AP Business 4.1: Management and Leadership

Predict first

Dani is the best line cook at Mesa Grill. A restaurant across the street has offered her $2 an hour more than she makes now. Which choice usually costs Mesa Grill's owner less?

What management is

Management is the process of planning, organizing, leading and evaluating a business's use of its resources to meet its goals and objectives. Those resources come in three kinds: human (the people who work there), financial (cash, loans and investors' money) and physical (buildings, equipment, vehicles and inventory).

Take Kim Tran, who manages the three locations of Harbor Light Bakery.

Planning: she sets a goal of opening a fourth location by next fall and works out what it will take, from a lease to two more bakers.
Organizing: she arranges people and equipment to carry out the plan. She moves an experienced baker over to train the new hires and schedules the delivery van so every store has bread by 6 a.m.
Leading: she explains the plan to her staff, keeps them motivated through the holiday rush and settles disagreements between the early and late shifts.
Evaluating: each week she compares every store's sales and leftover bread with its targets, and she adjusts when a store falls behind.

Management is not only the CEO's job. It includes the decisions, actions and leadership of managers at every level, from executive leaders down to the supervisor running tonight's shift. In a bigger business, managers who lead specialized departments such as marketing or finance coordinate their employees' work so that it lines up with the business's vision and mission. If Harbor Light's mission promises bread baked fresh every morning, the operations manager's schedule has to make that happen, even on days when baking the night before would be cheaper.

Sort it

Each card is something a manager does. Tap a card, then tap the function of management it shows.

Planning

Organizing

Leading

Evaluating

Leading and communicating

Managers spend much of the day working with other people, and not only their own employees. In a single month, a hotel's general manager might report to the regional director and work out a shared budget with the head of the hotel restaurant. She coaches the front-desk staff, explains a slow quarter to the bank that lent the hotel money and updates the owners' investors. She calms down a guest whose room wasn't ready, and when a water main breaks, she answers a reporter's questions. Leadership and communication skills are valued because leaders and managers have to collaborate and communicate well with all of these stakeholders: supervisors, colleagues, employees, lenders, investors, customers and the public.

The key leadership skills are articulating the business's vision and mission, building productive teams, negotiating conflicts and motivating people. Motivation gets so much attention because motivated employees are more productive and more likely to stay. They are also more likely to build strong, positive relationships with customers, coworkers and their teams, and all of that shows up in how the business performs.

The key communication skills matter for every employee, from the newest cashier to the CEO: expressing ideas clearly, communicating persuasively, listening empathetically, and correctly interpreting and responding to feedback.

What the key skills look like at work
Skill	Kind	What it looks like
Articulating the vision and mission	Leadership	Telling new hires what the clinic exists to do and what it promises its patients
Building productive teams	Leadership	Pairing a veteran technician with a new one on every job for the first month
Negotiating conflicts	Leadership	Getting two departments that want the same budget money to agree on a split
Motivating people	Leadership	Recognizing a cashier's record month in front of the whole team
Expressing ideas clearly	Communication	A five-sentence email with the new return policy and the date it starts
Communicating persuasively	Communication	Making the case to the owner for a second espresso machine, with numbers
Listening empathetically	Communication	Letting an upset customer finish, then repeating back what went wrong
Interpreting and responding to feedback	Communication	Reading survey comments about long waits and changing the schedule to fix them

Hiring people with the right skills

Leaders and managers hire employees to do the day-to-day work of the business: producing and providing its products, marketing to customers, making sales and managing its finances. Each of those jobs calls for different core competencies, the capabilities, skills and expertise that help a person or a business outperform rivals (see Topic 1.5). That is why a business needs people with a variety of core competencies, experiences and backgrounds.

Some tasks can be outsourced to another business instead, especially tasks that fall outside the business's core competencies or its main operating activities. A dental office hires hygienists, because cleaning teeth is the work it exists to do. It may pay an outside firm to run its payroll and another to keep its computers secure.

Hiring and developing skilled employees is essential to a business's viability. Employees who lack skills or training can turn out flawed products or give poor service, and the business pays for it in lost customers, a damaged brand reputation and lost revenue. A roofing company whose new crew installs flashing wrong may not find out until the first heavy rain, along with an online review the whole town can read. Some skills are also rare or take years of training to build. No business can hire someone off the street and turn her into a licensed electrician in a week.

Businesses train and develop the people they hire in several ways:

Postsecondary education: a hospital pays the tuition for a nursing assistant on its staff to earn a nursing degree.
Apprentice programs: an electrical contractor pays apprentices while they learn the trade under a licensed electrician.
On-the-job training: a new barista works alongside a shift lead for her first week.
Online training: a grocery chain's cashiers complete a food-safety course on a tablet.
Continuing education: an accountant takes courses every year to keep up with changes in tax law.

How businesses pay people

Businesses hire some employees to work full time, on a full weekly schedule, and others part time, like a student who works three evening shifts a week. Temporary employees are hired for a limited time, such as extra warehouse help from October through December. Contract employees are hired under a contract for a specific job, such as a web developer brought in for six months to build an online ordering system.

Pay can follow several compensation schemes. Which one a business uses depends on the industry, the employee's role, legal guidelines such as the minimum wage, and how hard the business has to outbid its rivals to land high-quality employees. Commission suits a salesperson, because sales are what she controls. It would make no sense for a bookkeeper.

Compensation schemes
Scheme	How pay is figured	Example
Hourly wage	A set amount for each hour worked	A cashier earns $16.50 an hour
Annual salary	A set amount for the year, paid out in equal parts	An office manager earns $58,000 a year, paid every two weeks
Commission	A share of the sales the employee makes	A furniture salesperson earns 6% of the price of everything she sells
Piece rate pay	A set amount for each unit the employee produces	An orchard pays $25 for each bin of apples picked
Profit sharing	A share of the business's profit	A machine shop divides 10% of the year's profit among its employees

Benefits, and keeping good people

Within any scheme, employers generally set the amount by weighing a person's education, skills and productivity. That is why a licensed plumber earns more than an apprentice doing the same kind of work.

Pay is only part of the package. Compensation may also include benefits such as contributions to health insurance, retirement savings plans, health savings plans, disability insurance, educational reimbursement programs and paid time off. When you compare two job offers, compare the benefits as well as the pay. Two jobs with the same hourly wage can be worth very different amounts once one employer pays most of your health insurance and the other pays none of it.

Hiring is expensive, so businesses work to keep the good employees they already have. Many use incentives such as raises, promotions and bonuses, because it is typically more cost-effective to keep a high-quality employee than to recruit and train a new one. Money is not the only tool. Businesses also motivate and keep people by giving them autonomy (room to decide how to do their work), flexible work hours or locations, recognition and rewards, flexible scheduling and a positive workplace culture.

Worked exampleReading a job posting

Coastal Comfort Heating and Air posted this job.

Apprentice heating and cooling technician, full time, 40 hours a week
Starts at $21 an hour, with a raise after each year of the four-year apprenticeship
Learn on the job beside a licensed technician, plus evening classes at the community college, with tuition reimbursed by the company
Health insurance (the company pays most of the premium), a retirement savings plan with a company match, and two weeks of paid time off

Identify the work arrangement, the compensation scheme, the training and the benefits. Then explain how the yearly raises help the business.

Work arrangement: full time, 40 hours a week.
Compensation scheme: an hourly wage, $21 to start, with a raise after each year. The posting does not say how the company chose that rate. In general, employers weigh education, skills and productivity, and an apprentice is still building all three.
Training: an apprentice program that combines on-the-job training beside a licensed technician with postsecondary education at the community college.
Benefits: contributions to health insurance, a retirement savings plan, paid time off, and an educational reimbursement program for the tuition.
Why the raises help the business: a trained technician is valuable to rivals too. A raise each year as the apprentice's skills grow is an incentive to stay, and keeping a technician the company has spent years training is typically cheaper than recruiting and training a replacement.

Answer.

Full time, an hourly wage, an apprentice program that combines on-the-job training with postsecondary classes, and four benefits. The raises are a retention incentive that protects the company's investment in training.

Check your understanding

1

The night supervisor at a distribution warehouse checks each week's share of orders shipped with errors against the warehouse's target of 1%. Which function of management is she carrying out?

2

A customer tells a store manager, at some length, that her online order arrived wrong for the second time this month. Which response best shows empathetic listening?

3

The owners of a small landscaping company are skilled at designing and building gardens, but none of them knows much about payroll taxes. Last year they filed two payroll forms late and paid penalties. Payroll for the company's eight employees takes only a few hours a month. Which decision best applies what you know about core competencies?

4

Leo sells solar panel systems to homeowners. Each month, his whole paycheck is 8% of the value of the systems he sold that month. How is Leo paid?

5

A veterinary clinic keeps losing experienced vet techs to a clinic across town that pays the same wage. In exit interviews, the techs say they could never plan childcare or classes, because they found out when they would work only a few days in advance. Which change most directly addresses the reason they are leaving?