Possible Disadvantages of committee Organization

1.   Committees often take too much time in making decisions.

2.   The tendency to satisfy all committee members through compromise may result in less effective decisions.

3.   A strong leader on the committee may dominate it.

4.   Decisions that are reached through compromise may not have the full support of all committee members, and they often violate accepted management principles.

Advantages Claimed for committee Organization

1.   It replaces the judgement of one person with the combined judgements of several people: Two heads are better than one.

2.   Its wider representation produces decisions that are less personal and calls attention to considerations that otherwise may be overlooked.

3.   Specialists among committee members bring expertise to decision making and also free line managers from demands their time.

Committee Organization

          In committee organization a formal group replace individual managers at one or more position in an organization's structure. Authority and responsibility are assigned to the group, made up of committee members who usually are chosen from the various levels of management. All decisions or recommendations are studied thoroughly and are evaluated by the committee.
          Seldom, if ever, is a business firm organized completely along committee lines. This form of internal organization is best used only in those areas of management that require much deliberation and various points of view - for example, in the research department. Committees are especially effective in making decisions about projects to be undertaken, in comparing results or technological processes, and in developing new products. In such areas a committee enables all concerned departments to participate in decision making, and better management cash result.
          Large business firms would not think of adopting a sales budget for the coming year without careful planning and consultation among all departments affected. A committee can be used for this purposes. It probably would include representatives from production, purchasing, financing, engineering, and accounting, as well as from the marketing department. All committee members are responsible for and participate in successful marketing plans. and they must have detailed information about sales plans in order to perform their work in a coordinated manner.
          Most committee operate within the basic internal organization of the firm - line, or line and staff, or some other form. This type of committee is not to be confused with a standing staff committee, which provides expertise to top management through an advisory relationship.
          Committee organization is generally felt to be slow in making decision and most decisions represent some kind of compromise. In addition, many committees violate some of the principles of management that we reviewed earlier. Even so, companies do exist which report great success with such a plan of internal organization. Most Admit that special circumstances exist within their firm which have suggested its use or made it appropriate for adoption - such as the necessity of having more expertise in basic decisions. The committee organization may be used in some management areas without complete adoption throughout the company.

Possible Disadvantages of Matrix Organization

1.   Conflict may develop between project managers and department heads and other personnel.

2.   It is expensive.

3.   Only few projects can or should be undertaken at a given time.

4.   It may damage normal operations.

5.   The authority and the responsibility of the committee may not be clearly delineated.

6.   It usually violates the one-boss principle (unity of command)

Advantages Claimed for Matrix Organization

1.   It allows industry to cooperate with government on necessary projects without destroying normal operations.

2.   It encourages innovation and freedom from "straitjacket" organizations.

3.   It makes it possible to develop new models, new products, or new processes without building new factories.

4.   It can serve as an efficiency check on traditional methods of organization.

Matrix Organization

          Matrix organization or project management organization, has long been practiced in industry, its distinguishing feature is that it may operate alongside any other basic type of internal organization. Under matrix organization, special projects can be accomplished while a company's basic operations continue. Sometimes such projects conflict with normal operations, but this is recognized and accepted as part of matrix organization.
          The responsibility for guiding projects through to their completion is given to a project manager, who usually has authority over all departments necessary to the project. Conflict is resolved by the amount of authority given to the project manager, which depends on how important the special project is.
          Matrix organization has received great attention because of the demands of our space program and the needs of our defense department. For example, a factory that is building a space capsule cannot stop all other operations for that one project. Instead, the work is made a special project, and a project manager is assigned to direct the construction of the capsule as it moves from department to department. If a project is important enough, other work in the department will be put aside until the special project is completed.
          Automobile factories often use matrix organization to develop models of new cars. For example, General Motors developed its Chevrolet Vega as a special project that was conducted by normal operating departments. Many other types of businesses also use matrix organization to develop new or experimental products or designs. In fact, President Franklin Roosevelt named his famous DC-3 airplane the Sacred because he had heard that that's what employees of Douglas Aircraft called it as it moved through the factory as a special project. The production of this presidential airplane was a perfect example of matrix organization.
          Although there is no single way to show the many departmental interrelationships that may exist when matrix organization is used with line or line and staff arrangement. Basically, matrix organization involves authority across departmental lines, while other types of organization involve authority that flows from the top down.

Possible Disadvantages of Functional Organization

1.   Every employee has more than one boss; it violates unity of command.

2.   Discipline is less effective because employees have several bosses.

3.   Conflicts among supervisors may result.

4.   The development of high-level managers is limited to special areas, making them less effective overall managers.

Advantages Claimed for Functional Organization

1.   Supervisors are specialist who have the opportunity to develop greater expertise in their particular fields.

2.   Expert advice is directly available to each employee.

3.   Every function of the firm receives superior handling.

Functional Organization

          Whenever a firm's total work is divided into such basic areas as production, marketing, and finance, it is using a functional organization. Usually, however, the authority of a division head is limited to that division or that function; in all other areas, line or line and staff authority is retained. So we need more accurate definition of functional organization.
          In pure functional organization, authority and responsibility are assigned over processes or functions in several or all departments of the firm. Thus, functional managers supervise employees in several or all departments. The main feature of functional organization is that each employee has more than one boss - maybe several. This, of course, violates that sound and important one-boss principle, or unity of command. But the practice is being tried by many firms in American industry as the need for expertise grows.
          Under functional organization every employee, except top executives, may have different supervisors for such areas as personnel management, quality control, inventory control, payrolls and vacations, promotions, and transfers. These supervisors are specialists in their particular fields, and they have broad supervisory power over many or all departments of the firm. They issue orders and directives in their own name, rather that through line managers. As a result, it is easy for an employee to receive conflicting instructions.
          An example of functional organization can be found in the authority and responsibility that may be given to the personnel department. Under line or line and staff organization, the personnel department works through the employee's immediate supervisor - his or he one boss. But under functional organization, the personnel department has authority and responsibility to deal directly with each employee on all matters of employment; the line supervisor is overlooked. As noted above, still other supervisors may be established for other aspects of an employee's total work. A factory employee could review several orders from the different supervisors of quality control, production, sales, maintenance, and other areas.
          It is interesting to note that Frederick W. Taylor, the father of scientific management, established the first functional organization in the early 1900s. Under his plan, each factory worker had eight different supervisors. This proved unsuccessful because it divided the work beyond a useful point. In fact, may large firms that have experimented with pure functional organization have returned to line and staff arrangements. obviously, it is difficult to void misunderstandings and conflict under functional organization, and a strong administration is needed to make it work. Even so, some business theorist favor it because it provides the expertise needed in today's complex world.

Line and Staff Organization

          With large-scale business operation, the complexities of management raise the need for full-time specialists who can give advice about certain key areas. Line and staff organization seeks to keep all the advantages of line organization while adding advisory specialists to the staff in certain areas. These advisory specialists do not have line authority or subordinates to whom they issue orders. Instead, they provide top management with the expertise needed for making decisions in special areas.
          The need for experts to become full-time staff members was first recognized in the areas of legal operations and personnel administration: these needs were filled by advisory experts. In today's business world most large firms also have staff experts in such areas as government regulations, international trade, industrial relations, procurement, economics, credit administration, budget control, and corporation taxes.
          Modern organization theory often distinguishes among these types of specialized staff: advisory, service, and control.

1.   Advisory staff experts are responsible for advising top management and line managers about business procedures in their particular areas of expertise. Example include the legal staff and the industrial relation staff.

2.   Service staff experts perform specific work for departments throughout the organization. For example, the purchasing department may be responsible for buying all materials used in the organization. Similarly, the personnel department may have authority to make final decisions about hiring, rather than the department is a service staff group, since it is performing (hiring) for other departments.

3.   Control staff experts regulate some of the activities of others in the firm. For example, the budget administrator must determine that a department's request for expenditures are within its approved budget. If they are not, the expenditure is not approved. In the same way, the controller usually has the power to accept or refuse request for special funds. In such a case, the control staff is not giving orders but is merely enforcing the wishes of top management, which has delegated authority to the control staff.

          This in line and staff organization, full-time staff specialists may have advisory, service, or control relationships with officers of other departments. But remember that these specialists do not have basic line authority; their relationship to other departments is advisory, as indicated by the dashed line.

Line Organization

          Line organization is also called scalar principle or straight-line organization. It was the first form of organization to be used in business, and it remains the simpled to understand. When all business firm were small, line organization was the natural way to structure and direct them. Some elements of line organization remain in every large firm even today.
          In line organization there is a recognized, direct chain of command from the top of the organization to the bottom. Every employee has a position in that chain of command, which begins with the president or chief executive officer. The superior manager issues orders to subordinates, when accept responsibility for following them. All management levels receive their orders from the level above, and they communicate orders to their subordinates. Only superiors who are directly above can issue orders. In line organization, authority flows from the top down, while responsibility flows from the bottom up.
          Line organization are effective for many types of firm, because areas of work can be divided into different levels of authority and responsibility. Even relatively large firms like banks, retail stores, single-units factories, and wholesale firms can use line organization to good purpose. However, small or medium sized firms that need quick decisions and centralized control use line organization most effectively.

Basic Types of Internal Organization

Five basic types of internal organization are recognized in business literature. We now shall name them, explain them, analyze them, illustrate them in chart form, and note their claimed advantages and possible disadvantages.

          The five basic types of internal organization that we shall examine are:

1.   Line organization (scalar principle, or straight-line,
      organization)
2.   Line and staff organization
3.   Functional organization
4.    Matrix organization (project management organization)
5.   Committee organization

Organization Plan Flexible Enough to make changes without Disruption

This principle reflects another time-honored business concept: The one best way is only a temporary condition. That is, change cannot be avoided in the dynamic world of business. As conditions change, a firm must be able to adjust. According to this management principle, an organization's structure must be flexible enough so that changes can be made without disrupting the company's entire operations.
          Now that we have reviewed the principles of management which apply to internal organization, we can best understand the organizing process by identifying the basic choices available and observing how each operates. But first, we must note that some forms of organization do not comply with all the management principles listed above. In addition, the internal organization of most large business firms tends to include characteristics of several different types. Therefore, in studying the basic of organization, remember that the organization of a specific firm must be adjusted to meet its particular needs and circumstances.

Authority Matches Responsibility

In a large firm, every position is assigned specific responsibilities. This principle means that the authority needed to fulfill those responsibilities must be clearly established. Authority begins with the president and is delegated to vice presidents and to subordinates throughout the organization until it reaches supervisors at the lowest level. No firm can operate without such delegation of authority. This principle merely points out that enough authority must be delegated - and clearly - to accomplish the tasks assigned.

Unity of Objective

Every department, division, and employee of a company should be directed toward the achievement of clear objectives. Only in this way can effective teamwork result. As we have noted, individual employees may have different personal objectives from those of the company. Even so, it is important that all employees know the company's goals so that their combined efforts may be directed toward accomplishing them.

Division of Labor

This concept means simple that each worker concentrates on a single small area of production-or a single function. The objective is always increased efficiency through increased production. Early society found that it was more efficient for one person to perform a single function than for each person to try to do everything; thus they had specialists such as blacksmiths, weavers, potters, and candlemakers. Such specialization may be by trade (plumbers, electricians, mechanics or painters) or by operation (carburetor installer on an automobile assembly line).
          The ancient bucket brigade of the fire departments proved that more water got on the fire when the buckets were passed along the line than when each person went from the well to the fire with a bucket. Adam Smith espoused the case for division of labor in his Wealth of Nations in 1776. His experiments showed that production increased in a factory when division of labor was established. Today much routine work has been mechanized, but the principle of division of labor remains important.

Minimal Levels of Authority

Each additional level of managers in a firm results in extra expenses, extends the lines of communication, and may bring confusion. Therefore, the levels of authority should be limited to the fewest possible to accomplish the goals of a specific firm. Some firms require many management levels to achieve their objectives, while others operate with only a few levels of authority.
          A centralized organization is one in which most authority and responsibility belong to top management. In such a firm, managers delegate little authority or responsibility, because top executives believe they can produce the most efficient results by holding tight reins on the entire firm. This type of centralized firm has become known as a toll organization; it has many levels of management and very narrow spans of control.
          In a decentralized organization, much authority is delegated to officers, managers, and supervisors throughout the firm. Authority may be delegated in all areas of operations: operation, procurement, personnel, financing, and marketing. In such a firm, middle managers are authorized to make many of the decisions that only top managers can make in a centralized organization. This frees top managers from administrative details and allows them more time for other high-level duties. Decentralized organizations are also known as flat organizations; they have fewer levels of management and much wider spans of control.

Span of Control

This principle recognizes that there is a limit to the number of persons or positions that one supervisor should direct. That number will vary with the type of work being supervised. There is no single "right" limit to cover all positions, and there is no uniformity among all firms. In upper-management positions, the span of control is usually limited to include only six or eight subordinates; but in routine manufacturing operations, one supervisor may direct the activities of many more employees.

Unity of Command

This principle suggest that no one in an organization should have more than one supervisor. This is important for it minimizes confusion and frustration for the supervisor, and it enables each employee to have a single supervisor who handles all the employee's relations with the firm.

Management Principles That Apply to Organizing

          Probably no aspect of business better illustrates the time-tested principles of management than does good organization. You will hear much more about management principles if you take advanced business courses, but now we shall examine the principles that apply to the organizing process.

Organizing Plan

          The final product of the organizing is called an organization plan. It should accomplish four things:

1.   Divide the entire firm into manageable departments.
2.   Establish authority for each task assigned.
3.   Properly decentralize the management work.
4.   Provide an overall structure for the entire organization.

          The final organization plan may divide the firm into subunits according to functions, processes, geographical areas, products, or customers. Most important, it must make the authority and responsibility clear to those who perform the assigned tasks. We should note that it's easier to describe the organizing process, as we have just done, than it is to organize a specific firm in actual practice. The process of organizing a business firm is not easy or simple. Best result are achieved through a knowledge of sound and accepted principles of business management. Let's look at some of those principles now.

The Process of Organizing

The purpose of organizing is to develop a structure of tasks and authority that brings about the most efficient performance of a company's entire operations. What is involved in this process? How is it accomplished?
          Two things are necessary for successful organizing is a full understanding of the functions of management-planning, organizing, directing, and controlling. This enables the organizers to identify and separate the levels of management that will be needed in the entire firm. Second, the organizers must have complete knowledge about each task to be performed. This allows them to divided each task into its basic parts so that the least amount of effort is required to accomplish them.
         Organizers usually begin with the lowest-level positions in the firm and then work their way up. Each job or task is divided into manageable parts, and then the supervision of these jobs is assigned so that everything can be directed and controlled properly. Supervisors at this level must, in turn, report to the next-higher level of management. Thus, each level of managers is responsible for the performance of employees under them, and each level is held accountable by the next-higher level of management, to which they report.
          A basic assumption throughout the organizing process is that the higher the position of employees, the greater are their qualifications and responsibilities. The result is an internal organization that provides a manager or supervisor for each person in the firm, and there are clear lines of authority throughout.

Simple Versus Complex Organizations

          The basic nature of a business firm affects the complexity of its internal organization. A fairly large factory making only a few products may need only one chief executive and several managers to head its manufacturing, marketing, and financial divisions. The firm can rely on supervisors to direct its factory operations. Similarly a large drugstore needs only one manager and some well-trained department heads to supervise the employees within their departments. But as a firm becomes larger, it usually also becomes more complex and more difficult to manage. It is the internal organization that must adjust to meet these challenges.
          Many things may necessitate special arrangements in the internal organization of a business firm. Sometimes the need is basic. Such as dividing areas of research within a laboratory to meet safety standards, or making a change to settle conflicts among employees. Usually, though, a firm makes adjustments to resolve one of the following complications of growth:

•   Expanded markets
•   A need to decentralize the firm
•   Multiplant manufacturing
•   Special projects
•   A need for specialists in certain areas
•   Internal operations
•   Technical production processes
•   A need to delegate authority and save executive' time
•   Special jobs, titles, or divisions of the company's operations

Control, Too, Never Ends

         It's always pleasant when those in charge of the controlling function can report to top management, "All is well: all goals have been achieved." But such a report is likely to be the exception, not the rule, in today's dynamic business world. And even if such reports were common, that would not eliminate the need for control. Like the other basic functions of management, controlling the organization's efforts is an ongoing requirement. It never ends. In a sense, that's what business is all about, and what make it exciting: controlling the known and the unknowns to accomplish a purpose.

Preconditions for Effective Control

          From the above examples, you can see that the controlling function keeps many managers busy. But that's not enough. Unless it is effective, the controlling function serves no purpose (just as worrying about grades-in itself-does nothing to raise them). And for the controlling function to be effective, at least three organizational arrangements, or preconditions, are necessary:

1.)   Standards of performance must be established in advance. Actual results are measured against established standards. These must be determined for every phase of a firm's operations-not only for production schedules, but also for sales, purchasing, finance, accounting, and personnel. The importance of establishing sound, useful standards cannot be over-emphasized.

2.)   A system for collecting data about performance must be established. Information about performance (called feedback) enables managers to make evaluations and accomplish their controlling function. Unless they have complete, carefully prepared data, the controlling function cannot be performed properly.

3.)   Managers must have authority to initiate corrective action when it is found necessary. When evaluation of performance shows that standards have not been met, managers must find out why, and they may have to suggest corrective action. This could require changes in policies affecting personnel, prices, sources of raw materials, production methods, equipment, packaging, sales territories, or many other things. To perform the controlling function effectively, managers must have the authority and responsibility to take action that corrects the problems.

Corrective Action

          By our definition, part of the controlling function involves the application of corrective action when goals have not been met. Here are four examples of situations that may call for corrective action:

1.)   A production schedule specifies that 800 units of a product must be completed each month, but actual production last month was only 725 units. Managers must determine the reason for the shortage. Were products rejected because quality wasn't controlled? If so, why? Is new equipment needed? Are employee' working method at fault?

2.)   The purchasing department exceeded its budget for the month by 10 percent. Why? Can be situation be explained? Should the explanation be accepted, or is corrective action needed to ensure that this does not happen again?

3.)   A company's current financial position reveals an acute shortage. How did this happen? Is it dangerous? What can be done to improved the situation and avoid problems within business circles? What financial resources are available to help?

4.)   Sales volume represented only 22 percent of the total market, when the objective was set at 30 percent. Managers must determine why. Can the planned goal still be reached? How? Or should the goal be charged?

Controlling Defined

          Controlling is evaluating performance to see whether objectives are being met, and the application of corrective action if they are not. Managers at all levels of the organization are responsible for controlling and some spend all their time doing that.

Controlling

Our first three management functions have planned, organized, and directing the efforts of the organization. The fourth function, controlling, then measures and evaluates the reult.

Leadership

          This leadership key aspects of directing may, in fact, be considered a motivating device itself. Good leaders earn subordinates' aspect and have little trouble in getting them to follow instructions. They do this by displaying such qualities as an ability to do the job, a pleasant personality, human concern and understanding, fairness, an ability to communicate, and loyalty to the company.
          We can easily distinguish types of leadership by the degrees of autocracy used. When an army sergeant gives an order to a private, complete autocracy prevails. The sergeant may or may not have the other qualities of leadership we noted above. When leadership authority is exercised in a manner which reflects concern for the individual, industry finds that better results can be achieved. More democratic leadership provides for group participation in key decisions affecting employees duties. Such participation may be overdone.
          In directing professional people, more democracy in leadership is usually essential. Leadership may also be exercised by having the leader operate essentially in a resource capacity - to answer questions or help with specific problems. This would be particularly applicable in projects of the arts, literature, or research projects for industry.

Motivation

          Motivation is the process of bringing forth the best efforts of subordinates in accomplishing group assignments. Recent business history has shown that wages alone do not accomplish this goal. In the past, workers valued their jobs more because of their need for income, and wages were more effective as a motivating device. But today's society is relatively well-off, and employees (and their unions) have made other benefits of work an important factor in motivation. Thus, besides wages, employees today are motivated by such fringe benefits as pleasant working conditions, reasonable work assignments, supervisory training programs, health, insurance and retirement policies, vacation arrangements, promotion policies, and participants in decision making.
          Many ideas for motivating employees have been developed by non-business people, particularly psychologists and other social scientist. We shall examine some of their ideas, but it should be noted here that the decreasing productivity of employees in recent business history has been a matter of great concern to business leaders. More and more managers and management theorists are leaning toward task-oriented management, which stresses production results rather than the assurance that every employee will be a well-adjusted human being. According to this view, supervisors should exercise their authority diplomatically rather than only trying to be popular  in all their dealings with subordinates.
          Probably, there can be no final best way to motivate employees because times and people's needs change. Still, at least one motivator seems to apply most of the time: respect for supervisors. Employees prefer a personable, serious, task-oriented supervisor who applies rules uniformly to everyone, rather than a supervisor who is always trying to be popular and who applies rules inconsistently. This brings us to the matter of leadership.

Two Aspects of Directing

          The directing function of management is sometimes called human relations because it involves principles of human behavior, leadership. and motivation. Many advanced college are devoted to the directing, and they all examine two well-established aspects of directing: motivation and leadership.

Directing Defined

          Directing is accomplishing work tasks by guiding the efforts of subordinates. This management function consists of assigning work, communicating procedures, issuing orders, and maintaining the quality of work. The purpose of directing is to ensure that the objectives of the department of group will be achieved. Thus, directing is done by managers at all three levels. However, in large organizations, supervisory managers perform most of the directing function, since a majority of employees are organized under their level of management. In fact, directing activities take up most of the supervisory managers' time. Middle managers spend much of their time in directing, too, but fever employees are organized under them. Top managers direct only the few subordinates who report to them personally.

Directing

After planning and organizing an operation, managers, must direct the efforts of others to see that the job gets done.

Which Managers Organize?

          There are no rules for assigning the work of organizing. In a small firm, the owner may perform all functions of management, including organizing. In large firm, all managers may contribute to the organizing function in some way, usually, top managers of a new firm arrange the outline of its formal organization and determine the key upper-level positions. Middle managers often organize the formal structure of their assigned departments or divisions. For example, the head of the purchasing department is usually best qualified to organize employees and procedures in a way that will meet the firm's needs for material resources. Similarly, middle managers running the personnel department are best prepared to make many staffing decisions, although supervisory management helps to organize staffing when it involves on-the-job training. Supervisors also contribute by making evaluations of employees and procedures, which may lead to changes in the firm's overall structure.
          There  are many ways to assign responsibility and authority when organizing a business firm. The organizing process and its various forms in detail.

Organizing Defined

          Organizing is designing a formal structure of tasks and authority in which people and material resources are arranged to carry out plans and objectives. In everyday language, this definition means that the total work of the firm must be divided into its basic parts: conducting research, financing, hiring personnel, buying materials, manufacturing products, marketing, and selling. The parts are then divided into manageable work units. Managers must determine how much material resources and how many people are needed for each work unit, and they must establish a sequence of steps to get the whole job done. These are the basic tasks in the complete organizing function.

Raw Material-producing Industries

FARMS AND RANCHES

These provide our grains and other foodstuffs, milk cotton and cloth-making fibers, fruits and vegetables, rubber, hemp, leather, wool, and cattle and beef.

FOREST

These provide our lumber and other resources for a while variety of associated products, such as paper. Wildlife and game animals provide many raw materials as well as some food products.

MINES

These provide our goal, oil, copper, gold and silver, marble and other stones, ores of many kinds, diamonds, uranium, and even salt and other resources used to manufacture many products for industries and consumers.

WATERS

Our lakes, rivers, and oceans provide fish and other water-grown foods. Beach sand is used for making glass products. Waterfalls and dams in waterways provide hydroelectric power. And our drinking water comes from surfaces water or from drilled wells.

          This list makes it clear that our business world could not exist without its supplies of natural resources. The continued adequate supply of these raw materials is a matter of deep concern to nations and to individual industries. For this reason industries which use large amounts of ores, for example, try to secure the right to use existing mines in the future, just as timber companies seek the right to use our forest. They and our government support reforestation programs to make sure that timber supplies will not run out. In addition, programs to maintain the fertility of farmlands and to encourage the efficient growth of agricultural products are supported by both government and private organizations.
          In this great day of polyester fabrics, recycled paper, and other synthetic products, we must note the importance of raw materials that are produced by chemical processes. Our polyester clothing is made by applying oil by-products to other materials, and chemicals are used to recycle basic paper products. The recycling of aluminum cans is another example of how we reuse raw materials today.
          However, even if we had an unending supply of natural resources, we still would not have the final products we need. Resources must be converted into products through manufacturing processes, the next key segment of the business world

Organizing

In most modern factories a worker does not carry out the entire job of making a finished product. Even in a simple operation like making wheelbarrows, one group of workers forms the bodies, another group attaches the rear braces, another adds the axles, another puts the wheels on, and still another fastens on the handles. And this kind of group effort also goes into the manufacturing of the wheelbarrow's basic parts. It's up to management to organize all these activities into a single effort.

A Continuous Activity

          No modern business can depend for long on past success. New, positive plans are needed at all times, and existing plans must be re-examined often. Good plans must be clearly understood by all flexible enough to meet changing needs and objective in all their parts.
          Planning never ends, because the business world is always changing. Some plans may not be successful because conditions change, or opportunities develop, or there is a need to expand or contract, or laws and regulations may change. Such things may force a firm to change established plans at any time. It is a well-recognized fact in business as in life that the sooner we discover our problems, opportunities, and the need for change, the sooner we can take action. Thus, the search for problems, opportunities, and needs is an essential part of planning. And that never ends.

Which Managers Plan?

          To some degree, planning is the responsibility of managers at all levels. Even so, basic decisions are not made by all managers. Top management carries the responsibility for making most long-range plans. But top management also must approved the yearly short-range budget, as well as other short-range plans.
          Any managers may receive a planning assignment at any time Middle management is responsible for developing most of the short-range plans mentioned above. And supervisory managers contribute to short-range plans for their areas of responsibility by suggesting ways to solve technical problems or by establishing practices and standards. Then, too, any managers or other employee may make suggestions to the firm - through the suggestion box or other established ways; these can make a significant contribution to future planning decisions.

Short-Range Planning

Short-range planning involves setting the guidelines for achieving the firm's objectives. Some short-range plans may be very broad, such as establishing a procedure manual to be followed by all departments in the firm. Operating rules, standard practices, and safety programs are other areas that require short-range planning. And every large firm has at least one short-range plan each year - its budget. Keeping within an approved budget is one measure of the efficiency of management in a department, a branch factory, or the entire organization.

Long-Range Planning

Long-range planning involves decisions about the organization's over all purposes, objectives, and policies. Some business plans many require several years for completion - for example, the acquisition of desired raw material sources, or obtaining a certain increase in sales. Other areas that require long-range planning center on such things as which activities the firm should undertake, which production schedules should be adopted, expansion plans, financial arrangement for achieving objectives, opportunities which the firm is not now pursuing, resources needed to accomplish present or desired goals, marketing strategies, and evaluation of past decisions.

Planning Defined

          Planning is preparing for the future of the firm by establishing objectives and the methods for achieving them. This is done by setting up clear, flexible, consistent, and objective plans for the entire organization. It is important that established plans be known throughout the organization so that all employees can help to achieve the company's goals.
          A company's plans can be long range or short range. Most plans that require several years to achieve are considered long range, but many companies distinguish between long-range and short-range planning by a two-year date for completion.

Planning

It's impossible for managers to organize, direct, or control people's activities until they have a plan, an idea of what they want to accomplish. For the reason, all other activities in a well-managed company must await the determination of overall plans. Otherwise, one group of employees may work against the purposes of another group. It is necessary, then, that we first consider the planning function of management.

The Four Basic Functions of Management

The most generally accepted list of management functions includes four basic activities:

1.  Planning

2.  Organizing

3.  Directing

4.  Controlling

          This is the list of basic management functions that we shall study. However, some business scholars prefer to extend the list to identify separately such activities as staffing, evaluating, motivating, and communicating. While it's true that managers do these things, we believe they are included in our basic list of only four functions. Besides, we must recognize that the four functions are interdependent parts of the total management job, not "islands" unto themselves. With this in mind, we shall study of the four basic management functions.

Supervisory Management

          The third level of management is supervisory management; it is responsible for specific small segments of the organization. As the term suggests, supervisory management includes managers who have the title of supervisory or foreman. Supervisory managers are directly responsible for assigning jobs to specific people, for measuring and evaluating their performance, and for achieving assigned goals. They carry out the plans and procedures established by middle management by working directly with nonmanagement employees.
          In typical large business firms, management is divided into the three levels described above. It should be clear that authority flows from top management down through the organization. However, if your experience with business has been limited to every small firms, you will recognize that in smaller organizations one person may operate at all three levels of management.
          Now let's see what the levels of managers do to accomplish their assignment.

Middle Management

          The second level of management in a business organization is middle management; it is responsible for large segments of the organization and is concerned with specific operations. Middle managers have such titles as department head, plant manager, personnel director, factory superintendent, or production manager. While top management determines broad policies and objectives, middle management develops specific plans and procedures for carrying out those policies. Middle managers are responsible for such things as achieving departmental goals meeting productions schedules, determining personnel requirements for specific operations, selecting needed equipment, operating branch plants or stores, and developing ways to measure and evaluate the performance of the firm's resources.

Top Management

          Top management coordinates efforts at the highest level; it is responsible for the entire organization's activities. In a private business firm, top management usually includes the president, the chairman or chairwoman of the board (if one exists), the chief executive officer, and key vice presidents. These managers make decisions about the firm's policies and long-range plans; they establish procedures for carrying out policies and plans approved by the board of directors; and they make decisions about new operations, products, and expansion plans. These executives also carry out the firm's policies relating to community and government matters.

The Three Levels of Management

Usually, management in large business organizations is divided into at least three levels, as shown in Figure 3-1: top management, middle management, and supervisor management.

How Does Management Accomplish Its Assignment?

          We've said that management involves coordination to direct the efforts of others. But our definition does not say how that coordination is achieved. We shall see that an organization's effort are directed in two ways:

1.  By separating management into three different levels of authority and responsibility.

2.  By separating management into its basic functions to ensure that adequate attention is given to each part of the total job.

          Serious attention to each of these methods will bring an understanding of how management works. Let's investigate.

Who Needs Management?

          It is a popular misconception that only business firms seeking to make a profit need management. This is not true. Our homes, farms, unions, churches, hospitals, charitable organizations, colleges and trade schools, and - yes - even our governments need management. All these organized units of society need to apply management principles to achieve their goals in the best manner.
          Management principles are important in all human activities. We've seen that profit-motivated business firms must be efficient and produce profits in order to survive. For that reason, such firms pay the greatest attention to good management. But all other organizations need management, too. In political organizations, health services, and athletic contest - as well as in business - good management coordinates the best use of human, natural, and capital resources. (Even students will find that applying management principles will increase their efficiency and "profit.")

Directing the Efforts of Others

Our definition of management assumes that there is an organization - any group of people who are seeking an objective. To achieve the organization's goal, management directs the efforts of others involved.         
          In large firms, the managers do not produce raw materials; they do not operate factory equipment or transportation vehicles; they do not produce finished products. Their job is to direct the activities of others in the organization (staff members and hourly employees) in such a manner that the company's objectives are reached.

The 5 M's of Management

          In reading business literature, you may find that the four factors of production are often called the 5 M's management: management, manpower, materials, money, and machinery. This is because one factor -capital- is divided into its two forms, money and machinery.
          Now let's see what management does in coordinating the other factors of production.

The Factors of Production

          Four resources, or factors of production, must be coordinated in any nation or economic system in order to produce goods and services. They are land, labor, capital, and management.

LAND

You learned in the raw materials needed to manufacture products come from the land - from farms and ranches, forests, mines, and waters. There are our natural resources.

LABOR

To convert raw materials into products, we need labor, the skilled and unskilled workers who operate our farms, mines, factories, distribution systems, and retailing activities. Labor is a human resource.

CAPITAL

To produce goods and services, we need capital, which may take the form of money or assets such as machinery, factories, transportation system, and buildings. Such things are our capital resources.

MANAGEMENT

Management, or entrepreneurship, is the factor of production that brings the other three together to produce the goods and services we need and desire. Like labor, management is a human resource

A definition of Management

Defining management is not easy as defining an object like a pencil, a chair, or a wheelbarrow. That's because management is not an object but a process that involves different types of activities in the operation of an organization. There is no exact definition for management, and yet its importance for every business or government organization is recognized by all. Management is the coordination of the factors of production to meet the objectives of the organization.

Summary of Management and Organization of the Business Firms

In seeking an overview of our total business world, we have identified its basic functions as (1) acquiring raw materials, (2) manufacturing these into products, and (3) distributing products to consumers. These are the basic activities involved in providing goods and services needed or desired by people - the basic activities of business.
          We also have seen that many industries, institutions, and professions are needed to perform these basic functions in a way that can support a population of more than 225 million people. We identified and briefly described ten key segments of the business world and showed that they are interdependent. They are all working for the same objective: to provide people with goods and services of all types. With this purpose in mind, employees of the ten key segments of business perform their three basic functions, serving you and all members of society.

Research and Development Programs

          No overview of our business world would be complete without noting the research that propels our extremely technical society. Much research is sponsored by government agencies and grants. Universities also support large research endeavors. Business firms make their contribution to the future by maintaining research laboratories to search for neew materials, new uses of existing materials, new products, solutions to problems, and better ways to serve human needs and desires. The total employment and expenditures involved in business research are vast and growing: we shall examine this key segment of the business world.

Attorneys

The legal profession contributes to the business world by supplying most of our legislators, who set the legal framework of business operations and for us as individuals. Such a framework is essential in a society that operates through a system of laws designed to protect the rights of individuals. Business firms need the same protection. Most large firms have a permanent staff of attorneys working in their legal department, while small businesses retain an attorney on a fee basis or hire one when needed. Most of the laws governing business are now gathered together in the Uniform Commercial Code, but conflicts often require legal settlement. The organization of business firms has many legal implications, a subject explored.

Medical Personnel

The medical profession serves business by maintaining the health and well-being of employees at all levels. The availability of health services within our business firms has reduces injuries and illness among employees. For example, in 1976 the medical profession forecast the danger of a swine flu epidemic, which led the federal government to support a vast inoculation program. Many health and safety regulations in industry can also be credited to the efforts of medical personnel on the job.

Accountants

Accountants are indispensable to the business world. They keep track of the events of business, and they provide the reports needed to manage daily operations. Government regulations and taxation requirements have increased the demand for accountants in recent years. We shall look more closely more closely at accounting for business.

Engineers

Various types of engineers are essential to the development and maintenance of the business world. Design engineers provide the foundations for our products, civil engineers design our highways and other construction, architectural engineers design our buildings and homes, aeronautical engineers plan and maintain our space industry and air lines. Engineers head production lines and distribution systems. Mechanical engineers keep the industrial plants operating. Modern engineering schools have majors in each of these fields. The total concepts of engineering is fundamental to our business world in so many ways.

Product Distribution Systems

          As products move from factories to retail stores, they follow various routes called channels of distribution. We already noted that our transportation system is essential in distributing products. It's easy to see that factories must move products to wholesalers, who move them to retailers, who move them to final consumers. This is a well-known channel of distribution. But there are also many other intermediaries, or middlemen, involved in the distribution process for particular products. Some take title to merchandise, while others perform the distribution function without actually purchasing products. Some distributors supply services to retailers, while others supply only products. The millions of retailers in our country look to these sources to buy their products. They compare the products, prices, services, and quality of suppliers in the distribution system. We shall investigate the details of this process.

The Insurance Industry

          By this point the complexity and interrelatedness of the business world must be clear to you. To protect themselves against the many risks of operating in such a world, business firms rely on insurance. Today's insurance industry has assets that total billions of dollars--an amount so significant that society has instituted government regulation of the insurance industry's investments and financial reserves.
          Total employment in the insurance industry is now approaching 2 million people. But contrary to popular belief, only about one-third of these employees are salespeople. The companies that sell insurance maybe stock companies (owned by stockholders) or mutual companies (owned by policyholders). They offer property insurance, automobile insurance, public liability insurance, life insurance, health insurance, marine insurance, fidelity bonds (to protect business against dishonesty of employees), and surety bonds (to ensure performance of contracts). A complete description of the operations of insurance companies would require several textbooks, but we shall review the highlights of this industry.

Education Institutions and Professional Training Programs

          The business would we are describing could not be operated by primitive peoples. It demands the talents and dedication of millions of skilled employees. Many workers obtain their skills through training on the job, but the business world also needs thousands of professionally trained engineers, accountants, medical personnel, attorneys, and professors. These are not found easily. Business must depend on our colleges and universities, training institutes, technical schools, and trade schools to provide employees who can make the business world function. The professions are constantly developing through new research, laws, techniques, and experience. It is the responsibility of professors in our educational institutions to keep abreast of such developments and to include them in the training of new professional employees. Let's consider some of the contributions that the professions make your business.

Basic Functions of the Business World

Defined business as all those activities involved in providing the goods and services needed by people: In order to provide goods and services, businesses must first acquire raw materials; then use them to manufacture products; and then distribute products to consumers who desire them. Thus, it's clear that the most basic functions of business are:

1.  Acquiring raw materials
2.  Manufacturing raw materials into products
3.  Distributing products to consumers

          Some examples will illustrate these three basic functions of business. For instance, before we can buy a pair of tennis shorts, raw material - either natural or synthetic - have to be acquired; the raw materials have to be manufactured first into cloth and then into tennis shorts; and then the shorts have to be distributed to our local stores. Or consider automobiles. Before we can buy one from our local dealer, raw materials must be gathered and manufactured into steel, aluminum, plastic, glass, and so on; then these materials must be manufactured into an automobile; and then completed car must be shipped to local dealers.
          This analysis of the basic functions of business applies to services as well as to material products. For example, the raw material that produces doctors, engineers, lawyers, and accountants is their education; they convert that education into services by opening offices to the public; and from those offices they distribute their services to those who need or desire them.
          These examples show that the production of people or services is not necessarily all done by a single firm. Cloth may be manufactured by one firm and then sold to another firm that manufactures tennis shorts. Automobile companies buy finished steel and other products from manufacturers that have already converted raw materials, such as basic ore, into usable products. And even the services of a doctor require a series of steps - from one school to another, from one area of training to the next - until the final service is "manufactured" and made available to patients. In all these examples, the three basic functions of business are carried on until a final product is made and is delivered to consumers.
          But the basic functions don't tell the whole story. Even though every type of business can be identified with achieving the main goal of providing goods and services needed or desired by people, we still must identify the key segments of the business word in order to get an overview of its total operation.

Key Segments of the Business World

Our total business world is made up of many different industries, institutions, and professions. By performing the three basic functions of business, these many parts of the business world provide the goods and services we need. For our purposes, we can divide the total business world into ten key segments:

• Raw material-producing industries
• Manufacturing and construction industries
• The transportation industry

                Number of Employees by Industry

______________________________________________

Industry                 Number of Employees (in thousands)
______________________________________________

Raw material Mining                                           700.0

Manufacturing

     Durables goods

          Ordinance and accessories                            157.0

          Lumber and wood products                           645.5

          Furniture and fixtures                                   528.8

          Stone, clay, and glass products                     649.7

          Primary and fabricated metals                    2,691.6

          Machinery, electrical, and transportation

               equipment                                           6,114.3

          Instruments and related products                  536.3

     Nondurable goods

          Food and kindred products                         1,663.0

          Tobacco                                                        69.2
          Textile and

               apparel products                                  2,250.3

          Paper and allied products                              700.1

          Printing and publishing                               1,125.6

          Chemicals and allied products                     1,058.7

          Petroleum and coal                                       208.9

          Rubber and plastic products                           686.6

          Leather and leather products                         256.5

Construction

     Transportation

          Railroads, passenger transit, trucks, air, etc.          

          air, etc.                                                      3,024.7  
     Banking and financial market services                1,547.7

     Real estate                                                         853.2

     Product distribution services

          Wholesale trade

               Motor vehicles, drugs, hardware, etc.       4,454.0

          Retail trade

               Department, furniture, food stores, eating

                    and drinking places, etc.                   14,111.0

     Public utilities and other power industries               748.8

     Communications                                                1,182.9

     Insurance industry                                             1,543.6

     Educational institutions and professional

          training programs                                         1,350.8

     Research and development programs                     170.0

     Services

          Hotel/other loading places                                 974.6

          Laundries/dry cleaning plants                            343.2

          Advertising                                                      137.8

          Motion pictures                                                190.3

          Medical/health services                                  4,886.9

          Legal                                                               421.7

          Engineering/architecture                                   456.3

_________________________________________________

• Banking and financial market services
• Distribution systems
• Public utilities and other power industries
• The communications industries
• The insurance industry
• Educational institutions and professional training programs
• Research and development programs

These ten key segments of the business world are dependent on each other in performing the basic functions of business. The rest of this chapter describes each of the key segments to provide an overview of our total business world.

Business needs all kinds of raw materials in order to provide the products needed to satisfy our demands. The following list summarizes our sources of raw materials and identifies how they are used.

The Communications Industry

          The extent of the commnications industry in the United States is a modren phenomenon; it includes newspapers, television, radioo, telephone and telegraph services, magazines, the Postal Service, private postal companies, duplicating equipment, and any other means of conveying messages.
          To appreciate the importance o our communications industry we need only ask ourselves how often we use the telephone, watch television or listen to radio, read a newspaper or magazine, go to a movie or concert, notice an advertisement, or prepare messages for distribution to others. Can you imagine the business world operating without the U.S mail or the telephone? The American Telephone and Telegraph Company is considered a public utility because it is subject to regulation by the various states and the federal government. All other communications firms are private companies, except the government Postal Service. The huge employment provided by these various communications firms is obvious.
          The vast entertainment industry comprises many individual firms as well as individual performers and is generally considered a communications medium. Although its services represent the satisfaction of a demanded service. It is not normally considered essential to the basic needs of most people. It is often used, however, to pursue business objectives by other firms.
          It is obvious that this tremendous communications industry has many facets. Its services are essential to the modern business world. Communications cuts across all facets of the business community and affects the internal operations of each individual firm.