Organization

ORGANIZATION
AND MANAGEMENT
TEXTBOOK
• Helena Ma. F. Cabrera, PhD

• Anthony DC Altarejos, PhD
• Riaz Benjamin
Authors
• Clarence Darro B. Del Castillo

Editor
Department of Education • Republic of the Philippines

Organization and Management
Textbook for Senior High School
ISBN 978-971-07-3860-1
Copyright © 2016 by Vibal Group Inc. and Helen Ma. F. Cabrera, Anthony
DC. Altarejos, and Riaz Benjamin.
All rights reserved. No part of this book may be reproduced or transmitted in

any form or by any means—electronic or mechanical, including photo-
copying, recording, or any information storage and retrieval system without
permission in writing from the publisher and authors.
Published by Vibal Group, Inc. with main office at 1253 Gregorio Araneta
Avenue, Quezon City, Philippines.
Regional Offices: 0290 Nivel Hills, Lahug, Cebu City, and Kalamansi St. cor.
1st Ave., Juna Subdivision, Matina, Davao City
Editors: Clarence Darro B. del Castillo
Reviewers: Wilson T. Ojales and Gregorio R. Sismondo
Printed in the Philippines by:_________________________________
ii
Preface
T
his textbook is about the management and managers of orga-
nizations. All organizations—no matter the kind, size, or loca-
tion—need good managers in order to successfully achieve their
organizational goals and objectives. As future managers, you must
realize that managers have to deal with the ever-changing world, hence,
management styles must also be dynamic in order to adapt to these
inevitable changes. The course Organization and Management and this
textbook reflect those changes and will help you prepare to become
ideal managers who will be ready to face the world’s varying challenges.
This management course and this textbook are described as an

introduction to the realm of management, covering many topics that
are discussed quickly—without delving too deeply into each topic—to
provide the basic information that could guide you to succeed in your
future management tasks. The authors of this textbook and your class-
room teachers act as your leaders and partners to help you understand
in this preparatory course what it would take for you to be successful
as future managers of organizations.
You are expected to fulfill your class requirements, to read and

understand the contents of this textbook, to realize the importance of
the topics discussed, and to apply the simple management problems
presented in this textbook in real life situations.
Finally, you are encouraged to apply the learning experiences you

acquired from the contents of this textbook, from class discussions
and from assignments done, as these will strongly influence the kind
of manager you will become.
iii
FEATURES
of the BOOK
Chapter Opener
Introduces the chapter and
presents the learning objectives
for the chapter.
Lesson Enders:
Fast Learning Review
Presents questions to assess the
students’ understanding of the
key concepts in the lesson.
Exercises
Gives suggested activities
and presents situations that
engage the different skills of the
students and aim to help them
demonstrate their ability to
relate these concepts with real-
life organizational practice.
Lesson Opener
Introduces the lesson proper.
Definition of Terms
Presents the definition of important concepts
or terms found in the lesson.
Chapter Ender:
Integration
Reinforces students’ learnings
on these are linked to real-life
situations by encouraging them
to share what they have realized
and to commit by applying what
they have learned.
TABLE of
Contents
Lesson 3: Phases of Economic
Development 20
Lesson 4: Forms of Business

Organizations 23
CHAPTER 1 Changing Forms of Business Organizations 23
Nature and Concept
of Management 2 CHAPTER 3
Planning 26
Lesson 1: Definition and Functions
of Management 3 Lesson 1: Definition and Nature
Coordination, Efficiency, and Effectiveness: of Planning 27
Intrinsic to the Nature of Management 3 Relationship of Planning to Individual
or Organizational Performance 27
Lesson 2: Evolution of Management Difference between Goals and Plans 28
Theories 5
Lesson 2: Types of Plans 29
Lesson 3: Functions, Roles, and Skills Steps in Planning 30
of a Manager 9
Managerial Roles and Functions 9 Lesson 3: Planning at Different Levels
• Top-level Managers 9 in the Firm 32
• Middle-Level Managers 10 Top-level Management Planning
• Frontline or Lower-level Managers 10 (Strategic Planning) 32
Managerial Skills 11 Middle-level Management Planning
• Conceptual Skills 11 (Tactical Planning) 32
• Human Skills 11 Frontline/Lower-level Management Planning
• Technical Skills 11 (Operational Planning) 33
Integrating Strategic, Tactical,
CHAPTER 2 and Operational Planning 33
The Firm and Its Environment 12
Lesson 4: Planning Techniques and Tools
Lesson 1: Environmental Forces and their Applications 34
and Environmental Scanning 13
Components of the External Business Lesson 5: Decision-making 36
Environment: General and Specific 13 Types of Decisions 36
Components of the Internal Business Types of Decision-making Conditions 36
Environment 15
Components of Environmental Scanning: CHAPTER 4
Developing a Competitive Mindset, Organizing 38
Considering Future Business Scenarios,
Business Prediction, and Benchmarking 15 Lesson 1: Nature of Organizations 39
Differentiation of the Organization’s
Lesson 2: The Local and International Internal Environment 39
Business Environment of the Firm 17 Integration of Work Units 39
Managing in a Worldwide Environment:
Cultural, Politicolegal, and Economic Lesson 2: Types of Organization
Environments 18 Structures 40
vi
Lesson 3: Organization Theories Bases for Compensation 65
and Applications 44 Purposes of Performance Evaluation:
Simple 44 Administrative and Developmental 66
Functional 44 Performance Appraisal Methods 66
Divisional 44 Why Some Evaluation Programs Fail 67
Team Design 45
Matrix-Project Design 45 Lesson 6: Employee Relations 68
Boundary-less Design 46 Effective Employer Relations and Social
Support 68
Lesson 4: Delegation 47
Lesson 7: Employee Movements 70
Lesson 5: Formal and Informal Steps in Union Organizing 70
Organizations 49 Grievance Procedure 72
CHAPTER 5 Lesson 8: Rewards System 74

Staffing 51
CHAPTER 6
Lesson 1: Definition and Nature Leading 76
of Staffing 52
The Management and Nonmanagerial Lesson 1: What Leading Is 77
Human Resources Inventory 52 Personality of Human Resources 77
External and Internal Forces Affecting Present Big Five Personality Characteristics 77
and Future Needs for Human Resources 53 Leading an Organization 78
Lesson 2: Recruitment 54 Lesson 2: Motivation 80

Methods of External and Internal
Recruitment 54 Lesson 3: Leadership Theories 84
• External Recruitment Advantages 55 Contemporary Theories of Leadership 85
• External Recruitment Disadvantages 56 Modern Leadership Views 86
• Internal Recruitment Advantages 56
• Internal Recruitment Disadvantages 56 Lesson 4: Communication 88
Types of Communication 88
Lesson 3: Selection 58 Direction and Flow of Communication 88
Types of Job Interviews 59 Communication Networks in Organizations 89
Types of Employment Tests 60 Barriers to Communication 90
Limitation of the Selection Process 60 Overcoming Communication Barriers 92
Lesson 4: Training and Development 61 Lesson 5: Management of Change

Employee Development 63 and Diversity in Organizations 93
Types of Change 93
Lesson 5: Compensation/Wages • Changes in People 93
and Performance Evaluation 64 • Changes in Structure 94
Types of Compensation 64 • Changes in Technology 94
Connecting Compensation Managing Resistance to Change 94
to Organizational Objectives 64 New Issues in Change Management 95
Compensation: A Motivational Factor • Understanding Situational Factors 95
for Employees 65 Making Changes in Organizational Culture 95
vii
• Managing Workplace Diversity 96 Lesson 1: Human Resources Management
(HRM) 121
Lesson 6: Filipino and Foreign Cultures Importance of Human Resources
in Organizations 97 Management 123
Shared Values and Beliefs
of Filipinos 97 Lesson 2: Marketing Management 125
Influence of Filipinos’ Shared Values and Importance of Marketing Management 127
Beliefs on Organizational Management 98
Influence of Foreign Culture on Lesson 3: Operations Management 128
Organizational Management 99 Importance of Operations Management 129
CHAPTER 7 Lesson 4: Financial Management 130

Controlling 101 Importance of Financial Management 131
Lesson 1: Definition and Nature Lesson 5: Information and Communication

of Management Control 102 Technology Management (ICTM) 133
Importance of Management Control 102 Importance of Information and
The Control Process 102 Communication Technology Management
134
Lesson 2: The Link between Planning
and Controlling 104 CHAPTER 9
The Balance Sheet 105 Special Topics in Management 136
The Income Statement 106
The Cash Flow Statement 107 Lesson 1: Small Business Management
Summaries of Significant Accounting Policies and Entrepreneurship 137
and Assumptions 108 The Entrepreneurial Procedure/Process 137
Organizational Performance Control 108
Lesson 2: Family Business Enterprise 142
Lesson 3: Control Methods and Systems 110 Success Stories of Filipino Family Business
Methods of Control 110 Ventures 142
• Filinvest Group 142
Lesson 4: Application of Management • Metrobank 142
Control in Accounting and Marketing
Concepts and Techniques 113 Lesson 3: Starting a Business: Legal Forms
Accounting/Financial Control Ratios 114 and Requirements 144
Strategic Control 115 Why and Where Should a Business be
Benchmarking 115 Registered? 144
Differences in the Registration of the Legal
Lesson 5: Role of Budgets in Planning Forms of Business 145
and Control 117 Advantages and Disadvantages of the Legal
Steps toward Better Budget-making 119 Forms of Business 146
CHAPTER 8 Case Studies 148

Introduction to the Glossary 154
Different Functional Areas Bibliography 167
of Management 120 Photo Credits 168
viii
ORGANIZATION
AND MANAGEMENT
TEXTBOOK
CHAPTER 1
Nature and Concept

of Management
IN THIS CHAPTER, you will discover that all organizations—public or private, large, medium-size, or
small, profit or nonprofit—need good managers in order to accomplish their goals; that
organizational management is, definitely, not an easy task; and that coordination, efficiency, and
effectiveness are required to carry it out.
As you read and study this chapter, concentrate on the following objectives,
and at the end of the chapter, be able to:
1. discuss the meaning and functions of management;
2. explain the various types of management theories;
3. explain the functions, roles, and skills of a manager; and
4. understand the basic concepts and theories of management.
2
LESSON 1
Definition and Functions
of Management
M anagement is the process of coordinating and overseeing the work

performance of individuals working together in organizations, so
that they could efficiently accomplish their chosen aims or goals.
Definition of Terms
Management Functions -
functions needed in order to
It is also defined as the process of designing and maintaining an envi- accomplish the management
process of coordinating and
ronment for efficiently accomplishing selected aims (Heinz, Weihrich, overseeing the work performance
and Koontz, 2005). of individuals working together in
Management analysis is done by breaking it down into five major organizations
managerial duties; thus, making managerial knowledge more under- Coordination – harmonious,
standable. Management functions include the following: integrated action of the various
Planning. Involves determining the organization’s goals or perfor- parts and processes of an
organization
mance objectives, defining strategic actions that must be done to accom-
plish them, and developing coordination and integration activities. Efficiency – the character of being
able to yield the maximum output
Organizing. Demands assigning tasks, setting aside funds, and bring- from a minimum amount of input
ing harmonious relations among the individuals and work groups or
Effectiveness – being adapted to
teams in the organization. produce an effect that will help the
Staffing. Indicates filling in the different job positions in the orga- organization attain it aims
nization’s structure; the factors that influence this function include: size
of the organization, types of jobs, number of individuals to be recruited,
and some internal or external pressures.
Leading. Entails influencing or motivating subordinates to do their
best so that they would be able to help the organization’s endeavor to
attain their set goals.
Controlling. Involves evaluating and, if necessary, correcting the
performance of the individuals or work groups or teams to ensure that
they are all working toward the previously set goals and plans of the
organization.
FIGURE 1.1 The Five Functions of
Management
3
Coordination, Efficiency, and Effectiveness:
Intrinsic to the Nature of Management
Management functions—planning, organizing, staffing, leading, and
controlling—will all go to waste if coordination, efficiency, and effec-
tiveness are not practiced by an organization’s appointed managers. In
other words, top-level managers, middle-level managers, and team leaders
or supervisors must all be conscious of the said practices of successful
organizations as they perform their management functions.
Webster’s Dictionary defines coordination as the harmonious, inte-
grated action of the various parts and processes of an organization;
efficiency is being able to yield the maximum output from a minimum
amount of input; and effectiveness as being adopted to produce an effect, or
being able to do things correctly. When applied to management functions,
coordination ensures that all individuals, groups, or teams are harmoni-
ously working together and moving toward the accomplishment of the
organization’s vision, mission, goals, and objectives; efficiency, mean-
while, refers to the optimal use of scarce resources—human, financial,
physical, and mechanical—in order to bring maximum productivity; and
effectiveness means “doing things correctly” when engaged in activities
that will help the organization attain its aims.

1. In your own words, define management. Compare your definition with the given definitions in this lesson and
point out the differences and similarities.
2. Explain why coordination, efficiency, and effectiveness are intrinsic to the nature of management.
3. Enumerate and describe the five functions of management.
4. What is productivity? Is high productivity possible if efficiency is low? Explain your answer.
Exercise
1. Interview two department chairpersons in your school and ask if they make use of all of the five management
functions. Compare their answers and try to explain why there are similarities or differences.
2. Select two organizations (one public and one private, or one big and one small). Describe how they are struc-
tured and explain why a study of management functions is necessary for their managers.
4 CHAPTER 1
LESSON 2
Evolution of Management
Theories
Definition of Terms
E volution is usually defined as slow stages of growth and development, Management Theories - theories
that help improve the management
starting from simple forms to more complex forms. This, too, could process
be applied to management theories which have evolved from simple
Management Process - the
improvement of work methods to more complex ones which focus not coordinating and overseeing of the
only on work method improvement, but also on customer satisfaction work performance of individuals
and the conduct of people at work. working together in organizations
Studying the evolution of management theories will help you under- so that they could efficiently and
effectively accomplish their chosen
stand the beginnings of present-day management practices; why some are goals
still popular and why others are no longer in use; and why the expansion
and development of these theories are necessary in order to adapt to the
changing times. Management theories include the following: FIGURE 1.2 Frederick W. Taylor
Scientific Management Theory

This management theory makes use of the step by step, scientific meth-
ods for finding the single best way for doing a job. Frederick W. Taylor
(1856-1915) is known as the Father of Scientific Management. While
working as a mechanical engineer in a steel company in Pennsylvania
in the United States of America (USA) he could not help but notice the
workers’ mistakes and inefficiencies in doing their routine jobs. Their
lack of enthusiasm, the discrepancy between their abilities and apti-
tudes, and their job assignments result to low output. Because of these
observations, he tried to identify clear guidelines for the improvement
of their productivity.
Taylor’s Scientific Management Principles (Robbins and Coulter,
2009) are as follows:
1. develop a science for each element of an individual’s work to replace FIGURE 1.3 Henri Fayol
the old rule of thumb method;
2. scientifically select and then train, teach, and develop the workers;
3. heartily cooperate with the workers so as to ensure that all work is
done in accordance with the principles of the science that has been
developed; and
4. divide work and responsibility almost equally between management
and workers.
General Administrative Theory

The General Administrative Theory concentrates on the manager’s func-
tions and what makes up good management practice or implementation.
Henri Fayol (1841–1925) and Max Weber (1864–1920) are the person-
alities most commonly associated with it. Fayol’s 19th century writings
Nature and Concept of Management 5

were concerned with managerial activities which he based on his actual
experience as a managing director in a big coal mining company. He
believed that management is an activity that all organizations must
practice and viewed it as separate from all other organizational activi-
ties such as marketing, finance, research and development, and others.
Weber, a German sociologist wrote in the early 1900s that ideal orga-
nizations, especially large ones, must have authority structures and
coordination with others based on what he referred to as bureaucracy.
Present-day organizations still make use of Weber’s structural design.
TABLE 1.1 Fayol’s and Weber’s contribu-
tions to General Administrative Theory
Henri Fayol’s Management Principles Weber’s Bureaucracy
1. Work division or specialization
2. Authority
3. Discipline
4. Unity of command
5. Unity of direction
According to Weber, bureaucracy is
6. Subordination of individual inter- an organizational form distinguished
est to general interest by the following components:
7. Remuneration/pay • division of labor
• hierarchical identification of job
8. Centralization positions
• detailed rules and regulations
9. Scalar chain of authority • impersonal connections with one
another
FIGURE 1.4 W. Edwards Deming 10. Maintenance of order
11. Equity/fairness
12. Stability/security of tenure of

workers
13. Employee initiative
14. Promotion of team spirit or esprit

de corps
Total Quality Management (TQM)

Total Quality Management is a management philosophy that focuses
on the satisfaction of customers, their needs, and expectations. Quality
experts W. Edwards Deming (1900–1993) and Joseph M. Juran (1904–
2008) introduced this customer-oriented idea in the 1950s, however, the
concept had few supporters. The Americans did not immediately take to
the idea since the US was enjoying supremacy in the global market at the
6 CHAPTER 1
time. Japanese manufacturers, on the other hand, took notice of it and FIGURE 1.5 Joseph M. Juran
enthusiastically experimented on its application. When Japanese firms
began to be recognized for their quality products, Western managers
were forced to give a more serious consideration of Deming’s and Juran’s
modern management philosophy that eventually became the foundation
of today’s quality management practices.
Deming’s 14 Points for Top Management Juran’s Fitness of Quality
1. Create constancy of purpose for 1. Quality of Design – through

improvement of products and market research, product,
services. and concept
2. Quality of Conformance
2. Adopt the new TQM philosophy. – through management,
manpower, and technology
3. Cease dependence on mass inspec- 3. Availability – through reli-

tion by doing things right and doing it ability, maintainability, and
right the first time. logistic support
4. Full Service – through

4. End the practice of awarding business
promptness, competence,
on the basis of price tag alone.
and integrity
5. Constantly improve the system of Juran’s Quality Planning

production and services. Roadmap
6. Institute training. 1. Identify your customers.
7. Adopt and institute leadership. 2. Determine their needs.
3. Translate them into one’s

8. Drive out fear.
language.
9. Break down barriers between staff 4. Develop a product that can

areas. respond to needs.
5. Develop processes which

10. Eliminate slogans, focus on correction
are able to produce those
of defects in the system.
product features.
11. Eliminate numerical quota for the 6. Prove that the process can
work force. produce the product.
12. Remove barriers that rob people of 7. Transfer the resulting plans
“pride of workmanship.” to the operating forces.
13. Encourage education and self-im-

provement for everyone. TABLE 1.2 TQM Pointers from Deming
and Juran (Ramasamy 2009)
14. Take action to accomplish the
transformation.

Organizational Behavior (OB) Approach
The Organizational Behavior (OB) approach involves the study of the
conduct, demeanor, or action of people at work. Research on beha
vior helps managers carry out their functions—leading, team building,
resolving conflict, and others. Robert Owen, Mary Parker Follett,
Hugo Munsterberg, and Chester Barnard were the early supporters
of the OB approach. During the late 1700s, Owen noticed lamentable
conditions in workplaces and proposed ideal ways to improve the said
conditions. Follett, in the early 1900s, introduced the idea that individ-
ual or group behavior must be considered in organizational manage-
ment. Likewise, in the early 1900s, Munsterberg proposed the admin-
istering of psychological tests for the selection of would-be employees
in companies. Barnard, in the 1930s, suggested that cooperation is
required in organizations since it is, mainly, a social system.

1. Who is considered as the Father of Scientific Management? Briefly enumerate his contributions to scientific
management.
2. What is the main concern of Henri Fayol’s Management Theory? How does his management theory differ from
that of Max Weber?
3. What do the acronyms TQM and OB stand for? Discuss these management theories and give your comments
regarding their usefulness to present-day management practices.
4. In your opinion, who among the management theorists discussed had the best contribution to management
practices? Explain your answer.
Exercise
1. Think of a difficult task which you, as a student, must accomplish. What are the steps needed to complete the
said task. Will the management theories discussed earlier help you to be more efficient in completing the task?
Explain your answer.
2. Use the Internet and choose a website offering current management news. Choose one good news item or a
negative news item and relate it to the management theories discussed in the lesson.
8 CHAPTER 1
LESSON 3
Functions, Roles, and Skills
of a Manager
A n individual engaged in management activities is called a manager.

Managers supervise, sustain, uphold, and assume responsibility for
the work of others in his or her work group, team, department, or the
➤ Top-level management is typically
composed of the organization’s
chairman or chairwoman, chief
organization, in general. Therefore, it is safe to assume that organiza- executive officer, president,
managing director, and other
tional success depends upon managers who practice optimal utilization
high-ranking company executives.
of their human and material resources, and who encourage high levels
of performance, effectiveness, and efficiency among the individuals
under their care.
Managerial Levels
Organizations typically have three levels of management with their Definition of Terms
respective managers—top-level managers, middle-level managers, and Manager - an individual engaged
frontline or lower-level managers. in management activities such as
Top-level Managers. Top-level managers are the general or strategic supervising, sustaining, upholding,
and assuring responsibilities for
managers who focus on long-term organizational concerns and empha- the work of others in his/her work
size the organization’s stability, development, progress, and overall effi- group, team, department, on the
ciency and effectiveness. They are also concerned with the organization’s organization in general
inter-relationships with their external environment. Chief executive Managerial Roles - the various
officers (CEOs), chief operating officers (COOs), presidents, and vice roles played by managers, such as
presidents are examples of top-level managers in big corporations; they interpersonal, informational, and
decision-making roles
have authority over all other human resources of their organization.
Traditionally, top-level executives set the company’s general direction Managerial Skills - the various skill
that managers must posses, such
by designing strategies and by controlling various resources. At present, as conceptual human and technical
however, they, too, must act as organizational guides who must elabo- skills
rate on the wider purpose of their organizational existence, so that their
subordinates could identify and be committed to its success in the three
levels of management in Figure 1.6.
FIGURE 1.6 The three levels of manage-
ment are best illustrated in an organiza-
tion chart.
Top-level
Managers
(Corporate Managers)
Middle-level Managers
(Tactical Managers)
Frontline Managers
(Operational Managers)

Middle-level Managers. Middle-level managers are the tactical man-
agers in charge of the organization’ s middle levels or departments.
➤ Middle-level managers lead They formulate specific objectives and activities based on the strategic
frontline or lower-level managers or general goals and objectives developed by top-level managers. Their
and are accountable to top-level
management.
traditional role is to act as go-betweens between higher and lower levels of
the organization; they announce and interpret top management priorities
to human resources in the middle hierarchical level of the company. It
has been observed that the middle-level managers are more aware of the
company’s problems compared to managers in the higher level because
of their closer contacts with customers, frontline managers, and other
subordinates. To be an ideal middle-level manager, one must be creative
so that they could provide sound ideas regarding operational skills as
well as problem-solving skills that will help keep the organization afloat.
Frontline or Lower-level Managers. Lower-level managers are also
➤ Frontline or lower-level managers known as operational managers and are responsible for supervising
are responsible for dealing with the organization’s day-to-day activities; they are the bridges between
operating personnel. It requires high management and nonmanagement employees. Traditionally, they are
level of interpersonal and technical controlled and instructed by top- and middle-level managers to follow
skills.
their orders in support of the organization’s major strategy. Lately,
however, their role has been expanded in some large companies, as they
Definition of Terms are now encouraged to be more creative and intuitive in the exercise of
Leader - one who possesses their functions, so that they, too, could contribute to their company’s
good leadership qualities or progress and the development of new projects.
a combination of good moral Managerial roles are classified into three types: interpersonal, infor-
character, strong professional
will, humility that builds enduring
mational, and decision-making. Henry Mintzberg, professor at McGill
greatness, and commands loyalty University, conducted a research on what real managers do. See Table
and respect among subordinates 1.3 for the managerial roles by Mintzberg.
Liaison - one who is capable of
maintaining unity of action in the
organization
Categories of Managerial Roles according to Mintzberg
Figurehead - one who has nominal
leadership but without real power, • leader
as this power is possessed only by Interpersonal • liaison
the company’s President/Owner • figurehead
Spokesperson - one who speaks in
• spokesperson
the name and behalf of another; as
in behalf of the company President/ Informational • monitor
Owner • disseminator
• disturbance handler
TABLE 1.3 Managerial Roles Identified • resource allocator
Decisional or Decision-making
by Mintzberg • negotiator
• entrepreneur
10 CHAPTER 1
Managerial Skills
Managerial skills may be classified as conceptual, human, and technical.
Conceptual Skills. Conceptual skills enable managers to think of pos-
sible solutions to complex problems. Through their ability to visualize
abstract situations, they develop a holistic view of their organization and
its relation to the wider external environment surrounding it. Top-level
managers must have these conceptual skills in order to be successful in
their work.
Human Skills. Human skills enable managers in all levels to relate well
with people. Communicating, leading, inspiring, and motivating them
become easy with the help of human skills. Dealing with people, both in
the organization’s internal and external environment, is inevitable, so it
is necessary for managers to develop these human skills.
Technical Skills. Technical skills are also important for managers
for them to perform their tasks with proficiency with the use of their
expertise. Lower-level managers find these skills very important because
they are the ones who manage the nonmanagement workers who employ
varied techniques and tools to be able to yield good quality products and
services for their company.

1. How do organizations classify managers according to their functions? Describe the respective functions of each
type of manager.
2. Among the different types of managers discussed in this lesson, which type of managers are more aware of
their organization’s problems? Explain your answer.
3. Enumerate the three classifications of managerial roles suggested by Mintzberg. Are they equal in importance?
4. Have the managerial functions remained the same through time? Why do you say so?
Exercise
Get hold of the newest edition of a business magazine. Name five CEOs or presidents of known corporations whose
accomplishments are discussed in the magazine. Describe their work as top-level managers of their respective
corporations. Relate your description of their work with the functions, roles, and skills of managers discussed in
this lesson.
Integration
At the end of the chapter, write two or three sentences to complete the following:
I realized that:
I resolved that:

CHAPTER 2
The Firm and Its Environment

ALL MANAGERS, without exception, must consider their organizations’ external and internal
environments before planning anything. Responding to the various forces/elements of the firm’s
external and internal business environments is a must because failure to do so may bring about
negative effects. However, managers must make sure that they respond based on the proper
identification and evaluation of these forces/elements in their surrounding environments.
As you read and study this chapter, concentrate on the following objectives, and at
the end of the chapter, be able to:
1. identify the various forces/elements of the firm’s environment and summarize these
forces using the SWOT analysis;
2. describe the local and international business environment of a firm; and
3. explain the role of business in relation to the economy, discuss the different phases of
economic development, and differentiate the various forms of business organizations.
12
LESSON 1
Environmental Forces
and Environmental Scanning
B usiness Environment refers to the factors or elements affecting

a business organization. It may be divided into the External and
Internal Business Environments. The External Business Environment
Definition of Terms
Environmental scanning – seeking
for and sorting through data about
includes the factors anf elements outside the organization which may the environment
affect its performance, either positively or negatively while the Inter- External business environment –
nal Business Environment refers to the factors or elements within the refers to the factors/elements
organization which may also affect its performance, either positively outside the organization which
or negatively. The environment in which a business operates is a may affect, either positively or
negatively, the performance of the
major consideration in determining an organization’s design or struc- organization
ture. Considerations such as uncertainty, procurement, and competi-
Internal business environment
tion are linked with the external environment. A company’s strategy – refers to the factors/elements
and approach to operations must also be aligned with the limitations within the organization which
of its external environment as well as its internal environment. may effect, either positively or
Components of the External Business negatively, the performance of the
organization
Environment: General and Specific
Inflation – a period of above
normal general price increases,
Systematic monitoring of the major external forces influencing organi- as reflected in the consumer and
zations is necessary to improve the management of companies. Failure wholesale price indexes
to consider a company’s general and specific business environments may Interest rates – the total amount
affect the strategies that management will make and use. that a borrower must pay annually
The general business environment includes the economic, sociocul- to the lender and above the total
tural, politico-legal, demographic, technological, and world and ecological amount borrowed
situations. All these must be considered as managers plan, organize, staff, Changing options – the
lead, and control their respective organizations. consumers change in preference of
goods and services offered
Inflation, rates of interest, changing options in stock markets, and
People’s spending habits –
people’s spending habits are some examples of factors/elements of eco-
consumers’ changing ways of
nomic situations. Economic situations may affect management practices spending their money on goods
in organizations. For example, companies may postpone expansion plans and services
if bank loan interests are too high. economic situations – includes
Sociocultural situations include the customers’ changing values and inflation rates of interest, people’s
preferences; customs could also affect management practices in com- spending habits, changing options,
etc.
panies. For example, Filipino customers are now conscious about the
importance of avoiding fatty foods, so many food companies now make
sure that the products they offer are cholesterol-free or are low in cho-
lesterol. In doing so, they avoid losing their customers.
Politico-legal situations refer to national or local laws, international
laws, and rules and regulations that influence organizational management.
For example, labor laws related to preventing employers from firing their
employees without due process require the former to allow the latter to
exercise their right to present their position during disciplinary action
before their employment can be terminated.
13
Demographic situations such as gender, age, education level, income,
number of family members, geographic origin, etc., may also influence
some managerial decisions in organizations. For example, decisions
regarding hiring of human resources may be affected by an organization’s
management policy that shows prejudice to the hiring of married females
who are in the child-bearing age because they would like to minimize
payment of maternity leave benefits.
The technological situations of companies involve the use of varied
types of electronic gadgets and advanced technology such as computers,
robotics, microprocessors, and others that have revolutionized business
management; e-commerce, teleconferencing, and sophisticated informa-
tion systems have rapidly changed the ways that business is conducted
in the 21st century.
World and ecological situations are related to the increasing number
of global competitors and markets, as well as the nature and conditions
of the changing natural environment. Products produced by companies,
of course, must cater to the changing needs of people in the global com-
munity, while, at the same time, considering their impact on the natural
environment. For example, car manufacturing managers must give the
go signal for the development of vehicles that are environmental friendly
instead of only being focused on the product’s speed, fuel economy, and
design.
Meanwhile, the specific business environment focuses on stake-
holders, customers, pressure groups, and investors or owners and their
employees.
Stakeholders are parties likely to be affected by the activities of the
organization, while customers are those who patronize the organization’s
products and services. Increasing customer sophistication makes it nec-
essary for managers of organizations to make crucial decisions regarding
the development of products with higher value and the improvement of
their services to meet their patrons’ increasing demands. Also, this has
prompted companies to solicit feedback from their customers to avoid
dissatisfaction that may lead them to patronize another company offering
similar products and services instead.
Suppliers are those who ensure the organization’s continuous flow of
needed and reasonably priced inputs or materials required for producing
their goods and rendering their services. Inputs mentioned also include
financial and labor supply. Managers decide what, where, and when to
buy their supplies and which supplier to favor with their organization’s
supply orders.
Pressure groups are special-interest groups that try to exert influence
on the organization’s decisions or actions. For instance, pressure from
the Food and Drug Administration on some department stores and drug
stores led them to stop selling beauty products containing lead and to
stop ordering or importing such products from their suppliers.
14 CHAPTER 2
The organization’s investors or owners provide the company with the
financial support it needs. The company, of course, cannot exist without
them; thus, they greatly influence organizational management. Top-level,
middle-level, and lower-level managerial decisions are all influenced, in
one way or another, by the investors or owners of organizations. Branching
out, offering new products and services, and applying for needed loans
are all affected by the investors’ or owners’ way of thinking.
Employees are comprised of those who work for another or for an
employer in exchange of salaries/wages or other considerations. Employ-
ees execute the company’s strategies and are important for the mainte-
nance of the company’s stability. For example, managerial decisions are
influenced by the company’s knowledge workers.
Components of the Internal Business

Environment
An organization’s internal business environment is composed of its
resources, research and development, production, procurement of sup-
plies, and the products and services it offers.
The organization’s internal environment must also be subjected to
internal analyses. Internal strengths and weaknesses, opportunities, and
threats (SWOT) with regards to its resources (financial, physical, mechan-
ical, technological, and human resources), research and development
endeavors, production of goods, procurement of supplies (materials,
inputs, and finance), and products and services must all be considered
prior to organizational planning.
Components of Environmental Scanning:

Developing a Competitive Mindset, Considering
Future Business Scenarios, Business Prediction,
SWOT Analysis, and Benchmarking
Adapting to environmental uncertainties must start with develop-
ing a competitive mindset. Ignorance of present-day realities may cause
individuals or organizations to do certain things that they may regret in
the future; hence, environmental scanning is necessary. By seeking for
and sorting through data about the environment, you may be able to
understand and predict the various changes, opportunities, and threats
that may affect organizations in the future. Knowing the present-day
competitors, the possible number of barriers to entering your chosen
business industry, the existence or nonexistence of substitutes to your
planned product or service, and possible dependence on powerful sup-
pliers and customers will be helpful in developing a competitive mindset.
You must also consider future business scenarios. By realistic consid-
eration of both worst-case scenario or unfavorable future conditions and
best-case scenario or favorable future conditions, as well as middle-ground
possible conditions, you will have an idea of what to do in the future.

Meanwhile, business prediction, also known as business forecasting,
is a method of predicting how variables in the environment will alter
the future of business. It could be used in making decisions regarding
offshoring, branching out locally, and expanding or downsizing the
company. However, the accuracy of such business predictions may not
always be assured.
Benchmarking is defined as the process of measuring or comparing
one’s own products, services, and practices with those of the recognized
industry leaders in order to identify areas for improvement. Best prac-
tices of said industry leaders are observed so that understanding their
competitive advantage would be easier. This is followed by gathering
information about the company’s own operations and those of the other
company in order to identify gaps; this in, turn, could be used to find
out the underlying reasons for performance differences. From these said
reasons, a set of best practices in one’s own company will be listed down
and that, ultimately, leads to the company’s improved performance.

1. What is the difference between the terms “external business environment” and “internal business environment”?
Which of the two has greater influence on business organizations? Explain your answer.
2. How does customer satisfaction affect the competitive mindset of business organization?
3. Why is customer satisfaction important in all types of businesses?
4. Give your own example of a sociocultural environmental influence on a business organization.
5. Why should business professionals consider future business scenarios? Will you make use of these as a business
professional in the future? Explain your answer.
Exercise
1. Who are the stakeholders of your school? Give specific examples and state why they are important for the
maintenance of your school’s stability as a business organization.
2. Practice benchmarking by comparing your school’s practices with the best practices of a leading school in
the Philippines. Are there performance gaps? What are the underlying reasons for the identified performance
differences? List down your suggested best practices to improve the performance of your school.
16 CHAPTER 2
LESSON 2
The Local and International
Business Environment of the Firm
U
Definition of Terms
nderstanding the local and international business environment of the
Inflation rate – rate reflected
firm requires managers of organizations to sharpen their cultural during a period of above normal
intelligence. Cultural intelligence is an individual’s ability to favorably general price increases
receive and adjust to an unfamiliar way of doing things. This will enable Gross national product (GNP) –
them to develop their ability to accept and adapt to different cultures, total domestic and foreign output
both local and international, that may affect the organization to which claimed by the residents of a
they belong. country
Anthropologist Edward T. Hall, as cited by Schermerhorn (2008), Gross domestic product (GDP)
– total final output of goods and
noted that the way people approach and deal with time varies across
services produced by the country’s
cultures. Monochronic cultures refer to cultures wherein people tend to economy, within the country’s
do one thing at a time; also, these cultures emphasize punctuality and territory
sticking to set rules. Polychronic cultures, on the other hand, are more Currency exchange product – the
flexible as regards time; accomplishing many different things at once is rate at which central banks will
also common for these cultures. It may be very frustrating for one who exchange the country’s currency for
another
is influenced by a monochronic culture to be dealing with one who is
influenced by a polychronic culture if he or she does not possess cultural
intelligence. Helpful
to achieving the objectives
Harmful
to achieving the objectives
Geert Hofstede, also cited by Schermerhorn (2008), showed how

attributes of the organization
selected countries ranked on the five cultural dimensions he studied:
Internal origin
Power Distance – the degree to which a society accepts or rejects the Strengths Weaknesses
unequal distribution of power among people in organizations and the
institutions of society.
For example: India and the Philippines have high power distance,
to achieving the environment
External origin
while the US and Australia have low power distance. The use of the Opportunities Threats
terms “Sir” and “Madam” to refer to the boss/superior by subordinate
employees in the Philippines shows respect for authority figures, or high
power distance. In the US, subordinates just use the name or nickname FIGURE 2.1 The SWOT analysis or matrix
of the boss when addressing him or her, indicating low power distance. is one of the most structured and used
Hofstede Five Dimensions: planning method to evaluate a business
venture.
FIGURE 2.2 This bar graph shows the

United States
United States
United States
United States
United States
comparative scores of a few countries

Philippines
Philippines
Philippines
Philippines
Philippines
Kingdom
Kingdom
Kingdom
Kingdom
Kingdom
Australia
Australia
Australia
Australia
Australia
Zealand
Zealand
Zealand
Zealand
Zealand
Canada
Canada
Canada
Canada
Canada
United
United
United
United
United
based on Hofstede’s cultural dimensions

New
New
New
New
New
PDI IDV MAS UAI LTO theory.

TABLE 2.1 Dimension scores differ in Uncertainty Avoidance – the degree to which society is uncomfortable
different countries. with risk, change, and situational uncertainty
Philippine Scores in the Different Managers in the US are risk takers. Filipinos are seguristas that are
Geert Hofstede Cultural Dimensions afraid of taking risks within business endeavors in the market.
Dimension Score Individualism-Collectivism – the degree to which a society emphasizes
individual accomplishments versus collective accomplishments
• Power Distance 94
Individualistic cultures like those of the US and Australia are char-
• Uncertainty Avoidance 44
acterized as “I” and “me” cultures where employees prefer to work alone
• Individualism-Collectivism 32
without help from others. Mexico, Thailand, and the Philippines exhibit
• Masculinity 64
collectivism or preference for group or team work.
• Time Orientation 19
Masculinity-Femininity – the degree to which a society values asser-
http://www.clearlycultural.com/ tiveness and feelings of material success versus concern for relationships
The Japanese and Mexicans do not hesitate to push or express what
they want, unmindful of hurting others’ feelings, thus showing masculin-
ity. Filipinos, Thais, and Swedes would rather keep quiet and accept defeat
if what they want is not acceptable to others, thus, exhibiting femininity.
Time Orientation – the degree to which a society emphasizes short-
term thinking versus greater concern for the future or long-term thinking
The Americans, who are risk-takers, prefer short-term thinking. On
the other hand, Filipinos and the Japanese, who are not risk-takers, are
long-term thinkers.
The local culture of a particular country also influences the manage-
ment practices of firms. An example is the mañana habit which is part
of local Filipino culture and practiced by some Filipino workers. It is
counter productive since it encourages the postponement of performing
tasks that can be done immediately to another day.
Managing and disciplining workers who practice this habit would be
easier for managers if they are able to identify the workers who adhere to
such negative work habit and prevent them from doing it. This, however,
is easier said than done because it is difficult to explain a country’s unique
cultural characteristics.
Managing in a Worldwide Environment: Cultural,

Politico-legal, and Economic Environments
The call for businesses to go global is hard to resist as this is the trend
prevailing in the 21st century. The economic and social benefits that come
with globalization are said to be among the positive outcomes. Globaliza-
tion advocates, however, fail to realize the very serious challenges faced by
managers in adjusting to the cultural differences among different coun-
tries where they intend to do business. The culture of different countries
are rooted in their history, religion, traditions, beliefs, and deep-seated
values, and because of these, managing globally can be very complicated.
18 CHAPTER 2
Besides the cultural environment, the politico-legal and economic Definition of Terms
environments must also be considered. The politico-legal environment Worldwide Environment –
refers to the laws and political climate of different countries. Some coun- refers to the external business
tries have stable laws and good political climate while others have the environment (i.e. sociocultural,
natural, politico-legal, and
opposite—unstable laws and risky political climate. Awareness of the economic technological factors)
economic issues of countries where organizations intend to establish around the world
business is also very important. For instance, do they have a free market or Globalization – refers to changes
a planned economy? Answering this question is the first step because the in the dimensions of external
country’s economic system has the potential to influence the organization’s environment that result to
decision-making. Other economic matters that must be considered are increased interdependence and
integration among people and
the inflation rates, the gross national product/gross domestic product, organizations around the world
the currency exchange rates, taxation system, and others.

1. Define cultural intelligence. How important is it in terms of doing business globally?
2. Is it easier to manage business in countries with high power distance rating? Explain your answer.
3. Which is valued by members of a Filipino society: masculinity or femininity? Explain your choice.
4. Why should a country’s politico-legal issues be considered when managing in a worldwide environment?
Exercise
1. How would you describe Philippine culture? Do you think it would be easy for a foreign or expatriate manager
to manage his or her company in the Philippines? Explain your answer.
2. Interview a schoolmate who is from another country. Ask him or her to describe what the business world is
like in his or her country. Write a brief paper describing the result of your interview.

LESSON 3
Phases of Economic Development
Definition of Terms
Economic development –
is a total process which includes
A lthough material wealth accumulation is among the concerns of
genuine economic development, its greater concern is the total
improvement of the quality of people’s lives. This, in turn, is related to
not only economic growth or the sustainable economic development issues in a country which greatly
increase in the given amount of
goods and services produced by influences business management.
the country’s economy, but also Sustainable economic development ensures that the present needs of
considers the social, political, a particular generation are fully met without endangering the ability of
cultural, and spiritual aspects of the future generations to also fully meet their own needs. Business manag-
country’s growth
ers must be conscious of their decisions to avoid the abuse of ecological
Economic development phases –
elements—air, water, and soil—as this will threaten sustainable economic
are the distinct stages involved
in the total process of economic development.
development in a particular Different countries have different management strategies to encourage
country. These include economic ecological respect and prevent damage to the environment. Common
growth, improvement of the environmental and ecological problems that have to be dealt with by
Human Development Index (HDI),
availability of benefits provided business managers include destruction of natural habitats, depletion of
by science and technology, and clean water resources, urban, industrial, and agricultural pollution, and
the societal improvement of the many more.
opportunities and general welfare In September 2000, world leaders gathered for the Millennium
of its members
Summit, and thus adopted the United Nations (UN) Millennium Dec-
Economic growth – increase in
laration. By doing so, they had committed their nations to a global part-
the given amount of goods and
services produced by the country’s nership toward the reduction of extreme poverty and the pursuit of the
earning Millennium Development Goals (MDG).
HDI, 2012
Korea, Rep
0.9
Mexico Chile
Malaysia
Turkey
Tunisia Brazil
Thailand
Mauritius
0.7 China
FIGURE 2.3 United Nations Develop-
ment Programme (UNDP) reported that in Indonesia
Vietnam
2012 almost all countries improved their India
human development status. This figure Lao PDR Ghana
Bangladesh
identifies the 40 countries from the south 0.5
Uganda
with notable improvements since 1990.
Rwanda
Note: Countries above the 45 degree line
had a higher HDI value in 2012 than in 1990.
Black and gray markers indicate countries with
significantly larger than predicted increases 0.3
12
in HDI value between 1990 and 2012 given 20
DI
their HDI value in 1990. These countries were =H
90
identified based on residuals obtained from a I 19
HD
regression of the change in log of HDI between
2012 and 1990 on the log of HDI in 1990. Coun- 0.1
tries that are labelled are a selected group of 0.1 0.3 0.5 0.7 0.9
rapid HDI improvers. HDI, 1990
Source: HDRO calculations Highlighted 18 Big improvers Others
20 CHAPTER 2
The MDGs, according to the UN, are “the world’s time-bound and ➤ Adam Smith was the first
quantified targets for addressing extreme poverty in its many dimensions “development economist.” His work,
— income poverty, hunger, disease, lack of adequate shelter, and exclu- The Wealth of Nations, was published
sion — while promoting gender equality, education, and environmental in 1776. The scientific study of the
processes and problems of society in
stability.” The deadline for the fulfillment of the MDGs was set for 2015.
Asia, Africa, and North America has
The following are the MDGs: emerged only over the past 50 years.
1. Eradicate extreme hunger and poverty
2. Achieve universal primary education
3. Promote gender equality and empower women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, Malaria, and other diseases
7. Ensure environmental sustainability
8. Develop a global partnership for development
Meanwhile, the National Economic and Development Authority

(NEDA) has laid out the Philippine Development Plan (PDP) 2011-2016,
which “adopts a framework of inclusive growth, which is high growth
that is sustained, generates mass employment, and reduces poverty.” The
PDP is focused on the following areas:
1. Pursuit of Inclusive Growth
2. Macroeconomic Policy
3. Competitive Industry and Services Sectors
4. Competitive and Sustainable Agriculture and Fisheries Sector
5. Accelerating Infrastructure Development
6. Resilient and Inclusive Financial Sector
7. Good Governance and the Rule of Law
8. Social Development
9. Peace and Security
10. Conservation, Protection, and Rehabilitation of the Environment
and Natural Resources
It is evident from the PDP focused areas that they cover not only
the economic and industrial goals of the Philippines but also the social,
environmental, and peace and security aspects.
The MDGs and the PDP can help guide the management of busi-
nesses in the Philippine setting. In particular, the PDP must be taken
into consideration in order to deem management as appropriate or
country-specific. “Inclusive growth means, first of
Another potential means for economic growth and development is all, growth that is rapid enough
the planned integration of the 10 Southeast Asian nations in 2015 which to matter, given the country’s
include the Philippines. The Association of Southeast Asian Nations large population, geographical
differences, and social complexity.
(ASEAN) Economic Community (AEC) could help the Philippines It is a sustained growth that creates
achieve its goal of inclusive growth that creates jobs and reduces poverty. jobs, draws the majority into the
According to a joint study by the International Labor Organization economic and social mainstream, and
(ILO) and the Asian Development Bank (ADB) titled “ASEAN Commu- continuously reduces mass poverty.”
nity 2015: Managing Integration for Better Jobs and Shared Prosperity,”
NEDA

released in October 2014, the success of the AEC lies in decisive actions
taken by member states regarding policy recommendations, strengthening
regional cooperation that may bring about structural changes, improve-
ment of business and job opportunities and job quality, enhancement
of skills boosting productivity, better wages, and management of labor
migration. These may ensure that the benefits of equitable growth and
development are shared among member countries and sectors.
Since the AEC is envisioned to become a single common market
and production base for an estimated 600 million people of different
nationalities, it means freer flow of goods, services, investments, and labor.
The study concluded that “new opportunities for growth and prosperity
may emerge, but the challenge is to ensure that growth is inclusive and
prosperity is shared.”
Obviously, managers of businesses here in the Philippines must be
concerned about the findings of the study, as these are new challenges
for them. The improvement of management style and the skills training
and education of their human resources are needed in order to cope
with the possible changes that will be brought about by the ASEAN
integration in 2015.

1. Is the term “economic development” synonymous with “economic growth?” Explain your answer.
2. What are the phases of economic development? Why is it important to understand the specific steps related
to these?
3. What do you think are the adverse effects when sustainable economic development practices in a country are
not implemented?
4. Name at least three business management decisions that could be affected by the Human Development Index
in a country’s economic development phases.
Exercise
1. Interview two of your Economics teachers. Ask them why economic development is important in the study of
business management. Compare and contrast their answers.
2. Choose another Asian country and discuss how factors in its economic development differ from those in the
Philippines.
22 CHAPTER 2
LESSON 4
Forms of Business Organizations
T he form of a business organization may depend on its purpose, nature

of operations, and resources. However, a business organization’s form
may change with the changing times and the demands they present.
Definition of Terms
Organization – a collection of
people working together to achieve
a common purpose
Changing Forms of Business Organizations Business organization –a
collection of people working
Change is constant and organizations continue to undergo various changes together to achieve a common
to ensure effectiveness, efficiency, and relevance in the world of business. purpose in relation to their
Business organizations may be traditional (simple, functional, divi- organization’s mission, vision, goals,
sional, profit, or nonprofit) or open/flexible in form according to Robbins and objectives, sharing a common
and Coulter (2009). organizational culture
Simple business organizations – these refer to business organizations Organizational culture –the set
with few departments, centralized authority with a wide span of control, of beliefs and values shared by
and with few formal rules and regulations. organization members which guide
them as they work together to
These are easy to manage because of their simple form. However,
achieve their common purpose
change of form follows as the company expands its operations.
Functional business organizations – these pertain to business orga-
nizations that group together those with similar or related specialized
duties that introduce the concept of delegation of authority to functional
managers like the personnel manager, sales manager, or financial manager
but allow CEOs to retain authority for strategic decisions.
Divisional business organizations – these are business organiza-
tions made up of separate business units that are semi-autonomous or
semi-independent, with a division head responsible for his or her unit’s
performance
In other words, each division has its own functional organization and
its own general manager; however, the central headquarters management
maintains responsibility for the delineation of organizational goals of the
individual divisions.
Profit business organizations – these are business organizations
designed for the purpose of achieving their organizations’ mission,
vision, goals, and objectives and maintaining their organizational stabil-
ity through income generation and profit-making activities. Immediate
revenues or cost factors account for their success or failure.
Nonprofit organizations – these are business organizations designed
for the purpose of achieving their organizations’ mission, vision, goals,
and objectives, providing service to clients without expecting monetary
gains or financial benefits for their endeavors. Their success or failure
may be measured by the high or low evaluation scores they obtain.
Open/flexible business organizations – these are formed to meet today’s
changing work environment.

FIGURE 2.4 Starting out as a simple shoe
store in the 1950s, Shoe Mart (SM) has
evolved into one of the largest supermall
chains in the country today. Among its
supermalls is SM Mall of Asia in Pasay
City, one of the biggest malls in the
Philippines.
Business organizations affect and are affected by the environ-

ment; therefore, change becomes inevitable. Other forms of business
organizations:
1. Team structures – where the organization as a whole is made up of work

teams (small, but focused) that work together to achieve the organization’s
purpose; popular in collectivist culture.
2. Matrix business organizations – those which assign experts or spe-
cialists belonging to different functional departments to work together
on one or more projects; exhibit dual reporting relationships in which
managers report to two superiors—the functional manager and the
divisional manager.
3. Project business structure – a business organizational form with a flexible
design, where the employees continuously work on projects assigned to
them; projects may be short-term or long-term and members disband
when the project is completed.
4. Boundaryless business organization – a business organization whose
design eliminates vertical, horizontal, or external boundaries, and is
described to be flexible and unstructured; there are no barriers to infor-
mation flow and, therefore, completion of work is fast.
5. Virtual business organization – made up of a small group of full-time
workers and outside experts who are hired on a temporary basis to work
on assigned projects; members usually communicate online.
24 CHAPTER 2
Other basic forms of business that are legal in the Philippines are:
single proprietorship, partnership, corporation, and cooperative; these
are defined and discussed on p. 142, Lesson 2 of chapter 9.
Different organizations have different preferences as to the business
form that is appropriate for their needs and the purpose of their existence.
Managers, therefore, must be creative in finding ways to structure or
design and organize work in their respective firms.

1. What is a business organization?
2. What is the difference between a profit and nonprofit business organization? Which, in your opinion, is easier
to manage? Explain your answer.
3. Name one strength and one weakness of each of the traditional business organization forms.
4. Name one strength and one weakness of each of the open/flexible business organization forms.
Exercise
1. Research on the Internet or the school library; name five profit business organizations and five nonprofit business
organizations.
2. Choose one known manufacturing company. Name at least five work teams which help the company achieve
their mission, vision, goals, and objectives.
Integration
I realized that:
I resolved that:

CHAPTER 3
Planning
IN THIS CHAPTER, you will begin to study planning, the first management function, which sets an
organization’s agenda. Establishing plans based on set goals will provide direction to the
organization’s activities and, thus, reduce uncertainties and wastage. Planning is an extremely
complex process since it requires a systematic method for recognizing and analyzing the elements
of the organization’s external environment and matching them with the firm’s internal
environment’s factors and capabilities. Since plans are done in an environment of uncertainty, you
will also begin to understand how assumptions are formulated based on forecasts of expected
future situations.
As you read and study this chapter, concentrate on the

following objectives, and at the end of the chapter be able to:
1. discuss the nature of planning;
2. compare and contrast the different types of plans;
3. describe planning at different levels of the firm;
4. apply appropriate planning techniques and tools; and
5. formulate a decision from several alternatives.
26
LESSON 1
Definition and Nature of Planning
P lanning is the first management function and a very essential com-

ponent of management.
The following present the importance of planning:
Definition of Terms
Planning – is a process that
involves the setting of the
• Planning provides direction to all of the organization’s human resources— organization’s goals, establishing
strategies for accomplishing those
both managers as well as employees. If they know what their firm or their
goals, and developing plans of
work unit is trying to achieve and what activities they should engage in to action or means that managers
be able to contribute to the achievement of the firm’s set vision, mission, intend to use to achieve
goals, and objectives, they would coordinate their actions and collaborate organizational goals
well with one another. Goal-setting – the identification of
• Planning is important because it reduces uncertainty; it compels targets or desired ends that
management wants to reach
managers to consider future events that may affect their company.
Vision – a mental image of what
Anticipating changes and their impact will help managers and other
the organization will be in the
workers to react to such changes appropriately. future, as desired by the company
• Minimizing of wastes will result if there is proper coordination of activi- management and employees
ties due to planning; negative practices, ineffectiveness, and inefficiencies Mission – basic purpose of an
could be easily detected and can be corrected or eliminated. organization and range of their
• Establishing goals and standards during planning may be used for operations
controlling, another necessary managerial function. Objectives – steps needed in order
to attain desired ends
Without planning, goals and standards will be absent and controlling
will not be possible.
Relationship of Planning to Individual

and Organizational Performance
Is there a clear relationship between planning and performance? Although
numerous researchers have shown a generally positive relationship
between planning and performance, it would not be advisable, however,
to judge that organizations or individuals who formally plan have better
performance compared to those who do not plan.
There are other environmental factors that also affect individual
or organizational performance, thus, result in reducing the impact of
planning to performance. It is safer to say that the relationship between
planning and performance is mainly due to association of systematic
planning with the excellent financial status of the organization and
higher return of investments, higher income, and profit that could be
traced to the excellent performance of its human resources.
Finally, the planning-performance relationship could also be

associated with the time spent in preparing and executing a formal
organizational or individual plan. A well-thought-out plan requires a
longer period of preparation; its execution or application must also be
done for a certain period of time—months or years—before it begins
to affect performance.
27
Difference between Goals and Plans
Goals are the targets or desired ends that management wants to reach,
while plans are the actions or means that administrators/managers intend
to use to achieve organizational goals. In short, goals serve as the foun-
dation of planning. Goals precede plans because knowing the desired
targets is a must before establishing plans for reaching them.

1. How important is planning to organization managers?
2. In your own opinion, is there a clear relationship between planning and performance? Explain.
3. Which comes first, goal-setting or planning? Explain your answer.
4. Explain the relationship between planning and controlling.
Exercise
1. Set goals or targets for a fast food business. List them down.
2. Look ahead, list down possible future changes in the fast food business in which you made these goals for in
exercise number one.
28 CHAPTER 3
LESSON 2
Types of Plans
O rganizational plans can be generally described in terms of

comprehensiveness, length of time covered or time frame,
specificity, and frequency of use.
Definition of Terms
Organizational Plan – a
comprehensive plan for the entire
Comprehensiveness refers to the completeness of planning coverage; organization covering time frame,
for example: it may start from plans that cover the entire organization, specific purpose, frequency of use,
called strategic plans, up to operational plans that apply to a particular and others
operational area only. The more comprehensive the plan is, the better, Strategic Plan – plans that
establish the organization’s overall
as this could completely guide both the employer and employee toward goals and apply to the entire firm;
the fast achievement of company goals. they are broad in scope and are the
A plan may be long-term, or covering more than three years, or responsibility of the organization’s
short-term, covering one year or less. Top-level management usually President or Chief Operating
Officer, and several managers
sets the long-range plans, while lower-level management focuses on
Operational Plan – plans that
short-term goals.
apply to a particular unit area only;
Specificity refers to very detailed, clearly defined plans wherein their scope is narrow and prepared
objectives are clearly stated and could easily be understood. Simple by lower level managers
language must be used in order to facilitate understanding of the plan.
Frequency of use refers to the number of times or instances a plan
may be used. For example, strategical plans have single use, while oper-
ational plans are usually standing or are used frequently or for several
times. Referring to set plans is often necessary to ensure that all plans are
carried out, thus, hastening the achievement of the organization’s goals.
Managers meet many planning challenges as they go about their tasks
and direct their company’s affairs. In some organizations, the planning
environment is steady, but in others, it is dynamic, so, different types of
plans are made to meet organizational needs. Different types of planning
include the following:
Strategic plans – plans that establish the organization’s overall goals
and apply to the entire firm; they are broad in scope and are the respon-
sibility of the CEO, president, and general manager of the company.
FIGURE 3.1 In case of emergencies,

organizations should have alternative
plans.
Planning 29
Operational plans – plans that apply to a particular unit area only;
their scope is narrow; achievement of company goals may not be achieved
if operational plans are not clear.
Long-term plans – plans that go beyond three years; everyone must
understand the organization’s long-term plans to avoid confusion that
may divert the organization members’ attention.
Short-term plans – plans that cover one year or less; such plans must
lead toward the attainment of long-term goals and are the responsibility
of the unit/department heads.
Directional plans – plans that are flexible or give general guidelines
only; although flexible and general, these plans must still be related to
the strategic plans.
Specific plans – plans that are clearly stated and which have no room
for interpretation; language used must be very understandable
Single-use plans – plans used or stated once only as this applies to
the entire organization; refer to the operational plans of the firm.
Standing plans – plans that are ongoing; provide guidance for dif-
ferent activities done repeatedly; refer to the identified activities of oper-
ational plans.
Steps in Planning
Planning is a process and, as such, involves steps—from carrying out its
purpose, setting of goals/objectives, and determining what should be
done to accomplish them. Schermerhorn (2008) gave five steps in the
planning process:
1. Define your goals/objectives by identifying desired outcomes/results
in very specific ways.
2. Determine where you stand in relation to set goals/objectives; know
your strengths and weaknesses.
3. Develop premises regarding future conditions; anticipate future events,
generate alternative “scenarios” for what may happen; identify for each
scenario things that may help or hinder progress toward your goals/
objectives;
4. Analyze and choose among action alternatives; list and carefully evalu-
ate possible actions and choose the alternative most likely to accomplish
goals/objectives.
5. Implement the plan and evaluate results; take corrective action and
revise plans as needed.
30 CHAPTER 3
FIGURE 3.2 Planning, when done
carefully, can lead an individual to success.

1. What are the bases for describing organizational plans?
2. Name at least five types of plans. Which, in your opinion, is the hardest to prepare?
3. Which plan is described to be short-term, specific, and narrow? Explain your answer.
4. Name the five steps in planning. Is there a particular step that could be bypassed or eliminated? Explain your
answer.
Exercise
1. Choose one of the formal goals set for your school/college. List down three operational plans that will enable
school/college managers to achieve this chosen goal.
2. Describe how your school/college managers can effectively prepare the three operational plans listed down
in exercise number one.
Planning 31
LESSON 3
Planning at Different Levels
in the Firm
➤ Bateman and Snell (2008) stated

that an effective strategy provides
a basis for answering five broad
D ifferent levels in the firm are all engaged in planning; however, all
the resulting plans must be related to one another and directed
toward the same goals. Planning at the different levels of management
questions about how organizations include strategic planning, tactical planning, and operational planning.
will meet its goals/objectives:
1. Where will we be active?
2. How will we get there? Top-level Management Planning
3. How will we win in the marketplace? (Strategic Planning)
4. How fast will we move and in what As earlier mentioned, top-level managers are responsible for the orga-
sequence will we make changes?
nization’s strategic planning which involves making decisions about the
5. How will we obtain financial organization’s long-term goals and strategies. CEOs, company presidents,
returns?
or the organization’s senior executives develop and execute the said
strategic plan. They, however, do not formulate or execute the plan on
their own; a management team supports and helps top-level managers
Definition of Terms in carrying out these tasks.
Strategic Planning – is top-level Strategic planning starts with defining the organization’s goals/objec-
planning which involves making tives, the major targets related to the maintenance of the organization’s
decisions about the organization’s stability, and its organizational culture, values, and growth improving its
long term goals
productivity, profitability, effectiveness, and efficiency, among others.
Tactical Planning – is middle-level
management planning which refers
to procedures and transformation Middle-level Management Planning
of strategic goals/plans with
specific goals
(Tactical Planning)
Operational Planning – is Tactical planning refers to a set of procedures for changing or transform-
lower-level management planning ing broad strategic goals and plans into specific goals and plans that are
which involves routine tasks
applicable and needed in one unit/portion of the organization. It is focused
repeatedly done by the firm’s lower
level units on major actions that must be done by a unit in order to contribute its
share for the achievement of the strategic plan.
FIGURE 3.3 Planning hierarchy
Organization mission
Strategic Planning
Organization goals
Organization objectives
Tactical Planning Department objectives
Division objectives
Department objectives
Operational
Planning
Individual objectives
32 CHAPTER 3
Frontline/Lower-level Management Planning
(Operational Planning)
Operational planning involves identifying the specific procedures and
processes required at the lower levels of the organization. This also
involves routine tasks or tasks repeatedly done by the organization’s
lower level units.
Integrating Strategic, Tactical,

and Operational Planning
The present organizational planning is not as rigid as the hierarchical
planning earlier discussed in this chapter. Managers in different hierar-
chical levels of the organization may contribute their ideas or suggestions
in developing the strategic plan, a task originally assigned to the senior
executives. Also, frontline managers may make decisions that could influ-
ence strategy formulation in the higher levels. All plans, however, must
be directed toward the achievement of the organization’s strategic goals.
Finally, CEOs or company presidents must see to it that all commu-
nication lines in their organization are open, that there is excellent dis-
semination of information to all levels, and they are aware of everything
that is happening in their firm.

1. Name and define the three planning types that take place in the three hierarchical levels of managerial planning.
2. If the strategic goal of your organization is the improvement of its profitability, what routine tasks could be
included in your operational planning? Name some of these tasks.
3. Describe present-day organizational planning. Is it rigid or flexible? Explain your answer.
4. Explain the relationship between planning and communication.
Exercise
1. Instead of using traditional planning and goal-setting methods there are organizations that use the manage-
ment by objectives (MBO) system. Research about this topic using the Internet. Define MBO and explain how
this could be used in planning and goal-setting and its relation to employee performance and organizational
productivity.
2. Research on the characteristics of well-written goals. Name at least five characteristics.
Planning 33
LESSON 4
Planning Techniques and Tools
and their Applications
Definition of Terms
Trigger point – change in an
F or effective planning in today’s dynamic environments, different
techniques and tools must be used, such as forecasting, contingency
planning, scenario planning, benchmarking, and participatory planning.
attribute, condition, factor,
parameter, or value that represents According to Schermerhorn (2008), forecasting is an attempt to
crossing a threshold and actuates predict what may happen in the future. All planning types, without
or initiates a mechanism or reaction exception, make use of forecasting. Business periodicals publish forecasts
that may lead to a radically different such as employment and unemployment rates, increase or decrease of
state of affairs interest rates, stock market data, GNP/GDP data, and others. Forecasts
Forecasting – an attempt to used may either be quantitative or qualitative. Opinions of prominent
predict what may happen in the economists are used in qualitative forecasts while mathematical calcula-
future tions and statistical analyses of surveys/researches are used in quantitative
Benchmarking – planning forecasts. These, however, are just aids to planning and must be treated
technique that involves comparison with caution. As the name implies, forecasts are predictions and may be
of company’s practices/ inaccurate, at times, due to errors of human judgment.
technologies with those of other Contingency factors may offer alternative courses of action when the
companies
unexpected happens or when things go wrong. Contingency plans must
http://www.businessdictionary. be prepared by managers, ready for implementation when things do not
com/definition/trigger-point.
html#ixzz3RUccexQd
turn out as they should be. Contingency factors called “trigger points”
indicate when the prepared alternative plan should be implemented.
Meanwhile, planning for future states of affairs is a long-term version
of contingency planning and is also known as scenario planning. Several
future states of affairs must be identified and alternative plans must be
prepared in order to meet the changes or challenges in the future. This
is a big help for organizations because it allows them to plan ahead and
make necessary adjustments in their strategies and operations. Some
examples of changes or challenges that may arise in future scenarios are
FIGURE 3.4 Some organizations use a
environmental pollution, human rights violations, climate and weather
Gantt chart to properly schedule produc- changes, earthquake damages to communities, and others.
tion processes and allocate resources.
July 23, 2006 July 30, 2006 August 6, 2006 August 13, 2006
ID Task Name Predecessors Duration
S M T W T F S S M T W T F S S M T W T F S S M T W T F S
1 Start 0 days
2 a 1 4 days
3 b 1 5.33 days
4 c 2 5.17 days
5 d 3 6.33 days
6 e 3, 4 5.17 days
7 f 5 4.5 days
8 g 6 5.17 days
9 Finish 7, 8 0 days
34 CHAPTER 3
Benchmarking is another planning technique that generally involves
external comparisons of a company’s practices and technologies with those
of other companies. Its main purpose is to find out what other people and
organizations do well and then plan how to incorporate these practices
into the company’s operations. A common benchmarking technique is to
search for best practices used by other organizations that enabled them to
achieve superior performance. This is known as external benchmarking.
Internal benchmarking is also practiced by some organizations when they
encourage all their employees working in their different work units to
learn and improve by sharing one another’s best practices.
Participatory planning is a planning process that includes the people
who will be affected by the plans and those who will be asked to imple-
ment them in all planning steps. Creativity, increased acceptance and
understanding of plans, and commitment to the success of plans are
the positive results of this planning technique.

1. What are the useful planning tools and techniques that are currently used in many organizations. Define each.
2. Which is a better planning tool: forecasting or benchmarking? Explain your answer.
3. Why are “trigger points” important in contingency plans?
4. Name some examples of changes or challenges, other than those mentioned in this lesson, that may occur in
future scenarios.
Exercise
1. Give at least five business forecasts that may occur here in the Philippines three years from now. Use either
qualitative or quantitative forecasting.
2. How can planning through benchmarking be used by the owner/manager of a five-star hotel? Explain your
answer.
Planning 35
LESSON 5
Decision-making
Definition of Terms
Decision-making – is a process
which begins with problem
A ll managers and workers/employees in organizations make decisions
or make choices that affect their jobs and the organization they work
for. This lesson’s focus is on how they make decisions by going through
identification and ends with the
evaluation of implemented solutions the eight steps of the decision-making process suggested by Robbins
and Coulter (2009).
➤ The Decision-making Process
according to Robbins and Coulter
Types of Decisions
Step 1: Identify the Problem. The
problem may be defined as a A decision is a choice among possible alternative actions. Like planning,
puzzling circumstance or a decision-making is a challenge and requires careful consideration for
discrepancy between an existing and both types of decisions, namely:
a desired condition. Structured or programmed decision – a decision that is repetitive
Step 2: Identify the Decision Criteria. and can be handled using a routine approach.
These are important or relevant to
resolving the identified problem. Such repetitive decision applies to resolving structured problems
Step 3: Allocate Weights to the Criteria.
which are straightforward, familiar, and easily defined. For example, a
This is done in order to give the restaurant customer complains about the dirty utensils the waiter has
decision maker the correct priority in given him. This is not an unusual situation, and, therefore, standardized
making the decision. solutions to such a problem may be readily available.
Step 4: Develop Alternatives. This step Unstructured or nonprogrammed decisions – applied to the res-
requires the decision maker to list olution of problems that are new or unusual, and for which information
down possible alternatives that
could help resolve the identified is incomplete.
problem. Such nonprogrammed decisions are described to be unique, nonre-
Step 5: Analyze the Alternatives. curring and need custom-made decisions. For example, a hotel manager
Alternatives must be carefully is asked to make a decision regarding the building of a new hotel branch
evaluated by the decision maker in another city to meet the demands of businessmen there. This is an
using the criteria identified in Step 2.
unstructured problem and, therefore, needs unstructured or nonpro-
Step 6: Select an Alternative. This is the
grammed decisions to resolve it.
process of choosing the best
alternative or the one which has the
highest total points in Step 5.
Types of Decision-making Conditions
Step 7: Implement the Chosen
Alternative. This step puts the Conditions, under which decisions are made, also vary. These are:
decision into action. Changes in the Certainty conditions – ideal conditions in deciding problems; these
environment must be observed and
assessed, especially in cases of
are situations in which a manager can make precise decisions because
long-term decisions, to see if the the results of all alternatives are known.
chosen alternative is still the best For example, bank interests are made known to clients so it is easier
one. for business managers to decide on the problem of where to deposit their
Step 8: Evaluate Decision Effectiveness. company’s funds. The bank which offers the highest interest rate, there-
This is the last step and involves the fore, is the obvious choice of the manager when asked to make a decision.
evaluation of the outcome or result
of the decision to see if the problem Risk or uncertainty conditions – a more common condition in
was resolved. If the problem still deciding problems.
exists, the manager has to assess
what went wrong and, if needed,
repeat a step or the whole process.
36 CHAPTER 3
Risk or uncertainty conditions compel the decision maker to do
estimates regarding the possible occurrence of certain outcomes that
may affect his or her chosen solution to a problem. Historical data from
his or her own experiences and other secondary information may be
used as bases for decisions to be made by the decision maker under such
risk conditions. For example, a manager is asked to invest some of their
company funds in the money market offered by a financial institution.
Risk factors must be considered, because of the uncertainty conditions
involved, before making a decision—whether to invest or not in the said
money market.

1. Enumerate the steps involved in decision-making. Which is the most important step? Explain your answer.
2. Why is it easier to make a structured or programmed decision?
3. Describe the characteristics of an unstructured or nonprogrammed decision.
4. Compare the two types of decision-making conditions. Do you agree with the statement that risk conditions
in decision-making are more common?
Exercise
1. Choose one problem in a ready-to-wear garments manufacturing company. Solve your identified problem by
going through the eight steps of the decision-making process.
2. Give your own three examples of decision-making under risk or uncertainty conditions.
Integration
I realized that:
I resolved that:
Planning 37
CHAPTER 4
Organizing
AFTER PLANNING, organizing follows. The goals and objectives established during planning will all
go to waste without effective organizing, through the development of a designed structure of
roles for effective performance. It requires an interlacing of decision and communication work
units to coordinate efforts toward the organizational goals and objectives that were set earlier. To
function well, organization structures and their specific roles must be understood by all members
of the organization. Rules and regulation principles must also be put into practice. However, that
organizing depends on the specific situation of the firm.

1. discuss the nature of organizations;
2. distinguish the various types of organization structures;
3. apply organization theories in solving business cases;
4. identify the different elements of delegation; and
5. differentiate formal from informal organizations.
38
LESSON 1
Nature of Organizations
Differentiation of the Organization’s
Internal Environment
Differentiation in organizations involves division of labor and special-
ization according to Bateman and Snell (2008). These necessarily result
from the organization’s composition—many different work units with
different kinds of tasks, using different skills and work activities coordi-
nating with one another for a common end.
Division of labor involves assigning different tasks to different people
in the organization’s different work units. Related to it is specialization,
the process in which different individuals and units perform different
tasks. An organization’s overall work is complex and would be too much
for any individual, therefore, the bigger the organization, the more work
units or work divisions and specializations are to be expected.
Integration of Work Units

Integration is another process in the organization’s internal environment
which involves the collaboration and coordination of its different work
units or work divisions. Coordination refers to the procedures that con-
nect the work activities of the different work divisions/units of the firm in
order to achieve its overall goal. Structural mechanisms may be devised
in order to increase collaboration and coordination. The more highly
differentiated one’s organization is, the greater the need for integration
among the different units.

1. Give the importance of organizing in business companies.
2. What is the negative effect of not having division of labor in organizations?
3. Why should organizations be encouraged to have an organization chart?
4. Is the term “specialization” synonymous with the term “differentiation?” Explain.
Exercise
1. Construct an organization chart of your school’s high school department.
2. Get a copy of a big business organization’s organization chart through the Internet and compare it with your
school’s high school department’s organization chart. List down the similarities and/or differences that you
observed.
39
LESSON 2
Types of Organization Structures
A
Definition of Terms
Vertical Organization Structure– clears
n organization structure is a system made up of tasks to be accom-
out issues related to authority rights, plished, work movements from one work level to other work levels
responsibilities, and reporting in the system, reporting relationships, and communication passageways
relationships
that unite the work of different individual persons and groups. The types
Horizontal Organization chart – refers
to a selection of independent, usually
of organizational structures include:
single-function organizations that work a. vertical structure
together to produce a product or service b. horizontal structure
c. network structure
According to Bateman and Snell (2008), a vertical structure clears
out issues related to authority rights, responsibilities, and reporting rela-
tionships. Authority rights refer to the legitimate rights of individuals,
appointed in positions like president, vice president, manager, and the
FIGURE 4.1 Organizational Chart with like, to give orders to their subordinates, who in turn, report to them
Vertical Structure what they have done.
Top Manager
Middle Manager Middle Manager
Manager Manager Manager Manager
Specialist Specialist Specialist Specialist Specialist Specialist Specialist Specialist
40 CHAPTER 4
President
Vice President Vice President Vice President Vice President

Operation Production Marketing Finance
Owners of private business companies are said to have absolute FIGURE 4.2 Sample of Functional
authority, even if other persons are appointed as managers in their com- Organization
panies. In corporations, the owners are the stockholders and they elect
a board of directors to manage the organization’s activities. The board
has a chairman who acts as the leader, while the members act as the
corporation’s authority figures, responsible for making major decisions
affecting their organizations, subject to the corporation’s constitution and
by-law provisions. Besides the chairman of the board, a chief executive
officer (CEO) is appointed to occupy the top post in the organization
pyramid and is personally accountable to the members of the board and
other owners for the organizational performance.
Below the top-level managers are the middle-level managers in charge
of departments who, as earlier mentioned, report to them. Under the
middle-level managers are the lower-level managers which include office
managers, sales managers, and supervisors who directly report to the
former. Employees under the lower-level managers also have reporting
relationships with their respective department managers.
A horizontal structure refers to the departmentalization of an orga-
nization into smaller work units as tasks become increasingly varied
and numerous.
Types of Department:
Line departments – deal directly with the firm’s primary goods and
services; responsible for manufacturing, selling, and providing services
to clients.
Staff departments – support the activities of the line departments by
doing research, attending to legal matters, performing public relations
duties, etc. Meanwhile, departmentalization may be done using three
approaches:
Functional approach – where the subdivisions are formed based on
specialized activities such as marketing, production, financial manage-
ment, and human resources management.
Divisional approach – where departments are formed based on man-
agement of their products, customers, or geographic areas covered.
Matrix approach – is a hybrid form of departmentalization where
managers and staff personnel report to the superiors, the functional
manager, and the divisional manager.
Organizing 41
Finally, a network structure is a collection of independent, usually
single function organizations/companies that work together in order
to produce a product or service. Such network organizations are each
capable of doing their own specialized work activities independently,
like producing, distributing, designing, etc., but are capable of working
effectively at the same time with other network members.
FIGURE 4.3 Example of Organizational

Chart with Divisional Structure
President
Administration
Product A Product B Product C Product D
and Finance
Division Division Division Division
Division
Research and Research and Research and Research and Human

Development Development Development Development Resources
Manufacturing Manufacturing Manufacturing Manufacturing Manufacturing
Accounting/ Accounting/ Accounting/ Accounting/ Accounting/

Finance Finance Finance Finance Finance
Marketing Marketing Marketing Marketing Marketing
Customer Customer Customer Customer Training/

Service Service Service Service Safety
Legal
42 CHAPTER 4
Often their communication is by electronic means where sharing of
information is speedy. This results to their ability to respond at once to
their customers’ demands. Organizational structure are needed to keep
employees needed, to build a learning organization and to manage global
structural problems.

1. What are the types of organization structures? Briefly define each.
2. Summarize how authority operates in the vertical organization structure.
3. Give the difference between a line department and staff department.
4. In your opinion, who have greater responsibilities, the line department managers or the staff department
managers? Explain your choice.
Exercise
1. Research on the CEO’s work details. What are the advantages and disadvantages of being a CEO?
2. Interview one of your school’s department heads. Discuss his/her perspectives on role, authority, responsibilities,
and accountability to superiors.
Organizing 43
LESSON 3
Organization Theories
and Applications
Definition of Terms
Organizational design – the T here are two main classifications of theories regarding organizational
design according to Robbins and Coulter (2009): traditional and
modern. Traditional pertains to the usual or old-fashioned ways, while
manner in which a management
achieves the right combination of modern refers to contemporary or new design theories.
differentiation and integration of Traditional organizational design theories include:
the organization’s operations, in
response to the level of uncertainty Simple
in its external environment This organizational design has few departments, wide spans of control,
Traditional Theories – are the or a big number of subordinates directly reporting to a manager; has a
usual, old fashioned ways centralized authority figure and has very little formalization of work;
Modern Theories – are usually used by companies that start out as entrepreneurial ventures.
contemporary or new design When applied, its strengths and weaknesses are revealed. See Table
theories
4.1 below.
http://www.businessdictionary.com/
definition/organizational-design.
html#ixzz3RUnVe6OL Simple Organizational Design
Strengths Weaknesses
• flexible • risk that overdependence with

• fast decision-making and results over-dependence on a single person
TABLE 4.1 Strengths and Weaknesses
• clear accountability • no longer appropriate as the
of Simple Organizational Design
company grows
Functional
This organizational design groups together similar or related specialties.
Generally, functional departmentalization is utilized and put into practice
in an entire organization. For example: A marketing firm that markets
cars and related products like tires, car batteries, and accessories.
It also has strengths and weaknesses as seen in Table 4.2.
Functional Organizational Design
• cost-saving advantages • managers have little knowledge of

• management is facilitated because other units’ functions
TABLE 4.2 Strengths and Weaknesses workers with similar tasks are
of Functional Organizational Design grouped together
Divisional
This organizational design is made up of separate business divisions or
units, where the parent corporation acts as overseer to coordinate and con-
trol the different divisions and provide financial and legal support services.
44 CHAPTER 4
Table 4.3 shows its strengths and weaknesses.
TABLE 4.3 Strengths and Weaknesses
Divisional Organizational Design
of Divisional Organizational Design
• focused on results • possible duplication of activities

• managers are responsible for what and resources
happens to their products and • increased cost and reduced
services efficiency
Modern organizational design theories include:
Team Design
In team design, the entire organization is made up of work groups or
teams. Its advantages include empowerment of team members and reduced
barriers among functional areas. It also has disadvantages, including a
clear chain of command and great pressure on teams to perform.
Matrix-Project Design
Matrix design refers to an organization design where specialists from
different departments work on projects that are supervised by a project
manager. This design results in a double chain of command wherein
workers have two managers—their functional area manager and their
project manager—who share authority over them. Advantage: specialists
are involved in the project. Disadvantage: task and personality conflicts.
Project design refers to an organizational design where employees
continuously work on a project. Advantages: flexible designs and fast
decision-making. Disadvantages: complexity of assigning people to
projects and tasks and personality conflicts.
FIGURE 4.4 Teamwork and cooperation
are two essential factors for an organiza-
tion’s success.
Organizing 45
Boundary-less Design
This is another modern organizational design where the design is not
defined or limited by vertical, horizontal, and external boundaries. In
other words, there are no hierarchical levels that separate employees, no
departmentalization, and no boundaries that separate the organization
from customers, suppliers, and other stakeholders. Virtual organization
designs are often used in this design; small groups of full-time employ-
ees and outside specialists are temporarily hired to work on projects. Its
advantages include being highly flexible and responsive, while its disad-
vantages are lack of control and problems in communication.

1. What are the three traditional organizational design theories? Briefly define each.
2. What are the advantages and disadvantages of the simple organizational design? Do you agree or disagree
with these advantages and disadvantages? Explain your answer.
3. Name the different modern organizational design theories. Briefly define each.
4. Task and personality conflicts are said to be the disadvantages to the use of the matrix-project design. Explain
the rationale of this statement.
Exercise
1. Choose one popular fast food chain company. Name some teams that may be organized within the company
to help achieve its goals.
2. Give two of your own examples of a functional organizational design.
46 CHAPTER 4
LESSON 4
Delegation
D elegation refers to assigning a new or additional task to a subordi-

nate; it may also refer to getting work done through others by giving
them the right to make decisions and take action. Elements of delegation
Definition of Terms
Delegation – refers to assigning in
a new or additional task to a
include: authority or the right to set officially or legally, responsibility subordinate; or getting the work
or the state of being answerable legally/morally for the discharge of a done through others by giving
duty, and accountability is to be liable to be called to explain. Steps in them the right to make decisions or
delegation include: take action
1. Defining the goal clearly. Managers must clearly explain the task Authority – the right to act legally
objective and the work or duties someone else is expected to do. or officially
2. Selecting the person who will be given the task. The selected subor- Responsibilty – the state of being
dinate must be competent and must share the manager’s task objectives. answerable legally and morally for
3. Assigning of responsibility – Managers must explain that the respon- the discharge of duty
sibility assigned to the selected subordinate is an expectation for him or Accountability – is to be liable to
her to perform the assigned tasks well. be called to explain
4. Asking the person assigned about his or her planned approaches to
accomplish the task objectives. It is expected that the person chosen to do
the task already has a tentative plan of action that may be presented to
the manager, to assure him or her that the person assigned could achieve
the task objective.
5. Granting the assigned person the authority to act. If the manager
is satisfied with the tentative plan of action presented, granting of the
authority to act immediately follows. Authority is a right to act in ways
needed to carry out the assigned task.
FIGURE 4.5 Kanban Board

This board is used to implement the
Kanban method for a specific proj-
ect. Kanban is a Japanese word which
means “signboard” or “billboard”. David
J. Anderson later on used this term to
name his own method for delegating a
team’s workload and deliverables without
overloading its members.
Organizing 47
6. Giving the assigned person enough time and resources to do the task,
while at the same time emphasizing his or her accountability. Accountability
is the assigned person’s willingness to complete the job, as agreed upon.
7. Checking the task accomplishment progress. Following up and dis-
cussing the task accomplishment progress at regular intervals is necessary.
8. Making sure that the task objective has been achieved. The above steps
of delegation were given by Weihrich and Krontz (2005).
Delegation has advantages and disadvantages as well. See Table 4.4

below.
TABLE 4.4 The Advantages and Disad- Advantages of Delegation Disadvantages of Delegation
vantages of Delegation
It prevents work overload among It may cause laziness among
organization managers. organization managers.
It provides opportunities for employee

or subordinates assigned to do the It may encourage too much
task to fully utilize their talents on the dependence on others.
job.
It leads to empowerment of employees

or subordinates assigned to do the
It may cause lack of control over
task, as it allows them freedom to
priority management problems.
contribute ideas and to perform their
job in the best possible way.
It increases job satisfaction among the

assigned employees or subordinates, It may cause low self-confidence
that may lead to better job among managers.
performance.

1. Define the term “delegation.”
2. What are the steps involved in delegating tasks to others?
3. What are the positive effects of delegating tasks?
4. What will be the possible result if managers frequently delegate their task to others? Justify your answer.
Exercise
1. Interview the president of any recognized student organization in your school regarding his or her perspective
on delegation of tasks. List down his/ her comments and discuss these in class.
2. Case Study:
Engineer Jose Santos is a supervisor of a group of light project engineers. His unit is burdened with heavy
workload because of increase in orders of their company’s computer components. Following up customer’s
orders and the availability of these said products by himself is too much work for him. As a consultant for the
company, what would you advice Engineer Santos? Explain your answer.
48 CHAPTER 4
LESSON 5
Formal and Informal
Organizations
W hether an organization is formal or informal is determined by

the kind of relationships that prevail in each organization type.
Formal organizations are characterized by hierarchical and reporting
Definition of Terms
Formal organizations – refer to
organizations formed by the
relationships among groups or members. On the other hand, informal company owner or manager to help
organizations consist of informal groups born out of the need for social the firm accomplish its goals; made
affiliation. Both formal and informal organizations may exist in the same up of formal groups (work groups/
organization structure. project team/committee) similarly
formed by company authorities to
Formal organizations and informal organizations both have functions
support their activities and achieve
and advantages that benefit the organization and its members. their objectives
Formal organizations have the following function:
Informal organizations – refer to
1. Accomplish goals that require cooperation or collaboration among
organizations that exist because of
formal groups in the organization; friendship or common interest;
2. Produce or bring about new and creative ideas and solutions to com- made up of informal groups which
pany problems; exist for the members’ need for
3. Coordinate interdepartmental activities; social affiliation
4. Implement company rules/regulations and policies; and
5. Orient/train new employees.
Meanwhile, informal organizations’ function include the following:
1. Satisfy the members’ need for affiliation;
2. Give the individual members a chance to develop their self-esteem;
3. Give individual members an opportunity to share their ideas;
4. Lessen individual members’ insecurities; and
5. Provide a mechanism to solve members’ personal and interpersonal
problems.
TABLE 4.5 Advantages and Disad-
vantages of Formal and Informal
Organizations.
Formal Informal
1. Working systematically 1. Fast communication due to the absence of standard

Advantages
2. Established on and for the organization’s objectives operating procedures and protocols
3. No duplication or overlapping of work 2. Gives importance to the psychological and social
4. Efficient coordination among departments needs of employees
5. Implementation of chain of command and 3. Top managers can solicit feedback directly from the
professional relationship employees on new policies and plans
1. Delay in feedback and action due to the established 1. More susceptible to rumor mongering
Disadvantages
chain of command 2. There is no systematic workflow in place

2. Ignores the psychological and social needs of 3. Difficulty in implementing new rules and policies
employees 4. More emphasis on the individual interest of each
3. Emphasis on work only and overlooks the human employee rather than the overall goal of the
relations, talents, and creativity of employees company
Organizing 49
1. Define formal and informal organizations.
2. Give specific examples of formal and informal organizations.
3. Do informal organizations help in the achievement of the company’s set goals? Explain your answer.
4. How could informal organizations lessen its members’ insecurities?
Exercise
1. Interview your school’s guidance counselor regarding the beneficial effects of developing positive self-esteem
among organization administrators and employees. List down his or her answers and prepare for classroom
discussion.
2. Interview one school clerk and ask if he or she is a member of a formal or informal group. If he or she answered
yes, also ask whether he or she found advantages for such group membership. List down his or her answers
and prepare for class discussion.
Integration
I realized that:
I resolved that:
50 CHAPTER 4
CHAPTER 5
Staffing
MANAGERS OFTEN CONSIDER human resources as their organization’s most important resource.
Very few administrators would argue with the fact that human resources are very important for the
efficient and effective operation of a company. To emphasize their importance, human resources
are also called human capital, intellectual assets, or management or company talents. These terms
imply that human resources are the drivers of the organization’s performance; hence, staffing is a
crucial function of managers.
In this chapter, we define the concept of staffing and discuss the various processes involved in
systematic staffing.
As you read and study this chapter, concentrate on the following objectives, and at the end of the
chapter be able to:
1. discuss the nature of staffing;
2. explain the steps in the recruitment and selection process;
3. recognize the different training programs;
4. identify the policy guidelines on compensation and wages and performance evaluation or appraisal;
5. discuss the importance of employee relations;
6. differentiate various employee movements; and
7. realize the importance of adopting an effective rewards system.
51
LESSON 1
Definition and Nature of Staffing
S taffing, according to Dyck and Neubert (2012), is the Human Resource

function of identifying, attracting, hiring, and retaining people with
the necessary qualifications to fill the responsiblities of current and
future jobs in the organization. The number of managerial personnel or
non-managerial human resources needed by an organization depends
upon the size and complexity of its operations, its plans for branching
out or increasing products, and turnover rates of both types of human
resources, among others. Besides considering their number, the qual-
ifications for the individual positions must be identified, so that the
best-suited individuals for the job positions may be selected for hiring.
The Management and Non-managerial

Human Resources Inventory
Awareness of the management potential within an organization can be
accomplished with the use of an inventory chart, also called management
succession/replacement chart. This chart is similar to the general orga-
nization chart used by the company but limited to managerial positions
and the names of potential successors (promotable, satisfactory but not
promotable, dismissed, etc.). Recruitment by external means may follow
if there are no qualified successors.
The need for non-managerial human resources may be ascertained
by the use of a general organization chart to identify vacant job positions
that need to be filled or by direct reports from department/unit heads
or supervisors. Managers need not make detailed succession planning,
as these job positions are less sensitive. Suggestions for internal replace-
ments or successors for vacant nonmanagerial positions are usually done
as the need arises. External recruitment also follows if no one within
the organization is fitted for the job position that was declared vacant.
Staffing has two main components: recruitment and selection. The
process of identifying and attracting the people with the necessary qual-
ifications is called recruitment while selection is choosing who to hire.
Staffing steps include: 1.) the identifying of job position vacancies, job
requirements, as well as work force requirements; 2.) checking internal
environment of the organization for human resources; 3.) external
recruiting; 4.) selecting those with essential qualifications for the job
opening; 5.) placing the selected applicant; 6.) promoting; 7.) evaluating
performance; 8.) planning of employee’s career; 9.) training of human
resources; and 10.) compensating human resources
52 CHAPTER 5
External and Internal Forces Affecting Present
and Future Needs for Human Resources
Present and future needs for managers and other human resources are
affected by both external and internal forces. External forces include
economic, technological, social, political, and legal factors. For example,
economic progress in a particular country may bring about increased
needs and wants among people, resulting, in turn, in increased demand for
certain products, followed by the expansion of the company and its work-
force, as well as increased demand for managers. Information explosion
coming from the Internet, from business publications, or from the labor
department of countries may give either encouraging or discouraging
long-term trends in the world labor market, thus causing an increase or
a decrease in demand for managers and other human resources.
The firm’s goal and objectives, technology, the types of work that
have to be done, salary scales, and the kinds of people employed by the
company are among the internal factors or forces that affect staffing. For
example: salary scales offered by a company may not be high enough
to attract personnel who are really qualified for the job. Also, this may
encourage fast managerial and labor turnover.

1. Define staffing.
2. Give at least four activities or processes involved in staffing.
3. Give your own example of an external technology change that may affect staffing.
Exercise
1. Construct a management succession/replacement chart for one department or unit of your school. Present
this in class and ask your teacher for his or her comments.
2. Interview two department chairpersons in your school regarding their information gathering methods for
identifying present and future needs for human resources. List down their answers and give your comments.
Staffing 53
LESSON 2
Recruitment
Definition of Terms
Recruitment – a set of activities
I n the event of a job opening, administrators must be careful when
recruiting and choosing who to bring into the organization. They must
see to it that their new recruit possesses the knowledge and skills needed
designed to attract qualified to be successful in helping their company achieve their set goals and
applicants for job position
objectives and that he/ she is suited for the job position and the job design.
vacancies in an organization
Recruitment may either be external or internal. In external recruit-
Staffing – refers to filling in all
ment, outside sources are considered in the process of locating potential
organizational job positions
individuals who might want to join the organization and encouraging
Systems approach to staffing – is
them to apply for actual or anticipated job vacancies. Unsolicited applica-
the step-by-step way of filling job
positions in organizations, tions and referrals from employment agencies and schools are examples
considering variables such as of sources outside the company from which management could select
numbers and kinds of human an applicant who best fits the job opening.
resources needed, open managerial In internal recruitment, filling job vacancies can be done through
and nonmanagerial positions, promotions or transfer of employees who are already part of the organi-
potential successors to open job zation. In other words, recruitment is within the organization.
positions, etc.
Methods of External and Internal Recruitment

External recruitment methods include:
Advertisements – through websites, newspapers, trade journals, radio,
television, billboards, posters, and e-mails among others.
Unsolicited applications – received by employers from individuals
who may or may not be qualified for the job openings.
Internet recruiting – independent job boards on the Web commonly
used by job seekers and recruiters to gather and disseminate job opening
information.
FIGURE 5.1 Philjob.net.dole.gov.ph is

the Philippines’ official job market and
labor information portal.
54 CHAPTER 5
Employee referrals – are recommendations from the organization’s ➤ The Department of Labor and
present employees who usually refer friends and relatives who they think Employment (DOLE) is the national
are qualified for the job. government agency mandated to
Executive search firms – also known as “head hunters;” help employ- formulate policies and implement
programs in the field of labor and
ers find the right person for a job. Such firms seek out candidates with
employment.
qualifications that match the requirements of the job openings that their
client company hopes to fill.
Educational institutions – good sources of young applicants or new
graduates who have formal training but with very little work experience.
For technical and managerial positions, schools may refer some of their
alumni who may have the necessary qualifications needed for the said
job positions.
Professional associations – may offer placement services to their Definition of Terms
members who seek employment. Employers may make use of the listings External Recruitment – refers to
that they publish in their journals regarding members who are available recruitment from outside sources
for possible recruitment or hiring. Internal Recruitment – refers to
Labor unions – possible sources of applicants for blue-collar and recruitment done within the
professional jobs. organization
Public and private employment agencies – may also be good sources of
applicants for different types of job vacancies for they usually offer free
services while private ones charge fees from both the job applicant and
the employers soliciting referrals from them.
As mentioned earlier, internal recruitment is done within the orga-
nization. Most managers prefer to follow a policy of filling job openings
through promotions and transfer. In this way, they lessen the chances of
losing the organization’s top performers. Recruitment may be done by
using company bulletin boards, company intranet, company newsletters,
and recommendations from department or unit heads, among others.
Both external and internal recruitment have their own advantages
and disadvantages.
External Recruitment Advantages

1. Advertising and recruiting through the Internet reach a large number
of possible applicants, thus, increasing the possibility of being able to
recruit applicants suited for the job.
2. Applicants who submit applications and resumes through their own
initiative are believed to be better potential employees because they are
serious about getting the job.
3. Employee referrals from outside sources are believed to be high qual-
ity applicants because employees are generally hesitant to recommend
persons who are not qualified for job openings.
4. Executive search firms usually refer highly qualified applicants
from outside sources because they make an effort to check applicants’
qualifications before recommending them to client firms who pay for
their services.
Staffing 55
FIGURE 5.2 Posting advertisements in
newspapers remains a popular method
of external recruitment.
5. Educational institutions know the capabilities and qualifications of

their graduates, hence, increasing the chances of their ability to refer
qualified applicants to potential employers.
External Recruitment Disadvantages

1. The cost and time required by external recruitment are the typical
disadvantages of using this recruitment method. Advertising job openings
and the orientation and training of newly hired employees from outside
sources, as well as sorting out large volumes of solicited or unsolicited
job applications present challenges in budgeting time and money.
2. Another disadvantage of external recruitment is the possibility of
practicing bias or entertaining self-serving motives in the referral of
friends and relatives by current employees and in the recommendation
of private employment agencies of job applicants.
Internal Recruitment Advantages

1. Less expenses are required for internal recruitment advertising; news-
letters, bulletin boards, and other forms of internal communication may
disseminate information to current employees interested to apply for job
openings within the company.
2. Training and orientation of newly promoted or transferred current
employees are less expensive and do not take too much time since they
are already familiar with company policies.
3. The process of recruitment and selection is faster because the candidate
for transfer or promotion is already part of the organization.
Internal Recruitment Disadvantages

1. The number of applicants to choose from is limited.
2. Favoritism may influence a manager to recommend a current employee
for promotion to a higher position.
56 CHAPTER 5
FIGURE 5.3 Time and energy can be
saved in Internal Recruitment.
3. It may result in jealousy among other employees who were not con-
sidered for the position. Some may also accuse the management of bias
for choosing an employee who is perceived to be less qualified for the
job opening.

1. Differentiate internal and external recruitment.
2. Name at least five external recruitment methods. Which is the best method? Explain your choice.
3. What are the advantages of external and internal recruitment?
4. What are the disadvantages of external and internal recruitment?
Exercise
1. Devise an advertisement for a job opening in a first-class, fine dining restaurant. Be ready to present it in class.
2. Browse through the classified ads section of a leading newspaper. Choose an advertisement for a job opening
that has caught your attention. Cut and paste it on a piece of bond paper. Give an estimate of its cost and do
a simple cost-benefit analysis. Again, be ready for class presentation.
Staffing 57
LESSON 3
Selection
Definition of Terms
Selection – the process of choosing
I n many companies, selection is continuous because of fast turnover,
resulting in vacancies that have to be filled. Another reason for this is
the review of applicants on the waiting list. The selection process typically
individuals who have the required
includes the following steps:
qualifications to fill present and
expected job openings
1. Establishing the selection criteria – Selecting human resources in an
Interview – the determining of an
applicant’s qualifications in order to
organization requires understanding of the nature and purpose of the job
gauge his or her ability to do the position which has to be filled. Job design must be based on the objective
job analysis of position requirements and must meet both organizational and
individual needs. Skills must also be considered depending on the job
position and its position in the organizational hierarchy.
2. Requesting applicants to complete the application form – Application
forms must be completed because these provide the needed information
about the applicant. Management will find it easier to decide whether an
applicant meets the minimum requirements for experience, education,
etc., if the application forms are accurately filled out by the applicant.
3. Screening by listing applicants who seem to meet the set criteria –
This involves the preparation of a shortlist of applicants who meet the
FIGURE 5.3 Steps in hiring employees
effectively
Step 1 – Determining a need
Job analysis
Step 2 – Application search and selection

a. Recruitment
b. Screening and selection
c. Interviews
Step 3 – Decision-making process

a. Making a decision
b. Notification and employment offer
Step 4 – Adaptation to the workplace

Orientation
58 CHAPTER 5
minimum requirements of the job position to be filled. It is done to avoid
wasting of time by conducting interviews with applicants who do not
meet the set criteria for the job opening.
4. Screening interview to identify more promising applicants – Here,
a shortlist of applicants is prepared. Included in the list are the appli-
cants who will be asked to undergo formal interview by the supervisor/
manager; applicants who are deemed to be the most fitted for the job
opening belong to this shorter list.
5. Interview by the supervisor/manager or panel interviewers – Through
formal interview of the most promising applicants, other characteristics
of the applicants may be revealed or observed by the supervisor/man-
ager or panel interviewers. Such characteristics include the applicants’
self-confidence, positive or negative self-esteem, honesty, ability to relate
well with others, and positive or negative life experiences which may
affect his or her job performance, among others. Interviewers must be
trained so that they will know what to look for.
6. Verifying information provided by the applicant – To make sure that
the applicant has not given false information about himself or herself,
verification is necessary. Background checking must also be done to avoid
the hiring of applicants with criminal record and to ascertain that he or
she has good moral character.
7. Requesting the applicant to undergo psychological and physical
examination – Having a healthy mind and a healthy body is important for
good job performance. Hence, applicants must be requested to undergo
psychological and physical examinations prior to hiring.
8. Informing the applicant that he or she has been chosen for the
position applied for – Informing the applicant may be done verbally
or in writing by the managers who give the final decision regarding the
applicant’s hiring. Final instructions regarding the company’s rules and
regulations for hiring an applicant must be given in this step.
Interviews are important in determining the qualifications of an

applicant and gauging his or her ability to perform a job. Interviews may
come in different forms.
Types of Job Interviews

Structured interview – the interviewer asks the applicant to answer a
set of prepared questions—situational, job knowledge, job simulation,
and worker requirement questions
Unstructured interview – the interviewer has no interview guide and
may ask questions freely
One-on-one interview – one interviewer is assigned to interview the
applicant
Panel interview – several interviewers or a panel interviewer may con-
duct the interview of applicants; three to five interviewers take turns in
asking questions.
Staffing 59
Similarly, there are different kinds of employment tests administered
to measure or test an applicant’s specific skill or capacity.
Types of Employment Tests

Intelligence test – designed to measure the applicant’s mental capacity;
tests his or her cognitive capacity, speed of thinking, and ability to see
relationships in problematic situations
Proficiency and aptitude tests – tests his or her present skills and poten-
tial for learning other skills
Personality tests – designed to reveal the applicant’s personal character-
istics and ability to relate with others
Vocational tests – tests that show the occupation best suited to an
applicant.
Limitation of the Selection Process

In reality, there is no one perfect way to select a firm’s human resources.
Predicting performance is difficult as there is a difference between what
individuals can do at present and what they will do in the future. This is
because a persons’ needs and wants change, and so do an organization’s
climate and environment. The fact that many selection approaches and
tests have been devised is enough proof that management experts are still
in search of what could be done to improve the present selection process.

1. Define selection.
2. Enumerate briefly the steps involved in the selection process.
3. In your opinion, which is a better method of job interview, structured or unstructured? Explain your choice.
4. If you were a job applicant, which would you prefer, the one-on-one or the panel interview? Explain your choice.
Exercise
1. Role-playing through video recording: With you acting as the interviewer, conduct an interview for selection
purposes with one of your classmates acting as the job applicant. Use the one-on-one unstructured interview
format and limit dialogue exchange to 15 minutes. Present this video in class for critiquing.
2. Using the Internet, search for psychological personality tests that may be used in companies for selection
purposes. Describe how such tests will be conducted.
60 CHAPTER 5
LESSON 4
Training and Development
B oth training and development are essential to achieve success in today’s

organizations. In order to have an edge over their rival organizations,
managers must see to it that their human resources have the necessary
Definition of Terms
Training – refers to learning given
by organizations to its employees
knowledge and expertise; training and development work toward this that concentrates on short-term job
end by providing continuous learning activities and opportunities. The performance and acquisition or
typical scope of training covers the following procedures: improvement of job-related skills
Development – refers to learning
Conducting the Training Needs Assessment given by organizations to its
Training needs assessment must be done systematically in order to employees that is geared toward
the individual’s acquisition and
ascertain if there really is a need for training. Managers must first try to
expansion of his or her skills in
observe the business condition and the economic, strategic, and tech- preparation for future job
nological changes that are happening in the organization’s environment appointments and other
before proceeding to the analyses of the organization, tasks, and persons/ responsibilities
individuals, as all these are determinants of training types required for
the maintenance of the firm’s stability.
Examples of organization analyses include the analyses of effects of
downsizing, branching out, conflicts with rival companies, and others
that may require training or retraining of employees.
Task analysis involves, for example, a checking of job requirements
to find out if all these are being done to meet company goals. If not, this
may be a go-signal to train or retrain personnel.
Person analysis determines who among the employees need training
or retraining. This is to avoid spending for the training of employees who
no longer need it. For example, a department manager pirated from a rival
company to occupy a vacancy in one of the organization’s departments
in the same capacity (department manager) may not need managerial
skills training anymore.
FIGURE 5.4 It is the managers’ respon-

sibilty to train their employees.
Staffing 61
➤ What are the different learning Designing the Training Program
principles? This phase involves stating the instructional objectives that describe the
Modeling – the use of personal knowledge, skills, and attitudes that have to be acquired or enhanced
behavior to demonstrate the desired
to be able to perform well. In short, these are performance-centered
behavior or method to be learned
objectives that must be aligned with the firm’s objectives. Another thing
Feedback and reinforcement –
learning by getting comments or to be considered is trainee readiness and motivation. This refers to the
feedback from the trainees trainees’ background knowledge and experience, so that the training to
themselves, from trainers, or fellow be given to them will not go to waste. Different learning principles, like
trainees, which can help the using modeling, feedback and reinforcement, massed vs. distributed
individual realize what they are
doing right or what they are doing
learning, and others influence the training design’s effectiveness.
wrong; reinforcement is
accomplished through verbal Implementing the Training Program
encouragement or by giving rewards Various types of training program implementation include:
such as prizes, awards, and others
on-the-job training, apprenticeship training, classroom instruc-
Massed vs. distributed learning –
tion, audio-visual method, simulation method, and e-learning.
learning by giving training through
either few, long hours of training Evaluating the Training
(massed) or series of short hours of The positive effects of the training program may be seen by assessing
training (distributed) the participants’ reactions, their acquired learnings, and their behavior
Goal-setting – learning through the after completing the said training. The effects of training may also be
explanation of training goals and reflected by measuring the return on investment (ROI) or through the
objectives by the trainers to the
trainees
benefits reaped by the organization, which were about by their training
investment.
Individual differences – training
programs that take into account and
accommodate the individual
differences of the trainees in order to
facilitate each person’s style and rate
of learning
Active practice and repetition –
learning through the giving of
frequent opportunities to trainees to
do their job tasks properly
FIGURE 5.5 Training needs analysis

template/model
62 CHAPTER 5
Employee Development
Developing employees is a part of an organization’s career management
program and its goal is to match the individual’s development needs with
the needs of the organization. The individual employee must know himself
or herself well, identify his or her own knowledge, skills, abilities, values,
and interests, so that he or she could also identify the career pathway that
he or she would like to take. Although he or she is encouraged to take
responsibility for his or her own career, the organization must, at regular
intervals, provide him or her with the results of his or her performance
evaluations and the organization’s plans or direction that may be related
to his or her own career plans. This scheme establishes a favorable career
development climate for him or her, which may lead, ultimately, to the
blending of his or her career development goals with organizational goals.

1. Give the difference between “training” and “development.”
2. How should the training needs assessment be done? Describe the process.
3. Which should be analyzed first in training needs assessment organization, the tasks, or the persons? Explain
your answer.
4. Which is your preference, massed learning or distributed learning? Explain your choice.
Exercise
1. Interview the faculty development committee chairperson of your school. Ask him or her questions related to
his or her role in the said committee. Request for a list of training and development programs initiated by your
school’s management for teachers or faculty members. Comment on his or her answers and the list given to
you.
2. Identify your own knowledge, skills, abilities, values, and interests. What individual career goals or pathways
would you like to pursue or take in the future? Devise your own individual career development plan. Be ready
to present this in class.
Staffing 63
LESSON 5
Compensation/Wages
and Performance Evaluation
Definition of Terms
Compensation/wages – all forms
of pay given by employers to their
C ompensation/wages and performance evaluation are related to each
other because the employees’ excellent or poor performance also
determines the compensation given to them, after considering other
employees for the performance of internal and external factors like the actual worth of the job, compensa-
their jobs tion strategy of the organization, conditions of the labor market, cost of
Performance evaluation – a living, and area wage rates, among others.
process undertaken by the Compensation may come in different forms. It may be direct, indi-
organization, usually done once a rect, or nonfinancial.
year, designed to measure
employees’ work performance
Types of Compensation
Direct compensation – includes workers’ salaries, incentive pays,
bonuses, and commissions
Indirect compensation – includes benefits given by employers other
than financial remunerations; for example: travel, educational and health
benefits, and others
Nonfinancial compensation – includes recognition programs, being
assigned to do rewarding jobs, or enjoying management support, ideal
work environment, and convenient work hours
Connecting Compensation to Organizational

Objectives
Worker compensation/wages had tremendously changed in the 21st
century due to increased market competitions (both local and global),
required skills from workers, and changes in technology, among others.
Along with these, organizations’ pay philosophies have also changed.
Instead of paying employees based mainly on their job positions or titles,
they are now given pay according to their individual competencies or
FIGURE 5.6 Pay equity is among the EFFORT PAY

important considerations in preparing
compensation packages. As illustrated
in this diagram, pay equity is based on
the idea that an employee’s pay must be
commensurate to his or her effort.
64 CHAPTER 5
according to how much they could contribute or have contributed to their ➤ The daily minimum wage rate
company’s success. Wage experts now prepare compensation packages differs in relation to factors such as
that create value for both the organization and its employees. geographical area and industry or
sector. The National Wages and
Productivity Commission is the
Compensation: A Motivational Factor government agency concerned with
for Employees minimum wage determination in the
country.
Compensation pay represents a reward that an employee receives for
good performance that contributes to the company’s success. In relation
to this, the following must be considered:
Pay Equity – related to fairness; the Equity Theory is a motivation
theory focusing on employees’ response to the pay that they receive and
the feeling that they receive less or more than they deserve.
Employees generally feel that their pay must be commensurate to
the effort exerted in the performance of their job. In other words, pay
equity is achieved when the pay given to them by their employers is equal
to the value of the job performed; thus, this motivates them to perform
well and to do their jobs to the best of their abilities.
Expectancy Theory – another theory of motivation which predicts
that employees are motivated to work well because of the attractiveness
of the rewards or benefits that they may possibly receive from a job
assignment.
The employee’s perception of the compensation or pay attached to
a job position is an important factor in ascertaining the motivational
value of compensation.
Bases for Compensation

Employees may be compensated based on the following:
Piecework basis – when pay is computed according to the number
of units produced
Hourly basis – when pay is computed according to the number of
work hours rendered
Daily basis – when pay is computed according to the number of
work days rendered
Weekly basis – when pay is computed according to the number of
work weeks rendered
Monthly basis – when pay is computed according to the number of
work months rendered
Compensation rates are influenced by internal and external factors.

Among the internal factors are the organization’s compensation policies,
the importance of the job, the employees’ qualifications in meeting the
job requirements, and the employer’s financial stability.
External factors, on the other hand, include local and global market
conditions, labor supply, area/regional wage rates, cost of living, collective
bargaining agreements, and national and international laws, among others.
Staffing 65
Purposes of Performance Evaluation:
Administrative and Developmental
Improving individual job performance through performance evaluation
is just one of the reasons why employees are subjected to assessments on a
continuous basis. There are other purposes behind employee assessment
that are beneficial to the company and employees:
Administrative Purposes – These are fulfilled through appraisal/
evaluation programs that provide information that may be used as basis
for compensation decisions, promotions, transfers, and terminations.
Human resource planning may also make use of it for recruitment
and selection of potential employees.
Developmental Purposes – These are fulfilled through appraisal/
evaluation programs that provide information about employees’ per-
formance and their strengths and weaknesses that may be used as
basis for identifying their training and development needs. Through
this approach, the workers become more receptive to the explanations
given by the organization’s management regarding the importance of
having evaluations at regular intervals—that these are conducted to
improve their competencies in order to prepare them for future job
assignments.
Different performance appraisal methods are used depending on the
information an evaluator aims to find out.
Performance Appraisal Methods

Methods of evaluating workers have undergone development in order to
adapt new legal employment requirements and technical changes. Some
appraisal methods used today are the following:
Trait methods – performance evaluation method designed to find
out if the employee possesses important work characteristics such as
conscientiousness, creativity, emotional stability, and others
Graphic rating scales – performance appraisal method where each
characteristic to be evaluated is represented by a scale on which the
evaluator or rater indicates the degree to which an employee possesses
that characteristic
Forced-choice method – performance evaluation that requires the
rater to choose from two statements purposely designed to distinguish
between positive or negative performance; for example: works seriously—
works fast; shows leadership—has initiative
Behaviorally anchored rating scale (BARS) – a behavioral approach
to performance appraisal that includes five to ten vertical scales, one for
each important strategy for doing the job and numbered according to
its importance
Behavior observation scale (BOS) – a behavioral approach to per-
formance appraisal that measures the frequency of observed behavior
66 CHAPTER 5
Why Some Evaluation Programs Fail
Performance appraisals (such as manager/supervisor appraisal, self-ap-
praisal, subordinate appraisal, customer appraisal, peer appraisal, team
appraisal, or 360-degree appraisal) may sometimes fail due to various
reasons including the following:
• inadequate orientation of the evaluatees regarding the objectives of
the program;
• incomplete cooperation of the evaluatees (e.g. proper answering of
evaluation questionnaire);
• bias exhibited by evaluators;
• inadequate time for answering the evaluation forms;
• ambiguous language used in the evaluation questionnaire;
• employee’s job description is not properly evaluated by the evaluation
questionnaire used;
• inflated ratings resulting from evaluator’s avoidance of giving low scores;
• evaluator’s appraisal is focused on the personality of the evaluatee and
not his or her performance;
• unhealthy personality of the evaluator; and
• evaluator may be influenced by organizational politics.

1. Identify the different compensation types. Briefly define each.
2. Will the compensation package offered by a company determine the kind of applicants attracted by their
advertisement for a certain job opening in their organization? Explain your answer.
3. What is the relationship between the Pay Equity Theory and the employee’s motivation to perform well?
4. Do you agree with the statement that the evaluator’s bias may cause evaluation programs to fail? Explain your
answer.
Exercise
1. Using the definition given in this lesson, devise a Behavior Observation Scale (BOS). Be ready for class presentation.
2. Interview your school’s assistant dean or principal and ask his or her preferences regarding the different perfor-
mance appraisal types. Also ask for the types that are being used by your school. List down his or her answer
and give your opinion about them.
Staffing 67
LESSON 6
Employee Relations
Definition of Terms
Employee relations – the
E mployee relations applies to all phases of work activities in organiza-
tions, and managers, to be effective, must be able to encourage good
employee relations among all human resources under his or her care.
connection created among
Employees/workers are social beings who need connections or relations
employees/workers as they do their
assigned tasks for the organization
with other beings—other employees/workers—who are capable of giving
to which they belong them social support as they carry out their tasks in the organization where
all of them belong. Talking to a coworker, perceived to be a friend, or
working on a delicate task with others can be comforting during times
of stress, fear, or loneliness. When these negative feelings are overcome,
employees will be able to work better toward the achievement of their
organization’s goals.
Effective Employer Relations and Social Support

Social support is the sum total of perceived assistance or benefits that
may result from effective social employee relationships. The quantity
and quality of an employee’s relationship with others determine social
support (esteem support, informational support, or financial support).
In short, social support and effective employee relations must always go
together like “a horse and carriage,” where one would be useless without
the other. Therefore, without social support, effective employee relations
is not possible; and without effective social employee relationships, social
support, likewise, is not possible.
Below are some barriers to good employee relations:

• Anti-social personality; refusal to share more about oneself to co-em-
ployees; being a loner
• Lack of trust in others
• Selfish attitude; too many self-serving motives
• Lack of good self-esteem
• Not a team player
• Being conceited
FIGURE 5.7 According to a study on
employee engagement published • Cultural/subcultural differences
by www.gallup.com, there are three • Lack of cooperation
types of employees, as shown in this • Communication problems; refusal to listen to what others seek to
table. Employee engagement may be communicate
influenced by the kind of relationships
employees have in the workplace. • Lack of concern for others’ welfare
Here are some ways to overcome barriers to good employee relations:

• Develop a healthy personality to overcome negative attitudes and
behavior
• Find time to socialize with coworkers.
• Overcome tendencies of being too dependent on electronic gadgets.
68 CHAPTER 5
• Develop good communication skills and be open to others’ opinions.
• Minimize cultural/subcultural tension.
Three Types of Employees
• employees who work with passion and feel a deep connection

Engaged with their company
• they drive innovation and move the organization forward
• employees who are essentially “checked out”

Not Engaged
• they put time, but not energy or passion, into their work
• employees who are not only unhappy at work, but also act out
Actively
their unhappiness
Disengaged
• they undermine what their engaged coworkers accomplish

1. Do you agree that social support and effective employee relations always go together? Explain your answer.
2. How important is effective employee relations in achieveing the goals of the company?
3. Choose any three barriers to good employee relations mentioned in this lesson and explain their adverse effects
to the attainment of the organization’s objectives.
4. Is there any positive effect of using social media in promoting good employee relations? Why? Cite some
examples.
Exercise
1. Research some Filipino subcultural practices that may affect or influence employee relations. List down and
explain your answers.
2. Perform the following tasks:
a. Interview one employee regarding his or her work values. List them down.
b. List down your own work values and compare these with your classmate’s.
c. Answer this question: Will you be able to have good employee relations with him or her if he or she becomes
your officemate in the future. Explain your answer.
Staffing 69
LESSON 7
Employee Movements
Definition of Terms
Employee movements – series of
A labor union is a formal union of employees/workers that deals with
employers, representing workers in their pursuit of justice and fair-
ness and in their fight for their collective or common interests.
actions initiated by employee
Employees or workers unionize because of financial needs, unfair
groups toward an end or specific
goal
management practices, or social and leadership concerns.
a. Financial needs – complaints regarding wages or salaries and benefits
Unionism – the principle of
combination for unity of purpose
given to them by the management are the usual reasons why employees
and action join labor unions
b. Unfair management practices – perceptions of employees regarding
unfair or biased managerial actions are also reasons why they join mass
movements; examples of lack of fairness in management are favoritism
related to promotion and giving of training opportunities and exemption
from disciplinary action
c. Social and leadership concerns – some join unions for the satisfaction
of their need for affiliation with a group and for the prestige associated
with coworkers’ recognition of one’s leadership qualities
FIGURE 5.8 Company owners have to

make sure that they make their employ-
ees satisfied in order to prevent a labor
strike.
Steps in Union Organizing
Terry Moser, an expert union organizer, was credited by Snell and Boh-
lander (2011) for the following union-organizing steps:
Step 1. Employee/union contact – To explore unionization possibilities,
employees weigh the advantages and disadvantages of seeking labor
representation while the union officers gather more data about the
employees’ complaints, as well as data about the employer’s management
styles, financial stability, policies, etc. These actions by employees and
union officers are necessary to build a case against the employer and a
defense for the employees’ decision to unionize.
Step 2. Initial organizational meeting – This is conducted to attract more
supporters and select potential leaders among the employees who can
help the union organizers. Information or data obtained in Step 1 will be
70 CHAPTER 5
used by the organizers to meet the employees’ need to explain the means
to accomplish their goals.
Management
Union Claim
Proposal
Negotiations
3rd Party Referral
Collective
Agreement FIGURE 5.9 The Collective Bargaining
Process
Step 3. Formation of in-house organizing committee – This starts with iden-

tification of employees who are ready to act as leaders in campaigning for
their goals, in trying to get the interest of the other employees to join their
movement, and in convincing employees to sign an authorization card
to show their willingness to be represented by a labor union in collective
bargaining with their employer. The strength of the union is shown by
the number of employees who signed the authorization card. At least 30
employees must sign the said card before the National Labor Relations
Commission (NLRC) approves the holding of a representation election.
Step 4. If a sufficient number of employees support the union movement,
the organizer requests for a representation election or certification elec-
tion – A representation petition is filed with the NLRC asking for the
holding of a secret ballot election to determine the employees’ desire
for unionization. Before the election, leaders campaign for employees’
support of the election and encourage them to cast their votes. Intense
emotions are shown by employees, the labor group, and the employers
during this period.
Step 5. End of union organizing – When the sufficient number of votes is
garnered, the NLRC certifies the union as the legal bargaining represen-
tative of the employees. Contract negotiations or collective bargaining
agreement (CBA) negotiations follow the certification. The CBA process
involves the following procedures:
a. Prepare for negotiations – Data to support bargaining proposals are
collected and arranged in an orderly manner by both parties—the union
and the employer’s groups. This is followed by the selection of the mem-
bers of their respective bargaining teams. Usually, each side has four to six
representatives at the bargaining table. The chief negotiator for the union
is the union president while the chief negotiator for management is the
organization’s vice president or the labor relations manager. Supporting ➤ The National Labor Relations
Commission (NLRC) is an attached
data to back up the positions of each group are gathered. Economic data agency of the DOLE. The NLRC is a
are very important. Other internal organization data needed include: quasi-judicial body that is tasked
records of promotions, transfer, overtime work, grievances, disciplinary to resolve disputes between the
actions, and arbitration. labor force and management in
order to preserve industrial peace.
Staffing 71
b. Develop strategies – Management proposals are developed and
limits of concessions are determined, while also considering the union’s
goals and their possible strike plans. The union, on the other hand, tries
to develop better strategies to convince the management group to accept
its proposals.
c. Conduct negotiations – This consists of bargaining, analyzing
proposals, resolving issues related to the proposals, and remembering to
stay within their respective bargaining zone. If no agreement is reached
at this point, a deadlock may result.
The union’s bargaining power may be exercised by holding a strike,
picketing, or boycotting the employer’s products or services. The manage-
ment’s bargaining power, on the other hand, may be exercised either by
continuing operations or shutting down operations. Another method is by
lockout of its employees, or denying employees the opportunity to work.
Unions and employers may try to resolve bargaining deadlocks by
mediation and arbitration. Mediation is the use of a neutral third party
to reach a compromise decision in employment disputes. Arbitration
also uses a neutral third party who resolves the labor dispute by issuing
a final decision in the disagreement.
d. Formalize agreement – After the negotiation process, the union and
management groups have to formalize their agreement. This agreement
is a formal binding document which lists down the terms, conditions,
and rules under which employees and managers agree to operate; clear
language must be used in the contract, which has to be ratified by the
majority of the employees. After ratification, all members of the union
and the management bargaining teams as well as the president or chief
executive officer of the organization must sign the document, before its
dissemination to all parties concerned.
CBA activities, ideally, must be a continuous process (although it is

held every five years in many companies). Right after the formalization
of the agreement and its ratification and signing, preparations for nego-
tiations for the next CBA must begin again. This will allow negotiators
to review weaknesses and mistakes committed during the previous
negotiations while these are still fresh in their minds.
Grievance Procedure
The grievance procedure is a formal procedure that authorizes the union
to represent its members in processing a grievance or complaint. Such
grievance must be expressed orally or in writing to the employee’s imme-
diate supervisor and the union steward. If the immediate supervisor shows
willingness to discuss the complaint with the employee and the union
steward, the grievance may be resolved immediately.
72 CHAPTER 5
This is possible especially if the supervisor has formal training in
handling grievances. If not resolved within ten work days, the employee
forwards the grievance to the department manager and the chief steward
of the union. Again, resolution of the grievance is possible at this point if
the department manager is willing to discuss the matter with the employee
and the chief steward. However, if it remains unresolved, the next step is
for the employee to forward the complaint to the vice president for labor
relations and the local union president after 15 work days. Resolution
of the matter is possible, but if nothing happens within 30 work days,
the employee may now forward the complaint, with the aid of the local
union president, to the NLRC for arbitration. The arbitrator is a neutral
third party who resolves the grievance by issuing a final decision which
both parties—the employee, represented by the union president, and the
employer—have to follow.

1. Give the reasons why employees organize a labor union. Support your answer.
2. Enumerate the steps involved in union organizing.
3. What is the purpose of a representation election? Is this done through the supervision of a private agency?
4. Why is it necessary to have collective bargaining agreements among unionized organizations?
Exercise
1. Organize two role playing groups by asking for volunteers from your classmates who will act out:
a. The CBA Process – for Group 1
b. The Grievance Procedure – for Group 2
2. Give your comments regarding your classmates’ performances. Which group was able to act out their roles
well? Explain your comments or observations.
Staffing 73
LESSON 8
Rewards System
Definition of Terms
Reward – gift, prize or recompense
for merit, service or achievement,
O rganizations offer competitive rewards systems to attract knowl-
edgeable and skilled people and to keep them motivated and sat-
isfied once they are employed in their firm. Further, rewards promote
which may have a motivating effect personal growth and development and present fast employee turnover.
on the employee Managements offer different types of rewards:
Monetary reward – refers to Monetary Rewards – rewards which pertain to money, finance, or
money, finance or currency reward currency.
Non-monetary reward – refers a. pay/salary – financial remuneration given in exchange for work
to intrinsic rewards which do not performance that will help the organization attain its goals; examples:
pertain to money or finance
weekly, monthly, or hourly pay, piecework compensation, etc.
b. benefits – indirect forms of compensation given to employees/
workers for the purpose of improving the quality of their work and per-
➤ A research on effective rewards sonal lives; health care benefits, retirement benefits, educational benefits,
systems by the Center for Effective and others are examples of these
Organizations revealed that rewards
systems can influence six factors
c. incentives – rewards that are based upon a pay-for-performance
or areas that impact organization philosophy; it establishes a baseline performance level that employees
effectiveness. These are: or groups of employees must reach in order to be given such reward or
• attention and retention; payment; examples: bonuses, merit pay, sales incentives, etc.
• motivation of performance;
d. executive pay – a compensation package for executives of organi-
• skills and knowledge;
• culture; zations which consists of five components: basic salary, bonuses, stock
• reinforce and define structure; and plans, benefits, and perquisites
• cost. e. stock options – are plans that grant employees the right to buy a
specific number of shares of the organization’s stock at a guaranteed price
Read the research text at http:// during a selected period of time
ceo.usc.edu/pdf/G935225.pdf.
FIGURE 5.10 The The Philippine gov-

ernment has implemented a law that
requires business establishments to
give 13th month pay to all employees
that have worked for them for at least
a month.
74 CHAPTER 5
Nonmonetary Rewards – rewards which do not pertain to money,
finance, or currency; refer to intrinsic rewards that are self-granted and
which have a positive psychological effect on the employee who receives
them.
a. award – nonmonetary reward that may be given to individual
employees or groups/teams for meritorious service or outstanding per-
formance; trophies, medals, or certificates of recognition may be given
instead of cash or extrinsic rewards
b. praise – a form of nonmonetary, intrinsic reward given by superiors
to their subordinates when they express oral or verbal appreciation for
excellent job performance

1. What is the positive effect of giving rewards to employees?
2. Enumerate and define the types of monetary rewards discussed in this lesson.
3. Give your own examples of employee benefits given by employers. Do you think all companies give the same
kinds of benefits? Explain.
4. Which kind of reward would you prefer to receive, cash or stock options? Explain your preference.
Exercise
1. Research on the employee benefits given by a certain company (Company A) as compared with the employee
benefits given by another company (Company B). If given the chance to be recruited by Company A or Company
B, which company would you prefer? Explain your choice.
2. Recall a past event in your life when you were praised by your parents, teachers, or friends for accomplishing
something. Did their praise or positive remark have any effect on your psychological well-being? Explain your
answer.
Integration
I realized that:
I resolved that:
Staffing 75
CHAPTER 6
Leading
THIS CHAPTER HIGHLIGHTS another important management function—leading. It is important

because it involves the organization’s people who possess different attitudes, behaviors,
personalities, and motivations, among others. Influencing them to achieve a common goal is quite
challenging because of their many diverse characteristics. Therefore, understanding leading or
directing begins with understanding how people behave, what their motivations are, and how to
communicate with them.
As you read and study this chapter, concentrate on the following objectives, and
at the end of the chapter be able to:
1. discuss the nature of leading or directing;
2. differentiate leading from managing;
3. identify the different theories of motivation;
4. differentiate the various styles of leadership;
5. appreciate the role of communication in directing people within the organization;
6. explain the management of change and diversity in the workplace; and
7. recognize the interrelationship of Filipino and foreign cultures.
76
LESSON 1
What Leading Is
S uccessful leading must begin with focusing on the psychological capital

of both the employer/leader and the employee/subordinate. Looking
for what is right with people rather than for what is wrong is suggested to
Definition of Terms
Leading – a management function
that involves inspiring and influencing
prevent mental and behavioral problems which are barriers to achieving people in the organization to achieve
both organizational and individual goals. a common goal
Managing – the process of working
with and through others to achieve
Personality of Human Resources organizational objectives efficiently
and ethically amid constant change.
Personality pertains to the unique combination of physical and mental
It also deals with planning,
characteristics that affect how individuals react to situations and interact
organizing, staffing, leading, and
with others, and if unhealthy or not fully functioning could cause con- controlling
flicts/problems among individuals.
A person is said to possess a healthy personality if he or she is fully
functioning in mind, body, and spirit; he or she is an optimal person
functioning at the highest level. Ideally, individual human resources
of organizations must have a healthy personality because when one is
functioning at the highest level, one, inevitably, becomes efficient in his
or her work, cooperative with managers and coworkers, and, therefore,
could easily be influenced by organization leaders to work toward the
achievement of a common organizational goal. Leading individuals in
organizations becomes effortless for the manager and leader, especially
if he or she has a healthy and fully functioning personality.
Big Five Personality Characteristics

According to Robbins and Coulter (2009), “research has shown that five
basic personality dimensions underlie all others and encompass most of
the significant variation in human personality.”
The five personality traits in the Big Five Model are:
Extraversion – the degree to which someone is sociable, talkative,
and assertive
Agreeableness – the degree to which someone is good natured,
cooperative, and trusting
Conscientiousness – the degree to which someone is responsible,
dependable, persistent, and achievement-oriented
Emotional Stability – the degree to which someone is calm, enthusiastic,
and secure (positive), or tense, nervous, depressed, and insecure (negative)
Openness to experience – the degree to which someone is imagi-
native, artistically sensitive, and intellectual
The Big Five Model provides more than just a personality framework.
Research has shown that important relationships exist between these
personality dimensions and job performance.
77
Meanwhile, emotional intelligence (EI) pertains to the ability to
manage one’s self and interact with others in a positive way. Kreitner
and Kinicki (2013) gave four key components of EI—self-awareness, self
management, social awareness, and relationship management—based on
a study by Daniel Goleman (1995) who tried to associate these charac-
teristics with leadership effectiveness. EI, at present, is still a controver-
sial topic because it cannot be measured, hence making its validity in
connection with leadership questionable. However, EI has come to be
associated with jobs that require social interaction. Tactless individuals
who do not have much concern for others’ feelings or those who are low in
emotional intelligence are not well-liked and they get involved in trouble
often. They are, therefore, not suited to jobs that are socially interactive.
Leading an Organization
Key work attitudes exhibited by groups/teams of workers must be taken
into consideration in leading organizations because of the diversity of
their attitudes toward things and events at work.
Managers and leaders must focus their leadership strategies on the
following key work attitudes in order to avoid distraction caused by varied
reactions and behaviors.
Organizational Citizenship Behavior (OCB) – refers to employee behavior

that exceeds work role requirements and also behaviors that go beyond
the call of duty.
FIGURE 6.1 Psychologist Daniel Gole-
Leading organizations becomes easy for managers and leaders when
man is the author of the book Emotional employees exhibit OCB and show efficiency, personal interest in the work
Intelligence (1995). The book was named of others, care for organizational property, punctuality, and attendance
as one of the 25 “Most Influential Business that go beyond standard levels. Such behavior brings about organizational
Management Books” by TIME Magazine,
while Goleman was recognized by the
level outcomes (productivity, lower costs, and customer satisfaction
Financial Times, Wall Street Journal, and among others).
Accenture Institute for Strategic Change Organizational Commitment – refers to the extent to which an
as among the most influential business individual employee identifies with an organization and its goals.
thinkers.
http://www.danielgoleman.info/biography/ Leading employees with organizational commitment is a plus factor
cc by: common.wikipedia.org for managers and leaders of organizations as it results in faster attain-
ment of organizational goals. Having organizational commitment is an
important work attitude because committed individuals are expected to
display willingness to work harder to achieve organizational goals and
to remain employed in the firm for a long period of time. Since commit-
ment is significantly related to job performance, managers and leaders
can increase productivity by trying to enhance workers’ organizational
commitment.
Job Satisfaction and Productivity – job satisfaction refers to employ-
ees’ general attitude toward their respective jobs.
78 CHAPTER 6
Those with high level of job satisfaction have a positive attitude
toward their respective jobs. On the other hand, those with low level
of job satisfaction have a negative attitude toward their respective jobs,
thus affecting their productivity and the profits for their organization.
According to the Hawthorne Studies, cited by Robbins and Coulter
(2009), “Managers believed that happy workers were productive workers.”
Some researchers expressed doubts about this statement; however, there
were those who said that “the correlation between job satisfaction and
productivity is fairly strong. Organizations with more satisfied employees
tend to be more effective than organizations with fewer satisfied employ-
ees.” Therefore, managers are advised to find ways and means to make
their employees happy at work.

1. Discuss the nature of the managerial function leading or directing.
2. Give the difference between the terms “managing” and “leading.”
3. What is the relationship of the managerial function of leading to the personality of an employee. Explain your
answer.
4. Enumerate and define the Big Five Personality characteristics.
Exercise
1. Prepare a short dialogue between an emotionally intelligent organization director/leader and his subordinate
who violated a company policy prohibiting employees to access social networking websites during office
hours. Compare it with the dialogue prepared by your classmate. Are there similarities (or differences) regarding
leadership qualities shown in your respective prepared dialogues?
2. Get to know yourself by listing down your personality’s strengths and weaknesses. Examine the characteristics
which you included in your lists, and draw a conclusion about yourself and the kind of personality that you
have. Do you have characteristics that will enable you to lead in the future? Explain your answer.
Leading 79
LESSON 2
Motivation
Definition of Terms
Motivation – refers to
M otivation encourages individuals to work enthusiastically, often
performing more work than what is required. What could managers
do to ensure such motivated and enthusiastic performance among their
psychological processes that arouse
and direct goal-directed behavior subordinates? What could be done to inspire employees whose work
Theory – a body of fundamental
performance is limited to the minimum need? Understanding individ-
principles verifiable by experiment ual human needs, perceptions, thoughts, and beliefs may provide good
or observation answers to such questions that are often asked in different work settings.
According to Kreitner and Kinicki (2013), early Theories of Moti-
vation revolved around the idea that motivation is brought about by the
employees’ desire to fulfill their need, their work habits, and their job
satisfaction. Among these are:
Maslow’s Hierarchy of Needs Theory – refers to Maslow’s Hier-
archy of Five Human Needs: physiological, safety, social, esteem, and
self-actualization
a. Physiological Needs refer to the human need for food, water, shelter,
and other physical necessities.
b. Safety Needs refer to human needs for security and protection from
physical and psychological harm.
c. Social Needs pertain to the human desire to be loved and to love, as
well as the need for affection and belongingness.
d. Esteem Needs include the human need for self-respect, self-fulfillment,
and become the best according to one’s capability.
FIGURE 6.2 Characteristics of a self-
actualized person
Realism and Spontaneity

acceptance
Peak Problem
experiences centering
Continued
freshness of Autonomy
appreciation
SELF-ACTUALIZED PERSON
80 CHAPTER 6
e. Self-actualization Needs are the final needs in Maslow’s hierarchy.
➤ Five Core Job Dimensions
The Hierarchy of Needs was published by Abraham Maslow in 1943.
Skill variety – the degree by which a
According to him, physiological needs must be satisfied first. Once a job requires different activities, so
need is satisfied, it activates the next higher need in the hierarchy. The employees may be able to use their
process continues until the need for self-actualization is activated. It is different skills
important for managers and leaders to focus on satisfying employee needs Task identity – the degree by which
related to self-respect, self-esteem, and self-actualization because their a job requires completion of an
identifiable piece of work
satisfaction is related to many outcomes such as academic achievement,
Task significance – the degree by
job performance, work problems/success, and others.
which a job has a significant impact
McGregor’s Theory X and Theory Y – refers to the theory that was on the lives or work of others
proposed by Douglas McGregor. Autonomy – the degree by which a
Theory X is a negative view of workers which assumes that workers job provides enough freedom and
have little ambition, dislike work, and avoid responsibilities; they need to discretion to employees
be closely monitored or controlled in order for them to work effectively. Feedback – the degree by which
Theory Y is a positive view of workers which assumes that employees performing job requirements results
in the employee’s receipt of
enjoy work, seek out and accept responsibility, and are self-directed. information about his or her
Managers must be guided by Theory Y, so McGregor proposed that performance effectiveness
they must give employees a chance to participate in decision-making,
assign them challenging jobs to exercise their responsibility in handling
complex situations, and allow them to have good work relations with
others, which would enhance their motivation.
Herzberg’s Two Factor Theory – was proposed by Frederick Herzberg
This theory is also known as the Motivation-Hygiene Theory which
states that intrinsic factors (achievement, recognition, growth, and respon-
sibility) are associated with job satisfaction, while extrinsic factors (com-
pany policy, salary, security, and supervision) are associated with job
dissatisfaction. Intrinsic factors are the motivators while the extrinsic
factors are called hygiene factors.
Managers were advised to emphasize motivators in order to motivate
their subordinates. Employees who showed job satisfaction are more
motivated and productive. This theory enjoyed popularity from the
middle of the 1960s to the early 1980s.
McClelland’s Three Needs Theory – was proposed by David McClel-
land and states that individuals have three needs that serve as motivators
at work.
The three needs McClelland referred to are: the need for achievement
(nAch), the need for power (nPow), and the need for affiliation (nAff).
Managers are advised to be observant of these needs among their sub-
ordinates so that they could be given job assignments that would satisfy
their highest needs, if possible. In doing so, they may be more motivated
to work well.
Alderfer’s ERG Theory – was developed by Clayton Alderfer in the
1960s. For Alderfer, a set of core needs explains behavior. E stands for
existence needs, R refers to relatedness needs, and G pertains to growth
needs. The needs or desire for physiological and materialistic well-being,
to have meaningful relationships with others, and to grow as a human
being are similar to the needs presented in Maslow’s Theory.
Leading 81
Modern Theories of Motivation are process theories that focus on the
notion that motivation is a function of employees’ perceptions, thoughts,
and beliefs. Among these are:
Goal Setting Theory – a theory stating that specific goals motivate
performance and that more difficult goals, when accepted by employees,
result in greater motivation to perform well, as compared to easy goals.
Managers are advised to set goals for their subordinates as this is
a major source of job motivation. Doing well also helps increase their
motivation.
Reinforcement Theory – a theory which states that behavior is a
function of its consequences.
If the result or consequences that immediately follow a behavior is
good, then there is a probability that the individual will be motivated to
repeat the behavior. Using this theory, managers can motivate employees’
positive behavior by using positive reinforcement for actions that help
the company achieve its goal.
Job Design Theory – a theory which states that employees are moti-
vated to work well by combining tasks to form complete jobs.
Managers are advised to design jobs that will meet the requirements
of the ever-changing environment, the firm’s technology, and the workers’
skills, abilities, and preferences. In doing so, employees are motivated to
perform well. Examples are: job enlargement—the horizontal expansion
of a job by increasing job scope; job enrichment—the increasing of job
depth by empowering employees to assume some tasks usually done
by their managers; and job characteristics model—where employees are
motivated to perform well because the task assigned to them have the
five core job dimensions that serve as motivators.
Equity Theory – a theory developed by J. Stacey Adams which states
that employees assess job outcomes in relation to what they put into it
and then compare these with their co-workers.
FIGURE 6.3 How Maslow’s, Herzberg’s, If the employee perceives that his job is equitable in comparison to
and Alderfer’s theories relate those of his coworkers, there is no problem. However, if the opposite is
Growth
Self-actualization
Motivators
Self-esteem
Relatedness
Social
Hygiene Factors Safety

Existence
Physiological
Herzberg’s Maslow’s Hierarchy of Needs Alderfer’s ERG Theory

Motivation-Hygiene Theory
82 CHAPTER 6
true, this will become a demotivator to his or her job performance. Man-
agers must see to it that they exercise fairness or equity in their company.
Expectancy Theory – states that an individual tends to act in a certain
way, based on the expectation that the act will be followed by an outcome
which may be attractive or unattractive to him or her.
Managers are advised to understand an employee’s goal so that he
or she would be able to link the rewards or outcomes to be offered with
the said goals.

1. Discuss Maslow’s Hierarchy of Needs Theory. In your opinion, is it a good motivator for employees to do their
job well? Explain your answer.
2. Besides Maslow’s Hierarchy of Needs Theory, what are the other early theories of motivation? Describe each.
3. Which theory of motivation involves the combining of tasks to form complete jobs? Give examples and explain
each.
4. What are the five core dimensions of the Job Characteristics Model? Define each.
Exercise
1. Read and understand the Equity Theory. Give your own example of how managers could apply this in the
workplace.
2. Read and understand the Expectancy Theory. Give your own example of how managers could apply this in the
workplace.
Leading 83
LESSON 3
Leadership Styles and Theories
Definition of Terms
Leadership – the process of
I deally, leadership should result in the willingness of individuals to
work with zest, ardor, and self-reliance. The leader guides them and
facilitates their progress toward the attainment of organizational vision,
inspiring and influencing a group of
mission, goals, and objectives. Leadership theories emerged in order to
people to achieve a common goal
respond to the need by explaining certain aspects of leadership, and to
better understand what drives success in this area.
The following are the early leadership theories given by Kreitner
and Kinicki (2013).
Trait Theory – a theory based on leader traits or personal charac-
teristics that differentiate leaders from followers.
The Trait Theory of Leadership evolved from the earlier Great Man
Theory, which was based on the assumption that leaders were born with
some innate ability to lead. Trait theorists, however, had a contrasting
assumption—that leadership traits were not inborn and could be learned
through experience and knowledge gained through studies. Traits like
intelligence, self-confidence, assertiveness, high energy and activity level,
task-relevant knowledge, honesty and integrity, being charismatic, being
a visionary, and others were proposed as leadership traits by researchers
from the 1940s to the present.
Behavioral Theory – a theory that focuses on the behavior, action,
conduct, demeanor, or deportment of a leader instead of his or her per-
sonality traits
Studies on this theory began during the Second World War or in the
early 1940s because of the belief that the leader’s behavior affects work
group effectiveness. Further studies on this theory emphasized that since
behavior is learned, leader behaviors can also be learned. In short, leaders
are made and not born.
FIGURE 6.4 Leadership Continuum
(Freestyle)
Manager/Employee
leadership
(Autocratic Manager-centered Employee-centered (Democratic style)
style) leadership leadership
Use of authority by manager

High autocratic High democratic
Area of freedom for employees
Manager Manager Manager Manager Manager Manager Manager

makes decides presents presents presents defines permits
decision ideas and tentative problem, limits, asks employees
and invites decision gets employees to function
implements questions subject to suggestions, to make within
it from change by makes decision limits
employees employees decision defined
based on by him/
feedback herself
84 CHAPTER 6
Contemporary Theories of Leadership
Leadership theories evolved along with the development of man-

agement thought throughout time, giving rise to contemporary theories
such as follows:
Fiedler Model – it is a situational leadership theory proposed by
Fred Fiedler, an organizational behavior scholar
This theory is based on the assumption that a leader’s effectiveness
is contingent or dependent on the extent to which a leader’s style is fitted
to actual situations in the organization’s internal and external environ-
ment. Fiedler described such leader’s style as either task-motivated or
relationship-motivated, either focused on the achievement of goals or
more concerned about having good relationships with subordinates.
Situational control, which may be low or high, is also exhibited. High
control means that the leader has the capability to influence work results
while low control implies very little influence.
Hersey-Blanchard Model – another situational leadership theory
proposed by Paul Hersey and Ken Blanchard.
The theory focused on subordinates’ readiness or extent to which the
said subordinates have the ability and willingness to accomplish a specific
work assignment. Hersey and Blanchard gave four stages of subordinate
readiness as shown on Table 6.1.
TABLE 6.1 The Four Stages of
Four Stages of Subordinate Readiness Subordinate Readiness by Hersey and
Blanchard
Where the subordinates are both unable and unwilling to accomplish
R1
the task
R2 Where the subordinates are unable but willing to do the task
R3 Where the subordinates are able but unwilling to do their assigned tasks
Where the subordinates are both able and willing to do what the leader
R4
wants to complete the task
Path-Goal Theory – a theory developed by Robert House which

states that the leader’s task is to lead his other followers or subordinates
in achieving their goals by providing them direction needed in order
to ensure compatibility of these said goals with the organization’s goal
Effective leaders show their subordinates the path they must take
to help them achieve their work goals. House identified four leadership
behaviors:
➤ Situational control – is a
1. directive leadership – where the leader gives specific guidelines to
leadership control/style dependent
followers so that task accomplishment would be easier; on the specific circumstances in
2. supportive leadership – where the leader shows concern and friendliness which the leadership occurs; an
to subordinates; effective leadership style in one
3. participative leadership – where the leader asks for suggestions from situation may not be effective in
another situation
followers before decision-making; and
Leading 85
4. achievement-oriented leadership – where the leader sets the goals that
subordinates must try to achieve.
Modern Leadership Views

Similarly, views on leadership evolved over time. Among the modern
views on and approaches to leadership are the following:
1. Transactional Leadership Model – a theoretical model which states
that leaders guide their subordinates toward the achievement of their
organization’s goals by using social exchange or transactions and by
offering rewards in exchange for their productivity.
2. Transformational Leadership Model – a view that developed from
transactional leadership. It states that leaders inspire or transform follow-
ers to achieve extraordinary outcomes. Through their leadership, they
are able to excite and inspire followers to exert extra effort to achieve
group goals.
Transformational leadership is strongly correlated with lower turnover
rates and higher levels of productivity, employee satisfaction, creativity,
goal attainment, and follower well-being (Robbin and Coulter, 2009).
3. Charismatic Leadership Theory – another modern theory of lead-
ership which states that leaders who have a charismatic personality are
able to influence their subordinates to follow them.
Charismatic leaders pertain to leaders who are self-confi-
dent, enthusiastic, and sensitive to both environmental constraints
and subordinates’ needs. Charismatic leaders take risks to achieve
their vision, and have the ability to communicate well—verbally or
nonverbally—through their behavior, among others. Research-
ers have shown evidences that correlate charismatic leadership
with high levels of performance and satisfaction among followers.
4. Visionary Leadership Theory – is a theory which states that leaders
are able to make their subordinates follow because of their ability to
FIGURE 6.5 Peter Drucker create and articulate a realistic, credible, and attractive vision that may
improve present conditions or circumstances.
Visions that are clearly explained are easily grasped and accepted by sub-
ordinates/followers, thus giving them high energy to perform their tasks well.
5. Team Leadership Theory – is a theory that emerged because of the
fact that leadership is increasingly taking place within a team context
and that more companies are now utilizing work teams led or guided
by leaders.
Many managers are now trying to learn how to become effec-
tive team leaders. Among the skills that they must learn are informa-
tion sharing, trusting others, lessening their authority by empower-
ing subordinates, and proper timing for mediation, among others.
6. Servant Leadership Theory – a theory proposed by Robert Greenleaf
“Effective leadership is not about in 1970 stating that servant-leaders must focus on increased service to
making speeches or being liked;
others rather than to one’s self.
leadership is defined by results
not attributes.”
86 CHAPTER 6
Servant-leaders focus on commitment to the growth of people, build-
ing community, stewardship of the material resources and the people
they lead, their ability to listen to what others seek to communicate,
their ability to empathize with others’ feelings and emotions, and their
ability to foresee future circumstances associated with present courses
of action and conditions. Researchers have gathered proof that this
leadership model is positively associated with workers’ job satisfaction,
organizational commitment and citizenship, creativity, and perception
of fairness, among others.

1. Name and define the early leadership theories mentioned in this lesson. Which theory is more acceptable to
you? Explain your answer.
2. Will you choose to be a talk-motivated or a relationship-motivated leader? What are your present qualities that
may be associated with your choice?
3. Name and describe the four stages of subordinate readiness.
4. Who is the author of the Path-Goal Theory? Give the basis for the name of this theory on leadership.
Exercise
1. Interview the presidents of two student organizations in your school. Ask them to describe their respective
leadership styles and compare these with the leadership theories discussed in this lesson. Classify their styles
and explain your answer.
2. Define Servant Leadership on a piece of bond paper. Below the definition, prepare two columns. Label one
column “In favor” and other column “Not in favor.” Conduct a mini-survey by asking, at random, ten classmates
to check their preference on the columns in the bond paper which will be handed to them. Count the number
of those in favor and those who are not in favor. Try to explain their preferences.
3. How can a transactional leader become a transformational leader? Support your statement.
Leading 87
LESSON 4
Communication
Definition of Terms
Communication – the exchange of
C ommunication applies to all management functions and its general
purpose for the organization to bring positive changes that influence
activities leading to the firm’s welfare.
information and understanding The communication process starts with the sender who has an idea
Verbal communication – refers to or a message, which is then transmitted through a selected channel to the
oral and written communication receiver, who in turn has to be ready for the reception of the message, so
Non-verbal communication that it could be decoded into thoughts. Accurate communication occurs
– refers to communication through when the sender and the receiver understand one another, according to
body movements, gestures, facial
Hobbins and Coulter (2009).
expressions, eye contact, or body
contact
Types of Communication
➤ Elements of Communication Communication may be verbal (through the use of oral and written words)
Process or non-verbal (through body movements, gestures, facial expressions, eye
1. Input contact, and by touching).
2. Sender It may also be classified as formal, if communication takes place
3. Code within prescribed, routine organizational work arrangements, or informal,
4. Channel if communication is not defined by an organization’s hierarchical struc-
5. Noise ture. Communication is formal when the manager gives an assignment
6. Receiver to a subordinate and informal when employees talk to their friends in
7. Output the office about a weekend party or a vacation which they plan to take.
8. Feedback
Direction and Flow of Communication

Communication flows in different directions within an organization.
Communication may be vertical, upward, downward, horizontal/lateral,
or diagonal.
Vertical communication involves communication flow between people
belonging to different organizational levels. Upward communication is
the flow of information from an employee who belongs to a lower hier-
archical level to the boss/manager who belongs to a higher hierarchical
level. Employees/subordinates may communicate upward regarding their
FIGURE 6.6 Downward communication
Manager
Employee 1 Employee 2 Employee 3 Employee 4
88 CHAPTER 6
Manager

FIGURE 6.7 Upward communication
personal problems, requests that they would like the boss to approve,
issues with coworkers, and others. Downward communication is the flow
of information from the manager, who belongs to a higher hierarchical
level, to the subordinates/employees, who belong to lower hierarchical
levels. Examples are when the boss gives orders to subordinates to finish
certain tasks, communicates organizational policies and practices, and
comments about work performance among others.
Horizontal/lateral communication takes place among employees
belonging to the same hierarchical level. Members of cross-functional
teams who belong to different units/departments but occupy the same
organizational level make use of this type of communication in order to
save time and facilitate coordination. Diagonal communication entails
communicating with someone or others who belong to different depart-
ments/units and different hierarchical levels. For example, an employee
belonging to the company’s financial management department commu-
nicates directly with the head of the human resource department about
his personal complaint against a marketing department employee. Take
note of the different departments and different organizational levels of
the persons communicating with each other. Diagonal communication
is said to be beneficial because of its efficiency and speed; however, it
may also cause some confusion.
Communication Networks in Organizations

Communication networks are varied patterns of combined horizontal and
vertical flows of organizational communication. Types of communication
networks include the following:
Chain network – where communication flows according to the usual
formal chain of command, downward and upward.
Wheel network – where communication flows between a leader and
other members of their group/team.
All-channel network – where communication flows freely among
all members of a team.
It has been observed by communication researchers that there is no
single network that could be considered applicable or fit for all circum-
stances in an organization.
Leading 89
Organization members also communicate through other networks
and means such as the grapevine and computer networks.
The grapevine is an informal communication network in an orga-
nization. An example is gossip/rumor which could quickly disseminate
information. Managers must stay aware of the grapevine’s flow and pat-
terns, and could use it to transmit important information. They, however,
should also be conscious of the negative effects of gossip as these may cause
conflicts in their company. Negative effects of rumors may be minimized
by practicing transparency and communicating openly with employees.
Meanwhile, computer networks present another means of commu-
nication among organization members. Information technology has
made it possible for managers to communicate with each other and
with subordinates and for employees to communicate with each other
anytime, regardless of distance. Examples of computer communication
applications are e-mail, blogging, teleconferencing, and intranet.
Barriers to Communication
Organization members may encounter various types of barriers that can
alter the meaning of communications that they receive. These barriers
include filtering, emotions, information overload, defensiveness, language,
and national culture.
Filtering – the shaping of information communicated in order to
make it look good or advantageous to the receiver.
For example, a sales agent may report to his manager the big amount
of sales that he was able to make with one of their customers, but fails
to report the complaints he received from other customers regarding
their products.
Emotions – the interpretation of communications which may be
influenced by extreme emotions felt by the receiver.
For example, a manager who is in a very bad mood and receives good
news may not see the positive aspect of it because his rational thinking
process is affected by his emotional judgment.
FIGURE 6.8 Horizontal communication
Manager
Production Finance Marketing Service

90 CHAPTER 6
Manager
Production Finance Marketing Service

Supervisor A Supervisor B Supervisor C Supervisor D FIGURE 6.9 Diagonal or cross

communication
Information overload – another barrier to good communication

since there are too many pieces of information received by an individual
may have a negative effect on a person’s processing capacity.
For example, the hundreds of job applications received by human
resource managers through e-mail may be too many for them to read
fully and respond to accurately.
Defensiveness – the act of self-protection when people are threatened
by something or someone.
Due to this feeling, people may resort to communicating lies in
order to protect themselves or to interpret communications differently
to defend their interests, thus, reducing mutual understanding.
Language – could also hamper good communications because words
used may have different meanings to different people belonging to dif-
ferent age, educational background, or cultural group.
Diversity of background of organization members may influence the
language or the words that they use. For example the word “hello” may
just be an ordinary greeting to the older members of an organization; but
the same word, “hello” may have a negative connotation to the younger
group of employees depending on the context.
National culture – just like language, the prevailing national cul-
ture may also cause problems in communication among members of an
organization, especially if it is multinational company
Certain office practices, like sending formal memoranda to employ-
ees, may be negatively interpreted by employees coming from another
country with a different culture that values face-to-face interpersonal
communication. Such negative interpretation may, in turn, cause employee
dissatisfaction and less motivation to perform their work well.
Leading 91
Overcoming Communication Barriers
To avoid conflicts resulting from communication problems, managers
try to overcome communication barriers though the following means:
Using feedback – This is usually done by asking questions about a
memo sent to subordinates or by asking them to give their comments or
suggestions. In doing so, they are able to determine whether the commu-
nication they sent out was understood the way they originally intended.
Using simple language – This is done by avoiding uncommon terms
and flowery words that may just cause misinterpretation. Language used
must fit the level of understanding of the intended recipients of the com-
munication. Effective communication is achieved when the message is
understood by those who received it.
Active listening – This means listening well in order to grasp the full
meaning of the communication. Hearing without giving full attention to
what others seek to communicate usually results in misinterpretations
and communication distortions.
Controlling emotions – This is another method of overcoming com-
munication misinterpretation. When the receiver is affected by extreme
anger, his interpretation of a message received may not be accurate. On
the other hand, when the sender is affected by extreme emotions, he/
she may also send or transmit inaccurate information. Therefore, it is
important to practice emotional restraint.
Observing body language – This also influences how communication
is interpreted. Actions of the message receiver, like throwing away a letter
delivered to him, betrays his negative feelings regarding its message, even
if he says “yes” or “okay” to what is requested. Nonverbal cues must always
be watched because, as the saying goes, actions speak louder than words.

1. Differentiate verbal from nonverbal communication.
2. Enumerate and define the different barriers to communication. As a student, have you ever encountered any
of these barriers? Explain your answer.
3. Define active listening. Is hearing the same as active listening? Explain your answer.
4. Which informal communication network disseminates information very quickly? What are its positive and
negative effects?
Exercise
1. Write an upward formal communication letter.
2. Make a diagram of vertical and horizontal communication flow. Use arrows to indicate directions.
92 CHAPTER 6
LESSON 5
Management of Change
and Diversity in Organizations
M anagement of change and organizational diversity are two related

activities/functions of management because trying to bring change
in organizations is dependent on the kind and the behavior of the people
Definition of Terms
Organizational change – any
alteration of people, structure, or
within them. Bringing about organizational innovations or changes in technology in organizations brought
order to respond to future competitors may threaten the firm’s members by external or internal forces which
and, thus, cause resistance. Understanding and managing diversity in they encounter
the workplace may, therefore, be necessary to help manage change in Organizational diversity – the
organizations. host of individual differences that
make people in organizations
different from and similar to each
Types of Change other
An organization and its members must undergo constant improvement
along with its achievement of growth. Changes may be implemented to
bring development in an organization.
Among the changes that typically occur or are implemented in an
organization are the following:
Changes in people. People’s attitudes, values, wants and needs,
expectations, perceptions, and behaviors change as time goes by, but
changing them for the better is not easy to do. In order to address this
need for change, organizational development (OD) techniques are used.
OD is used to describe organizational change methods related to people,
their nature, and the quality of their interpersonal relationships as they
work and collaborate with one another. Team building, sensitivity training,
intergroup development, process consultation, and survey feedback are
popular OD techniques. Managers, however, must use techniques that
are suitable to the prevailing organizational culture in their respective
companies.
FIGURE 6.10 Kurt Lewin’s description of

the process of change
UNFREEZING Faced with a dilemma or issue, the individual or group
becomes aware of a need for change.
CHANGING The situation is diagnosed and new models of behavior are

explored and tested.
REFREEZING Application of new behavior is evaluated, and if it proves to

be reinforcing, the behavior is adapted.
Leading 93
Changes in Structure. Due to changing conditions/situations and
changing strategies used, organizational structures may also change
according to work specialization, departmentalization, change of com-
mand, span of control, centralization, formalization, and job redesign,
among others. Managers are advised to alter one or more of these struc-
tural components, depending on the needs of their organization.
Changes in Technology. Technology changes usually refer to changes
in work processes and methods used, introduction of new equipment
and work tools, automation, or computerization. Competitive factors or
innovations in industries require administrators of companies to consider
such technological changes.
Computerization is the most popular example of technological
change. With the use of computer networks, large amounts of data can
be stored, retrieved, and utilized in many different ways—from the simple
keeping of employees’ records to controlling complex equipment. Both
large and small companies now use the Internet to transact business,
hence the rise of e-commerce as standard practice in many firms. It has
also created a new group of workers called “virtual workers” who work
from their homes or elsewhere.
Managing Resistance to Change

Change is considered by many organization members as a threat. It is
common for people to fear changing the status quo, even if doing so
might bring beneficial effects. The possible reasons for this fear of change
are uncertainty, concern about personal loss, pessimism, the belief that
it will have negative effects on the organization, and change in their
habitual practices, among others. The following are required to manage
resistance to change:
FIGURE 6.11 This diagram demonstrates
how leaders are liable to communicate MISSION
downward and decide and execute
upward when change permeates the Define Accomplish
organization.
WORK PROCESSES
Execute Guide
DECISIONS
Consider Support
INFORMATION
Employ Process
TECHNOLOGY
94 CHAPTER 6
Education – employees have to be educated regarding the reasons
for and the relevance of change
Participation – allow organization members to participate in deci-
sion-making related to bringing change in their company
Facilitation and support – facilitate and provide new skills training
and counselling for employees to minimize their fear of change
Manipulation of information – withhold damaging information
about change to make it acceptable to organization members
Selection of people – select people who are open to change to help
disseminate the beneficial effects of change, resistance to change is lessened
Coercion – the use of direct threats or force to make people accept
change; however, this method is perceived as a form of bullying, so it is
used only when extremely necessary
New Issues in Change Management

Understanding Situational Factors
Waiting for the appropriate time and situation is suggested when bringing
change in organizations. For example, the induction of new adminis-
trators/leaders is a good time to introduce changes in the organization’s
strategies, policies, and core values. Employees may show less resistance
to change because they may perceive their new leaders as more capable of
responding to their needs and the organization’s needs. Another example
is when a crisis situation has just occurred. A big financial crisis in the
organization could trigger a clamor for change. In this situation, there
would be less resistance to the acceptance of new investment, marketing,
and human resource policies.
Making Changes in Organizational Culture

Change in organizational culture cannot be done easily because it is
highly valued and ingrained among the firm’s members. Thus, this must
be done slowly to avoid violent resistance. Robbins and Coulter (2009)
suggest the following steps:
• Set the tone through management behavior—top managers, particularly,
need to be positive role models.
• Create new stories, symbols, and rituals to replace those currently in use.
• Select and promote employees who adapt the new values.
• Redesign socialization processes to align with the new values.
• Change the rewards system to encourage acceptance of new values.
• Replace unwritten norms with clearly specified expectations.
• Shake up current subcultures through job transfers, job rotation, and/
or termination.
• Work to get consensus through employee participation and create a
climate with a high level of trust.
Leading 95
Managing Workplace Diversity
Workforce diversity in organizations is inevitable. It is a fact that orga-
nization members may differ in age, gender, physical ability, ethnicity/
race, culture, values, attitudes, beliefs, and personality. Since workgroup
diversity is associated with positive and negative outcomes, managers
must try to reduce the potential negative effects of diversity through:
a.) encouraging employees to accept the organization’s culture or its
dominant values and b.) encouraging employees to accept differences
in the workplace.
These, in turn, may be accomplished by training in order to improve
the inherent negative relationship regarding a workgroup’s diversity or
between its deep level values and the organization’s culture and domi-
nant values. Training can also be used to help employees understand
demography differences. Other ways to handle workplace diversity is
by creating support groups that can help employees ease the tensions
of working in diverse groups and reducing unconscious stereotyping
related to associating low performance to women, the disabled, or some
ethnic group members.

1. Name and describe the three types of organizational change.
2. Why do people fear changes in the “status quo?” As an individual, are you also afraid of changes? Explain your
answer.
3. Enumerate and explain the different ways of managing resistance to change/s.
4. Define workplace diversity. Why should employees be encouraged to accept differences among organization
members?
Exercise
Go to the school library and research on:
1. the advantages and disadvantages of rapid technological changes
2. the advantages and disadvantages of workplace diversity. Comment on your findings and prepare for a class
discussion on these topics.
96 CHAPTER 6
LESSON 6
Filipino and Foreign Cultures
in Organizations
F ilipino-owned organizations exhibit a different organizational culture

as compared to their foreign counterparts. Filipino and foreign culture
in organizations exert big influence on how managers do their functions
Definition of Terms
Culture – a set of beliefs and values
about how a community should act
and how their subordinates respond to rules/regulations and leadership
and do things
styles. Therefore, organizational culture is a critical factor in numerous
Organizational culture –
organizational endeavors.
a set of shared values and norms/
standards for behavior and
Shared Values and Beliefs of Filipinos expectations that influence the
interaction of organization
Different people from around the world have their own set of values or members in order to achieve their
beliefs that they share and consider significant as a group or a community. set mission, vision, goals, and
As Filipinos, we are no different from other groups around the world. objectives
Our unique culture also influence our attitudes about work, as well as
our habits.
Three primary Filipino values:
Social Acceptance – This value focuses on the desire of Filipinos
to be accepted and treated well by others—his or her family, relatives,
friends, and the members of communities/organizations where he or she
belongs—in accordance with his or her status, for what he or she is, and
for what he or she has accomplished.
Economic Security – This value emphasizes that one must have
financial stability and that he or she must be able to stand on his or her
own two feet, without incurring debt in order to meet his or her basic
material needs.
Social Mobility – This value is concerned with his or her desire to
move up the social ladder, to another higher economic level, to a higher job
position, to a position of respect in his or her family or in the community
where he or she lives or in the organizations where he or she belongs.
ries
Sto Sy
m bo
ls
Rituals and
routines
The
Paradigm
structures
Power
Co l FIGURE 6.12 Gerry Johnson’s cultural

sy ntro na
ste l
z a tio s web illustrates how an organization’s cul-
ms ni e
ga tur ture responds to and reflects influencing
Or truc
s factors which include those seen in this
model.
Leading 97
Among the examples of Filipino beliefs and practices are the mañana
habit, ningas cogon, and Filipino time.
The mañana habit pertains to the belief that it is alright to postpone
work or finish tasks to another day. Instead of finishing the task at hand,
one opts to rest or engage in leisurely activity. On the other hand, ningas
cogon is a Filipino practice that refers to the initial show of enthusiasm
over a project during its beginning and the waning of this interest. Sim-
ilarly, the energy level of the worker lowers in the course of the project,
hence work slows down.
Filipino time pertains to the common Filipino practice wherein
arriving 15 to 30 minutes late to work or meetings with associates and
friends is considered acceptable.
FIGURE 6.13 Time management is
one of the most common problems of
Filipinos.
Influence of Filipinos’ Shared Values and Beliefs

on Organizational Management
The Filipino values of social acceptance, economic security, and social
mobility may have both positive and negative implications to organiza-
tional management. All these values may motivate the Filipino worker
to work hard and to be really serious in trying to help achieve the orga-
nization’s goals as these will lead to the fulfillment of his primary values.
Managers of organizations will find it easy to manage their firm when
their Filipino workers are guided by the primary values earlier mentioned.
However, an exaggerated valuing of social acceptance, economic security,
and social mobility may influence the Filipino worker to be self-centered,
selfish, and unmindful of whether he or she “steps on the toes” of his or
her coworkers, just so he or she could fulfill these values quickly.
Managers of organizations may have a problem managing some
obsessive and selfish Filipino workers since these workers may also be
unmindful of following the company’s rules on ethical behavior, on
respect for the rights of others, and on maintaining good interpersonal
relations to avoid conflicts.
98 CHAPTER 6
The mañana habit, ningas cogon, and Filipino time all have negative
implications to organizational management. Postponing the completion
of tasks, being energetic and enthusiastic only at the beginning of projects,
and coming 15 to 30 minutes late for work or meetings are all counter-
productive and will delay the achievement of company goals. Managers
may also find it difficult to manage Filipino workers with negative beliefs/
practices as it will inevitably result in endless conflicts.
Influence of Foreign Culture

on Organizational Management
As earlier mentioned in Chapter 2, a country’s culture impacts on the
behavior of both administrators. Knowing their beliefs and values and
their cultural dimensions will make it easier for administrators to manage
subordinates and for subordinates to know the management style of
their superiors; also, employees belonging to one culture will have better
relations with co-employees belonging to other cultures because of this.
Some examples cited by Kreitner and Kinicki (2013) are the following
cultural dimensions:
Gender Egalitarianism – refers to the amount of effort which must
be put into minimizing gender discrimination and role inequalities.
It is highest in Hungary, Poland, Slovenia, Denmark, and Sweden,
and lowest in South Korea, Egypt, Morocco, India, and China.
Assertiveness – refers to how confrontational and dominant indi-
viduals should be in social relationships.
It is highest in Germany, Austria, Greece, US, and Spain, and lowest
in Sweden, New Zealand, Switzerland, Japan, and Kuwait.
Performance Orientation – refers to how much individuals should
be rewarded for improvement and excellence.
It is highest in Singapore, Hong Kong, New Zealand, Taiwan, US,
and lowest in Russia, Argentina, Greece, Venezuela, and Italy.
Humane Orientation – refers to how much society should encourage
and reward people for being kind, fair, friendly, and generous.
It is highest in the Philippines, Ireland, Malaysia, Egypt, and Indone-
sia, and lowest in Germany, Spain, France, Singapore, and Brazil.
So, for example, if one is a manager in South Korea, Egypt, Morocco,

India, or China, he or she may not worry too much about gender discrimi-
nation and role inequalities since female employees do not mind receiving
a job assignment that will make them subordinates of male employees.
By looking at the cultural dimensions and their scores, managers and
employees would have an idea on how to act and handle situations.
Leading 99
TABLE 6.2 A comparison between
Cultural Relativism and Ethnocentrism Cultural Relativism vs. Ethnocentrism
Refers to the different interpre- The belief that one’s own way of life
tations of the same or similar or culture is superior to others.
behavior by members of different • it is important to understand that
cultures. people develop culture through
• it is important to interpret the adaptation to their surroundings.
actions of the members of other Example:
groups in terms of their particular A Chinese manager who is ethno-
cultures. centric may not have high regard
Example: for Filipino managers who have
An American manager’s direct and different management techniques.
brusque manner of reprimanding a
Filipino subordinate is acceptable in
the American culture; this, however,
is considered insulting when he is
judged according to the Filipino
culture.

1. Differentiate Filipino culture from Filipino organizational culture.
2. What are the three primary values of Filipinos? Are these related to the Filipino workers’ job performance?
3. How are ningas cogon, mañana habit, and Filipino time related to organizational management?
4. Are Filipinos high on gender egalitarianism, assertiveness, and performance orientation? Support your answers
by citing actual experiences.
Exercise
1. Research on Japanese and American management styles. Which, in your opinion, is better? Explain your answer.
2. Based on what you learned in this lesson regarding the influence of foreign culture on organizational manage-
ment, are you interested in getting a foreign job assignment someday? Explain your answer.
Integration
I realized that:
I resolved that:
100 CHAPTER 6
CHAPTER 7
Controlling
A LUXURIOUS CAR without gasoline is similar to a viable business without carefully managed
funds. Who needs a nonrunning vehicle that is good for display only? How can a business be
successful without the well-managed funds required for its operation and expansion? This is where
controlling comes in. Essentially, controlling is all about the acquisition of money and its useful
disbursement. It requires identification and reinforcement of the firm’s priorities and understanding
how its operations are going to ascertain where improvement is needed.
As you read and study this chapter, concentrate on the following

objectives, and at the end of this chapter be able to:
1. discuss the nature of controlling;
2. describe the link between planning and controlling; and
3. distinguish control methods and systems.
101
LESSON 1
Definition and Nature
of Management Control
Definition of Terms
Controlling – a management
function involves ensuring the work
I n earlier times, controlling was associated with the concept of just being
a corrective action. Present-day management, however, applies it as a
foreseeing activity that sets standards in determining actual performance
performance of the organization’s to correct previous decisions or actions. Therefore, management must
members are aligned with the focus on management control and the control process.
organization’s values and standards
through monitoring, comparing,
and correcting their actions Importance of Management Control
Standard – any established Management control makes sure that the firm’s operating cash flow is
measure of extent quantity, quality,
sufficient, efficient, and, if possible, profitable when invested.
or value
Working capital, when properly controlled, must be adequate enough
for daily operations such as financing, inventories, credit payments to
suppliers, reinvestment of cash surplus, and salaries of employees, or, in
general, maintaining an acceptable capital structure. The decision to seek
funds should be appropriate, so as not to incur expenses since borrowing
would be subjected to payment of interest.
Spending without thinking of how it could be regained in the future
could put any starting business or even a well established one in jeopardy.
There should be a continuous monitoring of the organization’s activities,
followed by corrective actions based on previously planned programs of
action. Moreover, tasks should be completed with less errors. This could
be achieved by comparing tasks with previously set standards or with
competitor’s standards or standards prevailing in a particular industry
setting.
The Control Process

Control techniques used for controlling financial resources, office man-
agement, quality assurance, and others are essentially the same. The typical
control process involves establishing standards, measuring and reporting
actual performance, and comparing it with standards, and taking action.
Establishing standards means setting criteria for performance. Man-
agers must identify priority activities that have to be controlled, followed
by determining how these activities must be properly sequenced. In doing
so, managers will be able to set key performance standards that need
to be achieved. The value chain, or the proper sequencing of activities
needed to convert the company’s raw materials into finished products,
is a valuable instrument for helping managers determine and establish
key performance standards.
102 CHAPTER 7
Measuring and reporting actual performance and comparing it with
set standards is essentially the monitoring of performance. To be able to
do this, managers must develop appropriate information systems which
will help them identify, collect, organize, and disseminate information.
Managers are able to control facts and figures called data, and information,
which have been given meaning and considered to have value. Analyses of
data/information gathered measure actual performance and comparing it
with set standards serves as a means for detecting deviations. Deviations
must be revealed as early as possible in order to correct them.
Taking action involves the correction of deviations from set stan-
dards. This activity clearly shows the control function of management.
Managers may rectify deviations by modifying their plans or goals, by
improving the training of employees, by firing inefficient subordinates,
or by practicing more effective leadership techniques.

1. Define the term “controlling.”
2. What is the difference between old and new controlling practices?
3. Is management control important for all types of businesses? Why or why not?
4. Name the activities involved in the control process.
Exercise
1. Design a control system for measuring your progress in your school work. Apply the activities involved in the
control process discussed in this lesson.
2. Interview two managers about the controls used in their companies. Are their control techniques similar to or
different from the control techniques enumerated in this lesson? Explain your answer.
Controlling 103
LESSON 2
The Link between Planning
and Controlling
T
Definition of Terms he relationship between planning and controlling could be easily
Double entry accounting – established. Control is integrated planning. Planning involves a thor-
accounting strategy of some firms ough process which is essential to the creation and refinement of a blue
which requires the preparation of
print or its integration with other plans that may combine forecasting of
two different accounting reports,
one for internal use and another for
developments in preparation for future scenarios.
external use As one plans, the elements of control immediately take place to
Dual entry – the process of
consider how every turnout of the plan may be evaluated and rectified.
journalizing with debit and credit On a periodic basis, it is useful to create a pro forma financial statement
entries which serves as a forecast of the balance sheet, income statement, and
Liquidity – the organization’s cash flow statement in order to make projections. This may be used as
ability to meet short-term an aid to present plans to creditors and future investors, but, primarily,
obligations it is used for internal planning and control purposes.
As Smart (2013) cited, “by making projections of sales volume,
profits, fixed asset requirements, working capital needs, and sources of
financing, the firm can predict any liquidity problems with enough lead
time to have additional financing sources available when needed.”
Shim et al. (2012), emphasized that “any CFO (chief financial officer)
must prepare short-term, company-wide, or division-wide planning
reports. These reports may relate to product distribution by territory
and market, product line mix analysis, warehouse handling, salesperson
FIGURE 7.1 Planning and control at dif-
ferent levels
Top-level
management
Strategic planning Strategic control Organization-wide
perspective
Long time frame
Middle-level
management
Tactical planning Tactical control Department
perspective
Periodic time frame
Lower-level
management
Operational planning Operational control Unit/Individual
perspective
Short time frame
104 CHAPTER 7
performance, and logistics. Long-range planning reports may include five-
to ten-year projections for the company and its major business segments.”
Specialized planning and control reports may include effects of
cost-reduction programs, production issues in cost or quality terms,
cash flow plans for line-of-credit agreements, evaluation of pension or
termination costs in plant costing, contingency and downsizing plans,
and appraisal of risk factors in long-term contracts.
The Balance Sheet

Balance sheet is a financial statement which is defined by most account-
ing books as the “snapshot” of any entity’s financial condition because
it presents the financial balances of a particular period. It follows a pro
forma accounting entry: A = L + C, or that the total assets (A) must be
equivalent to the aggregate summation of liabilities (L) and capital (C)
or owners’ equity. Thus, others may also call this as either the statement
of financial position or statement of condition.
The asset side keeps track of all the properties, tangible and intangible,
owned by the organization, while the other side (liabilities) records all the
obligations to settle and actual capitalization of the firm. It must be noted
that there must always be a dual entry respective of the account titles.
For newly established smaller business organizations with budget
constraints, planning and control starts with available dedicated capital
which needs monitoring and would serve as the budget with posting
entry in the balance sheet as cash and owner’s equity. For example, one
who has a 500,000 capitalization may have a pro forma entry of:
Assets Liabilities and Equities

Cash on Hand xxxxx Accounts Payable xxxxx
Marketable Securities xxxxx Accruals xxxxx
Prepaid Expenses xxxxx Total Current Liabilities xxxxxx
Accounts Receivable xxxxx
Total Current Assets xxxxx Long-term Debts xxxxx
Mortgages xxxxx
Property and Equipment xxxxx Total Long-term Liabilities xxxxx
Land xxxxx Total Liabilities xxxxx
Total Fixed Assets xxxxx
Debit Cash........................................................ 500,000
Credit Owner’s Capital................................. 500,000
Controlling 105
For this setup, with the assumption that the capital is all in cash, the
latter amount may diminish depending on what was spent for. Assuming
you would purchase equipment to be used in the business amounting to
100,000, you would now have:
Assets Liabilities and Capital
Cash.......................................... 400,000 Owner’s Capital................................. 500,000
Equipment............................. 100,000
Total Assets............................ 500,000 Total Liabilities and Capital........... 500,000
One has to note that it did not change the total amount of capital
which is 500,000 since it was just deducted from cash. The pro forma
accounting entry which is Assets = Liabilities plus Capital is still intact
and balanced on both sides.
Further, if you placed orders or suppliers on credit terms or for future
payments amounting to 30,000:
Assets Liabilities and Capital
Cash.................................... 400,000 Owner’s Capital................................. 500,000
Equipment....................... 100,000 Accounts Payable................................ 30,000
Supplies.............................. 30,000
Total Assets...................... 530,000 Total Liabilities and Capital........... 530,000
The presentation on the balance sheet would clearly state what had
been the allocation of the capital in its business operation. Thus, its
appearance may depend on how the entity plans to progress, but through
strict monitoring and recording, a simple control function is applied
and implemented. However, the account titles must be in accordance
to its liquidity.
Income Statement
The income statement is also known as the profit and loss statement,
revenue and expenses statement, statement of financial performance, or
earnings statement. It displays the cost and expenses charged to recognize
revenues in a specific period. Basically, it shows whether the company
made money or lost money.
Any business entity in progress may incur expenses and later on
garner income or profit. Its pro forma statement may start on how
many units of quantity it plans to sell in a given period. For example,
if the final product would cost 50 each for sale in the market and the
106 CHAPTER 7
projected number of units to be sold would be 1,000, it would follow
that the gross sale would be 50,000 for a particular period derived as
50 × 1,000 units.
If in its operation, there would be anticipation of expenses such
as operating expenses (OPEX) of 25,000 or administrative costs of
20,000, the gross income would then be 5,000.
The income statement may appear to have an initial pro forma of:
Gross Sales 50,000

Less: Operating Expenses 25,000
Administrative Costs 20,000 45,000
Gross Income 5,000
The complexity of the financial statements would depend also on

how complicated the business transactions are. As transactions progress,
additional expenses, accounts, and taxes imposed may be included. The
process of creating pro forma financial statements varies from firm to
firm, but you may observe some common elements among them.
Cash Flow Statement

Without adequate cash for the timely payment of obligations, funding
operations and growth, and for compensating owners, the firm will fail.
The statement of cash flow summarizes the inflow and outflow of cash
during a given period. Inflow activities are those that result in providing
the firm with sources of funds, while outflows result in cash leaving the
firm due to disbursements or expenses that utilize cash. It is important
to note that this statement includes and recognizes only the movement
of cash in its entire operations.
What information should financial forecasts and financial projections
contain? According to the book CFO Fundamentals by Shim, Siegel, and
Shim (2012), financial statements must contain the following minimum
items:
• Sales or gross revenues

• Net income
• Gross profit
• Income from continuing/discontinuous operations
• Usual income statement items
• Tax provision
• Material changes in financial positions
Controlling 107
Summaries of Significant Accounting Policies
and Assumptions
The management’s intent of preparing the prospective financial statements
should be stated and it must be mentioned that prospective results may
not materialize. It should be clearly stated that the assumptions used by
management are based on information and circumstances that existed
at the time the financial statements were prepared.
Organizational Performance Control

All managers must know which measures will give them data and infor-
mation about overall organizational performance control. The usual
measures are organizational productivity, organizational effectiveness,
and rankings in industry.
Organizational productivity is the amount of goods or services pro-
duced (output) divided by the inputs needed to produce the said output.
In general, all organizations and their work units aim to be productive.
In other words, they want to produce the biggest amount of outputs,
using the least input.
Output may be measured by the sales income which an organization
gains when goods are sold. Inputs, on the other hand, may be measured
by the amount spent on acquiring and transforming resources into out-
puts. Decreasing inputs by being more efficient in work performance will
decrease the organization’s expenses, thus, increasing the ratio of output
to input and achieving what management wants.
Organizational effectiveness is a measure of the organizational goals’
suitability to organizational needs and how well these said goals are being
attained. Managers make use of this in their decision-making regarding
the design of organizational strategies and work activities, and in linking
the various work endeavors of their employees.
Rankings in industry is a way commonly used by managers to mea-
sure organizational performance. Being in Fortune Magazine’s list of
Most Admired Companies, 100 Best Companies to Work For, 100 Fastest
Growing Companies, and others is a good measure of an organization’s
success in the business world. Being ranked high, middle, or low indicates
the company’s performance in comparison with others.
Other Performance Controls in Organizations

Computer-based control systems are common in many companies today.
Managers have easy access to their firms’ databases which could provide
meaningful information for performance evaluation. Performance may
be controlled by quantifiable measures such as the number of customer
transactions handled, the frequency of errors committed by their human
resources, or the length of time taken to deliver goods to customers.
108 CHAPTER 7
Bureaucratic control makes use of strict rules, regulations, policies,
procedures, and orders from formal authority. Negative performance
evaluation is given to human resources who do not comply with the said
control measures.
Clan control is based on compliance with norms, values, expected
behavior related to the firm’s organizational culture, and other cultural
variables of the country where the company is located. Positive perfor-
mance evaluation ratings are given to employees or teams who quickly
adapt to possible changes of norms and values in the firm’s internal and
external environment.

1. Are control and planning related to each other? Why or why not?
2. What is a balance sheet? Describe how it is presented.
3. What is the purpose of the income statement?
4. What is the importance of the cash flow statement?
Exercise
1. Describe briefly the three frequently used organizational performance measures. Which, in your opinion, is the
best measure of organizational performance? Defend your opinion by explaining your choice.
2. Prepare an income statement if your company’s gross sales is 300,000, with operating expenses of 100,000,
and administrative costs of 30,000. What is its gross income?
Controlling 109
LESSON 3
Control Methods and Systems
C
Definition of Terms ontrol methods are techniques used for measuring an organization’s
Control Methods – techniques financial stability, efficiency, effectiveness, production output, and
used for measuring an organization members’ attitudes and morale. From the general point of
organization’s financial stability,
view, managerial effectiveness must be concerned with the maximizing of
efficiency, effectiveness,
production, output, and
the above mentioned factors that are measured by the control methods.
organization members’ attitudes Therefore, the challenge for present-day managers is to devise control
and morale methods and systems that are aligned and consistent and will help attain
Quantitive Control Methods – these concerns.
methods which make use of data
and different tools expressed in
members for monitoring and
Methods of Control
controlling production output A firm may apply control techniques or methods which are either quan-
Non-quantitive Control Methods titative or nonquantitative.
– methods which make use of
tools such as inspections, reports, Quantitative Methods
direct supervision, performance
Quantitative methods make use of data and different quantitative tools
evaluation, and on-the-spot
checking to accomplish goals
for monitoring and controlling production output. Budgets and audits
are among the most common quantitative tools.
The most widely recognized quantitative tool is the chart. Charts
used as control tools normally contrast time and performance. The
visual impact of a chart often provides the quickest method of relating
data. A difference in numbers is much more noticeable when displayed
graphically.
Budgets. The budget remains the best known control device. Budget
and control are, in fact, synonymous. An organization’s budget is an
expression in financial terms of a plan for meeting the organization’s
Existing Home Sales
million units million units
8 1.6
FIGURE 7.2 A chart showing sales trends
is among the quantitative tools used in
organizations. 7
Total (L-axis)
1.4
6 1.2
Singles Family (L-axis)

5 1.0
4 0.8
Condo and Coop (R-axis)

3 0.6
2 0.4
1 0.2
0 0.0
99 00 01 02 03 04 05 06 07 08 09 10 11
110 CHAPTER 7
goals for a specific period. A budget is an instrument of planning, man-
agement, and control.
Budgets are used in two ways: to establish facts that must be taken
into account during planning and to prepare a description and financial
information to be used by the chain of command to request for and
manage funds. At present, two major budget systems are used; these
are zero-based budgeting (ZBB) and the planning, programming, and
budgeting system (PPBS).
Audits. Internal auditing involves the independent review and eval-
uation of the organization’s nontactical operations, such as accounting
and finances. As a management tool, the audit measures and evaluates
the effectiveness of management controls. Audit service provides an
independent audit of programs, activities, systems, and procedures. It
also provides an independent audit of other operations which involve
the utilization of funds and resources as well as the fulfilment of man-
agement goals.
Nonquantitative Methods
Nonquantitative methods refer to the overall control of performance
instead of only those of specific organizational processes. These methods
use tools such as inspections, reports, direct supervision, and on-the-spot
checking and performance evaluation or counseling to accomplish goals.
Other control methods include feedforward control, concurrent
control, feedback control, employee discipline, and project management
control.
Feedforward control prevents problems because managerial action is
taken before the actual problem occurs.
Concurrent control takes place while work activity is happening. The
best example of this type of control is direct supervision or management
by walking around.
Feedback control is control that takes place after the occurrence of the
activity. It is disadvantageous because by the time the manager receives
the information, the problem had already occurred.
When the above three control methods are compared, managers
choose the feedforward method as the most desirable because of its
preventive action. The concurrent control’s advantage is that it can help
managers correct problems before they become too costly or damaging.
Feedback control’s advantage is the exhibiting of variance between the
standard and the actual work performance. Little variance indicates that
planning is successful while significant variance may give managers an
idea of how to plan better.
Employee discipline is a control challenge for managers. Enforcing
discipline in the workplace is not easy. Concerns regarding this include
workplace privacy, employee theft, and workplace violence, among others.
From simple monitoring of employees’ computer usage at work to protect-
ing employees at work from psychologically unstable workers who may
Controlling 111
have hidden desires to harm them, managers need discipline control to
ensure that tasks can be efficiently and effectively carried out as planned.
Project management control ensures that the task of getting a project’s
activities done on time, within the budget, and according to specifica-
tions, is successfully carried out. Project managers need technical and
interpersonal skills to control the implementation of the project efficiently
and effectively. The project planning process controls include: defining
objectives, identifying activities and resources, establishing sequence and
estimating time for activities, determining the project completion date,
and comparing with objectives and determining additional resource
requirements.

1. Name and briefly define the quantitative methods of control.
2. What are nonquantitative methods of control?
3. Define and compare feedforward, concurrent, and feedback control methods.
4. What is the importance of project management control?
Exercise
1. Interview two department heads in your school regarding their preferred employee discipline control. Explain
the similarities or differences in their methods.
2. Prepare your personal budget for the present school year. Apply or use zero-based budgeting (ZBB) which starts
from nothing and does not consider past data.
112 CHAPTER 7
LESSON 4
Application of Management Control
in Accounting and Marketing
Concepts and Techniques
M anagement control in accounting and finance is the control that

makes use of the balance sheet, income statement, and cash flow
statement to analyze and examine financial statements in order to deter-
Definition of Terms
Management Control – control
mine the company’s financial soundness and viability, as well as financial that makes use of balance sheets,
ratios to determine the company’s stability. On the other hand, manage- income statements, cash flow
ment control in marketing is the control that makes use of projected sales statements to analyze and examine
or forecasts, statistical models, econometric modeling, surveys, historical financial statements in order to
determine the company’s financial
demand data, and actual consumption of their products.
soundness and viability, as well as
Sales is considered to be the “lifeblood of the business.” No matter financial ratios to determine the
how good the product is, if it is not sold in the market, there is no way organization’s stability
that a business can survive. Thus, the projected sales often guide the sales Strategic Control – a systematic
manager or the marketing head on how much the target or the quota must monitoring at control points in
be. In a way, this will also serve as a guide for the operations manager strategic plans that may tend
in determining the number of units to be produced. Excess production to change in the organization’s
may mean cost, and unsold items may resort to inventory expenses or strategies
worse, the obsolescence or degradation of the product. Indeed, the sales Macroeconomic Environment –
forecast requires consideration. business environment that includes
For more established businesses, or those that had been in the industry or considers economic aggregates
for quite some time, the most commonly used technique is to look at the such as national income, total
volume of savings, and money
historical demand and actual consumption, with the assumption of the
supply
same economic condition.
FIGURE 7.3 A company’s assets and lia-
bilities report presented in charts.
COMPOSITION OF ASSETS COMPOSITION OF LIABILITIES

Other Interest Interbank Funds Borrowed
Loans Earnings Assets Money Markets 14.2%
54.7% 8.2% 7.8%
Bonds Issued
3.3%
Non-Interest Other
Earnings 8.5%
2012 Assets 2012
TL 180 Billion 17.1% TL 180 Billion
Time
Deposits Shareholders’ Equity
41.9% 12.0%
Securities
Demand Deposits
20.0%
12.2%
Controlling 113
A firm may generate a set of assumptions regarding the macroeco-
nomic environment to which all divisions must adhere as their guide,
➤ The sales forecast may be derived but forecasts can still be generated from the customer level and taken
either from a “top-down” or into account. Some firms produce two sets of forecasts, one that uses a
“bottom-up” approach. Smart (2013)
stated that:
statistical approach and another that relies on customer feedback. Senior
managers then compare the two forecasts to see how far apart they are
“The top-down sales forecast
relies heavily on macroeconomic and before setting a final sales objective.
industry forecasts with the use of
statistical models thru econometric
modeling to achieve the firm’s Accounting/Financial Control Ratios
growth target. The bottom-up sales
forecast begins by talking with The goal of businesses is to gain profit. In order to achieve this, manag-
customers in a form of survey or ers need accounting/financial controls. Managers must also analyze the
‘traffic count,’ by assessing the organization’s financial condition, which is done with the help of the
demand in the coming periods. The following financial ratios.
current practice blends these two
approaches.”
Liquidity ratio – tests the organization’s ability to meet short term
obligations; it may also refer to acid tests done when inventories turn
over slowly or are difficult to sell.
current ratio = current assets ÷ current liabilities
Leverage ratio – determines if the organization is technically insol-

vent, meaning that the organization’s financing is mainly coming from
borrowed money or from the owners’ investments.
debt-to-assets ratio = total debt ÷ total assets
Activity ratio – determines if the organization is carrying more

inventory than what it needs; the higher the ratio, the more efficiently
inventory assets are being used.
inventory turnover = cost of goods sold ÷ average inventory
Profitability ratio – determines the profits that are being generated;
net profit after taxes ÷ total sales
or it measures the efficiency of assets to generate profits.
return on investment = net profit after taxes ÷ total assets
114 CHAPTER 7
In addition to the above ratios, asset management is also practiced
to achieve organizational goals. Asset management is the ability to use
resources efficiently and operate at minimum cost.
inventory turnover = sales ÷ average inventory
Strategic Control
As mentioned earlier, planning and controlling are closely related. Stra-
tegic plans serve as control points for strategic control—a systematic
monitoring at control points that leads to change in the organization’s
strategies based on assessments done on the said strategic plans. Control
provides a chance for comparing the plan’s intended goals with the actual
organizational performance. This becomes the basis for modifications
in the firm’s strategies.
Benchmarking
Benchmarking is an approach or process of measuring a company’s own
services and practices against those of recognized leaders in the indus-
try in order to identify areas for improvement. It is a widely used and
well-accepted approach because it helps organizations gather data and
information against which performance can be measured and controlled.
Weihrich and Koontz (2005) gave three types of benchmarking: a.)
strategic benchmarking which compares various strategies and identifies
the key strategic elements of success; b.) operational benchmarking which
compares relative costs or possibilities for product differentiation; and c.)
management benchmarking which focuses on support functions such as
market planning and information systems, logistics, and human resource
management, among others.
Many companies use benchmarking. Some prefer to benchmark

only the top 10 or the best companies in their particular industry. Others
benchmark best global practices and go further away from their own
industry and reason out that their goal is competitive superiority and
not just competitive parity.
The benchmarking process begins with determining which company
functions are to be benchmarked and the key performance indicators to
be measured. Then, the best industry performers have to be identified.
Data gathering and analysis follows and these become the foundations
for performance goals. New programs are implemented, and during this
step, performance is measured at regular intervals.
Controlling 115
Corrective actions are taken to close the gap between the organiza-
tion and the best-in-class companies. The monitoring of results must be
continuous to ensure benchmarking success.
FIGURE 7.4 Example of a chart showing 0 1 2 3 4 5 6 7 8 9 10
gaps in performance ratings
Wikimedia Foundation 6.95
Wikimedia volunteers overall 6.75
Wikimedia Chapters 6.04
Own contribution 5.73

1. Enumerate and define each of the four accounting/financial control ratios commonly used in organizations.
2. Why is sales considered as the “lifeblood of the business?”
3. What is the relationship between strategic plans and strategic control?
4. Define benchmarking and give its three types.
Exercise
1. Compute the liquidity ratio of a fast food restaurant. Its current assets amount to ₱3 million while its current
liabilities are at ₱2 million. Analyze and interpret your answer.
2. What is the return on investment if a jewelry store’s net profit after taxes is ₱6 million and its total assets is ₱100
million. Analyze and interpret your answer.
116 CHAPTER 7
LESSON 5
Role of Budgets in Planning
and Control
A
Definition of Terms
n organization’s ability to have a good control system is also depen-
Budget – are plans to monitor,
dent on its budget process. Budgets are plans to monitor, control,
control, and implement the firm’s
and implement the resource of the firm on its operation based on its resources on its operation based on
objectives or goals. Adjustments are made by top-level management on its objectives or goals
a periodic basis, if necessary, to remedy conflicts, difficult situations, or Fixed Budget – allocation of a fixed
unrealistic settings, or when unforeseen events transpire. amount of resources for a specific
A fixed budget allocates a fixed amount of resources for a specific pur- purpose
pose. Meanwhile, a flexible or variable budget allows allocation of resources
to change depending on different levels of activity in the organization.
According to Sawyers et al (2013) in the book Managerial Accounting,
budgeting serves as an integral part of a manager’s planning, operating,
and control activities, illustrated as:
FIGURE 7.5 Budgeting as an Integral

Part Planning Operating Control
Planning Activities
Budgetting Operating
Control
Planning is the initial step and it includes the development of the

firm’s objectives and the creation of the budget. Operating takes on the
decision-making that is guided by budgeting. The control process then
checks and guarantees whether the set objectives are accomplished.
Budgeting is the responsibility and activity of the management which
requires extensive planning throughout the organization’s entire units and
departments. Producing a budget requires time, prudence, and diligence.
The final budget must be justified by its originator and must be realistic.
The budget may be presented in aggregated values for the entire year,
but there is often a monthly budget that puts into detail the expectations
to be met. Deviations on the budget may be adjusted as the need for
them arises (such as those caused by unforeseen circumstances), and it
is subject to the approval of the higher authority.
Controlling 117
Budget preparation may either utilize historical budgeting or zero-
based budgeting. The former uses the past data or actual figures of previ-
ous periods based on actual experiences of the firm. Certain percentage
adjustments are made to formulate the new forecast. The latter is created
by starting from nothing and relying on the expertise, anticipations, and
experiences of each head. Indeed, it appears to be more challenging to
produce a budget applying the zero-based method, hence, it may require
the full participation and cooperation of organization members.
In every organization, there must only be one concrete and recognized
budget for a certain period of time. It may be considered as the master
budget since it comprises of the submitted and justified budgets of dif-
ferent units and is approved by the top-management for implementation.
The sales department or the marketing division may create its sales
budget for purchases and selling expenses to eventually determine the
value of the actual products or services to be sold. This, in turn, may serve
as the quota for its sales force. It may regard sales trends for the company,
its competitors, or even the industry of its category. This budget may also
include the factors that may affect sales, price changes, advertising plans,
political and legal events, and the like.
The operations and production departments usually generate short-
term budgets, which customarily cover less than a year since it must
take into account economic trends such as inflation, costs, and personal
spending for the desired inventory and final production.
It is important to keep in mind that, regardless of the size of the com-
pany, the cash budget must be focused. A manager who disregards this
would most likely suffer from illiquidity or cash shortage. Such scenario
may adversely affect the whole organization since it may impede its entire
operation. The worst case would be that the anticipated obligations may
not be fully settled leading to legal cases.
As Sawyers et al. presented, a basic summary of a cash budget may
have the following format:
Beginning cash balance

+ Cash receipts
__________________________________________
= Total cash available
– Cash disbursements
__________________________________________
= Cash balance before borrowing/repayment
+/– Borrowing from/repayment of line of credit
– Interest of line of credit
__________________________________________
= Ending cash balance
118 CHAPTER 7
Steps toward Better Budget-making
The budget may be improved upon to address the needs of the organi-
zation and consider the input of all concerned. Below are the steps in
improving the budget.
• Collaborate and communicate with organization administrations and
selected members so that the budget becomes more acceptable to all.
• Practice flexibility as the budget adapts to the organization’s needs.
• Relate the budget to company goals since their achievement is the
primary objective/goal of the firm; deviation from goals will prolong
achievement and will not be good for the firm’s stability.
• Coordinate the budget with all the company departments so that they
may be able to make full use of the budget allocations given to their
respective units.
• Use computer software or applications when needed to facilitate accu-
rate computations and proper dissemination of information related to
the budget.

1. Define the term “budget.”
2. Differentiate fixed budget from flexible budget.
3. How is budgeting related to the planning and control functions of management?
4. Why should the budget be aligned with organizational goals?
Exercise
1. Organize a team of three students with the help of your teacher. Prepare a detailed budget that covers the
schooling and school-related expenses of a student for one semester. Be prepared for a class presentation and
get feedback from your classmates.
2. Interview the treasurer of any officially recognized student organization in your school regarding the preparation
of their budget. Comment on his or her answers.
Integration
I realized that:
I resolved that:
Controlling 119
CHAPTER 8
Introduction to the
Different Functional Areas
of Management
TO PREPARE YOU to become future leaders and managers, you must become familiar
with the functional areas of management—Human Resource Management, Marketing
Management, Operations Management, Financial Management, and Information and
Communication Technology Management. In doing so, you will be ready for the local
and global challenges that you will inevitably meet in tomorrow’s workplace. Managerial
and leadership functions are essentially the same because all these aim to establish an
environment for the effective and efficient performance of individuals and cooperate
with one another in teams/groups of different organizations. Therefore, reading and
understanding this chapter will be beneficial to all persons who will one day join
organizations—not just business companies but also nonbusiness organizations such as
government, educational and health care institutions, and other nonprofit organizations.
At the end of this chapter, you must be able to explain the

nature and role in the firm of the following functional areas
of management:
a. Human Resource Management
b. Marketing Management
c. Operations Management
d. Financial Management
e. Information and Communication Technology Management
120 CHAPTER 8
LESSON 1
Human Resources Management
(HRM)
H uman resources, also known as human capital, drive the performance

of organizations along with other resources; hence, understanding
the HRM functions of management is very important. These include:
Definition of Terms
Human resource management –
the process of attracting, training,
Conducting job analysis. Job analysis is the process of obtain- developing, and maintaining an
ing information about jobs needed to achieve the organization’s goals/ excellent work force
objectives by determining the duties, tasks, or activities involved in jobs. Job – a specific piece of work done
Job analysis data may be gathered through interviews, questionnaires, for a certain fee
observation, and diaries. They may also be collected through position Job Analysis – the process of
analysis, critical incident method, task inventory analysis, and compe- obtaining information about
tency-based analysis. Decision-making regarding job-related problems jobs needed to achieve the
is done objectively by analyzing the requirements of each job. organization’s goals/objectives
Planning labor need and recruiting. It is important to determine
the number and kind of people that may be attracted for employment.
External recruitment enables the organization to fill job openings with
special qualifications and to employ persons with new knowledge, skills,
values, ideas, and perspectives. Internal recruitment may also be done if
management finds it more advantageous to promote or transfer present
employees to fill the available job openings. Recruitment from within
the company is said to be less expensive as existing employees no longer
need extensive orientation programs.
Selecting candidates for the job. This involves the matching of
people and jobs. Job specifications help identify the person-job fit and
identify their individual competencies, their knowledge, skills, abilities,
and other factors that may lead to excellent performance. Managers may
use different selection methods such as interviews, psychological tests,
and calling references, among others.
Orienting and training new employees. This is done in organizations
so that they could contribute to the achievement of their organizational
goals/objectives. The phases involved in this function are:
• conducting needs assessment of the organization, of the person, and
of the task/work;
• designing the training program by considering the institutional objec-
tives, the trainees’ readiness and motivation, and the principles of learning;
• implementation of the training program for nonmanagerial employees
using on-the-job training, apprenticeship training, cooperative training,
internship, government training, classroom instruction,and e-learning;
• evaluating the training program in order to determine effectiveness,
considering reactions, learning, behavior of the trainees, return on invest-
ment (ROI) or results, and benchmarking.
Introduction to the Different Functional Areas of Management 121

➤ Organizational behavior is a
Managing compensation or pay. Compensation or pay represents
field of study closely related to a reward received by employees in exchange for their contributions to
human resources management. It the achievement of organizational goals. In doing so, pay equity must be
is the study of how people interact considered. It must be fair and just, acceptable to all concerned parties,
within groups. Its areas of research
and commensurate to the value of the work performed. It is important
include improving job performance,
increasing job satisfaction, as it determines job performance motivation of workers.
promoting innovation, and Providing incentives and benefits. Incentives are generally based
encouraging leadership. Theories upon a pay-for-performance philosophy which means that a perfor-
of organizational behavior are used mance “threshold” or a baseline performance level must be reached by
in human resources management.
an employee or group of employees in order to qualify for incentive pay-
http://www.investopedia.com/ ments. Examples of individual incentives are bonuses, merit pay, and sales
terms/o/organizational-behavior.asp
incentives. Group incentives include team compensation, scanlon plan,
and improshare. Enterprise incentives are profit sharing, stock options,
and employee stock ownership plans. Benefits, on the other hand, include
social security, workers’ compensation, health care and medical and edu-
cational assistance, vacation leave, sick leave, life insurance, retirement
benefits, and travel benefits. It is important that incentives and benefits
programs be based on specific objectives compatible with the organiza-
tional philosophy and policies and the organization’s financial standing.
Evaluating employees’ performance. Appraisal of employees is done
on a regular basis to find out who are doing their jobs well and who are not.
The purposes of such evaluations are administrative and developmental.
Administrative purposes include: to aid in decision-making regarding
employees’ pay and promotions, transfers, or layoffs, which are based
on their achievements and performance. The developmental purpose
of appraisal are the use of results for discussing employees’ strengths
and weaknesses and for listing down performance improvement needs.
Communicating. To be effective, managers must have good com-
munication skills, both oral and written and information technology
proficiently. This is necessary to receive and disseminate pertinent infor-
mation needed by all organization members in carrying out activities
that will lead to the achievement of company goals/objectives. Besides
carrying out internal communication, managers must also have good
communication with customers, suppliers, and other stakeholders in the
external environment. Communication may be hindered by barriers and
breakdowns in the communication process. Identifying these barriers
and learning how to listen well will facilitate both understanding and
managing process.
Developing employees. Programs should be designed to meet the
special needs of employees which will prepare them for future jobs or
roles that they may be assigned to do. These may include: graduate studies,
cross-training, which refers to the process of developing employees to do
multiple jobs within an organization; or ethics training, the process of
developing employees’ moral judgments that will help them determine
right and wrong behavior which they could use in jobs that require more
decision-making functions.
122 CHAPTER 8
Building employee commitment. This is another important function
of HR practitioners which will bind them to engage in activities that will
ensure the achievement of organizational goals/objectives. This must
be followed by employee accountability or accepting responsibility for
one’s actions.
Providing good working conditions. This includes giving a clear
statement of the company’s mission, vision, goals, and objectives; offering
a good compensation and benefits package; preparing a well-ventilated,
well-lit, and pollution-free work area for employees; and practicing ethical
management styles.
Handling grievances and industrial relations. When differences
arise between labor unions and management, these are usually settled
through the grievance procedure, wherein the feelings, needs, and desires
of both parties are aired. Managers must try to master the art of handling
grievances and industrial relations to bring peace in their organization.
Again, it must be emphasized that satisfied workers are more motivated
workers, which in turn, makes them more effective and efficient in per-
forming their assigned tasks; thus, they hasten the attainment of their
company’s set goals/objectives.
Importance of Human Resources Management

Human resources management deals with the management of people—the
most important business resource. Money, materials, and information
resources are not capable of moving the business activities without the aid
of the primary performance drivers, human resources. Therefore, mas-
tering the activities involved in human resources management (recruit-
ment, selection, placement, training, and development) is a must since
all other management activities (planning, organizing, staffing, leading,
and controlling) could be done easily if organization managers practice
proper human resources management.
FIGURE 8.1 Activities involved in human
resources management
RECRUITMENT
HUMAN
TRAINING AND RESOURCES SELECTION
DEVELOPMENT
MANAGEMENT
PLACEMENT

1. Define and describe job analyses in organizations.
2. What are the two types of recruitment? Define each and explain their advantages.
3. What is pay equity? How is it related to employee motivation?
4. Is communication important in human resources management? Explain your answer.
Exercise
1. Research on the different types of individual, group, and team incentives mentioned in this lesson. Define each
and choose the specific types of incentive that you would like to enjoy in the future.
2. Interview a faculty member in your school and find out the types of benefits provided to them by the school
management. Ask him or her if he or she is satisfied with the said benefits and if these influence his or her work
performance.
124 CHAPTER 8
LESSON 2
Marketing Management
A s marketing expert Philip Kotler puts it, marketing management

“is essentially demand management.” This is because it involves
“influencing the level, timing, and composition of demand” so that an
Definition of Terms
Marketing management – the
process of managerial planning
organization may reach its goals.
and carrying out of the conception,
The marketing management functions of management include the pricing, promotion, and distribution
following: of ideas, goods, and services in
Analyzing, planning, implementing, and controlling of goods, services, order to bring about exchanges to
and ideas to create exchanges that satisfy customer needs and company satisfy individual and organizational
goals. Analyses of demand management starts with the gathering of goals (as defined by the American
data through marketing research. Activities under marketing planning Marketing Association)
include decision-making on target markets, market positioning, prod-
uct development, pricing, distribution channels, physical distribution,
communication, and promotion. The implementation of the marketing
plan is formally carried out by sales managers, sales people, advertising
and promotion managers, and customer service managers.
Controlling refers to monitoring of the marketing plan’s progress.
Goals and budgets are set for each month or quarter. A review of the
results follows in order to identify businesses that are not attaining their
goals. Managers of unsuccessful businesses must explain what the prob-
lem is and propose contingency plans that the management has to take
in response to such negative developments.
Management of marketing resources. Marketing resources include:
sales people, advertising, and marketing research.
a. Management of sales people involves inculcating the establishment of
satisfying long-term relations with customers, suppliers, and distributors
in order to help their long-term preference and business. Good marketers
are able to maintain win-win relationships by seeing to it that they always
deliver high quality, good service, and fair and reasonable prices to the
key parties that they deal with over a long period of time.
• Product variation FIGURE 8.2 The marketing mix is an
• Product differentiation Product important consideration in marketing
• Product innovation management.
• Product elimination • Cost recovery pricing
• Penetration pricing
• Price Skimming
Price
MARKETING MIX
Place
• Distribution channel
• Direct sales
• Indirect sales • Individual communication
• E-commerce Promotion
• Mass communication
• Brand management
• Corporate identity

b. Management of advertising. Although used less frequently than sales
calls in business markets, it is still important in marketing. It can perform
different functions such as: build awareness; build comprehension of the
good features of the product or service; remind prospective customers
about the product; provide the company’s contact information to cus-
tomers; and lead customers to get in touch with sales representatives.
c. Management of marketing research. This involves identifying the seven
characteristics of good marketing research characteristics:
1) the principles of the scientific method are used;
2) research creativity is practiced by using innovative ways to solve mar-
keting problems;
3) multiple methods of research are used in order to adapt the method
to the problem;
4) interdependence of models and data which recognize that data are
interpreted from underlying models;
5) value and cost of information is concerned with estimating the value
of the information against the cost; which helps the marketing research
department determine which projects to prioritize;
6) healthy skepticism enables researchers to show a healthy questioning
➤ Marketing in the World Wide Web of the hurried assumptions made by managers about how a market
Many businesses, garage-based works; and
startups, and established companies
7) ethical marketing research which is concerned with research that
have set up shop online by creating
a page or website in the vast benefits both the sponsoring company and the consumers; self-serving
electronic medium known as the results may mislead consumers to buy the company’s product which, in
World Wide Web. Although many reality, is not good or effective.
of them have already made money
online, there are some disadvantages
that managers must consider: Analyze, plan, and implement marketing programs that aim to bring
Security problems – since they are
about an expected level and mix of business deals with target markets. It is
exposed to possible unauthorized important that analysis and planning precede the implementation of the
use or electronic attack by marketing program, in order to ensure that its aim will be achieved. Strate-
criminals and other parties gic planning for individual business entails defining the business mission,
Legal issues – as plenty of analyzing the business’ external and internal strengths and weaknesses,
problems may arise due to and formulating goals and strategies. In doing so, the implementation
lack of clear, well-defined laws
governing electronic commerce of the marketing program will go smoothly and the chances that it will
Maintenance cost – thousands of achieve its aim of bringing an expected level and mix of business deals
pesos must be paid to make full use with target markets will be increased.
of the Internet for business, such as Stimulate demands for the products of the company. This is achieved
utility bills, fees for website or service by influencing the level, timing, and composition of demand, bearing in
developers and other specialists,
mind the attainment of the company’s objectives.
high-powered computers, and others
Make crucial decisions that will ensure the company’s competitiveness.
Technology problems – sendless
research endeavors must be These are decisions regarding target markets, development of products,
undertaken to cater to the demands distribution of goods, market positioning, and setting of right prices for
of the growing e-commerce business their products.
Cultural issues – problems may
arise due to different cultural norms
and values of multinational clients
126 CHAPTER 8
Make sure that marketing techniques employed are efficient, effective,
and socially responsible or ethical. Marketing managers and their team
members must balance their own best interests (big sales commissions,
recognition, or promotion) with the best interests of their company,
consumers, and society.
Importance of Marketing Management

Marketing management is important because it is the key to organiza-
tional goal attainment, customer satisfaction, and profit gain. Without
major marketing management processes—planning, execution, pricing,
and promotion and distribution of goods, services, and ideas to create
exchanges with target groups—satisfying customers and achieving orga-
nizational goals will not be possible.

1. Define marketing management.
2. Briefly state and describe the marketing management functions of management.
3. Give the importance of advertising.
4. Is marketing practiced by profit organizations only? Explain your answer.
Exercise
1. Visit your school’s admission office and library; observe their operations and interview an administrator and
some students to identify the following: a. what is being exchanged in each unit and b. whether the unit is
marketing-oriented. Explain your answer.
2. Name two service firms which, in your opinion, are doing a good marketing job. Also, name two service firms
which you think are the opposite of the first two. Explain your reasoning in each case.

LESSON 3
Operations Management
Definition of Terms
Operations management – the
B usiness managers today focus on productivity, technology use, quality
of goods and services, customer satisfaction, and speed. They are
conscious that they need to innovate on their processes and activities in
study of how goods and services
are produced in organizations order to succeed in a highly competitive globalized market. Because of
Value chain – the actual sequence these needs, the operations management functions of management must
of activities that results in the include the following:
production of goods and services a. Overseeing the transformation processes that change resources
that have value for customers into finished goods and services. In order to do this, managers must
address resource acquisition inventories, facilities, work flows, technol-
ogies, and quality. In doing so, productivity and competitive advantage
will be ensured as they accomplish the multiple processes that transform
the various resources—in the form of people, material, equipment, and
capital—into quality finished products and services.
b. Improvement of productivity and competitive advantage. Pro-
ductivity measures the efficiency by which inputs are turned into outputs.
The basic equation for productivity is:
productivity = output ÷ input
Competitive advantage is the competency of an organization to out-

perform a competitor or competitors. To ensure productivity, work
processes must be subjected to complete analysis and redesigned, if nec-
essary, through process engineering. Other ways to ensure productivity
are process value analysis and reengineering. In process value analysis,
all elements of a process and their workflows are analyzed to be able
FIGURE 8.3 The Plan-Do-Check-Act cycle
is one of the methods that may help man-
agers improve business processes and PLAN
production.
ACT DO
CHECK
128 CHAPTER 8
to know their contributions to key performance results. Reengineering
discards work steps that are not needed, combines other work steps,
uses technological know-how to reduce costs, and ensures efficiency
and effectiveness. Competitive advantage follows when organizations
improve their productivity.
c. Managing the sequence of activities and information along the
whole course of the value chain. Proper management of these activities
and information results in the creation of finished products and services
that have value to customers. Elements in an organization’s value chain
include inflow of resources and materials, organizing of resources and
materials, creating goods or services, distributing finished products or
services, and serving of target customers.
Importance of Operations Management

Through the study of the essentials of operations management, businesses
of different types and sizes may increase their chances for survival and
success in today’s business environment which is characterized as highly
competitive and fast-paced in producing quality products and services.

1. Define operations management.
2. Briefly enumerate and describe the operations management functions of organization managers.
3. What is the importance of process engineering?
4. Give the difference between process value analysis and reengineering. State also their relation to productivity
and competitive advantage.
Exercise
1. Choose two competing products: Product A, a bottle of liquid breath freshener, and Product B, chewable breath
fresheners. Study the two products, their plus and minus factors in terms of attracting customer interest. Which
company will have competitive advantage, the manufacturer of Product A or Product B? Explain your answer.
2. A small doll manufacturing company produces 500 dolls per week; with only two full-time workers as input
measure. Compute the company’s productivity. A bigger company with three full-time workers produces 600
dolls per week. Which is more productive, the small doll manufacturer or the big doll manufacturer? Explain
your answer.

LESSON 4
Financial Management
Definition of Terms
Financial management – the
G aining profit is the main goal of businesses. To attain this goal,
managers must practice good financial management and this, of
course, starts with understanding the financial management functions
management and custody of the
organization’s funds, seeing to it that
of management. These functions include:
funds are effectively and efficiently Taking charge of the company’s financial policies and strategies,
utilized in order to provide for all the investments, capital structures, and dividend policies. Financial man-
needs of the organization’s various agers of organizations must formulate sound financial standing plans
operating units that will communicate broad guidelines for their financial decisions
Financial Planning – the process and strategies. These plans include typical financial policies that address
of setting financial objectives and the organization’s investments, capital structures, and dividend policies.
determining what should be done Investment policy covers choice of product lines and capital project. Capital
to accomplish them structure policy covers a working capital policy (for the balancing of assets
and liabilities) and leverage policy (for balancing long-term financing).
Dividend policy considers the use of either a systematic pattern of earnings
retention or dividend distribution.
Financial management and control. The management and custody
of the organization’s funds also include control which gives an assurance
that funds are properly utilized in order to provide for all the organization’s
needs. Examples of standard financial management and control practiced
by organizations are the following: project management, which makes
sure that long-term projects are implemented according to previously
planned budgets and checks if these have yielded forecasted cash returns;
working capital management, which includes cash, accounts receivable,
and inventory management; cash management, which gives an assurance
that there is enough cash balance that may be used for daily operating
needs, that idle cash is invested through marketable securities, and that
proper cash control rules are instituted; and accounts receivable man-
agement, which ensures the optimization of accounts receivable invest-
ments and the formulation of sound credit evaluation and collection
procedures. Meanwhile, inventory management determines inventory
levels by making maximum use of trade-off between inventory carrying
FIGURE 8.4 Break-even chart
Sales
Profit
Total Costs
$
Break-Even Point
Loss
Units
130 CHAPTER 8
cost, ordering cost, and lost sales opportunities; it also institutes good
stable inventory control procedures. Fund sources management identifies
short-and long-term funds that may be available, and transacts and keeps
watch of credit facilities with banks and other financial institutions.
Dividend policy implementation determines the form and amounts of
dividends and schedules their payments.
Financial planning. Financial planning is the process of setting
financial objectives and determining what should be done to accomplish
them. This includes financial forecasting, financial analysis, and financial
performance evaluation.
Financial forecasting involves cash budgeting, profit planning, and
balance sheet forecasting. Cash budgeting is a forecast of cash needs and
sources. Profit planning is a forecast of revenues and expenditures. Balance
sheet forecasting considers future assets, liabilities, and the organization’s
net worth position. On the other hand, financial analysis involves capital
budgeting techniques, operating leverage analysis, financial leverage
analysis, and analysis of pricing and costs. Capital budgeting involves
the assessment of long-term investments. Operating leverage analysis
critically examines cost-volume profit relationships. Financial leverage
analysis studies the effect of debt on income to the organization’s common
stockholders. Analysis of pricing and costs of products, materials, sup-
plies, and production/manufacturing also fall under financial analysis.
Financial performance evaluation refers to the assessment of financial
ratios to indicate the overall performance of the organization, as well as
the assessment of market-wide financial indicators.
Importance of Financial Management

Definition of Terms
Financial management facilitates the choice of investments, financial
Investment policy – the financial
policies, and operating mechanism of the organization in order to effec-
policy of placing money, capital,
tively achieve its goals and objectives. It includes maximizing its profits as
or other resources in business
well as those of its shareholders and stockholders. In doing so, financial ventures/projects to gain profit or
managers are able to maximize the wealth of the organization and its interest
stockholders/shareholders and satisfy other goals like providing good Capital structure policy – the
customer service, minimizing bankruptcy risks, and actively participating financial policy covering the value
in present societal concerns. of the entire property of a business
To accomplish the abovementioned functions that give importance to and strategies used to balance
financial management in organizations, control techniques, that measure assets and liabilities and long-term
the company’s financial soundness, management effectiveness, production financing
and service efficiency, and human resource attitudes and morale must Dividends – a sum of money to
also be considered. These include the following: be distributed according to a fixed
scheme, as profits on business
Break-even chart – is used by the organization’s financial manage-
shares, shares of surplus, or assets
ment planners and accountants to identify how the various sales levels
Dividend policy – a financial policy
affect the income and profits of the firm. The break-even point is the
which considers whether to follow
level of operations which shows equal income and expenses incurred
a systematic pattern of earnings
by the company. retention or dividend distribution

Financial statements – include income statements, balance sheets,
Definition of Terms
and cash flow statements which are carefully analyzed.
Accounts receivables –
outstanding accounts/funds to
Financial ratios – make use of the above mentioned financial state-
be received and listed among the ments to determine the formulation of a series of ratios that will, in turn,
assets of a business determine if the company is stable or unstable, strong or weak and on the
Inventory – the value of the goods road to bankruptcy; examples of such ratios are rate of return on capital
or stocks of a business invested, rate of return on assets, and rate of return on sales, among others.
Inventory carrying cost –
the cost/price of keeping or Another functional statement used in financial management that
maintaining goods or merchandise
also emphasizes its importance is the organization’s budget. This states
Ordering cost – purchase or
procurement price
the amount of money that the company will spend and receive during
a future period of time. At the end of the period of operations, actual
Sales opportunity – fit or
convenient time for trading or expenses and budgeted amounts are compared to see whether the com-
selling goods and services pany has operated under or over budget. Differences allow management
to examine specific expenditures and the reasons behind such. Managers
and department heads will then be forced to quantify their sales objectives
and other company targets because these must be expressed in pesos and
not in general statements or hopeful or optimistic expressions. Budget
preparation in financial management, therefore, is important in man-
agement decision-making, and this must be prepared well on a regular
basis by all organizations.

1. Define financial management.
2. Briefly state and describe the three financial management functions.
3. Is financial planning possible without financial forecasting. Explain your answer.
4. Give the relationship between financial management to the managerial function of controlling. Explain your
answer.
Exercise
1. Search the Internet for the term “return on investment.” Is this term related to financial management? Explain
your answer.
2. Design a personal financial plan. Apply some of the suggested activities for a business financial plan in this
lesson. Be ready to present this in your class.
132 CHAPTER 8
LESSON 5
Information and Communication
Technology Management (ICTM)
M anagement in the 21st century is driven by information and com-

munication, and digital network.. Computers quickly provide more
information to a greater number of people, groups, and organizations
Definition of Terms
Information and communication
technology management
than ever before. Hence, the study of the information and communication
(ICTM) – the management of
technology management (ICTM) functions of management is relevant: information and communication
The ICTM functions of management include the following: technology that collects, organizes,
Developing the organization’s hardware, software, and other com- and distributes data to be used in
puting and communicating technology. Information technology (IT) the organization’s decision-making
encompasses different kinds of technology, such as various types of functions
hardware (e.g. computers and printers), software (e.g. operating systems), e-business – electronic business
and computing and communication technology (e.g. telecommunications which involves business to business
and management of databases). The fast and ever changing nature of ICT (B2B) and business to customer
requires managers to become flexible and open to change. (B2C) transactions
Developing the organization’s management information system
(MIS) tailored to the needs of the firm’s units. IT has developed man-
agement information systems which gather, process, and disseminate
internal and external information to the company on a timely basis order
to support managers in their tasks. Electronic equipment makes fast and
reasonably priced processing of voluminous amounts of data possible.
The computer can process data and provide logical conclusions, and
classify and prepare them for use in decision-making.
B2C B2B FIGURE 8.5 A comparison between

‘low involvement’ ‘high involvement’ business to business and business to
customer
Target market Larger Smaller, niche
Purchaser(s) Single Multiple
Buying process Single step Multiple step
Sales cycle Shorter Longer
Recognition Relationship and

Sales driver
and repetition detailed information

➤ Other Web-based Models
Encouraging e-commerce through Internet use. Through e-business
strategies, the company gains competitive advantage over competitors.
• brokerage
Common e-business strategies involve business to business (B2B) and
• advertising
business to customer (B2C) transactions. B2B transactions use IT and web
• merchant model
portals to link companies with members of their supply chains or those
• subscription model
dealing with their resource supplies. B2C transactions also use IT and
• infomediary model
web portals, but in this case, the link created is one between the company
• community model
and its customers. A common example is e-tailing or the sale of goods
directly to customers via the Internet. Other web-based business models
are brokerage, which brings buyers and sellers together; advertising, which
provides information while generating revenue from advertisement; mer-
chant model, or selling products through the web; subscription model,
the selling of access to a website; infomediary model, the collecting of
information on users and selling it to other businesses; and the commu-
nity model which supports websites by asking for donations from users.
Importance of Information and Communication

Technology Management
The widespread use of ICT has brought about the emergence of a “knowl-
edge-based society” due to easy access to information at low costs through
the Internet. Management may use it for its different managerial functions.
It may be used for scenario planning or identifying future scenarios in the
Payment
FIGURE 8.6 E-commerce transaction Credit
Service
Buyer Merchant Acquirer card Issuer
Provider
company
Make purchase
Request for application Request for

authorization Request for
authorization
Authorization
response
Authorization
response
Authorization
response
Deliver goods
Request for payment Transaction

amount 11 Debit issuer
account
11 Debit acquirer
account
Credit merchant account
Bill transaction amount
134 CHAPTER 8
business environment, which may need careful planning; decision-mak-
ing through the use of information generated by IT; aiding team work;
facilitating productivity measurement; easy, low-cost communication;
worldwide selling through the Internet; and many others. It may be said,
therefore, that ICT has revolutionized the business world.

1. Give the meanings of the acronyms ICTM and MIS.
2. Enumerate and describe the ICTM functions of management.
3. What is e-tailing? Have you tried this Internet activity? Explain your answer.
4. How important is ICTM in today’s business world?
Exercise
1. Interview two faculty members or teachers regarding their perceived advantages and disadvantages of ICT.
Compare their answers with your own perceptions. Do you agree or disagree with them? Explain your answer.
2. Name three web-based merchant model businesses. Compare and contrast their strategies and list down the
similarities and differences that you have observed.
Integration
I realized that:
I resolved that:

CHAPTER 9
Successful business
Entrepreneurship Controlling the

business
Process Overcoming obstacles
Exploiting opportunities
Spotting opportunities
Motivation to make a difference
Special Topics in Management

IT MAY NOT be instantly apparent, but our daily activities—from the time we wake up in the
morning up to bedtime at night—are ruled by the ventures of entrepreneurs. The toothbrush,
toothpaste, towel, soap, shampoo/conditioner, clothes, shoes, food and drink varieties, home
appliances, electronic gadgets, office equipment, transportation vehicles, and other things we use
or consume daily are all products of entrepreneurial ventures. Hence, it is important to
acknowledge our dependence on the innovative and creative nature of entrepreneurs. The
important role of entrepreneurs, therefore, is to continuously look into the needs and wants of
society and to find the best possible way, beyond those currently offered.

1. explain how to start a small/family business;
2. identify legal business forms and requirements; and
3. appreciate the role of small family business operation
in the improvement of economic status.
136
LESSON 1
Small Business Management
and Entrepreneurship
I
Definition of Terms
nnovative, creative, and intuitive thinking in business management
Entrepreneurship – innovative,
helps entrepreneurs come up with great ideas or new strategies that
creative, risk-taking, growth-
may lead to the successful achievement of their goals—service, growth, oriented behavior that brings
and profitability. The same entrepreneurial mindset is valuable in today’s new opportunities for individuals
highly competitive and ever-changing business world. It answers the need or organizations to start new
for the creation of new products and the development of new services businesses and to produce new
for society’s benefit. products or services that are
In addition, entrepreneurship also has socio-economic contributions. beneficial to society
It provides employment, not only to the entrepreneur, but to fellow Fil- Entrepreneurial ventures –
ipinos. Thus helping ease unemployment. Entrepreneurship provides organizations that persistently
additional sources of taxes for the government, hence contributing to pursue opportunities and
are characterized by creative,
Philippine economic progress.
innovative activities that have
service, growth, and profitability as
The Entrepreneurial Procedure their principal goals
Small business – a business that
Business opportunities are waiting for people who have creative and has fewer than 100 to 500 workers
innovative minds. However, following a systematic process is crucial in (depending on the prevailing
the pursuit of entrepreneurial ventures. This entrepreneurial procedure commercial law in a particular
involves the following steps: country), independently owned,
Formulate the business vision and mission statements. The business operated, and financed; not always
vision of the organization provides a picture of where the entrepreneurial entrepreneurial in orientation and
does not dominate its industry;
venture is headed and what the organization can become in the future. Its
capital is low but capable of
mission states the basic purpose and scope of the organization’s operations. producing goods or rendering
Segment of the Market. A business cannot entertain or offer goods services designed to satisfy
and services to society at the onset in a large scale. It first must identify a particular needs of customers
specific segment or group of people it may cater to or what is called a target
market. The basis for segmenting the market to find the target market
may be geographical, demographical, psychographical, or behavioral.
Goal
sion Pla
Mis ns
Goal attainment
(organizational efficiency
and effectiveness)
FIGURE 9.1 The Overall Planning Process
137
Geographical. Market segmentation may be used on location (city,
province, region, or country; north, south, east, or west).
Demographical. Demographical bases consider population and can
further be extended to include age, income, education, marital status,
and other related information.
Psychographical. Psychographics looks into people’s interests, values,
attitudes, opinions, and lifestyles.
Behavioral. Segmentation may be based on people’s behavior toward
purchasing or spending, or toward a product or service.
Find the Target Market. After getting enough information about
the overall market, the firm can use statistical tools to analyze this infor-
mation and help them decide which part of the whole market they can
serve using their resources in the best possible manner. That part of the
market which the company is willing and capable of servicing is known
as the target market of the business.
Understand the Environment. Why should we study the environ-
ment? Things around us are not permanent and everything changes.
These changes greatly impact business. In some situations, businesses
control the consequences of change, however, this is not always the case.
When businesses can no longer control the situation, they are left with no
option but to change in consideration of the environment surrounding
them. Environmental factors that affect business may either be internal
or external.
Internal factors are environmental factors within the company and
can be controlled. These include the employees, management, physical
facilities, and so on. On the other hand, external factors have two types:
microenvironment and macroenvironment. Microenvironment includes
customers and suppliers, whereas macroenvironment includes economic,
sociocultural, technological, legal, political, and natural factors, as stated
by Kotler (1997).
Develop the Business Plan. We can define a business plan as the
roadmap which the business must follow utilizing the resources at hand
while keeping the environment in mind. A business plan has the follow-
ing contents:
• executive summary – contains the overview of the business and its
major plans
• environmental analysis – includes study of internal and external orga-
nizational surroundings
• industry analysis – includes study of trends in the economy, legal require-
ments, and possible risks
• market analysis – includes analysis of market size, business competitors’
strengths/weaknesses, and short-term sales goals
• company description – mentions ownership, mission and vision of the
organization, registration legalities, etc.
• marketing and sales activities – strategies for distribution, promotion,
and pricing of products/services
138 CHAPTER 9
Research and development
Innovation
Management summary
Current projects Strengths/Weaknesses
Investment Opportunities/Risks
Financing
Milestones Company
Purpose/Mission statement
Production Entrepreneurial team/Organization
Supplies Legal Form
Procurement Curriculum vitae
Production resources Projected profit and loss statement
Liquidity plan
Competition/Market Marketing
National/International Customers/Markets
Market description Products/Services
Distribution
FIGURE 9.2 Components of a business

plan
• products and services – refers to descriptions of good/services and their

unique features
• operation – refers to descriptions of manufacturing and service methods,
supplies and suppliers, and control processes
• management and ownership – refers to identification of owners and
administrators
• financial data – includes capital needs, financial projections for one to
five years, available funds, and possible loan services
• time table – refers to estimated completion dates of ventures
Business planning is important as it helps minimize business risks

and expenses needed for the production of goods and carrying out
services. It may also determine financial requirements and programs of
activities in advance.
Implement and Monitor the Business Venture. This step follows
after careful business planning. Choosing the right people to work with
and considering the correct timing for the business implementation are
important. Monitoring the business venture’s progress is also a must
to check if its implementation is proceeding in the right direction or if
modifications are needed along the way.
Special Topics in Management 139

Maximize the Utilization of Business Resources. Consider the basic
ways of financing business ventures such as debt financing by taking
loans from reputable institutions and equity financing which exchanges
ownership shares in return for an outside investment if additional capital
is needed. Human resources and other material or physical resources
must also be fully utilized.
Aside from the procedure mentioned above, business success is also
determined by certain traits that are required of an entrepreneur. Some
of these entrepreneurial characteristics are listed below. Entrepreneurs
must be:
Creative and Innovative. Entrepreneurs must have a creative and
innovative mindset and must think out of the box to survive competition
and at the same time have competitive advantage over rival organiza-
tions. These are the characteristics that differentiate entrepreneurs from
businessmen.
Good planners. Planning, on the part of the entrepreneur, bridges the
gap between where they are and where they want to go. In other words,
it shows the right business direction that would lead them to success.
Customer-oriented. Entrepreneurs must be customer-oriented to
shape their market offerings and create value in their customers’ minds.
Open-minded. Entrepreneurs must always be open and willing to
entertain the suggestions of team players/employees to encourage the
generation of ideas which may be beneficial when implemented. Learn-
ing is a never-ending process and entrepreneurs can also learn by being
receptive to the ideas of people around them.
Flexible. Entrepreneurs must be flexible in order to adapt to changing
environmental conditions. Flexibility comes in relation to changing the
strategies, policies, and utilization of business resources.
Persistent. There is no shortcut to success, and that is why it takes
time to attain the objectives of the company. In the long run, things will
not always fall under the control of the business managers. During times
of change and hardship, the entrepreneur must not give up, especially
when things are not favorable for business. Entrepreneurs must be per-
sistent until their goals are achieved.
Confident. Entrepreneurs must be confident about their own abilities,
together with the abilities of their other team members. They must think
positively and believe in their capabilities and they must not doubt that
they can accomplish the most challenging tasks at hand.
Organized. Entrepreneurs must be well-organized when it comes
to all activities of the business. A well-organized entrepreneur makes
sure that their organizational structure furnishes an environment where
individual performance, both present and future, contributes effectively
and efficiently to group endeavors.
Updated/Well-informed. To ensure achievement of entrepreneur-
ial goals, entrepreneurs must continuously seek important, up-to-date
information regarding their market customers, rivals in business, and
140 CHAPTER 9
suppliers. Expert opinion must also be sought to be well-informed.
Team players. Entrepreneurs must be able to work well with others.
In unity, there is strength; good coordination with others will ensure
business success.
Knowledgeable. Entrepreneurs must have expert knowledge about the
product or service they want to sell, their competitors, and local/regional/
national markets so that they will have better chances of succeeding.
Risk-takers. Entrepreneurs are not afraid of risks and are ready to
meet business challenges. However, they prefer calculated risks since
they are aware that business undertakings may result in either success
or failure, profit or loss.

1. Differentiate entrepreneurial ventures from other forms of small businesses.
2. What is the importance of entrepreneurship in the Philippine setting?
3. Enumerate and briefly explain the entrepreneurial process.
4. Name at least five entrepreneurial characteristics and briefly discuss each.
Exercise
1. Research on the contributions of at least three Filipino entrepreneurs to the Philippine economy.
2. Do a self-examination. Find out if you have some or all entrepreneurial attributes or characteristics discussed
in the lesson. Briefly explain why you say so.

LESSON 2
Family Business Enterprise
Definition of Terms
Family business – a business
G lobally, there are many successful family businesses run by entre-
preneurs who have different stories to tell and different formulas
for their business success. However, they possess some common char-
owned and financially controlled by
members of a family
acteristics such as creativity, innovativeness, service orientation, and the
ability to take risks and do hard work, among others. Slowly, but surely,
Enterprise – any projected task or
work; an undertaking
these characteristics paved the way toward their success in the world of
business. The stories in this chapter feature ordinary family members
who, despite of starting with meager capital, have persevered to produce
competitive products or render good services that brought them success
in their chosen business endeavor.
Success Stories of Filipino Family Business Ventures

FIGURE 9.3 Andrew Gotianun, Sr. Filinvest Group
Andrew Gotianun Sr. defied certain norms in life and business when he
nurtured his company to become one of the Philippines’ biggest con-
glomerates, the Filinvest Group.
Andrew Sr. and his wife, Mercedes, saw potential business oppor-
tunities during their trips abroad. They interviewed small bank owners
in the US and followed their business models; from these, they adjusted
the models to fit the Philippine setting. They made use of ideas that they
got from their trips to Florida, US for another business venture which is
guarded subdivisions for the middle class in the mid 1960s.
Mr. Gotianun revealed that aside from hard work, one needs to have
the right attitude to succeed in life and in business. In his belief that women
also deserve a place in the boardroom, he broke the family tradition when
he involved his wife, Mercedes, in business management. He admitted
that Mercedes was the one who implemented and executed some of his
business plans and turned many of his visions and entrepreneurial ideas
into realities, interestingly, she did all these while raising their children.
FIGURE 9.4 George S.K. Ty Mr. Gotianun continues to search for new business opportunities,
particularly through the use of the Internet.
Metrobank
George S.K. Ty, one of Asia’s top bankers and a recipient of an honorary
doctorate degree from the University of Santo Tomas, started to work at
an early age. He was only 18 years old when he dropped out of school to
help his father put up their family business, the Wellington Flour Mills.
He had to endure many hardships as a young businessman in what he
described as an unfamiliar industry. In spite of inadequate bank financing
and his limitations in the said business, he was able to help his father
steer their flour mill to success.
142 CHAPTER 9
Inspired by their success and the experiences he gained in managing a
business, George, at age 29, founded Metrobank in 1962 and, like before,
he again had to undergo many difficulties in building it into one of the
Philippines’ largest and most trusted banks. The Metrobank Group (PS
Bank, Toyota Philippines, AXA Life Insurance, etc.) in 2013 paid over
20 billion in taxes, proving that they, indeed, are very successful, and that
entrepreneurial traits like innovativeness, creativity, and ability to take
calculated risks must be nurtured. Dr. George Ty believes that lessons
learned from experiences are lessons that you will never forget; that trust
is not given and must be earned; and that good banking is about trust
and helping other people achieve their dreams.

1. Define entrepreneurship.
2. Differentiate entrepreneurial ventures from other small business endeavors.
3. Why is it important to develop creativity and innovativeness in entrepreneurial management?
Exercise
1. Choose one entrepreneurial venture that you would like to engage in the future. Summarize the steps you will
take to transform your chosen entrepreneurial venture into reality.
2. Interview two classmates to find out if they are interested in becoming entrepreneurs someday. Find out the
specific entrepreneurial venture that they are planning to pursue and the reason for their choice. If they are
not interested in becoming entrepreneurs in the future, ask them to explain why.
Integration
I realize that:
I resolve that:

LESSON 3
Starting a Business: Legal Forms
and Requirements
T
Definition of Terms
he legal form of business is determined by its ownership or propri-
Business registration – a
etorship. A business may be a single proprietorship, a partnership, a
government requirement that
orders new business owners to
corporation, or a cooperative.
furnish government agencies with In single or sole proprietorship, the owner and the business are con-
necessary information prior to the sidered as one, meaning the owner’s income and the business income are
legal operation of their business one and the same and the business income is taxed as a personal income.
organization Decision-making is the sole responsibility of the owner and if the business
Single proprietorship – a business succeeds, he or she gets all the profits. If it fails, then he or she suffers all
owned by one person only the losses and must pay whatever debts are incurred. The business ends
Partnership – a business formed upon the death of the owner or single proprietor.
when two or more partners In a business partnership, the resources (money and other assets)
formally agree to be joint owners of and talents (skills, experience, and management expertise) of all involved
a business may be pooled together. All partners share the profits equally, unless
Corporation – a business entity otherwise specified in their partnership agreement.
involving five or more persons A corporation is registered and is recognized by law as a “legal
owning it
person” that has legal rights and responsibilities, can sue or be sued in
Cooperative – a group enterprise court, can own and sell properties, and can transact or enter into con-
made up of several traders,
tracts. Corporation ownership is divided into units known as shares of
consumers, or producers who are
interested to produce or trade as a
stocks and owners of these are called stockholders. A board of directors,
group elected by the stockholders on a regular basis, manage the corporation
which is run according to terms specified by their by-laws and articles
of incorporation. The corporation’s life does not end with the death of
a stockholder or by the selling of the stocks of a particular stockholder.
The cooperatives’ original purpose was to supply those involved with
goods or services at lower costs compared to those bought from retailers.
Later types of cooperative have emerged that include farmers, producers,
and credit cooperatives. A group of officers, called board of directors and
committees, headed by a chairman, manage the cooperative’s activities.
The cooperative office that runs the daily office work is usually hired.
The cooperative’s life is not affected by the death of any of its members
nor by the selling of a member’s shares. It can, however, be dissolved by
a majority vote of the board of directors and a resolution signed by at
least two-thirds of the general membership.
Why and Where Should a Business be Registered?

Businesses or entrepreneurial ventures have to be registered in compliance
to Philippine laws. Without proper registration in authorized government
agencies, the business cannot operate legally. Registering also gives credi-
bility to businesses, hence, helping earn the trust of customers, suppliers,
partners, and other stakeholders.
144 CHAPTER 9
Registration documents have to be submitted to the Department of
Trade and Industry (DTI) and the Securities and Exchange Commis-
sion (SEC) for commercial registry; barangay office for clearance and
securing a community tax certificate; city mayor’s office for mayor’s
permit and license to operate; city or national government agencies
for sector-specific licenses/permits; Bureau of Fire Protection (BFP)
for fire safety clearance; Bureau of Internal Revenue (BIR) for taxation
purposes; Pag-IBIG Fund (Home Development Mutual Fund) office for
employees’ housing needs/security; and the Department of Labor and
Employment (DOLE) for labor statistics.
Differences in the Registration of the Legal Forms

of Business
Future entrepreneurs must contact the government agencies concerned
regarding their updated or revised rules and regulations as well as the
latest legislations that may have to be complied with.
TABLE 9.1 Requirements and
Registration of different legal forms of business call for the require- Procedures Involved in Registration of
ments and involve the procedures in Table 9.1. Different Legal Business Forms
Single Proprietorship Registration Partnership Registration
• business name registration with the DTI • filing of the previously prepared partnership agreement
by two or more applicants with the SEC
• submission of two recent 2 × 2 ID pictures
• payment of the filing fee
• submission of Filipino citizenship proofs (if applicant is
a naturalized Filipino citizen or if applicant is a Filipino • valuation of the application by the lawyer and staff of the
with a non-Filipino sounding family name); examples Corporate and Legal Department of the SEC
of needed evidences are birth certificate, passport, and
• release of the approved registration (within 15 to 30 days).
voter’s ID, among others
• Payment of application fee or processing fee plus docu-
mentary stamp amount
Corporation Registration Cooperative Registration
• filing of the previously prepared articles of incorporation • submission of four copies of previously prepared eco-
and by-laws and bank certification regarding stockholders’ nomic survey with a general statement that describes
shares of stocks with the SEC the cooperative’s structure, purpose, economic feasibility,
operation area, and membership size, among others to
• payment of the registration fee
the Cooperative Development Authority (CDA)
• evaluation of the application by the lawyer and staff of the
• submission of four copies of previously prepared articles
Corporate and Legal Department of the SEC
of cooperative agreement together with the bonds paid
• release of the approved registration (within 15 to 30 days). for accountable officers
• submission of four copies of the cooperative’s by-laws
• payment of registration fee prescribed by the CDA
• release of approved registration on specified dates

Advantages and Disadvantages of the Legal Forms
of Business
Summarizing the advantages and disadvantages of the legal forms of
business will help potential entrepreneurs decide which form to choose.
See Table 9.2 below.
Form Advantages Disadvantages
• creation is simple and low-cost • owner is liable to all risks and losses
Single • owner gets all the profits • limited capital and other resources
Proprietorship
• decision-making is the sole responsibility of the • solo owner has to do long hours of work
owner
• establishment is easy • business control is limited since it has to be

shared with other partners
• equal division of profits based on their agree-
ment as partners • profits are shared
Partnership availability of bigger capital due to pooling of • wrong decisions made by a partner are binding
TABLE 9.2 Advantages • and
resources
Disadvantages of Different of partners
Legal Forms to other partner/s
of Business • availability of a pool of skills, knowledge, and • invested property becomes the joint property
talents of both/all partners
• less liability of stockholders • major decisions cannot be done easily, even if

urgent, without the approval of the board of
• capability to attract larger amount of capital
directors
• transfer of stock ownership is easier
• corporate and individual profits are taxed
Corporation
• large pool of talents, skills, and knowledge separately, resulting in double taxation and
additional expenses
• division of profits is fair, depending on number
of stock units owned • more rules and regulations have to be com-
plied with
• it is a group enterprise where members may • business control is shared

avail themselves of economics of scale which
• ideas and decisions made by the board of
they will not be able to obtain as individuals
directors have to be accepted by the general
• different types may be formed (farmers’, pro- membership
ducers’, or credit cooperatives)
Cooperative
• some registered cooperatives may apply for tax
exemption
• large pool of talents, skills, and knowledge
• limited liability of members
146 CHAPTER 9
1. Enumerate and briefly define the different legal forms of business.
2. Why and where should a business be registered?
3. In your opinion, which is the best legal form of business? Explain your answer.
4. Are there differences in the registration procedure of the different legal forms of business? Explain your
answer.
Exercise
1. Research on the top 10 business corporations in the Philippines. Discuss the businesses they are engaged in.
2. Find out and discuss if your school is classified as a single proprietorship, partnership, or corporation.

Case Studies
CASE 1 ➤ In June 2012, Zeta Furniture Company, a leading furniture store in the Phil-
ippines, hired a salesman who looked perfect for the job opening based on the
application form which he filled out and submitted to the company’s human
resources department. After working in the company for a few months, the
man raped a female customer in her home, when he went there to follow up
her phone order for a bed.
➤ Mang Donald’s Fast Food Restaurant’s cook had a nervous breakdown, in

November 2013. Without provocation, he stabbed and seriously wounded two
of his kitchen helpers. The restaurant’s administrators and workers/employees
were all shocked when they were informed about this unfortunate happening;
they never suspected that this man who quietly went about doing his daily chores
had a history of mental illness.
➤ In 2010, a female teacher in an elementary school in Pasay City, in a fit of

anger, slapped the face of one of her students when she caught him cheating
during a written examination.
Questions
1. What do these different situations tell us regarding specific managerial functions?
2. If you are the employer, what are the steps you would tak in order to avoid these
negative situations?
CASE 2 ➤ Attorney Lorna Corona was the general manager of their family-owned
publishing company. Subordinates described her as an ideal boss who knew
the “ins and outs” of their business; who focused on long-term concerns of
their company, emphasizing maintenance of stability, development, prog-
ress, and overall efficiency and effectiveness. She, too, exhibited emotional
intelligence that enabled her to maintain positive interpersonal relationships
with everyone, in both the internal and external environments of their orga-
nization. Since everyone was happy and satisfied, their company succeeded
in achieving their goals. In 1999, Lorna had to give up her position because
of severe injuries she suffered after a vehicular accident. Her parents gave the
task of managing their company to her younger brother, Gerald, who was her
assistant general manager before the said vehicular accident.
Despite being knowledgeable in managing their publishing company, Gerald
did not show emotional intelligence. He often had conflicts with other man-
agers and subordinates; lacked good public relations with customers and other
companies’ managers; and could not calm himself quickly when angry and
under pressure during problematic situations. These circumstances caused
dissatisfaction among the employees of their company, hence, affecting their
efficiency and productivity. Other stakeholders, too, were negatively affected.
In 2009, their company had to close shop.
148 ORGANIZATION AND MANAGEMENT

Questions
1. Examine your tendencies. Do you have emotional intelligence? Explain your answer.
2. As a company owner, what will you do if you were the one confronted with the
abovementioned situation?
➤ Marciano Aquino works for a pharmaceutical company manufacturing CASE 3

generic medicines which sell at lower costs compared to branded medicines. In
his eagerness to sell their low-cost drugs to increase company revenues, he used
social media to spread negative rumors and gossip regarding the manufacturer
of the branded equivalents of their generic products; this became viral on the
Internet after a few weeks.
As coemployee, Christopher, became aware of what Marciano was doing
and reported this to their supervisor, who in turn, reported Marciano’s unethical
way of competing with their rival company to their department head for sales.
For fear of being sued for unethical competition by their rival company, the
department head called Marciano, a tenured employee, and without asking for
any explanation, asked him to write a voluntary resignation letter immediately,
explaining orally that this was the order of their company owner because of his
irresponsible behavior.
Marciano, who felt bad about this unexpected order from his superior,
decided to write a voluntary resignation and submitted this to the department
head the next day. He felt that the said company superior did not see his good
intentions and that it was not worth it to continue serving them.
After a month, he realized that he acted in anger and he should not have
followed the department head’s order; and upon the advise of some of his friends,
he decided to file a complaint for illegal dismissal and termination without due
process with the National Labor Relations Commission (NLRC).
Questions
1. Was the department head right in asking Marciano to resign immediately? Explain
your answer.
2. In your opinion, will the complaint/case Marciano filed at the NLRC against the phar-
maceutical company prosper? Explain your answer.
➤ Mr. Conrad Rafferty, an American, was assigned by a multinational company CASE 4

to act as general manager of their branch office in the Philippines. Being used to
the American way of managing, he emphasized that “time is gold” and, there-
fore, everyone must be able to do their tasks efficiently and must be punctual
in reporting to their office, which is open from 7:00 a.m. to 5:00 p.m., and in
attending company meetings/activities.
Some Filipino cultural orientations are ningas cogon, mañana habit, and
the so-called Filipino time. In ningas cogon, leaders, or workers show a lot of
enthusiasm at the start of a project, however this interest dies down after some-
time and the project is neglected. The mañana habit pertains to procrastination
or putting off for tomorrow what can be done today. Meanwhile, Filipino time
Case Studies 149

refers to the habit of accepting 15 to 30 minutes of tardiness, as a common
practice in appointments, meetings, or reporting for work. All these go against
Mr. Rafferty’s “time is gold” policy.
Conflict due to cultural differences resulted. There was a fast turnover of
Filipino managers and workers because of Mr. Rafferty’s inability to adjust to the
abovementioned cultural orientations; the Filipinos, too, could not understand
why Mr. Rafferty was almost always angry. They interpreted his behavior as a
form of racial discrimination and this general feeling against their American
boss negatively affected their work performance, productivity, and, ultimately,
their company’s income generation.
To remedy the situation, Mr. Rafferty was transferred to another country,
after three years of trying to manage their Philippine branch.
Questions
1. Define “culture shock.” Did Mr. Rafferty experience this? Explain your answer.
2. Will you apply the same solution to the abovementioned problem? Explain your
answer.
CASE 5 ➤ Mr. Edward Viceral was a middle-level manager in a rent-a-car business. He

did not believe in empowering his subordinates, so, most of the time, he was
very busy and had no time to socialize with others and bond with his family
members. Although financially stable, he and his family members were not
happy. In the workplace, he was alienated from others.
Willingness to delegate work to others and to allow them to decide on their
own, on certain matters, are essential in empowering subordinates. Failure to
believe in empowering others is now considered negative in the new workplace
and has many adverse effects on the individuals and, ultimately, on members of
the family and on coworkers and superiors.
On noticing that something was lacking in his life, Edward consulted an
industrial psychologist, who gave him a set of questions to answer. The main
objectives of the psychologist were for Edward to know himself better and to
make him realize that through delegation, he could have more quality time
with others in his workplace and with his family. Among the questions asked
were: “Do you prefer to do things by yourself because most of the time people
are too inexperienced to do things?” “Do you think that mistakes by others are
too costly, so you do not assign much work to them?” “Do you often feel that
you get quicker action by doing a job by yourself?” “Do you trust others?” More
consultations followed for several weeks.
A few months later, Edward became a happier person because of his new
mindset. Trusting others and willingness to delegate and empower others enabled
him to spend more time with his family and others, which, in turn, made them all
happier—both at work and in life. Edward’s coworkers also became happy upon
being empowered and trusted; members of his family felt that they were important
to Edward and this made them happy, too.

Questions
1. Explain the relationship between empowerment in the workplace and happiness or
satisfaction among concerned individuals.
2. Give your personal comment on the following statement: “Some things simply should
not be delegated to others.” Explain your answer.
➤ The minimum wage, legally speaking, is a just wage. It is set by the govern- CASE 6
ment to protect employees/workers in the low income bracket from exploitation
by employers.
In a certain cigarette manufacturing company in Bulacan, Carlos and his
coworkers agreed to a wage that was way below the minimum wage, all because
there were no other job opportunities or means of livelihood available to them.
It was not a just wage because after spending their earnings on food, they were
left with no means to enjoy life.
Carlos and his coworkers sign a daily record certifying that they receive the
required minimum wage and overtime pay after ten hours of work. So, besides
the violation of the minimum wage and the overtime pay policies, there was
also violation in the number of hours of work that they were required to render.
Although there was a workers’ union in their company, the union leaders,
instead of protecting the workers, connived with management in their illegal
practices.
One day, Carlos, who could no longer bear the unfair treatment they received,
shot to death the son of the company owner, who acted as its chief executive
officer. Carlos was caught and sentenced to 25 years of imprisonment.
Questions
1. Define minimum wage. Why should the Minimum Wage Law be respected by all
employers?
2. Was Carlos fighting for justice and fairness when he shot their chief executive officer
to death? Explain your answer.
➤ Daniel Ramiscal and Clodualdo Perez were good friends. They were hired CASE 7
together in 2001 by a big candy factory in Batangas as salesmen. Daniel, who had
a better educational background, became the company’s marketing department
manager after two years while Clodualdo continued as a salesman.
Clodualdo envied Daniel because of the better opportunities and appoint-
ments given to him by the company administrators. Quietly, Clodualdo enrolled
in evening classes so that he would be able to finish his college education and
hopefully be appointed as a department manager like Daniel.
After two years, Clodualdo succeeded in getting a college diploma, but
since there was no vacancy in any of the supervisory or managerial positions,
he still remained as a salesman. Promotion to a higher ranking position became
an obsession for him and this affected his work performance. He was not happy
anymore because he felt that he was not being given the recognition that was
Case Studies 151

due to him. He kept comparing himself to Daniel, who, by 2011, was already
the company’s vice-president for administration.
Questions
1. If you were in Clodualdo’s position, what will you do? Explain your answer.
2. What, in your opinion, could be the possible reasons why the company management
failed to give Clodualdo the recognition which he felt was due him? Explain your
answers.
CASE 8 ➤ Hotel Prima is a four-star hotel employing 700 people. Peter, Lawrence, and
Alex are the major owners/top-level managers, and it follows that they con-
trol the company. For several years, their hotel made big profits, so they were
inspired to introduce a scheme that allowed their employees to buy stocks of
their company which increased in value after five years, and would continue to
increase as the years went by. Their employees, because of satisfaction for the
way the three handled the hotel’s finances, treated the company as their own
and did their best in doing their respective jobs.
Although the hotel was doing well and the three major owners/top-level
managers practiced corporate social responsibility through the abovementioned
scheme, the company was not law-abiding; this was because it did not pay the
correct taxes to the government. The company heads ordered their accountants
to practice the so-called double accounting system. Through this practice they
were able to save millions of pesos which they used to increase their capital and
give additional benefits to their employees.
Peter, Lawrence, and Alex had shared the belief that the government was
not using taxpayers’ money properly, so the three agreed that their company
should not pay some of its taxes.
Questions
1. In your opinion, do you consider the three top-level managers of Hotel Prima as ideal
managers? Explain your answer.
2. Are you aware of the saying “the end does not justify the means?” What does it mean?
CASE 9 ➤ Michelle Go began employment with Luxor Tours Company when she was
hired as a probationary employee as tourist guide in 2005. Her application form
showed that she was a BS Tourism graduate of the University of Singapore and
had no previous experience in tour-guiding.
Michelle’s performance as tourism guide was satisfactory, but she had dif-
ficulty building positive relationships with supervisors, peers, or subordinates.
“Michelle is weird” was a comment given by a peer when asked if she was getting
along well with her.
On the fifth month of her probationary employment, a written performance
evaluation was done and the result was poor; “lack of focus,” “tactless remarks,”

and “chronic tardiness” were comments that appeared in many evaluation sheets.
At the end of the fifth month of her employment, Michelle was given a “thank
you letter” by the Luxor management, terminating her probationary employment.
Three years later, Luxor Tours acquired a smaller tour agency. Luxor HR
manager Lynn Sotto, while preparing for the merger, saw Michelle’s name in the
employees’ list of the said tour agency. Upon checking, she verified that, indeed,
it was Michelle Go whose service they terminated a few years ago. She held a
middle-management position and her personal files, when reviewed, showed
some questionable entries like the following: that she was a BS Tourism gradu-
ate of Tokyo University; that from 2001 to 2004 she managed a tour agency in
Tokyo; her employment with Luxor was not mentioned at all.
Lynn had a dilemma: should she report the false claims in Michelle’s files
to the owner/general manager of Luxor Tours?
Questions
1. If you were in Lynn’s position, will you report what you found out about Michelle to
Luxor’s management? Explain your answer.
2. As the owner/general manager of Luxor Tours, how will you handle this case if the
information was reported to you? Explain your answer.
➤ Ricardo Cortez and Josie Hernandez were partners in a footwear factory in CASE 10
Marikina. They had 200 workers in the 1990s, who helped them manufacture
different designs of shoes, slippers, etc. which they displayed and sold by the
thousands in their store at the Cubao Expo. They were considered very suc-
cessful at that time.
Their footwear business slowed down when low-priced Chinese shoe imports
became popular in the Philippine market. Ricardo and Josie often quarreled
about money matters and management styles. Ricardo had more entrepre-
neurial characteristics: creative/innovative, flexible, updated on new trends,
and was willing to take risks. Josie belonged to the “old school” of businessmen
who could not understand Ricardo’s propositions regarding the rehabilitation
of their business: getting business loans, introducing unique footwear designs,
opening “tiangge” stalls, online selling, etc. She was contented with the small
profits they were making.
Since their business is a partnership, Ricardo cannot carry out his plans
without Josie’s consent. Josie’s pessimism, for him, is unacceptable and he fore-
sees the closure of their business in a few more years if Josie will go on with her
way of thinking.
Questions:
1. If you are in Ricardo’s place, what will you do to solve their business problem? Explain
your answer.
2. In the future, what legal form of business would you like to set up? Explain your answer.
Case Studies 153

Glossary
A period, following a pro forma accounting entry

achievement-oriented leadership – a (A = L + C)
leadership type where the leader sets the goals behavior observation scale (BOS) – a
that subordinates must try to achieve behavioral approach to performance appraisal
active listening – refers to the act of listening that measures the frequency of observed
well in order to grasp the full meaning of the behavior
communication received behavioral theory of leadership – a leadership
activity ratio – a financial control ratio which theory that focuses on the behavior, action,
determines whether the organization is conduct, demeanor, or deportment of a leader
carrying more inventory than what it needs instead of focusing on personality traits
advertisements – announcements of behaviorally anchored rating scale (BARS)
companies regarding their products/services, – a behavioral approach to performance
job openings, etc. through newspapers, appraisal that includes five to ten vertical
websites, radio, television, billboards, posters, scales, one for each important strategy for
and other media doing the job and numbered according to
agreeableness – the degree to which someone importance
is good-natured, cooperative, and trusting benchmarking – the process of measuring or
all-channel network – refers to comparing one’s own products, services, and
communication that flows freely among all practices with those of the recognized industry
members of a team leaders to identify areas for improvement
application form – forms filled out by job Big Five Personality Model – features
applicants which provide needed information personality traits/dimensions that influence job
about them performance, i.e. extraversion, agreeableness,
assertiveness – refers to how confrontational conscientiousness, emotional stability, and
and dominant individuals should be in social openness to experience
relationships boundaryless business organization – a
asset management – the ability of an business organization form whose design
organization to use resources efficiently and eliminates vertical, horizontal, or external
operate at minimum cost boundaries, and is described to be flexible/
assets – refer to all the properties, tangible and unstructured; there are no barriers to
intangible, owned by the organization information flow and completion of work is
audits – independent reviews and appraisal of fast
accounting, financial, and other nontactical bottom-up sales forecast – sales forecast that
operations relies on customer interviews in the form of
award – a nonmonetary reward that may be surveys or “traffic count” to assess the demand
given to individual employees or groups for in the coming periods
meritorious service or outstanding brokerage – a web-based business model
performance (e.g. trophy, medal, certificate of which brings buyers and sellers together
recognition, etc.) budget – an expression in financial terms of a
plan for meeting the organizational goals for a
B specific period
balance sheet – financial statement showing business environment – refers to the factors/
the organization’s financial condition and elements affecting a business organization
presents the financial balances of a particular business organization – a collection of people

working together to achieve a common preference for working with others as a group
purpose related to their organization’s vision, or team
mission, goals, and objectives and sharing a communication – the interpersonal exchange
common organizational culture of information and understanding
business plan – the “road map” which the communication networks – varied patterns of
business must follow utilizing the resources at combined horizontal and vertical flows of
hand and keeping in mind the influences of its organizational communication
organization’s environment community model – a web-based business
business prediction – a method of forecasting model in which support for the website comes
how variables in the environment will alter the from donations from users
future of business organizations compensation – wages or all forms of pay
business registration – a government given by employers to their employees for the
requirement that orders new business owners performance of their jobs
to furnish government agencies with necessary compensation rate influence – refers to the
information, prior to the legal operation of internal and external factors that influence
their business organization wage/salary rates
business vision – that which provides a picture competitive advantage – is the competency of
of where the entrepreneurial venture is headed an organization to outperform a competitor or
and what the organization can become in the competitors
future competitive mindset – a mindset that
encourages people to do their best; encourages
C organizations to continuously improve,
cash flow statement – a summary of the promote efficiency and reduce opportunities to
inflows and outflows of cash in an organization take advantage of the consumers
during a given period comprehensiveness – refers to the
certainty condition – is an ideal condition in completeness of planning coverage
deciding problems because the results of all computer networks – type of organizational
alternative solutions are known communication network that uses computer
chain network – a communication network communication applications such as e-mail,
wherein communication flows according to the blogs, teleconferencing, intranets, Internet, etc.
usual formal chain of command—downward conceptual skills – skills that enable managers
and upward to think of possible solutions to complex
Charismatic Leadership Theory – a problems
leadership theory which states that leaders who concurrent control – a control method that
have a charismatic personality are able to takes place while work activity is happening
influence their subordinates to follow them conscientiousness – the degree to which
collective bargaining agreement (CBA) – someone is responsible, dependable, persistent,
contract negotiations between workers’ union and achievement-oriented
and management groups, usually held every contingency plan – a plan prepared by
five years in companies, and which end with managers that may offer alternative courses of
the formalization and ratification of their action when the unexpected happens or when
agreement things go wrong
collectivism – the degree to which society control process – a process which involves the
emphasizes group accomplishments or the establishing of standards, measuring and
Glossary 155
reporting actual performance, and comparing it implemented solutions
with standards set and taking action defensiveness – the act of self-protection in the
controlling – involves evaluating and correcting, event of a threat
if necessary, of the work performance of delegation – assigning new or additional task/s
individuals or work groups/teams to make sure to a subordinate, or getting work done through
that they are all working toward a common others by giving them the right to make
direction or toward the previously set goals/plans decisions and take action
of the organization demographic situations – factors/elements
coordination – the harmonious, integrated action related to gender, age, education level, income,
of the various parts and processes of an number of family members, geographic origin,
organization and others that can affect organizational
cooperative – a group enterprise made up of management
several traders, consumers, and producers who are development – learning given by organizations
interested in producing or trading as a group and to its employees that is geared toward the
is managed by a board of directors individual’s acquiring and widening of his/her
corporation – a business company owned by five skills for future job appointments and other
or more persons, is registered and recognized by responsibilities
law as a “legal person” that has legal rights and diagonal communication – is communicating
responsibilities, can sue or be sued in court, can with someone or others who belong to
own and sell properties, and can transact/enter different departments/units and different
into contracts hierarchical levels
creativity – ability to think of new ways of doing direct compensation – compensation of
things workers which includes salaries, incentive pays,
cultural intelligence – enables organization bonuses, and commissions
managers to develop their ability to accept and directional plans – plans that give general
adapt to new cultures, both local and guidelines only; must be related to the
international, that may affect the organization to organization’s strategic plan
which they belong directive leadership – leadership where
culture – set of beliefs and values about how to act leaders give guidelines to followers so that task
and do things shared by a group of people accomplishment would be easier
customers – those who patronize an organization’s division of labor – is the assigning of different
products and services and can affect or be affected tasks to different people in the organization’s
by the activities of the organization different work units
customer-oriented – an entrepreneurial divisional approach – approach where
characteristic that enables entrepreneurs to shape departments are formed based on management
their service and market offerings according to of their products, customers, or geographic
their customers’ needs areas covered
downward communication – flow of
D communication from the manager who
daily pay – pay given to workers, computed belongs to a higher hierarchical level to the
according to the number of work days rendered subordinates who belong to lower hierarchical
decision-making – a process which begins with level
problem identification, followed by making divisional business organization – is a
solution choices, and ends with the evaluation of business organization made up of separate

business units that are semiautonomous and employee movement – series of actions
which have a division head responsible for his initiated by employee groups tending toward
unit’s performance an end or specific goals
employee referrals – refers to external
E recruitment of potential job applicants through
e-commerce – refers to doing business through recommendations coming from present
Internet use employees of the company
e-business strategies – refers to various employee relations – refers to the connection
techniques used in conducting business through shared by workers/employees as they perform
Internet use: e.g. business to business (B2B) or their assigned tasks for the organization to
business to customer (B2C) transactions which they belong
economic development – is a total process employment agencies – private or public
which includes not only economic growth but agencies that help companies in recruiting
also considers the social, political, cultural, and potential job applicants
spiritual aspects of the country’s growth entrepreneurial ventures – organizations that
economic development phases – are the persistently pursue opportunities characterized
distinct stages involved in the total process of by creative, innovative activities that have
economic development in a particular country service, growth, and profitability as their
and which includes: economic growth, principal goals
improvement of Human Development Index, entrepreneurship – innovative, creative,
availability of benefits provided by science and risk-taking, and growth-oriented behavior that
technology, and societal improvement of the bring new opportunities for individuals or
opportunities and general welfare of its organizations to start businesses and to produce
members new products that are beneficial for society
economic growth – the increase in the given environmental scanning – involves seeking
amount of goods and services produced by the for and sorting through data about the
country’s economy environment
economic security – a Filipino value which equities – actual capitalization of the firm/
refers to a Filipino citizen’s desire to be company
financially stable, to have the basic necessities Equity Theory – a theory developed by J.
of life, and to stand on his or her own two feet, Stacey Adams which states that employees
without asking help or support from others compare job outcomes in relation to what they
economic situations – factors/elements such put into it and then compare these with their
as: inflation, rates of interest, changing options coworkers
in stock markets, and spending habits of people ERG Theory – a theory proposed by Clayton
that can affect management practices in Alderfer which states that a set of core needs
organizations (existence needs, relatedness needs, and
efficiency – the ability to yield the maximum growth needs) explains the behavior of human
output from a minimum amount of input beings including workers’ behavior
emotional intelligence – the ability to manage esteem needs – refer to the human need for
one’s self and interact with others in a positive self-respect and self-fulfillment or to become
way the best according to one’s capability
emotional stability – the degree to which executive search firms – firms that seek out
someone is calm, enthusiastic, and secure candidates with qualifications that match the
Glossary 157
requirements of the job openings that their fixed budget – budget that allocates a fixed
client company hopes to fill amount or resources for a specific purpose
Expectancy Theory – a motivation theory flexibility – adaptability to various changes in
which predicts that employees are motivated to an organization’s environment
work well because of the attractiveness of the flexible budget – budget that allows change of
rewards or benefits that they may possibly allocation of resources, depending on or in
receive from a job assignment. proportion to difficult levels of activity in the
extraversion – refers to the degree to which organization
someone is sociable, talkative, and assertive forced choice method – a method of
external business environment – refers to performance evaluation that requires the rater
factors or elements outside the organization to choose from two statements purposely
which may positively or negatively affect its designed to distinguish between positive or
performance negative performance
external recruitment – the process of locating formal communication – communication
potential individuals who might want to join which takes place within prescribed, routine
the organization through sources outside the organizational work arrangements
company formal interview – interview of most
promising job applicants conducted by
F supervisor/manager or panel interviewers to
family business – a business owned and bring out the characteristics that were not
financially controlled by members of a family reflected in an applicant’s application form
feedback control – control method that takes forecasting – prediction of what may happen
place after the occurrence of the activity in the future
feedforward control – control method that functional business organization – a business
prevents problems because managerial action organization that groups together workers/
is taken before the actual problem occurs employees with similar or related specialized
femininity – qualities, attributes, and duties, introduce the concept of delegation of
characteristics associated with the female sex; authority to functional managers while still
womanliness allowing chief executive officers to retain
Fiedler Model of Leadership – a situational authority over strategic decisions
leadership theory that is based on the
assumption that a leader’s effectiveness is G
contingent or dependent on the extent to gender egalitarianism – refers to the amount
which a leader’s style is fitted to actual of effort which must be put into minimizing
situations in their organization’s internal and gender discrimination and role inequalities
external environment General Administrative Theory – a theory
filtering – the shaping of information which concentrates on the manager’s functions
communicated to make it look good or and what makes up good management practice
advantageous to the receiver or implementation
financial management – the management and general business environment – includes the
custody of the organization’s funds, seeing to it economic, sociocultural, politicolegal,
that these are effectively and efficiently utilized demographic, technological, global, and
to provide for all the needs of its various ecological situations that managers must
operating units consider in planning, organizing, leading, and

controlling their organizations according to the number of work hours
Goal Setting Theory – states that specific goals rendered
motivate performance and that more difficult human resources management – management
goals, when accepted by employees, result in of the organization’s personnel and includes
greater motivation to perform well, as recruitment, selection, placement, and training
compared to easy goals and development, among others
goals – the targets or desired ends that human skills – skills that enable managers in
management desires to reach all levels to relate well with people
grapevine – an informal communication humane orientation – refers to how much
network in organizations society should encourage and reward people
graphic rating scales – a performance for being kind, fair, friendly, and generous
appraisal method where each characteristic to
be evaluated is represented by a scale on which I
the evaluator indicates the degree to which an income statement – also known as the profit
employee possesses that characteristic and loss statement, which displays the cost and
grievance procedure – a formal procedure that expenses charged in order to recognize an
authorizes the workers’/employees’ union to organization’s revenues in a specific period
represent its members in processing a indirect compensation – compensation or
grievance or complaint benefits given by employers other than
financial remunerations
H individualism – the degree to which a society
healthy personality – personality possessed by emphasizes individual accomplishments or the
persons who are fully-functioning in mind, preference for working alone
body, and spirit; possessed by optimal persons informal communication – communication
functioning at the highest level which does not take place within prescribed,
Hersey-Blanchard Model of Leadership – a routine organizational work arrangement
situational leadership theory focused on informal organizations – organizations that
subordinates’ readiness or the extent to which exist because of friendship or common interest
they have the ability and willingness to information and communication technology
accomplish a specific work assignment management – is the management of
Hierarchy of Needs Theory – refers to information and communication technology,
Maslow’s Hierarchy of Five Human Needs: that collect, organize, and distribute data for
physiological, safety, social, esteem, and use in the organization’s decision-making
self-actualization functions
horizontal/lateral communication – information overload – occurs when too
communication that takes place among much information is received by an individual
employees belonging to the same hierarchical infomediary model – refers to the process of
level collecting information on product and service
horizontal organizational structure – refers users and selling it to other businesses
to the departmentalization of an organization innovative mindset – ability to think out of
into smaller work units, like departments and the box in order to survive business
staff departments, as their tasks become competition and have competitive advantage
increasingly varied and numerous over rival organizations
hourly pay – pay of workers computed integration – a process which involves the
Glossary 159
cooperation and coordination of an determines if the organization is technically
organization’s different work units insolvent
internal business environment – refers to the liabilities – refers to obligations that have to be
factors or elements within the organization settled by the organization
which may positively or negatively affect its line departments – departments under the
performance horizontal organizational structure that deal
internal recruitment – recruitment of with the firm’s primary goods/services and are
potential candidates for a job opening from responsible for manufacturing, selling, and
within the company providing service to their clients
intelligence test (or IQ test) – a liquidity ratio – a financial control ratio which
preemployment test to assess the applicant’s tests the organization’s ability to meet short-
mental capacity term obligations
investors – those who provide the company long-term plans – plans that go beyond a
with the necessary financial support period of three years
lower-level managers – frontline managers,
J also known as operational managers, who are
job characteristics model – refers to a job responsible for the supervising of the
design where the employees are motivated to organization’s day-to-day activities
perform well because the task assigned to them
have five core dimensions that serve as M
motivators: skill variety, task identity, task management – the process of coordinating
significance, autonomy, and feedback and overseeing the work performance of
Job Design Theory – a theory which states individuals working together in organizations
that employees are motivated to work well so that they could efficiently and effectively
through the combination tasks to form accomplish their chosen aims/goals
complete jobs manager – an individual engaged in
job enlargement – the horizontal expansion of management activities such as supervising,
a job by increasing the job scope sustaining, upholding, and assuming
job satisfaction – refers to employees’ general responsibility for the work of others in his or
attitude toward their respective jobs her work group, team, department, or the
organization, in general
L managing – process of working with and
labor planning – involves determining of the through others to achieve organizational
number and kind of people that an objectives, efficiently and ethically, amid
organization needs for carrying out its various constant change
functions and achieving its goals mañana habit – refers to common Filipino
leadership – the process of inspiring and belief that it is alright to postpone the
influencing a group of people to achieve a completion of tasks to another day
common goal market analysis – involves the analysis of
leading – is the influencing or the motivating market size, business competitors’ strengths
of subordinates to do their best, so that they and weaknesses, short-term goals, among
would be able to help the organization’s others
endeavor to attain their set goals marketing management – the process of
leverage ratio – a financial control ratio which managerial planning and executing of the

conception, pricing, promotion, and energetic and enthusiastic at the start of
distribution of ideas, goods, and services in projects but losing interest and slowing down
order to bring about exchanges to satisfy in the projects’ course
individual and organizational goals nonfinancial compensation – compensation
masculinity – the degree to which society given to workers by employers that includes
values assertiveness and feelings of material recognition programs, management support,
success giving of rewarding jobs, ideal work
matrix approach – an approach described as a environment, and convenient work hours
hybrid form of departmentalization where nonmonetary rewards – rewards which do not
managers and staff personnel report to the pertain to money, finance, or currency; refer to
superiors, the functional manager, and the intrinsic rewards that have a positive
divisional manager psychological effect on the employee who
matrix business organization – a flexible receives them
business organization which assigns experts/ nonprofit organization – a business
specialists belonging to different functional organization designed for the achievement of
departments to work together on one or more the organization’s mission, vision, goals and
projects; exhibits dual reporting relationships objectives, and providing service to clients
in which managers report to two superiors, the without expecting monetary gains or financial
functional manager and the divisional manager benefits for their endeavors
merchant model – a web-based business nonquantitative control methods – refer to
model that involves selling products through control methods that use tools such as
the web inspections, reports, direct supervision, spot
middle-level managers – are the tactical checking, and performance evaluation
managers in charge of the organization’s nonverbal communication – communication
departments through body movements, gestures, facial
mission statement – a statement of the basic expressions, eye contact, and by touch
purpose and scope of the organization’s
operations O
monetary reward – reward which pertains to one-on-one interview – an interview wherein
money, finance, or currency only one interviewer is assigned to an interviewee
monochronic culture – a culture where people online recruitment – recruitment of potential
tend to do one thing at a time, with emphasis job applicant by the use of the Internet or
on punctuality and sticking to rules websites
monthly pay – pay given to workers based on open business organizations – flexible
the number of work months rendered business organizations formed to meet today’s
motivation – refers to psychological processes changing work environment
that arouse and direct goal-directed behavior openness to experience – the degree to which
someone is imaginative, artistically sensitive,
N and intellectual
network organizational structure – is a operational plans – plans prepared by lower
collection of independent, usually single level-managers and identifies specific
function organizations that work together to procedures and processes applicable to a
produce a product or service particular area only
ningas cogon – the Filipino practice of being operations management – the management of
Glossary 161
activities related to the production of goods apart or allocating funds, and bringing
and services in organizations harmonious relations among the individuals
organization – a collection of people working and work groups/teams in the organization
together to achieve a common purpose
organizational behavior approach – is the P
study of the conduct, demeanor, or action of panel interview – a type of interview wherein
people at work several interviewers are assigned to interview
organization chart – a visual representation of an interviewee
the organization’s structure showing the participative leadership – a leadership type
different job positions in the firm and their which involves asking for suggestions from
hierarchical arrangement followers
organizational citizenship behavior – refers participatory planning – a planning process
to employee behavior that exceeds work-role that involves the people who will be affected by
requirements; behaviors that go beyond the call the plans and those who will be asked to
of duty implement them in all the planning steps
organizational change – any alteration of partnership – a business entity that is formed
people, structure, or technology in an when two or more persons formally agree to be
organization brought about by external or joint owners of a business
internal forces which it encounters Path-Goal Theory – a leadership theory
organizational commitment – refers to the formulated by Robert House which states that
extent to which an individual employee leaders must provide their subordinates with
identifies with an organization and its goals direction to achieve their goals, which must be
organizational culture – the set of beliefs and compatible with their organizations’ goals
values shared by organization members and pay equity – a concept related to fairness in
which guide them as they work together to giving just wages to employees
achieve their common purpose performance evaluation – a process (usually
organizational effectiveness – a measure of done once a year by an organization) designed
the organizational goals’ suitability to to measure employees’ work performance
organizational needs and how well these said performance orientation – refers to how
goals are being attained much individuals should be rewarded for
organizational development (OD) – refers to improvement and excellence
organizational change methods related to personality – the unique combination of
people, their nature, and quality of physical and mental characteristics that affect
interpersonal relationships as they work and how individuals react to situations and interact
collaborate with each other with others
organizational diversity – refers to the host of personality test – preemployment test
individual differences that make people in designed to reveal the applicant’s personal
organizations different from and similar to characteristics and ability to relate with others
each other physiological needs – refers to the human
organizational productivity – the amount of need for food, water, shelter, and other physical
goods or services produced (outputs) divided necessities
by the raw materials (inputs) needed to piecework pay – pay computed according to
produce the said outputs the number of units that the worker produced
organizing – involves assigning tasks, setting planning – the process of determining the

organization’s goals or performance objectives, them; members disband when the project is
defining the strategic actions that must be done completed
to accomplish them, and developing project management control – a control
coordination and integration activities method than ensures that the task of getting a
plans – the actions or means that project’s activities is done on time, within the
administrators/managers intend to use to budget, and according to specifications is
achieve organizational goals carried out successfully
politicolegal situations – factors/elements
related to international/national/local laws; Q
rules and regulations that can influence quantitative control method – refers to
organizational management quantitative tools (budgets/audits) to monitor
polychronic culture – a culture in which and control production output
people would like to accomplish many different
things at once, are more flexible with regards to R
time and rules rankings (in industry) – a common basis used
power distance – the degree to which a society by managers to measure organizational
accepts or rejects the unequal distribution of performance compared to other organizations
power among people in organizations and in industry
institutions of society recruitment – a set of activities designed to
praise – a form of nonmonetary intrinsic attract qualified applicants for the job position
reward given by superiors to subordinates vacancies in an organization
when they express verbal appreciation for reinforcement theory – the theory which
excellent job performance states that behavior is a function of its
pressure groups – special interest groups who consequences
try to exert influence on the organization’s reward – something given or done in return
decisions/actions for good work or accomplishment and which
productivity – the ability to produce quality may have a motivating effect on the employee
products and, ultimately, profits for the risk conditions – uncertainty conditions; in
organization deciding regarding problems, the results of all
proficiency and aptitude test – a alternatives are not known
preemployment test conducted to test the
applicant’s present skills and potentials for S
learning other skills safety needs – refers to the human need for
profit business organization – a business security and protection from physical and
organization designed for the purpose of psychological harm
achieving its mission, vision, goals, and sales forecast – prediction of projected sales
objectives, and maintaining stability through which often guide marketing heads/sales
income generation and profit-making activities managers
profitability ratio – determines the profits that self-actualization needs – refer to the need of
are being generated people for continued personal growth
project business structure – a business Scientific Management Theory – a
organizational form with a flexible design, management theory that makes use of a
where the employees continuously work on step-by-step method for finding the single best
short-term or long-term projects assigned to way for doing a job
Glossary 163
screening interview – an interview conducted investors/owners of business and their
to prepare a shorter list of applicants who will employees that can affect organizational
be asked to undergo a formal interview by the management
supervisor/manager specific plans – plans that are clearly stated
selection – the process of choosing individuals and use very understandable language
who have the required qualifications to fill specification – the process in which different
present and expected future job openings individuals and work units perform different
Servant Leadership Theory – a theory tasks
proposed by Robert Greenleaf which states that staff departments – departments under the
leaders must focus on increased service to horizontal organization structure that support
others rather than to one’s self, commitment to the activities of the line departments by doing
the growth of people, and building community, research, attending to legal matters, doing
and stewardship of material resources, among public relations work, and others
others staffing – the filling in of the different job
short-term plans – plans that cover a period of positions in the organization’s structure
one year or shorter stakeholders – parties likely to affect and be
simple business organization – a business affected by the activities of the organization
organization with few departments, centralized standing plans – plans that are ongoing
authority with a wide span of control, with few strategic control – a systematic monitoring
rules and regulations, and which is easy to that leads to the changing of the organization’s
manage because of its simple form strategies based on assessments done on
simple organizational design – an strategic plans that serve as control points
organizational design with few departments, strategic plans – plans that establish the
wide spans of control, and very little organization’s overall goals and apply to the
formalization of work entire firm
single (or sole) proprietorship – a business structured decision – a programmed decision
owned by one person only that is repetitive and can be executed using a
single use plans – plans that are used only routine approach
once structured interview – an interview that
small business – a business that has fewer than makes use of a set of prepared questions
100 to 500 workers (depending on the subscription model – refers to the web-based
prevailing commercial law in a particular business model involving the selling of access
country), independently owned, operated, and to a website
financed, not always entrepreneurial supportive leadership – a leadership type
social acceptance – a Filipino value which where leaders show concern and friendliness to
refers to a Filipino citizen’s desire to move subordinates
upward in the social ladder or change his or
her status within the same social class T
sociocultural situations – factors/elements tactical plan – created at middle-level
related to customers’ changing values or manager’s planning and is applicable and
preferences that can affect management needed in one unit/portion of the organization
practices in organizations target market – the segment of the market
specific business environment – refer to the which the company is willing and capable of
stakeholders, customers, pressure groups, and servicing

Team Leadership Theory – a theory that organization’s stability, development, progress,
emerged because of the fact that leadership is and overall efficiency and effectiveness
increasingly taking place within a team context Total Quality Management – a philosophy of
and that more companies are now utilizing management that focuses on the satisfaction of
work teams led or guided by effective leaders customers, their needs and expectations
team structure – a flexible business training – the learning given by organizations
organization structure made up of work teams to its employees that concentrates on short-
that work together to achieve the organization’s term job performance and acquisition or
purpose improvement of job-related skills
technical skills – skills that enable managers to training needs assessment – a systematic
use their expertise in performing their tasks evaluation done to ascertain if there really is a
with proficiency need for employee training
technological situations – factors/elements training program evaluation – involves
related to the use of varied types of electronic assessing the positive or negative effects of the
gadgets, such as computers, robotics, training program after employees have
microprocessors, and others that can affect completed it
organizational management transactional leadership model – a leadership
technology change – refers to changes in work model which states that leadership guide their
processes and methods used, introduction of subordinates toward the achievement of the
new equipment, work tools, automations, or organization’s goals by using social exchange or
computerization transactions, by offering rewards in exchange
Theory X – a negative view of workers which for their productivity
assumes that they have little ambition, dislike transformational leadership model – a
work, and avoid responsibilities, so they need leadership model which states that a leader
to be monitored/controlled to work effectively inspires or transforms followers to achieve
Theory Y – a positive view of workers which extraordinary outcomes
assumes that they enjoy work, seek out and trait method for performance appraisal –
accept responsibility, and are self-directed, so evaluation designed to find out if the employee
they do not need to be monitored/controlled possesses important characteristics like
closely conscientiousness, creativity, and emotional
Three Needs Theory – a theory proposed by stability, among others
David McClelland which states that individuals Trait Theory of Leadership – a leadership
have three needs (need for achievement, need theory focused on the leader’s trait or personal
for power, and need for affiliation) that serve as characteristics
motivators in doing work Two Factor Theory – a theory proposed by
time orientation – the degree to which a society Frederick Herzberg (also known as the
emphasizes short-term thinking versus greater Motivation-Hygiene Theory) which states that
concern for the future long-term thinking intrinsic factors (achievement, recognition,
top-down sales forecast – refers to sales growth, and responsibility) are associated with
forecasts that rely heavily on macroeconomic job satisfaction and could motivate employees,
and industry forecasts while extrinsic factors (company policy, salary,
top-level manager – refer to the general or security, and supervision) are associated with
strategic managers who focus on long-term job dissatisfaction and could demotivate
organizational concerns and emphasize the employees
Glossary 165
U Visionary Leadership Theory – a theory
uncertainty avoidance – the degree to which which states that leaders are able to make their
society is uncomfortable with risk, change, and subordinates follow because of their ability to
situational uncertainty create and articulate a realistic, credible, and
unionizing – refers to the grouping of attractive vision that may improve present
employees who want to express their conditions/circumstances
resentment over what is happening in their virtual business organization – a flexible
organization for the purpose of rectifying business organization that is made up of a
negative relationships with their employer small group of fulltime workers and outside
unsolicited applications – applications experts who are hired on a temporary basis to
received by employers from individuals who work on assigned projects; members are
may or may not be qualified for job openings physically dispersed and usually communicate
in a company electronically
unstructured decision – decisions applied to vocational test – a preemployment test
the resolution of problems that are new or designed to show the occupation most suited
unusual and for which information is to an applicant
incomplete
unstructured interview – an interview W
conducted without using an interview guide or weekly pay – pay given to workers that is
prepared set of questions computed according to the number of work-
upward communication – the flow of weeks rendered
communication from an employee who wheel network – refers to communication that
belongs to a lower hierarchical level to the flows between a leader and other members of
boss/manager who belongs to a higher their group/team
hierarchical level world and ecological situations – factors and
elements related to the increasing number of
V global competitions and markets; the nature
verbal communication – communication and conditions of the changing natural
through the use of spoken and written words environment that can affect organizational
vertical communication – communication management
flow between people belonging to different
organization levels
vertical organization structure – an
organizational structure that clears out issues
related to authority rights, responsibilities, and
reporting relationships

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• Helena Ma. F. Cabrera, PhD

• Clarence Darro B. Del Castillo

Department of Education • Republic of the Philippines

All rights reserved. No part of this book may be reproduced or transmitted in

Editors: Clarence Darro B. del Castillo

Reviewers: Wilson T. Ojales and Gregorio R. Sismondo

Printed in the Philippines by:_________________________________

This management course and this textbook are described as an

You are expected to fulfill your class requirements, to read and

Finally, you are encouraged to apply the learning experiences you

Lesson 4: Forms of Business

CHAPTER 5 Lesson 8: Rewards System 74

Lesson 2: Recruitment 54 Lesson 2: Motivation 80

Lesson 4: Training and Development 61 Lesson 5: Management of Change

CHAPTER 7 Lesson 4: Financial Management 130

Lesson 1: Definition and Nature Lesson 5: Information and Communication

CHAPTER 8 Case Studies 148

Nature and Concept

M anagement is the process of coordinating and overseeing the work

Fast Learning Review

3. Enumerate and describe the five functions of management.

Scientific Management Theory

General Administrative Theory

Nature and Concept of Management 5

1. Work division or specialization

12. Stability/security of tenure of

13. Employee initiative

14. Promotion of team spirit or esprit

Total Quality Management (TQM)

Deming’s 14 Points for Top Management Juran’s Fitness of Quality

1. Create constancy of purpose for 1. Quality of Design – through

3. Cease dependence on mass inspec- 3. Availability – through reli-

4. Full Service – through

5. Constantly improve the system of Juran’s Quality Planning

6. Institute training. 1. Identify your customers.

7. Adopt and institute leadership. 2. Determine their needs.

3. Translate them into one’s

9. Break down barriers between staff 4. Develop a product that can

5. Develop processes which

13. Encourage education and self-im-

Nature and Concept of Management 7

Fast Learning Review

A n individual engaged in management activities is called a manager.

Nature and Concept of Management 9

Fast Learning Review

Nature and Concept of Management 11

The Firm and Its Environment

B usiness Environment refers to the factors or elements affecting

Components of the Internal Business

Components of Environmental Scanning:

The Firm and Its Environment 15

Fast Learning Review

3. Why is customer satisfaction important in all types of businesses?

4. Give your own example of a sociocultural environmental influence on a business organization.

Geert Hofstede, also cited by Schermerhorn (2008), showed how

FIGURE 2.2 This bar graph shows the

comparative scores of a few countries

based on Hofstede’s cultural dimensions

PDI IDV MAS UAI LTO theory.

The Firm and Its Environment 17

Managing in a Worldwide Environment: Cultural,

Fast Learning Review