Introduction to Management

Fourth edition

by Richard Pettinger

Managing in a changing environment
An introduction


This paper was produced in its original form some time ago, and it went on to form the substance of the first chapter of the book ‘Mastering Management Skills’. The main lessons, issues and points do however remain current and of primary importance and value to those who now come to study management for the first time, whether at undergraduate level, or in the pursuit of post experience qualifications (eg: DMS, CMS) or other diploma, certificate and professional management foundation programmes.

The purpose is to try to give a point of entry to the consideration of the principle, practice and expertise of management in its context. This basis is required for any development of expertise and ‘professional practice’. It is additionally – and critically – the case that the rewards to expert and effective management are increasingly founded in the capability and willingness to operate within the constraints of an ever changing and more uncertain environment, together with the ability to respond to issues over which organisations and their managers have little or no control or influence.

At a time when ever-greater demands are placed on organisations to produce results, in an environment dominated by increased competition and technological change and advance, it is easy to lose sight of the key central issues and concerns of management that have to be implemented by all organisations, managers and supervisors in whatever sphere they operate. These are:

  • achieving things through people;
  • coping with uncertainty and change;
  • the ability to identify, establish and develop required and desired levels of performance.

This may be represented diagrammatically as follows (Figure 1).

Figure 1 The interrelationship between the key areas of managerial skills, practice and expertise

This approach is simplistic, and does not tell the full story of the complexities involved. It does provide a useful and valuable shorthand for breaking into the study of the whole range of management skills and expertise when coming to study formally for the first time. It also provides a basis for relating the foundations of this expertise to the following, an understanding of which is critical to managerial success and effectiveness:

  • organisation and environmental pressures;
  • market pressures and constraints
  • technological pressures and constraints
  • specific issues brought about through the delivery of project, production, service delivery and the nature of organisation management demanded by each
  • the nature of organisation, whether industrial, commercial, public service or not for profit
  • specific demands of the particular industrial, commercial or public service sector in which individual managers and supervisors find themselves;
  • developing and improving products and services in terms of quality, volume and output; and organising, developing and improving overall resource utilisation;
  • working within resource constraints; optimising and maximising resource utilisation;
  • the demands of specific and universally required managerial and supervisory skills and activities in their particular context - integrity, leadership, communication, motivation, decision-making, the ability to plan, working with groups, appraising and measuring performance, managing health and safety, negotiating and solving problems.

Achieving things through people

All managers and supervisors deal with people - staff, peers, subordinates, customers, clients and suppliers. Some also have to deal with the media, shareholders and other organisational stakeholders (see Summary Box 1).

SUMMARY BOX 1 Stakeholders

A stakeholder is anyone who has a legitimate interest or concern in the success, effectiveness and performance of an organisation.

It is usual to identify the following.

  • Staff: who depend on the organisation for their livelihood; and on whom customers and clients depend for quality products and services.
  • Customers: on whom the organisation depends for necessary and required levels of business.
  • Shareholders and backers: those who invest resources - especially money - in the organisation, and who require a return on this investment.
  • Suppliers: dependent on the organisation taking particular volumes (whether this supply is product, services, raw materials, components or information) for their own continuing existence.
  • Communities: dependent on the organisation for product and service outputs; bringing prosperity to the communities; employment; and contribution to the community.
  • Media: especially a concern to high profile public and national institutions (national media); and high profile local institutions (local media).
  • Competitors: their concern as a stakeholder is when an organisation leaves the sector altogether (which may cause destabilisation); or when a new - especially large or dominant - player comes into the sector which may change the entire set of rules by which it operates.

It is usual to identify:

  • the dominant stakeholder: overwhelmingly the financial interest;
  • the key stakeholders: staff and customers;

and to recognise the conflict inherent between the two - the drive for short-term share price rises (shareholders), that has to be reconciled with the need for long-term secure levels of business and activity (the concern of staff and customers).

The range of skills required as a prerequisite to this part of the managerial task are: speaking; listening; hearing; reading; and writing.

There is nothing remotely contentious in this - everyone has these skills to a greater or lesser extent. However, they do have to be developed so that they can be applied effectively to meet any set of circumstances that do or may arise in the manager or supervisor's particular domain.

To this list may be added therefore, the skills of: sympathy, empathy and understanding; and the skills of setting basic standards of attitude, behaviour and performance.

Sympathy, empathy, understanding

In managerial terms at least, sympathy, empathy and understanding are closely interrelated. The outputs are:

  • Genuine recognition of the strength and validity of other people's points of view, priorities, aims and objectives, whether work-related or not.
  • Genuine awareness and understanding of the strength of feelings held by other people and the reasons (including prejudices) why they hold them.
  • Genuine awareness and understanding of the effects on others of particular organisational, managerial and individual actions - especially when these are negative (e.g. redundancies).
  • Genuine awareness and understanding of the effects on others that are certain to cause hardship on non work-related problems and stresses.

Attitudes, behaviour and performance

In managerial terms, this means harmonising the relationship between what is done and how it is done. This is so that:

  • work is carried out; aims, objectives and deadlines are set and met; priorities are established and achieved;
  • a fundamental humanity is achieved based on equality, respect, value and ordinary common decency so that the place of work is pleasant and harmonious as well as productive;
  • standards of attitude, behaviour and performance can either be designed or emerged.


This is where the manager or supervisor decides what these are to be and then insists that they are followed. If this is to be truly effective in the long-term these have to be:

  • positive not negative;
  • capable of acceptance (or at least acquiescence) by all;
  • ethical and 'correct' with the principle of equality very strong.


This is where the staff are allowed to set their own standards or else these are allowed to gradually emerge and develop informally. Invariably this is dangerous and divisive. For this to stand any chance of success, each of the above conditions must, in any case, be present. Otherwise, managers and supervisors must nip any declines in standards in the bud, and if necessary, discipline those who would impose alternative ways of doing things. In general, emergent standards are invariably lower than what the situation actually demands, and are not therefore to be entertained (see Summary Box 2).


During a quiet period in one of the company's stores, a shop assistant, a girl of twenty, took a packet of sweets off one of the counters, broke it open, took out a sweet and put it in her mouth. She put the packet back on the counter. However, she was seen by a supervisor and marched off to the manager's office. The store personnel officer became involved and an investigation took place. The company rules were clear - anyone taking or using products off the store shelves was liable to dismissal. The case was proven, the girl admitted what she had done and she was dismissed.

Speaking afterwards of the case, the store manager said: 'To this day, I cannot understand why she didn't say that she had picked the sweet up off the floor, or that she had taken it out of her pocket. It would still have been serious - eating while in the customer area is strictly forbidden. But at the end of the day, we had no choice but to dismiss her, really for just being silly'.

This is a useful case because it immediately raises the points:

  • what standards are and what they are for. The clear implication here is that these rules were designed to reduce or eliminate pilfering by staff and to preserve the desired form of staff presentation to customers.
  • 'We had no choice' - this is a constant refrain of managers and supervisors, and in many cases, it is fully justified. By this company's own rules and standards it was fully justified in this case. However, this example ought at least to begin to make people think, and to make them aware that there is a very fine balance to be struck between setting and maintaining high standards, and rigidity and intolerance.

Managing by walking about

The required standards are best maintained through constant and continued interaction between staff, supervisors and managers. Everything else is reinforced in this way also - the rate of progress can be observed; real and potential problems can be observed or inferred early, and remedial steps taken. It is also the cornerstone on which is built:

  • staff, group, departmental and organisation identity;
  • real and perceived mutuality of interest;
  • positive, professional, organisational, occupational relations.

Preaching perfection, all managers and supervisors ought to set aside enough time every day in order to walk the job, to talk and to listen. They should carry a notebook with them to record particular issues - and then to return to whoever raised them with the answer. This way also, managers and supervisors get to know their staff as people, and to understand their hopes, fears, ambitions and aspirations (see Summary Box 3).

SUMMARY BOX 3 Liberace

Liberace was a virtuoso pianist and popular entertainer. Between 1954 and his death in 1981, he worked constantly with large numbers of people - musicians, orchestras, dancers and other entertainers.

Speaking in May 2000, the comedian Bob Monkhouse said of him: 'Liberace made a point of getting to know everyone he worked with, asking about their family, wives, husbands and children. And whenever they met again - if it was years later - he would remember the person's name, and would ask after the husband, wife and children by name also. The effect on the morale of the company, the orchestra, the dancers, was fantastic. He never ever had a minute's trouble with anyone whoever worked with, or for him, on stage'.

Source: 'Reputations' - BBC2 (23 May 2000).

Knowing and understanding people at work

Organisations and managers have tried for years to simplify the complexities involved in knowing and understanding people at work. On the one hand, this is fair enough; every individual is extremely complex. On the other, homespun wisdom, preconceived ideas, halo and horns effects are no substitute for identifying the skills, knowledge, attitudes and behaviour that are required to carry out work, and those that are brought by individuals into organisations (see Summary Box 4).

SUMMARY BOX 4 Halo Effects and Homespun Wisdom : Examples

  • Higher education: the principal of an higher education establishment in south-east England stated: 'I never smile at job candidates. I am always rude and abrupt with them. This puts them under pressure, and I can tell how they will react under pressure in the future'. (All it actually demonstrates is rudeness, ignorance and a lack of understanding).
  • Politics: Margaret Thatcher stated: 'I usually make up my mind about someone in thirty seconds and rarely change it after that'. (She actually had 23 Cabinet reshuffles in her eleven years as Prime Minister).
  • Oil: the human resource director of a UK oil company stated: 'After we have met candidates for promotion, we take them to a bar. We pay for all the drinks. Then we observe whether they can hold their drink or not. From this, we can tell their character'. (Analysis of the account produced after the November 1999 promotion exercise revealed that 92% of the expenditure had been on soft drinks).
  • Football: Peter Swales, Chairman of Manchester City Football Club from 1970-1992 stated: 'When I'm choosing a manager, I always go for a top name, a media star or an ex-international player. That way, you are sure of getting the best'. (The Club had 19 managers in his 22 years in charge, and fell from being one of the UK's top football clubs into the second division).

There are no easy answers. Whether staff are required as recruits or for promotion, they have to be approached from the point of view that:

  • provided that they are treated well and with value and respect, they will tend to respond positively;
  • if they are not treated well, with value and respect, they will respond primarily and overwhelmingly in their own self-interest.

The onus is on the organisation, its managers and supervisors to create these conditions. Beyond that, it is the responsibility of individual managers and supervisors to identify the skills, knowledge, attitudes, behaviour, quality and expertise that they require. Then - possibly in conjunction with human resource management specialists - selection processes can be set up that:

  • test what can be tested;
  • prove what can be proven;
  • infer what can be inferred (see Summary Box 5).

SUMMARY BOX 5 Testing People for Work

Testing people for work is a multi-edged sword for the following reasons.

  • Psychometric and other personality tests suffer from the fact that they reveal present personality characteristics and traits, not present and future work performance. At least twice, they have been described by the Institute of Personnel and Development as 'useless' for predicting performance. This does not prevent their being used in approximately 80% of managerial promotions and appointments.
  • Skills and aptitude tests demonstrate capability, not willingness or commitment. However, at least if capability is present, attention can be concentrated on attitudes.
  • Attitudes are impossible to prove. They can only be inferred from extensive observation, analysis and evaluation of the demeanour of the particular individual.

Such are the problems and pitfalls with a mechanistic approach to understanding people, that many organisations now tackle the issue from the reverse point of view. This involves organisational, departmental, divisional and functional approaches designed with the purpose of removing most of the factors that cause bad attitudes, behaviour and morale. This involves:

  • creating, maintaining and developing an open, visible and egalitarian style of management, and strong corporate and group identity; underpinned by simple direct procedures applicable to everyone.
  • Engaging in extensive and continuing induction, orientation, job, occupational and career training programmes, including reference to people's personal ambitions and aspirations; and giving full flexibility and variety of work in the situation.
  • Paying and rewarding people well on the fundamental basis of equality not division.
  • Avoiding quick-fix solutions to problems, especially large scale redundancies.
  • Concentrating everything, as far as possible, on demonstrably productive efforts; and making sure that 'the lousy jobs' - cleaning, tidying, photocopying, filing - are shared out as far as possible.

In return for all this, staff are required and expected to work as the company directs. It also means:

  • early formation of positive attitudes, behaviour and identity which can then be developed and built on;
  • that extensive job, occupational and professional training are in place, the initial concentration is on attitudes and willingness to work;
  • problems with attitudes and willingness to work can be identified and remedied early, if necessary by asking people to leave.

This approach was first introduced into the UK by the Japanese companies Nissan, Honda, Sony, Sharp and Toyota, and they cite it as a major foundation stone of their high enduring product, quality, output values, and long-term commercial success. Similar approaches are also in place at EasyJet, Ryan Air, Body Shop, Virgin and some private schools and hospitals (see Summary Box 6).

SUMMARY BOX 6 Knowing and Understanding why People Dislike and Leave Jobs

Knowing and understanding why people dislike and leave jobs is also a key managerial quality. It is the reverse of the coin indicated in the main text.

The reasons may be positive or negative.


  • Increased wages or salaries; better opportunities; more variety; entry into a new field; career change and development. If these opportunities are genuinely not available, organisations and their managers and supervisors have relatively little ability to influence these.
  • Greater convenience, closeness to home, less trouble getting to work. Again, managers and organisations have little influence over these.


  • Dishonesty and duplicity in dealings with the organisation and its managers and supervisors; bullying, victimisation and harassment.
  • Bad or declining interpersonal, inter-professional and inter-occupational relationships.
  • Scapegoating and blame.
  • Boredom and lack of opportunities.

Organisations, managers and supervisors have overwhelming influence in all this. The negative conditions start with them.

Losing staff for these reasons is also extremely expensive in terms of:

  • the management and supervision of departure; and then the recruitment, selection, induction and orientation of the new starter;
  • lost production or service output during the leaving-starting period.


All managers and supervisors work in a constantly changing environment. This is driven by:

  • Stakeholder demands: especially customers requiring ever-improving quality and standards of products and services; and shareholders and backers, requiring ever-increasing returns on their investment.
  • Technological: affecting all social, economic and business activities; rendering many occupations obsolete and creating new ones.
  • Market, Product and Service: as the result of globalisation, internationalisation and new ways being found (including internet distribution) of getting products and services to people
  • Social: the changing of people's lives, bringing about ever-greater expectations and anticipations; and this includes political and environmental issues
  • Expectational: in which changes may be expressed as from stability to a state of change itself, a state of flux, changes in occupation, training and profession; changes in markets and activities.

The importance of understanding, managing and directing this process is fundamental to its success. Rather than passive acceptance or allowing it to happen, managers and supervisors must assume responsibility for, and direction of, the process of change and the activities required to make it effective and successful.

It is first necessary to identify the barriers to effective change. These are as follows.

Operational barriers to change

These include the following.

  • Location: this is a barrier when, for whatever reason, it becomes impossible for the organisation to continue to operate in its current premises. Relocation has consequences for the resettlement of families, retraining and organisation development.
  • Tradition: this is a problem where there has been a long history of overtly successful work in specific, well understood and widely accepted ways.
  • Success (and perceived success): if the organisation is known or perceived to be successful in current ways of doing things then there is a resistance based on 'why change something that works?' This is especially true if there is a long history of stability and prosperity.
  • Failure: this is a barrier to change where a given state of affairs has been allowed to persist for some time. The view is often taken by both organisations and the staff concerned that this is 'one of those things', a necessary part of being involved in a given set of activities.
  • Technology: this is a barrier for many reasons. It is often the driving force behind jobs, tasks, occupations and activities. Their disruption causes trauma to those affected by the consequent need for job and occupation change, retraining, redeployment - and often redundancy. Technological changes may also themselves cause relocation. Technological changes cause changes to work patterns, expertise and methods.
  • Vested interests: the needs for organisational change are resisted by those who are, or perceive themselves to be, at risk. Vested interests are found in all areas. They include senior managers threatened with the loss of functional authority; operational staff faced with occupational obsolescence; people in support functions; and those on promotional and career paths for whom the current order represents a clear and guaranteed passage to increased prosperity and influence.
  • Managerial: the managerial barrier occurs where there is a divergence between the organisation's best interests, and the needs of individuals and groups of managers to preserve their own positions.
  • Bureaucracy: this barrier occurs where patterns of order and control have grown up over long periods and is now no longer suitable to the proposed future direction.
  • Redundancy and redeployment: this is a barrier in its own right because in the current context, any proposed change carries redundancy and redeployment as possibilities, and because it has so often been the consequence of other changes.

Behavioural barriers to change

The main behavioural barriers are as follows.

  • 'It cannot be done' and 'there is no alternative': these are barriers to confidence and understanding, based on a lack of true, full and accurate information, briefing, counselling and support concerning the matters which the organisation is proposing. These barriers may be used and manipulated by vested interests, occupational and managerial groups, and trade unions, in trying to defend the status quo - 'There is no alternative to the ways in which we do things now' is a very popular defensive position.
  • Lack of clarity: if organisations have not sorted out the basis of the changes that are proposed, neither staff nor customers will go along with them with any degree of confidence or understanding. Aims and objectives - changing from something to something - must be clearly stated and understood as the prerequisite to successful and effective change.
  • Fear and anxiety: these are human responses to situations that are unknown or uncertain. They are at least a part of the initial response to any change that is proposed; if allowed to get out of hand, they can become an exercise in the devising and promulgation of hypothetical scenarios that could, in certain circumstances, become problems on the changing landscape.
  • Perfection: at the point at which change is proposed, suddenly everything concerning the status quo becomes 'perfect'. Anything that is proposed as an alternative has therefore to address this barrier.

It follows from this that all change requires individual and group briefing, consultation, counselling and support methods, and mechanisms to be put in place. These are for the purpose of reassurance; the continued addressing of lingering or persistent uncertainties; and providing the means of tackling individual problems and issues. Moreover, they provide behavioural messages that, in themselves, reflect the organisation's concern for, and commitment to, individuals and groups. The extent to which this approach is engaged reflects the importance attached by the organisation to basic stability, permanence and long-term continuity. It is also especially important from a humanitarian point of view because so much change in the recent past has led to large scale redundancies, and people have been conditioned to think that every time changes have been proposed means that they may lose their job.

Production and service volume and quality

Achieving the required levels of product and service volume and quality is the primary concern of all managers and supervisors. This has to be carried out:

  • through people;
  • in a changing environment.

There are two extreme views of this.

  • Theory X: stating that people have to be bribed, bullied, cajoled and threatened into work; that they will avoid work and responsibility.
  • Theory Y: that people seek responsibility, satisfaction, achievement, enhancement and development from their work; that they seek self-respect, self-worth and the respect, value and esteem of others in their work.

Supporters of the Theory X view cite banking, insurance, manufacturing, transport infrastructure and public services as organisations that have a long-term history of success - or at least not of failure - and the largely coercive and confrontational management styles that built them up. However, it must be noted that, without exception, all of these are sectors in which performance is declining.

Proponents of Theory Y argue that because there is much closer alignment between work demands and human demands, long-term sustainable and profitable enterprise is much more certain to occur (though this is not guaranteed).

Managers and supervisors influence the workings of their department in the pursuit of productive output in one direction or the other. It is important to note that:

  • any coercive approach must be underpinned by equality, fairness, openness and honesty if it is to stand any chance at all of success;
  • any humanitarian approach must also deliver the results required.

This is a summary of the context in which results are required. They can then be assessed from the following points of view.


Production may be measured as follows.

  • Output per production line; output per production shift; output per location; output per piece of equipment/technical unit/item of technology; output per member of staff.
  • Frequency/density of machine usage; operations as a percentage of total capacity/ potential.
  • Time taken for components to be assembled into finished products; assembly time for given operations; product to market time; speed of product turnover; speed of components turnover.
  • Volume of supplier complaints; nature of supplier complaints; volume of customer complaints; nature of customer complaints.


Sales performance is measured as follows.

  • Total sales as a percentage of prospects, leads, calls, website hits; sales by location; sales by outlet.
  • Sales per product; sales per product cluster; effect on total sales of introduction of new products/withdrawal of some products.
  • Speed, frequency and density of sales - per product; per product cluster; per outlet; per location.
  • Sales by format - retail; wholesale; mail order and catalogue; newspaper and magazine; website.
  • Inter-relationship of sales formats - e.g. are people attracted to buy from shops because of the availability of catalogues, websites and newspaper outlets?
  • Income per customer; income per location; income per region; nature of customer expenditure - cash, cheque, credit card, standing order, hire purchase, finance plans.
  • Attraction/expenditure: the frequency and density with which window shoppers or website browsers become customers.

Initial and continuing identification of these measures indicate the following.

  • The effectiveness and potential of the particular product or service.
  • Efficiency and effectiveness of resource combination and utilisation.
  • Where improvements might be made.
  • Whether actual output and sales income measure up to required or desired output and sales income.


Administration and support functions should also be assessed from this point of view. This is carried out as follows.

  • Length and purpose of administrative procedures; the extent to which procedures meet their stated purpose.
  • Volume of administration and support functions as a percentage of total workload and activity.
  • Numbers of staff in support functions; percentage of staff in support functions.
  • Proportion of fixed costs allocated to administration; proportion of premises allocated to administration; levels of business required to cover administration.
  • Cost of administration per member of staff; total cost of administration; total cost of administration as a proportion of total organisational cost.

Human resource management

The points of inquiry here are:

  • general staffing information: by occupation; age; gender; disability; ethnic origin; department, division, function; location.
  • Balance of staff numbers in primary and support functions.
  • Balance of managerial and non-managerial staff.
  • Rates of absenteeism, sickness, labour turnover by occupation, department, division, location and function.
  • Rates of accidents, illnesses and injuries by occupation, department, division, location and function.
  • Rates of disputes, grievances, strikes, by occupation, department, division, location and function.
  • Rates of disciplinary activity - above all, the use of disciplinary procedures - by occupation, department, division, location and function (see Summary Boxes 7 and 8).

SUMMARY BOX 7 Measuring Production, Quality, Volume and Output

Managers and supervisors have to have the capability to choose which are appropriate to their particular situation. These have then to be used in ways appropriate to the situation. This can only come about as the result of full situational knowledge and understanding, together with an assessment of the particular pressures present.

Levels of each are therefore clearly a matter of managerial or supervisory judgement. There are no absolute right or wrong answers. However, it is always useful to bear the following in mind.

  • Equipment and technology standing idle is expensive.
  • A relationship has to be drawn between production capability and sales potential.
  • Costs and consequences of breakdowns and blockages in production and output (including computer crashes and information management problems) can be measured in terms of lost sales.
  • The costs of managing and resolving customer and supplier complaints can be calculated.

In the particular matter of the management of people, the following can be calculated.

  • Every percentage point of absenteeism effectively adds one person per hundred to the payroll.
  • It is possible to isolate the cost of recruiting particular members of staff and set this against the costs of retention and motivation.
  • It is possible to calculate the cost that dispute, grievance, accident and injury, and relate this to the cost of prevention.
  • It is possible to cost the number of staff a) required; b) total staff cost of - one unit of production; one unit sold; total production output; total sales volume.

Each of these measures can also be adapted to fit the requirements of: retail activities; commercial services (e.g. travel insurance); e-commerce; telecommunications technology.

SUMMARY BOX 8 Induction

Many organisations still fail to carry out adequate and effective induction processes. This is because:

  • managers and supervisors do not have the time;
  • managers and supervisors do not see the value;
  • the organisation does not insist that it is done.

Yet both in terms of ensuring that the new starter or promoted individual understands the full operational demands of the situation, and also that they have the desired attitudes and behavioural standards (see above), this is essential.

The purpose of induction is to get the new, or promoted, member of staff as productive as possible, as quickly as possible. This consists of:

  • Setting the attitudes and standards of behaviour required, ensuring that all employees know what is expected of them, and that they conform to these expectations and requirements; it is most important that organisations, managers and supervisors assume absolute responsibility for this.
  • Job training and familiarisation, mainly to do with the ways of working required by the organisation, and including any technological, customer, supplier or colleague familiarisation necessary.
  • Establishing the required standards and methods of work, where to go for supplies and inputs (if required or desired), how to deal with customers and clients.
  • Introductions to the new team, work colleagues and other key contacts as part of the process of gaining confidence, understanding and mutuality of interest, and for the development of effective enduring working relationships.
  • Familiarisation with the environment, premises, ways of working and particular obligations on the part of the employer; familiarisation and understanding of emergency procedures and other written rules and regulations.

Commitment to this is vital. Taking time and trouble at the start of a new or promoted individual's period of employment reduces the opportunity for future misunderstandings and mistakes in product or service delivery. Many organisations go to much trouble to ensure that this is adequately and effectively completed - and it is a key feature of the success of both Japanese and indigenous companies referred to above (Page 8) that they spend extensive periods of time on induction and orientation before the member of staff is allowed to work. Once they are allowed to work, however, the companies have complete confidence that the induction process has made them fully commercially productive.

Financial aspects

Managerial and supervisory performance must also be understood in terms of the financial aspects present.


The following costs must be distinguished.

  • Fixed Costs (FC): these are the costs incurred whether or not any profitable or effective business is conducted. FC consist of capital charges, premises costs, staff costs and administrative, managerial and support function overheads.
  • Variable Costs (VC): these are the costs incurred as the result of engaging in activities. They consist of raw materials, packaging, distribution costs; and telephone and information systems usage. The amount of each varies according to levels of activity.
  • Marginal Cost (MC): this is the cost incurred by the production of one extra item of output. This reflects the extent to which the production or output capacity of the organisation may be extended without incurring additional fixed costs in the forms of investment in new plant, staff, equipment and technology.

There comes a point at which the production of an extra item pushes the organisation to its total current capacity; and when the production of one more item requires this additional level of investment.

  • Opportunity Costs (OC): this is what is foregone as the result of engaging in a given set of activities - by doing one thing, an organisation is not able to do other things.

Specific points of inquiry

The following should be understood.

  • Cost and income per employee: including all the employees of the particular organisation, department, division or function; not just those engaged in frontline or sharp end operations.
  • Income per customer: by which the total income over a period is measured against the number of customers; average income per customer.
  • Income per product/service: either on an individual, product mix, or product range basis (see Figure 2).

This is a convenient and simple way of parcelling up products and services to demonstrate where and how they are performing. The definitions are:

Cash cows: high share of low growth market; today's breadwinners; the main source of income.

Stars: high share of high growth market; today's and tomorrow's breadwinners from which future cash cows will come; normally need high investment and support to maintain position.

Question marks: low share of high growth market; tomorrow's potential breadwinners; not all will succeed.

Dog: low share of low growth market; normally only kept if they have some distinctive positive feature.

Figure 2 The 'Boston Group' matrix

  • Income per outlet: and whatever terms the outlet is defined - the office, sales person, the department store, the catalogue, the airliner, the restaurant, the website.
  • Income per square foot, per square metre, per product stack, per website, per website page: this can also be developed to cover individual premises and the total premises owned.
  • Income per location: having regard to relative levels of prosperity, disposable income and propensity to spend at the local client base served; and again, this includes websites.

Each of these items may also be re-presented as profit (profit per employee, per customer, per outlet, per offering, per square metre).

Financial aspects should also be understood in the following terms.

  • Volume sales: per product, per product cluster, per product range; volume sales per square foot, per outlet; volume sales per member of staff.
  • Density/frequency of usage: this especially applies to sport; healthcare; hotel facilities; public transport; bank cash points; websites; commercial durables such as photocopiers.
  • Longevity of usage: this can usefully be applied to private transport; public transport; consumer durables; clothing; white goods.
  • Speed of turnover: which reflects the level of finance necessary to support the requirement to keep everything adequately stocked.


Budgets are most effective when they are concentrated on the allocation and use of variable costs - above all, materials and other resource usage in departments and functions that change according to the level of activities.

A budget is a plan (with sub-plans) constituting part of a process of knowing and controlling levels of expenditure in departments, divisions and functions, and on projects and initiatives. The purpose is to provide an accurate picture of where and how resources are being used, the speed and frequency of this, and the basis for making future judgements on the levels of finance required to remain effective.

A budget enables specific analysis and evaluation of the accuracy of the resource allocation process and variances from it, and the explanation of why particular resource targets and projections have not been met. Budgets provide definable and quantifiable bases for corrective action - whether this is to do with profligacy, or whether it relates to parts of an organisation and particular activities being starved of resources essential for effective operations.

It is also essential to be able to reconcile control with flexibility and this, in turn, requires a measure of leeway so that, for example, productive initiatives that need small extra amounts of resource in order for them to be fully effective can be accommodated without, at the same time, calling into question the whole credibility of the budgeting process. All budgeting systems must be specifically designed to support the organisation's initiatives, operations, projects, staff and facilities.


This paper has indicated the basic range of skills, knowledge, expertise and character required by all managers and supervisors in every set of circumstances. To these qualities must be added the ability to judge, analyse and evaluate, so that each of the following may be developed:

  • Professional, expert and informed approaches to hard elements of performance: related to production, sales, income and output volumes;
  • Professional, expert and informed approaches to soft elements of performance: referring to the effectiveness of the human aspects of management;

This relates to each of the assertions made at the outset – the need to deliver performance through people and resources, and the ability to do this within an ever changing environment. The key skills therefore, lie in using communication, knowledge and information as carpenters use their tools - they have a range at their disposal, but which is used on a particular occasion, depends on the nature of the specific job in hand - whether delicate and intricate, large and overwhelming, or anything in between the two. All managers have therefore to be able to choose and use these skills in accordance with the particular demands of the situation.

Richard Pettinger
November 2006