Principles of management: Part 4 Organising and controlling

1. Profit Ratios 
   1. 1 Return on Investment (ROI) 
   2. Operating margin
2. Liquidity ratios 
3. Leverage ratios 
4. Activity ratios

1. Profit Ratios - measure how efficiently managers are using organization's resoruces to generate profits
   1. 1 Return on Investment (ROI) - organization's net income before taxes divided by total assets
   2. Operating margin - is calculated by diving a compan's operating profit (profit = revenue - production cost - business costs) 

Liquidity ratios - measure how well managers have protected organizational resources to be able to meet short-term obligations

Leverage ratios - measure the degree to which managers use debt or equity to finance ongoing operations

Activity ratios - show how well managers are creating value from organizatinal assets

Earnings before interest, taxes, depreciation and amorization

corporate-level managers set goals for individual divisions that will allow the organizatio to achieve corporate goals. 

divisional managers set goals for each function that will allow the division to achieve its goals

functional managers set goals for each individual worker that will allow the function to achieve its goals

• A budget that states how managers intend to use organizational resources to achieve organizational goals efficiently
• each division is evaluated on its own budgets for cost, revenue or profit
  • managers are evaluated by how well they meet goals for controlling costs, generating rebenues, or maximizing profits while staying within their budgets

1. objective financial measures
2. challenging goals and performance standards
3. appropriate operating budgets

Managers must create output standards that motivate at all levels - they must be careful not to create short-term goals that motivate managers to ignore the future

Should not cuase managers to behave in inappropriate ways to achieve organizational goals - if stadards are set too high, workers may engage unethical behaviors to attain them. 

1. Direct supervisio
2. management by objectives
3. bureaucratic control

• managers who actively monitor and observe the behavior of their subordinates:
  • teach subordinates appropriate behaviors
  • intervene to take corrective action as needed
• most immediate and potent form of behavioral control
• can be an effective way of motivating employees

problems with direct supervision

• very expesive because a manager can personally manage only a relatively small number of subordinates effecively
• can demotivate subordinates if they feel that they are under such close scrutiny that they are not free to make their own decisions.
• direct supervision is difficult to do effecitely in complex job settings

Management by objectives (MBO) is a goal-settig process in which a manager and each of his or her subordinates negotiate specific goals and objectives for the subordinate to achieve and the periodically evaluate the extend to which the subordinate is achieving those goals. 

MBO involves three steps:

1. specific goals and objectives are established at each level of the organization
2. managers and their subordinates together determine the subordinates'goals
3. managers and their subordinates periodically review the subordinates' prograss toward meeting goals.

control through a system of rules and standard operation procedures (SOPs) that shapes and regulates the behavior of divisions, functions, and individuals. 

• Rules and SOPs tell the worker what to do (standardized actions)
• a need for output control to correct mistakes
• best used for routine problems instable environments

The control exerted on individuals and groups in an organization by shared values, norms, standards of behavior, ad expectations

clan control takes advatage of the power of internalized values and norms to guide and constrain employee attitudes and behavior in ways that increase organizational performance. 

A formal system of task and reporting relationships that coordinates and motivates organizational members so they work together to achieve an organization's goal

Organizational environment, technology, strategy and human resources determine the design of oranizational structure

• the quicker the environment changes, the more problems face managers
• structure must be more flexible (i.e., decentralized authority) when environemental chane is rapid
• In contrast, if the external environment is stable, resources are readily availabe, and uncertainty is low, then less coordination and communication among people and functions are needed to obtain resources. 

• Different strategies require the use of different structures
• a differentiation strategy needs a flexible strucutre, low cost stragey may need more formal structue
• increased vertial integration or diversification also requires a more flexible structure

• the combination of 1. skills, 2 knowledge, 3 machines and 4. computers are used to design, make and distribute goods and services
• as a rule, the more complicated the technology that an organization uses, the more difficult it is to regulate or control it because more unexpected even can arise

• can be measured by:
  • task variety ist the number of new or unexpected problems or situations that a person or function encounters in performing tasks or jobs
  • task analyzability is the degree to which programmed solutions are available to people or functions to solve the problems they encounter.
• high task variety and low analyzability present many unique problems to managers
  • flexible structure works best in these conditions
• low task variety and high analyzability allows managers to rely on established procedures

• the more highly skilled its workforce, and the greater the number of employees who work together in groups or teams, the more likely an organization is to use a flexible, decentralized structure and a professional culture based on values and norms that foster employee autonomy and self-control
• flexible structures, characterized by decentralized authority and empowered employees, are well suited to the needs of hightly skilled people. 

Managers must take into accoutn all four factors ( environment, strategy, technology and human resources when designin g the strucure of the organisation. 

The way an organization's structure works depends on the choices managers make about:

1. how to group tasks into individual jobs

2. how to group jobs into function and dividisons

3. how to allocate authority and coordinate or integrate functions and divisions. 

the process by which managers decide how to divide tasks itno specific jobs

the appropriate division of labor results in an effective and efficient workfoce. 

• Job simplification - the process of reducing the number of tasks that each worker performs
• Job enlargement - increasing the number of different tasks in a given job by changin the division of labor
• job enrichment - increasing hte degree of responsiblity a worker has over his or her job
  • empowering wokers to experiment to find new or better ways of doing the job
  • encouraging wokers to develop new skills
  • allowing wokers to decide how to do the work and giving hem the responsiblilty for deciding how to respond to unexpected situations
  • allowing wokers to monitor and measure their own performance. 

functional structure - an organizational structure composed of all the departements that an organization requires to produce its goods or services. 

Group of people, working together, who possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs. 

Advantages

• Encourages learning from others doing similar jobs
• Easy fo rmanagers to monitor and evaluate woekres
• Allows managers to create the set of functions they need in order to scan and monitor the competitive environment

Disadvantages

• Difficult for departements to communicate with otehrs
• preoccupation with own department and losing sight of organizational goals