Chapter 5: Managing the Business
Chapter Overview
What makes a good manager? Think back to a favorite manager with whom you have worked.
What made that manager effective? Perhaps the manager assigned special roles in setting
organizational goals. Or perhaps he or she was an exceptional communicator, expressed
empathy, or was an effective motivator.
Now think back to a ―poor‖ manager you‘ve worked with. What made that manager ineffective?
Maybe he or she was too controlling, lacked communication skills, or showed favoritism toward
subordinates. Whatever the reason, many people‘s future managerial roles will be affected by
their past experiences.
This chapter presents an introduction to the foundations of effective management. It describes
Learning Objectives
5-1. Describe the nature of management and identify the four basic functions that constitute the
management process.
5-2. Identify different types of managers likely to be found in an organization by level and area.
5-3. Describe the basic roles and skills required of managers.
5-4. Explain the importance of strategic management and effective goal setting in organizational
success.
5-5. Discuss contingency planning and crisis management in today‘s business world.
5-6. Describe the development and explain the importance of corporate culture.
LIST OF IN-CLASS ACTIVITIES: INSTRUCTOR’S CHOICE
Activity
Description
Time Limit
1. Ice-Breaker: The Management
Process
Students work in groups to discuss the
management process and how it works.
30 min.
2. Class Discussion: How Do
Your Goals Stack Up?
Students write down their short-term,
intermediate, and long-term goals.
30 min.
3. Small-Group Discussion:
SWOT Analysis
Students brainstorm in small groups in
order to complete a SWOT analysis.
30 min.
4. Up for Debate: I Can‘t Believe
This Has Happened!
Students are divided into teams to discuss
crisis management.
20 min.
5. Up for Debate: Who Creates
Corporate Culture?
Students work in small groups to share
their thoughts on corporate culture.
30 min.
CHAPTER OUTLINE
Learning Objective 5-1:
Describe the nature of management and identify the four basic functions that constitute the
management process.
The Management Process
All corporations depend on effective management; the principles of management apply to all
kinds and sizes of organizations. Managers are among an organization‘s most important
resources.
A. Basic Management Functions
Management is the process of planning, organizing, leading, and controlling an organization‘s
financial, physical, human, and information resources to achieve its goals.
1. Planning
Determining what the organization needs to do and how best to get it done requires
2. Organizing
3. Leading
4. Controlling
Controlling is the process of monitoring a firm‘s performance to make sure that it is
meeting its goals. Managers must establish standards and then measure actual performance
against those standards, adjusting activities if needed.
B. The Science and the Art of Management
Effective management is a blend of both science and art.
1. The Science of Management
Many management problems and issues can be approached in ways that are rational,
logical, objective, and systematic. Managers can gather data, facts, and objective
information, and use quantitative models and decision-making techniques to arrive at
―correct‖ decisions.
2. The Art of Management
Even though managers may try to be scientific as often as possible, they must frequently
make decisions and solve problems on the basis of intuition, experience, instinct, and
personal insights. Relying heavily on conceptual, communication, interpersonal, and time–
management skills, a manager may have to decide among multiple courses of action that
look equally attractive. Managers must blend intuition and personal insight with hard data
and objective facts.
C. Becoming a Manager
Although there are as many variations as there are managers, the most common path involves
combination of education and experience.
1. The Role of Education
2. The Role of Experience
Management skills must also be learned through experience. Most managers advanced to
their present positions from other jobs. Only by experiencing the day–to-day pressures a
manager faces and by meeting a variety of managerial challenges can an individual develop
insights into the real nature and character of managerial work.
KEY TEACHING TIPS
Point out that planning, organizing, leading, and controlling—the ―functions of manage–
ment‖—are carried out by managers at all levels of the organization.
Reinforce that planning involves determining what the organization needs to do and how
best to get it done.
Make sure students understand that organizing is the process of determining the best way
to arrange a business‘s resources and activities into a coherent structure.
Remind students that when leading, a manager guides and motivates employees to meet
Use In-Class Activity 1: Ice-Breaker: The Management Process
Time Limit: 30 minutes
Learning Objective 5-2:
Identify different types of managers likely to be found in an organization by level and area.
Types of Managers
Although all managers plan, organize, lead, and control, not all managers have the same degree
of responsibility for these activities. Thus, it is helpful to classify managers according to levels
and areas of responsibility.
A. Levels of Management
The three basic levels of management are top, middle, and first-line. The power of managers
and the complexity of their duties increase as they move up the ladder.
1. Top Managers. This level is responsible for the firm‘s overall performance and
effectiveness. Top managers set general policies and formulate strategies, approve all
2. Middle Managers. This level is responsible for implementing the strategies, policies,
3. First-Line Managers. Duties of managers at this level depend on the job, though first-line
managers spend most of their time working with and supervising the employees who report
to them. Those who hold such titles as supervisor, office manager, project manager, and
group leader are first-line managers.
B. Areas of Management
In any large company, top, middle, and first-line managers work in a variety of areas.
2. Operations Managers. These managers are responsible for the production system in
3. Marketing Managers. These managers are responsible for the development, pricing,
promotion, and distribution of goods and services.
5. Financial Managers. These managers are responsible for the firm‘s accounting functions
and financial resources.
6. Other Managers. Some firms employ various types of specialized managers, such as
public relations managers.
QUICK QUESTION
What are some of the kinds of managerial responsibilities associated with each level of
management?
Learning Objective 5-3:
Describe the basic roles and skills required of managers.
Management Roles and Skills
Regardless of their levels or areas within an organization, all managers must play certain roles
and exhibit certain skills if they are to be successful.
A. Managerial Roles
Research offers a number of interesting insights into the nature of managerial roles. Based
on detailed observations of what executives do, it appears that many of their activities fall
into 10 different roles.
1. There are three interpersonal roles inherent in the manager‘s job.
First, the manager is often expected to serve as a figurehead—taking visitors to dinner,
2. Informational Roles
The three informational roles flow naturally from the interpersonal roles just discussed. The
process of carrying out the interpersonal roles places the manager at a strategic point to
3. Decisional Roles
The manager‘s informational roles typically lead to the decisional roles. First, the manager
decides how resources are distributed and with whom he or she will work most closely.
Finally, as negotiator, the manager enters into negotiations with other groups or
organizations as a representative of the company.
B. Basic Management Skills
Effectiveness in management results from the development of a variety of skills among
managers.
1. Technical Skills
day operations of the production system.
2. Human Relations Skills
Absolutely necessary for managerial success, human relations skills are skills in under-
3. Conceptual Skills
4. Decision-Making Skills
Decision-making skills include the ability to define problems and to select the best course
of action. These skills involve gathering facts, identifying solutions, evaluating alternatives,
and implementing the chosen alternative.
5. Time Management Skills
Time management skills involve the productive use of managers‘ time. Leading causes of
6. Global Management Skills. Businesses now demand managers who can understand
foreign markets, cultural differences, and the motives and practices of foreign competitors.
Managers must also understand how to collaborate with others around the world on a real–
time basis, and understand international operations.
7. Management and Technology Skills. While new forms of technology have added to a
manager‘s ability to process information, these new forms have also made it even more
important to organize and interpret an ever-increasing wealth of input, by developing
effective technology skills.
KEY TEACHING TIPS
Students should associate technical skills with first-line managers, conceptual skills with
top managers, and human relations skills with middle managers.
Make sure students understand that decision-making skills include the ability to define
problems and select the best course of action.
HOMEWORK
Interview a Manager
Now is a good time to assign Application Exercise 9 from the end-of-chapter materials as
homework. The assignment asks students to interview a manager in order to further their
understanding of levels, functions, and areas of management.
At-Home Completion Time: 45 minutes
Learning Objective 5-4:
Explain the importance of strategic management and effective goal setting in organi-
zational success.
Strategic Management: Setting Goals and Formulating Strategy
Strategic management is the process of helping an organization maintain an effective alignment
with its environment. Goals are objectives that a business hopes and plans to achieve. A strategy
is a broad set of organizational plans for implementing the decisions made for achieving
organizational goals.
A. Setting Business Goals
Goals are performance targets—the means by which organizations and their managers
measure success or failure at every level.
1. Purposes of Goal Setting. An organization functions systematically because it
sets goals and plans accordingly. The four main purposes of organizational goal
2. Kinds of Goals. Every firm has a purpose and a mission. A mission statement is a
statement of how the firm will achieve its purpose in the environment in which it operates.
2. Business (or Competitive) Strategy. Business (or competitive) strategy focuses on
improving the company‘s competitive position.
3. Functional Strategy. With functional strategy, managers in specific areas decide how best
to achieve corporate goals by performing their functional activities as productively as
2. Step 2: Analyzing the Organization and Its Environment: SWOT Analysis. After
strategic goals have been established, managers usually attempt to assess both their
organization and its environment. A common framework for this assessment is called a
SWOT analysis. This process involves assessing organizational strengths and weaknesses
of existing strengths. Organizational analysis involves scanning the internal environment
for strengths and weaknesses. Strengths include surplus cash, a dedicated workforce,
technical expertise, or little competition. Weaknesses include a cash shortage, aging
factories, a heavily unionized workforce, or a poor public image.
3. Step 3: Matching the Organization and Its Environment. This step in strategy
formulation involves matching a firm‘s strengths and weaknesses to its opportunities and
threats. This step is at the heart of strategy formulation. A firm should attempt to leverage
its strengths so as to capitalize on opportunities and counteract threats. It should attempt to
shield its weaknesses. Understanding strengths and weaknesses also impact whether a firm
takes risks or behaves more conservatively.
D. A Hierarchy of Plans
Plans can be viewed on three levels: strategic, tactical, and operational. Managerial
responsibilities are defined at each level. The levels constitute a hierarchy because
implementing plans is practical only when there is a logical flow from one level to the next.
Usually set by the board of directors and top management with input from others in the
KEY TEACHING TIPS
Remind students that strategic management is the process of helping an organization
maintain an effective alignment with its environment; it is most closely associated with
top managers.
Reinforce that goal setting is critical for managers at all levels, not just the top.
Students often confuse the types of strategy. Highlight the difference between corporate
strategy, business strategy, and functional strategy.
Point out that although top managers traditionally carried out strategy formulation, it now
often involves people throughout the organization.
Remind students that top managers commonly perform strategic planning. Top and
middle managers carry out tactical planning. Middle and first-line managers carry out
operational planning.
QUICK QUESTIONS
What are the purposes of goal setting?
What is included in your college‘s mission statement?
What is the difference between environmental analysis and organizational analysis?
Use In-Class Activity 2: Class Discussion: How Do Your Goals Stack Up?
Time Limit: 30 minutes
Use In-Class Activity 3: Small-Group Discussion: SWOT Analysis
Time Limit: 30 minutes
HOMEWORK
Evaluating Mission Statements
Now is a good time to assign Application Exercise 10 from the end-of-chapter materials as
homework. The assignment gives students an opportunity to compare and contrast mission
statements from various companies, and to evaluate their effectiveness.
At-Home Completion Time: 30 minutes
Learning Objective 5-5:
Discuss contingency planning and crisis management in today’s business world.
Contingency Planning and Crisis Management
Because business environments are often difficult to predict and because the unexpected can
create major problems, most managers recognize that even the best-laid plans sometimes simply
do not work out. Two common methods of dealing with the unknown and unforeseen are
contingency planning and crisis management.
A. Contingency Planning
Contingency planning is planning for change; it identifies ways in which a company will
respond to change. It involves identifying aspects of a business or its environment that might
entail changes in strategy and identifying alternatives.
B. Crisis Management
Crisis management involves an organization‘s methods for dealing with emergencies.
KEY TEACHING TIPS
It‘s important to point out that a contingency plan may not always work. Changes in
internal and external variables can force changes to even the most well thought-out plan.
Remind students that the most successful organizations are those that make their mission
statements clear, remain open about internal policies and external relationships, and are
adaptive to change.
Use In-Class Activity 4: Up for Debate: I Can’t Believe This Has Happened!
Time Limit: 20 minutes