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  • June 17, 2024
  • Last Update May 7, 2023 10:40 am
  • Hannover


The principles presented apply to partnerships and sole proprietorships as well. the topics which will be covered include:

  • Corporation structure
  • Defining your business
  • Goal setting and strategic planning
  • Management styles

Corporation Structure

A company consists of assorted departments; we studied variety of them earlier. The departments co-exist and interact. Individuals’ lives contains various aspects: mental, spiritual, and physical. of these aspects combine within one individual, kind of like the way departments interact within an organization. Individuals behave in accordance with how they regard themselves et al. A company’s behavior is influenced by the product it wants to sell to customers and also the philosophy of its management.

Refer to Figure 14.1. The group at the middle, the board of directors, chief officer (CEO), and president control the corporate.

They define the direction the corporate will travel with regard to products and to markets. because the view widens, the pie wedges represent areas, departments, or divisions of the corporate. Surrounding the company structure are the shareholders who are part owners of the company. Remember, preferred and customary stocks are the first types of stock. The shareholders own the corporate. They select the board of directors and therefore the board hires the CEO who successively hires the president.

Corporation structure

The outer layer of the circumference of the circle represents stakeholders— people, groups, or agencies with which the corporate interfaces.

Stakeholders don’t own the corporate but have a “stake” in its activities. for instance, neighbors of the mill are stakeholders within the sense that they are doing not want their air polluted or their facility harmed. The bank from which the corporate borrows money may be a stakeholder. Other area banks are stakeholders in the respect that they require to amass the company’s banking business.

Local, state, and federal governments are stakeholders within the sense that they enact and enforce regulations that affect the corporate.

Customers are clearly stakeholders. Employees are stakeholders who may or might not even be shareholders. they’re stakeholders because they produce the company’s output and are obtained their efforts.

They are responsible to the corporate and it’s a responsibility to them.

Figure 14.2 provides another view. the corporate combines inputs of raw materials and labor with knowledge and work and produces outputs: products. within the market, products are exchanged for dollars received by the corporate. we all know from Chapter 4 (our discussion of finance) that receipts from sales are employed by the corporate to pay the costs of raw materials, labor, interest on bonds or loans, and taxes; the remainder is profit that’s distributed to shareholders (as owners) in the sort of dividends or is reinvested to buy new equipment, build facilities, or launch other projects.

Although shareholders are actuality owners, the board of directors and executive staff run the corporate. we’ll now discuss the responsibilities of these top level executives.

Corporate inputs and outputs

Chairman of the Board

The chairman of the board of directors “runs the show.” The board directs the activities of the corporate for and in response to shareholders’ wishes. The chairman heads the board. Traditionally, the chairman was an employee, usually a president who moved up. In recent years board chairmen are commonly not employees. this can be why “cleaning house” sometimes occurs when a brand new chairman takes over. Having an outside chairman prevents the “good old buddy” situations that within the past developed between the chairman and executives and negatively impacted their companies.

Chief officer (CEO)

The CEO reports to the chairman; the president and chief operating officer report back to the CEO. In effect, the CEO runs the corporate on a day-to-day basis. The chairman of the board determines the direction and the CEO manages the complete company.

Chief Operating Officer (COO)

The COO is answerable of the operating (manufacturing) divisions of the company. The COO isn’t liable for the accounting, legal, or human resources divisions. His concern is with production activities.


The legal, accounting, human resources, and other departments report to the president.

In some companies, one person is CEO, COO, and president.

Our discussion will indicate that three individuals hold these positions and therefore the CEO is that the “top gun.” the amount of individuals who fill these positions depends on the scale of the corporate and whether its operations are centralized or decentralized. Decentralized companies tend to work with three distinctly different positions. The three functions is combined more easily in an exceedingly centralized company. As a variation, a corporation may have a CEO and president; the president may also function COO.

Executive Ethics

In recent years, several large companies toppled thanks to the activities of greedy, dishonest executives and their staffs. The CEOs of assorted companies like Enron, WorldCom, and Tyco were convicted of serious crimes and sentenced to prison. Their conduct had ruinous consequences for workers and shareholders. they’d the talent and knowledge to run their companies well and did so early in their careers. At some point, greed or other motivation led them to travel a different road. Money and power can make people believe they will get away with anything. Dishonest CEOs don’t seem to be new. Unfortunately, they have the facility to wreck an operation (and employee retirement plans) in a very very short time. this is often not meant as criticism of CEOs in general. Most of them are intelligent, honest, and push within the interests of their companies and therefore the shareholders.

CEO classifications. The chart is drawn approximately to scale

CEO Classifications

The recent scandals involving prominent executives led us to classify them as shown in Figure 14.3.

Category 1: Competent and Honest—Obviously, this sort of CEO is that the best for any company and small comment is required. Many competent and honest CEOs worked their far to executive level and run their companies well.

Category 2: Competent and Dishonest—This is that the most dangerous type of CEO. He knows the techniques of cheating and the way to hide his activities from shareholders and therefore the government. A competent but dishonest CEO can bleed an organization by fitting fake subsidiaries, failing to reveal excessive company debts, and granting himself and hand-picked board members huge salaries and bonuses.

The excessive payments to board members coerce them into following the CEO’s direction rather than exercising unbiased judgment.

Category 3: Incompetent and Honest—Category 3 is undesirable but rates rival among the four categories. If such a CEO is sharp enough to pick out a good and honest management team, the team will advance the corporate. Unfortunately, most competent managers don’t want to figure for an incompetent executive unless they have the liberty to run their areas effectively and help the corporate prosper.

Category 4: Incompetent and Dishonest—CEOs who are incompetent are dangerous, but only temporarily. sort of a Category 4 hurricane, these CEOs wreak havoc and destruction for a time and then move. They cause plenty of injury during a short time but their tenures are short. they’re not as dangerous as Category 2 CEOs.

CEOs and Communication

If you ask a chief military officer if he wants to understand what’s occurring in his company, his answer will always be, “Yes, of course.” Despite the universal answer about knowing what’s occurring, why do many executives and managers appear oblivious to the constructive comments of their employees? See Figure 14.4 for a typical gap within the communication process. Who’s correct? Why does management say one thing and therefore the line workers say something else? Both think they are correct.

An effective CEO must get out of the office and observe activities first hand. That’s the sole thanks to acquire the accurate information you need to make important decisions.

Find out how your customers are treated to induce genuine knowledge that will enable you to assist your customers and grow your company. If you are the CEO of an airline, skip your personal jet. Buy your tickets and fly coach coast-to-coast with layovers. If you run a hotel chain, make your own reservations via the web or telephone and book an average room. Experience what your customers experience. Then you’ll really know whether or not they are treated well or if it’s time to create policy changes. If you’re out of town, call your office on the identical number customers use rather than calling your secretary on your telephone line. See whether you’re routed around or placed on “hold” for an extended time.

Call your customer service number (the one customers call once they have problems) and see how they’re treated. this could be the explanation your competition is gaining a foothold. does one need an enormous staff of assistants to provide you second-hand information once you can easily get valid information directly? No duty will be more important than genuinely assessing customer satisfaction. Without customers you have no business. you’ll be able to acquire some vital information just by making some phone calls.

Communications paradox

Defining Your Business

Every company should periodically ask, “What business are we in?”

This may sound simplistic but the solution is typically overlooked.

The classic answer is, “We are in business to form money.” But that does not truly answer the question, particularly within the era of diversification. Companies now acquire businesses of which they need little or no knowledge, then sell the companies after incurring losses, realizing too late that they lacked the required expertise. it’s vital to understand what business you’re in.

As an exercise, pretend you’re running Kodak and ask yourself what business are you in. little or no camera film is sold now because of advances within the photography field. Which business or combination of the companies listed does one think Kodak is in?

  • Film
  • Videotape
  • Image reproduction
  • Image transmission
  • Other businesses

The answers is found on the Kodak website:

Check the websites of other large companies. within the pharmaceutical field, check Johnson & Johnson ( additionally to their various businesses, you may note their commitments within the areas of corporate responsibility and environmental sustainability. Select other companies within which you’ve got an interest and appearance at their websites to determine their business and other activities. We discussed executive management teams earlier during this chapter. Review information about the backgrounds and affiliations of the management teams and boards of large companies. A board of directors should include people with excellent professional and private reputations and superb perceptive, analytical, and deciding skills that may drive an organization forward.

If you’re a shareholder in an exceedingly large public corporation, determine whether the management controls the stock by owning most of it.

If that’s the case, your votes as a shareholder won’t count. While management may claim to be motivated by majority control, the corporate will use your money to play a game with a deck stacked against you. Own stock only in companies within which stockholders have the ability to get rid of management that doesn’t work effectively.

If you get in your car and drive around aimlessly without a destination, you’re dawdling and money. you have got to grasp where to go and the way to induce there. If you don’t have those facts, how will you know after you arrive? A start-up business frequently tries to “be all things to all or any people.” That never works. Define your product, your business, and your customers, and keep on with that until you succeed.

The act of defining your business will channel your thinking within the right direction.

Let’s look now at the five fundamental steps in planning:

  • Determine where you wish to travel.
  • Decide what you would like to urge there.
  • Make the choice.
  • Implement the choice.
  • Monitor feedback.

You may have heard of a WOTS UP analysis in regard to assessing an enterprise’s capabilities and limitations in preparation of a strategic plan. WOTS UP is an acronym for weaknesses, opportunities, threats, and strengths underlying planning. It’s clever and proper, but it’s also incomplete. we’ll discuss an overview for a strategic plan, but before that some relevant points should be covered.

A strategic plan can cover any time span, but it normally covers a five-year period. This doesn’t mean that it’s prepared and not looked at again for five years! If no strategic activities are pursued for five years, you may not have a plan—or a company—to examine. you ought to review a strategic plan quarterly, monitor progress, and update the plan if required. After a review, you will determine that a replacement plan should be drawn up before the five years elapse due to changes in your business area or economic conditions. you want to accommodate your conceive to changes. Periodic reviews will determine whether you continue according to your plan or revise it.

In our example strategic plan, the research and development is included as a personal item. you’ll like better to highlight another department, or more departments, or no department. you’ll select fewer items in your plan. the instance shown is generic and covers an entire company; your plan must fit your operation and should be designed for a division or department. for instance, you’ll prepare a three-year plan for a business department. Here are the same old components of a strategic plan:

  • Preface
  • Mission
  • Objectives
  • Threats and opportunities
  • Weaknesses and strengths
  • Growth
  • Buildings and equipment
  • Personnel
  • Research and development
  • Closing comments


The preface section should require only a paragraph or two and note the fundamental quantity, for example:

“This plan covers ABC Company for the years 2010 through 2015.” It should be specific enough to delineate direction, but not so specific on limit the liberty of management. Because internal and external environments are continually changing, the plan should not be thought to be unalterable; it should be reviewed regularly and changed whenever the necessity arises.

The preface simply notes the amount covered. the corporate reserves the correct to change this plan because the company and economy change.


The mission should discuss your primary products, intended rate of growth, comparison to previous results, and future plans. A single paragraph should be sufficient.


Your objectives should be specific, for example:

  1. Achieve a minimum 15% pre-tax profit.
  2. Achieve a minimum 15% return on the average gross assets (ROAGA).
  3. Maintain a prominent public image within the community.
  4. Maintain our present market share of 25%.

The objectives should be stated clearly in one or two lines each.

They should be easy to live, and also the levels should be both optimistic and realistic. Don’t get anxious with elaborate statements that may not be practical. A strategic plan should include attainable goals.

Threats and Opportunities

Threats reckoning on your product or service, threats could include potential product liability, government regulation, difficulties obtaining certain raw materials, or other factors which will affect the corporate or department. Discuss the consequences the corporate can expect from the threats noted. And bear in mind that a threat also can function an opportunity; see the section below.

Opportunities Use this section to reduce the impacts of threats. For example, product liability issues can become positive factors if you believe your company produces a safer product than competitors make. Another example of a chance is heavy customer reliance on your company for technical service which will cause expansion of existing accounts.

Weaknesses and Strengths


  1. Lack of definitive measures of productivity
  2. Few or no patented products; copying by competitors will be done with relative ease
  3. Little experience or expertise during a field the corporate wants to enter


  1. Considerable knowledge, experience, and technical expertise in primary field of endeavor; leadership within the field
  2. Strong market knowledge
  3. Modern equipment in a very new plant


The discussion of growth factors should cover issues like production, assets, sales, profits, and other areas of expansion. the subsequent text samples show how brief statements could also be used effectively.

Production—“We will grow when Plant 4 goes onstream next year. We will maintain productivity from every sq ft of manufacturing area and are presently studying the repositioning of workflow altogether our plants.”

Assets—“Two new large manufacturing machines, each capable of producing 20 items per hour, are budgeted for purchase next year.

This will expand our current production rate of 10 items per hour.”

Sales—“We anticipate sales growth of 15% p.a. supported increase in existing customer needs and therefore the expansion of their product lines.”*

Profits—“The increase in profits are going to be commensurate with increased sales and that we expect profits to grow at a rate of 15% pre-tax.

As we expand into international markets, we expect greater profits.”

Buildings and Equipment (Optional Section)

Buildings and equipment are usually treated separately. Here are suggestions you might use.

Buildings—Discuss any relevant building or site issues during this section.

You might list their functions, ages, and any planned expansions or improvements.

Equipment—Listing equipment utilized in manufacturing or research may offer you an image of where you’re and where you would like to travel.

Determine equipment status—is it new, well maintained, or in need of replacement?


Future staffing, additions, training and other personnel matters should be discussed during this section. Here are examples.

Existing Personnel—“At now we believe we’ve highly qualified individuals in most sections of the executive, technical, and manufacturing areas.”

Training—“We shall, through liaison with human resource development, continue to provide training to existing personnel. As individual assignments expand or as persons transfer from one assignment to a different, if a necessity for training is decided to exist, it’ll be provided.”

New Personnel—“We strive to draw in above-average people regardless of age, race, sex, color, creed, or national origin.”

Intentions—“We conceive to keep our pay scales and fringe benefits above average in each area during which we operate. We shall provide clean, comfortable, and safe working conditions for all employees.

We will have employee–management meetings to debate mutual problems and exchange ideas, and that we will encourage participation in company-sponsored affairs. We will provide an environment in which all employees can use their talents and talents to the fullest extent possible. we are going to do that by determining, through observation and through our human resources department, what’s needed to satisfy the work needs of our employees.”

Research and Development

Below may be a sample statement to be used in operations where research and development are integral activities.

“We shall still maintain our emphasis on research and development efforts by carefully observing market needs and by allotting funds and personnel to research and development efforts.

These efforts are going to be especially important as we pursue new areas for diversification. Another aspect of research and development is equally important: the dissemination of research findings to other personnel, the implementation of research findings to the assembly area, and eventual use within the marketplace. We shall also, with the help of our human resource department, foster a ‘research and development thinking’ attitude in employees outside the research and development area in order that they’ll continually ask, ‘How can we eff better?’ this is often an issue that ought to be present all the time.”

Closing Comments

Obviously, closing comments must be relevant to your product or service, past achievements and future goals. Here is an example summary.

“It is believed that the contents of this document will explain what we anticipate doing within the next five years and the way we intend to achieve it. As we plan for the subsequent five years, the key issues are to arrange the simplest plan possible supported current conditions, monitor our progress in meeting the plan, and modifying it whenever necessary supported changes within the internal or external environments.”

Surely, a five-year plan that’s not monitored for compliance will become stale and useless. Regular monitoring and modification will ensure that strategic plans will remain current and help a division or company achieve its goals. Efforts must be made to live productivity accurately. “Productivity” could be a key word in modern industry.

Using the word is one thing; measuring it’s another. Productivity may be stated as a ratio of sales to the quantity of employees, profit dollars divided by the amount of employees, or number of units shipped per area unit of production area. examine these various methods to work out the simplest ways to measure—and continually improve—productivity.

Summarizing the Strategic Plan

Every strategic plan is broken into categories appropriate for a specific operation. a number of those cited above are optional for a few companies and essential for others. you’ll wonder how your company will implement ideas discussed in a very strategic plan. The answer lies within the goals you would like for yourself and your company. You may choose to have a shorter plan or may plan to be more direct.

The primary point is that the plan should fit your needs and be modified as required. A basic plan can be covered during a few pages without the need for long descriptions or numerous graphs. The United

States Constitution isn’t a lengthy document and has survived more than 200 years. It is an honest example of a long-range plan that includes provisions for amendments.

The most important element in your plan is honesty. Of course, accuracy is sort of as important, but any inaccuracies are often corrected promptly if you review your strategic plan regularly. If your plan is not honest, perhaps because you considered readers’ wishes instead of reality, you may be following a faulty plan which will not meet your needs or achieve success.

Keep in mind the difference between strategy and tactics. Strategy defines overall philosophy; tactics encompass individual means of accomplishing goals. As each division or department fashions its own strategic plan after the company’s primary plan, the individual plans will include more tactics which will define how the individual units of divisions or departments will accomplish their goals. Everything then blends upward to the company goals.

If you’ll read and understand strategic plans, you’re able to prepare your own plan supported what you wish from your career. The exercise are helpful on a private level—it is difficult to pursue a successful career without an idea.

Management Styles

Some management techniques are effective; some are off from good. We present both types here for purposes of learning and comparison.

Management by Hiding (MBH)—As its name implies, the manager who practices this method believes problems will work themselves out if he can’t be found. He are going to be present to require credit for accomplishments of his staff but generally he lacks the power to face problems which will arise. You don’t want to practice MBH or work for a manager who does.

Ostrich Management—This is incredibly just like MBH. However, while the ostrich sticks his head within the sand and believes that he’s hiding, this manager keeps on the move, and while he doesn’t have

a secret topographic point that nobody knows about, he can not be pinned all the way down to answer questions or be faced with problems. He sticks his head within the sand along any a part of the beach when asked an issue he doesn’t want to, or lacks the nerve to, answer.

Absentee Management—The absentee manager is rarely available.

Many good managers are required to travel lots, but the absentee manager travels constantly. nobody knows why he travels, where he goes, how long he are away, or when he will return. he’s “out” in more ways than one.

Mushroom Management—This technique is predicated figuratively on the principles accustomed raise mushrooms: keep employees within the dark and throw manure on them.

Management by Objectives (MBO)—This could be a productive management technique. A manager and employee meet and agree on the objectives the worker should achieve during a certain period, usually a year. the most important problem associated with MBO is inflexibility, i.e., during the projected year, businesses, markets, and staffs change, but the objectives haven’t. MBO works all right when flexibility is incorporated via regular reviews to regulate the objectives to conditions inside and outside the corporate.

Management by good judgment and Nerve (MBCSN)—This principle not to mention getting out among customers and employees is the best variety of management. Essentially, this kind of manager does not sit at a desk behind a pile of computer printouts and spend days analyzing statistics. He talks to employees in the least levels, discusses situations and exchanges ideas with other managers, uses logic, and has the nerve to create the right decisions. This obviously is that the type of manager you wish to be and also the style of manager you would like to work for. this sort of manager will help an organization progress and meet its goals.

Common sense and nerve, combined confidently and a pleasing personality, have traditionally been the {most effective} and most effective traits for a manager. In fact, these four attributes support and strengthen each other. Confidence and customary sense cause a pleasing personality and equip a private with nerve. MBH and other ineffective techniques were discussed here to enable you to acknowledge and avoid them. Obviously, MBO and MBCSN are the styles recommended for any management level.

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