Business administration completo

Business administration

Business → “The organized effort of individuals to produce and sell, for profit, the goods and services that satisfy society needs” → Organized continuous in time → Profit it is the main goal.

“Organization engaged in production or offering services for a profit. Business differs in size and impact” → Society “Any business operates within society. Society refers to human beings and their social structures.” → Business is a part of society, but it is a separated entity. Business and society are highly interdependent. → Key message a good manager must understand the company’s relations with society.

Theories on how to manage a business

1. Systems theory or systems perspective

→ 1940s most organisms have clear boundaries, but they cannot be analyzed in isolation but only in relation one to the other.

• Businesses are embedded in society, and they constantly interact with it.
• → Like organisms, businesses need to adapt to changes in the environment. Ability to adapt and exploit, if possible, changes is essential to business survival.

According to this theory: Business and society = interactive social.

This theory comes from biology.

2. Principle of administrative management

An engineer, Henri Fayol, said managers have 6 tasks, responsibilities:

• Organize
• Command
• Control
• Coordinate
• Plan
• Forecast

3. Bureaucratic management

Max Weber (1900), a sociologist.

According to him it is important to structure a business in a hierarchical way with clear rules and roles.

A business needs:

• Clear division of labor
• Separation of the owner’s personal and organizational assets
• → Hierarchical chain of command
• → Accurate record keeping
• → Hiring and promotion based on qualification and performance, not on personal relation
• → Consistent regulations otherwise you lose credibility

Today we believe in:

• Clear division of labor
• Separation of the owner’s personal and organizational assets
• Accurate record keeping
• Hiring and promotion based on qualification and performance, not on personal relation →
• Consistent regulations otherwise you lose credibility

4. Scientific management

Frederick Taylor (1900) made controlled experiments to optimize his workers productivity.

It promotes standardization, specialization, assignments based on ability, extensive training and → supervision. So doing productivity increases and also efficiency increases.

Today we focus a lot on training, specialization and assignment based on ability.

Supervision is ok, but you have to leave some freedom.

We don’t believe in standardization because data show that it decreases productivity.

5. Theories X and Y

1960, a psychologist Douglas McGregor published “The human side of enterprise” where he explained 2 drastically different styles of management, and it called it Theories of X and Y.

Each style is guided by the perceptions of manager about employees’ motivation.

Theory X (usually small firms)

The assumption is that workers usually dislike their work (work gives disutility).

If a manager agrees with this theory, he needs to be authoritarian and manage everything.

Theory Y (usually large firms)

The assumption is that employees are self-motivated, responsible.

Managers involve employees in the decision-making process and encourage their productivity.

6. Human relation theory

1925, a psychologist Elton Mayo was given the task of improving productivity among dissatisfied workers.

• He tried to increase satisfaction by changing environmental conditions (lighting, break time, furniture). It had a positive effect.
• He tried to change variables that had a negative effect on satisfaction (length of the workday, time of work).

Performance of workers is strongly affected by the attention managers pay to workers.

Human relations between managers and workers affect productivity and hence profits.

According to Mayo’s studies employees are more motivated by social factors than economic factors.

Economic factors: increase wages.

Social factors: being considered in the decision-making process, being listened.

7. Classical management theory

→ Workers have mainly physical needs to be satisfied with money; social and personal needs of → workers are not relevant to increase their satisfaction, managers should consider economic aspects and focus on the following principles:

• Profit maximization
• Labor specialization
• Centralized leadership
• Emphasis on productivity
• Single person or selected-few decisions making

Need of a hierarchical structure and → financial rewards main driver of workers’ satisfaction and productivity.

Today it is not applied to business activities.

8. Contingency management

1950/1960s.

Fred Fiedler focused on the characteristics that a leader must display:

• → Be flexible: adapt to changes in the market, in the demand, workers. No management approach suits every situation and every organization.

A manager should consider 3 aspects very carefully:

• Size of the organization
• Technological level
• Leadership of the business

→ As a manager you must be able to identify the right management style for every situation; you must apply different management style quickly and effectively.

This is why it is difficult to be a manager: your job depends strictly on the environment in which you operate.

9. Modern management

This is a response to classical management theory. It stresses the importance of melding → technology and mathematical analysis with human elements of business. Managers: numbers + human touch.

Dual approach to management and decision making because the basic idea is that business is complex:

• You need math, statistics, accounting
• But also listening to employees, customers…

10. Quantitative management

This theory explodes the modern management theory.

Managers must use numbers to manage stocks, logistics: it suggests a “Number oriented approach to compute/estimate performances, risks, benefits”.

11. Organizations as a learning system

→ The idea is that a business is a system made up of subsystems; in order for the business to run → smoothly, subsystems must work smoothly as well; the manager should coordinate and manage the subsystems well for the overall system to work well.

To do that, managers should be willing to use the approach: learning on mistakes/learning by → doing. You need experience to be manager.

Stakeholder theory of the firm

It started against the so-called shareholder/ownership theory of the firm.

The firm is the property of its owners.

Shareholders are the ones to be satisfied → According to this theory, firms create value for society they serve a “Broad public purpose” (any firm size).

The job of the manager is difficult because he must consider a lot of different categories.

There are 3 arguments in favor of this theory:

• → 1) Descriptive: this is the most realistic theory about how companies do work.
• → 2) Instrumental argument: stakeholder management is an effective corporate strategy. Data tells us that companies considering multiple stakeholders perform better financially in the long run.
• → 3) Normative argument: stakeholder theory is simply the right approach to choose.

Due to these 3 aspects today the stakeholder theory is used a lot, but it is not easy to be implemented.

This theory says that managers when making decisions should consider all stakeholders.

A person/group that affects or is affected by a firm’s decisions, policies, operations. Firms have different stakeholders. If the manager applies this theory, he/she should be aware of the company’s stakeholders.

Different kinds of stakeholders

• → Market stakeholders engaged in economic transactions with the firm (employees get a wage, creditors, suppliers, customers).
• → Nonmarket stakeholders: stakeholders not engaged in direct economic engage with the firm, but they are affected by the firm and they affect it. (i.e. universities, community, competitors). They are as critical as the market stakeholders.

There is another way to classify stakeholders:

• → Internal stakeholders: employees, they are inside the firm.
• → External stakeholders: they are not employed directly by the firm.

The government is a stakeholder, is it a nonmarket or a market stakeholder?

• Some economists say: nonmarket because usually it does not buy or sell with businesses.

Other say market because companies pay taxes, the government can provide subsidies, it can buy from companies, or it can take a direct ownership stake in a company.

Stakeholder: People or groups who have a “stake”.

Noun: pointed stick or post within the company, they have an interest.

Verb: to stake means to mark a territory, to assert ownership; you have an interest.

→ Chambers of Commerce might be stakeholders, nonmarket usually. Stakeholders theory says that a company is embedded in a complex set of relationships.

Possible stakeholders

• Employees
• Customers
• Suppliers
• Government
• Chamber of Commerce
• Schools, universities
• The community
• Unions
• Media
• Competitors
• …

Stakeholder analysis

The first job of a good manager is to identify the relevant company’s stakeholders to be aware of who they → are; to do this you do a Stakeholder Analysis.

This is a structured process with its questions:

→ 1. Who are the relevant stakeholders? The manager should implement a dialogue within the firm.

• → Training: spread the concept of stakeholders and their relevance.
• → Surveys/interviews: you provide a broad list of possible stakeholders, and you ask people to choose maximum a certain number (usually 10), and sometimes put them in order. The manager comes up with a shared list of stakeholders.

2. What are the interests of each stakeholder?

The manager needs to know stakeholders well and also their expectations.

3. What is the power of each stakeholder?

Stakeholders might have different power:

• → Voting power: they might have the right to cast a vote (it is proportional to the percentage of the company’s stock they own).
• → Economic power: customers, suppliers, employees. (i.e. suppliers because they might refuse to fill orders; employees might go on strike if not regularly paid).
• → Political power: government has political power because it can implement laws, regulations, taxes.
• → Legal power: stakeholders might bring suit against a company for damages.
• → Informational power: stakeholders who have access to valuable data, facts about the company have this power. Today it is easy thanks to technology to have informational power because sharing and accessing information is easy.

→ Often stakeholders have more than one power; the manager should assess the power of each stakeholder. More power, more effort by the managers. Their relevance makes a difference for the manager.

4. Are my stakeholders likely to form a coalition?

Stakeholders’ interests might coincide. Managers must be aware of this. Coalitions are not static, they evolve over time.

Stakeholder theory

“A firm to create value needs to consider all its stakeholders and their interests.”

Stakeholders must not be viewed in isolation.

A good manager must be aware of the Stakeholders salience. You need to start from those who are more relevant for your business.

After identifying stakeholders, their interests and their relevance; companies need to do a Stakeholder → mapping: the company produces a Stakeholder Map, a graphical representation of the stakeholder list and the map must be shared within and outside the company and regularly updated.

It is an essential tool for managers, and it is used both internally and externally since it is often published within sustainability reports. No description only categories.

Stakeholder theory

To manage a company well, it is not enough to think about the Economic performance of the company in isolation. The manager must think of the company as inserted in a context made up of complex and continuous relationships with stakeholders.

Large firms

They are divided into departments. The manager will check if the division is efficient or not as a regular basis.

• Common departments
• Customer relation department (customer service, quality management)
• Community Relations/Corporate Social Responsibility/Corporate Citizenship
• Supplier Relations
• Human Resources
• Investor Relations and economic affairs
• Public relations and affairs
• Research and development

The division into departments is an outcome of the stakeholder theory, each department targets one or more stakeholders, taking care of their interests and relations with the company.

The environment of business is changing both internally and externally because companies operate in a global, political, technological, ecological ever-changing context. This creates threats and opportunities.

The firm’s environment changes also because expectations change, and expectations matters a lot even if they are disconnected with reality but even in this case they must be seriously taken into consideration.

Another aspect to be considered is globalization (→ unceasing movement of goods, services and capital across countries). Globalization is a threat and an opportunity.

Another aspect is technology and innovation: technology is a force affecting businesses and society in a strong way. Technology affects the way in which a business is conducted, but more importantly it creates new potential needs and deletes old needs.

This dynamic environment must be exploited by a good manager to create value.

Managing public issues and stakeholders relationships

→ Public/Social issue: issue that is of mutual interest and concern to the company and one or more of its stakeholders. To know what the company’s public issues are, the manager needs to have analyzed the interests of each stakeholder category. Usually, it is a broad issue.

It arises when there is a gap between what the firm wants to do or what is actually doing and what stakeholders expect the company will do. We call this “Performance-expectations gap”. Stakeholders’ expectations are not easy to be determined or understood in advance; a good manager should make an effort to understand everything in advance. Expectations are a mixture of people’s opinions, ideas, beliefs, attitudes. By anticipating them the company might get a “Competitive advantage” by coming first/before competitors.

The management of public issues requires soft skills (the human touch, understand what people are expecting), in particular the ability to negotiate and communicate. Their management is easier if they are monitored.

The management of the business needs to take into consideration Environmental information.

How do managers acquire environmental information?

Both formally and informally through other activities through a specifically research →

Karl Albrecht he studies the relevance of acquiring environmental information. According to him, a firm should adopt 8 Strategic Radar Screens. Managers should gather information and be updated about what happens outside (external issues and trends) →

Radar allows to locate distant objects and environmental information may be distant.

The 8 screens

• Customer environment (demographic factors, gender, age, tastes, buying preferences, technological preferences…).
• Competitor Environment (info on the number, the strength, the activities of competitors; competitors’ alliances).
• Economic Environment (info about costs, prices, macroeconomic values: GDP, GDP per capita, data on internet availability).
• Technological Environment (info about new technology developments affecting the company, its customers, its suppliers).
• Social Environment (info about the social context in which the firm is operating: cultural patterns/beliefs/attitudes).
• Political Environment (info about the structure, the process, actions of the government that affect the firm and its stakeholders + political context: democracy/dictatorship …).
• Legal Environment (info about patents, copyright, trademarks).
• Geophysical environment (info about the physical surroundings of the company’s location).

These are 8 radars that the manager needs to adopt and care about.

Focus on competitor environment

It is extremely important to always be updated about what competitors are doing.

→ Competitive intelligence: the systematic and continuous process of analysis and management of info about competitors.

We need competitive intelligence because understanding what the industry is doing helps the manager take better decisions.

Stakeholder materiality

According to the stakeholder theory of management, a manager should take into account the interests, concerns and expectations of all its stakeholders starting from the most relevant ones.

Once stakeholders have been identified, analyzed and understood, according to current business theories, the manager should perform a stakeholder Materiality analysis.

There are several steps:

• The manager and the company (shared process) should make a list of topics of potential interest for stakeholders. (i.e. waste, quality, privacy, innovation, employment, anti-corruption policies…). Usually the list is broad (40-50 topics).
• Then after distinguishing between internal and external stakeholders, for each category of stakeholders an appropriate number of them is identified and the list of topics is presented to them. The c