Business & Finance - Marketing Assignment 1
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Unit_One_ppt_OL_3100.pptx
Managing and Performing
CHAPTER 1
Learning Objectives
1-1 Summarize the major challenges of managing in the new competitive landscape.
1-2 Describe the sources of competitive advantage for a company.
1-3 Explain how the functions of management are evolving in today’s business environment.
1-4 Compare how the nature of management varies at different organizational levels.
1-5 Define the skills you need to be an effective manager.
1-6 Understand the principles that will help you manage your career.
Managing in a Competitive World
Four ongoing challenges that characterize the business landscape:
Globalization.
Technological Change.
Importance of Knowledge and Ideas.
Collaboration across Organizational Borders.
Globalization
Today’s enterprises are global, with offices and production facilities all over the world.
A company’s talent and competition can come from anywhere.
Affects small and large companies.
Globalization has changed the face of the workforce.
Pitju/Getty Images
Today’s enterprises are global, with offices and production facilities in countries all over the world. Corporations operate worldwide, transcending national borders. Companies that want to grow often need to tap international markets.
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Technological Change
Technology and business:
Online customer engagement, AI, data protection, cloud computing.
Challenges created by rapid changes.
The Internet creates opportunities but also introduces threats.
Technology will start to adapt to people’s preferences.
The Internet of Things, artificial intelligence, mobile applications, Big Data analytics, and cloud computing are only some of the ways that technology is vitally important in the business world. Technology both complicates things and creates new opportunities. The challenges come from the rapid rate at which communication, transportation, information, and other technologies change.
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Knowledge Management
Knowledge workers: Workers whose primary contributions are ideas and problem-solving expertise.
Knowledge management: Finding, unlocking, sharing, and capitalizing on the most precious resources of an organization:
Expertise.
Skills.
Wisdom.
Relationships.
Knowledge management is the set of practices aimed at discovering and harnessing an organization’s intellectual resources—fully using the intellects of the organization’s people.
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Collaboration across Boundaries
Collaboration requires productive communications among different departments, divisions, or subunits of the organization.
Coopetition: simultaneous competition and cooperation among companies with the intent of creating value.
Companies also collaborate with their customers.
One of the most important processes of knowledge management is to ensure that people in different parts of the organization collaborate effectively with one another. This requires productive communications among different departments, divisions, or other subunits of the organization.
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Managing for Competitive Advantage: Innovation
A firm must:
Adapt to changes in consumer demands and to new competitors.
Continually innovate—especially important in the global marketplace.
Innovation comes from people and must be a strategic goal.
Innovation is the introduction of new goods and services. Products don’t sell forever; in fact, they don’t sell for nearly as long as they used to because competitors are continuously introducing new products. Your firm must innovate, or it will die.
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Managing for Competitive Advantage: Quality
Quality: the excellence of your product (goods or services).
Historically, quality referred to attractiveness, lack of defects, and dependability.
Today it is about preventing defects before they occur, achieving zero defects in manufacturing, and designing products for quality.
A philosophy of continuous improvement.
Trevor Lush/Purestock/SuperStock
Most companies claim that they are committed to quality. Customers expect high-quality goods and services, and often they will accept nothing less. Quality can be measured in terms of product performance, customer service, reliability (avoidance of failure or breakdowns), conformance to standards, durability, and aesthetics.
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Managing for Competitive Advantage: Service and Speed
Service
Giving customers what they want or need, when they want it.
Continually meeting the needs of customers to establish mutually beneficial long-term relationships.
Make it easy and enjoyable for the customer.
Speed
Fast and timely execution, response, and delivery of products.
Service is the speed and dependability with which an organization delivers what customers want .
The speed requirement has increased exponentially. Everything, it seems, is on fast-forward. Speed is no longer just a goal of some companies; it is a strategic imperative.
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Managing for Competitive Advantage: Cost and Sustainability
Cost competitiveness
Keeping costs low to achieve profits and be able to offer prices that are attractive to consumers.
Consumers use Internet to compare costs.
Sustainability
Minimizing the use of resources, especially those that are polluting and nonrenewable.
Cost competitiveness: if you can offer a desirable product at a lower price, it is more likely to sell. Avoiding wasteful use of energy can bolster a company’s financial performance while being kind to the environment. Although sustainability means different things to different people,70 in this text we emphasize a long-term perspective on sustaining the natural environment and building tomorrow’s business opportunities while effectively managing today’s business
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Exhibit 1.1 Staying Ahead of the Competition
The Functions of Management
Management
Working with people and resources to accomplish organizational goals efficiently and effectively.
Rosalind Brewer, former president and CEO of Sam’s Club, focused on building a dynamic organization. She recently was appointed COO and group president of Starbucks.
Sarah Bentham/AP Images
To be effective is to achieve organizational goals. To be efficient is to achieve goals with minimal waste of resources—that is, to make the best possible use of money, time, materials, and people.
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The Four Functions of Management
Planning: Delivering Strategic Value
Systematically making decisions about goals and activities to be pursued.
Organizing: Building a Dynamic Organization
Assembling and coordinating resources needed to achieve goals.
Leading: Mobilizing People
Efforts to stimulate high performance by employees.
Controlling: Learning and Changing
Monitoring performance and making needed changes.
Value is an important concept in the planning function. It refers to the monetary amount associated with how well a job, task, good, or service meets a user’s needs.
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Management Levels
Top-Level Managers
Middle-Level Managers
Frontline Managers
Top-level managers are the senior executives of an organization and are responsible for its overall management. Often referred to as strategic managers.
Middle-level managers are located in the organization’s hierarchy below top-level management and above the frontline managers. Sometimes called tactical managers, they are responsible for translating the general goals and plans developed by strategic managers into more specific objectives and activities.
Frontline managers, or operational managers, are lower-level managers who supervise the operations of the organization. These managers often have titles such as supervisor, team leader, or assistant manager.
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Exhibit 1.2 Managerial Roles: What Managers Do
| Decisional Roles | Informational Roles | Interpersonal Roles |
| Entrepreneur: search for new business, initiate new projects. | Monitor: seek information, serve as the center of communication. | Leader: staffing, developing, motivating people. |
| Disturbance handler: take corrective action during crises. | Disseminator: transmit information from source to source. | Liaison: maintain network of outside contacts. |
| Resource allocator: provide funding and other resources, make significant organizational decisions. | Spokesperson: speak on behalf of organization. | Figurehead: perform symbolic duties. |
| Negotiator: negotiate with internal and external parties. | n/a | n/a |
A classic study of top executives found that they spend their time engaging in 10 key activities or roles, falling into three categories: interpersonal, informational, and decisional. Exhibit 1.2 summarizes these roles. This slide shows an abbreviated version of Exhibit 1.2.
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Must-Have Management Skills
Technical: ability to perform a specialized task involving a particular method or process.
Conceptual and Decision: skills related to abilities that help identify and resolve problems.
Interpersonal and Communication: people skills that represent the ability to lead, motivate, and communicate effectively with others.
Performing management functions and roles, and achieving competitive advantage, are the cornerstones of a manager’s job. However, understanding this does not ensure success. Managers need a variety of skills to do these things well.
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You and Your Career
Emotional intelligence
The skills of understanding yourself, managing yourself, and dealing effectively with others.
Social capital
Goodwill stemming from your social relationships.
Be both a specialist and a generalist.
Be self-reliant.
Connect with people.
Actively manage your relationship with your organization.
Survive and thrive.
Throughout your career, you’ll need to lead teams effectively as well as influence people over whom you have no authority; thus the human skills are especially important. Business people often talk about emotional intelligence, or EQ—the skills of understanding yourself (including strengths and limitations), managing yourself (dealing with emotions, making good decisions, seeking and using feedback, exercising self-control), and dealing effectively with others (listening, showing empathy, motivating, leading, and so on).
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Exhibit 1.4 Two Relationships: Which Will You Choose?
We have noted the importance of taking responsibility for your own actions and your own career. Unless you are self-employed and your own boss, one way to do this is to think about the nature of the relationship between you and your employer. The exhibit shows two possible relationships—and you have some control over which relationship develops.
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Exhibit 1.5 Managerial Action Is Your Opportunity to Contribute
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Managing for Competitive Advantage
A key to understanding the success of a company is the competitive advantage it holds and how well it can sustain it.
Innovation.
Quality.
Service.
Speed.
Cost Competitiveness.
Sustainability.
To succeed, managers must deliver performance. The fundamental success drivers of performance are innovation, quality, service, speed, cost competitiveness, and sustainability. Don’t assume that you can settle for delivering just one of the six competitive advantages: low cost alone, or quality alone, for example.
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The External and Internal Environments
CHAPTER 2
Learning Objectives
2-1 Describe how environmental forces influence organizations and how organizations can influence their environments.
2-2 Distinguish between the macroenvironment and the competitive environment.
2-3 Explain why managers and organizations should attend to economic and social developments.
2-4 Identify elements of the competitive environment.
2-5 Summarize how organizations respond to environmental uncertainty.
2-6 Define elements of an organization’s culture.
2-7 Discuss how an organization’s culture and climate affects its response to its external environment.
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Open Systems
Organizations are affected by, and affect, their environment.
Inputs
Goods and services organizations take in and use to create products or services.
Outputs
The products and services organizations create.
In this chapter, we discuss in detail how pressures from outside the organization help create the context in which managers and their companies must operate.
Organizations are open systems—that is, they are affected by and in turn affect their external environments. For example, they take in inputs such as goods or services from their environment and use them to create products and services that are outputs to their environment.
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Exhibit 2.1 Open-System Perspective of an Organization
Organizations take inputs from the external environment and return outputs, as shown in Exhibit 2.1. But when we use the term external environment here, we mean more than an organization’s clients or customers; the external environment includes all relevant forces outside the organization’s boundaries.
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External Environment
External environment
All relevant forces outside a firm’s boundaries, such as competitors, customers, the government, and the economy.
Competitive environment.
Macroenvironment.
The organization exists in its competitive environment, which is composed of the firm and its rivals, suppliers, customers (buyers), new entrants, and substitute or complementary products. At the more general level is the macroenvironment, which includes legal, political, economic, technological, demographic, and social and natural factors that generally affect all organizations.
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Exhibit 2.2 The External and Internal Environments
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Exhibit 2.2 shows the external and internal environments of a business organization. The organization exists in its competitive environment, which is composed of the firm and its rivals, suppliers, customers (buyers), new entrants, and substitute or complementary products. At the more general level is the macroenvironment, which includes legal, political, economic, technological, demographic, and social and natural factors that generally affect all organizations.
Managers and the Economy
Role of managers
In publicly held companies, managers may feel required to meet Wall Street’s earnings expectations.
Managers may focus on short-term results at the expense of long-term success.
Some managers may be tempted to engage in unethical or unlawful behavior that misleads investors.
Keep in mind that economic conditions change over time and are difficult to predict.
The stock market may have a profound effect on the behavior of individual managers. In publicly held companies, managers throughout the organization feel required to meet Wall Street’s earnings expectations. Such external pressures usually have a positive effect—they help make many firms more efficient and profitable. But failure to meet those expectations can cause a company’s stock price to drop, making it more difficult for the firm to raise additional capital for investment.
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Technology
Technological advances create new products, advanced production techniques, and better ways of managing and communicating.
As technology evolves, new industries, markets, and competitive niches develop.
The 3D printing process has revolutionized design.
Today a company cannot succeed without incorporating into its strategy the astonishing technologies that continually evolve. Technological advances create new products, advanced production techniques, and better ways of managing and communicating. In addition, as technology evolves, new industries, markets, and competitive niches develop.
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Laws and Regulations
Regulators include agencies such as:
Securities and Exchange Commission (SEC).
Occupational Safety and Health Administration (OSHA).
Equal Employment Opportunity Commission (EEOC).
National Labor Relations Board (NLRB).
Office of Federal Contract Compliance Programs (OFCCP).
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U.S. government policies impose strategic constraints on organizations but may also provide opportunities.
Demographics
Demographics
Measures of various characteristics of the people who make up groups or other social units.
Demographic trends:
Aging of the workforce.
Increasing education and skill levels.
Immigration factors.
Increasingly diverse workforce.
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Managers must consider workforce demographics in formulating their human resource strategies. Population growth influences the size and composition of the labor force. Young workers are declining in numbers and the fastest-growing age group will be workers who are 55 and older, who are expected to represent over one-fourth of the labor force in 2022.
Social Issues
Societal trends regarding how people think and behave have major implications for management of the labor force.
Family leave policies.
Flexible benefit packages.
Domestic partner benefits.
Company response to social issues.
Societal trends regarding how people think and behave have major implications for management of the labor force, corporate social actions, and strategic decisions about products and markets.
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Sustainability and the Natural Environment
Organizations depend on the natural environment to provide them with resources.
Operations impact quality and quantity of resources.
Impacts on local citizens.
Impacts on social issues as well as political and legal environments.
Social Entrepreneurship: Combating Climate Change
More than 360 U.S. companies wrote an open letter to the U.S. president saying, in part, “Failure to build a low-carbon economy puts American prosperity at risk. But the right action now will create jobs and boost U.S. competitiveness.”
Although their petition went unheeded, many businesses have begun their own initiatives.
Despite its far-reaching impact, the problem of climate change has struggled to gain center stage in the United States. A landmark multination pact called the Paris Agreement called on all participating countries to curb their emissions of the greenhouse gases that contribute to planet-wide warming temperatures. Arguing that controlling climate change is good for business, more than 360 U.S. companies have petitioned the White House to hold fast to former President Obama’s commitment to the Paris Agreement.
Questions:
Can most organizations really be profitable while making a positive impact on the environment and society? What challenges do they face?
While there may be a diversity of opinion, students may emphasize the lower long-term cost of renewable energy sources. Students may simultaneously present the high cost of the required new technology and the uneven application of standards across country boundaries.
Can you envision a world that doesn't produce waste? What changes are needed before that can happen?
Student answers will vary. Answers may focus on technology and behavior changes.
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Exhibit 2.4 The Competitive Environment
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As shown in Exhibit 2.4, the competitive environment includes rivalries among current competitors and the impact of new entrants, substitute and complementary products, suppliers, and customers. This model originally was developed by Michael Porter, a Harvard professor and a noted authority on strategic management. According to Porter, successful managers do more than simply react to the environment; they act in ways that actually shape or change the organization’s environment.
Competitors
Competition is most intense when:
There are many direct competitors.
Industry growth is slow.
Product/service is not easily differentiated.
Competitors within an industry must deal with one another. When organizations compete for the same customers and try to win market share at the others’ expense, all must react to and anticipate their competitors’ actions.
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New Entrants
Barriers to Entry
Conditions that prevent new companies from entering an industry.
Government policy, capital requirements, brand identification, cost disadvantages, and distribution channels.
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If many factors prevent new companies from entering an industry, the threat to established firms is less serious. If there are few such barriers to entry, the threat of new entrants is more serious. Some major barriers to entry are government policy, capital requirements, brand identification, cost disadvantages, and distribution channels.
Substitutes and Complements
Substitutes
Alternative products or services.
Potential threat.
Complements
Products or services that increase purchases of other products.
Potential opportunity.
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Besides products that directly compete, other products can affect a company’s performance by being substitutes for or complements of the company’s offerings. A substitute is a potential threat; customers use it as an alternative, buying less of one kind of product but more of another. A complement is a potential opportunity because customers buy more of a given product if they also demand more of the complementary product.
Exhibit 2.5 Potential Substitutes for and Complements of Products
| If the Product Is . . . | The Substitute Might Be . . . |
| Chipotle Burrito Bowl | Chick-fil-A meal |
| Apple Watch | Samsung Galaxy Watch |
| Ford F-150 truck | Chevy Silverado truck |
| Evernote | Dropbox |
| If the Product Is . . . | The Complement Might Be . . . |
| HTC Vive virtual reality headset | Eagle Flight game |
| Amazon streaming video | Strawberry Twizzlers |
| Healthclub membership | Workout clothes |
| Apartment rental | IKEA furniture |
Exhibit 2.5 lists products and their potential substitutes and complements.
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Suppliers
Supply chain management
Managing the acquisition of materials, their transformation into products, and the distribution of products to customers.
Switching costs
Provide resources or inputs needed for production.
Fixed costs buyer face if they change suppliers.
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Organizations are at a disadvantage if they become overly dependent on any powerful supplier. A supplier is powerful if the buyer has few other sources of supply or if the supplier has many other buyers. Dependence also results from high switching costs—the fixed costs buyers face if they change suppliers. For example, once a buyer learns how to operate a supplier’s equipment, such as computer software, the buyer faces both economic and psychological costs in changing to a new supplier.
Supply chain management is a vital contributor to a company’s competitiveness and profitability. By supply chain management, we mean the managing of the entire network of facilities and people that obtain raw materials from outside the organization, transform them into products, and distribute them to customers.
Exhibit 2.6 Actions and Attitudes = Excellent Customer Service
Like suppliers, customers are important to organizations for reasons other than the money they provide for goods and services. Customers can demand lower prices, higher quality, unique product specifications, or better service. They also can play competitors against one another, as occurs when a car buyer (or a purchasing agent) collects different offers and negotiates for the best price. Customers want to be actively involved with their products.
Exhibit 2.6 shows several actions and attitudes that contribute to excellent customer service.
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Customers
Without customers to purchase its goods or services, a company won’t survive.
Final consumer (end users).
Intermediate consumer (wholesalers and retailers).
Intermediate customers make more purchases than individual final consumers do.
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Environmental Analysis
Environmental uncertainty
Lack of information needed to understand or predict the future.
Environmental complexity
The number of issues that must be attended to as well as the interconnectedness of these issues.
Environmental dynamism
The degree of discontinuous change that occurs within an industry.
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Information about the environment is not always readily available. In other words, managers often operate under conditions of uncertainty. Environmental uncertainty means that managers do not have enough information about the environment to understand it or predict the future. Uncertainty arises from two related factors: complexity and dynamism. Environmental complexity refers to the number of issues to which a manager must attend as well as their interconnectedness. For example, industries that have many firms that compete in vastly different ways tend to be more complex—and uncertain—than industries with only a few key competitors.
Environmental dynamism refers to the degree of discontinuous change that occurs within the industry. High-growth industries with products and technologies that change rapidly tend to be more uncertain than stable industries where changes are less dramatic and more predictable.
Environmental Scanning
Environmental scanning
Searching for information that is unavailable to most, sorting that information and interpreting what is important.
Competitive intelligence
Information that helps managers determine how to compete better.
Perhaps the first step in coping with uncertainty in the environment is identifying what might be important. Frequently, organizations and individuals act out of ignorance, only to regret those actions in the future.
Environmental scanning means both searching for useful information and interpreting what is important and what is not. Porter’s competitive analysis, discussed earlier, can guide environmental scanning and help managers evaluate the potential of different environments.
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Scenario Development and Forecasting
Scenario
A narrative that describes a set of future conditions.
Best-case, worst-case.
Forecasting
Method for predicting how variables will change the future.
As managers attempt to determine the effect of environmental forces on their organizations, they frequently develop scenarios of the future. Scenarios combine different factors into alternative combinations that offer pictures of future environments and the firm. Whereas environmental scanning is used to identify important factors, and scenario development is used to develop alternative pictures of the future, forecasting is used to predict exactly how variables will change in the future. For example, in making capital investments, firms may try to forecast how interest rates will change.
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Exhibit 2.7 Attractive and Unattractive Environments
| Environmental Factor | Unattractive | Attractive |
| Competitors | Many; low industry growth; equal size; commodity | Few; high industry growth; unequal size; differentiated |
| Threat of entry | High threat; few entry barriers | Low threat; many entry barriers |
| Substitutes | Many | Few |
| Suppliers | Few; high bargaining power | Many; low bargaining power |
| Customers | Few; high bargaining power | Many; low bargaining power |
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Benchmarking
The process of comparing an organization’s practices and technologies with those of other companies.
Identifying the best-in-class performance by a company in a given area and comparing your process to theirs.
Benchmarking means identifying the best-in-class performance by a company in a given area, and then comparing your processes to theirs. To accomplish this, a benchmarking team would collect information on its own company’s operations and those of the other firm to determine gaps. These gaps serve as a point of entry to learn the underlying causes of performance differences.
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Changing the Environment You Are In
Strategic maneuvering
An organization’s conscious efforts to change the boundaries of its task environment.
Domain selection
Entrance to a new market or industry with an existing expertise.
Diversification
Occurs when a firm invests in a different product, business, or geographic area.
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It is essential to manage the external environment effectively. Organizations need not be stuck within some given environment; they have options for defining where they operate. We refer to this as strategic maneuvering. By making a conscious effort to change the boundaries of its competitive environment, a firm can maneuver around potential threats and capitalize on arising opportunities. Managers can use several strategic maneuvers, including domain selection, diversification, merger and acquisition, and divestiture.
Changing the Environment You Are In
Mergers
One or more companies combine with another.
Acquisitions
One firm buys another.
Divestures
A firm sells one or more businesses.
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A merger or acquisition takes place when two or more firms combine, or one firm buys another, to form a single company. Mergers and acquisitions can offer greater efficiency from combined operations or can give companies relatively quick access to new markets or industries. Acquisitions also can quickly give a company access to a business, technology, or existing customer bases in different geographic markets. Divestiture occurs when a company sells one or more businesses.
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Changing the Environment You Are In
Prospectors
Continuously change the boundaries of their task environment by seeking new products and markets, diversifying and merging, or acquiring new enterprises.
Defenders
Stay within a stable product domain as a strategic maneuver.
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Some companies, called defenders, stay within a limited, stable product domain. In contrast, prospectors, are more likely to engage in strategic maneuvering. Aggressive companies continuously change the boundaries of their competitive environments by seeking new products and markets, diversifying, and merging or acquiring new enterprises. In these and other ways, corporations put their competitors on the defensive and force them to react.
Influencing Your Environment
Independent strategies
Strategies that an organization acting on its own uses to change some aspect of its current environment.
Cooperative strategies
Strategies used by two or more organizations working together to manage the external environment.
In addition to redefining the boundaries of their environment, managers and organizations can develop proactive responses aimed at changing the environment. Two general types of proactive responses are independent action and cooperative action.
A company uses independent strategies when it acts on its own to change some aspect of its current environment. Exhibit 2.8 (summarized on the next slide) shows the definitions and uses of these strategies.
In some situations, two or more organizations work together using cooperative strategies to influence the environment. Exhibit 2.9 (summarized in a subsequent slide) shows several examples of cooperative strategies.
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Exhibit 2.8 Independent Action
| Strategy | Definition |
| Competitive aggression | Exploiting a distinctive competence or improving internal efficiency for competitive advantage |
| Competitive pacification | Independent action to improve relations with competitors |
| Public relations | Establishing and maintaining favorable images in the minds of those making up the environment |
| Voluntary action | Voluntary commitment to various interest groups, causes, and social problems |
| Legal action | Engaging a company in a private legal battle |
| Political action | Efforts to influence elected representatives to create a more favorable business environment or limit competition |
This table recreates part of Exhibit 2.8.
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Exhibit 2.9 Cooperative Action
| Strategy | Definition | Examples |
| Contraction | Negotiating an agreement between the organization and another group to exchange goods, services, information, patents, and so on. | Contractual marketing systems |
| Cooptation | Absorbing new elements into the organization’s leadership structure to avert threats to its stability or existence. | Consumer and labor representatives and bankers on boards of directors |
| Coalition | Two or more group coalescing and acting jointly with respect to some set of issues for some period of time. | Industry associations; political initiatives of the Business Roundtable and the U.S. Chamber of Commerce. |
This table recreates Exhibit 2.9.
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Adapting to the Environment: Changing the Organization
To cope with environmental uncertainty and change, organizations often adjust structures and work processes.
Buffering.
Smoothing.
Flexible processes.
Buffering creates supplies of excess resources to meet unpredictable needs. Organizations also may try smoothing, or leveling normal fluctuations at the boundaries of the environment. Buffering and smoothing manage uncertainties at system boundaries, firms also can establish flexible processes that allow for adaptation in their technical core.
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Choosing an Approach
Considerations in managing external environment:
Aim at elements of environment that (1) cause the company problems, (2) provide it with opportunities, and (3) allow the company to change successfully.
Choose responses that fit environmental component of interest.
Choose actions that offer most benefit at lowest cost.
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Organization Culture
The set of important assumptions about the organization and its goals and practices that members of the company share.
Strong Cultures
Majority of people within the organization agree on organizational goals.
Weak Cultures
Different people hold different values and there is confusion about corporate goals.
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An organization's culture is like an individual's personality. Organization culture is a system of shared values about what is important and beliefs about how the world works. A company’s culture provides a framework that organizes and directs people’s behavior on the job. For example, the way people dress and behave, the way they interact with each other and with customers, and the work habits that managers value are usually quite different at a bank than they are at a rock music company, and different again at a law firm or an advertising agency.
Exhibit 2.10 Culture Ground Rules at Warby Parker
Organization Culture
Diagnosing culture: a variety of things will give you useful clues about culture.
Corporate mission statements and official goals.
Business practices.
Symbols, rites, and ceremonies.
The stories people tell.
Let’s say you want to understand a company’s culture. Perhaps you are thinking about working there and you want a good fit, or perhaps you are working there right now and want to deepen your understanding of the organization and determine whether its culture matches the challenges it faces. How would you go about making the diagnosis? This type of diagnosis is important when two companies are considering combining operations, as in a merger, acquisition, or joint venture, because, as we noted, cultural differences can sink these arrangements.
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Organization Culture 3
Managing Culture
Manage culture actively.
Communicate with employees regularly, be actively involved and visible, and set the right examples.
Celebrate and reward those who exemplify desired culture.
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Organization Climate
Organizational climate consists of the patterns of attitudes and behavior that shape people’s experience of an organization.
Because organizational climate is easier to measure, managers often find that dimensions of organizational climate are more manageable.
An organization is most effective when it has a climate that motivates and enables workers to achieve the organization’s strategy.
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An organization’s climate can be measured more readily than a culture’s deeply held beliefs and values.
Managerial Decision Making
CHAPTER 3
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Learning Objectives
3-1 Describe the kinds of decisions you will face as a manager.
3-2 Summarize the steps in making “rational” decisions.
3-3 Recognize the pitfalls you should avoid when making decisions.
3-4 Evaluate the pros and cons of using a group to make decisions.
3-5 Identify procedures to use in leading a decision-making group.
3-6 Explain how to encourage creative decisions.
3-7 Discuss the processes by which decisions are made in organizations.
3-8 Describe how to make decisions in a crisis.
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This is the last of three chapters in Part One of the text. The previous chapters discussed managing and performance, and the internal and external environments.
Exhibit 3.1 Characteristics of Managerial Decisions
It is important to understand why decision making can be so challenging. Exhibit 3.1 illustrates several characteristics of managerial decisions that contribute to their difficulty and pressure.
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Lack of Structure
Programmed decisions
Decisions encountered and made before, having objectively correct answers, and solvable by using simple rules, policies, or numerical computations.
Nonprogrammed decisions
New, novel, complex decisions having no proven answers.
If you face a programmed decision, a clear procedure or structure exists for arriving at the right decision. With a nonprogrammed decision, the decision maker must create and use a method for making the decision; there is no predetermined structure on which to rely.
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Exhibit 3.2 Comparing Programmed versus Nonprogrammed Decisions
| blank | Programmed Decisions | Nonprogrammed Decisions |
| Examples | blank | blank |
| Company | Policies to follow when posting an open position on job boards. | Changing from proprietary server to cloud storage. |
| University | Income formulas to determine amount of student financial aid. | Create a design for a new engineering building. |
| Health care | Procedure for discharging patients. | Purchase of advance imaging equipment. |
| Government | Merit system for promoting federal employees. | Response to an unexpected state budget shortfall. |
This is an abbreviated version of Exhibit 3.2
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Uncertainty and Risk
Certainty
The state that exists when decision makers have accurate and comprehensive information.
Uncertainty
The state that exists when decision makers have insufficient information.
Risk
The state that exists when the probability of success is less than 100 percent and losses may occur.
People usually prefer certainty even if their “certainty” is mistaken or misleading. Businesspeople do not like uncertainty; it can prevent them from taking action. While some risk takers are admired and entrepreneurs and investors thrive on taking risks, the reality is that good decision makers prefer to manage risk.
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Conflict
Conflict
Opposing pressures from different sources, occurring on the level of psychological conflict or of conflict between individuals or groups.
Levels of Conflict
Individual decision makers.
Conflict between people.
Important decisions are even more difficult because of the conflicts managers face. Conflict, which exists when a manager must consider opposing pressures from different sources, occurs at two levels.
First, individual decision makers experience psychological conflict when several options are attractive or when none of the options is attractive.
Second, conflict arises between people.
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Exhibit 3.3 The Phases of Decision Making
Faced with these challenges, how can you make good decisions? The ideal decision-making process includes six phases.
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Identifying and Diagnosing the Problem
First Phase
Recognize there is a gap between the current and desired state.
Is there an opportunity that can be exploited?
Diagnose the reason for the performance gap.
The first phase in the decision-making process is to recognize that a problem exists and must be solved. The problem may be an opportunity that needs to be exploited: a gap between what the organization is doing now and what it should do to create a more positive future. Recognizing that a problem or opportunity exists is only the beginning of this phase. The decision maker must dig in deeper and attempt to diagnose the problem.
Exhibit 3.4 lists some useful questions (listed below) to ask and answer in this phase.
How can you best describe the difference between what is actually happening and what should be happening?
What is/are the cause(s) of the deviation?
What short- and long-term goals need to be met?
Which goals are absolutely critical to the success of the decision?
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Generating Alternative Solutions
Second Phase
Ready-made solutions.
Ideas that have been seen or tried before.
Custom-made solutions.
New, creative solutions designed specifically for the problem.
The second phase of decision making links problem diagnosis to the development of alternative courses of action aimed at solving the problem. Managers generate at least some alternative solutions based on past experiences.
Solutions range from ready-made to custom-made. Decision makers who search for ready-made solutions use ideas they have tried before or follow the advice of others who have faced similar problems. Custom-made solutions, by contrast, must be designed for specific problems. This technique often combines ideas into new, creative solutions.
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Evaluating Alternatives
Third Phase
Evaluating alternatives:
Which solution will be the best?
What consequences will occur?
How will you measure success?
Contingency plans.
Alternative courses of action that can be implemented based on how the future unfolds.
The third phase of decision making involves determining the value or adequacy of the alternatives that were generated. Which solution will be the best?
Exhibit 3.5 lists some useful questions (listed below) to ask and answer in this phase
Which goals does each alternative meet and fail to meet?
Which alternatives are most acceptable to you and to other important stakeholders?
If several alternatives might solve the problem, which can be implemented at the lowest cost or greatest profit?
If no alternative achieves all your goals, can two or more of the best ones be combined?
Of course, results cannot be forecast with perfect accuracy. But sometimes decision makers can build in safeguards against an uncertain future by considering the potential consequences of several scenarios.
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Making the Choice
Maximizing
A decision realizing the best possible outcome.
Satisficing
Choosing an option that is acceptable, although not necessarily the best or perfect.
Optimizing
Achieving the best possible balance among several goals.
As you make your decision, important concepts include maximizing, satisficing, and optimizing.
The maximizing decision realizes the greatest positive consequences and the fewest negative consequences.
When you satisfice, you compare your choice against your goal, not against other options.
When optimizing, instead of buying the cheapest piece of equipment that works, you buy the one with the best combination of attributes.
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Implementing the Decision
Adequate planning requires several steps:
Determine how things will look when the decision is fully operational.
Chronologically order, perhaps with a flow diagram, the steps necessary to achieve a fully operational decision.
List the resources and activities required to implement each step.
Estimate the time needed for each step.
Assign responsibility for each step to specific individuals.
Exhibit 3.6 lists several useful questions that should be asked in the implementation stage of decision making.
What problems could this action cause?
What can we do to prevent the problems?
What unintended benefits or opportunities could arise?
How can we make sure they happen?
How can we be ready to act when the opportunities come?
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Evaluating the Decision
Positive feedback
Suggests the decision is working.
Implies that the decision should be continued and applied elsewhere.
Negative feedback
Implementation will require more time, resources, effort, or thought.
Solution wasn’t good enough.
Evaluating the decision begins with collecting information on how well the decision is working.
If the decision appears inadequate, it’s time to adjust. The process cycles back to the first phase: (re)defining the problem. The decision-making process begins anew, preferably with more information, new suggestions, and an approach that attempts to eliminate the mistakes made the first time around.
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The Best Decision
Two types of decision-making processes:
Reflexive: done quickly and without thought.
Reflective: slow and deliberate.
Vigilance
A process in which a decision maker carefully executes all stages of decision making.
People use two types of decision-making processes, what Nobel laureate Daniel Kahneman calls System 1 and System 2 information processing.
Vigilance occurs when the decision makers carefully and conscientiously execute all six phases of decision making, including making provisions for implementation and evaluation. Even if managers reflect on their decision-making activities and conclude that they executed each step conscientiously, they still will not know whether the decision will work; after all, nothing guarantees a good outcome.
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Barriers to Effective Decision Making
Psychological Biases
Illusion of control: belief that one can influence events even when one has no control over what will happen.
Framing effects: how problems or decision alternatives are phrased or presented and how these subjective influences can override objective facts.
Discounting the future: a bias weighting short-term costs and benefits more heavily than longer-term costs and benefits.
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Barriers to Effective Decision Making
Time Pressures
The most conscientiously made business decisions can become irrelevant and even disastrous if managers take too long to make them.
Social Realities
Many decisions are the result of intensive social interactions, bargaining, and politicking.
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Exhibit 3.7 Pros and Cons of Using Groups to Make Decisions
| Potential Advantages | Potential Disadvantages |
| Larger pool of information. | One person dominates. |
| More perspectives and approaches. | Satisficing. |
| Intellectual stimulation. | Groupthink. |
| People understand the decision. | Goal displacement. |
| People are committed to the decision. | Social loafing. |
Sometimes a manager finds it necessary to convene a group of people for the purpose of making an important decision. Some advise that in today’s complex business environment, significant problems should always be tackled by groups.
If enough time is available, groups usually make higher-quality decisions than most individuals acting alone. However, groups often are inferior to the best individual. How well the group performs depends on how effectively it capitalizes on the potential advantages and minimizes the potential problems of using a group.
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Decision Making in Groups
Groupthink
Occurs when people choose not to disagree or raise objections because they don’t want to break up a positive team spirit.
Goal displacement
A condition that occurs when a decision-making group loses sight of its original goal and a new, less important goal emerges.
Pressure to avoid disagreement can lead to a phenomenon called groupthink. Groupthink occurs in decision making when group members avoid disagreement as they strive for consensus. Goal displacement often occurs in groups. The goal of group members should be to come up with the best possible solution to the problem. But when goal displacement occurs, new goals emerge to replace the original ones. It is common for two or more group members to have different opinions and present their conflicting cases. Attempts at rational persuasion become heated disagreement. Winning the argument becomes the new goal. Saving face and defeating the other person’s idea become more important than solving the problem.
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Exhibit 3.8 Managing Group Decision Making
As Exhibit 3.8 illustrates, effectively managing group decision making has three requirements: (1) an appropriate leadership style, (2) the constructive use of disagreement and conflict, and (3) the enhancement of creativity.
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Leadership Style
Leader must:
Attempt to minimize process-related problems.
Avoid dominating discussions or allowing others to.
Encourage less vocal group members to speak up.
Not allow group to pressure people into conforming.
Constructive Conflict
Cognitive conflict
Issue-based differences in perspectives or judgments.
Affective conflict
Emotional disagreement directed toward other people.
Devil’s advocate
A person who has the job of criticizing ideas to ensure that their downsides are fully explored.
Dialectic
A structured debate comparing two conflicting courses of action.
Affective conflict is likely to be destructive to the group because it can lead to anger, bitterness, goal displacement, and lower-quality decisions. Cognitive conflict, in contrast, can air legitimate differences of opinion and develop better ideas and problem solutions. Conflict, then, should be task-related rather than personal. But even task-related conflict is good only when managed properly.
A devil’s advocate has the job of criticizing ideas. The group leader can formally assign people to play this role. An alternative to devil’s advocacy is the dialectic. The philosophy of the dialectic stems from Plato and Aristotle, who advocated synthesizing the conflicting views of a thesis and an antithesis.
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Encouraging Creativity
How do you become more creative?
Read widely and try new experiences.
Exchange ideas and give feedback.
How do you encourage creativity in others?
Give creative efforts credit.
Don’t punish creative failures.
Avoid extreme time pressure.
Stimulate and challenge people intellectually.
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Exhibit 3.9 Creative Actions
Exhibit 3.9 describes three ways to be creative along with some ideas of college student entrepreneurs who turned their creativity into businesses.
Creation: Bring a new thing into being
Synthesis: Join two previously unrelated things
Modification: Improve something or give it a new application
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Brainstorming
A process in which group members generate as many ideas about a problem as they can; criticism is withheld until all ideas have been proposed.
A common technique used to elicit creative ideas is brainstorming. In brainstorming, group members generate as many ideas about a problem as they can. As the ideas are presented, they are posted so that everyone can read them, and people can use the ideas as building blocks. The group is encouraged to say anything that comes to mind, with one exception: no criticism of other people or their ideas is allowed.
In the proper brainstorming environment—free of criticism—people are less inhibited and more likely to voice their unusual, creative, or even wild ideas. By the time people have exhausted their ideas, a long list of alternatives has been generated. Only then does the group turn to the evaluation stage. At that point, many ideas can be considered, modified, or combined into a creative, custom-made solution to the problem.
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Exhibit 3.10 Improving Brainstorming Effectiveness
| Choose participants based on their expertise and knowledge of the challenge. |
| Use well-thought-out questions as a platform to spark new ideas. |
| Break up large groups into subgroups of 3 to 5 people. |
| Ask subgroups to think deeply to generate 2 to 3 solutions for each key question explored. |
| Do not have the full group evaluate the winning ideas, but rather ask subgroups to identify their top 2 or 3 ideas. Describe next steps (e.g., top management team will evaluate ideas). |
| Act quickly on key ideas and provide feedback to all participants. |
Organizational Decision Processes
Bounded rationality
A less-than-perfect form of rationality in which decision makers cannot be perfectly rational because decisions are complex and complete information is unavailable or cannot be fully processed.
Incremental model
Model of organizational decision making in which major solutions arise through a series of smaller decisions.
Herbert Simon challenged the rational model and proposed an important alternative. Due to bounded rationality, decision makers cannot be truly rational because (1) they have imperfect, incomplete information about alternatives and consequences; (2) the problems they face are so complex; (3) human beings simply cannot process all the information to which they are exposed; (4) there is not enough time to process all relevant information fully; and (5) people, including managers within the same firm, have conflicting goals.
When these conditions hold—and they do for most consequential managerial decisions—perfect rationality will give way to more biased, subjective, messier decision processes. For example, the incremental model of decision making occurs when decision makers make small decisions, take little steps, move cautiously, and move in piecemeal fashion toward a bigger solution.
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Organizational Decision Processes
Coalition model
Model of decision making in which groups with differing preferences use power and negotiation to influence decisions.
Garbage can model
Model of organizational decision making depicting a chaotic process and seemingly random decisions.
The coalitional model of decision making arises when people disagree on goals or compete with one another for resources. The decision process becomes political as groups of individuals band together and try collectively to influence the decision. Two or more coalitions form, each representing a different preference, and each tries to use power and negotiations to sway the decision.
The garbage can model of decision making occurs when people aren’t sure of their goals, or disagree about the goals, and likewise are unsure of or in disagreement about what to do. This situation occurs because some problems are so complex that they are not well understood and because decision makers move in and out of the decision process because they have so many other things to attend to as well. This model implies that some decisions are chaotic and almost random. You can see that this is a dramatic departure from rationality in decision making.
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Decision Making in a Crisis
What kinds of crises could your company face?
Can your company detect a crisis in its early stages?
How will it manage a crisis if one occurs?
What team inside the company would lead the response effort?
What can it learn from a crisis to improve its response next time?
Superstorm Sandy hit the East Coast with fierce devastation. Managers had to make critical decisions to keep people safe.
Crisis management is the process of identifying, preparing for, and dealing with potentially catastrophic threats to an organization.
Information technology is a crucial arena highly vulnerable to crises. Businesses, homes, government agencies, hospitals, and other organizations continually send critical information through public and private networks, and any technical failure—sometimes accidental, sometimes maliciously intentional—could be magnified by the speed and reach of information technology .
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Exhibit 3.11 Elements in an Effective Crisis Plan
| Strategic actions such as integrating crisis management (CM) into strategic planning and official policies. |
| Evaluation and diagnostic actions such as conducting audits of threats, and establishing tracking systems for early warning signals. |
| Technical and structural actions such as creating a CM team and dedicating a budget to CM. |
| Communication actions such as providing training for dealing with the media, local communities, and police and government officials. |
| Psychological and cultural actions such as providing training and psychological support services regarding the human and emotional impacts of crises. |
SOURCES: Meyers, G. with Holusha, J., When It Hits the Fan: Managing the Nine Crises of Business. Boston: Houghton Mifflin, 1986; Bacharach, S. and Bamberger, P., “9/11 and New York City Firefighters’ Post Hoc Unit Support and Control Climates: A Context Theory of the Consequences of Involvement in Traumatic Work-Related Events,” Academy of Management Journal 50 (2007), pp. 849–68.
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