OWNERSHIP OF A COMPANY OR ORGANIZATION

1
Management Principles and Organizational Control
A special course for the MBA program 2001 Beijin
g, China By Frederick Y. S. Ho
This presentation is incomplete without the
accompanying discussion. It is confidential and
intended solely for the information and benefit
of the immediate recipient hereof.
2
Introduction to this course ...

• This is a general management course designed for
  managerial executives with potential to hold
  responsibilities over company profit and loss.
• The objective of this course is to introduce
  legal devices and measurement tools in
  organization to
• identify responsibility of each individual, to
  avoid the abuse of power, conflict of interest,
  loss of control, or any other form of
  irregularity that will result in damage to the
  interest of the shareholders, or effect the moral
  of the employee
• cover the practice management can depend on to
  discover any irregularity, assess the damage,
  identify the responsible party, and to take
  prompt corrective action to minimize damage.
• Provide frame work for loyal employee to
  participate and devotee themselves in business
  decision without hesitation.
• This course will be introduced through a total of
  32 hours of class-room type lecturing, slides
  presentation, and discussion.

3
The contents of this course contains the general
ideas used by many senior executives to assure
the optimal control of the business ...

• This course is divided into three sections
• I. System and organization
• II. Planning cycle
• III. Employee motivation

4
Contents

• I. System and organization
• A. Organization
• B. Management by system
• C. Auditing
• II. Planning cycle
• A. Introduction (What)
• B. Organization
• C. Purpose (Why)
• D. Structure (How)
• E. Responsibility (Who)
• F. Planning period and cycle (When)
• G. Measurement
• III. Employee Motivation
• A. Compensation package
• B. Human resource development
• C. Work environment
• D. Objectives

5
Section I. System and organization covers the
following topics ...

• I. System and organization
• A. Organization
• 1. Company ownership and types
• 2. Business objectives and scope
• 3. First shareholders meeting
• 4. Articles of Association
• 5. Company By-laws
• 6. Share issuing
• 7. Shareholders meeting
• 8. Board of Directors
• 9. Chief Executive Officer (CEO) / President /
  General Manager (GM)
• 10. Organization trends

6
Section I. System and organization covers the
following topics ...

• I. System and organization (continued)
• B. Management by system
• 1. Authority and responsibility
• 2. Organization Chart
• 3. Job description sheet
• 4. Authority and approval manual
• 5. Reporting system
• 6. Company policies and procedures
• 7. Performance Management system
• 8. Management information system
• 9. Information Control system
• 10. Committees

7
Section I. System and organization covers the
following topics ...

• I. System and organization (continued)
• C. Auditing
• 1. Financial auditing
• 2. System auditing
• 3. Quality auditing
• 4. EPA related issues
• 3. Legal and obligation auditing

8
Company or organizations ownership may take on
several forms
I. System and organization - A. Organization - 1.
Company ownership and types

• Government - Treasury, Ministries
• Government Departments - Provincial or special
  shareholding departments / organizations
• Private individuals
• Partners
• Public
• Holding company
• Any combination of the above

9
The company or organization type may also vary
I. System and organization - A. Organization - 1.
Company ownership and types

• Unlimited company
• Limited company
• Partnership
• Shareholding company
• Foreign owned company

10
Unlimited company
I. System and organization - A. Organization - 1.
Company ownership and types

• Two or more owners (or specified by law)
• Unlimited responsibility
• Management by owners

11
Limited company...
I. System and organization - A. Organization - 1.
Company ownership and types

• 5 to 21 shareholders as specified by law
• Shareholders responsibility is limited to the
  investment
• Normally privately held and managed by
  shareholders or entrusted managers

12
Partnership company...
I. System and organization - A. Organization - 1.
Company ownership and types

• One or more shareholders with unlimited
  responsibility
• One or more shareholders with limited
  responsibility
• Normally managed by responsible party

13
Shareholding company ...
I. System and organization - A. Organization - 1.
Company ownership and types

• Shares owned by seven or more shareholders
• Shares can be traded, bought, and sold
• Shareholders responsibility limited to the amount
  invested
• Managed by a board of directors
• Subject to Government supervision

14
Foreign company ...
I. System and organization - A. Organization - 1.
Company ownership and types

• Ownership by foreign entity, company, or citizen
• Subject to local Government law
• Subject to trade and tax agreement between the
  two Governments

15
The business objectives usually states the
interest of the investors ...
I. System and organization - A. Organization - 2.
Business objectives and scope

• Financial
• Maximum return of capital employed
• Long and short term profit
• Others
• Market share
• Leadership in technology
• Manpower development
• Within Government policies
• High ethical standards
• Employment obligation
• Environmental protection
• Social obligation
• Effective communication
• Weather changes in the environment

16
The business scope identifies the business limits
...
I. System and organization - A. Organization - 2.
Business objectives and scope

• Identify and focus business
• Emphasize strengths
• Restrict dilution of resources
• Restrict authority of the board and management
• Limit risk
• Eliminate conflict of interest

17
Shareholders meeting are held by the owners of
the shares of the company to ...
I. System and organization - A. Organization - 3.
First shareholders meeting

• Define and approve
• Articles of Association (Incorporation)
• By-laws (if any)
• Appoint directors
• Appoint supervisor
• Acts as the highest authority of a company

18
Every company has Articles of Association
(Incorporation)
I. System and organization - A. Organization - 4.
Articles of Association

• Most important document of a company
• Part of initial incorporation papers
• Supplemented by the by-laws if needed
• Specify critical information as requested by law
  and needed by the shareholders

19
The contents of the Articles of Association
I. System and organization - A. Organization - 4.
Articles of Association

• Interested parts
• Business needs shareholders approval
• Initial Directors
• By-laws
• Incorporator
• Annual meetings

• Company name
• Location-Jurisdiction
• Duration
• Objectives
• Business scope
• Shares / Capital
• Par value
• Forming of the Board
• Voting rights
• Majority votes
• Indemnity
• Pre-emptive rights

20
The Company By-laws define the ...
I. System and organization - A. Organization - 5.
Company by-laws

• Office address
• Shareholders meetings
• Board of Directors
• Company Officers
• Share Certificate
• Dividends
• Supplement of information to the Articles of
  Incorporation

• Fiscal year
• Debt ratio
• Accounts
• Reports
• Third party auditors
• Major business decisions
• Others

21
Share issuing
I. System and organization - A. Organization - 6.
Share issuing

• Par value
• Total number of shares approved
• Initial issuing
• Issuing of balance shares
• Registration / Recording
• Transfer
• Additional share issuing

• Shareholders right of additional share issued
• Sale of shares
• Governments role
• Anti-trust law
• Voting
• Liquidation

22
Shareholders meeting are held regularly as
specified by the By-laws
I. System and organization - A. Organization - 7.
Shareholders meeting

• Annual meeting
• Location of meeting
• A Notice is sent to all Shareholders
• Voting of shares
• Transfer books and fixing records date
• Quorum of Shareholders
• Voting list
• Restrictions

23
Board of Directors are specified by the By-laws
I. System and organization - A. Organization - 8.
Board of Directors

• Number of elected Directors
• Terms of Directors
• Vacancies
• Quorum of Directors
• Annual meeting
• Place of meeting
• Election of the Chairman
• Voting rights
• Compensation
• Supervisor

24
The Chairman of the Board is elected by the Board
of Directors and ...
I. System and organization - A. Organization - 8.
Board of Directors

• Could be the Chief Executive Officer (CEO)
• Calls and manages the Board meetings
• Casts final vote during any deadlock
• Acts on behalf of the Board to appoint the CEO
  and company President
• Responsible for share issuing
• Answers for shareholders meeting
• Maintains relationship with shareholders

25
The Board of Directors are responsible for...
I. System and organization - A. Organization - 8.
Board of Directors

• Issuing of new shares
• Comments to the shareholders any change in the
  Articles of Association
• Appointment of CEO and President
• Approves the compensation package for the CEO and
  the President
• Approval of the annual budget and capital budget
• Approval of year end results
• Declares dividend
• Approval of organizational chart as proposed by
  the President
• Establishes banking roles of the company
• Approval of authority of CEO and President
• Appoints third party auditor
• Approval of major business decisions
• Approves major company policies
• Fiscal year

26
The Board of Directors normally wish to approve
or to be informed on important decisions
involving
I. System and organization - A. Organization - 8.
Board of Directors

• Modification or changes to the scope of the
  business
• Plans to merge or acquire another company
• Acquisition of real property
• Any business effecting the environment, labor,
  and union issues
• Changes in the debt ration or further loans
• Granting of guarantee or warranty
• Major deviation from approved business plan or
  budget
• Arising or potential legal issues
• Issues related to business ethical standards
• Conflict of interests
• Hiring or firing or senior or key officers
• Major unplanned changes in the organization
  structure

27
The CEO, President, or General Manager is
responsible for...
I. System and organization - A. Organization - 9.
CEO / President / General Manager

• Achieve highest return on investment
• Safe guard shareholders investment while
  minimizing risks
• Organize and maintain a dynamic, committed, happy
  and balanced team to fulfill company goal
• Maximum utilization of all resources
• Effective communication with the Board of
  Directors
• Weather changes
• Maintain high ethical standards
• Fulfill social obligations
• Ahead of industry in Technology and
• Human Resource development

28
Organization trends vary by industry, country,
and company age ...
I. System and organization - A. Organization -
10. Organization trends

• Centralized
• Decentralized
• Shared services
• Vertical slide concept
• Merging
• Breaking-up
• Hierarchical
• Flat organizations

29
Comparison of centralized and decentralized
organizations
I. System and organization - A. Organization -
10. Organization trends

• Decentralized
• Different business nature
• Different markets or customer groups
• Social / cultural barrier
• Geographic reasons
• Changing of location situation
• Can be efficient
• Flat organization
• More flexible
• Possible only when
• Equal concept
• Communication system
• Well established reporting system

• Centralized
• Same nature of business
• No social / cultural barrier
• Effective control
• Changing of environment
• Efficient
• Uniform policies and procedures
• Tighter control
• Tend to have more layers
• Always control until affiliates are ready

30
Shared services organization
I. System and organization - A. Organization -
10. Organization trends

• Business units remain separate entities in many
  locations or countries
• Support functions are shared and placed at single
  location
• Improved service to customers
• Typical shared service functions include Finance,
  Accounting, Procurement, Information Technology,
  and Human Resources
• Significant synergies may be obtained
• Reduced operating costs
• User pay system for charging costs to business
  units
• Must conform to local laws and regulations in
  multiple locations

31
Vertical slide concept
I. System and organization - A. Organization -
10. Organization trends

• Product line responsibility
• From manufacturing, research, to marketing
• Sharing of service manpower and facilities
• Total profit and loss responsibility
• Performance by return of capital employed or cash
  generation rate
• A must when different product / business with
  different
• Product life
• Competition
• Business environment
• Profit and return rates

32
Merging of business
I. System and organization - A. Organization -
10. Organization trends

• Result of new communication / office facilities
• New management concept
• Business fit
• Flatter organizations
• Better managers
• Reduce top level / overhead costs
• Minimize duplication of efforts
• Consolidation to increase power
• Reduce competition
• However, it is
• Governed by the Government
• Anti-trust laws may apply
• May not be beneficiary to the end-users
• Chance of foul play
• Tends to increase shareholder stock value

33
Company breaking-up
I. System and organization - A. Organization -
10. Organization trends

• Companies may separate due to the following
• Nature of business
• Different culture
• Competitive pressures
• Raw material change
• Market change
• Territory
• Political
• Improved efficiency
• Reduced overhead
• Reduce risk / liability
• Asset re-assignment
• Sourcing / sharing service
• To dilute ownership stock value
• Still may be under one ownership

34
Hierarchical versus flatter organizations
I. System and organization - A. Organization -
10. Organization trends

• Hierarchical organization
• Multiple layers
• Many jobs / titles
• Centralized control
• Career focused
• Greater emphasis on managing labor costs

• Flat organization
• Fewer layers
• Fewer jobs / titles
• Tend to be decentralized
• External focused
• Greater emphasis on managing accountability
• Flexible
• Strategy driven

35
Section I - Part B covers the following topics ...

• I. System and organization (continued)
• B. Management by system
• 1. Authority and responsibility
• 2. Organization Chart
• 3. Job description sheet
• 4. Authority and approval manual
• 5. Reporting system
• 6. Company policies and procedures
• 7. Performance Management system
• 8. Management information system
• 9. Information Control system
• 10. Committees

36
A clear definition of authority and and
responsibility of each job makes the system more
effective ...
I. System and organization - B. Management by
system - 1. Authority and responsibility

• Employee performs better with greater job
  satisfaction
• Efficiency in decision making
• Cost saving can be achieved
• Clearly identify cause of problem and find a
  faster solution
• One person receives only one order from one
  supervisor
• Avoid jump of levels for instruction and
  reporting
• Easier to evaluate performance
• Reduce personal conflict

37
An organization chart graphically identifies the
reporting structure ...
I. System and organization - B. Management by
system - 2. Organization Chart

• Covers the whole company
• Defines divisions, departments, or any work unit
• Clearly identifies responsibility
• Administration / function / matrix reporting
  system
• One supervisor concept
• Avoid crossing of reporting lines
• Properly updated and approved at all times
• All parties must be fully and timely informed of
  any revisions

38
A job description sheet should be available for
each position in the company ...
I. System and organization - B. Management by
system - 3. Job description sheet

• The job description sheet identifies
• Title
• Location
• Person reporting to
• People responsible for
• Purpose
• Job responsibilities and duties
• Decision making authority
• Performance measures
• Education requirements
• Experiences and other requirements
• Always up-dated and approved
• Related parties should be timely informed

39
Each function should have an authority and
approval manual ...
I. System and organization - B. Management by
system - 4. Authority and approval manual

• Specify the authority, responsibility, and
  approval procedures for
• Sales
• Finance
• Assets
• Manufacturing
• Materials
• Human resources
• Technology
• Public relation
• Normally managed / communicated through a manual
• Clearly identify level of job / responsibility
• Clearly identify limits
• Properly updated and approved at all times
• All parties are informed
• Provides consistency for companies operating in
  multiple locations

40
The sales function authority and approval manual
may include ...
I. System and organization - B. Management by
system - 4. Authority and approval manual

• Price lists
• Credit limits
• Payment terms
• Contract terms
• Credit approvals
• Discounts
• Volume
• Early payment
• Promotional
• Special prices
• Free samples
• Advertising / Promotion / Literatures / Trade
  shows
• Allocation
• Business Expenses
• Travel

41
The price list section of the sales authority and
approval manual may include specific details such
as ...
I. System and organization - B. Management by
system - 4. Authority and approval manual

• Value of goods or services
• Demand and supply
• Affected by factors
• Time
• Location
• Benefit
• Alteration
• Competition
• May or may not be affected by costs
• Fair trade practices
• Payment terms must be shown
• Volume discounts related to operational costs
• Must be logical and fair
• Must be up-dated and published
• Must be approved by the proper authority

42
The credit limit and payment terms section of the
sales approval and authority manual may include
...
I. System and organization - B. Management by
system - 4. Authority and approval manual

• Payment terms as part of the costs
• A method to count payment days
• Credit limits
• Credit risks
• Customer credit evaluation such as
• Financial strengths
• Other assets
• Risky exposure
• Other businesses
• Ownership
• Credit investigations
• Credit committee
• Conflict of interests
• Must be properly approved

43
The financial functions authority and approval
manual may include ...
I. System and organization - B. Management by
system - 4. Authority and approval manual

• Bank account
• Loans
• Interests
• Depreciation
• Transfers
• Payment of
• Expenses
• Goods / Raw materials
• Duties
• Equipment
• Assets
• Services
• Taxes
• Cash advances
• Payroll

44
The assets authority and approval manual may
include procedures on ...
I. System and organization - B. Management by
system - 4. Authority and approval manual

• Fixed assets Real estate, office building,
  plant, warehouse, manufacturing equipment, etc.
• Liquid assets Tank cars, automobiles, office
  equipment, furniture, etc.
• Procurement, disposal, leasing, renting, etc.
• Payment terms
• Utilities
• Maintenance schedule and contract
• Taxes
• Fees

45
The manufacturing authority and approval manual
includes ...
I. System and organization - B. Management by
system - 4. Authority and approval manual

• Specifications of product
• Specifications of raw materials
• Specifications of supplies
• Equipment
• Operation conditions / hours
• Selection of energy source
• Environmental and Environmental Protection Agency
  (EPA) issues
• Operating hours / number of shifts
• Allocation of capacity
• Off specification products
• Disposal of waste
• Logistics
• Packaging
• Turn around
• Plant shut-down

46
The materials authority and approval manual may
include ...
I. System and organization - B. Management by
system - 4. Authority and approval manual

• Specifications
• Sampling
• Quality control and testing
• Waiver
• Safe inventory levels
• On-time delivery system
• Storage
• Loss control
• Free samples
• Procurement procedures
• Pricing
• Supply contract

47
The human resources authority and approval manual
includes ...
I. System and organization - B. Management by
system - 4. Authority and approval manual

• Identification of jobs and responsibilities
• Work load considerations
• Define qualification requirements
• Long and Short Term Manpower requirement
• Long and Short Term Manpower Plan
• Training Programs
• Define reporting structure
• Job classification / grade definition
• Recruitment / Hiring / Termination
• Evaluation / Performance review / Force ranking
• Cost of Living Study
• Promotions
• Salary adjustments
• Vacation schedule

48
The human resources authority and approval manual
also may include ...
I. System and organization - B. Management by
system - 4. Authority and approval manual

• Establish compensation policy and system
• Establish salary scale / pay bands
• Establish other beneficiary coverage / policies
• Insurance - Life/Medical/Dental/Disability/etc.
• Savings plan (401K, Provident funds)
• Retirement
• Company stock options
• Others
• Bonus
• Fixed - 13 month, guaranteed bonus
• Performance related
• Key Performance Index (KPIs)
• Profit sharing - by business unit and/or by
  company

49
Modern reporting systems provides management with
updated, accurate information on a just in time
basis ...
I. System and organization - B. Management by
system - 5. Reporting system

• All management decision should be based on the
  same information
• All decision maker should receive information at
  the same time
• New communication and technology allows rapid
  reporting
• Frequency of reporting depends on the nature of
  business and each function within the same system
• The right quantity and accuracy of information
  should be reported
• A simple format should be adopted

50
Use of proper reports is essential in
understanding the business ...
I. System and organization - B. Management by
system - 5. Reporting system

• Re-focus objective and modification of business
  plan
• Activities and business plans may be quickly
  adjusted based on up-dated information
• Improve efficiency and effectiveness of the
  organization
• Alert management to areas in need of immediate
  action
• Re-allocation of scarce resources

51
There are many different types of reports ...
I. System and organization - B. Management by
system - 5. Reporting system

• Reporting facts may include
• Sales
• Manufacturing /Operations
• Financial /Treasury / Cash flow / Collection /
  TAR
• Emission
• Information collection such as
• Customer data
• Competitive information
• Credit investigation
• System improvement
• Engineering study / progress

52
At the same time, management should be careful
with using reports ...
I. System and organization - B. Management by
system - 5. Reporting system

• Too much information overload
• Dependency on data may result in management
  making decisions without considering intangible
  factors
• Decisions based solely on data may not show the
  complete picture or scenario
• Use of wrong or out-dated information, is
  especially critical in a rapidly changing
  environment or industry

53
Company policies and procedures provides the
operating guidelines for each function or area ...
I. System and organization - B. Management by
system - 6. Company policies and procedures

• Improves overall ethic standard
• Clearly defines limitations and Companys demand
  from employee
• Avoids misunderstanding
• Reduces mistakes and damages caused
• Emphasizes fairness to all employees
• Reduces management administration time
• Reduces management training time and training
  effort
• Limits company responsibility to a certain degree
• Improves employee self respect and confidence
• Improves process efficiency
• Improves the companys image

54
The conflict of interest policy is one of the
most important policies of a company or
organization ...
I. System and organization - B. Management by
system - 6. Company policies and procedures

• Defines a clear line between the employee, their
  family or friend, and employer, in terms of
  money, materials, use of facilities, equipment,
  authority, etc.
• Protects the interest of Shareholder and Investor
• Provides equal treatment to all employees
  disregarding job level and position
• Provides equal treatment to all customers,
  suppliers, and related companies
• Prevents abuse of power
• Eliminates out-of-control situation
• Establishes employee respect and discipline
• Raises employee moral standard
• Required to meet income tax regulations
• Usually requires employees to sign a legal
  document each year
• Constantly monitored by auditor and the whole
  management team

55
The ethical standards policy specifies the
company practice in dealing with customers,
government, community, and the employees ...
I. System and organization - B. Management by
system - 6. Company policies and procedures

• Should be fair and honest to all
• Delivers all promises and eliminates misleading
  promotion /advertising
• Provides the same standards for treating customer
  and supplier
• On time payment
• Precision standards in product quality and
  quantity
• Stays clear in the area of environmental
  protection, conservation issue
• Accurate book keeping and tax reporting
• Face problems with an open mind and sincerity,
  when needed
• Constantly audited by internal auditor or a
  special committee

56
The anti-trust policy protects consumers ...
I. System and organization - B. Management by
system - 6. Company policies and procedures

• In one form or another, it is applicable in most
  of the developed countries
• Normally, a heavy penalty is dealt when violated
• Assure equal chance for all companies
• Senior management employees may be required to
  sign a anti-trust document annually
• Most international and major company treats it
  very seriously

57
The fair trade policy mandates equal treatment to
all customers ...
I. System and organization - B. Management by
system - 6. Company policies and procedures

• Same treatment to all customer with disregard to
  ownership, location, type of business, age, race,
  sex, religion, etc.
• Reflects mainly in pricing policy and payment
  terms
• Reviewed regularly by a committee or internal
  auditors
• More important when product or material supplies
  are under allocation
• Legal obligation important in many country
• Fair company emphasize equal treatment to
  suppliers and customers

58
The procurement policy covers the purchase of
most company materials ...
I. System and organization - B. Management by
system - 6. Company policies and procedures

• A manufacturing companies procurement policy may
  cover the procurement of raw material, equipment,
  service, supplies, engineering service, etc..
• Safe guard company interests in all aspect
• Assure the best or lowest costs and performance
  for all procurement program
• Fair trade policy to all vendors, contractors,
  suppliers
• Eliminates conflicts of interest or abuse of
  power
• Eliminates favor or the personal factor
• Complies with government regulations and law
• Keep all partner interested in doing business
  with the company
• Minimizes personal mistakes and responsibility
• Clearly defines the approval level and number of
  signatories required for the amount of contract
• Provides a efficient and effective process to
  purchase required items

59
The company property policy covers all fixed
assets ...
I. System and organization - B. Management by
system - 6. Company policies and procedures

• This policy may cover all properties such as the
  company house, office, vehicles, telephone,
  portable phone, computer, portable computer,
  pager, furniture, and other office equipment
• Classified into asset and expendable item
• Identify depreciation curve of asset
• Define company property coding system
• Identify authority of assignment of property
• Identify responsibility of user /assignee
• Specify maintainence requirement
• Meet insurance requirement
• Assure assignment of property on a as needed
  basis
• Assure fairness to all employees

60
A section of the company property policy may also
cover intangible assets ...
I. System and organization - B. Management by
system - 6. Company policies and procedures

• Intangible assets may includes all technology,
  manufacturing procedure, production schedule,
  cost of manufacture, cost of product, inventory
  level, sales volume, contract price, special
  discount, credit terms, bank information, salary
  information, compensation package, legal
  information, knowledge, and any other information
  that could damage the business, the moral of the
  workers, or assist competition
• Authorized level and responsibility clearly
  defined
• Special equipment to handle classified
  information
• Special code for individual to enter information
  system
• Legal department handles all loyalty and pattern
  business
• No delegation of responsibility

61
Other company policies and procedures may include
...
I. System and organization - B. Management by
system - 6. Company policies and procedures

• Vacation
• Retirement
• Leave
• Overtime
• Recruitment and termination
• Employment of temporary and contract workers
• Promotion
• General office procedures
• Telephone /long distance call
• Travel and Entertainment
• Gift and Promotion
• Company trade mark

62
The performance management system establishes a
objective for each employee ...
I. System and organization - B. Management by
system - 7. Performance management system

• Theoretically business performance rated by the
  return of capital employed
• Listed share price
• Investment return and profit per revenue
• Life time curve of business has major impact
• Businesses with multiple-product lines should
  examine each product separately
• Annual result comparison
• CGR comparison
• Some performance may not be shown by financial
  data such as
• technology development
• market share
• special promotion program
• brand name recognition / customer loyalty
• manpower development
• company reputation
• Periodic review depends on nature of business /
  economy / structure

63
The performance management system allows each
employee to be rated based on their
accomplishments versus set objectives ...
I. System and organization - B. Management by
system - 7. Performance management system

• Individual performance should be related to
  business performance
• Achievement of plan an important part of employee
  goals
• Regular annual or semi-annual performance reviews
• Force ranking system
• Potential rating affected by performance review
• Full circle feed-back
• Factors considered in performance review

64
Modern management information system has the
ability to turn intellect to wealth creation ...
I. System and organization - B. Management by
system - 8. Management information system

• One enterprise information management system may
  control the following via intranet
• Sales forecast
• Raw material preparation
• Production planning
• Ordering
• Delivery scheduling / customer notice
• Invoicing
• Collection
• Trade receivable report
• Financial planning
• Accounting
• Expenses / procurement / payment processing and
  approval
• Human resources

65
Improvement in the management information system
is leading the growth into the 21st century ...
I. System and organization - B. Management by
system - 8. Management information system

• In the 20th century, it took General Motors many
  years to become the worlds biggest company, and
  it only took Microsoft a fraction of that time to
  accumulate the same size
• Rapid improvements resulting from new technology
• Computer
• Internet
• Intranet
• Gains in efficiency may be achieved in manpower,
  time, paper work, filing system, and space
• Minimizes human errors
• Better control allows for avoiding abuses of
  power
• Sharing of accounting, financing, operation,
  legal, information technology, procurement, and
  human resource service

66
A very important part of the management
information system is the information control
system ...
I. System and organization - B. Management by
system - 9. Information control system

• Protect critical financial, technical, legal,
  business and any other company information from
  leaking to unauthorized users
• Smoothes administration work
• Involved parties must all be fully informed
• Reduce unnecessary rumors and wasted time
• Maintain built in authority level
• Fulfills social responsibility
• Protect shareholders or the public
• Maintain complete file, record, and history

67
Information control system also consider the
following ...
I. System and organization - B. Management by
system - 9. Information control system

• All files are maintained centrally
• No individual file except for working files
• All filing done by appointed person
• User registration system
• Coding system
• Confidential file classified by different level
• Individual classification related to job nature /
  level
• Only authorized person sees classified
  information
• Restriction of copying
• Restriction in computer information by coding and
  identification
• Frequent change of code / updating of
  identification system
• Severe penalty for violation including criminal
  charge
• supplemental plan in case of leak to restrict
  damage
• Outside auditing

68
Committees are formed to handle specific issues
...
I. System and organization - B. Management by
system - 10. Committees

• Assemble of total talent and knowledge
• Balance act
• Full information and sharing of information
• Shares responsibility between committee members
• Closer corporation
• Decision making body and not implementation body

69
A permanent committee may be formed to handle
ongoing issues ...
I. System and organization - B. Management by
system - 10. Committees

• Composed by senior management
• CEO chair committees
• Main decision body of company policies
• Most of major decision
• Fixed meeting schedule
• All member must attend unless with special reason
• Seldom attended by representative
• Frequently exercise right to call department head
  to answer question
• Informs the Board of all decisions
• Samples of permanent committees may include
• Executive committee
• Executive development committee
• Finance committee and sometimes credit committee

70
Other committees may be formed to handle special
tasks ...
I. System and organization - B. Management by
system - 10. Committees

• Not task force for a special project
• Normally cross department or product line
• Member consist of at least one senior manager
• Some with a special mission
• There is a life period
• Members may rotate
• Normally have schedule meeting
• Meeting can be attended by representative of
  member
• Includes but not limited to
• Special allocation committee (when product is
  short)
• Credit rating committee
• Procurement committee (for special or large
  project)
• Technology development committee
• Construction committee (for special or large
  project)

71
Section I - Part C covers the following topics ...

• I. System and organization (continued)
• C. Auditing
• 1. Financial auditing
• 2. System auditing
• 3. Quality auditing
• 4. EPA related issues
• 3. Legal and obligation auditing

72
Financial auditing
I. System and organization - C. Auditing - 1.
Financial auditing

• Independent operation report directly to CEO
• Outside third party auditing required report to
  Board and Shareholder and appointed by the Board
• Required by law in most countries
• Consolidated report is required for multi-holding
  company
• Book closing date and accounting system (FIFO
  /LIFO) controlled
• Annually or more frequent
• Third party audit has legal responsibility
• Most government rely on third party audit report
  for income tax assessment
• Inventory report relates to quality
• Overage as bad as shortage

73
System auditing
I. System and organization - C. Auditing - 2.
System auditing

• Assure full implementation of Authority and
  Approval manual
• Assure all commercial transaction / terms meets
  approved limit
• Assure conflict of interest, ethical standard,
  fair trade and anti-trust policies are complied
• Assure all company policies are complied
• Safe keep of Confidential information
• Disclosure of company information
• Interview and employment of relative of employee
  and director
• Special attention to relationship with company or
  business owned and/or operated by family member
  of company employee or director - declaration
  policy
• Special restriction and attention to directors
  and management in owning, buying and selling of
  company shares and shares of company that doing
  business with -declaration policy

74
Quality auditing
I. System and organization - C. Auditing - 3.
Quality auditing

• Assure all product manufactured and delivered
  meet quality claim
• Maintain complete record
• Confirm sample representative
• All testing equipment periodically calibrated and
  recorded
• All testing condition under control
• Proper retained sample kept for specified period
• Third party testing record and retained sample in
  place
• Own data checks with third party testing data,
  and if not, the reason

75
EPA, safety, and health related auditing issues
I. System and organization - C. Auditing - 4. EPA
related issues

• Check all policies, standards, records, practice,
  and data related to Environmental Protection
  Agency (EPA), emission, worker safety, public
  safety regulations
• On time recording and completion of information
• Accuracy of all testing equipment and control
  device
• Calibration of all equipment and control device
• Safe keep of all records
• Responsible person

76
Legal and obligation auditing
I. System and organization - C. Auditing - 5.
Legal and obligation auditing

• Assures full fulfillment of customer commitment,
  quality and quantity delivered, product claims,
  performance claims, etc.
• Assures compliance of all laws and regulations
  related to environmental, EPA, emission, workers
  health, workers safety, handling of hazardous
  materials, waste disposal, union regulations,
  fire, emergency, etc.
• Assures compliance of all regulation of Food and
  Drug Administration (FDA), medical, etc..
• Assures fairness during product allocation
• Assures fairness during pricing change
• Critical check on entertainment and gifts policy
  and practice

77
Section II. Planning cycle covers the following
topics...

• II. Planning cycle
• A. Introduction (What)
• B. Organization
• C. Purpose (Why)
• 1. Objective
• 2. Communication
• D. Structure (How)
• E. Responsibility (Who)
• F. Planning period and cycle (When)
• G. Measurement

78
The planning cycle is one of the most important
tools used by management to involve the whole
company to work as a team to ...
II. Planning Cycle - A. Introduction

• Use the same basic assumption to assess the
  business environment
• Understand and share the established business
  objectives and goal
• Jointly develop overall business plan for work
  guidance
• Develop detail action plan at all level
• Prepare back up plan in case the situation has
  changed
• Assurance of availability of all resources
  required
• Full management support
• Close follow up of planned action
• Periodical review and internal communication
• Modification as needed
• Re-establishment of plan
• Complete stewardship review and performance
  review
• Personal performance acts as a base for future
  development

79
The planning cycle is organized by ...
II. Planning Cycle - B. Organization

• Involves the whole company
• Bottom up instead of top down
• Market and reality dominate the plan
• Work and action oriented plan
• General management - issues basic assumptions
• All departments - reports capability and
  limitations
• Business plans may include
• Marketing Plan
• Sales forecast and sales plan
• Advertising and promotion plan
• Product management plan
• Manufacture plan (including environmental issues)
• Logistic plan
• Research and product development plan
• Legal and public relation
• Financial plan
• Manpower plan

80
The purpose of the planning cycle is to ...
II. Planning Cycle - C. Purpose

• Objectives
• Develop plan using the resources of the whole
  company
• Reflect actual and up-dated information
• Team work
• Dynamic and yet logical
• Reflect changes in the environment
• Communication
• Continues consistent communication between all
  levels and all department
• Periodical review provides more chances to work
  out difference
• All parties are aware of problems or deviations
  immediately and simultaneously
• Faster reaction / adjustment
• Re-assured team spirit
• Sharing of responsibility

81
The basic assumptions are normally issued three
months before the plan is due and may include ...
II. Planning Cycle - D. Structure

• Environmental issues such as political, social,
  government policy, change of law, duty and tax,
  union issue, energy policy, environmental
  regulations, etc..
• Financial data to be used in plan GNP,
  inflation, depression, cost of money, exchange
  rate, etc..
• Market related information population growth,
  aging of population, ratio of opposite sex,
  seasonal effect, social / culture change that may
  affect consumer needs and other market trend
• Raw material supply availability and potential
  cost change
• Company production capacity change if any and
  limitations
• Technology change
• Competition
• Company strength and weakness

82
The basic assumptions are normally issued three
months before the plan is due and may include ...
II. Planning Cycle - D. Structure (continued)

• Information compounded by planning department or
  planning committee three months before the
  beginning of the cycle
• The planning cycle normally begins at the end of
  the third quarter for a company with book
  beginning on Jan 1 of each year
• Basic assumption information must be approved by
  the CEO
• Board informed sometimes or during violent
  changing environment
• Preferably no change once it is officially issued
  and announced
• Basic Assumptions could be company confidential
  information and be classified according

83
The planning cycle includes establishing a set of
objectives and may include ...
II. Planning Cycle - D. Structure

• Identify target growth
• Specify target market share
• identify target market position
• Specify target profit level and return of capital
  employed
• Identify major market penetration
• Identify major market development
• Outline major manufacturing / logistic / research
  development
• New product launching
• A confidential manpower development target to
  accompany above

84
The strategy for the company must also be clear
in the planning cycle...
II. Planning Cycle - D. Structure

• Identify how to achieve each objective and what
  does it take
• Specify the utilization of company strength and
  the weakness of competition, i.e., technology,
  quality, service, pricing, logistic, supply
  reliability, packaging, brand name loyalty,
  relationship, etc..
• Product or territory strategy must be identified
• Identify the resources needed
• Identify approximately time table
• Identify optimistic target and assured target
• Each department must have its own work target
  which is higher than the official plan

85
The last section of the planning cycle is the
action plan ...
II. Planning Cycle - D. Structure

• Outline detail action step needed to achieve each
  strategy
• Step by step action with logic time sequence
• Must identify person in charge of each action
• Must specify time frame and time of completion
• Individual included in plan must be informed and
  endorse the plan
• Must be logic, workable and acceptable to all
  parties
• Must be flexible and allows change

86
To plan for the unexpected, a sensitivity
analysis is usually included as part of the
business plan ...
II. Planning Cycle - D. Structure

• Identify potential change in environment or basic
  assumption
• List possibility of failure or incidence /
  accidence
• Identify impact to business and discrepancy of
  each change
• Specify alternate plan
• Specify change in need of resources to complete
  the new plan
• Specify final impact to the financial result

87
Responsibility for the planning cycle lie with
all the parties involved ...
II. Planning Cycle - E. Responsibility

• Involves the whole team
• All members are equally important
• Results of the work impact all members equally
• Information from the bottom up
• Sales and marketing initials basic information -
  customer and market centered. Product
  management plan important
• All departments are involved
• Equal emphasize / accuracy / communication level
  important
• Consistency most important
• All parties must have copy of information needed
  (but not more)
• All members treat the plan as the companies
  confidential property as a base
• Confidential information for approved individual
  only

88
The planning period and cycle depends on the
particular industry ...
II. Planning Cycle - F. Planning period and cycle

• Annual business plan
• Hand in hand with annual financial budge
• Normally completed prior to beginning of each
  financial year
• Regular monthly report and formal quarterly
  review
• Mid-range planning
• Three to five years depends on industry
• Required for any investment plan
• Reviewed quarterly or as required
• Long range planning
• Five to fifteen years depends on industry
• Part of major investment plan
• Up-dated annually
• Industry with larger investment, less technology
  change, less competition, longer product life
  intend to plan longer period

89
The planning cycle may be measured by regular
reviews and adjustments ...
II. Planning Cycle - G. Measurement

• Review of Plan
• Stewardship report and review as important as
  the plan itself
• Periodically report and review a routine program
• Top management and total team involvement is
  needed
• Adjustment of Plan
• Deviation of plan must be reviewed in detail and
  cause must be defined
• Amendment of originally plan must be made
  immediately whenever there is a need
• Amendment must be comprehensive, logic, workable
  and acceptable to all
• All parties must be informed

90
The planning cycle may also be measured by
performance reviews ...
II. Planning Cycle - G. Measurement (continued)

• Performance review of system and individual
• Detail analysis must be made for failure /
  success of performance in plan if deviation is
  caused by ourselves
• Human error must be identified and corrected
  immediately and completely
• System must be developed so that same error will
  not be repeated

91
Section III. Employee motivation covers the
following topics...

• III Employee motivation
• A. Compensation package
• 1. Principles
• 2. Base pay
• 3. Variable pay
• 4. Incentives
• 5. Recognition and Awards
• 6. Benefits
• B. Human Resource Development
• 1. Job Classification
• 2. Performance management
• 3 Force ranking
• 4 Career Advancement / Training / Potential
  Evaluation
• 5 Manpower planning

92
Section III - Employee motivation (continued)

• III. Employee motivation (continued)
• C. Work Environment
• 1. Efficiency and cost efficiency
• 2. Prestige
• 3. Fairness
• 4. Growth oriented
• D. Objectives
• 1. Meet manpower demand
• 2. Margin Allowed
• 3. Fully utilization of talent
• 4. Job satisfaction
• 5. Loyalty and mutual trust.

93
Compensation packages are used to motivate and
reward employees ...
III. Employee motivation - A. Compensation
package - 1. Principles

• Company should have a standard policy and
  procedure in compensating and rewarding employees
• Packages should be designed to address employee
  performance and contribution
• All employee must be fairly and equally treated
  disregarding race, sex, age and/or any other
  factors
• Rewards should reflect maximum management team
  input - such as through a compensation committee
• Minimize individual human factor or bias
• Must comply with government laws and regulations
• Union worker have separate package which must be
  pre negotiated
• MPT and NON-MPT differs
• Non-MPT enjoys overtime pay

94
Base pay is a significant portion of ones
individual reward to assure stability, incentive
and security ...
III. Employee motivation - A. Compensation
package - 2. Base pay

• This is even more important in industries which
  need to invest in employee training and
  development and requires stability low turn-over
• Should be based on the employee pay scale and job
  classification
• Seniority plays a big part in determining the pay
  scale
• Job Classification should be in alignment with
  the position in the organization structure
• Job classification and individual income
  information is confidential information and
  should be maintained this way
• Base pay increases may consist of
• Cost of living adjustment
• Merit increase
• Promotional increase
• Inflation
• High tech firms have a trend of providing a lower
  base pay but with more variable pay and incentives

95
Variable pay may be tailored to motivate certain
groups of employees to reach different objectives
...
III. Employee motivation - A. Compensation
package - 3. Variable Pay

• Apply to all industries requiring strong
  inter-personal relationship and performance
• More applicable to sales of intangible goods and
  services, fixed asset, extraordinary high value
  business, etc..
• Mostly for senior position and position with
  profit and loss responsibility
• Usually in the form of a performance bonus
• Usually rewarded semi annual or annually
• Information is always kept confidential
• The trend is to roll out increased variable pay
  to all levels of employees based on their
  performance

96
Incentives are usually rewarded to a select group
of employees to motivate longer term behavior ...
III. Employee motivation - A. Compensation
package - 4. Incentives

• Performance and responsibility related
• Stock option for senior management
• Stock option also for employees who meet certain
  requirement
• Use of company properties by executives
• General incentives apply to all employees
  disregard position
• Waive of commission when employee purchasing
  company stock
• Special discount for employee purchasing company
  product or service
• Use of company property by employee
• Scholarship for employee and children

97
Recognition and rewards should be used to
identify high performing employees ...
III. Employee motivation - A. Compensation
package - 5. Recognition and Rewards

• Special recognition to employee with unusual
  contribution
• Title
• Fellowship - life time recognition
• Prestige office assignment
• Annual service awards (10 year increments)