Staffing (Part 1)

Staffing is a critical organizational function which consists of the process of Acquiring, deploying, and retaining a
workforce of sufficient quantity and Quality to create positive impacts on the effectiveness of the organization. It Is one of
the significant functions of the management. In an organization, it is the people which carry out the various jobs which are
Needed for its functioning. They are the most important resource of the Organization. They supply the talent, skills,
knowledge, and experience to Achieve the organizational goals and objectives. In fact the performance of The
organization largely depends on the quality of its people. Hence the Staffing function of the management is an important
function and it involves In the building of the organizational workforce. In staffing, the management Is faced with the
challenge of not only finding the right person for each job But also to match the personnel with the jobs identified and to
provide for
Their long-range growth and welfare as members of the organization.

Staffing is that part of the process of management which is concerned with Acquiring, developing, employing, appraising,
remunerating and retaining People so that right type of people are available at the right positions and at The right time in
the organization. In the simplest terms, staffing in Management is ‘putting people to jobs’.

Topic Objectives
• Definition and nature of staffing
• Recruitment
• Selection
• Training and development

Staffing
Staffing is the process of acquiring, deploying, and retaining a workforce of Sufficient quantity and quality to create
positive impacts on the organizations Effectiveness.

• The managerial function of staffing is defines as filling and keeping filled, Positions in the organization structure.

Nature of Staffing
The following points describe the nature of the staffing function.
• Staffing is an important managerial function. Staffing function is normally The sub function of the organizing function.

All the five functions of the Management viz. planning, organizing, directing, coordinating, and Controlling depend
upon the employees of the organization which are Made available through the staffing function.

• Staffing is a pervasive activity. It is carried out in every organization and At all the levels of the management in the
organization.

• Staffing is a continuous activity. This is due to the fact that the function of Staffing continues throughout the life of the
organization.

• The basis of staffing function is the efficient management of Personnel. The process involved in the staffing function in
the Organization is efficiently managed by a system or with well-tried
Procedures.

• The function of staffing helps in placing right men at the right job. It can Be done effectively through proper recruitment
procedures and then Finally selecting the most suitable candidate as per the job requirements.

• All the levels of management are involved in the function of staffing Though the personnel department coordinates it.

Main objectives of staffing:

• To understand all function of in an organization.
• To understand manpower planning so that people are available at right Time and at right place.
• To understand issues related to job analysis and to overcome the Problem.

Importance of staffing
The staffing function is a very important function of the management due to The following reasons.
• Staffing helps in discovering and obtaining competent personnel for Various jobs.
• It helps in the optimum utilization of the human resources.
• It helps in developing professionals in every field of organizational Activity.
• It helps to improve the quantity and quality of the output by putting the Right person on the right job.
• It helps in developing competencies in the organization to face the Challenges.
• It helps to improve job satisfaction of the employees and hence their Morale.
• It facilitates higher productive performance of the organization by
Appointing right man for right job.
• It reduces the cost of manpower by eliminating the wastage of the human Resources.
• It facilitates growth and diversification activities in the organization.
• It provides for the development of the employees and through them it Ensures continuous survival and growth of the
organization.

Benefits of staffing
The benefits of an effective staffing function are as follows.
• Staffing helps in getting right people for the right job at the right time. The function of staffing enables the management
to find out as to how Many employees are needed and with what qualifications and experience.
• Staffing contributes to improved organizational productivity. Through Proper selection the organization can enhance the
quality of the Employees, and through proper training the performances level of the Employees can also be improved.
• Staffing helps in providing job satisfaction to the employees and thus Keeps their morale high. With proper training and
development programs Their efficiency improves and they feel assured of their career Advancements.
• Staffing maintains harmony in the organization. Through proper staffing, Individuals are not just recruited and selected
but their performance is Regularly appraised and promotions made on merit. For all these, certain Procedures are made
and are duly communicated to all concerned. This Fosters harmony and peace in the organization.

Step in the process of staffing function

Manpower
Recruitment Selection
Placement and Orientation
Training
Development
Promotion
Transfer
Appraisal
Remuneration

Figure 8.1 – Process of staffing function

The process of the staffing function involves human resource planning i.e. Estimating the size and nature of the personnel
required for the recruitment And selection of the best candidates to train, to induct, to reward and to have Regular and
effective communication with them. The process of staffing Consists of the following steps (Figure 8.1).

 Manpower planning –It involves in creating and evaluating the Manpower inventory after considering the
development of the required Talents among the existing employees through their promotion and Advancement.

 Determining manpower needs from company plans and programs.

Determining available manpower resources.
 Analyzing, training needs of present employees
 Recruiting manpower from external sources for those positions That cannot be filled up by present employees.
 Planning training and development of manpower resources.

 Recruitment – Recruitment is the process of attracting the appropriate Number of qualified individuals to apply for
vacant positions in an Organization.

 Selection – It is the screening step of staffing in which the solicited Applications of those candidates which are not
found suitable as per the Requirements of the notified post are screened out. It is the process of Elimination of the
candidates who appear unpromising for the post.

 Placement and orientation –Once selection process is over, the selected Candidates are appointed. It means putting
the appointed employee on The job for which he is selected. Orientation is the introduction of the Appointed employee
with the job. He is made familiar to the work units And work environment through the orientation programs.

 Training – is defined as an attempt to improve performance by the Attainment of specific skills such as computing,
typing, encoding, Designing, driving, and so forth to do the current job. The goal of training Is to ensure that a number of
job skills will be performed at prescribed Quality levels by trained employees.

 Development – this is more general than training and refers to learning Opportunities designed to help employees
grow. It provides employees Broader learning which may be utilized in a variety of settings and for Future jobs. As global
competition increases, training programs for Management are becoming more educational in scope.

 Promotion – it involves the assignment of an employee to a higher level Job. This also refers to the upward or vertical
movement of employees in A organization from lower level jobs to higher level jobs involving Increases in duties and
responsibilities, higher pay and privileges.

 Transfer –Employees of the organization who have been identified for Taking up of higher positions in the
organization are being transferred to Different departments so that they can learn intricacies of the functioning Of
different departments. This helps them when they take up positions in The higher management.

 Appraisal – it is normally done in order to keep a track or record of the Behavior, attitudes as well as opinions of the
employees towards their Jobs. Appraisal of employees reveals as to how efficiently the employee is Performing in his job.

 Remuneration- It is a kind of compensation provided monetarily to the Employees for their work performances. This
is given according to the Nature of job- skilled or unskilled, physical or mental, etc. Remuneration Forms an important
monetary incentive for the employees.
Recruitment
As what we have been discussed that recruitment is the process of attracting The appropriate number of qualified
individuals to apply for vacant positions In an organization.

Systematic recruitment requires job analysis and the identification of Application of applicants for vacant positions.

Job Analysis
− The procedure used for determining/collecting information relating To the operations and responsibility of a
specific job. The end result of This analysis is job description and job specification.

Job description
− Organized, factual statements of the duties and responsibilities of a Specific job. It tells what is to be done, how it
is done, and why. It is a List of job duties, responsibilities, reporting relationships, working Conditions, and
supervisory responsibilities.

Job specifications
− A written explanation of the minimum acceptable human qualities Necessary for effective performance of a given
job. It designates the Qualities required for acceptable performance, that is the requisite Education, skills,
personality, and so on.

Stages of the Recruitment

1. Defining requirements, preparing of job description and job Specifications.
2. Attracting potential employees
3. Selecting appropriate people for the job

Sources of application. Applicants can either be sourced internally or Externally.

A. Internal sources means considering present employees as candidates For job openings.
Referrals: referral system in which present employees are asked to Encourage friends or relatives to apply. This is the
most used Recruiting tool in many small organizations.

B. External sources this is used when the organization is unable to fill Its hiring needs from internal sources. One
inherent advantage of this is that the pool of talents is much larger and more diverse than that Available from
internal sources plus the new employee bringing new ideas, different cultural values, and fresh approaches.

1. Job advertisement
2. Employment agencies
3. Walk-ins
4. Campus recruitment
5. Internships
6. Employment databases
7. Special events recruiting
8. Online recruitment
9.
Selection
− The selection process is to gather from applicants information that Will predict their job success and then to hire
the candidates likely to Be most successful.
− A good selection requires a methodical approach to the problem of Finding the best matched person for the job.
− Selection involves choosing the best candidate with best abilities, Skills and knowledge for the required job

Selection process

The Employee selection Process takes place in following order:

Preliminary Interviews- It is used to eliminate those candidates who do not Meet the minimum eligibility criteria laid
down by the organization. The Skills, academic and family background, competencies and interests of the Candidate are
examined during preliminary interview.

Application blanks- The candidates who clear the preliminary interview are Required to fill application blank. It contains
data record of the candidates Such as details about age, qualifications, reason for leaving previous job, Experience, etc.

Employment interviews – it provides the opportunity to review candidates’ Qualifications and to determine their
suitability for the position. It also Provides candidates with the chance to learn about the position and its Requirements
and to present information on their skills and experience.

Written Tests- Various written tests conducted during selection procedure Are aptitude test, intelligence test, reasoning
test, personality test, etc. These Tests are used to objectively assess the potential candidate. They should not Be biased.

Background testing – this is to verify the accuracy of factual information Previously provided by the applicant and to
uncover damaging background Information such as criminal records, and suspended driver’s licenses.
Medical examination- Medical tests are conducted to ensure physical Fitness of the potential employee. It will decrease
chances of employee Absenteeism

Final employment decision – this is the decision to accept or reject the Application on the results of the Physical
Examination and a value judgment Based on all the gathered in the previous steps.

Training and Development

Training
− Is a systematic process that will help the employees acquire the Right knowledge, attitude, skills, and habits to
improve current Performance.
Development
− It refers to learning opportunities designed to help employees Grow.
− It provides employees broader learning which may be utilized in a Variety of settings and for future jobs.

Objective of Training and Development

1. Improve the quantity and quality of productivity. This can lead to an Increase in an individual’s skills in one or
more areas of expertise.
2. Effectiveness in the present jobs this involves increasing an Individual’s motivation to perform is job well.
3. Create more favorable attitudes, loyalty, and cooperation.
4. Help employees in their personal development and advancement by Helping them acquire additional
qualifications for a better job.
5. Help organization respond to dynamic market conditions and Changing consumer demands.
6. Satisfy human resource planning requirements.

Importance of Training
• Improvement in skill and knowledge .
• Higher production and productivity .
• Job satisfaction.
• Better use of resources.
• Stability and growth : if an org. has a team of trained employees it can Face future challenges easily.
• Reduction in complaints and accidents.
• Adaptability.
• Reduced supervision : well trained employees don’t need much Supervision.
• Greater flexibility

Types of Training
Orientation training- It is a systematic and planned introduction and it’s Concerned with inducting or orienting a new
employee to the organization And it’s procedure, Rules and regulations.

– The main purpose is to give a ‘bird’s eye view ‘ of the organization where he Has to work .
– It’s very short informative training given immediately after
recruitment
– It’s creates a feeling of involvement in the mind of newly appointed Employees.
– It reduce anxiety and employee turnover.

Apprenticeship training- is one of the traditional method of training and is Meant to give trainees sufficient knowledge
and skill in technical jobs.
– This types of training is very common in skilled trades such as electricians, Plumbers, carpenters, etc.

Internship training
– Under this method, the vocational or educational institute enters into Arrangement with an industrial
enterprise for providing practical knowledge To it’s students.

On job training- is a training technique that involves allowing the person to Learn the job by actually performing it own
the job.

Off-job training – Off the job types of training is imparted off the job outside The work premises.

Staffing Part II
This lesson is continuation of our previous discussion about Staffing. We will Discuss the concepts of wages and salary
administration. Base wages and Salaries are defined as the hourly, weekly and monthly pay that employees Receive for
their work in an organization.

In a capitalistic system, employees are supposed to be compensated fairly for Services that they render to the firm. Total
compensation earned by Employees may consist of wages, salaries, fringe benefits and a form of profit-Sharing.
Compensation levels of companies may differ even if they are in the Same type of business.

Then our discussion will move to performance evaluation and appraisal, Employee relation, employee movements and
reward.

Topic Outline:
1. Concepts of wages and salary administration
2. Performance evaluation and appraisal
 3. Employee relations
4. Employee movements (promotion and transfer)
5. Rewards systems

Compensation
Compensation is the set of rewards that organizations provide to Individuals in return for their willingness to perform
various jobs and tasks Within the organization.

• The person receiving a salary is not paid a smaller amount for working Fewer hours, nor is he paid more for working
overtime. Someone who is Paid wages receives a pay rate per hour, multiplied by the number of Hours worked. This
person is considered to be a “non-exempt” employee.

Factors Affecting Compensation Levels

The factors that influence the setting of compensation levels are:

Attitude of Management – some firms have the policy of attracting the best Qualifies applicants. In order to do this,
management offers higher Compensation which could include housing benefits and/or profit sharing Schemes than the
other firms in the industry. It is the belief of these firms That better qualified applicants mean lower training costs and
possibly, lower Employee turnover. Furthermore, firms which do this often believe that the higher pay is offset by higher
productivity. In general, multinationals and the large Filipino-owned firms offer higher compensation levels than the
smaller-sized firms.

Job Specifications – job specification can be used to access the worth of each job relative to other jobs. Using the job
specification, positions in the firm may be ranked or classified.
Environmental factors – the setting of wage or salary levels is not entirely within the full control of management. In the
Philippines, the law prescribes a minimum wage. In the past, in addition to this minimum wage, a cost of living
allowance (COLA) per month was required by law. Furthermore, the supply of and demand for labor for certain company
positions is a significant factor to consider in setting compensation levels.

Principles Governing Salary Administration

• Maintaining Competitiveness
• Matching Employee Expectations
• Reinforcing positive employee behavior
• Eliminating any discrepancy
• Optimization of management and employee interests
• Maintaining good IR and harmony

Purpose of Wage & Salary

• Attracting talented resources
• Retaining and motivating employees
• Financial Management
• Legal Requirements

Different forms of Compensation

 Payment for timed worked
 Incentive forms of compensation
 performance incentives
 spot bonuses
 skill and knowledge-based pay/competency-based pay
 merit pay plans profit sharing
 stock ownership plans
 executive compensation

Performance Evaluation/Appraisal
The identification, measurement, and management of human performance in organizations.
There two types of performance appraisal:
• Informal Appraisal – conducted on a day to day basis.
• Systematic appraisal – occurs semi-annually or annually on a formalized basis.
Four Major Purposes of Systematic Appraisal
1. It lets subordinates know formally how their current performance is Being rated
2. It identifies those subordinates who deserve merit raises
3. It locates those subordinates who require additional training
4. It plays an important role in identifying those subordinates who are Candidates for promotion

Performance criteria
1. Relevance – relevance performance dimension are determined by the Duties and responsibilities contained in the
job description.
2. Reliability – should produce consistent and repeatable evaluation
3. Freedom from contamination – should measure each employee’s Performance without being contaminated by
factors that an employee Cannot control such as: economic condition, material shortage, poor Equipment.
Sources of data in appraisal
1. Production data – evaluate the degree of dependable task
Accomplishment by measuring quantity and quality of performance.
Example: peso volume of sales, return on investment, etc.

2. Personnel data – type of information found in an individual’s

Personnel files. Example: absenteeism, tardiness, etc.

3. Judgement of others – the spontaneous and innovative behavior of An employee be assessed by the judgement
of others.

Employee Relations
Provides support to staff employees and supervisors regarding:
• Policies and procedures
• Work related issues
• Mediation and conflict resolution
• Disciplinary process
• Grievance process

Employee Movement
Promotion - Involves the reassignment of an employee to a higher level job. This also refers to the upward or vertical
movement of employees in an organization from lower level jobs to higher level jobs involving increases in duties and
responsibility, higher pay and privileges.
Reasons for Employee Promotions
• An effective way to keep good men in the firm
• As recognition of and reward for good performance
• To boost employee morale and encourage the employees to render to the company the best service they are capable of

Basis or Criteria Used for Promotion

1. Seniority – length of service
a. Straight seniority – the length of service of an employee is the sole basis for determining who gets the promotion.
b. b. Qualified seniority – the more competent employee as compared to another employee with longer service will be
the one promoted.
2. Current and past performance
3. Assessment centres evaluate the qualified candidates for promotion, w/c focus on the kinds of skills and abilities to
effectively perform the higher level jobs that the candidates seek.
4. Competency or merit determined by the ratings or evaluations received by the employees.

Unofficial Promotion Criteria

 Personal Characteristics
 Nepotism – showing of favoritism or patronage to relatives
 Social Factors
 Friendship

Promotion from Within

Filling up vacancies in upper level management positions by promoting lower level managers.
A major advantage of this policy is its positive effect upon employee
motivation. Knowing that they have opportunity to be promoted tends to motivate employee’s performance with the
company and to solidify their feelings of loyalty toward the company.

Promotion from within Advantages:

• Provides greater motivation thinking for good performance
• Provides greater promotion opportunities for present employees
Disadvantages:
• Creates a narrowing of and stale of ideas
• Creates political infighting
Demotion
The reassignment of an employee to a lower job involving fewer skills and responsibilities. The movement of an
employee to a less important job from a higher level job in the organization which may not involve a reduction in pay but
a reduction in status or privileges.

Basis or Criteria for Demotion

1. Reorganizations, company merger or business contractions may result in fewer jobs, forcing some employees to accept
lower positions.
2. Inability of the employees to perform their jobs according to acceptable standards.
3. As a form of disciplinary action or a way to handle disciplinary problems, also viewed as a routine form of punishment
for wrongdoing.
4. The tool used to communicate to employees that they are beginning to be “liabilities” rather than assets to an
organization.

Transfer
This is the reassignment of employee to a job with similar pay, status, duties, and responsibilities. It also involves
horizontal movement from one job to another.
Reasons for Transfer
• Because personnel placement practices are not perfect, an employee-job mismatch may have resulted.
• An employee becoming unsatisfied with his job for one or a variety of reasons
• Organizations sometimes initiate transfers to further the development and advancement of the employee especially at
management and staff.
• Due to business expansion, retrenchment erroneous placement, the need to meet departmental requirement during peak
season.
• For personal enrichment/greater convenience and for more interesting jobs.
• For employee to be better suited or adjusted to his job (remedial
transfer)

There are 2 Kinds of Transfer

Permanent – made to fill vacancies requiring the special skills or abilities of the employee being transferred.
Temporary – made due to the temporary absence of an e employee, e.g., in case of sick, leave, vacation leave, or shifts in
the work load during peak periods.

Employee Separation
Different kinds of separation occur depending on whether the employee or the employee decides to terminate the
employment relationship.

Layoff
The separation of an employee initiated by the employer due to business reverses, the introduction of labor saving
devices, or the reduction in the demand for particular skills. Management as temporary measures during periods of
business recession, industrial depression or seasonal fluctuation resorts

Resignation
This is when employees voluntarily decide to end their employment with an organization.

Causes of Resignation
• Dissatisfaction about wages and working conditions
• Misunderstandings with supervisors or fellow workers
• Inconvenient work hours are among the chief reasons employee
resignation.

Retirement
This is when employees having satisfied certain conditions under existing laws and/or provisions of the collective
bargaining agreements or upon reaching the age of 65 are separated from employment with entitlement to retirement
benefits. This is given either in a lump sum amount or in a form of a monthly pension for life.

Termination/Discharge or Dismissal
The practice of putting an end to the employer- employee relations initiated by the employer with prejudice to the worker.
A discharge is due to some fault of the employee such as inability to meet the company’s standards of performance,
incompetence, violation of company rules, insubordination, etc.

Rewards Systems
• Each element of compensation and benefits, is known as reward.
• Total rewards include everything the employee perceives to be of value Resulting from employment relationship.
• This intervention involves the design of organizational rewards to
Improve employee satisfaction and performance.
• Reward systems should take a holistic approach to achieving optimum Performance.
• Rewards can be monetary and non-monetary.

A company’s reward system refers to the totality of the inducements that a Firm provides in order to:
1. Attract people to work for the company
2. Motivate them to perform well while working with the company, and
3. Induce them to remain with the company over time.

Figure 9.1

The company’s reward system is made up not only of the compensation System, but also includes such elements as
recognition and symbolic Rewards, and other non-economic inducements such as good working Environment, pleasant
climate of work, etc.A company’s compensation system refers to all forms of economic Remuneration, whether in
financial form or otherwise, which it provide to Employees. Compensation thus refers not only the salaries or wages, but
also To the other monetary and non-monetary benefits received by employees From their employer.

Total Rewards
Financial
Direct (cash)
- Salaries
- Incentives
- Bonuses
Indirect (benefits)
-insurance
-holidays
-Medical and health
- Child care
- Employee assistance
Non-Financial
Environment
- Good policies and practices
- Competent supervision
- Safe and healthy work environment
-fair treatment

Job
- Interesting work
- Challenge
- Responsibility
- Recognition Advancement

Total Rewards
• All of the tools available to the employer those may be used to attract, Motivate and retain employees.
• Total rewards include everything the employee perceives to be of value Resulting from the employment
relationship.
• There are five elements of total rewards, each of which includes Programs, practices, elements & dimensions
• Those collectively define an organization’s strategy to attract, motivate And retain employees.

Five Elements of Total Rewards

Compensation – Pay provided by an employer to an employee for services Rendered (i.e., time, effort and skill)

Benefits – Programs an employer uses to supplement the cash compensation That employees receive. – These
programs are designed to protect the Employee and his or her family from financial risks.

Work-Life – A specific set of organizational practices, policies, programs, Plus a philosophy, which actively
supports efforts to help employees achieve Success at both work and home. – Work-life strategies address the key
Intersections of the worker, his or her family, the community and the Workplace.

Performance – Alignment of organizational, team and individual Performance is assessed in order to understand
what was accomplished, and How it was accomplished. – Performance involves the alignment effort Toward the
achievement of business goals and organizational success.

Recognition – Acknowledges or gives special attention to employee efforts Or performance. – It meets an

intrinsic psychological need for appreciation And can support business strategy by reinforcing certain behaviors
that Contribute to organizational success. – Awards can be cash or non-cash (e.g., Verbal recognition, trophies,
certificates, plaques, dinners, tickets, etc.).

Developmental Opportunities —A set of learning experiences designed to Enhance employees’ applied skills
and competencies;

 Development engages employees to perform better and leaders to Advance their organizations’ people
strategies.

Career Opportunities A plan for an employee to advance their own career

Goals and may include advancement into a more responsible position in an

Organization.

 The organization supports career opportunities internally so that

Talented employees are deployed in positions that enable them to deliver

Their greatest value to their organization.

Staffing Part II
This lesson is continuation of our previous discussion about Staffing. We will discuss the concepts of wages and salary
administration. Base wages and salaries are defined as the hourly, weekly and monthly pay that employees receive for
their work in an organization.
In a capitalistic system, employees are supposed to be compensated fairly for services that they render to the firm. Total
compensation earned by employees may consist of wages, salaries, fringe benefits and a form of profit-sharing.
Compensation levels of companies may differ even if they are in the same type of business.
then our discussion will move to performance evaluation and appraisal, employee relation, employee movements and
reward.
Topic Outline:
1. Concepts of wages and salary administration
2. Performance evaluation and appraisal
3. Employee relations
4. Employee movements (promotion and transfer)
5. Rewards systems

Compensation
Compensation is the set of rewards that organizations provide to individuals in return for their willingness to perform
various jobs and tasks within the organization.
• The person receiving a salary is not paid a smaller amount for working fewer hours, nor is he paid more for working
overtime. Someone who is paid wages receives a pay rate per hour, multiplied by the number of hours worked. This
person is considered to be a "non-exempt" employee.

Factors Affecting Compensation Levels

The factors that influence the setting of compensation levels are:

Attitude of Management – some firms have the policy of attracting the best qualifies applicants. In order to do this,
management offers higher compensation which could include housing benefits and/or profit sharing schemes than the
other firms in the industry. It is the belief of these firms that better qualified applicants mean lower training costs and
possibly, lower employee turnover. Furthermore, firms which do this often believe that the higher pay is offset by higher
productivity. In general, multinationals and the large Filipino-owned firms offer higher compensation levels than the
smaller-sized firms.

Job Specifications – job specification can be used to access the worth of each job relative to other jobs. Using the job
specification, positions in the firm may be ranked or classified.

Environmental factors – the setting of wage or salary levels is not entirely Within the full control of management. In the
Philippines, the law prescribes a minimum wage. In the past, in addition to this minimum wage, a cost of living
allowance (COLA) per month was required by law. Furthermore, the supply of and demand for labor for certain company
positions is a significant factor to consider in setting compensation levels.

Principles Governing Salary Administration

• Maintaining Competitiveness
• Matching Employee Expectations
• Reinforcing positive employee behavior
• Eliminating any discrepancy
• Optimization of management and employee interests
• Maintaining good IR and harmony

Purpose of Wage & Salary

• Attracting talented resources
• Retaining and motivating employees
• Financial Management
• Legal Requirements

Different forms of Compensation

 Payment for timed worked
 Incentive forms of compensation
 performance incentives
 spot bonuses
 skill and knowledge-based pay/competency-based pay
 merit pay plans profit sharing
 stock ownership plans
 executive compensation

Performance Evaluation/Appraisal
The identification, measurement, and management of human performance in organizations.

There two types of performance appraisal:

• Informal Appraisal – conducted on a day to day basis.
• Systematic appraisal – occurs semi-annually or annually on a formalized basis.

Four Major Purposes of Systematic Appraisal

1. It lets subordinates know formally how their current performance is being rated
2. It identifies those subordinates who deserve merit raises
3. It locates those subordinates who require additional training
4. It plays an important role in identifying those subordinates who are candidates for promotion.

Performance criteria
1. Relevance - relevance performance dimension are determined by the duties and responsibilities contained in the job
description.
2. Reliability - should produce consistent and repeatable evaluation
3. Freedom from contamination - should measure each employee's performance without being contaminated by factors
that an employee cannot control such as: economic condition, material shortage, poor equipment.

Sources of data in appraisal

1. Production data - evaluate the degree of dependable task accomplishment by measuring quantity and quality of
performance.
Example: peso volume of sales, return on investment, etc.
2. Personnel data - type of information found in an individual's personnel files. Example: absenteeism, tardiness, etc.
3. Judgement of others - the spontaneous and innovative behavior of an employee be assessed by the judgement of
others.

Employee Relations
Provides support to staff employees and supervisors regarding:
• Policies and procedures
• Work related issues
• Mediation and conflict resolution
• Disciplinary process
• Grievance process

Employee Movement
Promotion - Involves the reassignment of an employee to a higher level job. This also refers to the upward or vertical
movement of employees in an organization from lower level jobs to higher level jobs involving increases in duties and
responsibility, higher pay and privileges.

Reasons for Employee Promotions

• An effective way to keep good men in the firm
• As recognition of and reward for good performance
• To boost employee morale and encourage the employees to render to the company the best service they are capable of

Basis or Criteria Used for Promotion

1. Seniority – length of service
a. Straight seniority – the length of service of an employee is the sole basis for determining who gets the promotion.
b. b. Qualified seniority – the more competent employee as compared to another employee with longer service will be
the one promoted.
2. Current and past performance
3. Assessment centres evaluate the qualified candidates for promotion, w/c focus on the kinds of skills and abilities to
effectively perform the higher level jobs that the candidates seek.
4. Competency or merit determined by the ratings or evaluations received by the employees.

Unofficial Promotion Criteria

 Personal Characteristics
 Nepotism – showing of favoritism or patronage to relatives
 Social Factors
 Friendship

Promotion from Within

Filling up vacancies in upper level management positions by promoting lower level managers.
A major advantage of this policy is its positive effect upon employee
motivation. Knowing that they have opportunity to be promoted tends to motivate employee’s performance with the
company and to solidify their feelings of loyalty toward the company.

Promotion from within

Advantages:
• Provides greater motivation thinking for good performance
• Provides greater promotion opportunities for present employees

Disadvantages:
• Creates a narrowing of and stale of ideas
• Creates political infighting

Demotion
The reassignment of an employee to a lower job involving fewer skills and responsibilities. The movement of an
employee to a less important job from a higher level job in the organization which may not involve a reduction in pay but
a reduction in status or privileges.

Basis or Criteria for Demotion

1. Reorganizations, company merger or business contractions may result in fewer jobs, forcing some employees to accept
lower positions.
2. Inability of the employees to perform their jobs according to acceptable standards.
3. As a form of disciplinary action or a way to handle disciplinary problems, also viewed as a routine form of punishment
for wrongdoing.
4. The tool used to communicate to employees that they are beginning to be “liabilities” rather than assets to an
organization.

Transfer
This is the reassignment of employee to a job with similar pay, status, duties, and responsibilities. It also involves
horizontal movement from one job to another.

Reasons for Transfer

• Because personnel placement practices are not perfect, an employee-job mismatch may have resulted.
• An employee becoming unsatisfied with his job for one or a variety of reasons
• Organizations sometimes initiate transfers to further the development and advancement of the employee especially at
management and staff.
• Due to business expansion, retrenchment erroneous placement, the need to meet departmental requirement during peak
season.
• For personal enrichment/greater convenience and for more interesting jobs.
• For employee to be better suited or adjusted to his job (remedial
transfer)

There are 2 Kinds of Transfer

Permanent – made to fill vacancies requiring the special skills or abilities of the employee being transferred.
Temporary – made due to the temporary absence of an e employee, e.g., in case of sick, leave, vacation leave, or shifts in
the work load during peak periods.

Employee Separation
Different kinds of separation occur depending on whether the employee or the employee decides to terminate the
employment relationship.

Layoff
The separation of an employee initiated by the employer due to business reverses, the introduction of labor saving
devices, or the reduction in the demand for particular skills. Management as temporary measures during periods of
business recession, industrial depression or seasonal fluctuation resorts

Resignation
This is when employees voluntarily decide to end their employment with an organization.

Causes of Resignation
• Dissatisfaction about wages and working conditions
• Misunderstandings with supervisors or fellow workers
• Inconvenient work hours are among the chief reasons employee
resignation.

Retirement
This is when employees having satisfied certain conditions under existing laws and/or provisions of the collective
bargaining agreements or upon reaching the age of 65 are separated from employment with entitlement to retirement
benefits. This is given either in a lump sum amount or in a form of a monthly pension for life.

Termination/Discharge or Dismissal
The practice of putting an end to the employer- employee relations initiated by the employer with prejudice to the worker.
A discharge is due to some fault of the employee such as inability to meet the company’s standards of performance,
incompetence, violation of company rules, insubordination, etc.

Rewards Systems
• Each element of compensation and benefits, is known as reward.
• Total rewards include everything the employee perceives to be of value resulting from employment relationship.
• This intervention involves the design of organizational rewards to
improve employee satisfaction and performance.
• Reward systems should take a holistic approach to achieving optimum performance.
• Rewards can be monetary and non-monetary.

A company’s reward system refers to the totality of the inducements that a firm provides in order to:
1. Attract people to work for the company
2. Motivate them to perform well while working with the company, and
3. Induce them to remain with the company over time.

Figure 9.1
The company’s reward system is made up not only of the compensation system, but also includes such elements as
recognition and symbolic rewards, and other non-economic inducements such as good working environment, pleasant
climate of work, etc.
A company’s compensation system refers to all forms of economic
remuneration, whether in financial form or otherwise, which it provide to employees. Compensation thus refers not only
the salaries or wages, but also to the other monetary and non-monetary benefits received by employees from their
employer.

Total Rewards
• All of the tools available to the employer those may be used to attract, motivate and retain employees.
• Total rewards include everything the employee perceives to be of value resulting from the employment relationship.
• There are five elements of total rewards, each of which includes
programs, practices, elements & dimensions
• Those collectively define an organization's strategy to attract, motivate and retain employees.

Five Elements of Total Rewards

Compensation - Pay provided by an employer to an employee for services rendered (i.e., time, effort and skill)
Benefits - Programs an employer uses to supplement the cash compensation that employees receive. - These programs are
designed to protect the employee and his or her family from financial risks.
Work-Life - A specific set of organizational practices, policies, programs, plus a philosophy, which actively supports
efforts to help employees achieve success at both work and home. - Work-life strategies address the key intersections of
the worker, his or her family, the community and the workplace.
Performance - Alignment of organizational, team and individual
performance is assessed in order to understand what was accomplished, and how it was accomplished. - Performance
involves the alignment effort toward the achievement of business goals and organizational success.
Recognition - Acknowledges or gives special attention to employee efforts or performance. - It meets an intrinsic
psychological need for appreciation and can support business strategy by reinforcing certain behaviors that contribute to
organizational success. - Awards can be cash or non-cash (e.g., verbal recognition, trophies, certificates, plaques, dinners,
tickets, etc.).
Developmental Opportunities —A set of learning experiences designed to enhance employees’ applied skills and
competencies;
 Development engages employees to perform better and leaders to
advance their organizations’ people strategies.
Career Opportunities A plan for an employee to advance their own career goals and may include advancement into a more
responsible position in an organization.
 The organization supports career opportunities internally so that
talented employees are deployed in positions that enable them to deliver their greatest value to their organization.

Leading (Part 1)
Leading is the third element of management, one of the management core functions. Here, a manager spends time
connecting with his/her
employees. Leadership skills include inspiring, communicating, motivating, and influencing employees for efficient
output. All managers are not leaders, but all leaders are managers. An employee follows all the directions a manager gives
because they have to, because managers have all the legitimate powers. But an employee voluntarily follows the direction
of a leader because they have believed in him/her.
Topic Outline:
1. Scope of directing and leading
2. Characteristics of a good leader
3. Leadership function
4. Leadership styles
5. Motivation
6. Theories of motivation
7. Leadership theories

Scope of Directing and Leading

Directing: Refers to instructing, guiding, communicating and inspiring people so that the objectives can be achieved.
• It is part of management process which ensures the efficiency and
effectiveness of the employees.
• It is also called management in action.
• The function of directing is concerned with employee orientation, issuing instructions, supervision, motivation,
communication and leadership.
• Employee Orientation: An employee must be properly oriented to the enterprise in which they are working. This
orientation is necessary for them to accomplish the objectives of the enterprise.

• Instructions: An instruction is an order or command by a senior

directing a subordinate to act or refrain from acting under a given
situation. The right to issue orders should be with the superior by virtue
• Supervision: In order to see that the work is done according to the
instructions the superior must observe the activities of the subordinates.
Supervision is done at all levels of management. However, supervision is more important at lower levels.
• Motivation: One of the most challenging problems for management is to motivate people. Management has to induce
the employee to utilize his talent and skill to contribute to the organizational goal.

Nature and Characteristics of Directing:

Directing is characterized by the following distinguishing features:
1. Element of management. Directing is one of the important functions of management. It is through direction that
management initiates action in the organization.
2. Continuing function. Direction is continuous process and it continues throughout the life of an organization. A
manager never ceases to guide, inspire and supervise his subordinates. A manager cannot get things done simply by
issuing orders and instruction. He must continually provide motivation and leadership to get the orders and instructions
executed.
3. Pervasive function. Direction initiates at the top and follows right up to the bottom of an organization. Every manager
in the organization gives direction to his subordinates as superior and receives direction as subordinates from his superior.
Direction function is performed at every level of management and in every department of the organization.
4. Creative function. Direction makes things happen and converts plans into performance it is the process around which
all performance revolves. Without direction, human forces in an organization become inactive and consequently physical
factors become useless. It breathes life into organization.
5. Linking function. Planning, organizing and staffing are merely
preparation for doing the work and work actually starts when managers perform the directing function. Direction puts
plans into an action and provides performance for measurement and control. In this way, directing serves as a connecting
link between planning and control.
6. Management of human factor. Direction is the interpersonal aspects of management. It deals with the human aspect
of organization. Human behaviour is very dynamic and is conditioned by a complex of forces about which not much is
known. Therefore, direction is a very difficult and challenging function.

Principles of Directing
Directing is a complex function as it deals with people whose behaviour is unpredictable. Effective direction is an art
which a manager can learn and perfect through practice. However, managers can follow the following principles while
directing their subordinates.
1. Harmony of objectives. Individuals join the organization to satisfy their physiological and psychological needs. They
are expected to work for the achievement of organizational objectives. They will perform their tasks better if they feel that
it will satisfy their personal goals.
2. Maximum individual contribution. Organizational objectives are
achieved at the optimum level when every individual in the organization makes maximum contribution towards them.
Managers should, therefore, try to elicit maximum possible contribution from each subordinate.
3. Unity of command. A subordinate should get orders and instruction from one superior only. If he is made accountable
to two bosses simultaneously, there will be confusion, conflict, disorder and indiscipline in the organization.
Therefore, every subordinate should be asked to report to only one manager.
4. Appropriate techniques. The manager should use correct direction
techniques to ensure efficiently of direction. The technique used should be suitable to the superior, the subordinates and
the situation.
5. Direct supervision. Direction becomes more effective when there is a direct personal contact between the superior and
his subordinates. Such contact improves the morale and commitment of the employees. Therefore, whenever possible
direct supervision should be used.
6. Managerial communication. A good system of communication between the superior and his subordinates helps to
improve mutual understanding. Upwards communication helps a manager to understand the subordinates to express their
feeling.

Leading:
• The process of influencing people so that they will contribute to
organizational and group goals.
• Managing requires the creation and maintenance of an environment in which individuals work together toward the
accomplishment of common objectives.

Leading function has three basic components:

• Motivating Employees – They motivate their employees and
subordinates.
• Influencing Employees – They influence their employees and
subordinates to reach the desired goals of the organization.
• Forming Effective Groups – They form effective groups in the
organization. The leading function helps any organization go forward to attain its goals and objectives.

Importance of Leading in Management

Commencing an Action – Leaders are the people who start an action. They generally take the risk of any action.
Providing Instructions – They provide instructions to conduct and finish a job.
Motivating Others – They do motivate their subordinates.
Improve Confidence – when employees are frustrated, demotivated, and stressed by lengthy working pressure, leaders
help to redevelop their confidence.
Building Morale – leaders develop the code of ethics that help to develop the morality of the employees.
Building an Efficient Working Environment – they build the working
environment in such way that employees can work there very comfortably.
Coordination – after any type of conflict of interest or chaos in
an organization, it is very important to reinstall the normal environment in that organization. Leaders reinstall the working
environment.

Leadership
Leadership – The art or process of influencing people so that they will strive willingly and enthusiastically toward the
achievement of group goals.
Peter Ducker stated – “Management is doing the right things and Leadership is doing the things right”
 Ideally people should be encouraged to develop not only willingness to work but also willingness to work with zeal and
confidence.
 Leaders act to help a group attain objectives through the maximum
application of its capabilities.

Characteristics of a Good Leader

Honesty – your business and its employees are a reflection of yourself, and if you make honest and ethical behavior a key
value, you team will follow suit.
Ability to delegate – Trusting your team with your idea is a sign of strength, not weakness. Delegating tasks to the
appropriate departments is one of the most important skills you can develop.
Communication – Being able to clearly describe what you want done is extremely important. If you can’t relate your
vision to your team, you won’t all be working towards the same goal.
Sense of humor – If you are constantly learning to find the humor in the struggles, your work environment will become a
happy and healthy space, where your employees look forward to working in.
Confidence – Assure everyone that setbacks are natural and the important thing is to focus on the larger goal. By staying
calm and confident, you will help keep the team feeling the same.
Commitment – If you expect your team to work hard and produce quality content, you’re going to need to lead by
example.
Positive attitude – Keep your team motivated towards the continued
success of the company, and keep the energy levels up.
Creativity – it is during these critical situations that your team will look to you for guidance and you may be forced to
make a quick decision. It is important to learn to think outside the box.
Ability to inspire – Being able to inspire your team is great for focusing on the future goals. It is your job to keep spirits
up, and that begins with an appreciation for the hard work.
Intuition – When leading a team through uncharted waters. There is no roadmap on what to do. Everything is uncertain,
and the higher the risk, the higher the pressure.

Leadership Functions
Following are the important functions of a leader:
1. Setting Goals:
A leader is expected to perform creative function of laying out goals and policies to persuade the subordinates to work
with zeal and confidence.
2. Organizing:
The second function of a leader is to create and shape the organization on scientific lines by assigning roles appropriate to
individual abilities with the view to make its various components to operate sensitively towards the achievement of
enterprise goals.
3. Initiating Action:
The next function of a leader is to take the initiative in all matters of interest to the group. He should not depend upon
others for decision and judgment. He should float new ideas and his decisions should reflect original thinking.
4. Co-Ordination:
A leader has to reconcile the interests of the individual members of the group with that of the organization. He has to
ensure voluntary co-operation from the group in realizing the common objectives.

Direction and Motivation:

It is the primary function of a leader to guide and direct his group and motivate people to do their best in the achievement
of desired goals, he should build up confidence and zeal in the work group.
6. Link between Management and Workers:
A leader works as a necessary link between the management and the workers. He interprets the policies and programmes
of the management to his subordinates and represents the subordinates’ interests before the management. He can prove
effective only when he can act as the true guardian of the interests of his subordinates.

Leadership styles based on use of authority

1. Authoritarian or autocratic leader - the leader tells his or her employees what to do and how to do it, without getting
their advice.
2. Participative or democratic leader - the leader includes one or more employees in the decision making process, but
the leader normally maintains the final decision making authority.
3. Laissez-fair (free-rein) leader - the leader allows the employees to make the decisions, however, the leader is still
responsible for the decisions that are made.

Motivation
What is Motivation?
Motivation refers to the process by which a person’s efforts are energized directed and sustained towards attaining a goal.

Three key elements:

Energy - The energy element is a measure of intensity or drive. A motivated person puts forth effort and works hard
however the quality of effort must also be considered.
Direction - High levels of effort do not necessarily need to favorable job performance unless the effort is channeled in a
direction that benefits the organization.
Persistence - Effort that is directed toward and consistent with organization goals is the kind of effort we want from
employees. Finally motivation includes a persistence dimension. We want employees to persist in putting forth effort to
achieve those goals.
Theories of Motivation
• Maslow’s Hierarchy Of Needs Theory
• McGregor’s Theory X and Theory Y
• Herzberg’s Two-Fact Theory
• McClelland’s Three-Needs Theory

Maslow’s Hierarchy of Needs Theory

Figure 10.1 – Maslow’s hierarchy of Needs Maslow's hierarchy is a flawed model, which has never been proven to apply
in workplace settings, indeed Maslow himself saw no evidence that it worked in a workplace setting (Maslow, 2000). It
should thus be treated with caution.
However it does at least indicate that people are motivated differently, for example pay motivated differently depending
on which the level of hierarchy people worked in.
1. Self-actualization: highest need in his hierarchy. it is the desire to become what one is capable of becoming - to
maximize one's potential and to accomplish something.
2. Self-esteem: According to Maslow, once people begin to satisfy their need to belong, they tend o want to be held in
esteem both by themselves and by others. this kind of need produces such satisfaction as power, prestige, status, and self-
confidence.
3. Belongingness and Love needs: since people are social beings, they need to belong, to be accepted by others.
4. Safety needs: People want to be free of physical danger and of the fare of losing a job, property, food, or shelter.
5. Physiological needs: these are the basic needs for sustaining human life itself, such as food, water, warmth, shelter, and
sleep. Maslow took the position that, until these needs are satisfied to the degree necessary to maintain life, other needs
will not motivate people.

McGregor’s Theory X And Theory Y

• Theory X: the assumption that employees dislike work, are lazy, dislike responsibility, and must be coerced to perform
• Theory Y: the assumption that employees like work, are creative, seek responsibility, and can exercise self-direction

Comparison:
Labeled theory X (Negative)
• Employees inherently dislike work and, whenever possible, will attempt to avoid it.
• Since employees dislike work, they must be coerced, controlled, or threatened with punishment to achieve goals.
• Employees will avoid responsibilities and seek formal direction whenever possible.
• Most workers place security above all other factors associated with work and will display little ambition.

Labeled theory Y (Positive)

• Employees can view work as being as natural as rest or play.
• People will exercise self-direction and self-control if they are committed to the objectives.
• The average person can learn to accept, even seek, responsibility.
• The ability to make innovative decision is widely dispersed throughout the population and is not necessarily the sole
province of those in management positions.

Herzberg’s Motivation-Hygiene theory

• Developed by Fredrick Herzberg.
• Also known as Two Factor Theory.
• Portrays two different factors – hygiene factors and motivator factors – as the primary causes of job dissatisfaction and
job satisfaction.

Figure 10.2 – Two Factor Theory

Two Factor Theory also known as Motivation-Hygiene Theory was developed by Herzberg

The popularity of Herzberg’s Theory of Motivation is explained by the fact that his theory touches on factors that are
often used by managers to motivate people in the work setting. Herzberg’s classifies the job factors which motivates into
two – the motivators and the satisfiers.

 Hygiene factors. (Mostly Extrinsic)

Source of job dissatisfaction.
Associated with the job context or work setting.
Improving hygiene factors prevent people from being dissatisfied but do not contribute to satisfaction.
 Motivator factors. (Mostly Intrinsic)
Source of job satisfaction.
Associated with job content.
Building motivator factors into the job enables people to be satisfied. Absence of motivator factors in the job results in
low satisfaction, low motivation, and performance.

Hygiene or maintenance factors

• Focuses on outcomes that lead to higher motivation and job satisfaction, and those outcomes that can prevent
dissatisfaction.
• Unsatisfied hygiene needs create dissatisfaction; satisfaction of hygiene needs does not lead to motivation or job
satisfaction.
• Motivator needs relate to the nature of the work itself—autonomy, responsibility, interesting work.
• Hygiene needs are related to the physical and psychological context of the work—comfortable work environment, pay,
job security
McClelland’s Three-Needs Theory
David C. McClelland has contributed to the understanding of motivation by identifying three types of basic motivating
needs.
He classified three basic motivating needs to:
Need for achievement: people with a high need for achievement have an intense desire for success and an equally intense
fear failure. They want to be challenged, and they set moderately difficult goals for themselves. They take a realistic
approach to risk. They tend to be restless, like to work long hours, do not worry unduly about failure if it does occur, and
tend to like to run their own shows.
Need for Power: McClelland and other researchers have found that people with a high need for power have a great
concern with exercising influenceand control. Such individuals generally are seeking positions of leadership; they are
frequently good conversationalists, though often argumentative; they are forceful, outspoken, hardheaded, and demanding,
and they enjoy teaching and public speaking.
Need for Affiliation: people with a high need for affiliation usually derive pleasure from being loved and tend to avoid the
pain of being rejected by a social group. As individuals, they are likely to be concerned with maintaining pleasant social
relationships, to enjoy a sense of intimacy and understanding, to be ready to console and help others in trouble, and to
enjoy friendly interaction with others.
Leadership Theories
Great Man Theory
 Leaders are born, not made.
 This approach emphasized that a person is born with or without the necessary traits of leaderships.
Early explanations of leadership studied the “traits” of great leaders
 “Great man” theories (Gandhi, Lincoln, Napoleon)
 Belief that people were born with these traits and only the great people possessed them
Great Man Theory (1840s)
The Great Man theory evolved around the mid 19th century. Even though no one was able to identify with any scientific
certainty, which human characteristic or combination of, were responsible for identifying great leaders. Everyone
recognized that just as the name suggests; only a man could have the characteristic (s) of a great leader.
The Great Man theory assumes that the traits of leadership are intrinsic. That
simply means that great leaders are born...they are not made. This theory sees great leaders as those who are destined by
birth to become a leader. Furthermore, the belief was that great leaders will rise when confronted with the appropriate
situation. The theory was popularized by Thomas Carlyle, a writer and teacher. Just like him, the Great
Man theory was inspired by the study of influential heroes. In his book "On Heroes, Hero-Worship, and the Heroic in
History", he compared a wide array of heroes.
In 1860, Herbert Spencer, an English philosopher disputed the great man
theory by affirming that these heroes are simply the product of their times
and their actions the results of social conditions,
 Great Man approach actually emphasis “charismatic” leadership. charisma being the Greek word for gift.
 No matter what group such a natural leader finds himself in, he will always be recognized for what he is.
 According to the great man theory of leadership, leadership calls for certain qualities like commanding personality,
charm, courage ,intelligence, persuasiveness and aggressiveness.

Trait Theory
Theories that consider personality, social, physical, or intellectual traits to differentiate leaders from non-leaders.
Leadership Traits are include of:
 Ambition and energy
 The desire to lead
 Honesty and integrity
 Self-confidence
 Intelligence
 Job-relevant knowledge

Trait Theory (1930's - 1940's)

The trait leadership theory believes that people are either born or are made
with certain qualities that will make them excel in leadership roles. That is,
certain qualities such as intelligence, sense of responsibility, creativity and
other values puts anyone in the shoes of a good leader. In fact, Gordon
Allport, an American psychologist,"...identified almost 18,000 English
personality-relevant terms" (Matthews, Deary & Whiteman, 2003, p. 3).
The trait theory of leadership focused on analyzing mental, physical and
social characteristic in order to gain more understanding of what is the
characteristic or the combination of characteristics that are common among
leaders.
There were many shortfalls with the trait leadership theory. However, from a
psychology of personalities approach, Gordon Allport's studies are among
the first ones and have brought, for the study of leadership, the behavioural
approach.
 In the 1930s the field of Psychometrics was in its early years.
 Personality traits measurement weren't reliable across studies.
 Study samples were of low level managers
 Explanations weren't offered as to the relation between each
characteristic and its impact on leadership.
 The context of the leader wasn't considered.
Trait Theories Limitations:
 No universal traits that predict leadership in all situations.
 Traits predict behavior better in “weak” than “strong” situations.
 Unclear evidence of the cause and effect of relationship of leadership
and traits.
 Better predictor of the appearance of leadership than distinguishing
effective and ineffective leaders.
Behavioral Theory
Theories proposing that specific behaviors differentiate leaders from non
leaders.
 Pattern of actions used by different individuals determines leadership
potential
Examples
− Autocratic, democratic and laissez-faire
− Michigan Studies: Employee centred versus task centred
Behavioural Theories (1940's - 1950's)
In reaction to the trait leadership theory, the behavioural theories are
offering a new perspective, one that focuses on the behaviours of the leaders
as opposed to their mental, physical or social characteristics. Thus, with the
evolutions in psychometrics, notably the factor analysis, researchers were
able to measure the cause an effects relationship of specific human
behaviours from leaders. From this point forward anyone with the right
conditioning could have access to the once before elite club of naturally
gifted leaders. In other words, leaders are made not born.
The behavioural theories first divided leaders in two categories. Those that
were concerned with the tasks and those concerned with the people.
Throughout the literature these are referred to as different names, but the
essence are identical.
Behavioural Theory In contrast with trait theory, behavioural theory
attempts to describe leadership in terms of what leaders do, while trait
theory seeks to explain leadership on the basis of what leaders are.
Leadership according to this approach is the result of effective role
behaviour. Leadership is shown by a person’s acts more than by his traits.
This is an appropriate new research strategy adopted by Michigan
Researchers in the sense that the emphasis on the traits is replaced by the
emphasis on leader behaviour (which could be measured).
 Theories that attempt to isolate behaviors that differentiate effective
leaders from ineffective leaders.
 Behavioral studies focus on identifying critical behavioral determinants
of leadership that, in turn, could be used to train people to become
leaders
Behavioral Leadership Studies
The Ohio State Studies sought to identify independent dimensions of leader
behavior
 Initiating structure
 Consideration
The University of Michigan Studies sought to identify the behavioral
characteristics of leaders related to performance effectiveness
 Employee oriented
 Production oriented.
Contingency theory of leadership
People become leaders not only because of their personality attributes but
also because of various situational factors and the interactions between
leaders and group members.
 Any condition to be taken into account when designing the whole or
part of an organization.
Contingency Theories (1960's)
 The Contingency Leadership theory argues that there is no single way
of leading and that every leadership style should be based on certain
situations, which signifies that there are certain people who perform
at the maximum level in certain places; but at minimal performance
when taken out of their element.
 To a certain extent contingency leadership theories are an extension
of the trait theory, in the sense that human traits are related to the
situation in which the leaders exercise their leadership. It is generally
accepted within the contingency theories that leader are more likely
to express their leadership when they feel that their followers will be
responsive.
Contingency theory of leadership
 In contingency theory of leadership, the success of the leader is a
function of various contingencies in the form of subordinate, task,
and/or group variables. The effectiveness of a given pattern of
leader behavior is contingent upon the demands imposed by the
situation. These theories stress using different styles of leadership
appropriate to the needs created by different organizational
situations.
Fiedler’s contingency theory:
 Fielders' theory is the earliest and most extensively researched.
Fiedler’s approach departs from trait and behavioral models by
asserting that group performance is contingent on the leader’s
psychological orientation and on three contextual variables: group
atmosphere, task structure, and leader’s power position.
Path-goal theory
The main function of the leader is to clarify and set goals with subordinates,
help them find the best path for achieving the goals, and remove obstacles.
The Path-Goal model is a theory based on specifying a leader's style or
behavior that best fits the employee and work environment in order to
achieve a goal (House, Mitchell, 1974). The goal is to increase your
employees' motivation, empowerment, and satisfaction so they become
productive members of the organization.
Path-Goal is based on Vroom's (1964)expectancy theory in which an
individual will act in a certain way based on the expectation that the act will
be followed by a given outcome and on the attractiveness of that outcome to
the individual. The path-goal theory was first introduced by Martin Evans
(1970) and then further developed by House (1971).
The path-goal theory can best be thought of as a process in which leaders
select specific behaviors that are best suited to the employees' needs and the
working environment so that they may best guide the employees through
their path in the obtainment of their daily work activities (goals)
(Northouse, 2013).
The theory categorizes leader behavior into four groups:
Supportive leadership behavior gives consideration to the needs of
subordinates, shows concern for their well-being, and creates a pleasant
organizational climate.
Participative leadership allows subordinates to influence the decisions of
their superiors, which may increase motivation.
Instrumental leadership gives subordinate rather specific guidance and
clarifies what is expected of them. It involves aspects of planning, organizing,
coordinating, and controlling by the leader.
Achievement-oriented leadership involves setting challenging goals,
seeking improvement of performance, and having confidence that
subordinates will achieve high goals.
Types of Leaders:
Transactional leaders identify what needs to be done to achieve goals,
including clarifying roles and tasks, rewarding performance, and providing
for the social needs of followers.
Transactional leadership Theories (1970's)
Transactional theories, also known as exchange theories of leadership, are
characterized by a transaction made between the leader and the followers. In
fact, the theory values a positive and mutually beneficial relationship.
Transactional leadership styles are more concerned with maintaining the
normal flow of operations. Transactional leadership can be described as
"keeping the ship afloat." Transactional leaders use disciplinary power and
an array of incentives to motivate employees to perform at their best. The
term "transactional" refers to the fact that this type of leader essentially
motivates subordinates by exchanging rewards for performance. A
transactional leader generally does not look ahead in strategically guiding an
organization to a position of market leadership; instead, these managers are
solely concerned with making sure everything flows smoothly today.
Transformational leaders articulate a vision, inspire and motivate
followers, and create a climate favorable for organizational change.
Transformational Leadership Theories (1970s)
The Transformational Leadership theory states that this process is by which
a person interacts with others and is able to create a solid relationship that
results in a high percentage of trust, that will later result in an increase of
motivation, both intrinsic and extrinsic, in both leaders and followers
A transformational leader goes beyond managing day-to-day operations and
crafts strategies for taking his company, department or work team to the
next level of performance and success. Transformational leadership styles
focus on team-building, motivation and collaboration with employees at
different levels of an organization to accomplish change for the better.
Transformational leaders set goals and incentives to push their subordinates
to higher performance levels, while providing opportunities for personal and
professional growth for each employee.
Advantages
Both leadership styles are needed for guiding an organization to success.
Transactional leaders provide distinct advantages through their abilities to
address small operational details quickly. Transactional leaders handle all
the details that come together to build a strong reputation in the
marketplace, while keeping employees productive on the front line.
Transformational leadership styles are crucial to the strategic development
of a small business. Small businesses with transformational leaders at the
helm shoot for ambitious goals, and can they achieve rapid success through
the vision and team-building skills of the leader.

Leading (Part 2)
Communication applies to all phases of managing, it is particularly important
in the function of leading. Communication is the transfer of information from
a sender to a receiver, with the information being understood by receiver.
This definition forms the basis for the communication process model
discussed in this lesson. the model focuses on the sender, the transmission,
and the good communication, and feedback, that facilitates communication.
Topic Outline:
1. Definition of communication
2. Communication process model
3. Different types of communication
4. Communication flow
5. Management change and diversity
6. Change management process
7. The difference between Filipino and Foreign Cultures: A Leadership
Challenge
8. The difference between Cross-cultural and intercultural communication
Definition of Communication
Communication
The transfer of information from a sender to a receiver, with the information
being understood by receiver.
What is Managerial Communication?
Managerial communication enables people to exchange information and
feedbacks within the organization and enables people to pursue the
organizational goals.
Why communication is needed in management?
 To establish and disseminate the goals of an enterprise;
 To develop plans for their achievement;
 To organize human and other resources in the most effective and efficient
way;
 To select, develop, and appraise members of the organization;
 To lead, direct, motivate, and create a climate in which people want to
contribute; and
 To control performance.
The Purpose of Communication
The purpose of communication in an enterprise is to effect change – to
influence action toward the welfare of the enterprise. Communication is
essential for the internal functioning of enterprises because it integrates the
managerial functions.
1. to establish and disseminate the goals of an enterprise;
2. to develop plans for their achievement;
3. to organize human and other resources in the most effective and
efficient way;
4. to select, develop, and appraise members of the organization;
5. to lead, direct, motivate, and create a climate in which people want to
contribute; and
6. to control performance
Figure 11.1 – The purpose and function of communication
Graphically shows not only that communication facilitated the managerial
functions but also that communication relates an enterprise to its external
environment. It is through information exchange that managers become
aware of the needs of customers, the availability of suppliers, the claims of
stockholders, the regulations of governments, and the concerns of the
community. It is communication that any organization becomes an open
system interacting with its environment

The Communication Process Model

Figure 11.2 – The Communication Process
Sender of the message: Communication begins with the sender, who has a
thought or an idea, which is then encoded in a way that can be understood by
both the sender and the receiver. While it is usual to think of encoding a
message into a spoken language, there are many other ways of encoding,
such as translating the thought into computer language.
Use of a channel to transmit the message: the information is then
transmitted over a channel that links the sender with the receiver. The
message may be oral or written, and its transmission may be through a
memorandum, a computer, telephone, a telegram, email, television, or other
media. The proper selection of the channel is vital for effective
communication.
Receiver of the message: the receiver has to be ready for the reception of
the message so that it can be decoded into thoughts. The next step in the
process is decoding, in which the receiver converts the message into
thoughts. Accurate communication can occur only when both the sender and
the receiver attach the same, or at least similar meanings to the symbols that
compose the message. Communication is not complete unless it is
understood. Understanding is in the mind of both the sender and the
receiver. Persons with closed mind will normally not completely understand
messages, especially if the information is a contrary to their value system.
Noise: Anything – whether in the sender, the transmission, or the receiver –
that hinders communication.
Feedback: to check the effectiveness of communication, a person must have
feedback. One can never be sure whether or not a message has been
effectively encoded, transmitted, decoded, and understood until it is
confirmed by feedback. Similarly, feedback indicates whether individual or
organizational change has taken place as a result of communication.

Formal communication Informal communication

Official channel Unofficial channel
Planned and systematic Unplanned and spontaneous
Part of organization str Cuts across formal relationships
Oriented towards goals and task of the
enterprise
Directed towards goals and need
satisfaction of individual
Impersonal Personal and social
Stable and rigid Flexible and instable
Slow and structured Fast and unstructured

Direction of Communication Flow

Upward communication: travel from subordinates to superiors and
continues up the organizational hierarchy.
Downward communication: flows from people at higher levels to those at
lower levels in the organizational hierarchy.
Horizontal: flow of information is among people on the same or similar
organizational levels.
Guidelines for Improving Communication
Effective communication is the responsibility of all persons in the
organization, managers as well as non-managers, in working toward a
common aim. Whether communication is effective can be evaluate by the
intended results. The following guidelines can help overcome the barriers to
communication.
1. Clarify the purpose of the message
Senders of messages must clarify in their minds what they want to
communicate. This means that one of the first steps in communicating is to
clarify the purpose of the message and to make a plan to achieve the
intended end.
2. Use intelligible encoding
Effective communication requires that encoding and decoding be done with
symbols that are familiar to both the sender and the receiver of the message.
Thus, the manager (and specially the staff specialist) should avoid
unnecessary technical jargon, which is intelligible only to experts in the their
particular field.
3. Consult others’ views
The planning communication should not be done in the vacuum. Instead,
other people should be consulted and encouraged to participate: to collect
the facts, analyze the message, and select the appropriate media.
4. Consider receivers’ needs
It is important to consider the needs of the receivers of the information.
Whenever appropriate, one should communicate something that is of value
to them, in the short run as well as in the more distant future. At times,
unpopular actions that affect employees in the short run may be more easily
accepted if they are beneficial to them in the long run.
5. Use appropriate tone and language and ensure credibility
There is a saying that the tone makes the music. Similarly, in communication,
the tone of voice, the choice of language, and the congruency between what is
said and how it is said influence the reaction of the receiver of the message.
An autocratic manager ordering subordinate supervisors to practice
participative management will create a credibility gap that will be difficult to
overcome.
6. Get feedback
Too often, information is transmitted without communicating.
Communication is complete only when the message is understood by the
receiver. And the sender never knows whether the message is understood
unless he or she gets feedback. This is accomplished by asking questions,
requesting a reply to a letter, and encouraging receivers to give their reaction
to the message.
7. Consider receivers’ emotions and motivations
The function of communication is more than transmitting information. It also
deals with emotions, which are very important in interpersonal relationships
between superiors, subordinates, and colleagues in an organization.
Furthermore, communication is vital for creating an environment in which
people are motivated to work toward the goals of the enterprise while they
achieve their personal aims. Another function of communication is control.
As explained in the discussion of management by objectives (MBO), control
does not necessarily mean top-down control. Instead, the MBO philosophy
emphasizes self-control, which demands clear communication with an
understanding of the criteria against which performance is measured.
8. listen
Effective communicating is the responsibility not only of the sender but also
of the receiver of the information. Thus, listening is an aspect that needs
additional comment.

Management of Change and Diversity

Change Management:
Change management is an approach to shifting or transitioning individuals,
teams & organizations from a current state to a desired future state.
Change management is the process, tools & techniques to manage the
people-side of change to achieve the required business outcome(s)
Change Management Process
The change management process is the sequence of steps or activities that a
change management team or project leader would follow to apply change
management to a project or change.
Change management processes contain the following three phases:

Figure 11.3
1) Preparing for change (Assessment)
 Identifying the problem: Opportunity that necessitates change
(symptoms)
 Data collection: Gathering structural, technological and people
information and effects of these elements on the process
 Data analysis: Summarizing the data ( advantages, dis-advantages, risks,
and consequences)
 Strategic determination: Identifying possible solutions, barriers,
strategies
 Decide if the change is necessary.
 Make others aware of the need for the change.
 Swot analysis and basic 4 forces models: (environmental forces
,organizational forces , task demand , personal need.)
2) Managing change (Planning and Implementation)
 State goal and specific measurable objectives and also the time allotted.
 Establishing the who, how, what, and when of change.
 Allocating resources, budget and evaluation methods.
 Plan for resistance management.
 Identify areas of support & resistance.
 Include everyone in the planning that will be affected.
 Establish target dates for implementation.
 Develop appropriate strategy for alteration.
 Be available to support others through the process.
 Evaluate the change then modify if necessary.

3) Reinforcing change (Evaluation)

 Determining effectiveness of change.
 Achieved objectives and benefits - qualitative as well as financial and the
documented evidences of being achieved.
Stabilize the change: - taking measures to reinforce and maintain the
change.
Kurt Lewin’s Change Management Process
Figure 11.4
Unfreeze
 The existing equilibrium. Motivate persons by getting them ready for
change and increase willing to change.
 Build trust and recognition for the need to change.
 Actively participate in identifying problems and generate alternative
solutions.
 Is the development through problem awareness of a need for change.
Moving
 Work toward change by identifying the problem or the need for change.
 Explore the alternatives,
 Defining goals & objectivities
 Plan how to accomplish the goal &
 Implement the plan for change.
 Get persons to agree that the status quo is not beneficial to them.
Refreezing
 Does the integration of the change happened into ones personality &
consequently stabilization of the change happened?
 Then reinforce the new patterns of behavior. (Positive change)
 New level of equilibrium.
 Frequently person tries to return to old behavior after the change effort
ceases.(Negative change)
Steps for Successful Change Management
 Increase urgency: inspire people to move

 Build the guiding team: the right people

 Get the vision right: simple vision and strategy
 Empower action: Remove obstacles
 Create short-term wins: Set aims that are easy to achieve
 Don't let up: highlight achieved and future milestones
 Make change stick: Weave change into culture
Types of Change
There are two types of change in an organization:
Planned change - refers to initiatives that are driven “top-down” in an
organization.
“Emergent” change - refers to a situation in which change can originate from
any level in the organization.
Areas of Change in an Organization
Strategic Change
Sometimes in the course of normal business operation it is necessary for
management to adjust the firm's strategy to achieve the goals of the
company, or even to change the mission statement of the organization in
response to demands of the external environments.
 Adjusting a company's strategy may involve changing its fundamental
approach to doing business: the markets it will target, the kinds of
products it will sell, how they will be sold, its overall strategic orientation,
the level of global activity, and its various partnerships and other
joint‐business arrangements.
Structural Change
 Organizations often find it necessary to redesign the structure of the
company due to influences from the external environment.
 Structural changes involve the hierarchy of authority, goals, structural
characteristics, administrative procedures, and management systems.
 Almost all change in how an organization is managed falls under the
category of structural change.
 A structural change may be as simple as implementing a no‐smoking
policy, or as involved as restructuring the company to meet the customer
needs more effectively.
Process‐oriented Change
 Organizations may need to reengineer processes to achieve optimum
workflow and productivity.
 Process‐oriented change is often related to an organization's production
process or how the organization assembles products or delivers services.
 The adoption of robotics in a manufacturing plant or of laser‐scanning
checkout systems at supermarkets are examples of process‐oriented
changes.
People‐centred Change
 This type of change alters the attitudes, behaviors, skills, or performance
of employees in the company.
 Changing people‐centered processes involves communicating,
motivating, leading, and interacting within groups.
 This focus may entail changing how problems are solved, the way
employees learn new skills, and even the very nature of how employees
perceive themselves, their jobs, and the organization.
 Some people‐centered changes may involve only incremental changes or
small improvements in the process.
Causes for Employee Resistance to Change
In some cases, employees resist change for the following reasons:
• Lack of trust
• Perception that change is not necessary
• Perception that change is not possible
• Relatively high cost
• Fear of personal failure
• Loss of status or power
• Threats to values and ideas
• Social, cultural or organizational disagreements
• Resentment of interference
Managing Resistance to Change
1. Participation and Involvement:
Participation ensure commitment in implication of changes. Secondly,
participation will be easier when individual recognizes his personal benefit
to be gained from change
2. Communication and Education:
If information is inaccurate and not adequate then it is necessary to educate
employees through training classes , meetings and conferences. changes
must be communicated clearly without doubt in these meetings.
3. Leadership:
A leader with stronger influence and have command from the members to
exert emotional pressure on its followers to bring about the change.
4.Negotiation and Agreement:
Negotiation is a technique used to balance the point of difference within
parties. Such negotiation happened in bargaining with Labor Unions. In such
case individual or group end up in losers as a result of change where
individual or group have considerable power to resist.
5. Willingness Of The Sake Of The Group:
Some individuals may be willing to accept changes when group belonging to
willing to accept the change. This especially true when the individual has a
Continuous Psychological Relationship with Group.
6. Timing Of Change:
Timing of introduction of change can have a considerable impact on
resistance. Management must be careful in choosing the time when
organizational climate is highly favorable to change.
Filipino and Foreign Cultures: A Leadership Challenge
Cross cultural differences in business culture and everyday living in the
Philippines can cause many obstacles to successful business endeavours if
not carefully considered.
Cross cultural training courses such as Doing Business in the Philippines and
Living and Working in the Philippines give an in-depth understanding of the
cultural behaviour and perception patterns and provide strategies and
solutions on how to deal with challenges if they occur.
The key cultural differences between Filipino and International
organizations:
HIERARCHY
Power relations in Philippine organizations are very hierarchical with the
senior manager taking a patriarchal role at the tip of the pyramid. Employees
rarely correct or challenge authority figures but follow their instructions
uncommented. They are also reluctant to say “no” to superiors even when
they know they won’t meet the deadline. Foreigners doing business in the
Philippines tend to be irritated by this dependent working attitude and often
misinterpret it as indifference or a lack of interest.
MAKING DECISIONS
Filipinos place a lot of emphasis on group harmony. Consensus is therefore
crucial when making decisions so a lot of time is dedicated to hearing and
considering opinions. Empirical data and rules are usually not considered a
liable source in this process but attention is mainly given to intuition and
immediate feelings. Not adhering to this style of negotiation can result in
severe misunderstandings and even unsuccessful business outcomes. An
intercultural training course on business and social culture in the Philippines
will prepare you thoroughly to feel comfortable when discussing business
issues with Filipino counterparts.
PERSONAL RELATIONSHIPS
Closely linked to the need for group harmony is the high importance Filipinos
attribute to personal relationships and relationship building. Most business
relations in the Philippines are established through friends or colleagues and
before business matters are discussed Filipinos like to engage in personal
small talk. Foreigners often get frustrated and feel meetings do not run
efficiently because so much time is designated to establishing and cultivating
relationships. They tend to underestimate the importance of socialising and
rapport building.
FACE
The concept of face in the sense of personal reputation has a large impact on
everyday behaviour patterns in the Philippines. Maintaining self-control is of
utmost importance in this regard and failure to do so can result in a huge
degradation of status. Filipinos therefore have a very indirect style of
communication and try to remain calm and refrain from criticising people in
public. For the same reason “no” as a sign of disagreement is rarely used.
Foreigners often struggle to understand the importance of face. A cross
cultural training course on Doing Business in the Philippines will give you an
in-depth insight into acceptable communication and behaviour to avoid
misunderstandings and offenses.
TIME
Filipinos have a very relaxed approach to time which determines pace of life
at work and outside. Deadlines and appointments are perceived as flexible
rather than definite and finishing off a conversation properly is usually
regarded more important than arriving on time. Foreigners often find it
difficult to deal with this mañana lifestyle and the many delays they
encounter when dealing with counterparts in the Philippines. A Doing
Business in the Philippines intercultural training course provides the
necessary insight that international business people need to be able to adjust
their expectations accordingly beforehand and forego any feeling of
frustration and discontent.
Cross-cultural Vs. Intercultural Communication
Cross-cultural Communication - implies a comparison of and contrast
between particular aspects of communication between cultures.
Cross-cultural communication has become strategically important to
companies due to the growth of global business, technology, and the Internet.
Understanding cross-cultural communication is important for any company
that has a diverse workforce or plans on conducting global business. This
type of communication involves an understanding of how people from
different cultures speak, communicate, and perceive the world around them.
Cross-cultural communication in an organization deals with understanding
different business customs, beliefs and communication strategies. Language
differences, high-context vs. low-context cultures, nonverbal differences, and
power distance are major factors that can affect cross-cultural
communication.

Intercultural Communication - the communication between people from

different cultures (it refers to what happens when these culturally-different
groups come together, interact and communicate).
Intercultural communication refers to the effective communication
between people/ workers/ clients of different cultural background. It also
includes managing thought patterns and non verbal communication.
Culture Shock
A sense of confusion and uncertainty sometimes with feelings of anxiety that
may affect people exposed to an alien culture or environment without
adequate preparation.
Stages of Culture Shock:
Most people experience culture shock in stages. Some people go through the
stages of this process multiple times, and some may only partially apply to
you. The stages are:
The Honeymoon Stage
During this stage, everything about the new culture is exciting to you. You are
optimistic and will generally focus on the positive aspects of your new home.
You will study your new language with enthusiasm and make great progress.
During this stage, memories of home are still recent and form a kind of
protective shield.
The Disintegration Stage
This stage can be triggered without warning by a small incident or by no
cause at all. You will start to view cultural differences as a source of conflict.
You might feel isolated, confused, and depressed, and miss familiar supports.
The Reintegration Stage
During this stage, you may begin to compare the new culture unfavorably
with your home culture. You might begin to reject the differences you
encounter, and experience feelings of anger, frustration, and hostility
towards the new culture. You might seek out comfort feed from your home
country in an attempt to reconnect with what you value about yourself and
your own culture.
The Acceptance Stage
During this stage, you will learn to accept both differences and similarities
between your home culture and the new one. You will become more relaxed
and confident while you become more familiar with new situations and more
experiences become enjoyable.

Controlling
An organization is a group of persons working together for specified
purposes or goals. Top management defines these as “organizational goals”.
The behavioral aspect of control should not only narrow the gap between
personal goals and organizational goals but should motivate employees to
strive toward these organizational goals.
The design of a control system can facilitate coordination and cooperation.
The control system consists of the control process and the control structure.
Topic Outline:
• Definition and nature of management control
• The link between planning and control
• Control methods and systems
• Application of management control in accounting and marketing concepts
and techniques
• Role of budgets in planning and control.
Nature of Management Control
Controlling - The measurement and correction of performance in order to
make sure that enterprise objectives and the plans devised to attain them are
being accomplished.
In controlling, the manager evaluates how well the organization is achieving
its goals and takes corrective action to improve performance.
The outcome of controlling function is the accurate measurement of
performance and regulation of efficiency and effectiveness.
Management Control – managers influence other members of the
organization to implement the organization’s strategies.
The Basic Control Process
Control techniques and systems are essentially the same for controlling cash,
office procedures, morale, product quality, and anything else. The basic
control process involves three steps:
1. Establishing standards
Standards are simply criteria of performance. They are the selected points in
an entire planning program at which measures of performance are made of
that managers can receive signals about how things are going and thus do
not have to watch every step in the execution of plans.
Measurement of performance
The measurement of performance against standards should ideally be done
on a forward-looking basis so that deviations may be detected in advance of
their occurrence and avoided by appropriate actions. The alert, forward-
looking manager can sometimes predict probable departures from
standards. In the absence of such ability, however, deviation should be
disclosed as early as possible.
Correlation of deviations
Standards should reflect the various positions in an organization structure. If
performance I measured accordingly, it is easier to correct deviations.
Managers know exactly where, in the assignment of individual or group
duties, the corrective measures must be applied.
Correction of deviations is the point at which control can be seen as a part of
the whole system of management and can be related to the other managerial
functions.
Importance of Controlling:
The significance of the controlling function in an organization is as follows:
1. Accomplishing Organizational Goals:
Controlling helps in comparing the actual performance with the
predetermined standards, finding out deviation and taking corrective
measures to ensure that the activities are performed according to plans.
Thus, it helps in achieving organizational goals.
2. Judging Accuracy of Standards:
An efficient control system helps in judging the accuracy of standards. It
further helps in reviewing & revising the standards according to the changes
in the organization and the environment.
3. Making Efficient Use of Resources:
Controlling checks the working of employees at each and every stage of
operations. Hence, it ensures effective and efficient use of all resources in an
organization with minimum wastage or spoilage.
4. Improving Employee Motivation:
Employees know the standards against which their performance will be
judged.

Systematic evaluation of performance and consequent rewards in the form of

increment, bonus, promotion andetc. motivate the employees to put in their
best efforts.
5. Ensuring Order and Discipline:
Controlling ensures a close check on the activities of the employees. Hence, it
helps in reducing the dishonest behavior of the employees and in creating
order and discipline in an organization.
6. Facilitating Coordination in Action:
Controlling helps in providing a common direction to the all the activities of
different departments and efforts of individuals for attaining the
organizational objectives.
The Link between Planning and Controlling
Planning and Controlling are inter-related within any organization. Planning
sets the goals for the organization and controlling ensures its
accomplishment.
The relationship between them is explained as under:
• Planning Originates Controlling: In planning process, the objectives or
targets are to be set, and for achieving these goals, control process is
required. So we can say that planning precedes controlling.
• Control sustains planning: Controlling directs the course of planning.
Controlling spots the areas where planning is required.
• Controlling provides information for planning: In controlling, the
performance is compared with standards and deviations. The information
collected during any type of controlling should be used for planning also.
• Planning and control are inter-related: Planning is the initial step and
controlling is in the process and required at every step. That is why both
are dependent upon each other and inter-related.
Control Methods and Systems
Principles of Critical Point Control
− control, one the more important control principle, states that effective
control requires attention to those factors critical to evaluating
performance against plans. another way of controlling is comparing
company performance with that of other firms through
benchmarking.

Different types of critical points standards:

1. Physical standards
Physical standards are nonmonetary measurements and are common at the
operating level, where materials are used, labor is employed, services are
rendered, and goods are produced. They may reflect quantities, such as
labor-hours per unit of output, units of production per machine-hour, or feet
of wire per ton of copper. Physical standards may also reflect quality, such as
hardness of bearings, durability of a fabric, or fastness of color.
2. Cost standards
Cost standards are monetary measurements, and like physical standards, are
common at the operating level. They attach monetary values to specific
aspects of operations. Illustrative of cost standards are such widely used
measures as direct and indirect costs per unit produced, labor cost per unit
or per hour, material cost per unit, machine-hour costs, and cost per seat-
mile.
3. Capital standards
There are a variety of capital standards, all arising from the application of
monetary measurements to physical items. They have to do with the capital
invested in the firm rather than with operating costs and are therefore
primarily related to the balance sheet rather than to the income statement.
Perhaps the most widely used standard for new investment, as well as for
overall control, is return on investment. The typical balance sheet will
disclose other capital standards, such as the ratios of current assets to
current liabilities, debt to the net worth, fixed investment to total investment,
cash and receivables to payables, and bonds to stocks, as well as the size and
turnover of inventories.
4. Revenue standards
Revenue standards arise from attaching monetary values to sales. They may
include such standards as revenue per bus passenger-mile, average sales per
customer, and sales per capita in a given market area.
5. Program standards
A manager may be assigned to install a variable budget program, a program
for formally following the development of new products, or a program for
improving the quality of sales force. Although some subjective judgment may
have to be applied in appraising program performance, timing and other
factors can be used as objective standards.
6. Intangible standards
More difficult to set are standards not expressed in either physical or
monetary measurements. What standard can a manager use for determining
whether the advertising program meets both short and long-term objectives?
Or whether the public relations program is successful? Are supervisors loyal
to the company’s objectives? Such questions show the difficulty of
establishing standards or goals for clear quantitative or qualitative
measurement.
7.Goals as standards
With the present tendency for better managed enterprises to establish an
entire network of verifiable qualitative or quantitative goals at every level of
management. The use of intangible standards, while still important, is
diminishing. In complex program operations, as well as in the performance of
managers themselves, modern managers are finding that through research
and thinking it is possible to define goals that can be used as performance
standards. While the quantitative goals are likely to take the form of the
standards outlined above, the definition of qualitative goals represents an
important development in the area of standards.
8. Strategic plans as control points for strategic control
Strategic control requires systematic monitoring at strategic control points
and modifying the organization’s strategy based on this evaluation. As
pointed out earlier, planning and controlling are closely related. Therefore,
strategic plans require strategic control. Moreover, since control facilitates
comparison of intended goals with actual performance, it also provides
opportunities for learning, which in turn is the basis for organizational
change. Finally, through the use of strategic control, one gains insights not
only about organizational performance but also about the ever-changing
environment by monitoring it.
Strategic control – Systematic monitoring at strategic control points and
modifying the organization’s strategy based on this evaluation.
Benchmarking
Benchmarking is an approach for setting goals and productivity measures
based on best industry practices.
There are three types of benchmarking:
Strategic benchmarking – compares various strategies and identifies the
key strategic elements of success.
Operational benchmarking – compares relative costs or possibilities for
product differentiation.
Management benchmarking – focuses on support functions such as market
planning and information systems, logistics, human resource management,
and so on.
Management control
Management control is usually perceived as a feedback system similar to the
common household thermostat.
Figure 12. 2 – Feedback Loop of Management Control
This system places control in a more complex and realistic light than if it is
regarded merely as a matter of establishing standards, measuring
performance, and correcting for deviations. Managers do measure actual
performance, compare this measurement against standards, and identify and
analyze deviations. But then, to make the necessary corrections, they must
develop a program for corrective action and implement this program in
order to arrive at the performance desired.
Real-time information and Control – Information about what is happening
while it is happening.
Feed forward, or Preventive, Control – Managers need for effective control
a system that will tell them potential problems, giving them time to take
corrective action before those problems occur.
Feed-forward versus Feedback Systems
• Feedback systems measure outputs of a process and feed into the system
or the inputs of the system corrective actions to obtain desired outputs.
• Feed-forward systems monitor inputs into a process to ascertain if the
inputs are as planned; if they are not, the inputs or the process is changed
in order to obtain the desired result.
Requirements for Feed-Forward Control
1. Make a thorough and careful analysis of the planning and control system,
and identify the more important input variables.
2. Develop a model of the system.
3. Take care to keep the model up to date
4. Collect data on input variables regularly, and put them into the system.
5. Regularly assess variation of actual input data from planned-for inputs,
and evaluate the impact on the expected end results.
6. Take action.
Reasons for Control of Overall Performance
• Overall planning must apply to enterprise or major division goals.
• Decentralization of authority-especially in product of territorial divisions-
creates semi-independent units.
• Overall control permits the measurements of an integrated area
manager’s total effort.
Profit and Loss Control
• Income statement is useful for determining the immediate revenue or
cost factors that have accounted for success or failure.
• The profit and Loss statement shows all revenues and expenses for a
given time, so it is a true summary of the results of business operations.
• Profit and loss control, when applied to divisions or departments, is
based on the premise that, if it is the purpose of the entire business to
make a profit, each part of the enterprise should contribute to this
purpose. Thus, the liability of a part to make an expected profit becomes a
standards for measuring its performance.
• Limitation of Profit and Loss Control
• Profit and loss control suffers from the cost of the accounting and paper
transactions involving intra-company transfer of costs and revenues. But
the use of computers has greatly reduced this cost. Duplication of
accounting records, efforts involved in allocating the many overhead
costs, and the time and effort required to calculate intra-company sales
can make this control costly if it is carried too far.
Control through Return on Investments
ROI Control measures both the absolute and the relative success of a
company or company unit by the ratio of earnings to investment of capital.
This tool regards profit not as an absolute but as a return on capital
employed in the business. The goal of a business seen, accordingly, not
necessarily as optimizing return from capital devoted to business purposes.
This standard recognizes the fundamental fact that capital is a critical factor
in almost any enterprise and, through its scarcity, limit progress. It also emphasizes the fact that the job of managers is to
make the best possible use
of assets entrusted to them.
Bureaucratic and Clan Control
Bureaucratic Control is characterized by the wide used of rules, regulations,
policies, procedures and formal authority.
 Rules and standard operating procedures (SOPs) tell the worker what to
do.
 Still need output control to correct mistakes.
Clan Control is based on norms, shared values, expected behavior and other
cultural variables.
Requirements for Effective Controls
1. Tailoring controls to plans and positions:
Control techniques should reflect the plans they follow, and reflect the
place in the organization where responsibility for action lies. This enables
managers to take action when controls differ from their plans.
2. Tailoring controls to individual managers:
When controls are tailored to individual managers, individual managers
carry out their functions of control more effectively. The system of
control shouldn't be too ambiguous to people who will utilize it.
3. Making sure the control point up expectations at critical points:
Controls that point out exceptions help managers detect areas that
require attention. It is best to look for exceptions at critical points, and
the exception principle should be accompanied by principle of critical
point control.
4. Seeking objectivity of controls:
An objective, accuracy, and suitable standards are required for effective
control technique. Operating tasks General Specific
5. Ensuring flexibility of controls:
• Selling • Internal control for
Controls should remain in place despite unexpected plans, unforeseen
cash and
circumstances, or outright failures.
6. Fitting the control system to the organizational culture: merchandise
Systems that fit within the organizational culture are deemed to do best. • Merchandise claim
7. Achieving economy of controls: counter system
Control techniques are most effective when they achieve maximum • Office uniform
• Stock cards
• Production  Linear programming
• internal control for
raw materials, factory
output at minimum cost.
8. Establishing controls that lead to corrective action:
Controls are useful only if they can correct plans through better planning,
organization, staffing and leadership.

Application of Management Control in Accounting and Marketing Concepts

and Techniques
Operation Control Tools or Techniques
− are concerned with the process that the organization uses in the
performance of an activity related to specific operations such as
production scheduling, determination inventory level or
determination of minimum cash balance for the firm.
Management Control Tools or Techniques
− monitor and evaluate overall operations of the firm and are
commonly financial in nature.
Operational control Tools
Control tools have been develop that are applicable to practically all aspects
of a firm’s operating task. Table 12.1 lists some control tools for some
operating tasks of a manufacturing firm.

Table 12.1
Merchandise Claim Counter System
− assures management that all sales are recorded in the cash register at
the merchandise claim counter area. At the end of each working day,
cash should equal the recorded sales. The system also protect stocks
from shoplifters because only those stocks claimed at the counter are
wrapped with the invoice attached to the package.
Office uniform
− Employees commonly are required to wear uniforms. This
requirement could be viewed by management as an employee benefit
because the costs are borne by the company. It also serves as a control
tool since it identify employees in the work area.
Stock cards
− in the production area, the internal control system should focus on the
protection of raw materials, work-in process inventory, finished
goods inventory, factory supplies, and machine spare parts. Inventory
records, (i.e., stock cards, should be maintained). Stock cards show the
record of all receipts and releases for each items in the inventory. The
balance shown in the stock card can be compare with the physical
count from time to time.
Economic Order Quantity
− Economic Order Quantity (EOQ): identify the optimal order quantity
by minimizing the sum of certain annual cost that vary with order
size.
Assumptions of EOQ Model
 Only one product is involved.
 Annual demand requirements known.
 Demand is even throughout the year.
 Lead time does not vary.
 Each order is received in a single delivery.
 There are no quantity discounts.
Annual carrying cost is computed by multiplying the average amount of
inventory on hand by the cost to carry one unit for one year, even though any
given unit would not necessarily be held for a year. The average inventory is
simply half of the order quantity. The amount on hand decreases steadily
from Q units to 0, for an average of (Q + 0)/2. Using the symbol H represent
the average carrying cost per unit.
Annual ordering cost is a function of the number of orders per year and the
ordering cost per order.
Formula:
Total Cost = Annual carrying cost + Annual Ordering cost
𝑻𝑪 =
𝑸
𝟐𝑯+
𝑫
𝑸𝑺
where:
Q = Order quantity in units
H = Holding (carrying) cost
D = Demand, usually in units per year
 S = Ordering cost
To Derived EOQ formula:
When to Reorder with EOQ Ordering
 Reorder Point - When the quantity on hand of an item drops to this
amount, the item is reordered. It is also to note that when the reorder
point has been reach, a perpetual inventory is required.
 Safety Stock - Stock that is held in excess of expected demand due to
variable demand rate and/or lead time.
 Service Level - Probability that demand will not exceed supply during
lead time.
Determinants of the Reorder Point
 The rate of demand
 The lead time
 Demand and/or lead time variability
 Stockout risk (safety stock)
 If demand and lead time are both constant, the reorder point is
simply:
ROP = d x LT
Where;
d = demand rate (units per day or week)
LT = lead time in days or weeks
Note: demand and lead time must be expressed in the same time units.
Safety Stock
When variability is present in demand or lead time, it creates the possibility
that actual demand will exceed demand. Consequently, it becomes necessary
to carry additional inventory called safety stock.
 Safety stock and safety lead time are both hedges.
 Safety lead time is more based on the uncertainty in the timing rather
than the quantity.
 Safety stock tends to be used in MRP where uncertainty about
quantities is the problem-scarp.
o Safety stock reduce the risk of running out of inventory (a
stockout) during lead time.
o Safety stock challenges
 Safety stock set because of a onetime event.
 Safety stock still active on an obsolete item
 Safety stock levels inconsistent.
o ROP = Expected demand during lead time + safety stock
Linear Programming
− typically deals with the problem of allocating limited resources among
competing activities in the best possible way or optimal way.
− LP could be used by a manufacturing firm in allocating production
facilities to products or in allocating common raw materials use in
several products.
− The control function of linear programming is to optimize the
objectives by the simultaneous solution to a set of linear equations
representing objectives and constraints.
Gantt Chart
− it developed by Henry L. Gantt. The Gantt chart can be use to compare
actual progress in production with scheduled progress.
− is popular tool for planning and scheduling simple projects. It enables
a manager to initially schedule project activities and then to monitor
progress over time by comparing planned progress to actual progress.
The advantage of Gantt chart is its simplicity. However, Gantt chart
fail to reveal certain relationships among activities that can be crucial
to effective project management.
Figure 12.3
Critical Path Method (CPM)

− This control tool is appropriate for large and complex projects in

which many interdependent tasks are involved. For example
construction of a building. Its objective is to identify the most time
consuming series of tasks which is calling the critical path. The
minimum amount of time to complete the project will be determined
by the most time consuming sequence of job. Every job in the path is
considered critical since any delay in the completing of this jobs will
increase the total time require to complete the whole project.

Total Job Description Required Time

(Days)
Immediate task
Predecessor
PERT(Program Evaluation and Review Techniques) was developed by the
United States Navy for the Planning and control of the Polaris Weapon
System in 1958.
− it is reinforcement of the Critical Path Method (CPM) in the sense that
three time estimates are made for each task:
1. the earliest possible time of completion,
2. the target completion time, and
3. the latest possible time of completion.
These estimates are made because it is not possible to determine
accurately the exact time of completing a task, especially for new
projects. The average time, te, is computed using the three time estimates
as follows:
te =
𝑎+4𝑚+𝑐
6
Where:
a = earliest completion time
m = target completion time
c = latest possible time
The "critical path" for the project is then determined by using the
computed "average" times for each task - the sequence of events which
takes the longest time and which involves, therefore, zero slack time.
Voucher System
this system requires that every liability should be recorded as soon as it is
incurred and that only checks be used in payment of approved liabilities.
− a voucher is prepared for each expenditure assuming that every
expenditure is systematically reviewed and verified before payment is
made.
− the verification process includes the examination of documents like
Purchase Orders, Sales Invoices and Delivery Receipts.
Petty Cash Fund System
 if a voucher system is maintained, it will be convenience to have a
small amount of cash on hand with which to make some expenditures
in small amounts. for example, transportation expenses, postage
stamps and emergency supply purchases. internal control over these
small cash payments can best be achieved through a petty cash fund
system.
 The Petty cash fund should always contain cash and/or vouchers
totalling the exact amount of the amount of the fund originally
established. expenditures are replenish regularly by check.
Role of Budgets in Planning and Control
Budget
A budget is a quantitative expression of a plan for a defined period of time.
• It may include planned sales volumes and revenues, resource quantities,
costs and expenses, assets, liabilities and cash flows.
Zero-base Budgeting – dividing enterprise programs into packages
composed of goals, activities, and needed resources and calculating the costs
for each package from base zero.
Key Purposes of Budgets in management
• A method of planning the use of resources
• A vehicle for forecasting
• A means of controlling the activities of various groups within the firm
• A means of motivating individuals to achieve performance levels agreed
and set.
• A mean of communicating the wishes and aspirations of senior
management
• A mean of resolving conflicts of interest between groups with the
organization.
Budgeting as a Control Tool:
A budget serves as a control tool to provide standards for evaluating
performance.
A budget can cover any of the following:
• Profit planning – forecast of revenues and expenses
• Cash budgeting – forecast of cash needs and sources
• Balance sheet forecasting – anticipating future assets, liability and net
worth position of the business
Types of Control Report
Financial Accounting
Reports
Measurements Reports Responsibility
Accounting Reports
Balance sheet Budget reports Cost center reports
Income statement Variance Analysis reports Profit center reports
Balance sheetcenter report
Investment
as a Financial Accounting report is a statement of the company's financial
condition as of the date of the statement. this report consists of the total
assets of the firm and the corresponding claims against these assets as
represented by the liabilities and stockholder's equity

Balance sheet as a control tool can be used to appraise performance of

managers by comparing the current statement with those of the
corresponding period of previous years.

Pro-forma Balance sheet

XYZ Company

Balance Sheet

As of December 31, 2015

Assets

Current assets:

Cash Pxxx

Account Receivable xxx

Inventories Xxx

Other current assets Pxxx

Long-term investment xxx

Property, plant and equip. xxx

Total Asset Pxxx

Liabilities and stockholder’s equity

Current Liabilities xxx

Long-term debt xxx

Stockholder’s Equity
Table 12.4
Income Statement
− summarize the results of operations of the company for a period of
time.
− This statement reports the revenues and expenses of the company for
that period. Revenues are the amount earned by the company from
the goods and services that the company provides to each customers.
Expenses are the cost of the resources used in providing the goods
and services. Net income (net loss) is the most important item
reported in the income statement. Net income (net loss) is the
difference between revenues and expenses.
Pro-Forma Income Statement
Pro-Forma Income Statement
XYZ Company
Income Statement
For the Year Ended 2015
Sales P350,596.00
Cost of sales 207,811.00
Gross Profit P142,785.00
Operating Expenses
General Administrative Expenses 46,950.00
Selling expenses 10,984.00
Depreciation 12,235.00 70,269.00
Operating Income P72,516.00
Interest and Other changes 1,095.00
Income Before Tax 71,421.00
Provision for Income Tax (35%) 24,997.00
Net Income P46,234.00

Cash Budgeting
A Cash Budget is used to determine anticipated cash inflows and outflows so
that the business maintains the optimum level of cash (cash on hand being a
non-earning asset). It also provides information on whether or not
additional financing is required to address cash shortfalls.

Pro-Forma Statement of Cash Flows (Table 12.6)

XYZ Company
Statement of Cash Flows
For the Year Ended December 31, 2015
Cash flow from operating activities:
Cash flow received from client P560,750
Cash paid for operating expenses (320,445) P240,305
Cash flow from investing activities:
Proceeds from sale of equipment at a gain of P5,000 P25,500
Purchase of tools and equipment (37,540) (12,040)
Cash flow from financing activities:
Payment of loan to the bank P(151,200)
Additional Investment of the proprietor 100,00
Withdrawals of the proprietor (150,000) (201,200)
Net income in cash balance P27,065
Cash balance, January 1,2015 48,260
Cash balance, December 31, 2015 P75,325

Introduction to the Different Functional Areas

of Management
There are five main functional areas of management viz., human resource,
marketing, operations, financial and information & communication
technology. These topics are discussed in this lesson.
Topic Outline:
• Human Resource Management
• Marketing Management
• Operations Management
• Financial management
• Information and Communication technology management
Human Resource Management
What is Human resource Management (HRM)?
The process of acquiring, training, appraising, and compensating employees,
and of attending to their labor relations, health and safety, and fairness
concerns.
Human resource is the most important asset in the business. The heart of an
organization lies on its people. Without people, the day-to-day operation of a
business would cease to function. The success of a business relies fully on the
hands of the employees working in the company. In order to achieve the
company’s goals and objectives, the company’s Human Resource Department
is responsible in recruiting the right people with the required skills,
qualifications and experience. They’re responsible for determining the salary
and wages of different job positions in the company. They’re also involved in
training employees for their development.
HRM Discipline
• The discipline of HRM is based on a unique integration of: psychology,
economic, and system theories, and has undergone a change since the
early days of the Hawthorne experiment.
HR Departments' Organization Charts and Structures
Organization historically divided into two groups, line management and staff
management, and HRM was traditionally considered to be a staff function.
Line Managers were directly responsible for the production of goods and
services.
Staff Managers were responsible for an indirect or support function that
would have cost but whose bottom line contributions where less direct.
Centralization
Some organizations centralize HR. A centralized strategy locates design and
administration responsibility in a single organizational unit. Administration
generally will fall to those working in various units, who often HR generalist.
Generalist handle all HR activities rather than specializing in a single
area, such as: compensation or recruiting.
Decentralization
Decentralization gives each organization unit the responsibility to design and
administer each own personnel system.
Organization Chart
Organization can use chart for a number of purposes. For example, HR
administrator, as well as Chief Executive Officers, Corporate Planners,
Marketing Representative, and others, can use such organization charts to:
1. Design their department or division charts.
2. Monitor reporting relationships.
3. Gain access to information about newly created job titles, staff duties,
and reporting relationships.
4. Find out how leading agencies organize their management teams and
work forces.
5. Assess industry patterns.
6. Examine the competition.
7. Use in business presentations and to facilitates placement decisions.
Human Resource and Information Technology
 The advent of "computer age" has greatly altered, not only the
availability of information but also the manner in which it is identified
and acquired.
 Information technology deals with how information is accessed,
gathered, analyzed, and communicated.
The Beginning
the Philippines has all the potential to be an active player in the digital
domain At present, join government and private sector groups such as the
Information Technology and Electronic Commerce Council (ITECC) are
unified in pushing for the development of E-commerce in the Philippines. It
is seen as an important driving force that could fuel the country's economic
growth and development.

IT Application in HR
1. Use of job boards and other similar recruitment web-based
application to provide accessibility to applications for the job usually
communicate job vacancies and applicant processing.
2. Employee kiosks provide updates in employee status and other
pertinent information initiated and made by the employee themselves
via theses kiosks.
3. E-learning facilitate the learning process by providing a just-in-time
learning opportunities. the use of a learning management system (LMS)
will allow the HRD manager to focus on the more important aspects of his
job rather than being concerned with course registration and following
up attendance to training programs.
4. Electronic Performance Support System (EPSS) will provide on-line
coaching and mentoring services. managers and employees can access
organizational knowledge through an EPSS application.
5. Salary and Payroll Administration for some companies this is now a
link to performance management systems, time and attendance, and
other employee benefits to the pay systems. This ensures timely pay-out
of salaries, wages, bonuses, and other similar compensation. An example
of this is the timesheets.
6. Telecommuting/Teleworking - Teleworking is any form of substitution
of information technologies (such as: telecommunications and/or
computers) for normal work related travel moving the work to the
workers instead of moving the workers to work.
7. HR and the Internet the Internet is an excellent source for finding many
types of information related to HRM and for keeping up with new
development in the field. Cyberspace and the Internet are changing the
way many Human Resource managers operate. Today, a growing number
of HR managers are using the internet to recruit personnel, conduct
research, access electronic databases, send email, conduct training and
network with colleagues. The real value of Internet to manager is the
information that is makes available.
8. e-Enterprise Human Resources provides a comprehensive solution for
managing applicant and employee information, paying employees, and
tracking payroll information that is as easy to implement and to use as it
is powerful.
9. Intranets this is a private computer network that uses internet products
and technologies to provide multimedia applications within the
organizations. (Paul, Barker, Telecommunications, December, 1997). An
internet connect people to people and people to information and
knowledge within the organization.
10.Client/Server Networks this is a new system that uses personal
computers linked together to process information in a very efficient
manner (Samuel, Greengard. "The Netxt generation". Personnel Journal,
March 1994.) At the hub of each network is a computer that controls the
traffic on the network and stores data in a rational database. This central

computer, called the server, maybe anything from a large main frame to a
powerful PC. The clients are desktop PCs used by individuals to enter or
extract data or to do analysis.
Implementing an HRIS (Human Resource Information System): Albert
Leaderer, Information Technology: Planning and Developing a Human
Resource Information System, Personnel Journal. May 1994).
As with any major change, proper planning and communications are absolute
necessities for the successful implementation or major upgrade of an HRIS.
The steps outlined below described the specific procedures when attempting
to implement or upgrade an HRIS.
1. Inception of idea prepare a preliminary report showing the need for an
HRIS and what it can do for the organization. This must illustrate how an
HRIS can assist management in making certain decisions.
2. Feasibility study evaluate the present system and details the benefits of
an HRIS, with comparison of the costs and benefits.
3. Top management support once the FS recommends going ahead with
an HRIS, it is essential to obtain the support of top management.
4. Selecting a project team should consist of an HR representative who is
knowledgeable about the organization's HR functions and activities.
5. Defining the requirements specify in details exactly what the HRIS will
do including the reports that will be produced by the system.
6. Software/Hardware selection when evaluating available systems, used
the same cost benefit analysis that would be used for any significant
purchase.
7. Training all the personnel that will make use the system.
8. Tailoring the system involves making changes to the system to best fit
the specific needs of the organization.
9. Collecting the data - data must collected and entered into the system.
10. Testing the system
11. Starting-up
12. Running in parallel even with the new HRIS comma it is desirable it is
desirable to run the new system in parallel with the old system for a
period of time to be compared and examined for any accuracies.
13. Maintenance
14. Evaluation should be done to find out if it is right for the organization
and if it is being properly used.
All of the above mentioned continue to dramatically change the human
resource profession.
Human Resource Management Activities
The central focus for HR management must be on contributing to
organizational success. Key to enhancing organizational performance is
ensuring that human resources activities support organizational efforts
focusing on productivity, service, and quality.
 Productivity: As measured by the amount of output per employee,
continuous improvement of productivity has become even more
important as global competition has increased. The productivity of the
human resources in an organization is affected significantly by
management efforts, programs, and systems.
 Quality: The quality of products and services delivered significantly
affects organizational success over the long term. If an organization gains
a reputation for providing poor-quality products and services, it reduces
its organizational growth and performance. An emphasis on quality
requires continuous changes aimed at improving work processes. That
need opens the door for reengineering the organizational work done by
people. Customer value received and satisfaction become the bases for
judging success, along with more traditional HR measures of performance
and efficiency.
 Service: Because people frequently produce the products or services
offered by an organization, HR management considerations must be
included when identifying service blockages and redesigning operational
processes.
Involving all employees, not just managers, in problem solving often requires
changes in corporate culture, leadership styles, and HR policies and practices.
To accomplish these goals, HR management is composed of several groups
of interlinked activities. However, the performance of the HR activities must
be done in the context of the organization. Additionally, all managers with HR
responsibilities must consider external environmental forces—such as legal,
political, economic, social, cultural, and technological ones—when
addressing these activities. These external considerations are especially
important when HR activities must be managed internationally.
The HR activities for which a brief overview follows are:
 HR Planning and Analysis
 Equal Employment Opportunity
 Staffing
 HR Development
 Compensation and Benefits
 Health, Safety, and Security
 Employee and Labor/Management Relations
1. HR Planning and Analysis
HR planning and analysis activities have several facets. Through HR planning,
managers attempt to anticipate forces that will influence the future supply of
and demand for employees. Having adequate human resource information
systems (HRIS) to provide accurate and timely information for HR planning
is crucial. The importance of human resources in organizational
competitiveness must be addressed as well. As part of maintaining
organizational competitiveness, HR analysis and assessment of HR
effectiveness must occur. The internationalization of organizations has
resulted in greater emphasis on global HR management.
2. Equal Employment Opportunity
Compliance with equal employment opportunity (EEO) laws and regulations
affects all other HR activities and is integral to HR management. For
instance, strategic HR plans must ensure sufficient availability of a diversity
of individuals to meet affirmative action requirements. In addition, when
recruiting, selecting, and training individuals, all managers must be aware of
EEO requirements.
3. Staffing
The aim of staffing is to provide an adequate supply of qualified individuals
to fill the jobs in an organization. By studying what workers do, job analysis
is the foundation for the staffing function. From this, job descriptions and job
specifications can be prepared to recruit applicants for job openings. The
selection process is concerned with choosing the most qualified individuals
to fill jobs in the organization.
4. HR Development
Beginning with the orientation of new employees, HR training and
development also includes job-skill training. As jobs evolve and change,
ongoing retraining is necessary to accommodate technological changes.
Encouraging development of all employees, including supervisors and
managers, is necessary to prepare organizations for future challenges. Career
planning identifies paths and activities for individual employees as they
develop within the organization. Assessing how employees perform their
jobs is the focus of performance management.
5. Compensation and Benefits
Compensation rewards people for performing organizational work through
pay, incentives, and benefits. Employers must develop and refine their basic
wage and salary systems. Also, incentive programs such as gain sharing and
productivity rewards are growing in usage. The rapid increase in the costs of
benefits, especially health-care benefits, will continue to be a major issue.
6. Health, Safety, and Security
The physical and mental health and safety of employees are vital concerns.
The traditional concern for safety has focused on eliminating accidents and
injuries at work. Additional concerns are health issues arising from
hazardous work with certain chemicals and newer technologies.
Through a broader focus on health, HR management can assist employees
with substance abuse and other problems through employee assistance
programs (EAP) in order to retain otherwise satisfactory employees.
Employee wellness programs to promote good health and exercise are
becoming more widespread.
Workplace security has grown in importance, in response to the increasing
number of acts of workplace violence. HR management must ensure that
managers and employees can work in a safe environment.
7. Employee and Labor/Management Relations
The relationship between managers and their employees must be handled
effectively if both the employees and the organization are to prosper
together. Whether or not some of the employees are represented by a union,
employee rights must be addressed.

It is important to develop, communicate, and update HR policies and rules so

that managers and employees alike know what is expected. In some
organizations, union/management relations must be addressed as well.
Major Functions of Human Resource Management
Human resource management is all about increasing employee performance
to their highest level corresponding to their role in the organization. In short,
HRM is concerned with the management of employees from recruitment to
retirement. Although there are many functions of human resource
management, following is the list of five major functions.
1. Recruitment and selection
Recruitment is the process of captivating, screening, and selecting potential
and qualified candidates based on objective criteria for a particular job. The
goal of this process is to attract the qualified applicants and to encourage the
unqualified applicants to opt themselves out.
Recruitment and selection process is very important to every organization
because it reduces the costs of mistakes such as engaging incompetent,
unmotivated, and under qualified employees. Firing the unqualified
candidate and hiring the new employee is again an expensive process.
2. Orientation
This is the fundamental step to help a new employee to adjust himself with
the employer and with his new job. Employee orientation program should
include the objectives and goals of the organization and how the employee
can help to achieve the long-term and short-term goals of the organization.
3. Maintaining good working conditions
It is the responsibility of the human resource management to provide good
working conditions to the employee so that they may like the workplace and
the work environment. It is the fundamental duty of the HR department to
motivate the employees. Human resource management should come up with
a system to provide financial and non-financial benefits to the employee from
the various departments. Employee welfare is another concept which should
be managed by HR team. Employee welfare promotes job satisfaction.
4. Managing Employee relations
Employees are the pillars of any organization. Employee relationship is a
very broad concept and it is one of the crucial functions of human resource
management. It also helps to foster good employee relations. They have the
ability to influence behaviors and work outputs.
Management should organize activities which will help to know an employee
at the personal and professional level. Well-planned employee relations will
promote a healthy and balanced relation between the employee and the
employer. It is the key for the organization to be successful.
5. Training and development
Training and development are the indispensable functions of human
resource management. It is the attempt to improve the current or future
performance of an employee by increasing the ability of an employee
through educating and increasing one’s skills or knowledge in the particular
subject.
Marketing Management
According to Philip Kotler,
“Marketing Management is the process of planning and executing the
conception, pricing and promotion and distribution of goods, services and
ideas to create exchanges with target groups that satisfy customer and
organizational objectives.”
Promotional activities and advertising are the best ways to communicate
with your target customers for them to be able to know the company’s
products and services. Effective marketing and promotional activities will
drive long-term success, profitability and growth in market shares. This
department is responsible for promoting the business to generate sales and
help the company grow. Its function involves creating various marketing
strategy and planning promotional campaigns. They are also responsible for
monitoring competitor’s activities.
Objectives of Marketing Management
• Creating New Customers.
• Satisfying the Needs of Customers.
• Enhancing the Profitability of Business.
• Raising the standards of living People.
• Determining the Marketing Mix.
Steps in Marketing Management Process
• Setting the Marketing Objectives.
• Analyzing Marketing Opportunities.
• Researching and selecting Targets Markets.
• Designing Marketing Strategies.
• Planning Marketing Programs.
• Organizing, Implementing and Controlling the Marketing Efforts.
Functions of Marketing Management
Figure 13. 1 – Functions of Marketing Management
The following are some of the major functions of marketing management:
Selling
Selling is the crux of marketing. It involves convincing the prospective buyers
to actually complete the purchase of an article. It includes transfer of
ownership of products to the buyer.
Selling plays a very vital part in realizing the ultimate aim of earning profit.
Selling is groomed by means of personal selling, advertising, publicity and
sales promotion. Effectiveness and efficiency in selling determines the
volume of the firm’s profits and profitability.
Buying and Assembling
It deals with what to buy, of what quality, how much from whom, when and
at what price. People in business purchase to increase sales or to decrease
costs. Purchasing agents are much tempted by quality, service and price. The
products that the retailers buy for resale are selected as per the
requirements and preferences of their customers.
Assembling means buying necessary component parts and to fit them
together to make a product. ‘Assembly line’ marks a production line made up
of purely assembly functions. The assembly operation includes the arrival of
individual component parts at the work place and issuing of these parts for
assembling.
Assembly line is an arrangement of employees and machines in which each
individual has a particular job and the work is passed directly from one
employee to the next until the product is complete.
Transportation
Transportation is the physical means through which products are moved
from the places where they are produced to those places where they are
needed for consumption. It creates location utility.
Transportation is very important from the procurement of raw material to
the delivery of finished products to the customer’s places. Transportation
depends mainly on railroads, trucks, waterways, pipelines and airways.
Storage
It includes holding of products in proper, i.e., usable or saleable, condition
from the time they are produced until they are required by customers in case
of finished products or by the production department in case of raw
materials and stores.
Storing protects the products from deterioration and helps in carrying over
surplus for future consumption or usage in production.
Standardization and Grading
Standardization means setting up of certain standards or specifications for
products based on the intrinsic physical qualities of any item. This may
include quantity like weight and size or quality like color, shape, appearance,
material, taste, sweetness etc. A standard gives rise to uniformity of products.
Grading means classification of standardized items into certain well defined
classes or groups. It includes the division of products into classes made of
units possessing similar features of size and quality.
Grading is very essential for raw materials; agricultural products like fruits
and cereals; mining products like coal, iron and manganese and forest
products like timber.
Financing
Financing involves the application of the capital to meet the financial
requirements of agencies dealing with various activities of marketing. The
services to ensure the credit and money needed and the costs of getting
merchandise into the hands of the final user are mostly referred to as the
finance function in marketing.
Financing is required for the working capital and fixed capital, which may be
secured from three sources — owned capital, bank loans and advance &
trade credit. In other words, different kinds of finances are short-term,
medium-term, and long-term finance.
Risk Taking
Risk means loss due to some unforeseen situations. Risk bearing in
marketing means the financial risk invested in the ownership of goods held
for an anticipated demand, including the possible losses because of fall in
prices and the losses from spoilage, depreciation, obsolescence, fire and
floods or any other loss that may occur with the passage of time.
They may also be due to decay, deterioration and accidents or due to
fluctuation in the prices induced by changes in supply and demand. The
different risks are usually termed as place risk, time risk, physical risk, etc.
Market Information
The importance of this facilitating function of marketing has been recently
marked. The only sound foundation on which marketing decisions depend is
timely and correct market information.
Operations Management
Operations Management
OM is the process which combines and transforms various resources used in
the production of the organization into value added products/services in a
controlled manner as per the policies of the organization
Operations Management affects:
 Companies’ ability to compete
 Nation’s ability to compete internationally
The Operations department is held responsible for overseeing, designing and
controlling the process of production and redesigning business operations if
necessary. In a manufacturing company, operations department designs
processes to produce the product efficiently. They also have to acquire
materials and maintenance of equipment, supplies and more.
Operations function: The operations function includes many interrelated
activities, such as forecasting, capacity planning, scheduling, managing
inventories, assuring quality, motivating employees, deciding where
to locate facilities, and more. The operations function consists of all activities
directly related to producing goods or services.
Objectives of production management may be amplified as under:
• Producing the right kind of goods and services that satisfy customers’
needs (effectiveness objective).
• Maximizing output of goods and services with minimum resource inputs
(efficiency objective).
• Ensuring that goods and services produced conform to pre-set quality
specifications (quality objective).
• Minimizing throughput-time- the time that elapses in the conversion
process- by reducing delays, waiting time and idle time (lead time
objective).
• Maximizing utilization of manpower, machines, etc. (Capacity utilization
objective).
• Minimizing cost of producing goods or rendering a service (Cost
objective).
Financial Management
Financial management is generally defined as those activities that create or
preserve the economic value of the assets of an individual, small business, or
corporation.
• Financial management comes down to making sound financial decisions.
Financial management is primarily concerned with investment and
financing decisions.
Investment decision making involves the preparation of long-range plans
and budgets for major investment such as plant expansion and replacement
of existing production facilities. The investment decision determines the total
amount of assets held by the firm, the composition of these assets and the
business risk complexion of the firm as perceived by suppliers of capital. The
capital budgeting process is one example of investment decision making. In
the financing decision, the finance manager determines the financing mix and
sources appropriate for the requirements of the firm. This involves decisions
on when to issue common stocks, preferred stocks or bonds or when to
borrow long-term or short-term.
Capital budgeting is an important financial policy area of concern in all
businesses. It is primarily a top-level management concern because it
involves the allocation of funds. The capital budgeting process involves the
choice of capital projects to the undertaken by the firm. It aids business firms
in evaluating capital investments in relation to future benefits.
The critical steps in capital budgeting are the identification and the
prioritization of various capital expenditure proposals given specific
acceptance criteria. Several tools of analysis are available in the final
selection of projects that should be undertaken by the firm. All these tools for
analysis attempt to find the difference between the net benefits that accrue
for each project and the financial burden incurred to secure the benefits.
In the performance of day-to-day finance activities, the chief finance officer
and other managers of the department are concerned with employee
motivation in order to influence employee behavior toward the attainment of
department, the ultimately, company goals. This is why directing aspect of
the management process is integrated with planning, organizing, staffing and
controlling.
Finance
It is a body of facts, principles and theories relating to raising and using
money by individuals, business and government.
It can be divided to:
• Corporate form
• Individuals/government
Goals of Financial Management
• Profit-oriented businesses: Make money and value for the owners
• Financial manager acts in the owners or shareholder’s “best interest”.

Types of Financial Decisions

3 Major Decision:
Investment decisions
• Which determine how scarce or limited resources are committed to
projects
• It should consider profitability that will lead to the creation of wealth
Financing decisions
• Assets the mix of debt and equity or capital structure decision
• Principle of financial leverage must be consider when selecting debt-
equity mix.
• Financial leverage refers to the use of debt to acquire additional assets.
Financial leverage is also known as trading on equity.
Dividend decisions
• Concerned with the determination of quantum of profits to be distributed
to owners, the frequency and the amount to be retained.
Information and Communication Technology Management
Information and Communication Technology (ICT) definition:
The efficient management of hardware and software. ICT highlights the use
of devices and media to achieve optimum and efficient communication of
information.
• ICT is generally defined as technology functioning to support the process
of conveying information and communication.
• With the development of ICT, the communicator and communicant can
communicate through telephone, internet, email, satellite, television,
video conference and the like.
Impact of ICT:
• Reduced need for movement of people
• Fast communication around the organization
• Reduced need to accommodate people in specific areas
• Fewer layers of management
• Reduced amount of lost/misplaced documents
• Less time wasted
• Reduced costs

Special Topics in Management

By legal definition, small businesses are privately owned entities and
operated by small number of individuals with relatively low volume of
sales. It could be a corporation, a partnership or a sole proprietorship. In the
Philippines, small businesses thrive everywhere: from small sari-sari store
(convenience store type), bakeries, beauty parlors, dressmakers, food stands,
etc. In procedures in putting them up are the same as large scale businesses.
The backbone of Philippines local economy are these small businesses. They
require small capital and there is always a demand for any product and
service we could imagine in this highly populated archipelago. The
government has always been pushing the entrepreneur spirit among the
Filipinos, after all they are known for their ingeniousness and hard work.
Topic Outline:
• Small Business and Entrepreneurship
• Family Business Enterprise
• Starting a Business: Legal Forms and Requirements
Small Business Management and Entrepreneurship
What is Small Business?
A small business is a privately owned and operated business.
• A small business typically has a small number of employees.
In Philippines
Agency: Small and Medium Enterprise Development (SMED) Council.
Legal Definition: Small and Medium Enterprise Development (SMED)
Council Resolution No. 01 Series of 2003 dated 16 January 2003.
Interpretation:
MSMEs Defined
Micro, small, and medium enterprises (MSMEs) are defined as any business
activity/enterprise engaged in industry, agri-business/services, whether
single proprietorship, cooperative, partnership, or corporation whose total
assets, inclusive of those arising from loans but exclusive of the land on
which the particular business entity's office, plant and equipment are
situated, must have value falling under the following categories:

By Asset Size
Micro: Up to P3,000,000
Small: P3,000,001 - P15,000,000
Medium: P15,000,001 - P100,000,000
Large: above P100,000,000
Alternatively, MSMEs may also be categorized based on the number of
employees:
Micro: 1 - 9 employees
Small: 10 - 99 employees
Medium: 100 - 199 employees
Large: More than 200 employees
Agency: Philippine Congress.
Legal Definition:
“Magna Carta for Micro, Small and Medium Enterprises (Republic Act 6977,
as amended by RA 8289 and further amended by RA 9501 in 2008).
SEC. 3. Micro, Small and Medium Enterprises (MSMEs) as Beneficiaries. —
MSMEs shall be defined as any business activity or enterprise engaged in
industry, agribusiness and/or services, whether single proprietorship,
cooperative, partnership or corporation whose total assets, inclusive of those
arising from loans but exclusive of the land on which the particular business
entity’s office, plant and equipment are situated, must have value falling
under the following categories:
micro : not more than P3,000,000
small : P3,000,001 - P 15,000,000
medium : P15,000,001 - P100,000,000
“The above definitions shall be subject to review and adjustment by the
Micro, Small and Medium Enterprises Development (MSMED) Council under
Section 6 of this Act or upon recommendation of sectoral organizations
concerned, taking into account inflation and other economic indicators. The
Council may use other variables such as number of employees, equity capital
and assets size. “The Council shall ensure that notwithstanding the plans and
programs set for MSMEs as a whole, there shall be set and implemented
other plans and programs varied and distinct from each other, according to
the specific needs of each sector, encouraging MSMEs to graduate from one
category to the next or even higher category.” (RA 9501 through Sec. 3
amended Sec. 3 of RA 6977, as amended by RA 8289)”
What is Entrepreneurship?
Entrepreneurship – the process of starting and operating your own
business.
Entrepreneur – the people who create, launch, organize and manage a new
business and take the risk of business ownership.

What are the risks?

 Business failure
 Financial loss
 Loss of employment
 Loss of time
33% of all new businesses fail within 2 years. 50% fail within 4 years.
Advantages of Entrepreneurship
 Personal freedom and satisfaction
 Increased self-esteem and income
Important Personal Characteristics of Successful Entrepreneurs
They’re goal-oriented
Entrepreneurs are all about setting goals and putting their all into achieving
them; they’re determined to make their business succeed and will remove
any encumbrances that may stand in their way. They also tend to be strategic
in their game plans and always have a clear idea in mind of exactly what they
want to achieve and how they plan to achieve it.
They’re committed to their business
Entrepreneurs are not easily defeated; they view failure as an opportunity
for future success, and if they don’t succeed the first time, they’ll stay
committed to their business and will continue to try and try again until it
does succeed. A true entrepreneur doesn’t take ‘no’ for an answer.
They’re hands-on
Entrepreneurs are inherently proactive, and know that if something really
needs to get done, they should do it themselves. They’re ‘doers’, not thinkers,
and tend to have very exacting standards. They view their business as an
extension of themselves and like to be integral in its day-to-day operations—
even when they don’t have to be.
They thrive on uncertainty
Not only do they thrive on it—they also remain calm throughout it.
Sometimes things go wrong in business, but when you’re at the helm of a
company and making all the decisions, it’s essential to keep your cool in any
given situation. True entrepreneurs know this and secretly flourish and grow
in the wake of any challenges.
They continuously look for opportunities to improve
Entrepreneurs realize that every event or situation is a business opportunity,
and they’re constantly generating new and innovative ideas. They have the ability to look at everything around them and
focus it toward their goals in
an effort to improve their business.
They’re risk taker
A true entrepreneur doesn’t ask questions about whether or not they’ll
succeed—they truly believe they will. They exude this confidence in all
aspects of life, and as a bi-product, they’re never afraid to take risks due to
their unbinding faith that ultimately they will triumph.
They’re willing to listen and learn
The most important part of learning is listening—and a good entrepreneur
will do this in abundance.
They have great people skills
Entrepreneurs have strong communication skills, and it’s this strength that
enables them to effectively sell their product or service to clients and
customers. They’re also natural leaders with the ability to motivate, inspire
and influence those around them.
They’re inherently creative
This is one trait that, due to their very nature, entrepreneurial business
people have by the bucket load. They’re able to not only come up with
ingenious ideas, but also turn those ideas into profits.
They’re passionate and always full of positivity
Passion is perhaps the most important trait of the successful entrepreneur.
They genuinely love their job and are willing to put in those extra hours to
make their business grow; they get a genuine sense of pleasure from their
work that goes way beyond just cash.
Entrepreneurship Vs. Small Business
Many people use the terms “entrepreneur” and “small business owner”
synonymously. While they may have much in common, there are significant
differences between the entrepreneurial venture and the small business.
Entrepreneurial ventures differ from small businesses in these ways:
1. Amount of wealth creation – rather than simply generating an income
stream that replaces traditional employment, a successful
entrepreneurial venture creates substantial wealth.
2. Speed of wealth creation – while a successful small business can
generate several million pesos of profit over a lifetime, entrepreneurial
wealth creation often is rapid.
3. Risk – the risk of an entrepreneurial venture must be high, otherwise,
with the incentive of sure profits many entrepreneurs would be pursuing
the idea and the opportunity no longer would exist.
4. Innovation – entrepreneurship often involves substantial innovation
beyond what a small business might exhibit. This innovation gives the
venture the competitive advantage that results in wealth creation. The innovation may be in the product or service itself, or
in the business
processes used to deliver it.
Advantages and Disadvantages of Small Business
Advantages:
• Can be managed and controlled by the owner.
• Often able to adapt quickly to meet changing customer needs.
• Offer personal service to customers.
• Find it easier to know each worker; many staff prefers to work for
smaller more “human” businesses.
• If family-owned the business culture is often informal. Employee’s well-
motivated and family members perform multiple roles.
Disadvantages:
• May have limited access to sources of finance.
• Owner has to carry a large burden of responsibility if unable to afford to
employ specialist managers.
• May not be diversified. Greater risks of negative impact of external
change.
• If family-owned, the original owner may restrict innovation, family
rivalries, and keeping control may take priority over business expansion.
Types of Entrepreneur
According to the type of business:
Business entrepreneurs: who start business units after developing ideas
for new products/services.
Trading entrepreneurs: who undertake buying & selling of goods, but not
engage in manufacturing.
Corporate entrepreneurs: who establish and manage corporate form of
organization which has separate legal existence.
Agricultural entrepreneurs: who undertake activities like raising and
marketing of crops, fertilizers and other allied activities.
Reasons to Become an Entrepreneur:
1. Creativity: Using your creativity and energy to achieve something that
inspires you can be very rewarding. Starting, running and growing a business
can provide a high level of satisfaction.
2. Independence: The freedom that comes with operating a business can
lure many people. You don't need to convince your boss - you are the boss.
You make the products you believe in and you can offer the services your
clients want.
3. Solutions: You have a solution to a common problem or a big problem?
Whether the solution relates to the environment, communications, food or
services, wanting to see your solution used by all can be a driving factor to
becoming an entrepreneur.
4. Time: Entrepreneurs ultimately decide on their shifts and their pay
checks. Usually, the more hours you invest in your business, the more money
you will make. As an entrepreneur, you get to choose how you want to
balance work and personal time.
5. Money: Many businesses make enough profit to pay modest salaries, pay
bills and even grow. On the other hand, some start-ups turn into multi-
million peso enterprises. The possibilities are endless.
10 Biggest Challenges Facing Small Businesses
There are many problems that are encountered by business owners
throughout the course of managing their business. All entrepreneurs must be
prepared for solving problems that come their way. However, creating a
start-up is not an easy task.
New entrepreneurs are usually not prepared for the problems coming their
way. The first thing to do is to understand that problems are an everyday
part of every business and then face each problem with determination and a
proper solution.
Here are some common faced problems in new businesses and their
solutions.
1. Money
Money is known to be one of the major causes of problems that can lead
business to failure. For a new business, the biggest mistake is expecting
instant profit. Young and eager entrepreneurs start up a business with little
money, assuming they will earn big and then invest that money again in their
business. It is significant to understand that you cannot get an instant profit
at the start of your business. Experts advise not to expect much profit for at
least two years. Always prepare for the worst case scenario. Before starting a
business, ensure that you have enough money to sustain you at least up to
two years. Start slowly and patiently.
2. Time
The phrase ‘time is money’ holds true, especially for a business. It is essential
for new businesses to manage their time wisely. Planning everything in
advance and ensuring everything is done on time is very important for the
prosperity of any business. Ensure the schedule you are making is achievable
and stick to it. Give yourself enough time to perform a task with accuracy.
Plan your future projects. Make adjustments accordingly. Utilize calendars
and planners to make sure you don’t miss an appointment or a deadline.
Spending time effectively can actually save you money and even earn you
more revenue.
3. Lack of Knowledge/Skills
This is one of the top most mistakes made by entrepreneurs. It is important
that you have ample knowledge about the industry you are entering, your
competitors, your target market, current trends, advertising and marketing
techniques as well as financial know-how. You must possess the skills needed
to start up a new business. If you are not prepared, educate yourself. Do
proper research, ask other business owners, read relevant books and
websites. You may end up with a huge loss if you start your business without
having the required knowledge and skills.
4. Information Overload
The only thing constant is change! This phrase is true as well as change is
continuous and we witness it happening all around us. Today, information
keeps changing. New facts and data keeps emerging and replacing old beliefs
and trends. Due to this information overload, it gets difficult to find effective
solutions. It becomes a challenge for a new business to sort through this data
and come up with good decisions. However, one easy solution is to look for
the authenticity of the data. Check its references, and the writer. Learn to use
keywords to narrow a research topic. Start asking successful businessmen
about their experiences. Learn from them.
5. Lack of Direction and Planning
This problem prevails because of not creating a thorough and detailed
business plan. Many young entrepreneurs are so excited about setting up
their very own business that they fail to prepare a proper business plan. It
helps in focusing on the goal and mission of the business. It determines the
financial situation of the business, the roadmap to follow, market research
and analysis of the competition. A business plan is basically an investment to
your business.
6. Working in the Business rather than Working on the Business
Usually entrepreneurs get so worked up with the paperwork, satisfying
customers and doing all the necessary things in keeping the business
running. They fail to fulfill some other equally crucial tasks. It is important
that you take a day or even a few hours to analyze your business. Determine
which area needs attention, do an inventory review, review cash flow of your
business, review payrolls and employee benefits. It is also important to
update your corporate minutes, your contracts and your agreements with
stakeholders annually. Hold meetings with your managers and other
employees to connect with them.
7. Innovation
Unfortunately, there are many new start-up companies that stick to the age
old book rules. They don’t try to create an innovative culture, even majority
of the big businesses struggle with innovation. People get accustomed to the
work culture and they don’t think outside the box. Businessmen and
employees stay away from change and resist whatever changes that take
place in the company. The best thing to do is to be open to innovation. When
bringing a change, ensure that all your employees are prepared for it. Discuss
it with them in a meeting, tell them how important it is to be innovative,
make them understand how beneficial it will be.
8. Trying to Do It Alone
Coping with everything alone is also one of the most common mistake new
business owners make. They believe that they can manage everything and
don’t need any advice or help form anyone. Initially, they do seem to be
successful in this strategy as the cost is low since they handle everything.
However, as the work starts growing gradually, the workload takes a toll on
the new entrepreneur. Mistakes start being made and the quality of work
starts decreasing. You may even start losing customers soon. This is why this
strategy is not successful in the long run. Hiring two to three employees is
more beneficial for a start up business. It is better to pay a small amount to
your workers than lose double the amount in the future.
9. Getting Clients
For a new business, it is difficult to attract prospects and retain customers.
With a small marketing and advertising budget, new entrepreneurs are
unable to reach out to a wider audience. Potential customers are usually
hesitant to going for a new business. They prefer going for companies that
have experience and a large customer following. However, the good news is
big companies charge more. There are many clients and customers who are
looking for companies that provide cheaper, but good quality service.
Providing excellent service to them will ensure that they remain your
customers and even recommend you to others.
10. Poor Marketing
Apart from a detailed business plan, a marketing plan is also important for
any business. Once you have a clear idea about your target market and your
competition, you can allocate a budget for advertising and promoting your
business and decide which medium to advertise through. You can also decide
your product pricing through target market analysis. Make sure you that
your pricing can be easily afforded by your target market and that your
advertising effectively reaches them.
What Causes Small Businesses to Fail?
The short answer is, regardless of the industry, failure is the result of either
the lack of management skills or lack of proper capitalization or both.
Eleven Common Causes of Failure:
Choosing a business that isn't very profitable. Even though you generate
lots of activity, the profits never materialize to the extent necessary to
sustain an on-going company.
Inadequate cash reserves. If you don't have enough cash to carry you
through the first six months or so before the business starts making money,
your prospects for Success are not good. Consider both business and
personal living expenses when determining how much cash you will need.
Failure to clearly define and understand your market, your customers,
and your customers‘ buying habits. Who are your customers? You should be able to clearly identify them in one or two
sentences. How are you going
to reach them? Is your product or service seasonal? What will you do in the
off-season? How loyal are your potential customers to their current supplier?
Do customers keep coming back or do they just purchase from you one time?
Does it take a long time to close a sale or are your customers more driven by
impulse buying?
Failure to price your product or service correctly. You must clearly define
your pricing strategy. You can be the cheapest or you can be the best, but if
you try to do both, you'll fail.
Failure to adequately anticipate cash flow. When you are just starting out,
suppliers require quick payment for inventory (sometimes even COD). If you
sell your products on credit, the time between making the sale and getting
paid can be months. This two-way tug at your cash can pull you down if you
fail to plan for it.
Failure to anticipate or react to competition, technology, or other
changes in the marketplace. It is dangerous to assume that what you have
done in the past will always work. Challenge the factors that led to your
Success. Do you still do things the same way despite new market demands
and changing times? What is your competition doing differently? What new
technology is available? Be open to new ideas. Experiment. Those who fail to
do this end up becoming pawns to those who do.
Overgeneralization. Trying to do everything for everyone is a sure road to
ruin. Spreading yourself too thin diminishes quality. The market pays
excellent rewards for excellent results, average rewards for average results,
and below average rewards for below average results.
Overdependence on a single customer. At first, it looks great. But then you
realize you are at their mercy. Whenever you have one customer so big that
losing them would mean closing up shop, watch out. Having a large base of
small customers is much preferred.
Uncontrolled growth. Slow and steady wins every time. Dependable,
predictable growth is vastly superior to spurts and jumps in volume. Going
after all the business you can get drains your cash and actually reduces
overall profitability. You may incur significant up-front costs to finance large
inventories to meet new customer demand. Don't leverage yourself so far
that if the economy stumbles, you'll be unable to pay back your loans. When
you go after it all, you usually become less selective about customers and
products, both of which drain profits from your company.
Believing you can do everything yourself. One of the biggest challenges for
entrepreneurs is to let go. Let go of the attitude that you must have hands-on
control of all aspects of your business. Let go of the belief that only you can
make decisions. Concentrate on the most important problems or issues
facing your company. Let others help you out. Give your people responsibility
and company.

Putting up with inadequate management. A common problem faced by

Successful companies is growing beyond management resources or skills. As
the company grows, you may surpass certain individuals' ability to manage
and plan. If a change becomes necessary, don't lower your standards just to
fill vacant positions or to accommodate someone within your organization.
Decide on the skills necessary for the position and insist the individual has
them.
So, the founder's attitude, ability to be objective, willingness to bring in
needed help, and share power are all crucial to success. "Most start-ups
make the mistake of falling in love with their product or service," says
Shukla. "Ultimately, it is this lack of self-criticism that causes many
companies, start-ups and their more mature counterparts, to fail. Start-ups
suffer this fate more often because there are more dreamers than doers."
I think that fact speaks for itself," says Jonathan Goldhill, a small-business
consultant and former director of an economic development center in
California's San Fernando Valley. "I would say that the primary reason for
failure of start-ups within three years is usually...management's failure
to act, or management's failure to react, or management's failure to
plan."
Other reasons why businesses fail in their early years include: poor business
location, poor customer service, unqualified/untrained employees, fraud,
lack of a proper business plan, and failure to seek outside professional
advice.
While poor management is cited most frequently as the reason
businesses fail, inadequate or ill-timed financing is a close
second. Whether you're starting a business or expanding one, sufficient
ready capital is essential. It is not, however, enough to simply have sufficient
financing; knowledge and planning are required to manage it well. These
qualities ensure that entrepreneurs avoid common mistakes like securing the
wrong type of financing, miscalculating the amount required, or
underestimating the cost of borrowing money.
Family Business Enterprise
• Family business is a corporation that is entirely owned and managed by
members of a single family.
• Family firm is a corporation that is entirely owned by members of single
family. It is also known as company owned, controlled and operated by
members of one or several families.
Family business is one in which one or more members of one or more families
have ownership, interest and significant commitment towards business.
Characteristics of Family Business:
• Family businesses are ideal in nature as they are loyal to the principles of the
founder and thus ensure uniformity in their operations.
• Succession is one important decision which determines future effectiveness
in terms of company operation.
• Family business comprises of family members in business operations
ensuring effective utilization of in house talent in family.
• Single minded dedication of family members ensures survival of family
business through toughest times.
• Effectiveness and existence of family business is determined depending on
understanding persisting within the family.
• Family business may be comprised of one or more than one family in
business operations.
• Family members who are not contributing or not involved in business are
part of business.
• Family business values are reflection of values possessed and followed by
family members.
• Members of family have legal control over business.
Importance of Family Business:
• Contributing to economic development: family business play crucial role
in economic development of most of the countries. Retail sector, small scale
industry, and service sector are owned by family business.
• Spirit of entrepreneurship: family business as contributes towards
development and has been successful in country like Philippines it paves way
to various families to initiate and bring up new ventures in country.
• Philanthropy : family business in Philippines along with their development
have also concentrated towards welfare of general public by investing on
hospitals, educational institutions, construction of roads etc.
• Trust Lowers transaction cost: partnership and other forms of business
involving outsiders usually leads to conflict in long run. In case of family
business as all the parties in family are affected by loss incurred in company
do not involve any sought of conflict and difference in point of view arises
they try and solve it internally in the family ensuring business is not affected
by the same.
• Small, nimble and quick to react : as managing team size in family business
is small compare to other form of business decision making process involves
less period of time which helps to take timely decision.
• Information as source of advantage : as family business is private firm it is
not required to take decision in accordance with pressure from other sources
and strategies of business need not be revealed to outsiders of business.
Figure 14.1 - Types of family Business
• Family owned business : is a profit organization were number of voting
shares, but not necessarily majority of shares are owned by members of
single extended family but significantly influenced by other members of
family.
• Family owned and managed business : is a profit organization were
number of voting shares, but not necessarily majority of shares are owned by
members of single extended family but significantly influenced by other
members of family. In this business has active participation by one family
member in the top management of company so that one or more family
members have ultimate management control.
• Family owned and led company : is a profit organization were number of
voting shares, but not necessarily majority of shares are owned by members
of single extended family but significantly influenced by other members of
family. In this business has active participation by one family member in the
top management of company so that one or more family members have
ultimate management control. But in this method one member has major
influence on business activities who in charge of regulating activities of
business and members of family business.
Strategies for Improving Capability of Family Business
• Inculcate professionalism in family firms: professionalism in business
refers to retaining of effective talent in company, proper documentation of
business transaction, planning and implementation of efficient strategies for
success of business.
• Replenishing entrepreneurship: basically refers to expand existing
business and be role model for their families to open business of their own.
• Good management: refers to proper communication of information among
family members about present business and utilization of available resources
in business.
• Ability to change: business environment is dynamic in nature for which
business have to renew their strategies on regular basis to meet demand of
changing situation to compete in market.
• Have strategic plan: situations of business are unpredictable in nature in
nature so present plans of business should be designed keeping in point
about future strategy in picture.
• Have active board of directors: refers to have competent employees in
business that can assess future requirements and accordingly management
business resources and take decisions in business.
Starting a Business: Legal Forms and Requirements
Business Operation:
Activities involved in the day to day functions of the business conducted for the
purpose of generating profits.
Business Plan:
Document that describes a business along with it’s objectives, strategies, the
market in which it operates and the businesses’ financial forecasts.
A business plan is a blue print of step by step process that would be followed to
convert business idea into successful business venture.
Business Plan Purposes:
• Plans for future
• Allocate resources
• Identify and prepare for problems and opportunities
• Useful for start up businesses applying for finance or growth
• Improves entrepreneur’s understanding of business and the market
Audience
• Banks, Financial lenders.
• Venture Capitalists: people who invest for a share of the business.
• Business Angels: people who invest in start up businesses which are high
risk, high growth market.
• Providers of grants
• Potential purchaser of the business

Idea generation: is the first step in the business planning process. This step
differentiates entrepreneur from usual business. An entrepreneur may come up
with new business idea or may bring in value addition to existing product in the
market. Sources of new idea for entrepreneurs are:
 Consumers/ customers
 Existing companies
 Research and development
 Employees
 Dealers, retailers.
Environmental scanning: once the entrepreneur is through the idea generation
stage, next entrepreneur is required to conduct environmental scanning which
includes analyzing external and internal environment that affects business idea.
1. External environment comprises of :
 Socio cultural appraisal : it gives brief overview about the culture and
tradition existing in society. It is comprised of values and beliefs of people
which determines the acceptance of product by customer in the market.
 Technological appraisal : it assess various technological options available
to convert an idea to product. It also provides an brief overview about
technological updates.
 Economic appraisal : it assess the status of the society in terms of economic
development, per capita income, national income, consumption pattern in
the business.
 Demographic appraisal : it assess the population pattern of given
geographic area. Which includes sex, age profile, distribution etc.

 Economic appraisal : it assess the status of the society in terms of economic

development, per capita income, national income, consumption pattern in
the business.
 Demographic appraisal : it assess the population pattern of given
geographic area. Which includes sex, age profile, distribution etc.
 Government appraisal : it assess the various legislation, policies, incentives
formulated for particular industry. Flexibility of these rues determine ease
for entrepreneur in terms of opening venture in particular area.
2. Internal environment :
 Raw material: it refers to in terms of availability of raw material required
for the process of production. If the material availability is at distance place
and is very expensive then entrepreneur should give second thought to the
same.
 Production/ operation: it assesses the availability of various machineries,
equipment's, tools and techniques that would be required for production.
 Finance: it studies total requirement of finance in terms of start up expenses,
fixed expenses, running expenses etc.
 Market: refers to study on potential customer and target customers in
market.
 Human resource: refers to demand and supply of required human resource
in market and estimation of expenses to be incurred on human resource.
Feasibility analysis: refers to conducting detailed analysis in relation to every
aspect relevant to business and determining credibility of business.
 Market analysis: is conducted to estimate the demand and market share for
proposed product and service in future. Demand and market analysis is
based on factors like consumption pattern, availability of substitute goods
and services etc.
 Technical and operational analysis: is to assess operational ability of
proposed business enterprise. Technical or operational analysis collects data
on following parameters :
1. Material availability
2. Material requirement planning
3. Plant location
4. Plant capacity
5. Machinery and equipment.
 Marketing plan: lays down the strategies of marketing which can lead to
success of business plan. Strategies are in terms of marketing mix which
includes (product, price, place, promotion) which determines the potential
demand of customers for product in the market.
 Production plan / operational plan: production plan is drafted for
manufacturing sector where as operation plan is designed for business into
service sector. It comprises of strategies on parameters such as location
layout, cost, availability of material, human resource etc.
 Organizational plan: defines type of ownership pattern in company, sole
trading concern, family business, private or public limited company etc.
 Financial plan: financial plan indicates the requirement of proposed
business enterprise. Which includes fund flow, cash flow statement,
breakeven point, projected ratio, projected balance sheet.
Project report preparation: project report is a written document that
describes step by step strategies involved in starting and running business.
Evaluation, control and review: as company operates in dynamic environment
company has to monitor and review strategies and policies to stay in line with
competition existing in market.
List of Business Permits and Licenses in the Philippines
People do business to make a living, serve their community, and pursue their
dreams. It is good to hear a person who’s taking risk to start his or her business,
whether small, medium or big. However, the process of starting and registering a
business can be one of the most crucial stages of doing business. Getting the
right permits and licenses should be done before running a business, otherwise,
you may end up operating a business without a license, which can be punishable
under certain business laws. That is why if you are an aspiring business person
or entrepreneur, and if you want to conform with the government’s rules on
establishing and legalizing a business, you have to be aware of the following list
of business permits and licenses in the Philippines.
Basic permits:
The following are the business permits and licenses that are generally required
to all business industries.
1. Barangay Clearance – The barangay clearance is a certificate that your
business complies with the requirements of the barangay where your
business is located. To get a barangay clearance, you may visit the barangay
office where your business is located.
2. DTI Business Name (BN) Registration Certificate – This is the certificate
of registration of your business trade name. It gives you the power to use
your registered business trade name for business operation. It also protects
your business name against being used and registered by other business
establishments. However, take note that DTI registration only gives you the
authority to use your business trade name, but it doesn’t give you the license
to start operating your business without getting the required licenses from
other government offices, such as BIR and Local Government Office (Mayor’s
Office).
3. SEC Certificate of Registration – Corporations (stock or non-stock) and
partnerships have to secure a certificate of incorporation or certificate of
partnership with the Securities and Exchange Commission (SEC) to be

considered as legal or juridical entities. These certificates are also used as a

requirement for registering with the BIR, Mayor’s Office, and other
government offices. Take note that sole proprietorship businesses are not
registered with SEC, but they are registered with the DTI. To register with
SEC, you may reach the following SEC address and contact information.
SEC Building, Edsa, Greenhills, Mandaluyong City
Tel. Nos.: (+632) 726.0931 to 39
Email: mis@sec.gov.ph
Website: www.sec.gov.ph
or http://iregister.sec.gov.ph/MainServlet (for online registration)
4. Mayor’s Business Permit. Businesses have to secure a Mayor’s Business
Permit or the Local Government Office where their business are located and
operated. Requirements in obtaining a Mayor’s Business permit vary from
different cities or municipalities. This permit is also a requirement by the BIR
in issuing a BIR certificate of registration.
5. BIR Certificate of Registration. Any business must be registered with the
Bureau of Internal Revenue to comply with the Philippine tax requirements.
BIR registration will assign a TIN (Taxpayer Identification Number) to the
company or business owner, will give the business authority to print its
official receipts and invoices, and registered its books of accounts. To register
with the BIR, you have to go to the BIR office which has the jurisdiction of the
place where your business is located.
6. SSS Employer’s Registration. Republic Act No. 8282 or otherwise known as
the Social Security Act of 1997 requires businesses or business owners who
use the services of another person or employees in business, trade, industry,
or any undertaking to be registered with the SSS (Social Security System).
7. Phil-Health Employer’s Registration. All businesses and employers are
also required to register with Phil-Health to enable them to provide social
health insurance coverage to their employees.
8. Pag-IBIG Employer’s Registration. Employers also have to register with the
Home Development Mutual Fund (HDMF) to secure their Pag-IBIG Employer
ID Number and to provide the required benefits to their employees, who
should be Fund members.
9. DOLE Registration. Businesses with five or more employees are encouraged
to register with the Department of Labor of Employment (DOLE) for the
purpose of monitoring their compliance with labor regulations. For
companies with 50 or more workers, they are required to register with
DOLE, under the Bureau of Local Employment which administers the
registration of establishments.
Special permits
The following are the special or secondary permits that are usually required for
business establishments with special operation or industry.

10. Bangko Sentral ng Pilipinas (BSP) – for banks, financing companies,

pawnshops, money changers, and other financial institutions.
11. Bureau of Food and Drugs (BFAD) – for business related in the
manufacturing, trading, repacking, importing, exporting, distributing of any
products related to food and drugs.
12. Bureau of Animal Industry (BAI) – for business related to animals.
13. Bureau of Fisheries and Aquatic Resources (BFAR) – for business related
in fishing and aquatics products.
14. Bureau of Forest Development – for exporters of forest products (e.g. logs,
lumber products, plywood, etc.).
15. Bureau of Plant Industry (BPI) – for business related to plants and
vegetable crops.
16. Commission on Higher Education (CHED) and Department of Education
(DepEd) – for entities involved in providing education.
17. DTI-Bureau of Product Standards (BPS) – For commodity clearance for
producers, manufacturers or exporters, whose product quality after due
inspection, sampling, and testing, is found to meet established standards.
18. Fiber Industry Development Authority (FIDA) – for business related in
fiber producing products.
19. Forest Management Bureau (FMB) – for business related in lumber, logs,
and other wood product.
20. Garments and Textile Industry Development Office (GTIDO) – For all
manufacturers of garments and textile for exports.
21. Insurance Commission (IC) – for insurance and other IC regulated entities.
22. Intellectual Patent Office (IPO) – for registering your trademarks, logos,
slogans, processes and secret formulas.
23. National Food Authority (NFA) – for rice, corn and flour dealers.
24. National Subcontractors Exchange (SUBCONEX) – for those interested to
tie up with export oriented firms as sub-contractors/suppliers, provided they
fall under any of the following sectors: garments and handwoven fabrics,
gifts and house wares, furniture and fixtures, foot ware and leather goods,
fresh and processed foods, and jewelry.
25. National Tobacco Administration (NTA) – for business related to tobacco
products.
26. Philippine Coconut Authority (PCA) – for businesses related in grain-rice
farming and trading.
27. Technical Education and Skills Development Authority (TESDA) – for
institutions involve in technical education and skills development.
There are maybe other business permits that are required for certain types of
businesses aside from what we have listed and mentioned above. Legalizing
your business doesn’t only extend to registering it and securing a license or
permit. A legalized and compliant business is one that consistently complies with the government’s laws and regulations
from registration, to operation, and until
cessation