The Importance Of Management In Business

Almost 90% of startup businesses fail miserably within the first five years of starting up, of which almost 90% fail due to poor management.

Management has always been a core aspect of every business. But unlike the old times, managing the organisation has become a more difficult job due to the increasing competition in the internal as well as the external business environment. Good management can bring the company profit and reputation while poor management can just throw the company out of the competition.

Let’s take an example of management:

Suppose John opened up a small restaurant. Selling quality food to the customers and gaining their loyalty is his aim but that’s not his only duty.

To make his business run smoothly he needs to take care of things like planning menus, maintaining an inventory, ordering what’s required, planning the budget, maintaining the standards, dealing with customers’ complaints, hiring and training staff and a lot more.

If even one of them is overlooked his business will suffer a huge blow.

That’s where management comes into play. John and his staff can share the duties and work together to attain the goal of the restaurant. To avoid failure they need to work in a coordinated and planned manner. This ensures that no duty is overlooked and the business runs smoothly.

What Is Management?

Management is the process where a person plans, organises, directs and controls the activities and resources of the organisation or company to achieve its goal in an effective and efficient manner in an ever-changing environment. It is the process of supervising and controlling the business affairs of the organisation.

Management also involves establishing a business environment for the employees and employers so that they can work together to achieve the organisation’s goal successfully and competently. It guides a group of people to combine their works in a planned manner so as to attain the goal of the organisation.

According to Paul Hawken,

Good management is the art of making problems so interesting and their solutions so constructive that everyone wants to get to work and deal with them.

The Importance Of Management

The importance of management can never be underestimated or ignored as it’s a proven fact that the success of a company entirely depends on how well it is managed.

Here’s why management is important for any business:

Aligning Goals

A company consists of employers and several employees who work together. Everybody has their own goals. Management gives them a common direction to achieve their goal together.

For example:

The goal of a company is to maximize their output and profit. The goal of an employee is to get the most out of the company in terms of both salary and recognition. Management helps in aligning these two goals by using effective employee motivation strategies which makes him give his best to the organisation.

Best Utilisation Of Resources

The proper utilisation of resources is really important for an organisation which operates in a competitive environment. Management helps in the division of work and prevents the employees from under-performing or getting overburdened with work.

Every employee has their own field where they expertise. Through management, the employees are given work related to their field of knowledge. It increases the speed and accuracy of work.

Moreover, management also makes that the work is standardised so as to reduce wastage when it comes to other resources.

For example:

Management makes sure that the person who is good in sales is given work in the sales department only and not in any other department. Also, it provides him with proper training to make sure that not much time isn’t wasted on making him learn during actual sales visits.

Reducing Cost

Management helps to combine all the factors of productivity and organise them. It involves the best utilisation of resources which prevents wastage of time and efforts, which eventually reduces the wastage of money. Therefore management gives better ROI (Return on investment).

Reduction in cost helps in getting a good position in the market and keeps the company ahead in the competition.

Increasing Efficiency

The main aim of the company is to get the most efficient result i.e. to achieve maximum profit by maximizing the output and minimizing the input.

Management involves the optimal utilisation of resources and helps in cost reduction. These two factors consequently increase the efficiency of the company.

Surviving In A Dynamic Environment

A company operates in a dynamic environment where a number of external factors like political, social, economical etc. affect its functioning. This makes it almost obligatory for the company to be flexible and change its short term goals and working styles according to the changing environment.

Management helps the company to adapt to the changing environment in order to remain successful.

For example:

The leader in fast food, McDonald’s, had to make many changes in its menu to survive in the Indian market which was dominated by vegetarians.

Tackling Competition

Proper management always aims at sound functioning of the organisation and reduces the failure rates. Thus, helping to overcome tough situations and keeps the organisation ahead of competitors.

In the modern business environment, one can pursue their organisation in large markets through proper management.

Essential For The Welfare Of The Society

Good management not only reduces difficulty of the task but also prevents the wastage of costly and rarely available resources.

Management helps in providing good quality of services and products which increases the living standard. It also leads to more profit of the organisation and thus providing fair wages and generating more employment opportunities.

Examples Of Business Failure Due To Ineffective Management

Enron Management Failure

Enron, at the starting of 2001, earned $100 billion in revenue and had 29,000 employees. But the company went bankrupt on December 2, 2001. The shares of Enron worth $90.75 during its peak time but were trading at $0.26 when the firm declared bankruptcy on December 2, 2001.

Why?

Because Enron’s executives used accounting loopholes and false report to hide billions of dollar debt due to failing projects and deals. They mislead the entire company and forced the auditors to delete and hide the evidence from the directors.

enron share prices

Because of poor management, leaders failed to recognise all these loopholes and the company finally went bankrupt.

Compaq Management Failure

Compaq was the largest supplier of PC systems and was one of the most successful companies in the 80s and 90s.

In 1991 Eckhard Pfeiffer became CEO and planned to expand the business and focused away from the audience and market. Compaq acquired a service business, Digital Equipment Corporation, for $9.6 billion 1998. The problem here was that even though the merger looked good on the outside, the management didn’t consider that DEC developed many products that were of no use to Compaq and would have added extra burden to the company.

compaq share prices

Even though the company was successful in divesting some parts of DEC and other not-profit making investments like Altavista, the company lacked direction and honesty. The top executives including the CFO Earl Mason and CEO Eckhard Pfeiffer became a part of several scandals and were forced to quit. As a result, the company lost to Dell first and then to other competitors.

Thus, due to poor management of the CEO, the company was ousted in 1998 and was purchased by Hewlett-Packard in 2002.

Bottom-line?

To conclude, management is important for every business as it can make or break it. Good management can give the business a boost and take it ahead in the competition. So, turning a blind eye to it is not an option.

Management skills are required in every industry and every walk of life. So, it is very important to know what role management plays and how great an impact it can have on business.