Management as a process primarily exists in a practical realm. Theoretical understanding of this phenomenon often lags behind the development of management technologies, forcing researchers to document the experiences of specific companies. Nevertheless, the most general frameworks can be analyzed and described.
Management is typically understood as a function of organized systems that ensures the preservation of their structure, maintenance of operational modes, and implementation of programs and goals. In other words, the key goal of management is the stable and consistent development of a company.
Management is integrated into the broader concept of management, as it is closely related to the specific activity of decision-making. Therefore, the functions of management and administration largely overlap:
- Activity planning
- Organization of business processes
- Motivation and control
- Formulation of development goals
The roles of a leader are extensively examined and described in the literature. Depending on the company’s goals, leaders, entrepreneurs, coordinators, resource allocators, strategists, etc., are distinguished. The ideal scenario would be to find an employee who combines these roles, but in practice, this combination is rare.
The general management process is as follows: setting a goal — developing and implementing a strategy — achieving results. The effectiveness of the management process is evaluated by the final component.
The content of the management cycle components is defined by parameters set by organizational structures—a set of rules and management methods within a company. Currently, there are three ways to build an organizational structure:
- Copy the model of an existing company
- Hire a consultant who, based on the company’s goals, helps create an optimal organizational structure
- Use classical management models described in management textbooks
Among the classical organizational structures, four main models are distinguished:
- Bureaucratic Structure
Described by Max Weber in the late 19th century, this model was designed to eliminate emotional components, with employees expected to professionally perform their duties within a designated area. This type of management was long called rational or mechanistic. It was assumed that companies would operate on principles of clear labor division, strict hierarchy, and a system of norms and formal procedures that were specifically regulated and standardized.
This scheme is not applicable in its classic form in modern companies, so it has been transformed into a functional structure. - Functional Structure
The hierarchy and clear labor division are maintained. At the same time, responsibilities are distributed based on functional principles. Each department solves specialized tasks, which helps avoid overlaps in responsibility and ensures effective coordination.
A significant drawback of this structure is the potential for structural conflict. - Divisional Structure
An effective management strategy for organizations with multiple markets for goods and services. The key difference from previous structures is the significant expansion of authority for heads of sales and logistics departments. While some duplication of functions returns, the quality of response to market changes improves due to shorter chains of command and tasks. - Matrix Organizational Structure
A relatively modern model, not yet well-tested or successfully applied in practice. This structure abolishes the principle of unity of command to achieve behavioral flexibility in the market. Separate units are created to perform each function, independently determining their activity principles to achieve a goal that results from a general agreement between structural departments.
Is It Possible to Foresee Everything at Once?
Considering the specifics of management as a process, it is reasonable to account for the concept of risks and methods of overcoming them. In the broadest sense, risks are understood as the possibility of an unfavorable event that leads to various losses.
Risks include:
- The possibility of deviating from the set goal
- The probability of not achieving the desired result
- Lack of confidence in achieving the goal (motivational risk)
- The possibility of material, moral, and other losses
Risks are characterized by contradictions (inability to adequately assess the situation), alternatives (the need to choose between several options), and uncertainty (the fundamental inability to predict the direction of events).
There are various bases for classifying risks. Depending on the type and threat of risk, different strategies for overcoming crisis consequences are chosen, which are detailed in open sources.
By time:
- Retrospective — consequences of previous crises affecting the current situation in the company
- Current — the threat of a crisis due to the current situation
- Prospective — the likelihood of crisis phenomena due to the development and implementation of innovations in business processes
By factors (political and economic):
- External (independent of the company’s employees or audience) and internal
By the nature of the consequences:
- Pure risks always lead to losses for the company
- Speculative risks can combine both losses and profits in the future
By the area of occurrence (production, commercial, financial, and insurance): these are areas where crises can lead to additional unplanned expenses.
Risks related to production activities:
- Organizational risks are related to the internal organization of work
- Market risks stem from the unstable economic environment
- Credit risks depend directly on the counterparty’s solvency
- Legal risks — the risk of losses due to non-compliance or changes in regulatory and legal risks
- Technical and production (environmental) risks
By consequences:
- Acceptable — can be overcome through prompt management decisions
- Critical — require long-term coordination, leading to significant financial losses but not threatening the company’s existence in the market
- Catastrophic — almost impossible to agree upon, causing significant damage to the company’s activities, threatening its existence in the market
The main methods for overcoming (blocking/preventing) risks are:
- Refusing undesirable partners
- Risk insurance
- Seeking guarantors of economic stability
- Dismissing incompetent employees
- Creating venture enterprises
- Establishing special structural units with a separate balance sheet for risky projects
- Entering into joint activity agreements
- Strategic activity planning
- Forecasting the external environment
- Monitoring the socio-economic and regulatory environment
- Creating a reserve system
When forecasting risks and preparing a program to overcome them, it is important to understand that not all risks can be foreseen. Therefore, when agreeing on a project budget, it is always necessary to allocate an expense portion for mitigating unforeseen circumstances that may accompany the business process.