What are functional areas of management that have been used to explain and prepare managers for the various activities they get involved in?

Although the traditional business planning format does not strictly adhere to this approach, it can easily be adapted for research purposes. Our site has a business plan template that can act as a guideline. Another source for business planning tools and resources can be found at the Canada Business Network.

Researching and designing a business involves a thorough analysis of the business in these areas.

1. Strategy

This important area is, in a sense, the "brain" of your business operation. All potential business operators should create vision and mission statements so they understand what they want to do, why they want to do it and how they will do it.

Also, strategists should analyze the competitive landscape and markets to determine where the opportunity for the business lies, and how they will access that opportunity.

When forming a strategy, determine exactly in what market you will be operating, and then perform a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis on your main competitors and yourself. This will provide a good picture of where you fit in the competitive landscape. This will also help you determine your market access strategy, which involves positioning, differentiating from competitors and branding.

2. Marketing

Since marketing and sales will generate revenue, planners should also thoroughly understand their potential customers and determine how they will reach them. Most new business operators mistakenly use an "inside-out" approach to marketing in that they plan their product or service first and then look for some way to sell it to a vaguely defined group that is "out there."

However this "build it and they will come" approach usually results in much wasted effort, fierce competition from others who have the same idea and, often, failure. Before designing a product or service, business operators should study the market and assess the needs of customers. Find underserved areas. Then shape the marketing of the product or service, and sometimes the product or service itself, to answer those needs.

3. Finance

Most business plans concentrate on this area because they need loans or investment, as well as for forecasting and budgeting purposes. Since money is the blood that keeps a business alive, a business operator should always know how healthy he or she is financially. This requires a realistic prediction of cash flow, even though it can be difficult to forecast the future. To do so, a planner should form an expenditure budget and then a picture of potential revenue. Much of this information can be found by studying similar businesses and adapting their information to the new business.

4. Human resources

A common mistake planners make is to stop at the financial aspect of hiring staff. Of equal concern should be the ability to hire, and whether those hired fit the roles for which they are chosen. For example, some industries are facing acute labour shortages. Therefore the planner may have to understand what attracts workers, and offer them what they want. Today, managers must treat employees like customers, with the same understanding of what motivates their behaviour.

5. Technology and equipment

This involves not only equipment needed to operate the business, but such concerns as communications technology for marketing and sales purposes, or transportation requirements. Understand your needs and balance them with budget demands. Also, the planner may have to be creative when managing technology and equipment. For example, some equipment may be expensive and sit idle most of the time. The planner should then consider renting it as needed, or subcontracting that aspect of production to another company that has that equipment.

6. Operations

In most businesses, this not only involves equipment, but processes. Essentially, business operations are those that create and deliver the products or services to customers. In most start-up situations the business owner performs many roles, including operations. In fact, a familiarity with operations is often why most people start businesses.

In most new businesses, the owner is also the person who performs the operation. But there is a danger in this: The operator must always remember that he or she is managing a business, not working in a job. So management of all aspects of the business should carry equal weight with actual performance of the service or manufacturing of the product. It can be argued that this is also a very common reason for business failure: The operator is more comfortable "doing" and so ignores other important aspects of management.

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Learning Outcomes

• Explain the primary functions of management.
• Differentiate between the planning, organizing, leading, and controlling functions of management.

We have defined management as a process to achieve organizational goals. A process is a set of activities that are ongoing and interrelated. Ongoing means that the activities are not done in a linear, step-by-step fashion where responsibility is passed from one activity to the next. Instead, the activities are continued as new activities are started. Interrelated means that the results of each activity influence the other activities and tasks. It is the responsibility of management to see that essential activities are done efficiently (in the best possible way) and effectively (doing the right thing).

The management process consists of four primary functions that managers must perform: planning, organizing, leading, and controlling. It is important to realize that the management process is not always linear. It does not always start with planning and continue through each step until organizational goals are achieved because it is not possible to plan for every problem the organization will face. As the management process proceeds, changes and modifications are made when unforeseen events arise. Managers make sure the necessary changes are implemented and that the unity and integrity of the entire process is maintained.

The key functions in the management process are connected, but not always linear.

Planning

Planning means defining performance goals for the organization and determining what actions and resources are needed to achieve the goals. Through planning, management defines what the future of the organization should be and how to get there. Strategic plans are long-term and affect the entire organization. A strategic plan bridges the gap between what an organization is and what it will become. Tactical plans translate strategic plans into specific actions that need to be implemented by departments throughout the organization. The tactical plan defines what has to be done, who will do it, and the resources needed to do it.

For instance, recall the example used at the beginning of this module. It described how ThyssenKrupp AG decided to become an elevator manufacturing and servicing company because of increased competition from Chinese steel. The management of the company set a goal of deriving the majority of its revenue from elevator-related activities. To do this, the management team made plans to create partnerships or take over existing elevator companies. The team devised plans to develop new human resources and to acquire other material resources. The company also had to divest existing steel-related resources to raise capital for the new initiative. This example is a long-term strategic plan that will take years to complete and require many changes along the way. But it starts by defining a goal and a preliminary path to achieve it.

Organizing

Once plans are made, decisions must be made about how to best implement the plans. The organizing function involves deciding how the organization will be structured (by departments, matrix teams, job responsibilities, etc.). Organizing involves assigning authority and responsibility to various departments, allocating resources across the organization, and defining how the activities of groups and individuals will be coordinated.

In the case of ThyssenKrupp AG, the management had to determine how to support two very different sets of activities if it were to achieve its long-term goal. Management needed to continue steel production activities to provide continuity of funds as the emphasis gradually shifted to elevator production. It also had to develop new skills and resources to build the company’s elevator capabilities. A new organizational structure was needed that could support both business activities as one was downsized and the other built up.

Leading

Nearly everything that is accomplished in an organization is done by people. The best planning and organizing will not be effective if the people in the organization are not willing to support the plan. Leaders use knowledge, character, and charisma to generate enthusiasm and inspire effort to achieve goals. Managers must also lead by communicating goals throughout the organization, by building commitment to a common vision, by creating shared values and culture, and by encouraging high performance. Managers can use the power of reward and punishment to make people support plans and goals. Leaders inspire people to support plans, creating belief and commitment. Leadership and management skills are not the same, but they can and do appear in the most effective people.

It is very difficult to motivate people when plans involve radical change, particularly if they include downsizing and layoffs. Many people are naturally resistant to change. When the change means loss of jobs or status, people will be very resistant. At ThyssenKrupp, the labor unions vehemently opposed the shift from steel production to elevator manufacturing. Although the people involved in the new business functions were excited by the plans, people involved with steel production felt abandoned and demotivated. Management would have been wise to get union support for its vision of the company’s new future.

Controlling

There is a well-known military saying that says no battle plan survives contact with the enemy. This implies that planning is necessary for making preparations, but when it’s time to implement the plan, everything will not go as planned. Unexpected things will happen. Observing and responding to what actually happens is called controlling. Controlling is the process of monitoring activities, measuring performance, comparing results to objectives, and making modifications and corrections when needed. This is often described as a feedback loop, as shown in the illustration of a product design feedback loop.

Product design feedback loop

Controlling may be the most important of the four management functions. It provides the information that keeps the corporate goal on track. By controlling their organizations, managers keep informed of what is happening; what is working and what isn’t; and what needs to be continued, improved, or changed. ThyssenKrupp had little experience in elevator manufacturing when it was making plans. It was developing new products and processes and entering new markets. The management knew it could not anticipate all the difficulties it would encounter. Close monitoring as the plan progressed allowed the company to make changes and state-of-the-art innovations that have resulted in a very successful transition.

Watch the following video for an overview of the management process and a simple example of how the management functions work together.

Who Directs Each Function?

Although these functions have been introduced in a particular order, it should be apparent that the different activities happen at the same time in any one organization. The control function ensures that new plans must be created. Leaders often step up as needed when a crisis or unexpected bump demands immediate action. All managers perform all of these functions at different times, although a manager’s position or level in the organization will affect how much of his or her time is spent planning as opposed to leading or to controlling. We will look more closely at different types of managers in the next section.