MANAGING THE ENTERPRISE

WHAT IS MANAGEMENT?

 According to Joseph Massie, author of Essentials of Management, management defines as a process by

which a cooperative group directs actions towards common goals.
 From economist point of view, management is one of the factors of production, together with land, labor and
capital.
 Viewed by a sociologist, management is a class and status system which requires an elite of intelligence and
education.
 Robert Hughes, author of Business, defines management as the process of coordinating the resources of the
organization in order to achieve its primary goals.
 Management is both an art and a science. It is an art because management requires skills or techniques in
dealing with people in order to get things done or to achieve organizational goals. In the case of management
is a science, it uses an organized, clear and pertinent knowledge. Management is systematic and uses
scientific methods of solving business problems.

PRODUCTION RESOURCES

1. Material Resources. These are tangible, physical resources which are used for production.
2. Financial Resources. These are funds.
3. Human Resources. These are the most important resources. It is the people who plan and implement
business activities.
4. Informational Resources. Correct and complete information is vital to the success of any business
organization. Without information, it is impossible to formulate good plans and programs.
THE ROLE OF MANAGEMENT

The role of business management should not be only to maximize profit, but also to assume its social
responsibility. There are hundreds of thousands of jobless people in our country. Management should give priority
to labor-intensive projects.

BASIC FUNCTIONS OF MANAGEMENT

1. Establish goals of the enterprise and develop plans to attain goals.

2. Organize people and other resources to achieve goals.
3. Lead and motivate people towards the goals of the enterprise.
4. Maintain sufficient control system to ensure that the enterprise is moving well towards its goals.

CHARACTERISTICS OF SUCCESSFUL MANAGERS

1. Technical skills
2. Conceptual skills
3. Interpersonal skills
4. Diagnostic skills
5. Analytic skills

MANAGEMENT BY OBJECTIVES (MBO)

 Management by objective is based on team work and team results, according to Peter Drucker. All members
of the organization focus on their efforts towards the attainment of a common goal of the organization. Each
subordinate manager formulates his own objective in relation to the objective of top management. Since all
managers are all participants, they feel more receptive in implementing the objective.
  Management by objectives (MBO) is a strategic management model that aims to improve organizational
performance by clearly defining objectives that are agreed to by both management and employees.
 According to the theory, having a say in goal setting and action plans encourages participation and
commitment among employees, as well as aligning objectives across the organization.
 The strategy was formulated by Peter Drucker in the 1950s, detailing five steps that organizations should
follow.
 Critics of MBO argue that it leads to employees trying to achieve the set goals by any means necessary,
often at the cost of the company.

THEORIES OF MANAGEMENT

Here are some theories which explain the factors that are responsible for employee efficiency:
1. Scientific management of Taylor.
 By Frederich Taylor
 In 1800, he became interested in improving efficiency of workers based on his bitter personal
experiences as an employee of manufacturing plants.
 He suggested that each job should be broken down into separate tasks. Then the management should
determine the best way to perform such tasks, and the output to expect. Next, management should get
the best person for each job and train him to do the job properly. Finally, management should
cooperate with workers to make sure the jobs are done as planned.
 Taylor claimed that most people work only to earn money.
2. The Hawthorne Studies of Elton Mayo.
 Three experiments were conducted in 1927-1932 by Elton Mayo at the Hawthorne plant Western
Electric Company in Chicago.
 The original objective of the experiment was to determine the effect of lighting on productivity.
 The first experiment was to determine the effect of lighting on productivity. Lighting was varied in the
work place of one group, but not in the other group. Surprisingly, both groups increased their
productivity.
  The second experiment was to determine the effectiveness of the piece-rate system. It was expected
that faster workers could pressure slower workers to produce more. But productivity did not change.
 The researchers concluded that the human factors were responsible for the best results of the two
experiments.
 The Hawthorne Studies proved that human factors are as important as pay rates as far as motivation is
concerned.
 Subsequently other studies were conducted. They concluded that employees who are happy and
satisfied in their work can be motivated to perform better. So, management should provide a favorable
environment to maximize satisfaction of workers or employees.
3. Theory X and Theory Y of McGregor.
 These were explained in his book The Human Side of Enterprise.
 Theory X assumes that the workers dislike work. So, managers should force them to attain the goals of
the enterprise. The managers make all the decisions while the workers just take orders.
 In the case of Theory Y, it assumes that work is an important part of the lives of people; that people
are responsible and therefore committed to the goals of the enterprise if these provide them personal
rewards; and that enterprise do not, in general, fully use their human resources.
 McGregor claimed that most managers act in accordance with Theory X. He recommended Theory Y
as the more effective guide for managers.
4. Maslow’s Hierarchy of needs.
 He assumed that people seek to fulfill a variety of needs. Based on their sequence of importance these
needs are:
  The aforementioned hierarchy of needs provides a good knowledge and guide for management on
how to motivate its employees to work more efficiently. By their very nature, people work hard to
satisfy their various needs.
5. Theory of Herzberg.
 He interviewed 200 accountants and engineers in Pittsburg City. The purpose of the interview was to
determine the factors that cause satisfaction and dissatisfaction.
 The results were surprisingly unexpected. For instance, low pay may make an employee feel bad. But
it is not high pay that makes an employee feel good.
 Herzberg discovered that factors most frequently associated with satisfaction are achievement,
recognition, responsibility, advancement and growth, together with work itself. These factors are
called motivation factors.
 Factors that cause dissatisfaction, based on interviews, are supervision, working conditions,
interpersonal relationship, pay, job security and company policies and administration.
 The theory of Herzberg clearly shows that there are specific factors which are responsible for
satisfaction and dissatisfaction.

CONTEMPORARY THEORY

Theory Z. This is best combination of the features of Japanese enterprise and American firms. The features
of Japanese corporations are:

 Lifetime employment
 Collective decision-making
 Collective responsibility
 Slow promotion
 Holistic concern for employees
 Implied control mechanism
 No specialized career paths
 In case of the American firms, their features are:
 Short-term employment
 Individual decision-making
 Individual responsibility
 Rapid responsibility
 Explicit control mechanism
 Specialized career paths
 Segmented concern for employees

Theory Z integrates the features of both Japanese and American firms which are believed to be the most suitable
for American business. These are
 Longtime employment
 Collective decision-making
 Individual responsibility
 Slow promotion
 Informal control
 Moderately specialized career paths
 Holistic concern for employees

 Professor William Ouchi of the University of California, Los Angeles is the author of Theory Z.
 In 1970’s, he studied the characteristics the characteristics of American and Japanese enterprise.
 It appears that the essence of Theory Z is the high level of participation of employees in decision-making.

THE NEED FOR RISK MANAGEMENT

 Entrepreneurs adopt risk management programs to eliminate or reduce risks.

 Risk is the possibility that a loss or injury will take place.
 However, if risks cannot be avoided, at least these can be reduced by the use of the following:
 1. Employee safety program
2. Proper safety equipment
3. Burglar alarms, security guards and guard dogs
4. Fire alarms, sprinkler system and similar safety measures
5. Accurate accounting and financial controls

RISK AND INSURANCE MANAGEMENT

To eliminate or minimize such risks, the entrepreneur must have a risk and insurance program. The common types
of non-criminal business risk are:
1. Fire. This is the first fear of any business owner. So they eliminate their risks through fire insurance. With
such insurance, owners can recover their financial losses.
2. Natural calamities. These can ruin business. Floods, typhoon and earthquake are in most cases not included
in the insurance coverage. Entrepreneurs can only minimize risks from natural calamities by proper choice of
locations which are free from such disasters.
3. Personal liabilities. These are business-connected risks. For instance, a customer is injured inside the store.
A customer got sick in eating the product of the entrepreneur. Such incidents may resort to law suits. Such
risks can be prevented by proper facilities or quality control program.
4. Economic problems. These have direct effects on the profitability of the enterprise. Recessions,
depressions, inflation and massive unemployment can reduce sales of goods and services. Adequate financial
resources during bad times for business can be a good protection from business losses.
5. Business interruptions. Strikes of employees and suppliers pose a great business risk. Awareness of such
problems can help the entrepreneur prepare for unexpected. A strong financial position greatly helps the
enterprise survive during such business interruptions.
6. Loss of key personnel. The resignation of important employee is a big blow to the business enterprise.

Other business Risks

There are business risks which are criminal in nature. Such risks are personally planned or intended. These are:
1. Burglary. There is need to protect inventories, supplies, equipment, etc. by providing preventive measures
can eliminate robbery.
2. Robbery. Installation of proper alarm devices, lighting facilities and other preventive measures can
eliminate robbery.
3. Shoplifting. Aside from professional shoplifters, other customers are possible threats. Mirrors and store
layout can deter shoplifting.
4. Employee theft. Avoid temptations for employees, such as open storage room, desks, cash registers and the
like. There should be strict hiring policy for personnel involved in the handling of money and products.