CHAPTER 2 BUSINESS MANAGEMENT

CHAPTER 2

BUSINESS MANAGEMENT

Technopreneruship (WBB10102)

SME Definitions

• In 2005, National SME Development

Council (NSDC) approved the use of

common definitions for SMEs in the

manufacturing, manufacturing-related

services, primary agriculture and services

sectors.

• applied by all Government Ministries and

Agencies involved in SME development,

as well as by the financial institutions.


SME Definitions

The use of common definitions for SMEs will:

• strengthen government efforts to create

effective policies and support

programmes for specific target ;

• make it easier to provide technical and

financial assistance to SMEs; and

• allow for the identification of SMEs in the

various categories and levels.


SME Definitions

SMEs can be grouped into :

– Micro, Small, or Medium

These groupings are decided based on

EITHER

– the numbers of people a business employs OR

– on the total sales or revenue generated by a

business in a year.


Number of Employees

Based on the number of full-time employees:

Primary Agriculture

Manufacturing

(including Agro-Based) & MRS*

Services Sector (including ICT**)

Micro Less than 5 employees

Less than 5 employees

Less than 5 employees

Small Between 5 & 19 employees

Between 5 & 50 employees


Medium Between 20 & 50 employees



*MRS : Manufacturing-Related Services

** ICT : Information and Communications Technology


Annual Sales Turnover

Based on annual sales turnover :

Primary Agriculture

Manufacturing

(including

Agro-Based) & MRS*

Services Sector (including ICT**)

Micro Less than RM200,000

Less than RM250,000

Less than RM200,000

Small

Between

RM200,000 &

less than RM1 million

Between

RM250,000 &


Between

RM200,000 &


Medium

Between RM1

million & RM5 million

Between RM10


Between RM1


*MRS : Manufacturing-Related Services

** ICT : Information and Communications Technology


Characteristics of a Small

Business

• Ownership

• Management

• Resources

• Organisational Structure

• Flexibility of Change

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MANAGEMENT FUNCTIONS

Planning

a management function that involves defining goals, establish strategies for achieving those goals, and developing plans to integrate and coordinate activities.


PURPOSES OF PLANNING

• Planning provides direction

• Planning reduces uncertainty

• Planning minimizes waste and

redundancy

• Planning sets the standards used in

controlling.

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Goals and Plans

• Goals

– are desired out comes for

individuals, groups, or entire organizations.

– Goals = objectives

– provide the direction for all management

decisions and form the criteria against

which actual work accomplishments can

be measured.


Goals and Plans

• Plans

– documents that outline how goals are

going to be met and that typically describe

resource allocations, schedules, and other

necessary actions to accomplish the goals.


Levels of Goals/Plans


Types of Goals (1)

Stated goals

• official statements of what an organization says, and what it wants its stakeholders to believe.

• can be found in an

– organization's charter

– annual report

• made by managers-are often conflicting and excessively influenced by what society believes organizations should do.

• Examples: Faster revenue growth, wider profit margins, bigger market share.


Types of Goals (2)

Real goals

• those goals that an organisation actually

pursues – observe what organizational

members are doing. Actions define priorities.

• For example, universities that proclaim the

goal of limiting class size, facilitating close

students- faculty relations, and actively

involving students in the learning process

and then put them into lecture classes of 300

or more are pretty common.


Characteristics of well

design goals

S-Specific

M-Measurable

A-Achievable

R-Realistic

T-Time Frame

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Types Of Plans


Types Of Plans: Breadth

• Strategic plans – apply to the entire organization, establish the

organization's overall goals, and seek to position the organization in terms of its environment.

– tend to cover a longer time frame and a broader view of the organization.

– include the formulation of goals

• Operational plans – specify the details of how the overall goals are to

be achieved.

– define ways to achieve the goals.

– tend to cover short time periods-monthly, weekly, and day-to-day.


Types Of Plans: Time frame

long-term plans

• with the time frame beyond three

years.

short-term plans

• covering one year or less.

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Types Of Plans: Specificity

Specific plans

• clearly defined and leave no room for

interpretation.

• They have clearly defined objectives. There's

no ambiguity and no problem with

misunderstanding.

Directional plans

• flexible plans that set out general guidelines.

• provide focus but don't lock managers into

specific goals or courses of action.


Types Of Plans: Frequency of use

Single-use plan • a one-time plan specifically designed to

meet the needs of a unique situation.

• Example: a single-use plan to guide the creation and implementation of the new service.

Standing plans

• ongoing plans that provide guidance for activities performed repeatedly.

• policies, rules, and procedures.

• Example: the safety and health policy developed by the university.

Organising

a management function

that involves determining

what tasks are to be done, who is to do them,

how the tasks are to be

grouped, who report to

whom, and where decisions are to be made


The Purposes of Organising

• Divides work to be done into specific jobs and departments

• Assign tasks and responsibilities associated with individual jobs

• Coordinates diverse organizational tasks

• Clusters jobs into units

• Establishes relationships among individuals, groups and departments

• Establishes formal lines of authority

• Allocated and deploys organizational resources


Organisational Structure

• the formal arrangement of jobs within

an organisation.

• arranged in levels that represent the

management hierarchy.

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CEO

Department Department Department

represent the

chain of

command

represent the division

of work and the way in

which tasks are

departmentalised


Key Elements of Organisational

Design

1. Work Specialisation

2. Departmentalisation

3. Chain Of Command

4. Span Of Control

5. Centralisation And Decentralisation

6. Formalisation


Key Element 1: Work specialisation

• describe the degree to which activities

in an organisation are divided into

separate jobs.

• an entire job is not done by one

individual but instead is broken down

into steps, and each step is completed

by a different person.

• Individual employees specialise in doing part of an activity.


Key Element 2: Departmentalisation

• the basis on which work or individuals

are group into manageable units

called department

• department a unique group of

resources established by management

to perform some organisational task.


Departmentalisation

• Functional

• Product

• Geographical

• Process

• Customer


Functional departmentalisation

• group jobs by functions performed.

• Can be used in all types of organisation.

• Advantages – Efficiencies from putting together similar

specialties and people with common skills, knowledge and orientations

– Coordination within functional area

– In-depth specialisation

• Disadvantages – Poor communication across functional areas

– Limited view of organisational areas


Functional (cont.)

Plant

Manager

Manager,

Engineering

Manager,

Accounting

Manager,

Manufacturin

g

Manager,

Human

Resources

Manager,

Purchasing


Product departmentalisation

• Group jobs by product line

• Each major product is placed under the authority of a manager who’s responsible for everything to do with that product line.

• Advantages – Allows specialisation in particular products and

services

– Managers can become experts in their industry

– Closer to customers

• Disadvantages – Duplication of functions

– Limited view of organisational goals


Product (cont.)

Managing Director

Executive Director Children Wear

Executive Director Men’s Wear

Executive Director Women’s Wear


Geographical departmentalisation

• Groups jobs on the basis of territory or geography such as southern, northern, western, eastern, state or country.

• Advantages – More effective and efficient handling of

specific regional issues that arise

– Serve needs of unique geographic markets better


– Can feel isolated from other organisational areas


Geographical (cont.)

Vice

President For Sales

Sales Director,

Western Region

Sales

Director,

Southern

Region

Sales

Director,

Midwestern

Region

Sales

Director,

Eastern

Region


Process departmentalisation

• Groups jobs on the basis of product or

customer flow.

• Work activities follow a natural

processing flow of products or even of

customers.

• Advantages

– More efficient flow of work activities

• Disadvantages

– Can be used with certain types of products


Process (cont.)

Plant

Superintendent

Manager, Sawing

Department

Manager, Planning and

Milling Department

Manager, Assembling Department

Manager, Lacquering

and Sanding

Manager, Finishing

Department

Manager, Inspection

and Shipping Department


Customer departmentalisation

• Groups jobs on the basis of customers who have common needs or problems that can be met by having specialist for each.

• Advantages – Customers’ needs and problems can be

met by specialists


– Limited view of organisational goals.


Customer (cont.)

Director of

Sales

Manager,

Retail

Accounts

Manager,

Wholesale

Accounts

Manager,

Government

Accounts


Key Elements 3: Chain of command

• the continuous line of authority that extends from upper organisational levels to the lowest levels and clarifies who reports to whom.

• It helps employees answer questions such as

– “Who do I go if I have a problem?”

– “To whom am I responsible?”


Key Element 3: Chain of command

• Authority - formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve organisationally desired outcomes.

• Responsibility - duty to perform any assigned duties.

• Unity of command –the management principle that each person should report to only one manager.


Key Element 4: Span Of Control

• the number of employees a

manager can efficiently and

effectively manage


Key Element 4: Span Of Control

Factor Increase Span of Control when…

Decrease Span of

Control when…

1. Similarity of functions

1. similar functions 1. different functions

2. Geographic contiguity

2. physically close 2. physically distant

3. Complexity of functions

3. simple tasks 3. complex tasks

4. Coordination 4. need little coordination

4. need much coordination

5. Planning 5. manager

spends little time planning

5. manager spends

much time planning


Key Element 5: Centralised and

decentralised

• Centralised organisation

– Decision are made by limited number of

persons at the top

• Decentralised organisation

– Operating decision are made throughout

the organisation.


Key Element 6: Formalisation

• jobs within the organisation are standardised and the extent to which employee behavior is guided by rules and procedures.

• highly formalised job = then workers has little discretion as to what is to be done, when it's to be done, and how he or she does it.

• resulting in consistent and uniform output.

Leading

is a management function that involves motivating subordinates, influence individuals or teams as they work, selecting the most effective communication channel, or dealing in any way with employee behavior issues


Studying Leadership

Leadership Motivation


Traits and Skills

• Traits: the unchanging characteristics of

a person that predisposes someone to

act in a particular way.

– Leaders Have Drive

– Leaders Have Honesty and Integrity

– Leaders Are Motivated to Lead

– Leaders Have Self-Confidence

– Leaders Have Cognitive Ability

– The Leader Knows the Business


Traits and Skills

• Skills : the ability to do something in an

effective manner.

Technical skills • job know-how, knowledge of the

industry and its particular process,

machinery and problems.

Interpersonal

skills

• Knowledge of human behaviour, the

ability to work effectively with

individuals and groups.

Conceptual

skills

• ideas, plans, and directives.

• the ability to see the organization as

a whole and to understand the

overall effect of several

departments.


Power and Leadership

Power is the potential ability to influence the behavior of others.

• Legitimate Power

develop from a formal management position in an organization and the authority granted to it.

• Reward Power

results from the authority to reward others

• Coercive Power

develop from the authority to punish or

recommend punishment


Power and Leadership

• Expert Power

stems from special knowledge or skill in the

tasks performed by subordinates.

• Referent Power

results from characteristics that command

subordinates identification with respect and

admiration for, and desire to emulate the

leader.


Motivation

• the set of processes

that moves a person

toward a goal.

• motivated behaviors

are voluntary

choices controlled

by the individual

employee.

Job

characteristics

organisational

practices

Individual

differences

Factors that affect work motivation:


Maslow's Hierarchy of Needs


Maslow's Hierarchy of Needs

Level I Physiological

needs

•most basic human needs.

•They include food, water, and comfort

Level II Safety needs •the desires for security and stability,

•to feel safe from harm

Level III Social needs •the desires for affiliation.

•They include friendship and belonging.

•satisfy employees' social needs through sports teams, parties, and celebrations.

Level IV Esteem needs •the desires for self-respect and respect

or recognition from others.

•Show appreciation

Level V

Self-

actualisation needs

•the desires for self-fulfillment and the

realisation of the individual's full

potential.

Controlling

is a management

function that involves

monitoring actual

performance,

comparing actual to

standard, and taking

action if necessary.


Importance of Controls

• Critical link back to planning

• Empowering employees

• Protecting the workplace


Controlling Process


Controlling Process: Step 1

(Measure)

a) How We Measure

Advantages Disadvantages

Personal

Observations

o Get firsthand knowledge

o Information isn’t filtered

o Intensive coverage of work activities

o Subject to personal biases

o Time-consuming

o Obstructive

Statistical

Reports

o Easy to visualize

o Effective for showing relationships

o Provide limited information

o Ignore subjective factors


Controlling Process: Step 1

(Measure)

a) How We Measure

Advantages Disadvantages

Oral Reports

o Fast way to get information

o Allow for verbal and nonverbal feedback

o Information is filtered

o Information can’t be documented

Written Reports

o Comprehensive

o Formal

o Easy to file and retrieve

o Take more time to prepare


Controlling Process: Step 1 -

Measure

b) What We Measure

– Examples

• Production manager

(paper tablet

manufacturer)

– quantity of paper

tablets produced per

day and per labor-

hour

– scrap rate

– percent of rejects returned by

customers.

• Marketing managers:

– percentage of market

held

– average dollar per sale,

– number of customer

visits per salesperson

– number of customer

impressions per

advertising medium.


Controlling Process: Step 2 -

Comparing

• determines the degree of variation between

actual performance and the standard

• to determine the acceptable range of

variation.

• A standard is the level of activity established

to serve as a model for evaluating

organisational performance.


Controlling Process: Step 3-Taking

Managerial Action

a) Correct Actual Performance

• Examples: changing strategy, structure,

compensation practices, or training

programs; redesigning jobs; or firing

employees.


Controlling Process: Step 3-Taking

Managerial Action

• A manager who decides to correct actual

performance has to make another decision:

Immediate corrective

action corrects

problems at once to

get performance

back on track.

Basic corrective action looks at how

and why

performance has

deviated and then

proceeds to correct

the source of

deviation.


Controlling Process: Step 3- Taking

Managerial Action

b) Revise the Standard

• It is possible that the variance was a result of

an unrealistic standard; that is, the goal may

have been too high or too low.


Tools for Controlling Performance

CHAPTER 2 BUSINESS MANAGEMENT

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