Chapter1
IntroductiontoManagementandOrganizations
st
The21 centuryhasbroughtwithitanewworkplace,oneinwhicheveryonemust
adapttoarapidlyhangingsocietywithconstantlyshiftingdemandsandopportunities.
Theeconomyhasbecomeglobalandisdrivenbyinnovationsandtechnologyand
organizationshavetotransformthemselvestoservenewcustomerexpectations.
Todayseconomypresentschallengingopportunitiesaswellasdramaticuncertainty.
Theneweconomyhasbecomeknowledgebasedandisperformancedriven.Thethemes
inthepresentcontextarearespect,participation,empowerment,teamworkandself
management.Inthelightoftheabovechallengesanewkindofleaderisneededto
guidebusinessthroughturbulence.Managersinorganizationsdothistask.
Amanagerissomeonewhocoordinatesandoverseestheworkofotherpeoplesothat
organizationalgoalscanbeaccomplished.Itisnotaboutpersonalachievementbut
helpingothersdotheirjob.Managersmayalsohaveadditionalworkdutiesnotrelated
tocoordinatingtheworkofothers.
Managerscanbeclassifiedbytheirlevelintheorganization,particularlyintraditionally
structuredorganizationsthoseshapedlikeapyramid
Firstlinemanagers(oftencalledsupervisors)arelocatedonthelowestlevelof
management.
Middlemanagersincludealllevelsofmanagementbetweenthefirstlinelevelandthe
topleveloftheorganization.
Topmanagersincludemanagersatornearthetopoftheorganizationwhoare
responsibleformakingorganizationwidedecisionsandestablishingplansandgoals
thataffecttheentireorganization.
Thechangingnatureoforganizationsandworkoftenrequiresemployeesinformerly
nonmanagerialjobstoperformmanagerialactivities.Nonmanagerialjobsarethose
whereoneworksdirectlyonajobandhadnoonereportingtohim.
MaryParkerFolletdefinesmanagementas,Theartofgettingthingsdonethrough
people
Managementinvolvescoordinatingandoverseeingtheworkactivitiesofotherssothat
theiractivitiesarecompletedefficientlyandeffectively.
Coordinatingandoverseeingtheworkofothersiswhatdistinguishesamanagerial
positionfromanonmanagerialone.
Efficiencyisgettingthemostoutputfromtheleastamountofinputsinorderto
minimizeresourcecosts.Efficiencyisoftenreferredtoasdoingthingsright
Effectivenessiscompletingactivitiessothatorganizationalgoalsareattainedandis
oftendescribedasdoingtherightthings
Notwomanagersjobsareexactlyalike.Allmanagersperformcertainfunction,enact
certainrolesanddisplayasetofskillsintheirjobs.
ManagementFunctions
Accordingtothefunctionsapproachmanagersperformcertainactivitiestoefficiently
andeffectivelycoordinatetheworkofothers.Theycanbeclassifiedas
Planninginvolvesdefininggoals,establishingstrategiesforachievingthosegoals,and
developingplanstointegrateandcoordinateactivities.
Organizinginvolvesarrangingandstructuringworktoaccomplishtheorganizations
goals.
Leadinginvolvesworkingwithandthroughpeopletoaccomplishorganizationalgoals.
Controllinginvolvesmonitoring,comparing,andcorrectingworkperformance.
Sincethesefourmanagementfunctionsareintegratedintotheactivitiesofmanagers
throughouttheworkday,theyshouldbeviewedasanongoingprocessandtheyneed
notthedoneintheabovesequence.
ManagementRoles
Inthelate1960s,HenryMintzbergconductedaprecisestudyofmanagersatwork.He
concludedthatmanagersperform10differentroles,whicharehighlyinterrelated.
Managementrolesrefertospecificcategoriesofmanagerialbehavior.Overallthereare
tenspecificrolesperformedbymanagerswhichareincludedinthefollowingthree
categories.
Interpersonalrolesincludefigurehead,leadership,andliaisonactivities.
Informationalrolesincludemonitoring,disseminating,andspokespersonactivities.
Decisionalrolesincludeentrepreneur,disturbancehandler,resourceallocator,and
negotiator.
Althoughthefunctionsapproachrepresentsthemostusefulwaytodescribethe
managersjob,Mintzbergsrolesgiveadditionalinsightintomanagerswork.Someof
thetenrolesdonotfallclearlyintooneofthefourfunctions,sinceallmanagersdo
someworkthatisnotpurelymanagerial.
ManagementSkills
Managersneedcertainskillstoperformthechallengingdutiesandactivitiesassociated
withbeingamanager.RobertL.Katzfoundthroughhisresearchintheearly1970sthat
managersneedthreeessentialskills
Technicalskillsarejobspecificknowledgeandtechniquesneededtoproficiently
performspecifictasks.
Humanskillsaretheabilitytoworkwellwithotherpeopleindividuallyandinagroup.
Conceptualskillsaretheabilitytothinkandtoconceptualizeaboutabstractand
complexsituations.
Theseskillsreflectabroadcrosssectionoftheimportantmanagerialactivitiesthatare
elementsofthefourmanagementfunctions
Significantchangesintheinternalandexternalenvironmentshaveameasurableimpact
onmanagement.Securitythreats,corporateethicsscandals,globaleconomicand
politicaluncertainties,andtechnologicaladvancementshavehadagreatimpactonthe
managersjob.
Twosignificantchangesfacingtodaysmanagersareimportanceofcustomerstothe
managersjobandImportanceofinnovationtothemanagersjob
Organizationsneedmanagers.Anorganizationisadeliberatearrangementofpeopleto
accomplishsomespecificpurpose.Organizationssharethreecommoncharacteristics:
(1)Eachhasadistinctpurpose(2)Eachiscomposedofpeople(3)Eachdevelopssome
deliberatestructuresomemberscandotheirwork.Althoughthesethreecharacteristics
areimportantindefiningwhatanorganizationis,theconceptofanorganizationis
changing.Thecharacteristicofneworganizationsoftodayinclude:flexiblework
arrangements,employeeworkteams,opencommunicationsystems,andsupplier
alliances.Organizationsarebecomingmoreopen,flexible,andresponsivetochanges.
Organizationsarechangingbecausetheworldaroundthemhaschangedandis
continuingtochange.Thesesocietal,economic,global,andtechnologicalchangeshave
createdanenvironmentinwhichsuccessfulorganizationsmustembracenewwaysof
gettingtheirworkdone.
Theimportanceofstudyingmanagementintodaysdynamicglobalenvironmentcanbe
explainedbylookingattheuniversalityofmanagement,therealityofwork,andthe
rewardsandchallengesofbeingamanager.
TheUniversalityofManagement:Managementisneededinalltypesandsizesof
organizations,atallorganizationallevels,andinallorganizationalworkareas
throughouttheworld.
TheRealityofWork:Allemployeesofanorganizationeithermanageoraremanaged.
RewardsandChallengesofBeingaManager
Challenges
Managersmayhavedifficultyineffectivelyblendingtheknowledge,skills,ambitions,
andexperiencesofadiversegroupofemployees.
Amanagerssuccesstypicallyisdependentonothersworkperformance.
Rewards
Managershaveanopportunitytocreateaworkenvironmentinwhichorganizational
memberscandotheirworktothebestoftheirabilityandhelptheorganizationachieve
itsgoals.
Managersoftenreceiverecognitionandstatusintheorganizationandinthelarger
community;influenceorganizationaloutcomes;andreceiveappropriatecompensation.
Knowingthattheirefforts,skills,andabilitiesareneededbytheorganizationgives
manymanagersgreatsatisfaction.
Themanageroftodaymustintegratemanagementskillswithnewapproachesthat
emphasizethehumantouch,enhanceflexibility,andinvolveemployees.
Chapter2
ManagementYesterdayandToday
Organizationsandmanagershaveexistedforthousandsofyears.TheEgyptian
pyramidsandtheGreatWallofChinawereprojectsoftremendousscopeand
magnitude,andrequiredgoodmanagement.Regardlessofthetitlesgiventomanagers
throughouthistory,someonehasalwayshadtoplanwhatneedstobeaccomplished,
organizepeopleandmaterials,leadanddirectworkers,andimposecontrolstoensure
thatgoalswereattainedasplanned.
TwohistoricaleventssignificanttothestudyofmanagementareworkofAdamSmith,
inhisbook,TheWealthofNations,inwhichhearguedbrilliantlyfortheeconomic
advantagesofdivisionoflabor(thebreakdownofjobsintonarrow,repetitivetasks).
TheIndustrialRevolutionissecondimportantpretwentiethcenturyinfluenceon
management.Theintroductionofmachinepowerscombinedwiththedivisionoflabor
madelarge,efficientfactoriespossible.Planning,organizing,leading,andcontrolling
becamenecessaryactivities.
Therearesixmajorapproachestomanagement.Theyareexplainedasfollows
SCIENTIFICMANAGEMENT
Scientificmanagementisdefinedastheuseofthescientificmethodtodeterminethe
onebestwayforajobtobedone.Themostimportantcontributorinthisfieldwas
FrederickW.Taylorwhoisknownasthefatherofscientificmanagement.Usinghis
principlesofscientificmanagement,Taylorwasabletodefinetheonebestwayfor
doingeachjob.
FrankandLillianGilbrethwereinspiredbyTaylorsworkandproceededtostudyand
developtheirownmethodsofscientificmanagement.Theydevisedaclassification
schemetolabel17basichandmotionscalledtherbligsinordertoeliminatewasteful
motions
GuidelinesdevisedbyTaylorandotherstoimproveproductionefficiencyarestillused
intodaysorganizations.However,currentmanagementpracticeisnotrestrictedto
scientificmanagementpracticesalone.Elementsofscientificmanagementstillused
include:
Usingtimeandmotionstudies
Hiringbestqualifiedworkers
Designingincentivesystemsbasedonoutput
GENERALADMINISTRATIVETHEORISTS
Thisgroupofwriters,whofocusedontheentireorganization,developedmoregeneral
theoriesofwhatmanagersdoandwhatconstitutesgoodmanagementpractice.
HenriFayolandMaxWeberwerethetwomostprominentproponentsofthegeneral
administrativeapproach.Fayolfocusedonactivitiescommontoallmanagers.Hedescribedthe
practiceofmanagementasdistinctfromothertypicalbusinessfunctions.
Hestated14principlesofmanagementwhichareasfollows:
DivisionofWork
Authority
Discipline
UnityofCommand
UnityofDirection
Subordinationofindividualinteresttogroupinterest
Remuneration
Centralization
ScalarChain
Order
Equity
Stability
Initiative
Espiritdecorps
MaxWeberwasaGermansociologistwhodevelopedatheoryofauthoritystructuresand
describedorganizationalactivitybasedonauthorityrelations. Hedescribedtheidealformof
organizationasabureaucracymarkedbydivisionoflabor,aclearlydefinedhierarchy,
detailedrulesandregulations,andimpersonalrelationships
Somecurrentmanagementconceptsandtheoriescanbetracedtotheworkofthegeneral
administrativetheorists.ThefunctionalviewofamanagersjobrelatestoHenriFayolsconcept
ofmanagement.Webersbureaucraticcharacteristicsare evidentinmanyoftodayslarge
organizationseveninhighlyflexibleorganizationsthatemploytalentedprofessionals.
Somebureaucraticmechanismsarenecessaryinhighlyinnovativeorganizationstoensure
thatresourcesareusedefficientlyandeffectively.
QUANTITATIVEAPPROACHTOMANAGEMENT
Thequantitativeapproachtomanagement,sometimesknownasoperationsresearch
ormanagementscience,usesquantitativetechniquestoimprovedecisionmaking.This
approachincludesapplicationsofstatistics,optimizationmodels,informationmodels,
andcomputersimulations.Thequantitative
approachoriginatedduringWorldWarIIasmathematicalandstatisticalsolutionsto
militaryproblemsweredevelopedforwartimeuse.
Therelevanceofquantitativeapproachtodayisthatithascontributedmostdirectlyto
managerialdecisionmaking,particularlyinplanningandcontrolling.Theavailability
ofsophisticatedcomputersoftwareprogramshasmadetheuseofquantitative
techniquesmorefeasibleformanagers.
ORGANIZATIONALBEHAVIOR
Thefieldofstudyconcernedwiththeactions(behaviors)ofpeopleatworkis
organizationalbehavior.Organizationalbehavior(OB)researchhascontributedmuch
ofwhatweknowabouthumanresourcesmanagementandcontemporaryviewsof
motivation,leadership,trust,teamwork,andconflictmanagement.
TheearlyadvocatesofOBapproachwereRobertOwen,HugoMunsterberg,Mary
ParkerFollett,andChesterBarnard.Theirideasservedasthefoundationforemployee
selectionprocedures,motivationprograms,workteams,andorganizationenvironment
managementtechniques.TheHawthorneStudieswerethemostimportantcontribution
tothedevelopmentoforganizationalbehavior.
Thisseriesofexperimentsconductedfrom1924totheearly1930satWesternElectric
CompanysHawthorneWorksinCicero,Illinois,wereinitiallydevisedasascientific
managementexperimenttoassesstheimpactofchangesinvariousphysical
environmentvariablesonemployeeproductivity.
AfterHarvardprofessorEltonMayoandhisassociatesjoinedthestudyasconsultants,
otherexperimentswereincludedtolookatredesigningjobs,makechangesinworkday
andworkweeklength,introducerestperiods,andintroduceindividualversusgroup
wageplans.
Theresearchersconcludedthatsocialnormsorgroupstandardswerekeydeterminants
ofindividualworkbehavior.
Althoughnotwithoutcriticism(concerningprocedures,analysesoffindings,andthe
conclusions),theHawthorneStudiesstimulatedinterestinhumanbehaviorin
organizationalsettings.
Inthepresentdaycontextbehavioralapproachassistsmanagersindesigningjobsthat
motivateworkers,inworkingwithemployeeteams,andinfacilitatingtheflowof
communicationwithinorganizations.Thebehavioralapproachprovidesthefoundation
forcurrenttheoriesofmotivation,leadership,andgroupbehavioranddevelopment.
THESYSTEMSAPPROACH
Duringthe1960sresearchersbegantoanalyzeorganizationsfromasystemsperspective
basedonthephysicalsciences.Asystemisasetofinterrelatedandinterdependent
partsarrangedinamannerthatproducesaunifiedwhole.Thetwobasictypesof
systemsareopenandclosed.Aclosedsystemisnotinfluencedbyanddoesnotinteract
withitsenvironment.Anopensysteminteractswithitsenvironment.
Usingthesystemsapproach,managersenvisionanorganizationasabodywithmany
interdependentparts,eachofwhichisimportanttothewellbeingoftheorganizationas
awhole.Managerscoordinatetheworkactivitiesofthevariouspartsofthe
organization,realizingthatdecisionsandactionstakeninoneorganizationalareawill
affectotherareas.
Thesystemsapproachrecognizesthatorganizationsarenotselfcontained;theyrelyon
andareaffectedbyfactorsintheirexternalenvironment.
THECONTINGENCYAPPROACH
Thecontingencyapproachrecognizesthatdifferentorganizationsrequiredifferentways
ofmanaging.Thecontingencyapproachtomanagementisaviewthattheorganization
recognizesandrespondstosituationalvariablesastheyarise.
CURRENTTRENDSANDISSUES
Thefollowingarethecurrentconceptsandpracticesarechangingthewaymanagersdo
theirjobstoday.
Globalization:Organizationaloperationsarenolongerlimitedbynationalborders.
Managersthroughouttheworldmustdealwithnewopportunitiesandchallenges
inherentintheglobalizationofbusiness.
Ethics:Casesofcorporatelying,misrepresentations,andfinancialmanipulationshave
beenwidespreadinrecentyears.ManagersoffirmssuchasEnron,ImClone,Global
Crossing,andTycoInternationalhaveplacedtheirownselfinterestaheadofother
stakeholderswelfare.Whilemostmanagerscontinuetobehaveinahighlyethical
manner,abusessuggestaneedtoupgradeethicalstandards.Ethicseducationis
increasinglyemphasizedincollegecurriculatoday.Organizationsaretakingamore
activeroleincreatingandusingcodesofethics,ethicstrainingprograms,andethical
hiringprocedures.
Workforcediversity:Itreferstoaworkforcethatisheterogeneousintermsofgender,
race,ethnicity,age,andothercharacteristicsthatreflectdifferences.Accommodating
diversegroupsofpeoplebyaddressingdifferentlifestyles,familyneeds,andwork
stylesisamajorchallengefortodaysmanagers.
Entrepreneurship:Itistheprocesswherebyanindividualorgroupofindividualsuse
organizedeffortstopursueopportunitiestocreatevalueandgrowbyfulfillingwants
andneedsthroughinnovationanduniqueness,nomatterwhatresourcesthe
entrepreneurcurrentlyhas.
Threeimportantthemesstandoutinthisdefinition:
Thepursuitofopportunities
Innovation
Growth
Entrepreneurshipwillcontinuetobeimportanttosocietiesaroundtheworld.
.
ManaginginanEBusinessWorld:Ebusiness(electronicbusiness)isa
comprehensivetermdescribingthewayanorganizationdoesitsworkbyusing
electronic(Internetbased)linkageswithitskeyconstituenciesinordertoefficiently
andeffectivelyachieveitsgoals.
KnowledgeManagementandLearningOrganizations:Changeisoccurringatan
unprecedentedrate.Tobesuccessful,todaysorganizationmustbecomealearning
organizationonethathasdevelopedthecapacitytocontinuouslylearn,adapt,and
change.Knowledgemanagementinvolvescultivatingalearningculturewhere
organizationalmemberssystematicallygatherknowledgeandshareitwithothersinthe
organizationsoastoachievebetterperformance.
QualityManagement:Qualitymanagementisaphilosophyofmanagementthatisdriven
bycontinualimprovementandresponsetocustomerneedsandexpectations.The
objectiveofqualitymanagementistocreateanorganizationcommittedtocontinuous
improvementinwork
Chapter3
OrganizationCultureandEnvironment:TheConstraints
Thecomponentsofanorganizationscultureareascomplexasthedifferentaspectsof
anindividualspersonality.Todaysmanagersmustunderstandhowtheforcesofan
organizationsinternalandexternalenvironmentinfluence,andsometimesconstrain,its
productivity.Managersmustrealizethatorganizationalcultureandorganizational
environmenthaveimportantimplicationsforthewayanorganizationismanaged.
Twoperspectivesconcerningtherolethatmanagersplayinanorganizationssuccessor
failurehavebeenproposed.
Theomnipotentviewofmanagementmaintainsthatmanagersaredirectlyresponsible
forthesuccessorfailureofanorganization.Thisviewofmanagersasbeingomnipotent
isconsistentwiththestereotypicalpictureofthetakechargeexecutivewhocan
overcomeanyobstacleincarryingouttheorganizationsobjectives.When
organizationsperformpoorly,someonemustbeheldaccountableandaccordingtothe
omnipotentview,thatsomeoneismanagement.
Thesymbolicviewofmanagementupholdstheviewthatmuchofanorganizations
successorfailureisduetoexternalforcesoutsidemanagerscontrol.Theinfluencethat
managersdohaveisseenmainlyasasymbolicoutcome.Organizationalresultsare
influencedbyfactorsoutsideofthecontrolofmanagers,includingtheeconomy,market
changes,governmentalpolicies,competitorsactions,thestateoftheparticular
industry,thecontrolofproprietarytechnology,anddecisionsmadebyprevious
managersintheorganization.Themanagersroleistocreatemeaningoutof
randomness,confusion,andambiguity.Accordingtothesymbolicview,theactualpart
thatmanagementplaysinthesuccessorfailureofanorganizationisminimal.
Realitysuggestsasynthesis;managersareneitherhelplessnorallpowerful.Instead,the
morelogicalapproachistoseethemanagerasoperatingwithinconstraintsimposedby
theorganizationscultureandenvironment
THEORGANIZATIONSCULTURE
Justasindividualshaveapersonality,so,too,doorganizations.Werefertoan
organizationspersonalityasitsculture.
Organizationalcultureisthesharedvalues,principles,traditions,andwaysofdoing
thingsthatinfluencethewayorganizationalmembersact.Thisdefinitionimplies:
Individualsperceiveorganizationalculturebasedonwhattheysee,hear,orexperience
withintheorganization.
Organizationalcultureissharedbyindividualswithintheorganization.
Organizationalcultureisadescriptiveterm.Itdescribes,ratherthanevaluates.
Sevendimensionsofanorganizationsculturehavebeenproposed
Innovationandrisktaking(thedegreetowhichemployeesareencouragedtobe
innovativeandtakerisks)
Attentiontodetail(thedegreetowhichemployeesareexpectedtoexhibitprecision,
analysis,andattentiontodetail)
Outcomeorientation(thedegreetowhichmanagersfocusonresultsoroutcomesrather
thanonthetechniquesandprocessesusedtoachievethoseoutcomes)
Peopleorientation(thedegreetowhichmanagementdecisionstakeintoconsideration
theeffectonpeoplewithintheorganization)
Teamorientation(thedegreetowhichworkactivitiesareorganizedaroundteamsrather
thanindividuals)
Aggressiveness(thedegreetowhichpeopleareaggressiveandcompetitiveratherthan
easygoingandcooperative)
Stability(thedegreetowhichorganizationalactivitiesemphasizemaintainingthestatus
quoincontrasttogrowth)
StrongversusWeakCultures
Strongculturesarefoundinorganizationswherekeyvaluesareintenselyheldand
widelyshared.Whetheracompanyscultureisstrong,weak,orsomewhereinbetween
dependsonorganizationalfactorssuchassize,age,employeeturnoverrate,and
intensityoforiginalculture.Aculturehasincreasingimpactonwhatmanagersdoasthe
culturebecomesstronger.
Mostorganizationshavemoderatetostrongcultures.Intheseorganizations,high
agreementexistsaboutwhatisimportantandwhatdefinesgoodemployeebehavior.
Cultureistransmittedandlearnedbyemployeesprincipallythroughstories,rituals,
materialsymbols,andlanguage.
Aninnovativecultureshouldhavethesecharacteristics:
Challengeandinvolvement
Freedom
Trustandopenness
Ideatime
Playfulness/humor
Conflictresolution
Debates
Risktaking
TheOrganizationsEnvironment
Thegeneralenvironmentincludesthesebroadexternalconditionsthatmayaffectthe
organization:economic,political/legal,sociocultural,demographic,technological,and
globalconditions.
Economicconditionsincludeinterestrates,inflationrates,changesindisposableincome,
stockmarketfluctuations,andthegeneralbusinesscycle.
Political/legalconditionsincludethegeneralpoliticalstabilityofcountriesinwhichan
organizationdoesbusinessandthespecificattitudesthatelectedofficialshavetoward
business.
Socioculturalconditionsincludethechangingexpectationsofsociety.Societalvalues,
customs,andtastescanchange,andmanagersmustbeawareofthesechanges.
Demographicconditions,includingphysicalcharacteristicsofapopulation(e.g.,
gender,age,levelofeducation,geographiclocation,income,compositionoffamily)
canchange,andmanagersmustadapttothesechanges.
Technologicalconditions,whichhavechangedmorerapidlythananyotherelementof
thegeneralenvironment.
Globalfactorsincludeglobalcompetitorsandglobalconsumermarkets.
Environmentsdifferintheiramountofenvironmentaluncertainty,whichrelatesto
(1)thedegreeofchangeinanorganizationsenvironmentand(2)thedegreeof
complexityinthatenvironment
Degreeofchangeischaracterizedasbeingdynamicorstable.Inadynamicenvironment,
componentsoftheenvironmentchangefrequently.Ifchangeisminimal,theenvironmentis
calledastableenvironment.
Thedegreeofenvironmentalcomplexityisthenumberofcomponentsinanorganiza
tionsenvironmentandtheextentofanorganizationsknowledgeaboutthose
components.Ifthenumberofcomponentsandtheneedforsophisticatedknowledgeis
minimal,theenvironmentisclassifiedassimple.Ifanumberofdissimilarcomponents
andahighneedforsophisticatedknowledgeexist,theenvironmentiscomplex.
Asuncertaintyisathreattoorganizationaleffectiveness,managerstrytominimize
environmentaluncertainty.
Chapter4
ManaginginaGlobalEnvironment
Managersinalltypesandsizesoforganizationsmustconstantlymonitorchangesand
considertheparticularcharacteristicsoftheirownlocationastheyplan,organize,lead,
andcontrolinthisdynamicenvironment.
Managersmighthaveoneofthreeperspectivesorattitudestowardinternational
business
Anethnocentricattitudeistheparochialisticbeliefthatthebestworkapproachesand
practicesarethoseofthehomecountry(thecountryinwhichthecompanys
headquartersarelocated).
Apolycentricattitudeistheviewthatthemanagersinthehostcountry(theforeign
countrywheretheorganizationisdoingbusiness)knowthebestworkapproachesand
practicesforrunningtheirbusiness.
Ageocentricattitudeisaworldorientedviewthatfocusesonusingthebestapproachesand
peoplefromaroundtheglobe.Tobeasuccessfulglobalmanager,anindividualneedstobe
sensitivetodifferencesinnationalcustomsandpractices
Severalsignificantforcesarereshapingtodaysglobalenvironment.Importantfeatures
oftheglobalenvironmentincluderegionaltradingalliancesanddifferenttypesof
globalorganizations.
RegionalTradingAlliances
Regionaltradingalliancesarereshapingglobalcompetition.Competitionisnolonger
limitedtocountryversuscountry,butregionversusregion.
TheEuropeanUnion(EU)isaunionof25Europeannationscreatedasaunified
economicandtradeentity
TheprimarymotivationforthecreationoftheEUinFebruary1992wastoallow
membernationstoreasserttheirpositionagainsttheindustrialstrengthoftheUnited
StatesandJapan.
AllmemberstatesoftheEUparticipateintheEMU(EconomicandMonetaryUnion).
TheEMUconsistsofthreestagesforcoordinatingeconomicpolicy.Twelvemember
statesoftheEuropeanUnionhaveenteredthethirdstageoftheEMU,inwhich
participatingcountriesshareasinglecurrency,theeuro.
In2004theEUadded10newmembers(Cyprus,Malta,theCzechRepublic,Estonia,
Hungary,Latvia,Lithuania,Poland,Slovakia,andSlovenia.Twoadditionalcounties
mayjointheEUbytheyear2007.
TheNorthAmericanFreeTradeAgreement(NAFTA)isanagreementamongthe
Mexican,Canadian,andU.S.governmentsinwhichbarrierstotradehavebeen
eliminated.
NAFTAwentintoeffectonJanuary1,1994.
ThesigningofNAFTAwasbothcriticizedandsupported.
Eliminatingbarrierstofreetrade(tariffs,importlicensingrequirements,customsuser
fees)hasresultedinastrengtheningoftheeconomicpowerofallthreecountries.
Colombia,Mexico,andVenezuelasignedaneconomicpacteliminatingimportduties
andtariffsin1994.
ThirtyfourcountriesintheWesternHemispherecontinuetonegotiateaFreeTrade
AreaoftheAmericas(FTAA)agreement.FTAAwastohavebeenineffectnolater
than2005,buthasnotyetbecomeoperational;itsfutureisstillundetermined.
TheAssociationofSoutheastAsianNations(ASEAN)isatradingallianceof10
Asiannations
Inthefuture,theSoutheastAsianregionpromisestobeoneofthefastestgrowingand
increasinglyinfluentialeconomicregionsoftheworld.
ThefutureeconomicimpactoftheSoutheastAsianregioncouldrivalthatofboth
NAFTAandtheEU.
OtherTradeAlliances
The53nationAfricanUnioncameintoexistenceinJuly2002.Membersplanto
achievegreatereconomicdevelopmentandunityamongAfricasnations.
TheWorldTradeOrganization(WTO)
Formedin1995andevolvingfromGATT,theWTOistheonlyglobalorganization
dealingwiththerulesoftradeamongnations.
Membershipconsistsof149countriesand32observergovernmentsasofJanuary2006.
TheWTOappearstoplayanimportantroleeventhoughcriticsarevocalandhighly
visible.
DifferentTypesofGlobalOrganizations
BusinesshasbeenconductedinternationallyformanyyearsMultinationalcorporations
didnotbecomepopularuntilthemid1960s.Globalorganizationscanbeclassifiedin
thefollowingcategories:
Thetermmultinationalcorporation(MNC)isabroadtermthatreferstoanyandall
typesofinternationalcompaniesthatmaintainoperationsinmultiplecountries.
Atransnationalcorporation(TNC),sometimescalledaborderlessorganization,isa
typeofinternationalcompanyinwhichartificialgeographicalbarriersareeliminated.
StagesofInternationalization
Anorganizationthatgoesinternationaltypicallyprogressesthroughthreestages.
Companiesthatgointernationalmaybeginbyusingglobalsourcing(alsocalledglobal
outsourcing).Inthisstageofgoinginternational,companiespurchasematerialsorlabor
fromaroundtheworld,whereverthematerialsorlaborareleastexpensive.Beyondthe
stageofglobalsourcing,eachsuccessivestagetobecomemoreinternationalinvolves
moreinvestmentandrisk.
Inthenextstage,companiesmaygointernationalbyexporting(makingproducts
domesticallyandsellingthemabroad)orimporting(acquiringproductsmadeabroad
andsellingtheproductsdomestically).Bothexportingandimportingrequireminimal
investmentandrisk.
Intheearlystagesofgoinginternational,managersmayalsouselicensing(giving
anotherorganizationtherighttomakeorsellitsproductsusingitstechnologyorproduct
specifications)orfranchising(givinganotherorganizationtherighttouseitsnameand
operatingmethods
Afteranorganizationhasdoneinternationalbusinessforaperiodoftime,managersmay
decidetomakemoreofadirectinvestmentininternationalmarketsbyforminga
strategicalliance,whichisapartnershipbetweenanorganizationandaforeign
companypartner(s).Inastrategicalliance,partnersshareresourcesandknowledgein
developingnewproductsorbuildingproductionfacilities.
Ajointventure(aspecifictypeofstrategicalliance)maybeundertakentoallow
partnerstoformaseparate,independentorganizationforsomebusinesspurpose.
Managersmaydecidetomakeadirectinvestmentinaforeigncountrybyestablishinga
foreignsubsidiary,inwhichacompanysetsupaseparateandindependentproduction
facilityoroffice.Establishingaforeignsubsidiaryinvolvesthegreatestcommitmentof
resourcesandthegreatestriskofallofthestagesingoinginternational.
Managinginaglobalenvironmententailsthefollowingchallenges.
TheLegalPoliticalEnvironment:Thelegalpoliticalenvironmentdoesnothavetobe
unstableorrevolutionarytobeachallengetomanagers.Thefactthatacountrys
politicalsystemdiffersfromthatoftheUnitedStatesisimportanttorecognize.
TheEconomicEnvironment:Theeconomicenvironmentalsopresentsmany
challengestoforeignbasedmanagers,includingfluctuationsincurrencyrates,inflation,
anddiversetaxpolicies.Inamarketeconomy,resourcesareprimarilyownedbythe
privatesector.Inacommandeconomy,alleconomicdecisionsareplannedbyacentral
government.
TheCulturalEnvironment:Countrieshavedifferentcultures,justasorganizationsdo.
Nationalcultureisthevaluesandattitudessharedbyindividualsfromaspecific
countrythatshapetheirbehaviorandtheirbeliefsaboutwhatisimportant.
AframeworkdevelopedbyGeertHofstedeservesasavaluableframeworkfor
understandingdifferencesbetweennationalcultures.
Hofstedestudiedindividualismversuscollectivism.Individualismisthedegreeto
whichpeopleinacountryprefertoactasindividualsratherthanasmembersofgroups.
Collectivismischaracterizedbyasocialframeworkinwhichpeopleprefertoactas
membersofgroupsandexpectothersingroupsofwhichtheyareapart(suchasa
familyoranorganization)tolookafterthemandtoprotectthem.
Anotherculturaldimensionispowerdistance,whichdescribestheextenttowhicha
societyacceptsthefactthatpowerininstitutionsandorganizationsisdistributed
unequally.
Uncertaintyavoidancedescribesaculturalmeasureofthedegreetowhichpeople
tolerateriskandunconventionalbehavior.
Hofstedeidentifiedthedimensionofachievementversusnurturing.Achievementis
thedegreetowhichvaluessuchasassertiveness,theacquisitionofmoneyandmaterial
goods,andcompetitionprevail.Nurturingemphasizessensitivityinrelationshipsand
concernforthewelfareofothers.
Longtermandshorttermorientation.Peopleincountrieshavinglongterm
orientationcultureslooktothefutureandvaluethriftandpersistence.Shortterm
orientationvaluesthepastandpresentandemphasizesarespectfortraditionandsocial
obligations.
CountrieshavedifferentrankingsonHofstedesculturaldimensions,andmanagers
shouldbeawareoftheculturaldifferencespresentincountriesinwhichtheydo
business
TheGlobalLeadershipandOrganizationalBehaviorEffectiveness(GLOBE)research
programisanassessmentthatupdatesHofstedesstudies.GLOBEbeganin1993and
identifiedninedimensionsonwhichnationalculturesdiffer:Assertiveness,future
orientation,genderdifferentiation,uncertaintyavoidance,powerdistance,individualism/
collectivism,ingroupcollectivism,performanceorientation,andhumaneorientation.
Intodaysworldtheopennessthatisnecessarytoconductbusinesssuccessfullyina
globalenvironmentposesgreatchallenges.Theincreasedthreatofterrorism,economic
interdependenceoftradingcountries,andsignificantculturalcreateacomplicated
environmentinwhichtomanage.Successfulglobalmanagersneedtohavegreat
sensitivityandunderstanding.Managersmustadjustleadershipstylesandmanagement
approachestoaccommodateculturallydiverseviews.
Chapter5
SocialResponsibilityandManagerialEthics
Thischapterdiscussesissuesinvolvingsocialresponsibilityandmanagerialethicsand
theireffectonmanagerialdecisionmaking.Bothsocialresponsibilityandethicsare
responsestoachangingenvironmentandareinfluencedbyorganizationalculture
Managersregularlyfacedecisionsthathavedimensionsofsocialresponsibility.
Examplesincludeemployeerelations,philanthropy,pricing,resourceconservation,
productquality,anddoingbusinessincountriesthatviolatehumanrights
SOCIALRESPONSIBILITY
Twoopposingviewsofsocialresponsibilityarepresented:
Theclassicalviewistheviewthatmanagementsonlysocialresponsibilityisto
maximizeprofits.Thesocioeconomicviewistheviewthatmanagementssocial
responsibilitygoesbeyondthemakingofprofitstoincludeprotectingandimproving
societyswelfare.
AfourstagemodelshowshowsocialresponsibilityprogressesinorganizationsSocial
responsibilitymayprogressfromthestanceofobeyingalllawsandregulationswhile
caringforstockholdersinterests(Stage1)tothepointofdemonstratingresponsibility
tosocietyasawhole(Stage4),whichcharacterizesthehighestsocioeconomic
commitment.
SocialObligationstoResponsivenesstoResponsibility:Socialobligationoccurswhen
afirmengagesinsocialactionsbecauseofitsobligationtomeetcertaineconomicand
legalresponsibilities.Socialresponsivenessisseenwhenafirmengagesinsocial
actionsinresponsetosomepopularsocialneed.Socialresponsibilityisabusinesss
intention,beyonditslegalandeconomicobligations,todotherightthingsandactin
waysthataregoodforsociety
TheGreeningofManagement
Anumberofhighlyvisibleecologicalproblemsandenvironmentaldisasters(e.g.,
ExxonValdezoilspill,mercurypoisoninginJapan,ThreeMileIsland,Chernobyl)
broughtaboutanewspiritofenvironmentalism.Recognizingthecloselinkbetweenan
organizationsdecisionsandactivitiesanditsimpactonthenaturalenvironmentis
calledthegreeningofmanagement.
Valuesbasedmanagementisanapproachtomanaginginwhichmanagersareguided
bytheorganizationssharedvaluesintheirmanagementpractices.PurposesofShared
Valuesare:
1)Theyactasguidepostsformanagerialdecisionsandactions.
Sharedvaluesservetoshapeemployeebehaviorandtocommunicatewhatthe
organizationexpectsofitsmembers.
Sharedcorporatevaluescaninfluenceanorganizationsmarketingefforts.
Sharedvaluesareawaytobuildteamspiritinorganizations.
MANAGERIALETHICS
Thetermethicsreferstoprinciples,values,andbeliefsthatdefinewhatisrightand
wrongbehavior.
FactorsThatAffectEmployeeEthics
StagesofMoralDevelopment.Researchconfirmsthreelevelsofmoraldevelopment.
Eachlevelhastwostages.
Thefirstleveliscalledpreconventional.Atthislevel,theindividualschoicebetween
rightorwrongisbasedonpersonalconsequencesinvolved.
Atthesecondstage,whichislabeledconventional,moralvaluesresideinmaintaining
expectedstandardsandlivinguptotheexpectationsofothers.
Thethirdleveltheprincipledleveltheindividualmakesaclearefforttodefine
moralprinciplesapartfromtheauthorityofthegroupstowhichthepersonbelongs.
Researchonthestagesofmoraldevelopmentindicatesthatpeopleproceed
sequentiallythroughthesixstagesofthesethreelevels,withnoguaranteeofcontinued
developmentatanystage.ThemajorityofadultsareatStage4.Thehigherthestagean
employeereaches,themorelikelihoodthatheorshewillbehaveethically.
IndividualCharacteristics:Apersonjoinsanorganizationwitharelatively
entrenchedsetofvalues.
Valuesarebasicconvictionsaboutwhatisrightandwrong.Valuesarebroadandcover
awidevarietyofissues.
Egostrengthisapersonalitymeasureofthestrengthofapersonsconvictions.
Individualswhoscorehighonegostrengtharelikelytoresistimpulsestoact
unethicallyandarelikelydowhattheythinkisright.
Locusofcontrolisapersonalityattributethatmeasuresthedegreetowhichpeople
believetheycontroltheirownfate.Individualswithaninternallocusofcontrolthink
thattheycontroltheirdestiny,whilepersonswithanexternallocusofcontrolareless
likelytotakepersonalresponsibilityfortheconsequencesoftheirbehaviorandare
morelikelytorelyonexternalforces.Externalsbelievethatwhathappenstothemis
duetoluckorchance.
Athirdfactorinfluencingmanagerialethicsisstructuralvariables.Theexistenceof
structuralvariablessuchasformalrulesandregulations,jobdescriptions,writtencodes
ofethics,performanceappraisalsystems,andrewardsystemscanstronglyinfluence
ethicalbehavior.
Thecontentandstrengthofanorganizationscultureinfluencesethicalbehavior.
Anorganizationalculturemostlikelytoencouragehighethicalstandardsisonethatis
highinrisktolerance,control,andconflicttolerance.
Astrongcultureexertsmoreinfluenceonmanagersthandoesaweakone.
However,inorganizationswithweakcultures,workgroupsanddepartmentalstandards
stronglyinfluenceethicalbehavior.
Finally,theintensityofanissuecanaffectethicaldecisions.Sixcharacteristics
determineissueintensity
Greatnessofharm
Consensusofwrong
Probabilityofharm
Immediacyofconsequences
Proximitytovictim
Concentrationofeffect
ImprovingEthicalBehavior
Organizationscantakeanumberofactionstocultivateethicalbehavioramong
members.Someofthoseare
Theselectionprocessforbringingnewemployeesintoorganizationsshouldbeviewed
asanopportunitytolearnaboutanindividualslevelofmoraldevelopment,personal
values,egostrength,andlocusofcontrol.
Acodeofethicsisaformalstatementofanorganizationsprimaryvaluesandthe
ethicalrulesitexpectsemployeestofollow.Inaddition,decisionrulescanbe
developedtoguidemanagersinhandlingethicaldilemmasindecisionmaking.
Topmanagementsleadershipandcommitmenttoethicalbehaviorisextremely
importantsincetheculturaltoneforanorganizationisestablishedbyitstopmanagers
Employeesjobgoalsshouldbetangibleandrealistic,becauseclearandrealisticgoals
reduceambiguityandmotivateratherthanpunish.Jobgoalsareusuallyakeyissuein
theperformanceappraisalprocess.
Ifanorganizationwantsemployeestoupholdhighethicalstandards,thisdimension
mustbeincludedintheappraisalprocess.Performanceappraisalsshouldincludethis
dimension,ratherthanfocusingsolelyoneconomicoutcomes.
Ethicstrainingshouldbeusedtohelpteachethicalproblemsolvingandtopresent
simulationsofethicalsituationsthatcouldarise.Attheleast,ethicstrainingshould
increaseawarenessofethicalissues.
Independentsocialauditsevaluatedecisionsandmanagementpracticesintermsofthe
organizationscodeofethicsandcanbeusedtodeterunethicalbehavior.
Organizationscanprovideformalprotectivemechanismssothatemployeeswithethical
dilemmascandowhatisrightwithoutfearofreprisal.
SocialEntrepreneurship:Asocialentrepreneurisanindividualororganizationwho
seeksoutopportunitiestoimprovesocietybyusingpractical,innovative,and
sustainableapproaches.
Socialimpactmanagement:Managersareincreasinglyexpectedtoactresponsiblyin
thewaytheyconductbusiness.Managersusingasocialimpactmanagementapproach
examinethesocialimpactsoftheirdecisionsandactions.Whentheyconsiderhow
theiractionsinplanning,organizing,leadingandcontrollingwillworkinlightofthe
socialcontextwithinwhichbusinessoperates,managersbecomemoreawareof
whethertheyareleadinginaresponsiblemanner.
Chapter6
DecisionMaking:TheEssenceoftheManagersJob
Everyoneinanorganizationmakesdecisions,butdecisionmakingisparticularly
importantinamanagersjob.Decisionmakingissuchanimportantpartofallfour
managerialfunctionsthatdecisionmakingissaidtobesynonymouswithmanaging.
TheDecisionMakingProcess
Adecisionisachoicemadefromtwoormorealternatives.Thedecisionmaking
processisasetofeightstepsthatincludethefollowing:
Identifyingaproblem:Aproblemisadiscrepancybetweenanexistingstateanda
desiredstateofaffairs.Inordertoidentifyaproblem,amanagershouldbeableto
differentiatetheproblemfromitssymptom;heshouldbeunderpressuretotakenaction
andmusthavetheauthorityandresourcestotakeaction.
Identifyingdecisioncriteria:Decisioncriteriaarecriteriathatdefinewhatisrelevant
inadecision.
Allocatingweightstothecriteria:Thecriteriaidentifiedinthepreviousstep
ofthedecisionmakingprocessmaynothaveequalimportance.Sohedecisionmaker
mustassignaweighttoeachoftheitemsinordertogiveeachitemaccuratepriorityin
thedecision.
Developingalternatives:Thedecisionmakershouldthenidentifyviablealternatives
thatcouldresolvetheproblem.
Analyzingalternatives:Eachofthealternativesarethencriticallyanalyzedby
evaluatingitagainstthecriteriaestablishedinSteps2and3.
Selectinganalternative:Thenextstepistoselectthebestalternativefromamong
thoseidentifiedandassessed.Ifcriteriaweightshavebeenused,thedecisionmaker
wouldselectthealternativethatreceivedthehighestscoreinStep5.
Implementingthealternative:Theselectedalternativeisimplementedbyeffectively
communicatingthedecisiontotheindividualswhowouldbeaffectedbyitandtheir
commitmenttothedecisionisacquired.
Evaluatingdecisioneffectiveness:Thelaststepinthedecisionmakingprocessisto
assesstheresultofthedecisioninordertodeterminewhetherornottheproblemhas
beenresolved.
Managerscanmakedecisionsonthebasisofrationality,boundedrationality,or
intuition.
1.Rationaldecisionmaking.Managerialdecisionmakingisassumedtobe
rationalthatis,makingchoicesthatareconsistentandvaluemaximizingwithin
specifiedconstraints.Arationalmanagerwouldbecompletelylogicaland
objective.Rationaldecisionmakingassumesthatthemanagerismakingdecisions
inthebestinterestsoftheorganization,notinhis/herowninterests.The
assumptionsofrationalitycanbemetifthemanagerisfacedwithasimpleproblem
inwhich(1)goalsareclearandalternativeslimited,(2)timepressuresareminimal
andthecostoffindingandevaluatingalternativesislow,(3)theorganizational
culturesupportsinnovationandrisktaking,and
(4)outcomesareconcreteandmeasurable.
Boundedrationality.Astheperfectlyrationalmodelofdecisionmakingisnt
realistic,managerstendtooperateunderassumptionsofboundedrationality,
whichisdecisionmakingbehaviorthatisrational,butlimited(bounded)byan
individualsabilitytoprocessinformation.
Underboundedrationality,managersmakesatisficingdecisions,inwhichthey
acceptsolutionsthataregoodenough.Managersdecisionmakingmaybe
stronglyinfluencedbytheorganizationsculture,internalpolitics,power
considerations,andbyaphenomenoncalledescalationofcommitmentan
increasedcommitmenttoapreviousdecisiondespiteevidencethatitmayhave
beenwrong.
Intuitivedecisionmaking.Managersalsoregularlyusetheirintuition.Intuitive
decisionmakingisasubconsciousprocessofmakingdecisionsonthebasisof
experienceandaccumulatedjudgment.Althoughintuitivedecisionmakingwill
notreplacetherationaldecisionmakingprocess,itdoesplayanimportantrole
inmanagerialdecisionmaking.
TypesofProblemsandDecisions
Managersencounterdifferenttypesofproblemsandusedifferenttypesof
decisionstoresolvethem.Problemscanbestructuredproblemsorunstructured
problemsanddecisionscanbeprogrammeddecisionsornonprogrammed
decisions.
Structuredproblemsarestraightforward,familiar,andeasilydefined.In
dealingwithstructuredproblems,amanagermayuseaprogrammeddecision,
whichisarepetitivedecisionthatcanbehandledbyaroutineapproach.
Managersrelyonthreetypesofprogrammeddecisions:
Aprocedureisaseriesofinterrelatedsequentialstepsthatcanbeusedto
respondtoastructuredproblem.
Aruleisanexplicitstatementthattellsmanagerswhattheycanorcannotdo.
Apolicyisaguidelineformakingdecisions.
Unstructuredproblemsareproblemsthatareneworunusualandforwhich
informationisambiguousorincomplete.Theseproblemsarebesthandledbya
nonprogrammeddecisionthatisauniquedecisionthatrequiresacustom
madesolution.
Athigherlevelsintheorganizationalhierarchy,managersdealmoreoftenwith
difficult,unstructuredproblemsandmakenonprogrammeddecisionsin
attemptingtoresolvetheseproblemsandchallenges.Lowerlevelmanagers
handleroutinedecisions,usingprogrammeddecisions.
DecisionMakingConditions
Decisioncanbemadeunderconditionsofcertainty,uncertaintyandrisk.
Certaintyisasituationinwhichamanagercanmakeaccuratedecisions
becausealloutcomesareknown.Fewmanagerialdecisionsaremadeunderthe
conditionofcertainty.
Morecommonisthesituationofrisk,inwhichthedecisionmakerisableto
estimatethelikelihoodofcertainoutcomes.
Uncertaintyisasituationinwhichthedecisionmakerisnotcertainandcannot
evenmakereasonableprobabilityestimatesconcerningoutcomesof
alternatives.Insuchasituation,thechoiceofalternativeisinfluencedbythe
limitedamountofinformationavailabletothedecisionmaker.Itsalso
influencedbythepsychologicalorientationofthedecisionmaker.
Anoptimisticmanagerwillfollowamaximaxchoice,maximizingthe
maximumpossiblepayoff.
Apessimisticmanagerwillpursueamaximinchoice,maximizingtheminimum
possiblepayoff.
Themanagerwhodesirestominimizethemaximumregretwilloptfora
minimaxchoice.
DecisionMakingStyles:Managershavedifferentstylesinmakingdecisions
andsolvingproblems.Oneperspectiveproposesthatpeopledifferalongtwo
dimensionsinthewaytheyapproachdecisionmaking.Onedimensionisan
individualswayofthinkingrationalorintuitive.Theotheristheindividuals
toleranceforambiguityloworhigh.Diagrammingthesetwodimensionslead
toamatrixshowingfourdifferentdecisionmakingstyles.
Thedirectivestyleischaracterizedbylowtoleranceforambiguityanda
rationalwayofthinking.
Theanalyticstyleisonecharacterizedbyahightoleranceforambiguityanda
rationalwayofthinking.
Theconceptualstyleischaracterizedbyahightoleranceforambiguityandan
intuitivewayofthinking.
Thebehavioralstyleischaracterizedbyalowtoleranceforambiguityandan
intuitivewayofthinking.
Inreality,mostmanagershavebothadominantstyleandalternatestyles,with
somemanagersrelyingalmostexclusivelyontheirdominantstyleandothers
beingmoreflexible,dependingontheparticularsituation.
DecisionMakingBiasesandErrors:Managersusedifferentstylesandrules
ofthumb(heuristics)tosimplytheirdecisionmaking.Someofdecision
makingbiasesanderrorsare:
Overconfidencebiasoccurswhendecisionmakerstendtothinkthattheyknow
morethantheydoorholdunrealisticallypositiveviewsofthemselvesandtheir
performance.
Immediategratificationbiasdescribesdecisionmakerswhotendtowant
immediaterewardsandavoidimmediatecosts.
Theanchoringeffectdescribeswhendecisionmakersfixateoninitial
informationasastartingpointandthen,onceset,failtoadequatelyadjustfor
subsequentinformation.
Selectiveperceptionbiasoccurswhendecisionmakersselectivelyorganizeand
interpreteventsbasedontheirbiasedperceptions.
Confirmationbiasoccurswhendecisionmakersseekoutinformationthat
reaffirmstheirpastchoicesanddiscountinformationthatcontradictstheirpast
judgments.
Framingbiasoccurswhendecisionmakersselectandhighlightcertainaspects
ofasituationwhileexcludingothers.
Availabilitybiasisseenwhendecisionmakerstendtoremembereventsthatare
themostrecentandvividintheirmemory.
Decisionmakerswhoshowrepresentationbiasassessthelikelihoodofanevent
basedonhowcloselyitresemblesothereventsorsetsofevents.
Randomnessbiasdescribestheeffectwhendecisionmakerstrytocreate
meaningoutofrandomevents.
Thesunkcostserroriswhenadecisionmakerforgetsthatcurrentchoices
cannotcorrectthepast.Insteadofignoringsunkcosts,thedecisionmaker
cannotforgetthem.Inassessingchoices,theindividualfixatesonpast
expendituresratherthanonfutureconsequences.
Selfservingbiasisexhibitedbydecisionmakerswhoarequicktotakecredit
fortheirsuccessesandblamefailureonoutsidefactors.
Hindsightbiasisthetendencyfordecisionmakerstofalselybelieve,oncethe
outcomeisknown,thattheywouldhaveaccuratelypredictedtheoutcome.
Chapter7
FoundationsofPlanning
Planningisoneofthefourfunctionsofmanagement.Planninginvolvesdefiningthe
organizationsgoals,establishinganoverallstrategyforachievingthesegoals,and
developingplansfororganizationalworkactivities.Thetermplanningasusedinthis
chapterreferstoformalplanning.
PurposesofPlanning
Planningservesanumberofsignificantpurposes.
Planninggivesdirectiontomanagersandnonmanagersofanorganization.
Planningreducesuncertainty.
Planningminimizeswasteanduncertainty.
Planningestablishesgoalsorstandardsusedincontrolling.
PlanningandPerformance
Althoughorganizationsthatuseformalplanningdonotalwaysoutperformthosethat
donotplan,moststudiesshowpositiverelationshipsbetweenplanningand
performance.Effectiveplanningandimplementationplayagreaterpartinhigh
performancethandoestheamountofplanningdone.Studieshaveshownthatwhen
formalplanninghasnotledtohigherperformance,theexternalenvironmentisoften
thereason.
TheRoleofGoalsandPlansinPlanning
Planningisoftencalledtheprimarymanagementfunctionbecauseitestablishesthe
basisforallotherfunctions.Planninginvolvestwoimportantelements:goalsandplans.
Goals(oftencalledobjectives)aredesiredoutcomesforindividuals,groups,orentire
organizations.
Typesofgoals
Financialgoalsversusstrategicgoals
Financialgoalsrelatedtothefinancialperformanceoftheorganizationwhilestrategic
goalsarerelatedtootherareasofanorganizationsperformance.
Statedgoalsversusrealgoals
Statedgoalsareofficialstatementsofwhatanorganizationsaysandwhatitwantsits
variousstakeholderstobelieveitsgoalsare.Realgoalsarethosethatanorganization
actuallypursues,asdefinedbytheactionsofitsmembers.
TypesofPlans
Planscanbedescribedbytheirbreadth,timeframe,specificity,andfrequencyofuse
OnthebasisofBreadthplanscanbeStrategicoroperationalplans.Strategicplans
(longtermplans)areplansthatapplytotheentireorganization,establishthe
organizationsoverallgoals,andseektopositiontheorganizationintermsofits
environment.Operationalplans(shorttermplans)areplansthatspecifythedetailsof
howtheoverallgoalsaretobeachieved.
OnthebasisofTimeframeplanscanbeShorttermorlongtermplans.Shortterm
plansareplansthatcoveroneyearorless.Longtermplansareplanswithatime
framebeyondthreeyears.
OnthebasisofSpecificityplanscanbeSpecificordirectionalplans.Specificplans
areplansthatareclearlydefinedandleavenoroomforinterpretation.Directional
plansareflexibleplansthatsetoutgeneralguidelines.
OnthebasisofFrequencyofuseplanscanbeSingleuseorstandingplans.Asingle
useplanisaonetimeplanspecificallydesignedtomeettheneedsofaunique
situation.Standingplansareongoingplansthatprovideguidanceforactivities
performedrepeatedly.
ApproachestoEstablishingGoals
GoalscanbeestablishedthroughtheprocessoftraditionalgoalsettingorthroughMBO
(managementbyobjectives).
Traditionalgoalsettingisanapproachtosettinggoalsinwhichgoalsaresetatthetop
leveloftheorganizationandthenbrokenintosubgoalsforeachlevelofthe
organization.
Traditionalgoalsettingassumesthattopmanagersknowwhatisbestbecauseoftheir
abilitytoseethebigpicture.Employeesaretoworktomeetthegoalsfortheir
particularareaofresponsibility.
Thistraditionalapproachrequiresthatgoalsmustbemademorespecificastheyflow
downtolowerlevelsintheorganization.Instrivingtoachievespecificity,however,
objectivessometimesloseclarityandunitywithgoalssetatahigherlevelintheWhen
thehierarchyoforganizationalgoalsisclearlydefined,itformsanintegratedmeans
endchainanintegratednetworkofgoalsinwhichtheaccomplishmentofgoalsat
onelevelservesasthemeansforachievingthegoals,orends,atthenextlevel.
Managementbyobjectives(MBO)isaprocessofsettingmutuallyagreedupongoalsand
usingthosegoalstoevaluateemployeeperformance. StudiesofactualMBOprograms
confirmthatMBOcanincreaseemployeeperformanceandorganizationalproductivity.
However,topmanagementcommitmentandinvolvementareimportantcontributionsto
thesuccessofanMBOprogram.ThefollowingstepsareinvolvedinatypicalMBO
program:
Theorganizationsoverallobjectivesandstrategiesareformulated
Majorobjectivesareallocatedamongdivisionalanddepartmentalunits.
Unitmanagerscollaborativelysetspecificobjectivesfortheirunitswiththeirmanagers
Specificobjectivesarecollaborativelysetwithalldepartmentmembers
Actionplans,defininghowobjectivesaretobeachieved,arespecifiedandagreedupon
bymanagersandemployee
Theactionplansareimplemented
Progresstowardobjectivesisperiodicallyreviewed,andfeedbackisprovided
Successfulachievementofobjectivesisreinforcedbyperformancebased
rewards
Whetheranorganizationusesamoretraditionalapproachtoestablishingobjectives,
usessomeformofMBO,orhasitsownapproach,managersmustdefineobjectives
beforetheycaneffectivelyandefficientlycompleteotherplanningactivities.
CharacteristicsofWellDesignedGoals
Writtenintermsofoutcomes
Measurableandquantifiable
Clearastoatimeframe
Challenging,butattainable
Writtendown
Communicatedtoallorganizationalmembers
FiveStepsinGoalsSetting
Reviewtheorganizationsmission(thepurposeoftheorganization).
Evaluateavailableresources.
Determinethegoalsindividuallyorwithinputfromothers
Writedownthegoalsandcommunicatethemtoallwhoneedtoknow.
Reviewresultsandwhethergoalsarebeingmet.Makechangesasneeded.
DevelopingPlans
Theprocessofdevelopingplansisinfluencedbythreecontingencyfactorsandbythe
particularplanningapproachusedbytheorganization.
ThreeContingencyFactorsinPlanningare
Managerslevelintheorganization:Operationalplanningusuallydominatesthe
planningactivitiesoflowerlevelmanagers.Asmanagersmoveupthroughthelevelsof
theorganization,theirplanningbecomesmorestrategyoriented.
Degreeofenvironmentaluncertainty:Thegreatertheenvironmentaluncertainty,themore
directionalplansshouldbe,withemphasisplacedontheshortterm.Whenuncertaintyis
high,plansshouldbespecific,butflexible.Managersmustbepreparedtoreworkand
amendplans,oreventoabandontheirplansifnecessary.
Lengthoffuturecommitments:Accordingtothecommitmentconcept,plansshould
extendfarenoughtomeetthosecommitmentsmadetoday.Planningfortoolongorfortoo
shortatimeperiodisinefficientandineffective.
ApproachestoPlanning
Inthetraditionalapproach,planningwasdoneentirelybytoplevelmanagerswhowere
oftenassistedbyaformalplanningdepartment.
Anotherapproachtoplanningistoinvolvemoremembersoftheorganizationinthe
planningprocess.Inthisapproach,plansarenothandeddownfromoneleveltothe
next,butaredevelopedbyorganizationalmembersatvariouslevelstomeettheir
specificneeds.
CriticismsofPlanning
Althoughplanningisanimportantmanagerialfunctionwithwidespreaduse,fivemajor
argumentshavebeendirectedagainstplanning:
Planningmaycreaterigidity.
Planscantbedevelopedforadynamicenvironment.Formalplanscantreplace
intuitionandcreativity.
Planningfocusesmanagersattentionontodayscompetition,notontomorrows
survival.
Formalplanningreinforcessuccess,whichmayleadtofailure.
Theexternalenvironmentisconstantlychanging.Thereforemanagersshoulddevelop
plansthatarespecific,butflexible.Managersmustalsorecognizethatplanningisan
ongoingprocess,andtheyshouldbewillingtochangedirectionsifenvironmental
conditionswarrant.Flexibilityisparticularlyimportant.Managersmustremainalertto
environmentalchangesthatcouldimpacttheeffectiveimplementationofplans,and
theymustbepreparedtomakechangesasneeded.
Chapter8
StrategicManagement
Thepresentdaynewsisfilledwithexamplesofchangingorganizationalstrategieslike
Mergers,Strategicalliances,Downsizing,SpinoffsandGlobalexpansion.Thischapter
examinesthestrategicmanagementprocessasitrelatestotheplanningfunction.
Managersmustcarefullyconsidertheirorganizationsinternalandexternal
environmentsastheydevelopstrategicplans.Theyshouldhaveasystematicmeansof
analyzingtheenvironment,assessingtheirorganizationsstrengthsandweaknesses,
identifyingopportunitiesthatwouldgivetheorganizationacompetitiveadvantage,and
incorporatingthesefindingsintotheirplanning.Thevalueofthinkingstrategicallyhas
animportantimpactonorganizationperformance.
Strategicmanagementiswhatmanagersdotodeveloptheorganizationsstrategies.
Strategicmanagementinvolvesallfourofthebasicmanagementfunctionsplanning,
organizing,leading,andcontrolling.
Strategicmanagementhasaisimportantfororganizationsasithasasignificantimpact
onhowwellanorganizationperforms.Intodaysbusinessworld,organizationsofall
typesandsizesmustmanageconstantlychangingsituations.Todayscompaniesare
composedofdiversedivisions,units,functions,andworkactivitiesthatmustbe
coordinated.Strategicmanagementisinvolvedinmanyofthedecisionsthatmanagers
make.
Thestrategicmanagementprocessisasixstepprocessthatencompassesstrategic
planning,implementation,andevaluation.
IdentifyingtheOrganizationsCurrentMission,Objectives,andStrategies:
Everyorganizationneedsamission,whichisastatementofthepurposeofan
organization.Themissionstatementaddressesthequestion:Whatistheorganizations
reasonforbeinginbusiness?Theorganizationmustidentifyitscurrentobjectivesand
strategies,aswell.
ExternalAnalysis:Managersineveryorganizationneedtoconductanexternal
analysis.Influentialfactorssuchascompetition,pendinglegislation,andlaborsupply
areincludedintheexternalenvironment.Afteranalyzingtheexternalenvironment,
managersmustassesswhattheyhavelearnedintermsofopportunitiesandthreats.
Opportunitiesarepositivetrendsinexternalenvironmentalfactors;threatsare
negativetrendsinenvironmentalfactors.Becauseofdifferentresourcesand
capabilities,thesameexternalenvironmentcanpresentopportunitiestoone
organizationandposethreatstoanother
InternalAnalysis:Internalanalysisshouldleadtoaclearassessmentofthe
organizationsresourcesandcapabilities.Anyactivitiestheorganizationdoeswellor
anyuniqueresourcesthatithasarecalledstrengths.Weaknessesareactivities
theorganizationdoesnotdowellorresourcesitneedsbutdoesnotpossess.The
organizationsmajorvaluecreatingskillsandcapabilitiesthatdetermineits
competitiveweaponsaretheorganizationscorecompetencies.Organizationalculture
isimportantininternalanalysis;thecompanysculturecanpromoteorhinderits
strategicactions.SWOTanalysisisananalysisoftheorganizationsstrengths,
weaknesses,opportunities,andthreats.
FormulatingStrategies:AftertheSWOT,managersdevelopandevaluatestrategic
alternativesandselectstrategiesthatareappropriate.Strategiesneedtobeestablished
forcorporate,business,andfunctionallevels.
ImplementingStrategies
EvaluatingResultstoknowhoweffectivethestrategieshavebeenandifany
adjustmentsarenecessary.
TypesofOrganizationalStrategies
Strategicplanningtakesplaceonthreedifferentanddistinctlevels:corporate,business,
andfunctional
Corporatestrategy
Itisanorganizationalstrategythatdetermineswhatbusinessesacompanyisin,should
bein,orwantstobein,andwhatitwantstodowiththosebusinesses.Therearethree
maintypesofcorporatestrategies:
a.
Agrowthstrategyisacorporatestrategythatisusedwhenanorganization
wantstogrowanddoessobyexpandingthenumberofproductsofferedormarkets
served,eitherthroughitscurrentbusiness)orthroughnewbusinesses.
Astabilitystrategyisacorporatestrategycharacterizedbyanabsenceofsignificant
changeinwhattheorganizationiscurrentlydoing.
Arenewalstrategyisacorporatestrategydesignedtoaddressorganizational
weaknessesthatareleadingtoperformancedeclines.Twosuchstrategiesare
retrenchmentstrategyandturnaroundstrategy.
CorporatePortfolioAnalysisisusedwhenanorganizationscorporatestrategy
involvesanumberofbusinesses.Managerscanmanagethisportfolioofbusinesses
usingacorporateportfoliomatrix,suchastheBCGmatrix.TheBCGmatrixisa
strategytoolthatguidesresourceallocationdecisionsonthebasisofmarketshareand
growthrateofStrategicBusinessUnits(SBUs).
Business(Competitive)Strategy
Abusinessstrategy(alsoknownasacompetitivestrategy)isanorganizational
strategyfocusedonhowtheorganizationwillcompeteineachofitsbusinesses.
Competitiveadvantageplaysanimportantroleinformulatingthebusinessstrategy.A
competitiveadvantageiswhatsetsanorganizationapart,thatis,itsdistinctiveedge.
Anorganizationscompetitiveadvantagecancomefromitscorecompetencies.
Ifimplementedproperly,qualitycanbeonewayforanorganizationtocreatea
sustainablecompetitiveadvantage.Anorganizationmustbeabletosustainits
competitiveadvantage;itmustkeepitsedgedespitecompetitorsactionandregardless
ofmajorchangesintheorganizationsindustry.
MichaelPortersworkexplainshowmanagerscancreateandsustainacompetitive
advantagethatwillgiveacompanyaboveaverageprofitability.Industryanalysisis
animportantstepinPortersframework.Hesaystherearefivecompetitiveforcesat
workinanindustry;together,thesefiveforcesdetermineindustryattractivenessand
profitability.Porterproposesthatthefollowingfivefactorscanbeusedtoassessan
industrysattractiveness:
Threatofnewentrants.Howlikelyitisthatnewcompetitorswillcomeintothe
industry?Managersshouldassessbarrierstoentry,whicharefactorsthatdetermine
howeasyordifficultitwouldbefornewcompetitorstoentertheindustry.
Threatofsubstitutes.Howlikelyisitthatproductsofotherindustriescouldbe
substitutedforacompanysproducts?
Bargainingpowerofbuyers.Howmuchbargainingpowerdobuyers(customers)
have?
Bargainingpowerofsuppliers.Howmuchbargainingpowerdoacompanys
suppliershave?
Currentrivalry.Howintenseisthecompetitionamongfirmsthatarecurrentlyinthe
industry?
AccordingtoPorter,managersmustchooseastrategythatwillgivetheirorganizationa
competitiveadvantage.Porteridentifiesthreegenericcompetitivestrategies.Which
strategymanagersselectdependsontheorganizationsstrengthsandcorecompetencies
andtheparticularweaknessesofitscompetitor(s).Basedontheaboveanalysis,only
threetypesofgenericstrategiesareavailabletoorganizationstochoosefrom.Theyare:
Acostleadershipstrategyisabusinessorcompetitivestrategyinwhichthe
organizationcompetesonthebasisofhavingthelowestcostsinitsindustry.
Adifferentiationstrategyisabusinessorcompetitivestrategyinwhichacompany
offersuniqueproductsthatarewidelyvaluedbycustomers.
Afocusstrategyisabusinessorcompetitivestrategyinwhichacompanypursuesa
costordifferentiationadvantageinanarrowindustrysegment.
Anorganizationthathasbeennotbeenabletodevelopeitheralowcostora
differentiationcompetitiveadvantageissaidtobestuckinthemiddle.
FunctionalStrategy
Thesearestrategiesusedbyanorganizationsvariousfunctionaldepartmentsto
supportthebusinessorcompetitivestrategy
NewDirectionsinOrganizationalStrategies
EBusinessStrategies.UsingtheInternet,companieshavecreatedknowledgebases
thatemployeescantapintoanytime,anywhere.Ebusinessasastrategycanbeusedto
developasustainablecompetitiveadvantage;itcanalsobeusedtoestablishabasisfor
differentiationorfocus.
CustomerServiceStrategies.Thesestrategiesgivecustomerswhattheywant,
communicateeffectivelywiththem,andprovideemployeeswithcustomerservice
training.
InnovationStrategies.Thesestrategiesfocusonbreakthroughproductsandcan
includetheapplicationofexistingtechnologytonewuses.
