The Six Business Principles Every Manager Must Know

The Six Business Principles Every Manager Must Know

The following six concepts are central to business and are the reasons that business
needs managers:

◆ Value for customers
◆ Organization
◆ Competitive advantage
◆ Control
◆ Profitability
◆ Ethical practices

I’ll describe each concept in more detail .

1. Value: What Customers Pay For

A business exists to create value of some kind. It takes raw materials or activities and increases their value in some way, transforming them into products or services that customers will buy. Value is what customers pay for. Customers buy things that they value.
For example, McDonald’s creates value by setting up places where people can eat inexpensively away from home. The company builds restaurants, hires cooks and counter people, buys food, and prepares meals. The customers value the convenience of location (you don’t have to go home to eat), the speed of service (it’s not called “fast food” for nothing), and the tastiness of the meals (most people like hamburgers, chicken, soft drinks, and fries).
A business—and its managers—must create value for customers. This can be done in almost limitless ways because human desires are limitless. But a single business cannot serve limitless desires. Instead, it must create a specific kind of value in a specific way. In other words, management must decide what the business will do, and then organize itself accordingly.

2. Let’s Get Organized

An organization must have goals and the resources (human, material, and financial) to meet those goals. It must keep track of what it does and how well it does it. Each department has to perform its function properly. Employees must be assigned specific tasks that move the outfit toward its goals.
Management is responsible for keeping the company organized. The employees human resources and all other resources of the business, such as equipment, floor space, and money, must also be organized.

Managers achieve organization by means of structure. The overall structure can be represented
in an organization chart. But managers have other structures for achieving organization. For example, the company’s financial structure organizes the way it handles money. The sales force can be structured into sales teams by geography, by products, or both.
Companies achieve organization in various ways. Some take a highly structured, almost military approach, with strict hierarchies, sharply defined duties, and formal protocol. Other outfits take a more informal approach, which allows people greater leeway and creates a more unstructured environment.

The nature of the business can determine how structured or unstructured a company will be. For example, smaller firms (those with fewer than 50 employees) tend to be less structured than large ones. Companies in heavy manufacturing are usually more structured than those in creative fields, such as advertising or entertainment. Regardless of how tightly or loosely structured a company is, managers must keep it organized. Even a highly structured company will become disorganized if management fails to manage properly. And even a very loosely structured company will be organized as long as management does its job.

3. Competitive Advantage: The Winner’s Edge

To succeed in a particular market, a company must do something better than other companies in that business. Doing something better creates a competitive advantage. That “something” may be only one aspect of the product or service, as long as customers value it highly. For example, a company can gain a competitive advantage by offering the widest selection of products. Or rock-bottom prices. Or high quality. Or great service. But it can’t do all of those things.
Managers decide what basis the company will compete on, and they must be quite clear about this. For example, despite advertising claims, no company can really provide both the highest quality and the lowest price, at least not for long. (It can offer the highest quality in a certain price range, but not at the lowest price.) So management must decide whether it wants to compete on quality or on price. Or on service. Or on convenience of location. Then it has to manage the company so that it does compete on that basis by delivering that advantage to customers. By this, I mean that a company must consistently present a certain advantage to its customers.

Customers who can afford high quality will buy from the high-quality company; those who want low prices  will buy from the low-price company. Customers can figure this out. But sometimes managers cannot.

4. Control Means Never Having to Say You Lost It

After management decides how to create value, organize the business, and establish a competitive advantage, it must control the outfit. This does not mean ruling with an iron fist (although some managers believe it does). Rather, it means that everyone must know the company’s goals and be assigned tasks that will move everyone toward those goals.
Controls ensure that the right manager knows what’s going on at all times. These controls are based mostly on information. For example, every company needs financial controls. Managers have budgets so they can control their department’s spending. They receive regular information about the amount their department has spent and what it was spent on. Financial controls ensure that the company spends what it needs to spend—no more, no less—to do business and meet its goals.
A business is made up of many processes, so “process control” is something you may hear about. A manufacturing process, a hiring process, and a purchasing process all require controls. In these examples, the controls ensure, respectively, that product quality is maintained, that the right people are hired at the right time, and that the right materials are purchased at a reasonable price. Controls, and the information that supports them, enable managers to manage.

5. Profitability: You Gotta Have It

A business is set up to make money. The money a business earns can be measured in various ways. But no matter how it is measured, a business has to make money—earn a profit—on its operations.
If, during a certain period of time, a business takes in more money for its products than it spends making those products, it makes a profit for that period. If not, it has a loss for the period. Losses cannot continue for long or the company will go bankrupt.

The most basic goal of management is to make money for the business owners. Regardless of how well they do anything else, managers who lose money for the owners will not keep their jobs for long. Whatever else a business does, its overall goal must be profitability.

6. Practicing Ethical Practices

In 2010, a series of business scandals came to dominate the news in India. whether it my be LIC Housing loan scandle or 2 G spectrum.  The charges involved securities fraud, insider trading and other illegal transactions, and obstruction of justice as well as improper accounting procedures(in case of Satyam Scam ).

Today’s competitiveness and the drive for profits have been blamed for an upswing in bad behavior in business. However, dishonesty and greed have been around as long as business itself—longer, in fact. Although the vast majority of businesspeople are honest, managers in particular must engage in and tolerate only completely ethical practices. This is true for three reasons: First, managers, especially senior managers, hold a position of trust as stewards of the company for the stockholders, employees, customers, and community. Second, managers have the most opportunity to enrich themselves at the expense of the stockholders, employees, customers, and community. Third, managers set the standard for the entire company. If they are fudging their numbers, how can they expect honest numbers from their subordinates?

Remember the six concepts summarized in this blog. Think of them as the “Essential Six” because they underlie everything a manager does. That is, all the activities of management have one collective aim: to make these concepts real for the company and its employees and customers.