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CHAPTER 2
BUSINESS MANAGEMENT
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SME Definitions
In 2005, National SME DevelopmentCouncil (NSDC) approved the use ofcommon definitions for SMEs in themanufacturing, manufacturing-relatedservices, primary agriculture and servicessectors.
applied by all Government Ministries and
Agencies involved in SME development,as well as by the financial institutions.
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SME Definitions
SMEs can be grouped into :
Micro, Small, or Medium
These groupings are decided based onEITHER
the numbers of people a business employs OR
on the total sales or revenue generated by abusiness in a year.
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Number of Employees
Based on the number of full-time employees:
PrimaryAgriculture
Manufacturing(including Agro-Based) & MRS*
Services Sector(including ICT**)
Micro Less than 5employees
Less than 5employees
Less than 5employees
SmallBetween 5 &
19 employees
Between 5 & 50
employees
Between 5 & 19
employees
MediumBetween 20 &50 employees
Between 51 &150 employees
Between 20 &50 employees
*MRS : Manufacturing-Related Services
** ICT
: Information and CommunicationsTechnology
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Annual Sales Turnover
Based on annual sales turnover :
PrimaryAgriculture
Manufacturing(includingAgro-Based) &MRS*
Services Sector(including ICT**)
MicroLess thanRM200,000
Less thanRM250,000
Less thanRM200,000
Small
BetweenRM200,000 &less than RM1
million
BetweenRM250,000 &less than RM10
million
BetweenRM200,000 &less than RM1
million
MediumBetween RM1million & RM5million
Between RM10million & RM25million
Between RM1million & RM5million
*MRS : Manufacturing-Related Services
** ICT
: Information and CommunicationsTechnology
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Characteristics of a Small
Business
Ownership
Management
Resources Organisational Structure
Flexibility of Change
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MANAGEMENT FUNCTIONS
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PURPOSES OF PLANNING
Planning provides direction
Planning reduces uncertainty
Planning minimizes waste andredundancy
Planning sets the standards used in
controlling.
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Goals and Plans
Goals
are desired out comes forindividuals, groups, or entire organizations.
Goals = objectives
provide the direction for all managementdecisions and form the criteria against
which actual work accomplishments canbe measured.
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Goals and Plans
Plans
documents that outline how goals aregoing to be met and that typically describeresource allocations, schedules, and othernecessary actions to accomplish the goals.
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Levels of Goals/Plans
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Types of Goals (1)
Stated goals
official statements of what an organizationsays, and what it wants its stakeholders tobelieve.
can be found in an organization's charter annual report
made by managers-are often conflicting and
excessively influenced by what societybelieves organizations should do.
Examples: Faster revenue growth, wider profitmargins, bigger market share.
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Types of Goals (2)
Real goals
those goals that an organisation actuallypursues observe what organizational
members are doing. Actions define priorities. For example, universities that proclaim the
goal of limiting class size, facilitating closestudents- faculty relations, and actively
involving students in the learning processand then put them into lecture classes of 300or more are pretty common.
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Characteristics of welldesign goals
S-Specific
M-Measurable
A-Achievable
R-Realistic
T-Time Frame
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Types Of Plans
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Types Of Plans: Breadth
Strategic plans apply to the entire organization, establish the
organization's overall goals, and seek to positionthe organization in terms of its environment.
tend to cover a longer time frame and a broaderview of the organization.
include the formulation of goals
Operational plans
specify the details of how the overall goals are tobe achieved.
define ways to achieve the goals.
tend to cover short time periods-monthly, weekly,and day-to-day.
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Types Of Plans: Time frame
long-term plans
with the time frame beyond threeyears.
short-term plans
covering one year or less.
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Types Of Plans: Specificity
Specific plans
clearly defined and leave no room forinterpretation.
They have clearly defined objectives. There'sno ambiguity and no problem withmisunderstanding.
Directional plans
flexible plans that set out general guidelines.
provide focus but don't lock managers intospecific goals or courses of action.
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Types Of Plans: Frequency of use
Single-use plan a one-time plan specifically designed to
meet the needs of a unique situation. Example: a single-use plan to guide the
creation and implementation of the newservice.Standing plans ongoing plans that provide guidance for
activities performed repeatedly. policies, rules, and procedures. Example: the safety and health policy
developed by the university.
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Organising
a management functionthat involves determiningwhat tasks are to bedone, who is to do them,how the tasks are to be
grouped, who report towhom, and wheredecisions are to be made
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The Purposes of Organising
Divides work to be done into specific jobs anddepartments
Assign tasks and responsibilities associatedwith individual jobs
Coordinates diverse organizational tasks
Clusters jobs into units
Establishes relationships among individuals,
groups and departments Establishes formal lines of authority
Allocated and deploys organizationalresources
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Organisational Structure
the formal arrangement of jobs withinan organisation.
arranged in levels that represent the
management hierarchy.
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CEO
Department Department Department
represent the
chain ofcommand
represent the division
of work and the way in
which tasks are
departmentalised
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Key Elements of OrganisationalDesign
1. Work Specialisation
2. Departmentalisation
3. Chain Of Command
4. Span Of Control
5. Centralisation And Decentralisation
6. Formalisation
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Key Element 1: Work specialisation
describe the degree to which activitiesin an organisation are divided into
separate jobs.
an entire job is not done by oneindividual but instead is broken down
into steps, and each step is completed
by a different person. Individual employees specialise in
doing part of an activity.
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Key Element 2: Departmentalisation
the basis on which work or individualsare group into manageable units
called department
departmenta unique group ofresources established by management
to perform some organisational task.
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Departmentalisation
Functional
Product
Geographical
Process
Customer
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Product departmentalisation
Group jobs by product line Each major product is placed under the
authority of a manager whos responsible foreverything to do with that product line.
Advantages Allows specialisation in particular products and
services Managers can become experts in their industry Closer to customers
Disadvantages Duplication of functions
Limited view of organisational goals
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Product (cont.)
ManagingDirector
Executive DirectorChildren Wear
Executive DirectorMens Wear
Executive DirectorWomens Wear
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Geographical departmentalisation
Groups jobs on the basis of territory orgeography such as southern, northern,western, eastern, state or country.
Advantages More effective and efficient handling of
specific regional issues that arise Serve needs of unique geographic markets
better
Disadvantages Duplication of functions Can feel isolated from other organisational
areas
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Geographical (cont.)
VicePresidentFor Sales
Sales
Director,WesternRegion
SalesDirector,SouthernRegion
SalesDirector,
MidwesternRegion
SalesDirector,EasternRegion
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Process departmentalisation
Groups jobs on the basis of product orcustomer flow.
Work activities follow a natural
processing flow of products or even ofcustomers.
Advantages
More efficient flow of work activities
Disadvantages
Can be used with certain types of products
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Process (cont.)
Plant
Superintende
nt
Manager,
Sawing
Department
Manager,
Planning and
Milling
Department
Manager,
Assembling
Department
Manager,
Lacquering
and Sanding
Manager,
Finishing
Department
Manager,
Inspectionand Shipping
Department
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Customer departmentalisation
Groups jobs on the basis of customerswho have common needs or problemsthat can be met by having specialist for
each. Advantages Customers needs and problems can be
met by specialists
Disadvantages Duplication of functions
Limited view of organisational goals.
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Customer (cont.)
Director ofSales
Manager,
Retail
Accounts
Manager,
Wholesale
Accounts
Manager,
Government
Accounts
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Key Elements 3: Chain of command
the continuous line of authority thatextends from upper organisationallevels to the lowest levels and clarifieswho reports to whom.
It helps employees answer questionssuch as
Who do I go if I have a problem?
To whom am I responsible?
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Key Element 3: Chain of command
Authority - formal and legitimate right ofa manager to make decisions, issueorders, and allocate resources toachieve organisationally desiredoutcomes.
Responsibility - duty to perform anyassigned duties.
Unity of command the managementprinciple that each person shouldreport to only one manager.
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Key Element 4: Span Of Control
the number of employees amanager can efficiently andeffectively manage
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Key Element 4: Span Of Control
Factor Increase Span ofControl when
Decrease Span ofControl when
1. Similarity offunctions
1. similar functions 1. differentfunctions
2. Geographiccontiguity
2. physically close 2. physically distant
3. Complexity offunctions
3. simple tasks 3. complex tasks
4. Coordination 4. need littlecoordination
4. need muchcoordination
5. Planning 5. managerspends little time
planning
5. manager spendsmuch time
planning
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Key Element 6: Formalisation
jobs within the organisation arestandardised and the extent to whichemployee behavior is guided by rulesand procedures.
highly formalised job = then workers haslittle discretion as to what is to be done,when it's to be done, and how he or she
does it. resulting in consistent and uniform
output.
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Leading
is a management functionthat involves motivatingsubordinates, influenceindividuals or teams asthey work, selecting themost effective
communication channel,or dealing in any way withemployee behavior issues
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Studying Leadership
Leadership Motivation
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Traits and Skills
Traits: the unchanging characteristics ofa person that predisposes someone to
act in a particular way.
Leaders Have Drive Leaders Have Honesty and Integrity
Leaders Are Motivated to Lead
Leaders Have Self-Confidence Leaders Have Cognitive Ability
The Leader Knows the Business
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Traits and Skills
Skills : the ability to do something in aneffective manner.
Technical skills job know-how, knowledge of the
industry and its particular process,machinery and problems.
Interpersonal
skills
Knowledge of human behaviour, the
ability to work effectively withindividuals and groups.
Conceptualskills
ideas, plans, and directives.
the ability to see the organization asa whole and to understand theoverall effect of several
departments.
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Power and Leadership
Power is the potential ability to influence thebehavior of others.
Legitimate Power
develop from a formal management position in
an organization and the authority granted to it.
Reward Power
results from the authority to reward others
Coercive Power
develop from the authority to punish orrecommend punishment
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Power and Leadership
Expert Powerstems from special knowledge or skill in thetasks performed by subordinates.
Referent Power
results from characteristics that commandsubordinates identification with respect andadmiration for, and desire to emulate theleader.
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Motivation
the set of processesthat moves a persontoward a goal.
motivated behaviorsare voluntarychoices controlledby the individual
employee.
Jobcharacteristics
organisational
practices
Individualdifferences
Factors that affectwork motivation:
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Maslow's Hierarchy of Needs
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Maslow's Hierarchy of Needs
Level I Physiologicalneeds
most basic human needs.
They include food, water, and comfort
Level II Safety needs the desires for security and stability,
to feel safe from harm
Level III Social needs the desires for affiliation.They include friendship and belonging.
satisfy employees' social needs throughsports teams, parties, and celebrations.
Level IV Esteem needs the desires for self-respect and respect
or recognition from others.Show appreciation
Level V Self-actualisationneeds
the desires for self-fulfillment and therealisation of the individual's fullpotential.
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Controlling
is a managementfunction that involvesmonitoring actualperformance,
comparing actual tostandard, and takingaction id necessary.
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Importance of Controls
Critical link back to planning
Empowering employees
Protecting the workplace
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Controlling Process
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Controlling Process: Step 1(Measure)
a) How We MeasureAdvantages Disadvantages
Personal
Observations
o Get firsthand knowledge
o Information isnt filtered
o Intensive coverage of
work activities
o Subject to personalbiases
o Time-consuming
o Obstructive
Statistical
Reports
o Easy to visualize
o Effective for showingrelationships
o Provide limitedinformation
o Ignore subjectivefactors
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C lli S
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Controlling Process: Step 1 -Measure
b) What We Measure
Examples
Production manager(paper tablet
manufacturer) quantity of paper
tablets produced perday and per labor-hour
scrap rate percent of rejects
returned bycustomers.
Marketing managers:
percentage of market
held average dollar per sale,
number of customervisits per salesperson
number of customer
impressions peradvertising medium.
C t lli P St 2
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Controlling Process: Step 2 -Comparing
determines the degree of variation betweenactual performance and the standard
to determine the acceptable range ofvariation.
A standard is the level of activity establishedto serve as a model for evaluating
organisational performance.
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C t lli P St 3 T ki
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Controlling Process: Step 3-TakingManagerial Action
A manager who decides to correct actualperformance has to make another decision:
Immediate correctiveaction correctsproblems at once toget performance
back on track.
Basic correctiveaction looks at howand whyperformance has
deviated and thenproceeds to correct
the source ofdeviation.
C t lli P St 3 T ki
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Controlling Process: Step 3- TakingManagerial Action
b) Revise the Standard It is possible that the variance was a result of
an unrealistic standard; that is, the goal mayhave been too high or too low.
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Tools for Controlling Performance
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