Chapter 1 Intro to Management

Learning 1 - Defining Organization, Management, and Management in Organizations

Learning 2 - Four Management Functions, Management Roles, Management Skills
Learning 1.1 - Defining Organization, Management, and Management in Organizations
1.1.1. Organization
Organization is a deliberate arrangement of people to accomplish some specific
purpose. Your college or university is an organization; so are societies and
associations, government departments, mosques, Facebook, your neighborhood
grocery store, the MCB, the Pakistan Cricket Team, and the Mayo Hospital. All
are considered organizations and have three common
characteristics. First, an organization has a distinct
purpose. This purpose is typically expressed through
goals that the organization hopes to accomplish.
Second, each organization is composed of people. It
takes people to perform the work thats necessary for
the organization to achieve its goals. Third, all
organizations develop some deliberate structure within which members do their
work.
1.1.2. Management
Management involves coordinating and overseeing the work activities of others
so that their activities are completed efficiently and effectively. We already know
that coordinating and overseeing the work of others is what distinguishes a
managerial position from a non-managerial one. However, this doesnt mean that
managers can do what they want anytime, anywhere, or in any way. Instead,
management involves ensuring that the people responsible for doing them
complete work activities efficiently and effectively, or at least thats what
managers aspire to do.
Efficiency refers to getting the
most output from the least amount
of inputs. Because managers deal
with
scarce
inputsincluding
resources such as people, money,
and equipmenttheyre concerned
with the efficient use of those
resources.
Effectiveness is often described as doing the right thingsthat is, doing those
work activities that will help the organization reach its goals. For instance, at the
HON factory, goals included meeting customers rigorous demands, executing

world-class manufacturing strategies, and making employee jobs easier and

safer. Through various work initiatives, these goals were pursued and achieved.
Whereas efficiency is concerned with the means of getting things done,
effectiveness is concerned with the ends, or attainment of organizational goals.
1.1.3. Management in Organizations
Management is universally needed in all organizations, so we want to find ways
to improve the way organizations are managed. Why? Because we interact with
organizations every single day. Are you frustrated when you have to spend two
hours in a state government office to get your drivers license renewed? Are you
irritated when none of the salespeople in a retail store seems interested in
helping you? Is it annoying when you call an airline three times and customer
sales representatives quote you three different prices for the same trip? These
examples show problems created by poor management. Organizations that are
well managedand well share many examples of these throughout the text
develop a loyal customer base, grow, and prosper, even during challenging
times. Those that are poorly managed find themselves losing customers and
revenues. By studying management, youll be able to recognize poor
management and work to get it corrected. In addition, youll be able to recognize
and support good management, whether its in an organization with which youre
simply interacting or whether its in an organization in which youre employed.

Learning 1.2 - Four Management Functions, Management Roles, Management Skills

1.2.1 Management Functions
According to the functions approach, managers perform certain activities or
functions as they efficiently and effectively coordinate the work of others. What
are these functions? Henri Fayol, a French businessman, first proposed in the
early part of the twentieth century that all managers perform five functions:
planning, organizing, commanding, coordinating, and controlling. Today, these
functions have been condensed to four: planning, organizing, leading, and
controlling.

Planning: Lets briefly look at each function. If you have no particular destination
in mind, then any road will do. However, if you have someplace in particular you
want to go, youve got to plan the best way to get there. Because organizations
exist to achieve some particular purpose, someone must define that purpose and
the means for its achievement. Managers are that someone. As managers
engage in planning, they set goals, establish strategies for achieving those goals,
and develop plans to integrate and coordinate activities.
Organizing: Managers are also responsible for arranging and structuring work to
accomplish the organizations goals. We call this function organizing. When
managers organize, they determine what tasks are to be done, who is to do
them, how the tasks are to be grouped, who reports to whom, and where
decisions are to be made.
Leading: Every organization has people, and a managers job is to work with
and through people to accomplish goals. This is the leading function. When
managers motivate subordinates, help resolve work group conflicts, influence
individuals or teams as they work, select the most effective communication
channel, or deal in any way with employee behavior issues, theyre leading.
Controlling: The final management function is controlling. After goals and plans
are set (planning), tasks and structural arrangements put in place (organizing),
and people hired, trained, and motivated (leading), there has to be some
evaluation of whether things are going as planned. To ensure that goals are
being met and that work is being done as it should be, managers must monitor
and evaluate performance. Actual performance must be compared with the set
goals. If those goals arent being achieved, its the managers job to get work
back on track. This process of monitoring, comparing, and correcting is the
controlling function.

1.2.2 Management Roles

The term managerial roles refer to specific actions or behaviors expected of and
exhibited by a manager. (Think of the different roles you playsuch as student,
employee, student organization member, volunteer, sibling, and so forthand the
different things youre expected to do in these roles.) When describing what
managers do from a roles perspective, were not looking at a specific person per
se, but at the expectations and responsibilities that are associated with being the

person in that rolethe role of a manager. As shown in chart below, these 10

roles are grouped around interpersonal relationships, the transfer of information,
and decision-making.
Interpersonal
Roles:
The
interpersonal roles are ones that
involve people (subordinates and
persons outside the organization) and
other duties that are ceremonial and
symbolic in nature. The three
interpersonal
roles
include:
1)
figurehead, 2) leader, and 3) liaison.
Informational
Roles:
The
informational roles involve collecting,
receiving,
and
disseminating
information. The three informational
roles include monitor, disseminator,
and spokesperson.
Decisional Roles: The decisional roles entail making decisions or choices. The
four decisional roles include entrepreneur, disturbance handler, resource
allocator, and negotiator
1.2.3 Management Skills
What types of skills do managers need? Robert L. Katz proposed that managers
need three critical skills in managing: technical, human, and conceptual.
Technical skills: These skills are the job specific knowledge and techniques
needed to proficiently perform work tasks. These skills tend to be more important
for first-line managers because they typically are managing employees who use
tools and techniques to produce the organizations products or service the
organizations customers. Often, employees with excellent technical skills get
promoted to first-line manager.
Human Skills: Human skills involve the ability to work well with other people
both individually and in a group. Because all managers deal with people, these
skills are equally important to all levels of management. Managers with good
human skills get the best out of their people. They know how to communicate,
motivate, lead, and inspire enthusiasm and trust.
Conceptual Skills: Conceptual skills are the skills managers use to think and to
conceptualize about abstract and complex situations. Using these skills,
managers see the organization as a whole, understand the relationships among

various subunits, and visualize how the organization fits into its broader
environment. These skills are most important to top managers.
Chapter 2 Organizational Internal-External Environement
Learning 1 Organizational Internal Environment
Learning 2 Organizational External Environment
Learning 1 - Organizational Environment
1. Definition of Organizational Environment
An organizational environment is composed of forces or institutions surrounding
an organization that affect performance, operations, and resources. Learn more
about the definition, importance, and process of organizational environments in
this lesson.
Why are organizations affected by their environments? In order to answer this
question, let's look at two very different organizations: Basic Bolt Company and
Terrific Technologies.
Basic Bolt Company sells bolts to large manufacturing companies as components
to make large machines and engines. They face a relatively static environment
with few changing environmental forces. Currently, there are no new competitors
in their market, few new technologies being discovered, and little to no activity
from outside groups that might influence the organization.
Opposite from this, Terrific Technologies is an internet marketing startup that
faces a dynamic environment with rapidly changing regulations from the
government, new competitors constantly entering the market, and constantly
shifting consumer preferences.
These two companies have very different organizational
environments. Organizational environments are composed of forces or
institutions surrounding an organization that affect performance, operations, and
resources. It includes all of the elements that exist outside of the organization's
boundaries and have the potential to affect a portion or all of the organization.
Examples include government regulatory agencies, competitors, customers,
suppliers, and pressure from the public.
To manage the organization effectively, managers need to properly understand
the environment. Scholars have divided environmental factors into two
parts: internal and external environments.

1.1. Organizational Internal Environment

An organization's internal environment is composed of the elements within the

organization, including current employees, management, and especially
corporate culture, which define employee behavior. Although some elements
affect the organization as a whole, others affect only the manager. A manager's
philosophical or leadership style directly impacts employees. Traditional

managers give explicit instructions to employees, while progressive managers

empower employees to make many of their own decisions. Changes in
philosophy and/or leadership style are under the control of the manager. The
following sections describe some of the elements that make up the internal
environment.
a. Mission Statement: An organization's mission statement describes what the
organization stands for and why it exists. It explains the overall purpose of the
organization and includes the attributes that distinguish it from other
organizations of its type.
A mission statement should be more than words on a piece of paper; it should
reveal a company's philosophy, as well as its purpose. This declaration should be
a living, breathing document that provides information and inspiration for the
members of the organization. A mission statement should answer the questions,
What are our values? and What do we stand for? This statement provides
focus for an organization by rallying its members to work together to achieve its
common goals.
But not all mission statements are effective in businesses. Effective mission
statements lead to effective efforts. In today's qualityconscious and highly
competitive environments, an effective mission statement's purpose is centered
on serving the needs of customers. A good mission statement is precise in
identifying the following intents of a company:
1)
2)
3)
4)

Customers who will be served

Products/services what will be produced
Location where the products/services will be produced
Philosophy what ideology will be followed

b. Company Policies: The company policies are guidelines that govern how certain
organizational situations are addressed. Just as colleges maintain policies about admittance,
grade appeals, prerequisites, and waivers, companies establish policies to provide guidance to
managers who must make decisions about circumstances that occur frequently within their
organization. Company policies are an indication of an organization's personality and should
coincide with its mission statement.
c. Formal Structure: The formal structure of an organization is the hierarchical arrangement of
tasks and people. This structure determines how information flows within the organization, which
departments are responsible for which activities, and where the decisionmaking power rests.

d. Organizational Chart: Some organizations use a chart to simplify the breakdown of its formal
structure. This organizational chart is a pictorial display of the official lines of authority and
communication within an organization.
e. Organizational Culture: The organizational culture is an organization's personality. Just as
each person has a distinct personality, so does each organization. The culture of an organization
distinguishes it from others and shapes the actions of its members.
Four main components make up an organization's culture:
1)
2)
3)
4)

Values
Heroes
Rites and rituals
Social network
I - Values are the basic beliefs that define employees' successes in an organization. For
example, many universities place high values on professors being published. If a faculty
member is published in a professional journal, for example, his or her chances of
receiving tenure may be enhanced. The university wants to ensure that a published
professor stays with the university for the duration of his or her academic career and
this professor's ability to write for publications is a value.
II - The second component is heroes. A hero is an exemplary person who reflects the
image, attitudes, or values of the organization and serves as a role model to other
employees. A hero is sometimes the founder of the organization (think Sam Walton of
WalMart). However, the hero of a company doesn't have to be the founder; it can be an
everyday worker, such as hardworking paralegal Erin Brockovich, who had a tremendous
impact on the organization.
III - Rites and rituals, the third component, are routines or ceremonies that the company
uses to recognize highperforming employees. Awards banquets, company gatherings,
and quarterly meetings can acknowledge distinguished employees for outstanding
service. The honorees are meant to exemplify and inspire all employees of the company
during the rest of the year.
IV - The final component, the social network, is the informal means of communication
within an organization. This network, sometimes referred to as the company grapevine,
carries the stories of both heroes and those who have failed. It is through this network
that employees really learn about the organization's culture and values.

f. Resources: These are the people, information, facilities, infrastructure, machinery, equipment,
supplies, and finances at an organization's disposal. People are the paramount resource of all
organizations. Information, facilities, machinery equipment, materials, supplies, and finances are
supporting, nonhuman resources that complement workers in their quests to accomplish the

organization's mission statement. The availability of resources and the way that managers value
the human and nonhuman resources impact the organization's environment.
g. Philosophy of Management: The management philosophy is the manager's set of personal
beliefs and values about people and work and as such, is something that the manager can
control. McGregor emphasized that a manager's philosophy creates a selffulfilling prophecy.
Theory X managers treat employees almost as children who need constant direction, while
Theory Y managers treat employees as competent adults capable of participating in workrelated
decisions. These managerial philosophies then have a subsequent effect on employee behavior,
leading to the selffulfilling prophecy. As a result, organizational philosophies and managerial
philosophies need to be in harmony.
Learning 2 Organizational External Environment
2. Organizational External Environment
The term external environment refers to factors and forces outside the organization that affect its
performance. As shown in chart, it includes several different components.
1) The economic component encompasses factors
such as interest rates, inflation, changes in
disposable income, stock market fluctuations,
and business cycle stages.
2) The demographic component is concerned with
trends in population characteristics such as age,
race, gender, education level, geographic
location, income, and family composition.
3) The political/legal component looks at federal,
state, and local laws, as well as global laws and
laws of other countries. It also includes a
countrys political conditions and stability.
4) The sociocultural component is concerned with
societal and cultural factors such as values,
attitudes, trends, traditions, lifestyles, beliefs,
tastes, and patterns of behavior.
5) The technological component is concerned with
scientific or industrial innovations.
6) The global component encompasses those
issues associated with globalization and a world economy.
Although all these components pose potential constraints on managers decisions and actions, were going
to take a closer look at two of themthe economic and demographic aspects. Then, well look at how
changes taking place in those components constrain managers and organizations. Well wrap up this section
by examining environmental uncertainty and stakeholder relationships.

2.1. The Economic Environment

The Economic environment is the totality of economic factors, such as employment, income, inflation, interest
rates, productivity, and wealth, that influence the buying behavior of consumers and institutions.

The economic crisiscalled the Great Recession by some analystsbegan with turmoil in home
mortgage markets in the United States when many homeowners found themselves unable to make their

payments. The problems soon affected businesses as credit markets collapsed. All of a sudden, credit was
no longer readily available to fund business activities. It didnt take long for these economic troubles to
spread worldwide.
What caused these massive problems? Experts cite a long list of factors that include excessively low
interest rates for a long period of time, fundamental flaws in the U.S. housing market, and massive global
liquidity. Businesses and consumers became highly leveraged, which wasnt an issue when credit was
easily available. However, as liquidity dried up, the worldwide economic system sputtered and very nearly
collapsed. Now, massive foreclosures, a huge public debt burden in many countries, and continuing
widespread social problems from job losses signal clear changes in the U.S. and global economic
environments. Even as global economies began the slow process of recovery, most experts believed that the
economic environment facing managers and organizations would not be as it was and would continue to
constrain organizational decisions and actions.

2.2. The Demographic Environment

The demographic factors of the market in which an organization operates, and which are used
to segment the target population for effective marketing.

In demographic environment of business, we can include following things.

Size of population: All these elements are relating to business. If size of population is increasing with high
growth rate, demand is increased.
Growth rate: High growth rate of population also tells us high rate of supply of laborers. Many companies
motives to invest money in developing countries due cheap labor power and developing market.
Age composition: Before producing the product, we see what age group will use this. For example, young
population is interested to wear jeans but old age population are interested to wear curta and pajama.
Sex composition: Sex composition are two one is male and other is female. We also study the number of
our customers who are female and no. of our customers are female. If female are more than male, we will
care their need especially in making of our products.
Family size: Suppose, we are making residential rooms. For making residential rooms, we should study the
number of family members who will live in it.
Educational level: Educational level of our customer may also affect our marketing techniques. If our
customers are very educated, we can use online advertising, if they are not educated we have to use old
means of advertising.

2.3. Technological Component

Technological Environment means the development in the field of technology,
which affects business by new inventions of productions, and other
improvements in techniques to perform the business work.
We see that in 21st century, technology is changing fastly. Now, all work is done
online and business shops are using machinery at high level. There are following
technological environment factors which affects business:
1) New inventions to produce the products.
2) New inventions relating to marketing like BPO for selling online in
international market.
2.4. Sociocultural Component

The social environment consists of the sum total of a society's beliefs,

customs, practices and behaviors. It is, to a large extent, an artificial construct
that can be contrasted with the natural environment in which we live.
Every society constructs its own social environment. Some of the customs,
beliefs, practices and behaviors are similar across cultures, and some are not. For
example, an American traveling to Britain will find many familiar practices but
not so much if traveling to China.
This social environment created by a society-at-large in which a business
functions can be referred to as its external social environment. If a business
operates in a multicultural society, then the social external social environment is
even more complicated because the environment will consist of diverse subpopulations with their own unique values, beliefs and customs.
A business also has its own social environment. We can refer to this as
its internal social environment, which is simply the customs, beliefs, practices
and behaviors within the confines of the business. A business has much more
control over its internal social environment than it does with its external social
environment.

2.5. Political/Legal Component

Government actions which affects the operations of a company or business. These actions may be on
local, regional, national or international level. Business owners and managers pay close attention to the
political environment to gauge how government actions will affect their company.
For many businesses, non-market forces are as significant as market factors: the interaction between
government institutions, elected officials, policy-oriented activists and NGOs shape the legal environment
for firms in ways that have direct implications for their bottom line. Lawyers are frequently involved in
developing and implementing strategies in the non-market environment to advocate and realize the interests
their clients.

2.6. Global Environment

The global business environment can be defined as the environment in different
sovereign countries, with factors exogenous to the home environment of the
organization, influencing decision making on resource use and capabilities.
The global business environment can be classified into the external environment
and the internal environment. The external environment includes the social,
political, economic, regulatory, tax, cultural, legal, and technological
environments.
To function effectively and efficiently, companies operating internationally must
understand the social environment of the host country they are operating in.
Today there are thousands of MNCs, which operate in many parts of the globe.
Such companies should acquaint themselves with the language and culture of
the country in which they are operating.

Chapter 3 - Management Planning, Goal Setting, and Decision Making

Learning 1 Goal Setting
Learning 2 Management Planning
Learning 3 Decision Making
Learning 1 Goal Setting
1. Goals
Goals (objectives) are desired outcomes or targets. They guide management decisions and form the criterion

against which work results are measured. Thats why theyre often described as the essential elements of
planning. You have to know the desired target or outcome before you can establish plans for reaching it.
1.1. Types of Goals
We can classify most companys goals as either strategic or financial.
Financial goals are related to the financial performance of the organization, while strategic goals are
related to all other areas of an organizations performance. For instance, McDonalds states that its financial
targets are 3 to 5 percent average annual sales and revenue growth, 6 to 7 percent average annual operating
income growth, and returns on invested capital in the high teens. Heres an example of a strategic goal from
Bloomberg L.P.: We want to be the worlds most influential news organization.
The goals just described are stated goals official statements of what an organization says, and what it
wants its stakeholders to believe, its goals are. However, stated goals which can be found in an
organizations charter, annual report, public relations announcements, or in public statements made by
managersare often conflicting and influenced by what various stakeholders think organizations should
do. For instance, Nikes goal is delivering inspiration and innovation to every athlete. Such statements
are vague and probably better represent managements public relations skills than being meaningful guides
to what the organization is actually trying to accomplish. It shouldnt be surprising then to find that an
organizations stated goals are often irrelevant to what actually goes on.
If you want to know an organizations real goals those goals an organization actually pursuesobserve
what organizational members are doing. Actions define priorities. For example, universities may say their
goal is limiting class sizes, facilitating close student-faculty relations, and actively involving students in the
learning process, but then they put students into 300+ student lecture classes! Knowing that real and stated
goals may differ is important for recognizing what you might otherwise think are inconsistencies.

1.2.

Goal Setting Approaches

The goals can be set either through a traditional process or by using management by objectives.
1) Traditional Goal Setting
In traditional goal setting, goals set by top managers flow down through the organization and become subgoals for each organizational area. This traditional perspective assumes that top managers know whats best
because they see the big picture. And the goals passed down to each succeeding level guide individual
employees as they work to achieve those assigned goals.
The president tells the vice president of production what he expects manufacturing costs to be for the
coming year and tells the marketing vice president what level he expects sales to reach for the year. These

goals are passed to the next organizational level and written to reflect the responsibilities of that level,
passed to the next level, and so forth. Then, at some later time, performance is evaluated to determine
whether the assigned goals have been achieved.
When the hierarchy of organizational goals is clearly defined, it forms an integrated network of goals, or a
means-ends chain. Higher-level goals (or ends) are linked to lower-level goals, which serve as the means for
their accomplishment. In other words, the goals achieved at lower levels become the means to reach the
goals (ends) at the next level. And the accomplishment of goals at that level becomes the means to achieve
the goals (ends) at the next level and on up through the different organizational levels. Thats how
traditional goal setting is supposed to work.
2) Management By Objectives (MBO)
Instead of using traditional goal setting, many organizations use management by objectives (MBO), a process
of setting mutually agreed-upon goals and using those goals to evaluate employee performance. If a
manager were to use this approach, he would sit down with each member of his team and set goals and
periodically review whether progress was being made toward achieving those goals.
MBO programs have four elements:

Goal specificity
Participative decision-making
Explicit time period
Performance feedback.

Instead of using goals to make sure employees are doing what theyre supposed to be doing; MBO uses
goals to motivate them as well. The appeal is that it focuses on employees working to accomplish goals
theyve had a hand in setting. Chart below lists the steps in a typical MBO program.

1.3. CHARACTERISTICS OF WELL-WRITTEN GOALS.

Goals arent all written the same way. Some are better than others at making the desired outcomes clear.
For instance, the CEO of Procter & Gamble said that he wants to see the company add close to 548,000
new customers a day, every day, for the next five years. Its an ambitious but specific goal. Managers
should be able to write well-written goals. What makes a well-written goal?
Well-written goals are:

Written in terms of outcomes rather than actions

Measureable and quantifiable
Clear as to a time frame
Challenging yet attainable
Written down
Communicated to all necessary organizational members

1.4. Steps in Goal Setting

Managers should follow five steps when setting goals.
1) Review the organizations mission, or purpose
A mission is a broad statement of an organizations purpose that provides an overall guide to what
organizational members think is important. Managers should review the mission before writing goals
because goals should reflect that mission.
2) Evaluate available resources
You dont want to set goals that are impossible to achieve given your available resources. Even though
goals should be challenging, they should be realistic. After all, if the resources you have to work with wont
allow you to achieve a goal no matter how hard you try or how much effort is exerted, you shouldnt set
that goal. That would be like the person with a $50,000 annual income and no other financial resources
setting a goal of building an investment portfolio worth $1 million in three years. No matter how hard he or
she works at it, its not going to happen.
3) Determine the goals individually or with input from others
The goals reflect desired outcomes and should be congruent with the organizational mission and goals in
other organizational areas. These goals should be measurable, specific, and include a time frame for
accomplishment.
4) Write down the goals and communicate them to all who need to know
Writing down and communicating goals forces people to think them through. The written goals also
become visible evidence of the importance of working toward something.
5) Review results and whether goals are being met
If goals arent being met, change them as needed.
Once the goals have been established, written down, and communicated, a manager is ready to develop
plans for pursuing the goals.

Learning 2 Management Planning

2. Planning
Planning involves defining the organizations goals, establishing strategies for achieving those goals, and

developing plans to integrate and coordinate work activities. Its concerned with both ends (what) and
means (how).
When we use the term planning, we mean formal planning. In formal planning, specific goals covering a
specific time period are defined. These goals are written and shared with organizational members to reduce
ambiguity and create a common understanding about what needs to be done. Finally, specific plans exist for
achieving these goals.
2.1. Why Do Managers Plan?
Planning seems to take a lot of effort. So why should managers plan? We can give you at least four reasons:
1) First, planning provides direction to managers and non-managers alike. When employees know

what their organization or work unit is trying to accomplish and what they must contribute to
reach goals, they can coordinate their activities, cooperate with each other, and do what it takes to
accomplish those goals. Without planning, departments and individuals might work at crosspurposes and prevent the organization from efficiently achieving its goals.
2) Planning reduces uncertainty by forcing managers to look ahead, anticipate change, consider the
impact of change, and develop appropriate responses. Although planning wont eliminate
uncertainty, managers plan so they can respond effectively.
3) Planning minimizes waste and redundancy. When work activities are coordinated around plans,
inefficiencies become obvious and can be corrected or eliminated.
4) Planning establishes the goals or standards used in controlling. When managers plan, they develop
goals and plans. When they control, they see whether the plans have been carried out and the goals
met. Without planning, there would be no goals against which to measure work effort.
2.2. Planning and Performance
Is planning worthwhile? Numerous studies have looked at the relationship between planning and
performance. Although, most showed generally positive relationships, we cant say that organizations that
formally plan always outperform those that dont plan. What can we conclude?
1) Generally speaking, formal planning is associated with positive financial resultshigher profits,
higher return on assets, and so forth. Second, it seems that doing a good job planning and
implementing those plans play a bigger part in high performance than does how much planning is
done.
2) In those studies where formal planning didnt lead to higher performance, the external
environment often was the culprit. When external forcesthink governmental regulations or
powerful labor unionsconstrain managers options, it reduces the impact planning has on an
organizations performance.
3) The planning-performance relationship seems to be influenced by the planning time frame. It
seems that at least four years of formal planning is required before it begins to affect performance.

2.3. Types of Plans

The most popular ways to describe organizational plans are breadth (strategic versus operational), time
frame (short term versus long term), specificity (directional versus specific), and frequency of use (single
use versus standing). As Chart shows, these types of plans arent independent. That is, strategic plans are
usually long-term, directional, and single use whereas operational plans are usually short term, specific,
and standing.

What does each include?

Strategic plans: are plans those apply to the entire organization and establish the organizations

overall goals.
Operational Plan: Plans that encompass a particular operational area of the organization are
called operational plans.

These two types of plans differ because strategic plans are broad while operational plans are narrow. The

number of years used to define short-term and long-term plans has declined considerably because of
environmental uncertainty.

Long-term used to mean anything over seven years. Try to imagine what youre likely to be doing
in seven years and you can begin to appreciate how difficult it would be for managers to establish
plans that far in the future. We define long-term plans as those with a time frame beyond three
years.
Short-term plans cover one year or less. Any time period in between would be an intermediate
plan.

Although these time classifications are fairly common, an organization can use any planning time frame it
wants. Intuitively, it would seem that specific plans would be preferable to directional, or loosely guided,
plans.
Specific plans: are clearly defined and leave no room for interpretation. A specific plan states its
objectives in a way that eliminates ambiguity and problems with misunderstanding. For example,
a manager who seeks to increase his or her units work output by 8 percent over a given 12-month
period might establish specific procedures, budget allocations, and schedules of activities to reach
that goal.
Directional Plans: When uncertainty is high and managers must be flexible in order to respond to
unexpected changes, directional plans are preferable. Directional plans are flexible plans that set out
general guidelines. They provide focus but dont lock managers into specific goals or courses of
action.
Some plans that managers develop are ongoing while others are used only once.

A single-use plan is a one-time plan specifically designed to meet the needs of a unique situation.
For instance, when Walmart wanted to expand the number of its stores in China, top-level
executives formulated a single-use plan as a guide. In contrast, standing plans are ongoing plans
that provide guidance for activities performed repeatedly.
Standing plans include policies, rules, and procedures. An example of a standing plan is the
sexual harassment policy developed by the University of Arizona. It provides guidance to
university administrators, faculty, and staff as they make hiring plans.

2.4. Developing Plans

The process of developing plans is influenced by three contingency factors and by the planning approach
followed.

CONTINGENCY FACTORS IN PLANNING.

Three contingency factors affect the choice of plans: organizational level, degree of environmental
uncertainty, and length of future commitments.
1) Chart shows the relationship between a managers level in
the organization and the type of planning done. For the most
part, lower-level managers do operational planning while
upper-level managers do strategic planning.
2) The second contingency factor is environmental
uncertainty. When uncertainty is high, plans should be
specific, but flexible. Managers must be prepared to change or
amend plans as theyre implemented. At times, they may even
have to abandon the plans.
3) The third contingency factor also is related to the time frame of plans. The commitment concept says that
plans should extend far enough to meet those commitments made when the plans were developed. Planning
for too long or too short a time period is inefficient and ineffective.

2.5. Approaches to Planning

In the traditional approach, planning is done entirely by top-level managers who often are assisted by a
formal planning department, a group of planning specialists whose sole responsibility is to help write the
various organizational plans. Under this approach, plans developed by top-level managers flow down
through other organizational levels, much like the traditional approach to goal-setting. As they flow down
through the organization, the plans are tailored to the particular needs of each level. Although this approach
makes managerial planning thorough, systematic, and coordinated, all too often the focus is on developing
the plan, a thick binder (or binders) full of meaningless information thats stuck away on a shelf and
never used by anyone for guiding or coordinating work efforts.
Another approach to planning is to involve more organizational members in the process. In this approach,
plans arent handed down from one level to the next, but instead are developed by organizational members
at the various levels and in the various work units to meet their specific needs. In addition, work teams set
their own daily schedules and track their progress against those schedules. If a team falls behind, team
members develop recovery plans to try to get back on schedule. When organizational members are more
actively involved in planning, they see that the plans are more than just something written down on paper.
They can actually see that the plans are used in directing and coordinating work.
Learning 3 Decision Making
2.

Decision Making

Decision-making is the essence of management. Its

what managers do (or try to avoid). And all managers
would like to make good decisions because theyre
judged on the outcomes of those decisions. Managers at
all levels and in all areas of organizations make
decisions. That is, they make choices. For instance, toplevel managers make decisions about their
organizations goals, where to locate manufacturing
facilities, or what new markets to move into. Middle
and lower-level managers make decisions about
production schedules, product quality problems, pay
raises, and employee discipline. Making decisions isnt
something that just managers do; all organizational
members make decisions that affect their jobs and the
organization they work for.
2.1. The Decision-Making Process
Although decision-making is typically described as
choosing among alternatives, that view is too simplistic.
Why? Because decision-making is (and should be) a
process, not just a simple act of choosing among
alternatives. Even for something as straightforward as
deciding where to go for lunch, you do more than just
choose burgers or pizza. Granted, you may not spend a
lot of time contemplating your lunch decision, but you
still go through the process when making that decision.
Chart shows the eight steps in the decision-making
process. This process is as relevant to personal
decisions as it is to corporate decisions. Lets use an
examplea manager deciding what laptop computers
to purchaseto illustrate the steps in the process.

Step 1: Identifying a Problem

Your team is dysfunctional, your customers are leaving, or your plans are no longer relevant. Every
decision starts with a problem, a discrepancy between an existing and a desired condition. Amanda is a sales
manager whose reps need new laptops because their old ones are outdated and inadequate for doing their
job. To make it simple, assume its not economical to add memory to the old computers and its the
companys policy to purchase, not lease. Now we have a problema disparity between the sales reps
current computers (existing condition) and their need to have more efficient ones (desired condition).
Amanda has a decision to make. How do managers identify problems? In the real world, most problems
dont come with neon signs flashing problem. When her reps started complaining about their computers,
it was pretty clear to Amanda that something needed to be done, but few problems are that obvious.
Managers also have to be cautious not to confuse problems with symptoms of the problem. Is a 5 percent
drop in sales a problem? Or are declining sales merely a symptom of the real problem, such as poor-quality
products, high prices, or bad advertising? Also, keep in mind that problem identification is subjective. What
one manager considers a problem might not be considered a problem by another manager. In addition, a
manager who resolves the wrong problem perfectly is likely to perform just as poorly as the manager who
doesnt even recognize a problem and does nothing. As you can see, effectively identifying problems is
important, but not easy.

Step 2: Identifying Decision Criteria

Once a manager has identified a problem, he or she must identify the decision criteria that are important or
relevant to resolving the problem. Every decision maker has criteria guiding his or her decisions even if
theyre not explicitly stated. In our example, Amanda decides after careful consideration that memory and
storage capabilities, display quality, battery life, warranty, and carrying weight are the relevant criteria in
her decision.

Step 3: Allocating Weights to the Criteria

If the relevant criteria arent equally important, the decision maker must weight the items in order to give
them the correct priority in the decision. How? A simple way is to give the most important criterion a
weight of 10 and then assign weights to the rest using that standard. Of course, you could use any number
as the highest weight. The weighted criteria for our example are shown here:

Step 4: Developing Alternatives

The fourth step in the decision-making process requires the decision maker to list viable alternatives that
could resolve the problem. In this step, a decision maker needs to be creative. And the alternatives are only
listed, not evaluated just yet. Our sales manager, Ali, identifies eight laptops as possible choices. (See Chart
Below.)

Step 5: Analyzing Alternatives

Once alternatives have been identified, a decision maker must evaluate each one. How? By using the
criteria established in Step 2. Chart above shows the assessed values that Ali gave each alternative after
doing some research on them. Keep in mind that these data represent an assessment of the eight alternatives
using the decision criteria, but not the weighting.
When you multiply each alternative by the assigned weight, you get the weighted alternatives as shown in
chart below. The total score for each alternative, then, is the sum of its weighted criteria. Sometimes a
decision maker might be able to skip this step. If one alternative score highest on every criterion, you
wouldnt need to consider the weights because that alternative would already be the top choice. Or if the
weights were all equal, you could evaluate an alternative merely by summing up the assessed values for
each one. (Look again at previous chart.) For example, the score for the HP ProBook would be 36 and the
score for the Sony NW would be 35.

Step 6: Selecting an Alternative

The sixth step in the decision-making process is choosing the best alternative or the one that generated the
highest total in Step 5. In our example, Amanda would choose the Dell Inspiron because it scored higher
than all other alternatives (249 total).
Step 7: Implementing the Alternative
In step 7 in the decision-making process, you put the decision into action by conveying it to those affected
and getting their commitment to it. We know that if the people who must implement a decision participate
in the process, theyre more likely to support it than if you just tell them what to do. Another thing
managers may need to do during implementation is reassess the environment for any changes, especially if

its a long-term decision. Are the criteria, alternatives, and choice still the best ones, or has the environment
changed in such a way that we need to reevaluate?
Step 8: Evaluating Decision Effectiveness
The last step in the decision-making process involves evaluating the outcome or result of the decision to see
whether the problem was resolved. If the evaluation shows that the problem still exists, then the manager
needs to assess what went wrong. Was the problem incorrectly defined? Were errors made when evaluating
alternatives? Was the right alternative selected but poorly implemented? The answers might lead you to
redo an earlier step or might even require starting the whole process over.

Chapter 4: Strategic Management Process: Strategy

Formulation and Implementation
1. Strategic Management Process
The strategic management process is a six-step process that encompasses strategy planning, implementation,
and evaluation. Although the first four steps describe the planning that must take place, implementation and
evaluation are just as important! Even the best strategies can fail if management doesnt implement or
evaluate them properly.

Step 1: Identifying the Organizations Current Mission, Goals, and Strategies

Every organization needs a mission a statement of its purpose. Defining the mission forces managers to
identify what its in business to do. For instance, the mission of Avon is To be the company that best
understands and satisfies the product, service, and self-fulfillment needs of women on a global level. The
mission of Facebook is a social utility that connects you with the people around you. The mission of the
National Heart Foundation of Australia is to reduce suffering and death from heart, stroke, and blood
vessel disease in Australia. These statements provide clues to what these organizations see as their
purpose. What should a mission statement include?
Step 2: Doing an External Analysis
What impact might the following trends have for businesses? With the passage of the national health care
legislation, every big restaurant chain will now be required to post calorie information on their menus and
drive-through signs. Customers now use cell phones more for data transmittal and retrieval than for phone
calls.
The share of new high-school graduates enrolled in college hit a record high in 2009 and continues to
climb. We described the external environment in Chapter 2 as an important constraint on a managers
actions. Analyzing that environment is a critical step in the strategic management process. Managers do an
external analysis so they know, for instance, what the competition is doing, what pending legislation might
affect the organization, or what the labor supply is like in locations where it operates. In an external
analysis, managers should examine the economic, demographic, political/legal, sociocultural,
technological, and global components to see the trends and changes.
Once theyve analyzed the environment, managers need to pinpoint opportunities that the organization can
exploit and threats that it must counteract or buffer against. Opportunities are positive trends in the external
environment; threats are negative trends.

Step 3: Doing an Internal Analysis

Now we move to the internal analysis, which provides important information about an organizations
specific resources and capabilities. An organizations resources are its assetsfinancial, physical, human,
and intangiblethat it uses to develop, manufacture, and deliver products to its customers. Theyre what

the organization has. On the other hand, its capabilities are its skills and abilities in doing the work activities
needed in its businesshow it does its work. The major value-creating capabilities of the organization
are known as its core competencies. Both resources and core competencies determine the organizations
competitive weapons.
After completing an internal analysis, managers should be able to identify organizational strengths and
weaknesses. Any activities the organization does well or any unique resources that it has are called
strengths. Weaknesses are activities the organization doesnt do well or resources it needs but doesnt possess.
The combined external and internal analyses are called the SWOT analysis, which is an analysis of the
organizations strengths, weaknesses, opportunities, and threats. After completing the SWOT analysis,
managers are ready to formulate appropriate strategiesthat is, strategies that (1) exploit an organizations
strengths and external opportunities, (2) buffer or protect the organization from external threats, or (3)
correct critical weaknesses.
Step 4: Formulating Strategies
As managers formulate strategies, they should consider the realities of the external environment and their
available resources and capabilities in order to design strategies that will help an organization achieve its
goals. The three main types of strategies managers will formulate include corporate, competitive, and
functional. Well describe each shortly.

Step 5: Implementing Strategies

Once strategies are formulated, they must be implemented. No matter how effectively an organization has
planned its strategies, performance will suffer if the strategies arent implemented properly.

Step 6: Evaluating Results

The final step in the strategic management process is evaluating results. How effective have the strategies
been at helping the organization reach its goals? What adjustments are necessary? After assessing the
results of previous strategies and determining that changes were needed, Ursula Burns, Xeroxs CEO, made
strategic adjustments to regain market share and improve her companys bottom line. The company cut
jobs, sold assets, and reorganized management.
3.

Type of Strategies

3.1

Corporate strategy

The strategy sets direction for an entire organization; business

strategy sets direction for a business division or

product/service line; functional strategy sets direction for the

operational support of business and corporate strategies.
These are different types of Corporate Strategies:
a. Growth - A growth strategy is when an organization expands the number of
markets served or products offered, either through its current business(es) or
through new business(es). Because of its growth strategy, an organization may
increase revenues, number of employees, or market share. Organizations grow
by using concentration, vertical integration, horizontal integration, or
diversification.
b. Stability - A stability strategy is a corporate strategy in which an organization
continues to do what it is currently doing. Examples of this strategy include
continuing to serve the same clients by offering the same product or service,
maintaining market share, and sustaining the organization's current business
operations. The organization does not grow, but does not fall behind, either.
c. Renewal - When an organization is in trouble, something needs to be done.
Managers need to develop strategies, called renewal strategies, that address
declining performance. The two main types of renewal strategies are
retrenchment and turnaround strategies.

3.2. Competitive Strategies

A firm's relative position within its industry determines whether a firm's profitability is above
or below the industry average. The fundamental basis of above average profitability in the long
run is sustainable competitive advantage. There are two basic types of competitive advantage
a firm can possess: low cost or differentiation. The two basic types of competitive advantage
combined with the scope of activities for which a firm seeks to achieve them, lead to three
generic strategies for achieving above average performance in an industry: cost leadership,
differentiation, and focus. The focus strategy has two variants, cost focus and differentiation
focus.

1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources
of cost advantage are varied and depend on the structure of the industry. They may include
the pursuit of economies of scale, proprietary technology, preferential access to raw materials
and other factors. A low cost producer must find and exploit all sources of cost advantage. if a
firm can achieve and sustain overall cost leadership, then it will be an above average
performer in its industry, provided it can command prices at or near the industry average.

2. Differentiation
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions
that are widely valued by buyers. It selects one or more attributes that many buyers in an
industry perceive as important, and uniquely positions itself to meet those needs. It is
rewarded for its uniqueness with a premium price.

3. Focus
The generic strategy of focus rests on the choice of a narrow competitive scope within an
industry. The focuser selects a segment or group of segments in the industry and tailors its
strategy to serving them to the exclusion of others.
The focus strategy has two variants.

(a) In cost focus a firm seeks a cost advantage in its target segment, while
in (b) differentiation focus a firm seeks differentiation in its target segment. Both variants of
the focus strategy rest on differences between a focuser's target segment and other segments
in the industry. The target segments must either have buyers with unusual needs or else the
production and delivery system that best serves the target segment must differ from that of
other industry segments. Cost focus exploits differences in cost behaviour in some segments,
while differentiation focus exploits the special needs of buyers in certain segments.

3.3. Functional Strategies

Once corporate level and business strategies are developed, management must turn its
attention to formulating and implementing functional strategies.
Functional strategy is a strategy for each specific functional unit within a business.
Functional strategies primarily are concerned with the activities of the functional areas of
a business which support the desired competitive business level strategy and complement
each other. They describe the means or methods to be used by functional areas of the
organization in carrying out the corporate level or business unit strategy.
To better understand the role of functional strategies, they must be differentiated from
business strategies.
Three basic characteristics differentiate functional and business strategies:
a. Time horizon covered
The time horizon of a functional strategy is usually comparatively short. Functional
strategies identify and coordinate short- term actions, usually undertaken in a year or
less.
b. Specificity
A functional strategy is more specific than business strategy. The business strategy
provides general direction. Functional strategies give specific guidance to managers
responsible for accomplishing annual objectives.
c. Participation in the development
Different people participate in strategy development at the functional and business levels.
Development of functional strategy is typically delegated by the business-level manager
to principal subordinates charged with running the operating areas of the business.
Business strategy is the responsibility of the general manager of a business unit. Firms
vary in the organization and responsibilities of their functional areas, but the major
functional areas are purchasing and materials management, production/operations,
marketing, finance, human resources, research and development, and information
systems management.

Chapter 5: Developing Organizational Structure and Design

1. Organizational Structure and Design

Organizational structure is the formal arrangement of jobs within an organization. This structure, which can
be shown visually in an organizational chart, also serves many purposes. When managers create or change
the structure, theyre engaged in organizational design, a process that involves decisions about six key

elements: work specialization, departmentalization, chain of command, span of control, centralization and
decentralization, and formalization.

1.1.

Work Specialization

Work specialization makes efficient use of the diversity of skills that workers have. In most organizations,
some tasks require highly developed skills; employees with lower skill levels can perform others. If all
workers were engaged in all the steps of, say, a manufacturing process, all would need the skills necessary
to perform both the most demanding and the least demanding jobs. Thus, except when performing the most
highly skilled or highly sophisticated tasks, employees would be working below their skill levels.
In addition, skilled workers are paid more than unskilled
workers, and, because wages tend to reflect the highest level
of skill, all workers would be paid at highly skilled rates to
do easy tasksan inefficient use of resources. This concept
explains why you rarely find a cardiac surgeon closing up a
patient after surgery. Instead, doctors doing their residencies
in open-heart surgery and learning the skill usually stitch
and staple the patient after the surgeon has finished the
surgery.
Early proponents of work specialization believed that it
could lead to great increases in productivity. At the
beginning of the twentieth century, that generalization was
reasonable. Because specialization was not widely practiced,
its introduction almost always generated higher productivity.
But, as chart illustrates, a good thing can be carried too far.
At some point, the human diseconomies from division of laborboredom, fatigue, stress, low productivity,
poor quality, increased absenteeism, and high turnoverexceed the economic advantages.

1.2.

Departmentalization

How jobs are grouped together is called departmentalization. Five common forms of departmentalization are
used, although an organization may develop its own unique classification. (For instance, a hotel might have
departments such as front desk operations, sales and catering, housekeeping and laundry, and maintenance.)
Chart illustrates each type of departmentalization as well as the advantages and disadvantages of each.
One popular departmentalization trend is the increasing use of customer departmentalization. Because
getting and keeping customers is essential for success, this approach works well because it emphasizes
monitoring and responding to changes in customers needs. Another popular trend is the use of teams,
especially as work tasks have become more complex and diverse skills are needed to accomplish those
tasks. One specific type of team that more organizations are using is a cross-functional team, which is a work
team composed of individuals from various functional specialties. For instance, at Fords material planning
and logistics division, a cross-functional team of employees from the companys finance, purchasing,

engineering, and quality control areas, along with representatives from outside logistics suppliers, has
developed several work improvement ideas.

1.3.

Chain of Command

The chain of command is the line of authority extending from upper organizational levels to lower levels,
which clarifies who reports to whom. Managers need to consider it when organizing work because it helps
employees with questions such as Who do I report to? or Who do I go to if I have a problem? To
understand the chain of command, you have to understand three other important concepts: authority,
responsibility, and unity of command. Lets look first at authority.

Designing Adaptive Organizations Managing Change and Innovation

Leadership and Motivation
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