Impact of Management on Organizations - Term Paper Example

?Running Head: Impact of Management on Organizations Impact of Management on Organizations [Institute’s Outline Introduction Brief description of what will be in the paper Discussion Planning Definition & discussion of planning component of management while using the example of Whirlpool to indicate impact of planning on the organization Strategic Management Importance of strategic component of management Organizing Discussion of organizing component while using the example of Whirlpool & few other companies Leading Definition & discussion of leading component of management while using the example of Ricardo Semler as a leader Controlling Definition & discussion of controlling component of management with the example of Whirlpool Managing Change Discussion of the importance of managing change in the organization Ethical Management Importance of ethical management in the organization with examples of different organizations Conclusion Summary & conclusive statements References Table of Contents Abstract 4 Introduction 5 Body/Discussion 5 Planning 5 Strategic Management 7 Organizing 8 Leading 10 Controlling 12 Managing Change 13 Ethical Management 14 Conclusion 15 References 16 Impact of Management on Organizations Abstract According its definition, management refers to “the achievement of goals through planning, leading, controlling, and organizing” (Daft & Lane, 2009). Evidence and history suggests that effective management always leads to a positive and healthy impact on the organizations and ineffective management would go on to do the complete opposite. By using the examples of Whirlpool, Diamond shamrock, Semco and Continental Airlines, the papers shows that how management can make a huge difference in organizations. The paper touches different aspects of management such as planning, strategic management, leading, controlling, and organizing. Introduction This paper is an attempt to explore the various dimensions and dynamics of impact of management on organizations. Whether positive or negative and internal or external, the paper will critically analyze this impact. During this discussion, this paper will touch various sub topics under the umbrella of such as strategic management, leadership, and managing change. Body/Discussion Before even initiating the discussion about management and its impact on organizations, it is imperative to present the basic idea and definition of management. According to its definition, management refers to the process of achieving organizational goals and objectives effectively and efficiently by engaging in “the major functions of management, which are planning, organizing, leading, and controlling” (Daft & Lane, 2009). Planning Planning is “the process of setting goals and deciding on the best possible methods of achieving them” (Hamel & Breen, 2007). Without goals, objectives and targets, management cannot even exist. The first task of management is to set a vision and create objectives about what the organization intends to achieve and how it intends to achieve the same (Daft & Lane, 2009). Consider the example of Whirlpool, a Fortune 500 company which is celebrating its 100 birthday this current year, to understand the importance of planning as the function of management and its impact on the overall organization. The overall objective of the company, during the 1990s was to achieve the best possible performance in delivering the shareholder value. The company went on to define that as achieving the target of revenues of 15 billion US dollars annually from their existing level of 7 billion US dollars (Hamel & Breen, 2007). Whirlpool and its executives and managers knew that this is an imperative yet difficult task and something had to done effectively in order to achieve this target. The company initiated intensive efforts to understand the needs, wants, demands, expectations, ideas, and thoughts of the customers so that the company could introduce the best possible products, which are in line with the needs of the customer (Daft & Marcic, 2010). The company realized that the previous strategy of Phillips to target different markets with more or less the same product. Whirlpool knew that it could not achieve its objectives with standardization and decided to carefully observe the needs of different customers and introduce different products for each national market. The company went on to achieve the goal of 15 billion US dollars mark in the year 2006 and it is not aiming to become the one of the top 25 publicly traded companies in the entire world (Bloisi & Hunsaker, 2006). There is another side to this picture as well. Good planning and in turn good management can revolutionize companies and at the same time, poor planning and poor management will always have a negative impact on the entire organization. Consider the example of Diamond Shamrock (the company exists under the umbrella of Valero Energy Corporation since Valero completed the acquisition of Diamond Shamrock in the year 2001) (Boddy, 2009). Diamond Shamrock was a profitable chemical company with modest oil holdings but only until William H. Bricker took control of company as the Chief Executive Officer during the late 1970s. The 11-year period of Bricker left the company with millions of debt and the CEO had to resign eventually. Bricker thought that it would be good for the company to diversify and concentrate more on the oil business. Bricker had a firm belief that in the coming years, oil prices would continue to rise sharply which would allow the oil companies to earn billions of dollars in profit (Koontz & Weihrich, 2006). However, soon it showed that the CEO’s planning was poor and the company did not have enough resources, capability, and strength to pursue this aggressive diversification. During this process, the company sold its gas stations to Sigmor Corporation and after year five years brought them back with much higher prices (Hannagan & McShane, 2006). Furthermore, it paid 1.3 billion US dollars for Natomas (Hamel & Breen, 2007), an oil and gas producer when its market value was somewhere around 700 million US dollars. The company even took loans on high interest rates to purchase partial stake in prize bull, in which the CEO of the company had his stake. As mentioned earlier that the plan failed drastically and the company went into that period of decline from where it never really was able to emerge (Hamel & Breen, 2007). Strategic Management Mergers and acquisitions have become a common phenomenon in the corporate world today. Two company presidents, which were competitors and operated in the same industry decided to go on a camping trip to discuss about a possible merger. These presidents, while discussing about their companies and this merger, went deep into the woods. Suddenly, they stopped talking because they heard something (Daft & Marcic, 2010). Within a few minutes, they found out that a monstrous and huge bear is approaching towards them. The first president put this down bag, took off his pair of jogging shoes, wore them, and was on the go. They second president, which was late to respond because of the fact that he was scared and confused said, “Hey! You cannot out run a bear”. The first president replied in both confidence and urgency that “I know that I cannot outrun this bear but surely I can outrun you” (Koontz & Weihrich, 2006). This little humorous story is the perfect manifestation of today’s market place. Organizations today are facing great competitive pressures from their rivals and competition has changed the entire face and dynamics of business. Today in marketplace, only the fittest survive because even the smallest of the mistakes could allow the competitor to outrun you. Therefore, companies focus all their energy to find a “competitive advantage” something, which could help them in outrunning their competitors (Dubrin, 2008). This is the point where strategic management comes in. The current function of management does not only include short term plans weekly goals, monthly objectives, quarterly projection and annual targets but it includes long term vision, mission and strategy which could help the company in achieving the competitive advantage (Daft & Lane, 2009). A company without a strategy is a ship without a rudder, which has no direction and will keep moving in circles. Consider the example of the well-known companies in the world such as Procter and Gamble, Unilever, Johnson and Johnson, Toyota, Honda, Nestle, Dell, and others. These companies are what they are because they have a long-term strategy and mission for what they want to achieve (Bloisi & Hunsaker, 2006). Organizing By it definition, organizing refers to “the management function with which the managers allocate and arrange human and non human resources so that plans can be carried out successfully” (Boddy, 2009). The job of a manager does not end at making good plans; in fact, the job starts from making plans. Management also includes the provision and allocation of resources in such a way, which could allow and support the achievement of organizational objectives (Hamel & Breen, 2007). Let us shed some more light on the example of Whirlpool to understand the impact of organizing as a management function. Whirlpool was smart enough to understand that achievement of its organizational objectives was not possible without the support of the human resources (Daft & Marcic, 2010). Therefore, it had to make the full use of its human resources and especially the talented engineers and experts working for the company regardless of their geographical location or other demographics (Daft & Lane, 2009). The company started investing heavily in cross-cultural communication and sending expert engineers for international assignments. At first, the European engineers which were sent to US came back home with one message that the Americans do not know how to get the job done (Hannagan & McShane, 2006). The Americans at their conclusion of visits of European sites and offices had similar views. However, after months of such group work and team building, engineers from different parts of the world finally started to understand each other. The efforts produced great results when the company won the award for designing the best refrigerator, which would reduce energy consumption and damage to the environment (Boddy, 2009). This technology which did not had any chlorofluorocarbons was developed with using the insulation technology developed by the European engineers, the job of developing the best possible compressor technology was on the shoulders of the Brazilian experts which had their expertise in the same and the attractive design was a result of ideas from the US experts. Therefore, by using the ideas of engineers from all around the world, Whirlpool was able to come up with unbeatable technology, which eventually helped the company to become what it is today (Bloisi & Hunsaker, 2006). On the other hand, Diamond Shamrock is one of the best examples of how misallocation of resources of company can generate a negative impact on the entire company. During the era of diversification when the company had taken loans worth millions of dollars, company’s profitability was on a constant decline, and there was urgent need to reallocate the resources of the company in an efficient and effective manner, the CEO and board of directors of the company did the opposite. The company brought a 1200-acre Texas ranch for the sole purpose of entertainment of executives and conducting meetings worth more than 9 million US dollars. Furthermore, 1 million US dollars were also spent on the purchase of box at Dallas Cowboys home stadium and a fleet of corporate airplanes for the travel and transport of executives (Koontz & Weihrich, 2006; Daft & Lane, 2009). Leading “Leading is the management function, which involves the process of influencing others to engage in the work behaviors necessary to reach the organizational goals” (Kreitner, 2009). Despite the fact that management experts draw a thick line between management and leadership, leading is an integral function of management (Kreitner, 2009). Nevertheless, managers have to become leaders at some places to ensure effective management and achievement of the company goals. Leaders influence people and create followers, which find themselves motivated to do as directed by their leaders. Ricardo Semler is one of the best modern examples of how effective management through leading the company in the right way has a positive and in fact, revolutionary and transformative impact on the company (Griffin, 2007). Father of Ricardo Semler, Antonio Semler founded Semco Corporation in the year 1952, a company that was meant to specialize in marine pumps (Daft & Marcic, 2010). The company expanded with the passage to include other businesses as well. However, nothing is worth mentioning “until 1980, the year in which Ricardo Semler, a 21-year-old MBA from Harvard Business School” (Koontz & Weihrich, 2006) took over the company. When Ricardo joined the company, Semco was quickly losing its market share to other competitors, and the Semler firmly believed the company should expand into new markets, however, the directors were skeptical of this idea (Koontz & Weihrich, 2006). Semler himself briefly comments about the transition of Semco and his management philosophy in the following words. “Semco appeared highly organized and well disciplined, and we still could not get our people to perform as we wanted, or be happy with their jobs. If only I could break the structure apart a bit, I thought to myself, I might see what was alienating so many of our people. I could not help thinking that Semco could be run differently, without counting everything, without regulating everyone, without keeping track of whether people were late, without all those numbers and all those rules. What if we could strip away all the artificial nonsense, all the managerial mumbo jumbo? What if we could run the business in a simpler way, a more natural way” (Robbins & Coulter, 2007). During these past three decades, since the time Ricardo initiated the transition of Semco through his management, Brazil has gone through various periods of political and economic scene. The government has shifted from leftists to rightists, from democrats to dictators, from civilian leaders to military generals and the economy has witnessed the recession of 1990s and then the recession of late 2000s (Hannagan & McShane, 2006). Nevertheless, under the leadership of Semler, profits have increased by “300 percent, company has been positing average annual growth of 27.5 percent for the past 14 years” (Robbins & Coulter, 2007) and the average annual employee turnover have remained at less than 1 percent, whereas, the industry average has remained as high as 20 percent. Until this date, “more than 150 Fortune 500 companies” (Robbins & Coulter, 2010) have created special research teams, which were responsible to visit Semco and understand its formula for success. However, leaders like Bricker are an important example of how improper leading could have a negative impact on the organization. Bricker became the CEO of the company because the board of directors believed that this person would ensure that company’s tradition of participatory and democratic management goes on (Smith, 2007). However, right after becoming the CEO of the company, Bricker suddenly chose an autocratic style of management. He gave all possible signals to the people around him that his decisions are final and there is no way that someone could convince him to change his decisions. Therefore, his subordinates and other executives did not even bother to give their suggestions or offer their views during discussions and meetings to the high-risk actions of Bricker (Hamel & Breen, 2007; Hannagan, 2009). Controlling “Controlling refers to the process of regulating organizational activities so that actual performance conforms to expected organizational standards and goals” (Robbins, 2009). Without any doubts, managers not only plan, organize and lead but it is their responsibility to keep check and balance on their subordinates (Robbins, 2009). Managers have to monitor constantly the performance against the expectations, plans, and prior calculations so that if they are any shortcomings, timely corrective actions could be taken before it is too late (Kreitner & Fellenz, 2010). Let us again look at the example of Whirlpool. In order to globalize, the company initiated 15 projects, which were named as “One Company Challenges”. Out of these many projects, one of them was regarding the creation of a worldwide total quality management program, which incorporates the best features of the American, European, Asian and Latin American standards so that the company could universally move towards continuous improvement (Smith, 2007). Furthermore, during this era, Whirlpool had a close eye on the “regional, local and national sales levels, customer reviews, employee turnovers, employee satisfaction, employee motivation, quarterly revenues, profits, operating margins” (Hannagan & McShane, 2006), expenses and others. All the company executives noted any minute unfavorable difference and none of the concerned people used to get a chance to relax until and unless corrective action was in place (Hannagan & McShane, 2006). Apple has become one of the biggest names in the field of information technology over the past decade or so and the credit goes to Steve Jobs and his ideas. However, important here to note is Steve Jobs did the same with his relentless follow up and management by controlling the idea generation and design team (Williams, 2009). Despite being the CEO of the company and the one CEO, which is generally considered as introvert and shy, Steve would take all possible interest in the activities of the teams working on design and product ideas and would ensure close control and monitoring. This explains why Apple has been so successful with the launches of all its brands in the recent years (Hannagan & McShane, 2006). Managing Change Besides these traditional functions of management, effective management also allows company to ensure organizational change and development. A well-managed organization will not only respond better to the happenings in the market but it would be in a better position to develop and change its self accordingly (Robbins, 2009). Continental airline is an interesting example, which shows both sides of the picture how effective and ineffective management can help and resist respectively to change and develop the organizations (Robbins, De Cenzo, & Coulter, 2010). The year 1994 was one of worst in the series of the terrible years for Continental Airlines, which was facing its worst possible nightmare, which was on the verge of bankruptcy. The company’s expenses were so huge that even the revenues of 6 billion US dollars could not show profits and the company had not shown any profit since the year 1985. The company filed for bankruptcy twice in the previous decade, yet it came out of it somehow (Hannagan & McShane, 2006). The company was suffering from a series of other problems such as high turnover, infighting between employees and departments, employee absences, use of sick time, customer complaints, and highest number of mishandled baggage reports (Williams, 2009; Smith, 2007), ranking last in terms of on time arrival and others. Since 1983, none out of the nine CEOs, which took the charge of the company, was able to generate any considerable results (Williams, 2009; Smith, 2007). It was in February 1994 when Gordon Bethune took the charge of the company as the CEO of the company. This could have been the tenth unsuccessful CEO of the company in a row but there was something different about Gordon Bethune. He managed things differently and had a different philosophy of management, which in turn helped him to change and develop the organization effectively (Kreitner & Fellenz, 2010; Daft & Marcic, 2010). Ethical Management Lately, considering the corporate scandals and irresponsible behavior of many companies, there has been great deal of debate about the responsibility of companies and unethical behavior. Important here to note is that good management or effective management is always ethical, socially responsible, and morally upright management. When companies are being managed in an ethical way, it has great internal and external benefits. From the internal point of view, it allows the company to motivate their employees since they feel that they are working for a good cause (Griffin, 2007; Hannagan, 2009). From the external point of view, ethical decisions allow companies to earn goodwill and reputation in the market, which then in turn converts into increased sales and more promotion. Therefore, when a company is considered ethical, it gets positive promotion and reviews from the customers as well. Consider the example of companies like Enron, WorldCom, and Lehman Brothers, which eventually had to get bankrupt due to their unethical practices (Robbins, 2009). On the other hand, let us consider the example of Johnson and Johnson which has always remain inclined to ethical management in light of their credo, which has clearly indentified that the company has a great responsibility towards the environment (Robbins & Coulter, 2007). Furthermore, Merck has gained widespread recognition and publicity for its efforts regarding helping the people of Africa and Latin America suffering from the deadly disease. The company created a vaccine for the same; it took charge of its distribution and during the process, it spent millions of dollars. Merck still receives much praise for its continued efforts, which are aimed at the end of river blindness (Hamel & Breen, 2007). Conclusion Towards the end, it is understandable enough to conclude that management does have a strong impact on the fate of organizations. In fact, much of the success, downfall, problems, issues, and other happenings of the organization can easily be attributed to the management success or failures of the organization (Hannagan, 2009). There are several instances in the history of organizations where good management have turned around bad companies and brought them back from hell to make them profitable and successful. On the other hand, there are many examples as well where companies, which were performing very well, failed to ensure their survival because of poor management. Therefore, the point here is that management is the key to the future of any organization. Companies, which want to be successful, must create successful and effective management techniques (Kreitner & Fellenz, 2010). References Bloisi, W. Cook, C. & Hunsaker, P. (2006). 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