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Who Are Managers?
Explain how managers differ from non-managerial employees. Describe how to classify managers in organizations. Managers coordinate and oversee the work of other people so that organizational goals can be accomplished. Non-managerial employees work directly on a job or task and have no one reporting to them. In traditionally-structured organizations, managers can be first-line, middle, or top. (See Exhibit 1-1.) In other more loosely configured organizations, the managers may not be as readily identifiable. But someone must fulfill that role of coordinating and overseeing the work of others. What Is Management? Define management. Explain why efficiency and effectiveness are important to management. Management involves coordinating and overseeing the efficient and effective completion of others’ work activities. Efficiency means doing things right; effectiveness means doing the right things. (See Exhibit 1-2.) What Do Managers Do? Describe the four functions of management. Explain Mintzberg’s managerial roles. Describe Katz’s three managerial skills and how the importance of these skills changes depending on managerial level. Discuss the changes that are impacting manager’s jobs. Explain why customer service and innovation are important to the manager’s job. According to the functions approach, managers plan, organize, lead, and control. (See Exhibit 1-3.) According to the roles approach, managers engage in specific categories of behavior as they
play interpersonal roles, decisional roles, and decisional roles. (See Exhibit 1-4.) According to the skills approach, managers need technical, human, and conceptual skills to perform the duties and activities associated with being a manager. (See Exhibit 1-5.) However, because of changing technology (digitization), increased security threats, increased emphasis on ethics, and increased competitiveness; the manager’s job is changing. (See Exhibit 1-8.) Two key changes are the increasing importance of both customers and innovation. What Is An Organization? Describe the characteristics of an organization. Explain how the concept of an organization is changing. Without organizations, there would be no need for managers. An organization is a deliberate arrangement of people to accomplish some specific purpose. (See Exhibit 1-9.) The concept of organizations is changing. (See Exhibit 1-10.) Many contemporary organizations no longer have clearly identifiable divisions, departments, and work units, but instead may be more open, flexible, and responsive to changes. Why Study Management? Explain the universality of management concept. Discuss why an understanding of management is important. Describe the rewards and challenges of being a manager. There are three reasons why it’s important to study management. First, is the universality of management, which means that managers are needed in all types and sizes of organizations, at all organizational levels and work areas, and in all global locations. (See Exhibit 1-11.) The second is the reality of work —that is, you will either manage or be managed. And the third reason is that there are significant rewards and challenges in being a manager. (See Exhibit 1-12.)
CHAPTER SUMMARY CHAPTER 2
Historical Background of Management Explain why studying management history is important. Describe some early evidences of management practice. Studying management history is important because it helps us understand today’s management practices by seeing their origins. History also helps us see what did and did not work. Management has been needed by organized endeavors for thousands of years, and we can see early examples of management practice in the construction of the Egyptian pyramids and in the Arsenal of Venice. Scientific Management Describe the important contributions made by Frederick W. Taylor and Frank and Lillian Gilbreth. Explain how today’s managers use scientific management. Frederick W. Taylor is known as the “father” of scientific management as he studied manual work using scientific principles – that is, guidelines for improving production efficiency. (See Exhibit 2-2.) The Gilbreths’ primary contribution was finding efficient handand-body motions and designing/using proper tools and equipment for optimizing work performance. Today’s managers continue to use the concepts of scientific management when they analyze basic work tasks to be performed, use timeand-motion study to eliminate wasted motions, hire the best qualified workers for a job, and design incentive systems based on output. General Administrative Theory Discuss Fayol’s contributions to management theory. Describe Max Weber’s contribution to management theory. Explain how today’s managers use general administrative theories of management. Henri Fayol believed that management was common to all business endeavors but also was distinct from other business functions. He developed 14 principles of management from which many current management concepts have evolved. (See Exhibit 2-3.) Weber described an ideal type of organization he called a
bureaucracy, the characteristics of which many of today’s large organizations still exhibit. (See Exhibit 2-4.) Today’s managers still use general administrative theories when they perform the functions of management and structure their organizations so that resources are used efficiently and effectively. Quantitative Approach Explain what the quantitative approach has contributed to the field of management. Discuss how today’s managers use the quantitative approach. The quantitative approach involves applications of statistics, optimization models, information models, and computer simulations to management activities. Today’s managers use the quantitative approach especially when making decisions as they plan and control work activities such as allocating resources, scheduling work, or determining optimum inventory levels. Toward Understanding Organizational Behavior Describe the contributions of the early advocates of OB. Explain the contributions of the Hawthorne Studies to the field of management. Discuss how today’s managers use the behavioral approach. The contributions of the early OB advocates (Robert Owen, Hugo Munsterberg, Mary Parker Follett, and Chester Barnard) were varied and distinct, but all believed that people were the most important asset of the organization and should be managed accordingly. (See Exhibit 2-5.) The Hawthorne Studies had a dramatic impact on management beliefs about the role of people in organizations, which led to a new emphasis on the human behavior factor in managing. The behavioral approach has largely shaped how today’s organizations are managed. Many of our current theories of motivation, leadership, group behavior and development and other behavioral issues can be traced to the early OB advocates and the conclusions from the Hawthorne Studies. The Systems Approach
Describe an organization using the systems approach. Discuss how the systems approach helps us understand management. Using the systems approach, an organization takes in inputs (resources) from the environment and transforms or processes these resources into outputs that are distributed into the environment. (See Exhibit 2-6.) The systems approach helps us understand management since managers must ensure that all the interdependent units are working together so that the organization’s goals can be achieved. It also helps managers realize that decisions and actions taken in one organizational area will affect others and vice versa. Finally, the systems approach helps managers recognize that organizations are not self-contained, but instead rely on their environment for essential inputs and as outlets to absorb their outputs. The Contingency Approach Explain how the contingency approach differs from the early theories of management. Discuss how the contingency approach helps us understand management. Unlike early theories of management which were generally assumed to be universally applicable, the contingency approach says that organizations are different, face different situations, and require different ways of managing. (See Exhibit 2-8.) The contingency approach helps us understand management because it stresses there are no simplistic or universal rules for managers to follow. Instead, managers must look at their situation and determine that if this is the way my situation is, then this is the best way for me to manage. Current Trends and Issues Explain why we need to look at the current trends and issues facing managers. Describe the current trends and issues facing managers. The current trends and issues facing managers are changing the way managers do their jobs. These current trends and issues include customer service management and innovation (both of which were introduced in Chapter
1), globalization, ethics, workforce diversity, entrepreneurship, e-business, and knowledge management and learning organizations.
CHAPTER SUMMARY CHAPTER 3
The Manager: Omnipotent or Symbolic Contrast the actions of managers according to the omnipotent and symbolic views. Explain the parameters of managerial discretion. According to the omnipotent view, managers are directly responsible for an organization’s success or failure. However, the symbolic view argues that much of an organization’s success or failure is due to external forces outside managers’ control. The parameters of managerial discretion (see Exhibit 3-1) include the organization’s culture and the environment in which the organization exists. However, these parameters don’t totally constrain a manager; managers can and do influence their culture and environment. The Organization’s Culture Describe the seven dimensions of organizational culture. Discuss the impact of a strong culture on organizations and managers. Explain the source of an organization’s culture. Describe how culture is transmitted to employees. Describe how culture affects managers. The seven dimensions (see Exhibit 3-2) are as follows: (1) attention to detail (degree to which employees are expected to exhibit precision, analysis, and attention to detail); (2) outcome orientation (degree to which managers focus on results or outcomes rather than on how those outcomes are achieved); (3) people orientation (degree to which management decisions take into account the effects on people in the organization); (4) team orientation (degree to which work is organized around teams rather than individuals); (5) aggressiveness (degree
to which employees are aggressive and competitive rather than cooperative); (6) stability (degree to which organizational decisions and actions emphasize maintaining the status quo); and (7) innovation and risk taking (degree to which employees are encouraged to be innovative and to take risks). Research results are suggesting that in organizations with strong cultures: employees tend to be more committed to their organizations; recruitment efforts and socialization practices are used to build employee commitment; and there is higher organizational performance. The impact of a strong culture on managers is that as the culture becomes stronger, it has an increasing impact on what managers do and constrains their decision-making options as they plan, organize, lead, and control. An organization’s culture and general way of doing things are largely the result of what it has done before and how successful it has been doing things that way. The original source of the culture usually reflects the vision or mission of the organization’s founders. (See Exhibit 3-5.) Culture is transmitted to employees through stories (narratives of significant events or people); rituals (repetitive sequences of activities); material symbols (objects, facilities, and other aspects of the physical work environment); and language (special and unique terms, acronyms, and jargon). These elements help employees “learn” what values and behaviors are important as well as who exemplifies those values. Culture affects how managers plan, organize, lead, and control. (See Exhibit 3-6.) Current Organizational Culture Issues Facing Managers Describe the characteristics of an ethical culture, an innovative culture, and a customer-responsive culture. Explain why workplace spirituality seems to be an important concern. Describe the characteristics of a spiritual organization. A culture that is most likely to shape high ethical standards is high in risk tolerance, low to moderate in aggressiveness, and focuses on means as well as outcomes. An innovative culture is characterized by the following: challenge and involvement,
freedom, trust and openness, idea time, playfulness/humor, conflict resolution, debates, and risk-taking. A customerresponsive culture has six characteristics: employees who are outgoing and friendly; few rigid rules, procedures, and regulations; widespread use of empowerment; clear roles and expectations; and employees who are conscientious in their desire to please the customer. Workplace spirituality is important for the following reasons: employees are looking for ways to counterbalance the stresses and pressures of a turbulent pace of life; people are looking for involvement and connection that they often don’t find in contemporary lifestyles; aging baby boomers are looking for something meaningful in their lives; and for some people, organized religion hasn’t fulfilled their needs. Spiritual organizations tend to have five characteristics: strong sense of purpose, focus on individual development, trust and openness, employee empowerment, and toleration of employee expression. The Environment Describe the components of the specific and general environments. Discuss the two dimensions of environmental uncertainty. Identify the most common organizational stakeholders. Explain the four steps in managing external stakeholder relationships. The specific environment (those external forces that have a direct impact on manager’s decisions and actions and are directly relevant to an organization’s goals) includes customers, suppliers, competitors, and pressure groups. The general environment (those broad external forces that affect the organization) includes economic, political/legal, sociocultural, demographic, technological, and global conditions. (See Exhibit 3-9.) The two dimensions of environmental uncertainty include degree of change (stable or dynamic) and degree of complexity (simple or complex). (See Exhibit 3-11.)
Stakeholders are any constituencies in the organization’s environment that are affected by the organization’s decisions and actions. The most common ones are customers, social and political action groups, competitors, trade and industry associations, governments, media, suppliers, communities, shareholders, unions, and employees. (See Exhibit 312.) The four steps in managing stakeholder relationships are (1) identifying the organization’s stakeholders; (2) determining the interests or concerns these stakeholders might have; (3) deciding how critical each stakeholder is to the organization’s decisions and actions; and (4) determining how to manage those stakeholders.
obligations, to pursue long-term goals that are good for society. (See Exhibit 53.) Social Responsibility and Economic Performance Explain what research studies have shown about the relationship between an organization’s social involvement and its economic performance. Explain what conclusion can be reached regarding social responsibility and economic performance. Although the majority of the research studies have shown a positive relationship between social involvement and economic performance, it was thought that no generalizable conclusions could be made because of methodological and definitional concerns. And one study showed that social involvement had a neutral impact, while another study found that social activities not related to the organization’s primary stakeholders had a negative impact on shareholder value. However, a recent re-analysis of these studies concluded that managers can afford to be socially responsible. Considering these studies and the performance of socially responsible mutual stock funds, the most meaningful conclusion we can reach is that there is little evidence to say that a company’s social actions hurt its longterm economic performance. The Greening of Management Describe how organizations can go green. Relate the approaches to being green to the concepts of social obligation, social responsiveness, and social responsibility. Organizations can “go green” by using different approaches. (See Exhibit 5-5.) The light green approach is simply doing what is required legally, or the social obligation approach. Using the market approach, organizations respond to the environmental preferences of their customers. Using the stakeholder approach, organizations respond to the environmental demands of multiple stakeholders. Both the market and stakeholder approaches can be viewed as social responsiveness. The activist or dark green approach involves an
CHAPTER SUMMARY CHAPTER 5
What Is Social Responsibility? Contrast classical and socioeconomic views of social responsibility. Discuss the role that stakeholders play in the four stages of social responsibility. Differentiate between social obligation, social responsiveness, and social responsibility. The classical view says that management’s only social responsibility is to maximize profits. The socioeconomic view says that management’s social responsibility goes beyond making profits to protecting and improving society’s welfare. In the four-stage stakeholder model of social responsibility, (see Exhibit 5-1), a stage 1 manager feels responsible to only the stockholders. At stage 2, managers expand their responsibility to the employees. At stage 3, managers expand their responsibilities to other stakeholders in the specific environment, primarily customers and suppliers. Finally, at stage 4, managers feel they have a responsibility to society as a whole. Social obligation is when a firm engages in social actions because of its obligation to meet certain economic and legal responsibilities. Social responsiveness is when a firm engages in social actions in response to some popular social need. Social responsibility is a business’s intention, beyond its economic and legal
organization looking for ways to respect and preserve the earth and its natural resources, which can be viewed as social responsibility. Values-Based Management Discuss what purposes shared values serve. Describe the relationship of valuesbased management to ethics. Shared values serve four purposes (see Exhibit 5-6): to guide managerial decisions and actions; to shape employee behavior and communicate what the organization expects of its members; to influence marketing efforts; and to build team spirit. An organization’s values have a big influence on whether employees act ethically. Managerial Ethics Discuss the factors that affect ethical and unethical behavior. Discuss the six determinants of issue intensity. Explain what codes of ethics are and how their effectiveness can be improved. Describe the important roles managers play in encouraging ethical behavior. The factors that affect ethical and unethical behavior (see Exhibit 5-8) include: an individual’s level of moral development (preconventional, conventional, or principled – see Exhibit 5-9); individual characteristics (values and two personality variables – ego strength and locus of control); structural variables (structural design, use of goals, performance appraisal systems, and reward allocation procedures); organizational culture (content and strength); and issue intensity which includes six elements including greatness of harm, consensus of wrong, probability of harm, immediacy of consequences, proximity to victims, and concentration of effect (see Exhibit 5-10). The more intense an issue is (the larger number of people harmed, the more agreement that the action is wrong, the greater the likelihood the action will cause harm, the more immediately the consequences will be felt, the closer the person feels to the victims, and the more concentrated the effect of the action on the victims), the more we should expect employees to behave ethically.
A code of ethics is a formal statement of an organization’s primary values and the ethical rules it expects employees to follow. Managers can improve their effectiveness by recognizing the role that the organization’s leaders play in setting the ethical tone, by continually reaffirming the importance of the ethics code, by publicly reprimanding rule breakers, by considering the important critical stakeholders when developing or changing the ethics code, by communicating and regularly reinforcing the code to employees, and by using decision rules in guiding managers as they handle ethical dilemmas (see Exhibit 5-13). Managers play an important ethical leadership role in many ways: through whom and what are rewarded with pay increases and promotions; by punishing ethical offenders and publicizing the outcome; through establishing performance appraisal systems that focus on means as well as ends; by providing ethics training; by using independent social audits; through establishing formal protective mechanisms; and most importantly, by setting a good example. Social Responsibility and Ethics Issues in Today’s World Explain why ethical leadership is important. Discuss how managers and organizations can protect employees who raise ethical issues or concerns. Explain what role social entrepreneurs play. Describe social impact management. Ethical leadership is important because the example set by managers has a strong influence on whether employees behave ethically. Ethical leaders also are honest, share their values, stress important shared values, and use the reward system appropriately. Managers can protect whistleblowers (employees who raise ethical issues or concerns) by encouraging whistleblowers to come forward; by setting up toll-free ethics hotlines; and by establishing a culture where employees can complain and get heard without fear of reprisal, against which the Sarbanes-Oxley Act offers some legal protection.
Social entrepreneurs play an important role in solving social problems by seeking out opportunities to improve society by using practical, innovative, and sustainable approaches. Social entrepreneurs want to make the world a better place and have a driving passion to make that happen. Social impact management attempts to get managers to understand the interdependency between business needs and wider social concerns. Thus, as managers plan, organize, lead, and control, they would ask how their decisions would work in the societal context within which they’re operating.
Explain the managerial decisionmaking model. The assumptions of rationality (see Exhibit 6-6) are as follows: the problem is clear and unambiguous; a single, welldefined goal is to be achieved; all alternatives and consequences are known; preferences are clear, constant, and stable; no time or cost constraints exist; and the final choice will maximize the payoff. Bounded rationality says that managers make rational decisions but are bounded (limited) by their ability to process information. Satisficing is when decision makers accept solutions that are good enough. Escalation of commitment is when managers increase commitment to a decision even when they have evidence it may have been a wrong decision. Intuitive decision making is making decisions on the basis of experience, feelings, and accumulated judgment. (See Exhibit 6-7.) Programmed decisions are repetitive decisions that can be handled by a routine approach and are used when the problem being resolved is straightforward, familiar, and easily defined (structured). Nonprogrammed decisions are unique decisions that require a custom-made solution and are used when the problems are new or unusual and for which information is ambiguous or incomplete. (See Exhibit 6-8.) Certainty is a situation when a manager can make accurate decisions because all outcomes are known. Risk is a situation when a manager can estimate the likelihood of certain outcomes. Uncertainty is a situation where a manager is not certain about the outcomes and can’t even make reasonable probability estimates. When decision makers face uncertainty, their psychological orientation will determine whether they follow a maximax choice (maximizing the maximum possible payoff); a maximin choice (maximizing the minimum possible payoff); or a minimax choice (minimizing the maximum regret— amount of money that could have been made if a different decision had been made). There are four decision-making styles. The directive style has a low tolerance
CHAPTER SUMMARY CHAPTER 6
The Decision-Making Process Define decision and decisionmaking process. Describe the eight steps in the decision-making process. A decision is a choice. The decisionmaking process consists of eight steps that begin with (1) and (2) identifying a problem and decision criteria and (3) allocating weights to those criteria; move to (4) developing, (5) analyzing, and (6) selecting an alternative that can resolve the problem; (7) implementing the alternative; and concludes with (8) evaluating the decision’s effectiveness. (See Exhibit 6-1.) The Manager as Decision Maker Discuss the assumptions of rational decision making. Describe the concepts of bounded rationality, satisficing, and escalation of commitment. Explain intuitive decision making. Contrast programmed and nonprogrammed decisions. Contrast the three decision-making conditions. Explain maximax, maximin, and minimax decision choice approaches. Describe the four decision-making styles. Discuss the twelve decision-making biases managers may exhibit. Describe how managers can deal with the negative effects of decision errors and biases.
for ambiguity and a rational way of thinking. The analytic style has a high tolerance for ambiguity and a rational way of thinking. The conceptual style has a high tolerance for ambiguity and an intuitive way of thinking. The behavioral style has a low tolerance for ambiguity and an intuitive way of thinking. (See Exhibit 6-12.) The 12 common decision-making errors and biases including: overconfidence, immediate gratification, anchoring, selective perception, confirmation, framing, availability, representation, randomness, sunk costs, self-serving bias, and hindsight. (See Exhibit 6-13.) Managers can avoid the negative effects of such errors and biases by being aware of them and then not doing them. They should also pay attention to how they do make decisions and the heuristics (rules of thumb) they actually use. Finally, managers might want to ask those around them to help identify weaknesses in their decision-making style and try to improve on them. The managerial decision making model (see Exhibit 6-14) helps explain how the decision-making process is used to choose the best alternative(s) either through maximizing or satisficing and then implement and evaluate the alternative. It also helps explain what factors affect the decision-making process including the decision-making approach (rationality, bounded rationality, intuition); the types of problems and decisions (well-structured and programmed or unstructured and nonprogrammed); the decision-making conditions (certainty, risk, uncertainty); and the decision maker’s style (directive, analytic, conceptual, behavioral). Decision Making for Today’s World Explain how managers can make effective decisions in today’s world. List the six characteristics of an effective decision-making process. Describe the five habits of highly reliable organizations. Managers can make effective decisions by understanding cultural differences in decision making; knowing when it’s time to call it quits; and by using an effective decision-making process. The six characteristics of an effective decision-making process include (1) it focuses on what’s important; (2) it’s logical and consistent; (3) it
acknowledges both subjective and objective thinking and blends both analytical and intuitive approaches; (4) it requires only “enough” information as is necessary to resolve a problem; (5) it encourages and guides gathering relevant information and informed opinions; and (6) it’s straightforward, reliable, easy to use, and flexible. The five habits of highly reliable organizations are (1) not being tricked by their successes; (2) deferring to experts on the front line; (3) letting unexpected circumstances provide the solution; (4) embracing complexity and; (5) anticipating, but also anticipating limits.
CHAPTER SUMMARY CHAPTER 7
What Is Planning and Why Do Managers Plan? Define planning. Differentiate between formal and informal planning. Describe the purposes of planning. Discuss the conclusions from studies of the relationship between planning and performance. Planning involves defining the organization’s goals, establishing an overall strategy for achieving those goals, and developing plans for organizational work activities. Formal planning has three characteristics: (1) specific goals cover a defined period of years, (2) these goals are written and shared with organizational members, and (3) specific action plans exist for achieving these goals. Informal planning is general and lacks continuity. Also, nothing is written down and there is little or no sharing of goals. The four purposes of planning include: provides direction, reduces uncertainty, minimizes waste and redundancy, and establishes the goals or standards used in controlling. Conclusions from studies of the planning-performance relationship include the following: for the most part, formal planning is associated with positive financial performance; it’s more important to do a good job of planning and implementing the plans than having
more and extensive planning done; the external environment is usually the reason why companies don’t achieve high levels of performance even when planning; and the planning/performance relationship seems to be influenced by the planning time frame. How Do Managers Plan? Define goals and plans. Describe the types of goals organizations might have. Explain why it’s important to know an organization’s stated and real goals. Describe each of the different types of plans. Goals are desired outcomes. Plans are documents that outline how goals are going to be met. Organizations do have multiple goals. These goals might be strategic or financial and they might be stated or real. It’s important to know the stated and real goals to help understand what might appear to be management inconsistencies. Strategic plans apply to the entire organization while operational plans specify how the overall goals are going to be achieved. Long-term plans are those with a time frame beyond three years. Short-term plans are those covering one year or less. Specific plans are clearly defined and leave no room for interpretation. Directional plans are flexible and set out general guidelines. A single-use plan is a one-time plan designed to meet the needs of a unique situation. Standing plans are ongoing plans that provide guidance for activities performed repeatedly. (See Exhibit 7-2.) Establishing Goals and Developing Plans Discuss how traditional goal setting works. Explain the concept of the meansend chain. Describe the management by objectives (MBO) approach. Describe the characteristics of welldesigned goals. Explain the steps in setting goals. Discuss the contingency factors that affect planning. Describe the approaches to planning.
In traditional goal setting, goals are set at the top of the organization and then broken into subgoals for each organizational level. (See Exhibit 7-4.) The means-end chain is an integrated network of goals, which means that higher-level goals (or ends) are linked to lower-level goals, which serve as the means for their accomplishment. MBO (management by objectives) is a process of setting mutually-agreed upon goals and using those goals to evaluate employee performance. (See Exhibit 75.) Well-designed goals have six characteristics: (1) written in terms of outcomes, (2) measurable and quantifiable, (3) clear as to time frame, (4) challenging but attainable, (5) written down, and (6) communicated to all organizational members who need to know them. (See Exhibit 7-6.) To set goals, follow these steps: review the organization’s mission; evaluate available resources; determine the goals individually or with input from others; write down the goals and communicate them to all who need to know them; and review results and change goals as needed. The contingency factors that affect planning include a manager’s level in the organization; the degree of environmental uncertainty; and the length of future commitments. (See Exhibit 7-7.) The two main approaches to planning include the traditional approach, which uses a formal planning department and has plans developed by top managers that flow down through other organizational levels. The other approach is to involve more organizational members in the planning process. Contemporary Issues in Planning Explain the criticisms of planning and whether they’re valid. Describe how managers can effectively plan in today’s dynamic environment. The main criticisms of planning are: (1) planning may create rigidity; (2) plans can’t be developed for a dynamic environment; (3) formal plans can’t replace intuition and creativity; (4) planning focuses managers’ attention on today’s competition, not tomorrow’s; (5) formal planning reinforces success,
which may lead to failure; and (6) just planning isn’t enough. These criticisms are valid if planning is rigid and inflexible. Managers can effectively plan in today’s dynamic environment using plans that are specific but flexible. It’s also important to “shove” responsibility for establishing goals and developing plans to lower organizational levels.
CHAPTER SUMMARY CHAPTER 8
The Importance of Strategic Management Define strategic management, strategy, and business model. Explain why strategic management is important. Strategic management is what managers do to develop the organization’s strategies. Strategies are the decisions and actions that determine the long-run performance of the organization. A business model is a strategic design for how a company intends to profit from its strategies, work processes, and work activities. Strategic management is important for four reasons. First, it makes a difference in how well organizations perform. Second, it’s important for helping managers cope with continually changing situations. Third, strategic management helps coordinate diverse divisions, departments, functions, and work activities, and keeps all focused on achieving the organization’s goals. Finally, it’s important because it’s involved in many of the decisions that managers make. The Strategic Management Process List the six steps in the strategic management process. Describe what managers do during external and internal analyses. Explain the role of resources, capabilities, and core competencies. Define strengths, weaknesses, opportunities, and threats. The six steps in the strategic management process are: (1) identify the current mission, goals, and strategies; (2) do an external analysis; (3) do an internal analysis – steps 2 and 3 collectively are known as SWOT analysis; (4) formulate strategies; (5) implement strategies; and
(6) evaluate strategies. (See Exhibit 81.) During an internal analysis, managers assess the organization’s resources (assets) and capabilities (how work is done). The major value-creating skills and capabilities are the organization’s core competencies. Any activities the organization does well or any unique resources it has are its strengths. Activities the organization doesn’t do well or resources it needs but doesn’t have are its weaknesses. During an external analysis, managers assess the specific and general environments to determine opportunities (positive trends) and threats (negative trends). Types of Organizational Strategies Describe the three major types of corporate strategies. Discuss the BCG matrix and how it’s used. Describe the role of competitive advantage in business strategies. Explain Porter’s five forces model. Describe Porter’s three generic competitive strategies and the rule of three. The three major types of corporate strategies are growth, stability, and renewal. (See Exhibit 8-4.) A growth strategy is used when an organization wants to grow its business and does so by expanding the number of products offered or markets served. The types of growth strategies include concentration, vertical integration (backward and forward), horizontal integration, and diversification (related and unrelated). A stability strategy is when an organization stays as it is; that is, it makes no significant change in what it’s doing. Renewal strategies address organizational weaknesses that are leading to performance declines. The two types of renewal strategies are retrenchment and turnaround. The BCG matrix is a way to analyze a company’s portfolio of businesses. The analysis is based on a business’s market share and its industry’s anticipated growth rate. The four categories of the BCG matrix are cash cows, stars, question marks, and dogs. (See Exhibit 8-5.) An organization’s competitive advantage is what sets it apart, its distinctive edge. A company’s competitive advantage becomes the
basis for choosing an appropriate business or competitive strategy. Porter’s five forces model assesses the five competitive forces that dictate the rules of competition in an industry. These five forces are threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and current rivalry. (See Exhibit 8-6.) Porter’s three generic competitive strategies are as follows: cost leadership (organization competes on the basis of having the lowest costs in the industry); differentiation (organization competes on the basis of having unique products that are widely valued by customers); and focus (organization competes in a narrow segment with either a cost advantage or a differentiation advantage). The rule of three concept explains how, in many industries, three major players (highlyefficient, full-line generalists) emerge to dominate the market. An industry also has the highly-focused super-niche players. Any firm that doesn’t fit into one of these categories is “in the ditch.” Strategic Management in Today’s World Explain why strategic flexibility is important. Describe e-business strategies. Explain what strategies organizations might use to become more customer oriented and to be more innovative. Strategic flexibility—that is, the ability to recognize major external environmental changes, to quickly commit resources, and to recognize when a strategic decision isn’t working—is important because managers oftentimes face highly uncertain and changing environments. (See Exhibit 8-7.) Managers can use e-business strategies to reduce costs, to differentiate their firm’s products and services, or to target (focus on) specific customer groups or to lower costs by standardizing certain office functions. Another important e-business strategy is the clicks-and-bricks strategy, which combines online and traditional stand-alone locations. Strategies managers can use to become more customer-oriented include giving customers what they want, communicating effectively with them, and having a culture that emphasizes customer service. Strategies managers can use to become more innovative
include deciding their organization’s innovation emphasis (basic scientific research, product development, or process development) and its innovation timing (first mover or follower). (See Exhibit 8-8.)
CHAPTER SUMMARY CHAPTER 9
Techniques for Assessing the Environment List the different approaches to assess the environment. Explain what competitor intelligence is and ways that managers can do it legally and ethically. Describe how managers can improve the effectiveness of forecasting. Explain the steps in the benchmarking process. There are three techniques to assess the environment including environmental scanning, forecasting, and benchmarking. Competitor intelligence is a process by which organizations gather information about their competitors. Managers can do it legally and ethically by using such methods as scanning advertisements, promotional materials, press releases, government reports, annual reports, want ads, newspaper reports; by attending trade shows; and by debriefing the company’s sales force. Managers can improve the effectiveness of forecasting in various ways including understanding that forecasts are most accurate when the environment is not rapidly changing; using simple forecasts; involving more people in the process; comparing every forecast with a “no change” forecast; using rolling forecasts; using more than one type of forecast; and remembering that forecasting is a skill that can be practiced and improved. (See Exhibit 91.) The four steps in the benchmarking process include forming a benchmarking planning team to determine what needs to be benchmarked, comparative organizations, and data collection methods; gathering internal and external data; analyzing data to identify performance gaps; and preparing and
implementing an action plan. (See Exhibit 9-2.) Techniques for Allocating Resources List the four techniques for allocating resources. Describe the different types of budgets. Explain what a Gantt chart and a load chart do. Describe how PERT network analysis works. Understand how to compute a breakeven point. Describe how managers can use linear programming. The four techniques for allocating resources include budgeting, scheduling, breakeven analysis, and linear programming. Budgets can either be variable or fixed. Also, managers might use cash, revenue, expense, or profit budgets. (See Exhibit 94.) A Gantt chart is a scheduling chart that shows actual and planned output over a period of time. A load chart is a modified Gantt chart that schedules capacity by entire departments or specific resources. (See Exhibit 9-5 and 9-6.) PERT network analysis is useful for large, complex projects because it depicts the sequence of activities needed to complete the project and the time or cost associated with each. (See Exhibits 9-7, 9-8, and 9-9.) The breakeven point is calculated by dividing total fixed costs by the price per unit minus the variable cost per unit. (See Exhibit 9-10.) Managers can use linear programming to help solve resource allocation problems as it shows the optimum way to combine resources to produce a certain number of outputs. (See Exhibits 9-11 and 9-12.) Contemporary Planning Techniques Explain why flexibility is so important to today’s planning techniques. Describe project management. List the steps in the project planning process. Discuss why scenario planning is an important planning tool. Flexibility is important to today’s planning techniques because the environment can be both dynamic and complex.
Project management is the task of getting a project’s activities done on time, within budget, and according to specifications. The steps in the project planning process include defining objectives; identifying activities and resources; establishing sequences; estimating time for activities; determining project completion date; comparing with objectives; and determining additional resource requirements. (See Exhibit 9-13.) Scenario planning is important because managers can use it to play out potential situations under different environmental conditions.
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