The Four Functions of Management (POLC)

The four functions of management–planning, organizing, leading and controlling–serve as the pillars that allow organizations to meet their goals. These functions are interdependent and equally important for ensuring the smooth operation of any business (Refer to Figure 3.1). The four management functions (POLC) can help managers increase organizational efficiency and effectiveness. Efficiency is using the least possible amount of resources to get work done, whereas effectiveness is the ability to produce a desired result. Managers need to be both efficient and effective in order to achieve organizational goals.

The management functions of planning, organizing, leading, and controlling are widely considered to be the best means of describing the manager’s job, as well as the best way to classify accumulated knowledge about the study of management. Although there have been tremendous changes in the environment faced by managers and the tools used by managers to perform their roles, managers still perform these essential functions.

Management Function 1 = Planning

Planning is the function of management that involves setting objectives and determining a course of action for achieving those objectives. Planning requires that managers be aware of environmental conditions facing their organization and forecast future conditions. It also requires that managers be good decision makers.

Planning is a process consisting of several steps. The process begins with environmental scanning which simply means that planners must be aware of the critical contingencies facing their organization in terms of economic conditions, their competitors, and their customers. Planners must then attempt to forecast future conditions. These forecasts form the basis for planning.

Planners must establish objectives, which are statements of what needs to be achieved and when. Planners must then identify alternative courses of action for achieving objectives. After evaluating the various alternatives, planners must make decisions about the best courses of action for achieving objectives. They must then formulate necessary steps and ensure effective implementation of plans. Finally, planners must constantly evaluate the success of their plans and take corrective action when necessary. There are many different types of plans and planning.

Levels of Management

There are three levels of management, and each level is responsible for specific planning, decision-making and activities.

The level of management you work in will determine the type of planning and decision-making you will do.  Figure 3.2 shows the three levels of management: Top Managers, Middle Managers, and First-line managers and the activities they do at each level. Top-level managers set objectives, scan the business environment, and plan and make decisions that affect the overall health of the organization. Middle-level managers allocate resources, oversee first-line managers, report to top-level managers and develop and implement activities. First-line managers (also referred to as customer-facing or front-line) coordinate activities, supervise employees, report to middle-managers, and are involved in day-to-day operations.

Managerial Decision-Making

Decision-making is the action or process of thinking through possible options and selecting one.  It is important to recognize that managers are continually making decisions, and that the quality of their decision-making has an impact—sometimes quite significant—on the effectiveness of the organization and its stakeholders. Stakeholders are all the individuals or groups that are affected by an organization (such as customers, employees, shareholders, etc.).

Members of the top management team regularly make decisions that affect the future of the organization and all its stakeholders, such as deciding whether to pursue a new technology or product line. A good decision can enable the organization to thrive and survive long-term, while a poor decision can lead a business into bankruptcy. Managers at lower levels of the organization generally have a smaller impact on the organization’s survival but can still have a tremendous impact on their department and its workers. Consider, for example, a first-line supervisor who is charged with scheduling workers and ordering raw materials for her department. Poor decision-making by lower-level managers is unlikely to drive the entire firm out of existence, but it can lead to many adverse outcomes such as:

• reduced productivity if there are too few workers or insufficient supplies,
• increased expenses if there are too many workers or too many supplies, particularly if the supplies have a limited shelf life or are costly to store, and
• frustration among employees, reduced morale, and increased turnover (which can be costly for the organization) if the decisions involve managing and training workers.

Managerial Skills

To be a successful manager, you’ll have to master a number of skills. To get an entry-level position, you’ll have to be technically competent at the tasks you’re asked to perform. To advance, you’ll need to develop strong interpersonal and conceptual skills. The relative importance of different skills varies from job to job and organization to organization, but to some extent, you’ll need them all to forge a managerial career. Throughout your career, you’ll also be expected to communicate ideas clearly, use your time efficiently, and reach sound decisions.

Technical Skills

You’ll probably be hired for your first job based on your technical skills — the ones you need to perform specific tasks — and you’ll use them extensively during your early career. If your college major is accounting, you’ll use what you’ve learned to prepare financial statements. If you have a marketing degree and you join an ad agency, you’ll use what you know about promotion to prepare ad campaigns. Technical skills will come in handy when you move up to a first-line managerial job and oversee the task performance of subordinates. Technical skills, though developed through job training and work experience, are generally acquired during the course of your formal education.

Interpersonal Skills

As you move up the corporate ladder, you’ll find that you can’t do everything yourself: you’ll have to rely on other people to help you achieve the goals for which you’re responsible. That’s why interpersonal skills, also known as relational skills — the ability to get along with and motivate other people — are critical for managers in mid-level positions. These managers play a pivotal role because they report to top-level managers while overseeing the activities of first-line managers. Thus, they need strong working relationships with individuals at all levels and in all areas. More than most other managers, they must use “people skills” to foster teamwork, build trust, manage conflict, and encourage improvement.^[1]

Communication Skills

Effective communication skills are crucial to just about everyone. At all levels of an organization, you’ll often be judged on your ability to communicate, both orally and in writing. Whether you’re talking informally or making a formal presentation, you must express yourself clearly and concisely. Talking too loudly, rambling, and using poor grammar reduce your ability to influence others, as does poor written communication. Confusing and error-riddled documents (including emails) don’t do your message any good, and they will reflect poorly on you.^[2]

Conceptual Skills

Managers at the top, who are responsible for deciding what’s good for the organization from the broadest perspective, rely on conceptual skills — the ability to reason abstractly and analyze complex situations. Senior executives are often called on to “think outside the box” — to arrive at creative solutions to complex, sometimes ambiguous problems. They need both strong analytical abilities and strong creative talents.

Time-Management Skills

Time management skills are techniques that help you plan and organize your time to complete tasks and achieve goals. Managers face multiple demands on their time, and their days are usually filled with interruptions. Ironically, some technologies that were supposed to save time, such as voicemail and email, have actually increased workloads. Unless you develop certain time-management skills, you risk reaching the end of the day feeling that you’ve worked a lot but accomplished little. What can managers do to ease the burden? Here are a few common-sense suggestions:

• Prioritize tasks, focus on the most important things first.
• Set aside a certain time each day to return phone calls and answer email.
• Delegate routine tasks.
• Don’t procrastinate.
• Insist that meetings start and end on time, and stick to an agenda.
• Eliminate unnecessary paperwork.^[3]

Decision-Making Skills

Every manager is expected to make decisions, whether alone or as part of a team. Drawing on your decision-making skills is often a process in which you must define a problem, analyze possible solutions, and select the best outcome. As luck would have it, because the same process is good for making personal decisions, we’ll use a personal example to demonstrate the process approach to decision making. Consider the following scenario: you’re upset because your midterm grades are much lower than you’d hoped. To make matters worse, not only are you in trouble academically, but also the other members of your business-project team are annoyed because you’re not pulling your weight. Your lacrosse coach is very upset because you’ve missed too many practices, and members of the mountain-biking club of which you’re supposed to be president are talking about impeaching you if you don’t show up at the next meeting. And your significant other is feeling ignored.

Strategic Planning

Strategic planning involves analyzing competitive opportunities and threats, as well as the strengths and weaknesses of the organization, and then determining how to position the organization to compete effectively in their environment. Strategic planning has a long time frame, often three years or more. It generally includes the entire organization and includes formulation of objectives. Strategic planning is often based on the organization’s mission, which is its fundamental reason for existence. An organization’s top management most often conducts strategic planning. Strategic managers are often involved with developing and writing company mission, vision, and values statements.

Understanding of the four stages of the industry life cycle (also referred to as the business cycle) include expansion, peak, contraction, and trough (discussed in the chapter on economics) and industry dynamics informs management’s investment decisions and risk management strategies. It can help companies manage their operational and financial decisions and activities so that they position themselves to achieve important goals, including product research and development, implementing innovative technology, expanding a customer base, and more. External factors that affect a business are often analyzed through a PEST analysis.

Planning begins at the highest level of management and works its way down through the organization.

Step one is usually called strategic planning: the process of establishing an overall course of action. To begin this process, a manager/owner should ask a couple of very basic questions: why, for example, does the organization exist? What value does it create? Sam Walton posed these questions in the process of founding Wal-Mart: his new chain of stores would exist to offer customers the lowest prices with the best possible service.

Once the purpose of the company has been identified, then the manager is ready to take the remaining steps in the strategic-planning process:

1. Write a mission statement that tells customers, employees, and others why the organization exists. Review this article, How to Write a Mission Statement, for tips on writing a missions statement.
2. Identify core values or beliefs that will guide the behavior of members of the organization. Review this article, 4 Steps to Creating Your Company Core Values, for tips on creating company core values.
3. Assess the company’s strengths, weaknesses, opportunities, and threats. Performing a SWOT Analysis is a good start here.  It is also important to conduct various business environment scans and analyze how these conditions will affect the business.
4. Establish goals and objectives, or performance targets, to direct all the activities that will be performed to achieve the mission. So, the next step in the strategic-planning process is establishing goals and objectives. Goals are major accomplishments that the company wants to achieve over a long period. SMART is an acronym used to guide and set goals: Specific, Measurable, Attainable, Relevant, and Time Based (Refer to Figure 3.3). Review this article, SMART Goals: What They Are and How to Write Them, for tips on how to write SMART goals.
5. Develop and implement tactical and operational plans to achieve goals and objectives.

Tactical Planning

Tactical planning is intermediate-range (one to three years) planning that is designed to develop relatively concrete and specific means to implement the strategic plan. Middle-level managers often engage in tactical planning.

Operational Planning

Operational planning generally assumes the existence of organization-wide or sub-unit goals and objectives and specifies ways to achieve them. Operational planning is short-range (less than a year) planning that is designed to develop specific action steps that support the strategic and tactical plans. First-level managers engage in operational planning.

Contingency and Crisis Planning

Contingency and Crisis Planning are plans for what actions to take when things go wrong. Perhaps your plans were flawed, or maybe something in the environment shifted unexpectedly. Successful managers anticipate and plan for the unexpected. Dealing with uncertainty requires contingency planning and crisis management.

Play the YouTube video below, “Types of Planning: Strategic, Tactical, Operational & Contingency Planning” to learn how the levels of planning interconnect.^[4]  Transcript for “Types of Planning: Strategic, Tactical, Operational & Contingency Planning.” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Environmental Analysis

A business environment analysis is a systematic process that evaluates the internal and external factors impacting a business. Before planning can be done analysis of the business environments should be conducted through researching and analyzing market conditions, competition, trends and other external factors that could influence the business’s strategy. Environmental analysis plays an essential role in a company’s strategic planning by providing a clear and thorough understanding of external business factors and how they affect the company. Analyses help the company take advantage of opportunities, lower risks, and come up with good plans that lead to growth and success.

As this book is written for an introduction to business (usually a survey course at colleges and universities) you will not take these concepts into too much depth.  Later in your business studies when you complete management, leadership, analytics, and other courses you will utilize these analysis models to a fuller extent.

PEST Analysis

PEST is the term used for an external environment scan, whereby a business collects and analyzes data on the political, economic, social, and technological aspects of the business environment in which the business operates. PEST can be extended to include the legal, environmental, and ethical aspects of the business environment and when included, the acronym is referred to as PESTEL or PESTLE, PESTLEE. Many people refer to the analysis as a PEST analysis and include all the factors mentioned here (Refer to Figure 3.4).

SWOT Analysis

A SWOT analysis analysis is a framework for identifying and analyzing an organization’s strengths, weaknesses, opportunities and threats. These words make up the SWOT acronym. The primary goal of SWOT analysis is to increase awareness of the factors that go into making a business decision or establishing a business strategy.

Below each of the four points of SWOT is explained in more detail:^[5]

• Strengths. Your Strengths are internal positives about your company that you can control and that often provide you with a competitive advantage. Some examples might be the quality of your product, the effectiveness of your processes, your access to physical or team assets or other competitive advantages.
• Weaknesses. A Weakness is an adverse internal attribute about your company that negatively takes away from your Strengths. Some examples might include knowledge gaps on your team, a low-quality product, a lack of money or other tangible assets, bad locations and more.
• Opportunities. An Opportunity is an external factor that provides promise or is likely to contribute to your potential success. Some examples might include the growth rate in your industry, specific laws or policies that will benefit the need for your product, positive customer feedback or technological advancements.
• Threats. A Threat is an external factor that you have no control over, which could negatively impact your success. These are typically acknowledged so that you can provide a plan to overcome each one. Some examples include potential future competitors, costs of supply, upcoming market trends, negative technology changes and upcoming regulations or laws.

Play the YouTube video below, “SWOT Analysis” to learn how to analyze a company’s strengths, weaknesses, opportunities and threats.^[6]  Transcript for “SWOT Analysis” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Competitor Analysis

A competitor analysis in business involves examining similar brands in the same industry to gain insight into other companies’ offerings, brands, sales, and marketing approaches.

Play the YouTube video below, “The Five Forces Analysis Explained” to learn how to apply the Five Forces Analysis to a coffee shop within this industry.^[7]  Transcript for “The Five Forces Analysis Explained” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Management Function 2 = Organizing

A second key function of managers is organizing, which is the process of coordinating and allocating a firm’s resources in order to carry out its plans. Organizing includes developing a structure for the people, positions, departments, and activities within the firm. Managers can arrange the structural elements of the firm to maximize the flow of information and the efficiency of work processes. They accomplish this by doing the following:

• Dividing up tasks (division of labour)
• Grouping jobs and employees (departmentalization)
• Assigning authority and responsibilities (delegation)

Organizing is the function of management that involves developing an organizational structure and allocating human resources to ensure the accomplishment of objectives. The structure of the organization is the framework within which effort is coordinated. The structure is usually represented by an organization chart, which provides a graphic representation of the chain of command within an organization. Decisions made about the structure of an organization are generally referred to as organizational design decisions.

Organizational Structure

Businesses use organizational charts to depict the reporting structure within the organization. Depending on the number of layers in an organizational chart, the company’s command chain can be identified along with each manager’s span of control. Span of Control can be defined as the total number of direct subordinates that a manager can control or manage. The number of subordinates managed by a manager varies depending on the complexity of the work.^[8] The vertical lines in an organizational chart represent a few things, flows of communication as well as the authority relationships among people working at various levels of the organization.

Review the video below to learn more about the organizational structures businesses build.

Play the YouTube video below, “What is Organizational Structure?” to learn how companies structure for business operations.^[9]  Transcript for “What is Organizational Structure?” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Organizing also involves the design of individual jobs within the organization. Decisions must be made about the duties and responsibilities of individual jobs, as well as the manner in which the duties should be carried out. Decisions made about the nature of jobs within the organization are generally called “job design” decisions.

Organizing at the level of the organization involves deciding how best to departmentalize, or cluster, jobs into departments to coordinate effort effectively. There are many different ways to departmentalize, including organizing by function, product, geography, or customer. Many larger organizations use multiple methods of departmentalization.

Organizing at the level of a particular job involves how best to design individual jobs to most effectively use human resources. Traditionally, job design was based on principles of division of labor and specialization, which assumed that the narrower the job content, the more proficient the individual performing the job could become. However, experience has shown that it is possible for jobs to become too narrow and specialized. For example, how would you like to screw lids on jars one day after another, as you might have done many decades ago if you worked in company that made and sold jellies and jams? When this happens, negative outcomes result, including decreased job satisfaction and organizational commitment, increased absenteeism, and turnover.

Many organizations have attempted to strike a balance between the need for worker specialization and the need for workers to have jobs that entail variety and autonomy. Many jobs are now designed based on such principles as empowerment, job enrichment and teamwork.

How Companies Get Jobs Done

Building an organizational structure engages managers in two activities: job specialization (dividing tasks into jobs) and departmentalization (grouping jobs into units).

• Job Specialization. Organizing activities into clusters of related tasks that can be handled by certain individuals or groups is called job specialization. This aspect of designing an organizational structure is twofold: 1) Identify the activities that need to be performed to achieve organizational goals. 2) Break down these activities into tasks that can be performed by individuals or groups of employees.
• Departmentalization. Departmentalization is grouping specialized jobs into meaningful units. Depending on the organization and the size of the work units, they may be called divisions, departments, or just plain groups. Traditional groupings of jobs result in different organizational structures, and for the sake of simplicity, the course textbook focuses on two types—functional and divisional organizations.

Types of Divisional Organization with Company Examples

A divisional organizational structure is a type of organizational structure where a company is divided into independent divisions that operate like their own companies within the larger organization. Each division has its own resources, teams, and responsibilities.

• Product Divisions. Structuring a company based on its product lines. Examples: General Motors uses product-based divisions for their various automotive lines – Buick, Cadillac, Chevrolet, and GMC.
• Customer Divisions. Structuring the company based on the needs of the customers. Example: Johnson & Johnson is divided into three consumer-based structures – consumer business, pharmaceuticals, and professional business.
• Process Divisions. Structuring the company based on processes needed to create the product or service. Example: Bowater Thunder Bay has several steps in production and opts for a process division structure.
• Geographical Divisions. Structuring the company so that responses to customers in their geographical areas can be done more effectively. Example: Adidas is set up so that it can operate effectively in the five regions of the world where it operates.

Management Function 3 = Leading

The third management function is leading—providing focus and direction to others and motivating them to achieve organizational goals.

A leader can be anyone in an organization, regardless of position, able to influence others to act or follow, often by their own choice. Managers are designated leaders according to the organizational structure but may need to use negative consequences or coercion to achieve change. In the organizational structure, top managers use leadership skills to set, share, and gain support for the company’s direction and strategy—mission, vision, and values, such as Jeff Bezos does at Amazon. Middle and supervisory management use leadership skills in the process of directing employees on a daily basis as the employees carry out the plans and work within the structure created by management. Top-level leadership demonstrated by Bezos was also exhibited by Jack Welch while leading General Electric and led to many studies of his approach to leadership. Organizations, however, need strong effective leadership at all levels in order to meet goals and remain competitive.

Leadership Style

There are four basic leadership styles, Autocratic, Democratic, Transformational, and Free-rein (Laissez-faire).

Autocratic Style

Autocratic leaders are directive leaders, allowing for very little input from subordinates. These leaders prefer to make decisions and solve problems on their own and expect subordinates to implement solutions according to very specific and detailed instructions. In this leadership style, information typically flows in one direction, from manager to subordinate. The military, by necessity, is generally autocratic. When employees are new with little experience, they may value an autocratic leader. When autocratic leaders treat employees with fairness and respect, they may be considered knowledgeable and decisive. But often autocrats are perceived as narrow-minded and heavy-handed in their unwillingness to share power, information, and decision-making in the organization. The trend in organizations today is away from the directive, controlling style of the autocratic leader. Although, In emergencies or highly structured environments requiring quick, decisive actions, autocratic style works well. For example, during a factory emergency, such as a fire or equipment failure, the plant manager orders an immediate evacuation without consulting the team to ensure safety.

Democratic Style

Businesses are looking more and more for participative leaders, meaning leaders who share decision-making with group members and encourage discussion of issues and alternatives. Participative leaders use a democratic, consensual, consultative style. The leader encourages team participation and values group input before making decisions. This leadership style works well In collaborative environments where creativity, buy-in, and team cohesion are critical. For example, a marketing team brainstorming ideas for a new product campaign. The leader facilitates discussions, gathers input from all team members, and makes the final decision based on consensus.

Participative leadership has three types: democratic, consensual, and consultative. Democratic leaders solicit input from all members of the group and then allow the group members to make the final decision through a voting process. This approach works well with highly trained professionals. The president of a physicians’ clinic might use the democratic approach. Consensual leaders encourage discussion about issues and then require that all parties involved agree to the final decision. This is the general style used by labour mediators. Consultative leaders confer with subordinates before making a decision but retain the final decision-making authority. This technique has been used to dramatically increase the productivity of assembly-line workers.

Transformational

Transformational leadership is a leadership style that can inspire positive changes in those who follow. Transformational leaders are generally energetic, enthusiastic, and passionate. Not only are these leaders concerned and involved in the process, but they are also focused on helping every member of the group succeed. Transformational leaders take control of situations by conveying a clear vision of the group’s goals. These leaders have a marked passion for the work and an ability to make the rest of the group feel recharged and energized. Transformational leaders focus on helping members of the group support one another and provide them with the support, guidance, and inspiration they need to work hard, perform well, and stay loyal to the group. The primary goals of transformational leadership are to inspire growth, promote loyalty, and instill confidence in group members.^[13]

In today’s organizations, in which team building and information sharing are important, and projects are often collaborative in nature, transformational leadership has proven to be more effective. Modern organizations look for managers who can develop positive relationships with subordinates and motivate employees to focus on the interests of the organization. Leaders who can be both transactional and transformational are rare, and those few who have both capacities are very much in demand. This leadership style works well In industries undergoing change or organizations aiming for significant innovation. For example, a tech startup founder inspires the team to develop a groundbreaking app by sharing a compelling vision, mentoring employees, and encouraging risk-taking to achieve ambitious milestones.

Free-Rein Style

The third leadership style, at the opposite end of the continuum from the autocratic style, is free-rein or laissez-faire(French for “leave it alone”) leadership. With this style, the leader provides minimal supervision, allowing employees to make decisions and work independently. Employees are assigned a task and then given free rein to figure out the best way to accomplish it. The manager doesn’t get involved unless asked. Under this approach, subordinates have unlimited freedom as long as they do not violate existing company policies. This approach is also sometimes used with highly trained professionals who are self motivated and require little oversight. For example, a software development team working on a project. The leader trusts the developers to self-manage their tasks and deliver results, stepping in only when issues arise. Similarly, free-rein may be an effective leadership style when managing an experienced team working in a research laboratory. Although one might at first assume that subordinates would prefer the free-rein style, this approach can have several drawbacks. If free-rein leadership is accompanied by unclear expectations and lack of feedback from the manager, the experience can be frustrating for an employee. Employees may perceive the manager as being uninvolved and indifferent to what is happening or as unwilling or unable to provide the necessary structure, information, and expertise.

Situational Leadership

No leadership style is effective all the time. Effective leaders recognize employee growth and use situational leadership, selecting a leadership style that matches the maturity and competency levels of those completing the tasks. Newly hired employees may respond well to authoritative leadership until they understand the job requirements and show the ability to handle routine decisions. Once established, however, those same employees may start to feel undervalued and perform better under a participative or free-rein leadership style. Using situational leadership empowers employees.

Employee Empowerment

Participative and free-rein leaders use a technique called empowerment to share decision-making authority with subordinates. Empowerment means giving employees increased autonomy and discretion to make their own decisions, as well as control over the resources needed to implement those decisions. When decision- making power is shared at all levels of the organization, employees feel a greater sense of ownership in, and responsibility for, organizational outcomes.

Power to Influence Others

To be effective leaders, managers must be able to influence others’ behaviours. This ability to influence others to behave in a particular way is called power.

Researchers have identified five primary sources, or bases, of power:

• Legitimate power, which comes from an individual’s position in an organization
• Reward power, which comes from an individual’s control over rewards
• Coercive power, which comes from an individual’s ability to threaten negative outcomes
• Expert power, which comes from an individual’s extensive knowledge in one or more areas
• Referent power, which comes from an individual’s personal charisma and the respect and/or admiration the individual inspires

Delegating Authority

Delegating is the process of entrusting work to subordinates, letting go, trusting – this is challenging for many managers to do; however, it is a necessary skill to learn.

Managers who know how to delegate effectively:

• Decrease their workload
• Increase their productivity
• Empower their employees
• Help their employees to develop new skills

The other aspect of delegating authority has to do with how decisions are made, they can either be centralized or decentralized.

• Centralized decision making is done at the top level of management which makes decision making consistent but can make lower-level managers feel under-utilized and impedes the development of decision-making skills in these managers.
• Decentralized decision making is spread throughout the organization. Since the responsibilities and decision-making are given to various people holding different positions in an organization, top management can work towards the growth and long-term vision of the company. Also, this system engages more people to work in different areas such as expansion of the company, employee hiring process, development, and raising capital. As a result, these processes speed up the growth of the company. With that said, decentralization could increase conflict, increase duplicate work, and increase the challenge of executing consistent strategies.^[14]

Motivating Employees

How do managers motivate employees to do quality work? This question is difficult to answer because people are motivated by different things at different stages in their life, their career, and their personal growth. Highly motivated employees focus their efforts on achieving specific goals. It’s the manager’s job, therefore, to motivate employees—to get them to try to do the best job they can. Motivated employees call in sick less frequently, are more productive, and are less likely to convey bad attitudes to customers and coworkers. They also tend to stay in their jobs longer, reducing turnover and the cost of hiring and training employees.

Personal Motivation

They may be intrinsically or extrinsically motivated, or by a combination of each.

Intrinsic motivation. This is when motivation comes from within; in other words, a person has it within themselves to be, stay, or become motivated. For example, a person may be intrinsically motivated by the enjoyment of doing a task, the satisfaction of a job well done, or the desire to achieve.

Extrinsic motivation. This is when motivation comes from external factors; in other words, a person needs an incentive to be, stay, or become motivated. For example, a person may be extrinsically motivated by the pay they receive, bonuses they receive, avoiding punishment, gaining recognition or prestige, or perks of the job.

Motivational Theories

Maslow’s Hierarchy of Needs

According to Maslow’s theory, the idea is that we need to satisfy lower-level needs before we move to the other levels; once we have satisfied said need(s), we move on to the next level as the previous one no longer satisfies us. Consider how this can play out in the workplace.

What implications does Maslow’s theory have for business managers? There are two key points: (1) Not all employees are driven by the same needs, and (2) the needs that motivate individuals can change over time. Managers should consider which needs different employees are trying to satisfy and should structure rewards and other forms of recognition accordingly. For example, when you got your first job repossessing cars, you were motivated by the need for money to buy food. If you’d been given a choice between a raise or a plaque recognizing your accomplishments, you’d undoubtedly have opted for the money. As a city councillor, by contrast, you may prefer public recognition of work well done (say, election to higher office) to a pay raise.

As shown in Figure 3.5, Maslow’s Hierarchy of Needs from the highest level (self-actualization) to the lowest level (physiological needs):

• Self-Actualization: Mortality, creativity, spontaneity, problem-
  solving, lack of prejudice, acceptance of facts
• Esteem: Self-esteem, confidence, achievement, respect of others,
  respect by others.
• Social: Love/belonging through friendship, family, sexual intimacy
• Safety: security of body, of employment, of resources, or mortality,
  of the family, of health, of property
• Physiological: breathing, food, water, sex, sleep, homeostasis,
  excretion

Two-Factor Theory

Another psychologist, Frederick Herzberg, set out to determine which work factors (such as wages, job security, or advancement) made people feel good about their jobs and which factors made them feel bad about their jobs. He surveyed workers, analyzed the results, and concluded that to understand employee satisfaction (or dissatisfaction), he had to divide work factors into two categories:

• Motivation factors. Those factors that are strong contributors to job satisfaction.
• Hygiene factors. Those factors that are not strong contributors to satisfaction but that must be present to meet a worker’s expectations and prevent job dissatisfaction.

Figure 3.6 illustrates Herzberg’s two-factor theory. Note that motivation factors (such as promotion opportunities) relate to the nature of the work itself and the way the employee performs it. Hygiene factors (such as physical working conditions) relate to the environment in which it’s performed.

Let’s start with hygiene factors. Are salaries reasonable? What about working conditions? Does each accountant have his or her own workspace, or are they crammed into tiny workrooms? Are they being properly supervised or are they left on their own to sink or swim? If hygiene factors like these don’t meet employees’ expectations, they may be dissatisfied with their jobs.

Fixing problems related to hygiene factors may alleviate job dissatisfaction, but it won’t necessarily improve anyone’s job satisfaction. To increase satisfaction (and motivate someone to perform better), you must address motivation factors. Is the work itself challenging and stimulating? Do employees receive recognition for jobs well done? Will the work that an accountant has been assigned help him or her to advance in the firm? According to Herzberg, motivation requires a twofold approach: eliminating “dissatisfiers” and enhancing satisfiers.

Expectancy Theory

If you were a manager, wouldn’t you like to know how your employees decide whether to work hard or goof off? Wouldn’t it be nice to know whether a planned rewards program will have the desired effect—namely, motivating them to perform better in their jobs? These are the issues considered by psychologist Victor Vroom in his expectancy theory, which proposes that employees will work hard to earn rewards that they value and that they consider “attainable”.

As you can see from Figure 3.7, Vroom’s Expectancy Theory argues that an employee will be motivated to exert a high level of effort to obtain a reward under three conditions – the employee:

1. believes that his or her efforts will result in acceptable performance.
2. believes that acceptable performance will lead to the desired reward.
3. values the reward.

To apply expectancy theory to a real-world situation, let’s analyze an automobile-insurance company with one hundred agents who work from a call centre. Assume that the firm pays a base salary of $2,000 a month, plus a $200 commission on each policy sold above ten policies a month. In terms of expectancy theory, under what conditions would an agent be motivated to sell more than ten policies a month?

The agent would have to believe that his or her efforts would result in policy sales (that, in other words, there’s a positive link between effort and performance). The agent would have to be confident that if he or she sold more than ten policies in a given month, there would indeed be a bonus (a positive link between performance and reward). The $200 bonus per policy would have to be of value to the agent.
Now let’s alter the scenario slightly. Say that the company raises prices, thus making it harder to sell the policies. How will agents’ motivation be affected? According to expectancy theory, motivation will suffer. Why? Because agents may be less confident that their efforts will lead to satisfactory performance. What if the company introduces a policy whereby agents get bonuses only if buyers don’t cancel policies within ninety days? Now agents may be less confident that they’ll get bonuses even if they do sell more than ten policies. Motivation will decrease because the link between performance and reward has been weakened. Finally, what will happen if bonuses are cut from $200 to $25? Obviously, the reward would be of less value to agents, and, again, motivation will suffer. The message of expectancy theory, then, is fairly clear: managers should offer rewards that employees value, set performance levels that they can reach, and ensure a strong link between performance and reward.

Equity Theory

What is the equity theory of motivation? The Equity Theory of motivation is the idea that what an individual receives for their work has a direct effect on their motivation. When applied to the workplace, it means an individual will generally aim to create a balance between what they give to the organization compared to what they get in return.^[15]

Equity theory was developed by John Stacey Adams, and you can read more information about Equity theory in this article.

Let’s review this example. What if you spent thirty hours working on a class report, did everything you were supposed to do, and handed in an excellent assignment (in your opinion). Your roommate, on the other hand, spent about five hours and put everything together at the last minute. You know, moreover, that he ignored half the requirements and never even ran his assignment through a spell-checker. A week later, your teacher returns the reports. You get a C grade and your roommate gets a B+. In all likelihood, you’ll feel that you’ve been treated unfairly relative to your roommate.

According to Figure 3.8, the Equity Theory, your reaction makes sense. The Equity Theory of motivation focuses on our perceptions of how fairly we’re treated relative to others. Applied to the work environment, this theory proposes that employees analyze their contributions or job inputs (hours worked, education, experience, work performance) and their rewards or job outcomes (salary, bonus, promotion, recognition). Then they create a contributions/rewards ratio and compare it to those of other people. The basis of comparison can be any one of the following:

• Someone in a similar position
• Someone holding a different position in the same organization
• Someone with a similar occupation
• Someone who shares certain characteristics (such as age, education, or level of experience)
• Oneself at another point in time

When individuals perceive that the ratio of their contributions to rewards is comparable to that of others, they perceive that they’re being treated fairly or equitably; when they perceive that the ratio is out of balance, they perceive inequity. Occasionally, people will perceive that they’re being treated better than others. More often, however, they conclude that others are being treated better (and that they themselves are being treated worse). This is what you concluded when you saw your grade in the previous example. You’ve calculated your ratio of contributions (hours worked, research and writing skills) to rewards (project grade), compared it to your roommate’s ratio, and concluded that the two ratios are out of balance.

What will an employee do if he or she perceives an inequity? The individual might try to bring the ratio into balance, either by decreasing inputs (working fewer hours, not taking on additional tasks) or by increasing outputs (asking for a raise). If this strategy fails, an employee might complain to a supervisor, transfer to another job, leave the organization, or rationalize the situation (e.g., deciding that the situation isn’t so bad after all). Equity theory advises managers to focus on treating workers fairly, especially in determining compensation, which is, naturally, a common basis of comparison.

Corporate Culture

Corporate culture refers to the shared values, beliefs, attitudes, and practices that shape the social and psychological environment of a business.  The leadership style of managers in an organization is usually indicative of the underlying philosophy, or values, of the organization. This set of attitudes, values, and standards of behavior that distinguishes one organization from another. A corporate culture evolves over time and is based on the accumulated history of the organization, including the vision of the founders. It influences how employees interact, make decisions, and work towards organizational goals. A strong corporate culture can drive employee engagement, enhance productivity, and align individual actions with the company’s mission.

Corporate culture key elements include:

• Core Values: Guiding principles that inform behaviors and decision-making.
• Leadership Style: The approach leaders take to inspire and manage teams.
• Communication: How information flows within the organization, including formal and informal channels.
• Work Environment: The physical and emotional atmosphere in which employees operate.
• Behavioral Norms: Expectations for conduct among employees and management.

The grapevine represents the informal communication network within an organization. It is a natural part of corporate culture, where employees share information unofficially through casual conversations, rumors, or personal interactions.

The nature of the grapevine is shaped by the corporate culture. For example:

• In open and transparent cultures, the grapevine is less likely to spread harmful rumors since employees trust formal communication.
• In hierarchical or secretive cultures, reliance on the grapevine may increase as employees seek information not readily available through official channels.

​​Culture may be intangible, but it has a tremendous impact on employee morale and a company’s success. Google approaches morale analytically. When Google discovered that mothers were leaving the company at higher rates than other employee groups, the company improved its parental-leave policies. The result was a 50 percent reduction in attrition for working moms. An analytical approach along with culture-building activities such as town halls led by Black employees and allies, support for transgender employees, and unconscious-bias workshops are why employees say Google is a safe and inclusive place to work.^[16] Clearly Google leaders recognize culture is critical to the company’s overall success.

Management Function 4 = Controlling

Controlling involves ensuring that performance does not deviate from standards. You can think of the control function as a five-step process (Refer to Figure 3.5):

1. Set the standards by which performance will be measured. Performance standards are often stated in monetary terms such as revenue, costs, or profits but may also be stated in other terms, such as units produced, number of defective products, or levels of quality or customer service.
2. Measure the performance.
3. Compare the actual performance against the standards and identify any deviations from the standards.
4. Determine the reasons for the deviations.
5. Take corrective action if needed.

The measurement of performance can be done in several ways, depending on the performance standards, including financial statements, sales reports, production results, customer satisfaction, and formal performance appraisals. Managers at all levels engage in the managerial function of controlling to some degree.

The managerial function of controlling should not be confused with control in the behavioral or manipulative sense. This function does not imply that managers should attempt to control or to manipulate the personalities, values, attitudes, or emotions of their subordinates. Instead, this function of management concerns the manager’s role in taking necessary actions to ensure that the work-related activities of subordinates are consistent with and contributing toward the accomplishment of organizational and departmental objectives.

Effective controlling requires the existence of plans, since planning provides the necessary performance standards or objectives. Controlling also requires a clear understanding of where responsibility for deviations from standards lies. Two traditional control techniques are budget and performance audits. An audit involves an examination and verification of records and supporting documents. A budget audit provides information about where the organization is with respect to what was planned or budgeted for, whereas a performance audit might try to determine whether the figures reported are a reflection of actual performance. Although controlling is often thought of in terms of financial criteria, managers must also control production and operations processes, procedures for delivery of services, compliance with company policies, and many other activities within the organization.

The Importance of Controls

Project controls provide information that allow managers to make informed and timely decisions that prevent project risks. A manager must keep things on track and within scope throughout the project. Without a project control process, it’s difficult to answer important questions about the project, which may impact or complicate project success.

Some reasons why projects might go off track without project controls include:^[17]

• People: Without project controls, questions may arise about who’s available to work on a project, who’s in charge of which roles and responsibilities, and who should take ownership of specific tasks during project development.
• Quality: The project control process ensures that expectations are met, items in every project phase are complete, and everything works along the way.
• Cost: When the project cost isn’t controlled, unforeseen fees may occur because of changes from stakeholders or miscalculations during project planning.
• Time: Monitoring project time prevents issues like schedule delays, shifting priorities, and clashes in resources, which can lead to unsatisfactory project results.

Through the control process, managers can catch when things don’t go as planned and quickly course correct to keep the project on track.

Benchmarking

Benchmarking could be considered as a specialized kind of control activity. Rather than controlling a particular aspect of performance (say, defects for a specific product), benchmarking aims to improve a firm’s overall performance. The process of benchmarking involves comparisons to other organizations’ practices and processes with the objective of learning and improvement in both efficiency and effectiveness.

Benchmarking exercises can be conducted in a number of ways:

• Organizations often monitor publicly available information to keep tabs on the competition. Annual reports, news articles, and other sources are monitored closely in order to stay aware of the latest developments. In academia, universities and colleges often use published rankings tables to see how their programs compare on the student satisfaction, salaries of graduates, and other important dimensions.
• Organizations may also work directly with companies in unrelated industries in order to compare those functions of the business which are similar. A manufacturer of aircraft would not likely have a great deal in common with a company making engineered plastics, yet both have common functions such as accounting, finance, information technology, and human resources. Companies can exchange ideas that help each other improve efficiency, and often at a very low cost to either.
• In order to compare more directly with competition without relying solely on publicly available data, companies may enter into benchmarking consortiums in which an outside consultant would collect key data from all participants, anonymize it, and then share the results with all participants. Companies can then gauge how they compare to others in the industry without revealing their own performance to others.

Attributions

The contents of this chapter is a compilation sourced from various OER resources, please refer to the Book Information for details.

References

(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks)