Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras MANAGEMENT CONCEPTS Dr.M. Thenmozhi Professor Department of Management Studies Indian Institute of Technology Madras Chennai 600 036 E-mail: [email protected] Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras A economic systems share the problem that human wants are unlimited while the resources with which to sati sfy them are limited you c onfront this prob lem every day and cope with it by assign ing priorities to your w ants and spending your limited income accordingly. In our economic system, bus iness fi rms try to antici pate what thei r target customers want and produce good s and services that they hope will satisfy these wants. •Business people can profit if they produce thi ngs consumer want, b ut they assume the risk of losing thei r investment if they produce things that co nsumers do not want. •A different situation ex ists in some other type s of economic systems. •Although these economic systems must also cope with unlimited human wants and limited productive resources, •They allow individual cons umers and business people very little voice in coping with the economic problem •Because there are no t enough resources to satisfy ou r unlimited wants we must choose what will and wh at will not be produced. •These choices determine how resources will be used. •Under our economic syst em, independent decisions m ade by consumers and producers guided by the pr ice system determine ho w resources are allocated. •The business firm is th e basic building block fo r the production of goods and services in our system. Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras • M ost economic activity is channeled through business firms, which gather and organize re- source s for production. • T hey do so in the hop e of making a profit. • I n other words, businesses seek to make a profit in our market economy by supplying products that th eir present and potential customers want. Doing so, however, requires that they be willing to assum e the ri sk of going into business • L ets begin with a look at how a market economy works THE BUSI N ESS FIRM • D emand gives a firm an opportunity to provide want sa tisfying goods and servi c es. • S upply results from efforts by busi ne ss fi rms to profit fr om this dem and. • T he business firm is the basic building block for organizing production in our syst em . • T hrough it, resources are organized for production. • L and, labor, and capital must be gathered and co nverted into goods and services that can be sold. • T his business activity must be di rected and guided by the management of busi ness firm s. Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras • B usiness activity requires decision making to produce and sell goods and servi c es. • It requires buying as well as selling. Thus the market plays a role. • H ow resources are used depends basi cally on choices made by firms and consum ers. • B oth are guided by market prices. • T he firm is the key to the markets operation. • It guides the flow of res ources through the marketplac e. The firm is an input- out p ut syst em. • T he inputs are p roductive resources that the firm buys in the marketplace. • T he outputs are the produ cts and services it pr oduces and sells in the marketplace. • B oth input and out put depend on ma rket prices. • R esources and the goods an d services produced from them are all scarce, which is why hey command prices. • T he firms costs of doi ng business (converting res ources from one form to another) must be less than th e sales revenues it receiv es from selling its output if it s to earn a profit. • T o determine how profitable it is, a firm must keep records of its costs IUd sal e s. • T he process of accounting traces the e ffects of resource flows on a firms profits. Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras • T he three major fonts of business ownership are the sole proprietorship, the partnership, made the corporation. • T hese are all forms of private ownersh ip in contrast to public ownership. • P rivate ownershi p is the m o st comm on f orm of ownership in the United states. • B ut there is more public ownership today than there was fifty years ago. • M ost privately owned firm s are sole proprietorships. • M ost of these are small and em ploy only a handful of people. • I n m a ny, the owner is the onl y em ployee. • P artnership is a firm owned by two or more persons who voluntarily go into business together. • T here are several different kinds of partnerships. • C orporation is a creation of government authority, separa te and distinct from its owners. • I t comes into existence when its owners are granted a corporate charter by the in which it is form ed. • O wnership is gained by the purchase of shares of stock. • W hat form of ownership is best depends on the circ umstances in each situation. • n o sense is one form of ownersh ip always better than another. Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras • T he most important ingredient in a firms ability to reac h its goals is the quality of its managers. • T o look at it from an other angle, poor ma nagement is the basic cause of business failures. • B ecause a manager must work through ot hers to accomplish goals, how those others view management is import ant to a manager s effectiveness THE ECHELONS OF MANAGEMENT • T hree levels of management that are found in most medium-sized and large firms-top, middle, and lower management. • I n very small firms, the owner usually is the only manager. • I n very large firms, there may be more than three levels of management THE NATURE OF MANAGEMENT • T he different layers, or leve ls, of management in an organization are called the echelons of management. • M embers of top management work through a greater number of Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras Lower management Middle management Top management Board of directors P r e s i dent Exec ut ive vice-Presiden t vice president De pt He ads Plant Manager Plant Superintendent Supervisors Foreman • E ffective managers view their subordinat es as human assets and strive to create a work environm e nt in which subordinates will put forth their best efforts to reach the firms goals. • D eveloping this human resource is a crucia l task for all managers. • P eople skills are equally impor tant at all echelons of management. Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras UPPER ECHELON MANAGERS MIDDLE –ECHELON MANAGER S LOW E R-ECHELON MANAGER S MANAGEMENT WORK NONMANAGERIAL WORK • T echnical skills are the m anager s ab ility to understand and use t echniques, methods, equipment, and procedures-to unde r- stand how things operate. • T hese skills are most important at the lower management level. • F oremen, for example, must know how to operate th e machinery their subordinates use. • A s a m anager moves up the m anagem e nt hierarchy, technical skills becom e less important relative to the conceptual and people skills. • T echnical skills are the most difficult to transfer from one industry to another. • It is harder for lower-level managers, whose major skill is technical skill, to move from one industry to another th an it is for hi gher-level managers. Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras • T he accompanying tension often stim ulates the flow of creative new ideas. • M anagement, therefore , should try to control conflict, not eliminate it. • A person who perceives an assigned task as important but too demandi ng experiences stress. • P eople who have a high degree of self -confidence will usua lly perceive les s difficulty i n accom p lishi ng a task t han people who lack self-confidence. • S tress on the job can co me from within a person or from his or her work environment. • I nternal sources of stress include low self- c onfidence, poor health, low tolerance for frustration, and a tendency to set unattainab le goals for oneself. • E xamples of external sources are boring and monotonous work, too m uch responsibility. • T oo little time to do the a ssigned work, and poor supervision . • I n recent years ma ny managers and their companies have beco me more aware of the importance of coping with stress and stre ngthening the cardio vascular system. • A pproaches and techniques range from exercise and recreation to biofeedback. • M any fi rm s have empl oyee exercise pl ans. • S ome fi rms have their own gym s and some pay all or part of the cost of i n divi dual me mber sh ip in fitne s s c l in ics . Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras THE FUNCTIONS OF MANAGEM E NT • Managerial work consists of perf orming the function s of ma nage me nt: • P lanni ng • O rganizing, staffing ,d irecting, controlling • D ividing managerial work into functions helps us to under-st and its nature, but, in the real world, managerial work cannot be divided in to component parts. • T hese functions are performed at the same time and are interdependent. PLANNI NG • P lanning means preparing a firm to cope with the future. • It involves setting the firm s objectives over different time p eriods and deciding on the methods of achi evi ng them. • S etting O b jectives • B ecause a firm is an economic and soci al organizati o n, i t s obj ecti ves are bot h economic and social. • A n economic objective of most firms is to produce and sell goods or services that satisfy customer wants at a profit to the firm. • O ther exampl es of ec onomic object ives are: • T o maximize profits to ac hi eve a 15 percent rate of return on investment . • T o increase market share by 10 percent Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras • G reater awareness of the social responsibility of bu siness has led to growing attention to soci a l ob je c t iv es . • Large corporations especia lly recognize that cooperati on in attaining social objectives is in t heir long-run interest. • S ome exam pl es of soci al objecti ves are: • T o provide employment opportunities for the disa dvantaged unemployed, to support the arts • T o improve race relati ons in the community • P lans can be long-range, inte rmediate-range, or short-range. • T hese periods, howev er, are not easily defined in terms of years o r months. • L ong-range planning for Gulf Oil, Xerox Corporation, an d United Airlines may cover a period of 10 or more years. • Long-range planning for a small apparel store may cover a period of six months to one year. • H ow far ahead a firm plans (Its pl anning horizon) depends on the p articular industry a firm is in, it s technology, and its products. • L ong-range planning makes it easier for a firm to adapt to a changing environment. • T he purpose is not to show how well the firm can predic t the future but to gai n insight into the actions the fi rm has to take in the present to hel p ensure that it will in fact, have a future. Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras • T here are basically two different types of planning: strateg ic planning and operational planning • S trategic planning is concerned with a firms long-range fut ure and its overall strategy of growth. • T his is the type of pl anning for which top-leve l managers are responsible. • F or example, RC A Corporations decisi on to introduce Sele ct a Vision was a result of top management s strategic planning. • O perational planning is planning for the day-to-day survival of the firm. • M iddle and lower level managers engage mainly in this type of planning. • F or example, middle and lower-le vel managers planned the sales training program that RC As Select a Vision dist ri butors used to trai n thei r deal e rs salespeople. • R egardless of the time fram e for a particular objective, it is generally accepted that sound Objectives shou ld,be s pecific be measurable • I dentify expected result s,be reachable with reason able effort be expressed within a time fram e for accomplishi ng them • T he person or department responsible for accomplishi ng objectives should have the necessary authori ty to accomplish them in order to prevent buck passing. • R ecently, many managers have been adopting the m anagement by objectives (MHO), or managing by results, approach. • T he manager meets with each subordinate to set his or her objectives. Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras • T he subordinate participa tes in goal setting and, if the objectives are accomplished, the subordi nate is considered to have performed well. • Its the result that counts! MBO OFFERS THE FOLLOWING ADVANTAGES • S ubordi n ates know at the b eginning of a planning period • w hat is expected of them, thereby reducing their uncertainty about • w hat they are suppo sed to accom p lish • S ubordinates often enjoy participating with superiors in deter- mining a method for measurin g their performance • w hich in- c reases th eir m o tivation to reach the objective • S ubordinates are given more oppor tunity to use new approaches to reaching thei r objectives si nce MBO does not pre- d eterm ine the means for reaching objectives • M anagers have more confi dence in future planning and pr edicting results Managers who use the MBO ap proach assu m e th at their subordinates 1. Have higher-level needs which they desire to sa tisfy through their work, 2. They are creative and have ideas and knowledge to br ing to the job 3. They will work harder to accomplis h goals which they help to set. Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras • A mong the potential problems in implementing the MBO approach are 1. Subordinate suspicion that the real purp ose of MBO is to get more work out of them, 2. Desire t o beat t h e syst em by set t ing very mi ni mal obj e ctives to m a ke t hei r performance look good, 3. Desire to please management by setting umealistically high objectives, and 4. Desire to avoid spendi ng time with the boss discussing and writing objectives. • O ther problems may ar ise in integrating the various individuals goals with those of the organization, setting a priority of objectives , and time-scheduling to ac commodate them. DECIDING HOW TO REACH OBJ E CTIVES • I n planning, managers rely on knowledge of past and prese nt conditions in thei r environment. • T hey use this to forecast probable fut ure developments and to plan a course of action in accordance wi th this forecast. • B ecause no one knows fo r sure what the future holds, managers operate under conditions of uncertainty. • T he future, however, is not com p l e tel y uncertai n. • S ome conditions can be more or less ta ken for granted and pro jected into the future, thereby reduci ng the number of planning unknowns.“ Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras • F or example, there is no doubt that 76 million Americans were born during the baby boom years 1946-1964. • T hey now account for about one-third of our population. • F irms that se ll houses, home t appliances, and furniture knew years ago that when these people • R eached their twenties and thirties t hey would be good pro spects as buyers. • B ut those fi rm s could not ha ve predicted as easily t he high interest rates, high inflation, and high unemploy ment of the early 1980s that prevented many of them from buying new houses. • P lanners, therefore, plan in the face of somethin g more than complete uncertai nty and somethi n g l e ss than com p l e te certai nty. • T hey plan under cond itions of risk; • T hey have knowledge for a good guess) about the like lihood of occurrence of some factors, but not all. • P lanning and decision ma king are bound up in a future filled with risk. • T his is why some managers avoid planning. They argu e that it takes them away from doing and accomplishing results. • T hey do not try to foresee problems; they cross those bridges when they come to them. • T his, of course, is very shortsighted. Management Science I Prof. M.Thenmozhi Indian Institute of Technology Madras • U sually there is more than one way to reach an objective, but t here is no sure way of identifying the bes t way . • M ost managers will choose the approach they predict will yield the highest return relative to cost. • T his type of analysis is called cost., benefit analysis THE BUSI N ESS FIRM • I n other words, we set ou t the various plans that could be used to reach an objective. • U nderlying each plan is a set of planning premises , or assumptions about the future. • P robabilities, or odds, ar e assigned to each set of premises to indicate our best guess as to which ones will becom e reality. • E ach plans expected profit along with its probability of success also ar e estimated. DECIDING HOW TO REACH OBJ E CTIVES • T he plan most likely to b chosen is based on the most realistic planning premises and offers the hi ghest return, given the estimated probability of success in carryi ng out the plan. • Organizing • A firm becomes a structured organizati on through the process of organizing. • O rganizing is the managemen t function of relating pe ople, tasks (or activities), and resource s to each
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