OVERVIEW OF

ORGANIZATION AND MANAGEMENT

Just as each of us has one body with many members,

and these members do not all have the same function,
so in Christ we who are many form one body,
and each member belongs to all the others.
Romans 12:4-5 (NIV)

Each one should use whatever gift he has received to serve others,
faithfully administering God's grace in its various forms.
1 Peter 4:10 (NIV)

At the end of this chapter, you should be able to:

1. Define and describe the nature and purpose of organizations.

2. Define and describe the nature and purpose of management.
3. Identify the functional areas of management in organizations and discuss their
respective roles as well as their interdependency.

ORGANIZATION: ITS NATURE AND PURPOSE

An organization is a group of people working together to achieve common objectives. This basic
definition implies that at least four conditions must exist to have an organization:

1. There must be a group of people – two or more individuals;

2. These individuals must have common objectives; i.e., they all agree on at least one objective
that is worth pursuing and achieving;
3. Each member of the group works to the best that he or she can to contribute towards the
achievement of their shared objectives; and
4. The group members work together; i.e., all of their efforts are interrelated and coordinated,
all aimed at the achievement of their common objectives.

All of these conditions must be present for an organization to exist. If only one or two or
even three, but not all, of these conditions exist, the organization, in its truest sense, does not exist.

THE PURPOSE OF ORGANIZATIONS

Organizations exist primarily to serve and satisfy needs. The basic purpose of organizations is to
satisfy the needs, wants, and demands of individuals and other organizations. And it is in the
process of satisfying others’ needs that the organization is able to satisfy its own needs.

From the point of view of an organization, the individuals and other organizations whose
needs it intends to satisfy are its customers. Although, customers’ needs vary, these can be satisfied
either by goods or services, or both. These goods or services are the products or outputs of
organizations. But organizations cannot just come up with products from nothing. They need
inputs or resources to produce outputs of goods and services. These inputs include human
resources, financial resources, materials and equipment, technology, time, and information. Most of
these resources, in turn, come from outside the organization, from individuals and other
organizations – the organization’s suppliers– its partners in its quest to satisfy customer needs.

Throughout the whole process of satisfying customer needs – from the acquisition of
resources, to the conversion of these resources into products, to the distribution of these products
to customers – there must be valued-added; i.e., the value of the outputs must exceed the value of
the inputs. Organizations should strive to achieve appropriate objectives using the least amount of
resources or to accomplish as much as possible with available resources. In effect, the organization
will be profitable, viable, and sustainable – capable of continually pursuing its purpose. Thus, it is
by effectively and efficiently satisfying others’ needs first that the organization and its members are
able, in turn, to satisfy their corporate and individual needs. Figure 1-1 illustrates this concept.

Figure 1-1. Organizations exist to satisfy needs.

Value-added

PRODUCTS

Manpower
Money Services Wants
Materials Demands
Machines
Methods
Moment
Information

Profit

MANAGEMENT: ITS NATURE AND PURPOSE

Management is the process of working with resources by performing the functions of planning,
organizing, staffing, leading, and controlling to create a positive environment where people can
harmoniously work together to effectively and efficiently achieve organizational objectives in an ever
changing environment. This definition needs to be expanded further:

1. Management is a process – it consists of a series of actions, changes, and functions

designed to bring about desired results.
2. Management involves working with resources – the 6Ms: manpower, money, materials,
machines, methods, moment (time), and information.
3. The management process involves performing the managerial functions of planning,
organizing, staffing, leading, and controlling.
4. The purpose of management is basically two-fold:
a) Promote harmonious working together in the organization; thus, the need for managers
to have a systems-perspective and to be relationship-oriented; and, at the same time,
b) Pursue the achievement of organizational objectives; thus, the need for managers to be
results-oriented.
5. It is not enough that the organization achieves objectives; managers must see to it that
these objectives are achieved effectively and efficiently.
6. Managers – the people in the organization who are responsible for the management process
– need to be continually aware that the organization exists as a part of an environment that
is constantly changing; thus, the need for organizations to be continually adaptive
organisms.

THE FUNCTIONAL AREAS OF MANAGEMENT IN ORGANIZATIONS

An organization may be considered as a system – a whole unit composed of interacting,
interconnected, and interdependent elements or parts. These parts, which perform distinct but
interrelated functions, are the functional areas of management in an organization.

To clarify: the term management functions refer to planning, organizing, staffing, leading,
and controlling; while the term functional areas of management would refer both to the major
functional areas (marketing, finance, and production/operations) and the minor functional areas
(personnel or human resource management, purchasing, maintenance, industrial engineering,
accounting, management information systems, distribution, public relations, and so on).

The Major Functional Areas Of Management

The three major functional areas of management are marketing, finance, and production/operations.
As parts of a system, they are interrelated and interdependent. Although each of them has its
respective roles to play and decisions to make in the organization, there are certain areas where the
formulation and implementation of these decisions overlap. A decision made and implemented in
one functional area may affect not only that part, but the other parts and the whole organization as
well.

The diagram below illustrates the concept just described. Three overlapping circles
represent the three major functional areas. The area bounded by each circle shows that each
functional area has a distinct set of decisions to make and implement. The overlaps indicate that
there are certain decision areas that these three functions are jointly responsible for and therefore,
need to work together. To put this illustration in the proper perspective, imagine it to be a zoom-in
view of the box at the center of Figure 1.1 – the organization.

Figure 1-2. The Major Functional Areas in Organizations

ORGANIZATION

Production/
Operations

Finance Marketing

Marketing is the functional area that is responsible for making the decisions related to the
5 Ps – people (customers or target market), product (goods/services), promotion, place (distribution)
and pricing. Following are some of the basic questions involved in each of the abovementioned
decision areas:

People – who are our customers?

– what are their needs, wants, and demands?
– how would they want their needs, wants and demands satisfied?

Product – what goods or services would satisfy the needs, wants, and demands of our
customers?
– what features should these goods or services have?

Promotion – how do we make our customers aware of the existence of our products?
– how do we attract their attention to our products?
– how do we arouse their desire to avail of our products?

Place – how do we make our products readily accessible to our customers?

– how do we make it easy for our customers to avail of our products?

Price – how do we price our products?

– how much do we charge for the products that our customers avail of?
Finance is the functional area that is responsible for making the decisions related to the
acquisition and allocation of financial resources. Financing decisions – those concerned with the
acquisition of financial resources – would basically involve the question: Where would our financial
resources come from? How do we raise our money? Sources of financial resources could be capital
or equity (the amount invested by the owners of the organization plus retained earnings, if any);
loans or debt; and selling of assets (such as inventories of finished goods, or non-performing fixed
assets, and so on).

Investment decisions – those concerned with the allocation of financial resources – would
primarily involve the question: Where would our financial resources go or how do we spend our
funds? How do we distribute our financial resources among the various parts of the organization or
among its various ventures, projects, or operations? This function would involve performing
activities such as economic analysis of investment alternatives, capital budgeting, and actual
provision of funds.

Production/operations is the functional area that is directly responsible for making the
decisions related to the creation of goods or provision of services. It is the part of the organization
that is directly involved in transforming inputs (resources: 6Ms + information) into outputs
(goods/services) through a transformation or conversion process. Shown below is the input-
process-output diagram of the production/ operations system.

Figure 1-3. The Production/Operations System

RESOURCES PRODUCTS

INPUTS PROCESS OUTPUTS

Manpower
Money Services
Materials
Machines
Methods
Moment
Information

The Minor Functional Areas Of Management

The minor functional areas of management in organizations include, among others: personnel or
human resource management, purchasing, maintenance, industrial engineering, accounting,
management information systems, distribution, and public relations.

Personnel or human resource management is responsible for the manpower resources of

the organization. Its responsibility involves assisting other departments in manpower needs
analysis, recruitment, selection, placement, training and development, promotion, and separation.
Other human resource concerns include: labor relations, wage and salary administration, and
health and safety.

Purchasing is responsible for providing the organization’s machine and material

resources. Its responsibility involves evaluating and selecting suppliers; actual purchasing of
materials, supplies and equipment; and receiving, inspecting and conducting value analysis on
purchased items.

Maintenance is responsible for keeping the organization’s equipment and facilities in proper
working condition. Its responsibility may also involve waste management and security.

Industrial engineering is responsible for the work methods that enable the organization to
effectively and efficiently create the goods or provide the service. Its responsibility involves process
selection and design, facility layout, management of materials and energy, and integrating the
workers into the overall system.

Accounting is responsible for recording the business transactions of the organization as

well as preparing its financial statements – balance sheet, income statement, and cash flow
statement. These financial statements provide useful information in the decision making of the
organization’s managers for the productive performance of their respective functions.
Management information systems is responsible for gathering, processing, organizing,
and disseminating information so as to provide various levels of management within the
organization with accurate and timely information needed for supervising activities, tracking
progress, making decisions, and isolating and solving problems.
 Distribution is responsible for transporting the organization’s goods to warehouses,
wholesalers or retailers, or final customers.

Public relations is responsible for establishing and promoting a favorable relationship with
the public. Its responsibility involves building and maintaining a positive reputation for the
organization from the point of view of its publics or stakeholders – its customers, its employees, its
suppliers, its investors, the government, the community where it operates, and even its
competitors.

Once again, although these various functional areas of management have their respective
roles to play in the organization, they all are interconnected and interdependent. They must work
together for the organization to reach its full potential.

HOW THE FUNCTIONAL AREAS OF THE ORGANIZATION WORK TOGETHER

To better understand how a typical organization works and how its various parts work together, it
would be helpful to start with a basic premise: that the production/operations function is the core
function – the most essential part – of the organization. This premise is acceptable for at least two
reasons:

(1) Recall that the primary purpose of any organization is to satisfy needs and it is able to do so by
either creating goods or providing service, or both. Among the various functional areas, it is the
production/operations function that is directly involved with the creation of goods or provision
of service.

Without the production/operations function, the organization will not be able to accomplish its
purpose for existence. Comparing Figures 1.1 and 1.3 would actually bear this out. Notice that
the diagram for the P/O system is a replica or a miniature image of that of the organization.

(2) The second reason logically derives from the first. Being the core function, most of the
controllable assets of any organization are allocated to the production/operations function. A
random survey of organizations would reveal that most of their manpower, equipment,
materials, and facilities are assigned to the production/operations function – the functional
area directly responsible for creating the organization’s products or for providing its service to
customers.

This observation has two implications. First, if the organization is to be managed productively,
priority should be given to effective and efficient production/operations management. Second,
although finance, HRM, purchasing, maintenance, IE, MIS, and the other functions provide
resources and support to the various parts of the organization, P/O is their major internal
customer. Even marketing supports P/O with the needed information regarding the
organization’s external customers to better satisfy their needs.

Thus, if we look at the workings of an organization as if it were a play or a movie, the

production/operations function may be considered as performing the lead role, and the other
functions as the supporting cast. All parts are important, but the production/operations role is the
most essential.

Marketing’s role is to identify who the organization’s customers are (through market
segmentation and targeting) and to determine what the customers’ needs are and how these needs
would best be satisfied. However, although most concerns regarding customers and customer
relations are within the domain of marketing, decisions related to product or service design,
promotion, distribution, and pricing are better performed in coordination with at least P/O and
finance. Designing the organization’s product or service must consider not just the voice of the
customer, as expressed through marketing, but also the capability of the P/O system to create the
good or to provide the service, not to mention the organization’s financial capability.
Promoting the organization’s product would be better performed if marketing coordinates
with P/O as to the product’s distinctive features. Deciding on the product’s channel of distribution
would be better done if P/O informs marketing on certain product characteristics, such as
susceptibility to spoilage or breakage, the need for special technical assistance to end users, and so
on. Deciding on the price of the good or service would require that marketing, through accounting,
be informed of the production cost, as well as consider the informational input from finance.

Once an interfunctional team has jointly made the decision on the product/service design,
P/O will then create the good or provide the service. To be able to do so, it would need resources,
which the other functional areas would provide. Finance, HRM, purchasing, maintenance, IE,
accounting, MIS, and the other functions would provide money, manpower, materials, machines,
methods, and information, respectively. The distribution function, which in most cases is under
marketing, would then ensure that the product eventually reaches the organization’s target market.
Figure 1.4 illustrates the interdependence among these functions.

Figure 1-4. The functional areas are interdependent with P/O as the core function.

Finance
RESOURCES PRODUCTS CUSTOMERS
HRM Accounting

Money
Manpower Needs
Materials P/O Marketing Services Wants
Machines Purchasing
Demands
Methods
Moment
Information
IE Maintenance
MIS

DECISION AREAS IN PRODUCTION/OPERATIONS MANAGEMENT

Listed below are some of the major decision areas in production/operations management and the
primary concern addressed in each:

 Quality Management – how do we make sure that our products meet or exceed the
requirements of our customers?
 Forecasting – how many units of our products will be demanded by our customers or how
many customers may avail of our services in some future time?
 Product/Service Design – what products and product attributes would best satisfy our
customers?
 Process Selection and Design – what’s the most effective and efficient way to create our
products or provide our services?
 Capacity Planning – how large should our facility be; i.e., how many units of the product
should it be able to produce or how many customers should it be able to accommodate at
any given time?
 Facility Location – where do we locate our facility, near suppliers or near customers?
 Facility Layout – how do we arrange the various equipment, departments, and
workstations in our facility?
 Design of Work Systems – how do we make a good fit between our workers, their work, and
the work environment to maintain their motivation and productivity?
 Inventory Management – which of the inventory items should we prioritize and closely
monitor? How much of each should we stock? When do we order or make each item and
how much do we order?
 Scheduling – which worker, equipment, or workstation will perform which task, and when
or in what sequence?
 Maintenance – how do we maintain our equipment and facilities in good working condition?
 Project Management – how do we finish the project on time, at minimum cost, and
according to the requirements of the client who commissioned it?