I.

The basic concepts of management

Activity= something we do in order to obtain a certain result (reading a book, talking on the phone,
driving, selling, writing, making a decision). Each activity has a beginning and an end, some inputs and
outputs and a certain transformation of the inputs into outputs and a final result. They differ from one
another in respect to complexity, length of time and final results; can be performed by a single person or
by a group. Activities are considered usually the smallest identifiable entities which can be recognized
due to their specific results.
Events= end points that represent the completion of a given activity
Tasks= smaller entities resulting from breaking up activities (generally in a work environment since tasks
have an extrinsic source). The concept of tasks can be used to specify a piece of work that somebody has
to do, especially a hard, unpleasant one. It is an oriented action, developing alongside a line force,
within a given force field.
Work= generated by an extrinsic field of forces with respect to an individual and from this point of view
it is objective and impersonal and with a result outside of the worker
Play= generated by individual intrinsic forces, meaning his own motivation and the final result satisfies
some of his needs.
Process= series of activities which are integrated into a larger enterprise with the purpose of creating
value for society (goods, services and knowledge) such as a car= result of complex technological process,
theory= scientific process, getting a degree= learning process. A process can be the result of a series of
tangible and intangible activities or a combination of the two. We associate activity and work with
human action and operation and mechanical work with a machine. Most processes combine human
activities with machine operations.
There is no definite semantic boundary between activity and process, both have relative meaning.
Therefore, a process can be broken into several sub-processes which can be processes or activities.
Management= process, not activity, but each managerial process can be considered an integration of
many activities and tasks.
A process is usually the result of an organizational integrator (powerful field of forces capable of
combining two or more elements into a new entity, based on interdependence and synergy. They might
have a physical or virtual nature and must possess the capacity of interacting in a controlled way)
Business= all profit-seeking activities and enterprises that provide goods and services necessary to an
economic system.
Profits- rewards for businesspeople who take the risks involved in creating the goods and services for
the market. From a quantitative POV profit are considered by accountants the difference between
revenues and expenses. Drucker showed profitability should not be the purpose of any busines, instead
it should be considered a limiting factor on business enterprise. Profit is not the explanation, cause or
rationale of business behavior but the test of their validity (the first test is not maximization, but the
realization of sufficient profit to cover the risks of the economic process). It is the result of short-term
thinking and it clashes permanently with CSR.
Purpose of a business= create value for society by satisfying needs coming from customers. Strategic
management goal is to create a competitive advantage by creating value for society, thus profit is a
result of this thinking and not a purpose.
Structure= a certain arrangement of elements in a given context and their interactions. Can be static
(buildings, bridges and other things used in civil engineering) and dynamic (engines, plant equipment
used in mechanical and electrical engineering and also in the human body). Also, social structures are
the most complex and dynamic structures since they imply both formal and informal, rational and
emotional, compulsory and optional, temporal and permanent relations. Structures can also be tangible
(containing physical objects such as a car engine), intangible (concepts, ideas, emotions, values
connected by rational or emotional relations and past experiences) and hybrid.
System= interconnected elements designed to perform a given task, an integral result of all those
interconnections which yield a synergy effect. It can be tangible (human body) and intangible (a
scientific theory). It can be considered a cognitive model representing organized knowledge about a
given piece of reality (a scientific theory about some natural phenomena). It is always defined by an
internal environment and an interface with the external environment. If there are no fluxes of materials,
energy or information exchanged between the internal and external environments crossing the
interface, the system is closed and if there are fluxes, it is open. A system can be closed to some fluxes
and open to others, such as a computer closed to material fluxes and open to energy and information
fluxes. The internal environment is characterized by a certain structure and a specific process, but for a
given system there can be designed different structures and processes and there is no unique solution.
Organization= a social system designed to perform one or several tasks (a company, charity, university,
public administration institution). It has a structure and develops certain processes to accomplish a
given mission. It is a human invention which allowed to assemble a large nr. of people and put them
together to accomplish something impossible for a single person. It has a relative meaning; it is only a
tool to make people productively work together. Comes from the Greek organon meaning tool.
Every organized human activity gives rise to two basic and conflicting requirements:
 Division of labor into various tasks
 Coordination of these tasks to accomplish the given activity or process.

The structure of an organization can be defined simply as the pattern or the way in which labor is
divided into distinct tasks and then coordination is achieved among these tasks

Capabilities= organizational capacity to integrate tangible and intangible resources and to use them
efficiently in performing different organizational tasks. The integration process is based on the
information and knowledge flows within the organization and the cumulative experience of managers.
This means developing organizational cultures that stimulate knowledge processes and decrease all
organizational barriers developed in time due to industrial era management. It also means changing the
vertical and centralized information system with very little contribution of informal communication with
horizontal and decentralized information system with large contribution from informal communication
between people all over the company. Also, it means developing the necessary skills for employees to
use the resources they have more efficiently. Harder to imitate than resources due to their intangible
nature and because they are a combination of several tangible and intangible resources and skills.
Examples of organizational capabilities:

 Motivating, empowering, retaining employees

 Effective use of logistics management techniques
 Effective and efficient control of inventories through point-of-purchase data collection methods
 Effective promotion of brand-name products
 Design and production of reliable products
 Miniaturization of components and products
 Using efficiently the teamwork and cooperation between different departments of the company

Company competence= product of learning and integrating efficiently resources and capabilities in
performing a given process, the result of a conscious effort to do something very well, a mix of
resources, skills, know-how and technology.

Core competence- something that a company does very well relative to other internal activities. When
it’s in comparison with other companies, it’s a distinctive competence. A core competence becomes a
basis for competitive advantage only when distinctive. Criteria used to determine strategic capabilities:

 Valuable- exploit opportunities and neutralize external threats

 Rare- possessed by few
 Costly to imitate- competitors cannot easily develop because of financial costs such as organizational
knowledge, intelligence and culture
 Non-substitutable- does not have strategic equivalents

Stakeholders- interested parties in the development and success of a given organization. They are
internal and external.

Models of organizations:

A. Mechanical model- learning how to design, build and use efficiently machines. Factories became a
model for shaping any organization and organizational life. Processes and activities have been
structured according to mechanical principles and workers’ life has been organized with the
precision of a clock (daily programs, predetermined set of activities, rest at appointed hours). Work
is very mechanical and repetitive (mass-production factory, public administration institutions, banks,
financial companies). Bureaucracy is a mechanical model of an organization that emphasizes
precision, speed, clarity, regularity, reliability and efficiency, which can be achieved by means of a
functional structure based on a fixed division of tasks, hierarchical supervisions and detailed rules
and regulations. Main characteristics:
 well defined and rigid organizational structure with clear boundaries for departments and detailed
job descriptions
 vertical hierarchy for management with clear chair of command
 elaborate and detailed rules for organizational behavior and standard operating procedures that
governed activities, specified in written documents and files

This model is based on linear, deterministic thinking, enhancing predictability and reliability of the
organization behavior; an impersonal system that does not differentiate its outcomes and procedures
according to individual differences or favoritism. It is successful for static external environments, but it is
rigid and unable to adapt to new business requirements

B. The biological model- flexible internal structure, more individual autonomy for employees and
capacity to adapt easily to environmental changes. Organizational structure not rigid, but can be
well defined, hierarchy losing its clearly defined lines of authority and some of the middle levels of
management, becoming flat. It means empowerment and pushing decision-making processes to the
front line of the company, so that the unit responsible for implementing the decision also has the
power to make or participate in making it. Advantages:
 Flat and flexible organizational structure with open systems as departments which are permeable to
informal information fluxes
 Matrix structures of the internal environment break the unique line of authority, since a worker may
have 2 superiors
 Implementing TQM systems, accepting changes, becoming proactive in continuous improvement of
their product quality
 Implementing Just-In-Time leads to close supplier relationships
 Putting people in some functional areas in direct contact with certain consumers without classical
interface departments in order to increase the receptivity to change
 Increasing communication between people and departments as a result of new powerful IT systems
 Internal flexibility and external adaptability
C. The Social Model- developing as a reaction to the new economy based on knowledge and
intelligence. This means putting emphasis on people and their knowledge and not on machines. This
model’s first elements are the organizational or corporate culture (shared cultural values and
beliefs, patterns of behavior beyond the formal regulations of the organization integrated). Cultures
of excellence stress the need for values, innovation and learning capacity. Excellent organization are
learning organizations and knowledge-creating companies. This model is an extension of the brain
model at the society level and integrates the cultural model of the organization. Places crucial role
on values, knowledge, intelligence and creativity. Dismantles mechanical model myths concerning
efficiency and productivity. Main characteristics:
 Flexible organizational structure based on teamwork; job descriptions lost their power in favor of
more individual liberty and creativity
 Flat management hierarchy, democracy and leadership, more rapid and flexible responses to market
changes
 Management looks for diversity of approaches and viewpoints which increase chances for
innovation and creativity
 More value put on knowledge and more transparency for information and knowledge diffusion
 Vision and shared mission of a company, profit maximization is replaced by strategic advantage
principle, well defined market orientation and CRM
 Corporate ethics and CSR, good PR
D. Virtual model- based on internet and new technology developments concerning information
processing and communication such as Amazon and eBay. Replaces physical location and tight
structure of the organization with a virtual location and network configuration. Contains
fragmentation and incoherence, physical work is transformed into digital workflow, top-down
decision making is transformed into a neural system and formal communication into intranet and
common shared information basis. Main operating concepts: unstructured distribution, complexity
and coherence.

Management = activity or process of getting things done, effectively and efficiently through or with
other people (at limit can be done by one 1 person such as writer). It is a general human activity we
perform in everything we do and it is responsible for the success of our work, the way we are using our
resources and the satisfaction people obtain in getting things done.
Good management is concerned with both attaining goals and doing so as efficiently as possible. To
measure attaining goals we use efficiency (doing the tasks correctly, measures the value of the output
with respect to inputs) and effectiveness of efficacy (doing the right tasks)
Quality= measures the degree to which a product or service is able to satisfy the end user, a relation
between product, producer and consumer

Interdependence between management and production processes:

People working in production- operatives or executives

Tasks of management defined by Fayol- planning, organizing, commanding, coordinating and

controlling. Over time these have been compressed:
 Planning- overall direction of the work to be done, including forecasting future trends, assessing
actual and patenting resources and defining objectives and targets for future performance
 Organizing- preparing the organization for the implementation of the plan, deciding how to allocate
time and effort. Includes determining what tasks to be done, who is in charge, how the tasks are
grouped, who reports to whom and where decisions are to be made. Establishing the adequate
organizational and functional structure, selecting staff, revising pay or choosing suppliers
 Leading- directing to people, generating effort and commitment towards meeting objectives and it
includes motivating employees, directing others’ activities, performing efficient communication and
resolving conflicts
 Controlling- monitoring the job progress and performance, comparing it with goals and correcting
any deviations, provides an opportunity to learn from past events

These are not liner and sequential. These tasks are the kernel activities of operational management (the
process of management run every day within an organization to get things done, decision making is
based on short-term thinking, while long-term thinking is for strategic management). Each developed
into new fields of management as shown below:

Manager- someone who gets things done effectively and efficiently with the aid of other people. They
can be classified as:

 Top managers- responsible for decisions about the direction of the company and establishing
policies that affect all organizational members. Titles: VP. President, chancellor, managing director,
chief operating officer, CEO, chief knowledge officer, chairperson of the board. For them most
important is planning and leading.
 Middle managers- responsible for translating the goals set by top management into specific details
that lower-managers can perform. Titles: department/agency head, project leader, unit chief,
district managers, dean, bishop, division managers. New trends with flat structures have fewer
intermediate managers.
 First-line managers- direct day to day activities and are called team leaders, coaches, supervisions,
heads of administrative departments. For them most important is organizing and controlling.

General manager skills:

 Conceptual- mental ability to analyze, understand and diagnose complex situations

 Interpersonal skills
 Technical skills, more important for front line manager
 Political skills- building a power base and establishing right connections

Specific skills: organizing and coordinating, handling information, providing for growth and
development, motivating employee and handling conflicts, strategic problem solving,

Management Charter Initiative Competencies for Middle Managers:

II. Business environment of the company

a) Internal environment

A company has competitive advantage over its rivals when its profitability is greater than the average
profitability of all companies in its industry and this is a sustained competitive advantage when it is able
to maintain above-average profitability over a number of years. Sources of competitive advantage:

1. Strategy and distinctive competences (reciprocal relationship): the primary objective of a strategy is
to obtain competitive advantage and to do that, a company must create distinctive competences
(allow a company to differentiate its products and/or achieve substantially lower costs than its
rivals). These competences arise from two complementary sources: resources and capabilities.
 Resources: physical, social, human, technological, financial and organizational factors that allow a
company to create value for its customers. Can be tangible (physical, technological, organizational
and financial) and intangible (brand name, reputation, organizational culture, knowledge, patents,
copyrights). The more firm-specific, valuable and difficult to imitate a resource is the more likely the
company is to have a distinctive competency.
 Capabilities: a company’s skills at coordinating its resources and putting them to productive use
through organization rules, routines, procedures, manner to take decisions and manage its internal
processes to achieve organizational objectives. They are the competencies that a firm employs to
transform inputs into outputs. They are the product of its organizational structure, processes and
control systems. They are intangible and reside in the way individuals interact, cooperate and make
decisions within the context of an organization. Examples: outstanding customer service, excellent
product development, superb innovation processes and flexibility in manufacturing.

For a company to have a distinctive competency it must have either a firm-specific and valuable
resource and the capabilities necessary to take advantage of that resource or a firm specific capability to
manage resources. It is stronger when it has both firm-specific and valuable resources and firm-specific
capabilities to manage those resources.

Value creation and profitability- competitive advantage leads to a superior profitability. The profitability
of a company depends on three factors: the value consumers place in the company products, the price
that a company charges for its products, the cost of creating those products. The value customers place
on a product reflects the utility they get from a product and the satisfaction gained from consuming or
owning the product.

Utility- what the customers get from a product, a function of the attributes of the product such as
performance, quality, design, after-safe service. The price is typically less than the utility value placed on
that good or service because the customer captures some of that utility in the form of what economists
call consumer surplus. Individual unique assessment of the utility of a product is called reservation price.
Achieving a sustained competitive advantage and superior profitability requires the right choices with
regard to utility through differentiation and pricing given the demand conditions in the company’s
market and the company’s cost structure.
The value chain: the company is a chain of activities for transforming inputs into outputs that customers
value. These can be primary activities (R&D, Production, Marketing and Sales, Customer Service) and
support activities ( company infrastructure- context within which all other value creation activities take
place, organizational structure, culture, control systems and these can be shaped by top management;
information systems, materials management, HR,). These activities are interrelated on 2 levels: within
the firm and relationships among activities within the firm and with organizations (customers and
suppliers) that are part of the firm’s expanded value chain.

According to Michael Porter, primary activities are (inbound logistics, operations, outbound logistics,
marketing and sales, service) and secondary activities (general administration, HRM, technology
development, procurement). Primary activities add value by contributing to the creation of the
product/service, its sale and transfer to the buyer and its service after the sale, while support activities
add value by themselves or through important relationships with primary activities and other support
activities. Should be used in the broadest concept, without regards to the boundaries of the organization
and include in the value chain also suppliers, customers and alliance partners.

Inbound logistics- primarily associate with receiving, storing, distributing inputs to the product. Includes
material handling, warehousing, inventory control, vehicle scheduling and returns to suppliers. Just-in-
time was designed to make it efficient.

Operations- all activities associated with transforming inputs into final products: machining, packaging,
assembly, testing, printing, creating environmentally friendly manufacturing and facility operations.

Outbound logistics: activities associated with collecting, storing and distributing the product or service
to buyers. Include finished goods, warehousing, material handling, delivery vehicle operation, order
processing and scheduling.

Procurement- the function of purchasing inputs used in the firm’s value chain such as raw materials,
supplies and other consumables together with assets like machinery, business, equipment.

Service- all activities associated with providing service to enhance or maintain the value of the product
such as installation, repair, training, parts supply and product adjustment.

General administration- activities like general management, planning, finance, accounting, legal,
government affairs, quality management and information systems. Supports the entire value chain and
can be a powerful source of competitive advantage.

Value is the amount that buyers are willing to pay for what a firm provides them. It is measured by total
revenue, a reflection of the price a product commands and the quantity it can sell. Margin means
creating value for buyers that exceeds the costs of production.

Building competitive advantage: four factors which build and sustain competitive advantage:

 superior efficiency (quantity of inputs it takes to produce a given output; its main components are
employee productivity and capital productivity)
 quality (product=bundle of attributes such as form, features, durability, reliability, design and style)
is higher when customers perceive its attributes give higher utility. Two kinds of attributes: quality as
excellence (design and style, features, functions, service) and quality as reliability (consistently doing
the job it was designed for)
 innovation: product innovation and process innovation, probably the most important building block
of competitive advantage
 customer’s responsiveness: better at identifying and satisfying its customer needs; customizing
goods and services to unique demands of customers; customers response time, superior design and
service and after-safe service and support
These are the product of the distinctive competences. These competences allow a company to
differentiate its products, offering more utility to its customers and lowers its cost structure. These
factors are generic distinctive competences because any company can pursue them and they are highly
interrelated.
Durability of competitive advantage depends on three factors:
 Barriers to imitation: the longer it takes competitors to imitate a distinctive competency the greater
the opportunity the company has to build a strong market position and reputation with customers
that are more difficult for competitors to attack. Differ whether a competitor tries to imitate
resources (tangible ones the easiest, but also intangible such as marketing) or capabilities (harder to
imitate because they are based on the way in which decisions are made and managed deep within a
company and hiring people might not be enough).
 Industry dynamism: most dynamic those with high rate of product innovation, short product life
cycle and short-term competitive advantage

For a resource to provide sustainable competitive advantage, it must have 4 attributes: VRIO criteria-
valuable (neutralize threats and exploit opportunities), rare(not many firms have it), difficult to imitate
(unique, path dependency- resources are unique and scarce because of all that has happened along the
path followed in their development and accumulation such as brand loyalty, trust; causal ambiguity,
social complexity such as interpersonal relationships with managers, culture reputation with suppliers
and customers and even exploitation of physical technology), difficult to substitute.

Causal ambiguity- would-be competitors may be thwarted because it is impossible to disentangle the
causes (or possible explanations) of either what the valuable resource it or how it can be re-created.
Causally ambiguous resources are usually organizational capabilities due to the complex web of social
interactions that may depend on particular individuals.

Competitive disadvantage- resources are not valuable, rare, difficult to imitate or without substitutes.

Competitive parity- resources are valuable, but not rare, difficult to imitate or without substitutes.

Temporary competitive advantage- resources are valuable and rare, but not difficult to imitate or
without substitutes

Sustainable competitive advantage: resources are valuable, rare, difficult to imitate and without
substitutes.

Factors that explain to what extent the employees and managers will be able to obtain a
proportionately high level of the profits they generate:

 Employee bargaining power: if they are vital to forming a firm’s unique capabilities, they will earn
disproportionately high wage
 Employee replacement costs: if the skills are idiosyncratic and rare.
 Employee exit costs: it reduces the bargaining power because of the possible high costs of leaving
the organization such as firm-specific employee expertise
 Manager bargaining power: based on how well they create resource-based advantages and value
through the process of organizing, coordinating and leveraging employees and capital.

B) The external environment

Industry= a group of companies that offer products or services that are close substitutes for each other,
products or services that satisfy the same basic customer needs (soft drinks, water, fruit punch) which
serve as an industry boundary. To identify it, businesses need a customer-oriented view rather than a
product-oriented view. An industry is the supply side of a market and the companies are the suppliers.
The customers are the demand side of the market, the buyers.

Sector= group of closely related industries such as the computer sector comprises several related
industries including computer component, computer hardware and PC industry.

Market segments- distinct groups of customers within a market that can be differentiated from each
other based on their distinct attributes and specific demands. Ex: caffeine free market in the soft drink
industry.

Industry boundaries may change as customer needs evolve or new technologies emerge, enabling
companies to satisfy established customer needs in a new way. EX: convergence between computer
equipment and telecommunications industries.

The theory of business- the set of assumptions about the structure of the relevant industry, competitors
and customers that managers carry

Inputs to forecasting:

Environmental scanning- involves surveillance of a firm’s external environment to predict

environmental changes to come and to detect changes already underway. It alerts the organization to
critical trends and events before the changes have developed a discernible pattern and before
competitors recognize them. Otherwise, the firm might become reactive instead of proactive. The
trends and issues identified can include globalization, time to market, shifting roles and responsibilities.

Environmental monitoring- tracks the evolution of environmental trends, sequences of events or

streams of activities. These may be trends that the firm came across by accident or were brought to its
attention from outside the organization. It involves closer, ongoing scrutiny than scanning. It allows to
evaluate how dramatically the environmental trends are changing the competitive landscape. Examples
of trends monitored: net disposable income, CPI, nr of active hospital beds.

Competitive intelligence helps firms define and understand their industry and identify rivals’ strengths
and weaknesses. It includes the intelligence gathering associated with the collection of data on
competitors and interpreting the data for decision making. Done properly it helps a company to avoid
surprises by anticipating competitors’ moves and decreasing response time. It is:

 information analyzed to the point where you can make a decision

 tool to alert management to early recognition of both threats and opportunities
 a means to deliver reasonable assessments because it offers approximations of the market and
competition
 a way of life, a process that becomes everyone’s job, making critical information available to those
who need it.

Competitive intelligence is not:

 spying
 a crystal ball because it gives good approximations, but doesn’t predict the future
 database search because the data has to be analyzed
 a job for one smart person

Environmental forecasting- involves the development of plausible projections about the direction,
scope, speed and intensity of environmental change with the purpose to predict change. Uses inputs
from scanning, monitoring and competitive intelligence. The dangers of forecasting are that managers
may assume the world is certain and compile strategies that neither defend against threats nor take
advantage of opportunities or they assume the world is uncertain and completely unpredictable and
abandon analytical rigor of traditional planning process and base strategies on gut instincts.

Scenario analysis- more in-depth approach to forecasting that draws on a range of disciplines like
economics, psychology, sociology and demographics. Helps cope with uncertainty, especially on medium
to long-term. Helps to anticipate and respond to volatile and disruptive environmental changes.

SWOT: Analyses a firm’s internal and external environment. The latter could be factors from the general
environment or trends. Limitations: strengths may not lead to advantage, focus on external
environment too narrow, primarily a static assessment, overemphasizes a single dimension of strategy.

General environment: factors that can have dramatic effects on firm strategy and which are hard to
predict and control. It is divided into the following segments:

 demographic (easiest to quantify and understand): aging population, rising affluence, changes in
ethnic composition, geographic distribution of population, greater disparities in income levels
 sociocultural (influence values, beliefs and lifestyles): more women in the workforce, increase in
temporary workers, greater environmental concerns, postponing family formation
 political/legal: taxes, laws
 technological (innovations can create new industries and alter the boundaries of existing ones):
genetic engineering, IT, nanotech, wireless communication
 economic: interest rates, unemployment, CPI, GDP
 global: increasing global trade, currency exchange rates, emergence of some economies, trade
agreements and WTO

Competitive environment- refers to many factors relevant to a firm’s strategy such as competitors
(existing and potential), customers and suppliers.

Porter’s five forces model- forces that shape competition in the industry. The stronger these forces are,
the more limited the ability of established companies to raise prices and earn profits. Thus, a strong
competitive force is a threat because it decreases profits. The task of managers is to recognize how
changes in the five forces give rise to new opportunities and threats and to formulate appropriate
strategic responses that might alter the strength of the forces. It helps decide if you should remain in an
industry, increase resource commitment.

 The risk of new entrants: potential competitors (not currently competing in an industry, but with
the capability to do so). It is a function of the height of the barriers to entry such as economy of
scale, product differentiation, capital requirements, switching costs, access to distribution channels,
brand loyalty, cost advantage, government regulations and the combined reactions of existing
competitors.
 Rivalry among established companies in an industry: competition over market share through price,
product design, advertising, promotion spending, direct selling efforts, after-sale service and
support. Influenced by industry competitive structure, demand conditions, cost conditions and the
height of exit barriers in the industry. Intense rivalry is the result of numerous or equally balanced
competitors, slow industry growth, high fixed or storage costs, lack of differentiation or switching
costs, capacity augmented in large increments.
 Bargaining power of buyers (consumers, retailers or wholesalers): refers to the buyers’ ability to
bargain down the prices or to raise the costs by demanding better quality and services. They are
most powerful when:
o the industry supplying a particular product or service is composed of many small
companies and the buyers are large and few in number, thus dominating suppliers
o when buyers purchase in large quantities, thus bargaining for price
o it earns low profits
o when the supply industry depends on the buyers for a large % of its total orders
o when switching costs are low so buyers can play off the supplying companies against
each other
o when buyers threaten to backward integrate
o when it is economically feasible for buyers to purchase an input from several
companies at once so that buyers can play off once company in the industry against
another
 Bargaining power of suppliers: they can raise input prices or raise the costs of the industry by
providing poor-quality inputs or poor services. They are more powerful when:
o The product the suppliers sell has few substitutes and it vital to the companies in an
industry
o High switching costs
 o Profitability of suppliers is not significantly affected by the purchases of companies
in a particular industry, in other words, when the industry is not an important
customer to suppliers
o Threat of forward-integration
o Companies in the industry cannot threaten to enter their suppliers’ industry and
make their own inputs
 The threat of substitutes: products in different businesses or industries that can satisfy the same
needs ( coffee with tea and soft drinks)

Five forces caveats: it is a static analysis and assumes a zero-sum game, determining how a firm can
enhance its position relative to the forces, instead of developing constructive win-win relationships with
suppliers and customers. Doesn’t acknowledge complementors.

Value net- represents all the players in the game and analyzes how their interactions affect a firm’s
ability to generate and appropriate value. Its vertical dimension includes suppliers and customers and
horizontal dimension has substitutes and complementors, players with which the firms interacts, but not
necessarily transacts.

Strategic groups- similar firms with similar strategies where competition is more intense. Dimensions
used to map these firms include breadth of product and geographic scope, price/quality, degree of
vertical integration, type of distribution. Mobility barriers prevent the movement of firms from one
strategic group/position to another. Strategic groups help chart the future directions of strategies and
are helpful in thinking through the implications of each industry trend for the strategic group as a whole.

Industry life-cycle analysis: similarities and differences between companies often become more
pronounced over time and its strategic groups structure often changes. The strength of the competitive
forces also changes with the industry evolution, especially the threat of new entrants and the rivalry
among existing firms. There are five stages in the evolution of an industry:

1) Embryonic industries: just beginning to develop, slow growth because of buyers’ unfamiliarity with
the industry products, high prices due to inability to have economies of scale and poorly developed
channels. Barriers to entry based on access to key technological know-how rather than cost
economy or brand loyalty. Rivalry is not based on price, but on educated customers, opening up
distribution channels and perfecting the design of the product. This may also be the creation of one
company’s innovative efforts, which gives opportunity for lack of rivalry and strong hold of market
2) Growing industries: demand starts to take off, customers become familiar, prices fall due to
experience and scale economy and distribution channels. Importance of control over technological
knowledge as a barrier to entry has diminished. Other entry barriers tend to be relatively low
because few companies have achieved scale and brand loyalty, but high growth means that new
entrants can be absorbed into an industry without a market increase in the intensity of the rivalry
(low rivalry). Revenues and profits expand without taking market share from competitors.
3) Industry shakeout: rate of growth slows, demand approaches saturation and is limited to
replacement because there are few potential first-time buyers left. Rivalry becomes intense,
companies that have become accustomed to rapid growth continue to add capacity at rates
consistent with past growth, but demand is no longer growing at historical rates and excess
productive capacity emerges
4) Mature industry: market totally saturated, demand limited to replacement, growth low or zero.
Barriers to entry increase, threat of potential competitors decreases. Companies no longer maintain
historic growth, merely holding on to market share, competition increases, prices go down, we can
have price wars. Companies have to focus on lowering costs and building brand loyalty.
5) Declining industries: growth becomes negative for reasons such as technological substitutes, social
changes, demographics, international competition. Degree of rivalry increases, competitive
pressures can become as intense as in the shakeout stage. Falling demand leads to excess capacity
and cut prices. Exit barriers play a part in adjusting excess capacity (the higher the barriers, the
harder for the company to reduce capacity and the greater the threat of severe price competition)

Resource-based view (RBV) of a firm combines two perspectives: the internal analysis of phenomena
within a company and an external analysis of the industry and its competitive analysis. It goes beyond
SWOT because it integrates internal and external perspectives. It helps build strategies by revealing how
core competencies embedded in a firm can help it exploit new product and market opportunities.

III. Planning

Planning= natural activity we do when thinking for the future, made difficult because the future does
not exist as a deterministic and well-defined segment of our life.

There can be only a possible future as a result of many forces and events that shape our way in life or
there can be many possible futures if we think in terms of probable scenarios. The significance of
scenario thinking lies in its ability to help overcome thinking limitations by developing multiple futures.
Thinking for the future means also to think for opportunities and the possibility of using them based on
our strengths and vision.

Time: directional and irreversible, continuous like space and our existence, can be segmented since any
event, activity or process has a beginning and an end. Thus, time can be measured. We use an
orientation metaphor to structure along the timeline the past, present and future.

Two attitudes with respect to the future: reactive (time is moving and the future comes over us, thus we
have to react quickly to all these possible events, adapting continuously to changes in the external
environment) and proactive( considers oneself moving towards the future, there is no meaning in just
waiting for events to happen and to respond to then when they actually do happen, but to prepare for
future events and using them to one’s advantage)

When events cannot be anticipated anymore, planning is no longer deterministic, but probabilistic.

Planning as a managerial function:

 according to Taylor: tasks specify what is to be done, how it is to be done and the exact time
allowed for doing it. In his time, management played a very important role in planning and
organizing the production process. Planning was done for short periods of time and took into
consideration necessary resources, difficulty of the task and necessary motion sequences. Later on,
Gantt introduced a bar diagram to schedule all elementary activities in their succession. Thus,
 planning is a simple activity performed by the management at job level, a deterministic activity,
leaving no room for innovation. There is only one best way and management has to find it.
 Fayol- considered planning one of the five basic functions of management. It became a complex
process which integrated at the level of the organization all activities and is based on the whole
resources and objectives, but it remains a deterministic process. Planning plays a fundamental role
in setting up the stage for the management process. It means having well defined objectives and
directions for action to achieve them and is essential is performing process control.

Two different ways of planning:

 Time planning- time is taken as a measurable dimension and each activity is scheduled along the
time dimension. We have strategic plans (directional plans, 3-5 years framework), tactical plans
(more detailed, 1-3-year framework), operational plans (detailed plans conceived to describe each
operation necessary to be done withing a framework of a few months up to a year.
 Objectives-planning: different reference system although time and objectives are in both
frameworks, structured on objectives and best-known method is MBO (Management by Objectives).
This means a system in which specific performance objectives are jointly determined by
subordinates and their supervisors, progress towards objectives is periodically reviewed and
rewards are allocated on the basis on the progress. This makes objectives operational by a process
in which they cascade down through the organization. Overall organizational objectives are
translated into departmental objectives and finally they become individual objectives. Main tasks of
MBO:
o Identify an employee’s key job tasks
o Establish specific and challenging goals for each key task
o Allow the employee to actively participate
o Prioritize goals
o Build in feedback mechanisms to assess goal progress
o Link rewards to goal attainment
MBO can have the following stages:

o Managers and their employees discuss possible objectives for the next period of time
o Jointly, managers and their employees select and define the objectives with the highest
priority
o Jointly, they develop plans to achieve these objectives
o Jointly, they meet and evaluated progress in achieving the objectives
Potential difficulties: managers and employees agreeing on the same objectives and strategies,
employees’ resistance to formulate adequate feedback in evaluating their progress in achieving the
goals. Also, it is very difficult and not so used and they encourage competition instead of cooperation, so
now the goals are more defined at team-level to encourage teamwork

Managerial planning:

1) Operational planning: a process which integrates activities for setting objectives, specifying how to
achieve them, implementing the plan and evaluating the results.
Objectives= definite formulations of goals which reflect desired future states of the organization.
Defined states, become clear targets for the organization, division or department.

Goals= attractors for the whole energy and creativity of the organization and it is the role of
management to design plans in order to attain them. Anchors in the future, directional and less specific.

Plan= written document which contains one or more objectives, necessary resources to allocate, basic
activities to be done, how they should be done, time schedule and also risk analysis.

Different levels of planning (3) and their hierarchy is strategic and divisional which are directional,
operational, which is specific.

Main components of the planning process:

 setting goals and objectives. Goals defined according to SMART framework. Stretching goals- setting
very ambitious goals for the company and it is a powerful motivator, but stressful. Also, important to
get a goal commitment.
 creating solutions to achieve the objectives. Two types of solutions: standard (for repetitive
problems, appearing in similar contexts) and unique (for new problems or new business
environment). Thus, we have standing plans (save effort and time by reusing structures) for the first
and single-use plans for the latter. Types of standing plans: policies ( suggest the general course of
action for a specific type of event such as policies for flexible working time), procedures (more
specific, describing the necessary steps to be done to accomplish a specific activity, like dynamic
templates used in quality and safety management) and regulations (more specific, contain what
must be done and what is forbidden)
 time structuring using concurrent analysis- classical Gannt based on linear thinking model, while
concurrent analysis is based on nonlinear thinking models and activities that can be performed in
parallel, reducing total time, since activities can overlap, can be done when there is powerful IT an
requires deep understanding of production process.
 allocating dynamically resources- organizational knowledge can be increased through knowledge
sharing and knowledge creation, can be improved through training. Good plans identified all needed
 resources and allocates them in a progressive or just in time manner, thus avoiding initial stocks and
cutting costs. Important to have slack resources: cushions of extra resources that can be used to
adapt the plan to unanticipated changes, problems or opportunities.
 implementing the plan requires changes in the organization that might generate resistance, thus the
organizational culture needs to be able to sustain and accept them. Individual and organizational
inertia forces oppose change and overcoming them implies good understanding of change
management and practical methods to deal with people and organizational culture.
 monitoring progress= periodic evaluation of the progress made, providing solutions. Built-in-
flexibility= provide possible modifications to the plan without putting its final objectives in danger.
This is the most important stage for generating feedback and creating provisions for success. Also,
adapting learning-based planning process- method which assumes that operational plans need to be
continually evaluated, tested, changed and improved as companies learn better ways of achieving
their objectives.
 evaluating results with the purposes of adjusting if necessary the final result to approach it to the
expected one and to gain experience and use it for improving planning activity

When planning is done well, it contributes to the direction of progress, motivating people, using
efficiently all necessary resources and providing a way of measuring progress.

2) Strategic planning: directional planning, based on long-term thinking, spanning 3-5 years or
more. Action oriented towards the future, structuring the unknown future and trying to orient
the organization development that it will meet possible business environment requirements.
Different patterns of thinking:
a) Planning is future thinking: generic pattern, since anything can be considered thinking about the
future.
b) Planning is controlling the future: taking actions to control the progress of activities designed for
the future. However, this pattern remains unbounded because planning does not eliminated
uncertainties bout the future.
c) Planning is decision making: more appropriate, but still too general
d) Planning is integrated decision making: interconnected decision, done intuitively by visionary
leaders
e) Planning is a formalized procedure to produce an articulated result, in the form of an integrated
system: formalization means to decompose, articulate and especially to rationalize the process by
which decisions are made and integrated in organizations. Integrated systems of decisions are called
strategies- practical ways of reaching objectives in a dynamic business environment. Main
components of a generic strategy: proactive component ( first to be built, based on available
knowledge about the objective and desired future), reactive component (result of new events and
emergent ideas associated to environmental changes, being the flexible part).

Main stages of the strategic planning are presented in sequence, but they have feedback in a
reverse cascade, the who process based on intrinsic dynamics:
Vision= ideal state of a company’s development in a desirable future, kind of a roadmap of the
company’s future, reflecting the management’s aspirations for the organization and its business,
providing a panoramic view of where it is going and giving specifics about its future business plan. It
is a long-term goal and molds organizational identity. It is an organization attractor and shows a
virtual target and a strategic path for the organization to follow.

Mission statement= focused on present business scope, answering to questions like who they are
and what they do. It broadly describes the organization’s present capabilities, customer focus and
fundamental values. It reflects the existence purpose of the company. The mission is a very strong
integrator able to unify the company wide efforts for goal achieving.

Both show the basic philosophy of the company in doing business for people and not for profit
maximization.

Strategic objectives: major objectives for the company to be achieved over 3-5 years or more. They
are broken down into smaller objectives and there is a hierarchy or objectives from top to bottom,
but their achieving process is from bottom to top, from operational level, to tactical and them
strategic.

Internal analysis: done to evaluate internal tangible and intangible resources, capabilities and core
competences. To understand better the importance of each category of resources in the production
process, a chain value analysis is needed to show the ratio between how many resources are spent
for how many contributions to the final product

External analysis: done for the evaluation of the business environment. Both internal and external
analysis send inputs to the SWOT.

Limits of planning:
 Coming from the thinking model used by managers, so if it is a linear, deterministic one, the plan will
be mostly an extrapolation of the present situation and very rigid with respect to possible
modifications due to new and unexpected events. Serious constraint, especially for strategic
planning. This limit can be overcome by developing a probabilistic, nonlinear thinking model with
nonlinearity helping managers to understand more complex relations between causes and effects.
 Coming from the vision and mission of the company so that if they are defined narrowly such as
maximizing profits, the focus will not be on developing a sustainable business. To overcome it, the
company should look to develop a robust and sustainable business based on achieving a competitive
advantage and the vision and mission should direct all the efforts for social value creation and CSR.
 Coming from organizational culture- resistance to change and inertial forces. To overcome it, there
should be a dynamic organizational culture developed.
 Coming from the tendency to use managerial tools developed for work with tangible resources to
solve problems involving intangible resources.
 Coming from the external business environment such as the turbulence which created many
problems in anticipating the future and planning for the future.

IV. Decision Making

Problem= gap between what is and what ought to be. Fix-it problem or close-end problem (between
some existing situations) and a Do-it problem or open-end problem (looking for achieving an objective
and for practical ways to do it which do not follow a known pattern or procedure)

Option or alternative= actually a possible way of action which contributes to the solution of the
problem.

Choice- result of the thinking process and it represents the essence of a decision (choice between two
or more alternatives)

The structure of the decision-making process- several activities, some of them which can be done in an
iterative process.

1) Problem identification and formulation- know very well the present state of the system they are in
charge of and the context in which the system works or its contingency. Also, important to
understand the system’s future state, where we want to bring it and the gap between the initial and
final states. Formulating a problem means specifying the two states of the perceived gap and
providing information about the context in which the gap is perceived.
2) Defining the decision criteria, values and constraints: criteria are like the dimensions of a reference
system (price, comfort, durability) which reflect some values from our professional and cultural
backgrounds, experience, organizational culture and top management vision. Each value and criteria
have a given relative importance or weight in the reference system. Constraint: time, costs,
efficiency, legislation which act like limiting factor and cannot be broken or overcome, but respected
or changed to relax a certain decision.
3) Developing of alternative: at least 2, but that reduces from the beginning the chances of a better
outcome. Natural search for alternatives means looking for the best one and only considers rational
alternatives, while the lateral search means producing as many approaches as possible.
4) Analysis of alternatives: decision maker must have a clear set of principles and values
5) Selection of the best alternative: the essences of a decision-making process, most specific
managerial action. Due to probabilistic nature of management, the principle of the one best way
formulated by Taylor has changed to the best way which means having all the necessary data,
information and knowledge in describing the alternatives and their possible consequences. Thus,
managers seek to find the action that is good enough, rational choice replaced by limited or
bounded rationality.
6) Implementation of the selected alternative: carefully analyzing the risks for each alternative and
monitoring the progress and the evaluation of decision effectiveness.

Types of problems and decisions:

Problems can be: well-structured/well-defined (hiring new workers, implementing quality management)
or ill-structured/ill-defined (investing in new technology).

a) Programmed decisions- for straightforward and repetitive problems, handled by a routine

approach, relying on previous solutions and the stage of developing activities is almost nonexistent.
They reduce the degree of uncertainty in management process. Work well in static, quasi-static or
inertial environments. Procedure- a series of interrelated sequential steps that a manager can use
when responding to a well-structured problem, usually a written document approved at a certain
management level. It results from integrating several rules. Rule- an explicit statement that tells a
manager what she should/shouldn’t do and can be used for simple well structure problems.
b) Non-programmed decisions- for new situations and changed managerial contexts (M&A decisions,
global markets decisions). Here generating alternatives is very important.

Decision making models:

A. Rational model- interprets action as a rational choice, no pace for emotional involvement. It is not
the same with accuracy since it does not guarantee a good solution. Substantive rationality- result of
perfect decision-making process when the right course of the action is chosen, however the decision
maker is limited in his ability through knowledge and the final result is an approximation of the
perfect course of action. Finding this good enough solution is the result of the procedural rationality.
Rational models assume decision processes that are consequential and preference-based. It has
been used in macro and micro economics, statistics and social sciences. It answers the following
questions:
 Generating alternatives: What actions could be possible?
 Defining expectations: What future consequences may each alternative have? How likely are they?
 Using preferences: How valuable are the consequences associated with each alternative
 Formulating rules: How will the choice of best alternative be make in a given managerial context?

The rational model operates with events which can be well defines, the problem well structured with
complete information about the initial and final states of the system and there is a single goal to be
attained. The nr. Of alternatives is finite and their consequences is well known.

The rational choice can operate with deterministic models assuming that events are certain and there is
no uncertainty about the consequences and with probabilistic models assuming that events are not
certain, they have probabilities of occurrence and there is uncertainty. Uncertainty introduces the
concept of risk.

In probabilistic approaches there are 4 potential attitudes:

 Pessimistic- choose best of the worst alternative or maxmin principle

 Optimistic- choose best of the best alternative or maxmax principle
 Realistic- consider events have equal probabilities and choose the highest outcome value or apply
Laplace principle
 Minimizing regrets- choose the lowest value of maximum regrets value.
B. Bounded rationality- events are not certain, but probable, high uncertainty increasing with time and
lack of information, large nr. Of alternatives, several goals and criteria to be applied and many
variables are not independent from one another. The bounded rationality model means that the
decision produces a good enough or satisfactory solution. Thus, they consider only the easiest to
find alternatives and make choices based on previous experience. Constraints come from
information, attention, memory, comprehension and communication. Maximizing is replaced with
satisficing which means choosing an alternative that exceeds some criterion or target.
C. The heuristic model- judgmental shortcuts are called heurists and these save time and intellectual
efforts. This model incorporated emotional aspects structured as past experience. Thus, this cannot
be explained or applied as successfully by everybody. Experience= condensed, well-structured
knowledge called tacit knowledge. Intuition= using experience in a non-conscious way, integrating
emotions and imagination. Adaptive unconsciousness- intuitive thinking based on the brain’s
capacity to process huge amounts of information and on making decisions without the contribution
of the conscious part. Thin-slicing- finding patterns in situations and behaviors based on very narrow
slices of experience.

Group decision making has some advantages such as more initial information in identifying and defining
a problem, more alternatives generated, useful debates and greater legitimacy for the chosen
alternative. It can be:

a) Linear decisions: decided by equal votes and the voice depends on the majority. Relatively easy and
quick process, but the implementation is difficult and takes time. Homogenous group when
members have the same intellectual capacity and specialization, linearity not being a burden
anymore. However, when the group has persons from different fields of activity, the group Is
nonhomogeneous and the decision loses its significance.
b) Nonlinear decisions: decision making processes differ from country to country, depending on
cultural values and traditions. In Japanese companies, group decisions are made by consensus,
where all members of the group are searching a certain level of agreement, without imposing the
 voting system, meaning more debates and then reaching a conclusion that satisfies everybody’s
interests. To ensure that nobody openly opposes the decision, it is necessary to create a critical
mass in favor of the alternative to be chose. Take more time to decide, but less time in
implementation

Groupthink- a form of conformity in which group members withhold deviant, minority or unpopular
views to give the appearance of agreement, thus undermining critical thinking and influencing the
quality of the final choice. Also, more influential members put pressure on those who may have a
different opinion and the courage to express it, creating an illusion of unanimity. This can be reduced by
eliminating the pressure of conformity, devil’s advocacy and dialectical enquiry.

V. Risk analysis
There can be considered a scale of uncertainty ranging from predictable uncertainty (world
demographics) to uncertain uncertainty (new technology). In deterministic thinking, uncertainty is
denied to create a false confidence. Managers try to reduce uncertainty by developing strategies to
achieve company goals in the next 3-5 years.

According to objective interpretations, probabilities are real and they constitute a metric to measure
uncertainty, but according to subjective interpretations, they are human beliefs and individuals use
them to characterize their own uncertainty.

Financial risk- unexpected variability or volatility of returns and includes both potential worse than
expected as well as better than expected returns.

In project management risk is the cumulative effect of the probability of uncertain occurrences that may
positively or negatively affect project objectives.

The nature of any risk is composed of 3 fundamental elements: the event, the probability of event
occurrence and the severity or impact of the event occurrence.

Categories of risks facing organizations:

Managerial risk taking= when managers make choices associated with uncertain outcomes

Organizational risk taking= when organizations face volatile income streams which are associated with
turbulent, unpredictable events.

Four important influences on risk perception: how one understands risks (fear and control), how one
perceives loss and gain, cognitive biases (exist due to our thinking models and can arise from heuristics
that appear such as intuitions or hunches) and personality.

Black Swan events- impact of highly improbable events is much more than we are aware.

Risk management integrates the following main activities:

 Risk identification done in a top-down manner by examining publicly available information,

conducting risk identification workshops with senior managers or applying risk identification
techniques to financial data and in a bottom-up process by holding workshops with middle, lower
managers with results aggregated at board level. Risks can be internal or external, can be from
threats and identified using SWOT. Common risk identification methods are: objectives-based risk
identification (risks that endanger an objective), scenario-based risk identification (events triggering
undesired scenarios), taxonomy-based risk identification (breaking down each general risk source
into several elemental risk sources), common-risk checking. Company-wide risks are as follows:
business risks (product risk, technological risk, macroeconomic risk assumed by a company to create
a competitive advantage and they are symmetrical risks), event risks (legal, reputational, disaster,
political associated with external causes and out of company control, they are not symmetrical),
financial risks (market risk, liquidity risk, credit risk, operational risks and these are symmetrical).
 Risk definition- done to formulate as clearly as possible the nature of the risk, the factors that could
generate such a risk and its possible consequences on the decision-making process.
 Risk evaluation- based on probability and magnitude and it means obtaining a quantitative estimate
of the magnitude of the harmful event by using a certain method such as event tree analysis and the
fault tree analysis
 Risk mitigation: transfer (cause another party to accept the risk by contract), avoidance, mitigation
(reduce the severity of the possible negative consequences) and acceptance (accept loss when it
occurs)
 Risk monitoring- done for accepted risks in order to keep the level of loss under some expected
values and the effectiveness of this stage depends on the efficiency of the previous stages

VI. Organizing
Organizing= the process of arranging people in an organization, to allow them to accomplish the
organizational goals

Organizational structure= the formal system of task and job reporting relationships that determine how
employees use resources to achieve organizational goals. It is the outcome of organizational design,
which is the process by which managers make specific organizing choices about tasks and job
relationships. It balances 2 conflicting forces: a need for the division of tasks into meaningful grouping
and the need to integrate such groupings in order to ensure organizational efficiency and effectiveness.
It indicates executive, managerial and administrative organization of a firm, the responsibilities and
hierarchical relationships and it influences the flow of information and the context and nature of human
interactions.

Authority= manager’s power to make decisions concerning the use of organizational resources and to
ask subordinates to do or not to do something, power given by his/her position in an organization.

Power= broader, more amorphous concept, reflecting the power of some individuals to influence
others, has to do with leadership skills of a person

Unity of command- one of Fayol’s 14 principles of management according to which one employee
should receive orders and report to only one boss to prevent conflicting orders

Chain of command (scalar chain or line of authority)- vertically links every position in the organization
with successfully higher levels of management.

Span of control- nr. Of people directly supervised by a manager. Can be narrow or wide and this is
connected with the levels of authority in the chain of command. A tall structure has many levels and
narrow spans of control, while a flat one has fewer levels of authority and a wider span of control.

Centralization vs Decentralization: centralization is the concentration of authority at the top of the

managerial hierarchy, managers at the top make the most decisions about the use of resources and give
subordinates orders, allowing top managers more control. There is a greater trend for decentralization,
due to the fact that not all decisions can be understood at one center, in one brain, information may be
too soft, difficult to transmit; it allows the organization to respond quickly to local conditions; it may be a
stimulus for motivation, especially for creative and intelligent people.

Delegation: entrusting work to others by giving them the right to make decisions and take actions. If
properly done, it leads to empowerment

Formalization: the degree to which jobs within the organization are standardized.

Factors that affect the organizational structure: according to contingency theory, there is no best way
to organize, the organizational structures chosen are dependent on the characteristics of the external
environment and this structure is not forever and should be changed if need be. Among the contingency
factors are:

 organizational environment (if uncertainty is low, more formal structure, centralized authority)
 strategy ( 1 single SBU- functional structure; new SBUs- product divisional structure; international-
geographic divisional structure)
 Technology (small-batch technology- highly flexible, empowering structure; mass-production
technology- more formal structure; continuous-process technology- very high flexibility needed by
workplaces such as nuclear power stations)
 Size and life cycle: in birth state a simple structure with few employees, more layers added as they
start to grow
 human resources- encourage knowledge, teamwork and empowerment

Job Design- process by which managers decide how to divide into specific jobs the tasks that have to be
done. Job enlargement- nr. Of tasks associated with the job is increased. Motivating employees can be
done through: skill variety, task identity (doing all the tasks needed to perform a job from start to end),
task significance, autonomy, feedback.

Types of organizational structures:

1) Simple structure- oldest, most common, for very small organizations. Here owner-manager controls
all activities and the staff serves as an extension of the top executive’s personality. It is highly
informal and concentration of tasks is accomplished by direct supervision. Decision making is
centralized and there is little specialization of tasks, few rules and regulations and an informal
evaluation and reward system. A manager is often employed to oversee day-to-day operations. This
can foster creativity and individualism, but it can also blur the responsibilities, leading to conflict,
confusion and to the employee acting in their own self-interest. Thus, motivation is eroded as well
as satisfaction and leads to misuse of organizational resources. The flat structure limits opportunities
for upward mobility, making recruiting and retaining talent difficult.
2) Functional structure- when firms grow and there is a single or closely related product or service,
high production volume and some vertical integration, they move from simple to functional. This
means grouping all jobs in an organization around basic business functions (departments) such as
R&D, marketing and sales, production, financial, HR, departments or geographic areas. Used for
production, tourism businesses. Advantages: encourages specialization and more efficient us of
managerial and technical talent, coordination, centralized decision making, greater control over
departments’ activities, easier monitoring and evaluation of performances. Disadvantages: short-
term thinking, difficulty in establishing uniform performance standards across the whole
organization, departments focus on their own objectives and miss the whole picture; difficulties in
communication and coordination across departments (silo effect), confliction actions of
departments, needing to be solved by management, thus making it less appropriate for companies
in unstable, changing environments.

3) Divisional structure: groups together people working on the same product or process, serving
similar customers and/or located in the same geographical region. Each of these divisions includes
its own functional specialist who is typically organized in departments. There is a set of relatively
autonomous units governed by a central corporate office. It can be of 3 types: product structure,
market structure; geographic structure. Advantages: separation of strategic and operating control,
allow employees to focus on one type of product, responding better to customers’ needs, more
flexible, new units can be easily added and old ones removed without seriously affecting the overall
structure, sharing resources problems solved, enhancing development of general management
talent. Yet, they are not as efficient since they must duplicate personnel and equipment, cannot take
advantage of economies of scale like functional ones can, there can be dysfunctional competition
among divisions and differences in images and quality may occur among divisions.
2.1) Strategic business Unit Structure (SBU or profit centers)- corporations that are highly diversified
may have dozens of different divisions and corporate office would find it impossible to plan and
coordinate activities because the span of control would be too large. So, they put diverse businesses
into three primary SBUs ( divisions with similar products, markets and/or technologies are grouped into
homogenous groups to achieve some synergies). Good for companies that follow related diversification.
It makes the task of planning more manageable, provides greater authority decentralization, so
individual businesses can react more quickly to changes in the environment. Disadvantages: may
become difficult to achieve synergies across SBUs, increased nr of personnel and overhead expenses and
the additional hierarchical level removes the corporate office further from individual decisions.
2.2) Holding Company structure (conglomerate)- appropriate when the businesses in the portfolio do
not have much in common, limiting the potential for synergies. Good for companies that follow
unrelated diversifications. Corporate offices provide great autonomy and rely on financial controls and
incentive programs. Corporate staff tends to be small, their involvement in the operations of their
businesses limited. It saves expenses due to low personnel and overhead costs and fewer levels in
corporate hierarchy and the autonomy increases the motivational level of the divisional executives,
enabling them to respond quickly to market opportunities and threats. Disadvantage: inherent lack of
control, dependence on divisional executives, little additional managerial talent ready to fill key
positions on short notice and if problems start in a division, it may be difficult to turn around individual
businesses because of limited staff support in corporate office.
4) Matrix structure: combination of functional and divisional, trying to gain advantages of both.
The common matrix superimposes product or project departmentalization on a functional structure.
Advantages: people are grouped by functions, having the chance to learn from one another, to become
more skilled and productive and focus on that product, resources are shared as needed and
collaboration, responding faster and more effectively to changes in competitive environment. An
employee responds to 2 managers: functional manager and the product team manager which might
arise conflicting demands, complicated working relationships and excessive reliance on teamwork and
group processes and a diffusion of responsibility which can erode timely decision making. Uses HR well,
because functional employees are assigned to one team as long as needed then reassigned. There are 2
types of matrix: permanent form where units and people remain stable and shifting form geared
towards project work. Some companies rely on this matrix to combine product groups with geographical
units.
5) Product team structure: for companies with high decentralization; cross-functional teams formed
that bring together people with different backgrounds, from different departments. Differs from
matrix because employees report only to 1 manager and they are permanently assigned to the cross
functional team that is empowered to bring anew or redesigned product to market
6) Hybrid structure: usually for large organizations that have several divisions, but each division had its
own structure that allows it to better respond to factors like environment, HR, strategy, tech. For ex:
Company had 3 product divisions, one with a functional structure and the rest with geographic
structures.
7) Virtual organization: small, core organization that outsources major business functions, highly
centralized, with little departmentalization, creates alliances with groups and individuals from
different organizations who possess the highest capabilities to bring a product to market. Very
flexible, but management loses control over key parts of the business.

8) Boundaryless organization (barrier-free, modular, virtual): they emphasize breaking down all sorts
of boundaries that exist within and outside the organization:
 Barrier-free type: making all organizational boundaries- internal and external (even competitors)-
more permeable. Allows the firm to bridge real differences in culture, function and goals to find
common ground that facilitates information sharing and other forms of cooperative behavior. Must
have high trust and shares interests in all parts of the organization and employees need to have the
skill levels to work in democratic organizations. Shift from executive development to organizational
development in the firm’s philosophy and from investments in high-potential employees to
investments in leveraging the talent of all individuals. Teamwork has advantages: substituting peer-
based control for hierarchical control, meaning the employees control themselves, more creative
and remove layers of hierarchy and absorb administrative tasks. Advantages: Leverages the talent of
all employees, enhances cooperation, coordination and information sharing among functions,
divisions, SBUs and external constituencies, enables a quicker response to market changes through
 single-goal focus, can lead to coordinated win-win initiatives with key suppliers, customers and
alliance partners. Disadvantages: difficult to overcome political and authority boundaries inside and
outside the organization, lacks strong leadership and common vision which can lead to coordination
problems, time-consuming and difficult to manage democratic processes, lacks high levels of trust,
which can impede performance.
 Modular type-emphasizes outsourcing of noncore activities, while maintaining strategic control and
focus on the need to create seamless relationships with external organizations such as customers or
suppliers. Advantages: decreases overall costs, stimulates new product development, avoid idle
capacity, leverages core competencies, maintains full strategic control over most critical core
competencies, avoids being locked into a particular technology, focus scarce resources in the areas
where it holds competitive advantage and adds critical skills and accelerates organizational learning.
Disadvantages: loss of critical skills or developing the wrong skills, inhibits common vision through
reliance on outsiders, loss of cross-functional skills and loss of control over a supplier.
 Virtual (network)- focuses on alliances among independent entities formed to exploit specific
market opportunities. Focuses on the need to create seamless relationships with external
organizations such as customers or suppliers. It is a continually evolving network of independent
companies- suppliers, customers and even competitors- linked together by shared skills, costs and
access to each other’s markets. They work closely together to gain in the long-run, resulting in
individual and organizational learning. They assemble resources from a variety of entities and seem
to have more capabilities than they actually do. Participating firms give up part of their control and
accept interdependent destinies, pursuing a collective strategy. Advantages: enables the sharing of
costs and skills, enhances access to global markets, increases market responsiveness, creates a “best
of everything” organization since every partner brings core competencies to the alliance,
encourages both individual and organizational knowledge sharing, accelerating organizational
learning Disadvantages: harder to determine where one company ends and another begins due to
interdependencies, leads to potential loss of operational control, loss of strategic control over
emerging technology and requires new and difficult to acquire managerial skills.
 Horizontal boundaries: between departments or functions in a firm by having cross-functional team
instead of departments and organizing activities around processes
 Vertical boundaries: between operations and management and levels of management, between
corporate and division, thus flattening the hierarchy, creating healthy hierarchies not completely
removing them
 Geographic boundaries: between different physical locations, different countries, regions and
cultures by dividing international operations
 External interface boundaries: between a company and its customers, suppliers, partners,
regulators and competitors by involving them more in their business.

Factors that facilitate the effective coordination and integration of key activities and the success of a
boundaryless organization include common culture and shared values, horizontal organization
structures (grouping similar and related business units under common management control, cross-
functional teams and consistency in training and developing similar structures across business units),
horizontal systems and processes (TQM, reduction of cycle times and reengineering lower costs),
communications and information technologies and human resources practices.
 When going international, to be successful, managers must ensure consistency between their
strategies and the organization’s structure. 3 major contingencies influence the structure adopted
by firms and these are: the strategy type that is driving foreign operations, product diversity and the
extent to which a firm is dependent on foreign sales. The choice is normally guided by the extent of
product diversity ( if low, worldwide product division, when high, worldwide holding company
structure). Primary types of structures used to manage a firm’s international operations are:
 International division- multidomestic strategies driven by political and cultural imperatives that
require managers within each country to respond to local conditions. Managers have a high level of
autonomy to manage operations within the constraints and demands of their geographic market.
 Geographic-area division- multidomestic strategy shift from international, when foreign sales will
increase as a % of total sales. Driven by political and cultural imperatives that require managers
within each country to respond to local conditions. Managers have a high level of autonomy to
manage operations within the constraints and demands of their geographic market.
 Worldwide functional- global strategy, driven by economic pressures that require managers to view
operations in different geographic areas as only a component of an overall operation that must be
managed for overall efficiency. It is an efficiency perspective, where division managers view
marketplace as homogenous and devote relatively little attention to local market, political and
economic factors
 Worldwide product division- global strategy, driven by economic pressures that require managers to
view operations in different geographic areas as only a component of an overall operation that must
be managed for overall efficiency. It is an efficiency perspective, where division managers view
marketplace as homogenous and devote relatively little attention to local market, political and
economic factors -
 Worldwide matrix- when the firm’s product and market diversity becomes large
 VII. Information and knowledge
Data= a set of discrete signs or symbols used to express pure facts about events, telling nothing about
how or why events happened ( a table of temperature values).

Information= result of processing data, giving it relevance and purpose. It has meaning. Data is
transformed into information by adding value in various ways such as: contextualized (know the purpose
for gathering data), categorized (know the units of analysis or key components of the data), calculated
( the data may have been analyzed mathematically or statistically), corrected (removing errors from
data), condensed (summarized in a more concise form).

Western perspective on knowledge says that mind and body are and operate as two distinct entities and
only the mind is responsible for knowledge generation and knowledge processing. Thus, knowledge of
external things must be by the mind, not by the senses. Cartesian duality between body and mind.
Emphasis put on explicit knowledge.

Knowledge management is based on intangible things, integral part of operational and strategic
management of the firm.

Eastern perspective of knowledge- oneness of body and mind which are integrated into one entity and
knowledge can be acquired through direct experience of the body. Emphasis put on tacit knowledge.

Knowledge is the result of processing information, a mix of experience, values, contextual information
and expert insight that provides a framework for evaluating and incorporating new experiences and
information. It originates and is applied in the minds of knowers. In organizations, it often becomes
embedded not only in documents or repositories but also in organizational routines, practices and
norms.

a) Tacit and explicit knowledge dyad composes the individual knowledge. Tacit knowledge can e
obtained from direct experience and it is stored in the unconscious zone of the brain; it is similar to
practical knowledge and it is the knowing what and non-rational. It contains basically 2
components: a technical component (know-how) and a cognitive component ( mental models,
beliefs and perception) Explicit knowledge can be detached from its owner and processed at the
group or organizational level; it approaches the theoretical knowledge and it is the knowing how. It
is rational and can be gained by communication or explanations.

Organizational knowledge means all the knowledge which can be integrated at the organizational level
from individual knowledge of its members and from incoming knowledge fluxes from the external
environment. It is not the sum of all individual workers knowledge because only explicit knowledge can
be integrated into a new body of knowledge at organization level, tacit knowledge remains at individual
level due to its implicit nature. When a worker leaves, he takes with him his tacit knowledge.

b) Cognitive and emotional knowledge dyad:

Emotions are characterized by the following:

 a feeling component ( physical sensations, including chemical changes in the brain)

 a thinking component(conscious or intuitive thought appraisals)
 an action component (expressive reactions as well as coping behaviors like fight or flight)
 a sensory component (sights, sounds which intrude and trigger emotional responses)

Emotional knowledge has two dimensions: time of existence (quantitative, easily to measure) and
intensity of manifestation (qualitative, harder to measure).

Cognitive knowledge has only one dimension which can be evaluated in a given metric.

Knowledge dynamics: best knowledge dynamics model originated in Nonaka’s research and it has 3
structures (SECI model, Ba shared context and knowledge asset platform) and 2 main dimensions:

 The epistemological dimension describes transforming tacit into explicit knowledge and the reverse.
Explored through SECI model (socialization, externalization, combination, internalization)
 The ontological dimensions describes transforming group knowledge into organizational knowledge,
with possible reverse action
Socialization- most important knowledge transfer since it involves the hidden and sticky part of all
knowledge created at individual level because it involves tacit knowledge. This is an opportunity for
participants to share their experiences and to learn through a direct exchange of tacit knowledge. It
must go beyond everyday dialogues and exchange of neutral phrases. At organizational level, this is
done by promoting the transfer of best practices.

Externalization: individual process through which tacit knowledge is transformed into explicit
knowledge which can be shared, disseminated and transferred to others through verbal and nonverbal
models. It is a highly motivational process and its success depends on the capacity of using efficiently
metaphors, analogies and cognitive models. It is a process of reducing the entropy of our total
knowledge by structuring and integrating new created knowledge into the existing explicit knowledge
structures. It is an antientropic process. Tacit knowledge is fuzzy and hard to evaluate.

Combination: process of creating new network structures of explicit knowledge by integrating pieces of
explicit knowledge into new integral structures. A social process based on the communicable property of
explicit knowledge which is collected and then combined and disseminated among organizational
members. Only from higher level of knowing to lower level of knowing, in accordance with entropy law.

Internalization: individual process, turning explicit knowledge into tacit knowledge. It increases the level
of individual understanding and absorptive capacity and the chances of an individual participating in
socialization.

Kernel of Nonaka’s knowledge dynamics models is the concept of Ba, which means place is Japanese
referring to the contexts and meanings that are shared and created through interactions which occur at
a specific time and in a specific space. It also means relationships of those who are at the specific time
and specific space.

Organizational intelligence: multilevel intelligence; it is the organizational capacity of processing

knowledge in order to get the best solutions for its survival in a competitive environment. It is the result
of an integration process of all individuals’ intelligence, weighed by their relative importance in the
decision-making process within the organization. It is a nonlinear approach of the contribution of each
member and a structured process of integration which reflects the functional structure of the given
organization. It is directly proportional with the top management intelligence. Organizational thinking
model is dynamic, nonlinear and probabilistic. The organization’s ability to grasp as much as possible of
the employees’ tacit knowledge, to adapt to rapidly changing and unpredictable environments, the
organization should be organic, adhocracy and develop its intellectual capital (human capital,
structural capital and relationship capital which refers to marketing relationships).

IX. Organizational culture

Organizational culture can be schematized using the following traits: innovation and risk taking,
attention to detail, outcome orientation ( end justifies the means or are processes important), people
orientation, team orientation, aggressiveness, stability. It is the system of shared beliefs and habits
which constitute the way people do things in the organization. It is not homogenous. In order to define a
culture, some internal and external tasks should be fulfilled in the organization:
External adaptation tasks: core mission, specific goals, basic means, results measured, remedial
strategies

Internal integration tasks: common language, group boundaries, status allocation, peer relationships,
sanctions, managing the unmanageable.

Underlying dimensions of organizational culture: relationship to environment, nature of human

activity, nature of reality and truth, nature of time, human nature, human relationships, homogeneity vs
diversity.

There are usually, beside the dominant culture, organizations, especially large ones that include
subcultures, reflecting the position of particular groups, with well-defined interests and problems. The
core values are kind of the same in both dominant and subculture, but adapted.

Organizational cultures can be either strong (more influential, internalized values to a wide extent and
employees are very committed to them, more loyal and willing to cooperate) and weak ( not so well-
defined values and the members balance between sharing and not sharing them, thus being less
cohesive).

The levels of culture:

 Artifacts: at the surface, include and phenomena that one sees, hears and feels when one
encounters a new group with an unfamiliar culture. They include: language, material symbols, style
as in clothing, manners of address, emotional display, myths and stories, observable rituals and
ceremonies.
 Espoused beliefs and values- values and beliefs that can be empirically tested and that provide
reliable solutions in a variety of situations will be transformed into assumptions. A set of shared
beliefs and values that become part of the organizational philosophy can serve as a guide for dealing
with uncertain events and the ones at this level will predict the behavior observed at the artifacts
level.
 Basic underlying assumptions: solutions that work repeatedly to a problem and become taken for
granted. Extremely difficult to be changed.

Managing culture:

The making of a culture: stems from the past, emerges at the intersection of three factors: founders’
beliefs, values and assumptions , what members of the organization experience in time and newcomers’
beliefs, values and assumptions.

Before a culture there is a climate that depends on the presence of the leader who sets the framework:
what aspects must be paid greater attention to, how a crisis is defined and a system for rewards and
punishments The practices of the leader become artifacts and influence the behavior of future leaders.
Once a culture is built, it is reinforced through stories and rituals.

Attraction-selection-attrition framework: explains the influence of the founder’s personal

characteristics in the making of a culture. Thus, when they hire new employees, they tend to prefer
candidates similar to themselves.
Maintaining culture: is strongly tied to the procedures used while selecting, training, rewarding,
punishing, promoting its human resources. Top management also plays a great role because they set up
norms and represent role models.

People staying with the organization for a career go through a change known as metamorphosis when
they exchange ideas, lifestyles, values and their personalities are modified.

National vs multinational culture: national culture tends to have more impact on employees than
organizational culture.

Value-based management: catalyzed by authentic leaders who actively seek to empower others. An
effective value system inspires people from the very bottom of the organization. Value-based
management needs to meet 4 criteria: relevance, integrity, pervasiveness (core values understood by all
members), strength (values accepted by everyone).

X. Leadership
Leadership characteristics: shift from late 20th century to early 21st century:

Leadership is the visionary use of either formal or informal power to create trust within a group and
thus influence a course of action. Thus, it relies on power, appears within groups, creates trust and
influences some courses of action. Leadership is a mater of context some people that lead in a context
might find themselves being led. In an organization, roles may change, the position of leader is flexible,
circumstantial and no one is a leader ex officio. It is associated with two types of trust: the one you
posses and the one you profess. It is proactive, goal-oriented and focused on the creation and
implementation of a creative vision. It is the process of transforming organizations from what they are
to what the leader would have them be, implying dissatisfaction with the status quo, a vision of what
should be and a process for bringing change.
Leaders- change agents whose success is measured by how effectively they implement strategic vision
and mission. There are 3 interdependent activities that must be continually reassessed for organizations
to succeed:

 Determining a direction-scanning the environment, integrating the knowledge obtained into a

vision, solving complex problems, become proactive in approach and develop viable strategic
options would yield a clear direction, a framework for the mission and goals, enhanced employee
communication, participation and commitment
 Designing the organization- building structures, teams, systems and processes that facilitate the
implementation of their vision and strategies. Need for consistency between business-level
strategies, corporate-level strategies and organizational control.
 Nurturing a culture dedicated to excellence and ethical behavior

Barriers to change encountered by leaders: people’s vested interest in the status quo, systemic barriers
(organization structure, information processing, reporting relationships), behavioral barriers (biases,
limited perspectives), political barriers (conflicts from power relationships), personal time constraints

Trust dynamics in leadership:

Leadership is mainly action, while management is dependent on position. And the action of leadership is
largely related to trust creation.

Followers are those trusting a leader and deciding to join his or her in a common set of actions, directed
towards the achievement of a common goal. Effective leadership requires interaction, exchange
between the two sides and occasionally a shift in roles.

Power- leader’s ability to get things done in the way they want them to be done. It is the ability to
influence other people’s behavior, persuade them to do things they would’ve otherwise not done, to
overcome resistance and opposition to changing direction.

The Powers of the leader:

The Powers of the leader:

The 2 layers are interconnected.

Referent power emerges from the respect of the followers and their desirability of having the leader
qualities due to personal charisma and attributes.

Information power- comes from the manager’s access, control and distribution of information that is
not freely available to everyone in an organization.
 Ex
pert power consists of the skills of the leader in a particular situation.

Legitimate power related to the responsibilities and position the leader has and is not decreased by
delegation.

Reward and coercive powers relate to the possibility the leader has to reward or punish the people.

Leadership involves the followers’ perception and it is a dynamic and subjective concept.

Assigned vs emergent leadership theories- assigned relies mainly on position power, emergent implies
becoming the most influential in a group, mainly through personal power.

Management are perceived as orderly running an organization, while leaders are expected to drive
change. Leadership is concerned with asking questions and steering debates, while management
provides answers and solutions. Management is anchored into organizational present, striving to meet
today’s goals, leadership looks onto organizational future, providing vision and enthusiasm for long term
goals. They are not separated, management alone encourages an uninspired style which deadens
activities, while leadership alone encourages a disconnected style, which promotes hubris.

Management is position, leadership is attitude. Managers apply principles, leaders create them.
Managers play polka, leaders play valse:
Traditional theories of leadership:

Trait theory: specific qualities make some people better leaders than others. These include: emotional
stability, honesty, good interpersonal skills, intellectual flexibility.

Most common ones are intelligence (also EQ, social and cultural intelligence), self-confidence, charisma
dominance and masculinity.

Emotional intelligence- the capacity for recognizing one’s own emotions and those of others. It has 5
components: self-awareness, self-regulation, motivation, empathy and social skills.
Drawbacks of this theory: subjectivity, lack of agreement regarding the list of traits, lack of focus on the
outcomes of these traits and it is more of a latent leadership than a leadership in action, not focusing
much on how the leader exploits his or her exceptional characteristics.

Skills theory: natural continuation of traits theory, seeing the characteristics in action adding dynamism
to the static perspective on traits. Three skill model of leadership:

Behavioral theory: focuses on how leaders act. Two widely accepted generic behaviors:

 Task-oriented leadership- focuses on getting things done ( production orientation)

 Relationship-oriented leadership- focuses on the how, on working relationships results in certain
outcomes. ( employee orientation)

Structural behavior providing targets and guidelines and the functional behavior, assembling people and
making them work harmoniously together.

The managerial grid:

Minimal management- apathetic leader, disconnected from anything. Rather hanger-on or passer-by
than a real leader. Or Laissez-faire.

Task focus: authoritarian, treating people as means towards an organization goal. This encompasses
autocratic (theory X- people should be led by force)

Team focus: combines best concern for people and concern for tasks. Open minded and facilitating, but
also committed to work. Theory Z ( teamwork and delegation motivate people)

Country club: an animator, creator of atmosphere and good moods, De-coupled from tasks. Theory Y
(leader is fond of the people’s capabilities when given the right conditions)

Middle of the road: a compromiser, adept of the golden middle way, keeps things going, but with low
enthusiasm in either side.

Paternalism (task focus & country club)- both authoritarian and protective in a capricious way. The
good moods of a tyrant, subject to emotional hazards, where the image of the leader is enforced by
both authority and random tenderness A benevolent autocrat.

Opportunism (combination of all 5 styles)- tries each style to see if it works in a particular situation and
if not switch to a backup plan. Inconsistency and opportunistic followers are the main drawbacks.

Contingency theory: claims that they types of leadership produce different effects depending on the
situation, some are more efficient than others given a certain context.

Thus, there are:

 Task motivated leaders

 Relationship-motivated leaders

To assess a situation, 3 factors are considered: group relations, task structure and position power.
Modern theories of leadership: do not focus on the person, but on the leader-follower system.

Path goal theory: considers a more complex relation between the style of the leader, the work
situation( as in the contingency theory) and the characteristics or the followers. It is based on the
motivation of the employees, which has three components:

 Belief in the appropriateness for the job

 Belief in the results they will obtain
 Belief in the rewards they will get

To accomplish these, the leaders should select employees with the right skills and behaviors, enable
them to obtain desired results and reward them appropriately. These can be done by increasing the nr.
And variety of payoffs, providing direction and coaching to meet the goals, solving difficulties in meeting
the goals, making the work challenging and satisfying to the employees. By doing these, the leader
provides the goal, creates the path.

Types of leader behavior and their subordinates:

Leader type Characteristics Subordinate Task Group

characteristics characteristic behavior
Directive Task focused, Preference for Unclear and Dogmatic,
leadership sets clear rules structure ambiguous, authoritarian
and expectations complex
Supportive Relation focused, Strong need for High repetitive, Unsatisfied,
leadership friendly, affiliation routine, need
equalitarian mechanical affiliation
 unchallenging
Participative Shared decision Desire for control Weak formal Autonomous,
leadership making, authority, need control
consultation unclear,
ambiguous,
unstructured
Achievement High standards, Perception of Ambiguous, High-
oriented continuous their own ability complex, expectations,
leadership improvement challenging need to excel
It is a complex theory which raises difficulty of practical implementation and it fails to take into account
the influence of the followers on the leader. The leadership styles are still taken for granted and the
possibility of being created in the interaction with the followers is not considered.

The leader-member exchange (LMX) theory: claims leadership is a process, in which leaders and
followers interact and influence the other’s behavior. Dyad between leader and each followers with
which the leader establishes individual relations.

The types of relationships the leader could ser with subordinates were, in a vertical dyad of 2 kinds:

 Formal, based on job description (out-group)

 Informal, based on personal liking (in-group), who received more attention, support, consideration

Good exchanges between leaders and subordinates result in: more loyal and committed employees,
more desirable tasks, better attitude towards jobs, faster promotion, more leadership support.

Leadership making- the leader should not restrict his activity to the few people he works best with, but
try to establish good quality relationships with all the members of the group. It has three phases: Hello,
stranger; Acquaintance, Mature partnership:

This theory is both descriptive and prescriptive in the sense that it states the differences between the in-
group and out-groups, but also involves leadership making, the willingness of the leader to give equal
opportunities to everyone and engage in good quality relations with each member of the organization. It
links leadership with communication, but it needs better instruments for measuring the quality of
exchanges and the equilibrated position of the leader to avoid privileged groups.

Transformational leadership: claims the action of the leader totally changes and transforms the
followers and the workplace. Leaders and followers form an indestructible whole and each of them is
strongly influenced by it.

A contrast between transactional (based on contracts) and transformational leadership. The first is
based on exchanges such as bonuses, rewards, promotions, while the second on engagements and the
followers and driven beyond the limits of their full potential.
Also, pseudo-transformational leadership exists and it is performed in the interest of the leader and it
transform the followers in a bad way, like dictators.

Transformational leadership is based on charisma, which helps move emphasis from extrinsic rewards to
intrinsic rewards. The leader pays attention to the followers’ needs, not to own needs and tries to
integrate them in the development needs of the organization. They address high level needs by
stimulating them and creating desire and potential to grown.

Is associated with transformational leadership:

 Idealized influence
 Inspirational motivation
 Intellectual stimulation
 Individualized consideration

Transactional leadership applies: contingent rewards and management by exception (negative feedback
and criticism, either active or passive). It uses carrot and a stick.

Still. Transformational leadership model lacks conceptual clarity and adequate measurements to be
turned into an effective organizational practice, being more of a philosophy than a management style.

Learning organizations- create a proactive, creative approach to the unknown, actively solicit the
involvement of employees at all levels and enable all employees to use their intelligence and apply their
imagination. Everyone must feel and support a compelling purpose, challenge the status quo and enable
creativity. They should:

 empower employees at all levels- top-down is about delegation and accountability and bottom-up is
about risk taking, growth and change, trusting people to do the right thing and having a tolerance
for failure
 accumulate and share internal knowledge- redistribute information, knowledge and rewards. It can
lead to internal benchmarking
 gather and integrate external information- this information can be used for benchmarking.
Benchmarking can be of two types: competitive (restricts the search for best practices to
competitors) and functional ( looks for best practices regardless of industry)
 challenge the status quo and enable creativity.

Ethical organization- characterized by a conception of ethical values and integrity as a driving force of an
enterprise. Ethical values shape the search for opportunities, the design of organizational systems and
the decision-making process used by individuals and groups. They provide a common frame of reference
that serves as a unifying forces across different functions, lines of business and employee groups.
Organizational integrity goes beyond personal integrity.

Elements needed for a company to become highly ethical: role models, corporate credos and codes of
conduct, reward and evaluation systems, policies and procedures.

Approaches or strategies for ethics management: compliance-based (externally motivated, based on

the fear of punishment) and integrity-based(broader, deeper and more demanding, going beyond the
law requirements):
 XI. HRM
HRM- the process of determining human resource needs and then recruiting, selecting, developing,
motivating, evaluating, compensating, employee-union relations, career management and scheduling
employees to achieve organizational goals. HRM managers are involved in planning, record keeping and
other administrative duties. Previously, HRM involved clerical functions such as screening applications,
keeping records, processing the payroll and finding new employees when necessary. The roles and
responsibilities of HRM have evolved primarily because of 2 key factors:

 Organization’s recognition of employees as their ultimate resource due to the shift from
manufacturing industries to service and high-tech manufacturing industries that presume more
challenging jobs. Thus, qualified employees are much scarcer.
 Changes in the law that rewrote many traditional practices regarding hiring, safety, unionization,
equal pay, affirmative action

Challenges and opportunities in human resources:

 Shortages of trained workers in growth areas such as IT, robotics, science

 Large nr. Of skilled and unskilled workers from declining industries such as steel who are
unemployed and need retraining. Underemployed workers are those who have more skills or
knowledge than their current jobs require or those with part-time who want to work full time
 Growing % of new workers who are undereducated and unprepared for jobs in contemporary
business environment
 Shortage of workers in skilled trades due to the retirement of aging baby boomers
 Increasing nr. Of baby boomers who due to recession delay retirement or move to lower level jobs
 An increasing nr of both single-parent and two-income families resulting in a demand for job
sharing, maternity leave
 Shift in employee attitudes, leisure time, flextime and shorter workweek have high priorities
 Severe recession affected employee morale
 Challenge from overseas labor pools who work for lower wages

Affirmative action: designed to right past wrongs by increasing opportunities for minorities and women.
It might create some sort of reverse discrimination which is the discrimination against members of a
dominant or majority group ( whites or males) usually as a result of policies designed to correct previous
discrimination.

Accommodation means treating people according to their specific needs.

The 5 steps in the HR Planning process are:

 Preparing a HR inventory of the organization’s employees, including ages, names, education,

capabilities, trainings, specialized skills and other relevant information such as languages spoken
 Preparing a job analysis ( a study of what employees who hold various job titles do). Necessary for
recruiting and training. Its results are 2 written statements : job description ( specifies the objectives
of the job, the type of work, responsibilities and duties, working conditions and the job’s relation to
other functions, it is about the job) and job specifications ( a written summary of the minimal
education and skills to do a particular job, meaning it is about the person)
 Assessing future human resource demand: proactive, forecast the organization’s requirements and
train people ahead of time or ensure trained people are available
 Assessing future labor supply
 Establishing a strategic plan which must address recruiting, selecting, training, developing
appraising, compensating and scheduling the labor force.

Recruitment: the set of activities for obtaining the right number of qualified people at the right time. Its
purpose is to select those who best meet the needs of the organization. Can be difficult due to policies
demanding promotions from within, offering low wages, union regulations, and finding people who fit
with the culture and leadership style.

Sources of recruiting employees:

 Internal- transfers, promotions, employee recommendations, retrained employees, department

reorganization
 External- private and public employment agencies, personal applications, management consultants,
new graduates, former employees, part-time applicants, competing organizations, union
organizations, advertisements, temporary help services, union halls, college placement offices,
trade schools, trade associations, business associates, college professors, internet, job fairs.

Ways for small companies for attract top-quality employees: define who they are as a company, build a
strong staff referral program, have future employees audition for the job, look at the customers,
become involved with community organizations, actively seek publicity and word of mouth, use
Internet.

Selection: the process of gathering information and deciding who should be hired to serve the best
interests of the individual and the organization. It is extremely expensive, like training. It has 6 steps:

 Obtaining complete application forms

 Conducting initial and follow-up interviews
 Giving employment tests (assessment centers or tests)
 Conducting background investigations
 Obtaining results from physical exams
 Establishing trial (probationary) periods
Contingent workers- include part-time workers, temporary workers, seasonal workers, independent
contractors, interns and co-op students. Good for companies with employment needs that vary with
time, when full-time workers are on some type of leave, when there is peak demand for a product or
when quick customer service is priority or in uncertain economies. They receive few benefits such as
health insurance, vacation or pensions and tend to earn less.

Training and developing- includes all attempts to improve productivity by increasing employee’s ability
to perform. Well-designed training programs lead to higher retention, productivity and greater job
satisfaction. Training focuses on short-term skills while development on long-term abilities. Both include
3 steps:

 Assessing organization needs and employee skills to determine training needs

 Designing training activities to meet identified needs
 Evaluating the training’s effectiveness

Common training and development activities include:

 Orientation- activity that initiates new employees into the organization, to fellow employees, to
their immediate supervisors and to the policies, practices and objectives of the firm. These rand
from informal talks to formal activities that last a day or more and often include scheduled visits to
various departments and required reading of handbooks.
 On-the-job training lets the employee learn by doing or watching others for a while and them
imitating them, right at the workplace. Used for salespeople (shadowing). Easiest to implement
when the job is simple or repetitive
 Off-the-job training- occur away from the workplace and consists of external programs to develop
any of a variety of skills or to foster personal development, more sophisticated for more
sophisticated jobs; it can include education such as Ph and personal development, time
management, art or languages
 Apprenticeship- a trainee works alongside an experienced employee to master the skills and
procedures of a craft. Some programs include classroom training. Workers who successfully
complete one earn the classification journeyman.
 Vestibule training- near-the-job training done in classrooms with equipment similar to that used on
the job so that employees learn proper methods and safety procedures
 Job simulation- use of equipment that duplicates job conditions and tasks so that the trainees can
learn skills before attempting them on the job. It is different from vestibule because it duplicates the
exact combination of conditions that occur on the job; usually given to astronauts, pilots, army tank
operators, captains.
 Management training. developing- special training to develop listening skills, empathy, time
management, planning, human resource skills. It is the process of training and educating employees
to become good managers and then monitoring the progress of their managerial skills over time.
Widespread in universities. Managers may participate in role playing exercises cases, lectures. Most
training programs include: on-the-job coaching, understudy positions ( assistants), job rotation, off-
the-job course and training.
 Online training- off-the-job training, distance learning at universities. Key advantage: provides a
large nr of employees with consistent content tailored to specific training needs at convenient times
Networking- the process of establishing and maintaining contacts with key managers in your own and
other organizations and using those contacts to weave strong relationships that serve as informal
development systems.

Mentor- experienced employee who supervises coaches and guides lower-level employees by
introducing them to the right people and generally being their organizational sponsor.

Performance appraisal- evaluation that measures employee performances against established

standards in order to make decisions about promotions, compensation, training or termination. It has 6
steps:

 Establishing performance standards that are understandable, measurable, reasonable and accepted
by both manager and subordinate
 Communicating those standards
 Evaluating performance
 Discussing results with employees
 Taking corrective action to improve employee performance
 Using the results to make decisions about promotions, compensations, additional training or firing

360-degree review- management gathers opinions from all around the employee, including those
under, above and at the same level to get an accurate, comprehensive idea of the worker’s abilities.

Labor intensive firms- the primary cost of operations is the cost of labor.

Good compensation can attract the kind of people the organization needs, in sufficient numbers,
provide employees with incentives for efficient and productive work, keep valued employees from going
to competitors or starting competing firms, maintaining a competitive position in the marketplace by
keeping costs low through high productivity from a satisfied workforce, providing employees with some
sense of financial security through fringe benefits such as insurance and retirement.

Hay system of pay- based on job tiers, each which has a strict pay range which is set on a point basis
with 3 factors considered: know-how, problem solving and accountability.

Pay systems: salaries ( no additional pay for extra hours), hourly wage or daywork, piecework system,
commission plans, bonus plans ( cashless- written thank you, movie tickers, flowers, gift certificates or
monetary), profit-sharing plans, gain-sharing plans ( bonuses paid based on achieving specific goals such
as quality measures, customer satisfaction and production targets), stock options (right to buy stocks
cheaper).

Compensating teams is harder and they are usually based on team goals, but it is important to reward
individuals as well. The most common methods are:

 Skill-based pay- rewarding both the growth of the individual and the team, base pay being raised
when team members learn and apply new skills, but this is complex and difficult to relate the
acquisition of skills directly to profit gains
 Gain-sharing systems- base bonuses on improvements over previous performances.
Fringe benefits- sick-leave pay, pension plans and health plans, company cars, recreation facilities,
country club memberships, discounted massages, special home mortgage rates, sabbaticals, day care,
executive dining rooms, dental and mental health care, legal counseling.

Soft benefits help workers maintain the balance between work and family that is often as important to
as the nature of the job itself. These include on-site haircuts, concierge, free breakfasts.

Cafeteria-style fringe benefits: employees can choose the benefits they want up to a certain amount.

Scheduling: some benefits employees seek are:

 Flextime plans- gives employees some freedom to choose when to work, as long as they work the
required number of hours or complete their assigned tasks. They usually incorporate core time-
period when all employees are expected to be at their job stations. Disadvantages: not good for
shifts, managers often have to work longer days, makes communication more difficult and could be
abused by some employees
 Compressed workweek: the employee works the full number of hours, but in fewer days. Could
decline productivity
 Homebased work: can cut operating costs, increase productivity, job satisfaction, work performance
ratings, reduce absenteeism, broaden talent pool, helps balance work and family, good for people
with disabilities, decreases traffic congestion, crime, but can cause social isolation, make it difficult
to appraise performance, complicates distribution of tasks
 Job-sharing plans- lets two or more part-time employees share one full-time job, increase
productivity, job satisfaction, but doubles the nr of people to hire, train, motivate and supervise.

Ways to motivate people: promotions from within, reassignments

Golden handshakes- one-time cash payments to encourage early retirement

Employees can be moved up (promoted), over (reassigned) or out (terminated or retired)

XII. Marketing and sales

Marketing- the activity, set of institutions and processes creating, communicating, delivering and
exchanging offers that have value for customers, clients, partners and society at large. Or, simpler, the
activities buyers and sellers perform to facilitate mutually satisfying exchanges. It is about helping the
buyer buy. It is also used by nonprofits.

The evolution of marketing has passed 4 eras and a 5 th one is now emerging:

 Production era- produce as much as you can because there is a limitless demand due to limited
production capability and vast demand for products
 Selling era- mass-production techniques were developed and production often exceeded the
immediate market demand, so the philosophy was all about selling and advertising, being few after-
sale services offered
 Marketing concept era- had 3 parts: customer orientation (finding what customers want and provide
it), service orientation ( everyone on the organization had as objective the customer satisfaction),
 profit orientation (focus on goods and services that will earn the most and expand to serve more
customer wants and needs)
 Customer Relationship era- the adoption of CRM which is the process of learning as much as
possible about present customers and doing everything possible over time to satisfy or exceed their
expectations, to stimulate long-term customer loyalty.
 Emerging Mobile/on demand marketing era- digital age increased consumers’ power and pushed
marketing towards being on-demand. Consumers want relevant information, exactly when they
want it, without all the noise of the unwanted messages. Consumers share, compare and rate
experiences through social medial and mobile devices.

The marketing mix:

 Product( any physical good, service or idea that satisfies a want or need, plus anything that would
enhance the product in the eyes of the consumers such as brand name)+ do product testing
 Price (determine a brand name, design a package and set a price considering costs of production,
distribution and promotion)
 Place (select a distribution system either directly, through internet or other middlemen such as
supermarkets)
 Promotion (Design a promotional program)

Often there are other activities involved such as finding an opportunity, conducting some preliminary
research into the merit of the idea and then identified the target market (groups of people who might
be interested in the product) and in the end, after promotion you build a relationship with customers.

Test marketing- testing products among potential users.

Brand name- word, letter, group of words or letters that differentiates one seller’s goods and services
from those of competitors.

Promotion- all the techniques sellers use to inform people about and motivate them to buy their
products or services. Includes advertising, personal selling, PR, publicity, word of mouth (viral marketing)
and various sales promotion efforts such as coupons, rebates, samples and cents-off deals. It includes
building a relationship with customers by responding to their suggestions, after-sale services.

Marketing research- analysis of markets to determine opportunities and challenges and to find the
information needed to make good decisions. It helps identify what products customers have purchased
in the past, what changes have occurred to alter what they want now and in the future. It looks at
business trends, global trends, ecological impact of their decisions. Besides listening to customers, they
should also listen to employees, shareholders, dealers, consumer advocates, media representative and
other shareholders are saying.

Focus groups: small group of people who meet under the direction of a discussion leader to
communicate their opinions about an organization, its products or other given issues.

The marketing research process has at least 4 key steps:

 Defining the question (problem or opportunity) and determining the present situation, what
alternatives there are, what information they need and how to gather and analyze data
 Collecting research data, might imply a trade-off between the need for information and the cost of
obtaining it. So they should gather secondary data ( data already compiled by others and published).
Sources of primary data are interviews, focus groups, surveys, questionnaires, observations, focus
groups, customer comments and letters.
 Analyzing research data- turning data into useful information
 Choosing the best solution and implementing it- seeing if the results were what was expected and if
not take corrective action

Environmental scanning- the process of identifying factors that can affect marketing success. Include
global (trade agreements, competition, trends, opportunities, internet), technological ( computers,
telecommunication, bar codes, data interchange, internet changes, blogs, social media), sociocultural
(population shifts, values, attitudes, trends), competitive (speed, service, price, selection) and economic
influences (GDP, disposable income, competition, unemployment).

Market- people with unsatisfied wants and needs who have both the resources and willingness to buy.
Two major markets in business:

 The consumer market- all the individuals or households that want goods and services for personal
consumption or use and have the resources to buy them
 The Business-to-business market (B2B)- all the individuals and organizations that want goods and
services to use in producing other goods and services or to sell, rent or supply goods to others.

Market segmentation- the process of dividing the total market into groups whose members have similar
characteristics

Target marketing- marketing directed toward those groups (market segments) an organization decides
it can serve profitably.

Dimensions of market segmentation:

 Geographic: region, city or county size

 Demographic: gender, age, education, race, nationality, life stage, income, household size,
occupation, religion
 Psychographic: personality, values, lifestyle, attitudes, interests
 Benefit segmentation: comfort, convenience, durability, economy, health, luxury, safety, status
 Volume segmentation: usage, loyalty status

The best segmentation is to use all variables to come up with a consumer profile that represents a
sizable, reachable and profitable target market.

Niche marketing- identifying small but profitable market segments and designing or finding products for
them.

One to one marketing: developing a unique mix of goods and services for each individual customer like
travel agencies. Easier for B2B where customers buy in huge volume, but also in consumer markets like
in the case of computers.
Mass marketing: developing products and promotions to please large group of people, thus there is
little market segmentation. The marketer tries to sell the same products to as many people as possible,
using mass media.

Relationship marketing: looks away from mass production and towards custom-made goods and
services. The goal is to keep individual customers over time by offering them new products that exactly
meet their requirements.

Understanding consumers has led to the emergence of a whole new area of marketing called the study
of consumer behavior.

The first step in the consumer decision-making process is problem recognition, leading to information
search (Consumer reports or other secondary sources and ask other people. Afterwards you evaluate
alternatives and make a purchase decision. But the buying process doesn’t end there, but you ask the
people you spoke to previously how the product perform and do comparisons to mine.

Factors that affect consumer behavior include:

 Learning changes individual behavior due to previous experiences and information

 Reference group- the group used a reference point to form beliefs, attitudes, values or behavior.
 Culture: set of values, attitudes and ways of doing things transmitted from one generation to the
other in a society
 Subculture- the set of values, attitudes and ways of doing things that results from belonging to a
certain ethnic group, racial group or other group with which one closely identifies like teenagers
 Cognitive dissonance- psychological conflict that can occur after a major purchase, referring to
doubts whether they got the best product at the best price. Marketers must reassure them that
their decision was good ( product guarantees, free services)

B2B marketers include manufacturers, intermediaries like retailers, institutions, charities and the
government. It is larger than the consumer market because items are often sold and resold several times
before they reach the final consumer. Factors affecting B2B marketing include:

 Few numbers of customers

 Large customers, but also small to medium sized firms together that make an attractive market
 B2B markets tend to be geographically concentrated
 These buyers are generally more rational and less emotional, using product specifications and
weighting more carefully the total product offer, including quality, price and service
 Sales tend to be direct, but not always such as tire manufacturers who sell directly to auto
manufacturers but have intermediaries such as wholesalers and retailers
 B2B sales are based on personal selling.