Business Management: Importance and Functions


ADVERTISEMENTS:Read this article to get information about business management, its characteristics, importance, functions, roles, levels, and specialization!Concept of Management:Management is easy to understand but difficult to define in a universally acceptable way. The term Management can be, and often is used in different ways. At times, it is referred to the process, followed to achieve…

Business management

Business management is easy to understand but difficult to define in a universally acceptable way. The term Management can be, and often is used in different ways. At times, it is referred to the process, followed to achieve organizational goals (a process).

It is also described as a body of knowledge (a discipline). At other times, it is used to refer to individuals of a particular class, who are managers (group of people).

And many a time it is concerned with getting the work done. For purposes of our discussion and understanding, the term management can be defined as follows:

Management refers to a set of functions designed to get things done through and with people through efficiency in resources utilization to effectively attain predetermined goals.

Characteristics of Business Management

It is almost impossible to understand the concept of management in few words. The best way is to understand the concept, nature and scope of management is through describing its characteristics.

1. Management is a process – Continuous, Social, and Unique:

Business management is a continuous process because an organization goes on perpetually and it needs solutions to problems on a continuing basis. A process has a beginning and an end, and management begins with planning and ends with control and restarts with planning.

It is a social process because it is managing by people (employees and managers) for the people (customers) and of the people (investors and society at large).

It is a unique process because it deals with group activities; it is integrative in nature as it meshes different resources in a coordinated manner; and intangible in appearance (since presence of management is felt through performance only).

2. Management is a science, an art, and a profession as well

A science is a systematised body of knowledge, accumulated through use of scientific method (through observation and research), it has a cause and effect relationship, can be imparted formally, and has universal application.

Management has all the ingredient of being a science, but it is a soft science rather than a hard science (where 2 + 2 may not always be 4) because it deals with human beings, whose behavior is most difficult to predict.

Art refers to practical application, through creative use of body of knowledge to get desired results by personal possession of skill where scope for personal judgment is there. This way management is definitely an art, as it is a social process. Even many of the pure sciences are closer to art.

Two doctors prescribing the same medicines to two different patients suffering from the same disease may have different result with different doses. Management or Business Management is rightly called as art of arts.

Since management is both a science and art, it is right to call it as artistic science (art-based science) or scientific art (science-based art).

A profession is an occupation, requiring some significant body of knowledge, which is formally acquired and applied with ethical standards as declared by the apex body of whose certification is a must, for service to society.

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Business Management or Management is not a profession like accounting, law or medicine, which are thousands of years older to management, because to be a manager no qualification is essential, there is an apex body .

Yet, management is moving towards becoming a profession as management education is expanding and firms demand managers who are thoroughly professional. With liberalisation, globalisation and privatisation demand for professional managers is bound to grow further.

3. Management influences and is influenced by environment

Management does not work in vacuum. It has to face the internal (controllable) and external (non-controllable) environment. Internal environment consists of employees, processes and systems. External environment comprises STEEPLE (Social, technological, economic, ecological, political, legal and ethical environments).

Internal environment indicates strengths and weaknesses and external environment indicates opportunities and threats. Management tries to convert threats into opportunities and weaknesses into strengths; but at times changes itself according to environment.

4. Management’s core is to take decisions

When Peter F. Drucker said that “whatever a manager does he does through decision making”, he was very clear of management’s core that it was decision making.

Since management is interdisciplinary (management has heavily borrowed concepts from economics, psychology, sociology, anthropology, law, mathematics, statistics, et al), it makes use of multiple and inter-disciplinary knowledge to take decisions and makes use of authority to get those decisions enforceable.

5. Management is goal-oriented

The process of management is a purposive activity and starts and ends with the goals. All organizations, both for-profit and not-for-profit, are directed towards goals. It is the responsibility of management to attain those goals.

Without goals an organisation would be like a ship without rudders. Management always begins with goals, and remains conscious of their attainment. If there are any gaps in performance and goals, management tries to bring the two in tune with each other. Management is concerned with both efficiency and effectiveness.

6. Managers bring life to organisation

‘Good managers can propel an organisation into unprecedented realms of success, whereas poor managers can devastate even the strongest enterprises’.

It is the management which can bring life through their dynamism to management process in this turbulent business environment. When the things go right the credit goes to management and when it is the other way round the first casualty is the management.

7. Management is multi-disciplinary and multi-faceted activity

It is multi- disciplinary because it is a young discipline and has borrowed most of the concepts from other disciplines like economics, sociology, psychology, anthropology, mathematics, law, politics, et al.

However, it has started empirical research to develop at its own. It is multi-faceted because managers have to play different kinds of roles, many of them at the same time.

Management and Administration

In organisations, one often comes to know of use of the two terms. Which one refers to policy making and which one refers to implementation is the bone of contention.

In this regard, we have three opinions which are context bound:

(i) Management is policy making or decision making, and administration refers to implementation. In the Indian context, it is true.

A Managing Committee of a college/school decides policy matters and the implementation job are left to the Principal and his team.

Similarly, the ministers take decisions and the persons belonging to IAS have to implement the minister’s decisions.

(ii) In the USA, the view is that administration means decision taking and management is to implement it. The presidential form of government is known as administration, like Obama administration.

The recent decision to kill Osama Bin Laden was taken by Obama administration and executed by SEAL, the management.

(iii) It has been observed that many writers make difference for the sake of academic exercise, but later on use them as interchangeable.

Since the word management is more popular, a middle ground is to divide the total job of deciding and execution into ‘Administrative Management’ (deciding policies) and ‘Operative Management’ (executing the decisions).

It is right to say that all the three management levels have to do both the jobs.

Universality of Business Management

Universality of management means that irrespective of geography or organisation or activity or time, the management knowledge can be used with advantage and imparted from one person to the other.

The term management has become so popular that irrespective of activity, it is used as a suffix. Take the examples: water management, urban management, transport management, business management, sewage management, and so on.

We find two schools of thought – one believes in the universality and the other one opposes universality. The first school is supported by Taylor to Fayol to Koontz and O’ Donnelly and others.

They say that basic concepts, principles and functions developed for business are equally applicable to all other activities, though they may differ from one country to the other.

Another logic given by them is that management fundamentals (concepts, principles and functions) remain the same, only the methods of their application, or practices change, due to prevailing circumstances.

The other school opposing universality is supported by Peter F. Drucker, Ernest Dale, Dalton E. McFarland and others.

Their arguments are:

1. Business organisations work for profits and operate in a dynamic environment, whereas non-profit organisations operate for other goals and work in a stable environment.

Management practices are greatly affected by national culture and organisational culture. The merged Chrysler-Damler company failed to proceed because the German and American cultures are different.

For Germans, engineers are their cultural heroes and for Americans, managers are their cultural heroes

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Why Study Business Management or Management (Importance of Management)

1. All of us, with whatever organisation associated with, develop interest in organisation that it must work better. For example, LG claims 24 hours to serve a customer, but when the air conditioner does not come within 24 hours, one gets irritated.

Certainly, the problem is management related. Those organisations managed successfully go on indefinitely, but those who are not, go into darkness of time.

2. Once you leave college, either you will join a job or go in for your own business. In a job, you must know how to manage the task, the boss and the subordinates. To succeed, an understanding of management is essential.

If you start your own business, again, you must know how to manage different resources to achieve your objectives. And a course in management will provide you insights and is thus helpful.

3. The knowledge and skills developed while studying management can be applied to all kinds of work – may be profit or not-for-profit organisations.

4. For the organisation, management is important, because management initiates action so as to achieve its profit and other objectives and creates an image of a reputed manufacturer/supplier/dealer of goods or services.

5. At the macro-level, the society as a whole is the beneficiary of management.

Business Management or Management makes possible the efficient and effective utilisation of the resources available locally, procure or mobilise what is not locally available, create employment, provide goods and services for necessities and betterment of standards create competition (which is always beneficial to the consumers), and also solve many social problems through corporate social responsibility initiatives.

Functions of Business Management

Business management functions represent the activities that managers should perform to achieve organisational goals. In simple words, management functions are prescriptive in nature.

The various functions of management constitute a unified body and are commonly referred to as a process of management. Process of management is circular in nature, as functions are interrelated and performed one after the other.

Basically, business management or management comprises five functions, viz., Planning, Organising, Staffing, Directing, and Controlling. But, one must note that all the functions do not take place in a sequence, or preset timetable.

At a time one or more functions may be undertaken. But, each function leads to others. Each function may not be equally important to all the firms as their nature of business may be different. Many scholars feel that coordination should be the first function of management.

But we are of the opinion that if each function is performed in balance and in right time, coordination will automatically be achieved. Thus, to us, coordination is not a separate function but essence of management.

1. Planning

It refers to deciding goals and activities today to achieve them tomorrow. It is the first function of management, because all other functions depend on planning.

Planning involves determining Vision (what the organisation wants to be in future), Mission (a statement of values, principles, activities and Stakeholders), Objectives (qualitative and long-term), Goals (quantitative and short-term), Strategies (Growth/ Stability/ Retrenchment at the corporate level and cost leadership/differentiation or focus at the strategic business units’ level), Tactics (a smaller-scale plan developed to implement a strategy), Operational plans like policies, programmes, procedures, budgets, etc.

For planning to be effective, it also requires analysing environment, forecasting, decision making and formulation of plans.

2. Organizing

It involves identifying (what tasks are to be done) and grouping of activities (how the tasks are to be grouped), dividing grouped activities into small jobs and tasks (who is to do them), determining authority-responsibility relationship (who reports to whom, determining degree of centralisation (where decisions are to be made) and creating organisational structure to accomplish organisational attainments efficiently (doing this rightly with minimum of cost) and effectively (doing the right thing).

Organising also involves deciding about delegation of authority, span of management, centralisation and decentralisation of authority

3. Staffing

To man the organisation and to bring it into action, the staffing function undertakes manpower planning, recruitment, selection, training, promotion, demotion, transfer, wage and salary administration and industrial relations.

However, now a day as there is a separate division of human resources, many scholars do not include staffing in the list of functions of management.

4. Directing

Like a film director, a manager too has to direct the efforts of his subordinates. Directing includes the functions of leadership to influence the subordinates to work towards a common goal; motivation to voluntarily bring out the best out of subordinates in the best interests of an organisation; communication by way of issuing orders and instructions, guiding, counselling and telling subordinates the right way to work and opening up of interactions and feedbacks; and supervising the work on a regular basis.

5. Controlling

It continuously involves setting the standards with which to measure the actual performance, measurement of ongoing performance, matching it with the standards, finding variations (causes of variations), and taking corrective action, if any. Control function is circular in nature, because these must be repeated until goals are achieved.

Business Management Roles

Business management roles represent the activities that managers actually do and, therefore, are descriptive in nature. Henry Mintzberg concluded that managers undertake 10 different roles, which are highly interrelated roles. Managers perform many roles at one time.

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The roles have been given in Table 6.1

Table 6.1 The Managerial Roles (as given by Henry Mint berg):

CategoryRoleSample Activities
InterpersonalFigurehead LeaderLiaisonInaugurating new projects and plantsMotivating and activating employees to improve productivity

Developing network of outside contacts and informers



Reading industry reports and periodicals to keep in touch with the developmentsCommunicating to relay information about new organisational initiatives

Chairing board meetings and briefing media

DecisionalEntrepreneurDisturbance- handler

Resource allocator


Thinking strategic initiativesResolving disputes between two subordinates/groups and crises

Approving, reviewing and revising all kinds of resources

Participating in negotiations with unions and suppliers to reach agreement with them

Skills required for Successful Manager

To be a successful manager, different skills are required:

(i) Technical Skills:

(Specialised Knowledge, more important with first-line managers, as to how the work is done and how to solve operational problems)

(ii) Socio-political Skills:

Interpersonal and communication (The ability to effectively communicate with, understand and motivate people both individually and group-wise; ‘skills to delegate. Political skills to build a power base and network right connections)

(iii) Conceptual Skills:

(Mental capacity and capability to understand overall situation, to grasp the inter-connectivity of different aspects and see a holistic picture)

(iv) Decision-Making Skills:

(The ability to properly diagnose the problem, define the problem and opportunities and selection of most appropriate solution to problems/situation and capitalise on opportunities)

(v) Time-management Skills:

(Most important resource – ability to prioritise the work, to work with efficiency and to delegate to increase hands).

Efficiency and Effectiveness of Business Management

Two concepts that underly the process of management are: efficiency and effectiveness. Efficiency means doing the task correctly and with minimum cost. Effectiveness is concerned with end-results and involves choosing the right task and finishing that task on time.

In simple words, efficiency is the end (doing right things). Portrays the emphasis that the two concepts place while performing the functions of management.

No doubt, efficiency and effectiveness are inter-related, yet they differ from each other in certain respects, and the same is given in Table 6.2.

Table 6.2 Distinction between Efficiency and Effectiveness:

Means – endIt is meansIt is the end
HowDoing things rightlyDoing right things
ObjectiveTo minimise resource costsTo achieve goals/objectives
DimensionUni-dimensional – how to keep input costs at minimumMulti-dimensional – to satisfy all the stakeholders

It is important to state that managers are responsible for balancing effectiveness and efficiency. Too much emphasis in either direction leads to mismanagement.

We may come across cases where an organisation may be efficient but not efficient. When efficiency and effectiveness is found together, managerial and organisational performance gets optimised.

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Levels of Business Management

Every organisation worth the name has three levels of management. We can call an organisation as three-storeyed (see Figure 6.5).

These storeys or levels are as under:

(i) Top Management:

Top management comprises those managers who guide and control the destiny of the organisation. It is these managers who determine “ision, mission, and strategies; decide of mergers and acquisitions. Their jobs are complex and varied. They have to work for long and odd hours.

They also represent the organisation to outside world through meetings, briefings, and telephonic connectivity. Normally, the Directors on the Board, the President, Chief Executive Officer (CEO), Vice President, Chief Operating Officer, Chief Finance Officer, and Chief Strategic Officer constitute top management. The-number of top managers is smaller compared with other managers.

(ii) Middle Management:

Managers at this level are responsible for implementing the strategies and major policies developed by top management; developing tactical and operational plans; and supervising over lower-level managers. Normally, this management level undertakes inventory handling, quality control, and minor union issues.

The heads of divisions/departments/ agency/project, plant manager and operations manager constitute middle management. These people are the bridges between the top and first-line managements.

(iii) Lower Level or First-line Management:

Assistant Manager, Office manager, Supervisor, and foreman constitute lower level of management. Most of the top and middle managers start their career at first-line management only.

Managers at this level spend most of their time working with and motivating subordinate employees, answering questions, and solving day-to-day problems.

Business Management Specialisation

As organisation grows, it adds new areas to its existing management. With the pace of time many specialized areas have been added to management.

1. Financial Management

Financial management and financial managers are basically concerned with the financial resources. Important decisions are taken with regard to financial planning, investments, and dividends. Since finance is the life-blood of organizations, many CEOs and top managers come from finance departments.

2. Marketing Management

Marketing management is concerned with customers and hence involves market and marketing research, product/service management, market communications, sales, and logistics and distribution. Since marketing plays an important role as a profit centre, many people reach top positions.

3. Operations Management

Operations management is basically responsible for converting resources into goods/services. In different companies the nature of operations may be different. A typical manufacturing company involves production planning and control, plant layout, site selection, et al.

4. Human Resource Management

Human Resource Management is responsible to get right people, at right time, in right number, to orient them towards their duty through training, retain them and evaluate performance.

5. Administrative Management

A general manager is part of administrative management. He belongs to none of the functional areas. He knows a little about every function-jack of all and master of none. He basically coordinates the activities of specialists.

6. Others

Organisations do have other management positions, not part of the above functional area. Such areas include public relations, innovation management (R&D), etc.


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