Management is a process of accomplishing organizational goals. The process of accomplishing goals occurs at the corporate, business, and functional levels of an organization. Organizational goals are set in order to increase the value of the firm because the owners (the stockholders) expect growth on their investment on a continual basis. For example, if you have invested one thousand dollars in a business, as a rational investor you expect the value of your investment to increase each year. That is why managers must focus on creating value for the shareholders, and they do so by making choices (decisions) that will lead to an increase in the value of the firm.
The 5 P’s of management provide managers with a framework for making these good choices and for building a process which creates value for the shareholders. By contrast, the traditional management approach is to focus on functions of management in order to achieve the goals of the organization. In the global economy, where the competition is based on knowledge, the environment is changing rapidly. Employees, suppliers, and shareholders have more knowledge and information than ever before, and there is, therefore, a need for a framework which enables managers to make decisions which lead to value creation. The 5 P’s of management provide such a framework. The 5 Ps are: 1) Plan, 2) Process, 3) People, 4) Possessions, and 5) Profits.
Planning is the key to the success of an organization. It is necessary because businesses operate amid uncertainty and risk, and the managers do not have the opportunity of making decisions under a background of certainty. Planning involves setting clear and realistic goals, organizing business activity based on the revenues forecast, formulating strategies, preparing budgets, and implementing strategies, and evaluation and control systems.
An organizational process includes both business process and operational process. The business process is based on the business model of the firm. The business process guides the firm in generating revenues, managing costs, and generating profits. Managers select a business model that has the potential of creating value for the shareholders.
An operational process consists of multiple inputs, outputs, and processes that result in an organizational output (product or service). In the operational process, inputs arise from all the basic business functions, including marketing, finance, operations management, human resources, and technology as required. Managers select the appropriate inputs and process modules necessary for the desired output. They structure the modules in the operational process to minimize cost, improve quality, increase productivity, and generate the desired output (product or service).
The people within an organization include employees, suppliers, customers, and shareholders. Managers motivate, prepare and assign the appropriate people to the appropriate positions in the operational process. They build long-term relationships with people who are able to deliver the resources required for the product or service. They listen to the people who are buying or will buy the product or service. They monitor organizational outputs to make sure they meet the needs of the people who will buy the product. They also understand the expectations of the people who have invested in the company and aim to create value that meets their expectations.
Organizational possessions include assets and capital. Organization capital includes human capital, intellectual capital, economic capital, and marketing capital. Managers evaluate the organizational needs and the value of the organizational capital of the firm. They raise economic capital and invest in human, intellectual, and marketing capital. They apply organizational assets and capital in the operational process in ways that will generate maximum value for the firm.
Managing a business without concern for profits is not good management. Managers adopt management processes which have the potential of generating long-term profits. They make their decisions based on the understanding that the first step in business is to survive, the second is to generate profits, and the third is to create value for the shareholders. Managers evaluate organizational performance with both qualitative and quantitative measures.
Management is not about functions, but rather it is about the process of achieving organizational goals and creating value.
© 2014 Mohammed R. Ahmed
Ahmed, M.R. (2014). 5 Ps of Management (Working Paper No. 2).
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