The Management Job
To produce at the lowest costs possible requires attention being paid to all control levels - including the management levels. The control levels can be described as follows11:
The strategic control level: The management decides on the long-term goals of the firm and strategies are delineated in order to reach these goals. Furthermore the setting is as follows (not exhaustive):
o Core competencies, areas of activity, and growing demands
o Degree of internationalization
o Product design
o Product development
o Essential investments, including new technology
o Profit policy
The time horizon is dependent upon the business sector, company size, entry/exit barriers, production machinery, etc., but is typically 2-10 years. Given the long-term horizon great uncertainties are often connected to decisions made on this level.
o For Harboe, the time horizon would be considerably longer than for an architectural firm. Among other factors, this reality is due to the fact that Harboe breweries have a significant market position, are heavily invested, and that the beer and soft drink industry is relatively stable. An architectural firm on the other hand is less heavily invested, and is at the same time highly influenced by market conditions.
The tactical control level: The management of this level works within the frames defined by the strategic level. The work consists primarily of planning and coordinating the activities of the firm, including:
o Adjustment of technology and production machinery
o Prepare budgets
o Plan production
o Prepare and adjust marketing plans
o Take charge of the human ressource administration of key employees.
This writer does not compare key employees with "white collar workers," due to the fact that "blue collar workers" can be irreplaceable as maintaining production often is dependent on them.
The time horizon depends on the business sector, company size, entry/exit barriers, production machinery etc., but is typically 1-2 years.
The operational control level: The management job on this level is purely operational. The management has to provide a detailed planning and execution of production, administration, marketing, and sales in the short-term. The following factors must be included:
o Human ressource administration
o Carrying out of different types of control, including quality control
o Prepare costs calculations for concrete orders
An example may be the master brewer's decision regarding the summer's production of beer at Harboe.
The learning curve
In order to produce the good at the lowest possible cost, management has to exploit "the company's learning," i.e. exploiting that managers as well as employees learn how jobs are solved in the best possible way. This is due to the fact that "company learning" causes increases in efficiency which combined with a proper management effort produces lower costs.
o At Harboe the management wants to build a better environmental network down through the organization, improving working efficiency. Moreover the production workers will achieve a routine experience while also getting better at repairing the machines during production standstills, which increases efficiency.
o In the architecture firm, the management wants to learn the best way to hire new architects, including what characterizes good architects. Furthermore the management wants to learn how to motivate the employees so that they constantly do their best. Both factors will increase the firm's efficiency.
The effects of "company learning" are shown by the company's learning curve12.
Figure 5.2: The company's learning curve
The learning curve and the short and long-term
The learning curve in figure 5.2 shows that the average costs per unit decreases with the greater the quantity produced, i.e. the longer the period of time the firm has produced the good or service. The time horizon has great influence on the learning curve, as more effects of the learning curve can be exploited the greater the time horizon. The time horizon could actually constitute a third, independent axis in figure 5.2. In the short-term, the firm will only benefit from the effects of improvement seen through leaders and employees. As the time horizon expands experience with production design can be exploited, as this can be changed in the long-term. However, the learning curve only expresses the effect of company learning. The average costs per unit do not inherently decrease as the number of produced units increases. This owes to that the fact that the average cost per unit are also influenced by capacity limits, discounts, availability of qualified work force, etc.