Introduction to Business s3

CHAPTER 5

MANAGEMENT FUNCTIONS AND DECISION MAKING

MANAGEMENT The process of achieving the organisation’s aims through the activities of planning, organising, staffing, directing and controlling.

In the achievement of these objectives, businesses classify their managers by level according to whether they are top management, middle management or first line management. This forms the management pyramid of the organisation.

THE MANAGEMENT PYRAMID

Board of Directors President TOP MANAGEMENT Executive Vice-President Vice-Presidents

Department Heads MIDDLE MANAGEMENT Plant Manager Plant Superintendent

LOWER MANAGEMENT Supervisors Foremen

The management pyramid illustrates the level of management in an organisation and reflects the fact that there are fewer managers at each successive level in an organisation.

Top managers spend most of their time in planning for the organisation and setting company objectives. It is the top management’s job to determine what products (goods and services) to pro - vide the market with, how to market these and how to compete in its field.

Middle managers, on the other hand, handle a wide range of managerial tasks. They take these objectives and translate them into specific projects and first-line supervisors (Lower Management) then spend most of their time actually directing and controlling the employees who work on these projects.

THE MANAGEMENT PROCESS

The management process consists of the basic functions of planning, organising, staffing, directing and controlling.

PLANNING is the process of setting goals and deciding on the methods of achieving them. Individuals and organisations both need to plan. Whether we plan for the week- end, a summer vacation, and a move in our career, or a new marketing program, planning is the basic process we refer to, to pinpoint our goals and determine how to achieve them. Planning is every manager’s job. Before managers can organise, lead, or control, they must make the plans that give purpose and direction to the organisation; deciding on; what needs to be done, when, where, and how it should it be done, who is to do it, what will it cost, and how long will it take.

The need for planning exists at all levels of management and especially at higher levels, where it has the greatest potential impact on organisation’s success. Upper-level managers generally de- vote most of their planning to well into future and the strategies of the entire organisation. Man- agers at lower levels plan mainly for their own units and for shorter periods.

Plans have many functions in a firm. They provide the objectives to be met by plans at lower lev - el; they provide the means for achieving the objectives set in the plans of the next higher level; they serve as means for communication among organisational members.

There are six main steps in the planning process:

1) Develop forecasts and basic planning assumptions - What will business be like next year, what changes and developments are competitors aiming for, will our firm require increase in its budgets.

2) Define specific objectives – What goal are we aiming for to increase our market share? Will we need additional people, more promotion? Shall we spend the money on upgrading of our assets or buy new equipment to meet our goal? These establish targets for both short and long term.

3) Develop alternative course of action – Try other means and use of resources to reach the same goal as your competitors. Build a list of possible courses of action that can lead you to the your firms goals and the limits you have to live within.

4) Evaluate your alternatives – Measure each alternatives pro’s and con’s in order to choose the best to suit the situation with the least adverse effect.

5) Decide and implement your course of action – Review and evaluate your alternatives and take the course of action, which seems to be the best for your objectives and place it in the hands of those who will carry it out.

6) Follow up – Continuously monitor the progress to make sure that the implemented course of action is leading to the achievement of the objective.

There are two main types of plans. Strategic plans are designed to meet the broad objectives of the firm, to implement the mission that provides the unique reasons for the firm’s existence. Oper- ational plans provide details as to how the strategic plans will be accomplished.

STRATEGIC PLANNING Strategy can be defined from two different perspective’s: from the perspective of what a firm intends to do, and also from the perspective of what a firm eventually does, whether or not its actions were originally intended.

Most firms now recognise the importance of strategic planning to their long-range growth and health. Managers have found that by specifically defining the missions of their firms, they are better able to give them direction and focus their activities. Consequently, firms function better as a result and become more responsive to a changing environment. It is one of the main duties of top management to prepare the strategic plan of the firm.

Strategic planning is the process of developing a broad plan for how a business is going to compete in its industry, what its goals should be, and what policies will be needed to achieve these goals. It focuses on questions such as: “How diversified should our firm be?” and “How should we distinguish ourselves from our competitors?” The middle management is involved in both prepa-

58 rations of the strategic and the operational (tactical) plan, spending some of their time to provide the top management with data they need to set the strategic plan and the operational plan.

Strategic Plan of Koç Holding For the year 2000

Turkish Daily News February, 2000

OPERATIONAL PLANNING (or tactical planning) is the process of formulating short-term plans for implementing the firm's overall strategic plan. Operational plan is usually made for a term of one year to fulfill the objective set forth by the management.

Setting goals or objectives is the heart of the planning process. An objective is the specific achievement to be attained at some future date.

Management by objectives (MBO) is a technique that encourages the superiors to jointly set the subordinates’ goals and periodically assess progress towards these goals. The MBO process consists of 5 steps: 1) Set the firm's goals – review firm’s strategic and operational plan.

2) Set departmental goals – together with department heads and superiors. 3 3) Discuss departmental goals – with the subordinates to develop their own goals. 4 4) Set individual goals – of the subordinate and assign a timetable for its accomplish- ment.

5) Feedback – have periodic meetings to review, monitor and analyse progress in subordinates goals.

ORGANIZING is the process of arranging the resources of the firm in such a way that its activities systematically contribute to the firm's goals.

STAFFING is the process of recruiting, selecting, training, appraising and developing employees.

DIRECTING is the process of providing the motivation and leadership that is necessary for ensuring that the firm’s employees do their jobs and accomplish their goals.

CONTROLLING is the task of ensuring that activities are providing the planned results.

59 However, not all deviations from the standard are brought to the attention of the management. Management by exception is the principle that only significant deviations, or exceptions, from standards should be brought to the manager’s attention.

MANAGERIAL SKILLS

Just as certain skills are needed in every occupation, it should come to no surprise that managers also need certain skills. Managerial skills are categories of capabilities needed by all managers at all levels of an organisation.

The basic managerial skills are:

 CONCEPTUAL (kavram) SKILLS This enables the manager to see the organisation as a whole, with parts that interact and depend on one another. The firm must also interact with outsiders such as customers and competitors

 INTERPERSONAL or PEOPLE (insani) SKILLS This skill is required in giving the managers the ability to lead, influence, supervise, and control people at all levels. People skills are human relation skills.

 TECHNICAL (teknik) SKILLS Involves the manager's ability to understand and use techniques, methods, equipment and procedures. This skill is most important by the lower level manager and less important as a manager moves up, leaving its place to conceptual and interpersonal skills.

 EMOTIONAL (duygusal) SKILLS Managing a group of people involves times and situations that emotionally effect the manager. Emotional skill is the ability to be stimulated by emotional and interpersonal crisis rather than exhausted or wrung out by them.

 ANALYTICAL (tahlil, araş t ı rma) SKILLS The manager’s main duty is analysing situations and making decisions. The ability to identify, analyse, and solve problems under conditions of incomplete information and uncertainty makes it more important for the managers.

 THE MOTIVATION TO MANAGE The leadership characteristic that involves giving employees a reason to do the job and to put forth their best performance. One reason some people are successful managers is that they have that motivation to manage in them. These people also have what it takes to have posi- tive relationship with their superiors.

DECISION MAKING

There are two basic types of decisions:

Routine decision is a decision that is faced with frequently, over and over again. When to pay the corporate tax, where to purchase the stationary for the firm, how to process the leaves of the employees are few examples.

Non-routine decision is one that doesn’t occur often and cannot be planned in advance. Sud- den and unexpected natural disaster as witnessed last august, economic crisis which came about in February of 2001 in Turkey, new tax being im- posed by the government, competitors starting a new campaign, etc.

Managers are expected to set up policies to handle the routine decisions. A policy is a rule that shows the employee how to act when a particular situation arises.

60 The DECISION MAKING PROCESS has seven basic steps that is followed through to make a decision:

1. Recognising a problem or opportunity – The problem, or opportunity, has to be recognised a before any action can be taken, to tackle it. First the problem (or opportunity) should be defined and then decided whether something will be done about it.

2. Gathering information – Discussing the matter with the company personnel and outsiders who might have views on the subject. Previously collected company data and other sources such as government files and will also be helpful.

3. Developing and list alternative courses of action – Find ways of looking at the opportunity or solving the problem. There must be more than one way of doing things.

4. Evaluate alternatives – Analysing the alternatives; the advantages and disadvantages of each, to reach the best course for our business.

5. Choosing the best alternative – Following an evaluation of all alternatives, choose the most beneficial alternative.

6. Implementing the decision – Put the decision into action.

7. Evaluate and follow up the decision – Follow-up the activities to see if the decision made is working out as we have foreseen it.

8. Implement changes - we, as the decision-maker, must put into force any changes and amendments we think are necessary, for the decision to be beneficial to our activity.

The new era represents great challenges to the managers which leads them to be able to make fast business decisions. Competition is getting fiercer every day, and to get a piece of the busi - ness is becoming a challenge. If a manager takes time to think things over he will loose the busi - ness to someone else. A good manager is one that makes good decisions and keeps his mind open to developments, evaluating the advantages and disadvantages of an action very carefully.

MANAGING TODAY

With the new millenium, and surely since the second half of 90’s, managers are face to face with new challenges that bring more exitement to the business. The new managers are especially fac- ing the fact that they now have to think globally since more and more firms are operating beyond the boundries of their own country. This is especially true in the hospitality industry with the operation of multinational hotels and vacation sites.

The Global Manager Growth of business opportunities globally leads the businesses to spread beyond the boundaries of the countries and this is also effecting the small business firms, which have to open their attention to the world. In the coming years the managers will have to start thinking globally. Until recently managers were rather nearsighted. “What was good for my father is good enough for me” philosophy is long gone.

Managing Service Quality Although the public notices the presence and operation production (manufacturing) firms, they constitute the majority of the businesses in all countries. These in- clude industry sectors such as hospitality, communication, transportation, retail trade, finance, banking, insurance, education and personal services.

Managing service firms present some special challenges in the area of total quality management (TQM). Most important is the fact that service firms such as hospitals, hotels and accounting firms depend heavily on front-line employees. Employees who have direct contact with the customers.

61 The New Manager The new manager are managers who push more decision making down to their subordinates and who are facilitators and team builders. This leads to a new concept; em- powerment; giving more authority to employees to make decisions themselves, without check- ing first with higher levels of management. Rapid changes, increased competition, and the need to get closer to the customer have created changes in how businesses must be managed. There will be three major changes in the new managers of this era: 1) The management pyramid will continue to be flattened, continuing to cut out layers of managers, 2) Subordinates will be empowered to make decisions, 3) Managers will become facilitators - people who provide direction and guidance in decision making, rather than giving orders to the subordinates.

Managing Diversity This is the process of creating a work environment in which woman, mi- norities and other non-traditional employees can succeed on the job and move up to managerial levels. More and more people want the businesses to have glass ceilings so that employees can see their way to the top and that there are no barriers on the move up.

In the coming years, with the increase in globalisation and national boarders being diminished, the managers will face the problems of managing an increasing divers work force. This will require them to understand the characteristics of the various groups of people and to design the programs to meet their needs.

62 DISCUSSION

1. The managers have to have certain skills in order to do their jobs. In your opinion, why is interpersonal skills of big importance to the managers?

2. Assume you are a Banquet Manager in a hotel. You are asked to prepare a wedding ceremony for a well known family in two days. What leadership style would best help you, and your staff, to motivate them and complete the work in this short time?

3. You are the manager of a holiday village in Marmaris. You have invited the President of Turkey to your establishment at a conference, thinking he will not come anyway. But, his aids call you a month later and tell you that he is comming in three days, with a group of people, for one week, and they will need six of your best, well established houses. You look at your books and all those houses are full and booked for the coming weeks also. What are you going to do ???

KEY WORDS administrative skill conceptual skill contingency leadership crisis management first-line managers forecasing interpersonal skills management operational plans organisational culture organising policy strategic plan strategy tachtical plan technical skills total quality management transformational leader vision (company)

63 A Top Management Success Story

In 1987, Lee IACOCCO, Chairman of Chrysler Corporation earned $ 17,896,000

Same year Paul FIREMAN, Chairman of Footwear Company Reebok International earned 15,424,000,

Lawrence G. RAWL, Chairman of Exxon, earned 5,464,000 1

When Iacocco was called and elected to assist Chrysler as the Chairman of the Board and Chief Executive Officer on September 20, 1979, he took over a company that was at the verge of bankrupcy. Chrysler had lost over $200 million the previous year (1978). The world had lived through one oil crisis already and with the overthrowing of the Shah of Iran early 1979, fear of another oil crisis and prices roaring upwards caused the public to think twice before deciding on buy- ing large cars, which is what Chrysler was most known for. Not being flexible enough to shift its production to small cars, Chrysler applied to the federal government for a loan which was rejected.

Soon as Iacocco came into the scene in September of that year and took control of the company he first manuvered the 1.5 billion dollars in federal loan guarantees. He next obtained an almost equal amount in loans from banks that were already in a risk depending on Chryslers existance. One last move was to convince the United Auto Workers to grant Chrysler sizable major contract concessions, which would allow him to avoid laying off thousands of workers, or cut salaries or de- lay pay increases.2

In accepting this position and a very challendging job that could ruin him for life, Iococco accepred a starting salary of $1 per year, until the company was back on its feet.

In 10 years Chrysler had paid its loan guarantee, bought Lamborghini, American Motor Corporation, and an interest in Maserati. In a short period of 7 years Iococco took a company ready to collapse int bankrupcy and turned int a giant corporation with a bright future. Its stock in the exchange had risen from $3 to over $39.

1 Bussiness Week, May 4, 1987, pp. 53, “Who Made the Most – and Why” 2 Introduction to Business, a contemporary view, 6th Edition, Reinecke, Dessler, Schoel, pp 142