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Introduction to Management

Management is not a rigid science. Unlike chemistry or algebra where a right answer (often)
exists, management is fluid, and subjective, and there are different views on how to employ
its principles. But what exactly is management? Most scholars have deviations of the same
definition that includes utilization of resources to achieve a goal.

An early management scholar, Mary P. Follett characterized management as “the art of

getting things done through the efforts of other people”

According to Harold Koontz “Management is the art of getting things done through and with
formally organized groups “.

According to J.Lundy “ Management is what management does. It is the task of planning,

executing and controlling “.

Features of Management

 Management is goal oriented process: Management always aims at achieving the

organisational objectives. An essential aspect of management is to combine individual
efforts and direct them towards achieving organisational goals. These goals differ
from organisation to organisation. For example, an organisation can have a profit
motive whereas a social work organisation might have a goal of eradicating illiteracy
among children. Management recognises these goals and aims to fulfil them.
 Management is Pervasive: Management is a requirement and essential for the
functioning of all kinds of organisations- social, economic or political. Without
management, the processes of an organisation would be chaotic and unordered.
 Management is Multidimensional: Management does not mean one single activity but
it includes three main activities:
i. Management of work
ii. Management of people
iii. Management of operations
 Management is a continuous process: Management is a continuous or never ending
function. All the functions of management are performed continuously, for example
planning, organising, staffing, directing and controlling are performed by all the
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managers all the time. Sometimes, they are doing planning, then staffing or organising
etc. Managers perform ongoing series of functions continuously in the organisation.
 Management is a group activity: Management always refers to a group of people
involved in managerial activities. The management functions cannot be performed in
isolation. Each individual performs his/her role at his/her status and department, and
then only management function can be executed.
 Management is a dynamic function: Management has to make changes in goal,
objectives and other activities according to changes taking place in the environment.
An organisation has to adapt to the environment in order to succeed. Thus
management is dynamic in nature and adapts to the ever-changing social, economic
and political conditions.
 Management is Intangible: Management function cannot be physically seen or
touched but its presence can be felt. The presence of management can be felt by
seeing the orderliness and coordination in the working environment. It is easier to feel
the presence of mismanagement as it leads to chaos and confusion in the organisation.
 Balancing effectiveness and efficiency: Effectiveness means achieving targets and
objectives on time. Efficiency refers to optimum or best utilisation of resources.
Managements always try to balance both and get the work done successfully. Only
effectiveness and only efficiency is not enough for an organisation: a balance must be
created in both.

Importance of Management

The following points highlight the importance of management in an organisation:

 Achieving goals: Management helps the organisation in achieving its goals. The role
of a manager is to provide common guidance and direction to the individual efforts
for the fulfilment of organisational goals.
 Increasing the efficiency: Management helps in increasing the efficiency of the
business by increasing productivity through efficient planning, organising, controlling
and directing.
 Helps in creating a dynamic organisation: Management helps in providing the
required impetus for an organisation to transition from one phase of development to
another and also in adjusting to the changing dynamics of the business environment.
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 Helps in achieving individual objectives: Management helps in guiding the

individuals towards attaining personal objectives, which has a direct impact on
attaining the organisational objectives.
 Development of society: By developing the organisation, management helps in its
growth. A developed organisation has some moral responsibilities towards society
and it does so by creating employment opportunities, providing good quality products
and services.

Challenges for Managers in the Global Environment

Because the whole has been changing more rapidly than ever before, mangers and other
employees throughout an organization must perform higher and higher levels. In the last two
to three decades, competition between organizations competing domestically and globally has
increased drastically. The rise in global organization, organizations that operate and compete
in more than one country has put severe pressure on organizations to improve their
performance and to identify better ways to use their resources.

 Building Competitive Advantage: is the ability of an organization to outperform other

organizations because it produces desired goods or services more efficiently and
effectively than they do. The four building blocks of competitive advantage are
efficiency, quality, innovation and responsiveness to customers.
 Managing a Diverse work force: The globalization of the workforce is a trend that is
here to stay. With advances in technology and communication, more and more
businesses are looking to hire employees from all over the world. This trend has many
benefits, including access to a wider pool of talent, lower labor costs, and increased
diversity. However, it also comes with some challenges, such as managing a remote
workforce and dealing with cultural differences. The process of establishing and
managing an international workforce can be complicated.
 Utilizing new information systems and technology: technological advancement occurs
when technologies or applied sciences become more precise, accurate, efficient, or
more powerful or capable.
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PLANNING

Introduction

In simple words, planning is deciding in advance what is to be done, when, where, how and
by whom it is to be done. Planning bridges the gap from where we are to where we want to
go. It includes the selection of objectives, policies, procedures and programmes from among
alternatives. A plan is a predetermined course of action to achieve a specified goal. It is an
intellectual process characterized by thinking before doing. It is an attempt on the part of
manager to anticipate the future in order to achieve better performance. Planning is the
primary function of management.

Definitions of Planning

Different authors have given different definitions of planning from time to time, and also
Planning is the French word `purveyance', which means to look ahead. The main definitions
of planning are as follows:

 “Planning can be defined as management function that involves anticipating market

situation and general environmental trends and determining the best strategies and
tactics to achieve organization goals and objectives. And also planning can be explain
as futuristic activity that managers use to decide in advance what is required to be
done, by whom, when to do it and where. It is a guide between the present situation
(now) and the future the idea is to cover the gap between where we are today, and
where we want and hope to be”.
 According to Alford and Beatt: "Planning is the thinking process, the organized
foresight, the vision based on fact and experience that is required for intelligent
action."
 According to Simon, Smithburg and Victor A. Thomson: "Planning is that activity
that concern itself with proposal for future, evaluation of alternative proposals and
with method by which these proposals may be achieved."

Characteristics of Planning

 Planning is an Intellectual Process: Planning is an intellectual process of thinking in

advance. It is a process of deciding the future on the series of events to follow.
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Planning is a process where a number of steps are to be taken to decide the future
course of action. Managers or executives have to consider various courses of action,
achieve the desired goals, go in details of the pros and cons of every course of action
and then finally decide what course of action may suit them best.

 Planning Contributes to the Objectives: Planning contributes positively in attaining

the objectives of the business enterprise. Since plans are there from the very first stage
of operation, the management is able to handle every problem successfully. Plan tries
to set everything right. A purposeful, sound and effective planning process knows
how and when to tackle a problem. This leads to success. Objectives thus are easily
achieved.

 Planning is a Primary Function of Management: Planning precedes other functions

in the management process. Certainly, setting of goals to be achieved and lines of
action to be followed precedes the organization, direction, supervision and control. No
doubt, planning precedes other functions of management. It is primary requisite
before other managerial functions step in. But all functions are inter-connected. It is
mixed in all managerial functions but there too it gets precedence. It thus gets primary
everywhere.

 A continuous Process: Planning is a continuous process and a never ending activity

of a manager in an enterprise based upon some assumptions which may or may not
come true in the future. Therefore, the manager has to go on modifying revising and
adjusting plans in the light of changing circumstances. According to George R. Terry,
"Planning is a continuous process and there is no end to it. It involves continuous
collection, evaluation and selection of data, and scientific investigation and analysis
of the possible alternative courses of action and the selection of the best alternative.

 Planning Pervades Managerial Activities: It is the function of every managerial

personnel. The character, nature and scope of planning may change fro personnel to
personnel but the planning as an action remains intact. According to Billy E. Goetz,
"Plans cannot make an enterprise successful. Action is required, the enterprise must
operate managerial planning seeks to achieve a consistent, coordinated structure of
operations focused on desired trends. Without plans, action must become merely
activity producing nothing but chaos."

Importance/Advantages of Planning (Need for Planning)

An organization without planning is like a sailboat minus its rudder. Without planning,
organization, are subject to the winds of organizational change. Planning is one of the most
important and crucial functions of management. According to Koontz and O'Donnell,
"Without planning business becomes random in nature and decisions become meaningless
and adhoc choices." According to Geroge R. Terry, "Planning is the foundation of most
successful actions of any enterprise." Planning becomes necessary due to the following
reasons:
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 Reduction of Uncertainty: Future is always full of uncertainties. A business

organization has to function in these uncertainties. It can operate successfully if it is
able to predict the uncertainties. Some of the uncertainties can be predicted by
undertaking systematic. Some of the uncertainties can be predicted by undertaking
systematic forecasting. Thus, planning helps in foreseeing uncertainties which may be
caused by changes in technology, fashion and taste of people, government rules and
regulations, etc.

 Better Utilization of Resources: An important advantage of planning is that it makes

effective and proper utilization of enterprise resources. It identifies all such available
resources and makes optimum use of these resources.

 Increases Organizational Effectiveness: Planning ensures organizational

effectiveness. Effectiveness ensures that the organization is in a position to achieve its
objective due to increased efficiency of the organization.

 Reduces the Cost of Performance: Planning assists in reducing the cost of

performance. It includes the selection of only one course of action amongst the
different courses of action that would yield the best results at minimum cost. It
removes hesitancy, avoids crises and chaos, eliminates false steps and protects against
improper deviations.

 Concentration on Objectives: It is a basic characteristic of planning that it is related

to the organizational objectives. All the operations are planned to achieve the
organizational objectives. Planning facilitates the achievement of objectives by
focusing attention on them. It requires the clear definition of objectives so that most
appropriate alternative courses of action are chosen.

 Helps in Co-ordination: Good plans unify the interdepartmental activity and clearly
lay down the area of freedom in the development of various sub-plans. Various
departments work in accordance with the overall plans of the organization. Thus,
there is harmony in the organization, and duplication of efforts and conflict of
jurisdiction are avoided.

 Makes Control Effective: Planning and control are inseparable in the sense that
unplanned action cannot be controlled because control involves keeping activities on
the predetermined course by rectifying deviations from plans. Planning helps control
by furnishing standards of performance.

 Encouragement to Innovation: Planning helps innovative and creative thinking

among the managers because many new ideas come to the mind of a manager when
he is planning. It creates a forward-looking attitude among the managers.

 Increase in Competitive Strength: Effective planning gives a competitive edge to

the enterprise over other enterprises that do not have planning or have ineffective
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planning. This is because planning may involve expansion of capacity, changes in

work methods, changes in quality, anticipation of tastes and fashions of people and
technological changes etc.

Qualities of Good Planning

 Participation: planning is considered good if members of the organization participate

collectively.
 Defined Objective: A good plan must also have a clearly defined or established
objective.
 Goal Congruence: The meeting of the objectives of the individual members of the
organization and that of the organization. A good plan is one that marries these two,
often conflicting, objectives together.
 Alternatives: a good plan must have other alternative course of action
(contingencies), so that if one fails the other can takes effect.
 Dynamics: plans should also be flexible and adaptable to change.
 Simplicity: it should also be easy to understand and implement.
 Balance: A good plan should easily integrate into the objective of the organization.
 Resources: A good plan is one that allows the application of the organization
resources.
 Standard: it must also have a standard for measuring or assessing its performance.
 Time Frame: It must have a specific time frame and must also be made for the right
time.

Steps involved in Planning/Process of Planning

Planning is a process which embraces a number of steps to be taken. Planning is an

intellectual exercise and a conscious determination of courses of action. Therefore, it requires
courses of action. The planning process is valid for one organization and for one plan, may
not be valid for other organizations or for all types of plans, because various factors that go
into planning process may differ from organization to organization or from plan to plan. For
example, planning process for a large organization may not be the same for a small
organization. However, the major steps involved in the planning process of a major
organization or enterprise are as follows:

 Establishing objectives: The first and primary step in planning process is the
establishment of planning objectives or goals. Definite objectives, in fact, speak
categorically about what is to be done, where to place the initial emphasis and the
things to be accomplished by the network of policies, procedures, budgets and
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programmes, the lack of which would invariably result in either faulty or ineffective
planning.It needs mentioning in this connection that objectives must be
understandable and rational to make planning effective. Because the major objective,
in all enterprise, needs be translated into derivative objective, accomplishment of
enterprise objective needs a concrete endeavor of all the departments.

 Establishment of Planning Premises: Planning premises are assumptions about the

future understanding of the expected situations. These are the conditions under which
planning activities are to be undertaken. These premises may be internal or external.
Internal premises are internal variables that affect the planning. These include
organizational polices, various resources and the ability of the organization to
withstand the environmental pressure. External premises include all factors in task
environment like political, social technological, competitors' plans and actions,
government policies, market conditions. Both internal factors should be considered in
formulating plans. At the top level mainly external premises are considered. As one
moves downward, internal premises gain importance.

 Determining Alternative Courses: The next logical step in planning is to determine

and evaluate alternative courses of action. It may be mentioned that there can hardly
be any occasion when there are no alternatives. And it is most likely that alternatives
properly assessed may prove worthy and meaningful. As a matter of fact, it is
imperative that alternative courses of action must be developed before deciding upon
the exact plan.

 Evaluation of Alternatives: Having sought out the available alternatives along with
their strong and weak points, planners are required to evaluate the alternatives giving
due weight-age to various factors involved, for one alternative may appear to be most
profitable involving heavy cash outlay whereas the other less profitable but involve
least risk. Likewise, another course of action may be found contributing significantly
to the company's long-range objectives although immediate expectations are likely to
go unfulfilled.
Evidently, evaluation of alternative is a must to arrive at a decision. Otherwise, it
would be difficult to choose the best course of action in the perspective of company
needs and resources as well as objectives laid down.

 Selecting a Course of Action:The fifth step in planning is selecting a course of action

from among alternatives. In fact, it is the point of decision-making-deciding upon the
plan to be adopted for accomplishing the enterprise objectives.

 Formulating Derivative Plans:To make any planning process complete the final step
is to formulate derivative plans to give effect to and support the basic plan. For
example, if Indian Airlines decide to run Jumbo Jets between Delhi an Patna,
obliviously, a number of derivative plans have to be framed to support the decision,
e.g., a staffing plan, operating plans for fuelling, maintenance, stores purchase, etc. In
other words, plans do not accomplish themselves. They require to be broken down
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into supporting plans. Each manager and department of the organization is to

contribute to the accomplishment of the master plan on the basis of the derivative
plans.

 Establishing Sequence of Activities: Timing an sequence of activities are

determined after formulating basic and derivative plans, so that plans may be put into
action. Timing is an essential consideration in planning. It gives practical shape and
concrete form to the programmes. The starting and finishing times are fixed for each
piece of work, so as to indicate when the within what time that work is to be
commenced and completed. Bad timing of programmes results in their failure. To
maintain a symmetry of performance and a smooth flow of work, the sequence of
operation shaped be arranged carefully by giving priorities to some work in
preference to others. Under sequence it should be decided as to who will don what
and at what time.

 Feedback or Follow-up Action:Formulating plans and chalking out of programmes

are not sufficient, unless follow-up action is provided to see that plans so prepared
and programmes chalked out are being carried out in accordance with the plan and to
see whether these are not kept in cold storage. It is also required to see whether the
plan is working well in the present situation. If conditions have changed, the plan
current plan has become outdated or inoperative it should be replaced by another plan.
A regular follow-up is necessary and desirable from effective implementation and
accomplishment of tasks assigned.

The plan should be communicated to all persons concerned in the organization. Its objectives
and course of action must be clearly defined leaving no ambiguity in the minds of those who
are responsible for its execution. Planning is effective only when the persons involved work
in a team spirit and all are committed to the objectives, policies, programmes, strategies
envisaged in the plan.

ORGANIZING AS A MANAGEMENT FUNCTION

Organizing is the function of management which follows planning. It is a function in which
the harmonization and combination of human, physical and financial resources takes place.
All the three resources are important to get results. Therefore, organizational function helps
in achievement of results which in fact is important for the functioning of a concern.
Organizing is the function of management that involves developing an organizational
structure and allocating human resources to ensure the accomplishment of objectives.
Organizing also involves the design of individual jobs within the organization. Decisions
must be made about the duties and responsibilities of individual jobs, as well as the manner in
which the duties should be carried out.
 According to Louis A. Allen, “Organization is the process of identifying and grouping
of the works to be performed, defining and delegating responsibility and authority and
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establishing relationships for the purpose of enabling people to work most

efficiently”.
 According to Chester Barnard, “Organizing is a function by which the concern is able
to define the role positions, the jobs related and the co-ordination between authority
and responsibility”.
Organizing is the next important function of management after the planning. In case of
planning the management decides what is to be done in future. In case of organizing, it
decides on ways and means through which it becomes easier to achieve what has been
planned

Organizing Principles
Organizing function is effective only if the management follows some guiding principles in
order to make important decisions and act upon them. For an efficient organizing function,
the following are the guiding principles.
• Principle of specialization – According to the principle, the entire work of the
organization is to be shared among the subordinates based on their qualifications, abilities
and skills. Hence, effective organization can be achieved through specialization of sharing or
dividing work.
• Principle of functional definition – The principle states that all the work in the
organization is to be fully and clearly described to the managers and subordinates. For
instance, the initial work of production, marketing and finance, the authority of managers and
the responsibilities of the workers and their relationships towards each other must be clearly
described to all the employees working in the department. Hence, clarification in the
authority and responsibility helps in the growth of the organization.
• Principles of supervision or span of control – The principle states that the span of
control shows the number of employees that a single manager can handle and control
efficiently. Hence, the management is to decide the number of employees that a manager can
handle and this decision can be chosen from either a wide or narrow span of employees.
There are two types of span of control namely (i) wide span of control in which a manager
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can easily supervise and effectively handle a big group of subordinates independently, and
(ii) narrow span of control in which a manager does not have to supervise and control a large
group of employees as the work and authority is shared among many subordinates. Hence,
the manager needs to supervise only a selected number of employees at one time.
• Principle of scalar chain – It is that chain of command or authorization in which
there is minimum wastage of resources, communication is unaffected, overlapping of work is
prevented, and this facilitates effective organization. The flow of authorization from the top
level to the bottom level enables the managers to understand their positions of authority and
this helps in an effective organization.
• Principle of unity of command – As per this principle, one subordinate is
accountable to only one superior at one time. This helps in preventing lack of communication
and feedback and also brings about quick response. Hence, the principle of unity of command
leads to effectively combine both physical and financial resources which in turn aids in
effective coordination and organization.

Importance of Organizing Function

1. Specialization - Organizational structure is a network of relationships in which the
work is divided into units and departments. This division of work is helping in bringing
specialization in various activities of concern.
2. Well defined jobs - Organizational structure helps in putting right men on right job
which can be done by selecting people for various departments according to their
qualifications, skill and experience. This is helping in defining the jobs properly which
clarifies the role of every person.
3. Clarifies authority - Organizational structure helps in clarifying the role positions to
every manager (status quo). This can be done by clarifying the powers to every manager and
the way he has to exercise those powers should be clarified so that misuse of powers do not
take place. Well defined jobs and responsibilities attached helps in bringing efficiency into
managers working. This helps in increasing productivity.
4. Co-ordination - Organization is a means of creating co-ordination among different
departments of the enterprise. It creates clear cut relationships among positions and ensure
mutual co-operation among individuals. Harmony of work is brought by higher level
managers exercising their authority over interconnected activities of lower level manager.
Authority responsibility relationships can be fruitful only when there is a formal relationship
between the two. For smooth running of an organization, the co-ordination between
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authority- responsibility is very important. There should be co-ordination between different

relationships. Clarity should be made for having an ultimate responsibility attached to every
authority. There is a saying, “Authority without responsibility leads to ineffective behaviour
and responsibility without authority makes person ineffective.” Therefore, co-ordination of
authority- responsibility is very important.
5. Effective administration - The organization structure is helpful in defining the jobs
positions. The roles to be performed by different managers are clarified. Specialization is
achieved through division of work. This all leads to efficient and effective administration.
6. Growth and diversification - A company’s growth is totally dependent on how
efficiently and smoothly a concern works. Efficiency can be brought about by clarifying the
role positions to the managers, co-ordination between authority and responsibility and
concentrating on specialization. In addition to this, a company can diversify if its potential
grow. This is possible only when the organization structure is well- defined. This is possible
through a set of formal structure.

Process of organizing
Organizing, like planning, is a process which is to be carefully worked out and applied. This
process involves determining what work is needed, assigning those tasks, and arranging them
in a decision-making framework (organizational structure). If this process is not conducted
well, the results may be confusion, frustration, loss of efficiency, and limited effectiveness.
1. Identification of activities – Each organization exists for fulfilling a specific purpose.
This purpose identifies the activities which are performed by the organization. For example,
in a manufacturing organization, production of the goods and their selling are the major
activities in addition to the routine activities. And these activities are in variance with the
activities of a service organization or an organization involved in the trading activities. Hence
the identification of the various activities of the organization is an important step in the
organizing function.
2. Grouping of activities – Once the activities have been identified, then there is a
necessity that they are grouped. The activities are grouped in various ways. The activities
which are similar in nature can be grouped as one and a separate department can be created.
For example, activities related to the purchasing, production, marketing, and accounting and
finance can be grouped respectively under purchase, production, marketing, and finance
departments etc. Further in each department the activities can be further subdivided into
various specific jobs.
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3. Assignment of responsibilities – Having completed the exercise of identifying,

grouping and classifying of all activities into specific jobs, the individual employees comes
into picture since the employees are to be assign with the responsibilities to take care of
activities related to the specific jobs.
4. Granting authority – On the basis of specific responsibilities given to individual
employees, they are to be provided with the necessary authority for the discharge of the
assigned responsibilities in order to ensure their effective performance and in turn the
performance of the organization.
5. Establishing relationship – This is a very important part of the organizing function
since each employee in the organization is to know as to whom to report and which are the
employee who are to work with him. This establishes a structure of relationships in the
organization which helps to ensure that the organization has clear relationships. This structure
of relationships also facilitates the delegation.
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LEADING AS A MANAGEMENT FUNCTION

Every organization has people, and a manager’s job is to work with and through people to
accomplish goals. This is the leading function. When managers motivate subordinates, help
resolve work group conflicts, influence individuals or teams as they work, select the most
effective communication channel, or deal in any way with employee behavior issues, they are
leading. Leading involves influencing others through direction, inspiration, and motivation
toward the attainment of organizational objectives.
Leading is distinct from the organizing function of management, which generally includes
arranging or assembling resources. Leading or leadership is the glue that allows for the
coordination of people toward a common goal or collective response to a situation.

CONTROLLING AS A MANAGEMENT FUNCTION

Controlling involves ensuring that performance does not deviate from standards. Controlling
consists of three steps, which includes establishing performance standards, comparing actual
performance against standards and taking corrective action when necessary. Performance
standards are often stated in monetary terms such as revenue, costs, or profits but may also be
stated in other terms, such as units produced, number of defective products, or levels of
quality or customer service.
Controlling consists of verifying whether everything occurs in conformity with the plans
adopted, instructions issued and principles established. Controlling ensures that there is
effective and efficient utilization of organizational resources so as to achieve the planned
goals. Controlling measures the deviation of actual performance from the standard
performance, discovers the causes of such deviations and helps in taking corrective actions.
The managerial function of controlling should not be confused with control in the behavioral
or manipulative sense. This function does not imply that managers should attempt to control
or to manipulate the personalities, values, attitudes, or emotions of their subordinates.
Instead, this function of management concerns the manager’s role in taking necessary actions
to ensure that the work-related activities of subordinates are consistent with and contributing
toward the accomplishment of organizational and departmental objectives.
DEFINITION
Different management experts have defined the function of controlling in the following way.
“Control is checking current performance against predetermined standards contained in the
plans, with a view to ensure adequate progress and satisfactory performance, and also
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recording the experience gained from the working of these plans as guide to possible future
needs.” – Brech
“Controlling is the measurement and correction of performance in order to make sure that
enterprise objectives and the plans devised to attain them are accomplished.” – Harold
Koontz
“Control of an undertaking consists of seeing that everything is being carried out in
accordance with the plan which has been adopted, the orders which have been given, and the
principles which have been laid down. Its object is to point out mistakes in order that they
may be rectified and prevented from recurring.” – Henri Fayol
“Management is the profession of control.” – Stafford Beer
“Management control can be defined as a systematic effort by business management to
compare performance to predetermined standards, plans, or objectives in order to determine
whether performance is in line with these standards and presumably in order to take any
remedial action required to see that human and other corporate resources are being used in
the most effective and efficient way possible in achieving corporate objectives.” – Robert J.
Mockler

FEATURES OF CONTROLLING FUNCTION

Following are the characteristics of controlling function of management-
1. Controlling is an end function- A function which comes once the performances are
made in conformity with plans.

2. Controlling is a pervasive function- which means it is performed by managers at all

levels and in all type of concerns.

3. Controlling is forward looking- because effective control is not possible without

past being controlled. Controlling always look to future so that follow-up can be made
whenever required.

4. Controlling is a dynamic process- since controlling requires taking reviewable

methods, changes have to be made wherever possible.

5. Controlling is related with planning- Planning and Controlling are two inseparable
functions of management. Without planning, controlling is a meaningless exercise and
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without controlling, planning is useless. Planning presupposes controlling and

controlling succeeds planning.

IMPORTANCE OF MANAGERIAL CONTROL

 Accomplishing Organisational 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 organisational goals.
 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 organisation and the
environment.

 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 organisation with minimum wastage
or spoilage.
 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 etc. motivate the employees to put in their best efforts.
 Ensuring Order and Discipline
Controlling ensures a close check on the activities of the employees. Hence, it helps in
reducing the dishonest behaviour of the employees and in creating order and discipline in an
organization.
 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.

LIMITATIONS OF CONTROLLING
1. Difficulty in Setting Quantitative Standards: It becomes very difficult to compare the
actual performance with the predetermined standards, if these standards are not expressed in
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quantitative terms. This is especially so in areas of job satisfaction, human behaviour and
employee morale.
2. No Control on External Factors: An organization fails to have control on external factors
like technological changes, competition, government policies, changes in taste of consumers
etc.
3. Resistance from Employees: Often employees resist the control systems since they
consider them as curbs on their freedom. For example, surveillance through closed circuit
television (CCTV).
4. Costly Affair: Controlling involves a lot of expenditure, time and effort, thus it is a costly
affair. Managers are required to ensure that the cost involved in installing and operating a
control system should not be more than the benefits expected from it.
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Management theory
A theory can be a well substantiated explanation, accepted knowledge, a collection of
concepts, an expectation of what should happen or should be, an accepted general principle or
body of principles explaining phenomena, a particular conception or view of something to be
done or of the methods of doing it and a system of rules and or principles. Theories help us to
understand causes and relationships. However, theory is generally speculation. Theories are
analytical tools for understanding, explaining and making predictions about a given subject
matter. In this case our subject matter is management within the context of organizations.
Management theories or approaches to management tend explain and contributes to our
overall understanding of management.
Henri Fayol (1917)
Henry Fayol, also known as the ‘father of modern management theory’ gave a new
perception of the concept of management. He introduced a general theory that can be applied
to all levels of management and every department. He concentrated on accomplishing
managerial efficiency. Henry Fayol’s 14 principles of management look at an organization
from a top-down approach to help managers get the best from employees and run the
business with ease. Let’s take a look at them and understand them in detail.
1. Division of work – specialisation encourages continuous improvement, both in terms
of skill and methods.

2. Authority – the right to give orders and the power to require obedience.

3. Discipline – a successful organisation requires the shared effort of all staff.

Employees must obey, but this is two-sided – they will only comply if management
play their part by providing good leadership.

4. Unity of command – employees should have only one boss with no other conflicting
lines of command.

5. Unity of direction – the entire organisation should be aligned and be moving towards
a common goal.

6. Subordination of individual interests – individual needs and interests should be

subordinate to the needs of the organisation.

7. Remuneration – payment is an important motivator, but should be fair and reward

well-directed effort.
 19

8. Centralisation – an element of centralisation must always be present and is part of

the ‘natural order’ in an organisation.

9. Line of authority – a hierarchy is necessary for unity of direction.

10. Order – an organisation’s requirements must be balanced against its resources. There
should be orderly placement of resources in the right place and the right time.

11. Equity – employees must be treated equally and fairly.

12. Stability of tenure of personnel –employees need a period of stability in a job to

perform at their best.

13. Initiative – encouraging staff to show initiative is a source of strength in an

organisation.

14. Esprit de corps – management should foster harmony, cohesion and morale among
the organisation’s staff.

McGregor’s Theory X and Theory Y

The idea that a manager’s attitude has an impact on employee motivation was originally
proposed by Douglas McGregor, a management professor at the Massachusetts Institute of
Technology during the 1950s and 1960s. In his 1960 book, The Human Side of Enterprise,
McGregor proposed two theories by which managers perceive and address employee
motivation. He referred to these opposing motivational methods as Theory X and Theory Y.
Each assumes that the manager’s role is to organize resources, including people, to best
benefit the company. However, beyond this commonality, the attitudes and assumptions they
embody are quite different.
Theory X:
Theory X is based on the assumptions that:
 The average worker is lazy
 Dislike work
 Have little ambition and wish to avoid responsibility and will try to do as little as as
possible.
A Theory X management style therefore, requires close and firm supervision with clearly
specified tasks and the threat of punishment or the promise of greater pay as motivating
factors. A manager working under these assumptions will employ autocratic controls which
 20

can lead to mistrust and resentment from those they manage. McGregor acknowledges that
the `carrot and stick' approach can have a place, but will not work when the needs of people
are predominantly social and egoistic. Ultimately, the assumption that a manager’s objective
is to persuade people to be docile, to do what they are told in exchange for reward or escape
from punishment, is presented as flawed and in need of re-evaluation.
Theory Y
Theory Y is based on the assumptions that:
 Workers are not inherently lazy
 They do not naturally dislike work
 And if given the opportunity they will do what is good for the organization
Theory Y assumptions can lead to more cooperative relationships between managers and
workers. A Theory Y management style seeks to establish a working environment in which
the personal needs and objectives of individuals can relate to, and harmonise with, the
objectives of the organisation.
 21

Entrepreneurship
Entrepreneurship has been defined by Dr Donald Kuratko as a dynamic process of vision,
change, and creation that requires an application of energy and passion towards the creation
and implementation of new ideas and creative solutions.
Fred Wilson (Venture Capitalist) defined Entrepreneurship as the art of turning an idea into a
business.
Technopreneurship
Technological entrepreneurship (Technopreneurship) can be explained as entrepreneurship in
technological capacity. Technopreneurship is referred to the creation of new enterprises by
individuals, persons or corporations to exploit technological inventions. Technological
entrepreneurship can similarly be described as the commercialization of evolving
technological inventions.
Technological entrepreneurship is instigated and culminated in design, development,
production, engineering and commercialization of ground-breaking products and processes
(Aderemi et al. 2008). The person who undertakes Techno-entrepreneurship is called the
Technopreneur.
Social entrepreneurship
Social entrepreneurship is a form of entrepreneurship that focuses more on the societal
benefits. Social entrepreneurship is aimed at driving social innovation by transforming
various fields such as health, environment, educational and enterprise development.
Social entrepreneurship is concerned with the application of innovative and sustainable
approaches to benefit the society with emphasis on the marginalised groups or areas.
When the conventional entrepreneurs measure their performance in profits, social
entrepreneurs are concerned with using business techniques to solve social problems, thus
they measure their performance base on solving societal problems.

Corporate Entrepreneurship
Corporate entrepreneurship may be a formal or informal activities aimed at creating new
businesses in established companies through product and process innovations and market
development. These activities take place with the unifying objective of improving company’s
competitive position and financial performance.
Entrepreneurial firms Conservative firms
 22

 Proactive Take a more “wait and see” (reactive) measures

 Innovative Less innovative
• Risk taking Risk averse

Who is an Entrepreneur?
An Entrepreneur is an innovator or developer who recognises and seizes opportunities;
converts those opportunities into workable/marketable ideas; adds value through time, effort,
money, skills; and assumes the risk of the competitive marketplace to implement these ideas.
He is a person that locates or identifies a business opportunity and takes advantage of it. The
entrepreneur is overwhelmingly perceived to be different in important ways from the non-
entrepreneur, and many researchers have believed these differences to lie in the background
and personality of the entrepreneur.

Entrepreneurship and Entrepreneur

While Entrepreneurship is defined as the process by which individuals pursue opportunities
without regard to resources, they currently control, an entrepreneur is referred to be a person
that locates or identifies this business opportunity and takes advantage of it.

Common Myths about Entrepreneurs

Myth 1: Entrepreneurs Are Born, Not Made
This myth is based on the mistaken belief that some people are genetically predisposed to be
entrepreneurs. The consensus of many studies is that no one is “born” to be an entrepreneur;
everyone has the potential to become one. Whether someone does or doesn’t become an
entrepreneur is a function of their environment, life experiences, and personal choices.

Myth 2: Entrepreneurs Are Gamblers

Most entrepreneurs are moderate risk takers. The idea that entrepreneurs are gamblers
originates from two sources:
 Entrepreneurs typically have jobs that are less structured, and so they face a more
uncertain set of possibilities than people in traditional jobs.
 Many entrepreneurs have a strong need to achieve and set challenging goals, a
behavior that is often equated with risk taking.
Myth 3: Entrepreneurs Are Motivated Primarily by Money
 23

While it is naïve to think that entrepreneurs don’t seek financial rewards, money is rarely the
reason entrepreneurs start new firms. In fact, some entrepreneurs warn that the pursuit of
money can be distracting.
Myth 4: Entrepreneurs Should Be Young and Energetic
Entrepreneurial activity is fairly easily spread out over age ranges. While it is important to be
energetic, investors often cite the strength of the entrepreneur as their most important criteria
in making investment decisions.
What make an entrepreneur “strong” in the eyes of an investor is experience, maturity, a solid
reputation, and a track record of success. These criteria favor older rather than younger
entrepreneurs.
Myth 5: Entrepreneurs Are Academic and Social misfits
The belief that entrepreneurs are academically and socially ineffective is a result of some
business owners having started successful enterprises after dropping out of school or quitting
a job which is mostly not the case. In many cases, such an event has been blown out of
proportion in an attempt to “profile” the typical entrepreneur. The world is now recognizing
high profile individuals as entrepreneurs as contrary to the general belief.
Role of Entrepreneurship in the National Economy

1. Raising the Standard of Living

One of the most significant benefits of entrepreneurship in economic development, is that it
raises the standard of living. By creating new businesses and jobs, entrepreneurship improves
the quality of life for both individuals and communities, enabling paths for wealth creation.
2. Economic Independence
Entrepreneurship can be a path to economic independence for both the country and the
entrepreneur. It reduces the nation’s dependence on imported goods and services and
promotes self-reliance. The manufactured goods and services can also be exported to foreign
markets, leading to expansion, self-reliance, currency inflow, and economic independence.
Similarly, entrepreneurs get complete control over their financial future. Through their hard
work and innovation, they generate income and create wealth, allowing them to achieve
economic independence and financial security.
3. Creation of Jobs
Entrepreneurship is a pivotal driver of job creation. Running the operations of new businesses
and meeting the requirements of customers results in new work opportunities.
Entrepreneurship also drives innovation and competition that encourages other entrepreneurs
 24

and investments, creating new jobs in a wide range of industries, from manufacturing and
construction to service and technology sectors.
4. Elimination of Poverty
Entrepreneurship has the potential to lift people out of poverty by generating employment
and stimulating economic activity. Entrepreneurship also contributes to the development of
local economies and helps improve the overall standard of living.
5. Optimal Use of Resources
Entrepreneurship can help identify market opportunities and allocate resources in the most
effective way possible. Entrepreneurs also play a key role in developing innovative products
and services that meet the needs of customers while optimizing the use of available resources.
 25

Introduction
Today, we live in an era of rapid technological advancement and globalization, where the
business landscape is constantly evolving. In such a dynamic environment, the ability to
identify and capitalize on business opportunities, foster creativity, and drive innovation is
crucial for the success and sustainability of any organization.
Business Opportunity
Business organizations fundamentally exist to provide goods or services of value to their
customers at a profitable price. Most business opportunities emerged from the effort of firms
to fill a gap in the need and wants of the customers.
Business opportunity is therefore, referred to the favorable set of circumstances that creates
the need for a new product, service, or business. Business opportunity also refers to the
magnitude to which the prospects for new venture exist and the degree to which
entrepreneurs have the freedom to influence their chances for succeeding through their own
actions. There are four essential qualities that business opportunity possesses, these are;
attractiveness, durability, timely, and anchored with a product or service that creates or adds
value to the customers.
Opportunity Identification
Opportunity identification is referred to the cognitive process or procedures through which
people conclude that they have recognized an opportunity. It is imperative to note that
identification of opportunity is just the initial step in a continuing process, and is distinct from
an in depth evaluation of the feasibility and impending economic value of the identified
opportunities and from the active stages to develop them through new ventures. In essence, it
is the circumstance in which new products, markets, raw materials, and strategies can be
introduced through the formation of new means, ends or means-ends interactions. The
emphasis these days is nonetheless on innovative opportunities that actually open new
grounds rather than simply expanding or repeating prevailing business models.
The Process of Identifying Business Opportunity
It is pertinent to understand in what way entrepreneurs identify and select a new business
opportunity with the superlative possibility to thrive. The most significant part of all business
effort that is shared by most successful business start-ups is responding to a need that is
unmet in the market. Because customers are at all times fascinated in products that add value,
they buy such to satisfy their needs. In detail, there is no substitute to satisfying the unmet
needs of customers.
When searching for new business ideas, most entrepreneurs primarily consider three vital
issues. The foremost is potential economic value, which considers whether the venture is
capable of generating returns. Second, is about the newness of such venture; products, or
technology that does not previously exist in that location is preferred. Third, is the perceived
desirability; whether the product has legal and moral acceptability in the environment?

Factors that Influence Business Opportunity Identification

There are five factors that influence the identification of opportunities. These are:
a. Entrepreneurial Alertness
b. Prior Knowledge
c. Discovery versus Purposeful Search
 26

d. Networking versus Solo Entrepreneur

e. Creativity
a. Entrepreneurial Alertness Factor
This is a tendency to detect and respond to information about objects, incidents, and patterns
of behaviour in the environment, with special sensitivity to producer and user problems,
unmet needs and interests, and novel combinations of resources. This is usually preceded by a
position of enthusiastic awareness of information. Entrepreneurs constantly search for
opportunities that have been overlooked, but unfortunately not all people have the
entrepreneurial alertness become successful entrepreneurs. Opportunity identification is only
an indispensable stage of a process in initiating a new successful business.
The alert entrepreneur is said to be alert to the receipt of information rather than already
being in possession of it. Entrepreneurial alertness is of major importance in opportunity
identification.
b. Prior Knowledge Factor
People are likely to discover opportunities from the information that is connected to what
they already know. Prior knowledge and experiences are the prime source of identifying
opportunity. Entrepreneurs usually narrowed or restrict their search to areas which they
specifically had prior knowledge. Prior knowledge triggers identification of the value of new
information. There are two areas of prior knowledge relevant to the identification process;
first is the knowledge that is of special fascinating interest which compels the entrepreneur to
intensify his competences that eventually result in an insightful knowledge of the subject
matter, second is the knowledge accumulated over the years and eventually got familiar with
customer problems and issues involved.
c. Discovery versus Purposeful Search Factor
Some entrepreneurs absolutely believe that opportunity identification has to be through a
purposeful search for opportunities while others believe that opportunity is something that
had been readily available and overlooked and will be discovered accidentally. And that
sometimes, businesses established on accidentally discovered ideas that had not been
subjected to prescribed screening achieved break-even sales faster than those businesses that
had undergone purposeful searches.
d. Networking versus Solo Entrepreneurship Factor
The network of an entrepreneur is very vital in opportunity identification. Network
entrepreneurs obtain their ideas from their social networks. Information gathered from social
exchange of ideas stand to be the main contribution of network to identifying potential
venture opportunities. The main source of such opportunity is from relatives, friends,
businessmen, bankers, lawyers, professional seminars, conferences and workshops, books,
newspapers, etc. however, fragile information sources are believed to be from individual’s
strong-tie network within the family and friends set-up compared with weak ties that are
casual acquaintances. People with wider networks tend to discover more strong opportunities
compared to those that have not.
e. Creativity Factor
There is a good connection between creativity and entrepreneurship. Entrepreneurship is
about creativity and innovation which leads to the formation of new ventures. Most
successful entrepreneurs identify opportunities that others have not realized due to the distinct
 27

creativity attribute they possess. These creative talents have a lot to do in business decision
making and hence, it is very important in the opportunity- identification process. The more
innovative the idea the better and thus, creativity stands to be a fundamental component in the
entrepreneurial process.

Strategies and Sources for Scanning and Exploiting Business Opportunities

Changes in the environment have created new business opportunities in different forms. For
instance, the advancement of telecommunication industry created new business opportunities
to the Nigerian entrepreneurs. The following are some of the sources and strategies to
identify business opportunity. These are; observing trends, solving a problem, finding gaps in
the market and the SWOT analysis:
1. Observing Trends: Trends usually create opportunities for entrepreneurs to pursue it is
therefore important to be aware of changes in trends. The most important of these trends
are:
• Economic forces
• Social forces
• Technological advances
• Political action and regulatory change
• Economic trends help determine areas that are ripe for new start-ups and areas that
start-ups should avoid. Example of economic trend in creating a favorable opportunity
is a weak economy that favors start-ups that help consumers save money by
producing cheaper products.
• Social Forces: Social trends alter how people and businesses behave and set their
priorities. These trends provide opportunities for new businesses to accommodate the
changes. Examples of Social Trends are increasing diversity of the workplace,
increasing interest in social networks such as Facebook and Twitter, an increasing
focus on health and wellness, increasing interest in “green” or environmental friendly
products.
• Technological Advances: Advances in technology frequently create business
opportunities. Once a technology is created, products often emerge to advance it.
Examples of entire industries that have been created as a result of technological
advances are the computer industry, internet, Biotechnology, and digital photography.
• Political Action and Regulatory Changes: Political action and regulatory changes
also provide the basis for opportunities. For instance, Laws to protect the environment
have created opportunities for entrepreneurs to start firms that help other firms
comply with environmental laws and regulations.
2. Solving a Problem: Sometimes identifying opportunities simply involves noticing a
problem and finding a way to solve it. These problems can be pinpointed through
observing trends and through more simple means, such as intuition, serendipity, or
change. A problem facing the U.S. and other countries is finding alternatives to fossil
fuels. A large number of entrepreneurial firms, like solar farm, are being launched to
solve this problem.
 28

3. Finding Gaps in the Marketplace: third approach to identifying opportunities is to

find a gap in the marketplace. A gap in the marketplace is often created when a
product or service is needed by a specific group of people but doesn’t represent a
large enough market to be of interest to mainstream retailers or manufacturers.
Product gaps in the marketplace represent potentially viable business opportunities.
For example, in the year 2000, Tish Cirovolv realized there were no guitars on the
market made specifically for women. To fill this gap, she started Daisy Rock Guitars,
a company that makes guitars just for women.

4. Identifying Opportunities Through SWOT Analysis

Another strategy used in exploiting business opportunity is the SWOT analysis. This
involves the close look of both the internal and the external environment pertaining
the Strengths, Weaknesses, Opportunities and Threats. It facilitates the identification
of new business potentials and strategizing for business survival.
The SWOT analysis was instigated in the 1960s by Albert S Humphrey and has
persists to be useful as a simple start instrument for articulating a strategy. The SWOT
analysis allows achievable goals and objectives to be established for the business
while future procedure for the accomplishment of the planning and development of
the objectives could easily be derived from it. SWOT analysis is divided in to two i.e.
the Business SWOT Analysis (BSA), and the Personal SWOT Analysis (PSA). It all
depends on what you want to evaluate but both are good sources of identifying
opportunities with little efforts.

Factors that Influence Creativity

A countless number of trial and error is involved in the process of producing new ideas.
People become creative because they want to pursue some of their interests out of
appreciation or aesthetic. According to Schaper and Volery (2007), there are five factors that
influence creativity, these are; Autonomy, encouragements, resources, pressures, and mental
block.
i. Autonomy: creativity can be promoted when people and their teams are allowed to be
independent and have a sense of control over their work and ideas. People are
therefore, more creative when they have the freedom of undertaking their
responsibilities.
ii. Encouragements: this includes the policies, strategies, programs and incentives that
are important in influencing people to become creative. Encouragements can be at the
organizational level, supervisory level or group level. Policies and strategies that will
enhance creativity are designed at the organizational level while supervisor support
and open interaction encourages creativity at the supervisory level, finally, diversity,
mutual openness and shared commitments inspire creativity at the group level.
iii. Resources: in a situation where people are challenged with poor or inadequate
resources, ordinary responsibilities will be difficult to accomplish talk less of
extending to making creative contributions. Provision of adequate resources is
therefore necessary and will serve as a form of encouragement to the workers by the
management.
 29

iv. Pressures: targets and deadline sometimes serve as the push factor that inspires
people to make something creative; this is because zero pressure tends to make people
lazy. Tight schedule will thus stimulate people to creatively find ways of
accomplishing their tasks.
v. Mental block: individual mental blocks might hamper creativity. For instance,
functional fixation can prevent people from thinking outside the box by viewing the
object under study in terms of its title rather than function. However, prejudice or the
preconceived ideas we have about an object can prevent us from seeing beyond the
preconceived limitations.

THE CONCEPT OF INNOVATION

Innovation can be defined as the process by which entrepreneurs convert opportunities in to
marketable solutions. It is also referred to the introduction of a new way of doing something
(Ariffin et al., 2013). Innovation is about finding ways to deliver new or better products
(Kinicki & Williams, 2003). According to Chell (2001), innovation is deemed as the creation
of something new in the market place that alters the supply-demand equation. For Peter
Drucker, innovation is the change that creates a new dimension of performance. Innovation
can be made to the input process or management system. It is also important to note that
innovation might not necessarily result in to a new product, but can be the enhancement of an
existing product such as adding a new feature to the product. In summary, innovations enable
old products to be improved.
Differences between Creativity and Innovation
While creativity is concerned about creating something new, innovation involves
advancement or modification of an existing knowledge (Ariffin et al., 2013). Creativity is the
raw material that goes into innovation and which should be encouraged at the organizational
and individual supervisory level.
Types of Innovation
According to Kinicki and Williams (2003), there are four types of innovation. These are
invention, extension, duplication and synthesis.
i. Invention: this is about making an entirely new product, service or process that does
not exist before. Inventions are very important in the markets that highly
characterized by uncertainty.
ii. Extension: this involves the introduction of additional features or new uses to an
existing product. It is about making something new out of an existing product or
process. For example, the purpose of mobile phones are to make and receive calls but
the features of mobile phones are nowadays extended to snap pictures, record videos,
play games, watch and share movies.
iii. Duplication: this is about creative replication of an existing product or process. The
creative replication of local lamps and cooktops in to environmental friendly products
is an example.
 30

iv. Synthesis: this is the blending of some existing products in to a new single product to
serve the purposes of all the products that have been blended in to it. For instance
adjustable bed can serve as a bed and a chair at the same time.

Sources of Innovation
According to Thomas W. Mason successful innovation is rarely the consequence of a brilliant
idea. With reference to Ariffin et al. (2013) there are four sources of entrepreneurial
innovations.
i. Demographic changes: this has been one of the main sources of innovation to both
new and established entrepreneurs. The changes in age, consumer preferences,
education and mobility might create a new gap that need to be filled in the market.
ii. Unexpected event: innovation might happen as a result of an unexpected event.
iii. Process needs: the need for the improvements of existing production processes might
also result in to the invention of some new tools that will ease the process of
production. The invention of such tools will therefore enable the automation of the
manual processes. For instance, computerized inventory control system will facilitate
proper inventory management.
iv. Research and knowledge: the result of new researches could also be an important
source of inventing a new product. For instance, the invention of solar energy through
research has resulted in to a more cost effective and environmental friendly source of
energy.
The Process of Innovation
Several systematic steps are involved in the innovation process. This ranges from the
identification of problems, analysis, idea generation, idea evaluation, project plan, project
development, product test and commercialization. According to Verwon et al. (2000), there
are three phases of innovation process; the first is the conception, second is the
implementation and the third is marketing.
i. Conception: this is the first stage in which the problems are identified and the idea is
generated, evaluated and planned.
ii. Implementation: this is the execution stage in which the prototype developed and its
pilot and test is conducted.
iii. Marketing: this is the commercialization stage in which full production and market
launch is performed. The marketing/commercialization stage is the final stage and is
only conducted when the remaining stages have been satisfied.
 31

Business enterprises do not operate in a vacuum. They affect and are affected by both internal
and external environmental factors. The environment of which entrepreneurs operate is
dynamic rather than static; thus, it changes from time to time. It is therefore, necessary for
entrepreneurs to be attentive of these changes and prepare themselves on how to manage it.
Business environment refers to the totality of all factors (internal & external) that can affect
the decisions and activities of an enterprise. The internal environmental factors are those
within the control of an enterprise while the external factors are beyond the control of an
enterprise. Business environment can also simply refer to as the totality of interaction
between an enterprise and the society. In a nutshell business environment is the entirety of all
factors that influence the decisions and or operations of an enterprise. Any change in the
environmental factors will considerably result to changes in operations of the enterprise.
Internal environmental factors are more clear and controllable to closely every enterprise.
Due to the peculiarity nature of the internal environment, we will consider the external
environment which is mostly the greatest challenge of business enterprises.
The Business External Environment
Studies on external environment are an attempt to understand the outside forces of the
organisational boundaries that are helping to shape the organisation. The external
environment is very important for every kind of business operation. The external
environment can provide both facilitating and inhibiting influences on organisational
performance. Key dimension of the external environment principally consists of the micro
environment and the macro environment.
Micro environment
The micro environment of business refers to the immediate periphery of the business
organisation. It consist the immediate environment that affects the performance of an
enterprise. However, it is quite important to note that micro environmental factors are more
intimately linked with the enterprise than the macro environment factors. The micro forces
need not necessarily affect all organisations in a particular industry; some of the micro factors
mainly affect a particular enterprise. For instance, an organisation that depends on a supplier
may have a supplier environment that is quite entirely different from that of another
organisation whose supply source is also different. When competing organisations in an
industry have the same microelements, the relative success of the organisations depends upon
their relative effectiveness in dealing with these elements. The micro environment analyses
entails the following important factors:
Suppliers
Suppliers are those who supply inputs like raw materials and components to the organisation.
Business enterprises therefore, rely upon their suppliers for resources. Likewise, the success
of a supplier organization is sometimes dependent upon its customer; the operation of the two
organizations has become intertwined. Organizations must tend towards contract agreements,
pricing agreements, delivery lead times and contingencies as part of the continuity from input
to output.
Supplier is the most important force of the micro environment of an enterprise. A reliable
source or sources of supply is very important to the smooth function of a business.
Uncertainties might occur due to numerous supply glitches like delay of supply, and
maintenance of inventory to organisation. A lot of businesses give high importance to vendor
development, with vertical integration to solve supply problems. Organisations that rely on a
single supplier are at risk in cases of strike, lockout or any other difficulty faced by the
supplier, it is therefore better for organisations to rely upon several suppliers of the same raw
material. Equally, a change in attitude or behaviour of the supplier may also affect an
organisation, hence; multiple sources of supply will help to reduce such risks. Supply
management assumes more importance in a scarcity environment.
 32

Customers
Customers are those who pay for the products (goods or services) of an enterprise. The
foremost duty of a business is to create and develop customers, this is because the survival of
a business enterprise heavily rely upon the customers that patronize their product. Customers
are vital to all organizations because they make paydays possible! According to Peter
Drucker the objective of a business is to create and retain customers. The ability to
meet/exceed current requirements (and to anticipate future requirements) for price, quality
and delivery on time is the hallmark of a successful organization. ‘The customer is king’ has
been proclaimed aloud by many organizations. Markets for products, services and
information are becoming increasingly market-led, and organizing a business to satisfy the
emerging needs of customers remains a vital requirement.
Organisations that depend upon a single customer often find many difficulties and are at risk
compared to organizations that have so many customers. This risk may place the organisation
in a poor bargaining position, and of losing business when the customer switches to
competitor products. Therefore, monitoring the behaviour of customer’s is a prerequisite for
business success. An Organisation may have different kind of customers. They are listed
below:
• Household customers
• Industrial customers
• Government customers
The strategic choice of the customer segments should be made by considering a number of
factors such as the relative profitability, dependability, and stability of demand, growth
prospects and the extent of competition. Firms should know about who are their customers, as
well as their expectations and buying patterns.
Competitors
Winning and losing in business environments often concerns the performance of one party in
relation to that of another. This ‘other’ is one or more competitors who might desire to
provide customers with high quality, low cost, or differentiated products. Competition from
overseas, where overheads are lower, may be seen as particularly a threat. However,
innovation by competitors can render competing products and services obsolete. Thus, the
way an organization responds to its competitors (e.g. deciding upon the time for aggressive
product development or defensive pricing) may be a significant indicator of its future success
in its field of operation.
Competitors consist of not only organisations that market the same or similar products but
also those who compete for the discretionary income of the customers. For instance, the
competition for automobile may not come from other automobile manufacturers but also
from producers of refrigerators, cooking ranges, stereo sets and so on and from organisations
offering saving and investment scheme like banks, unit trust, stock brokers, etc. This
competition may be described as desire competition because the primary task here is to
influence the basic decision of the consumer. Such desire competition is generally very high
in countries characterized by limited disposable incomes and many unsatisfied desires
because of unlimited human wants.
Marketing Intermediaries
The immediate environment of organisation may principally consist of a number of
marketing intermediaries. In some cases, the customers are not aware of the manufacturer of
the products and services they buy, because they are buying from local intermediaries. The
marketing intermediaries include agents, wholesalers and retailers. These intermediaries
might affect the decisions and operations of an enterprise favourably or otherwise.
Market
 33

Market structure in the form of its actual and potential size, its growth and product
attractiveness can affect the operations of an enterprise. The major marketing issues that
might affect operations consist of the cost structure of the market, the price sensitivity of the
market, the existing distribution system of the market, and the product life cycle stage.
Macro Environmental Factors
The macro environment studies the overall issues of firms and broader dimensions. The
external macro environmental factors principally consist; Political factors, economic factors,
sociocultural factors, technological factors, legal factors, demographic factors etc.
Political Environment
Political stability, responsibility, ideology, and efficiency of government, as well as the level
of political morality and practice of the ruling party will have an effect on the performance
and decisions of businesses. Different governments have different political aspirations, and
manipulate the economy to these ends. This manipulation will tend to influence the business
environment. The political environment is based on uncertainty and thus, understanding the
basics of political systems, institutions and processes provides greater opportunities for
organizations to align themselves, and provide greater opportunities for achieving business
objectives.
Economic Environment
Economic environment is concerned with the nature and direction of the economy within
which business enterprises operate. Governments create and sometimes destroy the economic
climates that favour investments. Policies to create high or low levels of public sector
borrowing, higher or lower levels of employment, higher or lower levels of inflation are
examples of how the economic environment affects businesses. Fiscal policies release or
withdraw of public sector spending, and other policies promote or discourage the creation of
new enterprises. For instance, business prospects are generally bright and further investments
are encouraged in countries where investments and income are steadily rising, but in the
developing countries, lower income may be part of the reason in the limited growth of new
enterprises due to lower demand of some products.
Legal Environment
There is a framework of laws and regulations in all countries which defines the relationships
between the state, organizations and individual citizens. Sound legal system is a basic
requirement for running a business. Business laws which are protecting consumers,
competitors, employees (including health and safety), intellectual property, environmental
discharges and all relevant company laws must be adhered by business enterprises. The legal
system is something uncontrollable that organizations must aligned their businesses to fit.
Sociocultural Environment
Sociocultural factors are described as the beliefs, values, norms and traditions of a given
society which determines how individuals and organisations should be interrelated. It consists
of the factors that are associated with human relationships and the impact of social attitudes
and cultural values to business entities. Customs, traditions, norms, values, tastes and
preferences affect business operations and businesses are expected to design and conduct
their activities in accordance to them.
People of different culture might use the same basic product, but the mode of consumption or
conditions of use may vary and therefore the product attributes method of presentation, and
promotion may have to vary in order to suit the characteristic of the different market segment.
Sociocultural differences might necessitate a change in brand name, brand colour,
composition of ingredients etc. For instance, the value and beliefs associated with white
colour vary significantly between different cultures; in china and Korea white is an indication
of death and mourning, but in some countries it expresses happiness and serves as the colour
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of religious rituals and wedding dress. Read about “Red cross” and “Red crescent” logo in
the Arab countries.
Technological Environment
The speed of technological advancement in the twenty-first century is near exponential, as
anyone who has purchased a new television or computer recently may have noted. The
progress of business depends on the level of technology available in a country which gives a
massive impetus to economic revival. It also indicates the pace of research and development
and progress made in introducing modern technology in production. Technological factors
sometimes pose serious threats. A firm that is unable to cope with the technological changes
may not survive, the fast changes in technologies create problems for enterprises as they
render plants and product obsolete.
Though technology is a capital intensive investment, it is a cost effective alternative to
traditional labour intensive methods. The advances in technology have facilitated product
improvements and introduction of new products and have considerably improved product
marketability. It can be concluded that technology is the key to development in a competitive
business environment hence, the willingness of organizations to invest in new technologies is
fundamental to the success of an enterprise over its peers.
Demographic Environment
Demography is concerned with the population distribution. It is the statistical study of
population characteristics with special attention to size of the population, growth rate of the
population, age composition, life expectancy, family size, occupational status, employment
pattern etc. all these affect the operations, decisions and demand for the products of an
enterprise. The growth of population and income will result in increased demand for goods
and services and enormous increase in labour supply, the opposite of these might negatively
affect business.