Lecture 4: Managerial Functions

Chapter Outline
Perception & Decision making
Planning & MBO
Organizing

Staffing
Leading
Controlling

1.1. Decision-Making: The Essence of the Managers Job

Decision: Making a choice from two or more alternatives.
The Decision-Making Process

Identifying a problem and decision criteria and allocating weights to

the criteria.

Developing, analyzing, and selecting an alternative that can resolve

the problem.

Implementing the selected alternative.

Evaluating the decisions effectiveness.

Selecting best alternative.

Problem: A discrepancy between an existing and desired state of affairs.
Characteristics of Problems
A problem becomes a problem when a manager becomes aware
of it.
There is pressure to solve the problem.
The manager must have the authority, information, or resources
needed to solve the problem.
Making decisions: Rationality, bounded rationality & intuition
Rationality: Managers make consistent, value-maximizing choices with
specified constraints.
Intuitive decision making: Making decisions on the basis of experience,
feelings, and accumulated judgment. (discussed later)
Bounded Rationality: Managers make decisions rationally, but are limited
(bounded) by their ability to process information.
Exhibit 1-2
Types of decisions

*Programmed decisions
Policy: A general guideline for making a decision about a structured
problem.
Procedure: A series of interrelated steps that a manager can use to
respond (applying a policy) to a structured problem.
Rule: An explicit statement that limits what a manager or employee
can or cannot do.
*Unstructured Problems
Problems that are new or unusual and for which information is
ambiguous or incomplete.
Problems that will require custom-made solutions.
Nonprogrammed Decisions
Decisions that are unique and nonrecurring.
Decisions that generate unique responses.
Decision-Making Conditions
A. Certainty: A situation in which a manager can make an accurate decision
because the outcome of every alternative choice is known.
B. Uncertainty: Limited information prevents estimation of outcome
probabilities for alternatives associated with the problem and may force
managers to rely on intuition, hunches, and gut feelings.
Maximax: the optimistic managers choice to maximize the
maximum payoff
Maximin: the pessimistic managers choice to maximize the
minimum payoff
Minimax: the managers choice to minimize maximum regret.
C. Risk: A situation in which the manager is able to estimate the likelihood
(probability) of outcomes that result from the choice of particular
alternatives.
Dimensions of Decision-Making Styles
Ways of thinking
Rational, orderly, and consistent
Intuitive, creative, and unique

Tolerance for ambiguity

Low
tolerance:
require
consistency and order
High tolerance: multiple thoughts
simultaneously

Types of Decision Makers

Directive: Use minimal information and consider few alternatives.
Analytic: Make careful decisions in unique situations.

 Conceptual: Maintain a broad outlook and consider many alternatives in

making decisions.
Behavioral: Avoid conflict by working well with others and being
receptive to suggestions.
Exhibit 1-3

Decision-Making Matrix

Perception & Individual Decision making

Perception A process by which individuals organize and interpret their sensory
impressions in order to give meaning to their environment. Peoples behavior is based on
their perception of what reality is, not on reality itself.
Person Perception: Making Judgments About Others
Distinctiveness: shows different behaviors in different situations.
Consensus: response is the same as others to same situation.
Consistency: responds in the same way over time.
Errors and Biases
Fundamental Attribution Error The tendency to underestimate the influence of
external factors and overestimate the influence of internal factors when making
judgments about the behavior of others.
Self-Serving Bias The tendency for individuals to attribute their own successes to
internal factors while putting the blame for failures on external factors.
Frequently Used Shortcuts in Judging Others
Selective Perception People selectively interpret what they see on the basis of
their interests, background, experience, and attitudes.
Halo Effect Drawing a general impression about an individual on the basis of a
single characteristic
Contrast Effects Evaluation of a persons characteristics that are affected by
comparisons with other people recently encountered who rank higher or lower on
the same characteristics.
Projection Attributing ones own characteristics to other people.
Stereotyping Judging someone on the basis of ones perception of the group to
which that person belongs.

Common Biases and Errors in decision making

Overconfidence Bias: Believing too much in our own decision
competencies.
Anchoring Bias: Fixating on early, first received information.
Confirmation Bias: Using only the facts that support our decision.
Availability Bias: Using information that is most readily at hand.
Representative Bias: Assessing the likelihood of an occurrence by
trying to match it with a preexisting category.
Escalation of Commitment: Increasing commitment to a previous
decision in spite of negative information.
Randomness Error: Trying to create meaning out of random events
by falling prey to a false sense of control or superstitions.
Hindsight Bias: Falsely believing to have accurately predicted the
outcome of an event, after that outcome is actually known.
Intuitions
Intuitive Decision Making: An unconscious process created out of distilled
experience.
Conditions Favoring Intuitive Decision Making
A high level of uncertainty exists
There is little precedent to draw on
Variables are less scientifically predictable
Facts are limited
Facts dont clearly point the way
Analytical data are of little use
Several plausible alternative solutions exist
Time is limited and pressing for the right decision
Organizational Constraints on Decision Makers
Performance Evaluation: Evaluation criteria influence the choice of
actions.
Reward Systems: Decision makers make action choices that are
favored by the organization.
Formal Regulations: Organizational rules and policies limit the
alternative choices of decision makers.
System-imposed Time Constraints: Organizations require decisions
by specific deadlines.
Historical Precedents: Past decisions influence current decisions.
1.2. Planning
A primary functional managerial activity that involves:

Defining the organizations goals

Establishing an overall strategy for achieving those goals
Developing a comprehensive set of plans to integrate and coordinate
organizational work.

Why Do Managers Plan?

Provides direction
Reduces uncertainty
Minimizes waste and redundancy
Sets the standards for controlling
The Relationship between Planning & Performance
Planning may be
Informal: not written down, short-term focus; specific to an
organizational unit.
Formal: written, specific, and long-term focus, involves shared goals
for the organization.
Formal planning is associated with:
Higher profits and returns of assets.
Positive financial results.
The quality of planning and implementation affects performance more
than the extent of planning.
The external environment can reduce the impact of planning on
performance,
Formal planning must be used for several years before planning begins to
affect performance.

How Do Managers Plan?

Elements of Planning
Goals (also Objectives)
Desired outcomes for individuals,
groups, or entire organizations
Provide direction and evaluation
performance criteria

Plans
Documents that outline how goals
are to be accomplished
Describe how resources are to be
allocated and establish activity
schedules

Types of Goals
Financial Goals: Are related to the expected internal financial
performance of the organization.

Strategic Goals: Are related to the performance of the firm relative to

factors in its external environment (e.g., competitors).
Stated Goals versus Real Goals: Broadly-worded official statements of
the organization (intended for public consumption) that may be
irrelevant to its real goals (what actually goes on in the organization).

Exhibit 1-4. Stated Objectives from Large U.S. Companies

Financial Objectives
Strategic Objectives
Faster revenue growth
A bigger market share
Faster earnings growth
A higher more secure industry rank
Higher dividends
Higher product quality
Wider profit margins
Lower costs relative to key
Higher returns on invested capital
competitors
Stronger bond and credit ratings
Broader or more attractive product
Bigger cash flows
line
A rising stock price
A stronger reputation with customers
Recognition as a blue chip company
Superior customer service
A more diversified revenue base
Recognition as a leader in technology
Stable earnings during recessionary
and/or product innovation
periods
Increased ability to compete in
international markets
Expanded growth opportunities

Exhibit 1-5. Types of Plan

Strategic Plans
Apply to the entire organization.
Establish the organizations overall goals.
Seek to position the organization in terms of its environment.
Cover extended periods of time.
Operational Plans
Specify the details of how the overall goals are to be achieved.
Cover short time period
Long-Term Plans

 Plans with time frames extending beyond three years

Short-Term Plans
Plans with time frames on one year or less
Specific Plans
Plans that are clearly defined and leave no room for interpretation
Directional Plans
Flexible plans that set out general guidelines, provide focus, yet allow discretion
in implementation.
Single-Use Plan
A one-time plan specifically designed to meet the need of a unique situation.
Standing Plans
Ongoing plans that provide guidance for activities performed repeatedly.

Exhibit 1-7. Traditional Objective Setting

Approaches to Establishing Goals: MBO

Specific performance goals are jointly determined by employees and
managers.
Progress toward accomplishing goals is periodically reviewed.
Rewards are allocated on the basis of progress towards the goals.
Key elements of MBO:
Goal specificity, participative decision making, an explicit
performance/evaluation period, feedback
Steps in a Typical MBO Program
1. The organizations overall objectives and strategies are formulated.
2. Major objectives are allocated among divisional and departmental
units.
3. Unit managers collaboratively set specific objectives for their units with
their managers.

4. Specific objectives are collaboratively set with all department

members.
5. Action plans, defining how objectives are to be achieved, are specified
and agreed upon by managers and employees.
6. The action plans are implemented.
7. Progress toward objectives is periodically reviewed, and feedback is
provided.
8. Successful achievement of objectives is reinforced by performancebased rewards.
Does MBO works?
Reason for MBO Success
Top management commitment and involvement
Potential Problems with MBO Programs
Not as effective in dynamic environments that require constant
resetting of goals.
Overemphasis on individual accomplishment may create problems with
teamwork.
Allowing the MBO program to become an annual paperwork shuffle.
Exhibit 1-8. Planning in the Hierarchy of Organizations

Criticisms of Planning
Planning may create rigidity.
Plans cannot be developed for dynamic environments.
Formal plans cannot replace intuition and creativity.
Planning focuses managers attention on todays competition not
tomorrows survival.
Formal planning reinforces todays success, which may lead to tomorrows
failure.
1.3. Organizing

Process of determining the activities to be performed, arranging these

activities to administrative units, as well as assigning managerial authority
and responsibilities to people employed in the organization.
There are six elements of structure:
A.
B.
C.
D.
E.
F.

Work specialization
Chain of command
Span of control
Delegation of authority and responsibility
Centralization vs. decentralization
Departmentalization

* Centralization: concentration of decision-making and action at high level

management.
Advantages
Provide Power and prestige for
manager
Promote uniformity of policies,
practices and decisions.
Minimize duplication of function is.
Minimal extensive controlling
procedures and practices.

Disadvantages
Neglected functions for mid. Level,
and less motivated beside
personnel.
Nursing supervisor functions as a
link officer between nursing director
and first-line management.

Decentralization: Consistent delegation of authority to the lower levels

where the work is performed.
Advantages
Disadvantages
Raise morale and promote interTop-level administration may feel it
personal
would
relationships..
decrease their status.
Relieve
from
the
daily Managers may not permit full and
administration..
maximum
utilization
of
highly
qualified
personnel.
Bring
decision-making
close
to Increased costs. It requires more
action..
managers
and large staff.
Develop Second-line managers..
It may lead to overlapping and
duplication of
effort.
Promote employees enthusiasm and It may lead to lack of uniformity and

coordination..

lowering
of standards in decision-making.
Facilitate actions by lower-level Emergency decision may not
managers.
possible.
Improves coordination, especially for
services..

be

** Delegation: Process off assigning work from a top organizational level to

a lower one or from superior to subordinate, and giving that person the
authority to accomplish them. (A downward flow of authority from HIGHER
level in the organization to LOWER level.)
The

delegation process
Allocation of duties.
Delegation of authority.
Assignment of responsibility.
Creation of accountability (subordinates must be held answerable to
their carried out duties)

Factors determining degree of authority delegation:

Organizations size
Importance off duty or decision
Task complexity
Organizational culture.
Qualities of subordinates
Major causes of managers refusal to delegate
Tendency to do things personally.
Desire to dominate the knowledge, information, and/or skills.
Unwillingness to accept risks of wrongs.
Reasons for subordinates avoidance of accepting delegation
Decision-making is a hard mental work, and people seek ways off
avoiding it.
Fear off criticism for mistakes.
Lack off necessary information and resources to do a good job.
Overload off work.
Positive incentives may be inadequate.
1.4. Leading
Leadership is the art of getting someone else to do something you want
done because he wants to do it. ~ Dwight D. Eisenhower, 1890 - 1969

What is leadership, and how does it differ from management?

Management promotes stability or enables the organization to run
smoothly.
Leadership promotes adaptive or useful changes.
Persons in managerial positions may be involved with both
management and leadership.
Both management and leadership are needed for organizational
success.
Leadership is a special case of interpersonal influence that gets an
individual or group to do what the leader or manager wants done.
Forms of leadership:
Formal leadership.
Informal leadership.
Motivation
The set of forces that cause people to behave in certain ways.

Early Theories of Motivation

A. The HR Model: Theory X &

Theory Y

Douglas McGregor proposed two distinct

views about human
nature--one a negative view, Theory X, and one a positive view called Theory
Y. Theory Y managers see people as responsible and conscientious. If a
manager sees people as irresponsible and lazy,they will follow Theory X and
assume the following:
Theory X
Employees inherently dislike work
and will try to avoid it.
Since employees dislike work, they
must be coerced, controlled, or
threatened to achieve goals.
Employees avoid responsibilities and
seek formal direction, if possible.
Most workers place security above all
other work-related factors and will
display little ambition.

Theory Y
Employees can view work as being as
natural as rest or play.
When committed to their objectives,
people will exercise self-direction and
self-control
The average person can learn to
accept, even seek, responsibility.
Many workers besides managers
have innovative decision-making
skills.

No hard evidence confirms that either set of assumptions is universally true.

It is more likely that the assumptions of Theory X or Theory Y may or may
not be appropriate, depending on the situation at hand.
B. Maslows Hierachy of need theory: Organizational example
According to Maslow, within every human being, a hierarchy of five needs
exist. The first three are deficiency needs because they must be satisfied if
the individual is to be healthy and secure. The last two are growth needs
because they are related to the development and achievement of ones
potential. As each of these needs becomes substantially satisfied, the next
higher need becomes dominant.
S

Herzbergs Motivation-Hygiene Theory

Certain job characteristics are consistently related to both job satisfaction
and dissatisfaction. According to Herzberg elimination of Dissatisfaction
factors may bring harmony in work environment but but not necessarily
motivation. Their should be a balance between Motivation & Hygiene factors.
Motivators
Achievements
Recognition
Work itself
Responsibility
Growth

Hygiene Factors
Supervision
Working condition
Relationship with supervisor
Salary
Peers relation
Personal life
Relation with subordinates

Status
Security
Satisfaction

Dissatisfaction

Contemporary Theories of Motivation

A. Equity Theory
Employees evaluate their treatment relative to the treatment of others
Inputs: Employee contributions to their jobs
Outputs: What employees receive in return
Employees compare their job inputs and outcomes with others. There are
three possible perceptions: inequity due to being under-rewarded, equity, or
inequity due to being over-rewarded.
Employees who perceive an inequity will react in one of five ways:
Distort either their own or others inputs or outcomes;
Behave so as to induce others to change their inputs or outcomes;
Behave so as to change their own inputs or outcomes;
Choose a different comparison referent;
Quit their job.
Equity theory recognizes that individuals are concerned not only with the
absolute rewards they receive but also with the relationship of those rewards
to what other receive.
B. Expectancy Theory
Expectancy theory states that an individual tends to act in a certain way on
the basis of the expectation that the act will be followed by an outcome that
is attractive to the individual. For example, an employee will be motivated to
produce more when he or she believes that the effort will lead to a good
performance appraisal; that a good appraisal will lead to organizational
rewards; and that the rewards will satisfy the employees personal goals.

1. Effort-performance relationship
2. Performance-rewards relationship
3. Attractiveness relationship
This theory focuses on three relationships

The effort-performance relationship is the probability perceived by the

individual that exerting a given amount of effort will lead to
performance.
The performance-reward relationship is the degree to which an
individual believes that performing at a particular level will lead to the
attainment of a desired outcome.
Attractiveness is the importance the individual places on the potential
reward that can be achieved on the job.

Strategies for Enhancing Job Satisfaction and Morale

Reinforcement/behavior modification
Management by objectives
Participative management and empowerment
Job enrichment and job redesign
Modified work schedules
Motivation and Leadership in theTwenty-first Century
Motivation: Security and pay are no longer enough
Leadership: Coach mentality, Diversity, Flexibility
1.5. Staffing
See HRM
1.6. Controlling
Control: The process of monitoring activities to ensure that they are being
accomplished as planned and of correcting any significant deviations.
The Purpose of Control

To ensure that activities are completed in ways that lead to accomplishment

of organizational goals.
How to Control?

Controlling
Standards
Measurements
Comparison
Actions

Planning
Goals
Objectives
Strategies
Plans
Organizing
Structure
Human
Resource
Management

Leading
Motivation
Leadership
Communication
Individual
and
Group Behaviour

Planning Control: let managers know whether their goals and plans are
on target and what future actions to take.
Empowering employees: Control systems provide managers with
information and feedback on employee performance.
Protecting the workplace: Controls enhance physical security and help
minimize workplace disruptions.

The control process

A. Measuring actual performance
B. Comparing actual performance against a standard
C. Taking action to correct deviations or inadequate standards

A. Measuring
How? : Sources of Information
Personal observations, Statistical reports, Oral reports, Written reports
What? : Control Criteria
Employees: Satisfaction, Turnover, Absenteeism
Budgets, Costs, Output, Sales

Common Sources of Information for Measuring Performance

B. Comparing
Determining the degree of variation between actual performance and the
standard. Significance of variation is determined by:
i. The acceptable range of variation from the standard (forecast or budget)
ii. The size (large or small) and direction (over or under) of the variation from
the standard
C. Taking Actions to correct deviations
Exhibit 1-9. Defining the Acceptable Range of Variation
Courses of Managerial Action
Doing nothing
Acceptable
Upper
Limit
Only if deviation is insignificant
Acceptable
Standard
Correcting actual (current)
Range of
Variation
Acceptable
performance
Lower
Limit
Immediate or basic corrective action

t+
t 1
+
tPeriod
+
2tt)+
3t +
4t(5
Time

Revising the standard

Determine whether the standard is
realistic, fair, and achievable

Exhibit 1-10. Managerial Decisions in the Control Process

Compare
actual
performance
with standard

Is
Y
es
standard
Do nothing
being
attained?
No
Y
es
Is
variance
acceptable? Do nothing

Measure
actual
Goals Standard performance
No

Y
es
Is
Identify
standard
cause of
acceptable?
variation
No
Revise
standard

Correct
performance

Type of Controls (Tools for Controlling Organizational Performance)

A. Feedback Control: Takes place after an activity is done. Corrective

action is after-the-fact, when the problem has already occurred
Advantages

Feedback provides managers with information on the effectiveness of

their planning efforts
Feedback enhances employee motivation by providing them with
information on how well they are doing
B. Concurrent Control: A control that takes place while the monitored
activity is in progress.
Direct supervision: management by walking around.
Contemporary Issues in Control (Workplace Concerns)
Workplace privacy versus workplace monitoring:
E-mail, telephone, computer, and Internet usage
Productivity, harassment, security, confidentiality, intellectual property
protection
Employee theft
The unauthorized taking of company property by employees for their
personal use.
Workplace violence
Anger, rage, and violence in the workplace are affecting employee
productivity.

Financial Controls: Judgment of Parameters (Ratio Analysis)

Exhibit 1-11: Popular Financial Ratios

1.7. Budget and Forecasting

The part of organizational planning that involves creating predictions of
outcomes based on information gathered by environmental scanning.
Forecasting Techniques

 Quantitative forecasting: Applying a set of mathematical rules to a series

of hard data to predict outcomes.
Qualitative forecasting: Using expert judgments and opinions to predict
less than precise outcomes.
Exhibit 1-12: Forecasting Techniques
Quantitative:
Time series Attempts to predict the future by using historical data using
analysis
sales and seasonal component.
Regression
Express the response variable as a function of the predictor
models
variables
Econometric
Residual adjustment, whereby the model residuals are
models
altered to push the future values of the dependent variable up
or down depending on the desired outcome.
Substitution
Diffusion and substitution effects are explicitly incorporated
effect
into the mode
Qualitative: Incorporates judgmental & subjective factors into forecast.
Delphi method Allows experts to make forecasts. Staff personnel assist by
preparing, distributing, collecting, and summarizing a series
of questionnaires and survey results
Jury of
Opinions of a small group of high level managers, often in
executive
combination with statistical models. Result is a group
opinion
estimate.
Sales force
Each salesperson estimates sales in his region. Forecasts
composite
are reviewed to ensure realistic. Combined at higher levels
to reach an overall forecast.
Consumer
Solicits input from customers and potential customers
market survey regarding future purchases. Used for forecasts and product
design & planning.
A sales forecast is important for at least five reasons
1. A sales forecast becomes a basis for setting and maintaining a production
schedule manufacturing.
2. It determines the quantity and timing of needs for labor, equipment, tools,
parts, and raw materials purchasing, personnel.
3. It influences the amount of borrowed capital needed to finance the
production and the necessary cash flow to operate the business
controller.
4. It provides a basis for sales quota assignments to various segments of the
sales force sales management.
5. It is the overall base that determines the companys business and
marketing plans, which are further broken down into specific goals
marketing officer.
Making Forecasting More Effective
1. Use simple forecasting methods.

2. Compare each forecast with its corresponding no change forecast.

3. Dont rely on a single forecasting method.
4. Dont assume that the turning points in a trend can be accurately
identified.
5. Shorten the time period covered by a forecast.
The Bottom Line
Because of the growing trend in business to centralize data collections, the
job of forecasting has become an integral part of a firms marketing decision
support system (MDSS).
A sales forecast is the estimated dollar or unit sales for a specific future
period based on a proposed marketing plan and an assumed market
environment.
Firms know sales forecasting is never 100 percent correct.
Two categories of sales forecasting methods are survey methods and
mathematical methods.
Because the sales forecast has a major impact on the company, the top
executives give final approval.
To create a sales forecast, sales managers should know how to use a
computer.