Essential Of Management


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Essential Of Management

  1. 1. ESSENTIALS OF MANAGEMENT  The need / scope / meaning & definition / process of management / managerial hierarchy MANAGERIAL FUNCTIONS  Planning / Organizing / Staffing / Directing / Controlling MANAGERIAL SKILLS  Technical / Conceptual / Human TYPES OF MANAGERS  Functional / Specialists / Generalists / Line & Staff managers DECISION MAKING ENVIRONMENT  Open & closed system / decision making under certainty, uncertainty & risk DECISION MAKING TYPES  Structured / unstructured decisions  Programmable / non-programmable  Classical & Administrative Models DECISION MAKING STYLES  Autocratic / Participative / Consultative Essentials of Management An International Perspective Harold Koontz & Heinz Weihrich Lesson 1 Characteristics of the term Organization:  Social unit with a purpose
  2. 2. Characteristics of the term Management  Process of optimum utilization of the resources of the Organization to accomplish its goals Functions of Management  Planning  Organizing  Leading  Controlling  Coordination Characteristics of the term Productivity  A ratio of Output to Input  It can be improved by o Increasing output with same inputs o Decreasing inputs, but maintaining the same output Characteristics of the term Effectiveness:  Accomplishing of Objectives of the Organization Characteristics of the term Efficiency  How Objectives are accomplished.  Is determined by process  Measured against standard time / quantity Management: Science or Art  Practice is called Art
  3. 3.  The Knowledge underlying the Practice is Science  Hence it is both: Science & Art Managerial Hierarchy  The levels of management in the organization  Levels are established to accomplish the organizational goals  As the size of the organization keeps on growing, it gives rise to levels, for all activities to accomplish the organization goals cannot be performed by a single person. Management Process  Process is defined as Value addition  Value addition takes place in core activities Scope of Management:  Scope includes functions, like marketing / operations / human resources / finance Characteristics of excellent enterprise:  Action oriented  Learned about the needs of the customers  Promoted managerial autonomy & entrepreneurship  Achieved productivity, by meetings the needs of its people  Value driven  Focused on business they knew best  Have flexible organization structure with lean staff
  4. 4. Difference between Objectives, Goal & Target  All three are statements.  Objectives are open-ended system. Are set CEO & his team  Goals & Targets are closed ended system  Goals are long term, while Targets are short term. Objectives are converted into goals by the respective Unit Heads. Goals are converted into targets by Department Heads.  Goal is broken down into Targets  
  5. 5. Lesson 2 Planning Characteristics of the term Planning:  Involves: o Selecting Objectives o Evolving Action Plan o To Accomplish them o It Requires  Decision-Making i.e. choosing from alternatives  It is Rational Approach to Accomplish Objectives  Implies Managerial Innovation  Bridges the gap from where we are to where we want to go  Planning & Control go hand in hand Types of Plan:  Objectives / Goals o Purpose for which the Organization exists  Strategies o A long term objective, which gives a competitive advantage to business  Policies o General statements / understanding that guides thinking in decision-making
  6. 6.  Procedures o Plans that establish, a required method of handling future activities  Rules o Spells out specific required action or nonaction allowing no discretion  Programs o Consists of:  Goals / Policies / Procedures / Rules / Task assignment / Steps to be taken / resources to be employed o Necessary to carry out a given course of action o They are ordinarily supported by budget  Budgets o Statement of expected results expressed in numerical terms Steps in Planning:  Being aware of Opportunities o Doing SWOT Analysis  Establishing Objectives o Specifying expected results o Could be long / short term o Gives direction to plans  Developing Premises o Making assumptions about the environment in which the plan is to be carried out
  7. 7.  Determining Alternative Courses o Brain storming ways of reaching the destinations  Evaluating Alternative Courses o Weighing each alternatives pluses & minuses  Selecting a Course o Zeroing down upon the alternative, which will be adopted  Formulating Derivative Plans o Listing the activities to be performed  Numberizing Plans by Budgeting o Estimate the income / expenditure for the entire activities to be performed Characteristics of the term Strategy:  Determining the long-term objectives of the Organization  Adoption of course of action  Allocation of resources to accomplish the long term objectives  It gives competitive advantage to business  It is based on strength of the Organization  It is based on assumptions  Strategies cannot be inconsistent with Value system of the Organization  Used only when there is competition
  8. 8.  Strategies are of two kinds: o Corporate  Further classified into: • Growth o Internal  Through introduction of new product  Increasing market share  Marginal growth o External  Acquisition & Mergers  Breakthrough growth • Stability o Maintaining status quo. o Limited opportunities in environment • Turnaround o No growth o Issue of survival of business o Downsizing is the solution
  9. 9. o Business Unit  Further classified into • Cost leadership o Organization attempts to increase efficiency / cut costs • Differentiation o Product / Services are differentiated o Creating a niche market o Can charge premium price • Focus o Markets are segmented o Only on one segment the organization focuses Premising & Forecasting  Forecasting is anticipating the future  Future is unknown  Hence forecasting is based on assumptions
  10. 10. ORGANIZING  A single individual cannot accomplish organizational goals.  Employees have to cooperate with each other & work in team  For cooperating with each other, every employee must understand one’s role, & how it is interconnected  Designing & maintaining these systems of roles is basically the managerial function of organizing.  For organizational role to exist, & be meaningful, employees must know their objectives, & the activities they have to perform, & have the discretion of defining their roles  To perform the role effectively, needed resources should be provided, & authority with respect to resources & decision making should be highlighted  For the above to take place the organization needs a structure  Structure are department-wise  For every role, there is a level  The structure should be aligned with external environment
  11. 11. STAFFING  Means Recruitment PLUS Selection  Sources of recruitment o Internal o External  Both the sources has its own advantages & disadvantages  In selection care should be seen to match the organization requirement with people requirement. That is matching the organization’s culture with that of the people’s nature.  The organization must understand the needs of its employee, & ensure that the needs are met. If needs are not met, then the employee will not be motivated to work towards the organization goal DIRECTING [LEADERSHIP  Leader is the person who influences others willingly & enthusiastically towards accomplishing long term organization goals.  Leadership is the style of leader  The leadership styles can be either: o Transactional
  12. 12.  Through external motivation influence the followers o Transformation  Through internal motivation influence the followers CONTROLLING  It is measurement & correction of performance in order to make sure that enterprise objectives & plans devised to attain them are being accomplished  Planning & Controlling are closely related  The control process involves the following steps: o Establishing a standard o Measuring the performance against the standard o Correcting the variations  Control classified as: o Feedback  Given after the execution of the plan o Feed-forward  Taken before implementation of the plan MANAGERIAL SKILLS  A manager requires the following skills: o Technical  Knowledge about the job  The executives should have this skill
  13. 13. o Conceptual  Capability to apply knowledge  The functional heads should have this skill o People  Understanding / predicting / motivating the people to perform  The leaders should have this skill TYPES OF MANAGERS  Functional o Has a competency in one of the aspects of management functions like HR / Finance / Marketing  Specialist o Has core competency in one of aspects of the functional management  Generalist o Has a competency in running a business  Line & Staff o Line manager is accountable for results. Example: Production / Marketing. o Their outcomes are measurable
  14. 14. o Staff manager is accountable for quality & timely resources. Example: HR / Finance / Materials / Engineering DECISION MAKING ENVIRONMENT Open & closed system  In a system theory there is an active exchange between internal environment of the organization & external environment  All open system are input-throughput-output mechanisms. Systems take inputs from the inputs from environment in the form of energy, information, money, people, raw materials & so on. They do something to the inputs via throughput, conversion or transformation processes that changes the inputs & they export products to the environment in the form of outputs.  Each of these three system processes must work well if the system is to be effective & survive.  Every system is delineated by a boundary. What is inside a boundary is the system & what is outside is the boundary is the environment. Boundaries of open system are permeable, in that they permit exchange of information, resources & energy between system & environment
  15. 15.  Open systems have purposes & goals. These purposes must align with purposes or needs in the environment. For example the organization’s purposes will be reflected in the outputs & if the environment does not want these outputs, the organization will cease to exist  The law of entropy states that al systems “run down” & disintegrates integrate unless they reverse the entropic process by importing more energy than they use. Organizations achieve negative entropy when they are able to exchange their outputs for enough inputs to keep the system from running down.  Information is important to systems in several ways. Feedback is information from the environment about system performance. System requires two types of feedback: positive & negative. Negative feedback is also known as deviation-correcting feedback  An open system achieves a steady state of against a disruptive force, either internal or external. The basic principle is the preservation of the character of the system.  Also a system tend to get more elaborated, differentiated, specialised & complex over time.; this process is called as “differentiation”. With increased differentiation, increased integration & coordination are necessary.
  16. 16.  Another characteristic of the open system is equinfinality, the principle that there are multiple ways to arrive at a particular outcome or state.  Subsystems exist within larger systems. These subsystems can be arranged into a hierarchy of systems moving from less important to more important.  The characteristics of open systems explain many phenomena, we observe in organizations. o Why do organizations resist change?  A desire to preserve the character of the system: the steady state. o Why does plan “A” fail & fail again then succeed?  Equifinality o Why do organizations become increasingly bureaucratic & complex?  Differentiation, with its attendant integration & coordination. o Why does business go bankrupt?  Inability to create negative entropy. Decision making under
  17. 17. o Certainty,  People are sure about what will happen when they make a decision.  The information available is reliable, & the cause & effect relationships are known. o Uncertainty  Information available is meagre.  Reliability of data is not certain.  Moreover one does not know the impact of different variables. o Risk  Information is incomplete.  To arrive at a decision, one may use an estimate of objective probability example: mathematical models.  Or use subjective probability, based on judgment & experience.  It is important to know the size & nature of the risk involved. DECISION MAKING TYPES  Structured / unstructured decisions o Problems are structured or unstructured
  18. 18.  Structured problems are routine hence decision- making is simple. No discretion is necessary in decision making;  Unstructured problems are complex hence decision- making is more complex. All variables need to be considered. Senior management team makes this type of decisions.  Programmable / non-programmable o Programmed decision is applied to structured or routine problems. o Decision-making is by precedent. o Non-programmed decisions are used for unstructured, novel, & ill-defined situations of non-recurring nature. o Most decisions are neither completely programmed OR nor completely programmed; they are a combination of both.  Classical & Administrative Models o In administrating model, people attempting to reach the goal do so by having a clear understanding of alternatives courses by which goal can be reached under existing circumstances & limitations. They must have the information & the ability to analyze & evaluate the alternatives in light of the goal sought. They must have a desire to come to the best solution by selecting the alternative that most effectively satisfies goal achievement o In classical approach, it is difficult to rely on precedent to operate future. Moreover it is difficult to recognize all the
  19. 19. alternatives that might be followed to reach a goal; this is particularly true when decision making involves opportunities to do something that have not been done before. In most cases not all alternatives can be analyzed. DECISION MAKING STYLES  Autocratic o Decision taken by seniors. Seniors say, & subordinate obey o No involvement of employees o Good strategy, if subordinates are not competent, or if the environment is highly competitive o Employees obey the order out of fear. o Employees will only do what they have been told.  Participative o Decision is taken by involving all the concerned employees. o The best alternative is selected.
  20. 20. o Employees do not resist, for they have taken the decision in consensus  Consultative o The seniors invite suggestions from the subordinates, but there is no guarantee that the suggestion given by subordinates will be implemented. Decision Making Characteristics f the term Decision-Making:  Selection of a course of action  From among alternatives  It is the core of planning Rationality in decision-making  A decision to be effective has to be rational.  But decisions are pertaining to future, which is unpredictable
  21. 21.  So selecting an alternative to reach the goal is difficult in terms of rationality  Moreover all alternatives cannot be analysed  So limitations of time / information / uncertainty limit rationality in decision-making  Rationality also get bound by likes & dislikes, playing it safe, or picking up a course of action that is satisfactory or good enough.  Hence best decision are taken within the limits of rationality & in the light of size & nature of risk involved. Development of alternatives & the limiting factor:  First step in decision making is developing alternatives  Ability to develop alternatives is as important as selecting alternatives  The constraint explained above limit the choice of selecting decision. One must be aware of these limiting factors. Evaluations of alternatives:  Once appropriate alternatives are found, the next step is evaluating them, & selecting the one that will best contribute to the goal.  Following factors should be considered in evaluating of alternatives o Quantitative / Qualitative factors:  In comparing alternatives sometimes numbers become easy [quantitative]
  22. 22.  While comparing, we cannot also forget the qualitative aspects. Do not ignore the intangible factors. Try & give them quantitative dimension o Marginal analysis  It is a technique of comparing additional revenues arising from additional costs  If our objective is maximization of profits, then this factor cannot be ignored o Cost effective analysis  It seeks the best ratio of benefits. It is a variation of marginal analysis Selecting an alternative:  There are three approaches o Experience  Reliance on past experience. Carefully analyse the experience, rather than blindly following it.  But this should not be the exclusive method. o Experimentation  Taking risk, & seeing what happens.
  23. 23.  But it is important to take calculated risk, & not blind risk o Research & analysis  Studying the cause & effect Types of Decisions:  Programmed o Decisions made by precedent o No choice. o Requires objective judgments o Made at lower level  Non-programmed o Requires subjective judgments o Made at senior level Decision making under Certainty, Uncertainty, & Risk taking  In certainty, outcome is predictable. Data are available. Cause & effect relationship is known  In uncertainty, outcome is unknown. Data is limited. No help from past experience  In risk, information is available, but it is incomplete. One estimates the probabilities of the outcome.
  24. 24.  All decisions are combination of the above three types. The proportion may vary. Creativity & Innovation:  Creativity means the capability to develop new ideas. Gives breakthrough benefits  Innovation means continuous improvement in the same idea. It gives marginal benefits  The process of creativity as follows: o Unconscious scanning  Involves absorption of problem.  Problem is vague o Intuition  Thinking through problem  Based on gut level o Insight  Comes, when the thoughts are not focussed on problem. Comes as lightening. Lasts for a short period of time o Logical formulation  Insights need to be tested through logic & experiments. Brainstorming  A technique for facilitating creativity.  The purpose is to find out new & unusual solution to the problem.
  25. 25.  Multiplication of ideas is sought  Rules of brainstorming are: o No ideas to be criticised. o The more radical ideas are, the better o The quantity of idea production is emphasised o The improvement of ideas by others is encouraged.  Acceptance of idea is greater; for it is contributed by the group Limitations of traditional group discussion:  Group members may pursue an idea to the exclusion of other alternatives  Fear of being ridiculed  Lower level of people may be inhibited in expressing their views  Pressure to conform  Need of getting along with others, than the need for exploring creative idea.  Pressure to take decision Characteristics of a creative manager:  Inquisitive  Not satisfied by status quo  They see themselves as different  Do not stick to norms
  26. 26.  It is not a substitute for judgment THE NATURE OF ORGANIZING, ENTREPRENEURING, & RE- ENGINEERING ORGANIZATION:  A formalized, intentional structure of roles or positions
  27. 27. Organizational Roles:  A role to be effective should have: o Verifiable goals o List of activities to be performed o Authority associated with that role; to accomplish the objectives Organizing:  Identification & classification of activities  Grouping of activities necessary to attain goals  Reporting relationship  Coordination of the various activities either horizontal / vertical Types of Organization:  Formal o Intentional structure of roles  Informal o Network of personal & social relations not established by the formal organization; but arising spontaneously as people associate with one another Organizational Division:  The Department
  28. 28. o It designates a distinct area, division, or branch of an organization over which a manager has authority for the performance of specified activities o It is headed by a head. Organization Levels & the Span of Management  We have levels in an organization; for there is a limit to the number of persons a manager can supervise effectively  Span of control means the number of employees a manager can effectively supervise. Organization can have wide or narrow span of control, with its own advantages & disadvantages Organizational Environment for Entrepreneuring & Intrpreneuring  Intrapreneur is a person who focuses on innovation & creativity, & who transforms a dream or an idea into a profitable venture by operating WITHIN the organizational environment  Entrepreneur is a person who does similar things but OUTSIDE the organizational setting Creating an environment  It is the responsibility of the CEO is team to create an environment for effective & efficient accomplishment of organizational goals  The CEO should do the following to create an environment: o Reward employees for taking risk
  29. 29. o Tolerate failures o Provide freedom to pursue ideas Re-engineering the Organization  Means starting over  Has the following aspects: o Fundamental rethinking  Providing new perspective to what is being now currently done o Radical redesign  Radical means reinvention & not modification o Dramatic Results  Improvement is breakthrough, & not marginal o Process  Need for carefully analysing & questioning business process  The process analysis must go beyond operations & must include the analysis & integration of technical system, human systems & the total management process linking the enterprise to the external environment  Downsizing is not the primary purpose
  30. 30. Lesson 8: Organizational Structure: Departmentation Departmentation by enterprise function:  Functionwise o Grouping activities in accordance with functions of an enterprise o Has its own advantages / disadvantages  Territory or Geography o Grouping activities in a given area or territory are grouped & assigned to manager o Useful to large scale firms or other enterprises whose activities are physically or geographically dispersed o However plant may be local in its activities o For example: marketing function is split region-wise o Has its own advantages / disadvantages
  31. 31.  Customer-wise o Activities are grouped together customer-wise o For example: if we take banking industry, then we have Community-city banking; corporate banking,; institutional banking, agricultural banking; etc. o Has its own advantages / disadvantages  Product-wise o Grouping activities product-wise o For example: a Company that manufactures various products Switchgear, Rotating Machines, Transformers, have the following divisions: like Switchgear Division, Rotating Machine Division, & Transformer Division o Has its own advantages / disadvantages  Matrix Organization: o An individual reports functionally to one person, & administratively to another person. o He is located where the administrative head sits. o For example: The HR Head of a unit administratively reports to the Manufacturing Head of the Unit, while functionally reports to Corporate HR Head who sits at Head Office o This happens on the following two occasions:  When the Organization grows in size
  32. 32.  Or the Organization manufactures more than one product at different locations Strategic Business Units [SBUs]  When the Organization having multiple products grows very large, it is broken down into separate units, which operates as a profit centre by itself  To be called an SBU, it should meet the following criteria: o Have its own mission o Have definable groups of competitors o Prepare its own integrative plans o Manage its own resources o Have proper size, neither too large, nor too small  Each SBU is headed by a Head  Has its own advantages & disadvantages Organization Structure for the Global Environment  Organizational structures differ greatly for enterprises operating in the global environment.  The kind of structure depends on a variety of factors such as degree of international orientation & commitment. A company may begin internationalising its operation by simply creating at its headquarters an international department, headed by an export manager. As the company expands its international operations, foreign subsidiaries, & later international divisions
  33. 33. may be established in various countries, reporting to a manager in charge of global operation at headquarters or possibly the CEO.  With additional growth of the international operations, several countries may be grouped into regions such as Africa, Asia, Europe, & South America,. Furthermore, the European division may then be divided into groups of countries for example the European Union [EU] Countries, Non-EU countries, & Eastern European Countries  Example: Organizational Structure at Unilever o Unilever the Anglo-Dutch MNC has top management team consisting of the Chairperson & two Vice Chairpersons. The executive officers are grouped into:  Functional Areas • Finance • Commercial • R&D • HR  Product Groups • Food & Drinks • Detergents • Frozen Products • Chemicals • Personal Products • Agribusiness • Edible Fats & Dairy Products  Geographic Regions
  34. 34. • Europe • East Asia • North America • Latin America • Central Asia The Virtual Organization  The is rather loose concept of a group of independent firms of people that are connected often through information technology  These firms may be suppliers, customers, & even competing companies  The following are the aims of virtual organization: o Gain access to another firm’s competence o Gain flexibility o Reduce risks o Respond rapidly to market needs  Virtual organizations coordinates the activities through the market where each party sells it goods & services  It has own advantages & disadvantages  It has neither organization chart nor a centralized office Choosing the pattern of departmentation  There is no best way of department zing that is applicable to all organizations & all situations.  Managers must determine what is best by looking at the situation they face, the jobs to be done, & the way they should be done, the
  35. 35. people involved & their personalities, the technologies employed in the department, the users being served & other internal & external environmental factors in the situation  Departmentation is not an end in itself but is simply a method of arranging activities to facilitate the accomplishment of objectives  Each method has its own advantages & disadvantages. Selection of a specific departmentation pattern should be done so that organizational & individual objectives can be achieved effectively & efficiently. Accomplishing this goal often requires mixing the forms of departmentation The Lean Modular Organization:  The Company focus on what they can do best & outsource many other tasks, such as Accounting, HR,  It requires maintaining good relationships with your suppliers. Their cooperation must be built on trust, which in turn can be achieved through a long standing relationship  The future organization competing in the global environment needs to be lean & flexible. One such strategy is to leverage its power by focussing on those functions companies can do best, & let the specializing suppliers do the rest Lesson 9 Line / Staff Authority, Empowerment, & Decentralization
  36. 36. Introduction:  Authority relationships whether vertical or horizontal are the factors that make organization possible, facilitate departmental activities, & bring coordination to an enterprise Authority & Power  Authority: o It is the right in a position, & o Through it the right of the person occupying the position o To exercise discretion in making decisions affecting others.  Power: o Ability of individuals or groups to induce or influence the beliefs or actions of other persons or groups o The following are the types of power: o Legitimate  Source is position o Reward  Source is granting or withholding what other wants o Coercive  Source is fear o Expert  Source is knowledge  Empowerment o Having power to make decisions without asking superiors for permission
  37. 37. o Only those who have knowledge & competencies are empowered o Those to whom this power is delegated are responsible for the outcome of their decision Line & Staff Concepts  Line function outcomes are measurable. Their outcome affects the bottom line of the Organization. They process the resources into output  Staff function outcomes are not measurable. They enable the line function to perform effectively. They are accountable for procuring & maintaining the resources Decentralization of Authority  Delegate non-core duties to your subordinates  Delegate only to those who show initiative  Delegate only to those who are knowledgeable  While delegating specify o The limits of power, o The time frame o The monitoring process  State the goal to be accomplished.  Give freedom as to how the goal is to be accomplished  Provide feedback  Delegation should set chain reaction.  If mission accomplished reward the person
  38. 38. Lesson 10 Effective Organizing & Organizational Culture Introduction  Organizing involves developing an intentional structure of roles for effective performance.  Organizing is coordinating the activities of individuals towards the common goal. The critical element in the activity is decision, which takes you towards the goal  The following are the guidelines to make organizing effective o Tailor make your organization structure o Compare the present structure with the standard. This enables the leader to know what changes should be made when possible. o Modify the structure to fit individual capabilities. o Enables you to determine to future personnel needs & training needs o Structure should be flexible, so that it can be changed as & when there is a change in the environment
  39. 39. Guidelines for making staff work effective:  Making the staff understand the authority relationships. Insist that the staff function should sell their recommendations, & not just give advices  Encourage line managers to consult the staff managers who are experts in their area.  Line managers should provide feedback to staff managers the status of the suggestions made by them  The staff managers should provide complete solution to the problems faced by the line managers. They should assist the line manager in implementing the same  Make the staff & line managers’ work as team. Share the credit & blame Guidelines for avoiding conflict by clarifications:  Have organization structure  Define managerial position. State the basic function, & the end result, which the positions is suppose to accomplish  Ensure all the employees understand the structure.  A formal organization structure should take full advantage of the informal organization, & the grapevine Promoting an appropriate organization culture
  40. 40.  The effectiveness of an organization is very much influenced by the organization culture, which affects the way the managerial functions are carried out in the organization  For example: Environment A Functions Environment B Goals are set in an Planning Goals are set with a autocratic manner. great deal of Decision making is participation. centralized Decision making is decentralized Authority is Organizing Authority is centralized decentralized Authority narrowly Authority is broadly defined defined People are selected on Staffing People are selected the basis friendship based on their Training is in a capabilities narrowly defined Training in many speciality functional areas Managers exercise Leading Managers practice directive leadership participative Communication flow leadership is top down Communication flow is in all directions Superiors exercise Controlling Individuals exercise a strict control great deal of self- Focus is on financial control. criteria Focus is on multiple
  41. 41. criteria Defining Culture:  General pattern of behaviour, shared beliefs, & values the members have in common  Can be inferred from what the people say, do, & think within the organizational setting  It is fairly stable, & does not change fast.  Seniors create the climate for the enterprise. Their values influence the direction of the firm.  Value is a permanent belief about what is appropriate & what is not that guides the actions & behaviours of the employees in fulfilling the organization’s aims.  Value driven corporate leaders serve as role model., set the standards of performance, motivate employees, make the company special & are symbol to external environment  Changing the culture of an organization takes a long period of time Lesson 10 Controlling Introduction:
  42. 42.  The managerial function of controlling is the measurement & correction of performance in order to male sure that the enterprise objectives & the plans to devised to attain them are accomplished.  Planning & control are closely related The basic control process:  Involves three steps: o Establish standards  Have criteria for performance  Make sure it is known to the performers o Measure performance against these standards  Assessing performance against these standards o Correcting variations from standards & plans  Is done through training Critical Control Points:  The standards so selected should be critical to the process.  Benchmarking is one of the methods of setting the standards o Performance is compared against the best practices, or against own performance  Following could be the types of standards: o Physical  Non-monetary standards o Cost  Monetary standards o Capital
  43. 43.  Pertains to balance sheet rather than income statement  Example: Return on investment o Revenue  Attaching monetary values to sales o Goals  Specific measurable standards o Strategic plans  Managing the strategic control points to assess whether implementation of strategy is as per the assumptions Control as a Feedback System  With feedback the loop is closed.  Corrective action is easy  Becomes basis for training, & determining the reward system Real time information & control:  It is obtaining real time data on many operations, while it is happening. Feed forward Control  Feedback gives us the status on output  Feedforward gives the status on input.  Following are the requirements: o Identify important input variables o Establish relationship between input variables
  44. 44. o Collect data on input regularly, & put them into the system o Regularly assess the variables of actual input data from planned for inputs, & evaluate the impact on the expected end result o If any deviation take action Requirements for effective controls  Tailor controls to plans & positions o It should reflect the plans they are designed to follow o Tailor it to the positions. Example: what is suitable for VP marketing is not suitable for Salesman o Should reflect the organization structure. It becomes easy to pinpoint the accountability for the execution of the plans  Tailoring controls to individual managers o The way a manager wants it, the control system should be provided in that manner; even if it is complicated  Designing controls to point up exceptions at critical point o It should point the exceptions as well as deviations as & when it occurs  Seeking objectivity of controls o Controls should not be subjective, otherwise performance can be manipulated  Ensuring flexibility of controls o As when the goals change, the control system should also undergo a change  Fitting the control system to the organizational culture
  45. 45. o If there is participative culture do not have tight controls, & vice-a versa.  Achieving economy of controls o It should be worth its cost.  Establishing controls that lead to corrective action o When deviations are pointed out. Corrective action should be possible. Lesson 11 Control Techniques & IT Introduction:  A variety of tools & techniques have been used over the years to help managers to control  Controls must reflect plans, & planning must precede control Control techniques:  Budget: o It is the formulation of plans for a given future period in numerical terms. o They are statements of anticipated results, either in financial or non-financial terms. o Following are the types of budgeting:  Revenue & Expense  Time, Space, Material, & Product  Capital Expenditure  Cash
  46. 46. o If budgetary controls are too detailed, then it can become cumbersome, meaningless, & unduly expensive o Zero-base budgeting is also a type of budget. It is calculating cost afresh for each budget period. It is generally applied in support area  Traditional Non-budgetary Control Devices: o Use of statistical data o Special reports o Analysis of specific areas o The operational audit o Independent appraisal by internal or external auditors o Personal observations  Information Technology o MIS. A formal system of gathering, integrating, comparing, analysing & dispersing information internal & external to the enterprise in a timely, effective & efficient manner o Internet has changed the way we conduct business. The relationships among suppliers & customers are changing dramatically o There is now trend toward wireless communication & m- commerce Lesson 13 Productivity, Operations Management & TQM Productivity:
  47. 47.  Ratio of Input to Output within a time frame; without compromising on Quality  Te output should always be higher than Input  If productivity is high, then efficiency is high  If productivity is high, then cost will be low  If productivity is high, delivery time is low  If productivity is high, that means process is efficient:  Easy to measure the Ability of a person, but difficult to measure the capability of a person Difference between Production & Operations Management Production Management Operations Management Activities necessary to Activities necessary to produce, & manufacture product deliver a product / service Includes only the conversion of It is seen as System. That means, resources into a product there will be Input, Process, & Output Quality measurement in the Information Age:  In the past quality was applied only to product in manufacturing activities  In the service industry, it includes measurement of expectations, experience, & emotions of customer  In information age, the scope of quality has increased. It means whatever we do, will speak of quality. Quality covers right from suppliers to customers, & all those activities, which happen in between
  48. 48. Tools & Techniques for Improving Productivity:  Inventory Plan & Control o The economic order quantity [EOQ] approach is useful, when order quantities are predictable, & fairly constant through out the year o EOQ approach does not work well to determine the inventory levels of parts & materials used for production processes. For example poor quality of parts may increase the demand for these production inputs. Thus demand is likely to be intermittent, resulting in inventory shortages at sometimes & excesses at other times o If the demand keeps on fluctuating, the organization maintains inventory of semi-finished goods. This is called as Work-in-Process inventory. o Carrying inventory of any types adds to the cost of output. But in competitive environment, cost has to be kept under control Just in Time  The suppliers deliver the components & parts to the production line just-in-time to be assembled.  Also known as zero-inventory, or stockless-production  To be effective, the following requirements have to be met: o Quality of parts must be very high
  49. 49. o Relationship with suppliers should be based on cooperation o Suppliers should be very near the manufacturer Outsourcing  To keep cost under control, Organizations are focussing only on core activities. The non-core activities are outsourced to those, for whom it is a core activity  It is an outcome of re-engineering activity. Operations Research:  The application of scientific methods to the study of alternatives in a problem situation, with a view to obtaining a quantitative basis for arriving at the best solutions  It is use of quantitative data on goals, & on determining the best means of reaching the goals Value Engineering:  It consists of o Analysing the operations of the product or service o Estimating the value of each operation o Attempting to improve the operation by trying to keep the cost low at each step Work Simplification:  It is improving work methods  Done through o Participation of employees
  50. 50. o Training employees on concepts like time & motion studies, work-flow analyses, layout of the work station Quality Circles:  It is a group of employees from the same department who meet regularly to solve problems they experience at work  Members are trained in applying statistical quality control, 7 to work in teams Total Quality Management  Organization’s long term commitment to continuous improvement of quality through out the organization & with the active participation of all members at all levels to meet & exceed customer’s expectations  It is simply effective management  TQM demands free flow of information  When done effectively, it results in customer satisfaction, fewer defects, less waste, increased productivity, reduced costs & improved profitability Lean Manufacturing:  The following are the characteristics: o Continuous improvements [kaizen] with strategic breakthrough o Aim at zero defects o Just-in-time inventory system o Team performance o Responsibility for problems rests with all
  51. 51. Computer-aided techniques  Computer-aided design [CAD] Computer-aided-manufacturing [CAM] & the Manufacturing Automation Protocol [MAP] are some of the cornerstones of the factory of future  CAD / CAM help engineers design products much more quickly than they could with paper-&-pencil approach. This is a greatest advantage to the organization since product life cycles are getting shorter. Capturing markets quickly are crucial in very competitive environment. Firms can respond rapidly to the requests of the customers with specific requirements Lesson 15 Overall Control & toward the future through Preventive Control Traditional Overall Controls:  Profit & Loss Control o Profits are a definite standard against, which firms measure their success o In P & L we get details of revenues & expenses o P & L control is not applied to central staff & service departments.  Control through Return on Investment o It is ratio of earnings to investment of capital
  52. 52. o The goal is optimising returns & not profit. Make best use of assets Types of Control:  Direct o Trace the cause of an unsatisfactory result back to the persons responsible for it & get them to correct their practices o Standards are developed to compare the actual output with plans o Deviations indicates that performance is not as per plan o The following are the causes of negative deviations from standards:  Uncertainty • Elements affecting a given plan are grouped into: o Facts o Risk o Uncertainty about future  Lack of knowledge, experience, or judgment  Preventive o Develop better managers who will look at problems from a system point of view o The principle of preventive control are based on the following assumptions:  Qualified managers make a minimum of errors
  53. 53.  Managerial performance can be measured by using principles of management as standard  The application of management fundamentals can be evaluated o Has the following advantages:  Greater accuracy is achieved in assigning personal responsibility  Source of training need analysis to bridge the gap in their performance  No wastage of time. Saves on cost Developing Excellent Managers:  Instilling a willingness to learn  Planning for innovation  Measuring & rewarding management  Tailoring information [obtaining the right information in the right form & at the right time]  Expanding R & D in Tools & Techniques  Creating a strong intellectual leadership Conclusions:  The operational or management process, approach is an attempt to unify these different orientations  The practice of management & global competitiveness is driven by the new technology. Visionary managers are needed to provide direction to the increasingly multi-cultural workforce that responds quickly to the customers that demand low cost quality products & services