Hapter: Management Principles in Action

10_Biz_in_Global_Econ 12/14/04 11:37 AM Page 258
©Getty Images/PhotoDisc
Chapter 10
MANAGEMENT PRINCIPLES
IN ACTION
10-1 Managers and Cultural Differences
10-2 Management Functions and

Organization
10-3 The Changing Process of

Management
Virtual Corporations
Here Today and Gone Tomorrow
The virtual corporation offers some promising approaches to the tough
facts of life in the global marketplace. Most companies can’t react fast
enough to take advantage of changing opportunities. By the time managers
of giant companies get the necessary people and other resources ready,
those opportunities have vanished. The managers of smaller companies
often lack the influence and resources to respond to opportunities that are
here today and gone tomorrow.
Managers who want to form virtual corporations must first identify what
their company does best. Then they must form ties with other companies
that represent “the best of the best.” These fast-reacting, sharply focused,
world-class competitors have the muscle and cutting-edge technology to
pounce on short-term opportunities.
The U.S. film industry already functions in this way. Virtual corporations
have replaced the old Hollywood studio system. Various industry talents
temporarily link up for specific film projects before going their separate
ways. Perhaps it’s no small coincidence that the U.S. film industry has
been very successful in the global marketplace. It is one of the biggest
export successes for the country. Maybe Hollywood managers could teach
other managers worldwide a lesson or two!
Think Critically
1. Why do virtual corporations exist?
2. What characteristic describes each component of a virtual corporation?
3. Go to the web site of MGM Motion Pictures, Paramount Motion
Pictures, or Sony Pictures Entertainment to learn about the structure
and management of the film company.
259
Chapter 10 MANAGEMENT PRINCIPLES IN ACTION
MANAGERS AND
10-1 CULTURAL DIFFERENCES
GOALS
Explain the character-
istics of successful
managers and how
management styles
vary.
Understand the
effects of cultural
differences on a glob-
al workforce.
MANAGERS IN ORGANIZATIONS
anagers are people in charge of organizations and their resources. They
M are men and women who assume responsibility for the administration
of an organization. Managers work with and oversee employees to meet
organizational goals in an ever-changing environment. They try to use the
available resources for maximum gain, just as you try to use your time and
money to derive the most desirable benefits.
Whether you realize it or not, you already have some managerial experi-
ence. You are in charge of and responsible for yourself. You are responsible
for other people and things. You are also responsible for your textbooks,
school supplies, and assigned homework. You may even be responsible for
cleaning your own room or for maintaining your own car. Consequently,
managing is not a totally foreign concept to you.
❙ CHARACTERISTICS OF MANAGERS
Successful managers possess a wide variety of conceptual, technical, and
interpersonal abilities. Supporting these abilities are certain skills and person-
al characteristics. One characteristic of managerial ability is leadership.
Leadership is the ability to get others to follow. Another characteristic is the
ability to communicate effectively. Managers must have strong writing,
reading, listening, speaking, and presenting skills to be successful.
The ability to plan and organize is important. Managers must be able to use
resources to achieve goals. They must be able to gather, analyze, and acquire
information to solve problems. The ability to make decisions is also important.
260
10-1 MANAGERS AND CULTURAL DIFFERENCES
Managers must be able to take rea-

soned positions based on relevant
information and to live with the
consequences of the decisions.
Managers must be able to judge
when they should be in charge and
when they should delegate and allow
others to be in charge. The ability to
be objective is also useful. Managers
need to know their strengths and ©Getty Images/PhotoDisc
weaknesses, as well as the strengths
and weaknesses of others. Managers must be willing to lead others in new,
untried directions and must be able to adapt to change. You might already
possess a number of these important skills that influence managerial success.
❙ STYLES OF MANAGERS
One way to examine managers is to look at how they use power or authority.
There are three distinct types of management styles. These styles are auto-
cratic, participative, and free-rein. These three styles can be placed along a
continuum that represents managerial power or authority, as Figure 10-1
shows. Autocratic managers maximize their personal power or authority to
control others. Free-rein managers minimize their personal power or authori-
ty to control others. Participative managers balance their personal power or
authority to control others against the power people assume for themselves.
Autocratic Management Style Managers who centralize power and
tell employees what to do are autocratic managers. They are authoritarian
and rule with a heavy hand. The autocrat takes full authority and assumes
full responsibility. If an autocratic manager uses power negatively, then the
employees feel uninformed, insecure, and afraid. If an autocratic manager
uses power positively, then rewards are distributed to those who comply.
Sometimes the term “benevolent autocrat” is used to refer to an autocratic
manager who uses power positively.
Most people do not work well under autocratic managers, especially nega-
tive ones. Autocratic management is considered an old-fashioned style of
management and could be replaced by a more participative management
style.
USE OF POWER OR AUTHORITY BY MANAGERS
M M
a i
x n
i Power or Authority to Control Others i
m m
i i
z z
e e
Autocratic Participative Free-Rein

Managers Managers Managers
Figure 10-1 Autocratic, participative, and free-rein managers use power or

authority differently.
261
Participative Management Style Managers who decentralize power

WORK AS and share it with employees are participative managers. The manager and
employees work together to achieve goals. Participative managers keep
A GROUP employees informed and encourage them to share ideas and suggestions. The
participative manager uses group forces rather than power or authority to
keep the unit operating effectively. For most managerial situations, the par-
Discuss how widespread
ticipative style is recommended.
beliefs, values, and
assumptions within the
Free-Rein Management Style Managers who avoid the use of power
culture of the United States are free-rein managers. They let employees establish their own goals and
influence the actions of monitor their own progress. Employees learn on their own and supply their
managers in this country. own motivation. Managers exist primarily as contact persons for outsiders.
Since free-rein management can lead to chaos in many situations, experts
recommend that managers use it in circumstances where employees are self-
disciplined and self-motivated and can make wise choices for themselves.
SHARING CONFIDENTIAL heard Gerd confirming privileged

INFORMATION strategic information that would be
very useful to his organization.
Geir Alver works for a Norwegian Having that information could give
multinational corporation as a senior his organization a competitive
manager. His sister Gerd Grieg advantage over its American rival.
works for a competing company in a Best of all, because his sister was
similar position. Since they work for not aware that he had overheard the
rival organizations, they have mutu- information, she would never realize
ally agreed never to discuss corpo- that she had inadvertently been the
rate business with each other. The source of the leaked information. If
two siblings enjoy a close personal he relayed the strategic information
relationship and see each other to top-level managers, Geir was cer-
every two or three weeks. tain that he would be rewarded with
Yesterday when Geir and his fam- either money or a promotion—or
ily were visiting Gerd and her family, maybe even both.
their visit was interrupted by a long-
distance telephone call from the Think Critically
New York headquarters of Gerd’s 1. Since Geir and Gerd did not dis-
employer. Although Gerd took the cuss the privileged information
call in another room and closed the from the New York headquarters,
door behind her, the animated con- did either of them engage in
versation spilled into the hallway and unethical behavior?
the nearby room where the others 2. If you were Geir, what would you
were finishing their desserts and do with information you over-
beverages. As Geir walked down the heard from a rival corporation?
hall to the kitchen with a stack of Explain.
dishes a few minutes later, he over-
How do the styles of managers vary along a continuum?
262
INFLUENCES OF CULTURAL
DIFFERENCES
anagers must remember that people’s behaviors are shaped by their cultural
M backgrounds. Every culture and subculture has norms or standards for its
members. However, certain members of cultural groups will deviate from those
norms. People from different cultural backgrounds may not be alike even
though they may appear to be similar on the surface. They may actually have
very different beliefs, values, and assumptions. Consequently, managers must be
very careful when managing people. Managers must be very sensitive to and
respectful of cultural differences. They also must be aware that certain culturally
based patterns of behavior exist and need to be considered.
Participation in Making Decisions For example, some cultural groups
want subordinates to be actively involved in decision making. This is generally
true for natives of the United States. In contrast, natives of Venezuela may pre-
fer little or no role in decision making. They typically prefer to have managers
tell them what to do.
Hiring Preferences Different cultural groups value different selection
criteria for hiring employees. For example, natives of the United States tend to
value job-related qualifications. Natives of Greece tend to value family member-
ship or friendship above all other qualifications.
Permanence of Employment Attitudes about the permanence of
employment vary among members of different cultural
groups. Natives of the United States generally accept
less employment security than natives of Japan. U.S.
workers are frequently laid off during economic
downturns and receive minimal company compensa-
tion. They also freely look for new opportunities with
new companies. The Japanese are less mobile and
until recently, expected lifetime employment from a

company.
Labor-Management Relationships U.S.
laborers tend to have confrontational attitudes towards
managers. They believe that confrontation brings about
equitable work and rewarding relationships. By
contrast, in Sweden many workers help to
determine their work and rewarding relation-
ships by serving on managerial boards. In
general, U.S. managers are shaped by a cul- For a firsthand account of some of the issues facing cross-
ture and subcultures that value personal free- cultural workers, access the Indonesian Expatriate web site
dom, independence, and self-respect. through intlbizxtra.swlearning.com. Click on the link for
Employees from other cultural groups—espe- Chapter 10. Read the article entitled “Business Across
cially European and Asian—tend to view Cultures” by George Whitfield. How can a multinational
these values as selfish and insensitive. Such company avoid misunderstandings about what is acceptable
opposing cultural perspectives can lead to behavior on the job? How could you, as a cross-cultural
conflicts between managers and employees in worker, avoid making an embarrassing mistake?
the culturally diverse business world unless
those differences are sensitively addressed. intlbizxtra.swlearning.com
263
While it is useful for managers to be aware of prevailing cultural prefer-

ences, they must realize that not all individuals fit their cultural molds.
Consequently, managers must temper their understandings about cultural
preferences. They must also consider the values, beliefs, and assumptions of
the individuals involved. Managers who fail to consider individual differ-
ences and cultural norms will be less successful in the culturally diverse glob-
al business environment.
question the superior’s decision-

making abilities. When faced with
GLOBAL BUSINESS the culturally unacceptable task of
making decisions that they believed
the plant manager should make, the
THE MANAGERS WHO REFUSED Panamanian managers did not coop-
TO MAKE DECISIONS erate. To them, their participation in
decision making undermined the role
As the new plant manager, Cynthia of the new plant manager.
Hopkins, a U.S. citizen, was shocked Cynthia learned her lesson quickly.
during her first encounters with her She tried to manage in a more cultur-
local Panamanian managers. ally sensitive way. Rather than relying
Guillermo, Maria, and Diego refused on participative U.S.-style manage-
to participate in decision making, ment, she started making the deci-
politely deferring to Cynthia’s judg- sions for her Panamanian supervi-
ments instead. When Cynthia finally sors. The employees were quite
made decisions on her own for the comfortable being told what to do.
managers, she noticed that they They carefully carried out Cynthia’s
made good-faith efforts to implement decisions, and soon their working
those decisions. Cynthia was puzzled relationships with Cynthia became
by their reactions involving decision “muy simpático”—very congenial.
making. Was there something wrong
with her managerial style? Did the Think Critically
Panamanian managers resent being 1. Why was Cynthia Hopkins
supervised by a foreigner? unaware of Panamanian perspec-
When Cynthia mentioned her tives about the roles of man-
uncooperative decision makers to agers?
another Panamanian plant manager, 2. Why did Guillermo, Maria, and
she was surprised by the explanation Diego fail to make managerial
she received. Most Panamanians, decisions on their own?
like many Latin Americans, come 3. What managerial style did
from cultural backgrounds that place Cynthia use that was effective
little value on acting independently or with the Panamanian managers?
as a consultant. A superior who 4. How could you find out more
seeks employees’ opinions or about Panamanian attitudes
encourages employees’ decision toward managerial styles?
making causes the employees to
How do cultural differences affect managers of a global workforce?
264
REVIEW GLOBAL BUSINESS TERMS

Define each of the following terms.
1. managers 3. participative managers intlbizxtra.swlearning.com
2. autocratic managers 4. free-rein managers
REVIEW GLOBAL BUSINESS CONCEPTS

5. What personal characteristic distinguishes among autocratic, participative,
and free-rein managers?
6. What are four culturally influenced dimensions of behavior to which man-
agers should be sensitive?
SOLVE GLOBAL BUSINESS PROBLEMS

“I have been managing the Bristol office of a global corporation for seven years.
The office has an international workforce drawn from 18 countries on four conti-
nents. Every employee is highly competent in his or her specialty. Consequently,
I have learned that I can rely on their judgments to a significant degree. I spend
much of my time conferring with employees. Most decisions can be worked out
by sharing our viewpoints, discussing the merits of those viewpoints, and select-
ing the best mutually agreeable viewpoints for implementation. It has been years
since I have had to dictate the solutions to my employees.”
7. Using a detailed map of the United Kingdom as a guide, describe the loca-
tion of Bristol, the city in which the British manager works.
8. What is the British manager’s prevailing management style?
9. What facts from the narrative support your conclusion about the manage-
ment style?
THINK CRITICALLY
10. Why do managers often use a combination of autocratic, participative, and
free-rein management styles?
11. How can managers increase their sensitivity to cultural differences?
MAKE CONNECTIONS
12. TECHNOLOGY How can technology help a manager monitor the work of
subordinates?
13. COMMUNICATIONS Why is effective business communication consid-
ered to be the lifeblood of management?
14. HISTORY Why was autocratic management the dominant managerial
style in the United States until well into the twentieth century?
15. CULTURAL STUDIES Use the Internet to find online cultural resources
for international managers.
265
MANAGEMENT
10-2 FUNCTIONS AND
GOALS ORGANIZATION
Describe the basic
components of the
process of managing.
Differentiate between
organizational struc-
tures based on func-
tion, product, and
geography.
PROCESS OF MANAGING
ThePlanning
process of managing includes the following major components.
● and decision making

●Organizing, staffing, and communicating
● Motivating and leading
● Controlling
These components are illustrated in Figure 10-2. The exact mix of these
components varies depending on the type of managerial job and the people
and other resources involved. However, sooner or later managers will be
involved with all four broad managerial components.
❙ PLANNING AND DECISION MAKING

Planning and decision making are important components of managing.
Planning relates to setting goals or objectives to be attained. Planning is sim-
ilar to deciding where you want to go. You have to know your destination
before you can get there.
Once you decide the goal, you can explore different options or routes that
lead to the goal. At various points along the way, you have choices to make.
You should weigh the advantages and disadvantages of each alternative and
select the best alternative overall. In other words, you should make thought-
ful decisions.
266
10-2 MANAGEMENT FUNCTIONS AND ORGANIZATION
THE MANAGERIAL PROCESS IN ACTION
Planning and
Decision Making
Organizing, Staffing,
Controlling
and Communicating
Motivating and Leading
Figure 10-2 The managerial

process includes planning and deci-
sion making; organizing, staffing,
and communicating; motivating and
leading; and controlling.
❙ ORGANIZING, STAFFING, AND COMMUNICATING

Organizing, staffing, and communicating are also important components of
managing. Organizing involves structuring business operations in logical and
meaningful ways. Sometimes organizing relates to how business activities or
functions are put together. Sometimes organizing involves assembling the
necessary resources in a manner that facilitates the accomplishment of goals.
Staffing is the process of acquiring employees with the necessary knowl-
edge, skills, and attitudes to fill the various positions in the organization.
Communicating is interacting with people through verbal and nonverbal
means. Communicating is a vital managerial task. An organization cannot
function cohesively and reach its goals unless all employees give, receive, and
share information in a timely and effective manner.
267
Virtual Business Plans
A lthough BizPlanIt markets its online business

planning services through its web site, it also
provides a variety of free services. One particularly use-
business plans that will help their organizations prosper
in the competitive world of global business.
ful free service for managers is the detailed information

Think Critically
1. Why is it good business strategy for the managers
about creating a virtual business plan.
of BizPlanIt to include free information about busi-
The BizPlanIt web site has a link to Virtual BizPlan,
ness plans at the web site that promotes its
which provides practical guidance for managers as they
services?
develop business plans. It identifies the different sections
2. After viewing the Virtual BizPlan link would you feel
and what kinds of topics to address in each. It also iden-
comfortable writing a business plan? Why or why
tifies common errors to avoid when developing business
not?
plan sections. By following the guidance that is provided,
even managers with limited experience can create sound
❙ MOTIVATING AND LEADING

Motivating is creating the desire to achieve. Managers realize that motivation
comes from internal and external sources. Internal motivation comes from
within the employee. The desire to perform work more efficiently is an
example of internal motivation. External motivation comes from outside the
employee. A salary increase is an example of external motivation.
Leading is getting employees to voluntarily pursue the goals of the organi-
zation. Managers who are effective leaders create a desire within employees
to want to achieve what the organization sets out to achieve.
❙ CONTROLLING
Controlling is regulating the operations of a business. It involves taking both
preventive and corrective actions to keep business activities on track.
Controlling helps to ensure that business operations are both efficient and
productive. Activities such as verifying, adjusting, and testing seek to maxi-
mize output while minimizing input. For example, businesses have the
accounting records audited by outsiders periodically as a preventive measure.
This verifies the accuracy and truthfulness of the financial records. Some pre-
ventive actions that businesses may offer include substance abuse programs
for afflicted employees. This helps troubled individuals return to productive
status as workers and prevents the company from having to hire and train
new employees.
What are the four major components of managing?
268
STRUCTURES OF ORGANIZATIONS WORK AS

usinesses use various organizational structures to reach their goals. An A GROUP
B organizational chart is a drawing that shows the structure of an organi-
zation. Line and staff are two types of positions. Line positions are manageri-
al. Individuals with line positions have authority and responsibility over peo- Identify the ways employ-
ees communicate within an
ple and resources. Staff positions are nonmanagerial. Individuals with staff
organization.
positions assist or advise those in line positions.
An organization can be either tall or flat. A tall organization is one that
has many levels of management. One manager generally supervises a small
number of employees. This results in more levels of managers. A flat organi-
zation is one that has few levels of management. Organizations are increas-
ingly becoming flatter with fewer levels of management.
Businesses are commonly organized in one of three ways: by function, by
product, or by geography.
❙ ORGANIZATION BY FUNCTION
When a business is organized by function, the departments are determined
by what people do. For example, in a sportswear manufacturing company,
the function of the manufacturing department is to produce sportswear, the
function of the sales department is to sell sportswear, and the function of the
accounting department is to keep accurate financial records. Other function-
al groups might be linked together and given relevant departmental names,
too. Figure 10-3 shows part of the organizational chart of a business organ-
ized by function.
ORGANIZATION
ORGANIZATIONBY FUNCTION
BY FUNCTION
President
Vice President Vice President

for for
Production Customer Service
Product Manufacturing Sales Business

Development Manager Manager Affairs
Manager Manager
Figure 10-3 A simplified organizational chart for a business organized by

function might look something like this.
269
❙ ORGANIZATION BY PRODUCT
Another way to organize a business is by product. When a business organizes
itself in this way, related products are grouped together to form departments.
This type of organization is helpful when the product lines are very different.
For example, a large manufacturing company that makes airplane parts and
small consumer appliances may form two divisions. One division could be
for the airplane parts, and it might be called the aviation parts division.
Another division could be for the small consumer appliances, and it might
be called the consumer small appliance division. Figure 10-4 shows part of
the organizational chart of a business organized by product.
ORGANIZATION BY PRODUCT
President
Vice
President
Consumer
Aviation Parts Small Appliance Microcomputer
Division Division Division
Figure 10-4 This is a good example of a simplified organizational chart for a

business organized by product.
270
❙ ORGANIZATION BY GEOGRAPHY
Still another way to organize a business is by geography. When a business
chooses this option, it organizes itself on some geographic basis. The geo-
graphic basis might be by city, county, state, region, country, or continent.
Companies that operate beyond the borders of one country often use geo-
graphic organization, as do some domestic companies. For example, a global
corporation may have North American, South American, European, African,
and Asian divisions. Each division would specialize in business operations in
its designated territory. Figure 10-5 shows part of the organizational chart of
a business organized by geography.
ORGANIZATION BYGEOGRAPHY
ORGANIZATION BY GEOGRAPHY
Chief
Executive
Officer
Vice President Vice President

of of
Northern Division Southern Division
North American European South American African

Operations Operations Operations Operations Figure 10-5 This is a
Manager Manager Manager Manager good example of a
simplified organiza-
tional chart for a busi-
ness organized by
geography.
What are three common business organizational structures?
271

Define the following term.
intlbizxtra.swlearning.com 1. organizational chart

2. How do good managers decide how to achieve goals?
3. What is the difference between a line position and a staff position?
4. What is a tall organization?

ChemVision Corporation is a research company that develops chemicals,
processes, and medicines for various industries. Clients come to ChemVision
with a problem to be solved, and ChemVision assembles a team to work on the
problem. The company’s central management personnel administer the human
relations, sales, and accounting functions. Each team is headed by a research
scientist. Scientists are recruited to a team based on their reputation, experi-
ence, and expertise; and the best-known is usually appointed to head the team.
The scientists are personally motivated to make new discoveries to enhance
their professional reputations. As a result, however, they each have their own
agendas and jealously guard progress in their research. How well is ChemVision
succeeding in the following processes of managing?
5. Planning
6. Staffing
7. Communicating
8. Motivating
9. Controlling
THINK CRITICALLY
10. What factors motivate you as a student? What factors would motivate you
to perform well as an employee?
11. Why is no single organizational structure ideal for all businesses?
MAKE CONNECTIONS
12. TECHNOLOGY Use available software to create an organizational chart
for a small business of your choice.
13. COMMUNICATIONS Describe a real or fictional situation in which
poor communications could prevent an organization from achieving its
goals.
14. TECHNOLOGY Use the Internet to find the organizational structure for
an international business.
272
THE CHANGING
PROCESS OF 10-3
MANAGEMENT GOALS
Discuss factors that
affect the levels of
management in an
organization.
Describe the four
stages through which
a business passes to
reach global status.
Explain the differ-
ences between man-
agement today and
the way it is expected
to be in the future.
LEVELS OF MANAGEMENT
ll businesses have managers in charge of operations. The number of
A managers a business needs, the lines of authority that are established,
and the delegation of responsibility all depend on the size of the business
and the complexity of its operations.
❙ SPAN OF CONTROL
The span of control is the number of employees a manager supervises. For
example, a sole proprietorship is a business that has one owner-manager and
may have limited operations. The owner-manager oversees and supervises all
employees and business activities.
When the volume of business, the complexity of business, or the number
of employees grows, one person may no longer be able to manage the busi-
ness. If a sole proprietor sells half of the business to a partner, then that part-
ner could manage some of the operations. This would reduce the span of
control of the original sole proprietor.
As a business continues to expand, more managers are needed. Front-line
managers are needed to oversee the day-to-day operations in specific depart-
ments. The front-line managers may report to a middle manager. Middle
managers oversee the work and departments of a number of front-line
273
managers. A number of middle managers may report to a senior manager.

Senior managers oversee the work and departments of a number of middle
managers. In a large business, senior managers report to the chief executive
officer. The chief executive officer (CEO) is the highest manager within a
company. Figure 10-6 shows the span of control of various levels of man-
agers within a large organization.
❙ LINES OF AUTHORITY
Regardless of the organizational structure and the number of levels of
management, a business must establish clear lines of authority. Lines of
authority indicate who is responsible to whom and for what. The need for
having clear lines of authority grows as the business expands. When a busi-
ness starts, there may be one owner-manager who is clearly in charge. The
owner-manager has the authority or right to make all decisions. As the busi-
ness expands and other managers are added, lines of authority must be clear-
ly established. Otherwise, chaos results. Managers need to be aware of the
specific area for which they are responsible. They also need to have a clear
understanding of their relationship to other managers.
❙ DELEGATION OF AUTHORITY AND RESPONSIBILITY

One important decision that managers must make relates to how much
authority and responsibility they delegate or transfer to others. If managers
retain too much authority and responsibility, they become autocratic. This
may cause some employees to be rebellious because they feel powerless. If
managers retain too little authority and responsibility, chaos develops.
Figure 10-6 In this example, the Employees who are not self-directed will have too much independence and
president has a span of control
more authority and responsibility than they can handle.
of five, the vice president of mar-
keting has a span of control of
four, and the sales manager has
a span of control of three. SPAN
S N OOF CONTROL
CON O
Chief
Executive President
Officer
Senior Vice President Vice President Vice President Vice President Vice President
Managers of of Human of of of
Finance Resources Marketing Production Distribution
Middle Customer Marketing

Managers Service Sales Promotions Information
Manager Manager Manager Manager
Front-Line Dept. A Dept. B Dept. C

Managers Supervisor Supervisor Supervisor
274
10-3 THE CHANGING PROCESS OF MANAGEMENT
In most circumstances, managers try to balance the authority and respon-

sibility between them and their employees. Participative managers share
authority and responsibility with employees. They give employees some
WORK AS
degree of freedom to determine and achieve goals with a corresponding A GROUP
degree of accountability for achieving those goals.
The amount of authority and responsibility that is delegated to employees
Discuss reasons why cen-
or to organizational units is a reflection of the degree of centralization
tralization of authority
within an organization. If the authority and responsibility are tightly held by tends to make organiza-
the managers and organizational units, then a centralized style of manage- tions more autocratic while
ment results throughout the organization. If the authority and responsibility decentralization of authori-
are widely distributed among many employees and organizational units, then ty tends to make organiza-
a decentralized style of management results. Centralization of authority and tions more participative.
responsibility tends to make organizations more autocratic. Decentralization
of power and responsibility tends to make organizations more participative.
Global organizations must decide how much authority and responsibility to
grant to each of their organizational units and managers.
How are the levels of management related to the span of control, the lines of
authority, and the delegation of authority and responsibility?
EVOLUTION OF ORGANIZATIONS
AND MANAGEMENT
As a business evolves from a domestic company into a global corporation,
unique challenges are encountered. The managerial process must be adapted
to meet the particular challenges at each stage. Managing becomes more
complex and demanding as the business evolves into a global organization.
The evolutionary process and related managerial dimensions of a company
can be viewed as a series of stages.
❙ STAGE 1 DOMESTIC COMPANY

The first stage on the way to becoming a global corporation is being a
domestic company. A domestic company is one that operates completely
within the country of origin. Such a company uses domestic sources to cre-
ate and sell its products and services. In other words, it acquires materials
and sells goods and services in the country of origin. A domestic company
has no business dealings with anyone except residents of the country.
Consequently, a domestic company is the easiest type to manage. The basic
managerial process in the country of origin can be used to resolve most of
the challenges of a domestic business.
❙ STAGE 2 EXPORTING COMPANY

As a domestic company grows and becomes successful, it often begins to
export, or sell abroad. A company that sells in other countries is known as an
exporting company. An exporting company typically relies on its domestic
competitive advantages as it expands abroad. Often the managers of an
275
exporting company know little about the markets abroad. Consequently, an

exporting company frequently uses independent agents or distributors who
understand the markets abroad. This arrangement simplifies the manage-
ment of the business. Most of the export-related problems are handled by
the independent agents or distributors. This lets managers focus their pri-
mary attention on domestic operations. This stage allows the company to
take advantage of foreign markets while not having to accept full respon-
sibility for operating abroad.
❙ STAGE 3 INTERNATIONAL CORPORATION

An international corporation, also known as a multinational corporation,
creates and markets goods and services in both its country of origin and in
other countries. The parent or founding company provides the international
corporation with an organizational structure
and operational strategy.
The local, national, or regional sub-
sidiaries, or companies, of an international
organization are usually responsible for deci-
sion making and customer service. They
make decisions involving production, mar-
keting strategy, sales and service, and the
like. Often various subsidiaries of interna-
tional corporations operate quite independ-
ently. An international corporation is like a
group of interrelated companies operating in
many countries.
The managerial skills needed in an inter-
national corporation vary widely. Those who
abroad. Within 20 years, Mrs.

Dobriski and her family hope to dom-
GLOBAL BUSINESS inate the production and sales of
Polish-style food products through
worldwide operations Then Paulina
DOBRISKI ENTERPRISES Dobriski will have reached her entre-
preneurial goal, which is to own and
Paulina Dobriski, an immigrant from manage her own global corporation.
Poland, founded a small business in
the United States that manufactures Think Critically
Polish-style foods. Five years ago 1. Why did Dobriski Enterprises
the products were sold only in the begin selling its products in the
Chicago metropolitan area. Mrs. Chicago metropolitan area?
Dobriski and her family worked dili- 2. If things go as planned, how
gently at the business, and it has many years will it take Dobriski
grown every year. Now Dobriski Enterprises to become a multina-
Enterprises exports food products to tional corporation?
three countries. Within ten years, 3. What will have to happen if
Dobriski Enterprises hopes to manu- Dobriski Enterprises changes
facture and sell food products on five from a multinational corporation
continents. Mrs. Dobriski’s children to a global corporation?
can then manage the subsidiaries
276
manage from the parent company need broad manage-

rial skills that cross countries. Managers at the local,
national, and regional levels need more specialized skills
adapted to their specific assignments.
❙ STAGE 4 GLOBAL CORPORATION

A global corporation is an outgrowth of an internation-
al corporation. A global corporation operates so that
country boundaries are not an obstacle to operations. It
searches for the most efficient combinations of goods
and services on a worldwide basis. It markets those
goods and services with little or no regard for national
boundaries. A global corporation is like a domestic
company except that it buys and sells worldwide rather
than within the country of origin.
Those who manage in global corporations some-
times need broad managerial skills, since they operate
on a worldwide basis. Many decisions require local-,
national-, and regional-specific knowledge along with
specialized managerial skills. ©Getty Images/PhotoDisc
What are the stages through which a business passes to attain global status?
MANAGING NOW AND IN THE FUTURE

s business globalization increases, the role of the manager will change.
A The vision of the manager will shift from the domestic to the global
marketplace. While today’s managers predict the future based upon the past,
tomorrow’s managers will need insight into the future.
Managers of the future will not be content to be visionary; they will strive
to facilitate the visionary development of others. Managers will shift from
functioning alone to functioning as part of a team. While the managers of
today enjoy the trust of boards and shareholders, the managers of tomorrow
will need the trust of owners, customers, employees, suppliers, and govern-
mental officials. Managers increasingly will meet the needs of the diverse
groups to whom they are responsible. Rather than being monolingual and
monocultural, as is often the case today, tomorrow’s managers will be multi-
lingual and multicultural. They will function like natives outside of their
own cultures.
Successful global managers must develop and use global strategic skills. They
must skillfully manage transition and change in a culturally diverse world.
They must function effectively as team members while coping with changing
organizational structures. Global managers will need outstanding communica-
tion skills—listening, speaking, reading, and writing skills. They must be able
to acquire and transfer knowledge throughout the organization. Successful
global managers must quickly adapt to the changing environment. What is
your potential to be a manager in the ever changing global marketplace?
277
GEOGRAPHY:
VATICAN CITY—HEADQUARTERS
OF A WORLDWIDE CHURCH
The world’s smallest state, the State of Vatican City (Città del Vaticano),
is the headquarters for one of the world’s largest multinational organizations,
the Roman Catholic Church. This independent state is completely surrounded
by Rome, Italy. It consists of the Church of St. Peter
(also known as the Vatican Basilica), the Vatican
Apostolic Palace (with its world-famous museums and
library), various administrative and ecclesiastical build-
ings, apartments, and the Vatican Gardens. About 109
acres (44 hectares) in size, the State of Vatican City
has a population of nearly 1,000 persons who perform
special services for the Holy See (the realm, seat of
power, authority, and jurisdiction of the pope).
The State of Vatican City has its own symbols of
nationhood—constitution, coinage, postal system, seal,
and flag. It also has its own radio station and daily
newspaper. It exchanges diplomatic representatives
with other countries, but they have accreditation to and
from the Holy See of the Church, not the State of
Vatican City.
Legislative, executive, and judicial power are vested
in the pope within Vatican City, but actual internal
administration is handled by a governor and other
officials. Public order is maintained by a small force of
gendarmes (or police-soldiers), assisted, when neces-
sary, by the Swiss Guards, the pope’s personal regi-
ment of soldiers. Primary judicial power is given to a
local tribunal.
Think Critically
1. In what ways is Vatican City like and unlike most
other states?
2. In what ways is Vatican City like a multinational
corporation?
How will management tomorrow be different from management today?
278

Define each of the following terms.
1. span of control 5. chief executive officer (CEO) intlbizxtra.swlearning.com
2. front-line manager 6. lines of authority

3. middle manager 7. degree of centralization
4. senior manager

8. Why is the line of authority important regardless of the span of control?
9. What is degree of centralization, and how does it affect managerial styles?
10. What are the four stages through which a business passes on the way to
achieving global status?
11. What is a visionary manager?

Soltech, Inc., is a company that introduced a software package that manages
the human resources function for large companies. The software is based on the
U.S. tax structure and uses the English language. It can generate and manage
job descriptions, performance appraisals, interns, and salary and benefit admin-
istration.
12. What stage is Soltech in now?
13. What stage is Soltech in if it tailors versions of the software for Germany
and Japan and opens manufacturing facilities in those countries?
14. What stage is Soltech in if it expands into other kinds of software, with ver-
sions in numerous languages, and sells to all countries?
THINK CRITICALLY
15. What would a company do if its span of control at some level became too
large to manage?
16. Why do organizations competing in the global marketplace tend to have a
limited number of levels of management?
MAKING CONNECTIONS
17. CULTURAL STUDIES Choose a product with which you are familiar.
Describe how the manufacturer could evolve from a Stage 1 company to a
Stage 4 company.
18. COMMUNICATIONS Why does having a larger span of control increase
the need for better communication within an organization?
279
Chapter 10 ASSESSMENT
CHAPTER SUMMARY
intlbizxtra.swlearning.com 10-1 MANAGERS AND CULTURAL DIFFERENCES

A Managers, who are the people in charge of organizations and their
resources, have characteristics and styles that vary.
B Managers must be sensitive to and respect the cultural differences within
their businesses.

A Managers engage in planning and decision making; organizing, staffing,
and communicating; motivating and leading; and controlling.
B Organizations can be structured by function, product, or geography.

A The levels of management are influenced by the span of control, lines of
authority, and delegation of authority and responsibility.
B The evolution of a business through the domestic company, exporting com-
pany, international corporation, and global corporation stages affects its
management.
C As globalization continues, the roles of managers will change.
Read the case at the beginning of this chapter, and answer the following
questions.
1. Why do you think the term virtual corporation was coined to describe
temporary “best-of-everything” businesses?
2. Why do you think that the U.S. film industry has been quick to create
virtual corporations.
3. What can managers of other businesses learn from the managers of
virtual corporations?
4. Choose a recent U.S. film. Through Internet or library research or direct
communication with the production and/or distribution company, investi-
gate how the needed talents were brought together for the project.
Determine whether or not the film project was the product of a virtual
corporation.
280

Match the terms listed with the definitions.
a. autocratic managers
1. Managers who decentralize power and
share it with employees. b. chief executive officer
(CEO)
2. People in charge of organizations and their
resources. c. degree of centraliza-
tion
3. Managers who oversee the work and
departments of a number of front-line man- d. free-rein managers
agers. e. front-line managers
4. Amount of authority and responsibility that f. lines of authority
is delegated to employees or to organiza-
tional units. g. managers
5. Managers who oversee the day-to-day h. middle managers
operations in specific departments. i. organizational chart
6. The highest manager within a company. j. participative managers
7. Managers who centralize power and tell k. senior managers
employees what to do.
l. span of control
8. A drawing that shows the structure of an
organization.
9. The number of employees a manager
supervises.
10. Managers who oversee the work and
departments of a number of middle
managers.
11. Managers who avoid the use of power.
12. Indicates who is responsible to whom
and for what.
MAKE GLOBAL BUSINESS

DECISIONS
13. Why is a participative manager likely to
use autocratic and free-rein manage-
ment on occasion?
14. Devise an analogy between a compo-
nent of the management process and
something that is familiar to you.
15. Draw an organizational chart that
depicts the department of your school.
What is the span of control for the
head of the department?
16. What may the managers of a domestic

company not know when their compa-
ny decides to become an exporting
company?
281
Chapter 10 ASSESSMENT
17. Managers in the global environment must become leaders as learners.
What does the expression “leaders as learners” mean, and why is it neces-
sary to be a leader as learner in the global marketplace?
GLOBAL CONNECTIONS
18. TECHNOLOGY Describe how using scheduling software could contribute
to the controlling process and success of an organization.
19. TECHNOLOGY As a manager, how can technology help you keep track
of business operations abroad?
20. CULTURAL STUDIES How does the culture of the United States foster
participative management?
21. COMMUNICATIONS How would a memorandum from an autocratic
manager to employees about extended breaks differ from one from a free-
rein manager?
22. GEOGRAPHY In what region(s) of Europe are most of the countries
found that favor family and friendship rather than qualifications when hiring
managers?
23. CAREER PLANNING How would you go about locating a book that
addresses careers in management?
282
THE GLOBAL
ENTREPRENEUR
CREATING AN INTERNATIONAL BUSINESS PLAN
IDENTIFYING MANAGEMENT SKILLS AND
ORGANIZATIONAL STRUCTURE
Develop a management plan based on the company and country you have
been using in this continuing project, or create a new idea for a business in
the same or a different coun-
try. Make use of previously
collected information, and do
additional research. This
phase of your business plan
should include the following
components.
1. What skills will managers
need to adapt to the
social and cultural envi-
ronment of this country?
2. Describe the management
style (autocratic, participa-
tory, or free-reign) most
appropriate for this organi-
zation.
3. Explain which type of
organizational structure
(function, product, or
geography) would be most
appropriate.
4. Which of the organiza-
tion’s activities will be cen-
tralized and which will be
decentralized?
5. What other management
and organizational deci-
sions will need to be
adapted for international
business operations?
Prepare a written summary or
present a short oral report
(two or three minutes) of your
findings.
283

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10_Biz_in_Global_Econ 12/14/04 11:37 AM Page 258

10-2 Management Functions and

10-3 The Changing Process of

Chapter 10 MANAGEMENT PRINCIPLES IN ACTION

10-1 MANAGERS AND CULTURAL DIFFERENCES

Managers must be able to take rea-

Autocratic Participative Free-Rein

Figure 10-1 Autocratic, participative, and free-rein managers use power or

Chapter 10 MANAGEMENT PRINCIPLES IN ACTION

Participative Management Style Managers who decentralize power

SHARING CONFIDENTIAL heard Gerd confirming privileged

How do the styles of managers vary along a continuum?

10-1 MANAGERS AND CULTURAL DIFFERENCES

until recently, expected lifetime employment from a

Chapter 10 MANAGEMENT PRINCIPLES IN ACTION

While it is useful for managers to be aware of prevailing cultural prefer-

question the superior’s decision-

How do cultural differences affect managers of a global workforce?

10-1 MANAGERS AND CULTURAL DIFFERENCES

REVIEW GLOBAL BUSINESS TERMS

REVIEW GLOBAL BUSINESS CONCEPTS

SOLVE GLOBAL BUSINESS PROBLEMS

Chapter 10 MANAGEMENT PRINCIPLES IN ACTION

● and decision making

❙ PLANNING AND DECISION MAKING

10-2 MANAGEMENT FUNCTIONS AND ORGANIZATION

THE MANAGERIAL PROCESS IN ACTION

Motivating and Leading

Figure 10-2 The managerial

❙ ORGANIZING, STAFFING, AND COMMUNICATING

Chapter 10 MANAGEMENT PRINCIPLES IN ACTION

Virtual Business Plans

A lthough BizPlanIt markets its online business

ful free service for managers is the detailed information

❙ MOTIVATING AND LEADING

What are the four major components of managing?

10-2 MANAGEMENT FUNCTIONS AND ORGANIZATION

STRUCTURES OF ORGANIZATIONS WORK AS

Vice President Vice President

Product Manufacturing Sales Business

Figure 10-3 A simplified organizational chart for a business organized by

Chapter 10 MANAGEMENT PRINCIPLES IN ACTION

Figure 10-4 This is a good example of a simplified organizational chart for a

10-2 MANAGEMENT FUNCTIONS AND ORGANIZATION

Vice President Vice President

North American European South American African

What are three common business organizational structures?

Chapter 10 MANAGEMENT PRINCIPLES IN ACTION

REVIEW GLOBAL BUSINESS TERMS

REVIEW GLOBAL BUSINESS CONCEPTS

SOLVE GLOBAL BUSINESS PROBLEMS

Chapter 10 MANAGEMENT PRINCIPLES IN ACTION

managers. A number of middle managers may report to a senior manager.

❙ DELEGATION OF AUTHORITY AND RESPONSIBILITY

Middle Customer Marketing

Front-Line Dept. A Dept. B Dept. C

10-3 THE CHANGING PROCESS OF MANAGEMENT

In most circumstances, managers try to balance the authority and respon-

❙ STAGE 1 DOMESTIC COMPANY

❙ STAGE 2 EXPORTING COMPANY

Chapter 10 MANAGEMENT PRINCIPLES IN ACTION

exporting company know little about the markets abroad. Consequently, an

❙ STAGE 3 INTERNATIONAL CORPORATION