Business Organization and Management: Principles and Practices

Posted on Dec 7, 2024 in Economy

Business Planning Function

It consists of setting objectives, strategies to achieve them, identifying business policies, and establishing decision criteria to achieve the company’s goals.

A) Classification of Plans by Nature and Characteristics

We can distinguish:

  • Goals: Fundamental goals pursued by the company.
  • Objectives: We must distinguish between different grades of objectives. Objectives are general, and sub-objectives are more specific. To establish them, keep in mind: be realistic, set priorities, and aim to be attained with minimal costs.
  • Policies: Basic principles that serve as a guide for decision-making.
  • Procedures: Steps that must be followed to execute actions.
  • Rules: Indicate what can and cannot be done.
  • Budgets: Quantified plans, a numerical expression of the plan.

Preferentially, budgets have a temporal dimension:

  • Long term (over 5 years)
  • Medium term (more than 1 year and less than 5)
  • Short term (limited to the financial year)

Budgets can also be categorized by functions or departments:

Plans for production, sales, and finances are related to each department.

B) Stages of the Planning Process

  1. Analysis of the starting situation.
  2. Setting of resources.
  3. Creation of alternatives or determination of action lines.
  4. Evaluation of alternatives.
  5. Selection of an alternative.
  6. Control and determination of deviations.

Organization Function

This function aims to design a structure in which the functions that each person must perform are defined for the company.

Stages:

  1. Determine the levels of organization and hierarchy.
  2. Functions of each level of command must be clear and concrete.
  3. Each person has to know who to obey.
  4. There must be means of communication in both directions.

Company Communication

  • Vertical (Descending): Originates with managers and ends with workers. The goal is for workers to know the company’s objectives.
  • Vertical (Ascending): Originates with employees and ends with managers. The goal is for managers to know the problems of the workers. Reports.
  • Horizontal: Between persons of the same hierarchical level.

A) The Organization of Work: Historical Evolution

Since the beginning, people have organized their tasks. Humans have always had the need to work with others. In prehistory, people organized to obtain food. In ancient times, large construction companies were formed. The 19th-century precursors were Taylor (USA) and Fayol (France).

  • School of Scientific Organization of Work

    Its great representative is Taylor. His ideas constitute Taylorism and refer to industrial production. He intended to streamline work, eliminate downtime, and mark the existence of an executive dedicated to organizing the tasks of workers.

    His principles to reduce costs were:

    • Analysis and design of offices and tasks.
    • Specialization of functions.
    • Decentralization of liability.
    • Rationalization of work, eliminating dead time.
    • Incentives.

    It was initially welcomed, but over time, it caused resentment among workers. While discontent grew, Fayol created a more humane system, viewing the company as a totality. Fayol’s principles were:

    • Division of labor, well-defined.
    • Unit of hierarchy, command, and direction.
    • Equitable remuneration.
    • Satisfactory balance between authority and responsibility.

  • School of Human Relations

    Arising from criticisms of Taylorism, methods were sought to solve the weak points of previous theories. Experiments helped Mayo formulate his theories. He found that introducing music and breaks increased worker performance. He returned to the initial situation and observed that production was still increasing. This was a consequence of the relationships between plant personnel, friendship among them, and also between them and their bosses. They reached the following conclusions:

    • There were different incentives besides material ones.
    • Care for workers is essential.
    • Man is not like a programmed machine.

Work Motivation:

To explain, we refer to needs that produce dissatisfaction if not met. The company has to implement various incentives:

  • Money (used to meet consumer purchase needs).
  • Expectations for the future (when there are opportunities to improve and advance, the worker is more motivated).
  • Recognition of work (effort should be rewarded).
  • Collaboration at work (tasks should be agreed upon, and responsibility delegated so that workers feel part of the company).

Maslow’s Theory:

Maslow rated needs into 5 levels:

  1. Physiological needs.
  2. When the first are satisfied, security needs (insurance, retirement).
  3. Social needs (need for love and affection).
  4. Needs for self-esteem (fame, prestige).
  5. Need for self-actualization (desire to be more and get to where you are capable of).

B) Formal Organization

It is understood as the intentional structure, defined and identified in the company, to locate each element where it is most convenient. It is a structure to which people who are part of the company must adjust and cooperate with each other to achieve predetermined goals. One of the main conditions is that each one knows their role, authority, and responsibility.

Organizational Structure:

For a formal organization to be well-defined and comprehensible to all who work there, it must be well-structured. For this, it is necessary to know how the division of labor is coordinated and analyzed, as well as communication. Regarding division, each job can be assigned to the function that best suits it. Departments are classified as:

  • Division into departments by function (arranged according to specialization and ability).
  • By geography (organized so that the area to which the product is targeted is known).
  • By product (grouping workers according to the final product).

Departmentalization: Consists of grouping people into departments that handle the same work to control and coordinate tasks. Types include:

  • Production processes
  • Project
  • Function
  • Geography
  • Shift work
  • Product type
  • Matrix

As for communication:

  • Linear relations: One person obeys commands from another.
  • Staff or advisory team: Has the purpose of providing advice from specialists.
  • Functional: A set of specialists who have authority and responsibility for everything related to their specialty.

Models of Organizational Structure:

a) Linear or hierarchical: All members of the company depend on a superior.

  • Advantages: Simplicity, defined authority and responsibility, and speed.
  • Disadvantages: Lack of specialization, excessive concentration of authority, lack of flexibility and motivation.

b) Functional: Characterized by the existence of specialists who dedicate all their effort to a specific task.

  • Advantages: The company can provide specialists within it, and employees are dedicated to their specialty.
  • Disadvantages: Employees may receive orders from more than one boss, sometimes contradictory, creating conflicts of coexistence.

c) Linear or advisory model (staff): Characterized by a core hierarchical structure, supported by other counseling departments that serve to assist and advise but do not have any authority.

  • Advantages: Specifies the intervention of advisors in different departments.
  • Disadvantages: Slower and more costly decisions.

d) Committee model: Cooperation of several people to assume authority and responsibility. Decision-makers are usually heads of different departments, obtaining a general vision of issues affecting the decision.

  • Advantages: Decisions are made from several viewpoints.
  • Disadvantages: Delays and sometimes decisions are made by commitment.

e) Matrix model: Used in industrial enterprises, it combines at least two organizational variables, linked through authority relations.

  • Advantages: Flexible organization that can vary projects.
  • Disadvantages: People need to coordinate with all involved.

Organizational charts are a graphic representation of the structure of a company’s organization and provide knowledge of the main characteristics of this structure.

  • According to their shape: Vertical, horizontal (authority increases to the left), radial.
  • According to purpose: Organizational (global information), analytical (organizational structure of all enterprises).
  • According to extension: Overall (representing all departments), detailed (report of one department).
  • By content: Structural (only the units that make up the company are represented), staff (only personnel), functional (how each unit is formed).

Informal Organization

It is composed of the relationships established between the members of a company. It is spontaneous, outside the control of management.

Formal and Informal Differences

  1. Formally established by directors, informal arises spontaneously.
  2. Formal hierarchical position, informal based on friendship or enmity.
  3. Formal activities are in the interest of the company. Informal activities are voluntary and not for business purposes.
  4. Formal communication channels follow the company structure. Informal communication is based on rumors and interpretation.
  5. Formal groups are predetermined. Informal groups are based on friendly relations.
  6. Formal authority is executive. Informal authority may be another person.

Management Role

The management role is to ensure that people in the company do the tasks necessary to achieve the objectives.

Pyramid:

  • Top: Senior management (monitors business functions).
  • Intermediate: Middle management (execution and planning of general controls).
  • Lower: Executives responsible for the execution of plans. Assign tasks to workers.

Managerial Functions

  1. Choose tasks to be performed.
  2. Transmit tasks to employees.
  3. Provide instructions to workers.
  4. Create favorable situations by motivating.

McGregor’s Theory X and Theory Y

Theory X:

  1. Aversion to work, feeling ill.
  2. Has no ambition.
  3. Prefers to be directed.
  4. Prefers known methods.

Theory Y:

  1. Wants to work.
  2. Energy is released naturally, like in sports.
  3. Has imagination, ambition, and creativity.
  4. Wants responsibility and feels responsible.

Theory X management style is more authoritarian, while Theory Y is more kind and flexible.

Control Function

The control function is to verify that everything goes as planned, both in terms of objectives and resources.

Steps

  1. Establish standard measures considered normal.
  2. Evaluate activities. After analysis, compare the results obtained with the standard. Then, identify deviations.
  3. Correct deviations.

Different Control Techniques

  • Auditing: Verifies both planning in relation to accounting and the profitability of resources or the overall management of the company.
  • Budgetary control: Monitors compliance with the plan numerically.
  • Statistics: Makes it possible to compare historical data to draw conclusions and make predictions.