Management for Filipinos by Inigo Jr.

fVlEWHAlSEDEC mASCAtINS 090§236>9fr5fr /c.ompnenensMei&'iiiimoiifiedi

Conrado E. Inigo, Jr., Ph.D., DBE

All Rights Reserved Philippine C op yrig ht© 1 98 6 Revised Edition, 2012 C O NRADO E. INIGO, JR., Ph.D., DBE W ARNING: No part of this book may be reproduced any form without the written permission from the publisher. Any copy o f this book not bearing the signature of the author shall be considered as proceeding from an illegal source.

This edition is designed & printed by Gemini Phils. Graphic Arts Corp. 2323 San Anton St., Sampaloc, Manila eedback, suggestions or inquiries, please contact

DR. CONRADO E. INIGO, JR. LYCEUM OF THE PHILIPPINES UNIVERSITY Cell No.: 0917-5212188 Landline No.: 359-7693 Email: c.inigo@ yahoo.com

ii

Management for Filipinos

Dedication To my wife, son and daughter - Mayette, Christian, Charmie To my parents, brother, sisters, in-laws, nephews and nieces. To all parents, teachers and students.

“What things so ever ye desire when you pray, believe that ye receive them, and ye shall have them.” Management for .cilip the famous Hawthorne Studies at the Hawthorne Plant of the Western Electric Company in the United States. These studies were conducted by Elton Mayo and his associates from Harvard University. Initially, the researchers were interested in investi­ gating the relation between the illumination factor and productivity. A detailed analysis of these studies shed some light on the human behav­ ior in work situations. The Hawthorne employees interpreted the ex­ perimentation with illumination as evidence of >the fact that manage­ ment was interested in them and their welfare and the result was an increase in productivity. The powerful role played by the informal groups and interpersonal relations were' also recognized as a result of these studies. > The purpose of the human relations movement, as claimed by the theorists, was not to replace the classical school of thought but to re­ orient its thinking, from the financial to the human factor. The human relations theory draws its backing mainly from the field of social psy­ chology and from other related fields. Drawing a theoretical framework from these fields, concepts such as leadership, motivation, change, con­ flict, and communication were studied and researched in the context of the industrial situation. As a result of these studies, several prescrip­ tions were offered to solve various industrial problems. The practitio­ ners in the field of management learned how to overcome resistance to change; how to motivate employees with long-range effects; how to improve communication techniques and methods; how to provide good leadership, and so on. Theorists like Argyris, Barnard, March, Simon, Likert, McGregor, and others have made valuable contributions to this school of thought. The human relations theorists contend that an employee must be treated as a human being and not as a mere factor of production. Critics contend that the human relations theorists have placed too much em­ Nature and Concept of Management

51

phasis on the human aspect in the organization. Business organizations are not social welfare organizations and to survive in the highly com­ petitive environment, they have to consider many other factors besides the human factor. Perhaps not surprisingly, the criticisms of both the classical theory and the human relations theory have led to some new thinking in the field of organization theory, the management science or quantitative school of thought.

Management Science or Quantitative School of Thought The management science approach stresses the use of quantita­ tive techniques and methods in decision making. According to the theo­ rists who belong to this school of thought, management simply make a series of decisions. The whole emphasis is on decision making. This school of thought is also known as the quantitative school of thought because a wide variety of quantitative tools for analyzing information in the decision making process. The quantitative approach was initiated during the 1940s. The management science or quantitative approach advocates a logical sequence of problem formulation, gathering information and data, constructing mathematical models, exploring tentative solutions, testing the suggested solutions, and executing them. Since the emphasis is on quantitative approach, it requires, the skills of individuals with mathematical, statistical, engineering, economics, and general business background. Since one individual may not have a varied background, this school of thought suggests a team approach to decision making. Quantitative tools commonly used are: waiting line theory or queueing theory, linear programming, program evaluation review tech­ nique (PERT), critical path method (CPM), Monte Carlo method, deci­ sion theory, simulation theory, probability theory and so on. Some of these techniques will he discussed in the chapter dealing with decision making. In general, the use of quantitative techniques in the decision­ making process is known as operations research. Miller and Star define operations research (OR) as "applied theory," in which the manager attempts to achieve rationality in dealing with problems by using any scientific, logical, or mathematical means. Some theorists attempted to describe the decision-making pro­ cess, drawing knowledge and skills heavily from economics and psy­ chology. This approach is known as descriptive decision theory. There are those theorists who attempted to prescribe how decisions should be made, given the goals and resources of the organization. It will be quite a laborious task to identify all those who contrib­ uted to this school of thought. They go by various titles ranging from management analysts to operations researchers. 52

Management for Filipinos

However, they share certain common characteristics such as: 1. The application of scientific approach to managerial problems and situations. 2. The main concern is for the improvement of manager's decision-making. 3. A high regard for economic effectiveness. 4. A reliance on the use of quantitative tools or mathematical models. 5. The use of electronic computers in decision making and other areas of management.

Modern Management There is no such theory as the modem management theory since there is no one theory accepted by all theorists in the field. The modem management theory is not a single view or theory expressed or formu­ lated by a particular theorist. It has taken different directions and it is still in the process of evolving. The contributors to modem manage­ ment theory come from the behavioral sciences, operations research, management science, and contingency or situational theory. No com­ promise has been reached among these contributions as to what consti­ tutes the complete modem management theory. Harold Koontz contends that the development of modem man­ agement theory has led to a kind of destructive jungle warfare and the management theory looks like a jungle. Let us briefly look at some significant views taken by theorists in developing the modern manage­ ment theory and finally, examine the attempt made by Scott to integrate all these views and theories into one theory. Modem management can be classified into three different levels: Top M a n a g e m e n t:

• Develops and reviews long-range plans and strategies. • Evaluates overall performance of various departments and ensures cooperation. • Involves in the selection of key personnel. • Consults subordinate, manages on subjects or problems of general scope. M id d le M a n a g e m e n t:

• Makes plans of intermediate range and prepares long-range plans for review by top management. • Analyzes managerial performance to determine capability and readiness for promotion. • Establishes departmental policies. Nature and Concept of Management

53

• Counsels subordinates on production, personnel or other problems. • Selects and recruits personnel. Supervisory M anagem ent:

• • • • •

Makes detailed, short-range operating plans. Reviews performance of subordinates. Supervises day-to-day operations. Makes specific task assignments. Maintains close contact with operative employees.

Major Components and Related Major Events of Management Movements MANAGEMENT MOVEMENT COMPONENTS

RELATIVE MAJOR EVENTS

U.S. Industrial Revolution (prior to 1875)

Steam power (1700-1810) Railroad boom (1830-50) Telegraph (1844) Formation of corporate giants: John D. Rockefeller (oil) Andrew Carnegie (steel) Cornelius Vanderbilt (shipping and railroads) Henry Toione, "The Engineer as Economist, 1886 Frederick W. Taylor's Work (1895-1915) Carl Bath Morris Cooke Henry Lazvrence Gantt Frank and Lilian Gilbreth Harrington Emerson Henri Fayol, Administration Industrielle et Generale, 1916 Founding of professional management societies (1920s) Mooney and Reiley, Onward Industry 1931 Hawthorne Studies, led by Elton Mayo (1924-32) Mary Parker Follet (1920-33) Chester Barnard, Functions of the Executive, 1938

Captains of Industry (1875-1920)

Scientific Management era (1895-1920)

Period of solidification (1920 to early 1930s)

Human relations movement (1931 to late 1940s)

54

Management for Filipinos

Management process period (early 1950s to early 1960s)

Management theory jungle (early to late 1960s) Systems approach (late 1960s to early 1970s) Contingency approach (1970s)

International movement (1970s-1990s)

Storrs' translation of Fayol's work (1949) Ralph Davis, Top Management Planning, 1951 George Terry, Principles of Management, 1953 Koontz and O'Donnell, Principles of Management, 1955 Process approaches Quantitative approaches Behavioral approaches Integrating various approaches to the study of management Theorizes that different situations and conditions require different management approaches Increased awareness of international and global markets managerial approaches.

A D V A N C E D M A N A G E M E N T PROGRAM IN T H E PH ILIPPINES During the period of our ancestors, organization and manage­ ment were already existing. This kind of organization v^as in a form of structure called "barangay" or "balangay" headed by a "datu" or chief­ tain. These "barangays" were created as protection and security against invaders. When the Philippines was colonized by Spain, the Spaniards in­ troduced the modem Roman form of government. For almost three hundred years this type of organization and management proved very effective and formidable. Eventually, the Spanish government instituted this structure to promote and protect its personal interest in the country. After World War II, a professional and management organization called the Association of Management and Industrial Engineers in the Philippines (AMIEP) was organized in September, 1953, under the lead­ ership of Dr. Lilian Gilbreth, a well-known authority on scientific man­ agement and human relations. Some of its objective were: 1. to give professional assistance to practitioners and students of management and industrial engineering; Nature and Concept of Management /

55

I 2. 3. agement 4.

to introduce the concept ot Taylor's scientific management; to develop continuous study and research in the field of man­ and engineering; and to install professionalism among its members.

Another significant event transpired when a management con­ vention of the Advanced Management Program (AMP) in the Far East was convened in August, 1950 in the Philippines. Administrators, su­ pervisors, heads of the various sectors, the government, business, and industry participated in this professional exercise. This program became possible when some Filipino business managers attended the AMP at Harvard. Based on their experience and exposure in the program, they encountered the problems of time and money for travel and stay in the United States. With this in mind, the Filipino executives negotiated with the dean of Harvard School for approval of the proposed program. The dean thought that the proposal was realistic and constructive, so that the first program was conducted in the Philippines on June 25, 1956. It was officially opened at the Pines Hotel in Baguio City. The "Baguio Program" was known as the Asian Institute for Advanced Management (ALAM). The Filipinos who attended the various sessions of the program realized the importance of the course in the development of business and industry in the country. Later, the program was jointly sponsored by Ateneo de Manila, De La Salle, and the University of the Philippines which, incidentally, are the pioneer schools in the field of management. Other schools fol­ lowed the footsteps of the three universities by organizing their own advanced management course (Master in Business Administration). A management institution was established in the country whose objective is to develop the managerial skills of the Filipino entrepreneur as well as his Asian brothers. This school is popularly known as AIM or Asian Institute of Management which is located at Makati City. The cost of taking the MBA program in the Philippines is vari­ able. It ranges from P3,000 to P8,000 or even P20,000 in one semester depending on the school's standard and the number of units taken. Normally, the allowed minimum number of units is three and a maximum of nine or twelve units per semester.

56

Management fo r Filipinos

T H E M B A STORY

The MBA Program, Past and Present In the history of professional education, training is a relative newcomer. Up to the end of the 19th century, business training for the most part meant apprenticeship, either in the family firm or as a trainee in one of the larger trading houses or merchant banks. This is under­ standable because, business in those early days was a relatively uncom­ plicated affair. Business enterprises were generally very small by mod­ em standards, and a trade was limited in terms of both distance and products. Business practices were simple and traditional. Indeed it's been said that a Venetian entrepreneur of the 14th century would have Pennsylvania, made possible by an endowment from the American in­ dustrialist, Joseph Wharton. The school, one of the most prestigious in the world, bears his name to this day. By the end of the century, busi­ ness schools had been established at the University of Chicago, and the University of California at Berkeley. Four more were established in 1900 and by 1925 there were 183. The University of Chicago was the first to offer a graduate busi­ ness program, but it was the Harvard Graduate School of Business, established in 1908, which pioneered the development of the MBA pro­ gram. Importantly, Harvard geared its graduate program towards stu­ dents with non-business undergraduate degrees. This pattern is similar to the study of law and medicine, and unlike other professional training like engineering. The Harvard prototype, two years of graduate busi­ ness education following a non-business undergraduate degree, charac­ terizes the vast majority of MBA programs today. From its humble beginnings at the turn of the century, MBA programs have grown immensely. In 1963, five thousand MBA degrees were awarded in the United States. By 1994, this has increased by more than ten-fold to 80 thousand. Part of this is explained by growth in all graduate education, but it is also true that the MBA program has be­ come more popular among students. In 1963, just 6 percent of all mas­ ters degrees were in business, by 1994 this had grown to 40 percent. Today, approximately 800 American business schools offer MBA. Some of these have established programs abroad, and of course there are a number of foreign institutions, particularly in Canada, Aus­ tralia, United Kingdom, and the Philippines which offer the degree.

W hat is Taught? While there are variations, most MBA programs have a similar core curriculum. This is true for American schools and for foreign insti­ tutions which rely heavily upon the American model. The core encom­ Nature and Concept of Management

57

passes five broad subject areas: foundation subjects, functional subjects, behavioral subjects, environmental subjects, and integrative subjects. Included among the foundation subjects are economics, statistics, mathematics and more recently, data processing. These disciplines form the tool kit for the study of business subjects. For example, statistics play a vital role in marketing and finance. Often students whose under­ graduate training included these subjects are excused from this course in the MBA program. The functional subjects are those most often associated with the study of business. They include accounting, finance, marketing, pro­ duction management, operations research, international business, and personnel management. These subjects parallel functional areas within the business enterprise and prepare the MBA student with the tools depending upon the course being taught, and the instructor's preferred method for teaching.

T h e Future There is no question that the MBA degree has been an immense success. Explaining the popularity of the degree, the dean of the Wharton School, Thomas P. Genity said: "Companies think they are getting bright, articulate, educated people. The market wants more of these people, and the market will continue to want them as long as we continue to get top people. It feeds off itself" (Business Week, March 9, 1999). So what lies ahead for the MBA degree? Experts in the field of business education acknowledge that MBA students have been welltrained in problem solving and policy implementation, but many now are sounding a note of alarm over the lack of a third, and crucial still: entrepreneurial leadership. H.J. Leavit, in his article? "Management and Management Education: What's Right and What's Wrong?" argues that management education over the past thirty years has been preoccupied with teaching the use of analytic methods to solve problems. What's been missing is an emphasis on what he calls path-finding, a mix of "vision," values and determination which adds soul to the organiza­ tion." Can leadership be taught in graduate business schools? Leavit thinks it possible, but doing it is the challenge facing MBA programs >ver the next decade. R E V IE W Q U E S T IO N S 1. 2.

Evaluate the concept of management as "getting things done through other people." Give a comprehensive definition of management and discuss its meaning. How does your own definition differ from this/ I

58

Management for Filipinos

3. 4.

Is management a science or an art? What are the different organizational levels and what are the char­ acteristics of each? 5. . State the four classifications of management theories and briefly describe each purpose. 6. What is scientific management? Who proposed it? Discuss the four main principles of scientific management. 7. Will all these schools of management ever be merged? Give your reasons. 8. What was Henri Fayol's major contribution to the management movement?

D IS C U S S IO N Q U E STIO N S 1. 2. 3.

4.

5. 6. 7.

How do Taylor's and Fayol's approaches to the management pro­ cess differ and how do they compare similarly? Why have Taylor and scientific management been misunderstood by many people as inhumane? Management has often been described as an yniversal process, meaning that the basics of management are transferable and appli­ cable in almost any environment. Comment on this statement. How does one decide who is and who is not a manager in a given organization? For example, is the operator of a one-person business, such as a comer grocery store, a manager? Can management be learned through books and study or only through experience? Discuss the following statement: "All entrepreneurs are managers, but not all managers are entrepreneurs." "Successful managers adapt their style to the situation." Discuss your views on this statement.

E X P E R IE N TIA L EXERCISES 1. 2.

Discuss how you can make use of or apply the concept of manage­ ment in your routinary/daily activities. Think of a concrete situation in which you can use the following principles of Taylor and Fayol: a. Scientific Management b. Division of Work c. Unity of Command d. Remuneration Nature and Concept of Management

./ 59

3.

4.

e. Stability of Tenure f. "Esprit de Corps" g. Span of Control h. Centralization/ Decentralization Bring to class copies of undergraduate and/or graduate manage­ ment programs (prospectus, curriculum, brochures, etc.) of any col­ lege or university. Evaluate their relevance to the present business conditions. Make an appointment with a manager, officer, or an administrator of a company, hotel, hospital, government department or and other organization. The person whom you have chosen can be at any level of management. Find out from him/her the following details: a. His/her position in the organization. b. Number of subordinates under him/her. c. Activities or functions performed in his/her role. d. Skills he /she thinks are necessary to be successful in the job. e. How he/she spends an average day at work.

REFERENCES

1.

Terry, George R. Principles o f Management. Illinois: Richard D. Irwin, Inc., pp. 2-4.

2.

Koontz, Harold and O’Donnel, Cyrill. Essentials o f Management. New Delhi: Tata-McGraw-Hill Publishing Co., Ltd., 1998.

3.

Martinez, Esdras T., et. al. Management Theory and Practice. Manila: GIC Enterprises, Inc., 1997, p. 20.

4.

Dale, Ernest. Management Theory and Practice. New York: McGraw-Hill Book Company, 1996, p. 10.

5.

Putti, Joseph. Management: A Functional Approach. Singapore: McGrawHill Book Company, 1997.

6.

Joon Eng Chua, et. al. Management o f Business. Singapore: McGraw-Hill Book Company, 1997.

60

Management for Filipinos

W orksheet No. 2.3

NATURE & CONCEPT OF MANAGEMENT

Name: _________________ _____________ Year/Section: ----------------Professor: __________________________

Date: -----------------------------

Discuss how you can make use of or apply the concept of Management in your routinary / daily activities.

Nature and Concept of Management

61

■

Management for Filipinos

W orksheet No. 2.4

NATURE & CONCEPT OF MANAGEMENT

Name: _________________ _____________

Year/Section:

Professor: __________________________

Date: ---------

Think of concrete situations in which you can use the following prin­ ciples o f Taylor and fayol PRINCIPLES

ORGANIZATION/ INDIVIDUAL

HOW USED/SITUATION

1. Scientific M anagem ent

l

2. Division of Work

Nature and Concept of Management

63

PRINCIPLES

ORGANIZATION/ INDIVIDUAL

3. Unity of Command

4. Rem uneration

5. Stability ,of Tenure

64

Management for Filipinos

HOW USED/SITUATION

P R IN C IP L E S

O R G A N IZ A T IO N / IN D IV ID U A L

H O W U S E D /S IT U A T IO N

6. Esprit de Corps

*

7. Span of Control

8. Centralization/ Decentralization

©

Nature and Concept of Management

65

Worksheet No. 2.5

NATURE & CONCEPT OF MANAGEMENT

Name: _______________________ _

Year/Section:_________

Professor ____________________ ___ Date:________________ Bring to the class, copies of undergraduate and / or graduate manage­ ment programs (prospectus, curriculum , brochures, etc.) of any college or university. Evaluate the relevance of the program to the present business conditions. NAME OF SCHOOL

MANAGEMENT PROGRAM /

(U n d e rg ra d u a te a n d / o r G ra d u a te )

M A JO R O F F E R E D

O B J E C T IV E S O F

M A NA G EM EN T SUB JECTS

T H E P R O G R A M / M A JO R

OFFERED

Nature and Concent of Manaoement

67

RELEVANCE OF THE PROGRAM / MAJOR TO THE PRESENT BUSINESS GLOBAL CONDITIONS

68

Management for Filipinos

W orksheet No. 2.6

NATURE & CONCEPT OF MANAGEMENT

Name: _____________________________

Year/Section: -----------------

Professor: _________________________

Date: -----------------------------

Find out from him / her the following details: Make an appointment with a manager, officer, or an administrator o f a company, hotel, hospital, government and / or other type of organization. The person whom you have chosen can be at any level of management. Position in the Organization Number of subordinates under him/her Activities or functions performed in his / her role.

Skills he/she thinks are necessary to be successful in the job.

How he/she spends an average day at work.

Nature and Concept of Management

69

•u

70

Management for Filipinos

Management Functions **,

Chapter 3: Planning Chapter 4: Organizing Chapter 5: Staffing Chapter 6: Directing Chapter 7: Controlling

M«n*jj«*n*nt for Filipinos

Chapter 3

Planning Learning Objectives: At the end of the chapter, the student is expected to understand the following: • Definition o f’Planning • The Nature of Planning • Major Types of Plans • Basic Steps in Business Planning • Other Types of Plans • Decision Making • Planning Techniques and Tools • W hy Managers Fail in Planning

“ We all have ihe right to make bad decisions; that's how we learn to make goods ones" - Larry Williams

D E F IN IT IO N O F P L A N N IN G

P

A LANNING is a logical and systematic approach of formulating the objectives, programs, policies, procedures, budgets, rules and regu­ lations, and other types of plans. Planning is considered the most basic of all managerial functions (organizing, staffing, directing, and controlling). Without this basic function, the other four functions of the manager cannot be tackled efficiently and effectively. Therefore, a manager organizes, staffs, di­ rects, and controls in order to guarantee the attainment of objectives and the other types of plans made.

T H E NATURE OF P LA N N IN G

Four major factors summarize the essential nature of planning. These are: 1. Contribution to purpose and objectives

Planning is required to facilitate accomplishment of business purposes and objectives. This statement is taken from the nature of organizeu business. 2. Planning as the first basic function

Since managerial functions of organizing, staffing, directing, and controlling are designed to support the accomplishment of business objectives, planning is logically performed before the execution of all other managerial functions. Besides, a plan must be formulated to ac­ complish the objectives before any manager knows what kind of orga­ nization structure and job description and qualifications are needed, how to direct subordinates, and what kind of control technique is to be applied. Inevitably, all the managerial functions must be planned if they are to be effective and efficient. 3. Planning as a function of all managers

Planning is a function of all managers, although the character and scope of planning will differ from one authority to another. The broader scope of planning goes far in clarifying the issue on the part of some students of management to distinguish between policy making and administration or between the “manager" and the "admin­ 74

Management for Filipinos

istrator" or "supervisor". One manager, because of his authoniy or position in the organization, may do more planning than another, or the planning of one manager may be more basic and applicable to a larger portion of the business than that of another.

4. Planning for efficient organization The efficiency of a plan is evaluated by the amount it contributes to purpose and objectives as offset by the expenses and other things required to formulate and implement it. A plan contributes to the at­ tainment of objectives, but sometimes at too high or unnecessarily high costs. Plans may also become inefficient in the attainment of objectives by affecting group satisfaction. The new president of a company that was experiencing bankruptcy attempted quickly to reorganize and cut expenses by wholesale and drastic lay-offs of key employees. The? re­ sults are fear, resentment and loss of morale affecting productivity and thereby defeat his objective of eliminating losses and making profits. Attempts to install management evaluation and development program fail because of group resentment of the method used, regardless of the basic effectiveness of the programs.

MAJOR TYPES OF PLANS A n u m b e r o f d iffe re n t ty p e s o f m a n a g e m e n t p la n s e x is t. F o r t h i s p u rp o s e , c e r t a i n ty p e s o f p la n s h a v e b e e n s e le c te d . OBJECTIVE GENERAL —

DEPARTMENTAL

->

ENTIRE COMPANY TO COMPETE WITH CHRISTIAN COMPANY IN THE PRODUCTION AND SALES OF BALLPENS NEXT YEAR (2001)

- > SALES DEPT.

PRODUCTION DEPT.

PERSONNEL DEPT.

FINANCE DEPT.

TO MANUFACTURE 100,000 PIECES OF BALLPEN BY NOVEMBER 30, 2001

V

T,

MANUFACTURING

PLANNING & CONTROL

V GROUP

- > PURCHASING TO GET QUOTATIONS, COMPARE BIDS, PLACE ORDERS FOR ALL ITEMS AND MATERIALS

TO PREPARE AND RELEASE PRODUCTION QUOTAS TO DEPARTMENT HEADS.

TO PREPARE AND RELEASE PRODUCTION SCHEDULES.

Y SECTION

SECTION NO. 1

SECTION NO. 2

SECTION NO. 3

TO MANUFACTURE 30,000 PIECES OF BALLPEN BY JULY 15; AUGUST 4; SEPTEMBER 22, 2001.

Planning

75

INDIVIDUAL-------------------- >

WORKER A

4'

^

WORKER B

WORKER C

TURN OUT PARTS NO. 371 AT AN AVERAGE OF 75 PER HOUR.

WORKER D

TURN OUT PARTS NO. 948 AT AN AVERAGE OF 40 PER HOUR.

NOTE: ALSO RELATED TO MBO (MANAGEMENT BY OBJECTIVES).

Figure 3.1 Hierarchy of Objectives

Objectives or Goals Quite frequently goals and objectives are used interchangeably. The intended goal prescribes definite scope and suggests direc­ tion to maximize the efforts of a manager. It is also synonymous to aim, purpose, goal and mission. Objectives are the prime parts of the plans in the definition, we have stated that planning involved determination of desired future events. These results or events are objective and also go by the name of goals, targets, and so on. A n objective has to do with the direction in which an individual or organization wants to move. It is an estimated result expected in the future. Objectives are established at organizational, departmental, or individual level. To train five technicians in a particular skill on a given period, say in the next six months, can be an objective of a foreman. Objectives are usually expressed in quantifiable manner.

Mission It is the purpose or reason for the existence of an organization. The mission can be defined in terms of an organization's product/services or markets/customers. Marketing pharmaceutical products can be the mission of a drug manufacturing company.

Long-Range and Short-Range Objectives Long-range objectives generally go beyond the current fiscal year of the organization. They must support and not conflict with the orga­ nizational mission. But they may be quite different from the organiza­ tional mission and still support it. For instance, the organizational mis­ sion of a fast-food restaurant might be to provide a rapid hot food service to a certain area of the city. One long-range objective might be to increase sales to a specific level within the next four years. Obviously, this objective is quite differ­ ent from the organizational mission; but it still supports the mission. Short-range objectives should be derived from an in-depth evalu­ ation of the organization's long-range objectives. Such an evaluation 76

Managem ent for Filipinos

should result in a listing of priorities. Then short-range objectives can be set to help achieved the long-range objectives. All levels within the organization should set objectives of the organization based on the long-range objectives and short-range objec­ tives of the firm. Objectives at any level must be coordinated with and subordinated to, the objectives of the next higher level. All objectives are then synchronized and not working against each other. Objectives should be clear, concise, and quantified when pos­ sible.

Guidelines in Implementing Management by Objectives (M B O ) 1.

2.

3. 4.

5.

6.

7.

8.

9.

10. 11.

Adapt your objectives directly to organizational goals and strate­ gic plans. Do not assume that they support higher-level manage­ ment objectives. Quantify and target the results whenever possible. Do not formu­ late objectives Whose attainment cannot be measured or at least verified. Test your objectives for challenge and achievability. Do not build cushions to hedge against accountability for results. Adjust the objectives to tire availability of resources and the reali­ ties of organizational life. Do not keep your head either in the clouds or in the sand. Establish performance reports and milestones that measure progress toward the objective. Do not rely on instinct or bench­ marks to appraise performance. Put your objectives in writing and express them in clear, concise, and unambiguous statements. Do not allow them to remain in loose or vague terms. Limit the number of statements of objectives to the most relevant key result areas of your job. Do not obscure priorities by stating too many objectives. Communicate your objectives to your subordinates so that they can formulate their own job objectives. D o not demand that they do your goal setting for you. Review your statements with others to assure consistency and mutual support. Do not fall into the trap of setting your objectives in a vacuum. Modify your statements to meet changing conditions and priori­ ties. Do not continue to pursue objectives which have become obsolete.

To summarize, an M BO system in its simplest form, must meet the following minimum requirements: Planning

77

T H E E S S E N T IA L E L E M E N T S

T H E M AJO R S TEPS

>

1. F o rm u la te lo n g -ra n g e o rg a n iza tio n a l o bjectives.

> O b je c tiv e setting

2 . D e v e lo p specific divisional o bjectives.

- > 3 . E stab lish d e p a rtm e n ta l o bjectives. A ction planning 4 . S e t individual jo b o bjectives.

-£> 5 . F o rm u la te action plans. R e c y c le - > 6 . Im p le m e n t an d ta k e corrective action. S e lf- c o n tr o l

-> 7. R e v ie w progress tow ard o bjectives. P e rio d ic review s - > 8 . A p p ra is e o verall p e rfo rm a n c e , reinforce behavior, and streng th en m otivation through: a . M a n a g e r training a n d s e lf-d e v e lo p m e n t b. C o m p e n s a tio n c. C a re e r an d m a n p o w e r

Figure 3.2 The MBO Process

78

Management for Filipinos

1. Individual objectives are jointly set by the subordinate and the superior. 2. Individuals are periodically evaluated and receive feedback concerning their performance. 3. Individuals are evaluated and rewarded on the basis of objec­ tive attainment.

Program It is th e a ctu a l c o u rs e o f a ctio n d e sig n e d to c a r r y o u t th e estab ­ lish ed ob jective. To im p ro v e th e q u a lity lev el o f a p r o d u c t, a c o m p a n y m a y in stitu te a q u a lity a w a re n e ss p ro g ra m . It is a c o m p re h e n s iv e p la n th a t in d ica te s u se o f d iffe re n t re ­ so u rce s in a n in te g ra te d p a tte rn a n d e sta b lish e s a se q u e n ce o f req u ired a ctio n s a n d tim e sch e d u le s fo r e a c h in o rd e r to a c h ie v e s ta te d objec­ tiv es. E x a m p le s : M a rk e tin g P ro g ra m , P e rso n n e l P ro g ra m , F in a n cia l P ro ­ g ra m , etc. A p ro g ra m c a n b e ea sily a n d sy ste m a tic a lly s h o w n b y u sin g a p ro je c t sc h e d u le . P ro je c t sc h e d u lin g re fe rs to th e id e n tific a tio n a n d a n a ly sis o f th e activ itie s fro m the p ro je ct p la n n in g s ta g e u p to th e s ta rt o f n o r m a l o p e r a tio n s . In d e te r m in in g th e v a r io u s a c tiv itie s o f th e p ro je ct, a ss u m p tio n sh o u ld b e m a d e in to u ch in g all a s p e c ts o f th e s tu d y s u c h a s the p la n t site a n d lo ca tio n , b u ild in g co h s tru c tio n , e tc. To co n cre tiz e th e se q u e n ce o f th e v a rio u s activ itie s, a G a n tt C h a rt sh o u ld b e u s e d a s a p la n n in g a n d co n tro l to o l o f s tu d y in g the p ro je ct p ro p o sa l. It w a s fo rm u la te d in 1 9 1 7 b y H e n ry L . G a n tt, a n o te d p io n e e r in the field o f in d u stria l m a n a g e m e n t, a s a d e v ice fo r co n tro llin g the p ro d u c tio n o f ra w m a te ria ls. It is n o w w id e ly u se d fo r a v a rie ty of p u rp o s e s to su it p e r f o r m a n c e /o u tp u l/a c tiv itie s a g a in st a .tim e req u ire­ m ent

(See Figure 3.3)

P o lic ie s T h ese a re b a sic g u id elin es fo r a ctio n . T h e y in d ica te d w h a t is p e rm itte d an d w h a t is n o t p e rm itte d . P ro m o tin g p e o p le fro m w ith in c a n b e a p e rso n n e l p o licy of a co m p an y . P olicies are b ro a d , g e n e ra l g u id e s fo r a ctio n w h ic h co n stra in o r d ire ct o b jective a tta in m e n t. In this lig h t, p o licie s c h a n n e l h o w m a n a g e ­ m e n t sh o u ld o rd e r its affairs a n d its a ttitu d e to w a rd m a jo r issu e s; they d ic ta te th e in ten t o f th o se w h o g u id e th e o rg a n iz a tio n . In o th e r w o rd s , p olicies d efin e th e u n iv e rse fro m w h ich fu tu re s tra te g ie s a n d p la n s are d e riv e d . " I t is th e p o licy of th e p u b lic re la tio n s d e p a rtm e n t to a n s w e r in w ritin g all w ritte n c u s to m e r c o m p la in ts " is a n e x a m p le o f su c h a policy. P lan n ln n

7Q

2001

1.

l

2002

lEnannEsaaanszEHH

. A C T I V I T I E S

PLANNING STAGE

2. PUTTING UP OF EQUITY 3. REGISTRATION 4. OBTAINING OF FINANCING 5. RIAN T SITE ACQUISITION 6. BUILDING CONSTRUCTION 7. HIRING & TRAINING OF PERSO NNEL 8. M ACHINERY SU PP U E S SELECTION 9. O RD ER AND RECEIPT O F MACHINES 10. INSTALLATION OF MACHINES 11. START OF NORM AL OPERATIONS

Figure 3.3 Gantt Chart

P o licy sta te m e n ts o ften cp n tain th e w o rd s to e n su re , to follow , to m a in ta in , to p r o m o te ,.to b e , to a c c e p t a n d sim ila r v erb s. P o licie s e x ist a t all le v e ls o f a n o rg a n iz a tio n . A ty p ica l o rg a n iz a ­ tio n h a s so m e p olicies th at re la te to e v e ry b o d y in th e o rg a n iz a tio n a n d so m e th a t relate o n ly to ce rta in p a rts o f d ie o rg a n iz a tio n . A p o licy su c h a s " th is co m p a n y w ill a lw a y s try to fill v a c a n c ie s a t all lev els b y p ro ­ m o tin g fro m w ith in " w o u ld re la te to e v e ry o n e in th e o rg a n iz a tio n .

P ro c e d u re s P ro c e d u re s a re series o f re la te d ste p s e x p re s s e d in ch ro n o lo g ica l o rd e r fo r a sp ecific p u rp o s e . P ro c e d u re s a n d ru les d iffer fro m p o licies o n ly in d e g re e . A p ro ce d u re d efin es in ste p -b y -ste p fash io n th e m e th o d s b y a n d th ro u g h w h ich p o licies are a ch ie v e d . T h e y o u tlin e p re cis e ly h o w a r e c u r r in g a c tiv ity m u s t b e a c c o m p lis h e d . P ro c e d u re s a llo w little flexib ility a n d d e v ia tio n . A c o m p a n y 's p o licy m a y b e to a c c e p t all c u s ­ to m e r re tu rn s su b m itte d w ith in o n e m o n th o f p u rc h a s e ; c o m p a n y p r o ­ ce d u re s w o u ld o u tlin e e x a c tly h o w a re tu rn sh o u ld b e p ro ce ss e d . W ellesta b lish e d fo rm a l p ro c e d u re s rue often k n o w n as sta n d a rd o p e ra tin g p ro c e d u re s (SO P s). T h e se a re in stru ctio n s a s to h o w a p a rtic u la r th in g sh o u ld b e d o n e . A se t o f p ro ce d u re s m a y b e p re sc rib e d in o p e ra tin g a m a c h in e o r h a n d lin g e m p lo y e e g rie v a n ce s. 80

Management for Fllipinoi

Rules Rules require specific and definite actions for a given situation. Rules leave little doubt about what is to be done. They permit no flex­ ibility and deviation. Unlike procedures, rules do not have to specify sequence, for example: "No smoking in the conference room" is a rule. These are very specific actions to be taken with respect to a situ­ ation. Wearing uniforms or reporting to work at a particular time are some examples.

Budget A plan stated in financial terms is called a budget. It is an esti­ mate qf income and expenditures for a future period. The use of budget enables executives to perform their management functions more effec­ tively since budget provides them with the proper guidance in matters of disbursement.

P h ilo s o p h y The values and beliefs an organization holds as the guiding light is the company's philosophy. These are usually passed on by the founder of the organization. Providing quality products at reasonable prices, providing comfort and enhancing the quality of life of society was the vision of Mr. Konosuke Matsushita, the founder of the electron­ ics firm bearing his name.

S t ra t e g y It is the method of shaping a company's future and involves determining the long-run direction of the organization. A company may have the strategy to diversify into related businesses within the next few years. From the above classifications, we can see that objectives are not the same as policies, rules, procedures, mission, strategy, philosophy, and programs. Although they are not the same, there are some relation­ ship among them. The word strategy originated with the Greeks around 400 B.C. It pertained to the art and science of directing military forces. A strategy outlines the basic steps and management intends to do to achieve its objectives.

Planning

81

BASIC STEPS IN BUSINESS P LA N N IN G

Business planning created through time as a series of ideas is gradually developed. Effective plans are not written in one sitting. Each part of the plan leads into the next. Each influences the other; all the parts are interdependent. The following are the basic steps in business planning: 1.

Define the business idea.

Write a description of the business idea. Get it into paper as con­ cisely as possible. This is by far the most important and most difficult part of the business plan. The more precise and specific this description, the easier the rest of the planning process. 2.

Establish goals and objectives.

There may be a wide range of goals or objectives that may be desired by the various units and elements of a company. Management by objectives, commonly referred to as MBO, can be a process for ex­ plicitly teaching the objectives of the organization. Applying manage­ ment by objectives involves participation in a sharing of important management functions by workers at all levels within the organization. Generally, the approach will involve the identification of goals for indi­ viduals, for groups and for the entire organization. Conversely, the goal sets for individuals are subsets of the entire goal set for groups, which are themselves goal subsets of the entire organization goals. Subordi­ nates and superiors jointly determine and agree upon the results they seek to achieve along with the standards that will be used to measure the results. 3.

Evaluate the ideas, goals, and objectives.

This is to determine whether or not a specific idea makes sense, whether or not it can work, and whether or not it can fulfill the series of goals and objectives identified in the preceding steps. Once the busi­ ness idea and the goals and objectives have been defined in writing, they can be compared to determine where complements and gaps may exist. 4.

Forecast cash needs.

It indicates the cash investment associated with different sets of alternatives. These funding or investment requirements include the specifications of need for capital, equipment, other capital needs, and the amount of working capital necessary. 82

M anagem ent fo r Filipinos

5.

Identify sources of funds.

Funds are potentially available to business from a wide variety of sources. These can possibly be taken from personal equity or borrowing from any banking institution, one's own funds, and what additional funds can be obtained from various outside sources. 6.

W rite a business plan.

A completed business plan is a summary and evaluation of the business idea. It is written as a result of the planning process. It shows the probability of success, the principles' ability to. make it work, the sources and uses of funds, and projected income flows and cash needs.

O T H E R TYPES OF PLANS Plans can be classified in a number of ways on the basis of fre­ quency of use and the time horizon. Let us take a look at some specific types of plans.

Standing Plans These plans serve as guidelines to managerial action. Managerial efficiency is enhanced because once the decision is made, it stands with­ out the necessity of deliberation each time ^a s’milar situation arises. These plans bring consistency to the operations. A bank granting loans for house construction is an example. It does not need a different plan to handle each loan. It uses one standing plan that anticipated in ad­ vance whether to approve or not any request for a loan. Standing plans are used where an activity occurs repeatedly.

Single-use Plans These plans are designed for a specific purpose or period. The plan ceases to exist when the goals are achieved. One common single­ use plan is the budget. A plan to set up a warehouse is another example of a single-use plan.

Long-range Plans These are the strategic plans of the organization. To become a leader in its industry may be a long-range plan for an organization. It takes time to achieve this goal. Under this plan, assumptions must be made about uncontrollable and controllable variables. Technological change is an uncontrollable variable, over which a manager may not have any control because it takes place in the external environment. A manager may have control over the product line of the organization. The time span'of long-range plans cannot be stated specifically because Planning

83

Relationship Between The Planning Process And The Business Plan B U S IN E S S P L A N I.

D escription o f th e B usiness 1. C o m p a n y ’s N a m e 2. P ro d u c t/S e rv ic e 3 . Industry

II. M a rk e tin g A s p e c t 1. T a rg e t M a rk e t 2 . M ark e tin g P ro g ra m a. P ro du ct S tra te g y b. P la c e S tra te g y c. P rom otion S tra te g y d. Pricing S tra te g y

III. M a n a g e m e n t/O rg a n iz a tio n A s p e c t 1. F o rm of O w n e rs h ip 2. O rg a n iza tio n a l Structure 3 . Job A nalysis 4 . C o m p e n s a tio n S c h e d u le 5. P ro ject S c h e d u le (G a n tt C h a rt)

IV.

P rodu ctio n/T echn ical A s p e c t 1. D escription o f th e P roject 2. M an u fa c tu rin g P ro cess 3 . P la n t S iz e a n d Production S c h e d u le 4 . M a c h in e ry an d E q u ip m e n t 5. P la n t Location 6. P la n t Layou t 7. Building an d Facilities 8. R a w M a te ria ls and S up p lies 9. W a s te D isposal

FINANCIAL PLAN

V.

Finan cial A s p e c t 1. Total P ro ject C o s t 2 . S o u rc e s o f Fin an cin g 3. Financial S ta te m e n ts 4 . Financial Analysi.s

84 •

M anagem ent fo r Filipinos

circ u m sta n ce s v a r y fro m o rg a n iz a tio n to o rg an iz a tio n . In p ra c tic e they m a y ra n g e fro m 3 to 5 y ears.

Interm ed iate Plans T h e se p lan s fo llow o n ce th e lo n g -ra n g e p la n s a re fo rm u la te d . To b e co m e a le a d e r in its in d u stry (th e lo n g -ra n g e p la n a n o rg a n iz a tio n m a y p la n to se t u p re g io n a l sales offices). In te rm e d ia te p la n s a re m a d e fo r th e rea liz a tio n o f lo n g -ra n g e g o a ls. T h ese p la n s u su a lly c o v e r a one to th re e -y e a r p erio d .

Sh o rt-range Plans T h ese p la n s p ro v id e the g u id elin es fo r d a y -to -d a y a ctio n s in the o rg a n iz a tio n . T h ese p lan s m a y c o v e r u p to a year.

M arketing Plans T h e c o m m o n objectives o f m a rk e tin g p la n s a re to in cre a se th eir p re se n t m a rk e t sh are an d d e v e lo p n e w p ro d u c ts . T h e se o b jectives are co n v e rte d in to o p e ra tio n a l p lan s.

Production Plans T h e se fo c u s o n p ro d u c in g th e d e s ire d a m o u n t o f g o o d s d e ­ m a n d e d a t th e m a rk e t p lace. P ro d u c tio n p la n n in g in v o lv e s ro u tin g , sch ed u lin g , a n d d isp atch in g p ro ce ss e s. R o u tin g d e te rm in e s th e p a th fo r th e flow o f p ro d u c tio n . S ch ed u lin g se ts u p a tim e-tab le. D isp a tch in g sig n als th e flo w of tim e an d fin d re a s o n s fo r d elay s.

Financial Plans T h ey p ro v id e a q u an titativ e b asis fo r d e cisio n m a k in g a n d c o n ­ trol. T h e fin an cial d a ta tells m a n a g e rs h o w w e ll th e y a re d o in g , the n e e d fo r w o rk in g cap ital, the n e e d fo r e x p a n sio n a n d th e s o u rce s of fu n d s.

Manpower Plans T h ese in v o lv e a sy ste m a tic w a y o f d e te rm in in g th e ty p e s o f p e r­ son n el n eed ed in the lon g a n d s h o rt-ra n g e fo r a n o rg a n iz a tio n . P e rs o n ­ n el of v ario u s qualities a n d q u an tities m u st' b e re c ru ite d a n d m a d e availab le a t a p p ro p ria te tim es. To a ch ie v e this, fo re ca s ts a re n e c e s s a ry as to the d em an d a n d su p p ly o f labor.

Strategic Plans These in v o lv e d eterm in in g th e m a jo r g o a ls o f th e e n tire o rg a n iz a ­ tion an d the p olicies to g u id e th e a ch ie v e m e n t o f th ese g o als. T h is o c­ c u rs a t h ig h er levels and in v o lv e s a lo n g e r p e rio d o f tim e . A ll ty p e s of fo recasts are n e e d e d for this ty p e o f p lan n in g .

Planning

85

Tactical Plans They deal with the determination of the short term-specific uti­ lization of the resources of the organization in achieving its strategic goals. The reliance for tnese plans is on past performance and as to how an organization previously allocated its resources.

Planning Horizon: Short-Range Versus Long-Range Short-range plans generally cover up to one year. Long-range plans start at the end of the current year and extend into the future. How long should a long-range plan be? The question cannot be an­ swered specifically. The right time frame varies with the organization and tire nature of the specific environment and activity. What may be long-range given a specific environment and activity.' What may be short range when operating in a relatively static environment. In prac­ tice, most long-range plans span at least three to five years, with some extending as far as 20 years into the future. While long-range planning is possible at any level in the organization, it is primarily carried out at the top level of the organization.

Functional Plans In addition to being long-range or short-range, plans are often classified by function or use. The most frequently encountered types of functional plan are sales and marketing plans, production plans, finan­ cial plans, and personnel plans. Sales and marketing plans are for de­ veloping new products/services and setting both present and future products/services. Production plans deal with producing the desired product/services on a time schedule.

Operational versus Strategic Plans Strategic planning is the process which sets forth organizational objectives to be achieved, strategies and policies needed to reach those objectives, and short-range plans to make sure that the strategies are successfully implemented. For practical purposes, the strategic plan­ ning is analogous to top-level long-range planning. The terms strategic planning, top-level long-r^nge planning, and corporate planning basi­ cally means the same thing and are interchangeable. Operational or tactical planning is short-range planning and con­ centrate on the formulation of functional plans. Production schedules and day-to-day plans are examples of operational plans. However, the distinctions between strategic and operational planning are relative, not absolute. The major difference is the level at which the planning is done. Strategic planning is primarily done by top-level managers; op­ erational planning is done by managers at all levels in the organization and specially by middle-and lower-level managers. 88

Management for Filipinos

D E C IS IO N M A K IN G This is the process of choosing a specific procedure or course of action from among several possible alternatives. In the business world, a great investment in time, economy, effort, personnel, and materials may be involved in making a decision. The extent to which these things are involved, as well as the total effect of their involvement, depend on the business level'at which the decision is made. Judgment is important in decision making. Decision making can be determined by non-quantitative means, such as intuition, facts, experiences, and opinions. Many decisions in management are also determined by quantitative means such as operations research, linear programming, simulation, Monte Carlo, gaming, and program evaluation review technique (PERT). A number of sophisticated techniques are available which aid the decision making process. Some of these techniques have already been discussed in the chapters dealing with planning and controlling func­ tions. In this section, we .will discuss some other techniques used in the decision making process. Our discussions will cover only the basic as­ pects of these techniques.

Marginal Analysis This tool is used in decision making to figure out how much more output will result if one more variable (worker) is added. Samuelson defines a marginal product as the extra product or output added by one extra unit of that factor. While other factors are being held constant. This technique is particularly useful for evaluating alternatives in the deci­ sion making process.

Financial Analysis This is another tool in decision making used for estimating the profitability of an investment, calculating the payback period, and ana­ lyzing cash inflows and outflows. Investment alternatives can be evalu­ ated using a discounted peso analysis of cash inflows and outflows.

Break-even Analysis This is another tool which enable a manager to see the effects of alternatives available based on price, fixed cost, and variable cost per unit. With this tool it is possible to determine what will be the break­ even point for a company as a whole or any of its product. At break­ even point, total revenue equals total cost and there is no profit.

Planning

87

Ratio Analysis It is an a cc o u n tin g too l u sed fo r the in te rp re ta tio n o f a cc o u n tin g in fo rm atio n . T h e b asic fin ancial ra tio s c o m p a re c o s ts an d re v e n u e fo r a p a rtic u la r p e rio d . T h ese ratio s b rin g o u t a relatio n sh ip b e tw e e n tw o fin an cial asp e cts. Som e ra tio s are: C u r r e n t A s s e ts

C u r r e n t a s s e ts

C u r r e n t lia b ilitie s _______T o ta l d e b t_______

D e b t to e q u ity

E q u ity S a le

In v e n to r y tu r n o v e r

I n v e n to ry N e t o p e r a tin g p ro fit

N e t o p e r a tin g m a rg in

S a le s N e t p ro fit a f t e r t a x e s

R e tu r n on c a p ita l

N e t w o rth

Operations Research Techniques O p e r a tio n s re s e a rc h in v o lv e s th e a p p lic a tio n o f q u a n tita tiv e m e th o d s to d ecisio n m ak in g . O p e ra tio n s R e se a rc h (O R ) h a s b e e n d e ­ fined b y M iller a n d S ta rr a s "A p p lie d D ecisio n T h e o ry ," in w h ich the d ecisio n m a k e r seek s scientific, lo g ical, o r m a th e m a tic a l m e a n s. O b ser­ v a tio n , an aly sis, h y p o th e sis fo rm u la tio n , a n d e x p e rim e n ta tio n are the m e th o d s g en e ra lly u sed in O R tech n iq u es.

1. Queueing

or

Waiting-line Method

T h is m e th o d u ses m a th e m a tica l tech n iq u es fo r b a la n c in g w a itin g lin es a n d se rv ice s p ro v id e d . W h e n th ere is irre g u la r d e m a n d , w a itin g lin es o c c u r an d the m a n a g e r m u s t d e cid e h o w to h a n d le th e situ atio n . If p e o p le w a itin g in q u eu es are n o t g o in g to b e p ro v id e d q u ick se rv ice , th e y m a y g o elsew h ere.

2.

Linear Programming

T his tech n iq u e is u sed re so u rce o r lim ited re so u rce s least co st, h ig h e st m a rg in , an d a lte rn a tiv e u ses. T his m e th o d

in d e cisio n s in v o lv in g the allo ca tio n o f to re a c h a p a rtic u la r o b jective su ch as, so on. W h e n th ese re s o u rc e s h a v e se v e ra l is u se d fo r so lv in g sim p le, co m p le x , a n d

ro u tin e p ro b le m s. In o rd e r to ap p ly this m e th o d , the situ a tio n m u st in v o lv e tw o o r m o re activ ities co m p e tin g fo r lim ited re s o u rc e s a n d all rela tio n sh ip s in th e situ atio n m u s t b e linear. 88

Management for Filipinos

3.

C a m e T h e o ry

This involves selecting the best strategy, taking into consideration one's actions and the action of one's competitors. Thus, it is a "conflict of interest" situation where one individual tries to win. McDonald con­ tends that the strategic situation is the theory which lifes in the instruc­ tion between two or more individuals, each of whose actions is based on an expectation concerning the actions of others over whom he has no control. When one individual wins, the other losses. Minimizing the maximum loss (minimax) and maximizing the minimum gain (maximini) are the two concepts used in the game theory. 4.

S im u la tio n

This technique involves the building of a model that represents a real or an existing system. These models are useful in evaluating^ and selecting the best one. The blueprint of a proposed building is an ex­ ample of simulation. In recent years, computers are being widely used in simulation techniques. Role playing or teaching concepts through case studies are some form- of simulation techniques. A L T E R N A T IV E S C H A N C E E V E N T if good m arket

P120,000

T1 if poor m arket

P 40,000

T1 if good m arket

P 80,000

T1 if poor m arket

P 50,000

T1

Figure 3.4 Decision Tree

5.

D e c is io n Tree

This is an interesting technique used in analyzing a decision. Through a graphic illustration, the alternative solutions can be identi­ fied and probability estimates are assigned to these alternatives and pay-offs relating to alternatives can be determined. Figure 3.4 shows that the decision involves two alternatives: (a) buying a new machine and (b) repairing the existing machine. Under Planning

89

the decision to buy a new machine are conditions where a good market exist and where poor market conditions exist. This follows also for the alternative of repairing the old machine. The payoff under each of these cOhditions is shown at the end. In more complex decision trees, prob­ ability estimates and expected values of various alternatives will be shown. Whether decision making uses these techniques or not, the man­ ager must bear certain facts in mind. A clear understanding of objec­ tives is essential for effective decision making. These objectives include not only decision objectives, but also organizational objectives. Some decision makers simply rely on reports for information without actually examining what is going on in their departments as well as in the entire organization. This reality-checking improves the objectivity in decision making. By encouraging the participation of those who are affected by the outcome of the decision, the decision maker can anticipate any re­ sistance and thus focus his attention on reducing or eliminating this resistance. This will assure the smooth implementation of a decision once it is made. Strengthening of internal communication is another important area a decision maker must look into. He must realize the importance of communication in the decision making process. Commu­ nicating is the medium for decision making. The reliability and validity of information cannot be achieved without good communication tech­ niques and practice. Some decision makers tend to develop the habit of "crisis deci­ sion-making." This involves deciding under stress. The decision mak­ ing is not good in this case. When the right moment is passed, even an excellent decision may not have any value.

The Decision Making Environment The business system model helps to place the decision makiftg environment in its proper perspective. Most companies have three lev­ els of management: operational, tactical, and strategic. • Strategic-level managers determine long-term strategies and set corporate objectives and policy consistent with these objectives. • Tactical-level managers are charged with the responsibility of implementing the objectives and policies set forth at the strategic level of management. To do this, the manager identifies specific tasks that need to be accomplished. • Operational-level managers complete specific tasks as directed by tactical-level managers. Everybody has problems, and since decisions are made to solve problems, everybody makes decisions. Some are made with a casual nod of the head, others are gut-wrenching experiences for the decision 90

Management for Filipinos

m ak er. A s a ru le of th u m b , th e h ig h e r th e d ecisio n m a k e r is in the o rg a n iz a tio n , th e m o re co m p le x a n d ^difficult th e d e cisio n h e h a s to m ak e. A lso , the n u m b e r of p e o p le affected b y the d ecisio n in c re a s e s a t th e level of th e d ecisio n m ak er. F o r d ecisio n s m a d e a t the s tra te g ic an d ta ctica l lev els, e a c h a lte rn a tiv e w ill h a v e a v id p ro p o n e n ts (a n d o p p o ­ n e n ts). To a m u c h le sse r e x te n t, th is is also tru e o f o p e ra tio n a l level d ecisio n s. A s a resu lt, the d ecisio n m a k e r is co n sta n tly sm o o th in g w ith n e w in sig h t a n d in fo rm atio n . Im p o rta n t c o rp o ra te d e cisio n s are se ld o m m a d e on a w h im . D ecisio n m a k e rs are influ en ced b y av ailab le in fo rm a ­ tion , b u t they, a re a lso in flu en ced b y c o rp o ra te policy, tra d itio n , v a rio u s p re ssu re g ro u p s (fo r e x a m p le , v e n d o rs), an d p eers. D ecisio n m a k e rs w a n t to m a k e su re th a t e a ch a lte rn a tiv e h a s b een th o ro u g h ly e v a lu a te d ; in so d o in g , the d ecisio n m a k e r is su b jected to inten se p e e r p re ss u re an d often b ia se d in fo rm a tio n . U n fo rtu n ately , p e e r p re ssu re ca n , o n o cca sio n , b e m o re in flu en tial th an reaso n . H o w e v e r, this is the d ecisio n m a k in g e n v iro n m e n t. E v a lu a tin g in fo rm atio n a t face v a lu e is n o t e n o u g h . The d ecisio n m a k e r m u s t h a v e th e ability to p la ce ea ch p iece o f in fo rm a tio n in its p ro p e r p e rsp e c tiv e .

The Decision Making Process W h e th e r a d elib erate actio n o r n o t, p e o p le w h o m a k e in fo rm a ­ tio n -b a se d d e cisio n s g o th ro u g h a d ecisio n m ak in g p ro ce ss. T h e ste p s in th e d ecisio n m a k in g p ro ce ss are to: 1.

S et objectives.

2. 3. 4.

Id en tify co n strain ts. Id en tify altern ativ es. G a th e r a p p ro p ria te in form ation .

5. 6.

E v a lu a te a ltern ativ es. C h o o se th e m o st a ccep tab le altern ativ es.

T h e ste p s in the d ecisio n m ak in g p ro ce ss are illu stra te d in

Figure

3.5. S te p I : S e t O b je c tiv e s

T h e e x iste n ce o f a p ro b le m im p lies th e n eed for a d e cisio n m a k e r to m a k e a t least o n e d ecisio n , an d ty p ica lly a series o f d ecisio n s, to re so lv e a p ro b lem . In this first step , the d ecisio n m a k e r sets the objec­ tiv es fo r the d ecisio n . S te p 2: Id e n tify C o n s tra in ts

C o n stra in ts in so m e w a y lim it the d ecisio n m a k e r's ch o ice s. C o n ­ strain ts co u ld be d efin ed b y legal, e co n o m ic , o r p o litical co n sid e ra tio n s. Planning

91

D ecision co n stra in ts a re so m e tim e s p re se n te d in te rm s o f d e sire d sp e ci­ ficatio n o r p e rfo rm a n c e sta n d a rd s. S te p 3: Id e n tify A lte rn a tiv e s

T h e d ecisio n m a k in g p ro ce ss in v o lv e s m a k in g a ch o ic e b e tw e e n tw o o r m o re a lte rn a tiv e s. In this ste p , th e d e cisio n m a k e r iden tifies a lte rn a tiv e so lu tio n s th a t m e e t th e co n stra in ts o u tlin ed in ste p 2 . In m o s t ca s e s, th e a lte rn a tiv e s are ch o se n b e ca u s e th e y p ro v id e d a so lu tio n to th e p ro b le m , b u t o ften on e o f th e a lte rn a tiv e s is to d o n o th in g .

Figure 3.5 Steps In the decision making process

S te p 4: G a t h e r A p p ro p ria te In fo rm a tio n T h e in fo rm a tio n re q u ire m e n ts fo r a g iv e n d ecisio n v a r y c o n s id e r­ a b ly d e p e n d in g o n the co m p le x ity a n d sc o p e o f th e d e cisio n to b e m a d e . D u rin g this step , the d ecisio n m a k e r g a th e rs in fo rm a tio n th a t m a y p ro v id e in sigh t as to w h ich a lte rn a tiv e to ch o o se. S te p 5: E v a lu a te A lte rn a tiv e s

In this step , th e d ecisio n m a k e r e v a lu a te s e a c h a lte rn a tiv e . A d e ­ cisio n ca n b e re n d e re d b a se d o n a v a ila b le in fo rm atio n .

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S te p 6: C h o o se th e M o s t A c c e p ta b le A lte r n a tiv e

In this step , the m a n a g e r e x a m in e s the ra n k in g o f a lte rn a tiv e s a n d se le cts th e m o s t a cce p ta b le a lte rn a tiv e , w h ich is o ften th e top ra n k e d a lte rn a tiv e . O n o cca sio n , e x te n d in g circ u m sta n ce s c a u s e d m a n ­ a g e rs to lo o k p a st the h ig h e st-ra n k in g a lte rn a tiv e a n d se le ct a lo w erra n k in g alte rn a tiv e . D ecision s, e sp e cia lly th o se m a d e co lle c tiv e ly by se v e ra l m a n a g e rs, are often the re su lt o f creativity.

P L A N N IN G T E C H N IQ U E S A N D TO O LS T h ere a re v a rio u s q u an titativ e an d scientific te ch n iq u es th a t are a v ailab le to aid the m a n a g e r in h is p la n n in g p ro ce ss. S o m e o f th ese are th e fo llo w in g : /.

F o re c a s tin g

T h is is an a tte m p t to foretell o r p re d ic t fu tu re tre n d s, e v e n ts, o r co n d itio n s fro m k n o w n d a ta an d to p re p a re fo r the e x p e cte d ch a n g e s in b u sin ess o r in d u stry . M a n y d ecisio n s are b a se d o n e stim a te s o f w h a t is lik ely to h a p ­ p e n in th e fu tu re. S u ch d ecisio n s are m a d e a lm o s t d a ily b y b o th b u si­ n e ss m e n a n d e co n o m is ts e m p lo y e d b y the g o v e rn m e n t. T h ese e stim a te s o f fu tu re e co n o m ic co n d itio n s o r tre n d s, b ased ' o n th ro u g h a n a ly se s of th e p a st a n d p re se n t, are called fo recasts. B o th sh o rt-te rm a n d lo n g -te rm fo re ca s ts a re u sed . U n d e r this tech n iq u e, p a st an d p re se n t o r c u rre n t in fo rm a tio n is u se d to p re d ic t fu tu re ev e n ts o r co n d itio n s. S o m e m a n a g e rs re ly on th e ir Own in tu ition in p re d ictin g the fu tu re ev e n ts. T h e y are able to d o th is b e ca u s e o f th e ir e x p e rie n c e on the job. B u t the co m p le x ity o f e n v i­ ro n m e n t m a k e s it n o lo n g e r an effective w a y o f fo recastin g . Since d e p a r­ tu res fro m h isto rica l tre n d s are b e co m in g freq u en t, it is g e ttin g difficult to fo re ca st fo r tw o y e a rs o r lon g er. T h e lo n g -ra n g e p la n n e rs m u s t a cc e p t th is reality. In re ce n t y e a rs, a n u m b e r of so p h istica te d tech n iq u es h a v e b e e n d e v e lo p e d fo r fo re ca stin g p u rp o s e s. A lth o u g h th ere a re n o u n iv e r­ sal fo re ca stin g m e th o d s, so m e co m m o n ly u se d m e th o d s o f fo re ca stin g a re th e s u rv e y m e th o d , the tren d m e th o d , a n d e co n o m e tric m e th o d . T h e s u rv e y m e th o d in v o lv e s p ro b in g th e c u s to m e r o r re sp o n d e n t th ro u g h q u e stio n a ire s o r in terv iew s. U s u a lly a sa m p le g ro u p is ch o se n fo r this p u rp o s e . S o m e so p h istica te d sa m p lin g te ch n iq u e s are av ailab le. T h e sa m p le ch o se n m u s t b e re p re se n ta tiv e of th e g ro u p w h o se o p in io n s th e o rg a n iz a tio n is so lic itin g . B a s e d o n th e in f o rm a tio n , o b ta in e d th ro u g h s u rv e y s , fo re ca sts a re .m ade. T h e tre n d m e th o d o r tim e-series an aly sis is a n o th e r tech n iq u e of fo re ca stin g . U n d e r this m e th o d , the fu tu re is p re d icte d b y p ro jected Planning

93

trends using past data or information. This method brings out a rela tionship between sales and time as shown in Figure 3.6.

Fig. 3.6 The Trend Method

The use of econometric models is another method of forecasting. These models are based on statistical methods of analyzing data and making predictions. They help to find the historical relationship be­ tween sales volume and a number of independent variables. For in­ stance, the Gross National Product (GNP) is used to predict future sales based on their past relationship. Even with all these sophisticated techniques, management deci­ sion is still needed. These techniques don't replace managers or mana­ gerial intuition and judgment. Forecasts have not been taken seriously by some top managers. This may be due to the fact that some forecasts have been wrong in the past. Reliable information is more crucial to the successful use of forecasting techniques.

2.

Break-even Analysis Break-even charts are used for planning purposes. The mechanics of break-even charts are discussed in the chapter dealing with control function. Almost every manager makes a profit plan and break-even analysis is useful for developing it. In order to make profits, total cost must not exceed total revenue. Using the break-even charts, a break­ even point, that is, the point at which total cost equal total revenue, can be determined. Using these charts, a manager can say whether the com­ pany can sell enough products to breakeven and plan accordingly.

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3.

S c h ed u lin g

This is the term used for planning time for various activities in an organization. A number of scheduling techniques are available, ranging from simple to complex. Network analysis is a quantitative technique used for scheduling. Two well-known network analysis methods are Program Evaluation Review Technique (PERT), and Critical Path Method (CPM). These techniques help to plan complicated and exten­ sive projects in which co-ordination is essential for cases. Two basic concepts in these two techniques are: events and activi­ ties, an event is an identifiable accomplishments that occurs at a defi­ nite point in time. Activities are the work required to complete the event. Events show the beginning and end of an activity. While events are shown as circles in the network, activities are indicated by arrows. A network consists of a series of interconnected events and activities. In using this network, three types of timings are estimated for each activity, that is, the time between two circles (events). These tim­ ings are: optimistic time (the minimum time it could take); pessimistic time (the maximum time it could take); and the most probable time. An average of these times (expected) is computed and placed above the arrows. For example, the optimistic time for activity between A and B is 4 days, pessimistic time 8 days, and probable time 6 days, then, the average time is: Expected time

=

4 +8 +6 18 —------------ = ------ = 6 days 3 3 6 days (A )----------------- ► (B)

This diagram is the same as the previous one but time schedules from activities are shown on this diagram. The circles are events and the arrows are activities for instance, if we are going to construct a network for a house building project, putting on floors is an event and the work one does to achieve that event is an activity. The diagram above shows the following paths and times. Thus, the four basic steps in developing PERT are: 1. Identify and list major tasks in a project. 2. Determine the order in which these tasks must be carried out, in terms of which one comes first, second, and so on and which activities can be carried out simultaneously. 3. Figure out a pessimistic, probable or most likely, and optimis­ tic times for each activity or task. 4. Estimate the expected completion time by averaging the above times. 5. Draw a PERT network showing the sequence and times. Planning

95

T h e critica l p a th u se d in P E R T sh o u ld n o t b e co n fu se d w ith the C ritica l P a th M e th o d , a n o th e r fo rm o f n e tw o rk a n aly sis. T h e a p p ro a c h o f th e critica l m e th o d is essen tially th e s a m e a s th e P E R T e x c e p t the critica l p a th m e th o d u ses o n e e stim a te of the tim e , w h ile P E R T u se s m o re th a n o n e e stim a te of th e item . . T h e a d v a n ta g e o f th ese tech n iq u es is th a t th e y fo cu s th e m a n a g e r to e n g a g e in p lan n in g , id en tify in g critica l a re a s a n d c o rre c tin g th em . W ith th e h e lp o f th ese tech n iq u es, a m a n a g e r w ill b e able to m o n ito r th o se activ ities m o s t critica l to the su cce ssfu l c o m p le tio n o f a p ro ject.

4. Management by Objectives P e te r D ru ck e r u se d this te rm in 1 9 5 4 a n d a p p lie d it to a n a p ­ p ro a c h to p lan n in g . S in ce th e n M a n a g e m e n t b y O b jectives (M B O ) h a s d ra w n a g re a t d e a l o f a tte n tio n a m o n g th e a c a d e m ic s a n d p ra ctitio n e rs . M B O is an a p p ro a c h to m a n a g e m e n t d e sig n e d to e n c o u ra g e ini­ tia tiv e a n d p re v e n t w o rk in g a t c ro s s-p u rp o se s , o r in d e e d , fo r n o p u r­ p o s e a t all. It is a w a y to h elp m a n a g e rs a cc o m p lish th eir job w ith in th e fra m e w o rk o f o rg a n iz a tio n n e e d s a n d re so u rce s. In this a p p ro a c h , th e b o s s a n d su b o rd in a te s fu n ction as a te a m in se ttin g o b jectives a n d a c­ co m p lish in g th o se objectives th ro u g h co o p e ra tio n . O n e a p p ro a c h to se ttin g objectives th a t h a s en jo y ed co n sid e ra tio n o r co n sid e ra b le p o p u la rity is the co n c e p t o f m a n a g e m e n t b y objectives. M B O is a p h ilo s o p h y b a se d o n co n v e rtin g o rg a n iz a tio n a l o b jectiv es into p e rso n a l o b jectives. It a ss u m e s th a t estab lish in g p e rso n a l o b jectiv es, elicits e m p lo y e e c o m m itm e n t w h ich le a d s to im p ro v e d p e rfo rm a n ce . T h e M B O p ro c e s s is s u m m a riz e d in F ig u re 3 .2 . M B O h a s a ls o b e e n ca lle d m a n a g e m e n t b y resu lts, g o als, co n tro ls, w o rk p la n n in g a n d re­ view , a n d g o a ls m a n a g e m e n t. A ll th ese p ro g ra m s are sim ilar a n d fo llow th e sa m e b a sic p ro ce ss.

W H Y M A N A G E R S F A IL IN P L A N N I N G T h ere a re m a n y re a s o n s w h y m a n a g e rs fail in p la n n in g . T h e m o re o b v io u s o n e is b e c a u s e p la n n in g re q u ire s c o m m itm e n ts to b e m a d e to d a y fo r an u n ce rta in fu tu re. E v e n ts o ften d o n o t tu rn o u t as w e e x p e ct. A m o n g th e m o s t im p o rta n t re a s o n s fo r ineffectiv e p la n n in g a re th e follow in g: f.

L a c k o f r e a l c o m m itm e n t In p la n n in g .

D esp ite the a v o w e d in terest in p la n n in g , th e re is often a la ck o r re a l co m m itm e n t b y m a n a g e rs fro m th e to p lev el d o w n to th e lo w e st lev el su p e rv iso r. T h ere is a n a tu ra l te n d e n c y to le t to d a y 's p ro b le m p u sh asid e p la n n in g fo r to m o rro w 's o p p o rtu n itie s. It is a lm o s t ce rta in ly tru e th a t m o s t p e o p le w o u ld ra th e r fig h t fires, m e e t crise s o r kill sn ak e" S6

Management for Filipinos

th an p la n . T h is is la rg e ly b e c a u s e su c h activ ities se e m m o re im p o rta n t a n d m o re in te re stin g a n d rap id -fire d e cisio n m a k in g , w ith o u t h a v in g to thin k , is fu n . T h is m e a n s th a t m a n a g e m e n t n e e d s a clim a te th a t fo rce s p e o p le to p lan .

2. Interchanging planning studies with plans. N o th in g is p la n n e d u n less it in clu d es a d e cisio n o f s o m e k in d . Y et m a n y o rg a n iz a tio n s a n d p e o p le b eliev e th ey h a v e p la n n in g w h e n all th e y h a v e a re p la n n in g stu d ies.

3. Folium to develop and Implement sound strategies. A s w e fo u n d in the p re v io u s ch a p te rs o f this b o o k , stra te g ie s a re th e k in d o f p la n s w h ic h g iv e u n ified d ire ctio n to th e e n te r p r is e s " p la n ­ n in g effo rts. W ith o u t a so u n d strateg y , w h ich is o ften th e c a s e , p la n s g o in th e w ro n g d irectio n . M o reo v er, u n less a s tra te g y is im p le m e n te d b y a n a ctio n p la n , it b e co m e s o n ly a sta te m e n t o f w ish es a n d h o p e s .

4. Lack of meaningful objectives and goals. P la n n in g ca n n o t b e effectiv e u n less g o a ls a re cle a r (D o p e o p le u n d e rs ta n d th e m ? ), a ttain ab le (C a n th e y b e a cc o m p lish e d a n d v erifi­ ab le?) L ik e su p p o rtin g p la n s, g o als m u s t b e d e fin e d in th e lig h t o f stre n g th s a n d w ea k n e sse s a n d the m a n y in tern al an d e x te rn a l e n v iro n ­ m e n t fo rce s th a t m a y in flu en ce th eir a c h ie v e m e n t

5.

Tendency to underestimate the Importance1of planning premises.

If p la n s a n d d e cisio n s in an o rg a n iz a tio n s are to b e co n siste n t; th a t is, to fit o n e an o th er, th e y m u s t b e im p le m e n te d if a s y s te m o f p la n n in g is to b e co m p le te .

6. Failure to see the scope of plans. S o m e m a n a g e rs g e t so w ra p p e d u p in d e v e lo p in g m a jo r a n d m in o r p ro g ra m s th a t th e y n e g le ct to see th a t th ere a re o th e r ty p e s o f p lan s: m issio n s o r p u rp o s e s, objectives o r g o a ls, s tra te g ie s, p o licie s, ru les, p ro c e d u re s an d b u d g e t as w ell a s p ro g ra m s . A ll m u s t in v o lv e a n aly sis a n d d ecisio n m a k in g a n d m u s t b e im p le m e n te d if a s y s te m o f p la n n in g is to b e co m p le te .

7. Failure to see planning as a rational process. P la n n in g is p ra c tic a l e x e rc is e in ratio n alizatio n . It re q u ire s d e a r g o als, a k n o w le d g e o f a lte rn a tiv e s, a n ability to a n a ly z e a lte rn a tiv e s in th e lig h t o f g o a ls so u g h t, in fo rm a tio n a n d a d e sire to c o m e u p w ith th e b e st p o ssib le an sw er.

8. Too much reliance on experience. E x p e rie n c e a s h a s b e e n in d ica te d is lik ely to b e a d a n g e ro u s te a ch e r sim p ly b e ca u s e w h a t h a p p e n e d in th e p a s t m a y n o t lik ely fit a fu tu re situ atio n . Planning

97

9.

Failure to use the principle o f lim iting factor.

It will be recalled that this principle requires managers to search out those factors that would make the most problem situation, there are so many variables that no one can solve for all of them. 10.

La ck o f top m anagem ent support.

Planning is not like to be very effective if top management does not believe in it, encourage it, or make the necessary decisions that will allow its subordinates to make their plans. 11.

La ck o f clea r delegation.

It is obviously very difficult for people to plan if they do not know what their jobs are, if they are unaware of how their jobs relate to others in an organization, and if they do not have clear authority to make decisions. 12.

La ck o f adequate control techniques and Inform ation.

Since the task of managerial control is to follow up plans and to assure that these are actually succeeding. Planning can hardly be very difficult but effective unless the people responsible for these know how well they are working.

SH O R T CASE STUDY: P LA N N IN G (See

Chapter 12, suggested format for case study)

N A T IO N A L B O O K C O M P A N Y

Delia de los Reyes was the founder and president of a publishing company specializing in collegiate textbooks. Because of her personal ability, expertise, and effective marketing promotion, the company grew rapidly and its sales of 10,000 in the first year reach P10 million five years later. The publication, production, and sales force also in­ creased. How'ever, the company was faced with a serious problem. New and old employees were making conflicting decision. One of the De Los Reyes partners suggested that the company needed planning and clearcut policies and programs to guide decision making, but the president was not impressed. She maintains that if she concentrates in formulat­ ing plans and policies today, she might not have a company tomorrow. She believes it is best to solve problems as they happen.

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M anagem ent fo r Filipinos

R E V IE W Q U E S TIO N S 1.

W h a t is p la n n in g ? W h y is it n e c e s s a ry to p la n ? D iscu ss th e relatio n sh ip b e tw e e n p la n n in g a n d d e cisio n m a k in g .

2.

B riefly d escrib e th e v a rio u s ty p es o f p lan s.

3.

D efine: (a) P o licy

4.

(b) P u rp o s e (c) S tra te g y (d ) P ro ce d u re E n u m e ra te th e ste p s in th e b u sin e ss p la n n in g p ro ce ss.

5.

W h a t is th e p u rp o s e of fo re ca st? B riefly e x p la in so m e o f th e

6.

m o s t c o m m o n m e th o d s o f fo re ca stin g w h ich h elp m a n a g e rs p lan . D escrib e w h a t e a c h o f th e fo llo w in g are a n d h o w th e y m ig h t b e u se d to h e lp m a n a g e rs plan. (a )

PERT

(b)

Break-even analysis

7.

H o w is M B O u se d in p la n n in g ? D escrib e the step s

8. 9.

in th e M B O p ro ce ss. W h a t is m e a n t b y th e te rm , d e cisio n m ak in g ? B riefly d escrib e v a rio u s ty p es o f d ecisio n s, citin g o n e o r tw o

10.

e x a m p le s o f e a ch . D escrib e b riefly h o w the fo llo w in g tech n iq u es are u se d in d ecisio n m ak in g : (a ) M a rg in a l a n aly sis

(b) R atio a n a ly sis (c) B re a k -e v e n an aly sis 11. W h a t is m e a n t b y the te rm : o p e ra tio n s re se a rch ? 12. B riefly e x p la in the ap p lica tio n of th e fo llow in g tech n iq u es to th e d ecisio n m a k in g p ro ce ss: (a) L in e a r p ro g ra m m in g (b) G a m e th e o ry (c)

S im u la tio n

D IS C U S S IO N Q U E S T IO N S

._________

1.

W h a t p e rce n ta g e o f m a n a g e rs d o y o u th in k h a v e a cle a r u n d e r­

2.

s ta n d in g o f w h a t th e y a re s u p p o se d to d o ? M a n y m a n a g e rs b eliev e: "P o lic y sh o u ld a lw a y s b e m a d e a t th e

3.

t o p ." W h a t c a n y o u sa y a b o u t this? D iscu ss th e fo llo w in g sta te m e n t: "P la n n in g is so m e th in g m a n a g e rs sh o u ld d o w h e n th e y h a v e n o th in g else to d o ."

Planning

99

E XP E R IE N TIA L EXERCISES 1. It has been stated that a firm can have multiple objectives. What do you think would be the objectives of the following companies and organizations with regard to their interrelationships with society? (a) Bank of the Philippine Islands (b) Department of Labor and Employment (c) Shoe Mart (d) Catholic Women's League (e) University of the Philippines 2. Assume you have determined your objectives which is to get a grade of 95% or 98% this semester. Develop a personal program, policies, and procedures which would affect your objective. 3. Formulate some of the following types of plans in accordance with your business proposal: (a) Company Objectives (b) Programs (You may use the Gantt Chart) (c) Activities (d) Procedures (e) Rules and Regulations (f) Budget 4. As decision makers, in a one-hour period during the day, list the top five decisions you made. Were they based primarily on intuition, the scientific approach, or the professional approach? Why? 5. Approach a manager or an administrator and find out how he or she plans and what difficulties he or she had encountered in the plan­ ning process.

REFERENCES 1.

Koontz, Harold and O’Donnel, Cyrill. Essentials o f Management. New Delhi: Tata-McGraw-Hill Publishing Co., 1998. pp. 51-59; 146-166.

2.

Terry, George R. Principles o f Management. Illinois: Richard D. Irwin, Inc., 1997. p. 97.

3.

Osgood. William. Basics o f Successful Planning. New York: McGraw-Hill Book Company, 1995. pp. 40-42.

4.

Martinez, Esdras T., et. al. Management Theory and Practice. Manila: GIC Enterprises, Inc., 1997. p. 31.

5.

Drucker, Peter F. The Practice of Management. New York: Harper & Broth­ ers Publishers, 1998.

6.

Putti, Joseph, Management: A Functional Approach. Singapore: McGrawHill Book Company, 1997.

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W orksheet No. 3.7

PLANNING - OBJECTIVES

N a m e : _____________________________ _ _ _

Y ear/S ection: -------------------

P r o fe s s o r :___________ ________________ _

Date:

............ — __ _______

It has been stated in the book that a firm can have multiple objectives. What do you think mould be the objectives of the folloiuing companies and organizations with regard to their interrelationships with society? a) Bank of the Philippine Islands

b) Department of Labor and Employment

c) Shoe Mart

d) Rotary Club of Manila

e) University of the Philippines

Planning

101

102

___

Management for Filipinos

/

Worksheet No. 3.8

PLANNING ■ OBJECTIVES / OTHERTYPES OF PLANS

N a m e : _____________________________ ___________

Y e a r /S e c tio n :

P ro fe s s o r:

D a t e : -------------

____________________________________

Assume that you have determined your objective which is to get a grade o f 95% or 98% this semester. Develop your personal program, policies, and procedures which would affect your objectives.

Planning

103

Worksheet No. 3.9 N a m e : _________ ' P ro fe s s o r:

PLANNING - TYPES OF PLAN

_________________________

___________________________________

Y e a r /S e c tio n :

------------------------

D a t e : ----------------------------------------

Formulate some of the following types of plans in accordance with your business proposal. BUSINESS PROPOSAL

PROGRAMS (You may use the Gantt Chart)

Planning

105

PROCEDURES

RULES AND REGULATIONS

BUDGET

.106

Management for Filipinos

Worksheet No. 3.10

PLANNING - DECISION-MAKING

N a m e : ________________________________________

Y e a r /S e c tio n :

P ro fe s s o r:

D a t e : ----------------------------------------

________ __ ________________________

------------------------

As a decision-maker, in a one hour period during the day, list the top five decisions you made. Were they based primarily on intuition, the scientific approach, or the professional approach? Why?

Planning

107

Management for Filipinos

Chapter 4

Organizing Learning Objectives: A t the end o f the chapter, the student is expected to understand the following:

• Definition of Organizing • Nature of Organizing • Organizing as a Process •T h e Nature and Development of Organization • Types of Organization Structures • The Nature of Line and Staff Relationship • Organization Chart • Results of Good Organization • The Elements of Delegation • Informal and Formal Organization • Centralized and Decentralized Organization

"It is not necessary fo r a business to grow bigger, but it is necessary that it constantly grows better." - Peter F. Drucker

D E F IN IT IO N O F O R G A N IZ IN G

o

\ / R G A N IZ IN G is th e p ro ce ss o f g ro u p in g to g e th e r o f m e n a n d estab lishin g relatio n sh ip s a m o n g th e m , d e fin in g th e a u th o rity amd re ­ sp on sib ility o f p e rso n n e l b y u sin g th e c o m p a n y 's o th e r baisic re s o u rc e s to attain p re d e te rm in e d g o a ls o r objectives. O rg a n iz in g is th e iden tifi­ ca tio n of th e g ro u p ih g o f w o rk to b e d o n e , th e d e le g a tio n o f a u th o rity a n d resp on sib ility to th e e m p lo y e e s, a n d th e e sta b lish m e n t o f rela tio n sh ip s a m o n g the p e rso n n e l in o rd e r to u se to m a x im u m a d v a n ta g e the co m p a n y 's b a sic m a te ria l re so u rce s in th e a c c o m p lish m e n t o f a c o m ­ m o n goal. M en w o rk in g to g e th e r in g ro u p s to a ch ie v e a g o a l sh o u ld h a v e th eir resp ectiv e ro les to play, sim ilar to b ask etb all p la y e rs . W h e th e r th eir roles a re d e v e lo p e d b y th e m se lv e s m u s t b e d efin ed a n d d e sig n e d b y so m eo n e w h o w a n ts to m a k e su re th a t m e n c a n co n trib u te in a definite w a y to g ro u p effort. A ro le w o u ld m e a n th a t w h a t m e n d o h a s a specific p u rp o s e a n d o b jective. T h eir a ctiv ity is a situ a tio n w h e re th ey k n o w h ow th e ir job s fit in to g ro u p effo rt a n d w h e re th e y h a v e the n e ce ssa ry to o ls a n d in form ation : to a cco m p lish it. T his ca n b e d e m o n ­ strated in a sim p le effo rt as p u ttin g u p c a m p o n a fish in g e x p e d itio n .

N A T U R E O F O R G A N IZ IN G It h as b e e n p ro v e n th a t a w e a k n e ss in th e o rg a n iz a tio n is a p o si­ tiv e sign b e ca u s e it in d u ce s the p e o p le to atta in te a m w o rk , sin ce th ey k n o w th at th ere sh o u ld b e co o p e ra tio n to a cc o m p lish so m e th in g . Sub­ sequently, th o se p e o p le co u ld w o rk to g e th e r m o re e ffectiv ely if th e y k n ow the ro les th e y w a n t to p e rfo rm in a n y g ro u p u n d e rta k in g an d h o w th eir ro les re la te to o n e an oth er. T h is is p o ssib le in b u sin e ss o r g o v e rn m e n t as it is in b ask etb all o r v o lley b all. TTie d e sig n a n d stru c tu re an d im p ro v e m e n t o f th e s e 'sy ste m s o f ro les are b a sica lly th e m a n a g e ria l fu n ction of o rg a n iz in g . O rg an iz in g is a b ro a d te rm th a t ca n be in te rp re te d d ifferen tly b y m a n y m a n a g e m e n t th eo rists. S o m e b eliev e it in c lu d e s the b e h a v io r of all m em b ers o f the g ro u p . O th e rs s a y it is th e to ta l s y ste m o f so cial an d cu ltu ral relatio n sh ip s. G enerally, m o s t m a n a g e rs thin k th a t th e te rm s m e a n a fo rm alized d esig n o f in ten tio n al stru c tu re s , ro les, a n d p o sition s.

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Management for Filipinos

O R G A N IZ IN G A S A P R O C E S S

O rg a n iz in g a s a p ro ce ss sh o u ld c o n sid e r s e v e ra l fa c to rs o r fu n d a ­ m e n ta ls . F irs t, th e s tru c tu re m u s t reflect o b jectives a n d p la n s b e ca u s e a ctiv itie s o f th e o rg a n iz a tio n a re b a s e d o n th e m . S e co n d , th e stru c tu re m u s t re fle ct a u th o rity g iv e n to to p a r d m id d le m a n a g e m e n t. T h ird , o rg a n iz a tio n s tru c tu re , like a n y o th e r p lan , sh o u ld re fle ct th e ir e x te rn a l e n v iro n m e n t. L ik e w ise , th e p re m ise s o f a p la n m a y b e e c o n o m ic , te ch ­ n o lo g ica l, p o litica l, so cia l o r eth ical, w h ic h a re a lso tru e o f a n o rg a n iz a ­ tio n s tru c tu re . T h e o rg a n iz a tio n estab lish es s tru c tu re in o rd e r to p e rm it co n trib u tio n s b y m e m b e rs o f th e g ro u p , a n d to h e lp p e o p le g a in objec­ tiv e s efficien tly a n d e ffe ctiv e ly in a ch a n g in g fu tu re . In th is c a s e , a so u n d o rg a n iz a tio n s tru c tu re c a n n e v e r b e e ith e r m e c h a n istic o r static. T h u s , th e re is n o sin g le b e st o rg a n iz a tio n stru c tu re fo r v a rio u s o p e ra ­ tio n s. F o u rth , th e o rg a n iz a tio n m u s t b e m a n n e d . G ro u p in g s o f a ctiv i­ ties, a n d th e a u th o rity o f a n o rg a n iz a tio n s tru c tu re m u s t co n s id e r the p e o p le 's lim itatio n s, c u s to m s a n d tra d itio n s. T h is d o e s n o t m e a n th a t th e s tru c tu re m u s t b e b a s e d a ro u n d the in d iv id u a ls in ste a d o f a ro u n d th e g o a ls a n d su p p o rtin g activ ities. B u t a v e ry im p o rta n t co n sid e ra tio n is th e k in d o f p e o p le w h o a re to staff it. T h is is sim ilar to e n g in e e rs w h o c o n s id e r p e rfo rm a n c e - stre n g th s a n d w e a k n e sse s o f m a te ria ls in th eir p ro je cts, a n d th e o rg a n iz e rs w ho co n s id e r th e ir m a te ria ls - p e o p le .

T H E N ATU RE A N D D EVELO PM EN T O F O R G A N IZ A T IO N

A lth o u g h th e re a re d ifferen ces o f in te rp re ta tio n s a s to th e e x a c t n a tu r e o f o rg a n iz a tio n , it is an u n d en iab le fa c t th a t th e p ro p e r o rg a n i­ z a tio n is th e b a ck b o n e o f th e su cce ssfu l e n te rp rise , th e so lid fo u n d a tio n u p o n w h ic h th e e n tire b u sin e ss is b u il t

W h a t is an O rganization? T h e te r m "o rg a n iz a tio n " h a s se v e ra l d efin itio n s. O n e (W e b s te r's ) is th e " e x e c u tiv e s tru c tu re of a b u s in e s s ." T h is d efin itio n in d ica te s th a t o rg a n iz a tio n is th e fra m e w o rk o r b a ck b o n e b y w h ic h th e w o r k of a b u sin e ss, m a n a g e ria l o r o th e rw ise , is p e rfo rm e d , th a t it p ro v id e s the re q u ir e d ch a n n e ls , p o in ts o f o rig in , a n d flow o f m a n a g e m e n t d ire ctio n a n d co n tro l. " O r g a n iz a tio n " a lso co n n o te s a cre a tiv e p ro ce ss . A ll th e p a rts of Organizing

111

a business do not come into existence spontaneously. They are the re­ sults of managerial efforts to carry out a predetermined course of ac­ tion. (You can see from these two definitions that there is a specific relationship between organization and management.) The term organi­ zation is sometimes used to mean the total business organization, in­ cluding facilities, materials, money, and manpower. This final definition refers to the term "concept," to which a member is assigned specific duties and under the term of which all employees work effectively together within a framework of superior and subordinate relationship.

TYPES OF O R G A N IZ A T IO N STRUCTURES It has been stated that organization structures may differ in terms of the specific needs of a given business enterprise. There are, however, four principal organization types with different degrees of complexity appropriate to the business in terms of its size and type of product. These types are:

1.

Line organization

This is the simplest form cf structure and refers to a direct straight-line responsibility and control from the top management to the middle management and to the lower level. It acquired this name because there are direct single lines of au­ thority and responsibility between the manager and his subordinates. It is the oldest form of organization structure based on the classical prin­ ciple of the Scalar Chain. In this form of structure, authority passes responsibility-directly to his immediate superior. Figure 4.1 shows an illustration of a Line type organization struc­ ture. This form of organization is common in many small and medium­ sized companies. The managers of the departments are given complete authority and responsibility over the activities involving their func­ tional areas. One of the disadvantages of this type of structure is that a manager of a department must be familiar with diverse activities re­ lated to the operation of the department. A Sales Manager, for instance, must have knowledge in personnel activities. He has to recruit sales­ men, train them, and take care of their benefit programs. Thus, he is over-burdened with various activities. The Line type of structure has some advantages. Authority and responsibility are clear in this type of organization and the clarity helps to avoid several organizational prob­ lems.

2.

Line and staff organization This utilizes the assistance of experts 01 specialists. Business

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Management for Filipinos

Figure 4.1 Line Type

leaders have recognized - as their companies expand from simple to complex organizations - that a small number of managers could not personally assume direct responsibility for all functions, such as re­ search, planning, distribution, public relations, industrial relations, and many other activities of business. Therefore, one option toward reorga­ nization as a company expands in size and complexity is to appoint assistants to managers. Specific advisory responsibility is delegated to these assistants. Managers and general foremen retain supervisory au­ thority and control over the activities of personnel of their respective departments. They are the coordinating force that work toward the preservation of harmony and good personnel relations between the workmen and the special executive assistants. These assistants fre­ quently carry the title of process engineer, design engineer, industrial engineer, or budget officer. As the activities of these assistants increase, other personnel are added to assist. Eventually, the centering around ot a special assistant is organized into a department known as a staff department, supporting the line organization of the enterprise.

Figure 4.2 Line and Staff Type Organizing

113

3.

Functional organization

It utilizes the pure services of experts or specialists. The develop­ ment of staff departments and positions led quite naturally to attempt complete reorganization on a functional basis. This removed the staff specialist from his "assisting" capacity and gave him the pure authority and responsibility for supervision and administration of the function, replacing the operating foreman. The movement as indicated in Figure 4.3, each worker in the production department has eight supervisors. The Gang boss prepares for the production and the worker has to ap­ proach him for direction in this area. The Speed boss is assigned with the responsibilities of introducing men and getting the set standards of production. The Inspector is in charge of checking the quality of work. The Repair boss takes care of the equipment and tool repairs. The job of Order-of-Work Clerk is to plan and schedule order. The Instruction Card Clerk determines the best way to do the job. The information relating to cost and production is maintained by the Time and Cost Clerk. The Personnel Activities are handled by the Shop Disciplinarian.

Figure 4.3 Functional type

Taylor felt that the advantage of functional specialization will b e achieved to a great extent under this method of organization. But this type of organization violates one of the traditional principles of organi­ zation, namely, the "Unity of Command." According to this principle, no one subordinate can have more than one supervisor. Reporting to several bosses may create organizational problems such as lack of clar­ ity of authority, inadequate control, confusion, and conflicts.

4.

Committees Committee is another common organizational form

114

Management for Filipinos

u s e d .in sifeu-

ations where group participation and decision are required. Two types of thinking seem to be common when it comes to the use of the com­ mittee form of organization. On one side, the committee approach has been taken for granted and committees are automatically set up with­ out even considering the purpose and the need for such committees. On the other side, managers are totally reluctant to use committees because of a fear of diverse opinions. These are created to undertake special activities rather than routinary activities. Any manager or supervisor has the right to form a committee if it is needed by his department or company. In order to facilitate a cooperative relationship within a large industrial enterprise, many companies add a network of committees to the line and staff organization. Committees may be classified as: a. Ad Hoc Committee. This undertakes temporary activities; or b. Standing Committee. This is sometimes called permanent com­ mittee which undertakes permanent activities, such as the budget com­ mittee. A committee is a tool for the development of ideas and proce­ dures. It is a means by which ideas can be pooled and offered for criticism. It is the strong right arm of a tactful administration that real­ izes the importance of getting its people to work together in the solu­ tion of its own problems. Committees, like other phases of organization, should be varied in terms of the needs of a given enterprise. However, there are at least four basic principles to be considered. 1. The organization of a committee should grow out of a need that is recognized by the representatives of the departments and the personnel affected. 2. The members of a committee should be representatives of the function and the personnel concerned who have variations in opinion among them. 3. Duties, authority, and responsibility must be clearly defined. 4. The organization and operation of a committee should be a cooperative development.

O R G A N I Z A T I O N C H A R T ________________________________ An organization chart is a diagram or drawing showing the im­ portant aspects of an organizational structure. It shows the re-ationship unong positions as to authority, responsibility and accountability, and the people who occupy them. As defined by George Terry: "An organization chart is a diagrammatical form which shows important aspects of an organization including the major functions and Organizing

their respective relationships, the channels of supervision, and the rela­ tive authority of each employee who is in charge of each function."

Purpose of an Organization Chart An organization chart assists one to view the firm's structure as a whole. It shows the principal divisions and lines of formal authority and responsibility. It assists management to divide the different duties or functions in the business establishment so that they will be pe. formed effectively and efficiently. A well-prepared chart shows all of those involved in any undertaking, what each of them is to do and to whom each is responsible. It shows the grouping of departments for easier direction, and control of activities. It is a way of sorting the responsibilities of the positions so that time and effort are not duplicated and, therefore, wasted.

Types of Organization Chart Some organization charts show positions and/or departments; others show only the functions to be performed. Others would show either, both positions and functions, or departments, individuals, and functions. 1. M aster Chart or Chart o f Authority. The master chart shows the entire organizational structure. It is a master plan of the principal departments, with lines of authority and responsibility and the mutual relationships of all departments or major components. 2. Functional Chart. The functional chart shows at a glance the functions and activities of the positions and/or departments. It shows the m ajor responsibilities of departments or positions. Listed below each job title are brief statements of the responsibilities. 3. Personnel Chart. The personnel chart shows the departments in the same relative manner as the functional chart. But instead of list­ ing the functions, the titles of the positions of the names of persons are indicated. The chart also shows the class titles of all positions in the department together with their locations in the organization.

How to Draw an Organization Chart An organization chart may consist of an entire business, for each department or for each section of a business. Before drawing an organization chart, one should observe the following procedures. First, gather the necessary information on the following: 1. existing positions and/or departments; 2. objectives, functions, and activities of positions and/or departments; 3. organization; 116

Management for Filipinos

4.

lin es o f a u th o rity an d resp o n sib ility fro m top m a n a g e m e n t

5.

to m id d le m a n a g e m e n t; functioned relatio n sh ip s b e tw e e n lin e a n d staff p o s itio n s /

6. 7.

d e p a rtm e n ts ; p o sitio n s a n d job titles; p h y s ic a l lo ca tio n o f e a ch p o s itio n /d e p a rtm e n t.

T h e se co n d step is to d ra w a te m p o ra ry c h a rt a n d c h e c k it fo r a c c u r a c y w ith the m a n a g e rs of th e v a rio u s d e p a rtm e n ts o r sectio n s. Fin ally, th e c h a rt as d ra w n m u s t b e su b m itte d a n d re c o m m e n d e d to to p m a n a g e m e n t fo r a p p ro v a l a n d im p le m e n ta tio n . T h e lin es o f c o m m u n ica tio n , a lso k n o w n a s th e flo w o f a u th o rity a n d resp o n sib ility , sh o u ld b e sp ecific a n d clear. T h q o rg a n iz a tio n c h a rt sh o w s th e w o rk to b e p e rfo rm e d , th eir d iv isio n s, a n d th e ir in te rre la tio n sh ip s. It sh o w s th e v ital fu n ctio n s of the to p m a n a g e m e n t a n d th e su b o rd in a te fu n ctio n s in s u c c e s s iv e ly d e­ sc e n d in g p o s itio n s , th e re b y in d ica tin g a h ie ra rch y of p o sitio n s fro m top m a n a g e m e n t to ra n k a n d file. T h e ch a in o f c o m m a n d sh o u ld b e cle a rly esta b lish e d . S taff d e p a rtm e n ts /p e rs o n n e l sh o u ld b e p ro p e rly in d ica te d b y u s in g d o tte d lin es o r b ro k en lin es. W h e n it is d ra w n , it is g e n e ra lly in a p y r a m id sh a p e , w ith th e few w o rk a t th e to p a n d an in cre a sin g n u m b e r o f w o rk to w a rd th e b a se . P o sitio n s c a rry in g o u t w o rk a t the top o f th e c h a r t h a v e th e g re a te s t m a n a g e ria l a u th o rity a n d respon sib ility, w h ile th o se a t th e .b o tto m h a v e th e le a st a u th o rity a n d responsibility. P o s itio n s /d e p a r tm e n ts o n th e sa m e h o riz o n ta l le v e l o n th e ch a rt in d ica te eq u al resp o n sib ility a n d a u th o rity in the o rg a n iz a tio n . T h e job titles o r the n a m e s o f the jo b s's h o u ld b e sh o w n cle a rly on th e ch a rt. Briefly, a n o rg a n iz a tio n c h a rt h e lp s m a n a g e m e n t to v is u a liz e the d ifferen t d iv isio n s, d e p a rtm e n ts , a n d se ctio n s of th e b u sin ess. Sim ilarly, a n e n g in e e r m a k e s a b lu e p rin t p la n a s a g u id e in th e co n stru ctio n o f a b u ild in g , facto ry , o r b rid g e . T h e o rg a n iz a tio n c h a rt sh o w s the m a n a g e ­ rial p o sitio n s in th e fo rm o f b o x e s c o n n e cte d b y th e solid lin es th a t in d ica te th e line o f th e c o m m a n d ; a u th o rity flo w in g fro m o n e p o sitio n a t th e to p d o w n to the v a rio u s h e a d s o f d iv isio n s, d e p a rtm e n ts , sectio n s o r u n its a n d fin ally to e m p lo y e e s a n d w o rk e rs a t th e b a se o f th e p y r a ­ m id . A s e a c h n e w u n it is cre a te d , th e n u m b e r of p a rts m u ltip lies. T h e o rg a n iz a tio n c h a rt sh o u ld b e s u p p o rte d b y w ritte n job d e­ scrip tio n s sta tin g th e d u tie s a n d resp o n sib ilities of e a c h job a n d also a w ritte n job sp ecifica tio n w h ic h in d ica te s th e q u alificatio n re q u ire m e n ts fo r th e job. T h e fo llo w in g ru les sh o u ld b e o b s e rv e d in d ra w in g an o rg a n iz a ­ tio n c h a r t (See Figure 4.4): 1. B o x e s o r re c ta n g le s re p re se n tin g v a rio u s p o s itio n s /jo b s in the Organizing

117

Figure 4.4 Typical example of an Organization Chart

organization should be grouped and placed according to their levels (top management, middle management, rank and file) in the organiza­ tion. 2. The boxes indicating the organizational functions on the same level should be of the same sizes, i.e., top management level, 3/8" x 2 1 / 2 ".

3. Solid/block lines should connect boxes or rectangles to desig­ nate managerial control or line of authority. Lines of authority do not pass through a box or rectangle. Each box should have lines indicating its relation to the organizational units above and below it. These lines should connect the box at the top center and then either at the bottom center or at the side of the box or rectangle. Dotted/broken lines should indicate service in staff relationship. 4. When an assistant to the head of an organizational position acts in the capacity of a staff or technical assistant without exercising managerial authority over the line organization, the box should be drawn to the side of the line organization. It could either be on the right or left side. 5. Staff and service functions are placed under the office or units served, usually to the right using the dotted lines. They should be drawn of the same sizes. ,118

Management for Filipinos

R E O R G A N I Z A T I O N

Reorganization is the process by which an existing organization undergoes changes in the size and shape of the organization structure. The change may range from simple to complex.

Figure 4.5 Matrix Structure

In Figure 4.5 the organization is structured along two dimen­ sions. In one dimension, the structure shows basic functional depart­ ments such as Research and Development, Engineering, Manufactur­ ing, and Marketing. The Department Head in each of these functional areas plans and controls the dimension, a Project Director plans and controls the efforts for all projects currently in that phase of develop­ ment. In the other dimension, a Project Director plans and controls an entire project currently in that phase of development. In the other di­ mension, a Project Director plans and controls an entire project through all the functional areas necessary to its completion by placing personnel from each of the appropriate functional departments. Thus, two hierarchal structures intersect one another. While the former is functionally oriented, the latter is often project-oriented.

D EPA R TM EN TA TIO N ______________________________ Departmentation results from the grouping of work, the desire to obtain organization units of manageable size, and to utilize managerial ability An organization structure and design are shaped significantly by the departmentation followed. Examples of departments are Account­ ing Department, Personnel Department, Sales Department, etc. Organizing

119

It se e m s q u ite a p p a re n t th a t if the sta te d g o a ls an d o b jectives o f a n o rg a n iz a tio n a re to b e a tta in e d , ce rta in activ itie s h a v e to b e p e r ­ fo rm e d . A n d it w o u ld a lso se e m th a t th e o rg a n iz in g fu n ctio n o f a man­ a g e r w o u ld in v o lv e g ro u p in g th e fu n ctio n s a n d activ itie s n e c e s s a ry to a t ta i n th e g o a ls o f a n e n te r p r is e . T h e t e r m f o r t h a t p r o c e s s is D e p a rtm e n ta tio n (o r D iv isio n o f O rg a n iz a tio n ). A s sta te d a b o v e , the p ro ce ss o f g ro u p in g th e fu n ctio n s a n d a ctiv itie s in an o rg a n iz a tio n is k n o w n as D e p a rtm e n ta tio n . It g iv e s a h o riz o n ta l d im e n sio n to a n o rg a ­ n iz a tio n . G ullick sets u p fo u r b a se s fo r d e p a rtm e n ta liz in g a n o rg a n iz a ­ tion . T h e y are D e p a rtm e n ta tio n b y fu n ctio n , p ro d u c t, p ro c e s s , a n d g e o ­ g ra p h ica l locatio n . D e p a rtm e n ta tio n by- fu n ctio n in v o lv e s id en tify in g m a jo r fu n ction s to b e p e rfo rm e d in a ch ie v in g th e g o a ls o f a n o rg a n iz a ­ tion a n d g ro u p in g th e o th e r re la te d fu n ctio n s an d activ itie s a cco rd in g ly . F ig u re 4 .6 sh o w s D e p a rtm e n ta tio n b y fu n ction . M a n a g in g D irecto r

P ro du ctio n 'M a n a g e r

M arketin g M anager

F in a n c e M anager

P erso nn el M anager

L egal A d v is e r

R & D D ire c to r

Figure 4.6 Departmentation by function T h e p rim a ry o r m a jo r fu n c^ o n s u se d in this e x a m p le a re : P ro d u c ­ tion , M a rk e tin g , F in a n ce , P e rso n n e l, L e g a l, a n d R e se a rc h a n d D e v e lo p ­ m e n t. A fte r th e p rim a ry fu n ctio n s are id en tified , th e n e x t ste p is to id en tify s e c o n d a ry fu n ctio n s a n d g ro u p th e m a cco rd in g ly . A t th e n e x t step , e a c h o f th ese s e c o n d a ry fu n ctio n s m a y be fu rth e r s u b d iv id e d in to n a r r o w e r w o rk a reas. T h is n a rro w d iv isio n of fu n ctio n h e lp s to a ch ie v e th e a d v a n ta g e o f sp e cia liz a tio n b y fu n ctio n . D e p a rtm e n ta tio n b y p ro d ­ u c t in v o lv e s g ro u p in g th e a ctiv itie s a n d fu n ctio n s o n th e b a sis o f p ro d ­ u cts m a n u fa ctu re d b y tfye co m p a n y . F o r e x a m p le , a n e le c tric a l m a n u fa c ­ tu rin g c o m p a n y m a y h a v e th e stru c tu re sh o w n in F ig u re 4 .7 .

Figure 4.7 Departmentation by product 120

Management for Filipinos

Each of these divisions may be further divided into departments based on the components of these products or by functions performed. Likewise, a service organization may structure its work by the service it offers. According to Dale, an industrial engineer, grouping by product or service has the advantage of bringing together and coordinating in one place major activities required to make a particular product. Of course, this method of grouping involves duplication of some of the activities and hence for this reason it may be costly. In some organizations the grouping of activities is done on the basis of the nature of work being done, that is by process. For example, a textile manufacturing company may have to go through the process of receiving raw material, separating, spinning, weaving, bleaching, dyeing, inspecting, packaging and transporting in marketing its prod­ uct The figure for this type of organization is shown in Figure 4.8.

Figure 4.8 Departmentatlon by process

Finally, the grouping may be done on the basis of geographical location. In this method, the entire service area of the organization is divided into geographical locations or territories. For instance, a sales organization may have groupings like: NCR DIVISION, LUZON DIVI­ SION, VISAYAS DIVISION, and MINDANAO DIVISION. In many in­ stances, it may be practical to bring together all operations performed in a particular geographical location, or any of the other methods dis­ cussed above. The figure for departmentation by geographical location is shown in Figure AS.

Figure 4.9 Departmentatlon by geographical location Organizing

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RESULTS OF G O O D O R G A N IZ A T IO N 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

A good organization would result in the following: establishing responsibility and preventing "buck passing." providing for easier communication; eliminating jurisdictional disputes between individuals; helping develop executive ability; aiding in measuring a person's performance against his charges and iesponsibilities; aiding in equitable distribution of work, functions, and/or person­ nel supervision; permitting'expansion and contraction without seriously disrupt­ ing the structure; pointing out "dead-end" jobs; affording movement in the direction of the "ideal" organization, in times of change; establishing closer cooperation and higher morale; delineating avenues of promotion; preventing duplication of work; making growth possible with adequate control and without liter­ ally killing top executives through overwork; and aiding in wage and salary administration through forced job analysis and description.

T H E E L E M E N T S O F D E L E G A T IO N

Delegation is the process of entrusting and transferring responsi­ bility and authority by the top management to the lowest level. The elements of delegation are the following:

1.

Responsibility This is the work or duty assigned to a particular position. Re­ sponsibility involves mental and physical activities which must be per­ formed to carry out a task or duty. This can be delegated. The work of the manager can be divided into two categories: First, the management functions which cover planning, organiz­ ing, staffing, directing, and controlling activities; and, second, the op­ erative functions which include all activities that have to do directly with their specialization. 2. A u th o rity It refers to the power or the right to be obeyed. It is also the sum of the powers and rights entrusted to make possible the performance, of 122

Management for Filipinos

the work delegated. Authority includes such rights and powers with regard to receipt and disbursement of money, and hiring and dismiss­ ing of employees. It may sometimes be limited only to the power to make, consult, or give service which is related to the staff function. Other types of authority aside from what has been mentioned are: those that result out of one's knowledge which is called the author­ ity of knowledge; those arising out of one's nearness to those with line authority. These should be differentiated from delegated authority. It is significant that an understanding of our concept of authority is clarified. There are three current concepts of authority - the tradi­ tional, the behaviorist, and the functional. Knowledge of these concepts can give us a better view of authority. The traditional concept uses Henri Fayol's statement: “Authority is the right to command and the power to make oneself obeyed." A latter interpretation of the statement is “Authority is the right to give others orders and the power to exact obedience." This view is present among those who claim themselves belonging to the scientific school of management, where the worker is seen as a mere tool in the organiza­ tional machine. The behaviorist or social scientist treats authority differently as opposed to the traditional concept. They explain authority to be a rela­ tionship between the supervisor and the worker. They believe that au­ thority is given by subordinate to superior. The direction of authority is, therefore, upward instead of downward. The real source of power is the subordinate and not the superior. The ultimate source of power is the group, and as long as the group allows itself to be under the authority, the management can exercise that power.

3. Accountability This is the answerability of the obligation to perform the del­ egated responsibility and to exercise the authority for the proper perfor­ mance of the work. Accountability cannot be delegated. Accountability is given to the person who accepts the responsibility and is accountable only to the .extent that he is given the authority to perform. Each person can be accountable to only one person, his immediate boss. The superior can only exact responsibility to the extent that standards of performance are defined.

T H E A R T O F DELEG ATIO N Delegation is considered an art and a science. It is an art because it is a skill that the manager performs effectively if he practices it. Organizing

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Delegation should first and foremost be tackled before the estab­ lishment of goals and objectives and a clear definition of responsibility and authority has been made. T o 'b e effective, the m a n a g e r m u s t m o tiv a te th e su b o rd in a te s to w o rk o n the delegated resp o n sib ility a n d au th o rity . P o s itiv e m o tiv a tio n , in ste a d o f n egative, sh o u ld b e g iv en . P o sitiv e m o tiv a tio n m a y b e d e ­ scrib ed as p sych ological as w ell a s m o n e ta ry a n d o th e r tan g ib le b e n ­ efits. T h e technique of u sin g g ro u p p a rtic ip a tio n a n d effectiv e c o m m u ­ n ica tio n can p ro vid e the su b o rd in a te s a sen se o f b e lo n g in g in th e g ro u p . T h is con d ition w ou ld in d u ce the p e rs o n to in te g ra te h is o b jectiv e w ith o rg an izatio n objectives. T h e m a n a g e r sh o u ld a lw a y s ch a lle n g e the su b ­ o rd in a te s in the form of p ro v id in g w o rk th a t a re d ifficu lt b u t n o t im p o s ­ sible to attain to rem o ve the effects o f b o re d o m . T h e su p erior sh ou ld see to it th a t tra in in g is g iv e n to su b o rd i­ n a te s w h en necessary. L astly, the m a n a g e r sh o u ld n o t d e le g a te re s p o n ­ sibility a n d then forget a b o u t w h a t h e d e le g a te d . If th is h a p p e n s , th e n e x t tim e you delegate the job , it w ill b e th e s u b o rd in a te 's tu rn to fo r­ g et.

T H E E X C E P T IO N P R IN C IP L E T h e excep tion p rin cip le (also k n o w n as m a n a g e m e n t b y e x c e p ­ tio n ) is closely related to the p a rity p rin cip le. T h e e x ce p tio n p rin c ip le sta te s th a t m an ag ers sh o u ld c o n c e n tra te th eir effo rts o n m a tte rs th a t d e v ia te significantly from th e n o rm a l a n d let su b o rd in a te s h a n d le ro u ­ tin e m a tte rs. The idea h e re is th a t m a n a g e rs sh o u ld c o n c e n tra te o n th o se m a tte rs that require th eir abilities a n d n o t b e c o m e b o g g e d d o w n w ith d u tie s that their su b o rd in ates sh o u ld b e d