Business Education: Basics of Business Management / Organizational Management

Douglas McGregor's Theory X Assumptions
Douglas McGregor's Theory X focuses on three main assumptions regarding employee motivation and behavior. First, one must assume that employees, by their inborn nature, do not like to work and will try to do as little as possible. This leads to a management style in which a supervisor has no choice but to manage in a dictatorial manner, using coercion, strict control, direction, and threats in order to persuade the employee to actually work. It assumes money as the sole motivating factor for employees and that only great incentives or strict punishments will be effective in convincing an employee to work. It also assumes the person does not possess ambition and wishes for this direction, desiring security first and foremost. Furthermore, it assumes employees worry only about themselves and that the manager must assume control to get the most out of his or her employees.

Douglas McGregor's Theory Y Assumptions
Douglas McGregor's Theory Y provides a positive view of employees. It assumes that employees can be self-motivated and enjoy work just like they might enjoy play. It is natural to them. Although their talents are often under-utilized, most people do possess the talent, skills, imagination, ingenuity, creativity, and motivation to solve problems and direct themselves. They can control themselves, and accept and even search for responsibility and work to accomplish goals on their own. They desire success at work for the inherent satisfaction of performing well. Managers need not exercise strict control to force employees to work, but should instead organize, arrange, and allow for decision making in employees. These assumptions lead to a culture where supervisors work with employees and allow for positive communication and employee development.

Management Methods

Total Quality Management
Total quality management is a management method that strives for better internal processes and increased customer satisfaction. If done correctly, costs can be lowered, performance will be raised, and customers will be more pleased. There are various principles of total quality management.
First, managers need to believe they can and should manage quality levels. If there is a problem, it is rooted in the process, not the employees. Instead of focusing on fixing just the symptoms, managers should look for the cure to what's really wrong. Quality is the job of every employee at the company. There must be a way to measure quality so a company can understand its position. The company should always work on improving quality. Quality investing is long term; it can take a while, but the resulting success can also be long term.

Management by Objectives
First coined in 1954 in Peter Drucker's 'The Practice of Management,' management by objectives (MBO) is a management model that focuses on the creation of objectives or goals. A key component of MBO is that both managers and employees create the objectives. The employees will then be more motivated to achieve them because they had a say in their formulation.
In addition to making objectives, companies must formulate a way to measure performance to ascertain whether the objectives are being met. An advantage of MBO is that it can produce a better relationship between management and employees, as well as more employee commitment. A disadvantage is that its focus on end results rather than on forming a comprehensive plan may make it more difficult to reach the results.

Activity-Based Management
In activity-based management, managers examine activities to evaluate costs and value added. The goal is to eliminate or improve the activities that are not as valuable to the company. Managers look at overhead costs and try to allocate resources to where they will be the most valuable. One disadvantage to activity-based management is that some activities that do not show an obvious financial benefit may still have intrinsic value.
For instance, if a company spends money on a luxurious work environment, this may not be obvious in a dollar amount gain. However, if it helps them attract higher quality workers who will be more effective, then it will produce financial results, even if they aren't easily measured. Companies use information about the value added by particular activities to make better decisions about their business operations.

Functions of Management
Managers perform many different roles, and Henri Fayol created a list of five basic management functions, four of which are generally recognized today. These include planning, organizing, leading, and controlling. Planning involves creating a plan of action to accomplish a goal for the organization. For instance, if the manager wishes to increase employee efficiency, then he or she may create a plan to give incentives to top performers. The leader will make a list of logical steps to accomplish the goal. Organizing includes resource distribution as well as organizing employees in the best way to carry out the plan. For instance, the manager will decide which employees can help with the plan. He or she might delegate work and direct employees to help implement it. When a manager is leading, he or she connects with the employees personally. He or she might inspire, motivate, and encourage. The employees should look up to the manager as a leader. Controlling occurs after the plan has been implemented. Managers evaluate whether the goals of the plan have been met. If not, he or she will take action to reach the goal.

Planning
One of the most important jobs of a manager is the planning function. Managers need to formulate detailed plans to reach their goals. They need to carefully design the steps that will reach these goals. These steps should be flexible, as they may need to change as the plan is brought to fruition. There are different types of plans within an organization. A strategic plan deals with the company as a whole and is long term. It might be related to the objectives and vision for the business. A tactical plan outlines the tactics the company will utilize to fulfill the strategic plan. An
operational plan deals with the daily running of the company. In this type of plan, short-term objectives are highlighted. Managers that plan well have a better chance of realizing their goals.

Organizing
Once a manager has created a plan to reach a goal, the next step in management is organizing. This is an extremely critical step. In this step, managers must decide how to allocate the resources they have to best achieve their goals. For instance, a manager may decide how much money each department gets. Another important part of organizing is researching the talents and abilities of employees and delegating the work in a way to best take advantage of their skills. Managers will decide who will fill each role and how the work will be done. He (or she) must also make sure employees understand these roles and can accomplish them. The manager must also dictate how decisions are made and by whom, conduct problem solving, and create the chain of command and communication procedures. He should decide who has managerial power and how reporting will occur. Authority is often delegated to increase efficiency. Once organizing is complete, there should be an organizational structure that dictates the roles, power, responsibility, and information distribution.

Controlling
Once a manager has created a plan, organized, and led it, he must perform the fourth and final management function—controlling. This is the process by which a manager evaluates the results of a plan to ascertain whether it has met his goals. When controlling, the manager must first decide how he or she will measure performance. For instance, if the goal is increased financial position, he might look at profits. Other common goals might involve efficiency, production, or customer satisfaction. Next, he will need to develop a way to measure this. He might look at sales data, customer satisfaction surveys, or production numbers. The data should be clear, objective, and measureable. Next, the manager will evaluate the new numbers compared to standards. For instance, he might look at customer satisfaction numbers this year as compared to the year before the plan. Did satisfaction increase as he'd predicted? Finally, he will decide whether corrective action is needed, then plan and take it if necessary. For instance, if customer satisfaction did not go up as he had hoped, he will investigate to see what happened and decide how to change the plan to reach his goals.

Levels of Management
Many companies have different levels of management, and each level is responsible for certain functions. Managers are typically broken into top-level management, middle-level management, and low-level management. The top-level managers are the managers in charge of running the organization as a whole and making the major decisions for the company. They oversee everything about the company and control it. They generally have the most experience, with skills in leadership, delegation, and making major decisions. The CEO and president are examples of top-level management. Middle-level managers bring organizational plans to fruition. They are delegated some authority and are a liaison between top-level management and low-level management. They will often have a decent amount of experience and are adept at solving problems, building teams, and developing talent. A department manager or general manager of a store is an example of middle management. Low-level managers spend their time leading, directing, and supervising employees. Employees can go to them with problems. They typically have more skills and experience than general employees, and they should be good at dealing with people. Examples include foremen and supervisors.

Leadership Styles
In an authoritarian (autocratic) leadership style, the rules and regulations are strict and the manager keeps firm control. The relationship is purely professional, and there is a lot of supervision.
Problems can occur when employees become unhappy that their ideas and suggestions are not heard. A democratic (participative) leadership style is very popular. The manager does not make all the decisions, but instead shares them with the group. There is discussion and debate, and the employees are encouraged to provide ideas, which can contribute to the group. There is still guidance and the leader makes the ultimate decisions, but everyone helps throughout the process. Employees are often happy with this type of management.
With a paternalistic leadership style, the manager acts almost as a parent and the employees as children who trust and are loyal to their leader.
They follow his or her lead. The laissez-faire (delegative) style of leadership is one in which the workers make all the decisions without any managerial control. This can be problematic if the workers cease to become productive because no one is holding them responsible.

SWOT Analysis
SWOT refers to strengths, weaknesses, opportunities, and threats. A SWOT analysis is a powerful tool that allows managers to evaluate both internal factors and the outside environment with the goal of making the best business decisions. A company may produce a chart to illustrate the SWOT analysis. They will list strengths such as positive assets, a good work force, etc. Next to strengths, weaknesses such as financial limitations or government regulations that limit the company will be listed.
Next, the company will look at opportunities such as increasing demand for a product. They will then look for threats such as a competitor's new patent. Once the company has identified as many of these as possible, managers will look to take advantage of the strengths and opportunities, minimize the weaknesses, and turn the threats into opportunities. For instance, if the threat to a cookie company is that people are more health conscious, the company may turn the threat into an opportunity by producing a healthier cookie. By understanding these factors, the company can take advantage of what it has and address the problem areas.

Types of Financing Businesses May Utilize
When large companies want money for short term debt obligations, they may give out commercial paper, a money-market security. This can be sold to a dealer and then to the market, or straight to a buy and hold investor. It does not cost as much as credit within a bank. It is not secured, and the maturity is between one and 364 days. Businesses can also get a long-term loan to finance their business. A number of banks and organizations offer loans. Rates and amounts vary. A business can also issue stock to raise money. This is essentially selling a small piece of ownership in a company.
Many businesses use a combination of these strategies.

Time Value of Money
Because money has the ability to earn interest, the present value of money is worth more than the same amount of money in the future.
For instance, the $100 an individual receives today is worth more than the same $100 he receives in one year. That is because he will be able to earn interest on the money he receives today and turn it into more money in the future. The sooner he receives the money, the more it is worth. The future value of money depends on the interest rate. For instance, if a person has $100 now and the interest rate is 10 percent, he will have $110 in one year.

This can be calculated with the algebraic formula:
 in which PV is the present value, FV is future value and r is the interest rate. In this case, it would be
. This formula can also be used to calculate missing values.

Budget Types
A sales budget is a budget that shows the expected sales for a period of time. This is shown in units and dollars and is often categorized by product categories or geographic location. A production budget, typically seen in a 'push' manufacturing system, shows the number of products that should be made. The sales forecast and finished goods inventory are used to calculate this. A cash budget covers the inflows and outflows of cash that are expected. The four sections of a cash budget are receipts, financing, disbursements, and cash surplus or deficit. A capital expenditure budget covers investments in long-term projects and capital assets. Generally, it is for a time span of three to 10 years and may cover investments in buildings, land, plants, and equipment.

Master Budget
A master budget encompasses all of the budgets of a company to give an entire view of the business as a whole, allowing for comprehensive financial planning. It has two major components: the operating budget and the financial budget. The operating budget is created first because the financial budget will depend on its numbers. The operating budget includes the sales budget, production budget, direct materials purchases budget, direct labor budget, overhead budget, selling and administrative expenses budget, and cost of goods manufactured budget. The financial budget contains a schedule of expected cash receipts from customers, a schedule of expected cash payments of suppliers, the cash budget, a budgeted income statement, and a budgeted balance sheet.

Budgeting Approaches
With a zero-base budget, the managers first decide on the outcome they want, then create the expenditures to make that happen. The budget needs to match the outcome. This is often used for governments and other service-level entities so that the desired outcomes are achieved. With flexible budgeting, varying sales levels are put into the model, and the planned expense levels change accordingly. This can be advantageous when the company has trouble predicting sales.
In a static budget the expenditures do not change in response to sales levels. This is often used for public entities with fixed grants. With top-down budgeting, the top management makes the budget for the firm as a whole and decides on all the allocations. The lower levels do not get a say in what they get. With bottom-up budgeting, the lower level managers have a chance to participate and help set their own budget needs. Those are then put together to formulate the budget of the company as a whole.


Cost-Benefit Analysis
A cost-benefit analysis is an important process to complete when making decisions in business. It is a way of looking objectively at all the costs and benefits of different options to make the best decision for the company. First, the company must decide on the different options available. Once it has the options, a cost-benefit analysis should be run on each. The company should compile all the costs of an option, being careful to not omit important factors such as overhead costs, costs of operation, and opportunity costs. It is important to measure in objective terms such as money.
Next, all the benefits should be compiled. Benefits affecting the employees, company, customers, and all stakeholders should be considered. The time value of money should also be applied so values are accurate. The company will then compare the costs and benefits to see what the net benefit (or cost) of each option would be. The company can then move forward with the best strategy.

Production Methods

Continuous Processes
A continuous processes production system is a method of production in which products are continually produced. This is advantageous when a great volume of products are needed. Businesses use this for products such as cars, paper products, and many food products. The production line may have a significant amount of machinery to make it semi-automated. People generally control the computers with a workforce that may be a combination of skilled and unskilled laborers. The production is steady and will continuously run at all times unless there is a maintenance break. There is less flexibility with this type of production and it can cost a lot of money to set up, but then the cost per item can be lower as there is less need for labor. There are typically numerous quality control measures, such as sampling, to ensure quality.

Batch Operations
With a batch operations production method, similar items are made together in batches. They proceed together through each stage of production and then all move to the next stage. An example is a bakery producing batches of cookies, desserts, or pastries. Advantages are that each batch can be customized—they can make one batch of chocolate chip cookies and another of oatmeal to suit customer needs. Also, it saves money and time to make them in batches as compared to doing them individually. Companies can save money by using the same production systems on more than one product. Also, many companies could not afford the expensive equipment needed for a continuous production method. It is a suitable method when companies don't know how many of a product they'll need, as well as for seasonal items. One disadvantage is that companies may have some downtime as they go from one batch to another.
Another disadvantage is that companies need to have raw materials for different products in stock.

Inventory Systems

Traditional
A traditional inventory system involves ordering materials and storing them until they are needed. Companies may make agreements with suppliers to receive volume discounts. There will also be extra inventory on hand in case demand suddenly goes up, and a brief interruption in delivery will not halt the entire system. There are also disadvantages to this type of system. Generally it is not as efficient as a just-in-time system. Companies have to pay for the cost of storing the materials, which can be substantial.
They could also potentially be stuck with extra materials if they ultimately do not need as many as they predicted. Companies should weigh the advantages and disadvantages when deciding which is best for them.

Just-in-Time
A just-in-time (JIT) inventory system is an inventory system in which materials come in just as they are needed for production. The idea is to keep inventory as low as possible, thereby lowering the costs of storage. Businesses spend less on carrying costs and can also save with the time value of money because they do not have to pay for materials until they need them. They will not end up with extra materials that go to waste. One consideration with this system is that companies need to be able to forecast the amount of materials they will need. They will not have extras on hand, so if there is a sudden increase in demand, they may not have the materials available to meet that demand. Also, if there is a problem with materials, they will not have any extras on hand to cushion them.

Organization Structures of Companies

Functional Structures, Team Structures, and Adaptive Structures
Companies can be structured in a variety of ways, and each type possesses its own advantages and disadvantages. A company with a functional structure organizes the employees, tasks, and supervision in the company by function. For instance, there will be a marketing department, a production department, etc. The advantage is that these functions can become highly specialized. A disadvantage is that it can hamper communication between the different departments. Companies that make a lot of standardized products may use this type of structure. A team structure is where people with different abilities are put together to build teams that can achieve more than the individuals alone. The teams can be flexible and draw on the strengths of the members. An adaptive structure has multifunctional teams instead of a rigid hierarchy. All levels are encouraged to contribute to give the most to the organization. This flexibility can be beneficial, but it may also be more difficult to manage.

Networks, Matrix Structures, and Product-Based Structures
There are various organizational structures a company can utilize, and the best one depends on the characteristics of the business. One type is a network structure. In this structure, business functions that can be accomplished with less cost and/or better quality by others are outsourced. Managers dedicate a lot of time to dealing with these external forces. For instance, a clothing company may find a company that can make the goods with fewer resources, allowing the main company to focus on other functions.
In a matrix structure, employees are grouped by function and product for maximum efficiency. Teams are often employed. For instance, if a company sells both cars and boats, they might have a car sales department and a boat sales department. In a product-based structure, the company is organized by product. A grocery store will have a produce section, a meat section, a dairy section, etc. This is often used for larger companies.

Centralized and Decentralized Structures
In centralized structures, one individual makes decisions for the company, whereas in decentralized structures, there is a team and the decisions are made at different levels. Which structure is best for the business depends on the manager, the size, and other factors.
Centralized structures allow for quick decisions and efficiency because only one person is making the decisions. Decentralized structures allow multiple individuals to contribute, which can be slower, but can also provide more information, insight, and ideas to the organization. Some centralized organizations have a lot of bureaucracy, which can slow things down, or they might inadvertently make decisions that are not the best for the lower levels.
Decentralized structures sometimes struggle with too many differing opinions.
Each method has its advantages and disadvantages.

Formal and Informal Structures
The formal structure is the exact chain of leadership and the formal hierarchy. It will start with the owner or CEO and then work its way down the chain of command with clear indications of who is in charge. The informal structure is often centered on project groups or even on friendship. Those who are more knowledgeable or just more natural leaders may take on an informal leadership role even without specific authority. Others might look to such people for guidance because they know more, are more willing to help or provide other leadership functions. The response from an informal leader may be quicker and more efficient. Both structures are utilized in many businesses.