A management contract is a form of management that is designed to bring the company through difficulties.
The main attention is paid to the fact that efficiency depends on several main factors related to the analysis of the business environment, the political environment, the relationship “manager – owner”. The main goal pursued by the management contract is related to the destructuring of the monopoly environment.
The actual choice of certain different forms of government depends on:
- The effectiveness of the chosen management form;
- The clear idea of the chosen management form and the possibilities for its presence in the subsystems and communications of the management system;
- The political receptivity of the chosen form of government.
The management contract is one of the best tools for problems that arise in both management and technology.
A management contract is a form of management that is designed to bring the company out of its business problems.
It is itself a means of overcoming stagnation, inertia while maintaining certain relationships and relationships with the owner.
The management contract covers business relations
The management contract covers business relations that are subject to the influence of both the political and the economic situation in the period of its validity.
This circumstance requires the application of this management form to take into account the entry of certain factors that are of particular importance for the effectiveness of the management contract in the period of transition to a market economy. Reference: “Management forms for company management”, https://newia.info/management-forms-for-company-management/
It is first necessary for the economic activity to be profitable through its prospects for survival. Ie the trustee should make a preliminary analysis of the business problems – marketing, markets, trade relations, competition, etc. and set its goals taking into account its capabilities in the face of existing problems.
It must define the business program of the enterprise, determined for the entire term of the management contract or separately for each year, following the strategy of its development.
Then he must study the impact of the environment, which is crucial for the development of any enterprise and largely motivates the possibilities for achieving the goals. This study in macro aspect has two main directions:
- Business environment – the set of economic conditions in the country;
- Political environment – the characteristics of the executive branch and social development.
Another thing to pay attention to is the analysis of the personal factors that characterize the “owner-manager” relationship. The goal is to achieve optimal motivation for unity in the goals of the countries and maximum assistance for their achievement.
At the next stage, the degree of behavior expressed in the managerial power and powers that the owner is willing to provide to the manager should be established, incl. future realization of the privatization processes while combining the interests of the owners.
Achieving requires the development and strict application of existing internal rules for the organization of wages in the enterprise.
Conditions for the application of management contracts
Necessary conditions for the application of management contracts:
The activity of the enterprise must be proved by its prospects for survival. The owner should make a preliminary analysis of the business problems; to define its goals, taking into account its capabilities in the context of existing problems.
The business environment has a great impact on the development of each enterprise and motivates the opportunities for the realization of the set goals.
Personality factors characterizing the owner-manager relationship. Of particular importance is the optimal motivation for unity in the goals of the countries and the maximum assistance for their achievement.
The degree of freedom expressed in managerial power and the powers that the owner is willing to give to the manager. Technology for developing business projects.
Compliance of business projects with real conditions – business projects should be market-oriented and consistent with the goals of the owner. Their development includes two sections:
Section I-analysis of the enterprise, Section II-strategy for development of the enterprise. The formation of the two sections may include the following areas:
Market analysis and strategy
Market analysis and strategy – this area should include:
Identification of current needs and the degree of their satisfaction.
The perspective in the development of the needs, the degree of marketability, groups of consumers, types of markets, opportunities for innovations, scales of production, the competitiveness of the products, the behavior of the markets, etc.
Technical characteristics of the product structure.
Sales opportunities – sales curve comparable to the volume of production and the speed of sales, the possibility of after-sales service, innovation, advertising, etc.
Analysis and strategy of the potential opportunities of the enterprise
Material and financial provision with raw materials, materials, and fuels own and borrowed capital, etc.
Technological support – state of the applied technologies, the opportunities for “know-how” in the technological field, etc.
Staffing – level of qualification, age structure, educational level and opportunity for its increase, etc.
Environmental analysis and strategy
the state of the art to ensure safety and good working conditions.
the impact of production activities on the environment and society’s behavior towards it.
Social analysis and strategy
Employment and job prospects;
The social relations and the behavior of the manager towards them;
Relations with legitimate trade unions;
The government is trying to bring out serious institutional, technological, and managerial problems state-owned enterprises experiencing socio-economic difficulties through the application of management contracts. Predicted by the objectivity of this decision can be examined through the experience of developed countries, which indicates that:
Features of the Management Contract
The management contract is most effective when the management problems prevail, requiring borrowing and implementation of appropriate management skills in the identified problem areas to overcome financial, technical, administrative, and marketing difficulties.
Its effectiveness is expressed not only in the provision of management skills but also in building a business culture;
The management contract provides transfer of skills in the field of management teams; Reference: “Management levels and units”, https://www.yahowto.com/management-levels-and-units/
The choice of the manager is one of the most important conditions for the effectiveness of the management contract; it requires accurate technology to assess the team or personality;
The effectiveness of this form of government also depends to a large extent on the powers conferred by it.
The management contract, as the first form of management decision, is most often applied in tourism, hospitality, small manufacturing enterprises or processes, transport operations, healthcare, and agriculture. Its application as a second and subsequent form of government occurs when:
The company faces fundamental problems related to management and technology;
The number and variety of risk factors in political and economic terms are too complex;
The business activities set in the enterprise are not very complicated.
The first main goal of the management contract
The first main goal of the management contract is to destruct the monopoly formations and create conditions for a real market. In principle, a monopoly in the economic sphere of a totalitarian society is hegemony based on extra-economic centers, methods and approaches created and fed by the political system.
In these cases, companies are isolated from their competitors, which excludes the possibility of comparing production through the market mechanism and creates conditions for stagnation, bureaucracy, quality degradation, and inappropriate pricing.
However, the question arises: is demonopolization possible with administrative measures? This issue provokes discussions in the economic and political elite of the country. In the presence of predominant state property, its solution in this way is difficult, as the state demonopolization without accelerating mostly the privatization process cannot create conditions for a real market.
The second main goal of the management contract
The second main goal of the management contract is to provide leadership and management of the new structural formations adequate to market conditions.
It is a well-known opinion in this respect that all business operations can ultimately be reduced to three elements – people, products, profit, and that people come first.
The appointment of managers is the foundation of management. It is the starting point for the formation of a modern organizational structure of enterprise management.
That is why the choice of a manager in a certain direction or a top manager – executive director, is a starting position in personnel and management reforms.
In this sense, the management contract cannot be identified with the selection of a director or manager as it is a contract for “know-how” of management skills, including reform and selection of a team, approach, and means adequate to the real conditions. , creating an opportunity to build market mechanisms and relations between economic structures.
The third goal of the management contract
Third goal – stabilization of the economic situation and bringing the state and municipal enterprises from the state of stagnation to the level of real efficiency.
This objective cannot apply to all existing economic operators, as there are companies that can be stabilized, but there are also those that need to be liquidated. On the contrary, a management contract cannot be a cure for “economic corpses”.
At the forefront in this direction is the need for legal and regulatory security of restructuring in the public sector. However, its actual implementation depends directly on the successful operation of the new structures and their management.
In general, we can say that in the management contract a well-known, experienced company provides the management know-how to another company that supplies the capital. The licensing company exports management services.
For example, Hilton provides hotel management around the world. A management contract is a low-risk method for entering a new market. It makes a profit from the beginning. The agreement is very attractive if the company concluding the contract has the opportunity to buy shares in the company managed by it a little later.