Principles of Management live inclass EXAM

E.g. Media, special interest groups, trade associations.

For what are organizations socially responsible?

· Economic responsibility – a company’s social responsibility to make a profit by producing a valued product or service.

· Legal responsibility – a company’s social responsibility to obey society’s laws and regulations.

· Ethical responsibility – a company’s social responsibility not to violate accepted principles of right and wrong when conducting its business.

· Discretionary responsibilities – the social roles that a company fulfills beyond its economic, legal, and ethical responsibilities.

An Organization’s Social Responsibilities

· Serve a social role - Discretionary

· Abide by principles of right and wrong - Ethical

· Obey laws and regulations - Legal

· Be profitable – Economic

Responses to Demands for Social Responsibility

· Social responsiveness – a company’s strategy to respond to stakeholders’ economic, legal, ethical, or discretionary expectations concerning social responsibility.

· Reactive strategy – a social responsiveness strategy in which a firm does less than society expects.

· Defensive strategy – a social responsiveness strategy in which a firm admits responsibility for a problem but does the least required to meet societal expectations.

· Accommodation strategy – a social responsiveness strategy in which a firm accepts responsibility for a problem and does all that society expects to solve that problem.

· Proactive strategy – a social responsiveness strategy in which a firm anticipates a problem before it occurs and does more than society expects to take responsibility for and address the problem.

Social Responsibility and Economic Performance

· Social responsibility VS Economic performance

· There is no trade-off between these two.

· Usually it does pay to be socially responsible.

· It does not guarantee profitability.

Chapter 5 Planning and Decision Making

· Planning: Choosing a goal and developing a method of strategy to achieve that goal.

· Multiple competing goals

· Legitimacy

· Good planning:

· Goals and plans are inseparable

· Goals and means are suitable

· Planning ahead of time

Benefits and Pitfalls of Planning

· Benefits of Planning:

· Intensifying effort

· Increasing persistence

· Providing direction

· Creating task strategies

· Pitfalls of Planning:

· Impeding change and adaptation

· Creating a false sense of certainty

· The detachment of planners – lead planners to plan for things they don’t understand.

How to make a plan that works – Five Steps

1. Setting S.M.A.R.T. Goals

· Specific – make definite or concrete goals

· Measurable – have a specified measurement

· Attainable – challenging or stretch goals overall

· Realistic – every stage of the goal execution

· Timely – there is a deadline or time frame

2. Developing Commitment to Goals

· The determination to achieve a goal.

· Techniques to increase goal commitment:

· Setting goals participatively

· Making goals public

· Obtaining top management support

3. Developing Effective Action Plans

· An Action Plan lists specific steps, people, resources, time period

4. Tracking Progress

· Setting proximal goals and distal goals.

· Gather and provide performance feedback.

· Proximal goals – are short-term goals or sub-goals.

· Distal goals – are long-term or primary goals.

5. Maintaining Flexibility

· Options-based planning: Maintaining planning flexibility by making small, simultaneous investments in many alternative plans.

· Slack resources: A cushion of extra resources that can be used with options-based planning to adapt to unanticipated changes, problems, or opportunities.

· Learning-based planning: Plans need to be continuously adjusted

Starting at the Top

· Strategic Plans – overall company plans that clarify how the company will serve customers and position itself against competitors (2 to 5+ years)

· Vision – An inspirational statement of what an organizational would like to accomplish in the future.

· Mission – An statement of an organization’s purpose or reason for existing. Typically, it answers questions like what business we are in and why we are in the business.

Bending in the Middle

· Tactical Plans: Specify how a company will use resources, budgets, and people to accomplish goals within its mission

· 6 months to 2 years

· Management by Objectives

Managers and employees jointly

· Discuss possible goals.

· Collectively select goals.

· Develop tactical plans.

· Meet regularly to review progress.

Finishing at the Bottom

· Operational Plans: Day-to-day plans for producing or delivering products and services over a 30-day to 6-month period

· Single-Use Plans: Plans that cover unique, one-time-only events, unlikely repeat.

· Standing Plans: Plans used repeatedly to handle frequently recurring events.

A Comparison of Policies, Procedures, and Rules

Policies – the general course of action that should be taken

Procedures – the specific steps that should be taken

Rules – describe how a particular action should be performed.

Policies tend to be broad in scope with general application and common deviations from the standards.

Rules are narrow in scope with specific application and few deviation from the standards.

Types of Decision Making

· Programmed Decision Making: Routine, almost automatic decision making that have well-established solutions

· Non-programmed Decision Making: Non-routine decision making that involves new, unusual, or unpredictable situations

What Is Rational Decision Making?

· Decision Making: The process of choosing a solution from available alternatives.

· Rational Decision Making: A systematic process of defining problems, evaluating alternatives, and choosing optimal solutions.

Six Steps to Rational Decision Making

1. Define the problem

· A problem exists when there is a gap between a desired state and an existing state

· To make decisions about problems, managers must:

· be aware of the gap

· be motivated to reduce the gap

· have the KSA & resources to fix the problem

2. Identify decision criteria

· Decision criteria are the standards used to guide judgments and decisions.

· The more criteria a potential solution meets, the better that solution should be.

3. Weight the criteria

· Absolute comparisons – Each criterion is compared to a standard or ranked on its own merits.

· Relative comparisons – Each criterion is compared directly to every other criterion.

4. Generate alternative courses of action

· The idea is to generate as many alternatives as possible.

5. Evaluate each alternative

· This step can take much longer and be more expensive than other steps in the process.

6. Compute the optimal decision

· Multiply the rating for each criterion by the weight for that criterion.

· Sum the scores for each alternative course of action.

Limits to Rational Decision Making

· Bounded Rationality: A decision-making process is restricted in the real world by:

· limited resources

· incomplete and imperfect information

· limited decision-making capabilities

· Maximizing decisions: choose the best alternative.

· Satisficing decisions: choose a “good enough” alternative.

Why Information Is Incomplete?

· Risk: the degree of probability that the possible outcomes will occur.

· Uncertainty: Unpredictability.

· Ambiguous info: that can be interpreted in multiple ways, and often conflicting ways.

· Time constraints and info costs: no time or money to search for all options

Chapter 6 Organizational Strategy

· Resources – the assets, capabilities, processes, employee time, information, and knowledge that an organization controls.

· Competitive advantage – providing greater value for customers than competitors can.

· Sustainable competitive advantage – a competitive advantage that other companies have tried unsuccessfully to duplicate and have stopped trying to duplicate for the moment.

Achieving Sustainable Competitive Advantage

· Valuable resource – a resource that allows companies to improve their efficiency and effectiveness.

· Rare resource – a resource that is not controlled or possessed by many competing firms.

· Imperfectly imitable resource – a resource that is impossible or extremely costly or difficult for other firms to duplicate.

· Non-substitutable resource – a resource that produces value or competitive advantage and has no equivalent substitutes or replacement.

Strategy-Making Process

Step 1 Assessing the need for strategic change

· Competitive Inertia: a reluctance to change strategies or competitive practices that have been successful in the past.

· Strategic Dissonance: a discrepancy between a company’s intended strategy and the strategic actions managers take when implementing that strategy

Step 2 Conducting Situational Analysis

· Situational Analysis (SWOT) – an assessment of the strengths and weaknesses in an organization’s internal environment and the opportunities and threats in its external environment.

Internal Environment Assessment:

· Distinctive competence – what a company can make, do, or perform better than its competitors.

· Core capabilities – the internal decision-making routines, problem-solving processes, and organizational cultures that determine how efficiently inputs can be turned into outputs.

External Environment Assessment:

· Strategic group – a group of companies within an industry against which top managers compare, evaluate, and benchmark strategic threats and opportunities.

· Core firms – the central companies in a strategic group.

· Secondary firms – the firms in a strategic group that follow strategies related to but somewhat different from those of the core firm.

· Transient firms – the firms whose strategies change from one strategic position to another.

· Shadow strategy task force – A committee within a company that analyzes the company’s own weaknesses and determine how competitors could exploit them for competitive advantage.

Step 3 Choosing Strategic Alternatives

· Risk-Avoiding Strategy – a conservative strategy that aims to protect an existing competitive advantage.

· Risk-Seeking Strategy – an aggressive strategy that aims to extend or create a sustainable competitive advantage.

· Strategic Reference Points – The strategic targets managers use to determine whether the firm has developed the core competencies it needs to achieve a sustainable competitive advantage.

Corporate-Level Strategies

· Corporate-level strategy – the overall organizational strategy that addresses the question “What businesses are we in or should we be in?”

· Single business strategy – a corporate-level strategy for a firm that derives over 95% of its revenue from a single business. The risk level for single business is between unrelated diversification and related diversification.

· Portfolio strategy – a corporate-level strategy that minimizes risk by diversifying investment among various businesses or product lines.

· Acquisition – the purchase of a company by another company.

Corporate-level Strategies – Diversification

· Diversification – a strategy for reducing risk by buying a variety of items (stocks or types of businesses) so that the failure of one stock or one business does not doom the entire portfolio.

· Unrelated diversification – creating or acquiring companies in completely unrelated businesses. (most risky)

· Related diversification – creating or acquiring companies that share similar products, manufacturing, marketing technology, or cultures. (least risky)

Diversification is about the area of business a firm wants to do while grand strategy is about the pace of development for a firm.

Grand Strategies

· Grand strategy – a broad corporate-level strategic plan used to help a firm achieve strategic goals and guide the strategic alternatives.

· Growth strategy – a strategy that focuses on increasing profits, revenues, market share, or the number of places in which the company does business.

· Stability strategy – a strategy that focuses on improving the way in which the company sells the same products or services to the same customers.

· Retrenchment strategy – a strategy that focuses on turning around very poor company performance by shrinking the size or scope of the business.

· Recovery – the strategic actions that a firm takes to return to a growth strategy.

Industry-Level Strategies Porter’s Five Industry Forces

· Character of the rivalry (existing competition) is a measure of the intensity of competitive behavior between companies in an industry. When rivalry is cutthroat, both industry attractiveness and profitability decrease. The term of hyper-competition applies to industries that are characterized by permanent, ongoing, intense competition.

· The threat of new entrants (potential competition) is a measure of the degree to which barriers to entry make it easy or difficult for new companies to get started in an industry. If it is easy for new companies to get started in the industry, then competition will increase and prices and profits will fall.

· The threat of substitute products or services (competition from substitute products) is a measure of the ease with which customers can find substitutes for an industry’s products or services. If customers can easily find substitute products or services, the competition will be greater and profits will be lower. If there are few or no substitutes, competition will be weaker and profits will be higher.

· Bargaining power of suppliers is a measure of the influence that suppliers have on the prices of these inputs. If an industry has numerous suppliers to provide parts, materials, and services, companies (buyers) will be able to bargain with suppliers to keep prices low.

· Bargaining power of buyers is a measure of the influence that customers have on the firm’s prices. If a company is dependent on just a few high-volume buyers, those buyers will typically have enough bargaining power to dictate prices.

Industry-Level Strategies: Positioning Strategies

· Cost leadership – Producing a product or service of acceptable quality at consistently lower production costs than competitors can, so the firm can offer the lowest price in the industry.

· Differentiation – providing a product or service that is sufficiently different from competitors’ offerings that customers are willing to pay a premium price for it.

· Focus strategy – using cost leadership or differentiation to produce a specialized product or service for a limited, specially targeted group of customers in a particular geographic region or market segment.

Firm-Level Strategies

· Firm-level strategy – a corporate strategy that addresses the question “How should we compete against a particular firm?”

· Direct competition – the rivalry between two firms that offer similar products and services, acknowledge each other as rivals, and act and react to each other’s strategic actions.

· Market commonality – the degree to which two companies have overlapping products, services, or customers in multiple markets.

· Resource similarity – the extent to which a competitor has similar amounts and kinds of resources.