Unit 4: Management and Strategy

Management means planning, organizing, leading and evaluating a business's people, money and physical resources to reach its goals. Good leaders share the vision, build teams, settle conflicts, motivate people and communicate clearly. Businesses hire people with different skills and pay them by hourly wage, salary, commission, piece rate or profit sharing, plus benefits like health insurance and retirement plans. To keep good employees, they use raises, promotions, flexibility and a positive culture, since keeping workers usually costs less than replacing them.

A key performance indicator (KPI) is a number a business tracks to measure progress toward its goals. Financial KPIs include revenue, profit margin and cash flow; marketing and sales KPIs include customer acquisition cost and market share; operations KPIs include per-unit cost and on-time delivery. A KPI means most when you compare it with a benchmark, a reference point from the business's own past or from industry standards.

A strategy is a plan for reaching a goal, such as gaining competitive advantage or cutting costs. Tactics are the specific actions that carry it out, and businesses track data to judge and adjust the strategy. For big choices, the PACED model walks through the Problem, the Alternatives, the Criteria, an Evaluation of each option, and the Decision. Criteria can be financial, like return on investment (ROI: the extra profit from an investment divided by its cost), or nonfinancial, like reputation and fit with the mission, and real decisions often rest on imperfect data.

Porter's Five Forces sizes up how attractive a market is: competitive rivalry, the threat of new entrants, the threat of substitutes, customer power and supplier power. The stronger the forces, the lower the likely profit; for example, customers have more power when switching costs (the money and hassle of changing brands) are low. SWOT analysis lists a business's internal strengths and weaknesses and the external opportunities and threats it faces. The business then builds on strengths, fixes weaknesses, seizes opportunities and responds to threats.