Applied Sciences

Dr. Michael Reilly Ashford University

Dr. Charles Minnick Ashford University

Dr. Don Baack Pittsburg State University,

Pittsburg, Kansas

The Five Functions of Effective Management

Chares R. Minnick, Ph.D. Ashford University

Dr. Michael Reilly, Dr. Charles Minnick, & Dr. Don Baack The Five Functions of Effective Management

AVP, Editor-in-Chief: Erik Evans

Sponsoring Editor: Peter Galuardi

Development Editor: Katherine Russillo

Assistant Editor: Jaime Anderson

Editorial Assistant: Lindsay Serra

Media Editor: Kim Purcell

Printing Services: Bordeaux

Composition/Illustration: Lachina Publishing Services

Cover Image: Sadik Demiroz/Superstock/photolibrary

ISBN 10: 1-935966-22-7

ISBN 13: 978-1-935966-22-7

Copyright . 2011 Bridgepoint Education, Inc.

All rights reserved.

GRANT OF PERMISSION TO PRINT: The copyright owner of this material, hereby grants the holder of this publication the right to print these materials for personal use. The holder of this material may print the materials herein for personal use only. Any print, reprint, reproduction or distribution of these materials for commercial use without the express written consent of the copyright owner constitutes a violation of the U.S. Copyright Act, 17 U.S.C. §§ 101-810, as amended.

Brief Contents

Chapter 1: Introduction to Management: Achieving Form through Function . . . . . . . . . . . . . . . . 1

Chapter 2: The Planning Function . . . . . . . . . . . . . . . . . . . . . . . . . 27

Chapter 3: The Organizing Function . . . . . . . . . . . . . . . . . . . . . . . 55

Chapter 4: The Staffing Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Chapter 5: The Leading Function . . . . . . . . . . . . . . . . . . . . . . . . . 113

Chapter 6: The Controlling Function . . . . . . . . . . . . . . . . . . . . . . 147

Chapter 7: The Five Functions as a Coordinated System . . . . . 177

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201

Contents

About the Authors xv

Acknowledgments xvii

chapter 1 Introduction to Management: Achieving Form through Function 1

1.1 Introduction 2 Ron Jon Surf Shop: Small Start, Big Finish 2 Organizations 4 Organizational Origins 5

1.2 Management Roles 6 Managerial Levels 6 Front-Line Managers or Supervisors 7 Middle Managers 7 Executive Managers 8 Summary 9 Managerial Types 9 Line Managers 10 Staff Managers 10 Managerial Knowledge, Skills, and Abilities 11

Technical Knowledge 11 Human Relations Skills 11 Critical Thinking Abilities 11

1.3 The Five Management Functions 12 Planning 12

Assessing the Environment 12 Determining Organizational Goals 13

CONTENTS

Creating Plans 14 Allocating Resources 15 Summary 15

Organizing 15 Staffing 16 Leading 16 Control 16

1.4 The History of Management Theory 17 The Human Relations Movement 18

Abraham Maslow and Humanism 18 Douglas McGregor’s Theory X and Theory Y 19 Summary 20

Modern Management 20 Systems Theory 20 Contingency Theory 21 Summary 21

Chapter Summary 21 Key Terms 23 Review Questions 24 Analytical Exercises 24

chapter 2 The Planning Function 27

2.1 Introduction 28 Red Bull: Planning a Successful Entry into a New Market 28

The Value of Planning 29 Mission and Vision Statements 30

2.2 Assessing the Environment 31 Internal Operations 31

Strategic Assessment 31 Tactical/Functional Assessments 32 Operational Level Assessments 33

The External Environment 33 Semicontrollable Forces 33 Noncontrollable Forces 35

Forecasting 37 Economic Forecasts 37 Sales Forecasts 37 Technological Forecasts 38

SWOT Analysis 38 Summary 39

CONTENTS

2.3 Determining Organizational Goals 39 Tactical Goals 41 Operational Goals 42

2.4 Developing Quality Plans 42 Strategic Plans and the Strategic Management Process 42

Core Competencies 43 Generic Competitive Strategies 43 Specific Strategies 44 Rapid Growth Strategies 44 Slow Growth Strategies 44 Stability Strategies 44 Decline Strategies 45

Tactical Plans 45 Operational and Short-Term Plans 46

Special Short-Term Plans 46 Contingency Plans 46 Summary 47

2.5 Allocating Resources 47 Incremental Budgets 47 Zero-Based Budgets 48 Rolling Budgets 48 Summary 48

Chapter Summary 49 Key Terms 50 Review Questions 52 Analytical Exercises 52

chapter 3 The Organizing Function 55

3.1 Introduction 56 The Richards Group: Organizing Creativity 57

3.2 Job Design 59 Job Analysis 60 Job Description 61 Job Specification 61 Summary 62

3.3 Departmentalization 62 Departmentalization by Function 62 Departmentalization by Product 63

CONTENTS

Departmentalization by Customer 64 Departmentalization by Geographic Area 64 Departmentalization by Strategic Business Unit 65 Departmentalization by Matrix 65 Summary 65

3.4 Completing the Organization’s Structure 66 Centralization and Decentralization 67

Size and Decentralization 68 Strategies and Decentralization 68 Summary 69

Mechanistic and Organic Structures 69 Characteristics of Typical Organizations 70 An Organization in Crisis 71 Summary 72

3.5 Structural Configurations 72 Simple Structure 72 Machine Bureaucracy 73 Professional Bureaucracy 73 Divisional Structure 74 Adhocracy 74 The Importance of Organizational Goals in Structural Design 75

Chapter Summary 76 Key Terms 76 Review Questions 78 Analytical Exercises 78

chapter 4 The Staffing Function 81

4.1 Introduction  82 Zappos.com: Strategic Staffing  82 The Nature of Staffing 84 Legal Aspects of Staffing 84

Employment at Will 85 Fair Labor Standards Act  85 The Civil Rights Act of 1964 and EEOC 85 Sexual Harassment 85 The Age Discrimination in Employment Act 86 The Americans with Disabilities Act of 1990 86 Family and Medical Leave Act 86

CONTENTS

4.2 Job Design and Human Resource Planning 87 Job Design 87 Human Resource Planning 88

Employee Inventories 88 Skills Inventories 89 Succession Planning 89 Summary 89

4.3 Employee Placement 90 Recruiting 90 Selection 91 Orientation 92

Create a Favorable Impression 93 Enhance Personal Acceptance 93 Reduce Turnover 93

Employee Training 93 E-Learning 94

4.4 The Employment Environment 94 Compensation Management 95

Base Pay 95 Incentives 95 Benefits 96 Summary 97

Performance Appraisal 97 The Appraisal System 98 Performance Appraisal Meetings 99

Employee Discipline Systems 99 Workplace Health and Safety 100

Requirements of Employers 101 Requirements of Employees 101 Employee Health and Wellness 101 Ergonomics 102

4.5 Employee Careers and Union-Management Relations 102 Career Development 102

Employee Preparation 103 Company Preparation: Manager Training Programs 103 Company Preparation: Mentoring and Coaching 105 Overcoming Special Career Challenges 105 Summary 106

Union-Management Relations 106

Chapter Summary 107 Key Terms 108 Review Questions 109 Analytical Exercises 109

CONTENTS

chapter 5 The Leading Function 113

5.1 Introduction 114 Aetna’s Jack Rowe: Transformational Leadership 114 Leading versus Managing  115

Managing as Coping with Complexity 115 Leading as Coping with Change 116

Leadership and Power 117 Legitimate Power 117 Reward Power 117 Coercive Power 117 Expert Power 118 Referent Power 118

5.2 Leadership Theories 119 Trait Theories 119

The Big Five 120 Attribution Models 120

Behavioral Theories 122 The University of Michigan Study 122 The Ohio State Study 123

Situational Theories 123 Theory of Leader Effectiveness 123 Fiedler’s Contingency Model 124 Hersey and Blanchard’s Situational Leadership Model 125 Path-Goal Theory 126

Transformational Leadership Theory 126 Summary 127

5.3 Leadership and Motivation 128 Content Theories of Motivation 128

Maslow’s Hierarchy of Needs 128 Herzberg’s Motivation-Hygiene Theory 129 McClelland’s Acquired Needs Theory 131

Process Theories of Motivation 131 Adams’ Equity Theory 131 Vroom’s Expectancy Theory 132

Locke’s Goal-Setting Theory 133 Summary 133

5.4 Leading and Effective Teamwork 134 Stages of Team Development 134

Forming 134 Storming 135 Norming 135

CONTENTS

Performing 135 Adjourning 135

Types of Teams 136 Cross-Functional Teams 136 Virtual Teams 136 Self-Managed Teams 136

Leading and Team Building 136 Summary 137

5.5 Leadership and Communication 137 Organizational Communication Basics 137 Barriers to Interpersonal Communication 138

Individual Differences 138 Situational Factors 139 Transmission Problems 139

Overcoming Interpersonal Communication Barriers 139 Organization-Wide Communication 140 Barriers to Formal Organizational Communication 141 Overcoming Barriers to Formal Communication 141

Managing the Grapevine 142

Chapter Summary 142 Key Terms 144 Review Questions 145 Analytical Exercises 146

chapter 6 The Controlling Function 147

6.1 Introduction 148 JetBlue: Creating a New Control System 148 The Four Steps of Control 149

Establishing Performance Standards 149 Measuring Actual Performance 150 Comparing Performance to Standards 150 Making Decisions 151

6.2 Functional Area Controls 152 Production and Quality Control 153

Quantity Goals 153 Quality Goals 153 Cost Goals 154 Time Goals 154

Measures of Performance: Production and Quality Control 154 Making Corrections: Production and Quality Control 155

CONTENTS

Marketing and Sales 155 Market Share 155 Sales Quotas 156 Share of Mind 156 Marketing and Sales Costs 156

Measures of Performance: Marketing and Sales 156 Making Corrections: Marketing and Sales 157 Human Resources 157 Measures of Performance: Human Resources 157 Making Corrections: Human Resources 157 Information Technology and Research and Development 158

6.3 Accounting and Financial Controls 158 Profitability Goals 158 Cost of Capital 159 Increasing Efficiencies of Company Operations 160 Ratio Analysis 160

Liquidity Ratios 160 Activity Ratios 161 Leverage Ratios 161 Profitability Ratios 162 Analyzing Ratios 162

The Budgeting Process 162 Forms of Budgets 163 Benefits of Budgeting 163 Budgeting Problems 164 Creating Quality Budgeting Programs 165

Auditing 166 Summary 167

6.4 Other Forms of Control 167 Feedforward Control 167 Concurrent Control 167 Feedback Control 168 Total Quality Management 168

TQM and Organizational Change 169 Control System Challenges 169

Rigid Bureaucratic Behavior 170 Invalid Data Reporting 170 Employee Resistance 171

Characteristics of Effective Control Systems 171

Chapter Summary 174 Key Terms 174 Review Questions 175 Analytical Exercises 175

CONTENTS

chapter 7 The Five Functions as a Coordinated System 177

7.1 Introduction 178 Round Rock Express: Minor League Baseball—Major League Management 178 The Changing World of Business 180 Political Events 180 Social Trends 180

Diversity 181 Economic Trends 181 The Impact of Technology 182

The Changing Nature of Competition 183 Globalization 183

Summary 183

7.2 The Five Management Functions Still Matter 184 Planning Processes 184 Organizing 185

Staffing 186 Leading 188 Controlling 189 Connecting the Five Functions 190

7.3 Management Careers 190 Learn a Second Language 191 Indicate Your Willingness to Learn 192 Improve Your Social Skills 192 Be a Team Player 192 Become a Real Manager, Not a Political Manager 193

Summary 193 Key Terms 194 Review Questions 195 Analytical Exercises 195

Glossary 197

References 201

About the Authors

Dr. Michael Reilly Michael Reilly is the Ashford University Executive Dean of the College of Business and Professional Studies . He previously held faculty and chair appointments at the University of Phoenix and North Central University .

Dr . Reilly teaches courses in management, organizational behavior, human resources, and statistical analysis at both the undergraduate and graduate levels in addition to academic administration work . His academic interests include aligning management systems with organizational strategy and the economic function of the firm . He has also published numerous scholarly and professional journal articles, written and edited college text- books, and served as a peer-review journal editorial board member .

Dr . Reilly earned a Ph .D in Management Decision Sciences from Walden University, a Master of Arts in Human Behavior and Labor Sociology from National University, and a Bachelor of Arts in Industrial Psychology and Personnel Management from Union University .

Dr. Charles Minnick Dr . Charles Minnick has served as Dean of the College of Business and Professional Stud- ies at Ashford since January 2006 . Before Ashford, he spent 10 years at Saint Ambrose University in Davenport, Iowa . His last position there was Associate Director of the Mas- ters of Organizational Leadership program . Minnick’s bachelor’s degree and MBA are both from Saint Ambrose, and his Ph .D . is in Management and Decision Sciences with a concentration in Leadership and Organizational Change from Walden University in Min- neapolis . He has done consulting work in the areas of employee motivation, business eth- ics, improving team performance, strategic planning, and conflict management, and has presented at conferences across the United States . In March of 2011, he was elected to the Board of Directors of the International Assembly for Collegiate Business Education .

In 2009, Minnick was recognized for excellence in teaching by the Commission for Accel- erated Programs . He was one of three award recipients from across the United States . In 2010, he received Bridgepoint Education’s Best in Class award, which is presented to Bridgepoint Education employees who best exemplify Bridgepoint Education’s commit- ment to quality, caring, and innovation .

ABOUT THE AUTHORS

Dr. Donald Baack Dr . Donald Baack is a University Professor of Management at Pittsburg State University, Pittsburg, Kansas . He has an undergraduate degree from Dana College, an MBA from Southwest Missouri State University, and a Ph .D . from the University of Nebraska .

Baack teaches undergraduate level organizational theory and behavior, advanced orga- nizational behavior, and graduate level behavioral management . He is affiliated with the Southwest Academy of Management, the Southern Management Association, and the Nebraska Economics and Business Association .

Professor Baack is the author or coauthor of eight books . Three are college textbooks in the areas of management, organizational behavior, and integrated marketing communica- tions . One is a high school textbook for students studying international business . He has also coauthored the Concise Encyclopedia of Advertising as well as three books that are for the general public . Baack has written over 100 professional journal articles and conference papers . He serves as consulting editor for Pittsburg State’s Journal of Managerial Issues .

Acknowledgments

From Michael Reilly and Charles Minnick We would like to acknowledge the people who made significant contributions to the development of this text . We are extremely grateful to Peter Galuardi, Steve Wainwright, Beth Aguiar, and the entire editorial team for their encouragement, enthusiasm, and guid- ance, without which this effort would have been impossible . We also recognize the sacri- fices made by our spouses during the time we spent writing this text . The compensation for these efforts could not repay their sacrifice of time .

From Don Baack Thanks to John Szilagyi for introducing me to the editorial team, to Anna and Christina for allowing me to give this project priority, and to my wife and family for understanding that I would be pretty busy completing this work .

Jose Fuste Rega/Corbis

chapter 1

Introduction to Management: Achieving Form through Function

Chapter Goals

After reading this chapter, you should be able to • Describe an organization. • Define the concept of management and describe various management roles. • Explain the five management functions. • Recognize key historical characters and their contributions to management theory.

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CHAPTER 1Section 1.1 Introduction

1.1 Introduction Learning Objective #1: What is an organization?

Many people think management is about supervising employees, or that it is an obscure set of practices invented by corporate experts in high-level positions within an organization. Some might associate management to be specific to cer- tain persons, such as Jack Welch, the former CEO of General Electric; Andrew Carnegie, founder of US Steel; John D. Rockefeller, founder of Standard Oil; Ray Kroc, the driving force behind McDonald’s; Sam Walton who created the Walmart empire; Meg Whitman, former CEO of eBay; or any number of well-known leader-managers.

At the most fundamental level management is a discipline that consists of a set of five spe- cific functions: planning, organizing, staffing, leading, and controlling. These five func- tions are part of a body of practices and theories for how to be a successful manager. You will learn more about the five functions throughout this book. We want you to understand that this is founded on research and theory, but it is also about the practices that managers need to implement to support the theories. Typically, managers are managing, while at the same time researchers are evaluating how managers work and applying what they learn to a theoretical perspective.

The analyses of management practices and theories are used to drive new practices and theories for future improvement. Theorists try to bring some meaning to how management impacts overall organizations. The purpose and practical applications for the various manage- ment theories are explained within the five functions. Understanding these five functions and the underlying support theory behind them is the starting point of learning to be a manager.

Chapter 1 introduces several important concepts of effective management and leader- ship. Each serves as a building block to help you to understand and be able to apply the five functions of management. In this chapter we will define management and what an organization is. We will explore the nature of various types of organizations, and we will examine historical figures and their contributions to management theory. Ultimately, you should come to understand the role of management in the success of an organization as you are introduced to the five functions.

Ron Jon Surf Shop: Small Start, Big Finish

In the world of business, many truisms and platitudes exist and are commonly exchanged. One that may have value would be that “Success occurs when preparation meets an opportunity.” Such would be the case for the former surfer-dude, turned successful busi- ness manager, Ron DiMenna.

In the 1960s, surfboard technology began to evolve. Wooden boards, often made at home or in a workshop, were set aside in favor of mass-produced fiberglass models. DiMenna, who loved surfing, decided to go into business and created the first Ron Jon Surf Shop in New Jersey. His business model was to buy three boards and sell two with a mark-up that was large enough to make a profit, which made it possible for Ron to buy the third board.

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CHAPTER 1Section 1.1 Introduction

Over time, the business took off. His company eventually expanded. DiMenna made the Cocoa Beach, Florida, location the centerpiece of the company. The store is open 24 hours per day, 365 days per year—just like the beach. Currently, Ron Jon Surf Shops may be found on both the East and West Coasts. All of the stores carry every form of beach product including swim- wear, sunglasses, surfboards, towels, shorts, shirts, and beach furniture. Most feature refresh- ment areas for patrons to enjoy.

The Ron Jon empire has been built using clas- sic management techniques. DiMenna carefully plans events that create interest and attention. The 40th anniversary of his company serves

as an example. The company planned a series of programs, beginning with a contest in which customers were asked to send in photos, news articles, postcards, and stories about their interactions with Ron Jon Surf Shops. The contributors of the best selections were given gift certificates for merchandise as prizes and rewards.

DiMenna also formed a partnership with Chrysler, leading to the development of lim- ited edition Ron Jon PT Cruiser autos. The cars came with Ron Jon sports bags, blankets, license plates, bumper stickers, key chains, and a T-shirt noting the unique nature of the vehicle. Only 1,000 cars were manufactured. Most were sold, and a select few were offered as prizes for Ron Jon contests. The entire 40th anniversary celebration was featured in various venues, including surfing and travel magazines and in numerous news stories.

Ron Jon Surf Shops are carefully organized. Employees specialize in various types of prod- ucts, thereby making sure customers receive expert attention. The company has partner- ships with major manufacturers to make sure products flow in an efficient manner.

Staffing represents a key ingredient in DiMenna’s management system. Company leaders work hard to make sure that only enthusiastic, knowledgeable people are hired. Incen- tives are used to keep up their interest and loyalty.

The leading aspect of the company began with Ron DiMenna, and it extends to all store managers who make sure operations run smoothly. The store managers seek to highlight the fun, enjoyable aspects of shopping and beach time.

Questions for Students

1. With so many surf shops adorning beaches in Florida, what has made Ron Jon stand out? 2. What is another example of a success story similar to Ron DiMenna’s 3. What essential management techniques helped make DiMenna’s business model a success?

Ryan McVay/ThinkStock

Ron DiMenna began as a surfer-dude and became a successful entrepreneur and manager.

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CHAPTER 1Section 1.1 Introduction

The control function of Ron Jon Surf Shop begins with assessments of product lines. In recent years, company leaders have concluded that while the stores are profitable, expan- sion is possible. This led the company to begin selling items related to skateboarding.

The iconic Ron Jon decal can be found adorning bumpers of cars across the country and around the world. One has even been taken into orbit on a space shuttle. The Ron Jon store in Cocoa Beach is as much a tourist attraction as a retail store. Through all of these man- agement activities, the future remains bright for what started off as one guy with a simple need to better enjoy the waves (Clow and Baack, 2007; http://www.ronjonsurfshop.com, 2011).

Organizations

Every day you encounter numerous organizations. Currently, you are taking a class from an educational organization; later you may visit a grocery store. Those who stop to pay parking tickets encounter a local government organization. In a modern, postindustrial society, interactions with organizations shape the nature of daily living, including main- taining one’s home, being part of social and religious groups, and making a living.

An organization is a collection of people who work together and coordinate their actions to achieve a wide variety of goals or desired future outcomes. The purpose of an organiza- tion is to serve a social need. Organizations take the forms of (a) profit-seeking, (b) non- profit, and (c) government agencies. Organizations are driven by a mission to accomplish a set of agreed-upon goals:

• an economic goal (a profit-seeking entity) • a social good (nonprofit entity) • the general public’s welfare (government entity)

Profit-seeking organizations deliver goods and services that offer value to consumers in exchange for money, normally expressed as sales and other revenues. Other organizations have different concepts regarding their purposes.

Nonprofit organizations are created because there is an expressed social need. Typically, donations are solicited to maintain nonprofit organizations. Sometimes society doesn’t need what an organization produces, and the organization fails.

Organizational Characteristics

Members consist of more than two people. People in the organization routinely interact. Tasks are divided among members (division of labor). Someone is in charge (a hierarchy of authority). Activities are coordinated among members. Members share a common purpose or goal.

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