Figure 9.

A Summary of the Positive and Negative Features of the Forms of Business

Ownership

Difficulty in Dissolving the Business. Partnerships are noteasy to dissolve as sole

proprietorships. After dissolving the sole pro-prietorship, whatever assets or liabilities left
are concerns of the sole owner alone. In a partnership dissolution, it may not be easy to
divide whatever assets are left for distribution to the partners.
This is because some of the assets may be fixed or immovable.
The more difficult dissolution becomes when liabilities are to be shared by the partners.
Types of Partnerships
Partnerships may be classified according to the liability of the partners. They are as
follows:
1. general partnership, and
2. limited partnership.
A general partnership is an association of two or more persons, each with unlimited
liability, who are actively involved in the business.
A limited partnership is an arrangement in which the liability of one or more partners is
limited to the amount of assets they have
invested in the business.

41
Corporation
A corporation is an enterprise chartered by law, with most of the legal rights of a person,
including the right to conduct a business, to own and sell property, to borrow money, and
to sue or be sued The corporate form of business is the third ownership option open to
businesspersons. Owners of corporations are called stock. holders. They are issued
certificates of ownership called stocks. Some of these are openly traded in the country's
stock exchange.
Advantages of Corporation
The advantages inherit to corporations are the following:
1. limited liability;
2. ease of expansion;
3.. ease of transferring ownership;
4. relatively long life; and
5. ability to hire specialized management.
Limited Liability. The liability of stockholders are limited to the amount of their
shareholdings. A stockholder may lose the entire value of his stocks in the event of a
bankruptcy. Beyond the said value, he has no more liability.
The limited liability advantage attracts all kinds of investors, big or small. An investor
who has only a few thousand pesos to spare may become a part owner of the corporation
by purchasing a limited number of shares. Those who have more money may buy more
shares.
Ease of Expansion. The authority granted to corporations to sell its own shares of stock
provide a means to pool large amounts of funds. The price per share of stocks could be
made low enough to attract even the smallest investor. As the ownership of the stocks can
be easily transferred, this provides more reason for the investor to buy stocks.
The ability of corporations to accumulate large amounts of capital, make it easier for
them to consider business expansion.
Ease of Transferring Ownership. If a stockholder loses interest in the corporation he
partly owns, he may disassociate himself from
42
it by selling or donating his shares to another person. In effect, the ownership of a
corporation may change as often as it could without actually dissolving it.
Relatively Long Life. Corporations may be established to have lives of up to 50 years
and may be extended indefinitely through renewals of documents. Since ownership is
readily transferable, the death or withdrawal of any or all stockholders do not terminate
the corporation. This advantage makes the corporation the most stable among the three
major forms of ownership.
Greater Ability to Hire Specialized Management, The expanded operations of
corporations make it possible to divide the overall job into smaller specialized positions.
As the various positions will be quite dissimilar from each other, the demand for
management expertise will be a little more exacting than those required for sole
proprietorship or partnerships.
The said requirement paves the way for hiring fully trained management experts. With
specialized management, the corporation is provided with the opportunity to grow and
develop more vigorously.
Disadvantages of Corporations
Corporations also have disadvantages. These are the following:
1. more expensive and complicated to organize;
2. double taxation;
3. more extensive government restrictions and reporting
requirements; and
4. employees lack personal identification with and commitment to corporate goals than
those employed by sole proprietorships and partnerships.
More Expensive and Complicated to Organize. Among the three major forms of
ownership, more time and money are required to organize a corporation. It takes months
or even years before a Corporation can begin serving its customers. It may start
operations sly after receiving from the Securities and Exchange Commission (SEC) a
certificate of incorporation is at finds that the articles of incorporation is fully compliant
with all requirements

43
The articles of incorporation contains the following:
1. the name of the corporation;
2. specific purpose or purposes;
3. principal office of the corporation;
4. term of existence of the corporation;
5. names, nationalities, and residences of incorporators;
6. number of directors or trustees;
7. names, nationalities, and residences of directors;
8. amount of authorized capital stock; and
9. other matters.
The treasurer's affidavit indicating payment of minimum subscribed capital stock is also a
requirement.
The articles of incorporation and the treasurer's affidavit must, point by point, conform
with the requirements of the Corporation Code. Complying with these requirements take
time, however, and this makes it a distinct disadvantage of corporations.
Double Taxation. The profits derived by stockholders are taxed twice by the
government. First, when the corporation realizes profits, and second, when the individual
stockholders declare as part of their personal income the dividends they receive from the
corporation.This is not a disadvantage of sole proprietorships and partnerships.
More Extensive Government Restriction and Reporting
Requirements. Corporations are subject to stringent government restrictions and are
required to submit various reports on a periodic basis. An example of a restriction is the
prohibition of certain actions by the corporation without the approval of the SEC. For
instance, corporations are not allowed to distribute stock dividends without first securing
the approval of the SEC.
The submission of financial statements is an example of annual reports required by the
SEC. In complying with this requirement, the corporation is exposing itself to the
scrutiny of its competitors.This is so because annual reports are made available to the
public.Competitors do not enjoy this privilege when competing with sole proprietorships
and partnerships.
Employees Lack Personal Identification with and Commit. ment. Many stockholders
are detached from the daily operations of the corporation. Those who work for the
corporation usually do not own the company's stocks. The relationship between the
corporation and employees are too impersonal. Employees do not feel deep attachment to
the corporation resulting to less commitment to their work. Employees of sole
proprietorships and partnerships most often know the owners personally. This feeling of
attachment pushes the employee to make the company successful. Such concern is rarely
present in a corporate work atmosphere.
Modifications of the corporate Form of ownership
The corporate form of ownership has been modified to cater to special needs. Those
which have become popular are: [1] coop-eratives, and [2] mutual companies.
Cooperatives
A cooperative is an organization composed of individuals or businesses that have banded
together to reap the benefits of belonging to a large organization. Cooperatives are not
organized for profit but to make its members individually profitable or save money.
Types of Cooperatives. Cooperatives are of various types. These are classified according
to the special interest of its members. These are as follows:
1. Credit union. It accepts deposits from the members and lends money to its members at
a very reasonable interest rate.
2. Producers cooperative. Its purpose is to actually assist one another in the procurement
of raw materials, machinery, equip-ment, and other time-saving devices.
3. Marketing cooperative. Its purpose is to assist members in the marketing of their
produce.
4. Consumers cooperative. Its purpose is to provide members with quality goods and
services at reasonable prices.
5. Service cooperative. Its purpose is to make services readily available and at a lower
price.

45
Mutual Companies
A mutual company is a financial-service firm (such as an insurance company or a savings
and loan association) owned by its policyholders or depositors.
Types of Mutual Companies. Mutual companies may be classified according to
products or services they carry. These are as follows:
1. Mutual saving banks. It is owned by depositors and specializes in savings and
mortgage loans. The profits of the company are credited to the account of the depositors.
2. Mutual insurance company. It is a cooperative corporation organized and owned by
its policyholders. Voting control is in the hands of those insured. Profits earned by the
company can be used to pay policy dividends to policyholders, and to strengthen the
insurer by building its surplus.
Other Forms of Business Organization
Minor forms of business organization consist of the following;
1. joint stock company;
2. the joint venture; and
3. the business trust.
The Joint Stock Company
The joint stock company is a form of business enterprise in which the capital is divided
into small units permitting a number of investors to contribute varying amounts to the
total, profits being divided between stockholders in proportion to the number of shares
they own. It is largely similar in form to the corporation, although it has certain features
like fewer taxes, greater ease of formation, mobility, and freedom from government
regulation. The disadvantage of joint stock companies, however, is they lack the legal
personality to enter into contracts and hold title to real property. In addition, the unlimited
liability of the stockholders makes it less popular as a form of business organization.
The Joint Venture
A joint venture is best regarded as a particular partnership established for a specific
undertaking. This type of organization is,

created for the purpose of bringing together several partners to engage in a business
activity which is normally very specialized and which exists for a limited, specific
purpose. A joint venture is mostly formed for the purpose of producing a movie or a
concert, engaging in oil or mining exploration, constructing a major project such as
adamor an airport, or perhaps the underwriting or selling of securities.
The Business Trust
The business trust is a legal form of organization in which a trustee is appointed to
manage the business and its operations through a trust relationship. Under the trust
agreement, the owners of property, securities, or other assets convey these to a trustee in
exchange for transferable trust certificates. The certificates entitle the owners to
participate in the profits of the operation. The liability is transferred to the trustees,
however.
Summary
When considering the ownership of business, the business person may choose from
among three alternative options: sole pro-prietorship, partnership, or corporation.
Each of the three forms of ownerships has its own unique advantages and disadvantages.
The differences of the three forms relate fo effective control of the business, sharing of
profits and liabilities, and potential for expansion.
The greatest advantage of sole proprietorships is the concentration of the power of
control in a single individual, the owner.
Partnerships provide opportunities for additional sources of capital but power has to be
shared among the partners.
The nature of corporations allow for easier expansion of ope-rations. An additional
advantage is the limited liability provision enjoyed by stockholders.
The need to cater to special requirements brought about modifications of the corporate
form which, later, took the shape of cooperatives and mutual companies.
A cooperative is an organization of members that have banded together to reap the
benefits of belonging to a large organization.

47

A mutual company is one owned by the people it serves.

There are minor forms of business organizations: the joint stock company, the joint
venture, and the business trust.

48

DECISION-MAKING
Managers of all kinds and types are primarily tasked to provide leadership in the quest for
the attainment of the organization's biectives. If he is to become effective, he must learn
the intricacies of decision-making. Many times, he will be confronted by situations where
he will have to choose from among various options. Whatever he chooses, it will have
effects, good or bad, immediate or otherwise, in the operations of his organization.
The manager's decision-making skills will be very crucial to his success as a professional.
A major blunder in his decision-making may be sufficient to cause the destruction of his
organization. On the other hand, when good decisions are made, the right environment is
provided for continuous growth and success of any organized effort.
Decision-Making as a Management responsibility
Decisions must be made at various levels in the workplace. They are also made at the
various stages in the management process. If certain resources must be used, someone
must make a decision authorizing certain persons to appropriate such resources.
Decision-making is a responsibility of the manager. It is understandable for managers to
make wrong decisions at times. The wise manager will correct them as soon as they are
identified. The bigger Problem is the manager who cannot or do not want to make deci-
sions. This type of managers are dangerous and should be replaced immediately with
qualified ones.Management muststrive to learn how to choose a decision option as
correctly as possible. Since they have that power to decide, they are responsible for
whatever outcomes their decisions bring. The ligher the management level is, the bigger
and more complicated decision-making becomes.

51

An example may be provided as follows:

The manager of a retailing firm has decided to open a branch in one of the provinces
within his area of assignment. After con. sidering various towns, he came to a conclusion
that his choice must be one of the three potential sites identified. Each of the sites has
advantages and disadvantages.
A decision must be made quickly by the manager. His choice, however, must be based on
sound criteria. The manager will be held responsible, later on, if he made the wrong
choice.
What is Decision-Making
Decision-making may be defined as the process of defining the problem and identifying
and choosing alternative courses of action in a manner appropriate to the demands of the
situation.
The definition indicates that the manager must adapt a certain procedure designed to
determine the best option available to solve certain problems.
Decisions are made at various management levels (i.e., top, middle, and lower levels) and
at various management functions decision-making is regarded as "the heart" of all the
management
The Decision-Making Process
Rational decision-making is a process involving the following steps:
1. diagnosing the problem;
2. analyzing the environment;
3. articulating the problem or opportunity;
4. developing viable alternatives;
• 5. evaluating the alternatives;
6. making a choice;
7. implementing the decision; and
8. evaluating and adapting the decision results.
52
Diagnosing the Problem
If the manager wants to make an intelligent decision, his first move must be to identify
the problem. If the manager fails in this aspect, his next moves will be useless. If the
manager is not able to identify the real problem, the solution he will offer will be
irrelevant and may even be costly and destructive. Being able to identify the real problem
is tantamount to having the problem half-solved.
What is a Problem. A problem exists when there is a difference between the actual
situation and the desired situation. For instance, the management of a construction
company entered into a contract with another party for the construction of a 25-storey
building on a certain site. The actual situation (or the existing situation) is that the firm
has not yet constructed the building. The desired situation is the finished 25-storey
building. In this case, the actual situation is different from the desired situation. The
company, therefore, has a problem and that is, the construction of the 25-storey building.
Analyzing the Environment
The environment where the organization is situated plays a very significant role in the
success or failure of such an organization. It is, therefore, very important that an analysis
of the environment is undertaken.
The objective of environmental analysis is the identification of constraints, which may be
spelled out as either internal or external limitations. Examples of internal limitations are
as follows:
1. limited funds available for the purchase of equipment;
2. limited training on the part of the employees;
3. ill designed facilities; and
4. irrelevant organization structure.
Examples of external limitations are as follows:
1. product patents are controlled by other organizations;
2. a very limited market for the company's products and services exists; and
3. strict enforcement of local zoning regulations.

53
When decisions are to be made, the internal and external limi. tations must be considered.
It may be costly, later on, to alter a decision because of a constraint that has not been
previously identified.
An illustration of failure to analyze the environment is as
follows:
The president of a new chemical manufacturing company made a decision to locate his
factory in a place adjacent to a thickly populated area. Construction of the buildings were
made with precision that they were finished in a short period When the clearance for the
commencement of operation was sought from local authorities, this could not be given. It
turned out that the residents oppose the operation of the firm and they took steps to make
sure that no clearance is given.
The president decided to relocate the factory but not after much time and money have
been lost. This is a clear example of the cost associated with management decisions
disregarding the environment. In this case, the president did not consider what the
residents can do.
Components of the Environment. The environment consists of two major concerns:
1. internal; and
2. external.
The internal environment consists of organizational activities within a firm that surrounds
decision-making. Shown in Figure 10 are the important aspects of the internal
environment.
The external environment refers to variables that are outside the organization and not
typically within the short-run control of top management. Figure 11 shows the forces
comprising the external environment of the firm.
Articulating the Problem or Opportunity
A problem is really an opportunity to improve one's standing.
If one wants to benefit from solving a problem or exploiting an opportunity, a solution
that will effectively address the situation is required. A good solution must be chosen
from among several alternatives.

54

Figure 10. The Firm and the Internal Environment in Decision-Making

 55
Figure 11. The Firm and Its External Enviornment
The strength of the alternative solutions will depend on how well they are formulated. To
achieve this goal, the decision maker must familiarize himself thoroughly with the
problem. A way to do it is to view the problem from different angles. He must be able to
separate the trivial from the important components of the problem.
Constructing a 25-storey building, for example, may be elaborated as a problem by
determining the construction requirements pertaining to usage, design and materials, and
structure.
Breaking the problem into several components will simplify the task of generating
alternatives. When at times it becomes difficult to offer a solution for the entire problem,
individual solutions may be used to deal with the components.
Develop Viable Alternatives
Oftentimes, a problem may be solved by any of the solutions offered. In solving a
problem, however, the best among the alternative solutions must be considered by
management. This is made possible by using a procedure with the following steps:
1. prepare a list of alternative solutions;
2. determine the viability of each solution; and
3. revise the list by striking out those which are not viable.

56

To illustrate:
An engineering firm has a problem of increasing its output by thirty percent. This is the
result of a new agreement between the firm and one of its clients. The list of solutions
prepared by the manager shows the following alternative courses of action:
1. improve the capacity of the firm by hiring more workers and building additional
facilities;
2. secure the services of subcontractors;
3. buy the needed additional output from another firm;
4. stop serving some of the company's customers; and
5. delay servicing some clients.
The list was revised and only the first three were deemed to be viable. The last two were
deleted because of adverse effects in the long-run profitability of the firm.
Evaluate Alternatives
After determining the viability of the alternatives and a revised list is made, an evaluation
of the remaining alternatives is necessary.
This is important because the next step involves making a choice.
Proper evaluation makes choosing the right solution less difficult.
How the alternatives will be evaluated will depend on the nature of the problem, the
objective of the firm, and the nature of the alternatives presented. Each alternative must
be analyzed and evaluated in terms of value, cost, and risk characteristics.
The value of an alternative refers to benefits that can be expected from it. An example
may be described as follows: a net profit of P10 million per year if the alternative is
chosen.
The cost of the alternative refers to out-of-pocket costs (likeP100 million for construction
of facilities), opportunity costs (like the opportunity to earn interest of P2 million per year
if money is invested in another undertaking), and follow-on costs (like P3 mil lion per
year for maintenance of facilities constructed). The risk characteristics refers to the
likelihood of achieving the goals of the alternatives. If the probability of a net profit of
P10 million is only 10 per cent, the decision-maker may opt to conside

an alternative with P5 million profit but with an 80 percent probability of success.

Another example of an evaluation of alternatives is shown below:
A manager is faced with the problem of choosing between three applicants to fill up a
lone vacancy for Sales Supervisor.
He will have to set up certain criteria for evaluating the applicants. If the evaluation is not
done by a professional human resources officer, the manager will be forced to use a
predetermined criteria.

Make a Choice
After the alternatives have been evaluated, the decision-maker must now be ready to
make a choice. This is the point where he must be convinced that all the previous steps
were correctly undertaken.
Choice-making refers to the process of selecting among alternatives representing
potential solutions to a problem. At this point, specificeffort should be made to identify
all significant consequences of each choice.
To make the selection process easier, the alternatives can be ranked from the best to worst
on the basis of some factors like benefit, cost, and risk.

58

Implement Decision
After a decision has been made, implementation follows. This is necessary, or decision-
making will be an exercise in futtlity.
Implementation refers to carrying out the decision so that the objectives sought will be
achieved. To make implementation effec tive, a plan must be devised.
At this stage, the resources must be made available so that the decision may be properly
implemented. Those who will be involved in implementation must understand and accept
the solution. Other-wise, the execution of the plan will be a failure.
Evaluate and Adapt Decision Results
In implementing the decision, the results expected may or may not happen. It is,
therefore, important for the manager to use control and feedback mechanisms to ensure
results and to provide information for future decisions.
Feedback refers to the process which requires checking at each stage of the process to
assure that the alternatives generated, the criteria used in evaluation, and the solution
selected for implementation are in keeping with the goals and objectives originally
specified.
Control refers to actions made to ensure that activities performed match the desired
activities, or goals, that have been set.
In this last stage of the decision-making process, the manager will find out whether or not
the desired result is achieved. If the result was positive, one may assume that the decision
made was good. If negative, further analysis is necessary. Figure 12 on the succeeding
page presents an elaboration of this last step.
Approaches in solving problems
In decision-making the manager is faced with problems which may either be simple or
complex. To provide him with some guide, he must be familiar with the following
approaches:
1. qualitative evaluation; and
2. quantitative evaluation.

59

Figure 12. Feedback as a Control Mechanism in the Decision-Making Process

 61
Qualitative Evaluation. This term refers to evaluation of alternatives using intuition and
subjective judgment. Managers tend to use the qualitative approach when:
1. The problem is fairly simple.
2. The problem is familiar.
3. The costs involved are not great.
4. Immediate decisions are needed.
An example of an evaluation using the qualitative approach is as follows:
A factory operates on three shifts with the following schedules:

Each shift consists of 200 workers manning 200 machines. On - September 16, 2005, the
operations went on smoothly until the factory manager was notified at 1:00 P.M. that five
of the workers assigned to the second shift could not report for work because of injuries
sustained in a traffic accident while they were on their way to the factory.
Because of the time constraints, the manager made an instant decision on who among the
first shift workers would work overtime to man the five machines.
Quantitative Evaluation. This term refers to the evaluation of alternatives using any
technique in a group classified as rational and analytical.
Quantitative Models for Decision-Making
The types of quantitative techniques which may be useful in decision-making are as
follows:
1. inventory models
2. queuing theory

61
3. network models
4. forecasting
5. regression analysis
6. simulation
7. linear programming
8. sampling theory
9. statistical decision

Inventory Models
Inventory models consists of several types and are all designed to help the manager make
decisions regarding inventory. These are as follows:
1. Economic order quantity model - used to calculate the number of items that should be
ordered at one time to minimize the total yearly cost of placing orders and carrying the
items in inventory.
2. Production order quantity model - an economic order quantity technique applied to
production orders.
3. Back order inventory model - an inventory model used to minimize the total cost when
quantity discounts are offered by suppliers.
4. Quantity discount model - an inventory model used to minimize the total cost when
quantity discounts are offered by suppliers.
Queuing Theory
The queuing theory is one that describes how to determine the number of service units
that will minimize both customer waiting time and cost of service.
The queuing theory is applicable to companies where waiting lines are a common
situation. Examples are cars waiting for service at a car service center, ships and barges
waiting at the harbor for loading and unloading by dockworkers, programs to be run in a
computer system that processes jobs, and others.

62
Network Models
These are models where large complex tasks are broken into smaller segments that
can be managed independently, The two most prominent network models are:
1. Program Evaluation Reolew Technique (PERT). This is a technique which enables
managers to schedule, monitor, and control large and complex projects by employing
three time estimates for each activity.
2. Critical Path Method (CPM). This is a network technique using only one time factor
per activity that enables managers to schedule, monitor, and control large and complex
projects.
Forecasting
There are instances when managers make decisions that will have implications in the
future. A manufacturing firm, for example, must put up a capacity which is sufficient to
produce the demand requirements of customers within the next 12 months. As such,
manpower and facilities must be procured before the start of ope-rations. To make
decisions on capacity more effective, the manager must be provided with data on demand
requirements for the next 12 months. This type of information may be derived through
fore-casting.
Forecasting is actually collecting past and current information to make predictions about
the future.
Regression Analysis
The regression model is a forecasting method that examines the association between two
or more variables. It uses data from previous periods to predict future events.
Regression analysis may be simple or multiple depending on the number of independent
variables present. When one independent variable is involved, it is called simple
regression; when two or more independent variables are involved, it is called multiple
regression.
Simulation
Simulation is a model constructed to represent reality, on which conclusions about real-
life problems can be based. It is a highly

63
sophisticated tool by means of which the decision maker develops a mathematical model
of the system under consideration.
Simulation does not guarantee an optimum solution, but it can evaluate the alternatives
fed into the process by the decision maker.
Linear Programming
Linear programming is a quantitative technique that is used to produce an optimum
solution within the bounds imposed by constraints upon the decision. Linear
programming is very useful as a decision-making tool when supply and demand
limitations at plants, warehouse, or market areas are constraints upon the system.
Sampling Theory
Sampling theory is a quantitative technique where sample of populations are statistically
determined to be used for a number of processes, such as quality control and marketing
research. When data gathering is expensive, sampling provides an alter-native. Sampling,
in effect, saves time and money.
Statistical Decision Theory
Decision theory is the rational way to conceptualize, analyze, and solve problems in
situations involving limited, or partial, information about the decision environment. A
more elaborate explanation of decision theory is the decision-making process presented at
the beginning of this chapter. What has not been included in the discussion on the
evaluation of alternatives but is very important, is subjecting the alternatives to Bayesian
analysis.
The purpose of Bayesian analysis is to revise and update the initial assessments of the
event probabilities generated by the alternative solutions. This is achieved by the use of
additional information.
When the decision maker is able to assign probabilities to the various events, the use of
probabilistic decision rule, called the Bayes criterion, becomes possible. The Bayes
criterion selects the decision alternative having the maximum expected payoff, or the
minimum expected loss if he is working with a loss table.

64
summary
Decision-making is a very important function of the manager.
His organization will rise or fall depending on the outcomes of his decisions. It is,
therefore, necessary for the manager to develop some skills in decision-making.
The process of identifying and choosing alternative courses of action in a manner
appropriate to the demands of the situation is called decision-making. It is done at various
management levels and functions.
The decision-making process consists of various steps, namely: diagnose problem,
analyze environment, articulate problem or opportunity, develop viable alternatives,
evaluate alternatives, make a choice, implement decision, and evaluate and adapt
decision.
There are two approaches used in solving problems, namely: qualitative evaluation and
quantitative evaluation. Qualitative evaluation is used in solving fairly simple problems,
while quantitative is applied to complex ones.
 65
PLANNING
If managing an organization is to be pursued vigorously, planning will be an important
and necessary activity. Managers who plan are afforded with the opportunity to carefully
analyze situations which directly contribute to effective decision-making. Plans provide
the manager with the opportunity to concentrate on imple-mentation.
The manager, regardless of his management level, will have to devote some of his time to
planning. The higher the management level the manager is in, the more sophisticated his
planning activity becomes. Why and how this is so shall be the subject of this chapter.
The Nature of Planning
There are many instances when managers are overwhelmed by various activities which at
times becloud his judgment. This must be expected since anybody who is confronted by
several situations happening simultaneously will lose sight of the more important
concerns of managing. To minimize mistakes in decision-making, planning is undertaken.
A plan, which is the output of planning, provides a methodical way of achieving desired
results. In the implementation of activities, the plan serves as a useful guide. Without the
plan, some minor tasks may be afforded major attention which may, later on, hinder the
accomplishment of objectives. An example of the difficulty of not having a plan is
illustrated below.
The management of the firm was able to identify the need to hire additional three
employees. The manager proceeded to invite applicants, screen them, and finally hired
three of them. When the hiring expense report was analyzed, it was found out that the
hiring expense was more than double the amount spent by other firms in hiring the same
number of people.
When an inquiry was made, it was found out that the manager committed some errors of
judgment. For instance, he used an expen-sive advertising layout in a newspaper when a
simple message will do. It was also found out that the absence of a hiring plan
contributed to the high cost of hiring.
 70
Planning Defined
Planning may be defined as selecting the best course of actio in anticipation of future
trends so that the desired result may b in article it must bestressed that the desired result
takes firstprong and the course of action chosen is the means to realize the goal.
Planning at various Management Levels
Since managers could be occupying positions in any of the var ious management levels, it
will be useful for them to know som aspects of planning undertaken at the different
management lever Planning activities undertaken at various levels are as follows
1. top management level - strategic planning
2. middle management level - intermediate planning
3. lower management level - operational planning
Strategic Planning
Strategic planning refers to the process of determining the major goals of the organization
and the policies and strategies for obtair-ing and using resources to achieve those goals.
Strategic planning is the concern of top management.
In strategic planning, the whole company is considered, spe cifically its objectives and
current resources. The output of strateg planning is the strategic plan which spells out the
decision abod long-range goals and the course of action to achieve those goal
Intermediate Planning
Intermediate planning refers to the process of determining the contributions that subunits
can make with allocated resources. Th type of planning is the concern of middle
management.
Under intermediate planning, the goals of a subunit are deli mined and a plan is prepared
to provide a guide to the realizati of the goals. The intermediate plan is designed to
support the strategic plan.
 71

Operational Planning
Operational planning is the process of determining how specific tasks can best be
accomplished on time with available resources.This type of planning is the responsibility
of lower management. It must be performed in support of the strategic and intermediate
plans.

The Planning Process

The process of planning consists of various steps depending on the management level
that performs the planning tasks. Gen-erally, however, planning involves the following
setting organizational, divisional, or unit goals;
2. developing strategies or tactics to reach those goals;
3. determining resources needed; and
4. setting standards.
Setting Organizational, Divisional, or Unit Goals
The first task of the manager is to provide a sense of direction to his firm (if he is the
chief executive), to his division (if he heads a division), or to his unit (if he is a
supervisor). The setting of goals

71
Figure 14. The Organization and Types of Planning Undertaken

72
provide an answer to the said concern. If everybody in the firm (or division or unit, as the
case may be) is aware of the goals, there is a big chance that everybody will contribute
his share in the realization of such goals.
Goals are precise statements of results sought, quantified in time and magnitude, where
possible. Examples of goals are provided in Figure 15.
Developing Strategies or Tactics to Reach Goals
After determining the goals, the next task is to devise some means to realize them. The
ways chosen to realize the goals are called strategies and these will be the concern of top
management. The middle and lower management will adapt their own tactics to
implement their plans.
Strategy may be defined as a course of action aimed at ensuring that the organization will
achieve its objectives.

Figure 15. Examples of Goals, by Organizational Level

73
The construction firm's management has decided to diversify its business by engaging
also in the trading of construction materials and supplies.
When the above-mentioned strategy is implemented, it may help the construction firm
realize substantial savings in the material and supply requirements used in their
construction activities.
The firm will also have greater control in the timing of deliveries of materials and
supplies.
A tactic is a short-term action by management to adjust to negative or external influences.
They are formulated and implemented in support of the firm's strategies. The decision
about short-term goals and the courses of action are indicated in the tactical plan.
An example of tactic is the hiring of contractual workers to augment the company's
current workforce.
Determining Resources Needed
When particular sets of strategies or tactics have been devised, the manager will then
determine the human and non-human resources required by such strategies or tactics.
Even if the resource requirements are currently available, they must be specified.
The quality and quantity of resources needed must be correctly determined. Too much
resources in terms of either quality or quantity will be wasteful. Too little will mean loss
of opportunities for maximizing income.
To satisfy strategic requirements, a general statement of needed resources will suffice.
The specific requirements will be determined by the different units of the company.
To illustrate:
Suppose the management of a construction firm has de cided, in addition to its current
undertakings, to engage in the trading of construction materials and supplies.
A general statement of required resources will be as follows:
A new business unit will be organized to deal with the buy ing and selling of construction
materials and supplies. The amount of P50 million shall be set aside to finance the
activity: Qualified persons shall be recruited for the purpose.

74
Setting Standards
The standards for measuring performance may be set at the planning stage. When actual
performance does not match with the planned performance, corrections may be made or
reinforcements given.
Standard may be defined as a quantitative or qualitative mea suring device designed to
help monitor the performance of people, capital goods, or processes.
An example of a standard is the minimum number of units that must be produced by a
worker per day in a given work situation.
Types of Plans
Plans are of different types. They may be classified in terms of functional area, time
horizon, and frequency of use.
Functional Area Plans
Plans may be prepared according to the needs of the different functional areas. Among
the types of functional area plans are the following:
1. Marketing plan. This is the written document or blueprint for implementing and
controlling an organization's marketing activities related to a particular marketing
strategy.
2. Production plan. This is a written document that states the guan-tity of output a
company must produce in broad terms and by product family.
3. Financial plan. This is a document that summarizes the current financial situation of
the firm, analyzes financial needs, and recommends a direction for financial activities.
4. Human resource management plan. This is a document that indicates the human
resource needs of a company detailed in terms of quantity and quality and based on the
requirements of the company's strategic plan.
Plans With Time Horizon
Plans with time horizon consist of the following:
1. Short-range plans. These are plans intended to cover a period of less than one year.
First line supervisors are mostly concerned with these plans.

75
2. Long-range plans. These are plans covering a time span of more than one year. These
are mostly undertaken by middle and top management.
Plans According to Frequency of Use
According to frequency of use, plans may be classified as:
1. standing plans, and
2. single use plans.
Standing Plans. These are plans that are used again and again, and they focus on
managerial situations that recur repeatedly.
Standing plans may be further classified as follows:
1. Policies - These are broad guidelines to aid managers at every level in making
decisions about recurring situations or function.
2. Procedures - These are plans that describe the exact series of actions to be taken in a
given situation.
3. Rules - These are statements that either require or forbid a certain action.
Single-Use Plans. These plans are specifically developed to implement courses of action
that are relatively unique and are unlikely to be repeated.
Single-use plans may be further classified as follows:
1. budgets;
2. programs; and
3. projects.
The budget is a plan which sets forth the projected expenditures for a certain activity and
explains where the required funds will come from.
set of activities.
The program is a single-use plan designed to coordinate a large
The project is a single-use plan that is usually more limited in scope than a program and
is sometimes prepared to support a program.

76
parts of the various Functional Arza Plans
The manager may be familiar with plans, knowing the details from beginning to end.
However, the ever present possibility of moving from one management level to the next
and from one functional area to another makes it important for the manager to be familiar
with other functional area plans.

Figure 16. types of plans

77
The Contents of the Marketing Plan
The structure and content of marketing plans vary depending on the nature of the
organizations adapting them. The typical mar keting plan includes the following:
1.The Executive Summary - which presents an overall view of the marketing project and
its potential.
2. Table of Contents
3. Situational Analysis and Target Market
4. Marketing Objectives and Goals
5. Marketing Strategies
6. Marketing Tactics
7. Schedule and Budgets
8. Financial Data and Control
The Contents of the Production Plan
The production plan must contain the following:
1. the production capacity the company must have;
2. the number of employees required; and
3. the quantity of material which must be purchased.
The Contents of the Financial Plan
The components of the financial plan are as follows:
1. an evaluation of the firm's current financial condition indicated by an analysis of the
most recent financial stale
ments;
2. a sales forecast;
3. the capital budget;
4. the cash budget;
5 .a set of pro forma (or projected) financial statements; and
6. the external financing plan.
Figure 17. An Example of a Marketing Plan Schedule
Contents of the Human Resource Plan
The human resource plan must contain the following:
1. personnel requirements of the company;
2. plans for recruitment and selection;
3. training plan; and
4. retirement plan.

79
arts of the strategic Plan
The strategic plan must contain the following:
1. company or corporate mission;
2. objectives or goal; and
3. strategies.
The company or corporate mission refers to the strategic state. ments that identify why an
organization exists, its philosophy of management, and its purpose as distinguished from
other similar organizations in terms of products, services, and markets.
Making Planning Effective
Planning is done so that some desired results may be achieved.
At times, however, failure in planning occurs. Planning may be made successful if the
following are observed:
1. recognizing the planning barriers
2. using the aids to planning
The planning barriers consist of the following:
1. the manager's inability to plan
2. improper planning process
3. lack of commitment to the planning process
4. improper information
5. focusing on the present at the expense of the future
6. too much reliance on the planning department
7. concentrating on only the controllable variables
Among the aids to planning that may be used are:
1.gathering as much information as possible
2. developing multiple sources of information
3.involving others in the planning process
80

Figure 18. An Example of a Production Plan Schedule

summary
Business activities, like other activities, require effective planning if objectives and goals
are to be realized.
A plan is a methodological way of achieving results.
Planning is undertaken at various management levels

81
ORGANIZING BUSINESS ACTIVITIES
The manager needs to acquire various skills in management, including those for
organizing business activities. In this highly competitive environment, the unskilled
manager may not be able to bring his unit, or his company, as the case may be, to success.
The value of a superior organizational structure has been proven dramatically during the
Second World War when a smaller American naval force confronted the formidable
Japanese navy at Midway.
Military historians indicated that the Americans emerged victorious largely because of the
superior organizational skills of their leaders.
Even today, skill in organizing is a very critical factor in the accomplishment of the
objectives of many organizations, whether they are private businesses or otherwise. The
positive effects of business success become more pronounced when they come as a result
of international operations. International businesses, however, cannot hope to be effective
unless they are properly organized.
The benefits of superior organizing skills are too important for the manager to ignore.
This chapter is intended to provide him with some background and insights in organizing.
Reasons for Organizing
Organizing is undertaken to facilitate the implementation of plans. In effective
organizing, steps are undertaken to break up the total job into more manageable man-size
jobs. Doing these will make it possible to assign particular tasks to particular persons. In
turn, these will help facilitate the assignment of authority, responsibility, and
accountability for certain functions and tasks. Efforts expended in organizing may also
result to easier coordination among the var ious activities.
Organizing Defined
Organizing is that management function which relates to the structuring of resources and
activities to accomplish objectives in an efficient and effective manner.

86
The result of organizing activities is the organization which may be defined as a
collection of people or activities formed for a specific purpose.
The Organizational Structure and Its Determinants
The structure is the means by which the organization will attain its objectives and goals.
The structure must be one that considers, apart from the organization's goals and
objectives, its resources, and its environment, both internal and external.
The determinants of organization structure are:
1. strategy, or plans for achieving the company's objectives;
2. the technology that will be used in carrying out the stra-tegy;
3. the people employed at all levels and their functions; and
4. the size of the organization.
As the structure is the tool used in achieving the organization's objectives, it must follow
strategy which defines the specific means of realizing goals. Strategy determines the lines
of authority and channels of communication that will have to be set up between the
managers and their respective units.
The nature of technology that will be used will determine to a certain extent the type of
structure the organization will have to adapt.
The structure is also determined by the people in the organization's internal and external
environment. The structure must be designed to serve the needs of the managers and their
subordinates.
The size of the entire organization and its various units will also determine the kind of
structure that will have to be adapted.
The Formal Organization
After the business plan is adapted, management will proceed to form an organization to
carry out the activities indicated in the plan.
The formal organization is the structure that details lines of responsibility, authority, and
position. What is depicted in the organization chart is the formal organization. It is the
planned structure

87
and it represents the deliberate attempt to establish patterned relationships among
components that will meet the objectives effectively.
The formal structure is described by management through:
1. organizational chart;
2. organizational manual; and
3. policy manual.
The organizational chart is a diagram of the organization's official positions and formal
lines of authority.
The organizational manual provides written descriptions of authority relationships, details
the functions of major organizational units, and describes job procedures.
The policy manual describes personnel activities and company policies.
informal Groups
Formal organizations require the formation of formal groups which will be assigned to
perform specific tasks aimed at achieving organizational objectives. The formal group is
a part of the organization's structure.
There are instances, however, when members of an organization spontaneously form a
group with friendship as a principal reason for belonging. This group is referred to as an
informal group.
It is not a part of the formal organization and it does not have a formal performance
purpose.
Informal groups are oftentimes very useful in the accomplishment of major tasks,
especially if these tasks conform with the expectations of the members of the informal
group.
The informal organization, useful as it is, is vulnerable to ex-pediency, manipulation and
opportunism. Its low visibility makes it difficult for management to detect those
perversions, and considerable harm can be done to the organization.
The manager is, therefore, warned that he must be on the look out for the possibilities that
the informal groups may do. It will be to his best interest if he can make the informal
groups work for the organization.
88

Figure 19. Reasons or Factors for Joining or

Forming an informal Group
 89
Levels of management and superision
The management and supervision of an organization may be done through levels of
hierarchy which may be flat or tall.
Flat Structure
The flat organization has few levels of management. This char.
acteristic provides it with the following advantages:
1. Communication is generally faster and less distorted.
2. Decisions can be made more quickly.
3. Supervisor's salaries are eliminated.
Flat structures, however, have the following distinct disadvan-tages:
1. They require managers with experience in the various tasks.
2. A manager may have little time for all subordinates.
3. When the manager is out, the group is without a leader.
4. Managers may have little time to anticipate problems.
Tall Structure
The tall structure has many levels of management. It has the following advantages:
1. Since the average span of control is narrower, the supervisory load is less for each
manager.
2. There are more opportunities for promotion because there are more levels of positions.
3. Managers are provided with opportunities to specialize.
4. There is less demand for managers with multiple skills.
5. Managers are afforded with more time to attend to other important problems.
Tall structures are also saddled with disadvantages such as the following:
1. Communication tends to be slower and distorted because of the number of levels it has
to pass through.
2. The number of management levels also hinders effective

decision-making rendering such activity slower and less accurate.

3. It is more expensive to maintain as there are more managers to compensate.

TALL STRUCTURE
Figure 20. An illustration of the flat and tall structure
 91
Basic Elements of Organizational Structure
Indesigning the organizational structure, certain basicelements are considered. These are
as follows:
1. work specialization
2. departmentation
3. pattern of authority
4. span of control
5.. coordination of activities
Work Specialization
The degree to which tasks are divided in the organization is referred to as work
specialization. A decision must be made regarding this element and it should be reflected
in the organizational struc ture. An illustration on typical choices in decision-making
regard. ing work specialization is shown in Figure 21. The decision-maker is confronted
with choosing between a structure with no specialized position and another with
specialized positions. In the former struc ture, the sales, the credit, and the collection
tasks are assigned to a supervisor. Although another supervisor handles the same group of
tasks, none of them has the opportunity to specialize.
In the alternate structure, a supervisor is assigned to handle sales while another is in
charge of credit and collection.
Why Specialization? Specialization promotes efficiency. This is so because it is presumed
that people can perform more efficiently if they master just one task rather than many
tasks. When an organization is efficient, it means it can perform its function with the
least amount of resources.
Departmentation
Departmentation refers to the grouping of jobs based on criteria that managers believe
help in the coordination and control of acti-vities. A decision must also be made on
whether the organization departmentation choices.
would be departmentalized or not. Figure 22 are illustrations of the
Criteria for Grouping of Jobs. If departmentation is the choice, there are certain criteria
used in the grouping of jobs. These are as follows:
1.knowledge and skills
2. work process and function
3. time
4. product
5. customers
6. location

STRUCTURE A- no specialization

STRUCTURE B- with specialization

Figure 21. work specialization; to what extent?
 93
Figure 22. An Example of the Effect of Specialization
Advantages of Grouping Jobs. Departmentation offers some advantages to the
organization. These are the following:
1. Supervision is made easier.
2. The sharing of resources, such as men, machines, and materials results to maximum
use of such resources.
3. Common measures of performance is established.
4. Communication is encouraged.
 94

pattern of Authority
The pattern of authority as an element in designing organizational structure refers to the
extent by which orgzanizational members are allowed to make decisions without getting
the approval of another member.
Authority patterns may either be IT centralized, or (2) decen ralized. It is centralized man
decision making is concentdea. the hands of higher level managers. it is decentralized
whenedin shon-making authority is granted to middle and lower managhet positions.
The Appropriate Pattern of Authority. The environments of organizations differ and so
no single pattern of authority is appropriate for all. Instead, the pattern of authority must
match the organization's environment. Centralized authority is better suite for stable
environments, while decentralized authority is for complex and changing environments.
Decentralized authority offers the following advantages:
1. Efficiency - red tapes and bottlenecks are reduced.
2. Flexibility - managers can cope with situations as they come.
3. Initiative - managers are highly motivated by the challenge.
4. Motivation - managers are highly motivated by the chal-lenge.
5. Development - managers are provided with opportunity for training.
Decentralized authority has also some disadvantages. These are as follows:
1. Control - coordinating overall activities is more difficult.
2. Duplication - there is a great chance of efforts dupliated
between departments.
3. Centralized expertise -home office experts may be overlooked or disregarded.
4. Competency - the organization may not be able to produce competent managers at all
levels.

95
Span of Control
Span of control is another consideration in designing the organizational structure. It refers
to the number of subordinates reporting to a single supervisor.
The span of control may either be narrow or wide. It is narrow when there are few
subordinates reporting to a supervisor. The narrow span of control is characterized by the
following:
1. there is closer relationship between manager and subor. dinates;
2. there is less delegation of authority;
3. controlling activities are more tight; and
4. there is more time for rewarding behavior.
Span of control is wide when there are many subordinates reporting to a supervisor. The
following characteristics are inherent to an organization with wide span of control:
1. employees work with little supervision;
2. there is a high level of delegation of authority;
3. controlling is lighter; and
4. there is less time for rewarding behavior.
The Appropriate Span of Control. Neither the narrow or the wide span of control is
applicable to all types of situations. Figure 29 shows the situations appropriate for narrow
span of control. There are also situations appropriate for the wide span of control and
these are shown in Figure 30.
Coordination
Another basic element considered in designing the organizational structure is
coordination. This term refers to the linking o activities in the organization that serve to
achieve a common goal or objective.As the total job is divided into several tasks and each
is assigned to a corresponding unit, there is a risk that one task may be done too well or
too early to the detriment of the other tasks. For instance, a company's aggressive sales
force may not be matched by the ability of the manufacturing unit to produce what can be
sold. This kind of problem can be minimized if the activities of the various units
arproperly coordinated. Such requirement must be incorporated in the design of the
organizational structure.'

Figure 29. Situations Appropriate for Narrow

Span of Control
 99

Figure 30. Situations Appropriate for Wide Span of Control

100