STUDY GUIDE
FOR THE
Management
Role of Managers in Company Management
for BMCF TM study – course
M_RMCM Role of Managers in Company Management
Karel Havlíček
Ing.Karel Havlíček, PhD., MBA
Management - Role of Managers in Company Management
© Karel Havlicek, 2011
Management - Role of Managers in Company Management
Contents :
1.
1.1
1.2
1.3
1.4
1.5
1.6
Role of management in hypercompetitive environment
Owners and managerial strategy
Managerial strategies and managerial planning
Involved persons – Stakeholders
Key terms
Test questions
Recommended literature
2.
2.1
2.2
2.3
2.4
2.5
2.6
2.7
Role of management within marketing management
Marketing management
Marketing policy
Marketing researches
Marketing planning
Key terms
Test questions
Recommended literature
3. Role of management within sales management
3.1 Sales management
3.2 Sales planning
3.3 Management of forecasts
3.4 Trade receivables management
3.5. Customers communication management
3.6 Key terms
3.7 Test questions
3.8 Recommended literature
4.
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Role of management within financial management
Financial management
Financial planning
Controlling
Management of relations with banks
Costing
Key terms
Test questions
Recommended literature
5. Role of management within quality and innovation management
5.1 Quality management
5.2 QMS models
5.3 TQM models
5.4. Balanced Score Card
5.5 Innovation management
5.6 Key terms
5.7 Test questions
5.8 Recommended literature
6.
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
Role of management within team building
Managerial team building
Recruitment of managers
Implementation of managers in teams
Motivation and education
Establishment of organizational designs
Key terms
Test questions
Recommended literature
1. Role of management in hypercompetitive environment
1.1
1.2
1.3
1.4
1.5
1.6
Owners and managerial strategy
Managerial strategy and planning
Stakeholders
Key terms
Test questions
Recommended literature
1.1 Owners and managerial strategy
The term strategy has been frequently used in various contexts, which often leads to many
misunderstandings and confusions. It originates from Greek – we can translate it as the art of
a leader, general. Within business terminology it used to mean the ability to make decisions
on the basis of high expertise and professionalism. However, there is another term with the
same root used in English – "stratagem". The term is generally translated as an act performed
by company management within its top managerial activities.
By the term strategy we mean certain scheme (process) that outlines how to achieve the set
objectives under given conditions. It is a summary of steps and activities to be adopted "being
aware" of partial lack of knowledge of all the future circumstance, conditions and
connections, where not every possible alternative is identified, and individual advantages and
disadvantages can't be determined for the purpose of future decision making. The objective is
to establish adequate coordination of all the company's activities, and create unified complex
of its perspectives.
The strategy in small or medium enterprise should be defined in a short or mid-term horizon,
not for more than 5 years ahead. Such horizon should be sufficient for medium sized
enterprises. An enterprise of this size should anticipate a flexible change required by general
trends. Flexibility is one of the major competitive advantages of small and medium
enterprises compared to multinationals and large corporations. Thus it is not necessary to set
up long term strategies, as their continuous changes are likely. The maturity of mid- and long
term investment loans can be used for orientation with regards to the period of compiled
strategy.
In normal practice we discern owners' and managerial strategic aspects.
Owners strategy is basically outlined by owners (shareholders, partners), and has a global
character. The owners determine what is their mid- and long term objective. These can be for
example:
–
financial requirements (ROE, EVA, profit, dividend, available CF etc.),
–
marketing and sales aspects (market position and share, turnover etc.),
–
strategic objectives (market value of the company, synergic effects etc. ).
Managerial strategy is based on the owners strategy, developing concrete strategic plans in
order to achieve the owners' objectives. This strategy is prepared by the company
management at the level of sales, marketing, financial, production, human resources or other
directors. strategic objectives and strategies are identified on the basis of analyses, frequently
in cooperation between the top management and owners.
As mentioned before, the company management is responsible for achievement of strategic
objectives, represented by the executive or general director. Controlling body can be an
advisory or supervisory board of the company, or board of directors, provided the board is not
the management at the same time. This always depends on particular model and
organizational design (structure) of the company.
1.2 Managerial strategies and managerial planning
The following steps are usually understood under the term "company strategy":
a)
b)
c)
d)
e)
Description of current status by SWOT analysis.
Determination of target status in a mid-term horizon.
Outline of strategic objectives.
Strategy of achievement of these objectives.
Establishment of control mechanisms of the achievement.
Strategies and strategic objectives are above all the activities and departments of the
company. They are the starting point of plans and concepts of individual departments,
divisions etc. The objectives of financial, sales, marketing, human resources and production
have to be based on global strategy, when formulating partial plans and goals, and the short
term objectives of these departments have to be modified in accordance with overall strategic
objectives, which is an essential precondition of their achievement. This process is illustrated
in the Figure 1-1.
SWOT
analysis
Target
status
Strategic
objectives
Strategy of
achievement
Monitoring
the
fulfillment
Marketingová
strategy
Sales
strategy
Financial
strategy
Production
strategy
Human
resources
strategy
Marketing
plan
Sales plan
Financial plan
Production
plan
Human
resources plan
Figure 1-1 Illustration of the company strategy and its links to the plans of individual
departments
Individual strategic issues are not definitive, heir implementation in the company depends on
its orientation, size, organizational design etc. It is obvious there will be no production
strategy implemented in a trading company etc. Another strategies and consequent plans we
may come across are innovation, quality, logistic and others. It is possible to combine certain
strategies as well. Typical example for the small and medium enterprises is the amalgamation
of marketing and sales strategy into one sales and marketing plan. Human resources plan in
SMEs is sometimes substituted with a simpler motivation plan.
Marketing strategy
Marketing strategy is the basis for articulation of all the company's objectives. We may claim
a successfully implemented sales and marketing strategy is decisive for the enterprise's
efficiency. Basis is the marketing mix, from which we derive the following marketing
strategies:
-product (product mix, life cycles, brand strategies…)
-price (costing, pricing strategies)
-distribution (distribution channels mix, approach to the management of distribution conflicts)
-communication (strategy of setting up internal and external communication mixes)
The strategy consists of analytical and implementation parts. The analytical part describes
current status, or history in all the strategic issues defined above, and together with the
marketing research they are the basis for identification of strength and weaknesses,
opportunities and threats - so-called SWOT analysis.
The principles of marketing management of the company are defined in the marketing
strategy and its implementation part. Fundamental is the marketing plan, as it includes
marketing objectives, strategy of achievement and control mechanisms.
Sales strategy
The sales strategy is built on the marketing plan, and SWOT analysis. History of sales is
described in the analytical part in the following breakdown:
- product groups or individual products
- customer segments, or individual customers
- foreign or local territories
The implementation part describes principles of sales management, and with regards to the
above mentioned breakdown it includes the sales objectives to be developed further into
detailed sales plans.
Financial strategy
It is created in the context of sales plan, with regards to the marketing research, SWOT
analysis, and marketing and sales objectives. The analytical part includes history and updated
summary f financial results and indicators in the structure relevant to the size and orientation
of the company, and financial requirements of the owners.
The implementation part consists of an overview of the required financial objectives in the
horizon of several years. The achievement of objectives is defined in the financial
management policy, which is the basis for development of financial plans and budgets. The
financial plan consists of balance sheet, profit and loss account, and cashflow statement.
Annual budget is the basis of company's operating management.
The financial strategy is a result of marketing and sales strategy. The marketing and sales plan
has to come before the financial plan. This means the marketing and sales information – to
who, for what price, where, in what form and with what marketing cost – has to precede the
budget. Sometimes wrongly used reverse process tends to unrealistic forecasts, and may cause
existential problems to the enterprise. Financial director is responsible for the financial
strategy. In order to be able to prepare it credibly, the director needs timely and correct
information from the marketing and sales department, at minimum in the form of sales plan.
Production strategy
Similarly to the previous cases the production strategy includes analytical and implementation
parts. The analytical part describes history of production, namely with regards to capacities,
technologies, processes and individual sections, productivity and relation to the fulfillment of
sales results.
The implementation part describes how many products, in what quality ad structure, time and
efficiency will be produced in the strategy's horizon. The production strategy defines overall
management of the production, sometimes also the management of procurement and
technologies. Its results are local production plans – basis for dispatch plans (can be
included logistic or warehousing plans). The production strategy in smaller companies is
usually complemented with procurement policy and investment strategy related to new
technologies.
The marketing and sales, and financial plans have to come before the production plan. The
director of production is responsible for the production plan and strategy.
This procedure has to be emphasized once again! In many enterprises so-called manufacturing
approach survives: "The production has produced and now it's up to you – the salesman – to
sell it!" Production directors and managers as the driving forces in companies are a mistake. It
is not possible for the production departments to decide on the product range, price and
quality. It is the customer who decides, and his decision is mediated in the company through
marketing and sales department.
As an example we can take the transformation of so-called Eastern bloc. High demand in
former East-European countries in early nineties that often exceeded the supply of both
traders and manufacturers, was a unique phenomenon, result of the transition towards market
environment. Such situation is really unlikely in future. Logical consequence of company
management was tremendous pressure of production and financial departments on sales –
priority was HOW to produce and HOW to secure funds, WHERE to place the product or
service was a secondary concern. The sales (actual sales, not the trading) were often simpler
than the very manufacturing concept. Incoming multinationals and consequent growth of
competition in general, stricter legislation, more cautious banks, higher pressure on quality
and saturation of the market – these are the basic attributes that change the view of still
frequent process: manufacture – finance – sales – marketing. The supply today exceeds the
demand in most cases. Overproduction and surplus products come as a result. The enterprise
capable of assessing market development and placing its products in variants, products that
are sold, is more competitive and successful. The priority now is WHERE to place the
product, WHAT price is the customer and the consumer willing to accept, WHAT quality is
expected by the customer and the consumer, WHAT distribution channel is optimal for
customers, WHAT means of communication will be used to offer the product, and only then:
HOW and FOR HOW MUCH to produce the required product (to ensure profit at the end of
the day). The Figure 1-2 illustrates trends of supply – demand relations in eastern Europe. It
means in most cases it is the customer who decides on quality, design, parameters, price and
placing of the product, not the manufacturer. The manufacturing approach is thus replaced
with customer-oriented, sales/marketing approach. There is gradual transfer from productionoriented marketing towards the modern marketing philosophy of customer relationship
management. This process was typical for the whole period of nineteen nineties, and due to
the dynamic development of market environment, relations and competition it was very
intensive.
1990s
Demand
Present
Supply
Supply
Demand
Overproduct
Figure 1-2 The trends of supply – demand relations in Eastern Europe in 90s
Human resources strategy
Human resources strategy has an analytical-historic part, and implementation part, too. It
consists of human resources policy, followed by the plan of human resources management,
so-called human resources plan. The plan describes in detail recruitment system, inclusion
of employees in teams, creation of organizational designs, training and motivation of the staff.
Personnel (in larger companies human resources) director is responsible for its preparation. In
smaller companies, where there is no post of personnel director created, the human resources
strategy falls within the executive director's responsibility. In some medium marketingoriented companies the bearer of personnel policy can be the marketing and sales director,
who includes in his marketing plan the area of so-called internal marketing. Internal
marketing in this case is a philosophy that treats the employees as customers – the main point
being communication with the staff. They are informed of what is going on, why it is going
on and what is required from them in order to ensure efficiency. In smaller companies the
human resources plan is often substituted with motivation plan.
The importance and sequence of managerial strategies
There is a change of priorities and sequences of managerial going on presently. The effects of
overproduction and surplus products lead to the necessity of considering the market
information first – where to sell the product, under what conditions and quality. This means
the marketing and sales plan is a cornerstone of further strategic planning, i.e. human
resources, financial, production, quality, logistics, innovations, procurement etc. It is
important to understand the planning in relation with the annual budget, as illustrated in the
Figure 1-3
Line strategy
Type of plan
Timeframe
Marketing
and sales
strategy
Marketing
and sales plan
Sep-Oct
previous year
Financial
strategy
Financial
plan
Oct previous
year
Production
strategy
Production
plan
Nov previous
year
Human
resources
strategy
Human
resources plan
Dec previous
year
Figure 1-3 Strategic planning in small and medium enterprises related to annual budget
1.3 Stakeholders
One of the definitions of modern relations marketing talks about the tool of marketing
philosophy of creation and distribution of values for targeted and identified markets –
customers. Therefore correct identification of the customer, understanding the desires, values
expected from us (the enterprise), for which he is willing to pay, are the basis of any
marketing approach, and the starting point for the treatment of any marketing case. Basically
we recognize two types of users of our products:
- customers who buy or pay for the products and services we provide, but they do not
necessarily use them (e.g. purchase of gift for somebody, pet food, toys for children),
- consumers who use the products ad services, but they do not necessarily buy them (husband
uses aftershave from his wife, children play with toys from their parents).
Another possible interpretation of the term customer is provided by P. Kotler and G.
Armstrong (Marketing. Grada Publishing, Praha 2004), working with the following division:
- organization whose purchasing behavior includes goods and services for the manufacture
of another products to be sold, rented or provided further. These are also wholesale and retail
companies. They operate in so-called industrial markets,
- consumers (individuals and households) that buy goods and services for their own needs,
the transactions take place in so-called consumer markets.
Thus every enterprise has several different groups of customers and consumers, each of which
expects different values from the relationship. We may even develop this idea further, and
include another parties that neither buy nor directly use the services, still influencing the
enterprise's behavior. Those interested in particular company, because they can influence or
be influenced by its activities (production, sponsoring, communication etc.) are called
involved persons, or stakeholders.
In the relation marketing theory you may come across one statement – survival of an
organization depends on its effective management, and wide range of involved persons. The
satisfaction of the may and often conflicting interests of involved persons is a task for every
manager within an organization. Involved persons – stakeholders, and their expectations are
identified in the model shown in the Table 1-1 As seen in the table, the involved persons
include several groups not to be called customers in our sense; however, on the other hand we
would call the customers stakeholders. The term "stakeholders" is thus considerably wider
than the term "customers". The success and managerial skill does not mean maximum
satisfaction of just a part of the stakeholders, but adequate satisfaction of everybody, if
possible. The word "adequate" is used on purpose, as it is almost impossible for the reason of
often conflicting interests to satisfy everybody to maximum extent.
Involved persons
Employees
Shareholders
Suppliers
Customers, consumers
Government
Managers
Minorities
Creditors
Municipality
Expectations
Financial remuneration, satisfaction from work,
sureness
Growing capital, dividends
Regular and paid deliveries
Quality, value
Employment, legislative environment, payment of
taxes
Prestige, acknowledgment, career opportunities
Employment
without
discrimination,
equal
approach to values
Payments in time, safety of investments
Employment, taxes
Table 1-1 Involved persons and their expectations
1.4 Key terms
Owners strategy
Managerial strategy
Marketing strategy
Sales strategy
Human resources strategy
Production strategy
Sales plan
Marketing plan
Financial plan
Production plan
Human resources plan
Industrial market
Consumer market
Stakeholders
Shareholders
Customers
Consumers
SME / Small and medium enterprise
1.5 Test questions
1.What objectives definitely belong to the owners strategy?
a) achievement of the defined turnover
b) achievement of higher market share
c) achievement of the objectives defined in quality policy
d) achievement of the defined ROE
2. What has to precede the financial plan unconditionally?
a) quality management plan
b) marketing research
c) human resources management plan
d) logistic management plan
3. Who pursues the market requirements within an organization?
a) production director
b) sales and marketing director
c) financial director
d) technical director
4. B2B means to trade in:
a) industrial markets
b) commercial – consumer markets
c) the area of employees' purchases
d) the field of state contracts
1.6 Recommended literature
Havlicek, K: Management, Role of Managers in Company Management, chapter 1
Hellriegel, D. – Jackson, E.S. – Slocum,J.W. (2005) : Management , A Comepetency-Based
Approach. Thomson South-Western, Mason, chapters 1, 5, 6, 7.
2. Role of management within marketing management
2.1
2.2
2.3
2.4
2.5
2.6
2.7
Marketing management
Marketing policy
Marketing researches
Marketing planning
Key terms
Test questions
Recommended literature
2.1 Marketing management
Marketing management is an essential business activity, without which no company can do,
even more so if it has an ambition to export its own products, and to conquer new territories.
Marketing management in CRM mode is defined as continuous process of analysis, planning,
implementation and control of all the company's activities. (Source: Kotler, P., Armstrong, G.:
Marketing. Grada Publishing, Praha 2004). The goal of marketing management in a company
is to satisfy business objectives of the entity or entrepreneur by satisfying the customers'
requirements. K.Havlíček and M.Kašík in their publication Marketing management in small
and medium enterprises (Management Press, Praha, 2005 ) created practical model of
marketing management (Figure 2-1) when applying the philosophy of managed relations with
customers:
Creation of marketing
policy
Includes:
Set territories, product groups and
segments
Organizational design of the
marketing and sales
Personnel and responsibility
Motivation systems
Internal communication
Methods and data of research:
Primary and secondary
Marketing research
Marketing planning
Research environment:
External - far environment
Competitive – near environment
Internal environment
Marketing planning includes:
- SWOT analysis
- objectives
- strategies of achievement
- control mechanisms
2.2. Marketing policy
Each enterprise should have its marketing policy defined by the marketing director. This is a
simple document that describes basic philosophy of the department, including product
portfolio, customer segments, proposal of corresponding distribution, communication, and
human resources. It should be linked to the overall strategy. The purpose of marketing policy
is to provide simplified map of the main line of work of the department, what are the current
customer segments, what marketing and sales activities are being prepared in the horizon of
one year, who implements the current activities, how is the evaluation organized. The policy
is prepared once a year, it should be in the form of a document given to every employee of the
marketing and sales department, and to the company director. Marketing policy document
usually includes:
Organizational design of the marketing and sales department. Simple graphic chart of
the organizational design is enough, where marketing director is on the top (in smaller
companies marketing and sales director), followed by other team members, managers, sales
representatives for domestic or foreign markets (so-called front office), sales assistants,
background personnel (so-called back office), etc. Everything depends on the orientation,
size, and organizational design of the enterprise. It is important to highlight the relations
between possible subdivisions and hierarchy, i.e. who report to whom, who is responsible for
whom. It is quite easy in smaller enterprise, but tens of staff members in the marketing and
sales department are not an exception, of which some are field sales people, others work in
branch offices or abroad. In such a case the organizational design is very important – from
both control and transparency point of view.
Main product groups and territorial division of the customers This means the overall
product and territorial division, and major customer segments. The product division does not
have to be detailed (individual products), but it should correspond to the group structure
according to sales plan, maximum ten basic product groups (depending on the scope and
orientation of the products). Territorial design means the division to individual countries, or
regions. Customer segments should also be divided to maximum ten categories. It should be
clear who is the customer, and what product mix will we offer. It is important to include
concrete personal responsibility for all the above mentioned categories in the marketing and
trade policy document.
Human resources status and activities Complete list of all the department's employees,
their job assignments, classification within the organizational design of the team or projects of
marketing and sales character, or projects of another departments and sections. It is useful to
include e-mail addresses, mobile and fixed phones in the list. The fact that such document can
be a major communication tool for some staff of the marketing and sales department should
be taken into account.
Motivation system The motivation system represents team motivation, system of
evaluation aimed at departments, groups, or projects, concrete motivation instruments leading
to the best performance of the staff, and consequently to prosperity. In other words – the
system of remuneration should be clear from this document, i.e. under what conditions, when
and for what, in what way and by whom the remuneration will be approved and provided.
Summary of individual evaluations, or even individual incomes should definitely not make
part of this public document.
Communication within the department When and where regular meetings take place, in
what intervals, who takes part, what source materials are required, where the minutes are
archived etc. The dates of "brainstorming" meetings, workshops, project sessions, innovation
committees etc. can be provided as well.
Marketing department directives In case there are directives of any kind used in the
department, they should be included to the marketing policy as well. These can be for
example directives related to quality policy, or internal directives of the department, such as a
directive on the management and administration of trade receivables.
2.3 Marketing researches
For both large companies and small and medium enterprises the continuous market research is
a cornerstone of their activities. It should not relate only to a particular goal or immediate
plan; its ongoing implementation and monitoring are advisable. Product life cycle gets
naturally shorter in the era of growing competition. Endless flow of information on new
trends, competition, groups of customers and suppliers are key of further company
development.
The objective of marketing research is systematic planning, collection, analysis and
evaluation of the information needed for an effective solution of marketing problems. This
applies to all types of organizations in general. In small and medium enterprises the research
is adequate to their possibilities, but even here it is necessary to understand that sound
research is a basis for other activities.
This implies the necessity of system approach, i.e. to apply the research of external
environment aimed at the following aspects (so-called STEEP analysis):
- sociological,
- technological,
- economic,
- environmental,
- political.
This research is crucial, namely in the case of more remote territories, market environment of
which is not well known.
When researching the internal competitive environment it is convenient to use factor
environment analysis (so-called Porter's model of competitive environment):
- number and strength of competitors,
- customers,
- suppliers,
- substitute products,
- potential competition.
It depends on the purpose, type of business, size of the competitive environment, market
share, power of the organization etc. The research includes collection, processing and analysis
of the information, and a report has to be prepared, and maybe its results presented. To cover
the information needs plan of the research can require collection of secondary data, primary
data or both. The secondary data includes information that has been already collected for a
different purpose. On the contrary the primary data is collected for a specific purpose. In the
first case the enterprise makes use of its databases, and open external sources (public
electronic databases, associations, chambers, media etc.). In the second case ordinary
accounting and economic data from the database of deals and customers will be the source,
including minutes from meetings.
However, it is good to realize that the market research does not mean just some
spreadsheet and statistic methods, tens of pages of various papers, and expensive agencies
providing professional surveys. The very research can be simplified in the small and medium
enterprises under the slogan: "Collect and use the information from the market and its
surroundings", and it is up to the managers' abilities to get the information on continuous
basis. It means to keep communicating with the customer, to listen, to ask for feedback. It
should be a precondition for the managers conducting marketing research to improve their
education in this field further, to travel and learn new methods, to extend their general
overview. To clinch a good deal is often not a matter of high expertise, but of general
overview of politics, culture, sports, history, religion etc. Marketing department personnel
should be able to absorb various kinds of information, and use and implement it further.
General overview and fast work with information, as well as the ability to recognize their
importance, are key criteria of recruitment of people for marketing and sales posts.
Apart from the marketing research being performed on continuous basis, and the
important data being archived, we obviously organize targeted research, depending on the
upcoming events, which can be in the small and medium enterprises for example:
- business or investment goal,
- opening foreign market,
- launching new product groups in the market,
- establishing communication with a new customer segment,
- expansion of resent production – increase of production capacity.
It is also recommendable to update the marketing research on regular basis, when
preparing annual sales and marketing plan. As a comprehensive document it should include
an opening page and provide reasons why it has been conducted, information on the date and
person, or contact to cooperating agency. Sales and marketing directors should be in charge of
all the researches, not just relying on heir subordinates to do the work. The activities relate to
significant, often sensitive data, which may be possibly carried away to a new employment.
Successors usually start working on these data, which often represents the only document that
provides characteristics of the product, customer segment and particular customers.
At the level of small and medium enterprises it is useful when such research is
performed by individual experts supervised by their manager, or directly by the marketing and
sales director. This means the sales people who will be directly responsible for the researched
segment or territory. Sales and marketing departments in SMEs usually do not dispose of a
team of market research specialists, which is rather advantage. The research can be very well
evaluated by the commercial success or failure of the responsible sales person, in comparably
short time. However, this required good skills of the sales people. Apart from usual business
skills and sales psychology training these people (often sales representatives) should be
regularly trained in the basis of marketing in order to understand mutual connections of
marketing, trade and communication. Marketing research is a necessary source document for
the marketing and sales plan.
2.4 Marketing planning
Marketing plan belongs to basic pillars and documents needed for a successful management
of the whole enterprise. Within SMEs, where we discern sales and marketing management,
the sales plan is often part of the marketing plan, called marketing and sales plan. The sales
and marketing parts of the plan are still independent, mutually connected documents, use of
which can be:
- (A) Annual, as a fundamental document for the management of marketing and sales
department.
- (B) Individual, as one of the basic documents for various activities and fields, for example:
- business or investment goals,
- opening of new foreign markets,
- launching activities in new regional territories,
- launching of new products in the market,
- restructuring of enterprises.
Marketing plan comes before financial plan, production plan, and human resources plan.
Marketing plan is developed by the whole sales and marketing team, finalized by the
marketing and sales director, who submits it to the enterprise's director and bears
responsibility. Marketing plan has to comply with the selected sales and marketing policy, and
to be based on the whole company's strategy. Within the time sequence of individual plans it
is always on the first place, i.e. being developed in September – October of previous year. It is
linked to marketing research, good quality of which is fundamental for the success or failure
of the marketing and sales plan.
The marketing plan (Figure 2-2) includes:
- SWOT analysis of the enterprise,
- department (whole company) objectives,
- strategy of achievement,
- control mechanism of (assessment) achievement.
SWOT
OBJECTIVES
Figure 2-2 Process of creation of marketing plan
STRATEGIES
of achievement
CONTROL
SWOT analysis
To evaluate the result of enterprise's or its department's activities the frequently used and
well-known analysis of strengths, weaknesses, opportunities and threats – SWOT is used.
The strengths are compared with opportunities (creative thinking), and the weaknesses with
threats and potential risk (basis for risk analysis). SWOT analysis in general is considered to
be a very important strategic tool, which exceeds the framework of marketing. It provides
information from the viewpoint of customer relationship management on what works (and
what doesn't work), and on the changes in the interface between us and our customers. It is
obvious we usually prepare SWOT analysis on the basis of previous research of external and
competitive environment. The basis for SWOT analysis has to be thorough prior marketing
research, otherwise we will not be able to compare our strengths and weaknesses, neither to
define the opportunities and threats.
Another danger of SWOT analysis is frequently a long list of wishes and limitations that
remain the same for years. That is why it is important to focus on areas we can manage and
influence. We use SWOT analysis not only as a necessary part of marketing plans, but also
when evaluating personnel, annual reports and the like. Every salesperson and marketing staff
member shall know the SWOT analysis and be able to make use of it within trading
negotiations. The point s not to make too detailed analyses, 3 – 6 apt facts are enough for each
area, expressed in the form of easily remembered slogans.
The purpose of marketing plan should be considered. In case it is a regular document (see A)
annually prepared for the company management, it is a description of status, opportunities and
threats of the marketing and sales department, or the whole enterprise (in smaller companies).
In case of plans prepared for certain event (see B) the SWOT analysis relates to one activity
only, it is a partial or professional SWOT analysis, which is used for the decision on how and
whether to perform the activity. SWOT analysis should be brief (three to five points to every
issue), communicated to the whole sales team, which should possibly participate in its
preparation. It is not just a basis for next decisions in the sense of feasibility of the set
objectives and consequent method of their achievement, but also a good basis for negotiations
of sales people with partners. Knowledge of the weaknesses and strengths, opportunities and
threats of the enterprise due to its environment should be a matter of course for the whole
company management. Strengths generate opportunities, some of which may even become
objectives, on the contrary the weaknesses can lead to threats come true, and represent a basis
for risk analysis. As well as the whole marketing plan the SWOT analysis should be created
by team, while the final version and expressions are task for marketing and sales director.
The very form of SWOT analysis within marketing plan can be one page, graphically clear
matrix. Following the SWOT analysis we define the export department's or company's
objectives. To systemize these factors a simple form is used (Table 2-1). SWOT analysis of a
food processing company is provided as an example.
COMPANY STRENGTHS:
– team of specialists in the company's
management
– excellent safe input material
– well established network of supplied
entities
– modern technological background
– wide assortment of products
OPPORTUNITIES IN THE MARKET:
– new customers recruited among chain
stores
– new product range – finished
food for the existing customers
– CR in EU – new customers
COMPANY WEAKNESSES:
– language barriers
– communication within the company, and
towards external customers
– no product certified as "TOP product"
– efficient approach to sales promotion
missing
THREATS FROM THE MARKET:
– strong competition in the market of
foodstuff suppliers
– foreign competition
due to Czech Republic in EU
– orientation of multinational chains to
the products of their home countries
Table 2-1 Example of SWOT analysis of a food processing company
Marketing objectives
When defining the objectives we again differentiate between the plan as a managerial
document (see A), or a plan of implementation of particular project (see B). In both cases the
objectives should comply with several parameters, initials of which gave the method of their
setting its name - SMART. They should be:
- Specific (repeatability),
- Measurable (turnover, margin, customers numbers),
- Achievable (in accordance with the enterprise's objectives),
- Realistic (possibilities of the enterprise, market capacity),
- Time (realistic delivery terms, possible to control).
The objectives are based on SWOT analysis, i.e. on actual possibilities and opportunities of
the enterprise. It should not be difficult to set objectives using SMART method, provided the
marketing research was performed well, or carefully updated. It is definitely not correct to go
deliberately for high targets with the idea they do not have to be really achieved, but still we
will have some good results. The proverb "if you want to go high, you have to aim even
higher" does not apply here. It is recommendable to "stand on the ground" and create safe
buffer, while keeping necessary and expected efficiency. It is because motivation plan is
linked to the objectives, which would otherwise not make sense – unreal objectives would be
rather de-motivating. It is not exceptional that the motivation plan is not related to the
achievement, but exceeding the target, which once again confirms the need to set the
objectives in a realistic manner.
In the first case (A) we set the objectives for one year ahead, maximum of ten easy to
remember and measurable objectives are recommended. Considering joint sales / marketing
plan, its first objective should be to fulfill the sales (commercial) plan. Other objectives can
come from a wide range of marketing activities, depending on the company's focus, financial
possibilities and realistic ambitions in the upcoming year. In the second case (B) fewer
objectives are recommended (maximum five). Here the objectives logically relate to a project
to be implemented. As one of the first objectives it is advised to set the fulfillment of sales
plan for specific project or territory, to which the whole plan refers. Other objectives can be
for example aimed at winning certain number of customers, penetrating specific territories,
organization of foreign trade fairs, implementation of particular reference deal, launch of a
new product etc. It is not the most convenient in small and medium enterprises to set
objectives related to achieved percentage of market share, for example to increase the share
by x%, because the market share of small entities is hard to measure, and there is not
necessarily a possibility of credible verification of its achievement, and the motivation for
these objectives is not easy either, as it is not an exception to obtain quite different data on our
market share.
Specific marketing objectives in individual markets can be expressed as:
- given desirable volume of sales,
- financial indicators – achieved profit, return on investment,
- customers relationship – increase of spontaneous awareness of the brand within the
target group, increase of customers' loyalty.
The objectives should fulfill the above mentioned SMART criteria, they have to comply with
main company goals, and geographically outlined. Organization of active marketing is quite
costly even in domestic markets, and definitely more in foreign markets. Therefore it is
necessary to set the amount of anticipated income and revenue for the planned period. The
work on formulation of department's or company's objectives should be a task for the whole
sales and marketing team. Every participant should be able to complete and substantiate own
sales plan, depending on the knowledge, market research, last years' results, skills and
experience, and factual data, and provide adequate reasons. This is another reason why a
specialist shall perform the marketing research, which consequently addresses the specified
segment, or implements the selected product in the territory.
The form of objectives:
- it is sufficient to describe the chosen objectives in pregnant terms (one page
document),
- it is necessary to mention who is responsible for the achievement (name, position),
- deadline has to be provided with each objective (specific date).
Strategy of achievement of objectives
The strategy of achievement of the set objectives describes how we shall implement them. In
a sense it is a small business plan, "timetable" of HOW we want to achieve the set objectives.
It is the most important part of marketing activity in the company, where creative, analytical
and theoretical skills have to be combined, as the method of execution of the set task has its
own system and order.
When planning the strategy of achievement of objectives it is necessary to select the
procedure that not only complies with the character of our business, but also covers the whole
marketing area. It is convenient to use 4P or 4C marketing mix. Every step we are going to
implement has to be compared back to the company's possibilities in financial, marketing,
personnel, and production sense; sometimes the compliance with quality policy is verified.
That is why the team work with financial manager (or quality manager)is good for
development of the strategy, it is proper to involve production managers who should create
feedback to production and capacity conditions, and give the sales and marketing strategy
adequate direction. This process is not in conflict with the previous principle of pressure on
production and preferential position of marketing in the sense of product decision making. In
case of a dispute the production shall not have veto right, as this should be the power of
company's director to decide on further procedure, based on the views from marketing and
sales, finance and production.
However, this does not mean that the salespeople will not consult the strategy with financial
and production managers. It is considered ideal situation, when there are variants emerging
during discussions, acceptable for all parties. One should always be aware of the human
resources opportunities of the department, which does not relate strictly to financial matters.
Even if we have sufficient resources in budget to pay new salespeople, we do not necessarily
find them in the market, and we may thus sacrifice the objectives.
Following the above-mentioned, the qualification of sales and marketing staff should not be
limited to expertise and general knowledge, they should be able to provide sound arguments
and negotiate within internal discussions as well. For this purpose they have to know the
company's environment, capacities and possibilities. Major advantage is their basic
knowledge of financial terms, which means at least the ability to read the budget, and defend
their sales and marketing procedures properly. Figure 2-3 illustrates possible process of
defining the strategies of achievement of objectives. This can obviously vary depending on
the focus, size and goals of the enterprise.
Definition of product
groups
Definition of product line that
complies with sales plan, incl. details
and sub-groups
Definition of target
territories
Definition of foreign territories by
countries and local territories in case
there are differences
Definition of
customer segments
Definition of segments of key
customers in the targeted territories
and groups
Definition of personal
responsibility
Definition of personal responsibility
for the defined territories, product
groups, or customer segments
Creation and
establishment of
pricing policy
Establishment of price margins, price
strategies, price maps, differentiation
of pricelists
Selection of
distribution strategy
Selection of
communication mix
Selection of distribution channels
(elimination of conflicts), logistic
and warehouse centers, location of
branches, forwarders, distribution
system
Selection of communication strategy
related to stakeholders, mix of
advertising, sales promotion, PR and
other tools of communication
Figure 2-3 Possible process of defining the strategies of achievement of objectives
2.5 Key terms
Marketing management
Marketing policy
Marketing director
Qualitative marketing research
Quantitative marketing research
Marketing planning
Far environment
Near environment
Internal environment
Product group
Product range
Pricing policy
Pricing strategy
Distribution strategy
Marketing targets
Communication mix
Customer segment
2.6 Test questions
1. SWOT analysis is a basis for:
a) marketing research
b) managerial plans (sales, marketing, financial)
c) establishment of company information system
d) company's annual report
2.
Enterprise can't control in any significant way the factors defined in:
a) STEEP analysis
b) SWOT analysis
c) Porter's analysis
d) customers analysis
3. Questionnaire survey is a part of:
a) quantitative marketing research
b) qualitative marketing research
c) risk analysis
d) analysis of strengths
4.
CRM is:
a) the highest level of marketing management
b) database file
c) information system
d) credit customer system
2.7 Recommended literature :
Havlicek, K : Management, Role of Managers in Company Management, chapter 2.
Hellriegel, D. – Jackson, E.S. – Slocum,J.W. (2005) : Management , A Comepetency-Based
Approach. Thomson South-Western, Mason, chapters 3, 5, 16
3. Role of management within sales management
3.1 Sales management
3.2 Management and development of sales plans
3.3 Management of forecasts
3.4 Trade receivables management
3.5. Customers communication management
3.6 Key terms
3.7 Test questions
3.8 Recommended literature
3.1 Sales management
Sales management is linked to the marketing strategy, in many respects complementing the
marketing management. It is often quite difficult in SMEs to tell the boundary between
marketing and sales management. In any case, it is not possible to simplify the very sales
activities only to the purchase - sales level. For example the management of forecasts and
receivables belongs to major managerial activities that exceed the borders of sales
significantly, being of crucial importance for the company. Karel Havlíček in his publication
Marketing management of foreign trade (Eupress, 2006) summed up the basic aspects of sales
management to the following four areas ( Figure 3-1 ) :
Creation and management
of sales plans
Management of forecasts
Includes sales planning by:
- product groups
- customer segments
- territories
We monitor:
expected sales in the horizon of:
3 months – 1 year
We evaluate:
-positive future diference/deviation
-negative future diference/deviation
Management of trade
receivables
Management of customer
communication
Includes:
- management of receivables before
the start of sales activities
- management of receivables during
sales process
- management of receivables during
payment problems
Includes:
- summarization of clients by
categories
- visit reports and their evaluation
3.2 Management and development of sales plans
The sales plan is an essential document for the sales department; in smaller companies, where
there are mostly joint sales / marketing departments, it is also a part of marketing plan. That is
why it is convenient to incorporate the objectives of sales plan in the objectives of marketing
department. This fact of rather technical character does not change a word said about the sales
plan being crucial for the budget, strategic document that has to comply with certain
requirements.
Some enterprises, mainly the smaller ones, often ignore the marketing plan, and use only sales
plan for commercial management. From short-term viewpoint this is possible, but it can't be
effective in a long run, as the enterprise is going to lose contact with market reality sooner or
later. Such plan is then more or less routinely re-written every year, some per cent added or
subtracted here and there according to the current view of sales people. Innovation impulses
are missing, as well as new trends and feedback, the control over competition is lost,
communication with customers chaotic, distribution without concept, and prices frequently at
random, i.e. according to what the customer asks, regardless of the overall market and
company situation, not to speak about the prolongation of development trends.
In these circumstances the staff can be hardly motivated, and the discussions concerning sales
plan figures are difficult. Sales people are not continuously forced to collect new information
(which they may like at times), and they lose so important arguments for business
negotiations, they have problems describing major competitive advantage of the company,
and they face difficulties when defending it against competing offers. It is up to the
personality of marketing and sales director and general director to be consistent when
requiring the preparation of marketing and sales plans, be it very simple documents of few
pages. Absence of such policy is mostly due to the fact that company directors don't know
how to apply it. This "lack of knowledge" is being argued: "we have never needed that, we
have read the market for a long time, everything has worked fine so far, you are making up
useless things…" etc. It is one of serious mistakes and managerial faults to be rigorously
eliminated. In case the sales plan makes part of annual budget it should be developed for one
year ahead (submitted in October the previous year), divided in months and quarters.
In case of export activities it is correct for every conquered territory to have its own sales
plan, even very simple one. This brings the possibility of easy monitoring of every market by
assigning overhead and personnel cost to each territory, and working actively with the price
map. Complete sales plan is then total of all the territories, or other monitored groups.
Overall sales plan for foreign markets is usually divided by:
- product groups (sometimes we talk about commodities, or product lines),
- customer segments or specific major customers (in mix by the product groups and
territories),
- territories (every foreign territory separately, individual regions can be sub-groups),
Detailed sales plan can include other sub-categories, as well as some plans can ignore certain
above mentioned points of interest. It is definitely useful to divide the plan at least in two
categories, and cross-compare the results and forecasts (see below). This is good for the
management of forecasts, and this way we compel the sales people to think about the plan and
the prognoses. Sometimes the plan is complemented with "by sales people" or other category.
t is logical that the end and total monthly figures have to be equal in the individual categories.
From these data we can tell immediately where a major difference occurs, and what should be
our focus. For example – if we plan smoothly by product groups, but there are problems with
planning and formulation of expectations by customer groups, it means we have a good
overall picture of the market, but the work with individual groups of customers and relevant
prognosis is difficult. In other words the communication between us and the customer is not
exactly perfect one, which can lead to losing them over time. This means we need to respond
and look for a remedial measure.
Another important aspect of the division is the immediate overview of individual market
segments, as we can measure their trends and performance in these segments, and following
the data we can develop further marketing activities. These obviously vary depending on the
groups and segments, often in all the marketing mix aspects.
Sales plan indicators Major indicators of sales plan are turnover, sales, or own output. This
indicator is always provided in one measurable currency – CZK, EUR or other. The data
regarding measuring units can be also included in the sales plan; they are significant, but not
crucial. It can be a major mistake, when some companies use as their main sales plan
indicator such measuring units as number of pieces sold, square meters, tons etc. The control
gets more complicated, as measuring unit can change its price in a short time, but most
importantly – we can't measure immediate efficiency. The fact that more tons are sold does
not mean increasing turnover or output.
Sometimes other indicators are measured, such as margin, but once again – it should be
measured as a sub-category, and evaluated on continuous basis. This indicator is important
namely for trading companies, where the turnover may grow and plan be achieved, but at the
expense of lower margin, which can influence the whole company's economy at certain stage.
It is necessary to adopt strategic measures in time.
How to develop a sales plan?
When compiling a sales plan, we most often utilize mixture of the following primary and
secondary methods:
Data from previous periods This is the most simple and available method, by which we
track our sales results in given product groups, territories and customer segments in previous
periods. In case we have been in the market for a longer time, we follow trends in specific
categories, overall turnover figures, the margin and seasonal trends. Such information is
definitely important for the development of plans, but not crucial. The precondition here is
we've already made business in the territory.
Market research from the viewpoint of competitive and external environment The basis
is continuous or specific research of a foreign market, which is described in previous chapters.
Apart from other data we are interested in the sales of our competition, trends and purchasing
behavior of our customers, price policy of our suppliers, the threat of substitute products,
capacity of foreign markets etc. In more remote territories we would track sociological,
technological, economic, environmental, or political factors. The market information collected
during marketing research of external and competitive environment is usually the most
important basis for correct estimation of revenues.
Professional intuition, experience and market estimates This is rather complementary
method of estimation of revenues, which is nevertheless very valuable. Only the experienced
sales staff can afford this, capable to foresee the behavior of consumers in selected markets.
Foreign traders who operate in foreign territories on our behalf, and know the purchasing
behavior of local population very well, can serve as an example. These experienced managers
are priceless, but even here we need to think of their estimates and intuition, prognoses and
forecasts as a complementary factor for plan development.
Form, reporting and approval of the sales plan
The sales plan has to be well arranged with regards to given period – usually prepared for
individual months. The best would be to fit it within one page for the sake of good orientation.
Budget, forecast (see below) and reality columns should be included. Differences have to be
regularly monitored and evaluated. The sales plans of individual sales persons should be
regularly (usually once a week) reported (e.g. electronically via the company's information
system) to the marketing and sales director, and made part of regular meetings of the
marketing and sales department, or export department.
Total annual sales plan is a work f the whole export team, marketing and sales director is
responsible for its completion on the basis of individual plans. Individual sales persons are
responsible for their partial sales plans. It is the task for marketing and sales director to
evaluate each individual plan objectively, to provide a healthy opponency and cooperate on
the final figure, which can be either the revenue, turnover, or margin. The sales persons bear
absolute responsibility, and their motivation aspects are derived from the plan. It is
recommended to set motivation bonuses for exceeding the plan, as the financial budget should
be built on basic salary and fulfillment of the sales plan, or achievement of economic result.
This means bonus shall be paid on the basis of exceeding the plan in certain ratio determined
by the company's management, with a reserve for marketing and sales directors (following the
logic: exceeding the sales plan = exceeding the total economic result).
3.3. Management of forecasts
The importance of management of forecasts is bigger than generally perceived, and it goes far
beyond the framework of marketing and sales department. The term "forecast" is used in
foreign companies in the meaning of "estimate". Other used terms are "sales prognosis", or
"expectancy". Foreign companies have learned to use the forecasts as an essential managerial
act – basis for the whole company's strategy . There is some lack of willingness of sales
persons and managers regarding forecasts in our country. It is a strategic mistake, which
should be avoided by marketing and sales directors. This insufficient willingness is more or
less due to the fact that the sales people don't know how to prepare the forecasts, or how to
estimate the purchasing behavior of their customers, and sales of their products in the horizon
of few upcoming months.
But first let's have a look at the sequence and importance of the management of forecasts.
Sales person submits and substantiates the following data within the sales plan development:
a) sales plan – usually one year ahead, by months (territories, segments or product groups),
b) continuous forecasts – always several months ahead, prepared every month (tracking the
differences between the plan and forecasts),
c) reality – i.e. actual result by months (tracking how the reality differs from budget and
continuous forecasts).
Importance of the management of forecasts
We prepare the forecasts usually every month, always for 3-6 months ahead, i.e. in January
for Jan-Jun period (six-month prognosis), in April for Apr-Sep period, in November for NovApr period (in this case we overlap in two sales plans – of the current and following year),
etc. We see the importance of management of forecasts in the following aspects:
1. We monitor the differences from budget sales plan
By continuous monitoring of the trends and preparing prognoses (e.g. sic months ahead) we
track the differences between actual and budget figures, i.e. the effects on budget economic
result.
There are basically three options:
- Continuous forecasts do not vary from the budget – it means we have prepared the
budget very precisely, there will be likely no effects on the economic result.
- Forecasts are higher than the budget – it means our revenues will be probably higher
than the budget expects, which may leads to many positive effects, but possible negatives
should be considered. These can include higher receivables due to larger volume of sales,
and consequently possible need to supply external resources to cover operating capital,
which is not necessarily a matter of short time (guarantees). Moreover, the overdue
receivables may grow, which is another complication when supplying external bank
resources. However, there can be a reverse effect, i.e. cash surplus, which is obviously a
positive. Even in such a case it s good to know in advance, as we can cancel loans, change
funding or develop another investment project, where the resources can be used. This is a
matter of several months, therefore continuous information on higher forecasts in the
horizon of months is very important for us.
- Continuous forecasts are lower than the budget – undoubtedly negative message, in
such situation the economic result is at stake, sometimes even general company's
existence. Here the timely indication in the form of six-month advance is twice as
important, as it is necessary to adopt immediate measures. These may include an
application for external resources, which is a matter of several weeks, or even months in
banks. These may also be considerable cost cuts, such as layoffs, which is once again a
matter of months (considering the compensations and notice periods).
2. We force the sales people to collect market information and communicate with
customers
This is another very significant aspect of both marketing and psychological importance. It
requires prognoses in six-month advance (there are companies, namely multinationals, which require
even annual forecasts with monthly breakdown). This means the sales people have to collect new,
updated information on regular basis, i.e. to work with the market. One of the available ways is the
permanent communication with business partners, and the efforts aimed at planning several
months ahead (benefits for the customers for correct prognoses can be various bonuses,
warehouse reservations etc.), another is ongoing mapping of markets, trends, competition,
customers' behavior etc., i.e. typical areas of marketing research.
It is important to interest the sales people not only in fulfillment of the plan, but also in correct
forecasting. Psychological significance is related to the fact we force the sales people to do
this on permanent basis, as the expected sales should be reported monthly, subsequently
compared to the budget and reality. The evaluation of forecasts is very simple. The first
month prognosis should be comparably apt, i.e. in April there should be quite correct forecast
of May, on the contrary prognoses made for September in April will be probably less
accurate. Using very simple statistics we may track how individual sales persons can forecast,
and in what time horizon.
In general – to evaluate the sales people we use comparison between the budgeted sales plan,
its average forecast, and reality. There can be a difference between budget and reality, but
differences between forecast and reality should be minimal. The best are minimal differences
between all the indicators.
3. We increase the respect with our investors, creditors and suppliers
Being able to forecast well means to have a better chance to persuade our partners we can
manage our business, and thus get certain advantages. These relate to the suppliers of goods
or materials who can provide bonuses, or reserve goods in their stock for us. The banks
perceive such a fact positively, too, as they closely monitor our forecasts. This may concern
shareholders as well, and last but not least we make life easier for the financial department. In
other words we create another competitive advantage.
Forecasts should be provided in predefined forms, more or less equal to the sales plan.
Individual sales persons are responsible for the prognoses, as well as for the sales plan, people
who implement the market segment or commodity in the territory. Marketing and sales
director is responsible for the collection of forecasts, and preparation of summed up prognosis
of the whole department, while allowed to modify the forecast on the basis of his/her
experience.
3.4 Trade receivables management
Trade receivables management performed by sales people may come as a surprise, still it
should be a common phenomenon. However, we talk about the management of receivables up
to certain stage, which should be defined in advance by the company's director. Afterwards
the management should be taken over (the collection part) by financial department, or legal
proceedings are initiated. We use the term "management of receivables" on purpose, not just
"monitoring" or "control". To check on the status of trade receivable, to state the condition
and time overdue, or its uncollectible nature, is not management. The very trade receivables
management has three major stages.
1. Stage – searching for client
The management of trade receivable starts as early as of the moment of the first contact, when
we try to get to know the environment of our customer, where it does business, what is the
company culture, the goodwill and opinion of its neighborhood, partners and stakeholders.
We try to get acquainted with the key customer's key personnel, their qualifications and
abilities. In this moment we behave to certain level as a banker, who is deciding whether to
grant a loan, and how high it can be. It is clear this can be performed by a sales person, as
he/she is the only one in the initial stage who communicates with he customer. The fact that
financial department can have a rating made is just another step, which does not have to take
place. It is even more complicated with foreign customers, as the financial managers, or legal
department staffs have practically no chance to meet the customers in person.
An experienced and skilled sales person is able to tell at this first stage at what level is the
company he/she is going to do business with, and whether it is possible and strategically
convenient to grant a credit, i.e. extended maturity of invoices. The sales person recommends
the credit and maturity already at this stage , at the same time he/she cooperates on the
proposal of trade credits (insurance of receivables, security of receivables provided by bank in
the form of bill of exchange, letter of credit or other guarantees).
2. Stage – active deals with clients
Lively trading takes place at this stage. It takes usually the longest time, and it is typical for
being more personal, often long-term relationship from the viewpoint of communication. We
credit our partner in a long run by providing agreed terms of payment of invoices. It is very
important here to monitor possible changes of the client's behavior that could indicate its
future financial problems. We observe its development, we assess whether it is not hasty
(such investments are frequent cause of the fall of small enterprises), we check if anxiety is
not growing among the staff, whether our customer has payment issues with other suppliers or
state institutions, banks etc. We are interested in possible layoffs, closures, conflicts between
the partners. If we have the chance, we monitor the private lives of the owners as well.
Typical example of beginning complications can be family problems, pretentious behavior,
different activities etc. It is once again clear that the monitoring is undertaken by the sales
person, who visits the customer on regular basis. Even the best financial managers or lawyers
are not necessarily able to discover by phone or administrative contact the things visible to an
experienced sales expert in the customer's seat. Moreover, such an expert sees the
development trends better.
The second stage is often crucial. It is very important, and to some extent difficult to decide
when to reduce the credits in case of problems, when to start with cash collections, in other
words to recognize when our customer's company gets in trouble, and to adjust our behavior
as suppliers. In most cases the owners or managers of such company try hard to play games
and "haze up" things – striving to avoid disaster they have to keep external resources at
certain level. In such moment we have two options:
- To "step on the brake" – reduce our credit (and probably business) involvement and wait if
the customer recovers over time. The financial departments usually recommend this option, it
is a logical step that eliminates risks, but also a step that that leads to loss of the client. It is
useful to note here that regarding foreign customers and management of risks this is almost
"obligatory" option.
-
To recognize actual customer's need, to evaluate its present and future importance for our
company, and to try to find a solution provided we think there is a chance our assistance
will help to deal with the situation. This comparably risky step, which is not necessarily
related to keeping or even increasing the credit involvement (the credit reduction does not
have to be dramatic, profit margin can be raised temporarily, preferential supply or
advertising and marketing support offered, penalty on delay cancelled, help with end
customers provided etc.). This can be handled only by an experienced sales manager, able
to assess the situation and further development. However, success of such a step is
tremendously valuable for the future, because the customer becomes the partner when the
issue is settled, defender of our company, and provided it gets back in form it is a loyal
business partner not only bringing good profits, but new customers following its advice as
well.
It is a crucial decision that regards one of the above mentioned options, and there is no
universal formula. Under the impression of long term relationship the sales person can be too
trusting, or even losing common sense, not to speak about possible direct or indirect
corruption. Further – every sales person sees volume of sales he/she may lose, together with
his/her commission. Neither premature reaction nor excessive caution is correct. In better case
we may lose just the client, in worse both the client and the funds allocated.
In any case, throughout the second stage, and namely in its last part the sales person features
again, other problems should be solved with financial, or legal department.
3. Stage – payment problems of clients
The customer has problems with payments. It is important here for the sales person to act in
the initial phase, which does not mean just phone call or e-mail urging the client to pay, it
means to try to meet the client in person and find out about the reasons. Temporary problem
can be identified, in which case a fierce action of the financial department can cause more
damage than good. However, the company's director has to draw a line behind which it is not
possible for the sales person alone to settle the matter, and other means shall be used, for
example legal. The sales representative plays an important role here, too – he/she can be
communication link and source of information for lawyers and economists.
The position of sales people in all the above mentioned stages grows in case of foreign
customers from remote territories. Such a customer is selected, visited and monitored in
practice by the sales person only. In any case it is necessary that report on overall trade and
overdue receivables with time breakdown (e.g. up to 30 days, 30-60, 60-90, more than 90
days) and arrangement by individual sales persons should become part of business meetings
agenda. It is correct to remunerate the sales people not only on the basis of sales, but also
actual collection. It is also right thing to compare individual sales people from the viewpoint
of the volume of overdue receivables, or the ratio of overall receivables to overdue
receivables, and take consequent measures. It is also necessary to follow the trend of change
of overdue receivables by individual sales persons, which can be easily done by mere
archiving the reports and their evaluation.
he management of receivables also means setting and comparing actual due dates, and
measuring the period of turnover of receivables. This step should be discussed with sales
people, who should be explained the necessity of minimizing the period. The argument that
the customer pays well provided we give it long period for payment is quite frequent with the
sales people, but unfortunately false. he enterprise is forced, sometimes unnecessarily, to
withdraw high amounts in order to credit its partners, which is not a good strategic step,
unwelcome by the banks. This regardless of the fact such practice reduces the economic
results (effect of interest), and may endanger the company financially.
Correct management of receivables is a strategic activity of every enterprise, and the role of
sales and marketing department staff is very important here. It is a mistake to leave this
activity on the financiers. Mishandling of the management of receivables is a frequent reason
for dismissal of sales persons from sales teams.
3.5 Customers communication management
The very management of business relations and communication with customers is a very
material sales/marketing activity. However, in this case we will not be interested in the
communication from the marketing mix viewpoint, aimed more at advertising, sales
promotion, PR etc., but direct business communication between the sales managers, sales
people and customers.
The mode of communication can influence the success of our business objectives
considerably. It is not easy for a comparable product with comparable price to keep the
customers in a competitive environment, even more so in foreign territories, where local
competition has a high competitive communication advantage. It's the personal contacts that
often grow into a friendly and partner-like business relationship and play significant role. It
means there is another requirement on the recruitment of sales people. Apart from the above
mentioned expertise, decisiveness, creativity, marketing and sales skills, analytical abilities
and sound general overview it is good for sales people to communicate properly, to listen,
inspire and establish reliable long term relationships. It is clear from the summary that it is
virtually impossible to combine all the features in one person. Therefore it is more realistic to
set up the sales team in order to have these features represented at least partially. Mutual
support, observance and implementation of common projects enable to come close to the
ideal. The psychology of sales, assertiveness, establishment and maintenance of business
relations are the activities of many professional agencies that develop various trainings for
sales teams, and it is not the purpose of this document to describe them, no matter how
important this area is.
The work with customers should have certain system and be subject of back control. That is
why the sales people should keep the following reports and rosters:
Rosters of present, potential and so far unlikely (unrealistic) customers. These are lists of
names of the customers we do business with, customers we try to win, and customers we
dream about, which are not excluded as business partners in future. For each of them
continuous sales results and their actual potential should be tracked – from this we may see
where we can get with regards to turnover with particular client. Such an overview has purely
managerial importance, it can be added in various ways, it should provide quick orientation of
the present and potential clients. It is useful to set as an objective every year certain number of
potential customers to be included in the category of our actual customers, or to transform
some of our unlikely customers to a potential customer.
Customer visit summaries, minutes from meetings There should be a comprehensive
system of registration of visits of all the foreign customers introduced. The result should be
records of the foreign business trips in a structured form. The visits should be regular,
combined with phone, or e-mail and Internet communication. Ordinary matters of operation
shall be dealt with during these visits, such as news, price changes, special offers, discounts,
benefits etc. The sales person should also listen to the partner, and let the partner know he/she
is interested in the comments, and that the partner has a word in the innovation of our
products (which actually should be the truth). The partner should comment on its satisfaction
with our services, and express the wishes and requirements.
Good sales person goes even further, and tries to collect information on competition or other
customers, to find out possible problems and to watch numerous other details that could be
priceless for both elimination of risks and identification of business opportunities. Adequate
communication with customers is an ideal form for marketing research that can be a major
impulse for marketing and sales strategy.
Business trip records have to be archived. The report should be in the form of statement, it is
not very poplar among sales people, but it has three-fold meaning:
- Monitoring where and when the person operated, and how successful his/her visits are.
That is why the sales people should be compared to each other, by which we also monitor
the requirements of our customers.
- In a case the sales person leaves our company the records are valuable for his/her
successor who usually begins the work by introducing to the customers, learning their
wants etc. Such documents provide the person with a considerable advantage and
possibility to take over the activities smoothly.
- Third meaning is purely practical, serving the sales people themselves. It is not easy to
remember everything about large number of clients, and it is useful to look into the
minutes of the last meeting before next visit.
The sales or marketing director does not have to read every report. However, the sales people
should know their supervisor may ask them to present their reports, and go through them
within individual meetings. The marketing and sales director should be aware of the major
clients, meeting them regularly, verifying the opinions and reports of the assigned sales
people. These visits have their psychological effects as well. Every partner feels good when
we let it know how important and valuable client it is.
Some information is obviously not collected by formal procedure, standard monitoring or
predefined queries. It is correct to create various VIP lists of loyal, potential and other
customers the enterprise is interested in, and to work with the lists. We talk about company
venues, such as "Customers days" accompanied by other objectives, social and sport events
etc., which are a good opportunity to develop the business relations. It is a sign of good
marketing managers and sales people, and good companies when they have such a system as a
part of corporate culture well arranged and functional.
Even the best planning has to be complemented with a systematic work with customers,
suppliers, sub-suppliers and other involved entities. This means the role of Front Office sales
people is to spend their time with their customers. It is true that namely in foreign trade this is
financially demanding, but we should be always aware in the current hypercompetitive
environment of the fact that local competitors in the conquered territories are closer to our
customers, they know the language, able to organize regional lobbying. We stand absolutely
no chance trying to compete by so-called office dealing. It is proven that the best competitive
advantage in the severe global environment is the high quality and long term relationships we
build with our customers. We may establish and develop such relationships only if we
understand the customer and its wishes, moods and requirements. This is impossible without
personal contact.
3.6 Key terms
Sales management
Sales plan
Sales targets
Forecasts management
Trade receivables management
Customers communication management
Sales director
Sales department
3.7 Test questions
1. The sales plan is linked to:
a) financial plan
b) production plan
c) marketing research
d) human resources plan
2. Sales forecasts are usually prepared in the time horizon of:
a) days
b) weeks
c) months
d) years
3. For management of receivables is responsible:
a) financial department
b) sales department
c) legal department
d) logistic department
4. Marketing director should:
a) report solely to sales director
b) report solely to financial director
c) report solely to general director
d) not report to anybody
3.8 Recommended literature
Havlicek, K : Management, Role of Managers in Company Management, chapter 3.
Hellriegel, D. – Jackson, E.S. – Slocum,J.W. (2005) : Management , A Comepetency-Based
Approach. Thomson South-Western, Mason, chapters 4, 9
4. Role of management within financial management
4.1 Financial management
4.2 Financial planning
4.3 Controlling
4.4 Management of financial resources and debt relations
4.5 Costing
4.6 Key terms
4.7 Test questions
4.8 Recommended literature
4.1 Financial management
Financial management is a key part of company management. There is no doubt the stability
and credibility of companies is judged by the financial results, investors evaluate their capital
investments on the basis of financial indicators, and the banks decide on credit limits.
However, we have to remind ourselves that economic results are due to all the company's
activities. Even the best financial management is not able to ensure optimal final structure of
economic results and assets-property without fulfilling fundamental indicators of sales,
personnel, production and other management defined in the sales, marketing or production
plans. The key activities of financial management – planning, budgeting and costing – are
closely tied to marketing and sales activities. Marketing and sales plans have to come before
financial plans within planning process, as illustrated and substantiated in the first chapter.
The financial management in enterprises should focus on the areas provided in the following
chart ( Figure 4-1 ) :
Financial planning and
budgeting
Controlling and
management of risks
Types of planning:
1. short term and long term
2. investment planning
3. budgeting
Views:
- revenues - costs
- property-capital
- receipts - outlays
1.Controlling :
we compare: reality versus plan
we assess: ratios and differences
we suggest: operative solutions
2. Planning: of risk management
Management of financial
resources and debt
relations
Costing
Includes:
- management of source needs
- management of relations with
providers
- management of utilization of
resources
- searching for alternatives
We determine:
- structure of calculation formula
- optimal method
4.2 Financial planning
The financial plans are main company documents from which we may read how our business
will develop in the defined horizon. They cover all the key lines of company's operation:
- sales activities
- investment activities
- human resources management activities
- cost management activities
- financial activities of owners
- changes of company assets
1. Short and long term planning
Both short and long term planning is based on similar principles, the only difference being
period of time for which the plan is developed. Short term horizon is usually one year. Long
term planning depends on the size of the company and purpose of the plan, usually not for
longer than six years.
Both short and long term financial planning most often takes the form of:
- profit and loss account, so-called revenues – costs view,
- balance sheet, so-called property view,
- cash-flow statement, so-called receipts and outlays view.
Revenues – costs view
It is sometimes called income statement, or profit and loss account. It tells us how the
economy of our enterprise will develop in given horizon from the viewpoint of sales and
revenues management, human resources and operating costs, financial and extraordinary
costs. Due to the above mentioned activities the revenues – costs view generated economic
result, which is the basis for financial indicators of profitability, such as ROE, ROS, ROA etc.
It provides an overview of operating and financial activities, we assess the efficiency of our
revenues related to the costs of human resources by it. It is also a key indicator for the
calculation of dividends.
Property view
It is sometimes called balance sheet. It says how the property value of the company is going
to develop in given horizon from the viewpoint of long and short term assets, and own and
external capital. So it is a management of property and capital structure. We assess key
liquidity indicators and indebtedness on the basis of balance sheet. Bank institutions evaluate
capital adequacy, working capital, structure of debts and participation of owners on the basis
of the balance sheet. The property structure plays an important role in securing external bank
resources. By a detailed review of the balance sheet we assess financial discipline of the
company and its customers. The ratios of liabilities, receivables and stock turnover belong to
the essential parameters of evaluating one's financial health.
Receipts and outlays view
It is sometimes called cash flow statement. It provides us with the information on cash flows
within the enterprises in given period. It includes revenues and their structure, costs and their
structure, and the cash flow – balance of incomes and revenues in defined period. In other
words the report on receipts and outlays provides the information on actually available cash
resources. In modern managerial theories the cash flow based financial management is
considered to be decisive for the company's activities. For example the methods of company
value assessment are based namely on the generated cash flow, not on the economic results
that may be negatively influenced by stock, structure of liabilities and receivables etc.
2. Investment planning
The investment planning is usually related to concrete investment project. Essential parameter
of evaluation of investment goals is the return on investment. The situation when so-called net
present value of the project equals or exceeds zero is evaluated, whereas by the net present
value we mean the difference between discounted revenues and costs of the project. There is
no binding methodology of compilation of investment plans, but their essence is almost
always the evaluation of efficiency of specific investment. Decisive criteria are:
- profitability
- risk rate
- period of repayment
The very process of evaluation of investments can be divided in the following steps
(Figure 4-2 ):
Determination of capital
(investment costs)
Calculation of future
revenues
Determination of capital
costs
Determination of present
value and expected
revenues
Assessment of efficiency
of the
investment
Capital expenses include:
- acquisition price
- increase of net working capital
- expenses related to liquidation
of the replaced property
- tax effects
Cash flow from future
investment:
+ profit after tax
+ depreciation
+/- change of working capital
= CF
Determination of discount
rate:
WACC calculation :
Wi.ki(1-T) + Wp.kp +We.ke
Determination of present
value: PVCF calculation:
CFa
∑
(1+WACC)ª
Net present value method:
NPV calculation :
PVCF – investment cost
Assessment of NPV ‹ 0 …. NO
NPV › 0 …. OK
Other methods are used to evaluate the efficiency of investments as well:
-
Return on investment method
Payback method
Internal rate of return method
Cost methods
Free cash flow methods
3. Budgeting
The budgeting is a key managerial activity. Budget is usually short term, without precisely
defined structure. Every enterprise uses the budget for short term management of its activities,
e.g. annual plan. The budget is a managerial document that is not presented to tax authorities,
as it is an internal material – basis for all the managerial activities. It is a quantitative plan of
activities in the field of sales, management of costs and resources, human resources,
investments or production, and as such it is a result of all the above mentioned managerial
plans. The budget is an essential managerial document that intertwines with all the
management areas, and it is a responsibility of managers and their staff to stick with the
agreed budget limits. It is most often compiled on the basis of so-called simplified profit and
loss account.
Figure 4-3 : Example of a simplified budget
Initial managerial plan
Budget
+
Sales and marketing
plan
Sales, revenues, margin, added value
Management plan for
overheads, warehouses,
production, technologies
Operating costs
Human resources plan
Personnel costs
Investment plan
Depreciations
Plan of management of
financial resources
Financial costs
Economic result
Profit
4.3.Controlling and risk management
The essence of controlling is to compare the actually achieved results with plan, identification
and consequent settlement of differences(deviations). It has to outline priorities so that we are
able to solve problems that burden the enterprise and prevent it from achieving its strategic or
managerial objectives. It is definitely oriented to future; controlling is interested in the past
only in the cases it provides impulses for future management. Depending on the future time
intervals and the character of objectives we speak about operational and strategic controlling.
Operational controlling
- limited by time frame, planned horizon 1-3 years
- aimed at managerial planning, control and assessment of profitability, liquidity,
indebtedness and activity ratios
- possible course of operational controlling is illustrated below ( Figure 4-4 )
Objectives
Managerial planning
Approval of plans
Comparison of expected and
actual status
Includes:
- definition of objectives (e.g. ¨
SMART methodology)
- identification of gaps in the set
objectives
- motivation related to the objectives
Expected plans:
- marketing and sales plan
- human resources plan
- production and purchase plan
- financial plan
Includes:
- comparison with objectives
- assessment:
- match – initial values
- mismatch – analysis of plans,
back to objectives
1. control 2. deviations 3. measures
- profitability ratios
ROE,ROS,ROA,..(return on equity,
sales,assets.. )
- liquidity ratios
current , quick and cash ratio
- debt ratios
- activity ratios
inventory turnover,average collection
period, turnover of liabilities,..
Strategic controlling
- strategic plan and strategic objectives are the basis ( e.g.company value growth, P/E
price/earning ratio , EPS earning per share , market / book ratio , EVA economic value
added,…)
- the purpose of strategic controlling is to achieve long term stability
- possible course of strategic controlling is illustrated below ( Figure 4-5) :
Analysis of initial situation
Includes:
- analysis of the environment :
STEEP
- internal analysis
- preconditions
- resources
- philosophy
- potential
products
existing
nové
new
markets
Division in strategic sales units
new
Preparation and evaluation of
strategies
Implementation and control
market
breakthrough
existing
market
expansion
diversification
Includes:
- formulation of strategies
(basis is company strategy and
partial managerial strategies)
- evaluation of strategies: alternatives
- selection of strategies :objectives risks
Includes:
- implementation of strategies
Action plan :
division of activities - sequence –
responsibilities - sources- terms
- monitoring and revision of
strategies measures- substitutes
Risk management
Risk in general can be understood as a danger of difference between the actually achieved
economic results and anticipated results, while the differences can be desirable (towards
higher profit), or undesirable (towards loss). Nonetheless, the risk management is not just a
responsibility of financial managers; depending on the type of possible risk it mingles through
all departments. At the same time essential managerial activity is to identify the risks and
adequate responses. From this point of view we should discern their management from
various angles:
1. Strategie and risk management
- strategic plans
- company value
- acquisition of company (purchase / sale)
2. Marketing management and risk
- marketing research and related risks
- SWOT analysis
- risks and marketing plan
3. Sales management and risk
- sales planning risks
- risks that occur during forecasts management
- risks that occur during sales credits management
- risk management in foreign sales operations
- purchasing risks
4. Financial management and risk
- risk management in financial planning
- revenues – costs view
- property – capital view
- receipts and outlays view
- risks related to budgeting
- risks and investment planning
- controlling and risk management
- risks related to bank relations management
- costing risks
- currency risks
- interest risks
- risk management within the insurance of tangible and intangible assets
5. Risks related to innovation and quality management
- external innovation risks (market impulses and implementation of innovations in the
market)
- internal innovation risks (due to internal management of innovation processes)
- risks due to the introduction of QMS, TQM, BSC
6. Human resources management and risk
- risks due to the recruitment of managers and team building
- motivation and educational risks
- risks that occur during establishment of organizational designs
7. Risks related to new technologies
- risks and adequate responses within e-business (B2B, B2C, B2E, B2A)
- risks related to the implementation of information systems
Risk management that can be expressed in the risk management plan is based on the
identification of risk factors and their seriousness, identification of company activity risks,
their evaluation and adequate measures. Plan of correctional measures is an integral part of
these efforts.
The following chart illustrates the process of development of risk plan ( Figure 4-6):
Determination of risk factors
Determination of company
activity risks
Determination of risk factors:
Values: negative and positive
Determination of weight of factors:
- expert evaluation
probability of occurrence
intensity of negative influence
- analysis of sensitivity – effects on
economic result-profit
1. Figure determination
probability of profit,.…
2. Indirect determination
- operating space, breakpoint
- crisis scenario and consequences
1. Evaluation of risk
2. Procedures of reducing the risk:
Evaluation of risk and taking
measures
pressure events, transfer of risk, sources,
diversification, insurance, reserves…
3. Measures – negative effects:
implementation – costs
secondary risk
1. Outlining critical situations
2. Outlining future opportunities
Plan of correctional measures
Plan of measures oriented to
immediate solution of critical
situations
4.4 Management of financial resources and debt relations
The management of financial resources is one of the material managerial activities within the
responsibility of financial managers. In most cases we talk about external resources, structure
of which can be modified by the financial manager. Own resources (deposits of the owners)
are usually well known, their structure changes only with an approval of the owners, and it is
quite often defined in the owners strategy. Every owner should reflect the value of own
resources invested in the company in the owners strategy. In most cases the owner expects the
investment to increase value, the return on investment (ROE). Even by this the owner
partially defines the company's indebtedness (debt ratio), as the deposits are probably ;limited,
and the increase of value should correspond with the objectives. The volume of available
financial resources is seen in balance sheet (balance of property and capital). We differentiate
between own and external resources.
Own sources
These are basically registered capital, undistributed profit, dividends ,capital funds. They
depend on the owners' strategy, and expected valuation of their involvement in the company.
Their volume is partially due to accounting legislation of concrete territories, which define
minimal registered capital, or mandatory provisions.
External resources
They consist of the company's liabilities that come as a result of business conduct, and short,
mid and long term credits and loans. The volume is based on the willingness of suppliers to
provide goods and materials, on the relations with banks or other creditors that provide funds.
It is clear from the above mentioned that the volume of financial resources is generally
defined by balance items, as the equation ASSETS = LIABILITIES follows the very principle
of double entry book keeping. The structure of resources falls completely within the
managerial competencies and skills of managing and balancing the company's needs on one
side, and the possibilities of stakeholders (in this case owners-shareholders, suppliers and
credit institutions) on the other side. It is not unusual that the requirements of individual
stakeholders are conflicting. Quite frequent and understandable objective of the owners is the
maximum valuation of deposited resources, to be achieved by minimal equity capital. They
force the companies to maximum level of indebtedness, be it at the expense of suppliers or
banks. At the same time there is the logical goal of banks to provide loans only to the
enterprises that prove balanced (means high) participation, as it is a precondition of
management with higher risk and consequently higher discipline. Majority of credit providing
entities behave the same way. Suppliers often provide payment terms related to credit
involvement, always up to the level of risk adequate to particular deal. The creation of
resources here is also related to flexible turnover of stock. There are many factors financial
manager has to deal with, and it is not the purpose of this publication to mention them all.
However, we consider the following managerial responsibilities within financial management
to be crucial:
-
1. Agree with the owners on their participation in the funding and dealing with
profits due to the business conduct:
inform them about the requirements of banks and other creditors related to the equity
capital,
require optimal capital adequacy of the owners from the viewpoint of optimal operation
and development.
2. Ensure optimal structure of external resources from the viewpoint of:
- purpose (investment, operation) and consequent time frame(short, mid, long term sources),
- minimizing the risks due to the conditions of funding (guarantees, penalties, terms,
number of providers etc.),
- maximizing the effects of external resources (minimum interest, maximum periods),
- optimization of the structure of creditors (more independent providers).
-
-
-
-
3. Manage the relations with providers in an optimal and continuous manner:
submit the reports required for funding on regular basis and in proper form,
involve other responsible managers in the dealings (sales, marketing or others),
create good negotiating position for the company in need of external resources (declare
earnestness, stable management and owners, image and culture, be able to sell references,
major deals and markets).
4. Keep creating funding alternatives:
look for other, more convenient or complementary providers that may
not be used, but we should be in touch, which could be transferred
to a sales-credit relationship,
press on the purchasing department in order to improve the conditions, or change supplier.
5. Control and manage the utilization of resources
release financial resources for specific activities defined in the budget, investment plan or
given project,
be responsible for the pragmatics of the eternal resources,
create permanent internal pressure on an efficient utilization of external resources.
4.3 Costing
To be able to manage the costing in an enterprise means to set up high quality team of
specialists not only from the financial, but also production, sales-marketing, or technical and
human resources departments. The costing has a direct influence on the price, even though it
is not the only influence. The fixed and variable costs are major internal part of the price
calculations, but the external influences – prices of competition and demand of customers are
of the same importance in hypercompetitive environment. Only by mixing the internal and
external factors that depends on overall market position we may set a price, which is
competitive, acceptable and profitable from the viewpoint of financial objectives. It is true
that the financial department is the main defender of costing on the basis of source materials
and requirements of production department, or human resources and technical departments.
The financial department is responsible for costing.
The costing is a written overview of individual cost items, and their total per cost unit. Cost
unit is the output (product) outlined by a measuring unit (quantity, weight, length, surface,
time…). ). Individual items are expressed as calculation items included in so-called costing
model.
The costing model consists of:
- direct – unit material
- direct – unit wage
- other direct – unit costs
- overheads
- administration
- sales costs
- profit / loss --> price determination factor
The basis of costing management is to select the proper method. Usual classification is the
following:
1. costing by division
- simple costing
- gradual costing
- costing with ratios
2. surcharge costing
3. costing in combined production
- balance method
- disaggregation method
- quantitative yield method
4. differential costing
- standard cost method
- standard method
5. incomplete costing calculation
4.4. Key terms
Financial management
Financial planning
Profit and loss account
Revenues-costs view
Balance sheet
Property view
Cash flow statement
Receipts and outlays view
Financial ratios
Capital deposit
Revenues
Costs
Operating costs
Labour costs
Financial costs
Extraordinary costs
Economic Result - profit
Profitability ratios
Activity ratios
Liquidity ratios
Financial Leverage Ratios – debt ratios
Liability
Receivable
Cost management
Resource management
Investment planning
Period of repayment
Capital expenditures
Working capital
Profit after taxes
Depreciation
Cost per capital
Discount ratio
Present value
Net present value
Investment costs
Budget
Budgeting
Turnover
Revenue
Profit margin
Added value
Financial sources
Risk management
Risk plan
Costing
Cost unit
Costing model
Profit / Loss
WACC - Weighted Average Cost of Capital
4.5.Test questions
1. Information on the movement of financial resources within financial planning is
provided by:
a) profit and loss account
b) assets / liabilities statement
c) income / revenues statement
d) budget
2. Net present value calculation is a basis for:
a) evaluation of return on investment
b) determination of current status of financial resources for specific investment
c) preparation of budget for an investment
d) weighted average cost of capital
3. The budget is:
a) document submitted to state auditing bodies – tax bureau
b) managerial document that expresses the company's activity within a timeframe
c) document that evaluates the return on investment
d) document that describes capital adequacy of the company
4. Cash ratio is an indicator used in:
a) costing
b) financial plan of costs and revenues
c) strategic controlling
d) operational controlling
4.6 Recommended literature
Havlicek, K : Management, Role of Managers in Company Management, chapter 4.
Hellriegel, D. – Jackson, E.S. – Slocum,J.W. (2005) : Management , A Comepetency-Based
Approach. Thomson South-Western, Mason, chapter 10
5. Role of management within quality and innovation management
5.1 Quality management
5.2 QMS models
5.3.TQM models
5.4.Balanced Scorecard
5.5 Innovation management
5.6 Key terms
5.7 Test questions
5.8 Recommended literature
5.1 Quality management
The objective of most companies is to offer such products that give the customers what they
expect. All the employees, namely managers, should strive for quality, while the quality
management always starts at the customers. It is because when they are happy with our
products or services, or even better - when they are excited, it is likely we will satisfy their
needs, and the customers become our partners and defenders. Successful management of
quality is possible only with permanent application of relation marketing.
Many companies think about how to arrange all the key processes and systems in order to
provide their customers with high quality and required value. The quality has become a part
of marketing weaponry of the companies that realized the relation between the advantages
based on quality and successful operation in given market environment, and the efficiency of
production / distribution / sales. Therefore the quality management is considered to be another
marketing discipline; marketing departments in the small and medium enterprises are often
directly responsible for the introduction of quality policy.
Quality management models
The approach to quality management has been developed in the past, Dale and Cooper (1992)
classify four levels of the achieved qualitative trends:
1. supervision over quality,
2. inspection of quality,
3. ensuring quality (QMS models),
4. overall quality management (TQM).
QMS and TQM models (Figure 5-1) are generally considered to be the basic systems in
modern quality management. QMS and TQM can be applied together or separately in the
small and medium enterprises, whereas QMS can even be a part of TQM.
QMS
Quality Management System
TQM
Total Quality Management
Standards
Procedures
Selected groups of employees
Strategy of permanent improvement
Philosophy
All the employees
5.2 Quality management systems - QMS models
Quality Management Systems offer system approach to the quality management. QMS
models in the world, especially in Europe, are represented by ISO standards, though not
always. In any case, such system should (Oakland 1989):
- be a written plan,
- ensure that the customers' expectations are met with regards to the required quality,
- ensure that all the company's system needs are met,
- apply to all the company's activities.
Most enterprises have introduced QMS in the form of so-called ISO standards, which is a set
of worldwide standards that outline predefined frame on which the enterprises can build their
quality management systems. ISO means compliance with the International Organization for
Standardization, which registers all the standards.
ISO standards require (for example ISO 9000:2000) the companies to describe in writing
exactly what hey do and will do in order to improve the quality. They oblige the companies to
confirm in writing that they actually do what they have planned in the field of quality
management. All the operating procedures in the company have to be included, quality
management explained in manuals, together with monitoring, records and audits. In other
words, these documents prove how the quality systems are implemented in real life.
What is the process of introduction of QMS according to ISO series?
1. The company hires a specialized consultancy to evaluate its management status and
observance of quality standards under ISO.
2. Following the analysis of the consultancy (preferably with a reference of guidance in
the field of quality in the company's line of business) and a written statement further
procedure is outlined, aimed at the quality certification.
3. Most likely the same consultancy that has performed the initial analysis will prepare
the company in cooperation with its staff responsible for quality for the certification
proceedings, .e. all the procedures are systematically reviewed with regards to ISO,
quality management handbooks are developed together with relevant documentation,
all the personnel involved in quality policy are informed or take part - this activity
may take couple of months.
4. As soon as there is an agreement between the consultants and quality managers,
auditing company is contacted (again preferably with references and experience in the
certification of similar entities in our line of business), and official application for
quality certificate is submitted, which confirms we work in the ISO quality mode (the
selection of certification authority is important concerning both the price to be paid,
and the image or European – worldwide fame of the certificate; well known
certification organizations, such as TUV, Lloyd etc. are surely better image-wise than
Czech authorities, but at the same time they are considerably more expensive.
Certification by prestigious auditors can be a matter of several hundred thousand in a
mid-sized enterprise, using less famous organizations means prices in the order of tens
of thousands. All the positives and negatives, and actual needs of the company have to
be carefully considered. For example, as a not export-oriented company that operates
mostly in domestic market ordinary auditing organization will do, on the contrary
exporting entities will be interested in a prestigious certificate to be presented to their
foreign partners.
5. Independent auditors conduct an inspection of quality management handbooks and
related documentation together with thorough audit, and they assess how the things
described and planned in the documentation are observed in practice. The auditors can
make recommendations, and if there are no major discrepancies between the plans and
reality, the company gets certificate of compliance with ISO standard.
6. Another audits take place in certain intervals (usually once every 12 – 24 months), and
when there are no faults found, the certification authority is entitles to revoke the
certificate with immediate effect.
7. The companies that use ISO certificate can use ISO logo within their image identity,
with relevant number (letter papers, business cards, company profiles, advertising
etc.). ).
Advantages of introduction of QMS models (ISO series certification):
- order is defined and introduced in the company at many activity levels,
- the credibility grows considerably, many foreign customers and consumers perceive the
certified suppliers as trustworthy, some of them (namely in the industrial markets) even
require such certificate,
- other stakeholders (banks, investors, employees etc.) think of the quality certificate as an
element of stability,
- the implementation of quality policy in the enterprise, and the certification (more so
when performed by reputable authority) is a competitive advantage without any doubt.
Disadvantages of certification under ISO:
- bureaucracy,
- costs – we don't pay just the certification body, but also the consultancy; we invest in
employees within the training of internal auditors etc., but most of all the time spent by
our staff on the implementation of quality system in the company's hierarchy increases,
which could have been used in a more efficient way,
- the system does not necessarily ensure the quality of products and provided services.
5.3 Quality management systems - TQM models
TQM (Total Quality Management) is an entrepreneurial and managerial philosophy based on
the pursue of practice that leads to overall quality of organization (Bovée and Thil, 1992). In
other words: the purpose o TQM model is to incorporate the quality liability in the mind and
value system of each employee of our company. TQM accepts the opinion that all the
company departments and its employees can influence the quality on permanent basis. We
follow the assumption that overall quality of the company and its products are influenced by
those in touch with our customers, i.e. sales people and marketing staff, and the people who
participate in other activities, processes and projects. TQM model and philosophy puts these
aspects in direct relations with the quality expected by our customer.
TQM model is based on the following theses:
- enterprise is a system of mutually interlinked people,
- any activity of the enterprise influences quality,
- the suppliers make an integral part of the quality system,
- we perceive the quality first from the viewpoint of customers and consumers.
The first introduction to TQM philosophy definitely reminds of marketing concepts described
in chapter 2. While we may see the QMS models rather as quality ensuring schemes
established by the company towards the customer (similar to product, production and sales
concept), TQM philosophy is reverse, i.e. from the wants and needs of customers towards our
company (CRM). While we can imagine QMS as a possible part of transaction marketing,
TQM dominates in relation approach to customers. From the viewpoint of marketing mix it
can be perceived as a shift from 4P mix (in the enterprise) towards innovated 4C factors (the
customer).To be able to see quality through our customers' eyes and fulfill their expectations
we have to identify their needs in a systematic marketing research first. It's up to the
company's management to define the quality introduction strategy side by side with TQM
philosophy, which means to:
- clarify long term objectives of TQM model,
- define the relevance of TQM model with the company's objectives and strategy,
- describe the activities necessary for implementation of TQM model,
- allocate resources needed for the implementation.
As TQM is more philosophy than a norm, there is no general procedure (unlike QMS) of how
to implement it in a company. To introduce the model means to set the framework of adequate
qualitative systems and processes of measuring the quality. We recommend developing
motivation plans for the staff responsible for implementation of TQM in their departments. It
is necessary within TQM to involve all the managers in the implementation, i.e. ensure their
active participation in the developed quality improvement programs. This means QMS
models can be a part of overall quality policy introduced within TQM. TQM introduction is
not certified, and there is no general rule that would govern the establishment of TQM model.
It's up to every company to create such a model of quality management that corresponds with
its orientation, and reflects the wants, requirements and desires of customers. As we can see
TQM may be introduced in any company without ISO standards, even though these standards
can be incorporated in TQM model. Major differences between TQM and QMS approaches
are illustrated n the following Table 5-1.
Table 5-1 Differences between quality assessment approach of TQM and QMS systems
TQM
QMS (ISO 9000)
Strategy of permanent
improvement of all activities,
everybody involved
Standard proving to customers
that the organization can
achieve guaranteed quality
Comparison approach,
involves al activities and
employees
Methodologic approach to
quality
People
Procedures
Objective
Improve quality and
satisfaction of customers
permanently
Get certificate and compliance
with specification
The quality will bring
competitive advantage if
everybody is involved
Sticking to written procedures
Culture
Description
Characteristics
Driver
Balanced Scorecard model
The balanced scorecard model as one of the quality management models represents a way of
achievement of the objectives set by quality policy in correlation with the following activities:
- financial management
- customer relations management
- internal processes management
- innovation – education activities management
The model is evaluated by both financial and non-financial parameters ( Figure 5-2), it
includes past and future influences from internal and external viewpoint. We follow the
assumption that long term stability and quality can't be assessed solely on the basis of
achieved financial results. It is based on the modern CRM and TQM methods, oriented
towards future activities, while past activities are just an indicator of assessing the future ones,
not the basis.
Figure 5-2 : Balanced scorecard model
Financial view
Goals
Internal view
Measures
Goals
Measures
Balance
Customer's view
Goals
Measures
Innovation/learning
view
Goals
Measures
The achievement of strategic objectives on the basis of four BSC model factors clearly
defines the necessity to look for balance between individual activities. Similar to CRM model,
the management of relations to stakeholders had to search for a compromise with all the
influential groups, and it is necessary to optimize all the above mentioned strategic activities
and manage their balance within BSC.
Financial goals:
economic results-profits, profitability, liquidity, year-to-year growth, company value…
Managerial task:
implement in the company and manage the owners' requirements
Customers' goals:
quality of services, loyalty, long term relationship…
Managerial task:
understand and manage the wants, needs and desires of customers
Internal goals:
productivity, motivation programs, competences, protection of employees..
Managerial task:
create internal environment with a high competitive advantage
Innovation – learning goals:
knowledge based management, creative teams, high level of innovative abilities of basic and
higher orders, education and personal development systems...
Managerial task:
manage changes and improve processes, products, communication and other activities
5.5 Innovation management
The innovation management in managerial sense is based on the innovation strategy of the
enterprise that has to comply with overall strategy, i.e. long term mission, vision and
objectives.
The essence of innovation management is a system approach to the
implementation of innovation goals. As well as in previous cases the responsibility within
innovation activities goes through all the major company's departments. innovation activity
can succeed only if there is adequate response from the market, for example in the form of
higher sales, happier customers, better relations with stakeholders etc. It is not possible to
define innovation as a mere improvement of products we offer. We may modify processes,
products, relations with customers, image and brand. Quite generally – innovation means
changes. Changes for which managerial team is responsible, team that has to create conditions
in the company for the implementation of these changes. At the same time the team is
responsible for measuring and evaluation of the innovation activities. When the change hasn't
resulted in expected result, the innovation management or the very innovation activity can't be
considered successful, no matter how carefully and responsibly it had been prepared.
The innovation management can be illustrated in simple form like this ( Figure 5-3 ):
Searching for opportunities
Securing resources, analysis and
decisions on innovation project
Creation of business plan of the
innovation and implementation
Basis:
marketing research and SWOT
Objective:
find out the needs and wants of
stakeholders
Possibilities:
- searching in present or new markets
Sources:
- financial
- personnel
- technologic
- material
- information
analysis
and
decision
Business plan of innovation:
- financial part
- marketing and sales part
- development, technical, production,
quality, logistic,..part
- personnel part
- organization part : innovation
committee and project innovation team
Implementation and evaluation
of innovation
1. Market testing and feedback
2. Decision on launch
3. Measuring success in time
4. Evaluation of innovation activity:
- financial indicators
- marketing indicators
Innovation committee in a manufacturing enterprise
In any manufacturing enterprise, regardless of its size, innovation committee should be
established to decide on the innovations of basic and higher orders and to recommend
launching of new or products in the market. Naturally, members of such committee should be
research and development personnel, or people from production and technical departments.
The participation of marketing or sales representative is necessary to bring innovation
impulses, test the product in the market, and introduce it in active sales. It is recommended to
involve financial department, as it is responsible for observance of innovation project budget,
and for costing, and it has a word in setting the final price of the innovated product. If there is
a quality manager in the company, his/her participation is also necessary. It is clear from the
innovation committee team list below that the company director can be in charge of the body.
The first reason is the power to decide – whether to launch the products, in what way under
which price strategy, as the views of committee members do not have to be unanimous. The
second reason is the fact that the innovation activities belong to the most important ones in a
company. Flexible and high quality innovation policy in hypercompetitive environment is a
fundamental precondition of further development, and this applies to the small and medium
enterprises as well. Without continuous and systematic innovation there is no chance of
survival for companies in global environment. For this very reason it is useful when the
company director is regularly informed of innovation activities, and when innovation
committee – if any – is chaired by him/her.
Role of managers within innovation management
Tasks for managers in innovation committee:
1. The innovation committee consists of marketing and sales representatives (market
impulses and feedback), and people from production, research and development,
finance, or quality.
2. The innovation committee is chaired by the company director.
3. The innovation committee collects innovation ideas, and keeps their database,
4. Unapproved ideas are deleted,
5. Approved ideas are transferred to the company management, including costs and
benefits of the innovation goal,
6. After approval the innovation goal is transferred to project innovation team,
7. IC evaluates the status and results of specific innovation regularly submitted by
project team, creates feedback, approves further resources, takes care of cooperation
with other departments, approves human and technological resources,
8. IC reports to the company management of current status of innovation ideas from the
database,
9. IC suggests to move innovations to operations, or to cancel innovations.
10. IC appoints and removes the project innovation team members.
Figure 5-4 : Mechanism of innovation process in a manufacturing company
MARKET
Impulses from the market feedback from the market
Innovation committee:
- director
Top
management
- sales and mktg manager
- production manager
- R&D manager
- financial representative
Project
innovation
team
Database
of ideas
COMPANY
Suggestions and
feedback from
production
R&D impulses,
quality control
Costing
financial requirements
Role of managers in the project innovation team:
1. PIT takes over concrete innovation ideas from the innovation committee,
2. PIT is managed by project leader, usually has a sponsor, consists of a wide range of
marketing and sales personnel, people from research and development, production, or
quality and technical departments,
3. Responsibility for operative management of specific innovation,
4. Submission for approval to the innovation committee the required resources,
allocation of further human, financial and technical resources, request for possible
shutdown, product testing, active work with the market,
5. There are more project teams, usually one team for each active innovation idea from
the database,
6. Standard rules of project management apply.
Role of top management within the innovation management:
1. Includes the report on the status f innovations in its meeting agenda,
2. Approves innovation ideas to be transferred by the innovation committee to concrete
project innovation team,
3. Approves innovation project budgets,
4. Has the right to stop innovation project, or provide additional support,
5. Checks upon the efficiency of implemented innovations,
6. Appoints and removes the innovation committee members.
5.6 Key terms
Quality management
QMS - Quality management systems
TQM – Total quality management
BSC – Balanced score rard
Innovation management
Innovation stimulus
Innovation committee
Project innovation team
R&D Research and development
5.7 Test questions
1. Total Quality Management is closest to:
a) transaction marketing
b) relation marketing
c) product marketing
d) quality management under ISO standards
2. BSC model includes assessment based on:
a) financial parameters
b) non-financial parameters
c) combination of financial and non-financial parameters
d) independent evaluation of customer
3. Major carrier of innovation impulses has to be:
a) research and development manager
b) sales and marketing manager
c) production manager
d) general director
4. Top management:
a) manages specific innovations
b) brings innovation impulses
c) is responsible for launching of innovated products or processes in the market
d) approves and stops innovation projects
5.8 Recommended literature
Havlicek, K (2006) : Management, Role of Managers in Company Management, chapter 5.
Hellriegel, D. – Jackson, E.S. – Slocum,J.W. (2005) : Management , A Comepetency-Based
Approach. Thomson South-Western, Mason, chapter 9
6. Role of management within team building
6.1 Managerial team building
6.2 Recruitment of managers
6.3 Implementation of managers in teams
6.4 Motivation and education
6.5 Organizational designs
6.6 Key terms
6.7 Test questions
6.8 Recommended literature
6.1 Managerial team building
The building of managerial teams is apparently the most important managerial activity. All
the above mentioned activities are successful only if they are properly managed. This means
skilled and competent managers have to be responsible, who not only handle the management
of relevant areas – marketing, sales, production, finances, quality, innovations etc. These
people have to understand the links between their departments and other company divisions.
This means apart from other things that they have to work as team, as the success is based on
the overall result. Even the best sales manager will not be worth much, if an optimal function
of financial, marketing or quality departments is not established. We may even claim that our
main competitive advantage in the present hypercompetitive environment is the quality of
staff at all levels, starting with managerial posts. It is the highest skill to set up an optimal
team of managers, and there is no universally applicable rule. Nevertheless, some
recommendations can be made, without which permanent TOP team can't be created:
1. The selected managers have to comply with the position by their character, they
should have expertise and morale, willing to fulfill themselves in the field.
2. Functional team should be balanced with regards to age, comprising of young, middle and
older generation.
3. The most expensive does not mean the best, similar to football – the team full
of the best paid stars does not guarantee success.
4. Individual managers in top positions should respect each other, and compete less.
5. The team has to include managers with creative abilities, as well as system manager with
analytical skills.
6. Apart from local managerial motivations there should be team motivation aimed at the
achievement of specific common objectives.
7. The team leader is not allowed to side with selected team members.
8. The team leader can't be afraid of flexible changes to the layout, on the other hand
such changes have to be based on careful thinking and sensitivity towards the company's
operations.
9. The team leader has to monitor the labor market continuously, and have a picture of
suitable candidates, to create managerial reserves.
10. If there is a manager that complies with our idea, we should not be afraid to invest in
him/her.
The mechanism of recruitment and work with managers can be reflected by the following
chart ( Figure 6-1) :
Recruitment of managers
Principles:
1. continuous monitoring of labor
market
2. different interviews
Implementation in teams
Implementation of managers in:
- sales and marketing depts
- financial depts
- technical and production depts
- quality depts
- innovation sections
Motivation and education of
managers
Motivation systems:
- financial motivation
- non-financial motivation
Education of managers:
- career development
- expertise development
Company structures:
Creation of organizational
designs
- functional design
- product design
- geographical design
- matrix design
6.2 Recruitment of managers
The very recruitment of managers should respect the following principles:
1. Continuous monitoring of labor market
Ongoing interviews should take place even when we don't need new managers, for these
reasons:
- we monitor the labor market of managers this way – their quality, requirements and
availability
- we create potential replacements for current staff
- people from competing companies are source of industrial espionage
- we expand our contacts for possible future positions
- in case we meet a top quality candidate we may use him/her operatively in a different
position
2. Various recruitment interviews
It is a mistake to include the candidates in the universal recruitment schemes, where we don't
differentiate between accounting, controlling, quality or marketing managers, if we want to
hire the best ones. Sterile questionnaires, universal tests and predefined queries of personnel
departments lead to loss of top quality people namely in large corporations. The preconditions
of work in the management of various divisions are significantly different, and candidates of
various qualities are needed. Different responses and answers are required from them, and the
interviews have to be based on specific requirements we have, not on some universal
managerial skills defined by head hunting agencies and advisors.
The method where a person from human resources interviews marketing manager in the
morning, financial manager at noon, and sales manager in the afternoon is typical for big
companies, but it can't lead to success. Direct supervisor – the team builder has to decide on
the players for his/her team; naturally an assistance of personnel specialist or psychologist
does not cause harm, but their role should not be to decide. Only the manager – future
supervisor knows the kind of brick in the wall needed, and the requirements regarding future
players. In the case of marketing and sales players we require remarkably higher level of
communication, we respect half-truths and certain level of cursoriness, and expect good
presentation of success. On the contrary – we require system approach from financial
candidates, perseverance, exact formulations, we tolerate lower level of communication, we
don't expect presentation of success. We proceed with other positions analogically, with
respect to required features.
6.3 Implementation of managers in teams
Precondition for the work in marketing and sales teams:
- creativity
- communication abilities and language skills
- ability to sell ideas and success
- ability to accept loss
- flexibility
- self-confidence and ambitions
- outspokenness
Preconditions for the work in financial and controlling departments:
- consistence
- system approach
- firmness
- carefulness
- combination skills
- diplomacy
- managerial orientation
Preconditions for the work in quality departments:
- system approach
- analytical skills
- sense of order and observance of rules
- art of listening
- ability to work in team
- orientation in the enterprise
- self-discipline
Preconditions for the work in purchase departments:
- analytical and searching skills
- firmness
- art of communicating negative conclusions
- intransigence
- general overview
- experience
- art of reading the partners
Preconditions for work in production and technical – operating departments:
- experience
- expertise
- technical knowledge
- outspokenness
- articulation
- consistence
- variability
6.4 Motivation and education of managers
It is not necessary to declare that adequate motivation is a driving force of managers and
companies. Every good manager knows that only well motivated team is able to achieve
really big objectives, still we may wonder at the lack of professionalism in development and
presentation of the motivation programs. It is generally known that the success of customer
relations is possible only if we understand the needs and wishes, and come up with the right
offer. Neither it is any news that the needs and wants of customers vary, and we have to deal
with them individually, or develop strategies aimed at specific segments. It is strange that
managers do not utilize this procedure within motivation program management. It is based on
the same principle: what does the manager – employee expect from us? For this purpose we
have to understand what his /her major motivator is. What sort of motivation is the most
effective? This can be money or properties for some, while for others social prestige, career
opportunities or ownership participation, special trainings or various company perks etc.
However, we still talk about tangible and intangible effects. This is not the main problem, as
many companies are able to set their systems of financial and non-financial remunerations and
bonuses very well. The issue here is the lack of skill to offer the managers and employees
correct way that leads to the main motivator – success. The real motivation is success. All the
other things are technocratic results. If we are not able to offer the managers way towards
success, we can't motivate them and expect them to achieve ambitious objectives. This means
we have to be precisely aware of the abilities and characteristics of the managers, their
weaknesses and strengths, their possibilities. We have to develop the strengths and eliminate
the weaknesses. Once again we are coming back to the recruitment, which is crucial. Team
has to be built as a mosaic of perfectly fitting parts. The team leader has to keep selecting,
moving and searching for optimal positions for high quality managers, and gets rid of
unsatisfactory people. At the same time nobody says that dismissed manager has no chance of
good career in another company, this applies vice versa – a manager fired from other
company can be beneficial for us, provided he/she complies with the entrepreneurial and
managerial philosophy. Several recommendations should be taken into account:
- prepare a way to success for the high quality managers
- be able to define success and clear rules of related motivation
- keep in mind that the financial and non-financial motivation are just a result of
success
- differentiate the motivation for TOP team by wishes and needs of the managers
- establish permanent communication about the motivation system
- be able to present the motivation at the right time and in the right way
- develop simple, clear and tangible motivation
- fix the terms of evaluation
- strictly observe the rules of motivation, do not change them in the course of
managerial work
- assess and implement the effects in shorter cycles, manager has to see the motivation n
short terms
- be able to socially appreciate the successful ones (in front of the team, shareholders,
family…)
On the other hand those unsuccessful have to be told their result and proposed changes, and
properly presented with negative consequences. A manager that has been failing for long has
to feel he/she inhibits the team. Therefore the results must be presented in joint meetings and
venues. All the members of managerial teams should know that long term success is the way
to high motivation benefits, and failure is the way out of the team. Team leader plays key role
here, having to discern sensitively what is a short term success, failure, luck or random
chance, and who contributes to the company's activities in a long run.
Systematic and permanent education is an integral part of the work with managers. It can be
included in motivation programs, in any case it has to be firmly organized. Managerial
educational system has nothing in common with the hundreds of courses every manager has
participated in throughout his/her active professional life. Random, not managed courses of
various training agencies are usually not beneficial for managers, and they may even be a
waste of time. Managerial education has to be continuous process, organized in short term
phases, but concentrated, and especially aimed at the anticipated development.
From this viewpoint we should focus the education according to development of expertise or
career.
Expertise development
This means to improve one's knowledge in the line of manager's business, where he/she is
interested to grow, and the objectives do not lead to career in the sense of company
management, but to better understanding of the marketing, financial, logistic or other nature,
or development of specialized technical knowledge. High quality specialized trainings are
proper way, provided by a limited number of training agencies. With regards to the focus,
monitoring of educated managers, and time savings it is correct to implement these courses
and workshops in companies. These are so-called "in company" courses. It is necessary to
define for the agency or lecturers precisely how the course should be oriented, what structure
of managers is going to attend, and what we expect from them in future. It is also
recommendable to request feedback from the organizer or lecturer, and use it for example for
interviews aimed at further personal development. Another necessary point is to require the
feedback from attendants, know what they consider beneficial, and let them evaluate the
lecturers and the agency. This system is very well arranged in large corporations, including
the evaluation, certificates etc. In some cases the companies dispose of their own training
facility or college.
Career development
Career development is for the managers with abilities to lead big departments, teams or even
whole company. The education is aimed at general orientation, communication and
managerial skills, psychology and work under stress, management of changes and risks. Socalled MBA schools can serve as a good example of career development providers. Unlike the
expertise development, so-called "in company" courses are not ideal here, the company
should use various types of MBA schools, including foreign ones. One of the gravest mistakes
made when thinking about MBA study is the idea that the major benefit is to absorb new
knowledge. The real objective is to expand one's knowledge with different managerial skills
than those present, at the same time observing in a sort of benchmarking what procedures of
problem solving or strategy achievement were chosen by other attendants – managers from
different companies. Last but not least – MBA study is one of the major sources of future
contacts. Despite numerous claims that MBA title is not a precondition for top managerial
work, which is true, we may as well claim it does no harm. The way individual managers will
use their MBA education is another matter, and we should know that MBA title is a key
requirement for top representatives in many companies.
6.5 Establishment of organizational designs
One of the necessary preconditions for a successful management of company departments and
execution of managerial work is properly established organizational design. With regards to
key factors - transparency, responsibility, expertise, speed of decision making – the selection
of organizational design is not an easy matter, and there is no universal methodology. The
structure depends on size, orientation and sp4cialization of the enterprise, its regional
activities, and naturally its managerial teams. However, the last factor should not be an
argument. It is a frequent mistake to adjust the organizational design to current managerial
team, i.e. to the skills and abilities of key managers. The way to success is a reverse process –
i.e. to define the structure according to the company's needs, and nominate such managers that
will comply with the design.
Structure of enterprises is most often based on:
- function
- product
- geography
- matrix
Functional design
General director
Marketing and
sales director
Financial director
Production
director
R&D
Technical director
Design
Workshops
Technologies
Materials
Figure 6-2 : Functional design
This design has its clearly defined decisive powers, which are centralized, structure of
reporting is transparent, introducing stability, simplicity and order. It is sometimes called line
staff organizational design, as the decision making processes follow the line supervisor –
subordinate.
Advantages:
- high effectiveness
- simplicity and transparency
Disadvantages:
- the company may lose flexibility due to centralized decision making
- isolated departments
- expertise requirements and high level of overview of the company and products
Product design
General director
President
Director Vice President
for finance
Director Vice President
for human
resources
Chemistry
division director
Marketing
Textile
Textile division
director
Sales
Textile
Technical
fabrics
Innovations
Textile
Interior
fabrics
Figure 6-3 : Product design
Key activities take place in divisions, where they have their own organizational mode. The
division is responsible for output and efficiency as an independent section established by
combination of other organizational units. Division director has extensive decision making
powers.
Advantages:
- flexible from the viewpoint of fast decision making
- expertise and specialization ensured
- transparent with regards to performance of individual divisions
Disadvantages:
- quite expensive
- demanding human resources – division directors are at the highest company level
- threat of lost control and side sources
Geographical design
General director /
President
Asia regional
director
Europe regional
director
Africa regional
director
Country manager
USA
Sales and
marketing
North America
regional director
Country manager
Mexico
Country manager
Canada
Finance and
controlling
Figure 6-4 : Geographical design
The geographical design is a basis for management of multinationals that do business in
several regions or countries. Local branch offices usually are sales – controlling units
established for the purpose of maximum proximity to customers, development of sales
relations and management of risks within trading activities. Geographical structure can
usually link to both functional and product design. It can be combined, for example regional
marketing manager does not report to local director, but to marketing director of the whole
region.
Matrix – project design
The matrix structure is a combination of product and functional organization, we speak of socalled matrix overlap. As it is successfully used within project management, it is sometimes
called project design. Managers can be subjected to double supervision: functional for socalled vertical line, and product for so-called horizontal line. It is advisable to make use of it
for specific activities, as it depends on high level of discipline and managerial skills.
Advantages:
- flexible information
- mutual flexible cooperation across the company
- efficient utilization of human resources
- support of creativity and innovative spirit
Disadvantages:
- potential competence conflicts due to double supervision
- threat of lost control over management
- wrong management of this structure leads to chaos and lack of discipline among
managers
6.6 Key terms
Team building
Organizational design
Functional design
Product design
Geographical design
Matrix design
Regional manager/director
Country manager/director
General manager/director
Human resources manager/director
6.7 Test questions
1. What is optimal for a small medium enterprise with a constant program, doing
business in one country:
a) functional design
b) product design
c) geographical design
d) matrix design
2. Double supervision can be in place when there is:
a) functional design
b) product design
c) geographical design
d) matrix design
3. Matrix design is convenient:
a) in standard functioning small company
b) for the solution of special projects in large companies
c) for activities in foreign markets
d) for start ups
4. Hypercompetitive environment is typical for:
a) demand being at least equal to supply
b) supply being at minimum ten times higher than demand
c) non-existence of monopoly in the market
d) demand exceeding supply
6.8 Recommended literature
Havlicek, K : Management, Role of Managers in Company Management, chapter 6.
Hellriegel, D. – Jackson, E.S. – Slocum,J.W. (2005) : Management , A Comepetency-Based
Approach. Thomson South-Western, Mason, chapters 11, 12, 13, 14, 15, 17
Ing. Karel Havlicek, Ph.D , MBA
(1969)
karel.havlicek@sindat.cz
Educational background :
Czech Technical University in Prague (CVUT) (1987-1992)
Faculty of Civil Engineering, Department of Structural Engineering, specialization: physics relating to
construction; degree received: Ing (MSc)
Prague International Business School -Manchester Metropolitan University( 1995-1998)
degree received: MBA
University of Economics, Prague (VSE) (1999-2004)
Faculty of Business Administration, Department of Marketing, postgraduate study;
degree received : Ph.D.
Positions :
General Manager SINDAT
Prague, Czech Republic, www.sindat.cz
Chairman AMSP CZ
Association of Small and Medium-Sized Enterprises and Crafts of the Czech Republic
Prague, Czech Republic, www.amsp.cz
Dean of Faculty of Economics
VSFS-The University of Finance and Administration
Prague, Czech Republic, www.vsfs.cz
Vice – President UEAPME
UNION EUROPEENNE DE L´ARTISANAT ET DES PETITES ET MOYENNES ENTREPRISES
EUROPEAN ASSOCIATON OF CRAFT, SMALL AND MEDIUM-SIZED ENTERPRISES
Brussels, Belgium, www.ueapme.com
Publications (Books ):
Havlicek, K. Kasik,M.: Role of Marketing in Business Strategy (Eupress, Prague , 2009 )
Havlicek.K.: Role of Managers in Company Management (Eupress, Prague, 2009)
Havlicek, K. Kasik,M.: Marketing Management of International Business (Eupress, Prague, 2006 )
Havlicek, K. Kasik,M.: Marketing Management of SME´s (Management Press, Prague 2005)
Havlicek, K. Kasik,M.: Business Marketing (Eupress, Prague 2004)
Languages:
Czech, English, German, Russian, Spanish , French, some Chinese
--------------------------------------------------------------------------------------------------------------------------------------Having graduated at Czech Technical University with an MSc in Engineering, Karel Havlicek has gone on to
gain an MBA from the Manchester Metropolitan University and a PhD from the University of Economics in
Prague. Karel Havlicek is is the founder and Chairman of Czech Association of SME´s (AMSP) and the VicePresident of UEAPME, which is the employers’ organisation representing the interests of European crafts,
trades and SMEs at EU level and represents more than 12 million enterprises. Karel Havlicek is the General
Manager for Sindat Group, a holding of European SME´s in the chemicals, biomedicines and textiles
manufacturing sectors. Karel Havlicek is also for many years closely cooperating with academic sector . He is
the Dean of the Faculty of Economic Studies at the University of Finance and Administration (VSFS) and
has published several professional texts and books on management. He speaks Czech, English, German, Russian,
Spanish and has a basic knowledge of French and Chinese.