The basics of business management – vol i

TWINEYO KAMUGISHATHE BASICS OF BUSINESS MANAGEMENT – VOL I LEADERSHIP, FINANCIAL MANAGEMENT AND ECONOMICS Download free eBooks at bookboon.com... I: Leadership, Financial Management

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ELLY R TWINEYO KAMUGISHA

THE BASICS

OF BUSINESS

MANAGEMENT – VOL I

LEADERSHIP, FINANCIAL

MANAGEMENT AND

ECONOMICS

Download free eBooks at bookboon.com

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The Basics of Business Management – Vol I: Leadership, Financial Management and Economics

1 st edition

ISBN 978-87-403-1594-3

Peer review by Timothy Esemu (PhD)

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THE BASICS OF BUSINESS

CONTENTS

The Basics of Business Management – Vol I: Leadership, Financial

Management and Economics

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The Basics of Business Management – Vol II: Marketing, Logistics,

Procurement and Law

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18 Sale of Goods Act and Supply of Goods and Services Act Vol II

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PART I: LEADERS AND MANAGERS

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MANAGEMENT – VOL I INTRODUCTION TO MANAGEMENT AND LEADERSHIP

MANAGEMENT AND LEADERSHIP

In this introductory part, we will begin by understanding the basic deinitions of the concepts

What is an organisation?

We can simply refer to an organisation as a collection of people working together to achieve

a common goal hese people are working together to achieve a common purpose, which is usually the organisation’s set objectives Working together, people are able to accomplish tasks that one individual would not have been able to do Organisations are supposed to have a vision, mission, goals and objectives hey undertake various activities which emanate from those goals Some scholars have asserted that organisations are systems of inter-dependent human beings1 Organisations are supposed to do what an individual human being would not do or achieve alone

What is management?

Several deinitions of management have been given According to Peter Drucker (1955)2, a management guru, management is concerned with a systematic organisation of economic resources to make these resources productive Other deinitions look at what management does Such deinitions refer to management as the process of planning, organising, leading and controlling the eforts of organisation members and using all other organisational resources to achieve stated organisational goals3;

Organisational behaviour: To understand organisations and management, we need to irst

understand organisational behaviour his is a multi-disciplinary ield which studies the individual, group and organisational processes in order to know the behaviour of people in

an organisational setting here are various deinitions of the concept Pheysey et al (1971)4

referred to organisational behaviour as “the study of structure, functioning and performance

of organisations and the behaviour of groups and individuals within them”.5

Leadership: his is a common term But what does it mean? If you asked a group of top

executives in any part of the globe why organisations succeed, you will most likely hear them all say “executive leadership.” Indeed, leadership is the way to success for all organisations – business, politics, sports and the family In fact Aristotle, the philosopher, advised that if you cannot lead and manage your family, you should not aspire to enter politics Indeed, he viewed the ancient Greek polis (ancient Greek city state) as starting from family to forming villages and inally the city state (e.g ancient city state of Athens)

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We can deine leadership as the process of directing and inluencing others to achieve group goals hese groups are usually in organisations Leaders are usually people who have a lot

of inluence over others Regarding leadership, we could note the following:

i A leader inluences other people who may be followers or subordinates;

ii here is unequal distribution of power between the leader and those that are led (the group mates); and

iii Leadership involves using diferent types of power to inluence the subordinates’ behaviour

Qualities of leadership: here are various studies that have suggested qualities that people

often associate with leadership We shall look at the following (Fiedler 19676):

• Has vision and is committed to the purpose or goals of the organisation;

• Guiding others through providing a role model and through willingness to serve others irst;

• Optimism – Very few pessimists become leaders;

• Dedication of one’s life to serve a cause;

• A clear sense of purpose;

• Self-knowledge; and

• Ability to encourage and nurture those that report to them

Leadership styles: Tannenbaum and Schmidt (1973)7 developed a leadership style continuum grouping leaders into three categories Based on the use of authority, leaders can be referred

to as the following:

i Autocratic – A leader who commands and expects compliance without question

Such a leader is dogmatic and is willing and able to give or withhold rewards or administrative punishments;

ii Participative (or democratic) – A leader who consults with subordinates on the proposed

decisions and actions and encourages participation from those subordinates; and

iii Free Rein (laissez-faire) – Leaders who use very little if at all of their power but

instead give their subordinates a high level of independence in their work

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Autocratic

• Leader take decisions without reference to anyone else

• There is a high degree of dependency on the leader because staff are not encouraged to make suggestions on the running

of the organisation

• This style can demotivate staff and result in a high staff turnover

Democratic

• Leaders encourage discussion and debate throughout the group before inal decisions are actually – and implemented

• Leaders consult and also persuade the team before implementing

a decision

• This approach motivates staff as they feel involved in the process

of decision-making

• This can improve development and sharing of ideas and experiences within the organisation

Laissez-faire

• Leaders exhibit ‘let it be’ as it is – leadership responsibilities are shared by all – and the leader leaves it to the group

• This approach is useful in entities where creative ideas are important

• Can be highly motivational as people have control over their own working life, without unnecessary restrictions from authority

• This approach relies on good team and on good interpersonal relations between the group

Table 1: Leadership styles

McGregor’s heory X and theory Y

Douglas McGregor (1960)8, in his book – he Human Side of Enterprise – broadly set out

two approaches to human nature which he termed heory X and heory Y McGregor believed that the way people were managed afected their work behaviour and attitudes He proposed a consultative approach to management as a way to encourage heory Y behaviour among staf According to him, heory X places exclusive reliance upon external control of human behaviour, while heory Y relies more on self-control and self-direction

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• People are passive – even resistant

to organisational needs They must

be persuaded, rewarded, punished,

controlled – their activities must be directed

• The average man is by nature indolent –

they work as little as possible

• People lack ambition, dislike responsibility

and prefer to be led.

• They are inherently self-centred and

indifferent to organisational needs

• They are by nature resistant to change

• People are not by nature passive or resistant to organisational needs

• People will exercise self-control and self-direction towards achieving the organisational objectives

• People are motivated and ready to work and achieve organisational goals

• The essential task of management is

to arrange organisational conditions and methods of operations so that people can achieve their goals

Table 2: Theory X and Theory Y Source: Adapted from McGregor, D., 1960 The Human Side of Enterprise (McGraw-Hill) 9

Management Process: Henri Fayol (1903)10 was one of those management theorists who undertook a systematic approach to analysing and deining the job of managers He gave managers ive functions:

1 Planning: setting organisational objectives and the methods of achieving them.

2 Organising: establishing the structure of tasks to be performed to realise the set

goals and objectives

3 Commanding: giving instructions to the subordinates to undertake tasks.

4 Coordinating: harmonising the activities of individuals and groups within the

organisation in order to help an organisation to perfect and achieve its objectives

5 Controlling: monitoring which is continuous during implementation and evaluation

(which is an audit) of the activities in order to correct activities and ensure that work is done according to plans

An efective manager must:

1 Identify symptoms causing problems within an organisation;

2 Analyse or diagnose the causes of the situation;

3 Propose how it might be solved;

4 Suggest treatment and monitor progress;

5 Develop strategies to prevent further problems; and

6 Control and evaluate performance of his/her staf

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Some brainstorming sessions may produce a list of characteristics that efective managers have hese include the following:

Leadership Visionary Self-starter Good communicator Analytical

Decisive Trusted Knowledgeable Alert Persuasive

Diferentiating Leaders and Managers

he McKinsey 7-S framework

In 1982, Peters and Waterman11 developed a model that may help us to distinguish between managers and leaders – the 7-S framework which shows the link between ’hard’ and ‘soft’ skills Hard technical skills – structure, strategy and systems – were proposed as distinctive competences of managers while the soft, people-oriented skills – skills, style and staf – were proposed as more distinctive in leaders Both the managers and leaders were linked

together by the shared values

We should emphasize that modern approaches to business management recognise the need for a leader to be a good manager too

Leadership Senior management 20:80

Middle management 50:50 First line management 80:20 Management

Figure 1: Balance between leadership and management

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Behavioural traits of successful leaders

he behavioural theories have focused on what leaders actually do – the leadership styles

• Physique

• Technical knowledge

• Intelligence

• Perception and caring

• Courage and risk-taking

• Persistence

• Innovation and creativity

• Position in the organisation

• Subjective assessment by subordinates

• Peer assessment

• Length in an organisation

Table 3: Behavioural traits of successful leaders

Authority, Delegation, Responsibility and Accountability

Delegation of authority: Delegation refers to the process of assigning work from the top to the

lower level of an organisation (from superior to the subordinate) he person who has been delegated has authority to accomplish the assigned task he process of delegation involves:

• Allocation of duties

• Delegation of authority

• Assignment of responsibility

• Creation of accountability

Authority: his is the right to take a inal decision It moves in a downward direction, from

a supervisor to a junior

Responsibility: his is the obligation to perform the duty Responsibility cannot be delegated Accountability: he person that has been delegated (the subordinate) must be held answerable

to the duties that they have carried out

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Stakeholder mapping and stakeholders inluence

Stakeholders: he stakeholders of an organisation are all those individuals or organisations

that have an interest in an organisation hey include the following:

• Shareholders

• Employees

• Consumers

• Suppliers

• Competitors

• Financial institutions

• Government

• Local community

• Non-Governmental Orgainsations

• The media

Figure 2: Organisation’s stakeholders

Stakeholder mapping: Every organisation needs to know their stakeholders well he power

(or inluence) and level of interest that each key stakeholder has needs to be understood in order to manage the organisation’s relations with each of them

Inluence: Stannack (2003) deines inluence as the apparent ability to use power12 Inluence

is importance because it helps leaders and managers to obtain compliance, obedience, conformity and commitment from their people13

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Sources of power of stakeholders: Johnson and Scholes (1999)14 explain stakeholders’ sources

of power in two ways

• Internal stakeholders (within the organisation): he chain of command – hierarchy which is formal with power control of strategic resources, possession of knowledge and skills

• External stakeholders: hey have control of strategic resources of key raw materials

or money (like a bank) or possession of knowledge and skills

Managing stakeholders

To be able to manage diferent stakeholders, the organisation needs to understand their level

of inluence (power) and their level of interest he power or inluence can either be high

or low It is the same for interest hose who have both high inluence and high interested should always be involved in the key activities or programmes of the organisation Such stakeholders include shareholders, managers and, in some cases, the government

Power and Authority

Power can be referred to as the ability for a leader or manager to take action Authority will then be referred to as the right to take action In management, the person supposed

to take action should have the power to do so

here are seven diferent sources of power, ive of them originally proposed by French and Raven (1959)15:

1 Legitimate power (position power) – his is power which comes with the position that

one holds within a group or organisation he subordinates will accept instructions

or even orders from their managers his is often referred to as position power

Managers have authority because of their position within the formal structure of the organisation Every organisation has an organogram showing reporting and responsibilities of diferent levels of management and oicers

2 Reward power – his refers to the extent to which the manager uses the intrinsic

and extrinsic rewards to control other people in the organisation It is about having the authority to use an entity’s resources for rewards or recognition as perceived

by the follower For example, the manager who has the power to reward can ofer the supervisee more pay, perks, promotion or more responsibility

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