Friday, July 27, 2007

Understanding Business Management

Previously, we identified a lack of business management skills as one of the reasons why so many fail in home based businesses. In this post we are going to identify some of the key elements of effective business management.

In order to save time and provide our Associates with the best possible information on this topic, we are going to use a course written by Omar A Badran on business fundamentals.

Since there are so many people that would like to own and operate a traditional business, we have chosen his course because of its simplicity.

We are not going to include illustrations or graphics because we can not accurately reproduce them and the text editor at this blog does not allow bitmap reproductions. In addition, they would take up unnecessary space.

Lets begin. Any business can not operate without people. These people, whom we call employees, could be either part of the Management team (Managerial employees) or part of the working force (Non-managerial employees).

All managerial employees perform basic functions. The five management functions are Planning, Organizing, Staffing, Leading (or Directing) and Controlling. It is useful to classify management work into these five functions as they provide us with an organized way to describe many of the important activities they do.

Planning - The management function that involves setting goals and deciding on which methods to use to achieving them.

Organizing - The management function that involves arranging the resources of the business in such a way that its activities systematically contribute to the business's goals.

Staffing - The management function that involves recruiting, selecting, appraising, training and developing employees.

Leading (Directing) - The management function that involves providing the motivation and leadership that is necessary for ensuring that the firm's employees do their jobs and accomplish their goals.

Controlling - The management function that involves ensuring that activities are providing the planned results.

Managers, therefore, are involved in certain activities, associated with each function, which could be identified as follows:


Setting goals.

Deciding for the future what is needed and what might happen.

Making decisions on the best methods to use to accomplish certain tasks or goals.

Identifying what steps, and how many steps, are needed to do something.


Delegating some of their work to other employees.

Giving each employee a distinct task to do.

Coordinating between departments and between people.


Recruiting or helping in recruiting employees to the organization.

Selecting the right person for the right job.

Appraising their employees' performance within a period of time.

Providing the right guidance and environment to help employees in their career development.

Designing and providing training sessions and workshops the employees to help them acquire new skills and to update their existing knowledge.

Orienting the employees about the organization (Who is who, location of departments, job information, policies, regulations and special instructions of how to do certain tasks.

Leading (Directing):

Using different styles of leadership to direct their employees to do the required work.

Guiding their employees, speaking on their behalf, and setting good example.

Motivating their employees to do their work.

Handling grievances and conflict between employees.


Designing control systems to ensure that employees are doing their jobs as expected and that their work behavior is acceptable.

Setting standards of work to know how exactly one has to do one's work.

Observing employees' work.

Measuring employees' work performance.

Meeting with employees to see how work and performance could be improved.

In order for any business to function, it needs an internal structure that shows who is in charge, who makes decisions, who carries out the decisions and how decisions and information are communicated. The structure will establish the formal relationship between the people who will be working together within the business.

Knowing the answers to all four questions above would provide a clear idea about the relationship between the employees (Managerial and non-managerial) and between the different departments (the different areas of specialization’s) that are existing within a particular organization.

In order to clearly see this formal relationship, and to see how the business is organized, one could represent this formal structure by means of a simple diagram called an organizational chart.

Each business (or organization) has its own specific structure. As the relationship between people and/or departments differs from business to business due to the different nature and culture of each business, hence the existence of different graphical representations or different organizational charts.

An organizational chart provides an easy way to understand the structure of a business. You will discover that in organizations, fewer people are found at the top, representing top management and middle management, while the more you travel downwards, the larger the numbers of employees are.

The more levels found in an organizational chart, the greater the height of the chart. Such organization is a tall organization. A flat organization is one with much lesser organizational levels, probably one or two only.

In general, the greater the height of the organizational chart, the smaller the spans of control of its managers. The span of control refers to the number of individuals a manager supervises.

Establishing departments in organizations is the most common method of establishing formal relationships between individuals. Establishing departments, also known as Departmentation or departmentalization, could be done in different ways depending on the most suitable structure design the Management of the organization thinks would best help in achieving organizational objectives/goals.

Three such ways to establishing departments are by Function, Geography and by Product.

By Function:

Departments here are established to perform specific tasks. There are six basic business functions that organizations could do: Personnel (or currently known as human resource management), Finance, Purchasing, Production, Marketing(including Sales) and Research & Development.

By Geography (Territory):

Departments can be established according to the location in which business is done (i.e. according to the geographical market area).

By Product:

Departments can be established according to the goods and services produced especially if the business finds it difficult to coordinate between the many different kinds of services and business functions.

Next - Maslow's Heirarchy of Needs