What is Business Management and Business Management Plans?
Business management concerns planning, organizing, staffing, directing and controlling and management plans define and create management structures and organs. It is about the things that managers and employees do and the tools they use to run the business on a day-to-day basis. These functions of management are to varying degrees exercised at various levels of management in the business. A supervisor for example will do a lot of controlling and a bit of organizing as well. The main actors in business management are the owner or CEO and employees who make decisions and use organs such as office organization structure, facilities, systems, processes, policies, procedures, and manuals to exercise the functions of business management i.e. planning, organizing, staffing, directing and controlling. The purpose of these organs is to facilitate the effective and efficient performance of functions of business management. Effectively is about achieving desired results while efficiently is about achieving results using the least possible resources (cost-effectively). Before creating and describing management plans in the business planning process, it is first important to understand what managing a business entails. The sections that follow below explain what business management is all about.
Management and its Functions
Functions of Management
The main facets of business management are as follows:
Planning: This is about performing strategic planning, laying out short and long term goals and setting out tactical and operating plans. The plans identify what is to be done, why, by whom, where, when, and how. The mission, vision, values, goals, objectives, strategies, and actions geared to create something new, reform, or upgrade operations across all departments or the business as a whole come from this function.
Organizing: Organizing is about looking at the business plan and determining the activities that require carrying out, needed resources to achieve aims and how they will be achieved. This typically involves putting in a place an office organization structure, dividing the activities and assigning them to departments, units, teams, and individuals, and allocating resources for achieving those aims.
Staffing: This is about determining the needed number of employees to carry out the planned work of the organization and the knowledge, skills and experience required and how the performance management and compensation of employees.
Directing: This is about leading, guiding, coordinating, influencing, encouraging, appraising, and motivating employees and other stakeholders to achieve the goals set out in the strategic plan.
Controlling: Controlling is about monitoring, measuring, evaluating and correcting activities to keep the plans of the organization on track.
Decision-making: In the process of managing, leaders and managers have to make decisions on daily a basis in a structured and logical manner.
Levels of Management
The people who perform functions or tasks of business management include the board of directors if there is one, and the following cadres of employees:
Top management: This usually consists of the president, CEO, executive vice presidents, managing director, or some such titles. Main work for this is strategic thinking and planning.
Middle-level management: This consists of heads of departments such as marketing and sales, finance, HR, or positions like that. Main work for this is organizing, staffing and assigning work.
Lower level management: This consists of levels like supervisors, section heads, etc. Main work for this level is controlling.
Technical level: Technicians are the people who get things done in a business. These foot soldiers do the work.
Effective and efficient business management requires an office organization structure. Because of specialization and division of labour, the business requires organizing into departments according to the strategy and core business of the enterprise. The office structure is the positions’ establishment of the business and depicts the positions and reporting relationships and relative authorities from the board, CEO, and departmental managers to the lowest levels in form of a chart like the one in figure 1 below. Each department may have a structure like figure 1 with the head of the department taking the box of the CEO with boxes of his reportees below his box. For accountability and delineation of deliverables of each department and positions in each department, there should be a clear description of the functions of each department and job description for the positions in each department. The positions in the departments need staffing with people with knowledge, skills, experience and positive attitude to exercise management functions to produce and deliver goods to customers. Departments commonly found in most business organizations include:
This is the box below the board in the office organization structure and is responsible for the general administration or management of the whole business. All other positions below this position directly or indirectly report to this position. The owner in case of small business and a CEO in a large outfit is the head of business administration as depicted by the office organization structure in figure 1 below. He, with the help of senior managers and other levels of management, coordinate the planning, organizing, staffing, directing, and controlling everything that goes on in the business. The owner or the CEO is, in collaboration with the heads of departments and HR department, responsible for staffing departments and the people deployed in the departments do the planning, organizing, directing, and controlling across all the core functions of business namely strategic planning, marketing, operations, and financial management. The owner or the CEO together with the managers in the departments collectively administer the business using their time, facilities, tools, knowledge and skills to plan, organize, direct, control, decide and execute. All heads of departments can report to the CEO or related departments can be grouped under two or three general managers who report to the CEO. The owner or CEO should concentrate more on strategic thinking and business planning and leave the other functions of management and the day-to-day running of the business to managers and orchestrated systems.
The people in this role do strategic thinking, strategic planning, and business planning to conceive and put together creative ideas for implementing to create value for sale. The owner of a small business performs this role but in a large organization, each department can do their planning and organization in collaboration with finance department or any other department that coordinates strategic planning for the whole business.
Production or product creation
The people in this department create products, services, and ideas for delivery to customers. Typically, the role involves planning, designing, buying raw materials, and scheduling production, producing products, managing inventory, making sure products and services meet the required quality, and availing needed problem-solving products for delivery to the market.
Operations in business are actions, activities, and decisions that create, market, sell, and deliver the goods where customers want, the way they want, and when they want at a competitive price. Operations use facilities, equipment, premises, logistics, systems, computer software, policies, procedures, manuals, and people to perform the core functions of a business namely production, marketing, selling, customer service, financial management, and administration. Operations department can, therefore, be a support unit that develops, provides, manages, and maintains operating resources for all departments in collaborations with the departments. Alternatively, each department can have a mini-operations unit to develop and maintain facilities, systems and procedures that it needs to deliver its mandate. Procurement, transport, and security units often fall under the operations department.
This role is responsible for developing, implementing, providing, maintaining, securing, and promoting the application of technology in performing functions across the organization.
Marketing and sales
This role is responsible for finding, attracting, and retaining customers through strategic pricing, and promotional activities, and selling and delivering products using distribution/delivery channels such as wholesaling and retailing.
Finance and accounting
The finance function is concerned with obtaining money for funding the operations of the business and ensuring prudent and profitable deployment of funds and resources across the enterprise. It also entails recordkeeping/accounting, monitoring cash in and outflows, and measuring business financial performance in monetary terms, and reporting this information for decision-making.
Human Resources Department
The main role of this function is staffing all the departments of a business to ensure that the various departments have the right staff numbers with desired knowledge, skills, integrity and right attitude. The HR function also deals with staff communications, behaviour, motivation, labour laws and performance management, in a structured and formalized manner. HR department exercises these roles in collaboration with the other departments and the CEO or owner. In a small outfit, the owner with a few assistants exercises these functions.
Harmonization of Leadership, Managerial, and Technical Roles
A business needs all the above skills and the owner of a business should have all these skills in some proportions. Where the owner does not have all the required skills, he could hire competent people to provide the skills he does have. Better still, the owner should automate, mechanize, digitize, and systematize systems, processes and procedures in the business in such a way that the systems all work together with little human intervention. Above all, the systems can work with ordinary people’s skills. The aim should be for the owner to concentrate on strategic thinking and planning and leave the rest under the care of assistants and orchestrated systems.
Automation or digitization is creating a production or processing method where the equipment used in production or processing is controlled by computer software to perform tasks with very little or no human intervention. Mechanization, on the other hand, is creating a method where production or processing is performed by machines controlled by human beings as opposed to computer software. Systematization is the interlinking of things and activities using automation, digitization, mechanization, and written procedures or ideas in a way that all these systematized things interact and alter each and one another. To create and deliver products and services, the following systems are usually involved:
- Production, manufacturing, raw materials and finished inventory management and processing systems.
- Input, output, delivery, and other operations systems and processes.
- Customer inquiry, order, and payment processing systems.
- Marketing and promotions systems, processes and procedures.
- Salespeople-customer interaction systems and procedures.
- Information and data gathering, analysis, reporting, and control systems.
- Policies, procedures, and manuals that people use to perform their tasks.
- HR code of conduct and interactions with customers and stakeholders.
The aim should be to automate, digitize, mechanize and systematize all these processes and procedures as far as possible. Any process that cannot be automated for one reason or another, for example, lack of resources, should have written step by step procedures (manual) showing how the task is performed. The steps should be so clear that anyone can follow and do the job as well with very little or no coaching. Systematized processes compensate for lack of managerial and technical skills in the business and allow the owner of the business free time to keep thinking about what needs improving in the business without losing control of the business. The control processes and reports that allow the owner of the business to regularly monitor and evaluate the performance of the business e.g. the dashboard and management reports should be automated or written and documented in such a way that the systems or the people automatically generate them for the consumption of the owner.
The main benefits of automation or the use of technology in general include:
- Savings on labour, energy, time, and materials.
- It improves quality, consistency, accuracy and precision.
- It improves effectiveness and efficiency in customer interactions.
- Reduces or eliminates discretion and errors of omission and commission.
- It also aids in decision making and communication by availing data and information almost instantaneously in ready to use formats.
- Reduces the need for close supervision and allows for effective delegation. People’s performance can be affected by many factors including moods, misunderstandings, or sheer incompetence. Systems can eliminate these.
With a system-based process, the proprietor can delegate and does not have to do everything without affecting performance or losing control. As a result, the owner can be a true owner rather than a slave of the business. He or she can use some of the free time to do what they want including going on a holiday.
Automation does not just happen. You can only automate processes that have been broken down into simple logical and sequential steps of performing a task. Without these, systematization is not possible. To come up with steps of performing a task, you have to keep analyzing your processes, walking through and testing them until they deliver the same result each time. Once they do, you automate or systematize them and train the people who will use them. This is the work of the owner and it is an ongoing process because things are ever-changing. The owner of the business must do this at the start of the business and regularly as things change. Successful franchise businesses like Macdonald’s or Starbucks operate on these principles.
The Areas that require Management Plans
Having understood what management is about, you can now make management plans with knowledge of what needs planning for. The management plans section of a business plan captures the following aspects:
- Ownership Structure.
- Internal Management Resources.
- Human Resources
- External Management Resources.
The ownership structure is about the legal format of the business such as sole proprietorship, partnership or a corporation. Unlike a partnership of or a corporation, a sole proprietorship does not require much formalities and documentation. For a partnership, you have to draw up partnership deed and spell out the rights, obligations, and shareholding of each partner as well as the management arrangements of the partnership. If it is a corporation, you will need to define the Memorandum and Articles of Association. When making management plans, you need to think carefully about the advantages and disadvantages of each format and chose the one that suits your plans.
In a public limited liability company (a company that has sold shares to the public), shareholders can be hundreds to thousands. If a shareholder or a group of shareholders own 50% plus 1 share of a company, it has the right to dominate decision making in the company but minority shareholders have rights too. In a partnership, the two or money partners are the shareholders each owning shares and taking part in the management of the business according to the type of partnership and the provisions of their partnership deed. In a sole proprietorship, the proprietor is the sole shareholder and accountable to himself or herself and in a partnership, the partners are the owners and accountable to themselves. In a private company, shareholders can be one or more people, usually three to ten. All or some shareholders in a private company can be board members.
Internal Management Resources
When making management plans of the business plan, there is a need to consider the need for the following resources and plan accordingly:
- Board of directors or an advisory board.
- Audit Committee of the board.
- CEO and other cadres of managers.
- Internal audit.
- Standing committees.
To facilitate understanding of what could need planning, below is a brief rundown of internal resources that may require planning for in a business:
Board of Directors
This is a common feature in corporations, particularly public limited companies (plc) and is a requirement of the company or business laws. They are there to represent the shareholders as shareholders cannot run their own company in a public limited company. A board consists of five to eight independent and qualified people usually of diverse professional backgrounds appointed by the shareholders of the business. They are not full-time employees and do not have a direct day to day role in the business. However, they exercise their oversight role through regular board meetings and in this process, the board holds management to account, guide senior management on overall policy matters and make decisions on major issues affecting the business. A board can be both an internal and external resource it can consist of a mixture of independent members and some senior internal executive staff members.
In a private company, shareholders can appoint themselves as board members. Board members have rights and obligations provided by the law. Sole proprietorships and partnerships need not have a board but they can have an informal advisory board. Apart from any informal oversight they provide, such an advisory board can also be a good source of advice and a sounding board for bouncing ideas.
Chief Executive Officer
This is the person who has the overall responsibility of the company and is a full-time employee with a salary and benefits. He or she runs the business and takes decisions on a day to day basis with the help of senior managers and employees of the business. He plans, organizes, carries out staffing, directs, and controls the business under the overall guidance of the board. The CEO is usually accountable to the board and he or she is also a non-voting member of the board and maybe the chairperson of the board in some corporations. Public corporations are required by law to appoint a CEO. And all levels of managers and employees below the CEO are accountable to the CEO.
In a sole proprietorship, the owner is the CEO and in a partnership, one of the partners may perform this role on a rotational basis. In a private company of one or two directors, the sole director or one of the directors is usually the CEO with the other director performing some other equally important role like being the board chairperson.
Audit Committee of the Board
The audit committee is one of the committees that the board could form. The board could form other committees such as finance and human resource committee, credit committee, risk, and compliance committee. The main purpose of a board committee is to on a regular or ad hoc basis assist the board to distil certain matters on behalf of the board and make recommendations that the full board can then deliberate and decide on. As a matter of good governance, the internal auditor functionally reports to the audit committee and administratively to the CEO. The audit committee or any board committee consists of three to five members of the board and the CEO attends the audit committee meetings by invitation but is a member on his right of the other committee. The chairman of the board is usually not a member of any committee but can attend any by invitation. The audit committee of the board may be a regulatory requirement in some jurisdictions.
Internal audit function consists of employees of the organization who administratively report to the CEO but functionally report to the Audit Committee of the Board and the Full Board. This reporting arrangement is to ensure independence and give the function teeth to perform their duties without interference or intimidation by the CEO. Internal auditors focus is essentially internal support to assure owners and or management that operating systems, policies, procedures and controls in place are adequate, effective and efficient and that they minimize the occurrence of risks that may negatively impact operations, profitability, regulations, and reputation of the organization. They also confirm that these policies, rules, procedures, and laws are being complied with.
Because of the need for specialization and division of labour, the business should be organized into departments according to the core business of the enterprise. The structure of the organization and the names of the departments usually reflect the business’s strategy and operations. A well-defined structure is derived and should follow the strategy and vision of the business and should change every time strategy changes. This is because the structure is normally designed to deliver a chosen vision and strategy. Departments commonly found in most organizations include sales and marketing (for, as the name implies, marketing, advertising, selling and customer service activities); manufacturing or production (for manufacturing and producing goods); operations (for administrative logistics around mobilization of operating and processing resources and delivery of products and services to customers); procurement (purchasing of internal business input requirements); human resources (for management of employees); finance (for accounting, financial planning/budgeting, investments, cash management, and payments); information and communication technology (for hardware and software systems/Apps, network, data, and information management) internal audit (for internal audit functions and external audit coordination).
In the case of a small outfit, not all these departments need to exist. Some can be combined and split later when the need arises. In fact, in a sole proprietorship, all these roles are performed by the owner and a few assistants. Where there is a need for such departments to exist, the roles should be filled with the right people who are knowledgeable and qualified in the subjects for effectiveness and better performance. Apart from being knowledgeable in the subject matter, the right people are also intelligent, energetic, honest, and passionate and have a positive attitude about things generally. Within every department, one should have a mix of people that are visionary, organizers and doers because every work requires a vision bearer, an organizer to ensure that everything is in its place and moving according to plan and doers to implement plans.
For accountability and delineation of deliverables of each department, there should be a clear description of the functions of each department and the roles or positions in each department. The holder of each position must sing a position contract summarizing the outputs to be delivered, the work that the position is responsible for and the standards against which the outputs will be evaluated. This means each role or position in the office organization structure should have job specification (qualifications required), job description (responsibilities of the position) work station, salary structure and benefits and who the position is answerable to. The performance measures or indicators that will be used to periodically evaluate the performance of each position should be stated clearly. A formal office structure may look like the one in figure 1 below.
Figure 1: Office organization chart
In a large business, there may be a need for standing committees. Committees normally consist of three to five members drawn from senior managers of the business or any other employees with the necessary expertise or relevance to the business assigned to the committee. There can be one standing committee for all purposes or several standing committees for various specific purposes. Ad hoc committees can also be set up as necessary. Heads of departments are normally the natural pool for committee members but any employee with relevant knowledge, skills and experience can be co-opted. The main purpose of a committee is to assist the CEO to brainstorm, digest, deliberate, and sieve issues and make recommendations for decision making by the CEO and the board.
Employees are the ones that run the business in most cases and businesses can rise or fail on the quality of employees it has hired. Owing to this, special attention should be paid to the following aspects of employee management:
Hiring is guided by planned requirements derived from the needs of the business. The right people should be hired and given job descriptions that spell out the title; expected knowledge, skills, and experience that they should have; main responsibilities; work station; salary structure and benefits and who the employee is answerable to. The right people have the right knowledge, skills, experience, positive attitude, intelligence, passion, ambition, energy, compassion, and innate self-starter and motivation. If you find that you have to coerce someone to learn or you have to closely supervise to deliver, you have the wrong guy for an employee and you are far better parting ways right away. You want to hire people who are enthusiastic to play your game and not the ones merely looking for a job.
b) Job descriptions
Make sure that the employees know what their duties and deliverables are. This is covered in the Job Description (JD). The JD outlines the responsibilities of each position (employee). Within the JD, there should be targets that each employee is supposed to achieve in a given time. Where possible and applicable, the targets should be clear, unambiguous and SMART-specific, measurable, attainable, relevant and time-bound. The JD should be supported by an operating manual that not only explains what to but also how to do it and why it is being done in the manner it is done. The “what” and “why” are covered in the JD and the “how” is covered in the operating manual.
c) Operating manuals
It is not useful to set duties without some idea of how the duties are performed. One of the key operating manuals is a customer service manual that explains how employees should handle customers. Operating manuals spell out the steps of performing a task from start to finish. This helps to standardize tasks, eliminate misunderstandings, and make it possible for tasks to be systematized and performance of tasks by anyone with ordinary skills.
The training needs analysis should be carried out to identify gaps of employees and each employee should be trained to acquire knowledge, skills, positive attitude, and customer service skills.
e) HR Policies
Employees are a major and often a sensitive resource that requires a formalized way of handling them and HR policies is a neat way of dealing with this. HR policies, procedures, rules, and regulations are principles and guidelines formulated or adopted by an organization to guide and influence the conduct of its employees to reach its long-term goals in an organized, effective and efficient manner. HR policies tend to cover a wide area and usually include employee benefits and terms and conditions of service, rights and obligations, working hours, absence management, dress code, code of conduct, performance management, staff training and development, promotions, official travel, official communications, transfer, disciplinary process, grievance handling, sexual harassment, health and safety, staff welfare, substance abuse, ethics, separation, etc.
Motivation is an internal force that steers an individual’s behaviour towards work or a goal. Some people are self-motivated and many need and external influence. It is an acknowledged fact that for higher productivity, most people naturally need motivation. There are several theories about how to motivate people that include:
- Frederick Hertzberg’s hygiene and motivating factors: Hertzberg isolated achievement, recognition, involvement, responsibility, advancement and job content as motivating factors which if they are absent, people may be unmotivated. He also identified the presence of company policy, supervision, administration, salary, working conditions and good interpersonal relations as hygiene factors. He argued that the absence of these may cause dissatisfaction but their presence alone may not bring about motivation.
- Abraham Maslow’s Hierarchy of Needs: Maslow’s theory arranges a person’s needs in a hierarchy including psychological needs (water, food, shelter, and clothing), security needs (measures that protect one from physical harm), social needs (need for love, companionship, and friendship), esteem needs (self-respect and respect by others), and need for self-actualization (being the best you can be or maximum potential). Psychological needs are at the bottom while self-actualization needs are at the top of the hierarchy. The theory argues that once one lower need is satisfied, a person begins to yearn for the next level’s need until that person reaches the top need. So a need remains a potential motivator until it is fully satisfied.
- Macgregor’s Theory X and Y: Theory X assumes that an average person dislikes work, most workers must be coerced to work, and that average worker prefers to be directed and avoids responsibility. Theory Y, on the other hand, assumes that workers like to work and that under proper conditions, employees will seek work and responsibility to satisfy social and social actualization needs. That work is as natural as play, employees will exercise discipline to achieve objectives they have committed to, employees seek responsibility and use their talents to solve work problems, provided they are allowed to use the talents.
- William Ouchi’s Theory Z: This theory stresses the involvement and participation of employees in all aspects of the business’s decision-making process. This is where terms such as quality circles, participative management, employee involvement, etc come from.
- David Callahan’s equity theory: This assumes that how much people are willing to contribute to a business depends on their assessment of the fairness, or equity of the rewards they will receive in exchange.
- Victor Vroom’s expectancy theory: This theory assumes that motivation depends not only on how much a person wants something but also how likely he or she is to get.
In reality, people respond to a broad variety of incentives other than just these bread and butter matters only. Factors such as job design, job rotation, job enlargement and enrichment, flexible schedules or flextime, and job sharing count a lot as well. The right people are usually self-motivated. Other nice to do things to motivate include working tools, opportunity to achieve, recognition, care, encouragement, clear expectations, a smart business plan that have their future in mind, transparency about the numbers and what counts in the business, two-way communication, respect, feedback, professional intimacy, concern for their families, involvement, verbal and written appreciation, thank you, friendliness and so on.
g) Regular performance appraisal and reward
People need feedback through regular performance appraisal and rewarding where it is deserved. Fair penalizing and termination is also necessary to encourage good performance. Aside from feedback, assessing performance forms a basis for how to reward or penalize employees. A full package of rewards may include fair basic pay, salary/wages raises, promotions, change of work station, improvement of physical conditions, amenities, flexible working hours, home working, pension scheme, health insurance, performance pay (bonus), career advancement opportunities, training and development, meaningful work, vision/mission/values, esprit décor, and low-cost staff loans. Bonus, in particular, should be meaningful and based on realistic but stretched targets. One of the factors that need racking also is turnover. Turnover is the rate at which employees leave the organization for whatever reason. If this rate is low, then it may indicate that the organization is succeeding in many ways and if it is high, it may point to problems that require addressing.
h) Diversity, Culture, and Values
Employees, and other stakeholders that a business deals with like customers and suppliers can be so diverse in terms of languages, ethnicities, races, nationalities, ages, gender, and abilities. This diversity comes with varied cultures and values with benefits such as varied talents in creativity and innovation but can also bring office conflicts. Culture and values are important aspects that shape the behaviour and productivity of employees. Culture is simply the way people think, feel and act and it is mainly shaped by religion, language and education. Understanding different cultures and making allowances for them goes a long way to smoothen working and business relationships.
i) Collective Bargaining Agreement (CBA)
This is a method that employers and labour unions (employee representatives) use to negotiate and reach an agreement over the employer-union relationship and employee terms of service and working conditions that will obtain over a period like two to three years. Understanding how this works and the various tactics that management and unions use to achieve their objectives is useful for HR managers.
j) Employment law
There are employment laws and regulations covering hiring and handling of staff which vary from country to country. Commons ones are laws like equal opportunity Acts, Disabilities Act, and OSHA (Occupational Safety and Health Act) requirements. Understanding employment law and regulations and creating structures to ensure compliance is also important in employee motivation and management. To get it right in this area, it is necessary to consult experts in this field in the country.
All these areas concerning employees need thinking and planning for them, where necessary.
External Management Resources
External management resources mainly consist of external auditors, service providers and vendors as follows:
External Auditor is usually an independent audit firm engaged by the organization once a year to perform an audit of the accounts of the business which audit usually takes a month or so. The external audit is mandatory for public liability companies and may also be required for tax purposes. The auditors are not employees of the business and are compensated by fees paid by the business. Their main work is to examine the accounts and issue a report and an opinion as to whether the financial statements prepared by the business reflect a fair and true view of the financial position of the business in a given period usually at the end one year of operation. The auditor also checks whether the accounts have been prepared following accounting principles and standards and if they comply with relevant laws and regulations in place. Besides, the external auditor also seeks to confirm that the financial statements have been prepared from and agree with the primary accounts of the business and that there are adequate internal controls and documentation that support the business’s transactions. Their report is usually directed to the owners of the business.
Service Providers and Vendors
These are external resources such as an advisory board, suppliers, contractors, vendors, accountants, bankers, advocates, business advisors and coaches, and external auditors who support the internal team. An advisory board is a set of people with diverse relevant backgrounds and skills who can act as a supportive sounding-board for the business. All of these resources are not necessary for all types of business but it is good to think about the need for them at the business planning stage. Failure to have them in place or on your side can sometimes be detrimental to the business. Reliable suppliers, for instance, are crucial to the success of any business venture. Business plans should identify these requirements in some detail.