Edition 49, Strategy

General Management: A Conceptual Framework

By: Carlos Alcérreca
Instituto Tecnológico Autónomo de México

In companies, several people besides the CEO perform the functions of General Management , such as the leaders of multifunctional projects, business unit managers, division directors and many of the members of the board of directors.

However, the people performing general management work often do not have a good conceptual framework to carry out their duties. This article proposes a conceptual framework that can diagnose and structure the work of individuals who perform general management duties in companies (Garvin, 2001; Pérez López, 1996). A conceptual framework is a set of concepts that are interrelated and can be used to assess a situation based on the presence and quality of each of the identified elements.

In this conceptual framework it is useful to differentiate between structural elements – the company’s anatomy – and dynamic processes –its physiology. The principal structural elements are aspects of reality that have certain inertia; that is, they normally change slowly. These include the company’s external environment, the organizational architecture, the business model, and the corporate governance system. The principal dynamic processes are sets of activities that include the following: learning and influence on the environment, leadership and management of people, decision-making and performance of actions, and management of resources and results. The dynamic processes operate based on the structural elements and they can affect the structural elements by changing them or keeping them stable despite the existing pressures to change.

All the elements – structural and dynamic – have lifecycles of introduction, growth, maturity and decline, as well as times of evolutionary change that increase or decrease the number of companies in a sector.

Structural Elements The company’s main structural elements are explained below. Also described are examples of the processes or operational mechanisms that make them work on a daily basis.

External environment. One must make a distinction between the macro-environment, composed of the national and international environment, and the company’s industrial environment. The national and international environment contains legal and political components that are related to establishing the rules of the game, socio-economic components that have to do with how the economic players perform in a given country, and technological components that are becoming increasingly important as sources of innovation. As to the change processes in the macro-environment, they could originate in any of the three dimensions described, for example, technological changes could bring about socio-economic changes that in turn result in legal and political changes. The industrial environment has to do with the cluster of elements in the value chain of the industry that one is engaged in: suppliers, sellers of complementary products, distributors and final customers. Countries as well as industries have life cycles that have stages with varying rates of growth or decline. These factors in the macro-environment and the industrial environment interact in different ways in certain situations, often making a company’s future complex and uncertain. Any given company interacts normally with groups of elements from both the macro-environment and the industrial environment; these are groups that can affect or are affected by the performance of the company are called its “stakeholders.” Examples are financial institutions, government regulators, community groups, clients, and suppliers.

Organizational architecture. The organizational architecture involves the organizational structure, the culture and the coordination system of the company. The organizational structure focuses on structuring a company’s tasks. The organizational structure points out how functions are divided horizontally and vertically within the organization; that is, in each hierarchical level and between hierarchical levels. The organizational structure states the hierarchical relations of authority and responsibility in the company. The coordination systems are those that are used to coordinate the organization´s activities once its functions have been divided. That is to say, the coordination system is the way people with different functions interact and establish communication mechanisms and incentives. An integrating factor with strong inertia in organizational architecture is the organizational culture, understood as the system of values and norms shared by members of a group or organization. Normally, it is difficult to change the culture because it takes time and may require changes in personnel or incentives. The organization also changes according to a life cycle and evolutionary processes, although its characteristics are different from those of living beings as it can extend its existence indefinitely.

Business model. Shows how the company creates value in a particular business. Its components include: market segments that are served; value proposition offered, including prices and collection mechanisms; processes used to generate the value proposition; and tangible, intangible and human resources used to create value. Business models explain how value is generated and how much of the created value is retained by the company in relation to its clients, suppliers and complementary product suppliers. Business models describe how the company produces, distributes, charges and collects for the products and services that are delivered. Business models also have life cycles and are subject to evolutionay change, both of which result in changes in the level of performance of the company.

Corporate governance. The corporate governance is the system used by stakeholders to impact and control the behavior of the company. It is based on the legal framework of the country or region. This has to do with the group of legal entities (i.e., corporations) that are part of the company, the type of each one, their resources and important contracts. Of importance in corporate governance are the boards of directors, executive committees and other committees set up to guide the company’s management. The processes in corporate governance involve the partners or owners of a business voting for the board of directors that will represent them, and the board in turn appointing a Chief Executive Officer. Then the CEO will choose a group of collaborators to carry out the management functions in the company. Generally, the board members give guidance to the company through the appointment of the CEO and the ratification of his or her most important executives, the approval of strategic and financial plans, and by monitoring reviewing company performance. Corporate governance normally changes slowly, although it can undergo radical changes when a subsidiary is acquired or sold, or when there is a comprehensive restructuring of the group. For example, when a company receives a major loan, it can sign a contract that significantly restricts its activities so that the institution that granted the loan becomes an important part of its corporate governance system.

The structural elements could be seen as different approaches or perspectives on the company. However, it is convenient to see them as the main subsystems integrating the company. All structural elements are subject to changes due to the life cycle of a specific company and the evolution processes of the population of similar companies.

Dynamic processes Dynamic processes can be identified at several levels. First are those that make the company function on a daily and normal basis; these are the operating mechanisms mentioned earlier. Second arethe processes having to do with attempts to improve the company’s regular activities. Third are those that lead to determining how to improve the company’s processes for change (Collis, 1994). The focus of executive management is on the second and third categories, what we might call “dynamic capabilities.” A dynamic capability can be defined as “a learned and stable pattern of collective activity by which the organization systematically generates and modifies its operating routines in search of improving its effectiveness” (Zollo & Winter, 2002, p. 340).

Relationship with the environment. The company engages in activities to link itself with its external environment. These activities include intelligence or learning efforts to obtain information, analyze it and discover opportunities and threats, as well as public relations efforts by which the company can communicate its view on matters – its “reality” – to groups that are involved or interested in the performance of the company, to its stakeholders and other members of the external environment. Thus, the relationship with the environment involves learning and teaching. Activities of this type have the potential to change the environment. An example would be lobbying the government about a specific regulation. Companies can be more or less proactive in their relationship with the environment. In addition, relationships with environmental elements tend to be about greater competition or cooperation, but they are generally a mixture of the two, with the competitive focus being more important in for-profit companies.

Leadership and management of people. People are in certain roles or positions in companies for only a certain time. Of course, individuals also have a life cycle. Some managers deem it appropriate to separate leadership from management, although these two processes are complementary. The first is more focused on generating consensual visions and on aligning groups toward them. The second is more focused on setting concrete goals, assigning resources and and controlling results. Carrying out specific tasks or activities requires the motivation and the will of its members. The sum total of the motivation of the company’s members can be viewed as the organizational energy. Managers have to worry about maintaining high organizational energy within the companies they lead because the quality and quantity of actions they can perform as a group depends on those energy levels (Bruch & Ghoshal, 2004).

Decision-making and performance of actions. Each company has a portfolio of actions; some are long-term commitments and others are options to invest additional resources that remain open for a period of time. The decision as to which actions will be kept within the portfolio depends not only on the person who makes the decision but on the company’s decision-making system. Different systems of decision-making result in different resolutions, different qualities and a different number of decisions. Specifically, companies need to avoid cultures of indecision where nothing happens, or an excess of decisions that could confuse the participants. It is important to be clear about the role of each person who takes part in the decision and if the decision will be taken by an individual, a committee, or one person with the advice and approval of others.

Management of resources and results. The company needs to define the performance criteria that it will use, and what it will call a success. For example, if it wants to increase market share, increase the value of its shares in the stock market, or a mix of the two. It is also important to identify performance drivers, what variables will impact the level of results, and try to influence them. The results expected include indicators of costs, income, return, assets employed and indicators of risk. What is sought is a combination of these performance variables that is acceptable to each of the company’s stakeholders. Achieving a level of performance generally requires a certain investment in resources. Investments are usually evaluated according to the results expected. If the opportunities available to the company are not adequate, it would do well to return the money to investors in the form of dividends or share buybacks.

The structural and dynamic elements could be combined in a table showing how the dynamic processes are supported or constrained by the structural elements, and the structure is affected by the dynamic processes. See the table below.

General Management Framework: Structural elements and dynamic processes.

Use of the framework Following are some examples of possible uses of the framework. The General Managers could try to change the structural elements, major surgery, or make incremental changes in the dynamic processes such as modifying the networks and information systems of the company, the individuals occupying each job, the leadership and management style, the level of resource allocation or the goals established. An executive who has decided to make changes in some elements of the structure could evaluate how changes in the dynamic processes could affect the structural element that he or she hopes to change. Each cell in the matrix indicates what change will be made and how it will affect the rest of the model’s elements.

When a new CEO is appointed, that person could use the General Management framework to assess the environment, the organizational architecture, the business model and the corporate governance, and see which dynamic processes have the greatest impact on the structural elements that one hopes to change. The executive must periodically evaluate the performance of both the dynamic processes and the structural elements. The structural elements can be evaluated as to their fit with others and their flexibility when the other elements change. That is, the structural elements can be assessed technically in terms of how well they perform the intended function, and they can be assessed evolutionarily as to how well they adapt to changes in the environment (Helfat et al., 2007). The dynamic processes can also be evaluated in terms of cost, speed and flexibility.

An executive facing a crisis in performance could evaluate the dynamic processes to determine if the problems are due to poor performance management, inappropriate actions, incompetent people, or faulty information from the environment. The structural elements can also be evaluated as if the problems are due to the business model, the organizational architecture, the corporate governance, changes in the environment, or a mix of these elements.

ConclusionA dynamic process can affect all of the structural elements. A structural element can affect how a dynamic process works. All the structural elements and dynamic processes are interrelated. The model indicates why actions are taken (current or future changes in the environment), who carries out those actions (people), what is done (decisions and actions) and with what results as far as risk and returns (resources and performance).

*I would like to thank Carlos González Martínez, Francisco Mendoza Trejo, Antonio Sacristán Roy y Giulio Chiesa for their comments to an earlier version of this article.

References

  • Bruch, H. & Ghoshal, S. A bias for action, Harvard Business School Press, 2004.
  • Collis, D.J. Research note: How valuable are organizational capabilities? Strategic Management Journal, 15, 143-152.
  • Garvin, D. A. General Management: Processes and Action, Nueva York, McGraw-Hill/ Irwin, 2001.
  • Helfat, C.E. et al., Dynamic capabilities: Understanding strategic change in organizations, Londres, Blackwell, 2007.
  • Pérez López, J. A. Fundamentos de la dirección de empresas, 5a. ed. Madrid, Edicions RIALP, 1996.
  • Zollo, M & Winter, S. Deliberate learning and the evolution of dynamic capabilities, Organization Science, 13, 339-351.

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