Management Flash Cards


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Management principles = Fundamental rules of management that could be taught in schools and applied in all organizational situations = Basic elements of management in general, of which not all are applicable or desirable in one specific business situation ≠ Scientific management: use of scientific method to determine “one best way” for a job to be done
Management Key Concepts Organizations: People working together and coordinating their actions to achieve specific goals. Goal: A desired future condition that the organization seeks to achieve. Management: The process of using organizational resources to achieve the organization’s goals by... Planning, Organizing, Leading, and Controlling
Additional Key Concepts Management Resources are organizational assets and include: People, Machinery, Raw materials, Information, skills, Financial capital. Managers are the people responsible for supervising the use of an organization’s resources to meet its goals.
Organizational Performance Measures how efficiently and effectively managers use resources to satisfy customers and achieve goals Efficiency: A measure of how well resources are used to achieve a goal. Usually, managers must try to minimize the input of resources to attain the same goal. Effectiveness: A measure of the appropriateness of the goals chosen (are these the right goals?), and the degree to which they are achieved. Organizations are more effective when managers choose the correct goals and then achieve them.
Shareholders-stakeholders: the struggle for power Parties in the conflict: “technostructure” (management) and countervailing power (Galbraith, 1952 and 1967); capital providers Determinants of the conflict (why the battle?): GOALS FORMAL ORGANISATION BALANCE: interest, decision power, responsibility and influence.
Goals Management and shareholders are heterogeneous bodies, with so-called X-inefficiencies (their personal goals may sometimes differ from the company’s goals, ex. telephone call home during working hours); A lot of different goals possible; At any time the vision of all stakeholders individually or as subgroup can differ and become a source of an open or latent conflict.
Managerial Roles Described by Mintzberg. A role is a set of specific tasks a person performs because of the position they hold. Roles are directed inside as well as outside the organization. There are 3 broad role categories: 1. Interpersonal 2. Informational 3. Decisional
Formal organisation General Assembly (Algemene Vergadering of AV) of shareholders (all) : highest authority and all power in principle; GA appoints Board of Directors (Raad van Bestuur of RvB): part of decision power of GA is delegated to Board; Board members have personal mandate (personally (s)elected by shareholders) but - after Board has been appointed by shareholders - Board acts for the company (implicit dual position) = TRUST; Board takes decision together (as group): each decision is signed by board, if you do not agree with decision you have to resign as board member; The delegate director from the board (afgevaardigd bestuurder) or CEO (not a board member) can have a select group of board or staff members to help him/her with day-to-day operations/decision.
Formal organisation (Further Information) In Belgium: CEO has power, but Board is responsible; In the Netherlands and Germany they have another model: Direction committee (management with full authority) and Supervisory Board (shareholders or others independent personalities/experts controlling the general evolution) Modification of Belgian corporate law: traditional scheme or creation of Direction Committee (Board transfers decision power fully to DC); Large companies need at least 3 independent board members; Committee 524: criteria of independence.
Balance interest, decision power, responsibility and influence Different degree and nature of interest: Risk capital lenders; Loans; Staff/employees. Influence: board members representing interest, are they independent? Relation decision power and responsibility: there is an imbalance in Belgium: CEO has power and Board is responsible.
The new paradigm: corporate governance After misconduct of some companies: Enron, Lernout & Hauspie: development of rules of conduct; Code Lippens (listed and big companies) and Code Buysse (small firms) in Belgium; Increase transparency of financial reporting and accounting principles; guidelines and rules of conduct of Board and Executive Committee; Corporate governance charter has to be adopted by Board of Directors; In charter: describes tasks CEO, independent Board members, composition of Direction Committee and advisory committees such as audit committee, remuneration committee, strategic committee. ISSUES: Independent board members: is that possible? They are appointed…so how independent really? Codes are also a very important cost for firms (enormous cost of committees). what if one of the founding fathers of these codes does not even apply the rules himself?
Managerial Functions Henri Fayol was the first to describe the four managerial functions when he was the CEO of a large mining company in the later 1800’s. Fayol noted managers at all levels, operating in a for profit or not for profit organization, must perform each of the functions of: Planning, Organizing, Leading, Controlling.
Four Functions of Management Planning: Choose Goals Organizing: Working Together Leading: Coordinate Controlling: Monitoring & Measure
Planning Planning is the process used by managers to identify and select appropriate goals and courses of action for an organization. 3 steps to good planning : 1. Which goals should be pursued? 2. How should the goal be attained? 3. How should resources be allocated? The planning function determines how effective and efficient the organization is and determines the strategy of the organization.
Organizing In organizing, managers create the structure of working relationships between organizational members that best allows them to work together and achieve goals. Managers will group people into departments according to the tasks performed. Managers will also lay out lines of authority and responsibility for members. An organizational structure is the outcome of organizing. This structure coordinates and motivates employees so that they work together to achieve goals.
Leading In leading, managers determine direction, state a clear vision for employees to follow, and help employees understand the role they play in attaining goals. Leadership involves a manager using power, influence, vision, persuasion, and communication skills. The outcome of the leading function is a high level of motivation and commitment from employees to the organization.
Controlling In controlling, managers evaluate how well the organization is achieving its goals and takes corrective action to improve performance. Managers will monitor individuals, departments, and the organization to determine if desired performance has been reached. Managers will also take action to increase performance as required. The outcome of the controlling function is the accurate measurement of performance and regulation of efficiency and effectiveness.
Management Levels: Organizations often have 3 levels of managers: First-line Managers: responsible for day-to-day operation. They supervise the people performing the activities required to make the good or service. Middle Managers: Supervise first-line managers. They are also responsible to find the best way to use departmental resources to achieve goals. Top Managers: Responsible for the performance of all departments and have cross-departmental responsibility. They establish organizational goals and monitor middle managers.
Trend: Restructuring Top Management have sought methods to restructure their organizations and save costs. Downsizing: eliminate jobs at all levels of management. Can lead to higher efficiency. Often results in low morale and customer complaints about service.
Other Management Trends Empowerment: expand the tasks and responsibilities of workers. Supervisors might be empowered to make some resource allocation decisions. Self-managed teams: give a group of employees responsibility for supervising their own actions. The team can monitor its members and the quality of the work performed.
Management Challenges Increasing number of global organizations. Building competitive advantage through superior efficiency, quality, innovation, and responsiveness. Increasing performance while remaining ethical managers. Managing an increasingly diverse work force and. More stakeholders and more complex institutions. Using new technologies.
Managerial Interpersonal Roles Roles managers assume to coordinate and interact with employees and provide direction to the organization. Figurehead role: symbolizes the organization and what it is trying to achieve. Leader role: train, counsel, mentor and encourage high employee performance. Liaison role: link and coordinate people inside and outside the organization to help achieve goals.
Informational Roles Associated with the tasks needed to obtain and transmit information for management of the organization. Monitor role: analyzes information from both the internal and external environment. Disseminator role: manager transmits information to influence attitudes and behavior of employees. Spokesperson role: use of information to positively influence the way people in and out of the organization respond to it.
Decisional Roles Associated with the methods managers use to plan strategy and utilize resources to achieve goals. Entrepreneur role: deciding upon new projects or programs to initiate and invest. Disturbance handler role: assume responsibility for handling an unexpected event or crisis. Resource allocator role: assign resources between functions and divisions, set budgets of lower managers. Negotiator role: seeks to negotiate solutions between other managers, unions, customers, or shareholders.
Managerial Skills There are three skill sets that managers need to perform effectively. 1. Conceptual skills: the ability to analyze and diagnose a situation and find the cause and effect. 2. Human skills: the ability to understand, alter, lead, and control people’s behavior. 3. Technical skills: the job-specific knowledge required to perform a task. Common examples include marketing, accounting, and manufacturing. All three skills are enhanced through formal training, reading, and practice.
Levels in firms Corporate-level: decisions by top managers. Considers on which businesses or markets to be in (in which segments active?). Provides a framework for all other planning. Business-level: details divisional long-term goals and structure. Identifies how this business meets corporate goals. Shows how the business will compete in market generic strategies of Michael Porter). Functional-level: actions taken by managers in departments of manufacturing, marketing, etc. These plans state exactly how business-level strategies are accomplished and how to add value.
Key points of Bureaucracy Authority is the power to hold people accountable for their actions. Positions in the firm should be held based on performance, not social contacts. Position duties are clearly identified. People should know what is expected of them. Lines of authority should be clearly identified. Workers know who reports to who. Rules, Standard Operating Procedures (SOPs), & Norms used to determine how the firm operates. Sometimes, these lead to “red-tape” and other problems.
Management Styles dependent on the culture of the business, the nature of the task, the nature of the workforce and the personality and skills of the leaders. This idea was further developed by Robert Tannenbaum and Warren H. Schmidt (1958, 1973) 1) Autocratic Manager makes all the decisions, keeping the information and decision making among the senior management. The communication is mainly downward. The main advantage of this style is that the direction of the business will remain constant. Can project an image of a confident, well managed business. On the other hand, subordinates may become dependent upon the leaders and supervision may be needed.
Management Styles (Cont) 2) Paternalistic essentially dictatorial, however the decisions tend to be in the best interests of the employees rather than the business leader explains most decisions to the employees and ensures that their social and leisure needs are always met feedback is again generally downward this style can be advantageous, and can engender loyalty from the employees 3) Democratic the manager allows the employees to take part in decision-making the communication is extensive in both directions this style can be particularly useful when complex decisions need to be made that require a range of specialist skills job satisfaction and quality of work will improve however, the decision-making process is severely slowed down 4) Laissez-faire the leader's role is peripheral and staff manage their own areas of the business communication in this style is horizontal (equal in both directions) the style brings out the best in highly professional and creative groups of employees However, in many cases it is not deliberate and is simply a result of poor management this leads to a lack of staff focus and sense of direction
Some features of successful managers Not such “description” of best managers; Some features seem to be: - internal locus of control (impact on events); - decision making power (and learning from feedback); - charismatic authority. Other personlity traits of successful leaders: Emotional stability, Dominance, Enthusiasm, Conscientiousness, Social boldness, Toughmindedness, Self-assurance, Compulsiveness, High energy, Intuitiveness, Maturity, Team orientation, Empathy, Charisma… BONUS SECRET: good managers must stay humble: You may have the power and the title, but nothing good happens without the dedication, commitment and hard work of your staff.
Management theories Evolution Description Assumptions Practical relevance For your evaluation: evolution and basics of each theoretical wave
approaches 1. classical: scientific management, bureaucratic management 2. behavioural approach: recognizing the human variable science approach (operations research) 4. organization-environment: contingency approach and systems approach
Scientific Management theory Modern management began in the late 19th century. Organizations were seeking ways to better satisfy customer needs. Machinery was changing the way goods were produced. Managers had to increase the efficiency of the worker-task mix.
Job specialization Adam Smith, 18th century economist, found firms manufactured pins in two ways: Craft -- each worker did all steps. Factory -- each worker specialized in one step. Smith found that the factory method had much higher productivity. Each worker became very skilled at one, specific task. Breaking down the total job allowed for the division of labor.
1. Scientific Management Defined by Frederick Taylor, late 1800’s. The systematic study of the relationships between people and tasks to redesign the work for higher efficiency. Taylor sought to reduce the time a worker spent on each task by optimizing the way the task was done.
The 4 Principles Four Principles to increase efficiency: 1. Study the way the job is performed now & determine new ways to do it. Gather detailed, time and motion information. Try different methods to see which is best. 2. Codify the new method into rules. Teach to all workers. 3. Select workers whose skills match the rules set in Step 2. 4. Establish a fair level of performance and pay for higher performance. Workers should benefit from higher output.
Problems of Scientific Management Managers often implemented only the increased output side of Taylor’s plan. They did not allow workers to share in increased output. Specialized jobs became very boring, dull. Workers ended up distrusting Scientific Management. Workers could purposely “under-perform” Management responded with increased use of machines.
The Gilbreths Frank and Lillian Gilbreth refined Taylor’s methods. made many improvements to time and motion studies. Time and motion studies: 1. Break down each action into components. 2. Find better ways to perform it. 3. Reorganize each action to be more efficient. Gilbreths also studied fatigue problems, lighting, heating and other worker issues.
Administrative Management Seeks to create an organization that leads to both efficiency and effectiveness. Max Weber developed the concept of bureaucracy. A formal system of organization and administration to ensure effectiveness and efficiency. Weber developed the Five principles shown in next figure.
Differentiation 1. Specialization: job and tasks (link with theory: A. Smith) 2. Departments: grouping of jobs according to logical plan Line (direct responsibilities) and staff (supporting “Line”) Functional organization Divisional organization Matrix organization
Fayol’s Principles (1-5) Henri Fayol, developed a set of 14 principles: 1. Division of Labor: allows for job specialization. Fayol noted firms can have too much specialization leading to poor quality and worker involvement. 2. Authority and Responsibility: Fayol included both formal and informal authority resulting from special expertise. 3. Unity of Command: Employees should have only one boss. 4. Line of Authority: a clear chain from top to bottom of the firm. 5. Centralization: the degree to which authority rests at the very top.
Fayol’s Principles (6-10) 6. Unity of Direction: One plan of action to guide the organization. 7. Equity: Treat all employees fairly in justice and respect. 8. Order: Each employee is put where they have the most value. 9. Initiative: Encourage innovation. 10. Discipline: obedient, applied, respectful employees needed.
Fayol’s Principles (11-14) 11. Remuneration of Personnel: The payment system contributes to success. 12. Stability of Tenure: Long-term employment is important. 13. General interest over individual interest: The organization takes precedence over the individual. 14. Esprit de corps: Share enthusiasm or devotion to the organization.
Behavioral Management Focuses on the way a manager should personally manage to motivate employees. Mary Parker Follett: an influential leader in early managerial theory. Suggested workers help in analyzing their jobs for improvements. The worker knows the best way to improve the job. If workers have the knowledge of the task, then they should control the task.
The Hawthorne Studies Study of worker efficiency at the Hawthorne Works of the Western Electric Co. during 1924-1932. Worker productivity was measured at various levels of light illumination. Researchers found that regardless of whether the light levels were raised or lowered, productivity rose. Actually, it appears that the workers enjoyed the attention they received as part of the study and were more productive.
Theory X and Y Douglas McGregor proposed the two different sets of worker assumptions. Theory X: Assumes the average worker is lazy, dislikes work and will do as little as possible. Managers must closely supervise and control through reward and punishment. Theory Y: Assumes workers are not lazy, want to do a good job and the job itself will determine if the worker likes the work. Managers should allow the worker great latitude, and create an organization to stimulate the worker.
Theory Z William Ouchi researched the cultural differences between Japan and USA. USA culture emphasizes the individual, and managers tend to feel workers follow the Theory X model. Japan culture expects worker committed to the organization first and thus behave differently than USA workers. Theory Z combines parts of both the USA and Japan structure. Managers stress long-term employment, work-group, and organizational focus.
Management Science Uses rigorous quantitative techniques to maximize resources. Quantitative management: utilizes linear programming, modeling, simulation systems. Operations management: techniques to analyze all aspects of the production system. Total Quality Management (TQM): focuses on improved quality. Management Information Systems (MIS): provides information about the organization.
Management science applications - large number of variables - economic implications as guidelines (sales, expenses, inventory control and other quantifiable factors) - mathematic models used - use of computers
Organization-Environment Theory Considers relationships inside and outside the organization. The environment consists of forces, conditions, and influences outside the organization. What managers do depends on circumstances!
Contingency Theory Assumes there is no one best way to manage. The environment impacts the organization and managers must be flexible to react to environmental changes. The way the organization is designed, control systems selected, depend on the environment. Technological environments change rapidly, so must managers.
Systems Considerations System is number of interdependent parts, functioning as a whole for some purpose. Systems theory considers the impact of stages: Input: acquire external resources. Conversion: inputs are processed into goods and services. Output: finished goods are released into the environment. An open system interacts with the environment. A closed system is self-contained. Closed systems often undergo entropy and lose the ability to control itself, and fails. Synergy: performance gains of the whole surpass the components. Synergy is only possible in a coordinated system.
The Organization as an Open System Input Stage: Raw Materials Conversion Stage: Machines Human skills Output Stage: Goods Services Sales of outputs: Firm can then buy inputs
CSR (corporate social responsibility) denotes a business engagement and value creation, allowing to meet legal, ethical and societal expectations and to use business resources in ways to benefit society (Snider 2003)
ESR (environmental social responsibility): “Sustainability, environmental management and proactivity” is a characteristic of entrepreneurship. Businesses take the initiative to develop new procedures and products to obtain a competitive advantage and at the same time meet societal needs. (Lumplin and Dess, 1996)
Management and the environment: Examples: Product innovations; New logistic systems; Value chain/supply chain strategies; HR solutions: telework, etc.; Cluster management (best practices);
Management and the environment: WHY? Definition: Sustainability is defined as economic development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. Some companies are committed to sustainability because it can create financial value through enhanced revenues and lower costs. Two opposing camps (“believers” versus “skepticals”) Classical view: maximizing profit for shareholders within rules of the game Modern socio-economic view: firms depend on intentional actions of their members/persons with responsibilities (normative view); it also contributes to long run profits and survival (necessary “license to operate”) (instrumental view) Why should managers care? Does it pay to be green? Yes, under some conditions: It is only through the identification, measurement, and management of sustainability impacts that social and environmental and financial performance can be improved and value created. Sustainability must be integrated into the way a company does business. Firms should not underestimate their ability to turn CSR into a competitive advantage.
Main reasons why sustainability is important Regulations: penalties and fines, legal costs, lost productivity from inspections, potential closure, reputation effects. Community relations: Improving stakeholder relations can lead to loyalty and trust, mismanaging them can lead to consequences including reputation damage and impacts to the bottom line. Cost and revenue imperatives: Revenues can be increased through increased sales due to good reputation, and costs can be lowered due to process improvements and decreased regulatory fines. Societal and moral obligations: Leadership organizations recognize the link between business and society.
How? (1) sustainability The challenge is not “whether” but “HOW” to integrate corporate social, environmental, and economic impacts into decisions. Some companies are reactive, some are proactive. It is difficult to align strategy, structure, systems, performance measures, and rewards to facilitate effective implementations. Often, the impetus for a sustainability strategy is from external pressures such as government regulation, marketplace demands, competitor actions, or pressure from NGOs. Effective management of stakeholder impacts and relationships is critical. Managing corporate sustainability: Implementation is different than with other strategies in the organization (different goals): for example group of stakeholders is larger. It is unclear how trade-offs between financial and environmental or social performance should be made: integration ecological and economic KPIs. Implementation costs are constantly changing: metrics are crucial. Commitments must be communicated in words and action by leadership (embed in culture): cf. “ecocentric” leadership.
Ultimate GOAL Sustainability cannot be managed as just a public relations strategy to pacify stakeholder concerns (no green washing, but walk the talk!); Long-term economic growth is not possible unless that growth is socially and environmentally sustainable. A balance between economic progress, social responsibility and environmental protection (the triple bottom line) can lead to competitive advantage.
CASE: Wal-Mart - the paradox of managing sustainability Faces enormous challenge: balance low prices with social concerns. Critics say Wal-Mart achieves “lowest price possible” by: paying less than a living wage, not providing adequate healthcare plan, forcing local businesses to decrease wages. Activists challenge product sourcing and impact on employees in foreign factories. Environmental footprint is huge (largest private user of electricity in the U.S., 2nd largest truck fleet). + 60, 000 suppliers (scope impacts sustainability)
CASE: Wal-Mart - the paradox of managing sustainability (CONT) Wal-Mart is making an effort to become more sustainable. CEO Lee Scott’s goals: Reduce solid waste by 25% over 3 years Eliminate 30% energy used in stores Double efficiency of vehicle fleet over 10 years Also, offers products to appeal to a larger customer group (i.e. organic milk & cotton). Critics question whether Wal-Mart’s intentions are credible or “stunts and empty promises”. Can they improve sustainability and keep prices low?
Organizational environment For a long time, we focuses on internal aspects of a firm and its long term performance: leadership, control, planning and strategy, HRM, etc… Now more attention to: Organizational Environment: those forces outside its boundaries that can impact it. Forces can change over time and are made up of opportunities and threats. Opportunities: openings for managers to enhance revenues or open markets. New technologies, new markets and ideas. Threats: issues that can harm an organization (beyond its control) economic recessions, oil shortages, etc. Managers must seek opportunities and avoid threats Who and what can pose these threats?
Six factors for successful environmental strategy in large, complex, global firms: It must be an integral component of corporate strategy. Leadership must commit to it & build organizational capacity. Strategies should be supported with management control, performance measurement, and reward systems. Strategies should be supported (mission, culture, people). Managers must integrate it into all strategic and operational decisions. Then, additional systems and rewards can be introduced to formalize and support. Managing sustainability performance should be viewed not only as risk avoidance and compliance but also as an opportunity for innovation and competitive advantage.
Other forces from environment - global forces - technological forces - culture - ethics
Task Environment (direct stakeholders): forces from suppliers, distributors, customers, and competitors. A. Suppliers/inputs Managers need to secure reliable input sources. Suppliers provide raw materials, components, and even labor. Working with suppliers can be hard due to shortages, unions, and lack of substitutes. Suppliers with scarce items can raise the price and are in a good bargaining position. Managers often prefer to have many, similar suppliers of each item. (But what do we do with unethical suppliers?) B. Distributors: organizations that help others to sell goods. Some distributors like Wal-Mart have strong bargaining power (they can threaten not to carry your product). C. Customers: people who buy the goods. Usually, there are several groups of customers. For Compaq, there are business, home, & government buyers. D. Competitors: other organizations that produce similar goods. Rivalry between competitors is usually the most serious force facing managers; High levels of rivalry often means lower prices (Profits may become hard to find); Barriers to entry keep new competitors out and result from: Economies of scale: cost advantages due to large scale production. Brand loyalty: customers prefer a given product.
Individualism v. Collectivism Individualism: world view that values individual freedom and self-expression. Usually has a strong belief in personal rights and need to be judged by achievements. Collectivism: world view that values the group over the individual. Widespread in Communism. Prevalent in Japan as well. Managers must understand how their workers relate to this issue.
Power Distance A society’s acceptance of differences in the well being of citizens due to differences in heritage, and physical and intellectual capabilities. In high power distance societies, the gap between rich and poor gets very wide. In low power distance societies, any gap between rich and poor is reduced by taxation and welfare programs. Most western cultures (U.S., Germany, United Kingdom) have relatively low power distance and high individualism. Many economically poor countries such as Panama, Malaysia have high power distance and low individualism.
Achievement vs Nurture Achievement oriented societies value assertiveness, performance, success. The society is results-oriented. Nurturing-oriented value quality of life, personal relationships, service. The U. S. and Japan are achievement-oriented while Sweden, Denmark are more nurturing-oriented.
General Environment Consists of the wide economic, technological, demographic and similar issues. Managers usually cannot impact or control these. Forces have profound impact on the firm. 1. Economic forces: affect the national economy and the organization. Includes interest rate changes, unemployment rates, economic growth. When there is a strong economy, people have more money to spend on goods and services. 2. Technological forces: skills & equipment used in design, production and distribution. Result in new opportunities or threats to managers. Often make products obsolete very quickly. Can change how we manage. 3. Social-cultural forces: result from changes in the social or national culture of society. Social structure refers to the relationships between people and groups. Different societies have vastly different social structures. National culture includes the values that characterize a society. Values and norms differ widely throughout the world. These forces differ between cultures and over time. 4. Demographic forces: result from changes in the nature, composition and diversity of a population. These include gender, age, ethnic origin, etc. For example, during the past 20 years, women have entered the workforce in increasing numbers. Currently, most industrial countries are aging. This will change the opportunities for firms competing in these areas. New demand for health care, assisting living can be forecast. 5. Political-legal forces: result from changes in the political arena. These are often seen in the laws of a society. Today, there is increasing deregulation of many state-run firms. 6. Global forces: result from changes in international relationships between countries. Perhaps the most important is the increase in economic integration of countries. Free-trade agreements (GATT, NAFTA, EU) decreases former barriers to trade. Provide new opportunities and threats to managers.
Need to Manage the Organization’s Environment Managers must measure the complexity of the environment and rate of environmental change. Environmental complexity: deals with the number and possible impact of different forces in the environment. Managers must pay more attention to forces with larger impact. Usually, the larger the organization, the greater the number of forces managers must oversee.  The more forces, the more complex the manager’s job becomes. Dynamics: environmental change: refers to the degree to which forms in the task and general environments change over time.  Managers thus cannot be sure that actions taken today will be appropriate in the future given new changes.
Reducing Environmental Impact Managers can counter environmental threats by reducing the number of forces. Many firms have sought to reduce the number of suppliers it deals with which reduces uncertainty. All levels of managers should work to minimize the potential impact of environmental forces. Examples include reduction of waste by first line managers, determining competitor’s moves by middle managers, or the creation of a new strategy by top managers.
Managing stakeholders Stakeholder management: balancing stakeholder interests in view of social responsibility and other firm’s goals. Definition stakeholder: anybody in the organization’s external environment that is affected by the firm’s decisions and actions WHO? Firm’s direct environment (personnel, customers, rivals, etc.) AND unions, action groups (pressure), media, trade associations, local communities, governments, etc.
Stakeholder management (1) Identification (2) determine interests (3) how critical is each stakeholder (4) how to manage the relationship, depending on how critical (urgency, power and legitimacy) stakeholder is and how uncertain environment (e.g. if very critical and environment very uncertain, then potential stakeholder partnership)
Stakeholder issues Stakeholders often want different outcomes and managers must work to satisfy as many as possible (conflict) Dynamics in stakeholder power, urgency and legitimacy Cost of stakeholder management Levels: daily business, projects, LT planning
Ecological analysis General issues: Problem of complexity of metrics: comparability, value, industry/firm specific, etc. Dynamic and/ or longitudinal analysis? What is prescriptive value of analysis to strategic options? Example of analysis: environmental performance through a ‘green’ port portfolio analysis (drawing back on BCG matrix) measurement of environmental impact as third dimension (next to growth and market share) relative and comparatively static analysis calculation of potential benefits of strategic investments (ex. cargo shifting to less polluting logistic systems or transport modes; investment into emission reduction, impact of telework on space, energy and commuting externalities, etc.)
CSR & ESR: Strategy responses There are many ways managers respond to this ESR duty: 1. Obstructionist response: managers choose not to be socially responsible. Managers behave illegally and unethically. They hide and cover-up problems. 2. Defensive response: managers stay within the law but make no attempt to exercise additional social responsibility. Put shareholder interest above all other stakeholders. Managers say society should make laws if change is needed. 3. Accommodative response: managers realize the need for social responsibility. Try to balance the interests of all stakeholders. 4. Proactive response: managers actively embrace social responsibility. Go out of their way to learn about and help stakeholders.
Why be MORE Responsible? Managers accrue benefits by being responsible. Workers and society benefit; Quality of life in society will improve; It is the right thing to do; Long term survival and growth; Shareholder value; … Whistleblowers: a person reporting illegal or unethical acts. Whistleblowers now protected by law in most cases. Slowly incorporating CSR in regulation and policy:  Social audit: managers specifically take ethics and business into account when making decisions.
Culture National culture: includes the values, norms, knowledge, beliefs, and other practices that unite a country. Values: abstract ideas about what a society believes to be good, desirable and beautiful. Provides attitudes for democracy, truth, appropriate roles for men, and women. Usually not static but very slow to change.
Norms: social rules prescribing behavior in a given situation. Folkways: routine social conventions including dress codes and manners. Mores: Norms that are central to functioning of society. much more significant that folkways. More examples include theft, adultery, and are often enacted into law. Norms vary from country to country.
Hofstede’s Model of National Culture Individualism - Collectivism Low Power - High Power Distance Distance Achievement - Nurturing Oriented Oriented Low Uncertainty - High Uncertainty Avoidance Avoidance Short Term - Long Term Orientation Orientation
Uncertainty Avoidance Societies and people differ on their willingness to take on risk. Low uncertainty avoidance (U.S., Hong Kong), value diversity, and tolerate differences. Tolerate a wide range of opinions and beliefs. High uncertainty avoidance (Japan and France) are more rigid and do not tolerate people acting differently. High conformity to norms is expected.
Ethics Ethics: a set of beliefs about right and wrong. Ethics guide people in dealings with stakeholders and others, to determine appropriate actions. Managers often must choose between the conflicting interest of stakeholders.
Ethics It is difficult to know when a decision is ethical. Here is a good test: Managerial ethics: If a manager makes a decision falling within usual standards, is willing to personally communicate the decision to stakeholders, and believes friends would approve, then it is likely an ethical decision.
Ethical Origins: Societal Ethics: Societal Ethics: standards that members of society use when dealing with each other. Based on values and standards found in society’s legal rules, norm, and mores. Codified in the form of law and society customs. Norms dictate how people should behave. Societal ethics vary based on a given society. Strong beliefs in one country may differ elsewhere. Example: bribes are an accepted business practice in some countries.
Ethical Origins: Professional ethics: Professional ethics: values and standards used by groups of managers in the workplace. Applied when decisions are not clear-cut ethically. Example: physicians and lawyers have professional associations that enforce these. Individual ethics: values of an individual resulting from their family& upbringing. If behavior is not illegal, people will often disagree on if it is ethical. Ethics of top managers set the tone for firms.
Ethical Decisions A key ethical issue is how to disperse harm and benefits among stakeholders. If a firm is very profitable for two years, who should receive the profits? Employees, managers and stockholders all want a share. Should we keep the cash for future slowdowns? What is the ethical decision? What about the reverse, when firms must layoff workers. Final point: stockholders are the legal owners of the firm!
Ethical Decisions (CONT) Some other issues managers must consider. Should you hold payment to suppliers as long as possible to benefit your firm? This will harm your supplier who is a stakeholder. Should you pay severance pay to laid off workers? This may decrease the stockholder's return. Should you buy goods from overseas firms that hire children? If you don’t the children might not earn enough money to eat.
Why Behave Ethically? Managers should behave ethically to avoid harming others. Managers are responsible for protecting and nurturing resources in their charge. Unethical managers run the risk for loss of reputation. This is a valuable asset to any manager! Reputation is critical to long term management success. All stakeholders are judged by reputation.
FOUNDATIONS OF STRATEGIC PLANNING Planning = process that involves defining GOALS, establishing STRATEGY for achieving goals and developing a set of PLANS to integrate and coordinate the work
Company and manager’s objectives - Type of goals: Stated goals: officially stated in text (statutes, mission, etc.) Real goals: actions of members - goal not spontaneously reached, but through planned and coordinated mechanisms - if business = sum of mathematical functions, then profit maximizing firm - BUT firm can have other goal(s): growth max, market share max, employment max, sales max, service max, budget max, etc.
Classical economic theory - profit through invisible hand; - profit maximizing in function of time and risk: Short term and low risk: ST profit Short term and high risk: expected profit Long term and low risk: present value profit Long term and high risk: expected present value profit
Management goals - sales maximization - non-monetary goals: power, status, prestige, safety, expense preference… Can they maximize something?
Determining Mission and Goals This is the first step of the planning process and is accomplished by: A. Define the business: seeks to identify our customer and the needs we can and should satisfy. This also pinpoints competitors. B. Establishing major goals: states who will compete in the business. Should stretch the organization to new heights. Goals must also be realistic and have a time period in which they are achieved.
The Planning Process Planning is the process used by managers to identify and select goals and courses of action for the organization.  The organizational plan that results from the planning process details the goals to be attained. The pattern of decisions managers take to reach these goals is the organization’s strategy.
Three Stages of the Planning Process Determining the Organization’s mission and goals (Define the business) Strategy formulation (Analyze current situation & develop strategies) Strategy Implementation (Allocate resources & responsibilities to achieve strategies)
Planning Process Stages Organizational mission: defined in the mission statement which is a broad declaration of the overriding purpose. The mission statement identifies product, customers and how the firm differs from competitors. Formulating strategy: managers analyze current situation and develop strategies needed to achieve the mission. Implementing strategy: managers must decide how to allocate resources between groups to ensure the strategy is achieved.
Planning Levels – WHAT do they plan? Corporate-level: decisions by top managers. Considers on which businesses or markets to be in. Provides a framework for all other planning. Business-level: details divisional long-term goals and structure. Identifies how this business meets corporate goals. Shows how the business will compete in market: competition strategy (generic strategies of M. Porter) Functional-level: actions taken by managers in departments of manufacturing, marketing, etc. These plans state exactly how business-level strategies are accomplished. How can we add value to the organization?
Characteristics of Plans Time horizon: refers to how far in the future the plan applies. Long-term plans are usually 5 years or more. Intermediate-term plans are 1 to 5 years. Corporate and business level plans specify long and intermediate term. Short-term plans are less than 1 year. Functional plans focus on short to intermediate term. Most firms have a rolling planning cycle to amend plans constantly.
Types of Plans Standing plans: for programmed decisions. Managers develop policies, rules, and standard operating procedures (SOP). Policies are general guides to action. Rules are a specific guide to action. Single-use plans: developed for a one-time, nonprogrammed issue. Usually consist of programs and projects. Programs: integrated plans achieving specific goals. Project: specific action plans to complete programs.
Who Plans? Corporate level planning is done by top managers. Also approve business and functional level plans. Top managers should seek input on corporate level issues from all management levels. Business and functional planning is done by divisional and functional managers. Both management levels should also seek information from other levels. Responsibility for specific planning may lie at a given level, but all managers should be involved.
Why Planning is Important Planning determines where the organization is now and where it will be in the future. Good planning provides: Participation: all managers are involved in setting future goals. Sense of direction & purpose: Planning sets goals and strategies for all managers. Coordination: Plans provide all parts of the firm with understanding about how their systems fit with the whole. Control: Plans specify who is in charge of accomplishing a goal.
Scenario Planning Scenario Planning: generates several forecasts of different future conditions and analyzes how to effectively respond to them. Planning seeks to prepare for the future, but the future is unknown. By generating multiple possible “futures” we can see how our plans might work in each. Allows the firm to prepare for possible surprises. Scenario planning is a learning tool to improve planning results.
Strategy Analysis and Formulation Managers analyze the current situation to develop strategies achieving the mission. SWOT analysis: a planning to identify: Organizational Strengths and Weaknesses. Strengths: manufacturing ability, marketing skills. Weaknesses: high labor turnover, weak financials. Environmental Opportunities and Threats. Opportunities: new markets. Threats: economic recession, competitors
Planning & Strategy Formulation SWOT analysis identifies strengths & weaknesses inside the firm and opportunities & threats in the environment.
Planning & Strategy Formulation: Corporate-level strategy Corporate-level strategy develop a plan of action maximizing long-run value
Planning & Strategy Formulation: Business-level strategy Business-level strategy a plan of action to take advantage of opportunities and minimize threats
Planning & Strategy Formulation: Functional-level strategy Functional-level strategy a plan of action improving department’s ability to create value
O/T: The Five Forces Model: external scan 1. Level of Rivalry in an industry: how intense is the current competition with competitors? Increased competition results in lower profits. 2. Potential for entry: how easy is it for new firms to enter the industry? Easy entry leads to lower prices and profits. 3. Power of Suppliers: If there are only a few suppliers of important items, supply costs rise. 4. Power of Buyers: If there are only a few, large buyers, they can bargain down prices. 5. Substitutes: More available substitutes tend to drive down prices and profits.
S/W Internal scan Analysis of strengths and weaknesses Resource-based view: competitive advantage through combination of resources that are: valuable, rare, non-replicable (inimitable), less valuable substitutes, return to company, long lasting
Strategy formulation - based on analysis 1. Corporate level: where? In which markets? vertical integration versus outsourcing? 2. Business level: differentiation, cost leadership, etc. 3. Functional level: where can we add value?
1. Corporate-Level Strategies Concentrate in single business: McDonalds focuses in the fast food business. Can become very strong, but can be risky. Diversification: Organization moves into new businesses and services. Related diversification: firm diversifies in similar areas to build upon existing divisions. Synergy: two divisions work together to obtain more than the sum of each separately. Unrelated diversification: buy business in new areas. Build a portfolio of unrelated firms to reduce risk or trouble in one industry. Very hard to manage.
International Strategy To what extent do we customize products and marketing for different national conditions? Global strategy: a single, standard product and marketing approach is used in all countries. Standardization provides for lower cost. Ignore national differences that others can address. Multidomestic strategy: products and marketing are customized for each country of operation. Customization provides for higher costs. Embraces national differences and depends on them for success.
Vertical Integration When the firm is doing well, managers can add more value by producing its own inputs or distributing its products. Backward vertical integration: the firm produces its own inputs. McDonalds grows its own potatoes. Can lower the cost of supplies. Backward vertical integration: the firm distributes its outputs or products. McDonalds owns the final restaurant. Firm can lower costs and ensure final quality.
Business Strategies Low-cost: gain a competitive advantage by driving down organizational costs. Managers manufacture at lower cost, reduce waste. Lower costs than competition mean lower prices. Differentiation: gain a competitive advantage by making your products different from competitors. Differentiation must be valued by the customer. Successful differentiation allows you to charge more for a product. Stuck in the middle: It is difficult to simultaneously become differentiated and low cost.
Business Strategies (CONT) Firms also choose to serve the entire market or focus on a few segments. Focused low-cost: try to serve one segment of the market but be the lowest cost in that segment. Cott Company seeks to achieve this in large retail chains. Focused differentiated: Firm again seeks to focus on one market segment but is the most differentiated in that segment. BMW provides a good example.
Functional-level Strategies Seeks to have each department add value to a good or service. Marketing, service, production all add value to a good or service. Value is added in two ways: 1. lower the operational costs of providing the value in products. 2. add new value to the product by differentiating. Functional strategies must fit with business level strategies.
Goals for successful functional strategies: 1. Attain superior efficiency: the measure of outputs for a given unit of input. 2. Attain superior quality: products that reliably do the job they were designed for. 3. Attain superior innovation: new, novel features about the product or process. 4. Attain superior responsiveness to customers: Know the customer needs and fill them.
Managerial Decision Making Decision making: the process by which managers respond to opportunities and threats by analyzing options, and making decisions about goals and courses of action. Decisions in response to opportunities: managers respond to ways to improve organizational performance. Decisions in response to threats: occurs when managers are impacted by adverse events to the organization.
Types of Decision Making Programmed Decisions: routine, almost automatic process. Managers have made decision many times before. There are rules or guidelines to follow. Example: Deciding to reorder office supplies. Non-programmed Decisions: unusual situations that have not been often addressed. No rules to follow since the decision is new. These decisions are made based on information, and a manger’s intuition, and judgment. Example: Should the firm invest in a new technology?
The Classical Model Classical model of decision making: a prescriptive model that tells how the decision should be made. Assumes managers have access to all the information needed to reach a decision. Managers can then make the optimum decision by easily ranking their own preferences among alternatives. Unfortunately, mangers often do not have all (or even most) required information.
The Classical Model List alternatives & consequences > Assumes all information is available to manager Rank each alternative from low to high > Assumes manager can process information Select best alternative > Assumes manager knows the best future course of the organization
The Administrative Model Administrative Model of decision making: Challenged the classical assumptions that managers have and process all the information. As a result, decision making is risky. Bounded rationality: There is a large number of alternatives and information is vast so that managers cannot consider it all. Decisions are limited by people’s cognitive abilities. Incomplete information: most managers do not see all alternatives and decide based on incomplete information.
Why Information is Incomplete Uncertainty & risk Ambiguous Information Time constraints & information costs
Incomplete Information Factors Incomplete information exists due to many issues: Risk: managers know a given outcome can fail or succeed and probabilities can be assigned. Uncertainty: probabilities cannot be given for outcomes and the future is unknown. Many decision outcomes are not known such as a new product introduction. Ambiguous information: information whose meaning is not clear. Information can be interpreted in different ways.
Incomplete Information Factors (CONT) Time constraints and Information costs: Managers do not have the time or money to search for all alternatives. This leads the manager to again decide based on incomplete information. Satisficing: Managers explore a limited number of options and choose an acceptable decision rather than the optimum decision. This is the response of managers when dealing with incomplete information. Managers assume that the limited options they examine represent all options.
Decision Making Steps 1. Recognize need for a decision: Managers must first realize that a decision must be made. Sparked by an event such as environment changes. 2. Generate alternatives: managers must develop feasible alternative courses of action. If good alternatives are missed, the resulting decision is poor. It is hard to develop creative alternatives, so managers need to look for new ideas. 3. Evaluate alternatives: what are the advantages and disadvantages of each alternative? Managers should specify criteria, then evaluate. 4. Choose among alternatives: managers rank alternatives and decide. When ranking, all information needs to be considered. 5. Implement chosen alternative: managers must now carry out the alternative. Often a decision is made and not implemented. 6. Learn from feedback: managers should consider what went right and wrong with the decision and learn for the future. Without feedback, managers never learn from experience and make the same mistake over.
Evaluating Alternatives Is it legal? Managers must first be sure that an alternative is legal both in this country and abroad for exports. Is it ethical? The alternative must be ethical and not hurt stakeholders unnecessarily. Is it economically feasible? Can our organization’s performance goals sustain this alternative? Is it practical? Does the management have the capabilities and resources to do it?
Rationality Decision making is assumed to be rational Consistent Value-maximizing choices In the best interests of the organization Within specific constraints How realistic? So how are most decision usually made?
Role of intuition Making decisions on the basis of experience, feelings and accumulated judgement 1/3 of all decisions are made intuitively
Types of problems and decisions Structured problems (familiar, easily defined) Programmed decision: routine approach Procedure: interrelated sequential steps (longer programmed decision) Rule: rapid and fair decisions Policy: guideline for making a decision (a policy is less strict than a rule); e.g. “Customer should always be satisfied” Unstructured problems and unique, unusual and difficult decisions (more often when climbing up the organizational hierarchy)
Designing Organizational Structure Organizing: the process by which managers establish working relationships among employees to achieve goals. Organizational Structure: formal system of task & reporting relationships showing how workers use resources. Organizational design: managers make specific choices resulting in a given organizational structure. Successful organizational design depends on the organization’s unique situation.
Determinants of Structure The environment: The quicker the environment changes, the more problems face managers. Structure must be more flexible when environmental change is rapid. Usually need to decentralize authority. Strategy: Different strategies require the use of different structures. A differentiation strategy needs a flexible structure, low cost may need a more formal structure. Increased vertical integration or diversification also requires a more flexible structure.
Determinants of Structure (CONT) Human Resources: the final factor affecting organizational structure. Higher skilled workers who need to work in teams usually need a more flexible structure. Higher skilled workers often have professional norms (CPA’s, physicians). Technology: The combination of skills, knowledge, tools, equipment, computers and machines used in the organization. Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization.
Functional organization Once tasks are grouped into jobs, managers must decide how to group jobs together. Function: people working together with similar skills, tools or techniques to perform their jobs. Functional structure consists of departments such as marketing, production, and finance. PROS: Workers can learn from others doing similar tasks. Easy for managers to monitor and evaluate workers. CONS: Hard for one department to communicate with others. Managers can become preoccupied with their department and forget the firm
Divisional Structures A division is a collection of functions working together to produce a product. Divisions create smaller, manageable parts of a firm. Divisions develop a business-level strategy to compete. A division has marketing, finance, and other functions. Functional managers report to divisional managers who then report to corporate management. Product structure: divisions created according to the type of product or service. Geographic structure: divisions based on the area of a country or world served. Market structure: divisions based on the types of customers served.
Matrix Teams Matrix structure: managers group people by function and product teams simultaneously. Results in a complex network of reporting relationships. Very flexible and can respond rapidly to change. Each employee has two bosses which can cause problems. Functional manager gives different directions than product manager and employee cannot satisfy both.
Hybrid Structures Many large organizations have divisional structures where each manager can select the best structure for that particular division. One division may use a functional structure, one geographic, and so on. This ability to break a large organization into many smaller ones makes it much easier to manage.
Coordinating Functions To ensure sufficient coordination between functions, managers delegate authority (decentralization). Authority: the power vested in the manager to make decisions and use resources. Hierarchy of authority: describes the relative authority each manager has from top to bottom. Span of Control: refers to the number of workers a manager manages. Line authority: managers in the direct chain of command for production of goods or services. Example: Sales Staff authority: managers in positions that give advice to line managers. Example: Legal
Tall & Flat Organizations Tall structures have many levels of authority relative to the organization’s size. As levels in the hierarchy increase, communication gets difficult. The extra levels result in more time being taken to implement decisions. Communications can also become garbled as it is repeated through the firm. Flat structures have few levels but wide spans of control. Results in quick communications but can lead to overworked managers.
Attitudes Attitudes: collection of feelings about something. Job Satisfaction: feelings about a worker’s job. Satisfaction tends to rise as manager moves up in the organization. Organizational Citizenship Behaviors: actions not required of managers but which help advance the firm. Managers with high satisfaction perform these “extra mile” tasks. Organizational Commitment: beliefs held by people toward the organization as a whole. Committed managers are loyal and proud of the firm. Commitment can differ around the world.
Personality Traits Personality Traits: Characteristics that influence how people think, feel and behave on and off the job. Include tendencies to be enthusiastic, demanding, easy-going, nervous, etc. Each trait can be viewed on a continuum, from low to high. There is no “wrong” trait, but rather managers have a complex mix of traits.
The Big Five (Personalities) Extroversion: people are positive and feel good about themselves and the world. Managers high on this trait are sociable, friendly. Negative Affectivity: people experience negative moods, are critical, and distressed. Managers are often critical and feel angry with others and themselves. Agreeableness: people like to get along with others. Managers are likable, and care about others. Conscientiousness: people tend to be careful, persevering. Openness to Experience: people are original, with broad interests.
Traits and Managers Successful managers vary widely on the “Big Five”. It is important to understand these traits since it helps explain a manager’s approach to planning, leading, organizing, etc. Managers should also be aware of their own style and try to tone down problem areas. Internal Locus of Control: People believe they are responsible for their fate. See their actions are important to achieving goals. External Locus of Control: People believe outside forces are responsible for their fate. Their actions make little difference in achieving outcomes. Managers need an Internal Locus of Control!
Other Traits Self-Esteem: Captures the degree to which people feel good about themselves and abilities. High self-esteem causes people to feel they are competent, and capable. Low self-esteem people have poor opinions of themselves and abilities. Need for Achievement: extent to which people have a desire to perform challenging tasks and meet personal standards. Need for Affiliation: the extent to which people want to build interpersonal relationships and being liked. Need for Power: indexes the desire to control or influence others.
Perceptions Perception is the process through which people select, organize and interpret input. Manager’s decisions are based on their perception. Managers need to ensure perceptions are accurate. Managers are all different and so are their perceptions of a situation. Perceptions depend on satisfaction, moods, and so forth. A manager’s past experience can influence their outlook on a new project. Good managers try not to prejudge new ideas based on the past.
Groups, Teams and Effectiveness Group: two or more people who interact with each other to accomplish a goal. Team: group who work intensively with each other to achieve a specific common goal. All teams are groups, BUT, not all groups are teams. Teams often are difficult to form. Takes time for members to work together. Teams can improve organizational performance.
Competitive Advantage with Groups & Teams Performance Enhancement: Make use of synergy Workers in a group have the opportunity to produce more or better output than separate workers. Members correct other’s errors, bring new ideas to bear. Managers should build groups with members of complimentary skills. Responsive to Customers: Difficult to achieve given many constraints. Safety issues, regulations, costs. Cross-functional teams provide the wide variety of skills needed. Teams consist of members of different departments.
Competitive Advantage, Cont. Innovation: individuals rarely possess the wide variety of skills needed. Team members also uncover flaws and develop new ideas. Managers should empower the team for the full innovation process. Motivation: members of groups, and particularly teams, are often better motivated and satisfied than individuals. It is fun to work next to other motivated people. Team members see their contribution to the team. Teams also provide social interaction.
Formal Groups & Teams Created by manager to meet the firm’s goals. Cross-functional: members of different departments. Cross-cultural: members of different cultures. Research and Development Teams: Create new products. Top Management team: help develop firm’s direction. Important to have diversity in it to avoid group think. Command Groups: members report to same manager. Task Force: created to meet a given objective. Standing committees are permanent task forces. Self-Managed Teams: members are empowered to complete some given work. Team decides how to do the task.
Informal Groups and Teams Created by the workers to meet their needs. Friendship group: made up of employees who enjoy each other’s company. Satisfy the need for human interaction and social support. Interest Groups: Workers seek to achieve a common goal based on their membership in the organization. Managers should observe interest groups to learn what employees see as important.
Group Dynamics Dynamics affect how a group or team functions. Group size: affects how a group performs. Normally, keep group small (2 to 9 members). Small groups interact better and tend to be more motivated. Use large groups when more resources are needed. Division of labor is possible with large group. Group Tasks: impacts how a group interacts. Task interdependence shows how work of one member impacts another. As interdependence rises, members work closer together.
Managing for Performance Motivate groups to achieve goals: Members should benefit when the group performs well. Rewards can be monetary or in other forms. Reduce social loafing: human tendency to put forth less effort in a group than individually. To eliminate: Make individual efforts identifiable and evaluated. Emphasize individual efforts to show they count. Keep group size at a small number. Help groups manage conflict. All groups will have conflict, managers should seek ways to direct it to the goals.
Motivation Defined as the psychological forces within a person that determine: 1) direction of behavior in an organization; 2) the effort or how hard people work; 3) the persistence displayed in meeting goals. Intrinsic Motivation: behavior performed for its own sake. Motivation comes from performing the work. Extrinsic Motivation: behavior performed to acquire rewards. Motivation source is the consequence of an action.
Need Theory People are motivated to obtain outcomes at work to satisfy their needs. A need is a requirement for survival. To motivate a person: 1)Managers must determine what needs worker wants satisfied. 2)Ensure that a person receives the outcomes when performing well. Several needs theories exist. Maslow’s Hierarchy of Needs.
Pay and Motivation Pay can help motivate workers. Expectancy: pay is an instrumentality (and outcome), must be high for motivation to be high. Need Theory: pay is used to satisfy many needs. Equity Theory: pay is given in relation to inputs. Goal Setting Theory: pay linked to goal attainment. Learning Theory: outcomes (pay), is distributed upon performance of functional behaviors. Pay should be based on performance, many firms do this with a Merit Pay Plan.
Merit Pay Can be based on individual, group or organization performance. Individual Plan: used when individual performance (sales) is accurately measured. Group Plan: use when group works closely together and is measured as a group. Organization Plan: When group or individual outcomes not easily measured. Bonus has a higher impact on motivation since Salary level not related to current performance. Other items (base salary, cost of living, seniority). Salary rarely goes down and usually changes little.
Organizational Control Managers must monitor & evaluate: Are we efficiently converting inputs into outputs? Must accurately measure units of inputs and outputs. Is product quality improving? Are we competitive with other firms? Are employees responsive to customers? customer service is increasingly important. Are our managers innovative in outlook? Does the control system encourage risk-taking?
Control Systems Formal, target-setting, monitoring, evaluation and feedback systems to provide managers with information to determine if strategy and structure are working effectively and efficiently. A good control system should: be flexible so managers can respond as needed. provide accurate information about the organization. provide information in a timely manner.
Control Process Steps 1. Establish standards, goals, or targets against which performance is to be evaluated. Standards must be consistent with strategy, for a low cost strategy, standards should focus closely on cost. Managers at each level need to set their own standards. 2. Measure actual performance: managers can measure outputs resulting from worker behavior or they can measure the behavior themselves. The more non-routine the task, the harder to measure. Managers then measure the behavior (come to work on time) not the output.
The Control Process (CONT) 3. Compare actual performance against chosen standards. Managers must decide if performance actually deviates. Often, several problems combine creating low performance. 4. Evaluate result and take corrective action. Perhaps the standards have been set too high. Workers may need additional training, or equipment. This step is often hard since the environment is constantly changing.
Output Control Systems Financial Controls are objective and allow comparison to other firms. Profit ratios--measures how efficiently managers convert resources into profits. Return on Investment (ROI) is the most common. Liquidity ratios -- measure how well managers protect resources to meet short term debt. Current & quick ratios. Leverage ratios -- show how much debt is used to finance operations. Debt-to-asset & times-covered ratios. Activity ratios -- measures how managers create value from assets. Inventory turnover, days sales outstanding.
Output Control Systems Organizational Goals: after corporate financial goals are set, each division is given specific goals that must be met to attain the overall goals. Goals and thus output controls, will be set for each area of the firm. Goals are specific & difficult (not impossible) to achieve. Goal setting is a management skill developed over time. Operating budgets: a blueprint showing how managers can use resources. Managers are evaluated by how well they meet goals and stay in budget. Each division is often evaluated on its own budgets for cost, revenue or profit.
Output Control Problems Managers must create output standards that motivate at all levels. Be careful of creating short-term goals that motivate managers to forget the future. It is easy to cut costs by dropping R&D now but it leads to future disaster. If standards are too high, workers may follow unethical behavior to attain them. Increase sales regardless of issues. This can be done by skipping safe production steps.
Behavior Control Systems Managers must motivate and shape employee behavior to meet organizational goals. Direct Supervision: managers who directly manage workers and can teach, reward, and correct. Very expensive since only a few workers can be managed by 1 manager. Can demotivate workers who desire more autonomy. Hard to do in complex job settings.
Management by Objectives Management by Objectives (MBO): evaluates workers by attainment of specific objectives. Goals are set at each level of the firm. Goal setting is participatory with manager AND worker. Reviews held looking at progress toward goals. Pay raises and promotions are tied to goal attainment. Teams are also measured in this way with goals and performance measured for the team.
Bureaucratic Control ( Bureaucratic Control) Control through a system of rules and standard operating procedures (SOPs) that shape the behavior of divisions, functions, and individuals. Rules and SOPs tell the worker what to do. Standardized actions so outcomes are predictable. Still need output control to correct mistakes. Problems of Bureaucratic Control: Rules easier to make than delete. Leads to “red tape” Firm can become too standardized and not flexible. Best used for routine problems.
Organizational Culture & Clan Control (Organizational Culture & Clan Control) Organizational culture is a collection of values, norms, & behavior shared by workers that control the way workers interact with each other. Clan Control: control through the development of an internal system of values and norms. Both culture and clan control accept the norms and values as their own and then work within them. Examples include dress styles, work hours, pride in work. These methods provide control where output and behavioral control does not work. Strong culture and clan control help worker to focus on the organization and enhance its performance.
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