Amando Cope College

Baranghawon, Tabaco City

Modules for Mgt 1

Principles of Management and Organization
FEDERICO B. ENGAY, MBA - Instructor

Introduction
Companies that are considered excellent, have well thought-out and thoroughly designed control
system. Various management systems, such as the budgeting process, the planning process, the reward
system, and the organizational structure are evaluated to see that the planned activities are actually being
carried out. Control systems are designed to ensure that these occur.

Control systems direct behavior toward important goals. They are important because they
monitor reward, and reinforce the behavior and activities that management desires. All organizations
must control their activities, and the management of every kind of organization must be aware of how to
design effective control systems. Control systems coordinate the activities of all members of the
organization. They provide methods of integration and measurement. Control ensures that the effort of
all members of the firm are coordinated through standards, rules, norms, budget, and reporting systems.
In a sense, control offers the mechanisms for providing order to the diverse activities of the firm.

The need to manage uncertainty is another reason for the importance of control. The importance
of control system lies in their purpose of evaluating, monitoring, and correcting the performance of the
firm. They provide coordinating, integrating, and motivating force for every type of organization. Well-
managed companies have effective control systems that enhance ability to execute their strategies.

CONTROLLING

Control can be defined as the process of assuring that organizational and managerial objectives
are accomplished. It is concerned with ways of making things happens as they were planned to happen.
Control is a process which ensures that the actual activities performed match the desired activities, or
goals, that have been set. Control ensures that the deviations from the goals are corrected. It provides
feedback that can aid in setting future goals and standards.

Control process involves setting standards, measuring actual performance, comparing actual
performance to the standards, and taking corrective action when necessary. Control is effective when the
desired activities or objectives are achieved. Control techniques may include: budgets, college entrance
requirements, waiting lines at ticket stands, performance evaluation, and product quality controls. A
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control technique is a mechanism to help achieve the desired performance. It can be specifically
designed for the activity being controlled.

LELVELS OF CONTROL

Strategic control involves monitoring critical environment factors that could affect the viability of
strategic plans, assessing the effects of organizational strategic actions, and ensuring that strategic plans
are implemented as intended. Managers concentrate on relatively longer time frames, such as quarterly,
semi-annual and annual reporting cycles. If environment are unstable, managers use shorter reporting
cycles for strategic control. Top-level managers also make use of tactical and operational control to
ensure that tactical and operational plans are being implemented as intended at the middle and lower
management levels.

Tactical control focuses on assessing the implementation of tactical plans at department levels,
monitoring associated periodic results, and taking corrective action when necessary. These are middle
manager, who are concerned with department-level objectives, programs and budgets.

Operational control involves overseeing the implementation of operational plans, monitoring day-
to-day results, and taking corrective action when required. This is the responsibility of lower-level
managers, who are concerned with schedules, budgets, and rules. This provide feedback about what is
happening in the very near term to achieve both the short-term and long-term goals of the organization.

The strategic, tactical and operational controls are interrelated in the same way that planning
systems at different levels are integrated. Supposing, the company decides that quality will be important
part of the strategy, their quality becomes an element for control not only at strategic control levels but
also at the tactical and operational levels.

Figure 1: Levels of Control

Top Management
-Organization-wide perspective
Stra- Stra- -Long-term frame
tegic tegic
Planning Control

Middle Management
Tactical Tactical
-Department perspective
Planning Control
-Periodic time frame

Operational First-Level Management

Operational
Control -Unit/individual perspective
PLanning
-Short-range frame
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THE CONTROL PROCESS

The following are the complete steps for an effective control system.

1. Determine areas of control. Managers must must make choices because it is expensive and
virtually impossible to control every aspect of the organization’s activities. In some cases,
employees resent the idea that their actions are being controlled. Generally, major controls
are focused on organizational goals and objectives developed during the planning process.
2. Establish standards. Standards identify criteria for evaluating performance and related
employee behaviors. For example, standards might indicate how ell a product is to be made
or how effectively a service is to be delivered. Standards may also reflect behaviors that are
necessary, such as coming to work on time, observing safety rules or following ethical
guidelines in conducting organizational business.
Generally, standard purposes are: it helps employees understand what is expected and
how their work will be evaluated; it provides a basis for detecting job difficulties that are
related to personal limitations f employeed; it helps reduce the potential negative effects
between goals of an employee and those of the organizatyion. This is called goal
incongruence, where a common manifestation is theft, which includes wasting of
organization’s resources, equipment, material and money.
3. Measure performance. On this stage, the manager must decide both how to measure actual
performance and how often to do so. One apporach is management by objectives.
Measurement of performance depends on standards that have been set. Data such as units
produced, peso value of service rendered, number of defects, quality of output, profits or
return on investment can be basis for measuring performance.
4. Compare performance against standards. This step consists of comparing the performance
measured in Step 3 with the standards established in Step 2. Managers may compare data
on actual results versus summarized plan. They may make comparisons of performance and
standards by walking around work areas and observing conditions, a practice sometimes
referred to as management by wandering around.
Summary od reports may be made verbal, written or generated automatically in
conjunction with computerized processes. This proliferation of computers tied ionto network
has made it possible for managers to obtain up-to-the-minute status reports on a variety of
quantitative performance measures. This is called management by exception, a control
principle which suggests that managers should be informed of a situation only if control data
shows a significant deviation from standards.
5. Recognize performance, whether above or within standards. When performance meets or
exceeds the standards set, usually no corrective action is necessary. Positive performance
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needs to consider recognition which may vary from a verbal “well done”, bonuses, training
opportunities or pay incentives.
6. Take corrective actions as necessary, when standards are not met. Managers must carefully
assess why standards are not met. As part of their evaluation, they must personally chech
why the standards are not met. As part of their evaluation, they must personally check the
standards and the related performance measures to be sure they are still realistic. In some
cases, corrective actions may not be desirable because standards are inappropriate.
7. Adjust standards and measurement as necessary. Control is a dynamic process. As a
result, managers need to check standards periodically to ensure that the standards and the
associated performance measures are still relevant for the future. Managers use to control
process to keep track of various activities, but they must also be prepared to review the
process itself as necessary to be sure that it meets current needs.

TYPES OF CONTROL SYSTEMS (According to Timing)

As managers determine the areas that they want to control, they also need to consider the types
of control that they wish to use. Control systems, based on time, or stage in the productive cycle, in other
words, on whether they focus on inputs, trnasformation process or outputs.

Feedforward control focuses on the regulation of inputs to ensure that they meet the standards
necessary for the tranformation process, refer to Figure 2. Inputs may include materials, people,
finances, time and other resources used by the organization. This control attempts to evaluate potentioal
inputs and reject or correct those that do not meet standards. This is sometimes called preliminary
control, preventive control, or steering control. A careful selection and training of workers can be part of
feedforward control. Although it makes a significant contribution to organization effectiveness, they
cannot cover every possible contingency. Instead, other types of controls may also be needed.

Concurrent control involves the regulation of ongoing activities that are part of the transformation
process to ensure that they conform to organizational standards. It identifies difficulties in the productive
process that could result in defective output. This is also called screening or “yes-no” control. It
determines whether to continue progress, take corrective action, or stop work altogether for how various
activities are to be conducted such as production line length to move a car from body shop, to paint shop
to final assembly-about 27 hours per standard.

Feedback control is regulation exercised after a product or service has been completed in order
to ensure that the final output meet organizational standards and goals. This is sometimes called post-
action control or output control. This is used when feedforward and concurrent controls are not feasible
or are too costly, when the exact process involved in producing a product or service are difficult to specify
in advance, and in providing information that will facilitate the planning process. Finally, this control
proveds output information that is particularly useful in the process of rewarding employee performance.
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Multiple control are systems that use two or more of the feedforward, concurrent, and feeback
control process and involved several strategic control points. Multiple control systems develop because
of the need to control various aspects of a production cycle, including inputs, transformation, and output.

Figure 2: Types of Control System (Accrding to Timing)

Feedforward Concurrent Feedback

Control Control Control

Regulates inputs Regulates Regulates product

to ensure that ongoing or service after
they meet activities to completion to
standards ensure that they ensure final outputs
necessary conform to meets
tranformation organizational organiaztional
process standards standards and goals

Controls Controls Controls

INPUTS TRANSFORMA- OUTPUTS

TION PROCESS

TYPES OF CONSTROL SYSTEMS (According to Managerial Discretion)

Cybernetic control systems are self-regulating, self-operating with built-in devices to correct
automatically any deviations that occur. There is little need for managerial discretion or for human
intervention of any kind. Robotics and automatic factories are incorporating cybernetic controls to
eliminate the need for people to oversee the tasks. This is applicable to tasks with clear-cut standards
and if deviation exists, it can be automatically corrected without human intervention.

Non-cybernetic controls are applied to organizational activities using not complete routine or
standard. The more creative and unusual the task, the more managerial discretion is needed. Quality
circles allow the discretion of work groups in determining how best to complete the job and eliminate
problems.

CONTROL STRATEGIES

Aside from considering the types of control managers will employ, they also need to determine
the mechanisms they will use to implement controls. There are three basic managerial approaches,
these are: market, bureaucratic, and clan control.
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Market control is a managerial approach that relies on market mechanisms to regulate prices of
certain clearly specified goods and services needed by an organization. To be effective, there must be a
reasonable level of competition in the goods or service area and it must be possible to specify
requirements clearly. For example, a purchasing department can develop detailed standards for
specifications for goods needed by the organization and then initiate a competitive bidding process to
determine whether particular price quota are reasonable and minimize considerable time to control costs.

Bureaucratic control relies on regulations through rules, policies, supervision, budgets, schedules,
reward system, and other administrative mechanisms. Sources of control are mainly external to the
employee, it emphasizes a fixed set of duties, and the focus is on top-down hierarchical control. This is
useful for keeping recurring, relatively predictable activities running smoothly. Bureaucratic control is not
conducive to innovation. Likely, employee reaction is compliance rather than commitment.

Clan controlrelies on values, beliefs, traditions, corporate culture, shared norms, and informal
relationships to regulate employee behaviors and facilitate the reaching of organizational goals. Source
of control is internal motivation. Duties are flexible, contingent on changing conditions. This is conducive
to innovation, greater prospects for commitment to organizational objectives, and the increased
willingness to help bring about improvements in the workplace.

Figure 3: Control Strategies

Type Components Focus

Market Control  Self-contained units Coordination
 Prices
 Exchange relationships
 Clear responsibilities
 Specified outputs
 Semi-autonomy
Bureaucratic Control  Rules Compliance
 Identifiable task
elements
 Routine decision making
 Hierarchy
 Reward enforcing
conformit
Clan Control  Culture Commitment
 Personal commitment
 Social norms
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Function of Control

Function Purpose Methods

Overseeing To ensure that appropriate  Observing
action is taking place  Conferring
Comparing To determine the degree of  Measuring
agreement between actual  Collecting data
performance and assess the  Evaluation
significance of any deviation  Disseminating
information
 Reporting
Correcting Deviations To correct unacceptable  Immediate
deviation from desired  Basic
performance
Influencing Future Decisions To provide feedback to  Reporting
management for assessment of  Goal-setting
future goals

DESIGNING EFFECTIVE CONTROL SYSTEMS

To design effective control systems, management must assess the impact of the control systems
on the organization. Presented are the general objectives for the design of effective control systems and
the guidelines for designing them to maximize effectiveness. These goals relate to more than simply
keeping on track. They deal with such things as maintaining order, ensuring adequate information, and
encouraging compliance. The objectives are:

1. To establish order and consistency in the methods used to handle recurring problems.
2. To provide information about what should get done, and when.
3. To meet corporate objectives and to correct deviation in performance.
4. To provide information to management that is accurate and useful for evaluating current
goals and operating procedures.
5. To encourage compliance with regulations, and also to encourage innovation and
commitment.

GUIDELINES FOR EFFECTIVE CONTROL SYSTEMS

The nature of appropriate control varies according to the environmental conditions, nature of
work, type of firm, and people involved. An effective control system must be designed for each
organization, but there are certain guidelines that are appropriate for all firms. These guidelines are
aimed at developing an effective control systems.

1. Create valuable information. Valuable information is information that is timely, and relevant to
the decision makers. Managers must have information that truly reflects actual performance,
and it should be objective, comprehensible, and appropriate to the task.
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2. Be practical. Control system should be economically and organizationally practical. Systems

should be focused on points at which deviations are most likely to occur or are likely to be
especially costly. It should focus on points at which effective corrective action is most
feasible. For instance, if a manager needs only weekly information about production figures
for certain control purposes, a system providing hourly information would incur costs without
corresponding benefits.
3. Create a control culture. Organization must develop trust, flexibility and shared
understandings of the purpose of controls and rules. Employees must understand goals
because participation leads to shared understanding, a sense of ownership, and a more
effective system.
4. Practice continuous redesign. Control system should be flexible and responsive to changing
events that influence the firm. There should be a continual assessment of current levels of
controls, standards used, and control methods.
5. Maintain grievance procedures. Organization must embrace error rather than feel threatened
by deviations. Errors and deviations should provide important learning experiences and may
represent the acceptance of risk taking and creative approaches to a problem.
6. Accurate. Managers may make a poor decisions on the basis of faulty data they believe to
be accurate. Accuracy is vital, since controls provide the basis for future actions.
7. Realistic. Control systems should be reasonable, it should incorporate realistic expectations
about what can be accomplished.
8. Monitorable. Control systems should be controllable to ensure that they are performing as
expected.
9. Timely. Control systems are designed to provide data on the state of a given production
cycle or process of a specific time, like a weekly update on a project, daily production report,
or monthly sales report.
10. Future-oriented. A well-designed control system focuses on letting managers know how work
is progressing toward unit objectives, pinpointing areas on which future corrective action is
needed, and uncovering unforeseen opportunities that might be developed.
11. Flexible. Control systems need to be flexible enough to meet new or revised requirements.
They should be designed so that they can be changed quickly to measure and report new
information and track new opportunities.
12. Acceptable to organization members. Control system is apt to be acceptable when it gives
fair and accurate picture of employee performance and they focus on important issues that
are compatible with organizational goals.

CONTROL TARGETS
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The techniques for the control of financial, material, human and informational resources are
presented on this section.

Budgets and Financial Controls

Financial controls aim to control and predict the use of funds, which are limited, help meet
organizational goals. Careful attention must be given to their allocation to ensure that all major activities
are funded. The methods included are budget, financial analysis and financial audits. Firms can
maximize survival by managing profitability, cash flow, and capital investment.

Budget is a formal statement of the expenditure needed for future activities for a specific time
period. This is the common denominator for company activities, including earnings and expenses. The
manager is expected to operate within the amount that has been set. Actual expenditures will be
compared to the budget to identify when corrective actions are needed. It requires a process by which a
company divides its resources and allocates them to the various business units. Two key types of
budgets are operating budget and financial budget. An operating budget summarizes the raw materials,
goods and services expected to be consumed during the time period. Financial budget estimates the
amount of cash needed to support the expected level of activities during the specified time period.

Financial analysis assists in identifying the major financial strengths and weaknesses of a firm by
determining whether funds are used efficiently and the firm is financially viable. It identifies whether the
company has enough cash to meet obligations; a reasonable accounts receivable collection period; and
an efficient inventory policy. This determines the financial condition of the company, its liquidity position,
and its profitability. Financial analysis requires the integration of some components drawn from balance
sheet and income statement. Income statement shows the revenue, expenses, taxes and profits over
time. Retained earnings statement provides a summary of the changes in the earnings retained in a
business for a specified period of time. A financial ratio is a form of financial analysis which shows the
relationship indicating something about a firm’s activities, such as the ration between firm’s assets and
liabilities. Break-even analysis shows the point at which there is neither profit nor loss.

Financial audit is the final element of financial control which provides an independent and
unbiased evaluation of data reported and the procedures used. Primary types are internal and external
audits. Internal audit periodically appraises the overall system to evaluate whether or not goals are being
achieved. External audit is undertaken by people such as certified public accountants, who report firm’s
activities and provide an expert opinion that the statements fairly represent the firm’s condition.

Operational Control
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This is concerned with the management of the transformation of inputs into outputs. There are
four key decision categories in operations control: process, capacity, inventory, and quality control.

Process control involves facility planning such as capital investment decisions, purchase of plants
or equipment. Capacity control involves long-range forecasts to the amount of product or service being
produced, generating alternative capacity plans, scheduling operations, and deciding on a plan for
implementation. Controls are concerned with predicting how much capacity is needed, and when it is
needed.

Capacity control relates to forecasts on the amount of product or service being produced,
alternative capacity plans and scheduling operations.

Inventory control involves keeping raw materials and finished products on hand to meet demand.
This system manages the costs of ordering, storing and handling inventory. It involves deciding when to
order and how much.

Quality control measures must be taken to monitor the transformation process and to correct
deviations. Product quality control ensures the maintenance of standards for the product.

Behavioral Controls

Behavioral controls influence the behavior of the workforce, the firm’s human resources. These
controls are of two primary types: formal behavioral controls such as job analysis, performance
appraisals, selection and training, and staffing levels; and informal behavioral controls such as culture,
socialization, and executive power. In this section, informal behavioral control is discussed.

Culture consists of the shared beliefs, ideologies, and norms that influence organizational
decision making. Japanese firms use the culture of the firm for controlling behavior by having songs,
uniforms, and team-building exercises. These helps to build identification with a commitment to the firm
and thus increases likelihood that individuals will act in the best interest of the firm.

Socialization refers to the process by which an individual attains the attitudes, values and beliefs
of the organizational culture. Organizational programs, rewards and rituals are means used by
organizations to socialize their members. It is intended to get the individual to conforms to the accepted
norms and behave in a way that is considered desirable by management.

Executive power is an important technique for influencing people and for getting them to do what
is desired. The power of people in leadership positions works to control behavior, because other believe
these people can influence the future of the firm and can back-up promises and threats. Frequently,
sharing power involves delegating the task of directing how things are done, but not what things need to
be done. Thus, even delegating becomes an informal control technique of executive power.

Informal Control
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Management rely on information and reports to monitor activities. They must have accurate
information for making decisions. Rapid growth of technology means it is easier to process more pieces
of information at a faster pace. With the development of distributed networks, it is now possible to get
information from geographically dispersed offices and foreign subsidiaries. Management deeds to define
the objectives for information control and systems development, determines the estimates of the values
and costs, and evaluates the information quality and system performance.

EXERCISE

Name: ________________________________________________ Date: ________________

Essay:

1. Describe the three levels of controls in organizations. Consider an organization with which you
are familiar, identify a control at each level.
2. Describe the major types of control by timing. Supposed that you are managing a small factory
that makes microchips for a well-known computer manufacturer, explain how you would use each
control type to help maintain adequate control over the manufacturing process.
3. Differentiate cybernetic and non-cybernetic controls. Explain how you might use this types of
control in a managerial position.
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Module 6

MANAGEMENT IN THE FUTURE

Throughout this work, it had been emphasized that effective managers are future-oriented and
that through effective planning, organizing, directing and controlling can turn what appear to be problems
into opportunities. According to survey, several issues posing the major challenges to business in the
future are: government regulations, energy shortages, and public relations.

Some of the problems can be turned into challenges for innovative and creative managers,
pressures for equal employment opportunities for everyone, demand for career development
opportunities, compensation problems, new leadership and management styles, social responsibility and
ethics, and political problems.

Different Types of Employees

Future workforce will be more diverse groups. They will be more affluent because there will be
two wage earners in two or three families. New workers will have more leisure time. Hours of work will
decline, and vacations and holidays are more generous. They will be more mobile. A typical worker kept
a job for 4.6 years. Now he or she changes a job every 3.6 years, and will probably decline. They will be
more technically and professionally oriented. Workers will be older, because of decreasing birthrate.
This trend, along with the increase in the mandatory retirement age of sixty or sixty five, is expected to
cause the average age of employee. There will be more women. Jobs women hold are being upgraded,
although women are still concentrated in “women’s job”, they are beginning to move up into higher-level
positions. Workers will be better educated. Younger, better educated workers are replacing the older,
less well educated ones are leaving the work force.

There are several consequences of these changes. First, increased knowledge will raise the
productivity capacity of employees and consequently increase their earning capacity. Second, this
knowledge will tend to limit the employment opportunities of the unskilled and uneducated, and cause
them to become unemployable and not promoted. Third, increased education will lead to greater mobility
and higher turnover. Fourth, manager will face the problem of employee alienation and frustration.
Young people are convinced that education is the best route to increased status, power, and income.
Fifth, workers will be more independent, they are more inclined to be self-employed or entrepreneurship-
oriented.

Improve Career Development Opportunities

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Increasing awareness among employees requires that their development be a fundamental

management responsibility. Some of the key concepts of career development program include: the
lifelong process of employee development; the employee’s personal responsibility for growth; the
independent roles of employee and manager; and the importance of nurturing and honesty. Stiff
competition for managerial position exists. Currently, there is an upward trend in the number of already
employed individuals seeking graduate courses in business. This is, not only to upgrade skills and
education for career development but also for self-development.

Compensation

As a result of escalating inflation, compensation is of great concern to most employees, as well

as to professionals and managers. But this will be a two-way process, employees will tie compensation
packages to productivity and profits. Probable programs may include: total compensation philosophies to
produce cost-effective package; incentive (variable compensation) programs; programs to encourage
employee ownership; programs designed to communicate management’s business objectives and
economic factors that affect the income statement and balance sheet.

New Leadership and Management Styles

There will be continuing demands for significant work and more participation in decision making.
Contingency management and situational are the appropriate leadership styles today and in the future,
with emphasis to results. More and more situations will require participative management, where
managers are sensitive to the need of employees and help to integrate employee objective with the
organization’s objectives.

Social Responsibility, Ethics, and Values

In the future, even more than today, managers will be judged on the basis of their social
responsibility, ethical behavior, and values. Creating or maintaining jobs and protecting the environment,
will be reconciled.

Political Problems

Managers, increasingly, will have to become involved in external political arena. Issues such as
power, coalitions, delaying action, restating issues, and temporary concessions will all be involved in the
future. Political skills will become even more essential for effective management. The primary
characteristics of the model manager of the next decade can be summed up as follows:

1. No manager can be an island in the 2000s. Future manager will recognize a dependence upon
an interrelationship with people throughout the world. Although a generalist, he or she will have
to be a communications specialist, using techniques for communicating with colleagues,
subordinates, and superiors. Facsimile reproduction, internet connection centers,
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teleconferencing, cellular phones and other electronic gadgets are predictable tools they will
employ.
2. They will be more concern with productivity, profitability and people. Managers of tomorrow will
recognize that achievement of objectives will depend on the integration of these three systems.
They will be interested in people because they are essential to achieve the productivity
management seeks and because they can, if they work together, making production more
profitable.
3. Managers and supervisors will not have to complete their education. This does not imply that
uneducated people will be able to rise to positions of importance. A successful manager will
simply never find it is possible to stop learning. The manager of tomorrow will use the best of the
past to make the future even better.

THE ETHICH OF BUSINESS

George Bernard Shaw remarked that members of every profession are so deeply involved in the
gathering that they lose sight of giving. Perhaps it is the very nature of management that it is unable
to maintain consistent devotion of service. Perhaps, service to society is a goal to the majority of
managerial pursuits, if the company can afford it, but not to come before profits or income.

Model of Social Responsibility

The disagreement over the extent to which corporations are socially responsible lies in these
theories- the theory of traditional corporation and the theory of metro-corporation. In the traditional
corporation, the stockholders are the kings, and maximum profits are the objectives. The corporation
recognizes no public responsibilities except legal ones. Unions will take care of the working man-the
corporation must take care of itself. The metro-corporation believes that it is a major social institution,
as such, recognizes its obligation to serve its society. It does not confine itself to pure activities of a
business nature. It emphasizes right and duties as a “citizen” and gets involved in many types of
social projects.

With this theories, two extreme position exists: that business does not and should not do anything
except to maximize profits; and that business should forget all about profit motives and simply settle
down to do social good. Both aspects are necessary. Some balance must be sought. The obvious
fact is that they are doing their job, then they are probably doing it long. Nothing is quite as critical to
a journey as a clear understanding of the destination.

The model on Figure 1 identifies the lowest level of acceptable responsibility as when a firm
operates in such a way as to satisfy the legal demands that are required for it to engage in business.
The traditional corporate manager of the profit-maximizing manager would probably remain at this
level. A manager who is somewhat responsible would be willing to go beyond the law to meet the
recognized expectations of the public. The next level of social responsibility is anticipation of new
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social demands. When executives are into setting new standards of business performance, it
reaches the final level of social responsibility.

Figure 1: The Hierarchy of Social Responsibility

Leading

Anticipating

New Demand

Meeting

Public Expectations

Obey the Law

GLOBAL ORGANIZATIONS FOR A GLOBAL ECONOMY

International business have been called multinational companies. Recently, the term global
corporation has been suggested. Consequently, international management, the pursuit of
organizational objectives in international and intercultural setting, has recently emerged as an
important discipline. A multinational company (MNC), is a business that exercises strategic control
over production and/or marketing facilities in two or more countries. Productive facilities include
anything from mines, farms to banks, factories, stores, and hotels. It involves more than the export of
goods from a producer country to a consumer country. Whereas, a global corporation is engaged in
a worldwide network of fully integrated design, production, and marketing operations.

Multi-nationalism or globalism do not occur overnight. Instead, they are associated with the final
stage of an evolutionary “internationalization” process consisting of six types.
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Stage 1. Licensing. Companies in foreign countries are authorized to produced and or market a
given product within a specified territory in return for a fee.

Stage 2. Exporting. Goods produced in one country are sold for use or resale to one more
companies in foreign countries.

Stage 3. Local warehousing and selling. Goods produced in one country are shipped to parent
company’s storage and marketing facilities in one or more foreign countries.

Stage 4. Local assembly and packaging. Components, rather than finished products, are ship to
a company-owned assembly facilities in one or more foreign countries for final assembly and sales.

Stage 5. Joint ventures. A company in one country pools resources with one or more companies
in a foreign country to produce, store, and transport and market products with resulting profits/losses
shared appropriately. This is also called strategic alliances or strategic partnerships, where three
aspects needed to be successful are: first, exercise patience when selecting and building trust with a
partner that has compatible products and markets; second, learn as fast as possible without giving
away technology and trade secrets; third, establish firm ground rules about rights and responsibilities
at the outset.

Stage 6. Direct foreign investment. A company in one country produces and markets products
through wholly-owned subsidiaries in foreign countries.

A company with an international presence has three over-riding strategic goals: efficiency of
operations, management of risks, and adaptation through learning and innovation. Efficiency is made
difficult because geographically dispersed operations exaggerate the forces of organizational
differentiation and weaken the forces of integration or coordination. Risk management is complex
because of cultural variations, unusual economic and political uncertainties, and unpredictable
demands from host government and joint-venture partners. Perlmutter identified three managerial
attitudes toward international operations labeled as ethnocentric, polycentric, and geocentric.
Ethnocentric attitude is home-country oriented. Home-country personnel, ideas, and practices are
viewed as inherently superior to those from abroad. Foreign nationals are not trusted with key
decision or technology. Polycentric attitude is a view that assumes local managers in host countries
know best how to run their own operations. Its advantages are intensive exploitation of local markets,
better sales since local management is often better informed, more local initiative for new products,
more host-government support, and good local managers with high morale. Geocentric attitude is a
world-oriented view that draws upon the best talent from around the globe. Skill, not nationality,
determines who gets promoted or transferred to key positions around the globe.

THE ENVIRONMENT OF INTERNATIONAL MANAGEMENT

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International management environment consists of economic, legal/political, and socio-cultural

domains to which managers must adapt.

International Economic Domain

Countries around the world have widely diverging per capital income levels, economic growth
rates, and levels of development. W. Rostow classified economic growth to five stages. The first stage is
traditional, consisting of countries who have yet to get off the ground. These countries rely on agriculture
and raw materials for their existence. Second, starts with industrialization, where countries rely on foreign
investment to support economic growth. Third, countries have adequate financial resources to sustain
continued growth without dependence on outside funding. Forth, industrialized society, where industrial
sector makes the greatest contribution to the country’s gross national product. Finally, countries reach
the mass consumption stage when the service sector contributes heavily to the national output.

Recognition of the diversity of economic conditions in countries around the world is necessary for
effective international management. International managers must also consider exchange rates, the rate
at which a country’s currency is exchange for another countries. Market supply and demand can affect
the relationship between the day-to-day values of one country’s currency with another country under free-
floating exchange rates system.

Legal/Political Domain

The international manager must be familiar with the laws restraining or encouraging international
transaction on areas such as:

1. Tariffs. Taxes imposed on imported products.

2. Quotas. Legal limitation on the quantity of particular products that can enter a country during
particular time period.
3. Administrative measures. Health and safety law, customs inspection procedures, and
regulation affecting minimum pricing of foreign-made goods.
4. Exchange control. Limitations on exchanging the home country currency for foreign
currencies.
5. Local content laws. Requirements that certain percentage of finished goods be made parts
produced in the importing country.
6. Subsidies. Special tax incentives that encourage the production of goods for export rather
than domestic consumption.
7. Commodity agreement and producers’ cartels. International agreement to stabilize the prices
of food or raw materials than to allow free-market price competition to take place.
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Government have also devised regulations to discriminate against foreign investors. Laws such
as requiring certain percentage of local nationals be employed in the managerial and labor
workforce in the plant, requiring all or portion of foreign firm’s assets in host country to be owned
by local governmental agencies, devising means to improve international cooperation to reduce
trade barriers among nations, like the General Agreement on Tariffs and Trade, now World Trade
Organization, where member nations meet periodically to negotiate reciprocal reductions of tariff
and non-tariff barriers.

Socio-cultural Domain

The social and cultural differences among the ethnic groups who populate the nations of
the earth have a direct effect on the selection of a managerial style, the adoption of products and
promotional messages, communication with employees, and the relative levels of productive
efficiency among the operating facilities in various countries. The first critical area is
communication – spoken, written, and visual (body language). Religion and values can have far-
reaching implications for managerial style and effectiveness. Policies affecting holidays, work-
break, retirement, role of interest and profits, selection of employees may be influenced by
religious factors. Cultural value system also have an impact on the nature of the decision-making
system, such as the influence of the family on the individual, the degree of politeness in
negotiation, and the role of authority versus participation in decisions. Another area is the nature
and extent of education, to determine the level of literacy.

This knowledge of the environment facing the international manager is essential to

deciding on proper strategies and human relations approaches when exporting and marketing in
other countries. Strategies must be carefully developed to account for global diversity.

Figure 2: Different Attitudes toward International Operations

Organization Design Ethnocentric Polycentric Geocentric

Identification Nationality of owner Nationality of host Truly international
country company but identifying
with national interest
Authority; decision High on headquarters Relatively low on Air for collaborative
making headquarters approach between
headquarters and
subsidiaries
Evaluation and control Home standards Determined locally Find standards which
applied for persons and are universal and local
performance
Communication; High volume Little to and from Both ways and
information flow subsidiaries; orders; headquarters; little between subsidiaries;
commands; advice between subsidiaries heads of subsidiaries
part of management
team
Perpetuation Recruit and develop Develop people of local Develop best people
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(recruiting, staffing, people of home country nationality for key everywhere in the world
development) key positions in their positions in their own to key positions
own country country everywhere in the world

STRATEGIC MANAGEMENT

In a very competitive world of business, success would be very hard for any firm. Applying the
management functions cannot make a firm successful. A field study that can help the management
functions makes a firm successful is what we call “strategic management”. Strategic management is
a set of managerial decisions and actions that determines the long-run performance of a corporation.
To deal effectively with all the aspects and for the company to grow profitably, executives design
strategic management processes to facilitate the optimal positioning of the firm in its competitive
environment. It involves attention to the following critical areas:

1. Determining the mission of the company including broad statement about the purpose,
philosophy and goals.
2. Developing a company profile that reflects internal conditions and capabilities.
3. Assessment of the company’s external environment.
4. Analysis of possible options in the external environment.
5. Strategic choice of a particular set of long-term objectives.
6. Development of annual objectives and short-term strategies compatible with long-term
objectives.
7. Review and evaluation of the success of strategic process to serve as basis for control and
as input for future decision making.

Strategic management aims at keeping an organization appropriately matched to its

environment, that to be effective, the managers must engage in series of steps. These steps are:
performing environmental analysis, establishing organizational direction, formulating
organizational strategy, implementing organizational strategy, and exercising control. It is
decisional process that combines an organization’s capabilities with the opportunities and threats
focused on both the internal and external environment. It aims at matching organization with
environment – that is, to its operational surroundings. Organizational environment are constantly
changing, and organizations must be modified accordingly to ensure that organizational goals can
be attained. Legislations affecting the organization changes in the labor supply available to it,
and actions taken by its competition are examples of changes within the organization’s
environment that are normally addressed by management.
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Benefits of Strategic Management

A company can acquire several benefits from the practice of strategic management. The most important
benefit is the tendency of such organization to increase their level of profit. In addition to benefiting
financially, organizations can gain other advantages, such as the increase commitment or organizations
members to the attainment of long-term organizational goals. This is enhanced as organizational
members participate in setting organizational goals as well as in setting strategies in reaching these
goals. In addition, this minimizes the organization’s negative reactions to movement within the market
place or by competitive reactions that could put the organization at a sudden disadvantage.

Descriptive Model of Strategic Management

The process of strategic management involves four basic elements: environmental scanning;
strategy formulation; strategy implementation; and evaluation and control.

Top management scans both the external environment for opportunities and threats, and the
internal environment for strength and weaknesses. Managers must have to evaluate the strengths,
weaknesses, opportunities, and threats or SWOT. The external environment consists of task
environment and social environment. Task environment are elements directly affecting the firm’s major
operations. These may include the stockholders, government, suppliers, community, competitors,
customers, labor union, and trade associates. On the other hand, societal environment includes forces
affecting long-run decisions such as economic, socio-cultural, technological and political-legal. These
variables from the context in which work is done.

They include the corporation’s structure, culture and resources. The corporate culture includes
communication, authority, and workflow, which determines the way in which an organization follows its
chain of command in the organization chart. The corporation’s culture is that pattern of beliefs,
expectations, and values shared by the corporation’s members. It defines the acceptable behavior of
people from top management down the operative employees. Corporate resources are those assets that
form the raw material for the production of an organization’s products or services.

Strategy formulation defines the corporate mission, specifying achievable objectives strategies,
and setting policy guidelines for the development of long-range plans for effective management of
environmental opportunities and threats, in lights of corporate strengths and weaknesses.

Strategy implementation is the process by which strategies and policies are put into action
through the development of programs, budgets and procedures.

Evaluation and control involved monitoring for any progress. Questions like “Is the strategy being
implemented and administered as it was supposed to be? Was it able to produce the desired result?”
Management may have to reconsider both the contingencies of the strategic plans and practicality of the
expected results to be able to answer such questions. If the process of management has deviated from
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its intentions, then the feedback which results from the re-evaluation initiates a process of recycling
strategic plan. According to Peter Lorange, any particular method of strategic management must answer
four simple questions that consider both the planning and action components of the strategy concept:
Where are we going?; How do we get there?; What is the blueprint for action?; How do we know if we are
on track?. The concept of strategy require that we begin with some sense of which road we want to take.
This could be answered by the following words; mission/vision, goals, objectives, purpose. Strategic
management must also specify a set of programs that will lead to the desired outcome. If the concern of
first question is about the ends; second question is on the means; third, ask concrete plans of actions with
which to implement our programs; fourth, tell us to pay attention to control in order to be sure that the
strategy is on the right track.

Figure 3: Basic Elements of the Strategic Management Process

Environmental Strategy Strategy Evaluation and

Scanning Formulation Implementation Control

Figure 4: Strategic Management Model

External Evaluation
Strategy implementation
& Control

Mission

Objectives
Societal
environment

Strategies
Task
Environment
Policies

Internal
Programs

Designs

Procedures

Performance
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Structure
Culture
Resources

Exercise

Name: ___________________________________________ Date: ____________________

Essay:

1. Outline the major components of strategic management process. Explain why engaging in

strategic management is likely to be beneficial for an organization.

2. Explain SWOT. Conduct a brief SWOT analysis of your college or university by developing two

items for each of the four SWOT categories.

3. Give examples of three ways that government restrain international business activities.

4. What is mean by social responsibility? Give three examples of social responsible actions by

some firms around you.

5. Discuss five possible changes which may serve as challenge for creative managers in the future.

Good luck and have a safe sembreak.

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