Principles of Management

This article examines how managers execute the primary functions of management including strategy development, business planning, organization, control, and leadership. The impact of contemporary factors such as globalization and information technologies is reviewed and the new methods that managers use to execute primary functions are explained. The use of metrics as a tool to develop strategies and plan and organize business activities is examined. The use of analytics as a tool to control business processes and optimize business resources and opportunities is also examined. The importance of developing human resources is examined along with popular contemporary methods for staff development.

Keywords: Analytics; Benchmarking; Business Strategy; Business Planning; Human Resource Development; International Organization for Standardization; Metrics; Mentoring

Overview

The functions and activities of managers have remained relatively unchanged over time. Managers have always had to develop strategy, plan business activities, organize business functions, control processes, and lead and develop people, all in a manner that successfully drives businesses. However, what has changed over time is how managers have viewed and executed these functions (Hill & McShane, 2008). In addition, the challenges faced by managers have also changed as technologies and business conditions have evolved.

Technological innovation can play a significant role in determining how well a company performs. To what extent a company decides to pursue innovative methods may depend on available resources as well as competition in the business arena. From a strategic perspective, companies can commit to a high level of innovation in order to discourage new competitors from enter a business as well as to signal existing competitors that the cost of maintaining a product or service could become more costly for them (Corts, 2000).

Effects of Global Markets

Corporate Governance Systems

Corporate governance is related to corporate performance (Chun-Yao, Zong-Jhe, & Chun-Yi, 2013). Globalization certainly increases competition but it also expands the marketplace. However, increased competition and expanding markets can also strain corporate governance systems that have become accustomed to a smaller sale of operation as well as not having to contend with additional and perhaps previously unknown competitors. Corporate governance systems are also structured differently in some countries, especially those settings where the national governments control competition or are heavily invested in large corporations in those countries. Since companies in countries where the economy is largely market-oriented may be able to achieve greater degrees of efficiency and thus be more competitive over companies in settings where national government ownership or control of companies hinders economic performance, competition with these foreign firms will significantly impact firms.

Organizational Structure

Globalization of competition and of markets may also spur companies to create more decentralized management and control structures. This could result in network-like structures where central management functions may not be able to meet the needs of local operations. This could create some redundancy in functional departments in order to meet local needs, while still maintaining a central headquarters or a primary location for company operations. To a certain extent, the company's divisions or business units located in other countries can become highly independent for centralized control and the oversight of the corporate governance structure (Börsch, 2005).

Historically, corporate structures have fluctuated from highly centralized control structures to strong autonomy at the division level and sometimes back again. Globalization has contributed to shifts in these structures, but it is important to recognize that fluctuations in the level of control that corporate headquarters has over business units are likely to continue to occur.

Global Standards

A global economy has also led to the emergence of global standards. In December 2000, the International Organization for Standardization (ISO) issued revisions to the ISO 9000 Standard series. These revisions had a substantial change in focus, which actually makes the standard more useful for organizations seeking to improve performance and profitability (Vragel, 2001). The year 2000 revisions changed both the structure and focus of the standard. The auditable portion of the standard has changed from 20 sections to five, specifically:

• Quality management system.
• Management responsibility.
• Resource management.
• Product realization.
• Measurement, analysis and improvement (Vragel, 2001).

Competitiveness

While it is important to observe and embrace the global quality improvement movement, the "search for competitiveness and competitive advantage appears to be endless. The pressures of the complex, unpredictable, and dynamic business environment, global market competitions, and organizational change have promoted and sustained the search for competitiveness. The factors influencing and determining competitiveness are numerous and diverse" (Mathews, 2006, p. 158).

Competitiveness is achieved by blending a wide range of processes into a winning combination. The goal is certainly to increase productivity and to operate more efficiently. A firm’s economic performance is connected to the performance of a certain sector, region or nation (Hategan, 2012). However, companies need to identify areas in which they can actually become competitive and maintain profitability. As corporate executives examine various business strategies they need to simultaneously assess productivity, efficiency and profits.

A true competitive advantage is achieved when a company develops a value-creating strategy that other competitors are not pursuing. Once the strategy is worked out it can be difficult for competitors to mimic the strategy and achieve the same level of benefits from it (Mathews, 2006).

Decision Making

Managers must continuously make decisions. At almost every moment during every day, most executives are involved in some phase of decision making. They collect and exchange information, review and analyze data, develop scenarios, evaluate alternative business tactics and strategies, and review results of activities that were undertaken based on previous decisions.

At lower levels, decisions focus on day-to-day operations. At higher levels, decisions are focused on long-term goals of the company (Brousseau, Driver, Hourihan & Larsson, 2006). As information technology has evolved, so has the ability of managers to use technology to help in the process of developing strategy, planning business activities, organizing business functions, controlling processes, and leading and developing people. Two new powerful technology-based tools can assist managers in the decision making process — metrics and analytics. Metrics enable managers to develop strategies and plan and organize business activities. Analytics enable managers to control business processes and optimize business resources and opportunities.

Applications

Performance Measurement

For decades corporate executives in every industry have worked to fine tune how they affect the performance of their businesses. Managers fully understand that to improve the efficiency of their operations and the effectiveness of their business strategy that they need measurement systems. One major shift in performance measurement perspectives was to go beyond just looking at financial figures and relying on a wide array of measurements to judge how well a company is performing. Customer satisfaction, cash flow, manufacturing effectiveness, and innovation are all part of the new perspective of performance measurement and management. The dissatisfaction with using solely financial measures to evaluate business performance started to develop over 50 years ago. General Electric, among others, developed high-level task forces to identify and analyze alternative corporate performance measures (Eccles, 1991).

Lack of Preventative Action

Many managers worry that income-based financial figures are better at measuring the consequences of yesterday's decisions than they are at indicating tomorrow's performance. Events of the past decade substantiate this concern. In the 1980s, some executives saw the strong financial corporate records fall behind due to declines in quality or customer satisfaction which weren't considered important, or because global competitors gained market share. Even managers who have not been hurt feel the need for preventive action. A senior executive at one of the large money-center banks, for example, grew increasingly uneasy about the European part of his business, its strong financials notwithstanding. To address that concern, he nominated several new measures (including customer satisfaction, customers' perceptions of the bank's stature and professionalism, and market share) to serve as leading indicators of the business's performance.

Solutions

Quality Management

Discontent turns into rebellion when people see an alternative worth fighting for. During the 1980s, many managers found such an alternative in the quality movement. Manufacturers and service providers have come to see quality as a strategic weapon in their competitive battles. Thus, they have delegated significant resources to develop measures such as defect rates, response time, and delivery commitments to evaluate the performance of their products, services, and operations. Quality management has been one of the most popular research areas in the twenty-first century (Ebrahimi & Sadeghi, 2013).

In addition to pressure from global competitors, a major impetus for these efforts has been the growth of the Total Quality Movement and related programs such as the Malcolm Baldrige National Quality Award. (Before a company can even apply for a Baldrige Award, it must devise criteria to measure the performance of its entire operation — not just its products — in minute detail.) Another impetus, getting stronger by the day, comes from large manufacturers that are more and more likely to impose rigid quality requirements on their suppliers. Whatever the stimulus, the result is the same: quality measures represent the most positive step taken to date in broadening the basis of business performance measurement.

Customer Satisfaction

Another step in the same direction comes from embryonic efforts to generate measures of customer satisfaction. What quality was for the 1980s, customer satisfaction was for the 1990s. Work on this class of measures is the highest priority at the two manufacturing companies discussed earlier. It is equally critical at another high-tech company that recently created a customer satisfaction department reporting directly to the CEO. In each case, management's interest in developing new performance measures was triggered by strategies emphasizing customer service. Some studies have shown that, to improve service quality and maintain customers, organizations must ensure their employees' job satisfaction (Pansoo & Jang-Hyup, 2013).

As competition continues to stiffen, strategies that focus on quality will evolve naturally into strategies based on customer service. Indeed, this is already happening at many leading companies. Attention to customer satisfaction, which measures the quality of customer service, is a logical next step in the development of quality measures. Companies will continue to measure quality on the basis of internally generated indexes (such as defect rates) that are presumed to relate to customer satisfaction. But they will also begin to evaluate their performance by collecting data directly from customers for more direct measures like customer retention rates, market share, and perceived value of goods and services.

Competitive Benchmarking

According to Eccles, "just as quality-related metrics have made the performance measurement revolution more real, so has the development of competitive benchmarking" (1991, p. 133). First, "benchmarking gives managers a methodology that can be applied to any measure," financial or nonfinancial, but that emphasizes nonfinancial metrics. Second (and less obvious), it has a transforming effect on managerial mind-sets and perspectives.

Benchmarking involves identifying competitors and/or companies in other industries that "exemplify best practice in some activity, function, or process and then comparing one's own performance to theirs. This externally oriented approach makes people aware of improvements that are orders of magnitude beyond what they would have thought possible." In contrast, internal yardsticks that measure current performance in relation to prior period results, current budget, or the results of other units within the company rarely have such an eye-opening effect. Moreover, these internally focused comparisons have the disadvantage of breeding complacency through a false sense of security and of stirring up more energy for intramural rivalry than for competition in the marketplace.

Information Technology

Finally, information technology has played a critical role in making a performance measurement revolution possible. Thanks to dramatically improved price-performance ratios in hardware and to breakthroughs in software and database technology, organizations can generate, disseminate, analyze, and store more information from more sources, for more people, more quickly and cheaply than was conceivable even a few years back. Newer technologies include handheld computers for employees in the field and executive information systems for senior managers. Overall, the range of measurement options that are economically feasible has radically increased.

Implementation

Placing these new measures on an equal footing with financial data takes significant resources. One approach is to assign a senior executive to each of the measures and hold him or her responsible for developing required methodologies. Typically, these executives come from the function that is most experienced in dealing with the particular measure. But they work with a

In companies that practice pay-for-performance, compensation and other rewards are often tied fairly mechanically to a few key financial measures such as profitability and return on investment. Convincing managers that a newly implemented system is really going to be followed can be a hard sell. The president of one service company let each of his division general managers design the performance measures that were most appropriate for his or her particular business. Even so, the managers still felt the bottom line was all that would matter when it came to promotions and pay.

Aligning incentives to performance is difficult because the formulas for tying the two together are "rarely effective." Formulas have the advantage of "looking objective, and they spare managers the unpleasantness" of having to conduct truly frank performance appraisals. But if "the formula is simple and focuses on a few key variables, it inevitably leaves some important measures out. Conversely, if the formula is complex and factors in all the variables that require attention, people are likely to find it confusing and may start to play games with the numbers. Moreover, the relative importance of the variables is certain to change more often — and faster — than the whole incentive system can change" (Eccles, 1991, p. 135).

Analytics as a Competitive Tool

Many organizations around the world have been implementing a system of analytics to better measure performance. There are several companies that have achieved a high level of performance measurement in industries such as consumer products, finance, retail, and travel and entertainment. Notable companies have included Marriott International, United Parcel Service, and Progressive Insurance.

Marriott International

Marriott International has worked to fine tune its performance measurement and analytics systems for over two decades. One of the primary focuses of the Marriott system is to establish an optimal price for guest rooms and drive revenue. Marriott has taken the system further and worked to develop a "Total Hotel Optimization program." This system has helped Marriott maximize revenue in conference facilities and catering. Analytics has helped the company develop offerings for frequent customers as well as assessing the potential of its frequent and valued customers defecting to competitors.

Progressive

Progressive Insurance created value and revenue for analyzing insurance industry data in new ways and using those results to improve performance. The company has identified small niches of potential customers. One example is motorcycle riders over age 30, college educated, high credit scores, and no traffic accidents to date. For each niche group of potential customers, Progressive performs a regression analysis to identify factors that can help to predict the likelihood of insured losses that each group will experience. These data are used to set policy prices for the niche groups that will likely enable the insurance company to realize profits from the combined groups of customers.

United Parcel Service

United Parcel Service (UPS) realized decades ago that to manage its parcel delivery business in an efficient and effective way and maintain profitability will require an ongoing analysis of performance data and the application of analytics to help identify new business opportunities. UPS also applies its analytics systems to maximize the use of its parcel moving capacity as well as to understand what influences how customers will respond to services and the likelihood of customers defecting to other carriers. UPS has established a Customer Intelligence Group which is able to predict customer defections through reviewing their service use patterns and complaints. This analysis is continuously generated and if a customer is flagged for potential defection a customer representative contacts that customer and consults on problems and devise solutions to improve customer satisfaction. This approach can reduce the number of accounts the company may see defect.

The Leverage of Commonality

A traditional view of business intelligence is often limited to small narrowly focused analytical activities conducted by functional departments or business units that are looking for guidance in tactical situations. However, the unbridled growth of user-developed analytical tools generally leads to many variations of internal performance indicators that are so disparate that they cannot be integrated into a big picture view of organization performance. In addition, research has repeatedly shown that large percentages of use-developed analytical tools such as spreadsheets contain errors, some of which are very serious. So the more user-developed tools there are, the more errors in analysis and thus decisions made on faculty data.

The key to leveraging analytics is to have a common set of data and analytical resources that are used across the organization. This enables different departments and business units to easily share data. In many organizations this may represent a cultural change as departments are pushed to give up their solitude and independence of data and analytical control.

Issue

The Challenge of Developing People

Achieving competitive differentiation through innovation, not Imitation, is difficult to accomplish without a close relationship between people management and business strategies (Appleby & Mavin, 2000). Each employee has talents, strengths, and weaknesses. These talents and strengths need to be integrated into a well designed skills set that best serves the organization. It is also necessary to continuously assess an individual's weaknesses and, using training tools and mentoring, transform the employee into a stronger executive. The changes that occurred in the marketplace over the past 70 plus years are exceptional and represent significant shifts in the way executives run global hyper competitive enterprises (Heames & Harvey, 2006).

Most highly competitive organizations take into consideration numerous factors that impact their overall competitiveness. Competitiveness is clearly influenced by numerous factors, and human resources is one of the key building blocks for a competitive organization. Employees all have unique abilities, attitudes, behaviors, and experiences and the human resource management process should be designed to improve skills and leverage those skills into a competitive advantage.

A traditional and effective approach of transferring knowledge and skills in an organization is the process and practice of mentoring. This technique is recognized as a valuable approach to staff development as well as socializing new employees into the corporate culture. A well structured mentoring program is a very structured way to communicate the expectations of management strategy, goals, and objectives. Although it is only one of many methods to facilitate learning for new employees, the mentoring process provides a guided learning experience that, if done properly, can expose employees to new skills and knowledge as well as reinforcing good management habits. Mentoring can contribute to develop a high performance work force and establishing and maintaining a competitive advantage (Mathews, 2006).

Conclusion

The functions and activities of managers have remained relatively unchanged over time. Managers have always had to develop strategy, plan business activities, organize business functions, control processes, and lead and develop people all in a manner that successfully drives businesses. However, what has changed overtime is how managers have viewed and executed these functions. In many industries, technological innovation is an important determinant of firm performance, and the level of innovative activity is therefore a significant choice for the firm. Global competition means greater access to markets on an international scale and can exert pressures on countries and corporate governance systems that rely on non-market coordination to a significant degree.

This shift from treating financial figures as the foundation for performance measurement to treating them as one among a broader set of measures is rather widespread. The "ranks of companies enlisting in this revolution are rising daily. Senior managers at one large, high-tech manufacturer recently took direct responsibility for adding customer satisfaction, quality, market share, and human resources to their formal measurement system" (Eccles, 1991, p. 131). As quality-related metrics have enhanced the performance measurement revolution, so has the development of competitive benchmarking. Benchmarking gives managers a methodology that can be applied to any measure, financial or nonfinancial, yet emphasizes nonfinancial metrics. It also has a transforming effect on managerial mind-sets and perspectives (Eccles, 1991).

History clearly shows that highly competitive organizations take into consideration numerous factors that impact their overall competitiveness, and human resources is one of the key building blocks for a competitive organization. Employees should be considered assets and managers should recognize that each employee has unique abilities, attitudes, behaviors, and experiences and the human resource management process should be designed to improve skills and leverage those skills into a competitive advantage.

Terms & Concepts

Analytics: The tools and data used by a business to enable managers to control business processes and optimize business resources and opportunities.

Competitiveness: A process of developing and implementing alternative strategies such as a focus on quality, innovation, cost or delivery that make a company more productive, more efficient and more competitive.

International Organization for Standardization (ISO): The organization that compiles, develops, and promotes global standards for performance and quality.

Mentoring: A common method of transferring knowledge and understanding within an organization which provides staff development, transmission of corporate culture, and socialization.

Metrics: A related set of business performance measurements that enable managers to develop strategies and plan and organize business activities.

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Pansoo, K., & Jang-Hyup, H. (2013). Effects of job satisfaction on service quality, customer satisfaction, and customer loyalty: The case of a local state-owned enterprise. WSEAS Transactions on Business & Economics, 10, 49-68. Retrieved November 22, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=88117275&site=ehost-live

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Suggested Reading

Atwater, L., & Brett, J. (2006). 360-degree feedback to leaders: Does it relate to changes in employee attitudes? Group & Organization Management, 31, 578-600. Retrieved November 12, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=22361740&site=ehost-live

Darnall, N. (2006). Why firms mandate ISO 14001 certification. Business & Society, 45, 354-381. Retrieved November 12, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=22174834&site=ehost-live

Harvey, M., Novicevic, M., Leonard, N., & Payne, D. (2007). The role of curiosity in global managers' decision-making. Journal of Leadership & Organizational Studies (Baker College), 13, 43-58. Retrieved November 12, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24402027&site=ehost-live

Ha?egan, D. (2012). Literature review of the evolution of competitiveness concept. Annals of the University Of Oradea, Economic Science Series, 21, 41-46. Retrieved November 22, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=86068715&site=ehost-live

Rivette, K., & Kline, D. (2000). Discovering new value in intellectual property. Harvard Business Review, 78, 54-66. Retrieved November 12, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=2628907&site=ehost-live

Rucci, A., Kirn, S., & Quinn, R. (1998). The employee-customer-profit chain at Sears. Harvard Business Review, 76, 82-97. Retrieved November 12, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=16951&site=ehost-live

Wilkinson, G., & Dale, B. (1999). Models of management system standards: A review of the integration issues. International Journal of Management Reviews, 1, 279. Retrieved November 12, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=3253635&site=ehost-live