A consistent theme in these posts is the assertion that governance and management are different processes undertaken by different entities within an organisation. In short, Directors or their equivalent govern, Managers manage.
This assertion is supported by the unequivocal view of governments, the OECD, stock exchanges world-wide, various ISO Standards, various Institutes of Company Directors and the Association for Project Management in the UK. The various laws, standards, definitions and guidelines published by these bodies all agree the Board has the exclusive responsibility to govern all aspects of the organisation and this includes the governance of project and program management activities.
The governance function has two key aspects; the first is deciding what the organisation should be and how it should function. These governance decisions are communicated to management for implementation and the primary outputs from this part of the governance system are:
- The strategic objectives of the organisation framed within its mission, values and ethical framework.
- The policy framework the organisation is expected to operate within.
- The appointment of key managers to manage the organisation.
The second aspect of the governance system is oversight and assurance. The governing body should pro-actively seek assurance from its management that the strategic objectives and policies are being correctly achieved or implemented. The assurance and oversight functions include:
- Agreeing the organisations current strategic plan (in conjunction with executive management). The strategic plan describes how the strategic objectives will be achieved.
- Suggesting or approving changes to the strategic plan to respond to changing circumstances.
- Requiring effective assurance from management that the organisations policy framework is being adhered to.
- Requiring effective assurance from management that the organisations resources are being used as efficiently as practical in pursuit of its strategic objectives.
- Communicating the relevant elements of the assurances received from management to appropriate external stakeholders.
- Assurance to the organisation’s owners the strategy and policies are being adhered to by management and the organisation as a whole.
- Assurance to a wider stakeholder community (including regulatory authorities) the organisation is operating properly.
From the list above, it is obvious that the governance system cannot operate without the effective support of the organisation’s management system. And, if governance and management are different systems within an organisation, they should have different functions creating different outputs. We believe this is the case and the purpose of this post is to define what management is and does.
The functions of management were defined by Henri Fayol (1841 – 1925) in his general theory of business administration and surprisingly, this is still seen as a one of the basic definitions of management. He proposed that there were five primary functions of management and 14 principles of management:
Fayol’s Functions of Management
- to forecast and plan,
- to organise
- to command or direct
- to coordinate
- to control (French: contrôller: in the sense that a manager must receive feedback about a process in order to make necessary adjustments and must analyse the deviations.).
Inherent in these functions is decision making! The primary role of management is to make decisions and value judgements within the framework set by the governing body to achieve the objectives set by the governing body. The primary output from management can be defined as information and instructions that have to be communicated to others.
The communication is firstly to the workers so they understand what has to be produced, where and when; secondly to the governing body to provide assurance that the right decisions have been made and the right things are being produced in the right ways applying the organisation’s policy framework correctly.
Fayol’s Principles of Management
The principles of management define some of the ways the functions of management can be implemented – some of theses principles need adjusting to remain effective in modern organisations but the concepts are still valid:
- Division of work. This principle is the same as Adam Smith’s ‘division of labour’. Specialisation increases output by making employees more efficient.
- Authority. Managers must be able to give orders. Authority gives them this right. Note that responsibility arises wherever authority is exercised.
- Discipline. Employees must obey and respect the rules that govern the organisation. Good discipline is the result of effective leadership, a clear understanding between management and workers regarding the organisation’s rules, and the judicious use of penalties for infractions of the rules.
- Unity of command. Every employee should receive orders from only one superior, from top to bottom in an organisation (not practical in matrix organisations).
- Unity of direction. Each group of organisational activities that have the same objective should be directed by one manager using one plan.
- Subordination of individual interests to the general interest. The interests of any one employee or group of employees should not take precedence over the interests of the organisation as a whole.
- Remuneration. Workers must be paid a fair wage for their services.
- Centralisation. Centralisation refers to the degree to which subordinates are involved in decision making. Whether decision making is centralized (to management) or decentralized (to subordinates) is a question of proper proportion. The task is to find the optimum degree of centralisation for each situation.
- Scalar chain. The line of authority from top management to the lowest ranks represents the scalar chain. Communications should follow this chain. However, if following the chain creates delays, cross-communications can be allowed if agreed to by all parties and superiors are kept informed.
- Order. People and materials should be in the right place at the right time.
- Equity. Managers should be kind and fair to their subordinates.
- Stability of tenure of personnel. High employee turnover is inefficient. Management should provide orderly personnel planning and ensure that replacements are available to fill vacancies.
- Initiative. Employees who are allowed to originate and carry out plans will exert high levels of effort.
- Esprit de corps. Promoting team spirit will build harmony and unity within the organisation.
Whilst some authorities have added to and changed some aspects of Fayol’s work in the intervening 100 years, these additions and changes have generally expanded and clarified the concepts outlined above. In general terms Fayol’s work has stood the test of time, has been shown to be relevant and appropriate to contemporary management and defines what management is and does. A person undertaking any of the five functions, or employing any of the 14 principles is engaged in management (not governance).
What I believe this post makes crystal clear though is the difference between governance and management – when a manager is deciding the best options or seeking information on actual performance to use in decisions the manager is managing.