IV. Supplementary reading text I. Management in its invironment

Read and translate the text.

Answer the questions on the texts below:

What do we mean by “organization”?

What guidelines does top management set up?

How many groups can industrial or commercial organization be divided into? What are they?

Who is meant by shareholders?

What does the loan creditor group include?

What interest does the employee have ?

What specialists does the analyst adviser group consist of?

What is the business contact group interested in?

Why is the Government’s involvement with management considerable?

What is the interest of the public?

When talking about any organization, in particular what it is doing or planning at the moment, it is important to remember that what we mean by 'organization' in this respect is the top management. Organizations such as limited companies are inanimate — they do not think and act themselves. It is either a powerful individual or more usually a group of individuals who control the top decisions that really form what we mean by the organization. Often the organization is represented by an employee who is not a senior manager — such as a salesman or a police constable. Our contacts with individuals like these, good or bad, will certainly influence our view of the organization as a whole. However, people at these lower levels of management have only got authority to act for the organization within guidelines or limits set by top management. If they act outside these guidelines you can complain and usually obtain some redress if they are at fault. Top management sets these guidelines — which are generally called objectives — in order that those working in the organization know what is expected of them. When we are talking about 'top management' it is something like talking about the 'Government'. Whilst in business organizations there are no general elections, nonetheless the composition of the 'cabinet' of senior managers changes regularly, and from time to time there may be a complete change — if the business is taken over by another organization. Thus whatever the type of organization the top management will always change from time to time, which means that their objectives and therefore those of the organization will also change.

Although top management set the objectives of the firm they cannot do this in isolation from the world outside. They are dependent for their continuing existence on their ability to survive. Survival as a top manager will depend on satisfying a wide range of competing interests in the affairs of the organization. Whilst it is unlikely that every outside interest will always be happy with how things are being run, if too powerful an opposition is created, management will be replaced.

If we are thinking about an industrial or commercial organization then the interested groups can be conveniently divided into seven sets. For non-commercial organizations many of these groups will also apply. The seven groups which will be discussed in turn are

1. The equity investor group

2. The loan creditor group

3. The employee group

4. The analyst adviser group

5. The business contact group

6. The government

7. The public

The Equity Investor Group

By 'equity' is meant the ordinary shareholders who own the right to profits after all prior claims are met, but are also likely to lose most of the business fails. The ordinary shares carry a vote — a majority of which will control the company. A top management group has thus got to maintain the support of a majority of voting shareholders. In some organizations the top management may individually own a majority of the shares in which case this equity investor group is of much less concern to them, but in many large organizations the holdings of shares are widely spread — a majority often in the hands of pension funds and other financial institutions. In these circumstances a fairly small holding by top managers may allow them to run the business, since the financial institutions may not interfere if they are happy with the way management is running the business. If however, this major group become convinced that a new management could do better, they then have considerable power to vote for a change. In public authorities the 'equity' belongs to the government of the day who will act in much the same way as the shareholders group in a limited company.

The Loan Creditor Group

This group includes a wide range of banks, business organizations and individuals who have provided loans and credit to the organization. Part of this group will be secured, which means that they have obtained some specific legal rights to recover the money owing to them if the organization gets itself into financial difficulty. Others will be unsecured; if the business fails they will only get their money repaid to them if there are sufficient assets after preferential and secured creditors have had first claim. Whilst all types of creditor rank before shareholders for repayment this is small comfort if the organization ends up with a major deficit leaving them unpaid? Thus all this creditor group have a major interest in the success of the group and in particular in financial policies which minimize the risk of loss to creditors. Clearly lenders committed to long-term lending to an organization may have a longer term perspective than short-term loan creditors, but fundamentally they have a business interest. Their rights to act against management policies may be included in the lending agreement particularly for long-term lenders. Short-term lenders will be more likely to act by demanding immediate repayment and refusing to extend further credit where they are unhappy with the management

The Employee Group

The employee group has a very direct and clear interest in any organization. Security of employment is one major factor which will interest employees. The other factor of major concern will be an organization’s ability to offer continuing development of career opportunity as well as prospects of pay progression. For an organization to be successful the authority of top management should be based on respect for their ability to provide proper leadership of the organization. This respect will clearly be based on competence rather than inherited power.

The employee is often represented in his dealings with organizations by a trade union. The unions now represent a very articulate contribution to the consideration of top management objectives in any area that is likely to impinge on employment.

The Analyst Adviser Group

Whilst this particular group are in fact normally no more than representatives of the other parties, nonetheless because of their particular expertise and influence they are usually considered as a separate group. Perhaps the most influential part are the financial journalists who may be seeking to uncover any policies or results which may be considered morally, or politically unacceptable. These matters then make good reports in the press. Investigative journalism of this type can have a considerable influence on top management.

Other analysts often working for stockbrokers or banks examining the results of organizations have particular importance for investors, since they recommend people to purchase shares, or to make loans. As distinct from the general public they are experts in techniques of analysis and examine the economic environment of the organizations they are concerned with. Specialized analysts also work for other interested parties such as Trade Unions and Public Consumer Groups to help them take effective action in criticizing management.

The Business Contact Group

The suppliers, trade creditors and customers of a business all have an interest in its management. Many of these groups will have some close personal interest since dealings with another organization can have a major impact on continuing success. Failure to continue with supply of materials which are not readily obtained elsewhere is one example. Failure to pay debts owing is another. Thus the business contact group is vitally interested in the ability of management to successfully ensure reliable supply or demand — uninterrupted by strikes or breakdowns, and in their ability to remain solvent as a good credit risk. It is worth mentioning here the position of competitors, thin they will also be examining the performance of an organization. They will be looking for opportunities to take business away, and their actions will often be influenced by their assessment of the ability of top management of a competitor to thwart them. In the extreme case a takeover may be launched for a badly managed competitor.

The Government

The Government's involvement with management, either nationally or locally, is considerable. In public authorities and utilities, the government itself usually lays down the organization’s objectives and appoints managers to carry them out. Even, however, in the private sector the impact of legislation covers almost every aspect of business. In addition the Government is itself a major customer for many businesses and will therefore take a particular interest, especially where strategic issues, e.g. defence, are involved. The Government is involved with organizations both to tax their profits for revenue, and also to control them as far as possible to act in the wider social interest of the country, whether in terms of employment, environmental issues or strategic national defence.

The Public

The interest of the public in management's control of organizations, may be perhaps felt to be already covered by a democratically elected government. However, the process of government is now very complex and issues of local concern may not be adequately covered. Similarly minority groups may feel that they need to bring things of particular interest to them into a proper focus for government.

Thus there have developed a range of organizations who act as pressure groups to bring special attention to bear on matters of concern to them. The Consumers Association acts on behalf of consumers to draw attention to faults in products and legal procedures and is particularly concerned with matters affecting health and safety. as well as 'good value for money'. Other special interest groups look after environmental issues and conservation. Indeed most aspects of any organization’s activity are likely to be covered by a pressure group for the public interest. Any management which crosses swords with such groups is likely to be met with both legal action as well as physical demonstrations of the public's views.

Sum up the information you’ve learned from the text.

Say what suggestions of the writer seem most interesting for you.