INDUSTRIAL MANAGEMENT

DM

INDUSTRIAL MANAGEMENT HANDOUTS

Lecture notes 2

INDUSTRIAL UNITS AS ORGANIZATIONS

FUNCTIONS OF INDUSTRIAL UNITS

SYSTEMS THEORY PERSPECTIVE
STAKEHOLDERS PERSPECTIVE

2
3
5

INDUSTRIAL MANAGEMENT

DM

INDUSTRIAL UNITS AS ORGANIZATIONS

The term business refers here to any organization, including industrial, which
is engaged in making a good or providing a service for a profit. Managers need an
understanding of their companys key relationships, and how the social and economic
system of which they are a part affects, and is affected by their decisions.
FUNCTIONS OF INDUSTRIAL UNITS
1. Research & development activities connected to the future (new or better
technologies and products, tools, research programs)
It answers the questions:
How important is technology to the firms processes and products?
What percentage of the firms resources is devoted to research and development?
2. Production activities that are representing the reason of a plant existence.
Transforming the inputs in outputs.
a. base production
b. auxiliary production activities (energy production, maintenance)
It answers the questions:
What are the capacity and productivity of operations?
What are the age, condition, and flexibility of the plant and equipment?
What is the quality of the products produced?
3. Human resources staffing, career development, training, evaluation, payments, etc.
It answers the questions:
What are the ambition, depth, drive, loyalty, and skill of the managerial/
administrative group in the firm?
4. Finance & accounting
finance identify financial resources and establish how are they spent
accounting presentation of all items belonging to a company in a systematical
manner and in a value form (as money).
It answers the questions:
What is the apparent capacity of the firm to generate internal and external funds?
What funds are required for each strategic alternative?
5. Commercial supplying activities, sales, marketing.
It answers the questions:
Does the firm have good relations with suppliers?
How well does the firm know its customers and its competitors?

INDUSTRIAL MANAGEMENT

DM

Marketing is the process of planning and executing the conception, pricing,

promotion, and distribution of ideas, goods, services to create exchanges that satisfy
individual and organizational goals. (Kotler, 2005).
Marketing Mix is the combination of four elements, called the 4Ps:
Product (the goods and service combination the firm offers to the target
market, including variety of product mix, features, designs, packaging,
sizes, services, warrantees and return policies )
Product: anything that can be offered to a market for attention, acquisition,
use or consumption that might satisfy a want or need. (Kotler, 2005)
Service: any activity or benefit that one party can offer to another that is
essentially intangible and does not result in the ownership of anything.
(Kotler, 2005)
Price (the price consumers are willing to pay; retail price/wholesale,
discounts, trade-in allowances, quantity discounts, credit terms, sales
and payment periods. )
Promotion (The Promotional Mix consists of: Personal Selling,
Advertising - TV, radio, magazines, newspaper-, Sales Promotion - Trade
deals, samples, coupons, premiums-, Direct Marketing - direct mail,
database management, catalogs, telemarketing-, Public Relations- press
releases, publicity (PR involves a variety of programs designed to promote or
protect a companys image or individual products).
Place (the companys activities that make the product available, using
distribution and trade channels, coverage, assortments, locations,
inventory and transportation characteristics and alternatives. Typical
supply
chain
consists
of
four
links
in
the
chain:
Producer/Factory/Manufacturer, Distributor, Wholesaler, Retailer
supplying the consumer and user).
Activities belonging to each function of the industrial unit might be outsourced.
Outsourcing involves contracting with a private firm to handle functions that
previously had been performed internally by the organization.
SYSTEMS THEORY PERSPECTIVE
The general systems theory, introduced in the 1940s, argues that all organisms are
open to, and interact with, their external environments (biologist Ludwig von Bertalanffy).
Although most organisms have clear boundaries, they cannot be understood in isolation,
but only in relationship to their surroundings. As applied to management theory, the
systems concept implies that business firms (social organisms) are embedded in a
broader social structure (external environment) with which they constantly interact.
Corporations have ongoing boundary exchanges with customers, governments,
competitors, the media, communities, and many other individuals and groups. Just
as good soil, water, and light help a plant grow, positive interactions with society benefit a
business firm.

INDUSTRIAL MANAGEMENT

DM

Businesses must adapt to changes in the environment. The key to business survival
is often this ability to adapt effectively to changing conditions. In business, systems theory
provides a powerful tool to help managers conceptualize the relationship between their
companies and their external environments.
A system is a set of parts connected together for a specific end. Each part of
the system is one of the necessary means to achieving that end. In the case of an
industrial system, the parts are the different processes which are networked together to
provide a good or a service according to customers specifications.
Important properties of systems are:
Synergy: a system is more than a simple accumulation of parts. Most of the
value of the system resides in the seamless integration of the different parts.
In other words, the whole is greater than the sum of the parts.
Hierarchy: systems are structured in hierarchies. A market is an economic
system. A firm producing goods in this market is a subsystem of the
economic system, and a system itself. The finance, marketing and
operations departments are three subsystems of the organizational system.
Boundary: systems have boundaries delimiting where a system ends and
where the external environment starts.
Behavior: a system exhibits behaviors which are the result of the dynamic
interactions of its parts. For example, a system can exhibit an adaptive
behavior. This is an extremely important behavior for a firm faced with
intense competition and fast-changing customer demands. A key mechanism
in adaptation is learning through a feedback. Some systems behavior may
be less desirable, as for example resistance to change. As a systems
behavior is not easily predictable, the managers use planning activities to
guide and direct future behavior. In system theory, planning is the application
of a feed forward loop.
Openness: open systems interact to a great extent with their environment.
Open systems need to process signals from their external environment and
adapt to keep themselves aligned with external requirements.
The simple expression of a system is portrayed in figure 4. A feedback loop
indicates that a system is capable of self-adjustment. Feedback or system adjustment
is triggered in control nodes where managers check that products conform to
specifications (are represented in the figure by circles). The upper half of figure 4 displays
three connections between the system and the external environment (are represented by
triangles). These connections symbolize either a transfer of control from the system to the
environment (an upward triangle) or from the environment to the system (a downward
triangle). Triangle 1 symbolizes that the systems performance depends on the suppliers.
Triangle 2 symbolizes the transfer of control rights from the environment to the
organization (the external environment includes customers, regulators, and the public at
large). Triangle 3 symbolizes the transfer of control from the system to its customers.
The manner in which the environment can shape the organizations behavior is very
simple. For instance, by switching to a new technology, an industry can indicate to a
company that it is time to update its operating resources. The processes will be managed
according to standard national expectations implying, for example, low pollution levels and
no child labor.

INDUSTRIAL MANAGEMENT

DM

Whereas from the industrial revolution onwards the external environmental of

operations systems has been one of indulgent control, the reality of todays operations
system is that more and more external regulations and controls are applied.

Figure 4. The simple expression of a system.

Source: Leseure M., Key Concepts in Operations Management, Sage, 2010.

Types of systems
The two basic types of integration are horizontal and vertical.
Vertically integrated systems involve all the processes from the extraction of raw
material to the manufacture of a final consumer good.
Horizontally integrated systems involve two or more similar organizations that
group together to form a larger entity, primarily in an effort to capture a larger market
share. Horizontally integrated systems are able to take advantage of economies of scale,
such as leveraging buying power from vendors.
STAKEHOLDERS PERSPECTIVE
The main purpose of the firm is to maximize returns to shareholders (ownership
perspective). In this perspective shareholders interests are paramount and take
precedence over the interests of others. The stakeholder theory of the firm argues that
corporations serve a broader public purpose: to create value for society. All companies
must make a profit for their owners; indeed, if they did not, they would not long survive.
However, corporations create many other kinds of value as well, such as professional
development for their employees and innovative new products for their customers. In this
view, corporations have multiple obligations, and all stakeholders interests must be
considered.

INDUSTRIAL MANAGEMENT

DM

The term stakeholder refers to persons and groups that affect, or are affected
by, an organizations decisions, policies, and operations. The word stake, in this
context, means an interest inor claim ona business enterprise. Those with a stake in
the firms actions include such diverse groups as customers, employees, stockholders,
the media, governments, professional and trade associations, social and
environmental activists, and nongovernmental organizations.
The commercial and noncommercial stakeholders of a business firm are
represented in figure 5.

a.

Figure 5. Commercial (a) and noncommercial (b) stakeholders of a business firm.

Source: Lawrence A., Weber J., Post J., Business & Society: Stakeholders, Ethics, Public
Policy, McGraw-Hill, 2004