Business Organization and Management

Preliminary topics

Management is a process or a way of anybody in order to achieve goals. It is a distinct

PLANNING, ORGANIZING, STAFFING, DIRECTING AND CONTROLLING performed to
determine and accomplish stated objectives by the use of human resources to achieve
stated objectives.

Management as a Science and Art

Management is both art and science.

It is an art because it results in the accomplishment of objectives through the use of

human efforts. It requires skill and careful study in the management of any endeavour.

It is a science because it is a systematic body of knowledge . It gathers and analyzes

facts and formulates general laws of principles from these facts.

As an art and as a science, therefore management seeks to integrate into a unified,

coordinated whole the essential factors that make up an organization. Management is a
broad field of knowledge with its own areas of specialization - personnel, finance,
production, sales or marketing, purchasing and procurement, administration and
advertising.

Concept of Business and Development of Business Culture

Business is the evolutionary growth of various activities developing from a simple to

complex system. Business primarily aims to satisfy the consumer’s basic and secondary
needs. It can be achieved through the use of effective business marketing practices ans
strategies for reasonable returns to compensate for the businessman’s efforts and risk
of loss. Profit is the main objective of business which distinguishes it from charitable
institutions and government agencies. Profit is the difference between the income an
entrepreneur received from the sale of his goods and services and the expenses he
incurs to produce them. It is income minus expenses. Profit is important in business.

In practical and legal sense, business is any activity involved in the production and
distribution of goods and services aimed to meet the economic needs of consumers
with an objective of eventually earning profit

Relationship of Business and Economy

- Basically the role of business is to produce goods and services which consumers
need. The business firm produces goods and services from the factors of production
provided by society. Consumers in turn buy these goods and services. Business Firms
thus contribute to the country’s economic growth. One measure of economic growth is
the GNP defined as the total market value of goods and services produced by a country
in any given period (quarterly, semi annually, annually)

Elements of Business System

Factors of Production
1. Entrepreneur - or businessman who buys and organizes the three factors - land,
labor and capital to provide goods and services. In return, he profits if his products are
in demand and inherent in all business ventures
2. Capital - the money or investment placed by the entrepreneur for the business to
operate
3. Land - pertains to the natural resources including timber, minerals, petroleum and the
land itself
4. Labor- refers to the physical and mental input of people who produce the goods and
services
Responsibility of a Business Enterprise
A business enterprise is a part of a larger economic system. Other group and individuals
affect the way business is managed. Ther are the owners of the business, employees
working for the enterprise, customers buying the goods and services selling machinery,
equipment, or materials to the enterprise.
- The business company should abide by the rules and follow all government rules and
requlations besides being a responsible corporate citizen in the community.
- The business should also strive to promote the social, economic and cultural welfare
of the community. (aside from the paying the right wages and benefits, some companies
donate funds to support neighborhood activities. Others encourage their employees to
participate in social work and cultural programs that benefit the society.

Why people engage in Business

1. Power
2. Profit
3. Service to the Community
4. Prestige
5. Livelihood
6. Protection

Abraham Maslow’s Hierarchy of Needs

1. Physiological or Biological Needs- the essentials for survival, such as the need for
food, clothing, shelter
2. Safety Need - the desire for security, stability or protection against danger
3. Social Need - the need of group belongingness, affection, love and friendship
4. Ego or self-esteem need- the need for self recognition or group satisfaction
5. Self-fulfillment need - the need for realization of personal goal or ambition

Kinds of Business
1. Industry - involve in the conversion of raw materials into finished product or goods
and the application of labor upon raw materials so that greater usefulness becomes
possible after the process in the industrial group can be divided into extractive
industries.
2. Commerce - involves the process of buying and selling where the goods are moved
from the point of production to the point of consumption.
3. Service Enterprise - are primarily concerned with the satisfaction of the needs and
wants of the consumers. These are subdivided into
a. Public and community service (electric companies, newspaper publishers)
b. Professional or trade service (law offices, medical doctor’s services, accounting
services)
Broadly speaking services may also be divided into
a. Recreation services which include TV stations, movie productions and theaters
b. Personal Services which include, hotels, restaurants, schools, beauty parlors

Basic Resources Fundamental Functions - Stated Objectives

The Process of Management End - Results

Men Planning Organizing Staffing

Money
Materials Social Responsibility
Machines Profit
Methods
Market Directing Controlling

Legal Forms of Business Ownership

1. Sole Proprietorship - a form of business ownership organized and managed by one
one person. It is possible that the capital in this form of business comes from the
collective contribution of memebers of the family or among friends, however, for the
business to be considered a sole proprietorship it should be registered in the name of
only one person.
2. Partnership - a business organization where two or more persons contribute money,
property or talent to carry on a business. A partnership acquires juridical personality
upon the agreement of the partners. Such agreement should be in writing.
3. Corporation - is an artificial being created by the operation of law, having the rights
of succession and the powers, attributes and properties expressly authorized by law or
incident to its existence.

The Entrepreneur and the Manager

We used the term “businessman” and the entrepreneur interchangeably to describe the
person who uses the other three factors of production together. Most small business
firms are managed and owned by entrepreneurs themselves. They decide to start the
business, risking time and capital, hoping to profit from this venture. They make all
management decisions.
As the business expands, the entrepreneur has to increase ownership to get more
capital. When the business becomes more complex it has to be managed by
professional experts in finance, marketing, personnel production or data processing.
These managers are usually employees in the business enterprise, though some may
become shareholders or partners whose main role is to maximize the use of resources,
make decisions to generate profits and to sustain the growth of the busines by putting
long and remitting hours of work and takes financial risks that require a lot of energy and
self- discipline.
The successful entrepreneur attains a position of prestige in the community because of
his many contributions to the society especially in terms of general jobs to many people
and providing needed goods and services.

Social and Economic Contributions of Entrepreneurship

1. Entrepreneurship creates employment - when entrepreneurs put up business, they
oftentimes need to hire or employ at least one or two other people in order to get things
done
2. Entrepreneurship improves the quality of life - entrepreneurial ventures contirbute
significantly to the continuous improvement of living standards. The development of new
products, the delivery of needed services make life easier and comfortable for society in
general.
3. Entrepreneurship contributes to more equitable contribution of income taxes and
therefore eases social unrest - when income is more eventy distributed,
entrepreneurship also grows. People will have more money with which to buy the
products and services they need, bringing in more profits to entrepreneurs who may
have enough money to invest on enterprise of their own thus increasing the supply of
entrepreneurs. Income that is evenly distributed means less poor people.
4. Entrepreneurship utilizes and mobilizes resources for greater national productivity -
the country will develop faster economically if none of its resources were left idle or
unused.
5. Entrepreneurship brings social benefits through the government - with the revenues
of the government from taxes, duties and licenses paid by the entrepreneurs plus the
taxes paid by workers, the government allocates for communities. This may come in the
form of infrastracture facilities such as road and bridges, educational and medical
facilities and services, maintenance of peace and order.

Medium of Exchange
1. Barter Economy - during the primitive era, exhange was done through barter which
was the direct exhange of goods for goods, Money was not used, instead commodity
was offered. If the commodity offered by a person was not acceptable to another
person, no exchange took place.
2. Money economy - While barter was used there came to circulate in the market
certain objects such as bars of metals, buttons, tools and utensils which were stable in
value, durable and generally accepted by the public. Through time and evolution, money
was used as a medium of exhange, money solved the problem of barter economy when
such obejcts became standardized in value and regular in appearance so that it became
identified and accepted by the general public as a medium of exchange. Money is
anuthing which is characterized by its general acceptability, it redeemability in precious
metals or public acceptance in any institution using it. Consequently a monetary system
evolved.
3. Money and Credit economy - when transactions continued to increase in volume and
frequency, it became imperative to allow others to purchase one’s goods or engage
one’s services with payments to be paid in some future date. Credit is the power to
obtain goods and services in exchange for a promise to pay the agreed equivalent at
some future date. It supplements money as a medium of exchange.

Legal Forms of Business Ownership

1. Sole Proprietorship - a form of business ownership organized and managed by one
one person. It is possible that the capital in this form of business comes from the
collective contribution of memebers of the family or among friends, however, for the
business to be considered a sole proprietorship it should be registered in the name of
only one person.
2. Partnership - a business organization where two or more persons contribute money,
property or talent to carry on a business. A partnership acquires juridical personality
upon the agreement of the partners. Such agreement should be in writing.
3. Corporation - is an artificial being created by the operation of law, having the rights
of succession and the powers, attributes and properties expressly authorized by law or
incident to its existence.

Historical Foundations of Management Theories

MAnagement theories are set of general rules that guide the managers to manage the
organization. Theories are an explanation to assist employees to effectively relate to the
business goals and implement effective means to achieve them.

1. Frederick Taylor - Theory of Scientific Management

2. Henri Fayol - Administrative Management Theory
3. Max Weber - Bureaucratic Theory of Management
4. Elton Mayo - Behavioral Theory of Management

FREDERICK TAYLOR Theory of Scientific Management Taylor’s theory of scientific

management aimed at improving economic efficiency, especially labor productivity.
Taylor had a simple view about what motivated people at work - money. He felt that
workers should get a fair day's pay for a fair day's work, and that pay should be
linked to the amount produced. Therefore he introduced the DIFFERENTIAL PIECE
RATE SYSTEM of paying wages to the workers.
Taylor's Differential Piece Rate Plan If Efficiency > Standard then 120 % of Normal
Piece Rate = (Units Produced)x(Normal Piece Rate) + (1.20)x(Normal Piece Rate) If
Efficiency < Standard then 80 % of Normal Piece Rate = (Units Produced)x(Normal
Piece Rate) + (0.80)x(Normal Piece Rate)
PRINCIPLES OF SCIENTIFIC MANAGEMENT Four Principles of Scientific Management
are : 
1. Time and motion study - Study the way jobs are performed and find new ways to
do them.
2. Teach , train and develop the workman with improved methods of doing work.
3. Codify the new methods into rules.  Interest of employer & employees should be
fully harmonized so as to secure mutually understanding relations between them. 
4. Establish fair levels of performance and pay a premium for higher performance.

HENRI FAYOL Administrative Management Theory Henri Fayol known as the FATHER
OF MANAGEMENT laid down the 14 principles of Management :

1. Division of Work
In practice, employees are specialized in different areas and they have different skills.

Different levels of expertise can be distinguished within the knowledge areas (from
generalist to specialist).

Personal and professional developments support this.

According to Henri Fayol specialization promotes efficiency of the workforce and

increases productivity.

In addition, the specialization of the workforce increases their accuracy and speed.

This management principle of the 14 principles of management is applicable to both

technical and managerial activities.

2. Authority and Responsibility

In order to get things done in an organization, management has the authority to give
orders to the employees. Of course with this authority comes responsibility.

According to Henri Fayol, the accompanying power or authority gives the management
the right to give orders to the subordinates.

The responsibility can be traced back from performance and it is therefore necessary to
make agreements about this.

In other words, authority and responsibility go together and they are two sides of the
same coin.

3. Discipline

This third principle of the 14 principles of management is about obedience. It is often a

part of the core values of a mission and vision in the form of good conduct and
respectful interactions.

This management principle is essential and is seen as the oil to make the engine of an
organization run smoothly.

4. Unity of Command

The management principle ‘Unity of command’ means that an individual employee

should receive orders from one manager and that the employee is answerable to that
manager.

If tasks and related responsibilities are given to the employee by more than one
manager, this may lead to confusion which may lead to possible conflicts for
employees.

By using this principle, the responsibility for mistakes can be established more easily.

5. Unity of Direction

This management principle of the 14 principles of management is all about focus and
unity. All employees deliver the same activities that can be linked to the same objectives.

All activities must be carried out by one group that forms a team. These activities must
be described in a plan of action.

The manager is ultimately responsible for this plan and he monitors the progress of the
defined and planned activities.
Focus areas are the efforts made by the employees and coordination.

6. Subordination of Individual Interest

There are always all kinds of interests in an organization. In order to have an

organization function well, Henri Fayol indicated that personal interests are subordinate
to the interests of the organization (ethics).

The primary focus is on the organizational objectives and not on those of the individual.

This applies to all levels of the entire organization, including the managers.

7. Remuneration

Motivation and productivity are close to one another as far as the smooth running of an
organization is concerned.

This management principle of the 14 principles of management argues that the

remuneration should be sufficient to keep employees motivated and productive.

There are two types of remuneration namely non-monetary (a compliment, more

responsibilities, credits) and monetary (compensation, bonus or other financial
compensation).

Ultimately, it is about rewarding the efforts that have been made.

8. The Degree of Centralization

Management and authority for decision-making process must be properly balanced in

an organization.

This depends on the volume and size of an organization including its hierarchy.

Centralization implies the concentration of decision making authority at the top

management (executive board). Sharing of authorities for the decision-making process
with lower levels (middle and lower management), is referred to as decentralization
by Henri Fayol.

Henri Fayol indicated that an organization should strive for a good balance in this.

9. Scalar Chain

Hierarchy presents itself in any given organization. This varies from senior management
(executive board) to the lowest levels in the organization.

Henri Fayol ’s “hierarchy” management principle states that there should be a clear line
in the area of authority (from top to bottom and all managers at all levels).

This can be seen as a type of management structure. Each employee can contact a
manager or a superior in an emergency situation without challenging the hierarchy.

Especially, when it concerns reports about calamities to the immediate

managers/superiors.

10. Order

According to this principle of the 14 principles of management, employees in an

organization must have the right resources at their disposal so that they can function
properly in an organization.
In addition to social order (responsibility of the managers) the work environment must be
safe, clean and tidy.

11. Equity

The management principle of equity often occurs in the core values of an organization.

According to Henri Fayol, employees must be treated kindly and equally.

Employees must be in the right place in the organization to do things right.

Managers should supervise and monitor this process and they should treat employees
fairly and impartially.

12. Stability of Tenure of Personnel

This management principle of the 14 principles of management represents deployment

and managing of personnel and this should be in balance with the service that is
provided from the organization.

Management strives to minimize employee turnover and to have the right staff in the right
place.

Focus areas such as frequent change of position and sufficient development must be
managed well.

13. Initiative

Henri Fayol argued that with this management principle employees should be allowed to
express new ideas.

This encourages interest and involvement and creates added value for the company.

Employee initiatives are a source of strength for the organization according to Henri
Fayol.

This encourages the employees to be involved and interested.

14. Esprit de Corps

The management principle ‘esprit de corps’ of the 14 principles of management stands

for striving for the involvement and unity of the employees.

Managers are responsible for the development of morale in the workplace; individually
and in the area of communication.

Esprit de corps contributes to the development of the culture and creates an atmosphere
of mutual trust and understanding.

In conclusion on the 14 Principles of management

The 14 principles of management can be used to manage organizations and are useful
tools for forecasting, planning, process management, organization management,
decision-making, coordination and control.

Although they are obvious, many of these matters are still used based on common
sense in current management practices in organizations.

It remains a practical list with focus areas that are based on Henri Fayol ’s research
which still applies today due to a number of logical principles.
 FEATURES OF BUREAUCRACY 1. Division of Labor 2. Formal Hierarchical Structure
3. Selection based on Technical Expertise 4. Management By Rules 5. Written
Documents 6. Only Legal Power is Important 7. Formal and Impersonal relations
ELTON MAYO Behavioral Theory Of Management Elton Mayo's experiments showed
an increase in worker productivity was produced by the psychological stimulus of
being singled out, involved, and made to feel important. Hawthorne Effect, can be
summarized as “Employees will respond positively to any novel change in work
environment like better illumination, clean work stations, relocating workstations etc.
Employees are more productive because they know they are being studied.

PLANNING

Planning is a logical and systematic approach of formulating the objectives, programs,

policies, procedures, budgets, rules and regulations and other types of plans. It is
considered as the most basic of all managerial functions. Without this basic functions,
the other functions of the manager cannot be tackled efficiently and effectively.
Therefore a manager organizes, staffs, directs and controls in order to guarantee the
attainment of objectives and the other types of plans made.

According to Koontz Planning is deciding in advance - what to do, when to do & how to
do. It bridges the gap from where we are & where we want to be”. A plan is a future
course of actions. It is an exercise in problem solving & decision making. Planning is
determination of courses of action to achieve desired goals. Thus, planning is a
systematic thinking about ways & means for accomplishment of pre-determined goals.
Planning is necessary to ensure proper utilization of human & non-human resources. It
is all pervasive, it is an intellectual activity and it also helps in avoiding confusion,
uncertainties, risks, wastages etc.

Why is planning important?

Planning provides the organization a better sense of what it wants to achieve and how it
can achieve this. You essentially have more focus when you plan for things. Think what
would happen if you went into a big job interview without any planning.

You might be OK, but you wouldn’t be able to focus on the details and it might take time
for you conduct your answers. But if you plan for the interview, you now exactly the
points you want to make, you have enough knowledge to respond to specific questions
about the company and so on.

In effect, planning ensures the proper utilization of the available resources and the ability
to understand how these should be used in order to achieve the goal. In the example of
the interview, the planning helps you take advantage of information on company
websites, research interview questions and to then use this information to outline
example answers.

A key part of planning is also the vital role it plays in reducing risks. When management
plans for the tasks ahead, they are looking at the situation and detailing the possible
pitfalls ahead. As with your interview, the risk of not knowing anything about the
company or giving an incoherent answer is higher than if you had planned your answers
a little.

Four major factors to summarize the essential nature of planning

1. Contribution to purpose and objectives

2. Planning as the first basic function

 3. Planning as a function of the manager

4. Planning for efficient organization

Basic Steps in Business Planning

1. Define the Business idea

2. Establish goals and objectives

3. Evaluate the ideas, goals and objectives

4. Forecast cash needs

5. Identify sources of funds

6. Write a business plan

How to plan?
Planning is an intellectual activity that doesn’t always require a lot of visible labor and
effort, as much of it is about thinking creatively about the issues at hand. When you
need to come engage in planning, you should focus on the following steps:

 Gain knowledge of the issues – You need to understand the organizational

objectives, the different components they involve, and the available resources you and
the team have. You also need to be knowledgeable of the topic at hand. In terms of
increasing sales, you need to have an understanding of how the sales industry works
and what different methods can effectively boost company sales.

 Look into the future – The function is about understanding the short- and long-
term objectives the organization wants to achieve. You need to consider not just these
different elements, but also be able to make predictions about the future conditions for
achieving these. Perhaps you have noticed changes in customer behavior due to the
downturn in the economy. When you are planning, you need to take into account these
little nuances.
 Determine the objectives – Once you are aware of the organizational objective,
the resources available, and the future outlook to achieving the objectives, you need to
identify the specific processes and detailed goals that are required to achieve the bigger
goal. You might want to create a marketing campaign to increase sales, which requires
the team to conduct market research and to come up with ideas. The more detailed
objectives and processes you can set, the better the plan is.
 Create flexible structures – However, your planning needs to be flexible and take
into account things don’t always go according to plan. Your management plan must take
into account the other departments and their specific organizational goals. Perhaps the
financial team has to cut down costs for the sales team and you need to be aware of the
impact this would have on your new marketing campaign.

Types of Plan

1. General Plan
2. Departmental Plan
3. Group Plan
4. Section Plan
5. Individual Plan

Other Types of Plans

1. Standing Plans - these plans are guidelines to managerial action. Managerial
efficiency is enhanced because one the decision is made, it stand without the necessity
of deliberation each time a similar situation arises. These plans bring consistency to the
operations. A bank granting loans for house construction is an example. It does not
need a different plan to handle each loan. It uses one standing plan that anticipated in
advance whether to approve or not any request for a loan. Standing plans are used
where an activity occurs repeatedly.

2. Single-use plans
3. Long-range plans -
4. Intermediate plans - these plans follow once the long-range plans are formulated. To
become a leader in its industry ( the long range plan an organization may plan to set up
a regional sales office) intermediate plans are made for the realization of long-range
goals. These plans usually cover a one to three -year period.
5. Short-range plans
6. Marketing plans - the common objectives of marketing plans are to increase their
present market share and develop new products. These objectives are converted into
operational plans
7. Production plans
8. Financial plans
9. Manpower plans
10. Strategic plans
11. Tactical plans
12. Functional plans

Operational and Strategic Plans

Strategic planning is the process which sets forth organizational objectives to be

achieved, strategies and policies needed to reach those objectives and short range
plans to make sure that the strategies are successfully implemented. For practical
purposes, the strategic planning is analogous to top-level long range planning. The
terms strategic planning, top level, long range planning and corporate planning basically
means the same thing and interchangeable

Operational or tactical planning is short range planning and concentrate on the

formulation of functional plan. Production schedules and day to day plans are examples
of operational plans. Production schedules distinctions between strategic and
operational planning are relative not absolute. The major difference is the level at which
the planning is done. Strategic planning is primarily done by top-level managers,
operational planning is done by managers at all levels in the organization and specially
by middle and lower level managers.