The Functions of Management

In the early 20th century a French industrialist named Henri Fayol stated that management had five main functions: planning, organizing, commanding (that is, leading), coordinating, and controlling. A lot of water has passed under the bridge since Fayol wrote about management, and we have learned much about the theory and practice of management; but in a testament to the robustness of Fayol’s original formulation, a modified version of Fayol’s list is still widely used.

This list identifies four management functions: planning, organizing, controlling, and leading (Fayol’s fifth function, coordinating, is now treated as an aspect of organizing). In this book we focus on these four main functions of management, but we have broadened the definition of those functions somewhat to better represent the realities of management practice in the 21st century. The four functions that we discuss are

  1. planning and strategizing,
  2. organizing,
  3. controlling, and
  4. leading and developing employees.


Planning is a formal process whereby managers choose goals, identify actions to attain those goals, allocate responsibility for implementing actions to specific individuals or units, measure the success of actions by comparing actual results against the goals, and revise plans accordingly. Planning takes place at multiple levels in an organization and is an ingrained part of a manager’s job.

Planning is used by senior managers to develop overall strategies for an organization (a strategy is an action that managers take to attain the goals of an organization). Planning, however, goes beyond strategy development to include the regulation of a wide variety of organizational activities.

Managers plan expenditures every year in a budgeting process. Managers draw up plans for building new factories, opening new offices, implementing new information systems, improving inventory control systems, introducing new products, launching new marketing campaigns, rolling out employee benefits programs, dealing withcrises, and so on. To be sure, many of these plans are linked to the strategy of the enterprise.

The allocation of financial resources specified in an organization’s budget for the comingyear, for example, should be driven by the strategy of the organization. However, planning isoften about formalizing a strategy that has already been selected and documenting the stepsthat managers must follow within the organization to put that strategy into effect.

Although planning is a useful process for generating strategies, strategizing involves more than planning. Strategizing is the process of thinking through on a continual basis what strategies an organization should pursue to attain its goals.

Strategizing involves being aware of and analyzing what competitors are doing; thinking about how changes in the external environment, such as changes in technology or government regulations, impact the organization; weighing the pros and cons of alternative strategies; anticipating how competitors might respond to these strategies; and choosing a course of action. When Rose Marie Bravo decided to reposition Burberry as a hip, high-end fashion brand, she was strategizing.

Whereas planning is a formal process for generating the strategies of an organization, strategies can also arise in the absence of planning. For example, anyone who has walked into a Starbucks store may have noticed that in addition to various coffee beverages and food, the company also sells music CDs.

Most Starbucks stores now have racks displaying about 20 CDs. Reports suggest that when Starbucks decides to carry a CD, it typically ranks among the top four retailers selling it. The interesting thing about Starbucks’ entry into music retailing is that it was not the result of a formal planning process.

The company’s journey into music retailing started in the late 1980s when Tim Jones, then the manager of Starbucks’ store in Seattle’s University Village, started to bring his own tapes of music compilations into the store to play. Soon Jones was getting requests for copies from customers. Jones told this to Starbucks’ CEO Howard Schultz and suggested that Starbucks start to sell its own music. In other words, Jones was strategizing .

At first Schultz was skeptical, but after repeated lobbying by Jones he eventually took up the suggestion. Today Starbucks not only sells CDs; it is also moving into music downloading with its Hear Music Starbucks stores, where customers can listen to music from Starbucks’ 200,000-song online music library while sipping their coffee and burning their own CDs.

Starbucks’ strategy to enter the music retailing business emerged from the grass roots of the organization in the absence of planning. It was the result of strategizing by an individual store manager, and only after some time was the strategy adopted by senior managers. As we will see later, strategy often develops in this way. Managers at all levels in an organization spend a lot of time strategizing. It is an important aspect of their jobs.

Sometimes they do this as part of a formal planning process, but strategic thinking also goes on without planning. This is not to belittle the importance of planning, which has an important role in organizations. However, strategizing is more than just planning—it involves constantly thinking through strategic alternatives.


Organizing refers to the process of deciding who within an organization will perform what tasks, where decisions will be made, who reports to whom, and how different parts of the organization will coordinate their activities to pursue a common goal.

In a business, organizing typically involves dividing the enterprise into subunits based on functional tasks—such as procurement, R&D, production, marketing, sales, customer service, human resources, accounting, and finance—and deciding how much decision-making authority to give each subunit.

Organizing is part of planning and strategizing:

As we discuss later, strategy is implemented through organization. For example, to implement the decision to expand Starbucks’operations into online music, Howard Schultz set up a separate unit within Starbucks called Hear Music; placed an executive, Don MacKinnon, in charge of that unit; and gave him the task of rolling out Hear Music in Starbucks’ stores across the country. MacKinnon, together with his unit, is thus responsible for implementing the strategy of growing Starbucks music business.


Controlling is the process of monitoring performance against goals, intervening when goals are not met, and taking corrective action. Controlling is just as important as planning, strategizing, and organizing. Without control systems to verify that performance is hitting goals, an organization can veer off course. Controlling is also linked to planning and strategizing and to organizing. Drafting plans is the first step in controlling an organization.

Controlling requires managers to compare performance against the plans to monitor how successful an organization is at implementing a strategy. Thus at Starbucks, Don MacKinnon has been given goals related to the rollout and sales of Hear Music, and his success at implementing the strategy will be assessed by comparing actual performance against the goals.

An important aspect of controlling is creating incentives that align the interests of individual employees with those of the organization, helping to ensure that everyone is pulling in the same direction. An incentiveis a factor, monetary or nonmonetary, that motivates individuals to pursue a particular course of action. Starbucks, for example, has a long history of giving stock-based compensation to employees. The thinking here is that stock-based incentive pay will induce employees to look for ways to improve the performance of the organization, thus increasing the company’s stock price and their own wealth.

So perhaps it is no surprise that Tim Jones, who was not only a store manager but also a stockholder, actively lobbied senior management to persuade them to sell music in the stores. With the right incentives in place, employees will work productively and control their own behavior, which reduces the need for close personal supervision and other intrusive control methods.


Leading is the process of motivating, influencing, and directing others in the organization to work productively in pursuit of organization goals. Leading also entails articulating a grand strategic vision for an organization and becoming a tireless advocate for that vision.

Rose Marie Bravo was thought of as a great manager in part because she was good at persuading other employees to accept her transformational strategic vision for Burberry, and she excelled at motivating, influencing, and directing people. As in the case of Rose Marie Bravo, leading also involves listening to others, learning from them, and empowering them to pursue actions that benefit the organization.

An important aspect of leading is developing employees. Developing employees refers to the task of hiring, training, mentoring, and rewarding employees in an organization, including other managers. It is often said that people are the most important asset of an organization.

Academics talk about the value of the human capital of an enterprise, by which they mean the skills and motivations of its employees; they assert that human capital can be a source of competitive advantage. Rose Marie Bravo recognized the importance of human capital when she took on the top management position at Burberry.

One of her first actions was to recruit a top-notch team of managers and creative designers through which she could get things done. Management expert Peter Drucker has emphasized that hiring and promoting the right people are among the most important management tasks because they have lasting consequences for the organization and are difficult to reverse. Unfortunately Drucker also estimates that many managers are not good at this function.

According to Drucker, about one in three selection and promotion decisions is only minimally effective. The legendary former CEO of General Electric, Jack Welch, seen by many as one of the best managers of the 20th century, estimated that he spent 70 percent of his time as CEO developing and selecting other managers, mentoring them, and evaluating their performance.

Leading and developing employees are in many ways the core connection among planning and strategizing, organizing, controlling, and creating incentives. Skilled leaders

  • Drive strategic thinking (strategizing) deep within the organization while articulating their own vision for the organization.
  • Have a plan for their organization and push others to develop plans.
  • Proactively structure the organization to implement their chosen strategy.
  • Exercise control with a deft hand, never seeming too overbearing or demanding, while at the same time never taking their eyes off the ball.
  • Put the right kinds of incentives in place.
  • Get the best out of people by persuading them that a task is worthy of their effort.
  • Build a high-quality team of other managers and employees through which they can workto get things done.

Without skilled leaders strategy may fail. The organization may become bureaucratic; control may be lost; employees will lack incentives and motivation; and the organization may suffer insufficient human capital.

Principles of Management Related Practice Tests

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