Organizational theory

Question 5 (Theoretical Background): What are the differences and similarities of the application of organization theory between the US. Federal Government and private corporations pursuing profits? (10%)

I. Marketing: Managing Profitable Customer Relationships

1. Marketing Definition: In the old sense, marketing is selling and advertising, but the new sense of marketing is the process by which companies create value for customers and build strong customer relationship in order to capture value from customers in return.

2. A Simple Model of the Marketing Process

Figure: A Simple Model of the marketing Process

3. Building Customer Relationships: The Overall process of building and maintaining profitable customer relationship by delivering superior customer value and satisfaction. The aim of customer relationship management is to produce high customer equity, the total combined customer lifetime values of all of the company's customers. The key to building lasting relationships is the creation of superior customer value and satisfaction.

II. Company and Marketing Strategy

Marketing's role in strategic planning: Under the strategic plan, the major function departments must work together to accomplish strategic objectives. Marketing plays a key role in the company's strategic planning by providing a marketing-concept philosophy and inputs regarding attractive market opportunities. within individual business units, marketing designs strategies for reaching the unit's objectives and helps to carry them out profitably. Marketers alone cannot produce superior value for customers. A company's success depends on how well each department performs its customer value-adding activities and how well the departments work together to serve the customer. And they must partner effectively with other companies in the marketing system to form a competitively superior value-deliver network.

Part II. Understanding the Market Place and Consumers

I. The Marketing Environment

Marketing environment: The actors and forces outside marketing that affect marketing ability of management to build and maintain successful relationship with target customers.

(a) Microenvironment - The actors close to the company that affect its ability to serve its customers - the company, suppliers, marketing intermediaries, customer markets, competitors, and public.

(b) Macro-environment - The larger societal forces that affect the microenvironment - demographic, economic, natural, technological, political and cultural forces.

II. Managing Market Information

Marketing information system - People, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers.

1. Developing Marketing Information: Marketers can obtain the needed information from internal data, marketing intelligence, and marketing research.

(a) Internal Databases: Electronic collections of consumer and market information obtained from data sources within the company network.

(b) Marketing Intelligence: The systematic collection and analysis of publicly available information about competitors and developments in the marketing environment.

(c) Marketing Research: The systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation facing an organization.

2. Analyzing Marketing Information:

3. distributing and Using marketing Information

II. Consumer Markets and Consumer Buyer Behavior

1. Characteristics affecting Consumer Behavior

(a) Cultural factors: Culture, Subculture, Social class - Relatively permanent and ordered divisions in a society whose members share similar values, interests, and behaviors. Major American social classes are Upper, Middle, Working, and Lower classes.

(b) Social Factors: Groups - Two or more people who interact to accomplish individual or mutual goals. Opinion leader - Person within a reference group who, because of special skills, knowledge, personality, or other characteristics, exerts social influence on others.

(c) Personal Factors: A buyer's decisions also are influenced by personal characteristics such as the buyer's age and life-cycle stage, occupation, economic situation, lifestyle, and personality and self-concept.

2. Types of Buying Decision Behavior

(a) Complex Buying Behavior: Consumer buying behavior in situations characterized by high consumer involvement in a purchase and significant perceived differences among brands.

(b) Dissonance-reducing buying behavior: Consumer buying behavior in situations characterized by high involvement but few perceived difference among brands.

(c) Habitual buying behavior: Consumer buying behavior in situations characterized by low consumer involvement and few significant perceived brand differences.

(d) Variety-seeking buying behavior: Consumer buying behavior in situations characterized by low consumer involvement and significant perceived brand differences.

3. The Buyer Decision Process

III. Business Markets and Business Buyer Behavior

1. Business buyer behavior refers to the buying behavior of the organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others. It also includes the behavior of retailing and wholesaling firms that acquire goods for the purpose of reselling or renting them to others at a profit. As compared to consumer markets, business markets usually have fewer, larger buyers who are more geographically concentrated. Business demand is derived, largely inelastic, and more fluctuating. More buyers are usually involved in the business buying decision, and business buyers are better trained and more professional than are consumer buyers. In general, business purchasing decisions are more complex, and the buying process is more formal than consumer buying.

2. Major factors influencing business buyer behavior: Business buyers make decisions that vary with the three types of buying situations: straight re-buys, modified re-buys, and new tasks. (a) Straight rebuy - the buyers routinely reorders something without any modification. (b) Modified rebuy - the buyer wants to modify product specifications, prices, terms, or suppliers. (c) New task - the buyer purchases a product or service for the first time.

3. The business buying process: Eight Stages

4. Institutional and government markets: The institutional market consists of schools, hospitals, prisons, and other institutions that provide goods and services to people in their care. These markets are characterized by low budgets and captive patrons. The government market consists of government units - federal, state, and local - that purchase or rent goods and services for carrying out the main functions of government. Government buyers purchase products and services for defense, education, public welfare, and other public needs. Government buying practices are highly specialized and specified, with open bidding or negotiated contracts characterizing most of the buying. Government buyers operate under the watchful eye of Congress and many private watchdog groups. Hence, they tend to require more forms and signatures and to respond more slowly and deliberately when placing orders.

Part III. Designing a Customer-Driven Marketing Strategy and Integrating Marketing Mix

I. Customer-Driven marketing Strategy

Major Steps in designing a customer-driven marketing strategy

II. Product, Services, and Branding Strategy

1. The Major Classifications of Products and Services: (a) Consumer Products - those brought by final consumers - are usually classified according to consumer shopping habits. (b) Industrial products - purchased for further processing or for use in conducting a business - include materials and parts, capital items, and supplies and services. Other marketable entities - such as organizations, persons, places, and ideas - can also be thought of as products.

2. Individual product decisions involve product attributes, branding, packaging, labeling, and product support services. A product line is a group of products that are related in function, customer-purchase needs, or distribution channels. Line stretching involves extending a line downward, upward, or in both directions to occupy a gap that might otherwise by filled by a competitor. In contrast, line filling involves adding items within the present range of the line. All product lines and items offered to customers by a particular seller make up the product mix. The mix can be described by four dimensions: width, length, depth, and consistency.

3. Brand strategy: In building brands, companies need to make decisions about brand positioning, brand name selection, brand sponsorship, and brand development. A company has four choices when it comes to developing brands. - line extensions, brand extensions, multi-brands, or new brands.

4. Four Characteristics affecting the marketing of services: Services are characterized by four key characteristics: they are intangible, inseparable, variable, and perishable. Good service companies focus attention on both customers and employees. They understand the service-profit chain, which links service firms profits with employee and customer satisfaction. Service marketing strategy calls not only for external marketing but also for internal marketing to motivate employees and interactive marketing to create service delivery skills among service providers. To succeed, service marketers must create competitive differentiation, offer high service quality, and find way to increase service productivity.

III. New-Product Development and Product Life-Cycle Strategies

1. Developing New-Product Ideas: Companies find and develop new-product ideas from a variety of sources. Many new-product ideas stem from internal sources. Companies conduct formal research and development, pick the brains of their employees, and brainstorm at executive meetings. Other ideas come from external sources. By conducting surveys and focus groups and analyzing customer questions and complaints, companies can generate new-product ideas that will meet specific consumer needs.

2. Major Stages in New-product Development Process:

1 Idea generation; 2 Idea screening; 3 Concept development and testing

4 Marketing strategy development; 5 Business analysis; 6 Product development

7 Test marketing; 8 Commercialization

3. The Stages of the product life cycle

1 Product development; 2 Introduction stage; 3 Growth; 4 Maturity; 5 Decline

IV. Pricing Products: Understanding and Capturing Customer Value

Factors to Consider when Setting Prices

1. Value-based Pricing: Setting prices based on buyers' perceptions of value rather than on the seller's cost. 2. Cost-based Pricing: Setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.

3. Other Internal and External Considerations affecting Price Decisions

Internal factors: the company's overall marketing strategy, objectives, and marketing mix, as well as other organizational considerations.

External factors: the nature of the market and demand, competitors' strategies and prices, and other environmental factors.

V. Price-Adjustment Strategies

VI. Marketing Channels and Supply-Chain Management

1. Marketing Channel (Distribution Channel) is a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user. through their contacts, experience, specialization, and scale of operations, intermediaries usually offer the firm more than it can achieve on its own. Members of the marketing channel perform many key functions helping transactions: information, promotion, contact, matching, negotiation, physical distribution, financing, and risk taking.

Figure: Comparison of Conventional Distribution Channel with Vertical marketing System

Figure: Multichannel Distribution System

VII. Retailing and Wholesaling

1. Major Store Retailer Types: Specialty Stores, Department Stores, Supermarkets, Convenience Stores, Discount Stores, Off-Price Retailers, and Superstore.

2. Major Types of Retail Organizations: Corporate chain stores, Voluntary chains, Retailer cooperatives, Franchise organizations, Merchandising conglomerates.

3. Major Types of Wholesalers

VIII. Communicating Customer Value

Integrated Marketing Communications Strategy

Figure: Integrated marketing communications

Carefully blended mix of promotion tools

Figure: Elements in the Communication Process

Figure: Push versus Pull Promotion Strategy

IX. Advertising and Public Relations

Figure: Major advertising decisions

*Profiles of major media types

Television, Newspapers, Direct mail, Magazines, Radio, Outdoor, Internet

Public Relations (PR): Building good relation with the company's various publics by obtaining favorable publicity, building a good corporate image, and handling or heading off unfavorable rumors, stories, and events.

X. Personal Selling and Sales Promotion

Personal selling - personal presentation by the firm's sales force for the purpose of making sales and building customer relationships.

Major steps in sales force management

Sales Promotion: Short-term incentives to encourage the purchase or sale of a product or service. Sales promotion campaigns call for setting sales promotions objectives; selecting tools; and developing and implementing the sales promotion program by using consumer promotion tools (coupons, cash refund offers, price packs, premiums, advertising specialties, patronages rewards, point-of-purchase promotions, and contests, sweepstakes, and games), and business promotion tools (conventions, trade shows, and sales contests) as well as deciding on such things as the size of the incentive, the conditions for participation, how to promote and distribute the promotion package, and the length of the promotion. After this process is completed, the company evaluates it sales promotion results.

XI. Direct and Online Marketing

Forms of direct marketing

Part IV. Extending Marketing

I. Creating Competitive Advantage

1. Basic Competitive Strategies

*Overall cost leadership

*Differentiation

*Focus

*Operational excellence

*Customer intimacy

*Product leadership

2. Market Leader Strategies

*Market Leader strategy

*Market C hallenger strategy

*Market Follower strategy

*Market Nicher strategy

II. The Global Marketplace

1. Looking at the Global Marketing Environment

The international trade system - WTO and GATT

Economic, Political-legal, Technological, and Socio-cultural Environments: Uncertainty - changing environment gives MNEs both threats and opportunities.

2. Deciding Whether to go global,

which markets to enter, and

how to enter the market

3. Deciding on the Global marketing program and

Global marketing organization

III. Marketing Ethics and Social Responsibilities

1. Social criticisms of marketing

(a) Marketing's impact on individual consumers: High prices; Deceptive practices; High-pressure selling; Shoddy, harmful or unsafe products; Planned obsolescence; Poor service to disadvantaged consumers.

(b) Marketing's impact on Society as a whole: False wants and too much materialism; Too few social goods; Cultural pollution; Too much political power

(c) Marketing's impact on other businesses: Acquisitions of competitors; marketing practices that create barriers to entry; and unfair competitive marketing practices.

2. Citizen and public actions to regulate marketing

(a) Consumerism: An organized movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers.

(b) Environmentalism: An organized movement of concerned citizens and government agencies to protect and improve people's living environment

(c) Public actions to regulate marketing

3. Business actions toward socially responsible marketing

(a) Enlightened marketing: A marketing philosophy holding that a company's marketing should support the best long-run performance of the marketing system.

(b) Marketing ethics: Increasingly, companies are responding to the need to provide company policies and guidelines to help their managers deal with questions of marketing ethics. One principle states that issues should be decided by the free market and legal system. Second puts responsibility not on the system but in the hands of individual companies and managers, based on personal integrity, corporate conscience, and long-term consumer welfare.

(End of Lecture Notes #10)

ORGANIZATION CONTROL

Organizational control means (1) curbing or restraining, (2) directing or commanding, and (3) regulating organizational activities. We are primarily concerned with the third one. Organizations have relatively programmed behavior pattern - standard operating procedures - that provide stability over time (maintenance systems). But there are processes for making innovative decisions (adaptive systems) that change the organization in response to external and internal stimuli, the process can best be described as a dynamic equilibrium. In an organization context, control includes coordination of individual and group activities. Organizational control is defined as that phase of managerial system that monitors human performance and provides feedback information that can be used in adjusting both ends and means. Given certain objectives and plans for achieving them, the control function involves measuring actual conditions, comparing them to standards, and initiating feedback that can be used to coordinate organizational activity, focus it in the right direction, facilitate the achievement of a dynamic equilibrium

A Simplified Feedback Control Model (See Lecture Notes #1)

1. Set Strategic Goals

4. Take corrective

action as needed

2. Establish metrics and standards of performance

3. Compare metrics of actual performance to standards

Another primary use of information in organizations is for control. Effective control systems involve the use of feedback to determine whether organizational performance meets established standards to help the organization attain its goals. Managers set up systems for organizational control that consist of the four key steps in the feedback control model illustrated in the above figure.

I. Controlling Human Behavior

Social values, norms, moral, and laws all serve as background control processes in organizations. They affect individual propensities to behave in certain ways and underlie the general dilemma of individualism versus collaboration in group and organizational endeavors. In general, society seeks to develop mature individuals who progress from dependence to independence, from self-centeredness to cooperation, from subjective thinking to objective thinking, and from control by others to self-control. Obviously, these are countervailing tendencies that are present in all situations. Homogeneous value systems, internalization of group norms, and knowledge and acceptance of laws should lead to self-control and behavior that is within appropriate limits for a given situation.

A. Means of controlling behavior in work organizations range on a continuance from explicit to implicit,, from direct to indirect, and from obvious to subtle. Organization culture is a subtle and implicit form of control, but it is very powerful. Participants who internalize the values, guidelines, and spirit of an organization can be counted on to behave correctly and energetically. Developing the necessary control in organizations can range from implicit norms to direct attempts to influence behavior through goals, policies, and rules. Hiring people who fit is one approach; socializing participants to a particular set of values and beliefs is another approach; and using a formal performance appraisal process is a more direct approach to controlling behavior.

Exhibit: Means of Control in Organization

B. Examples of Control

1. Budgetary Control: (a) Expressing in dollars the results of plans anticipated in a future period; (b) Coordinating these estimates into a well-balanced program; (c) Comparing actual results with the program estimates that emerge from the previous step.

2. Quality Control: quality refers to physical or nonphysical characteristics that constitute the basic nature of something. Size, shape, and color are straightforward qualities. Tensile strength, expected life, and integrity are more difficult to define, measure, and control.

3. Human Asset Accounting: The complexity of evaluating the structure or process of complex multiunit subsystems in society is evident. The task becomes more manageable if a single unit is involved.

CONFLICT, POWER, AND POLITICS

I. Departmental Conflict in Organizations

Conflict among departments and groups in organizations, called intergroup conflict, requires three ingredients: group identification, observable group differences, and frustration. First, employees have to perceive themselves as part of an identifiable group or department. Second, there has to be an observable group difference of some form. Group may be located on different floors or the building, members may have different social or educational backgrounds, or members may work in different departments. The third ingredient is frustration, which means that if one group achieves its goal, the other will not; it will be blocked.

Frustration need not be served and only needs to be anticipated to set off intergroup conflict. Intergroup conflict will appear when one group tries to advance its position in relation to other groups. Intergroup conflict can be defined as the behavior that occurs among organizational groups when participants identify with one group and perceive that other groups may block their group's goal achievement or expectations. Conflict means that groups clash directly, that they are in fundamental opposition. Conflict is similar to competition but more severe. Competition is rivalry among groups in the pursuit of a common prize, whereas conflict presumes direct interference with goal achievement.

Intergroup conflict within organizations can occur horizontally across departments or vertically between different levels of the organization. Vertical conflict may occur when employees clash with bosses about new work methods, reward systems, or job assignments. Another typical areas of conflict is between groups such as unions and management or franchise owners and headquarters. Conflict can also occur between different divisions or business units within an organization, such as between the auditing and consulting units of big firms.

!. Sources of Conflict

a. Goal Incompatibility : The goals of each department reflect the specific objectives members are trying to achieve. The achievement of one department's goals often interferes with another department's goals, leading to conflict. University police versus Student life.

2. Differentiation : Differentiation is the differences in cognitive and emotional orientations among managers in different functional departments. Functional specialization requires people with specific education, skills, attitudes, and time horizons.

3. Task Interdependence refers to the dependence of one unit on another for materials, resources, or information - polled, sequential, reciprocal interdependences.

4. Limited resources can be a source of conflict - Limited money, physical facilities, staff resources, and human resources to share among departments.

B. Rational versus Political Model

Exhibit: Use of Rational versus Political Model

1. Rational Model:

When goals are in alignment, there is little differentiation, departments are characterized by polled interdependence, and resources seem abundant, managers can use a rational model of organization.

2. Political Model:

When differences are great, organization groups have separate interests, goals, and values. Disagreement and conflict are normal, so power and influence are needed to reach decisions.

C. Tactics for Enhancing Collaboration

Exhibit: Tactics for Enhancing Collaboration

II. Power and Organizations

Power is the ability of one person or department in an organization to influence other people to bring about desired outcome. Powerful managers are often able to get bigger budgets for their departments, more favorable production schedules, and more control over the organization's agenda.

A. Individual versus Organizational Power

Legitimate power is the authority granted by the organization to the formal management position a manager holds. Reward power stems from the ability to bestow rewards to other people. The authority to punish or recommend punishment is called coercive power. Expert power derives from a person's greater skill or knowledge about the tasks being performed. Referent power is derived from personal characteristics: people admire the manager and want to be like or identify with the manager out of respect and admiration.

B. Power versus Authority

Authority is vested in organizational positions.

Authority is accepted by subordinates.

Authority flows down the vertical hierarchy.

C. Vertical Sources of Power

1. Formal Position

2. Control of Resources

3. Control of Information

4. Network Centrality means being centrally located in the organization and having access to information and people that are critical to the company's success. Managers as well as lower-level employees are more effective and more influential when they put themselves at the center of a communication network, building connections with people throughout the company.

4. People: Top leaders often increase their power by surrounding themselves with a group of loyal executives. Loyal managers keep the leader informed and in touch with events and report possible disobedience or troublemaking in the organization.

D. The Power of Empowerment

Top managers want lower-level employees to have greater power so they can do their jobs more effectively. Empowerment is power sharing, the delegation of power or authority to subordinates in an organization. Empowering employees involves giving them three elements that enable them to act more freely to accomplish their jobs.

1. employees receive information about company performance

2. Employees have knowledge and skill to contribute to company goals.

3. Employees have the power to make substantive decisions.

E. Horizontal Sources of Power

Horizontal power pertains to relationships across departments, divisions, or other units.

1. Strategic Contingencies are events and activities both inside and outside an organization that are essential for attaining organizational goals. Departments involved with strategic contingencies for the organization tend to have greater power. Departmental activities are important when they provide strategic value by solving problems or crises for the organization.

2. Power Sources:

(a) Interdepartmental dependency is a key element underlying relative power.

(b) Financial resources: Money can be converted into other kinds of resources.

(c) Centrality reflects a department's role in the primary activity of an organization.

(d) Non-substitutability: Power is determined by non-substitutability, which means that a department's function cannot be performed by other readily available resources.

(e) Coping with uncertainty: elements in the environment can change swiftly and can be unpredictable and complex. In the face of uncertainty, little information is available to managers on appropriate courses of action. Depart that reduce this uncertainty for the organization will increase their power.

III. Political Processes in Organizations

Politics is the use of power to influence decisions in order to achieve desired outcomes. The exercise of power to influence others has led to two ways to define politics: as self-serving behavior or as a natural organizational decision process. Organizational politics involves activities to acquire, develop, and use power and other resources to influence other and obtain the preferred outcome when there is uncertainty or disagreement about choices.

The political model is associated with conflict over goals, shifting coalitions and interest groups, ambiguous information, and uncertainty. Political activity tends to be most visible when managers confront non-programmed decisions, and is related to the Carnegie model of decision making. Three domains of political activities in most organizations are structural change, management succession, and resource allocation.

IV. Using Soft Power and Politics

A. Tactics for Increasing Power

1. Enter areas of high uncertainty

2. Create dependencies

3. Provide scarce resources

4. Satisfy strategic contingencies - A contingency could be a critical event, a task for which there are no substitutes, or a central task that is interdependent with many others in the organization

B. Political Tactics for Using Power

1. Build coalitions and expand networks

3. Use reciprocity

4. Enhance legitimacy and expertise

5. Make a direct appeal (End of Lecture Notes #12)

I. Strategy and Sustainability

Operations and Supply Chain Management (OSCM) is defined as the design, operation, and improvement of the systems that create and deliver the firm's primary products and services.

A. Operations and Supply Chain Processes

1. Planning consists of the processes needed to operate an existing supply chain strategically. Here a firm must determine how anticipated demand will be met with available resources. A major aspect of planning is developing a set of metrics to monitor the supply chain so that it is efficient and delivers high quality and value to customers.

2. Sourcing involves the selection of suppliers that will deliver the goods and services needed to create the firm's product. A set of pricing, delivery, and payment processes is needed together with metrics for monitoring and improving the relationships between partners of the firm.

3. Making is where the major product is produced or the service provided. The step requires scheduling processes for workers and the coordination of material and other critical resources such as equipment to support producing or providing the service.

4. Delivering is also referred to as logistics processes. Carriers are picked to move products to warehouses and customers, coordinate and schedule the movement of goods and information through the supply network, develop and operate a network of warehouses, and run the information systems managing the receipt of orders, and invoicing systems to collect payments from customers.

5. Returning involves the processes for receiving worn-out, defective, and excess products back from customers and support for customers who have problems with delivered products. In the case of services, this may involve all types of follow-up activities that are required for after-sales support.

B. The Triple Bottom Line - A Sustainable Strategy

1. Social: Pertains to fair and beneficial business practices toward labor, the community, and the region in which a firm conducts its business. A triple bottom line company seeks to benefit its employees, the community, and other social entities that are impacted by the firm's existence.

2. Economic: The firm is obligated to compensate shareholders who provide capital through stock purchases and other financial instruments via a competitive return on investment. Company strategies should promote growth and grow long-term value to this group in the form of profit.

3. Environmental: This refers to the firm's impact on the environment. The company should protect the environment as much as possible - or at least cause no harm. Managers should move to reduce a company's ecological footprint by carefully managing its consumption of natural resources and by reducing waste, and ensuring that the waste is less toxic before disposing of it in a safe/legal manner.

Operations and supply chain strategy should be focused on operations effectiveness subject to two constraints - social benefits and environment preservation.

II. Product and Service Design

Product development is a major challenge that directly impacts the long-range success of a firm. Effectively managing the process requires an integrated effort involving all the functional areas of the firm.

Exhibit: The Product Development Process

Variant of Generic Product Development Process:

Generic (market-pull production), technology-push, platform, process-intensive, customized, high-risk, quick-built, complex systems products.

III. Designing a Manufacturing System

In designing a manufacturing system, process selection refers to the strategic decision of selecting which kind of production processes to use to produce a product or provide a service. Many techniques are available to determine the actual layouts of the production process.

Exhibit: The Layouts of the Production Process

Contemporary Application

1. The Digital Factory - Computer-integrated manufacturing: Digital factories link manufacturing components that previously stood alone: robots, machines, product design, and engineering analysis are coordinated by a single computer system. The digital factory is typically the result of subcomponents such as computer-aided design, computer-aided manufacturing, manufacturing process management, integrated information network, and product life-cycle management.

2. Lean Manufacturing uses highly trained employees at every stage of the production process, who take a painstaking approach to details and problem solving to cut waste and improve quality. Lean manufacturing incorporate technological elements, but heart of lean manufacturing is not machines or software, but people - essentially centered on preserving value with less work. Lean manufacturing requires changes in organizational systems, such as decision-making processes and management processes, as well as an organizational culture supporting active employee participation, a quality perspective, and focus on the customers. Employees are trained to attack waste and strive for continuous improvement in all areas.

IV. Designing a Service Organization

Exhibit: Differences between Manufacturing and Service Technologies

Service organizations accomplish their primary purpose through the production and provision of services, such as education, healthcare, transportation, banking, and hospitality. The characteristics of service technology are compared to those of manufacturing technology in Exhibit above.

Designing the service organization: The impact of customer contact on organization design is reflected in the use of boundary roles and structural disaggregation. Boundary roles are used extensively in manufacturing firms to handle customers and to reduce disruptions for the technical core. They are used less in service firms because a service is intangible and cannot be passed along by boundary spanners, so service customers must interact directly with technical employees, such as doctors or brokers. A service firm deals in information and intangible outputs and does not need to be large. Its greatest economies are achieved through disaggregation into small units that can be located close to customers. Service technology also influence internal organization characteristics used to direct and control the organization, though the needed skills are higher. Employees need social and interpersonal skills as well as technical skills, and decision making often tends to be decentralized in service firms.

Exhibit: Configuration and Structural Characteristics of Service Organizations versus Product Organization

V. The Impact of Technology on Job Design

A. Job Design

1. Job design includes the assignment of goals and tasks to be accomplished by employees. Managers may consciously change job design to improve productivity or worker motivation. However, managers may also unconsciously influence job design through the introduction of new technologies, which can change who jobs are done and the very nature of jobs. Managers should understand how the introduction of a new technology may affect employees' jobs. The common theme of new technologies in the workplace is that they in some way substitute machinery for human labor in transforming inputs into outputs.

Exhibit: Job Design Decision

2. In addition to replacing human workers, technology may have several different effects on the human jobs that remain. Mass-production technologies tend to produce job simplification , which means that the variety and difficulty of tasks performed by a single person are reduced, and boring and repetitive jobs provide little satisfaction. Hence, managers introduced job rotation and job enrichment . On the other hand, digital manufacturing and other advanced technology may contribute to job enlargement , which is an expansion of the number of different tasks performed by an employee.

B. Socio-technical Systems

The socio-technical systems approach recognizes the interactions of technical and human needs for technical efficiency. The socio portion of the approach refers to the people and groups that work in organizations and how work is organized and coordinated. The technical portion refers to the materials, tools, machines, and processes used to transform organizational inputs into outputs. The goal of the socio-technical systems approach is to design the organization for joint optimization , which means that an organization functions best when the social and technical systems are designed to fit the needs of one another. Joint Optimization = Social System + Technical System.

Exhibit: Socio-technical Systems Model

VI. Strategic Sourcing

A. Strategic sourcing is the development and management of global supplier relationship to acquire goods and services in a way that aids in achieving the immediate needs of the business.

The Bullwhip Effect is an observed phenomenon in forecast-driven distribution channels. It refers to a trend of larger and larger swings in inventory in response to changes in demand, as one looks at firms further back in the supply chain for a product. Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants increase orders. In periods of falling demand, orders fall or stop, thereby not reducing inventory. The effect is that variations are amplified as one moves upstream in the supply chain (further from the customer).

B. Outsourcing is the act of moving some of a firm's internal activities and decision responsibility to outside providers. Outsourcing goes beyond the more common purchasing and consulting contracts because not only are the activities transferred, but resources that make the activities occur, including people, facilities, equipment, technology, and other assets, are also transferred.

C. Green Sourcing is to revamp their procurement policies to be more sustainable and efficient by finding new environmentally friendly technologies or increasing the use of recyclable materials.

1. Assess the opportunity

2. Engage internal supply chain sourcing agents

3. Assess the supply base

4. Develop the sourcing strategy

5. Implement the sourcing strategy

6. Institutionalize the sourcing strategy

VII. Location, Logistics, and Distribution

A. Logistic System Design

*Water, Rail, Highway, Airline, Pipeline, and Hand delivery.

- High volume (or Deliver cost) versus Speed of delivery

* Cross-docking is a practice in logistics of unloading materials from an incoming semi-trailer truck or railroad car and loading these materials directly into outbound trucks, trailers, or rail cars, with little or no storage in between. This may be done to change type of conveyance, to sort material intended for different destinations, or to combine material from different origins into transport vehicles (or containers) with the same, or similar destination. Advantages of retail cross-docking are:

· Streamlines the supply chain from point of origin to point of sale

· Reduces handling costs, operating costs, and the storage of inventory

· Products get to the distributor and consequently to the customer faster

· Reduces, or eliminates warehousing costs

· May increase available retail sales space.

B. Issues in Facility Location: Proximity to customers; business climate; total costs; infrastructure; quality of labor; suppliers; other facilities; free trade zones; political risk; government barriers; trading blocs; environmental regulations, host community, and competitive advantage.

VIII. Demand Management and Forecasting

A. Linear Regression Analysis is functional relationship between two or more correlated variables. It is used to predict one variable given the other. The relationship is usually developed from observed data, which should be plotted first to see if they appear linear or if at least parts of the data are linear.

B. Time Series Analysis: It can be defined as chronologically ordered data that may contain one or more components of demand: trend, seasonal, cyclical, auto-correlation, and random.

IX. Sales and Operations Planning

A. Sales and operations planning is a process that helps firms provide better customer service, lower inventory, shorten customer lead times, stabilize production rates, and give top management a handle on the business.

B. The Aggregate Operations Plan is concerned with setting production rate by product group or other broad categories for the intermediate term (3 to 18 months). The main purpose of the aggregate plan is to specify the optional combination of production rate, workforce level, and inventory on hand.

Production rate refers to the number of unites completed per unit of time.

Workforce level is the number of workers needed for production.

Inventory on hand is unused inventory carried over from the previous period.

C. Yield Management can be defined as the process of allocating the right type of capacity to the right type of customers at the right price and time to maximize revenue or yield.

D. Inventory Systems: An inventory system provides the organizational structure and the operating policies for maintaining and controlling goods to be stocked. The system is responsible for ordering and receipt of goods: timing the order placement and keeping track of what has been ordered, how much, and from whom.

*Fixed order quantity models; *Fixed - Time period models

*Inventory control and supply chain management; *Price-Break models

X. Material Requirements Planning and Scheduling

A. Master Production Scheduling: All production systems have limited capacity and limited resources. This presents a challenging job of the master scheduler. Although the aggregate plan provides the general range of operation, the master schedule must specify exactly what is to be produced. These decisions are made while responding to pressures from various functional areas such as the sales department (meet the customer's due date), finance (minimize inventory), management (maximize productivity and customer service, minimize resource needs), manufacturing (have level schedules and minimize setup time).

B. Manufacturing Execution Systems: A manufacturing execution system is an information system that links schedules, dispatches, tracks, monitors, and controls the customer's encounters with the service organization and its employees. The common features are a central database that contains all the relevant information on resource availability and customers and a management control function that integrates and oversees the process.

(End of Lecture Notes #8)

I. Information Technology (IT) Evolution

Evolution of Organizational Applications of IT

Initially, IT systems in organizations were applied to operations. These initial applications were based on the notion of machine-room efficiency - that is, current operations could be performed more efficiently with the use of computer technology. The goal was to reduce labor costs by having computer take over some tasks. These systems became known as transaction processing systems (TPS), which automate the organization's routine, day-to-day business transactions. A TPS collects data from transactions such as sales, purchase from suppliers, and inventory changes, and stores them in a database.

In recent years, the use of data warehousing and business intelligence software has expanded the usefulness of these accumulated data. Data warehousing is the use of huge databases that combine all of a company's data and allow users to access the data directly, create reports, and obtain responses to what-if-questions. Building a database at a large corporation is a huge undertaking that includes defining hundreds of gigabytes of data from many existing system, providing a means of continually updating the data, making it all compatible, and linking it to software that make it possible for users to search and analyze the data and produce helpful reports. Software for business intelligence, also called analytic software, helps users make sense of all these data. Business intelligence refers to the high-tech analysis of a company's data in order to make better strategic decisions. Sometimes referred to as data mining, business intelligence means searching out and analyzing data from multiple sources across the enterprise, and increasingly from outside sources as well, to identify patterns and relationships that might be significant. Retailers are some of the biggest users of business intelligence software.

By collecting the right data and using business intelligence software to analyze it and spot trends and patterns, manager can make smarter decisions. IT evolved to more complex systems for managerial decision making and control of the organization, the second state illustrated in above exhibit. Further advancements have led to teh use of IT to add strategic value b providing tight coordination both internally and with external customers, suppliers, and partners, the highest level of application as shown in above.

II. Information for Decision Making and Control

Through the application of more sophisticated computer-based systems, managers have tools to improve the performance of departments and the organization as a whole. These applications use information stored in corporate databases to help managers control the organization and make important decisions. Management information systems - including information reporting systems, decision support systems, and executive information systems - facilitate rapid and effective decision making. Elements for control include various management control systems, including executive dashboards, and a procedure known as the balanced scorecard. In an organization, these systems are interconnected, as illustrated by the dashed lines in the figure below. The systems for decision making and control often share the same basic data, but the data and reports are designed and used for a primary purpose of decision making versus control.

Corporate

Database

Figure: Information Systems for

Decision Making and Managerial Control

A. Organizational Decision-Making Systems

A management information system (MIS) is a computer-based system that provides information and support for managerial decision making. The MIS is supported by the organization's transaction processing systems and by organizational and external databases. The information reporting system, the most common form of MIS, provides mid-level managers with reports that summarize data and support day-to-day decision making. For example, when managers need to make decisions about production scheduling, they can review data on the anticipated number of orders within the next month, inventory levels, and availability of human resources.

An executive information system (EIS) is a higher-level application that facilitates decision making at the highest levels of management. These systems are typically based on software that can convert large amounts of complex data into pertinent information and provide that information to top managers in a timely fashion. For example, Motorola's Semiconductor Products Sector, based in Austin, Texas, had massive amounts of stored data, but managers couldn't find what they needed. The company implemented an EIS using online analytical processing software so that more than a thousand senior executives, as well as managers and project analysts in finance, marketing, sales, and accounting departments around the world, could quickly and easily get information about customers buying trends, manufacturing, and so forth, right from their desktop computers without having to learn complex and arcane search commands.

A decision support system (DSS) provides specific benefits to managers at all levels of the organization. These interactive, computer-based systems rely on decision models and integrated databases. Using decision-support software, users can pose a series of what-if questions to test possible alternatives. Based on assumptions used in the software or specified by the user, managers can explore various alternatives and receive information to help them choose the alternative that will likely have the best outcome. The German airline Deutche Lufthansa AG have collaborated on a valuable computerized system that help make decision to improve luggage handling.

@ Feedback Control Model

A Simplified Feedback Control Model (See Lecture 1)

1. Set Strategic Goals

4. Take corrective

action as needed

2. Establish metrics and standards of performance

3. Compare metrics of actual performance to standards

Another primary use of information in organizations is for control. Effective control systems involve the use of feedback to determine whether organizational performance meets established standards to help the organization attain its goals. Managers set up systems for organizational control that consist of the four key steps in the feedback control model illustrated in the above figure.

B. Management Control Systems

Management control systems are broadly defined as the formal routines, reports, and procedures that use information to maintain or alter patterns in organizational activities. These feedback control systems include the formalized information-based activities for planning, budgeting, performance evaluation, resource allocation, and employee rewards. Targets are set in advance, outcomes compared to targets, and variances reported to managers for corrective action. Following table lists four control system elements that are often considered the core of management control systems: the budget and financial reports; periodic nonfinancial statistical reports; reward systems; and quality-control systems.

Exhibit: Management Control Systems

1. Financial Reports: The budget is typically used to set targets for the organization's expenditures for the year and then report actual costs on a monthly or quarterly basis. As a means of control, budgets report actual as well as planned expenditures for cash, assets, raw materials, salaries, and other resources so that managers can take action to correct variances. Sometimes, the variance between budgeted and actual amounts for each line item is listed as a part of the budget. Managers also rely on a variety of other financial reports.. The balance sheet shows a firm's financial position with respect to assets and liabilities at a specific point in time. An income statement, sometimes called a profit and loss statement, summarizes the company's financial performance of a given time interval, such as for the week, month, or year. The bottom line indicates the net income - profit or loss - for the given time period. Moreover, a cash flow statement indicates the available amount of cash a company can use at a specific time

2. Nonfinancial Reports: Managers use periodic statistical reports to evaluate and monitor nonfinancial performance, such as customer satisfaction, employee performance, or rate of staff turnover. For e-commerce organizations, important measurements of nonfinancial performance include metrics such as stickiness (how much attention a site gets over time), the conversion rate, the ratio of buyers to site visitors, and site performance data, such as how long it takes to load a page or how long it takes to place an order. E-commerce managers regularly review reports on conversion rates, customer drop-off, and other metrics to identify problems and improve their business. For all organizations, nonfinancial reports typically are computer based and may be available daily, weekly, or monthly.

Managers often track both nonfinancial and financial data by means of an executive dashboard . An executive dashboard, sometimes called a business performance dashboard, is a software program that presents key business information in graphical, each-to-interpret form and alerts managers to any deviations or unusual patterns in the data. Dashboards pull data from a variety of organizational systems and databases; gauge the data against key performance metrics; and pull out the right nuggets of information to deliver to managers' laptops or PCs for analysis and action. For example, dashboards enable managers to quickly see when performance thresholds related to patient wait times or other metrics aren't being met at various hospitals.

3. Reward Systems offer incentives for managers and employees to improve performance and meet departmental goals. Managers and employees evaluate how ell previous goals were met, set new goals, and establish rewards for meeting the new targets. Rewards are often tied to the annual performance appraisal process, during which managers assess employee performance and provide feedback to help people improve performance and obtain rewards.

4. Quality-control Systems involve training employees in quality-control methods, setting targets for employee participation, establishing benchmarking guidelines, and assigning and measuring Six Sigma goals. Benchmarking means the process of persistently measuring products, services, and practices against tough competitors or other organizations recognized as industry leaders. Six Sigma specifically means a highly ambitious quality standard that specifies a goal or no more than 3.4 defects per million parts. However, it has deviated from that precise meaning to refer to a whole set of control procedures that emphasize the relentless pursuit of higher quality and lower costs. The discipline is based on a methodology referred to as DMAIC (Define, Measure, Analyze, Improve, and Control, pronounced de-MAY-ic), which provides a structured way for organizations to approach and solve problems. Many large companies have saved millions of dollars by rooting out inefficiencies and waste through Six Sigma processes.

The budget is used primarily to allocate resource inputs. Managers use the budget for planning the future and reducing uncertainty about the availability of human and material resources needed to perform department tasks. Computer-based statistical reports are used to control outputs. These reports contain data about output volume and quality and other indicators that provide feedback to middle management about departmental results. The reward system and quality control system are directed at the production process. Quality control systems specify standards for employee participation, teamwork, and problem solving. Reward systems provide incentives to meet goals and can help guide and correct employee behavior. Manager may also use direct supervision to keep departmental work activities within desired limits.

III. The Level and Focus of Control Systems

Managers consider both control of the overall organization and control of departments, teams, and individuals. Some control strategies apply to the top levels of an organization, where the concern is for the entire organization or major divisions. Control is also an issue at the lower, operation level, where department managers and supervisors focus on the performance of teams and individual employees.

A. Organization Level: The Balanced Scorecard

Most companies use a combination of metrics for measuring organizational performance and effectively controlling the organization. A recent control system innovation is to integrate internal financial measurements and statistical reports with a concern for markets and customers, as well as employees. The balanced scorecard (BSC) is a comprehensive management control system that balances traditional financial measures with operational measures relating to a company's critical success factors. A balanced scorecard contain four major perspectives, as illustrate below: financial performance, customer service, internal business processes, and the organization's capacity for learning and growth.

Exhibit: Major Perspectives of the Balanced Scorecard

Within these four areas, managers identify key performance indicators the organization will track. The financial perspective reflects a concern that the organization's activities contribute to improving short- and long-term financial performance. It includes traditional measures such as net income and return on investment. Customer service indicators measure such as things as how customers view the organization as well as customers retention and satisfaction. Business process indicators focus on production and operating statistics, such as order fulfillment or cost per order. The final component looks at the organization's potential for learning and growth, focusing on how well resources and human capital are being managed for the company's future. Measurements include such things as employee retention, business process improvements, and the introduction of new products. The components of the scorecard are designed in an integrative manner so that they reinforce one another and link short-term actions with long-term strategic goals, as illustrated above exhibit. Managers can use the scorecard to set goals, allocate resources, plan budgets, and determine rewards.

Executive information systems and dashboards facilitate use of the balanced scorecard by enabling top managers to easily track metrics in multiple areas, rapidly analyze the data, and convert huge amounts of data into clear information reports. The scorecard has become the core management control system for many organizations. Scorecards serve as the agenda for monthly management meetings, where managers evaluate performance, discuss what corrective actions need to be taken, and set new targets for the various BSC categories.

Exhibit: A Strategy Map for Performance Management

Accomplish Mission; Create Optimal Value

The cause-effect control technique is the strategy map. A strategy map provides a visual representation of the key drivers of an organization's success and shows how specific outcomes in each area are linked. The strategy map is a powerful way for managers to see the cause-and-effect relationships among various performance metrics. The simplified strategy map illustrates the four key areas that contribute to a firm's long-term success - learning and growth, internal processes, customer service, and financial performance - and how the various outcomes in one area link directly to performance in another area. The idea is that effective performance in terms of learning and growth serves as a foundation to help achieve excellent internal business processes. Excellent business processes, in turn, enable the organization to achieve high customer service and satisfaction, which enables the organization to reach its financial goals and optimize its value to all stakeholders.

The organization ahs learning and growth goals that include employee training and development, continuous learning and knowledge sharing, and building a culture of innovation. Achieving these will help the organization build efficient internal business processes that promote good relationship with suppliers and partners, improve the quality and flexibility of operations, and excel at developing innovative products and services. Accomplishing internal process goals, in turn, enables the organization to maintain strong relationships with customers, be a leader in quality and reliability, and provide innovative solutions to emerging customer needs.

B. Department Level: Behavior versus Outcome Control

The balanced scorecard and strategy map are techniques used primarily by top and upper-level managers. Lower-level managers focus on the performance of people at the department level, who must meet goals and standards if the organization is to attain its overall goals. Although lower-level managers may use any of the control systems listed previously, the reward system is often of paramount concern at the supervisory level.

There are two different approaches to evaluating and controlling team or individual performance and allocating rewards. One approach focuses primarily on how people do their jobs, whereas the other focuses primarily on the outcomes people produces. Behavior control is based on manager observation of employee actions to see whether the individual follows desired procedures and performs tasks as instructed. Do people get to work on time? Do they stay focused on their tasks or spend a lot of time socializing with colleagues" Do they dress appropriately for the job" Do they perform their jobs according to established methods or supervisor instructions? With behavior control, managers provide heavy supervision and monitoring, pay attention to the methods people use to accomplish their jobs, and evaluate and reward people based on specific criteria, which might include areas such as appearance, punctuality, skills, activities, and so forth.

Outcome control is based on monitoring and rewarding results, and managers might pay little attention to how those results are obtained. With outcome control, managers don't supervise employees in the traditional sense. People have a great deal of autonomy in terms of how they do their jobs - and sometimes in terms of where and when they do their jobs - as long as they produce desired outcomes. rather than monitoring how many hours an employee works, for example, managers focus on how much work the employee accomplishes. This is the Result-Only Work Environment.

In most organizations, managers use both behavior and outcome control.

IV. Strategic Approach I

Strengthening Employee Coordination and Efficiency

It has evolved further as a strategic tool for both increasing internal coordination and efficiency and enhancing coordination with customers and external partners. This is the highest level of application. Primary IT applications for increasing internal coordination and efficiency are intranets, knowledge-management, social networking, and enterprise resource planning (ERP). Let's deal with this first.

A. Intranets:

Networking, which links people and departments within a particular building or across corporate offices, enabling them to share information and cooperate on projects, is an important strategic tool for many companies. One prevalent form of corporate networking is an intranet, a private, companywide information system that uses the communications protocols and standards of the Internet but is accessible only to people within a company. To view files and information, users simply navigate the site with a standard web browser, clicking on links. Today, most companies with intranets have moved their management information systems, executive information systems, and so forth over to the intranet so they are accessible to anyone who needs them. In addition, having these systems as part of the intranet means new features and applications can easily be added and accessed through a standard browser. Intranets can improve internal communications and unlock hidden information. They enable employees to keep in touch with what's going on around the organization, quickly and easily find information they need, share ideas, and work on projects collaboratively.

B. Knowledge Management

Knowledge management refers to the efforts to systematically find, organize, and make available a company's intellectual capital and to foster a culture of continuous learning and knowledge sharing. The company's intellectual capital is the sum of its knowledge, experience, understanding, relationships, processes, innovations, and discoveries.

Companies need ways to transfer both codified knowledge and tacit knowledge across the organization. Codified knowledge is formal, systematic knowledge that can be articulated, written down, and passed on to others in documents, rules, or general instructions. Tacit knowledge, on the other hand, is often difficult to put into words. Tacit knowledge is based on personal experience, rules of thumb, intuition, and judgment. It includes professional know-how and expertise, individual insight and experience, and creative solutions that are difficult to communicate and pass on to others. As much as 80 percent of an organization's valuable knowledge may be tacit knowledge that is not easily captured and transferred. Thus, one hot topic in corporate IT concerns expert-locator systems that identify and catalog experts in a searchable database so people can quickly identify who ahs knowledge they use.

Exhibit: Two Approaches to Knowledge Management

1. Knowledge Management Approach deals with the collection and sharing of codified knowledge, largely through the use of sophisticated IT systems. Codified knowledge may include intellectual properties such as parents and licenses; work processes such as policies and procedures; specific information on customers, markets, suppliers, or competitors; competitive intelligence reports; benchmark data; and so forth.

2. Information Technology Approach focuses on leveraging individual expertise and know-how -tacit knowledge - by connecting people face to fact or through interactive media. Tacit knowledge includes professional know-how, individual insights and creativity, and personal experience and intuition. with this approach, managers concentrate on developing personal networks that link people together for the sharing of tacit knowledge.

C. Social Networking

Encouraging and facilitating the sharing of tacit knowledge isn't easy. Despite the fact that companies have spent billions on software and other technology for knowledge management, there is some indication that knowledge sharing has fallen short of managers' goals.

A recent approach that holds promise for more effective sharing of tacit knowledge is the use of social media, including corporate social networking and other social technology tools such as blogs and wikis. A blog is a running web log that allows an individual to post opinions and ideas about work projects and processes. The simplicity and informality of blogs make them an easy and comfortable medium for people to communicate and share ideas. In addition, the micro-blogging service Twitter is increasingly being used by companies as a fast way to solve problems. People can send a question and quickly get responses from all over the organization or from outsiders. A wiki is similar to a blog and uses software to create a website that allows people to create, share, and edit content through a browser-based interface. Rather than simply sharing opinions and ideas as with a blog, wikis are free-form, allowing people to edit what they find on the site and add content.

Social networking is an extension of blogs and wikis. Social networking sites provide an unprecedented peer-to-peer communication channel where people interact in an online community, sharing personal and professional inf9rmation and photos, producing and sharing all short of ideas and opinions. Because of the popularity of Facebook in people's personal lives, most employees are comfortable with the idea of "following" and communicating with their colleagues online. Using social networks for a business enables people to easily connect with one another across organizational and geographical boundaries based on professional relationships, shared interests, problems, or other criteria. People can use the social network to search for tags that will identify others with knowledge and resources that can help them solve a problem or do their jobs better. Moreover, the nature of social networking build trust so that people are more likely to cooperate and share information.

D. Enterprise Resource Planning

Many companies are using broad-scale information system that take a comprehensive view of the organization's activities. These enterprise resource planning (ERP) systems collect, process, and provide information about a firm's entire enterprise, including order processing, product design, purchasing, inventory, manufacturing, distribution, human resources, receipt of payments, and forecasting of future demand. ERP systems can be expensive and difficult to implement, but when applied successfully, an ERP system can serve as the backbone for an organization by integrating and optimizing all the various business processes across the entire firm.

An example of an ERP Network

IV. Strategic Approach II

Strengthening Coordination with External Partners

External applications of IT for strengthening coordination with customers, suppliers, and partners include systems for supply chain management and the integrated enterprise, tools for enhancing customer relationship, and e-business organization design. One basic approach is to extend the corporate intranet to include customers and partners. An extranet is an external communications system that uses the Internet and is shared by two or more organizations. Each organization moves certain data outside of the private intranet, but makes the data available only to the other companies sharing the extranet.

A. The Integrated Enterprise

Extranets play a critical role in today's integrated enterprise. The integrated enterprise is an organization that uses advanced IT to enable close coordination within the company as well as with suppliers, customers, and partners. An important aspect of the integrated enterprise is using supply chain management systems, which manage the sequence of suppliers and purchasers converting all stages of processing from obtaining raw materials to distributing finished goods to consumers.

1. Information Linkages: Applying supply chain management systems enables organizations to achieve the right balance of low inventory levels and customer responsiveness. The Exhibit below illustrates horizontal information linkages in the integrated enterprise. By establishing electronic linkages between the organization and key partners for the sharing and exchange of data, the integrated enterprise creates a seamless, integrated line stretching from end consumers to raw materials suppliers.

2, Horizontal Relationships: The purpose of integrating the supply chain is for everyone to work closely together, moving in lockstep to meet customers' product and time demands. Honeywell, which makes turbocharger for cars, trucks, and light aircraft, uses an extranet to give suppliers access to its inventory and production data so they can respond rapidly to the manufacturer's need for parts. Honeywell is also working with big customers to integrate their systems so the company will have better information about turbocharger demands from customers as well. For the integrated enterprise to work, horizontal relationships get more emphasis than vertical relationships.

B. Customer Relationships

Many organizations have hired social media directors that are in charge of a blend of activities such as marketing and promotions, customer service, and support. Social media directors use blogs, Twitter, Facebook, company websites, and other technology primarily to do one thing - strengthen customer relationships. Managers responding to one survey say they use these technologies for improving customer service, developing new markets, getting customer participation in product development, and offering opportunities for customers to interact with one another. Social networks and blogs are particularly popular customer-facing technologies.

V. E-Business Organization Design

E-business can be defined as any business that takes place by digital processes over a computer network rather than in physical space. However, e-business most commonly refers to electronic linkages over the Internet with customers, partners, suppliers, employees, or other key constituents. E-commerce is a more limited term that refers specifically to business exchanges or transactions that occur electronically. Today, e-commerce is transforming into m-commerce, which simply means the ability to conduct business transactions through a mobile device. The world has gone mobile. For many people, their cell phone is always within reach, and they use it for everything ordering a pizza to accessing their bank account.

Many traditional organizations have set up Internet operations, but managers have to make a decision about how best to integrate bricks and clicks - that is, how to blend their traditional operations with an Internet initiative. One option is to set up an Internet division as a separate business, either by creating a spin-off company or by participating in a joint venture with another organization. Some companies choose to establish an in-house division that is more closely integrated with the traditional business. As the Internet continues to evolve, other companies are moving to a third option, which is to blend traditional and e-business operations in a totally integrated design.

Exhibit: Strategies of Integrating Bricks and Clicks

Spin-Off In-House Division Fully-Integrated

Company A

Company A

Separate E-business Company

E-business

Division 2

E-business

Division 1

E-business Division

Division 2

Division 1

Separation Benefits Integration Benefits

Focus; Autonomy; Responsiveness Broad recognition, Coordination

Entrepreneurial culture Shared information, Customer efficiencies

A. Separate Business

To give the Internet operation autonomy and flexibility, some organizations choose to create a separate company, using either a spin-off or a joint venture. A separate business is a free-standing Internet business that competes with other Internet companies. Advantages of a separate business include faster decision making, increased flexibility and responsiveness to changing market conditions, an entrepreneurial culture, and management that is totally focused on the success of the online operation. Potential disadvantages are the loss of brand recognition and marketing opportunities, higher start-up costs, and loss of leverage with suppliers. For example, retailer Kmart originally created a spin-off division called Bluelight.com, and the drugstore CVS originally launched CVS.com as a separate business. In both cases, operating e-business as a separate unit proved to be inefficient for the retailers in the long run. Managers began bringing online operations back under the umbrella of the traditional business so that functions such as marketing, merchandising, and purchasing could be handled more efficiently. The autonomy, flexibility, and focus of the spin-off was an advantage during the start-up phase, but the organizations later gained efficiencies by bringing the web business back in-house for better coordination with other departments. Another approach to creating a separate business is to enter into a joint venture or partnership. Particularly for companies that have little Internet experience, forming a joint venture with an experienced partner can be more successful than going it alone.

B. In-House Division

An in-house division offers tight integration between the Internet operation and the organization's traditional operation. The organization creates a separate unit within the company that functions within the structure and guidance of the traditional organization. For example, Disney.com is a division under the guidance and control of the Walter Disney Company. The in-house approach gives the new division several advantages by piggybacking on the established company. These include brand recognition, purchasing leverage with suppliers, shared customer information and marketing opportunities, and distribution efficiencies. A potential problem with an in-house division, however, is that the new operation doesn't have the flexibility needed to move quickly in the Internet world.

D. Integrated Design

There is no separation between what is defined as the traditional part of the business and what is defined as the e-business part. E-business is incorporated into every employee's work. That is, what might have started out as an in-house division is broken up and assigned to various departments and business units as part of the everyday way of operating. Virtually every employee is involved in both traditional and e-business activities.

VI. IT Impact on Organization Design

(End of Lecture Notes #9)

I. The Managerial Task

A. Organizational Performance

The managerial task centers on the concept of organizational performance, which is primarily measured by dollar sales, market share, profitability, return on investment, and asset growth. On the other hand, managers pay attention to intermediate objectives such as product quality and customer satisfaction as well as social responsibility in terms of consumer protection, affirmative action, and preservation of the environment - stockholders, senior managers, employee unions, customers, or environmentalists. For example, the Union may complain that improved profitability came from the pay-cut of employees; the environmentalists may be happy with the profit loss due to environmental protection; but stockholders are unhappy for this because of the fall of dividends and of share prices.

B. Basic Functions of Management

The managerial system functions in the context of an external environment and internal subsystems - goals and values, the organizational structure, organizational behavior, human resources, finance, operations and supply chain, information technology, and so forth. Managers make decisions on a wide variety of issues. "Figuring out what to do despite uncertainty, great diversity, and an enormous amount of potentially relevant information. Getting things done through a large and diverse set of people despite having little direct control over most them."

Few managerial decisions are final. Rather, the managerial task involves a continual stream of choices and actions that should be followed up to see if the system is on track. Problems are rarely solved once and for all time. Therefore, it is important to follow up with some adjustments along the way and new decisions. Managers are in the middle of many interactive processes, that require a continuing flow of decisions in order to maintain a dynamic equilibrium. Good managers are continually in sensing threats and opportunities from the external environment and strengths and weaknesses from the internal subsystems. Manages pursue high performance through managerial functions: planning, organizing, staffing, directing, and controlling: they maximize external opportunities by utilizing internal strengths and minimize external threats by reducing internal weaknesses.

C. Managerial Roles

Roles of Managers by Henry Mintzberg

II. Types of Decisions

Organizational decision making is formally defined as the process of identifying and solving problems. In the problem identification, information about environmental and organizational conditions is monitored to determine if performance is satisfactory and to diagnose the cause of shortcomings. The problem solution stage is when alternative courses of action are considered and one alternative is selected and implemented.

A. Programmed Decisions are repetitive and dwell defined, and procedures exist for resolving the problem. They are well structured because criteria of performance are normally clear, good information is available about current performance, alternatives are easily specified, and there is relative certainty that the chosen alternative will be successful.

B. Non-programmed Decision are novel and poorly defined, and no procedure exists for solving the problem. They are used when an organization has not seen a problem before and may not know how to respond. Clear-cut decision criteria do not exist. Alternatives are fuzzy. There is uncertainty about whether a proposed solution will solve the problem. Typically, few alternatives can be developed for a non-programmed decision, so a single solution is custom-tailored to the problem. Many non-program-med decisions involve strategic planning because uncertainty is great and decisions are complex.

Exhibit: Decision Making in Today's Environment

Today's Business Environment

Greater Complexity

Rapid Change Uncertainty

Exhibit: Several Dimensions of Decision Making

III. Individual Decision Making

A. Individual Perception and Making Judgments

1. Perception is a process by which individuals organize and interpret their sensory impression in order to give meaning to their environment. Factors influencing perception are perceiver, target, and situation.

Exhibit: Factors Influencing Perception

2. Attribution Theory: When we observe an individual’s behavior, we attempt to determine whether it was internally or externally caused, depending on distinctiveness, consensus, and consistency.

Fundamental attribution error: When we make judgments about the other's behavior, we tend to underestimate the influence of external factors and overestimate the influence of internal factors.

Self-serving Bias: Individuals and organizations tend to attribute their own successes to internal factors such as ability or effort, while putting the blame for failure on external factors such as bud luck or unproductive co-workers.

3. Common Shortcuts in Judging Others

4. The Link between Perception and Decision Making

Decisions are choices made from among two or more alternatives. Decision making occurs as a reaction to a problem, that is, a discrepancy exists between the current state of affairs and some desired state, requiring us to consider alternative course of action.

B. Individual Decision Making in Organizations

How to Evaluate Alternatives (An Example)

Chosen alternative in this example is Alternative 3 (the highest: 90%)

C. Bounded Rationality Perspective

If managers deal with problems in such conditions as time pressure, a large number of internal and external factors affecting a decision, and the ill-defined nature of many problems, it is virtually impossible for them to make the systematic analysis to find and solve the problems. In other words, the attempt to be rational is bounded (limited) by the enormous complexity of many problems: there is a limit to how rational managers can be.

Exhibit: Constraints and Tradeoffs during Non-programmed Decision Making

Bounded Rationality

Limited time, information, resources to deal with complex multidimensional issues

Trade-off

Decision/Choice

Search for

a high-quality

decision

Alternative

Personal Constraints

Personal desire for prestige, success; personal decision style; and the desire to satisfy emotional needs, cope with pressure, maintain self-concept

Trade-off

Organizational Constraints

Level of agreement, shared perspective, cooperation, or support; corporate culture and structure, ethical values

Trade-off

1. Constraints and Trade-offs: Not only are large organizational decisions too complex to fully comprehend, but several constraints impinge on the decision maker, as illustrated in above exhibit. For many organizational decisions, the circumstances are ambiguous, requiring social support, a shared perspective on what happens, and acceptance and agreement; but other constraints include corporate culture and ethical values.

Constraint also exist at the personal level. Personal constraints - such as decision style, work pressure, desire for prestige, or simple feelings of insecurity - may constrain either the search for alternatives or the acceptability of an alternative. All of these factors constrain a perfectly rational approach that should lead to an obviously ideal choice. Some managers, for example, make many of their decisions within a mindset of trying to please upper managers, people who are perceived to have power within the organization or others they respect and want to emulate. Other managers are constrained by an un-adaptive decision style.

2. The Role of Intuition: The bounded rationality perspective is often associated with intuitive decision processes. In intuitive decision making, experience and judgment rather than sequential logic or explicit reasoning are used to make decisions. Most researchers have found that effective managers use a combination of rational analysis and intuition in making complex decisions under time pressure.

IV. Organizational Decision Making

Organizations are composed of managers who make decisions using rational and intuitive processes, but organizational-level decisions are not usually made by a single manager. Many organizational decisions involve several managers. Problem identification and problem solution involve many departments, multiple view-points, and other organizations, which are beyond the scope of an individual manager.

The processes by which decisions are made in organizations are influenced by a number of factors, particularly the organization's own internal structures and the degree of stability or instability of the external environment. There are four primary types of organizational decision-making processes - the management science approach, the Carnegie model, the incremental decision model, and the garbage can model.

A. Management Science Approach

The management science approach to organizational decision making is the analog to the rational approach by individual managers. Management science came into being during World War II. At that time, mathematical and statistical techniques were applied to urgent, large-scale military problems that were beyond the ability of individual decision makers.

Mathematicians, physicians, and operations researchers used systems analysis to develop artillery trajectories, antisubmarine strategies, and bombing strategies. Consider the problem of a battleship trying to sink an enemy ship several miles away. The calculation for aiming the battleship's guns should consider distance, wind speed, shell size, speed and direction of both ships, pitch and roll of the firing ship, and curvature of the earth. Methods for performing such calculations using trial and error and intuition are not accurate, take far too long, and may never achieve success. This is where management came in. Now the entire sequence is automatically computed.

Operations research departments use mathematical models to quantify relevant variables and develop a quantitative representation of alternative solutions and the probability of each one solving the problem. These departments also use such devices as liner programming, Bayesian statistics, PERT charts, and computer simulations. If the important factors cannot be quantified in the model in terms of qualitative dimensions, the final decision should include both qualitative and quantitative factors.

B. Carnegie Model

The Carnegie model of organizational decision making is based on the work of Richard Cyert, James March, and Herbert Simon, who were all associated with Carnegie-Mellon University. Their research helped formulate the bounded rationality approach to individual decision making, as well as provide new insights about organizational decisions.

Exhibit: Choice Processes in the Carnegie Model

Search

Conduct a simple, local search

Use established procedures if appropriate

Create a solution if needed

Uncertainty

Information is limited

Managers have many constraints

Coalition Formation

Hold joint discussion and interpret goals and problems

Share opinions

Establish problem priorities

Obtain social support for problem, solution

Conflict

Managers have

diverse goals, opinions, values, experience

Satisficing Decision Behavior

Adopt the first alternative that is acceptable to the coalition

Since organizational-level decisions involved many managers, a final choice is based on a coalition among those managers. A coalition is an alliance among several managers who agree about organizational goals and problem priorities. It could include managers from line departments, staff specialists, and even external groups, such as powerful customers, bankers, or union representatives.

Management coalitions are needed during decision making for two reasons. First, organization-al goals are often ambiguous, and operative goals of departments are often inconsistent. When goals are ambiguous and inconsistent, managers disagree about problem priorities. They must bargain about problems and build a coalition around the question of which problems to address. Second, individual managers intend to be rational but function with human cognitive limitations and other constraints. Managers do not have the time, resources, or mental capacity to identify all dimensions and to process all dimensions and to process all information relevant to a decision.

In the process of coalition building, first, decisions are made to satisfice rather than to optimize problem solutions, which means organizations accept a satisfactory rather than a maximum level of performance, enabling them to achieve several goals simultaneously. Second, managers are concerned with immediate problems and short-run solutions. They engage in problemistic search - managers look around in the immediate environment for a solution to quickly resolve a problem. Managers do not expect a perfect solution when the situation is ill-defined and conflict-laden. Third, discussion and bargaining are especially important in the problem identification stage of decision making. Unless coalition members perceive a problem, action will not be taken. However, a coalition of key managers is also important for smooth implementation of a decision. When top managers perceive a problem or want to make a major decision, they need to reach agreement with other managers to support the decision. The processes are explained in the above exhibit.

C. Incremental Decision Model

The model identified 25 decisions made in organizations and traced the events associated with these decisions from beginning to end. In this model, major organizational choices are usually a series of small choices that combine to produce the major decision. The model consists of three phases.

Exhibit: The Incremental Decision Model

1. Identification Phase begins with recognition, which means one or more managers become aware of a problem and the need to make a decision. Recognition is stimulated by a problem or an opportunity. A problem exists when elements in the external environment change or when internal performance is perceived to be b below standard. The second step is diagnosis, in which more information is gathered if needed to define the problem situation. Diagnosis may be systematic or informal, depending upon the severity of the problem.

2. Development phase: A solution is shaped to solve the problem defined in the identification phase. The development of a solution takes one of two directions. First, search procedures may be used to seek out alternatives within the organization's repertoire of solutions. Second is to design a custom solution. This happens when the problem is novel so that previous experience has no value. Develop-ment of the solution is a grouping, incremental procedure, building a solution brick by brick.

3. Selection phase is when the solution is chosen. This phase is not always a matter of making a clear choice among alternatives. In the case of custom-made solutions, selection is more an evaluation of the single alternative that seems feasible. Evaluation and choice may be accomplished in three ways. (1) The judgment form of selection is used when a final choice falls upon a single decision maker, and the choice involves judgment based upon experience. (2) In analysis, alternatives are evaluated on a more systematic basis, such as with management science techniques. (3) Bargaining occurs when selection involves a group of decision makers. Each decision maker may have a different stake in the outcome, so conflict emerge. Discussion and bargaining occur until a coalition is formed, as in the Carnegie model.

4. Dynamic Factors (bottom row -Exhibit) : Organizational decisions do not follow an orderly progression from recognition through authorization. Minor problems arise that force a loop back to an earlier stage. These are decision interrupts. If a custom-designed solution is perceived as unsatisfactory, the organization may have to go back to the very beginning and reconsider whether the problem is truly worth solving. Feedback loops can be caused by problems of timing, politics, disagreement among managers, inability to identify a feasible solution, turnover of managers, or the sudden appearance of a new alternative.

V. Organizational Decisions and Change

To overcome uncertainty and complexity in decision making, one approach is to combine the Carnegie and incremental models, and the other is the garbage can model.

A. Combining the Incremental and Carnegie Models: The Carnegie description of coalition building is especially relevant for the problem identification stage. When issue are ambiguous, or if managers disagree about problem severity, discussion, negotiation, and coalition building are needed. The incremental model tends to emphasize the steps used to reach a solution. After managers agree on a problem, the step-by-step process is a way of trying various solutions to see what will work. When problem solution is unclear, a trial-and-error solution may be designed. The two models do not disagree with one another. They describe different approaches for how organizations make decisions when either problem identification or problem solution is uncertain. When both parts of the decision process are simultaneously highly uncertain, the organization is in an extremely difficult position. In that situation, a combination of the Carnegie and incremental models may be useful in decision processes.

Exhibit: Decision Process when Problem Identification and Problem Solution are Uncertain

B. Garbage Can Model:

The garbage can model is one of the most recent and interesting descriptions of organizational decision processes. It is not directly comparable to the earlier models, because the garbage can model deals with the pattern or flow of multiple decisions within organizations, whereas the incremental and Carnegie models focus on how a single decision is made.

1. Organized Anarchy: The garbage can model was developed to explain the pattern of decision making in organizations that experience extremely high uncertainty. Michael Cohen, James March, and Johan Olsen, the originators of the model, called the highly uncertain conditions an organized anarchy, which is an extremely organic organization. Organized anarchies do not rely on the normal vertical hierarchy of authority and bureaucratic decision rules. They result from three characteristics:

a. Problematic preferences: Goals, problems, alternatives, and solutions are ill-defined. Ambiguity characterizes each step of a decision process.

b. Unclear, poorly understood technology: Cause-and-effect relationships within the organization are difficult to identify. An explicit database that applies to decisions is not available.

c. Turnover: Organizational positions experience turnover of participants. In addition, employees are busy and have only limited time to allocate to any one problem or decision. Participation in any given decision will be fluid and limited.

2. Streams of Events: The unique characteristic of the garbage can model is that the decision process is not seen as a sequence of steps that begins with a problem and ends with a solution. Indeed, problem identification and problem solution may not be connected to each other. An idea may be proposed as a solution when no problem is specified. A problem may exist and never generate a solution. Decisions are the outcome of independent streams of events within the organization. The four streams relevant to organizational decision making are as follows:

Exhibit: Illustration of Independent Streams of Events

in the Garbage Can Model of Decision Making

Problems Solutions

Middle Management

Ps

Ss

COs

PARs

Participants Participants

Choice & Opportunities (COs) Choice & Opportunities (COs)

Department A Department B

Ss

Ps

Ss

COs

PARs

Ps

Ss

COs

PARs

COs

Ps

PARs

Solutions (Ss) Solutions (Ss)

Participants (PARs) Participants (PARs)

Problems (Ps) Problems (Ps)

a. Problems: Problems are points of dissatisfaction with current activities and performance. They represent a gap between desired performance and current activities. Problems are perceived to require attention. However, they are distinct from solutions and choices. A problem may lead to a proposed solution or it may not. Problems may not be solved when solutions are adopted.

b. Potential solutions: A solution is an idea somebody proposes for adoption. Such ideas form a flow of alternative solutions through the organization. Ideas may be brought into the organization by new personnel or may be invented by existing personnel. Participants may simply be attracted to certain ideas and push them as logical choices regardless of problems.

c. Participation: Organization participants are employees who come and go through the organization. People are hired, reassigned, and fired. Participants vary widely in their ideas, perception of problems, experience, values, and training. The problems and solutions recognized by one manager will differ from those recognized by another manager.

d. Choice opportunities are occasions when an organization usually makes a decision. They occur when contracts are signed, people are hired, or a new product is authorized. They also occur when the right mix of participants, solutions, and problems exists. Thus, a manager who happened to learn of a good idea may suddenly become aware of a problem to which it applies and, hence, can provide the organization with a choice opportunity. Match-ups of problems and solutions often result in decisions.

Thus, when viewing the organization as a whole and considering its high level of uncertainty, one sees problems arise that are not solved and solutions tried that do not work, and solutions act as independent events. When they connect, some problems are solved, but many are not.

3. Consequences: There are four specific consequences of the garbage can decision process for organizational decision making:

a. Solutions may be proposed even when problems do not exist. An employee might be sold on an idea and might try to sell it to the rest of the organization.

b. Choices are made without solving problems. A choice - for example, creating a new department or revising work procedures - may be made with intention of solving a problem; but, under conditions of high uncertainty, the choice may be incorrect.

c. Problems may persist without being solved. Organization participants get used to certain problems and give up trying to solve them; or participants get used to certain problems and give up trying to solve them; or participants may not know how to solve certain problems because the technology is unclear.

d. A few problems are solved. The decision process does work in the aggregate. In computer simulations of the garbage can model, important problems were often resolved. Solutions do connect with appropriate problems and participants so that a good choice is made.

VI. Contingency Decision-making Framework

Two characteristics of organizations that determine the use of decision approaches are (1) problems consensus and (2) technical knowledge about the means to solve those problems.

A. Problem Consensus

This variable ranges from complete agreement to complete disagreement. Consensus refers to the agreement among managers about the nature of a problem or opportunity and about which goals and outcomes to pursue. When managers agree, there is little uncertainty - the problems and goals of the organization are clear, and so are standards of performance. When managers disagree, organization direction and performance expectations are in dispute, creating a situation of high uncertainty.

Problem consensus is especially important for the problem identification stage of decision making. When problems are clear and agreed on, they provide clear standards and expectations for performance. When problems are not agreed on, problem identification is uncertain and management attention must be focused on gaining agreement about goals and priorities.

B. Technical Knowledge about Solution

Technical knowledge refers to understanding and agreement about how to solve problems and reach organizational goals. This variable can range from complete agreement and certainty to complete disagreement and uncertainty about cause-effect relationship leading to problem solution.

When means are well understood, the appropriate alternatives can be identified and calculated with some degree of certainty. When means are poorly understood, potential solutions are ill-defined and uncertain. Intuition, judgment, and trial and error become the basis for decisions.

C. Contingency Framework

Exhibit: Contingency Framework for Using Decision Models

Above Exhibit describes the contingency decision-making framework, which brings together the two dimensions of problem consensus and technical knowledge about solutions. each sell represents an organizational situation that is appropriate for the decision-making approaches described here.

VII. Special Decision Circumstances

(End of Lecture Notes #11)

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