business without having the required
knowledge and skills.
4. Information Overload
―The only thing constant is change‖, this phrase is true as well as change is
continuous and we witness it happening all around us. Today, information keeps
changing. New facts and data keeps emerging and replacing old beliefs and
trends. Due to this information overload, it gets difficult to find effective
solutions. It becomes a challenge for a new business to sort through this data and
come up with good decisions. However, one easy solution is to look for the
authenticity of the data. Check its references and the writer. Learn to use
keywords to narrow a research topic. Start asking successful businessmen about
their experiences. Learn from them.
5. Lack of Direction and Planning
This problem prevails because of not creating a thorough and detailed
business plan. Many young entrepreneurs are so excited about setting up their
very own business that they fail to prepare a proper business plan. It helps in
focusing on the goal and mission of the business. It determines the financial
situation of the business, the roadmap to follow, market research and analysis of
the competition. A business plan is basically an investment to your business.
6.Working in the Business rather than Working on the Business
Usually entrepreneurs get so worked up with the paperwork,
satisfying customers and doing all the necessary things in keeping the
business running. They fail to fulfil some other equally crucial tasks. It is
important that you take a day or even a few hours to analyze your business.
Determine which area needs attention, do an inventory review, review cash flow
of your business, review payrolls and employee benefits. It is also important to
update your corporate minutes, your contracts and your agreements with
stakeholders annually. Hold meetings with your managers and other employees
to connect with them.

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7. Innovation
Unfortunately, there are many new start-up companies that stick to the
age old book rules. They don‘t try to create an innovative culture, even majority of
the big businesses struggle with innovation. People get accustomed to the work
culture and they don‘t think outside the box. Businessmen and employees stay
away from change and resist whatever changes that take place in the company.
The best thing to do is to be open to innovation. When bringing a change, ensure
that all your employees are prepared for it. Discuss it with them in a meeting, tell
them how important it is to be innovative, make them understand how beneficial
it will be.
8. Trying to Do It Alone
Coping with everything alone is also one of the most common mistake new
business owners make. They believe that they can manage everything and don‘t
need any advice or help form anyone. Initially, they do seem to be successful in
this strategy as the cost is low since they handle everything. However, as the work
starts growing gradually, the workload takes a toll on the new entrepreneur.
Mistakes start being made and the quality of work starts decreasing. You may
even start losing customers soon. This is why this strategy is not successful in the
long run. Hiring two to three employees is more beneficial for a start - up
business. It is better to pay a small amount to your workers than lose double the
amount in the future.
9. Getting Clients
For a new business, it is difficult to attract prospects and retain customers.
With a small marketing and advertising budget, new entrepreneurs are unable to
reach out to a wider audience. Potential customers are usually hesitant to going
for a new business. They prefer going for companies that have experience and a
large customer following. However, the good news is big companies charge more.
There are many clients and customers who are looking for companies that
provide cheaper, but good quality service. Providing excellent service to them will
ensure that they remain your customers and even recommend you to others.
10. Poor Marketing
Apart from a detailed business plan, a marketing plan is also important for
any business. Once you have a clear idea about your target market and your
competition, you can allocate a budget for advertising and promoting your
business and decide which medium to advertise through. You can also decide
your product pricing through target market analysis. Make sure you that your
pricing can be easily afforded by your target market and that your advertising
effectively reaches them.

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What Causes Small Businesses to Fail?
The short answer is, regardless of the industry, failure is the result of
either the lack of management skills or lack of proper capitalization or both.
Eleven Common Causes of Failure:
 Choosing a business that isn't very profitable. Even though
you generate lots of activity, the profits never materialize to the
extent necessary to sustain an on-going company.

 Inadequate cash reserves. If you don't have enough cash to

carry you through the first six months or so before the business
starts making money, your prospects for Success are not good.
Consider both business and personal living expenses when
determining how much cash you will need.

 Failure to clearly define and understand your market,

your customers, and your customers’ buying habits. Who
are your customers? You should be able to clearly identify them in
one or two sentences. How are you going to reach them? Is your
product or service seasonal? What will you do in the off-season?
How loyal are your potential customers to their current supplier?
Do customers keep coming back or do they just purchase from you
one time? Does it take a long time to close a sale or are your
customers more driven by impulse buying?

 Failure to price your product or service correctly. You must

clearly define your pricing strategy. You can be the cheapest or you
can be the best, but if you try to do both, you'll fail.

 Failure to adequately anticipate cash flow. When you are just

starting out, suppliers require quick payment for inventory
(sometimes even COD). If you sell your products on credit, the time
between making the sale and getting paid can be months. This two-
way tug at your cash can pull you down if you fail to plan for it.

 Failure to anticipate or react to competition,

technology, or other changes in the marketplace. It is
dangerous to assume that what you have done in the past will
always work. Challenge the factors that led to your Success. Do you
still do things the same way despite new market demands and
changing times? What is your competition doing differently? What
new technology is available? Be open to new ideas, experiment.
Those who fail to do this end up becoming pawns to those who do.
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 Overgeneralization. Trying to do everything for everyone is a
sure road to ruin. Spreading yourself too thin diminishes quality.
The market pays excellent rewards for excellent results, average
rewards for average results, and below average rewards for below
average results.

 Overdependence on a single customer. At first, it looks great.

But then you realize you are at their mercy. Whenever you have one
customer so big that losing them would mean closing up shop,
watch out. Having a large base of small customers is much
preferred.

 Uncontrolled growth. Slow and steady wins every time.

Dependable, predictable growth is vastly superior to spurts and
jumps in volume. Going after all the business you can get drains
your cash and actually reduces overall profitability. You may
incur significant up-front costs to finance large inventories to meet
new customer demand. Don't leverage yourself so far that if the
economy stumbles, you'll be unable to pay back your loans. When
you go after it all, you usually become less selective about customers
and products, both of which drain profits from your company.

 Believing you can do everything yourself. One of the biggest

challenges for entrepreneurs is to let go. Let go of the attitude that
you must have hands-on control of all aspects of your business. Let
go of the belief that only you can make decisions. Concentrate on
the most important problems or issues facing your company. Let
others help you out. Give your people responsibility and authority.

 Putting up with inadequate management. A common

problem faced by Successful companies is growing beyond
management resources or skills. As the company grows, you may
surpass certain individuals' ability to manage and plan. If a change
becomes necessary, don't lower your standards just to fill vacant
positions or to accommodate someone within your organization.
Decide on the skills necessary for the position and insist the
individual has them.

 So, the founder's attitude, ability to be objective,

willingness to bring in needed help, and share power are
all crucial to success. "Most start-ups make the mistake of
falling in love with their product or service," says Shukla.

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 "Ultimately, it is this lack of self-criticism that causes many
companies, start-ups and their more mature counterparts, to fail.
Start-ups suffer this fate more often because there are more
dreamers than doers." I think that fact speaks for itself," says
Jonathan Goldhill, a small-business consultant and former director
of an economic development center in California's San Fernando
Valley. "I would say that the primary reason for failure of start-ups
within three years is usually...management's failure to act, or
management's failure to react, or management's failure to plan."
Other reasons why businesses fail in their early years include:
poor business location, poor customer service, unqualified/untrained
employees, fraud, lack of a proper business plan, and failure to
seek outside professional advice.

While poor management is cited most frequently as the

reason businesses fail, inadequate or ill-timed financing is a close
second. Whether you're starting a business or expanding one,
sufficient ready capital is essential. It is not, however, enough to simply
have sufficient financing; knowledge and planning are required to
manage it well. These qualities ensure that entrepreneurs avoid
common mistakes like securing the wrong type of financing,
miscalculating the amount required, or underestimating the cost of
borrowing money.

Family Business Enterprise

Family firm is a corporation that is entirely owned by members of single family.
It is also known as company owned, controlled and operated by members of one or
several families.
Family business is one in which one or more members of one or more families
have ownership, interest and significant commitment towards business.

Characteristics of Family Business:

 Family businesses are ideal in nature as they are loyal to the principles of the
founder and thus ensure uniformity in their operations.
 Succession is one important decision which determines future effectiveness in
terms of company operation.
 Family business comprises of family members in business operations ensuring
effective utilization of in house talent in family.
 Single minded dedication of family members ensures survival of family business
through toughest times.

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 Effectiveness and existence of family business is determined depending on
understanding persisting within the family.
 Family business may be comprised of one or more than one family in business
operations.
 Family members who are not contributing or not involved in business are part of
business.
 Family business values are reflection of values possessed and followed by family
members.
 Members of family have legal control over business.

Importance of Family Business:

 Contributing to economic development: family business play crucial
role in economic development of most of the countries. Retail sector, small
scale industry, and service sector are owned by family business.

 Spirit of entrepreneurship: family business as contributes towards

development and has been successful in country like Philippines it paves way
to various families to initiate and bring up new ventures in country.

 Philanthropy : family business in Philippines along with their development

have also concentrated towards welfare of general public by investing on
hospitals, educational institutions, construction of roads etc.

 Trust Lowers transaction cost: partnership and other forms of business

involving outsiders usually leads to conflict in long run. In case of family
business as all the parties in family are affected by loss incurred in company
do not involve any sought of conflict and difference in point of view arises
they try and solve it internally in the family ensuring business is not affected
by the same.

 Small, nimble and quick to react : as managing team size in family

business is small compare to other form of business decision making process
involves less period of time which helps to take timely decision.

 Information as source of advantage: as family business is private firm it

is not required to take decision in accordance with pressure from other
sources and strategies of business need not be revealed to outsiders of
business.

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Types of Family Business

 Family owned business : is a profit organization were number of voting

shares, but not necessarily majority of shares are owned by members of
single extended family but significantly influenced by other members of
family.

 Family owned and managed business : is a profit organization were

number of voting shares, but not necessarily majority of shares are owned
by members of single extended family but significantly influenced by other
members of family. In this business has active participation by one family
member in the top management of company so that one or more family
members have ultimate management control.

 Family owned and led company : is a profit organization were

number of voting shares, but not necessarily majority of shares are owned
by members of single extended family but significantly influenced by other
members of family. In this business has active participation by one family
member in the top management of company so that one or more family
members have ultimate management control. But in this method one
member has major influence on business activities who in charge of
regulating activities of business and members of family business.

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 Strategies for Improving Capability of Family Business
 Inculcate professionalism in family firms: professionalism in
business refers to retaining of effective talent in company, proper
documentation of business transaction, planning and implementation of
efficient strategies for success of business.

 Replenishing entrepreneurship: basically refers to expand existing

business and be role model for their families to open business of their own.

 Good management: refers to proper communication of information

among family members about present business and utilization of available
resources in business.

 Ability to change: business environment is dynamic in nature for which

business have to renew their strategies on regular basis to meet demand of
changing situation to compete in market.

 Have strategic plan: situations of business are unpredictable in nature

in nature so present plans of business should be designed keeping in point
about future strategy in picture.

 Have active board of directors: refers to have competent employees in

business that can assess future requirements and accordingly management
business resources and take decisions in business.

Starting a Business: Legal Forms and Requirements

Business Operation:
Activities involved in the day to day functions of the business conducted
for the purpose of generating profits.

Business Plan:
Document that describes a business along with it‘s objectives, strategies,
the market in which it operates and the businesses‘ financial forecasts.
A business plan is a blue print of step by step process that would be
followed to convert business idea into successful business venture.

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Business Plan Purposes:
 Plans for future
 Allocate resources
 Identify and prepare for problems and opportunities
 Useful for start - up businesses applying for finance or growth
 Improves entrepreneur‘s understanding of business and the market

Audience of Business Plan:

 Banks, Financial lenders.
 Venture Capitalists: people who invest for a share of the business.
 Business Angels: people who invest in start - up businesses which are high
risk, high growth market.
 Providers of grants
 Potential purchaser of the business
Business Plan Process:

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1. Idea generation: is the first step in the business planning process. This step
differentiates entrepreneur from usual business. An entrepreneur may come
up with new business idea or may bring in value addition to existing product
in the market. Sources of new idea for entrepreneurs are:
 Consumers/ customers
 Existing companies
 Research and development
 Employees
 Dealers, retailers.

2. Environmental scanning: once the entrepreneur is through the idea

generation stage, next entrepreneur is required to conduct environmental
scanning which includes analyzing external and internal environment that
affects business idea.
 External Environment
o Socio cultural appraisal: it gives brief overview about the
culture and tradition existing in society. It is comprised of values
and beliefs of people which determine the acceptance of product by
customer in the market.
o Technological appraisal: it assesses various technological
options available to convert an idea to product. It also provides an
brief overview about technological updates.
o Economic appraisal: it assesses the status of the society in terms
of economic development, per capita income, national income,
consumption pattern in the business.
o Demographic appraisal: it assesses the population pattern of
given geographic area. It includes sex, age profile, distribution etc.
o Economic appraisal: it assesses the status of the society in terms
of economic development, per capita income, national income,
consumption pattern in the business.
o Government appraisal: it assesses the various legislation,
policies and incentives formulated for particular industry.
Flexibility of these rues determine ease for entrepreneur in terms of
opening venture in particular area.

 Internal Environment

o Raw material: it refers to in terms of availability of raw material

required for the process of production. If the material availability is
at distance place and is very expensive then entrepreneur should
give second thought to the same.

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 o Production/ operation: it assesses the availability of various
machineries, equipment's, tools and techniques that would be
required for production
o Finance: it studies total requirement of finance in terms of start -
up expenses, fixed expenses, running expenses etc.
o Market: refers to study on potential customer and target
customers in market.
o Human resource: refers to demand and supply of required
human resource in market and estimation of expenses to be
incurred on human resource.

3. Feasibility Analysis: refers to conducting detailed analysis in relation to

every aspect relevant to business and determining credibility of business.

 Market analysis: is conducted to estimate the demand and market share

for proposed product and service in future. Demand and market analysis is
based on factors like consumption pattern, availability of substitute goods
and services etc.

 Technical and operational analysis: is to assess operational ability of

proposed business enterprise. Technical or operational analysis collects
data on following parameters :
o Material availability
o Material requirement planning
o Plant location
o Plant capacity
o Machinery and equipment.

 Marketing plan: lays down the strategies of marketing which can lead to
success of business plan. Strategies are in terms of marketing mix which
includes (product, price, place, promotion) which determines the potential
demand of customers for product in the market.

 Production plan / operational plan: production plan is drafted for

manufacturing sector where as operation plan is designed for business into
service sector. It comprises of strategies on parameters such as location
layout, cost, availability of material, human resource etc.

 Organizational plan: defines type of ownership pattern in company,

sole trading concern, family business, private or public limited company
etc.

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  Financial plan: financial plan indicates the requirement of proposed
business enterprise. Which includes fund flow, cash flow statement,
breakeven point, projected ratio, projected balance sheet.

4. Project report preparation: project report is a written document that

describes step by step strategies involved in starting and running business.

5. Evaluation, control and review: as company operates in dynamic

environment company has to monitor and review strategies and policies to
stay in line with competition existing in market.
List of Business Permits and Licenses in the Philippines
People do business to make a living, serve their community, and pursue
their dreams. It is good to hear a person who‘s taking risk to start his or her
business, whether small, medium or big. However, the process of starting and
registering a business can be one of the most crucial stages of doing business.
Getting the right permits and licenses should be done before running a business,
otherwise, you may end up operating a business without a license, which can be
punishable under certain business laws. That is why if you are an aspiring
business person or entrepreneur, and if you want to conform with the
government‘s rules on establishing and legalizing a business, you have to be
aware of the following list of business permits and licenses in the Philippines.
Basic Permits:
The following are the business permits and licenses that are generally required to
all business industries.
1. Barangay Clearance – The barangay clearance is a certificate that your
business complies with the requirements of the barangay where your
business is located. To get a barangay clearance, you may visit the barangay
office where your business is located.

2. DTI Business Name (BN) Registration Certificate – This is the

certificate of registration of your business trade name. It gives you the power
to use your registered business trade name for business operation. It also
protects your business name against being used and registered by other
business establishments. However, take note that DTI registration only gives
you the authority to use your business trade name, but it doesn‘t give you the
license to start operating your business without getting the required licenses
from other government offices, such as BIR and Local Government Office
(Mayor‘s Office).

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3. SEC Certificate of Registration – Corporations (stock or non-stock) and
partnerships have to secure a certificate of incorporation or certificate of
partnership with the Securities and Exchange Commission (SEC) to be
considered as legal or juridical entities. These certificates are also used as a
requirement for registering with the BIR, Mayor‘s Office, and other government
offices. Take note that sole proprietorship businesses are not registered with SEC,
but they are registered with the DTI. To register with SEC, you may reach the
following SEC address and contact information.
SEC Building, Edsa, Greenhills, Mandaluyong City
Tel. Nos.: (+632) 726.0931 to 39
Email: mis@sec.gov.ph
Website: www.sec.gov.ph
or http://iregister.sec.gov.ph/MainServlet (for online registration)
4. Mayor’s Business Permit. Businesses have to secure a Mayor‘s Business
Permit or the Local Government Office where their business are located and
operated. Requirements in obtaining a Mayor‘s Business permit vary from
different cities or municipalities. This permit is also a requirement by the BIR in
issuing a BIR certificate of registration.
5. BIR Certificate of Registration. Any business must be registered with the
Bureau of Internal Revenue to comply with the Philippine tax requirements. BIR
registration will assign a TIN (Taxpayer Identification Number) to the company
or business owner, will give the business authority to print its official receipts and
invoices, and registered its books of accounts. To register with the BIR, you have
to go to the BIR office which has the jurisdiction of the place where your business
is located.
6. SSS Employer’s Registration. Republic Act No. 8282 or otherwise known
as the Social Security Act of 1997 requires businesses or business owners who use
the services of another person or employees in business, trade, industry, or any
undertaking to be registered with the SSS (Social Security System).
7. Phil-Health Employer’s Registration. All businesses and employers are
also required to register with Phil-Health to enable them to provide social health
insurance coverage to their employees.
8. Pag-IBIG Employer’s Registration. Employers also have to register with
the Home Development Mutual Fund (HDMF) to secure their Pag-IBIG
Employer ID Number and to provide the required benefits to their employees,
who should be Fund members.
9. DOLE Registration. Businesses with five or more employees are
encouraged to register with the Department of Labor of Employment (DOLE) for
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the purpose of monitoring their compliance with labor regulations. For
companies with 50 or more workers, they are required to register with DOLE,
under the Bureau of Local Employment which administers the registration of
establishments.

Special permits
The following are the special or secondary permits that are usually required for
business establishments with special operation or industry.
10. Bangko Sentral ng Pilipinas (BSP) – for banks, financing companies,
pawnshops, money changers, and other financial institutions.
11. Bureau of Food and Drugs (BFAD) – for business related in the
manufacturing, trading, repacking, importing, exporting, distributing of any
products related to food and drugs.
12. Bureau of Animal Industry (BAI) – for business related to animals.
13. Bureau of Fisheries and Aquatic Resources (BFAR) – for business
related in fishing and aquatics products.
14. Bureau of Forest Development – for exporters of forest products (e.g.
logs, lumber products, plywood, etc.).
15. Bureau of Plant Industry (BPI) – for business related to plants and
vegetable crops.
16. Commission on Higher Education (CHED) and Department of
Education (DepEd) – for entities involved in providing education.
17. DTI-Bureau of Product Standards (BPS) – For commodity clearance
for producers, manufacturers or exporters, whose product quality after due
inspection, sampling, and testing, is found to meet established standards.
18. Fiber Industry Development Authority (FIDA) – for business related
in fiber producing products.
19. Forest Management Bureau (FMB) – for business related in lumber,
logs, and other wood product.
20. Garments and Textile Industry Development Office (GTIDO) – For
all manufacturers of garments and textile for exports.
21. Insurance Commission (IC) – for insurance and other IC regulated
entities.
22. Intellectual Patent Office (IPO) – for registering your trademarks, logos,

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 slogans, processes and secret formulas.
23. National Food Authority (NFA) – for rice, corn and flour dealers.
24. National Subcontractors Exchange (SUBCONEX) – for those
interested to tie up with export oriented firms as sub-contractors/suppliers,
provided they fall under any of the following sectors: garments and handwoven
fabrics, gifts and house wares, furniture and fixtures, foot ware and leather goods,
fresh and processed foods, and jewelry.
25. National Tobacco Administration (NTA) – for business related to
tobacco products.
26. Philippine Coconut Authority (PCA) – for businesses related in grain-
rice farming and trading.
27. Technical Education and Skills Development Authority (TESDA) –
for institutions involve in technical education and skills development.
There are maybe other business permits that are required for certain types
of businesses aside from what we have listed and mentioned above. Legalizing
your business doesn‘t only extend to registering it and securing a license or
permit. A legalized and compliant business is one that consistently complies with
the government‘s laws and regulations from registration, to operation, and until
cessation.

ACTIVITY: BUSINESS PLAN

Instruction: Suppose you only have P10,000 left in your savings, and you want to
invest it. So, you have to think of an idea on how to make a business out of it. Please
present the following:

Business Concept/Overview
Initial Capital Needed
Documentary Requirements
Target Customers
Projected Sales (1 month only)
Projected Profit (1 month only)

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 ASSESSMENT: True or False

Instruction: Write “T” if the statement is TRUE and write “F” if the statement is
“FALSE”. Please correct the false statement.

1. Joyce Enterprise has a total asset of P2,439,054.08, therefore Joyce Enterprise is

a small enterprise.
2. Entrepreneurs are the people who create, launch, organize and manage a new
business and take the risk of business ownership.
3. Entrepreneurs are not easily defeated; they view failure as an opportunity for
future success.
4. A true entrepreneur ask questions about whether or not they‘ll
Succeed.
5. A businessman is a person who runs the business, undertaking an unoriginal
business idea.
6. The risk of an entrepreneurial venture must be high.
7. Market analysis refers to conducting detailed analysis in relation to every aspect
relevant to business and determining credibility of business.
8. Feasibility analysis is conducted to estimate the demand and market share for
proposed product and service in future.
9. Marketing plan lays down the strategies of marketing which can lead to success of
business plan.
10. Corporations have to secure Certificate of Incorporation from Securities and
Exchange Commission.
11. Mayor‘s permit is not a requirement by the BIR in issuing a BIR certificate of
registration.
12. Businesses with five or more employees are encouraged to register with the
Department of Labor of Employment (DOLE) for the purpose of monitoring their
compliance with labor regulations.
13. Technical and operational analysis assess operational ability of proposed
business enterprise.
14. Economic appraisal assesses the status of the society in terms of economic
development, per capita income, national income, consumption pattern in the
business.
15. For businesses related to plants and vegetable crops need to secure certificate
from Bureau of Forest Development.

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 WEEK 20: SECOND QUARTER EXAMINATION

Name:_________________ Date:_________________
Section: ________________ Score: ________________

Test I. Multiple Choice

Instruction: Encircle the letter of your answer.

1. It involves in creating and evaluating the manpower inventory after

considering the development of the required talents among the existing
employees through their promotion and advancement.
a. Manpower Planning
b. Recruitment
c. Selection
d. Placement and Orientation

2. It is the process of elimination of the candidates who appear unpromising for the
post.
a. Manpower Planning
b. Recruitment
c. Selection
d. Placement and Orientation

3. It means putting the appointed employee on the job for which he is selected.
a. Manpower Planning
b. Recruitment
c. Selection
d. Placement and Orientation

4. It is the process of attracting the appropriate number of qualified individuals to

apply for vacant positions in an organization.
a. Development
b. Recruitment
c. Selection
d. Placement and Orientation

5. It provides employees broader learning which may be utilized in a variety of

settings and for future jobs.
a. Development
b. Recruitment
c. Appraisal
d. Placement and Orientation

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6. It is used to eliminate those candidates who do not meet the minimum
qualification requirements set by the organization.
a. Application Blanks
b. Preliminary Interviews
c. Employment Interviews
d. Background Investigation

7. This is to verify the accuracy of factual information previously provided by the

applicant.
a. Application Blanks
b. Preliminary Interviews
c. Employment Interviews
d. Background Investigation

8. All are example of indirect financial benefit of an employee except for:

a. Insurance
b. Employee assistance
c. Holidays
d. Bonus

9. It is a kind of leader who includes one or more employees in the decision making
process.
a. Democratic
b. Autocratic
c. Authoritarian
d. Laissez-fair

10. According to Maslow‘s Hierarchy of Needs Theory being a top employee in your
department is an example of:
a. Self – esteem needs
b. Safety needs
c. Self-actualization
d. Physiological needs

11. According to Maslow‘s Hierarchy of Needs Theory having a good sleep is an

example of:
a. Self – esteem needs
b. Safety needs
c. Self-actualization
d. Physiological needs

12. According to Maslow‘s Hierarchy of Needs Theory preventing the COVID – 19 is

an example of:
a. Self – esteem needs
b. Safety needs
c. Self-actualization
d. Physiological needs

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13. It is type of communication done through sending letter.
a. Oral Communication
b. Written Communication
c. Non-Verbal Communication
d. Visual Communication

14. It forecast of cash needs and sources.

a. Cash Budgeting
b. Profit planning
c. Balance sheet forecasting
d. Contingency Planning
15. It is conducted to estimate the demand and market share for proposed product
and service in future.
a. Feasibility Analysis
b. Market Analysis
c. Environmental Scanning
d. Economic Appraisal

16. It involves the assignment of an employee to a higher level job.

a. Promotion
b. Demotion
c. Transfer
d. Lay – off

17. It is the procedure used for determining/collecting information relating to the

operations and responsibility of a specific job.
a. Job description
b. Job specification
c. Appraisal
d. Job Analysis
18. It is a training technique that involves allowing the person to learn the job by
actually performing its own the job.
a. On the Job Training
b. Off the Job Training
c. Internship Training
d. Orientation Training

19. It is the reassignment of an employee to a lower job involving fewer skills and
responsibilities.
a. Promotion
b. Demotion
c. Transfer
d. Resignation

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 20. This is when employees voluntarily decide to end their employment with an
organization.
a. Promotion
b. Demotion
c. Transfer
d. Resignation

Test II. True or False

Instruction: Draw  if the statement is TRUE and  if the statement is FALSE. Please
correct the false statement. Write your answer on the space provided.

1. According to the Great Man Theory, ―leaders and born, not made‖.
_________________________________________________
2. According to Behavioural Theory, leadership is the result of effective role
behaviour.
_____________________________________________________
3. According to Path-goal Theory, the main role of a manager is to delegate the
task directly to the subordinates.
_____________________________________________________
_____________________________________________________
4. Controlling is the measurement and correction of performance in order to
make sure that organization‘s objectives and plans are achieved.
_________________________________________________
________________________________________________
5. An efficient control system helps in judging the accuracy of standards.
________________________________________________
6. Capital standards are nonmonetary measurements and are common at the
operating level, where materials are used, labor is employed, services are
rendered, and goods are produced.
_________________________________________________
________________________________________________
7. Revenue standards arise from attaching monetary values to sales.
_____________________________________________________
8. Voucher system requires that every liability should be recorded as soon as it is
incurred.
______________________________________________
9. Entrepreneur should always be willing to take the risk.
________________________________________________
10. Entrepreneurship often involves substantial innovation beyond what a small
business might exhibit.
_________________________________________________
11. A business plan is a blue print of step by step process that would be followed
to convert business idea into successful business venture.
_____________________________________________________
_____________________________________________________

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12. Corporations should secure certificate of incorporation from Department of
Trade and Industry.
_________________________________________________
13. For business related to plants and vegetable crops should secure permit from
Bureau of Forest Development.
_________________________________________________
14. Development is a systematic process that will help the employees acquire the
right knowledge, attitude, skills, and habits to improve current performance.
_________________________________________________
15. It helps to improve job satisfaction of the employees and hence their morale.
_________________________________________________

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 References

Payos, Ranolfo et al. Organization and Management Kto12 First Edition (Rex
Bookstore, 2016)

Gutierrez, Pura & Garcia. Business Organization and Management 6th Edition (R&G,
1999)

www.shs.amaesonline.com

https://www.investopedia.com/what-is-a-performance-appraisal-4586834

http://optionshr.co.uk/whats-difference-informal-formal-appraisals/

https://www.managementstudyguide.com/what-is-employee-relations.htm

https://www.prosci.com/resources/articles/the-what-why-and-how-of-change-
management

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