Chapter 4:

Introduction to the Management System

Inés Herrero Chacón

Dep. Business Management
Universidad Pablo de Olavide

Economia de la Empresa (inglés)

BUSINESS ADMINISTRATION SYLABUS

MODULE I: FUNDAMENTALS
Topic 1. Enterprises & businesspeople
Topic 2. Types of enterprises
Topic 3. Environment
Topic 4. Introduction to the management subsystem

MODULE II: FUNCTIONAL SUBSYSTEMS

Topic 5. Introduction to the operations subsystem
Topic 6. Enterprises & marketing management
Topic 7. The financial functioning of enterprises
Topic 8. Human Resources

MODULE III: BUSINESS DEVELOPMENT

Topic 9. Business Evolution over time.
Topic 10. Business cooperation.

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References.

 RONALD J. EBERT; RICKY W. GRIFFIN (2017). Business

Essentials., 11th Edition. Pearson, 2017, ISBN-9780134473635
 ROBINS, S.P. & COULTER, M. (2007): Management, Pearson
Prentice Hall (some slides are taken from this book) Chapters 3, 5, 18
 GÓMEZ-MEJÍA, L.R., BALKIN, D.B. & CARDY, R. L. (2008):
Management, Mc Graw Hill. International Edition (some slides are
taken from this book) Chapters 3, 4.
 STEERS, R.M., Carlos J. Sanchez-Runde , Luciara Nardon, (2010).
Management Across Cultures. Challenges and Strategies. Cambridge
University Press
 DERESKY, H. (2010). International Management: Managing Across
Borders and Cultures, Text and Cases. Prentice Hall
 SCHERMERHORN J., (2010). Exploring Management. Wiley (some
slides are taken from this book)

Chapter 4. Introduction to the Management System

• Introduction.
• Functions of managers
• Board of directors
• Organizational objectives.
• Decision Making.
• Corporate/Competitive/Functional Strategies

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Who Are Managers?
• Manager
 Someone who coordinates and oversees the work
of other people so that organizational goals can be
accomplished.

Levels of Management

Strategic Managers

Tactical Managers

Operational Managers

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Strategic Managers

• The firm’s senior

executives with
overall
responsibility for
the firm.

Tactical Managers

• Responsible for
translating the general
goals and plans
developed by strategic
managers into specific
objectives and
activities.

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Operational Managers
• Lower-level
managers who
supervise the
operations of the
organization.

Classifying Managers
• First-line Managers
 Individuals who manage the work of non-managerial
employees.
• Middle Managers
 Individuals who manage the work of first-line
managers.
• Top Managers
 Individuals who are responsible for making
organization-wide decisions and establishing plans
and goals that affect the entire organization.

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Managerial Levels

Ethics within the firm

Shareholders

Board of
Directors

Managers

Board of Directors: represent shareholders

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 Contemporary Issues in Control

• Board of directors (BOD) elected by

shareholders to direct the firm and to
protect their interest.

• Corporate Governance: the system used to

govern a corporation so that the interests of
the corporate owners are protected.

Source: Robbins and Coulter, 2007

Board of directors. Codes of Conduct.

In the U.K.: Cadbury Report (Financial Aspects of Corporate

Governance), 1992
The UK Corporate Governance Code (2014)

In the U.S.: Statement on Corporate Governance (1997)

Sarbanes-Oxley Act (2002)

OECD: OECD Principles of Corporate Governance (1999,

2004, 2015)

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Board of directors. Codes of Conduct.
In Spain: “Código de Buen Gobierno” (1998).
Informe Olivencia (1998)
Informe Aldana (2003)
…
Unified Good Governance Code (2006)
Unified Good Governance Code of Listed Companies (2013)
Good Governance Code of Listed Companies (2015)

Web page with all codes and access to documents:

http://www.ecgi.org/codes/all_codes.php

Board Members
Characteristics
• Most members should be Independent
• All members should
 Be well-connected
 Know the company
 Know the industry
 Have experience in similar business
 Be able to read and understand financial statements

• Where to find them:

 Investors
 Investment bankers, legal counsel, accountants
 Executives of key customers, vendors
 Industry associations

Source: John Thomas Stoel Rives LLP

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 The Role of Board of Directors
• BOD Typical Responsibilities

 Caring for stockholders’ interest

 Select, evaluate, replace senior management
 Setting corporate strategy, mission and/or vision
 Compensating and firing the CEO and top managers
 Reviewing and approving the use of organizational
resources and major plans
 Control: monitoring, evaluating, and/or supervising
top management

• In legal terms, BOD’s are required to direct the

affairs of the corporation but not to manage them

Source: Moses Aquaaah, 2009

Composition of Board of Directors

Inside directors (executive directors)

 management directors
 Officers & executives employed by the firm

Outside directors (non-executive, external)

 Executives of other firms but not employees of
board’s firm
 Can represent substantial shareholders
 Two types:
– Proprietary directors
– Independent directors
Source: Moses Aquaaah, 2009

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Composition of Board of Directors
• Organization of Boards

 Size determined by firm’s characteristics

 Average size is 11/7 for large/small firms

 Dual designation of CEO and Chairman of Board

 CEO evaluating his / her own performance!!!!
 In U.S.: 80% duality; in U.K. 33%
 Research shows firms that separate two positions perform
better than those that combine two positions.

Source: Moses Aquaaah, 2009

Recent Trends in the Board of Directors

• Increasing numbers of institutional investors (pension

funds, etc) and other outsiders on the board

• Larger stock ownership by directors and executives

• A greater willingness of the board to balance the economic

goal of profitability with the social needs of society:
stakeholder view

Source: Moses Aquaaah, 2009

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Management Functions
(Mintzberg)

Planning Organizing

Leading Controlling

Management Functions

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Planning

• The management function that

assesses the management
environment to set future objectives
and map out activities necessary to
achieve those objectives.
• To be effective, the objectives of
individuals, teams, and management
should be coordinated to support the
firm’s mission.

Types of Plans

Standing

Single use

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Types of Plans
• Strategic Plans
 Apply to the entire organization.
 Establish the organization’s overall goals.
 Seek to position the organization in terms of its
environment.
 Cover extended periods of time.
• Operational Plans
 Specify the details of how the overall goals are to be
achieved.
 Cover a short time period.

Types of Plans
• Long-Term Plans
 Plans with time frames extending beyond three years
• Short-Term Plans
 Plans with time frames of one year or less
• Specific Plans
 Plans that are clearly defined and leave no room for
interpretation
• Directional Plans
 Flexible plans that set out general guidelines and
provide focus, yet allow discretion in implementation

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 Types of Plans

• Single-Use Plan
 A one-time plan specifically designed to meet the
need of a unique situation.
• Standing Plans
 Ongoing plans that provide guidance for activities
performed repeatedly.

Organizing

• The management function that

determines how the firm’s human,
financial, physical, informational, and
technical resources are arranged and
coordinated to perform tasks to
achieve desired goals.

• The deployment of resources to

achieve strategic goals.

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Leading

• The management function that

energizes people to contribute their
best individually and in cooperation
with other people.

• This involves:
 Clearly communicating organizational goals
 Inspiring and motivating employees
 Providing an example for others to follow
 Guiding others
 Creating conditions that encourage management
of diversity

Controlling
• The management function that
measures performance, compares it
to objectives, implements necessary
changes, and monitors progress.
• Many of these issues involve:
feedback
identifying potential problems
taking corrective action.

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The Planning–Controlling Link

Setting objectives

VISION

MISSION

GENERAL OBJECTIVES

OPERATIONAL GOALS

IMPLEMENTING ACTIONS

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Components of a Mission Statement

Types of Goals

• Financial Goals
 Are related to the expected internal financial
performance of the organization.
• Strategic Goals
 Are related to the performance of the firm relative to
factors in its external environment (e.g., competitors).
• Stated Goals versus Real Goals
 Broadly-worded official statements of the organization
(intended for public consumption) that may be
irrelevant to its real goals (what actually goes on in
the organization).

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Setting Goals and Developing Plans
• Traditional Goal Setting
 Broad goals are set at the top of the organization.
 Goals are then broken into sub-goals for each
organizational level.
 Assumes that top management knows best because
they can see the “big picture.”
 Goals are intended to direct, guide, and constrain
from above.
 Goals lose clarity and focus as lower-level managers
attempt to interpret and define the goals for their
areas of responsibility.

Planning in the Hierarchy of Organizations

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 Managerial Levels

The organization as an upside-down pyramid

Each individual is a value-added worker

A manager’s job is to support workers’ efforts
The best managers are known for helping and
supporting

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The organization viewed as an upside-down pyramid

1–39

Types of decisions

Strategic Decisions

Tactical Decisions

Operational Decisions

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Types of Organizational Strategies

Questions addressed by different strategic level:

 Corporate strategy (Corporate-level)

 In what industries and markets should we compete?

 Competitive (or Business-level) strategy

 How are we going to compete for customers in this industry
and market?

 Functional strategy
 How can we best utilize resources to implement our business
strategy?

Three levels of strategy in organizations:

corporate, business, and functional strategies.

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Management 9/e - Chapter 9

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Corporate-Level Strategy

• Corporate Strategies
 Top management’s overall plan for the entire
organization and its strategic business units

• The corporation’s overall plan concerning the:

 Number of businesses the corporation holds.
 Variety of markets or industries it serves.
 Distribution of resources among those businesses.

Corporate Strategies
• Types of Corporate Strategies
 Growth: expansion into new products and markets
 Stability: maintenance of the status quo
 Renewal: examination of organizational weaknesses
that are leading to performance declines

8–44

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Corporate Strategies
• Growth Strategy
 Seeking to increase the organization’s business by
expansion into new products and markets.

• Types of Growth Strategies

 Concentration
 Vertical integration
 Horizontal integration
 Diversification

8–45

Corporate Strategies
• Concentration
 Focusing on a primary line of business and increasing
the number of products offered or markets served.

• Vertical Integration
 Backward vertical integration: attempting to gain
control of inputs (become a self-supplier).

 Forward vertical integration: attempting to gain control

of output through control of the distribution channel or
provide customer service activities (eliminating
intermediaries).
8–46

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 Corporate Strategies
• Horizontal Integration
 Combining operations with another competitor in the
same industry to increase competitive strengths and
lower competition among industry rivals.

• Related Diversification
 Expanding by getting into related industries that are
“strategic fits”

• Unrelated Diversification
 Growing by by getting into unrelated industries where
higher financial returns are possible.
8–47

Corporate Strategies
• Stability Strategy
 A strategy that seeks to maintain the status quo to
deal with the uncertainty of a dynamic environment,
when the industry is experiencing slow- or no-growth
conditions, or if the owners of the firm elect not to
grow for personal reasons.

8–48

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 Corporate Strategies

• Renewal Strategies
 Developing strategies to counter organization
weaknesses that are leading to performance declines.
 Retrenchment: focusing of eliminating non-critical
weaknesses and restoring strengths to overcome current
performance problems.
 Turnaround: addressing critical long-term performance
problems through the use of strong cost elimination measures
and large-scale organizational restructuring solutions.

8–49

Competitive Strategies (Business-level)

• Competitive Strategy
 A strategy focused on how an organization will
compete in each of its SBUs (strategic business
units).

8–50

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 Competitive Strategies
Porter’s strategies for gaining competitive advantage.
 Differentiation strategy:
Attempting to create a unique and distinctive product or service for which
customers will pay a premium

 Cost leadership strategy:

Seeking to attain the lowest total overall costs relative to other industry
competitors.

 Focused differentiation strategy.

Using a cost or differentiation advantage to exploit a particular market segment
rather a larger market

 Focused cost leadership strategy:

Using a cost or differentiation advantage to exploit a particular market segment
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rather a larger market Management 9/e - Chapter 9

Types of Organizational Strategies

8–52

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 Terms to Know
• Manager
• Director
• CEO
• TMT
• Manager’s classification
• Strategic Manager
• Strategy
• Who control managers?
• Corporate Governance
• Codes of conduct of BOD
• Internal directors
• External directors
• Independent directors
• Propietary directors
• Four management functions
• Goals vs objectives
• Strategy
• What is not a strategy??
http://www.youtube.com/watch?v=ibrxIP0H84M
• What is a business model?
http://www.youtube.com/watch?v=XnLaQzi8xJc
• Mission / vission
• Corporate strategies
• Growth strategies
• Verticalization
• Horizontal integration
• Diversification
• Stability strategy
• Competitive strategies
• https://www.youtube.com/watch?v=vu-cFbTsY8U
• Strategic business units
• Competitive strategies
• Functional strategies
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