Chapter 5

Personal use only

Nature of
Management

Nature of Management

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

It is not easy to define management. Management is about controlling and directing the affairs
of a business. Managers are those people who make the decisions on what goals they want to
achieve in the business and they also work out ways of achieving the goals. Management is often
defined in terms of its functions: planning, leading, organising and controlling the business
activities. Perhaps one of the best ways to understand the nature of management is to look at
some of the features of effective management.

Features of effective management

Effective

A key characteristic of successful managers is that they are effective. Effective simply means
management is about
that you actually achieve what you set out to achieve. Athletes who set a personal goal of
achieving the goals of the
running 100 metres in ten seconds are effective when they run the distance in that time.
business
Effective management is achieving the goals of the business. These goals may be such things as,
in this year, to:

** achieve 20% profits on the money shareholders have invested

** increase our market share by 20%
** increase the value of the businesss shares by 20%
** cut costs by 5%.

105

The most important feature of effective management is the development of a business culture
where everyone in the business embraces change. The environment in which a business operates
is dynamic and often turbulent. Every aspect of the business must be flexible enough to respond
to those changes. These changes might include changing the way a good is manufactured or a
service is delivered, or characteristics of the products itself might need to be adapted.

Literacy Development
Dynamic means characterised by constant change
Turbulent means characterised by out of control change to the point of confusion the
world financial crisis of 2009 was an example of a turbulent environment
5.1

A business culture where people in the business embrace change is likely to lead to the
creation of a business that is highly competitive. This is another important feature of effective
management.
Graeme Liebelt, CEO of Orica, manages a highly competitive global business providing
products to the mining industry. The creation of a highly competitive business requires
management to be constantly scanning the environment for absolutely anything that may affect
the competitive position of the business. A feature of effective management is the establishment

Nature of Management

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

of a formal management information system (MIS) to collect and analyse information from the
business environment.

HomeThink
Log on to the Bureau of Meteorology at www.bom.gov.au. Access your local weather radar.
How might this information help you plan your weekend? Do you think this site is an
example of an information system?

5.2
High levels of
productivity and quality
are also features of effective High levels of productivity and quality are also features of effective management. Improvements
management
in productivity through effective training and appropriate equipment lower costs and improve

106

the competitive position of the business. Quality is a customer requirement and high levels of
quality create customer confidence and improve revenues. Again, there is an improvement in
the competitive position of the business.
We can gain an insight into effective management through the Orica business culture. Orica is
an important Australian-based global business. It employs some 15 000 people in a number of
countries, and the focus of its business is explosives and chemical products used in the mining
industry. Until recently it manufactured the Dulux brand of paint. However, in 2010 Orica
sold the consumer products division by floating a separate company on the stock exchange.
This action allowed its managers to completely focus on the thing the business does best
manufacture products for the mining industry.
The Orica business culture is presented to its employees in the form of four basic principles:
The four Deliver the Promise principles that support our performance-based culture and
against which our performance is measured, revolve around Safety, Health and the Environment,
Commercial Ownership, Creative Customer Solutions and Working Together. Our culture
empowers and motivates Oricas people to achieve long-term, sustainable results. Importantly
our employees are united by a common approach to how we do business and
achieve success.

HomeThink
Are you interested in engineering as a career? Check out Oricas website at www.orica.com.
5.3

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Nature of Management

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

Think, Pair, Share

Much of the language in this important statement of principles requires careful thought.
Work with your learning partner to simplify the language in the following statements and
questions:

What do you think is meant by the phrase commercial ownership? How is this value
linked to effective management? Jot down any ideas you have.

What do you think is meant by the phrase creative customer solutions? How is it linked
to effective management? Again jot down your ideas.

Do you think Safety, Health and the Environment would be important in creating a
competitive business in the chemical and explosives industry? Again jot down your
ideas.

How do you think people working together and united by a common approach would
be more likely to achieve success?

A really important aspect of Oricas culture is the claim that this is a performance-

based culture where performance can be measured. How could aspects such as Safety
be measured? Discuss your thoughts with your learning partner.

107

5.4

Skills of management

Successful managers are highly skilled. Many of the skills needed to be a successful manager
are technical and can be gained from TAFE and university courses. But technical skills are not
enough. Managers are achieving goals by working with other people, and interpersonal skills
are critical. Managers are also planning to achieve goals in a dynamic business environment and
flexibility is essential. So too is the ability to reconcile the conflicting interests of stakeholders.

Successful
managers are highly skilled

Management is not about yelling at staff

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Nature of Management

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

Interpersonal

Managers achieve their objectives through other people and therefore their ability to relate to
people is essential. Effective managers are able to communicate a vision of what the business
will be like in three to five years time if their strategies are implemented. Most importantly, they
are able to motivate other people in the business to share the vision and actively work towards
achieving it.

Interpersonal
skills need to include
effective communication

Essential interpersonal skills include the ability to communicate effectively, lead, delegate,
motivate and negotiate. Effective managers also have good active listening skills such as
eye contact, and are able to supervise subordinates properly through effective performance
appraisal. Where necessary, managers are able to discipline subordinates. Many people find it
very difficult to discipline subordinates.

108

Communication
Communication
refers to the transmission
of ideas and information
throughout the business

Communication is important because everyone in the business needs to know what he or she
has to do to make sure the business is successful. Communication refers to the transmission of
ideas and information throughout the business. There is a lot of self-interest in business success
because success means secure jobs with opportunities for increased rewards and promotional
opportunities. Imagine the task of effectively communicating with 15 000 employees working in
a number of different countries. Graeme Leibelt, CEO of Orica Limited, is involved in this sort
of communication every day.
Effective managers are aware of any barriers that might inhibit good communication. Graeme
Leibelt, for example, will often communicate with subordinates in Mexico. He will need to
ensure that, when what he says in English is translated into Spanish, it still has the meaning he
intended. He will be communicating with people who have very high educational qualifications

RedPeg Publishing Preliminary Business Studies

and people who have minimum educational qualifications. He needs to ensure everyone in the
business understands what needs to be done.
The most important aspect of business communication is to avoid ambiguity. This is why it is
so important to plan carefully the way ideas will be communicated and to carefully consider the
use of analogies and other techniques to ensure that people understand and that everyone in the
business is working towards a common goal.

Nature of Management

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

Good communication goes both ways. Managers need to create an environment where people
are not afraid to challenge ideas and put forward their views on how things should be done.
Listening is a most important aspect of effective communication.
Technology has made business communication more effective. Through such technologies
as email, voice mail, mobile phone and on-line video conferencing managers can get instant
feedback and all employees can quickly get clarification on any aspect about which they may be
uncertain.

109

Literacy Development
Ambiguity means uncertainty in the meaning of language. The clue is bi - meaning two
hence there are two possible meanings.
5.5

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Nature of Management

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

Strategic thinking

There is a great deal of difference between planning for the future and strategic thinking.
Planning is done in an environment that is quite predictable. A plan to build a factory, for
example, has a great deal of certainty when the money has been arranged and the land
purchased and the equipment leased. The uncertainty can be further reduced by things like fire
insurance.

Strategic
thinking is concerned
with making plans in an
uncertain environment.

Strategic thinking is all about making plans in an uncertain environment. Imagine, for
example, all the planning that came unstuck when businesses were unable to finance their
plans because of the credit squeeze that followed the global financial crisis in 2009. There is
no certainty and effective managers have to think about the future of their business and the
strategies they need to put in place to achieve that future in a constantly changing environment.
It is not an easy task!

110

Think, Pair, Share

Think about how a sporting team you are associated with prepares for a game. What
strategies are discussed or practised? Who suggests the strategies? What sort of
uncertainties is discussed? Give an example of how an uncertainty may be dealt with. Jot
down your ideas and discuss them with your learning partner.
5.6

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Vision

Vision is the key skill. Vision is where a manager imagines

what the business will be like in, say, 5 years time if all the
strategies work. Vision is the ideal if everything goes to plan
of what the business will look like in three to five years time.
Effective managers can turn what they imagine into words and
communicate the vision to all the stakeholders in the business.
Typically the vision will be of a highly competitive business
producing quality products. It will provide high levels of
customer service and deliver products that customers perceive
as value for money. It will have highly trained, happy, effective
employees who are well rewarded for their efforts. It will be
growing in value so the owners are adequately rewarded.
Efficiency and strategies are nothing unless the managers know where they want to take the
business.

HomeThink

Nature of Management

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

Vision is the
ideal if everything goes to
plan

111

Imagine your life in five years time. What will you be doing? Jot down your thoughts and
discuss them with your learning partner when you get the opportunity.
5.7

Literacy Development
Vision comes from the Latin word visio meaning sight or thing seen. Hence the ability of
a manager to see the future of a business.
5.8

Problem-solving

Problem-solving is a very important skill. By its very nature management is almost about
dealing with one problem after another. Sometimes the problems are large and require a great
deal of thought and analysis. The large problems are things like how to ensure the business has
products that are highly competitive in the market place and how to effectively communicate
the benefits of the product to potential customers in the most cost-effective way. Effective
managers see problems as challenges that need to be overcome.
The best way to solve problems is to adopt a systematic approach: defining the problem,
evaluating the alternative solutions to the problem and selecting the best alternative.
Get Going with Business

Nature of Management

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

Decision-making

Decision-making is associated with problem-solving. Decision-making is the choice between

alternatives. Managers will constantly be
required to make decisions on things like
appropriate goals, effective strategies and
resource allocation.
Decision-making is the core of the managers
role and managers spend a great deal of their
time getting the information they need, and
analysing that information, to make sound
decisions. A great deal of decision-making is
concerned with the effective use of finance.
Resources are needed to grow a business and
resources require funds. The manager has to
decide where limited funds can best be deployed
in order to reach business goals.
Just like chess, poor decisions can give your
competitor an advantage. You need to consider
all your options and anticipate the moves your
competitor will make.

112

Think, Pair, Share

Flexibility is
about putting into place
systems and procedures
that enable the business to
respond quickly to changes
in the external business
environment.

Systems and
procedures must respond
quickly to changes in the
business environment.

Draw a mind map or decision tree that allows you to solve a time management problem
by setting out the options. You might consider how taking on extended hours in your
part-time job will affect your study timetable and the time you allocate to regular exercise.
Discuss the mind map with your learning partner and go through the decision-making
process you used to develop the options and choose the best.
5.9

Flexibility

Businesses operate in a very uncertain environment. Change is constant and difficult to predict.
Flexibility is about putting into place systems and procedures that enable the business to
respond quickly to changes in the external business environment. Many retail businesses faced
this sort of challenge during the global financial crisis of 2009. Many businesses experienced a
sudden fall in the demand for the products they were selling. When the revenue the business
received from selling its products fell, managers knew they had to respond by reducing business
costs.
The problem managers faced was what to do about employees who were no longer needed

RedPeg Publishing Preliminary Business Studies

Nature of Management

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

because there was not enough work for them. Some managers dismissed the employees. Other
managers, realising how difficult it was to get well-trained employees when consumer demand
was high, put their employees on to part-time work for the duration of the crisis and were well
placed to take advantage of increased consumer spending when the crisis was over.
The managers who had dismissed some of their employees found it more difficult to recruit
well-trained people in a period of high demand for this type of employee.

Literacy Development
Interestingly the plural of words that have come from Latin and end in um is an a not an s.
Can you think of other examples besides gymnasium?
5.10

Adaptability to change

Another feature of an uncertain environment is the need to adapt to changes in customer

demand. For example, the social trend towards the healthy lifestyle took a lot of managers by
surprise. This trend created opportunities for businesses such as gymnasia and fruit drink bars.
At the same time it created threats for many takeaway food businesses.
McDonalds managers quickly adapted the business to the changed environment, stocking
fruits and salads. Successful managers have the ability to adapt quickly to change and gain a
competitive advantage on their competitors by meeting the changed needs of customers more
effectively than their competitors. This is the way they increase the businesss market share and
grow. Successful managers almost invariably embrace change. And again it is not easy. It may
involve, as the McDonalds example showed, the need to develop new products or new ways of
manufacturing the product.
When Guy Russo was appointed manager of Kmart after Wesfarmers Limited bought the
business in 2008 he was quickly able to adapt a business that had previously been reluctant
to change and was losing customers. Russo changed the products, pricing systems and staff
training and started to advertise with the slogan change you can see. There was a complete
reversal in Kmart and the business started to grow in value after years of decline.

113

We will
continue to refer
to Kmarts success
throughout this book
because what Guy Russo
has achieved exemplifies
the key principles of
effective management.

Kmarts stellar recovery

In August 2008 Andrew Carswell acknowledged Guy Russos success in an article in the Daily
Telegraph. Carswell argued that, when Russo was appointed managing director of Kmart in
September 2008, he inherited a basket case.
Carswell drew attention to Kmarts flaws before that time as antiquated and routinely messy
stores and made the point that Kmarts customers were discovering Big W.
The main idea in Carswells article is that Russo turned the ailing stores fortunes 180 degrees.
Carswell demonstrates the turnaround by pointing to the improvement in 12 months of pre-tax
earning surging by 74.3% from $109 million to $190 million.
Get Going with Business

Nature of Management

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

Carswells article also pointed to some of the important strategies Russo employed to achieve the
recovery. Russo tossed out underperforming and expensive items such as TVs, whitegoods and
hardware. Adopted the mantra of everyday low prices and employed some fiscal discipline.
Carswell finishes his article with the simple sentence Hats off.

Think, Pair, Share

Guy Russo started his career with McDonalds and rose to be the CEO of McDonalds in
Australia. In 2008 he took the job of managing director of Kmart. Do you think there is
any similarity in managing these businesses? Jot down your thoughts. Do you think the
central aspect of both businesses is customer service? What do you think is the main reason
given in the Carswell article for the turnaround in Kmarts fortunes? Again jot down your
thoughts and discuss them with your learning partner.
5.11

Activities

114
Ranking Exercise
Skills of Management

Step 1 Rank the following skills of management in terms of their general importance by

circling the number 1 as the most important through to number 10 as the least
important.

Step 2 In teams (of four) discuss your individual rankings and try to reach a consensus

of ranking that reflects your teams opinion.

Step 3 Each team reports to the whole class on the three most important and three least

important management skills.

Step 4 Teacher or student led discussion of findings.

People skills

1 2 3 4 5 6 7 8 9 10

Sense of humour
Strategic thinking

1 2 3 4 5 6 7 8 9 10

Vision

1 2 3 4 5 6 7 8 9 10

Flexibility & adaptability

1 2 3 4 5 6 7 8 9 10

Team-work

1 2 3 4 5 6 7 8 9 10

Complex problem-solving

1 2 3 4 5 6 7 8 9 10

High ethical standards

1 2 3 4 5 6 7 8 9 10

Financial management

1 2 3 4 5 6 7 8 9 10

Neat & tidy

1 2 3 4 5 6 7 8 9 10

1 2 3 4 5 6 7 8 9 10

5.12
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Reconciling the conflicting interests of stakeholders

There is a common belief that all the people associated with a business have common goals.
This is not the case. There are groups of stakeholders who have different goals. Stakeholders
are individuals or groups that have an interest in a business. Employees, for example, have an
interest in the continuing success of the business because this is how they earn their income.
However, the stakeholders often have conflicting interests:

Nature of Management

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

** customers want to maximise the benefits they get, whereas shareholders want to minimise
costs

** employees want to maximise benefits, while shareholders want to minimise costs

** suppliers want to minimise costs, while the business wants to maximise benefits
** the community wants to maximise the benefits from things like low pollution levels, while
shareholders want to minimise costs.

Managers have the job of reconciling these conflicting interests. A current example can be seen
in the attempts of James Hardie to reconcile the conflicting interests of shareholders and past
employees who have suffered from asbestos poisoning.

115

The Daily Business

James Hardie is a global manufacturer of home building products including timber flooring,
partition walls, kitchen renovations and fibre cement products.
In the past, for several decades James Hardie used a raw material called asbestos in their fibro
cladding products. Asbestos is a naturally occurring mineral that is very strong and resistant to
heat. Millions of tons of asbestos were used in a range of building materials.
Several decades ago a connection between asbestos exposure and deteriorating health was
established. However, James Hardie continued to manufacture products where asbestos was a
raw material for some years. Only fibro products
produced before 1987 contain asbestos, but by then
many employees were suffering from deteriorating
health.

Chest x-ray showing pleural

plaques caused from
asbestos exposure

Initially, James Hardie was reluctant to adequately

compensate employees, arguing that current
shareholders were not responsible. A campaign was
launched to get help for the thousands made ill by
asbestos products. The unions played a dominant
role. One of the heroes was Bernie Banton. Bernie
died on 27 November 2007 from asbestos disease.
By the time of Bernies death James Hardie had
established a multi-million dollar fund to pay
compensation to people with asbestos illness.

Get Going with Business

Nature of Management

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

Activities
Do some research on Bernie Banton and asbestos. Find out why James Hardie were
reluctant to set up an appropriate compensation fund.

** Identify the stakeholders mentioned in the article.

** Discuss with your group the responsibility James Hardie had to their employees.
** Explain how the conflicting interests between the stakeholders was resolved.
5.13

Think, Pair, Share

116

What would you do? You are the CEO of a large mining company. In the past the mines
have been responsible for an increase in lead levels, which is now being recorded in the
blood/lead levels of the towns children. This happened before your company bought
the mine and you have stopped the practices. The town is divided because the mine is
the largest employer and the town is unlikely to survive without the mine. There is no
doubt the mine has been responsible for the towns prosperity. The local paper is treating
this news as a front page story. Lawyers are now preparing for a class action to sue your
company on behalf of the parents whose children have dangerous levels of lead in their
blood.
What will you do? List the actions and alongside each action write in the skill you will be
using in that action. Compare what you would do with a partner. Discuss any differences
in approaches.
5.14

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Nature of management

Worksheet 5.1
successful

market

adaptability
change

flexibility

Worksheet

ISBN 978-0-9775849-4-9 2012 Don Sykes & Kim Crawford - www.redpeg.com.au

growth

mentoring
planning

mix

innovative

environmental

vision

reconciling

achieving
profits

organising
goal

Cloze exercise
Management is often defined in terms of its functions;
Effective management is
A typical businesss

, leading,

and controlling.

what was planned.

might be to achieve 20% profits on the money shareholders have invested.

Three typical examples of important management skills include:

, and

to

Stakeholders in a business often have different goals. Stakeholders want to maximise their benefits. Managers
have the task of the conflicting interests of stakeholders.
Some of the most important goals of a business are:

, and

Increasing business goals are concerned with sustainability. This type of business goal is called an
Managers try to create a

117

goal.

of often competing goals.

Staff involvement is a significant feature of a modern

business. Many managers have adopted
ways of involving staff. Kmart is a great example. Another feature of staff
involvement is , where experienced people counsel other employees.

Literacy strategies
It is most important that you learn to organise and sequence your ideas. Your paragraphs should have cohesion. A
cohesive paragraph is a group of sentences that contain related information.

Think, Pair, Share

Re-order the sentences in the following paragraph to ensure maximum cohesion. The paragraph is an
introductory paragraph that answers the question above it.
Compare your re-ordered paragraph with your learning partner.
Other important aspects of the nature of management at Kmart include the skills of management, achieving a mix of
goals and involving the staff in the business.
Effective management is when managers achieve the goals they have set.
Guy Russo improved market share and increased profitability by 105% in 2009 and a further 93% in 2010.
Kmart, under the leadership of Guy Russo, has benefited from effective management.
Question
With reference to a business you have studied describe the nature of management in that business.
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