Economics & Principles of

Management

Management
By
Objectives
 What is MBO?
• Management by objectives (MBO) is a
systematic and organized approach that allows
management to focus on achievable goals and
to attain the best possible results from
available resources. It aims to increase
organizational performance by aligning goals
and subordinate objectives throughout the
organization. Ideally, employees get strong
input to identify their objectives, time lines for
completion, etc. MBO includes ongoing
tracking and feedback in the process to reach
objectives.
 What is MBO?
• Management by Objectives (MBO) was first
outlined by Peter Drucker in 1954 in his book
'The Practice of Management'. In the 90s,
Peter Drucker himself decreased the
significance of this organization management
method, when he said: "It's just another tool.
It is not the great cure for management
inefficiency... Management by Objectives
works if you know the objectives, 90% of the
time you don't."
 Benefits of MBO
• Improvement of managing
• Clarification of Organisation
• Encouragement of Personal commitment
• Development of Effective control
 Benefits of MBO

• MBO programs continually emphasize what

should be done in an organization to achieve
organizational goals.
• MBO process secures employee commitment
to attaining organizational goals.
 Weakness of MBO
• The development of objectives can be time
consuming, leaving both managers and
employees less time in which to do their
actual work.
• The elaborate written goals, careful
communication of goals, and detailed
performance evaluation required in an MBO
program increase the volume of paperwork in
an organization.
 Weakness of MBO
• Failure to teach the philosophy of MBO
• Failure to give guidelines to goal setters
• Difficulty of setting goals
• Emphasis on short run goals
• Danger of Inflexibility
Economics & Principles of
Management

MANAGEMENT
BY
EXCEPTIONS
 Controlling as a Management
Function
• Controlling
– A process of monitoring performance and taking
action to ensure desired results.
– It sees to it that the right things happen, in the
right ways, and at the right time.
 Controlling as a Management
Function
• Controlling
– Done well, it ensures that the overall directions of
individuals and groups are consistent with short
and long range plans.
– It helps ensure that objectives and
accomplishments are consistent with one another
throughout an organization.
 Controlling as a Management
Function
• Controlling
– It helps maintain compliance with essential
organizational rules and policies.
 Controlling as a Management
Function
• Cybernetic Control System
– One that is self-contained in its performance
monitoring and correction capabilities.
(thermostat)
– The control process practiced in organizations is
not cybernetic, but it does follow similar
principles.
 The Control Process
• Establish objectives and standards.
• Measure actual performance.
• Compare results with objectives and
standards.
• Take necessary action.
 Measuring Actual Performance
• Measurements must be accurate enough to
spot deviations or variances between what
really occurs and what is most desired.

• Without measurement, effective control is not

possible.
Comparing Results with Objectives
and Standards
• The comparison of actual performance with desired
performance establishes the need for action.

• Ways of making such comparisons include:

– Historical / Relative / Engineering
– Benchmarking
 Taking Corrective Action
• Taking any action necessary to correct or
improve things.

• Management-by-Exception focuses
managerial attention on substantial
differences between actual and desired
performance.
Economics & Principles of
Management

SWOT ANALYSIS
 Strength
• Strength is the power and excellence with the
resources, skills and
• advantages in relation to the competitors. A strength
is a distinct technical
• superiority with best technical know-how, financial
resources and skill of the
• people in the organization, goodwill and image in the
market for the product and
• services, company’s access to best distribution
network, the discipline, morale,
• attitude and mannerisms of the employees at all
levels with a sense of belonging.
 Weakness
• Weakness is the incapability, limitation and
deficiency in resources such
• as technical, financial, manpower, skills, brand
image and distribution pattern. It
• refers to constraints or obstacles, which check
movement in a certain direction
• and may also inhibit an organization in gaining
a distinct competitive advantage.
 Opportunities
• Environmental opportunity is an alternative area for
company’s action in
• which the particular company would enjoy a competitive
advantage. An
• opportunity is a major favorable advantage to a company.
Proper analysis of the
• environment and identification of new market, new and
improved customer group
• with better product substitutes or supplier’s relationship
could represent
• opportunities for the company.
 Threat
• Environmental threat is the challenge posed by the
unavoidable trend or
• development that would lead, in the absence of purposeful
action to the erosion
• of the company’s position. Slow market growth, entry of
resourceful multinational
• companies, increase bargaining power of the buyers or sellers
because of a
• large number of options, quick rate of obsolescence due to
major technological
• change and adverse situation because of change of
government policy rules and
• regulation is disadvantageous to any company and may pose a
serious threat to
• business operation.
Economics & Principles of
Management

SUPPLY CHAIN
MANAGEMENT
 Supply Chain Management

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Supplier

Supplier Storage Mfg. Storage Dist. Retailer Customer

Supplier
 Supply Chain Management

Supplier

} Storage Service Customer

Supplier
 Introduction
A supply chain is a sequence of organizations –
their facilities, functions and activities - that are
involved in producing and delivering a product or
service
 Introduction
Supply chain management deals with linking the
organizations within the supply chain in order to
meet demand across the chain as efficiently as
possible
 Introduction
Supply chain management deals with linking the
organizations within the supply chain in order
to meet demand across the chain as efficiently
as possible.

In a supply chain, virtually all of the members

serve as both customers as well as suppliers.
 Importance of supply chain management
To gain efficiencies from procurement, distribution
and logistics

To make outsourcing more efficient

To reduce transportation costs of inventories

To meet competitive pressures from shorter

development times, more new products, and
demand for more customization
 Importance of supply chain management

To meet the challenge of globalization and

longer supply chains
To meet the new challenges from e-
commerce
To manage the complexities of supply chains
To manage the inventories needed across the
supply chain
Supply chain management difficult
Different organizations in the supply chain may have different,
conflicting objectives

Manufacturers: long run production, high quality, high productivity,

low production cost

Distributors: low inventory, reduced transportation costs, quick

replenishment capability

Customers: shorter order lead time, high in-stock inventory, large

variety of products, low prices

Supply chains are dynamic - they evolve and change over time
Supply chains and vertical integration

For any organization vertical integration involves either

taking on more of the supplier activities (backward) and/or
taking on more of the distribution activities (forward)
An example of backward vertical integration would be a
peanut butter manufacturer that decides to start growing
peanuts rather than buying peanuts from a supplier
An example of forward vertical integration would be a
peanut butter manufacturer that decides to start
marketing their peanut better directly to grocery stores
In supply chains, some of the supplying and some of the
distribution might be performed by the manufacturer
Supply chains and vertical integration
The significance of vertical integration in the supply chain is
that the activities that are performed by the manufacturer
are typically more easily managed than those which are
performed by other organizations
Therefore, the degree of vertical integration can have an
impact on the structure and relationships between
members of a supply chain
Economics & Principles of
Management

ACTIVITY
BASED
MANAGEMENT
 Activity-Based Management

The use of activity analysis to help

management make decisions

 Activity-Based Management
• Approach to management that aims to
maximize the value adding activities while
minimizing or eliminating non-value adding
activities. The overall objective of ABM is to
improve efficiencies and effectiveness of an
organization in securing its markets. It draws
on activity based-costing (ABC) as its major
source of information and focuses on (1)
reducing costs, (2) creating performance
measures, (3) improving cash flow and quality
and, (4) producing enhanced value products.
Keys to Successfully Implementing
ABM
1. Organizational Culture

2. Top-Management Commitment

3. Change Champion

4. Change Process

5. Continuing Education
Economics & Principles of
Management

ENTREPRENUER
RESOURCE
PLANNING
 Definition
A cross-functional enterprise system

driven by an integrated suite of

software modules that supports the

basic internal business processes of a

company (or Transactional Backbone)

 Detailed Definition

A business strategy and set of industry-domain-

specific applications that build customer and
shareholder communities value network system
by enabling and optimizing enterprise and inter-
enterprise collaborative operational and
financial processes”
ERP Application Componentts
 ERP Benefits
Quality and Efficiency

Decreased Costs

Decision Support

Enterprise Agility

Security (Firewall & VPN)

 Causes of ERP Faillures
Business mangers and IT professionals
underestimate the complexity of the
planning, development, and training needed
Failure to involve affected employees in the
planning and development phases
Trying to do too much too fast in the
conversion process
Failure to do enough data conversion and
Testing
 Implement an ERP System
To support business goals
Integrated, on-line, secure, self-service processes for
business
Eliminate costly mainframe/fragmented technologies
Improved Integration of Systems and Processes
Lower Costs
Empower Employees
Enable Partners, Customers and Suppliers
 Implement an ERP System
Obtain the right mix of people, processes and

technology
 Requirement for
implementation ERP Systems
People
Project Structure
Should be aligned to processes
Process
Implementation Process (outlined in detail)
Adapt your processes to those of the ERP.
Technology
Hardware
Software
Integrated Systems
Economics & Principles of
Management

STRATEGIC
MANAGEMENT
 Why Strategic Management?

Strategic management provides the route map for the firm. It

lends a framework, which can ensure that decisions
concerning the future are taken in asystematic and purposeful
way. Strategic management also serves as a hedge against
uncertainty, a hedge against totally unexpected developments
on the business horizon. It lends a frame of reference for
investment decisions. It aids the concentration of resources
on vital areas of best potential. It offers a methodology by
which the firm could anticipate and project the future and be
internally equipped to face it. It helps to develop processes,
systems, mechanisms and managerial attitude that are
essential for this purpose
 Defining Strategy
Chandler defined strategy as: "The determination of the basic
long term
goals and objectives of an enterprise and the adoption of the
courses of action and the allocation of resources necessary for
carrying out this goals".

Andrews defined strategy as: "The pattern of objectives,

purposes, goals
and the major policies and plans for achieving these goals
stated in such a way so as to define what business the
company is in or is to be and the kind of the company it is or it
is to be".
 Hierarchy of strategy

Corporate strategy

Business strategy

Functional strategy
 Levels Of Strategy
Corporate level

Business level

Functional level
 Corporate strategy
Corporate strategy is one, which decides what
business the organization should be in, and how
the overall group of activities should be
structured and managed. Porter has described
it as the overall plan for a diversified business.
The strategies are then evolved for each
strategic business unit and strategic
business area.
 Strategic business unit
As the number and diversity of products
increases the structure is likely to
be centered upon division called Strategic
Business Unit (SBU). SBU are
responsible individually for developing,
manufacturing and marketing their own
product or group of products
 Functional Strategy
Strategy that is related to each functional area
of business such as production, marketing and
personnel is called functional strategy. It is
Designed and managed in a coordinated way so
that they interrelate with each other and at
the same time collectively allow the competitive
strategy to be implementedproperly.