Chapter1

IntroductiontoManagementandOrganizations

st

The21 centuryhasbroughtwithitanewworkplace,oneinwhicheveryonemust
adapttoarapidlyhangingsocietywithconstantlyshiftingdemandsandopportunities.
Theeconomyhasbecomeglobalandisdrivenbyinnovationsandtechnologyand
organizationshavetotransformthemselvestoservenewcustomerexpectations.
Todayseconomypresentschallengingopportunitiesaswellasdramaticuncertainty.
Theneweconomyhasbecomeknowledgebasedandisperformancedriven.Thethemes
inthepresentcontextarearespect,participation,empowerment,teamworkandself
management.Inthelightoftheabovechallengesanewkindofleaderisneededto
guidebusinessthroughturbulence.Managersinorganizationsdothistask.

Amanagerissomeonewhocoordinatesandoverseestheworkofotherpeoplesothat
organizationalgoalscanbeaccomplished.Itisnotaboutpersonalachievementbut
helpingothersdotheirjob.Managersmayalsohaveadditionalworkdutiesnotrelated
tocoordinatingtheworkofothers.

Managerscanbeclassifiedbytheirlevelintheorganization,particularlyintraditionally
structuredorganizationsthoseshapedlikeapyramid

Firstlinemanagers(oftencalledsupervisors)arelocatedonthelowestlevelof
management.

Middlemanagersincludealllevelsofmanagementbetweenthefirstlinelevelandthe
topleveloftheorganization.

Topmanagersincludemanagersatornearthetopoftheorganizationwhoare
responsibleformakingorganizationwidedecisionsandestablishingplansandgoals
thataffecttheentireorganization.

Thechangingnatureoforganizationsandworkoftenrequiresemployeesinformerly
nonmanagerialjobstoperformmanagerialactivities.Nonmanagerialjobsarethose
whereoneworksdirectlyonajobandhadnoonereportingtohim.

MaryParkerFolletdefinesmanagementas,Theartofgettingthingsdonethrough
people

Managementinvolvescoordinatingandoverseeingtheworkactivitiesofotherssothat
theiractivitiesarecompletedefficientlyandeffectively.

Coordinatingandoverseeingtheworkofothersiswhatdistinguishesamanagerial
positionfromanonmanagerialone.

Efficiencyisgettingthemostoutputfromtheleastamountofinputsinorderto
minimizeresourcecosts.Efficiencyisoftenreferredtoasdoingthingsright
Effectivenessiscompletingactivitiessothatorganizationalgoalsareattainedandis
oftendescribedasdoingtherightthings

Notwomanagersjobsareexactlyalike.Allmanagersperformcertainfunction,enact
certainrolesanddisplayasetofskillsintheirjobs.

ManagementFunctions

Accordingtothefunctionsapproachmanagersperformcertainactivitiestoefficiently
andeffectivelycoordinatetheworkofothers.Theycanbeclassifiedas

Planninginvolvesdefininggoals,establishingstrategiesforachievingthosegoals,and
developingplanstointegrateandcoordinateactivities.

Organizinginvolvesarrangingandstructuringworktoaccomplishtheorganizations
goals.

Leadinginvolvesworkingwithandthroughpeopletoaccomplishorganizationalgoals.
Controllinginvolvesmonitoring,comparing,andcorrectingworkperformance.

Sincethesefourmanagementfunctionsareintegratedintotheactivitiesofmanagers
throughouttheworkday,theyshouldbeviewedasanongoingprocessandtheyneed
notthedoneintheabovesequence.

ManagementRoles

Inthelate1960s,HenryMintzbergconductedaprecisestudyofmanagersatwork.He
concludedthatmanagersperform10differentroles,whicharehighlyinterrelated.

Managementrolesrefertospecificcategoriesofmanagerialbehavior.Overallthereare
tenspecificrolesperformedbymanagerswhichareincludedinthefollowingthree
categories.

Interpersonalrolesincludefigurehead,leadership,andliaisonactivities.

Informationalrolesincludemonitoring,disseminating,andspokespersonactivities.

Decisionalrolesincludeentrepreneur,disturbancehandler,resourceallocator,and
negotiator.

Althoughthefunctionsapproachrepresentsthemostusefulwaytodescribethe
managersjob,Mintzbergsrolesgiveadditionalinsightintomanagerswork.Someof
thetenrolesdonotfallclearlyintooneofthefourfunctions,sinceallmanagersdo
someworkthatisnotpurelymanagerial.

ManagementSkills

Managersneedcertainskillstoperformthechallengingdutiesandactivitiesassociated
withbeingamanager.RobertL.Katzfoundthroughhisresearchintheearly1970sthat
managersneedthreeessentialskills

Technicalskillsarejobspecificknowledgeandtechniquesneededtoproficiently
performspecifictasks.

Humanskillsaretheabilitytoworkwellwithotherpeopleindividuallyandinagroup.

Conceptualskillsaretheabilitytothinkandtoconceptualizeaboutabstractand
complexsituations.

Theseskillsreflectabroadcrosssectionoftheimportantmanagerialactivitiesthatare
elementsofthefourmanagementfunctions

Significantchangesintheinternalandexternalenvironmentshaveameasurableimpact
onmanagement.Securitythreats,corporateethicsscandals,globaleconomicand
politicaluncertainties,andtechnologicaladvancementshavehadagreatimpactonthe
managersjob.

Twosignificantchangesfacingtodaysmanagersareimportanceofcustomerstothe
managersjobandImportanceofinnovationtothemanagersjob

Organizationsneedmanagers.Anorganizationisadeliberatearrangementofpeopleto
accomplishsomespecificpurpose.Organizationssharethreecommoncharacteristics:

(1)Eachhasadistinctpurpose(2)Eachiscomposedofpeople(3)Eachdevelopssome
deliberatestructuresomemberscandotheirwork.Althoughthesethreecharacteristics
areimportantindefiningwhatanorganizationis,theconceptofanorganizationis
changing.Thecharacteristicofneworganizationsoftodayinclude:flexiblework
arrangements,employeeworkteams,opencommunicationsystems,andsupplier
alliances.Organizationsarebecomingmoreopen,flexible,andresponsivetochanges.
Organizationsarechangingbecausetheworldaroundthemhaschangedandis

continuingtochange.Thesesocietal,economic,global,andtechnologicalchangeshave
createdanenvironmentinwhichsuccessfulorganizationsmustembracenewwaysof
gettingtheirworkdone.

Theimportanceofstudyingmanagementintodaysdynamicglobalenvironmentcanbe
explainedbylookingattheuniversalityofmanagement,therealityofwork,andthe
rewardsandchallengesofbeingamanager.

TheUniversalityofManagement:Managementisneededinalltypesandsizesof
organizations,atallorganizationallevels,andinallorganizationalworkareas
throughouttheworld.

TheRealityofWork:Allemployeesofanorganizationeithermanageoraremanaged.

RewardsandChallengesofBeingaManager

Challenges

Managersmayhavedifficultyineffectivelyblendingtheknowledge,skills,ambitions,
andexperiencesofadiversegroupofemployees.
Amanagerssuccesstypicallyisdependentonothersworkperformance.

Rewards

Managershaveanopportunitytocreateaworkenvironmentinwhichorganizational
memberscandotheirworktothebestoftheirabilityandhelptheorganizationachieve
itsgoals.

Managersoftenreceiverecognitionandstatusintheorganizationandinthelarger
community;influenceorganizationaloutcomes;andreceiveappropriatecompensation.

Knowingthattheirefforts,skills,andabilitiesareneededbytheorganizationgives
manymanagersgreatsatisfaction.

Themanageroftodaymustintegratemanagementskillswithnewapproachesthat
emphasizethehumantouch,enhanceflexibility,andinvolveemployees.

Chapter2

ManagementYesterdayandToday

Organizationsandmanagershaveexistedforthousandsofyears.TheEgyptian
pyramidsandtheGreatWallofChinawereprojectsoftremendousscopeand
magnitude,andrequiredgoodmanagement.Regardlessofthetitlesgiventomanagers
throughouthistory,someonehasalwayshadtoplanwhatneedstobeaccomplished,
organizepeopleandmaterials,leadanddirectworkers,andimposecontrolstoensure
thatgoalswereattainedasplanned.

TwohistoricaleventssignificanttothestudyofmanagementareworkofAdamSmith,
inhisbook,TheWealthofNations,inwhichhearguedbrilliantlyfortheeconomic
advantagesofdivisionoflabor(thebreakdownofjobsintonarrow,repetitivetasks).
TheIndustrialRevolutionissecondimportantpretwentiethcenturyinfluenceon
management.Theintroductionofmachinepowerscombinedwiththedivisionoflabor
madelarge,efficientfactoriespossible.Planning,organizing,leading,andcontrolling
becamenecessaryactivities.

Therearesixmajorapproachestomanagement.Theyareexplainedasfollows

SCIENTIFICMANAGEMENT

Scientificmanagementisdefinedastheuseofthescientificmethodtodeterminethe
onebestwayforajobtobedone.Themostimportantcontributorinthisfieldwas
FrederickW.Taylorwhoisknownasthefatherofscientificmanagement.Usinghis
principlesofscientificmanagement,Taylorwasabletodefinetheonebestwayfor
doingeachjob.

FrankandLillianGilbrethwereinspiredbyTaylorsworkandproceededtostudyand
developtheirownmethodsofscientificmanagement.Theydevisedaclassification
schemetolabel17basichandmotionscalledtherbligsinordertoeliminatewasteful
motions

GuidelinesdevisedbyTaylorandotherstoimproveproductionefficiencyarestillused
intodaysorganizations.However,currentmanagementpracticeisnotrestrictedto
scientificmanagementpracticesalone.Elementsofscientificmanagementstillused
include:

Usingtimeandmotionstudies
Hiringbestqualifiedworkers
Designingincentivesystemsbasedonoutput

GENERALADMINISTRATIVETHEORISTS

Thisgroupofwriters,whofocusedontheentireorganization,developedmoregeneral
theoriesofwhatmanagersdoandwhatconstitutesgoodmanagementpractice.

HenriFayolandMaxWeberwerethetwomostprominentproponentsofthegeneral
administrativeapproach.Fayolfocusedonactivitiescommontoallmanagers.Hedescribedthe
practiceofmanagementasdistinctfromothertypicalbusinessfunctions.

Hestated14principlesofmanagementwhichareasfollows:

DivisionofWork
Authority
Discipline
UnityofCommand
UnityofDirection
Subordinationofindividualinteresttogroupinterest
Remuneration
Centralization

ScalarChain
Order
Equity
Stability
Initiative
Espiritdecorps

MaxWeberwasaGermansociologistwhodevelopedatheoryofauthoritystructuresand
describedorganizationalactivitybasedonauthorityrelations. Hedescribedtheidealformof
organizationasabureaucracymarkedbydivisionoflabor,aclearlydefinedhierarchy,

detailedrulesandregulations,andimpersonalrelationships

Somecurrentmanagementconceptsandtheoriescanbetracedtotheworkofthegeneral
administrativetheorists.ThefunctionalviewofamanagersjobrelatestoHenriFayolsconcept
ofmanagement.Webersbureaucraticcharacteristicsare evidentinmanyoftodayslarge
organizationseveninhighlyflexibleorganizationsthatemploytalentedprofessionals.
Somebureaucraticmechanismsarenecessaryinhighlyinnovativeorganizationstoensure
thatresourcesareusedefficientlyandeffectively.

QUANTITATIVEAPPROACHTOMANAGEMENT

Thequantitativeapproachtomanagement,sometimesknownasoperationsresearch
ormanagementscience,usesquantitativetechniquestoimprovedecisionmaking.This
approachincludesapplicationsofstatistics,optimizationmodels,informationmodels,
andcomputersimulations.Thequantitative

approachoriginatedduringWorldWarIIasmathematicalandstatisticalsolutionsto
militaryproblemsweredevelopedforwartimeuse.

Therelevanceofquantitativeapproachtodayisthatithascontributedmostdirectlyto
managerialdecisionmaking,particularlyinplanningandcontrolling.Theavailability
ofsophisticatedcomputersoftwareprogramshasmadetheuseofquantitative
techniquesmorefeasibleformanagers.

ORGANIZATIONALBEHAVIOR

Thefieldofstudyconcernedwiththeactions(behaviors)ofpeopleatworkis
organizationalbehavior.Organizationalbehavior(OB)researchhascontributedmuch
ofwhatweknowabouthumanresourcesmanagementandcontemporaryviewsof
motivation,leadership,trust,teamwork,andconflictmanagement.

TheearlyadvocatesofOBapproachwereRobertOwen,HugoMunsterberg,Mary
ParkerFollett,andChesterBarnard.Theirideasservedasthefoundationforemployee
selectionprocedures,motivationprograms,workteams,andorganizationenvironment
managementtechniques.TheHawthorneStudieswerethemostimportantcontribution
tothedevelopmentoforganizationalbehavior.

Thisseriesofexperimentsconductedfrom1924totheearly1930satWesternElectric
CompanysHawthorneWorksinCicero,Illinois,wereinitiallydevisedasascientific
managementexperimenttoassesstheimpactofchangesinvariousphysical
environmentvariablesonemployeeproductivity.

AfterHarvardprofessorEltonMayoandhisassociatesjoinedthestudyasconsultants,
otherexperimentswereincludedtolookatredesigningjobs,makechangesinworkday
andworkweeklength,introducerestperiods,andintroduceindividualversusgroup
wageplans.

Theresearchersconcludedthatsocialnormsorgroupstandardswerekeydeterminants
ofindividualworkbehavior.

Althoughnotwithoutcriticism(concerningprocedures,analysesoffindings,andthe
conclusions),theHawthorneStudiesstimulatedinterestinhumanbehaviorin
organizationalsettings.

Inthepresentdaycontextbehavioralapproachassistsmanagersindesigningjobsthat
motivateworkers,inworkingwithemployeeteams,andinfacilitatingtheflowof
communicationwithinorganizations.Thebehavioralapproachprovidesthefoundation
forcurrenttheoriesofmotivation,leadership,andgroupbehavioranddevelopment.

THESYSTEMSAPPROACH

Duringthe1960sresearchersbegantoanalyzeorganizationsfromasystemsperspective
basedonthephysicalsciences.Asystemisasetofinterrelatedandinterdependent
partsarrangedinamannerthatproducesaunifiedwhole.Thetwobasictypesof
systemsareopenandclosed.Aclosedsystemisnotinfluencedbyanddoesnotinteract
withitsenvironment.Anopensysteminteractswithitsenvironment.

Usingthesystemsapproach,managersenvisionanorganizationasabodywithmany
interdependentparts,eachofwhichisimportanttothewellbeingoftheorganizationas
awhole.Managerscoordinatetheworkactivitiesofthevariouspartsofthe
organization,realizingthatdecisionsandactionstakeninoneorganizationalareawill
affectotherareas.

Thesystemsapproachrecognizesthatorganizationsarenotselfcontained;theyrelyon
andareaffectedbyfactorsintheirexternalenvironment.

THECONTINGENCYAPPROACH

Thecontingencyapproachrecognizesthatdifferentorganizationsrequiredifferentways
ofmanaging.Thecontingencyapproachtomanagementisaviewthattheorganization
recognizesandrespondstosituationalvariablesastheyarise.

CURRENTTRENDSANDISSUES

Thefollowingarethecurrentconceptsandpracticesarechangingthewaymanagersdo
theirjobstoday.

Globalization:Organizationaloperationsarenolongerlimitedbynationalborders.
Managersthroughouttheworldmustdealwithnewopportunitiesandchallenges
inherentintheglobalizationofbusiness.

Ethics:Casesofcorporatelying,misrepresentations,andfinancialmanipulationshave
beenwidespreadinrecentyears.ManagersoffirmssuchasEnron,ImClone,Global
Crossing,andTycoInternationalhaveplacedtheirownselfinterestaheadofother
stakeholderswelfare.Whilemostmanagerscontinuetobehaveinahighlyethical
manner,abusessuggestaneedtoupgradeethicalstandards.Ethicseducationis
increasinglyemphasizedincollegecurriculatoday.Organizationsaretakingamore
activeroleincreatingandusingcodesofethics,ethicstrainingprograms,andethical
hiringprocedures.

Workforcediversity:Itreferstoaworkforcethatisheterogeneousintermsofgender,
race,ethnicity,age,andothercharacteristicsthatreflectdifferences.Accommodating
diversegroupsofpeoplebyaddressingdifferentlifestyles,familyneeds,andwork
stylesisamajorchallengefortodaysmanagers.

Entrepreneurship:Itistheprocesswherebyanindividualorgroupofindividualsuse
organizedeffortstopursueopportunitiestocreatevalueandgrowbyfulfillingwants
andneedsthroughinnovationanduniqueness,nomatterwhatresourcesthe
entrepreneurcurrentlyhas.

Threeimportantthemesstandoutinthisdefinition:

Thepursuitofopportunities
Innovation
Growth

Entrepreneurshipwillcontinuetobeimportanttosocietiesaroundtheworld.
.

ManaginginanEBusinessWorld:Ebusiness(electronicbusiness)isa
comprehensivetermdescribingthewayanorganizationdoesitsworkbyusing
electronic(Internetbased)linkageswithitskeyconstituenciesinordertoefficiently
andeffectivelyachieveitsgoals.

KnowledgeManagementandLearningOrganizations:Changeisoccurringatan
unprecedentedrate.Tobesuccessful,todaysorganizationmustbecomealearning
organizationonethathasdevelopedthecapacitytocontinuouslylearn,adapt,and
change.Knowledgemanagementinvolvescultivatingalearningculturewhere
organizationalmemberssystematicallygatherknowledgeandshareitwithothersinthe
organizationsoastoachievebetterperformance.

QualityManagement:Qualitymanagementisaphilosophyofmanagementthatisdriven
bycontinualimprovementandresponsetocustomerneedsandexpectations.The
objectiveofqualitymanagementistocreateanorganizationcommittedtocontinuous
improvementinwork

Chapter3

OrganizationCultureandEnvironment:TheConstraints

Thecomponentsofanorganizationscultureareascomplexasthedifferentaspectsof
anindividualspersonality.Todaysmanagersmustunderstandhowtheforcesofan
organizationsinternalandexternalenvironmentinfluence,andsometimesconstrain,its
productivity.Managersmustrealizethatorganizationalcultureandorganizational
environmenthaveimportantimplicationsforthewayanorganizationismanaged.

Twoperspectivesconcerningtherolethatmanagersplayinanorganizationssuccessor
failurehavebeenproposed.

Theomnipotentviewofmanagementmaintainsthatmanagersaredirectlyresponsible
forthesuccessorfailureofanorganization.Thisviewofmanagersasbeingomnipotent
isconsistentwiththestereotypicalpictureofthetakechargeexecutivewhocan
overcomeanyobstacleincarryingouttheorganizationsobjectives.When
organizationsperformpoorly,someonemustbeheldaccountableandaccordingtothe
omnipotentview,thatsomeoneismanagement.

Thesymbolicviewofmanagementupholdstheviewthatmuchofanorganizations
successorfailureisduetoexternalforcesoutsidemanagerscontrol.Theinfluencethat
managersdohaveisseenmainlyasasymbolicoutcome.Organizationalresultsare
influencedbyfactorsoutsideofthecontrolofmanagers,includingtheeconomy,market
changes,governmentalpolicies,competitorsactions,thestateoftheparticular
industry,thecontrolofproprietarytechnology,anddecisionsmadebyprevious
managersintheorganization.Themanagersroleistocreatemeaningoutof
randomness,confusion,andambiguity.Accordingtothesymbolicview,theactualpart
thatmanagementplaysinthesuccessorfailureofanorganizationisminimal.

Realitysuggestsasynthesis;managersareneitherhelplessnorallpowerful.Instead,the
morelogicalapproachistoseethemanagerasoperatingwithinconstraintsimposedby
theorganizationscultureandenvironment

THEORGANIZATIONSCULTURE

Justasindividualshaveapersonality,so,too,doorganizations.Werefertoan
organizationspersonalityasitsculture.

Organizationalcultureisthesharedvalues,principles,traditions,andwaysofdoing
thingsthatinfluencethewayorganizationalmembersact.Thisdefinitionimplies:

Individualsperceiveorganizationalculturebasedonwhattheysee,hear,orexperience
withintheorganization.

Organizationalcultureissharedbyindividualswithintheorganization.

Organizationalcultureisadescriptiveterm.Itdescribes,ratherthanevaluates.

Sevendimensionsofanorganizationsculturehavebeenproposed

Innovationandrisktaking(thedegreetowhichemployeesareencouragedtobe
innovativeandtakerisks)

Attentiontodetail(thedegreetowhichemployeesareexpectedtoexhibitprecision,
analysis,andattentiontodetail)

Outcomeorientation(thedegreetowhichmanagersfocusonresultsoroutcomesrather
thanonthetechniquesandprocessesusedtoachievethoseoutcomes)

Peopleorientation(thedegreetowhichmanagementdecisionstakeintoconsideration
theeffectonpeoplewithintheorganization)

Teamorientation(thedegreetowhichworkactivitiesareorganizedaroundteamsrather
thanindividuals)

Aggressiveness(thedegreetowhichpeopleareaggressiveandcompetitiveratherthan
easygoingandcooperative)

Stability(thedegreetowhichorganizationalactivitiesemphasizemaintainingthestatus
quoincontrasttogrowth)

StrongversusWeakCultures

Strongculturesarefoundinorganizationswherekeyvaluesareintenselyheldand
widelyshared.Whetheracompanyscultureisstrong,weak,orsomewhereinbetween
dependsonorganizationalfactorssuchassize,age,employeeturnoverrate,and
intensityoforiginalculture.Aculturehasincreasingimpactonwhatmanagersdoasthe
culturebecomesstronger.

Mostorganizationshavemoderatetostrongcultures.Intheseorganizations,high
agreementexistsaboutwhatisimportantandwhatdefinesgoodemployeebehavior.

Cultureistransmittedandlearnedbyemployeesprincipallythroughstories,rituals,
materialsymbols,andlanguage.

Aninnovativecultureshouldhavethesecharacteristics:
Challengeandinvolvement
Freedom
Trustandopenness
Ideatime
Playfulness/humor
Conflictresolution
Debates

Risktaking

TheOrganizationsEnvironment

Thegeneralenvironmentincludesthesebroadexternalconditionsthatmayaffectthe
organization:economic,political/legal,sociocultural,demographic,technological,and
globalconditions.

Economicconditionsincludeinterestrates,inflationrates,changesindisposableincome,
stockmarketfluctuations,andthegeneralbusinesscycle.

Political/legalconditionsincludethegeneralpoliticalstabilityofcountriesinwhichan
organizationdoesbusinessandthespecificattitudesthatelectedofficialshavetoward
business.

Socioculturalconditionsincludethechangingexpectationsofsociety.Societalvalues,
customs,andtastescanchange,andmanagersmustbeawareofthesechanges.

Demographicconditions,includingphysicalcharacteristicsofapopulation(e.g.,
gender,age,levelofeducation,geographiclocation,income,compositionoffamily)
canchange,andmanagersmustadapttothesechanges.

Technologicalconditions,whichhavechangedmorerapidlythananyotherelementof
thegeneralenvironment.

Globalfactorsincludeglobalcompetitorsandglobalconsumermarkets.

Environmentsdifferintheiramountofenvironmentaluncertainty,whichrelatesto

(1)thedegreeofchangeinanorganizationsenvironmentand(2)thedegreeof
complexityinthatenvironment

Degreeofchangeischaracterizedasbeingdynamicorstable.Inadynamicenvironment,
componentsoftheenvironmentchangefrequently.Ifchangeisminimal,theenvironmentis
calledastableenvironment.

Thedegreeofenvironmentalcomplexityisthenumberofcomponentsinanorganiza
tionsenvironmentandtheextentofanorganizationsknowledgeaboutthose
components.Ifthenumberofcomponentsandtheneedforsophisticatedknowledgeis
minimal,theenvironmentisclassifiedassimple.Ifanumberofdissimilarcomponents
andahighneedforsophisticatedknowledgeexist,theenvironmentiscomplex.

Asuncertaintyisathreattoorganizationaleffectiveness,managerstrytominimize
environmentaluncertainty.

Chapter4

ManaginginaGlobalEnvironment

Managersinalltypesandsizesoforganizationsmustconstantlymonitorchangesand
considertheparticularcharacteristicsoftheirownlocationastheyplan,organize,lead,
andcontrolinthisdynamicenvironment.

Managersmighthaveoneofthreeperspectivesorattitudestowardinternational
business

Anethnocentricattitudeistheparochialisticbeliefthatthebestworkapproachesand
practicesarethoseofthehomecountry(thecountryinwhichthecompanys
headquartersarelocated).

Apolycentricattitudeistheviewthatthemanagersinthehostcountry(theforeign
countrywheretheorganizationisdoingbusiness)knowthebestworkapproachesand
practicesforrunningtheirbusiness.

Ageocentricattitudeisaworldorientedviewthatfocusesonusingthebestapproachesand
peoplefromaroundtheglobe.Tobeasuccessfulglobalmanager,anindividualneedstobe
sensitivetodifferencesinnationalcustomsandpractices

Severalsignificantforcesarereshapingtodaysglobalenvironment.Importantfeatures
oftheglobalenvironmentincluderegionaltradingalliancesanddifferenttypesof
globalorganizations.

RegionalTradingAlliances

Regionaltradingalliancesarereshapingglobalcompetition.Competitionisnolonger
limitedtocountryversuscountry,butregionversusregion.

TheEuropeanUnion(EU)isaunionof25Europeannationscreatedasaunified
economicandtradeentity

TheprimarymotivationforthecreationoftheEUinFebruary1992wastoallow
membernationstoreasserttheirpositionagainsttheindustrialstrengthoftheUnited
StatesandJapan.

AllmemberstatesoftheEUparticipateintheEMU(EconomicandMonetaryUnion).
TheEMUconsistsofthreestagesforcoordinatingeconomicpolicy.Twelvemember
statesoftheEuropeanUnionhaveenteredthethirdstageoftheEMU,inwhich
participatingcountriesshareasinglecurrency,theeuro.

In2004theEUadded10newmembers(Cyprus,Malta,theCzechRepublic,Estonia,
Hungary,Latvia,Lithuania,Poland,Slovakia,andSlovenia.Twoadditionalcounties
mayjointheEUbytheyear2007.

TheNorthAmericanFreeTradeAgreement(NAFTA)isanagreementamongthe
Mexican,Canadian,andU.S.governmentsinwhichbarrierstotradehavebeen
eliminated.

NAFTAwentintoeffectonJanuary1,1994.
ThesigningofNAFTAwasbothcriticizedandsupported.

Eliminatingbarrierstofreetrade(tariffs,importlicensingrequirements,customsuser
fees)hasresultedinastrengtheningoftheeconomicpowerofallthreecountries.

Colombia,Mexico,andVenezuelasignedaneconomicpacteliminatingimportduties
andtariffsin1994.

ThirtyfourcountriesintheWesternHemispherecontinuetonegotiateaFreeTrade
AreaoftheAmericas(FTAA)agreement.FTAAwastohavebeenineffectnolater
than2005,buthasnotyetbecomeoperational;itsfutureisstillundetermined.

TheAssociationofSoutheastAsianNations(ASEAN)isatradingallianceof10
Asiannations

Inthefuture,theSoutheastAsianregionpromisestobeoneofthefastestgrowingand
increasinglyinfluentialeconomicregionsoftheworld.

ThefutureeconomicimpactoftheSoutheastAsianregioncouldrivalthatofboth
NAFTAandtheEU.
OtherTradeAlliances

The53nationAfricanUnioncameintoexistenceinJuly2002.Membersplanto
achievegreatereconomicdevelopmentandunityamongAfricasnations.

TheWorldTradeOrganization(WTO)

Formedin1995andevolvingfromGATT,theWTOistheonlyglobalorganization
dealingwiththerulesoftradeamongnations.

Membershipconsistsof149countriesand32observergovernmentsasofJanuary2006.

TheWTOappearstoplayanimportantroleeventhoughcriticsarevocalandhighly
visible.

DifferentTypesofGlobalOrganizations

BusinesshasbeenconductedinternationallyformanyyearsMultinationalcorporations
didnotbecomepopularuntilthemid1960s.Globalorganizationscanbeclassifiedin
thefollowingcategories:

Thetermmultinationalcorporation(MNC)isabroadtermthatreferstoanyandall
typesofinternationalcompaniesthatmaintainoperationsinmultiplecountries.

Atransnationalcorporation(TNC),sometimescalledaborderlessorganization,isa
typeofinternationalcompanyinwhichartificialgeographicalbarriersareeliminated.

StagesofInternationalization

Anorganizationthatgoesinternationaltypicallyprogressesthroughthreestages.
Companiesthatgointernationalmaybeginbyusingglobalsourcing(alsocalledglobal
outsourcing).Inthisstageofgoinginternational,companiespurchasematerialsorlabor
fromaroundtheworld,whereverthematerialsorlaborareleastexpensive.Beyondthe
stageofglobalsourcing,eachsuccessivestagetobecomemoreinternationalinvolves
moreinvestmentandrisk.

Inthenextstage,companiesmaygointernationalbyexporting(makingproducts
domesticallyandsellingthemabroad)orimporting(acquiringproductsmadeabroad
andsellingtheproductsdomestically).Bothexportingandimportingrequireminimal
investmentandrisk.

Intheearlystagesofgoinginternational,managersmayalsouselicensing(giving
anotherorganizationtherighttomakeorsellitsproductsusingitstechnologyorproduct
specifications)orfranchising(givinganotherorganizationtherighttouseitsnameand
operatingmethods

Afteranorganizationhasdoneinternationalbusinessforaperiodoftime,managersmay
decidetomakemoreofadirectinvestmentininternationalmarketsbyforminga
strategicalliance,whichisapartnershipbetweenanorganizationandaforeign
companypartner(s).Inastrategicalliance,partnersshareresourcesandknowledgein
developingnewproductsorbuildingproductionfacilities.

Ajointventure(aspecifictypeofstrategicalliance)maybeundertakentoallow
partnerstoformaseparate,independentorganizationforsomebusinesspurpose.

Managersmaydecidetomakeadirectinvestmentinaforeigncountrybyestablishinga
foreignsubsidiary,inwhichacompanysetsupaseparateandindependentproduction

facilityoroffice.Establishingaforeignsubsidiaryinvolvesthegreatestcommitmentof
resourcesandthegreatestriskofallofthestagesingoinginternational.

Managinginaglobalenvironmententailsthefollowingchallenges.

TheLegalPoliticalEnvironment:Thelegalpoliticalenvironmentdoesnothavetobe
unstableorrevolutionarytobeachallengetomanagers.Thefactthatacountrys
politicalsystemdiffersfromthatoftheUnitedStatesisimportanttorecognize.

TheEconomicEnvironment:Theeconomicenvironmentalsopresentsmany
challengestoforeignbasedmanagers,includingfluctuationsincurrencyrates,inflation,
anddiversetaxpolicies.Inamarketeconomy,resourcesareprimarilyownedbythe
privatesector.Inacommandeconomy,alleconomicdecisionsareplannedbyacentral
government.

TheCulturalEnvironment:Countrieshavedifferentcultures,justasorganizationsdo.

Nationalcultureisthevaluesandattitudessharedbyindividualsfromaspecific
countrythatshapetheirbehaviorandtheirbeliefsaboutwhatisimportant.

AframeworkdevelopedbyGeertHofstedeservesasavaluableframeworkfor
understandingdifferencesbetweennationalcultures.

Hofstedestudiedindividualismversuscollectivism.Individualismisthedegreeto
whichpeopleinacountryprefertoactasindividualsratherthanasmembersofgroups.
Collectivismischaracterizedbyasocialframeworkinwhichpeopleprefertoactas
membersofgroupsandexpectothersingroupsofwhichtheyareapart(suchasa
familyoranorganization)tolookafterthemandtoprotectthem.

Anotherculturaldimensionispowerdistance,whichdescribestheextenttowhicha
societyacceptsthefactthatpowerininstitutionsandorganizationsisdistributed
unequally.

Uncertaintyavoidancedescribesaculturalmeasureofthedegreetowhichpeople
tolerateriskandunconventionalbehavior.

Hofstedeidentifiedthedimensionofachievementversusnurturing.Achievementis
thedegreetowhichvaluessuchasassertiveness,theacquisitionofmoneyandmaterial
goods,andcompetitionprevail.Nurturingemphasizessensitivityinrelationshipsand
concernforthewelfareofothers.

Longtermandshorttermorientation.Peopleincountrieshavinglongterm
orientationcultureslooktothefutureandvaluethriftandpersistence.Shortterm
orientationvaluesthepastandpresentandemphasizesarespectfortraditionandsocial
obligations.

CountrieshavedifferentrankingsonHofstedesculturaldimensions,andmanagers
shouldbeawareoftheculturaldifferencespresentincountriesinwhichtheydo
business

TheGlobalLeadershipandOrganizationalBehaviorEffectiveness(GLOBE)research
programisanassessmentthatupdatesHofstedesstudies.GLOBEbeganin1993and
identifiedninedimensionsonwhichnationalculturesdiffer:Assertiveness,future
orientation,genderdifferentiation,uncertaintyavoidance,powerdistance,individualism/
collectivism,ingroupcollectivism,performanceorientation,andhumaneorientation.

Intodaysworldtheopennessthatisnecessarytoconductbusinesssuccessfullyina
globalenvironmentposesgreatchallenges.Theincreasedthreatofterrorism,economic
interdependenceoftradingcountries,andsignificantculturalcreateacomplicated
environmentinwhichtomanage.Successfulglobalmanagersneedtohavegreat
sensitivityandunderstanding.Managersmustadjustleadershipstylesandmanagement
approachestoaccommodateculturallydiverseviews.

Chapter5

SocialResponsibilityandManagerialEthics

Thischapterdiscussesissuesinvolvingsocialresponsibilityandmanagerialethicsand
theireffectonmanagerialdecisionmaking.Bothsocialresponsibilityandethicsare
responsestoachangingenvironmentandareinfluencedbyorganizationalculture

Managersregularlyfacedecisionsthathavedimensionsofsocialresponsibility.
Examplesincludeemployeerelations,philanthropy,pricing,resourceconservation,
productquality,anddoingbusinessincountriesthatviolatehumanrights

SOCIALRESPONSIBILITY

Twoopposingviewsofsocialresponsibilityarepresented:

Theclassicalviewistheviewthatmanagementsonlysocialresponsibilityisto
maximizeprofits.Thesocioeconomicviewistheviewthatmanagementssocial
responsibilitygoesbeyondthemakingofprofitstoincludeprotectingandimproving
societyswelfare.

AfourstagemodelshowshowsocialresponsibilityprogressesinorganizationsSocial
responsibilitymayprogressfromthestanceofobeyingalllawsandregulationswhile
caringforstockholdersinterests(Stage1)tothepointofdemonstratingresponsibility
tosocietyasawhole(Stage4),whichcharacterizesthehighestsocioeconomic
commitment.

SocialObligationstoResponsivenesstoResponsibility:Socialobligationoccurswhen
afirmengagesinsocialactionsbecauseofitsobligationtomeetcertaineconomicand
legalresponsibilities.Socialresponsivenessisseenwhenafirmengagesinsocial
actionsinresponsetosomepopularsocialneed.Socialresponsibilityisabusinesss
intention,beyonditslegalandeconomicobligations,todotherightthingsandactin
waysthataregoodforsociety

TheGreeningofManagement

Anumberofhighlyvisibleecologicalproblemsandenvironmentaldisasters(e.g.,
ExxonValdezoilspill,mercurypoisoninginJapan,ThreeMileIsland,Chernobyl)
broughtaboutanewspiritofenvironmentalism.Recognizingthecloselinkbetweenan
organizationsdecisionsandactivitiesanditsimpactonthenaturalenvironmentis
calledthegreeningofmanagement.

Valuesbasedmanagementisanapproachtomanaginginwhichmanagersareguided
bytheorganizationssharedvaluesintheirmanagementpractices.PurposesofShared
Valuesare:

1)Theyactasguidepostsformanagerialdecisionsandactions.

Sharedvaluesservetoshapeemployeebehaviorandtocommunicatewhatthe
organizationexpectsofitsmembers.
Sharedcorporatevaluescaninfluenceanorganizationsmarketingefforts.
Sharedvaluesareawaytobuildteamspiritinorganizations.

MANAGERIALETHICS

Thetermethicsreferstoprinciples,values,andbeliefsthatdefinewhatisrightand
wrongbehavior.

FactorsThatAffectEmployeeEthics

StagesofMoralDevelopment.Researchconfirmsthreelevelsofmoraldevelopment.
Eachlevelhastwostages.

Thefirstleveliscalledpreconventional.Atthislevel,theindividualschoicebetween
rightorwrongisbasedonpersonalconsequencesinvolved.

Atthesecondstage,whichislabeledconventional,moralvaluesresideinmaintaining
expectedstandardsandlivinguptotheexpectationsofothers.

Thethirdleveltheprincipledleveltheindividualmakesaclearefforttodefine
moralprinciplesapartfromtheauthorityofthegroupstowhichthepersonbelongs.

Researchonthestagesofmoraldevelopmentindicatesthatpeopleproceed

sequentiallythroughthesixstagesofthesethreelevels,withnoguaranteeofcontinued
developmentatanystage.ThemajorityofadultsareatStage4.Thehigherthestagean
employeereaches,themorelikelihoodthatheorshewillbehaveethically.

IndividualCharacteristics:Apersonjoinsanorganizationwitharelatively
entrenchedsetofvalues.

Valuesarebasicconvictionsaboutwhatisrightandwrong.Valuesarebroadandcover
awidevarietyofissues.

Egostrengthisapersonalitymeasureofthestrengthofapersonsconvictions.
Individualswhoscorehighonegostrengtharelikelytoresistimpulsestoact
unethicallyandarelikelydowhattheythinkisright.

Locusofcontrolisapersonalityattributethatmeasuresthedegreetowhichpeople
believetheycontroltheirownfate.Individualswithaninternallocusofcontrolthink
thattheycontroltheirdestiny,whilepersonswithanexternallocusofcontrolareless
likelytotakepersonalresponsibilityfortheconsequencesoftheirbehaviorandare
morelikelytorelyonexternalforces.Externalsbelievethatwhathappenstothemis
duetoluckorchance.

Athirdfactorinfluencingmanagerialethicsisstructuralvariables.Theexistenceof
structuralvariablessuchasformalrulesandregulations,jobdescriptions,writtencodes
ofethics,performanceappraisalsystems,andrewardsystemscanstronglyinfluence
ethicalbehavior.

Thecontentandstrengthofanorganizationscultureinfluencesethicalbehavior.

Anorganizationalculturemostlikelytoencouragehighethicalstandardsisonethatis
highinrisktolerance,control,andconflicttolerance.
Astrongcultureexertsmoreinfluenceonmanagersthandoesaweakone.

However,inorganizationswithweakcultures,workgroupsanddepartmentalstandards
stronglyinfluenceethicalbehavior.

Finally,theintensityofanissuecanaffectethicaldecisions.Sixcharacteristics
determineissueintensity
Greatnessofharm
Consensusofwrong
Probabilityofharm
Immediacyofconsequences
Proximitytovictim
Concentrationofeffect

ImprovingEthicalBehavior

Organizationscantakeanumberofactionstocultivateethicalbehavioramong
members.Someofthoseare

Theselectionprocessforbringingnewemployeesintoorganizationsshouldbeviewed
asanopportunitytolearnaboutanindividualslevelofmoraldevelopment,personal
values,egostrength,andlocusofcontrol.

Acodeofethicsisaformalstatementofanorganizationsprimaryvaluesandthe
ethicalrulesitexpectsemployeestofollow.Inaddition,decisionrulescanbe
developedtoguidemanagersinhandlingethicaldilemmasindecisionmaking.

Topmanagementsleadershipandcommitmenttoethicalbehaviorisextremely
importantsincetheculturaltoneforanorganizationisestablishedbyitstopmanagers

Employeesjobgoalsshouldbetangibleandrealistic,becauseclearandrealisticgoals
reduceambiguityandmotivateratherthanpunish.Jobgoalsareusuallyakeyissuein
theperformanceappraisalprocess.

Ifanorganizationwantsemployeestoupholdhighethicalstandards,thisdimension
mustbeincludedintheappraisalprocess.Performanceappraisalsshouldincludethis
dimension,ratherthanfocusingsolelyoneconomicoutcomes.

Ethicstrainingshouldbeusedtohelpteachethicalproblemsolvingandtopresent
simulationsofethicalsituationsthatcouldarise.Attheleast,ethicstrainingshould
increaseawarenessofethicalissues.

Independentsocialauditsevaluatedecisionsandmanagementpracticesintermsofthe
organizationscodeofethicsandcanbeusedtodeterunethicalbehavior.

Organizationscanprovideformalprotectivemechanismssothatemployeeswithethical
dilemmascandowhatisrightwithoutfearofreprisal.

SocialEntrepreneurship:Asocialentrepreneurisanindividualororganizationwho
seeksoutopportunitiestoimprovesocietybyusingpractical,innovative,and
sustainableapproaches.

Socialimpactmanagement:Managersareincreasinglyexpectedtoactresponsiblyin
thewaytheyconductbusiness.Managersusingasocialimpactmanagementapproach
examinethesocialimpactsoftheirdecisionsandactions.Whentheyconsiderhow
theiractionsinplanning,organizing,leadingandcontrollingwillworkinlightofthe
socialcontextwithinwhichbusinessoperates,managersbecomemoreawareof
whethertheyareleadinginaresponsiblemanner.

Chapter6

DecisionMaking:TheEssenceoftheManagersJob

Everyoneinanorganizationmakesdecisions,butdecisionmakingisparticularly
importantinamanagersjob.Decisionmakingissuchanimportantpartofallfour
managerialfunctionsthatdecisionmakingissaidtobesynonymouswithmanaging.

TheDecisionMakingProcess

Adecisionisachoicemadefromtwoormorealternatives.Thedecisionmaking
processisasetofeightstepsthatincludethefollowing:

Identifyingaproblem:Aproblemisadiscrepancybetweenanexistingstateanda
desiredstateofaffairs.Inordertoidentifyaproblem,amanagershouldbeableto
differentiatetheproblemfromitssymptom;heshouldbeunderpressuretotakenaction
andmusthavetheauthorityandresourcestotakeaction.

Identifyingdecisioncriteria:Decisioncriteriaarecriteriathatdefinewhatisrelevant
inadecision.

Allocatingweightstothecriteria:Thecriteriaidentifiedinthepreviousstep
ofthedecisionmakingprocessmaynothaveequalimportance.Sohedecisionmaker
mustassignaweighttoeachoftheitemsinordertogiveeachitemaccuratepriorityin
thedecision.

Developingalternatives:Thedecisionmakershouldthenidentifyviablealternatives
thatcouldresolvetheproblem.

Analyzingalternatives:Eachofthealternativesarethencriticallyanalyzedby
evaluatingitagainstthecriteriaestablishedinSteps2and3.

Selectinganalternative:Thenextstepistoselectthebestalternativefromamong
thoseidentifiedandassessed.Ifcriteriaweightshavebeenused,thedecisionmaker
wouldselectthealternativethatreceivedthehighestscoreinStep5.

Implementingthealternative:Theselectedalternativeisimplementedbyeffectively
communicatingthedecisiontotheindividualswhowouldbeaffectedbyitandtheir
commitmenttothedecisionisacquired.

Evaluatingdecisioneffectiveness:Thelaststepinthedecisionmakingprocessisto
assesstheresultofthedecisioninordertodeterminewhetherornottheproblemhas
beenresolved.

Managerscanmakedecisionsonthebasisofrationality,boundedrationality,or
intuition.

1.Rationaldecisionmaking.Managerialdecisionmakingisassumedtobe

rationalthatis,makingchoicesthatareconsistentandvaluemaximizingwithin
specifiedconstraints.Arationalmanagerwouldbecompletelylogicaland
objective.Rationaldecisionmakingassumesthatthemanagerismakingdecisions
inthebestinterestsoftheorganization,notinhis/herowninterests.The
assumptionsofrationalitycanbemetifthemanagerisfacedwithasimpleproblem
inwhich(1)goalsareclearandalternativeslimited,(2)timepressuresareminimal
andthecostoffindingandevaluatingalternativesislow,(3)theorganizational
culturesupportsinnovationandrisktaking,and

(4)outcomesareconcreteandmeasurable.

Boundedrationality.Astheperfectlyrationalmodelofdecisionmakingisnt
realistic,managerstendtooperateunderassumptionsofboundedrationality,
whichisdecisionmakingbehaviorthatisrational,butlimited(bounded)byan
individualsabilitytoprocessinformation.

Underboundedrationality,managersmakesatisficingdecisions,inwhichthey
acceptsolutionsthataregoodenough.Managersdecisionmakingmaybe
stronglyinfluencedbytheorganizationsculture,internalpolitics,power
considerations,andbyaphenomenoncalledescalationofcommitmentan
increasedcommitmenttoapreviousdecisiondespiteevidencethatitmayhave
beenwrong.

Intuitivedecisionmaking.Managersalsoregularlyusetheirintuition.Intuitive
decisionmakingisasubconsciousprocessofmakingdecisionsonthebasisof
experienceandaccumulatedjudgment.Althoughintuitivedecisionmakingwill
notreplacetherationaldecisionmakingprocess,itdoesplayanimportantrole
inmanagerialdecisionmaking.

TypesofProblemsandDecisions

Managersencounterdifferenttypesofproblemsandusedifferenttypesof
decisionstoresolvethem.Problemscanbestructuredproblemsorunstructured
problemsanddecisionscanbeprogrammeddecisionsornonprogrammed
decisions.

Structuredproblemsarestraightforward,familiar,andeasilydefined.In
dealingwithstructuredproblems,amanagermayuseaprogrammeddecision,
whichisarepetitivedecisionthatcanbehandledbyaroutineapproach.
Managersrelyonthreetypesofprogrammeddecisions:

Aprocedureisaseriesofinterrelatedsequentialstepsthatcanbeusedto
respondtoastructuredproblem.

Aruleisanexplicitstatementthattellsmanagerswhattheycanorcannotdo.
Apolicyisaguidelineformakingdecisions.

Unstructuredproblemsareproblemsthatareneworunusualandforwhich
informationisambiguousorincomplete.Theseproblemsarebesthandledbya
nonprogrammeddecisionthatisauniquedecisionthatrequiresacustom
madesolution.

Athigherlevelsintheorganizationalhierarchy,managersdealmoreoftenwith
difficult,unstructuredproblemsandmakenonprogrammeddecisionsin
attemptingtoresolvetheseproblemsandchallenges.Lowerlevelmanagers
handleroutinedecisions,usingprogrammeddecisions.

DecisionMakingConditions

Decisioncanbemadeunderconditionsofcertainty,uncertaintyandrisk.
Certaintyisasituationinwhichamanagercanmakeaccuratedecisions
becausealloutcomesareknown.Fewmanagerialdecisionsaremadeunderthe
conditionofcertainty.

Morecommonisthesituationofrisk,inwhichthedecisionmakerisableto
estimatethelikelihoodofcertainoutcomes.

Uncertaintyisasituationinwhichthedecisionmakerisnotcertainandcannot
evenmakereasonableprobabilityestimatesconcerningoutcomesof
alternatives.Insuchasituation,thechoiceofalternativeisinfluencedbythe
limitedamountofinformationavailabletothedecisionmaker.Itsalso
influencedbythepsychologicalorientationofthedecisionmaker.

Anoptimisticmanagerwillfollowamaximaxchoice,maximizingthe
maximumpossiblepayoff.

Apessimisticmanagerwillpursueamaximinchoice,maximizingtheminimum
possiblepayoff.

Themanagerwhodesirestominimizethemaximumregretwilloptfora
minimaxchoice.

DecisionMakingStyles:Managershavedifferentstylesinmakingdecisions
andsolvingproblems.Oneperspectiveproposesthatpeopledifferalongtwo
dimensionsinthewaytheyapproachdecisionmaking.Onedimensionisan
individualswayofthinkingrationalorintuitive.Theotheristheindividuals
toleranceforambiguityloworhigh.Diagrammingthesetwodimensionslead
toamatrixshowingfourdifferentdecisionmakingstyles.

Thedirectivestyleischaracterizedbylowtoleranceforambiguityanda
rationalwayofthinking.

Theanalyticstyleisonecharacterizedbyahightoleranceforambiguityanda
rationalwayofthinking.

Theconceptualstyleischaracterizedbyahightoleranceforambiguityandan
intuitivewayofthinking.

Thebehavioralstyleischaracterizedbyalowtoleranceforambiguityandan
intuitivewayofthinking.

Inreality,mostmanagershavebothadominantstyleandalternatestyles,with
somemanagersrelyingalmostexclusivelyontheirdominantstyleandothers
beingmoreflexible,dependingontheparticularsituation.

DecisionMakingBiasesandErrors:Managersusedifferentstylesandrules
ofthumb(heuristics)tosimplytheirdecisionmaking.Someofdecision
makingbiasesanderrorsare:

Overconfidencebiasoccurswhendecisionmakerstendtothinkthattheyknow
morethantheydoorholdunrealisticallypositiveviewsofthemselvesandtheir
performance.

Immediategratificationbiasdescribesdecisionmakerswhotendtowant
immediaterewardsandavoidimmediatecosts.

Theanchoringeffectdescribeswhendecisionmakersfixateoninitial
informationasastartingpointandthen,onceset,failtoadequatelyadjustfor
subsequentinformation.

Selectiveperceptionbiasoccurswhendecisionmakersselectivelyorganizeand
interpreteventsbasedontheirbiasedperceptions.

Confirmationbiasoccurswhendecisionmakersseekoutinformationthat
reaffirmstheirpastchoicesanddiscountinformationthatcontradictstheirpast
judgments.

Framingbiasoccurswhendecisionmakersselectandhighlightcertainaspects
ofasituationwhileexcludingothers.

Availabilitybiasisseenwhendecisionmakerstendtoremembereventsthatare
themostrecentandvividintheirmemory.

Decisionmakerswhoshowrepresentationbiasassessthelikelihoodofanevent
basedonhowcloselyitresemblesothereventsorsetsofevents.

Randomnessbiasdescribestheeffectwhendecisionmakerstrytocreate
meaningoutofrandomevents.

Thesunkcostserroriswhenadecisionmakerforgetsthatcurrentchoices
cannotcorrectthepast.Insteadofignoringsunkcosts,thedecisionmaker
cannotforgetthem.Inassessingchoices,theindividualfixatesonpast
expendituresratherthanonfutureconsequences.

Selfservingbiasisexhibitedbydecisionmakerswhoarequicktotakecredit
fortheirsuccessesandblamefailureonoutsidefactors.

Hindsightbiasisthetendencyfordecisionmakerstofalselybelieve,oncethe
outcomeisknown,thattheywouldhaveaccuratelypredictedtheoutcome.

Chapter7

FoundationsofPlanning

Planningisoneofthefourfunctionsofmanagement.Planninginvolvesdefiningthe
organizationsgoals,establishinganoverallstrategyforachievingthesegoals,and
developingplansfororganizationalworkactivities.Thetermplanningasusedinthis
chapterreferstoformalplanning.

PurposesofPlanning

Planningservesanumberofsignificantpurposes.
Planninggivesdirectiontomanagersandnonmanagersofanorganization.
Planningreducesuncertainty.
Planningminimizeswasteanduncertainty.
Planningestablishesgoalsorstandardsusedincontrolling.

PlanningandPerformance

Althoughorganizationsthatuseformalplanningdonotalwaysoutperformthosethat
donotplan,moststudiesshowpositiverelationshipsbetweenplanningand
performance.Effectiveplanningandimplementationplayagreaterpartinhigh
performancethandoestheamountofplanningdone.Studieshaveshownthatwhen
formalplanninghasnotledtohigherperformance,theexternalenvironmentisoften
thereason.

TheRoleofGoalsandPlansinPlanning

Planningisoftencalledtheprimarymanagementfunctionbecauseitestablishesthe
basisforallotherfunctions.Planninginvolvestwoimportantelements:goalsandplans.

Goals(oftencalledobjectives)aredesiredoutcomesforindividuals,groups,orentire
organizations.

Typesofgoals

Financialgoalsversusstrategicgoals

Financialgoalsrelatedtothefinancialperformanceoftheorganizationwhilestrategic
goalsarerelatedtootherareasofanorganizationsperformance.

Statedgoalsversusrealgoals

Statedgoalsareofficialstatementsofwhatanorganizationsaysandwhatitwantsits
variousstakeholderstobelieveitsgoalsare.Realgoalsarethosethatanorganization
actuallypursues,asdefinedbytheactionsofitsmembers.

TypesofPlans
Planscanbedescribedbytheirbreadth,timeframe,specificity,andfrequencyofuse

OnthebasisofBreadthplanscanbeStrategicoroperationalplans.Strategicplans
(longtermplans)areplansthatapplytotheentireorganization,establishthe
organizationsoverallgoals,andseektopositiontheorganizationintermsofits
environment.Operationalplans(shorttermplans)areplansthatspecifythedetailsof
howtheoverallgoalsaretobeachieved.

OnthebasisofTimeframeplanscanbeShorttermorlongtermplans.Shortterm
plansareplansthatcoveroneyearorless.Longtermplansareplanswithatime
framebeyondthreeyears.

OnthebasisofSpecificityplanscanbeSpecificordirectionalplans.Specificplans
areplansthatareclearlydefinedandleavenoroomforinterpretation.Directional
plansareflexibleplansthatsetoutgeneralguidelines.

OnthebasisofFrequencyofuseplanscanbeSingleuseorstandingplans.Asingle
useplanisaonetimeplanspecificallydesignedtomeettheneedsofaunique
situation.Standingplansareongoingplansthatprovideguidanceforactivities
performedrepeatedly.

ApproachestoEstablishingGoals

GoalscanbeestablishedthroughtheprocessoftraditionalgoalsettingorthroughMBO
(managementbyobjectives).

Traditionalgoalsettingisanapproachtosettinggoalsinwhichgoalsaresetatthetop
leveloftheorganizationandthenbrokenintosubgoalsforeachlevelofthe
organization.

Traditionalgoalsettingassumesthattopmanagersknowwhatisbestbecauseoftheir
abilitytoseethebigpicture.Employeesaretoworktomeetthegoalsfortheir
particularareaofresponsibility.

Thistraditionalapproachrequiresthatgoalsmustbemademorespecificastheyflow
downtolowerlevelsintheorganization.Instrivingtoachievespecificity,however,
objectivessometimesloseclarityandunitywithgoalssetatahigherlevelintheWhen
thehierarchyoforganizationalgoalsisclearlydefined,itformsanintegratedmeans
endchainanintegratednetworkofgoalsinwhichtheaccomplishmentofgoalsat
onelevelservesasthemeansforachievingthegoals,orends,atthenextlevel.

Managementbyobjectives(MBO)isaprocessofsettingmutuallyagreedupongoalsand
usingthosegoalstoevaluateemployeeperformance. StudiesofactualMBOprograms

confirmthatMBOcanincreaseemployeeperformanceandorganizationalproductivity.
However,topmanagementcommitmentandinvolvementareimportantcontributionsto
thesuccessofanMBOprogram.ThefollowingstepsareinvolvedinatypicalMBO
program:

Theorganizationsoverallobjectivesandstrategiesareformulated

Majorobjectivesareallocatedamongdivisionalanddepartmentalunits.

Unitmanagerscollaborativelysetspecificobjectivesfortheirunitswiththeirmanagers

Specificobjectivesarecollaborativelysetwithalldepartmentmembers

Actionplans,defininghowobjectivesaretobeachieved,arespecifiedandagreedupon
bymanagersandemployee

Theactionplansareimplemented

Progresstowardobjectivesisperiodicallyreviewed,andfeedbackisprovided
Successfulachievementofobjectivesisreinforcedbyperformancebased

rewards

Whetheranorganizationusesamoretraditionalapproachtoestablishingobjectives,
usessomeformofMBO,orhasitsownapproach,managersmustdefineobjectives
beforetheycaneffectivelyandefficientlycompleteotherplanningactivities.

CharacteristicsofWellDesignedGoals

Writtenintermsofoutcomes
Measurableandquantifiable
Clearastoatimeframe
Challenging,butattainable
Writtendown
Communicatedtoallorganizationalmembers

FiveStepsinGoalsSetting
Reviewtheorganizationsmission(thepurposeoftheorganization).
Evaluateavailableresources.
Determinethegoalsindividuallyorwithinputfromothers
Writedownthegoalsandcommunicatethemtoallwhoneedtoknow.
Reviewresultsandwhethergoalsarebeingmet.Makechangesasneeded.

DevelopingPlans

Theprocessofdevelopingplansisinfluencedbythreecontingencyfactorsandbythe
particularplanningapproachusedbytheorganization.

ThreeContingencyFactorsinPlanningare

Managerslevelintheorganization:Operationalplanningusuallydominatesthe
planningactivitiesoflowerlevelmanagers.Asmanagersmoveupthroughthelevelsof
theorganization,theirplanningbecomesmorestrategyoriented.

Degreeofenvironmentaluncertainty:Thegreatertheenvironmentaluncertainty,themore
directionalplansshouldbe,withemphasisplacedontheshortterm.Whenuncertaintyis
high,plansshouldbespecific,butflexible.Managersmustbepreparedtoreworkand
amendplans,oreventoabandontheirplansifnecessary.

Lengthoffuturecommitments:Accordingtothecommitmentconcept,plansshould
extendfarenoughtomeetthosecommitmentsmadetoday.Planningfortoolongorfortoo
shortatimeperiodisinefficientandineffective.

ApproachestoPlanning

Inthetraditionalapproach,planningwasdoneentirelybytoplevelmanagerswhowere
oftenassistedbyaformalplanningdepartment.

Anotherapproachtoplanningistoinvolvemoremembersoftheorganizationinthe
planningprocess.Inthisapproach,plansarenothandeddownfromoneleveltothe
next,butaredevelopedbyorganizationalmembersatvariouslevelstomeettheir
specificneeds.

CriticismsofPlanning

Althoughplanningisanimportantmanagerialfunctionwithwidespreaduse,fivemajor
argumentshavebeendirectedagainstplanning:

Planningmaycreaterigidity.

Planscantbedevelopedforadynamicenvironment.Formalplanscantreplace
intuitionandcreativity.

Planningfocusesmanagersattentionontodayscompetition,notontomorrows
survival.

Formalplanningreinforcessuccess,whichmayleadtofailure.

Theexternalenvironmentisconstantlychanging.Thereforemanagersshoulddevelop
plansthatarespecific,butflexible.Managersmustalsorecognizethatplanningisan
ongoingprocess,andtheyshouldbewillingtochangedirectionsifenvironmental
conditionswarrant.Flexibilityisparticularlyimportant.Managersmustremainalertto
environmentalchangesthatcouldimpacttheeffectiveimplementationofplans,and
theymustbepreparedtomakechangesasneeded.

Chapter8

StrategicManagement

Thepresentdaynewsisfilledwithexamplesofchangingorganizationalstrategieslike
Mergers,Strategicalliances,Downsizing,SpinoffsandGlobalexpansion.Thischapter
examinesthestrategicmanagementprocessasitrelatestotheplanningfunction.

Managersmustcarefullyconsidertheirorganizationsinternalandexternal
environmentsastheydevelopstrategicplans.Theyshouldhaveasystematicmeansof
analyzingtheenvironment,assessingtheirorganizationsstrengthsandweaknesses,
identifyingopportunitiesthatwouldgivetheorganizationacompetitiveadvantage,and
incorporatingthesefindingsintotheirplanning.Thevalueofthinkingstrategicallyhas
animportantimpactonorganizationperformance.

Strategicmanagementiswhatmanagersdotodeveloptheorganizationsstrategies.
Strategicmanagementinvolvesallfourofthebasicmanagementfunctionsplanning,
organizing,leading,andcontrolling.

Strategicmanagementhasaisimportantfororganizationsasithasasignificantimpact
onhowwellanorganizationperforms.Intodaysbusinessworld,organizationsofall
typesandsizesmustmanageconstantlychangingsituations.Todayscompaniesare
composedofdiversedivisions,units,functions,andworkactivitiesthatmustbe
coordinated.Strategicmanagementisinvolvedinmanyofthedecisionsthatmanagers
make.

Thestrategicmanagementprocessisasixstepprocessthatencompassesstrategic
planning,implementation,andevaluation.

IdentifyingtheOrganizationsCurrentMission,Objectives,andStrategies:

Everyorganizationneedsamission,whichisastatementofthepurposeofan
organization.Themissionstatementaddressesthequestion:Whatistheorganizations
reasonforbeinginbusiness?Theorganizationmustidentifyitscurrentobjectivesand
strategies,aswell.

ExternalAnalysis:Managersineveryorganizationneedtoconductanexternal
analysis.Influentialfactorssuchascompetition,pendinglegislation,andlaborsupply
areincludedintheexternalenvironment.Afteranalyzingtheexternalenvironment,
managersmustassesswhattheyhavelearnedintermsofopportunitiesandthreats.
Opportunitiesarepositivetrendsinexternalenvironmentalfactors;threatsare
negativetrendsinenvironmentalfactors.Becauseofdifferentresourcesand
capabilities,thesameexternalenvironmentcanpresentopportunitiestoone
organizationandposethreatstoanother

InternalAnalysis:Internalanalysisshouldleadtoaclearassessmentofthe
organizationsresourcesandcapabilities.Anyactivitiestheorganizationdoeswellor
anyuniqueresourcesthatithasarecalledstrengths.Weaknessesareactivities

theorganizationdoesnotdowellorresourcesitneedsbutdoesnotpossess.The
organizationsmajorvaluecreatingskillsandcapabilitiesthatdetermineits
competitiveweaponsaretheorganizationscorecompetencies.Organizationalculture
isimportantininternalanalysis;thecompanysculturecanpromoteorhinderits
strategicactions.SWOTanalysisisananalysisoftheorganizationsstrengths,
weaknesses,opportunities,andthreats.

FormulatingStrategies:AftertheSWOT,managersdevelopandevaluatestrategic
alternativesandselectstrategiesthatareappropriate.Strategiesneedtobeestablished
forcorporate,business,andfunctionallevels.

ImplementingStrategies

EvaluatingResultstoknowhoweffectivethestrategieshavebeenandifany
adjustmentsarenecessary.

TypesofOrganizationalStrategies

Strategicplanningtakesplaceonthreedifferentanddistinctlevels:corporate,business,
andfunctional

Corporatestrategy

Itisanorganizationalstrategythatdetermineswhatbusinessesacompanyisin,should
bein,orwantstobein,andwhatitwantstodowiththosebusinesses.Therearethree
maintypesofcorporatestrategies:

a.
Agrowthstrategyisacorporatestrategythatisusedwhenanorganization
wantstogrowanddoessobyexpandingthenumberofproductsofferedormarkets
served,eitherthroughitscurrentbusiness)orthroughnewbusinesses.

Astabilitystrategyisacorporatestrategycharacterizedbyanabsenceofsignificant
changeinwhattheorganizationiscurrentlydoing.

Arenewalstrategyisacorporatestrategydesignedtoaddressorganizational
weaknessesthatareleadingtoperformancedeclines.Twosuchstrategiesare
retrenchmentstrategyandturnaroundstrategy.

CorporatePortfolioAnalysisisusedwhenanorganizationscorporatestrategy
involvesanumberofbusinesses.Managerscanmanagethisportfolioofbusinesses
usingacorporateportfoliomatrix,suchastheBCGmatrix.TheBCGmatrixisa
strategytoolthatguidesresourceallocationdecisionsonthebasisofmarketshareand
growthrateofStrategicBusinessUnits(SBUs).

Business(Competitive)Strategy

Abusinessstrategy(alsoknownasacompetitivestrategy)isanorganizational
strategyfocusedonhowtheorganizationwillcompeteineachofitsbusinesses.
Competitiveadvantageplaysanimportantroleinformulatingthebusinessstrategy.A
competitiveadvantageiswhatsetsanorganizationapart,thatis,itsdistinctiveedge.
Anorganizationscompetitiveadvantagecancomefromitscorecompetencies.

Ifimplementedproperly,qualitycanbeonewayforanorganizationtocreatea
sustainablecompetitiveadvantage.Anorganizationmustbeabletosustainits
competitiveadvantage;itmustkeepitsedgedespitecompetitorsactionandregardless
ofmajorchangesintheorganizationsindustry.

MichaelPortersworkexplainshowmanagerscancreateandsustainacompetitive
advantagethatwillgiveacompanyaboveaverageprofitability.Industryanalysisis
animportantstepinPortersframework.Hesaystherearefivecompetitiveforcesat
workinanindustry;together,thesefiveforcesdetermineindustryattractivenessand
profitability.Porterproposesthatthefollowingfivefactorscanbeusedtoassessan
industrysattractiveness:

Threatofnewentrants.Howlikelyitisthatnewcompetitorswillcomeintothe
industry?Managersshouldassessbarrierstoentry,whicharefactorsthatdetermine
howeasyordifficultitwouldbefornewcompetitorstoentertheindustry.

Threatofsubstitutes.Howlikelyisitthatproductsofotherindustriescouldbe
substitutedforacompanysproducts?

Bargainingpowerofbuyers.Howmuchbargainingpowerdobuyers(customers)
have?

Bargainingpowerofsuppliers.Howmuchbargainingpowerdoacompanys
suppliershave?

Currentrivalry.Howintenseisthecompetitionamongfirmsthatarecurrentlyinthe
industry?

AccordingtoPorter,managersmustchooseastrategythatwillgivetheirorganizationa
competitiveadvantage.Porteridentifiesthreegenericcompetitivestrategies.Which
strategymanagersselectdependsontheorganizationsstrengthsandcorecompetencies
andtheparticularweaknessesofitscompetitor(s).Basedontheaboveanalysis,only
threetypesofgenericstrategiesareavailabletoorganizationstochoosefrom.Theyare:

Acostleadershipstrategyisabusinessorcompetitivestrategyinwhichthe
organizationcompetesonthebasisofhavingthelowestcostsinitsindustry.

Adifferentiationstrategyisabusinessorcompetitivestrategyinwhichacompany
offersuniqueproductsthatarewidelyvaluedbycustomers.

Afocusstrategyisabusinessorcompetitivestrategyinwhichacompanypursuesa
costordifferentiationadvantageinanarrowindustrysegment.

Anorganizationthathasbeennotbeenabletodevelopeitheralowcostora
differentiationcompetitiveadvantageissaidtobestuckinthemiddle.

FunctionalStrategy

Thesearestrategiesusedbyanorganizationsvariousfunctionaldepartmentsto
supportthebusinessorcompetitivestrategy

NewDirectionsinOrganizationalStrategies

EBusinessStrategies.UsingtheInternet,companieshavecreatedknowledgebases
thatemployeescantapintoanytime,anywhere.Ebusinessasastrategycanbeusedto
developasustainablecompetitiveadvantage;itcanalsobeusedtoestablishabasisfor
differentiationorfocus.

CustomerServiceStrategies.Thesestrategiesgivecustomerswhattheywant,
communicateeffectivelywiththem,andprovideemployeeswithcustomerservice
training.

InnovationStrategies.Thesestrategiesfocusonbreakthroughproductsandcan
includetheapplicationofexistingtechnologytonewuses.