Chapter 1. Management and Performance

Managing in the New Competitive Landscape

Globalization

Today’s enterprises are global, with offices and production facilities in countries all over the world

Means that a company’s talent can come from anywhere

Internet makes globalization inevitable

Globalization affects small companies as well as large. Such as with export and assembling goods in other countries.

Competition can come from anywhere

Technological Change: The Internet

Marketplace

Means for manufacturing goods and services

It drives down costs and speeds up globalization

Improves efficiency of decision making

Facilitates design of new products, from pharmaceuticals to financial services

Distribution channel

An information service

Knowldegde management

Knowledge management: Finding, unlocking, sharing, and altogether capitalizing on the most precious resources of an organization: people’s expertise, skills, wisdom, and relationships.

Knowledge workers: Workers whose primary contributions are ideas and problem-solving expertise.

Determining whether they are doing a good job is hard because you can’t count and measure a knowledge worker’s output.

Often motivated by doing interesting work and not because of fringe benefits

Collaboration Across “Boundaries”

Requires productive communications among different departments, divisions, or other subunits of the organization

Companies today must motivate and capitalize on the ideas of people outside the organization e.g. its consultants, ad agencies, and suppliers

Managing for Competitive Advantage

InnovationInnovation: The introduction of new goods and services

A firm must:

Adapt to changes in consumer demands and to new competitors. Be ready with new ways to communicate with customers and deliver the

products to them.

QualityQuality: The excellence of your product (goods or services)

Historically, quality referred to attractiveness, lack of defects, reliability, and long-term dependability

Today quality is about preventing defects and having continuous improvement in how the firm operates

Innovation Quality Service

Speed Cost Competitiveness Sustainability

ServiceService: The speed and dependability with which an organization delivers what customers want.

giving customers what they want or need, when they want it focused on continually meeting the needs of customers to establish mutually

beneficial long-term relationships.

SpeedSpeed: Fast and timely execution, response, and delivery of results.

Cost competitivenessCost competitiveness: Keeping costs low to achieve profits and be able to offer prices that are attractive to consumers.

SustainabilitySustainability: The effort to minimize the use of resources, especially those that are polluting and non-renewable.

The Functions of ManagementManagement: The process of working with people and resources to accomplish organizational goals.

Effective. To achieve organizational goals. Efficient. To achieve goals with minimal waste of resources.

Planning: Delivering Strategic ValuePlanning: The management function of systematically making decisions about the goals and activities that an individual, a group, a work unit, or the overall organization will pursue.

analyzing current situations, anticipating the future, determining objectives, deciding in what types of activities the company will engage

Value: the monetary amount associated with how well a job, task, good, or service meets users’ needs.

Organizing: Building a Dynamic OrganizationOrganizing: The management function of assembling and coordinating human, financial, physical, informational, and other resources needed to achieve goals.

specifying job responsibilities, grouping jobs into work units, marshaling and allocating resources,

Leading: Mobilizing PeopleLeading: The management function that involves the manager’s efforts to stimulate high performance by employees.

ControllingControlling: The management function of monitoring performance and making needed changes.

Performing All Four Management Functions

A typical day for a manager is not neatly divided into the four functions

Days are busy and fractionated, and spent dealing with interruptions, meetings, and firefighting

Management Levels and Skills

Top-Level ManagersTop-level managers: Senior executives responsible for the overall management and effectiveness of the organization.

Middle-Level ManagersMiddle-level managers: Managers located in the middle layers of the organizational hierarchy, reporting to top-level executives.

Frontline ManagersFrontline managers: Lower-level managers who supervise the operational activities of the organization.

Management SkillsTechnical skill: The ability to perform a specialized task involving a particular method or process.

Conceptual and decision skills: Skills pertaining to the ability to identify and resolve problems for the benefit of the organization and its members.

Interpersonal and communication skills: People skills; the ability to lead, motivate, and communicate effectively with others.

Chapter 2: The External and Internal EnvironmentOpen system: Organizations that are affected by, and that affect, their environment.

Inputs: Goods and services organizations take in and use to create products or services.

Outputs: The products and services organizations create.

External environment: All relevant forces outside a firm’s boundaries, such as competitors, customers, the government, and the economy.

Competitive environment: The immediate environment surrounding a firm; includes suppliers, customers, rivals, and the like.

Macroenvironment: The general environment; includes governments, economic conditions, and other fundamental factors that generally affect all organizations.

The Economy The economic environment dramatically affects managers’ ability to function

effectively and influences their strategic choices. Interest and inflation rates affect the availability and cost of capital, growth

opportunities, prices, costs, and consumer demand for products.

Technological Technological advances create new products, advanced production techniques,

and better ways of managing and communicating. As technology evolves, new industries, markets, and competitive niches develop.

Law and Regulations Occupational Safety and Health Administration (OSHA) Interstate Commerce Commission (ICC) Federal Aviation Administration (FAA) Equal Employment Opportunity Commission (EEOC) National Labor Relations Board (NLRB) And many others

DemographicsDemographics: Measures of various characteristics of the people who make up groups or other social units.

Growth of the labor force Increasing education and skill levels Immigration Increased numbers of women in the workforce Increasingly diverse workforce

Social Issues Societal trends regarding how people think and behave have major implications

for management of the labor force, corporate social actions, and strategic decisions about products and markets.

The Natural Environment Decisions that affect the natural environment therefore shape the climate of

social issues and the political and legal environment in which organization operate.

The Competitive Environment

CompetitorsMost intense when:

There are many direct competitors Industry growth is slow Product/service is not easily differentiated

New EntrantsBarriers to entry: Conditions that prevent new companies from entering an industry.

capital requirements, restrictive distribution channels government policy, brand identification cost disadvantages

Substitutes and ComplementsSubstitutes: Alternative products or services

Complements: Products or services that increase purchases of other products

Suppliers provide resources or inputs needed for production

Switching costs: Fixed costs buyers face when they change suppliers.

Supply chain management: The managing of the network of facilities and people that obtain materials from outside the organization, transform them into products, and distribute them to customers.

CustomersFinal consumer: A customer who purchases products in their finished form.

Intermediate consumer: A customer who purchases raw materials or wholesale products before selling them to final customers.

Environmental AnalysisEnvironmental uncertainty: Lack of information needed to understand or predict the future.

Complexity: The number of issues to which a manager must attend as well as the interconnectedness of these issues.

Dynamism: The degree of discontinuous change that occurs within an industry

Environmental scanning: Searching out information that is unavailable to most people and sorting that information to interpret what is important and what is not.

Competitive intelligence: Information that helps managers determine how to compete better.

Scenario DevelopmentScenario: A narrative that describes a particular set of future conditions.

Best case and worst case scenarios

ForecastingForecasting: Methods for predicting how variables will change in the future.

BenchmarkingBenchmarking: The process of comparing an organization’s practices and technologies with those of other companies.

Responding to the EnvironmentChanging the Environment you are inStrategic manoeuvring: An organization’s conscious efforts to change the boundaries of its task environment.

Domain selection: Entrance to a new market or industry with an existing expertise.

Diversification: Occurs when a firm invests in a different product, business, or geographic area.

Merger: One or more companies combine with another.

Acquisition: One firm buying another.

Divestiture: A firm sells one or more businesses.

Prospectors: Continuously change the boundaries of their task environment by seeking new products and markets, diversifying and merging, or acquiring new enterprises.

Defenders: Companies that stay within a stable product domain as a strategic manoeuver.

Influencing your EnvironmentIndependent strategies: Strategies that an organization acting on its own uses to change some aspects of its current environment.

Cooperative strategies: Strategies by two or more organisations working together to manage the external environment.

Empowerment: The process of sharing power with employees, thereby enhancing their confidence in their ability to perform their jobs and their belief that they are influential contributors to the organization.

Adapting to the Environment: Changing yourselfDecentralize decision making

Empowering lower level managers to make decisions that benefit the firm.

Four approaches for managing uncertainty

Stable Dynamiccomplex Decentralized Decentralized

Bureaucratic (standardized skills(

Organic (mutual adjustments)

simple Centralized CentralizedBureaucratic (standardized work processes)

Organic (direct supervisors)

Buffering: creating supplies of excess resources in case of unpredictable needs.

Smoothing: Levelling normal fluctuations at the boundaries of the environment

Flexible processes: methods for adapting the technical core to changes in the environment.

Choosing a Response Approach1. Change appropriate elements of the environment.

Most useful when aimed at elements of the environment that: Cause the company problems Provide it with opportunities Allow the company to change successfully

2. Choose responses that focuses on pertinent elements of the environment.3. Choose responses that offer the most benefits at the lowest costs.

The Internal environment of Organizations: Culture and ClimateOrganization and cultureOrganization culture: The set of important assumptions about the organization and its goals and practices that members of the company share.

In strong cultures, the majority of people within the organization agree on organizational goals

In weak cultures, the majority of people within the organization disagree on organizational goals

Diagnosing culture

Chapter 6a: International ManagementManaging in a sometimes Flat WorldImplications of a flat world

1. Expansion of international trade2. Foreign direct investment (FDI) is playing an ever-increasing role in the global economy3. Imports are penetrating deeper into the world’s largest economies4. Companies are finding their home markets under attack from foreign competitors5. Opportunities are greater6. Environment is more complex and competitive

The role of outsourcingOutsourcing: Contracting with an outside provider to produce one or more of an organization’s goods or services.

Offshoring: Moving work to other countries.

What is the competitive advantage of the products they offer? Is the business in its early stages? Can production savings be achieved locally? Can the entire supply chain be improved?

The Global Environment The global economy is dominated by countries in three regions: North America,

Western Europe, and Asia. Other developing countries and regions represent important areas for economic

growth

European Unification Europe is integrating economically to form the biggest market in the world Certain structural issues within Europe need to be corrected for the EU to

function effectively.

BRICSWith the possible exception of Russia, the BRICS members are all developing or newly industrialized countries

Large, fast-growing economies and significant influence on regional and global affairs; all five are G-20 members.

The BRICS countries represent almost 3 billion people, with a combined nominal GDP of US$14.8 trillion, and an estimated US$4 trillion in combined foreign reserves (2013).

Understanding Cultural IssuesEthnocentric: The tendency to judge others by the standards of one’s group or culture, which are seen as superior.

Culture shock: The disorientation and stress associated with being in a foreign environment.

Power distance: The extent to which a society accepts the fact that power in organizations is distributed unequally

Individualism: The extent to which people act on their own or as a part of a group.

Uncertainty voidance: The extent to which people in a society feel threatened by uncertain and ambiguous situations.

Femininity/ masculinity: the extent to which a society values quantity of life over quality of life.

Chapter 6b: International Management

International modelcomposed of a company’s overseas subsidiaries and characterized by greater control by the parent company over the research function and local product and marketing strategies than in the multinational model.

Multinational modelconsists of the subsidiaries in each country in which a company does business, with ultimate control exercised by the parent company.

Global modelconsists of a company’s overseas subsidiaries and characterized by centralized decision making and tight control by the parent company over most aspects of worldwide operations

Transnational modelcharacterized by centralizing certain functions in locations that best achieve cost economiesbasing other functions in the company’s national subsidiaries to facilitate greater local responsivenessfostering communication among subsidiaries to permit transfer of technological expertise and skills.

Entry Modes

Exporting

Licensing

Franchising

Joint Venture

Wholly Owned Subsidiary

A. Exporting

1. Advantages of exporting are:

a. Provides scale economies by avoiding the costs of manufacturing in other countries.

b. Is consistent with a pure global strategy.

2. Disadvantages of exporting are:

a. Exporting from the company’s home base may be inappropriate if other countries offer lower-cost locations for manufacturing the product.

b. High transportation costs can make it uneconomical, particularly in the case of bulk products.

c. Host countries can impose tariff barriers.

B. Licensing

1. An arrangement whereby a licensee in another country buys the rights to manufacture a company’s product in its own country for a negotiated fee.

C. Franchising

1. It is used primarily by service companies.

2. The company sells limited rights to use its brand name to franchisees in return for a lump-sum payment and a share of the franchisees’ profits.

Joint ventures

Joint ventures benefit a company through:

The local partner’s knowledge of the host country’s competitive conditions, culture, language, political systems, and business systems

The sharing of development costs and/or risks with the local partner.

Two possible disadvantages:

In the case of licensing, a company runs the risk of losing control over its technology to its venture partner.

Because control is shared with the partner, the company may lose control over its subsidiaries.

Wholly owned subsidiaries

An independent company owned by the parent corporation.

The most costly method of serving an overseas market.

Exporting

International Licensing What: Arrangement, Licensee, Manufacture Where: Another country What for: Fee

Franchises Service Companies Limited rights Fee

Joint venture Advantages: knowledge, sharing Disadvantages: technology, subsidiaries

Wholly owned subsidiary Advantage: control Disadvantage: cost

Advantages

Scale Economies.

Pure global strategy.

Disadvantages

Lower-cost locations for manufacturing.

High transportation costs.

Tariff barriers.

Chapter 3: Managerial Decision MakingLack of Managerial DecisionsLack of Structure

Programmed decision: Decisions encountered and made before, having objectively correct answers, and solvable by using simple rules, policies, or numerical computation.

Nonprogrammed decisions: New, novel, complex decisions having no proven answers.

Uncertainty and RiskCertainty: The state that exists when decision makers have accurate and comprehensive information.

Uncertainty: The state that exists when decision makers have insufficient information.

Risk: The state that exists when the probability of success is less than 100 percent and losses may occur.

ConflictConflict: Opposing pressures from different sources, occurring on the level of psychological conflict or conflict between individuals or groups.

Occurring on the level of

psychological conflict or of conflict between individuals or groups

The stages of Decision Making

Current state

Ready-made

Desired state

Custom made

Generating Alternative SolutionsReady-made solutions: Ideas that have been seen or tried before

Custom-made solutions: New, creative solutions designed specifically for the problem.

Evaluating Alternatives Fundamental to this process is to predict consequences that will occur if the various

options are put into effect.

Contingency plans: Alternative courses of action that can be implemented based on how the future unfolds.

Making the ChoiceMaximizing: A decision realizing the best possible outcome.

Satisficing: Choosing an option that is acceptable, although not necessarily the best or perfect.

Optimizing: Achieving the best possible balance among several goals.

Implementing the DecisionAdequate planning requires several steps:

Assume that things will not go smoothly, so consider the following questions:

Evaluating the Decision Involves collecting information on how well the decision is working If the decision appears inappropriate, it’s back to the first stage of the process cycle.

The Best DecisionVigilance: A process in which a decision maker carefully executes all stages of decision making

How things will look.

Order the steps.

List the resources and

activities.

Estimate the time.

Assign responsibility.

Problems? Prevent? Benefits or opportunities? Make sure? Ready?

Your decisions will get better if you learn to manage stress, get enough rest, and put distractions aside.

You should define the consequences you are trying to achieve and make sure the data you gather match the goals for your decision.

You need to develop the strength of character to take responsibility for the consequences of your decision.

Barriers to Effective Decision MakingPsychological BiasesIllusion of control: People’s belief that they can influence events, even when they have no control over what will happen.

Framing Effects: A decision bias influenced by the way in which a problem or decision alternative is phrased or presented.

Discounting the future: A bias weighting short-term costs and benefits more heavily than longer-term costs and benefits.

Time Pressures Focus on real-time information Involve people more effectively and efficiently.

Social Realties Many decisions are the result of intensive social interactions, bargaining, and politicking.

Decision Making in GroupsPotential Advantages

Larger pool of information More perspectives and approaches Intellectual stimulation People understand the decision People are committed to the decsision

Potential Problems One person dominates Satisficing Groupthink Goal displacement

Groupthink: A phenomenon that occurs in decision making when group members avoid disagreement as they strive for consensus.

Goal Displacement: A condition that occurs when a decision-making group loses sight of its original goal and a new, less important goal emerges.

Managing Group Decision MakingLeadership Style

Constructive ConflictCognitive Conflict: Issue-based differences in perspectives or judgments.

Affective Conflict: Emotional disagreement directed toward other people.

Devil’s advocate: A person who has the job of criticizing ideas to ensure that their downsides are fully explored.

Dialectic: A structured debate comparing two conflicting courses of action.

Encouraging Creativity Creation. Bring something new into being Synthesis. Join two previous unrelated things Modification. Improve something or give it a new application

BrainstormingBrainstorming: A process in which group members generate as many ideas about a problem as they can; criticism is withheld until all ideas have been proposed.

Organizational Decision MakingConstraints on Decision Makers

Financial Legal Market Human Organizational

Organizational Decision ProcessBounded reality: A less than perfect form of rationality in which decision makers cannot be perfectly rational because decisions are complex and complete information is unavailable or cannot be fully processed.

Incremental model: Model of organizational decision making in which major solutions arise through a series of smaller decisions.

Coalitional model: Model of organizational decision making in which groups with differing preferences use power and negotiations to influence decisions.

Decisions Making in a Crisis Information technology is a new arena for a crisis

Planning and Strategic ManagementAn overview of Planning Fundamentals

Planning is

the conscious, systematic process of making decisions about goals and activities that an individual, group, work unit, or organization will pursue in the future.

a purposeful effort that is directed and controlled by managers and often draws on the knowledge and experience of employees throughout the organization.

The Basic Planning Process

The Basic Planning ProcessStep 1: Situational AnalysisSituational Analysis: A process planners use, within time and resource constraints, to gather, interpret, and summarize all information relevant to the planning issue under consideration.

Step 2: Alternative Goals and PlansGoal: A target end that management desires to reach.

Plans: The actions or means managers intend to use to achieve organizational goals.

Contingency plans: sets of actions to be taken when a company’s initial plans have not worked well or if events in the external environment require a sudden change.

Step 3:Goal and Plan Evaluation Managers will evaluate the advantages, disadvantages, and potential effects of each

alternative goal and plan. Prioritise these goals and eliminate some of them Consider carefully the implications of alternative plans for meeting high-priority goals.

Step4: Goal and Plan SelectionScenario: A narrative that describes a particular set of future conditions.

Step 5: Implementation Understand the plan Have the resources to implement it Be motivated to do so Link plan to other systems in the organization, partticulary the budget and rewards

system.

Step 6: Monitor and Control Develop control systems to measure performance Take corrective action when plans are implemented improperly

Strategic PlanningStrategic planning: A set of procedures for making decisions about the organization’s long-term goals and strategies.

Strategic goals: major targets or end results that relate to the long-term survival, value, and growth of the organization.

Strategy: A pattern of actions and resource allocations designed to achieve the organization’s goals.

Tactical and Operational PlanningTactical planning: A set of procedures for translating broad strategic goals and plans that are relevant to a distinct portion of the organization, such as a functional area like marketing.

Operational planning: The process of identifying the specific procedures and processes required at lower levels of the organization.

Aligning Tactical, Operational, and Strategic Planning

Strategic PlanningStrategic Management: A process that involves managers from all parts of the organization in the formulation and implementation of strategic goals and strategies.

Step 1: Establish of Mission, Vsion, and GoalsMission: An organization’s basic purpose and scope of operations.

Strategic Vision: The long-term direction and strategic intent of a company.

An organization’s basic purpose and scope of operations.

Step 2: Analysis of External Opportunities and ThreatsStakeholders: Groups and individuals who affect and are affected by the achievement of the organization’s mission, goals, and strategies.

Step 3: Analysis of Internal Strengths and WeaknessesResources: Inputs to a system that can enhance performance

Tangible, intangible assets

Core competence: A unique skill and/or knowledge an organization possesses that gies it an edge over competitors.

Benchmakring

process of assessing how well one company’s basic functions and skills compare with those of another company or set of companies.

goal of benchmarking is to thoroughly understand the “best practices” of other firms and to undertake actions to achieve both better performance and lower costs

Step 4: SWOT Analysis and Strategy FormulationSWOT Analysis: A comparison of strengths, weaknesses, opportunities, and threats that helps executives formulate strategy.

Corporate strategy: The set of businesses, markets, or industries in which an organization competes and the distribution of resources among those entities.

Concentration: A strategy employed for an organization that operates a single business and competes in a single industry.

Vertical Integration: The acquisition or development of new businesses that produce parts or components of the organization’s product.

Concentric diversification: A strategy used to add new businesses that produce related products or are involved in related markets and activities.

Conglomerate diversification: A strategy used to add new businesses that produce unrelated products or are involved in unrelated markets and activities.

Business strategy: The major actions by which a business competes in a particular market.

Low-cost strategy: A strategy an organization uses to build competitive advantage by being efficient and offering a standard, no-frills product.

Differentiation strategy: A strategy an organization uses to build competitive advantage by being unique in its industry or market segment along one or more dimensions.

Functional Strategies: Strategies implemented by each functional area of the organization’s business strategy.

Step 5: Strategy Implementation1. Define Strategic tasks2. Assess organization capabilities3. Develop an implementation agenda4. Create an implementation plan.

Step 6: Strategic Control Strategic control system: A system designed to support managers in evaluating the organization’s progress regarding its strategy and when discrepancies exist, taking corrective action.