Test 2 Flashcards
(173 cards)
1
Q
problem solving
A
Problem solving is the process of identifying a discrepancy between an actual and a desired state of affairs and then taking action to resolve it.
2
Q
knowledge workers
A
managers fit the definition of knowledge workers, persons whose value to organizations rests with their intellectual, not physical, capabilities.2
3
Q
technological competency
A
s. Technological competency is the ability to understand new technologies and use them to their best advantage. In many ways this involves moving skills we already use in everyday personal affairs—social media, Internet, smart devices—into work-related applications
4
Q
information competency
A
. Information competency is the ability to locate, retrieve, organize, and display information of potential value to decision making and problem solving. This means, for example, not just getting information from hearsay or off the Internet; it means locating credible and valuable information.
5
Q
analytical competency
A
Analytical competency is the ability to evaluate and analyze information to make actual decisions and solve real problems.3 This involves being able to digest and sort through information, even very large amounts of data, and then use it well to make good decisions that solve real problems
6
Q
performance threat
A
performance threat. This occurs as an actual or potential performance deficiency. Something is wrong or is likely to be wrong in the near future. Hurricane Katrina is an example worth remembering. There were lots of warnings about this storm, but many underestimated or were either ambivalent or overconfident in preparing for it. Too many people weren’t ready when Katrina slammed into New Orleans, and a high price was paid for their errors.
7
Q
performance opportunity
A
performance opportunity. This is a situation that offers the possibility of a better future if the right steps are taken now. Suppose a regional manager notices that sales at one retail store are unusually high. Does she just say, “Great”, and go on about her business? That’s an opportunity missed. A really sharp manager says: “Wait a minute, there may be something happening here that I could learn from and possibly transfer to other stores. I had better find out what’s going on.” That’s an opportunity gained.
8
Q
problem avoiders
A
Some managers are problem avoiders. They ignore information that would otherwise signal the presence of a performance threat or opportunity. They are not active in gathering information and prefer not to make decisions or deal with problems.
9
Q
problem solvers
A
problem solvers. They make decisions and try to solve problems, but only when required. They are reactive, gathering information and responding to problems when they occur, but not before. These managers may deal reasonably well with performance threats, but they are likely to miss many performance opportunities.
10
Q
problem seekers
A
problem seekers. They are always looking for problems to solve or opportunities to explore. True problem seekers are proactive as information gatherers, and they are forward thinking. They anticipate threats and opportunities, and they are eager to take action to gain the advantage in dealing with them.
11
Q
decision
A
decision is a choice among possible alternative courses of action. Let’s also agree that decisions can be made in different ways, with some ways working better than others in various circumstances.
12
Q
programmed decisions
A
Some management problems are routine and repetitive. They can be addressed through programmed decisions that apply preplanned solutions based on the lessons of past experience. Such decisions work best for structured problems that are familiar, straightforward, and clear with respect to information needs. In human resource management, for example, decisions always have to be made on things such as vacations and holiday work schedules. Forward-looking managers can use past experience and plan ahead to make these decisions in programmed, not spontaneous, ways.
13
Q
nonprogrammed decisions
A
These unstructured problems require nonprogrammed decisions that must craft novel solutions to meet the unique demands of a situation. In the recent financial crisis, for example, all eyes were on President Obama’s choice of Treasury Secretary Timothy Geithner. His task was to solve the problems with billions in bad loans made by the nation’s banks and restore stability to the financial markets. But it was uncharted territory; no prepackaged solutions were readily available. Geithner and his team did what they believed was best. But in difficult and dynamic circumstances, the nonprogrammed decisions they made were hotly debated, and only time would tell if they were the right ones.
14
Q
systematic thinking
A
In systematic thinking a person approaches problems in a rational, step-by-step, and analytical fashion. You might recognize this when someone you are working with tries to break a complex problem into smaller components that can be addressed one by one. We might expect systematic managers to make a plan before taking action and to search for information and proceed with problem solving in a fact-based and step-by-step fashion.
15
Q
intuitive thinking
A
intuitive thinking is more flexible and spontaneous than the systematic thinker, and they may be quite creative.4 You might observe this pattern in someone who always seems to come up with an imaginative response to a problem, often based on a quick and broad evaluation of the situation. Intuitive managers tend to deal with many aspects of a problem at once, jump quickly from one issue to another, and act on either hunches based on experience or on spontaneous ideas.
16
Q
cognitive styles
A
f cognitive styles, or the way individuals deal with information while making decisions.
17
Q
sensation thinker
A
Sensation thinker
—STs tend to emphasize the impersonal rather than the personal and take a realistic approach to problem solving. They like hard “facts,” clear goals, certainty, and situations of high control.
18
Q
intuitive thinker
A
Intuitive thinkers
—ITs are comfortable with abstraction and unstructured situations. They tend to be idealistic, prone toward intellectual and theoretical positions; they are logical and impersonal but also avoid details.
19
Q
intuitive feelers
A
Intuitive feelers
—IFs prefer broad and global issues. They are insightful and tend to avoid details, being comfortable with intangibles; they value flexibility and human relationships.
20
Q
sensation feelers
A
Sensation feelers
—SFs tend to emphasize both analysis and human relations. They tend to be realistic and prefer facts; they are open communicators and sensitive to feelings and values.
21
Q
certain environment
A
a certain environment. This is an ideal decision situation where factual information exists for the possible alternative courses of action and their consequences. All a decision maker needs to do is study the alternatives and choose the best solution. It isn’t easy to find examples of decision situations with such certain conditions. One possibility is a decision to take out a “fixed-rate” loan—say for college studies or a new car. At least you can make the decision knowing future interest costs and repayment timetables.
22
Q
risk environments
A
Whereas absolute certainty is the best scenario for decision makers, the reality is that in our personal lives and in management, we more often face risk environments where information and facts are incomplete. An example is the offer of a variable-rate loan as just discussed. In risk conditions, alternative courses of action and their consequences can be analyzed only as probabilities (e.g., 4 chances out of 10). One way of dealing with risk is by gathering as much information as possible, perhaps in different ways. In the case of a new product, such as Coke Zero or even a college textbook like this, it is unlikely that marketing executives would make go-ahead decisions without lots of data gathering and analysis. Often this involves getting reports from multiple focus groups that test the new product in its sample stages.
23
Q
uncertain environment
A
When facts are few and information is so poor that managers have a hard time even assigning probabilities to things, an uncertain environment exists. This is the most difficult decision condition.8 It’s also more common than you might think. And, the border line between risk and uncertainty isn’t always clear. When the Japanese built a nuclear power plant at Fukushima—on the seacoast and in an earthquake zone, were decision makers just taking a calculated risk, or were they acting in the face of absolute uncertainty?
24
Q
five steps of the decision making process
A
- identify and define problem
- generate and evaluate alternative situations
- decide on preferred course of action
- implement the decision
- evaluate decision
25
Common Mistakes When Identifying Problems
1.
Defining problem too broadly or too narrowly
2.
Dealing with symptoms, not real causes
3.
Focusing on wrong problem to begin with
26
cost benefit analysis
Most managers use some form of cost-benefit analysis to evaluate alternatives. This compares what an alternative will cost with its expected benefits. At a minimum, benefits should exceed costs. In addition, an alternative should be timely, acceptable to as many stakeholders as possible, and ethically sound. And most often, the better the pool of alternatives and the better the analysis, the more likely it is that a good decision will result.
27
classical decision model
The classical decision model views the manager as acting rationally and in a fully informed manner. The problem is clearly defined, all possible action alternatives are known, and their consequences are clear. As a result, he or she makes an optimizing decision that gives the absolute best solution to the problem.
28
behavioral decision model
Although the classical model sounds ideal, most of the time it's too good to be true. Because there are limits to our information-processing capabilities, something called cognitive limitations, it is hard to be fully informed and make perfectly rational decisions in all situations. Recognizing this, the premise of the behavioral decision model is that people act only in terms of their perceptions, which are frequently imperfect. Armed with only partial knowledge about the available action alternatives and their consequences, decision makers are likely to choose the first alternative that appears satisfactory to them. Herbert Simon, who won a Nobel Prize for his work, calls this the tendency to make satisficing decisions.11
29
lack of participation error
Managers fall prey to the lack-of-participation error when they don't include in the decision-making process those persons whose support is necessary for implementation. When managers use participation wisely, by contrast, they get the right people involved from the beginning. This not only brings their inputs and insights to bear on the problem, but it also helps build commitments to take actions supporting the decision and make sure it all works as intended.
30
first set of ethics questions by cavanaugh
Utility
—Does the decision satisfy all constituents or stakeholders?
2.
Rights
—Does the decision respect the rights and duties of everyone?
3.
Justice
—Is the decision consistent with the canons of justice?
4.
Caring
—Is the decision consistent with my responsibilities to care?
31
second set of ethics questions by cavanaugh
The second set of ethics questions opens a decision to public disclosure and the prospect of shame.14 These so-called spotlight questions, discussed also in the last chapter, are especially powerful when the decision maker comes from a morally scrupulous family or social structure.
1.
“How would I feel if my family found out about this decision?”
2.
“How would I feel if this decision was published in the local newspaper or posted on the Internet?”
3.
“What would the person I know who has the strongest character and best ethical judgment say about my decision?”
32
creativity
We can define creativity as the generation of a novel idea or unique approach to solving performance problems or exploiting performance opportunities.16 The potential for creativity is one of our greatest personal assets, even though this capability may be too often unrecognized by us and by others.
33
big c and little c creativity
Big-C creativity—when extraordinary things are done by exceptional people.17 Think Big-C creativity when you use or see someone using an iPhone or iPad—Steve Jobs's creativity, or browse Facebook—Mark Zuckerburg's creativity. Even though not always aware of it, most of us also show a lot of Little-C creativity—when average people come up with unique ways to deal with daily events and situations. Think Little-C creativity, for example, the next time you solve relationship problems at home, build something for the kids, or even find ways to pack too many things into too small a suitcase.
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personal creativity drivers
task expertise, task motivation, creativity skills
35
why group decisios are often good
More information—More information, expertise, and viewpoints are available to help solve problems.
More alternatives—More alternatives are generated and considered during decision making.
Increased understanding—There is increased understanding and a greater acceptance of the decision by group members.
Greater commitment—There is an increased commitment of group members to work hard and support the decision.
36
why group decisions are often bad
Why group decisions can be bad
Conformity with social pressures—Some members feel intimidated by others and give in to social pressures to conform.
Domination by a few members—A minority dominates; some members get railroaded by a small coalition of others.
Time delays—More time is required to make decisions when many people try to work together.
37
decision making errors
1. availability heuristic
2. representativeness heuristic
3. anchoring and adjustment heuristic
4. framing error
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availability heuristic
he availability heuristic occurs when people use information “readily available” from memory as a basis for assessing a current event or situation. You may decide, for example, not to buy running shoes from a company if your last pair didn't last long. The potential bias is that the readily available information may be wrong or irrelevant. Even though your present running shoes are worn out, you may have purchased the wrong model for your needs or used them in the wrong conditions
39
representatives heuristic
representativeness heuristic occurs when people assess the likelihood of something happening based on its similarity to a stereotyped set of past occurrences. An example is deciding to hire someone for a job vacancy simply because he or she graduated from the same school attended by your last and most successful new hire. Using the representative stereotype may mask the truly important factors relevant to the decision—the real abilities and career expectations of the new job candidate; the school attended may be beside the point.
40
anchoring and adjustment heuristic
The anchoring and adjustment heuristic involves making decisions based on adjustments to a previously existing value or starting point. For example, a manager may set a new salary level for a current employee by simply raising the prior year's salary by a percentage increment. The problem is that this increment is anchored in the existing salary level, one that may be much lower than the employee's true market value. Rather than being pleased with the raise, the employee may be unhappy and start looking elsewhere for another, higher-paying job.
41
framing error
s, framing error is another potential decision trap. Framing occurs when managers evaluate and resolve a problem in the context in which they perceive it—either positive or negative. You might consider this as the “glass is half empty versus the glass is half full” dilemma. Suppose marketing data show that a new product has a 40% market share. What does this really mean? A negative frame says there's a problem because the product is missing 60% of the market. “What are we doing wrong?” is the likely follow-up question. But if the marketing team used a positive frame and considered the 40% share as a success story, the conversation might well be: “How can we do even better?” By the way, we are constantly exposed to framing in the world of politics; the word used to describe it is “spin.”
42
worker fears and concerns
Low wages
—11% of workers listed “flat paychecks” as a stressor. Among women the figure was 14% and for men 8%. Low wages bothered 11% of college-educated workers versus 14% for those with high school educations.
•
Wrong career
—11% of women felt stressed by having to work in jobs that weren't their career choices, whereas 5% of men said the same.
•
Unreasonable workload
—A sense of being overworked to an unreasonable extent bothers 9% of survey respondents.
•
Other factors
—Also identified as stressors in daily work life were irritating coworkers and commuting issues.
43
confirmation error
confirmation error. This means that we notice, accept, and even seek out only information that confirms or is consistent with a decision we have just made. Other and perhaps critical information is downplayed or denied. This is a form of selective perception. The error is that we neglect other points of view or disconfirming information that might lead us to a different decision.
44
escalating committment
escalating commitment. This is a tendency to increase effort and perhaps apply more resources to pursue a course of action that signals indicate is not working.22 It is an inability or unwillingness to call it quits even when the facts suggest this is the best decision under the circumstances. Ego and the desire to avoid being associated with a mistake can play a big role in escalation.
45
crisis
r. One of the most challenging of all decision situations is the crisis. This is an unexpected problem that can lead to disaster if not resolved quickly and appropriately. Although not all crises are as sensational and life-threatening as the mine disaster, they still require special handling and they still generate lots of mistakes. Indeed, the ability to deal successfully with crises could well be the ultimate test of any manager's decision-making capabilities.
46
six rules for crisis management
Figure out what is going on
—Dig in to thoroughly understand what's happening and the conditions under which the crisis must be resolved.
2.
Remember that speed matters
—Attack the crisis as quickly as possible, trying to catch it when it is small and before it gets overwhelmingly large.
3.
Remember that slow counts, too
—Know when to back off and wait for a better opportunity to make progress with the crisis.
4.
Respect the danger of the unfamiliar
—Understand the danger of entering all-new territory where you and others have never been before.
5.
Value the skeptic
—Don't look for and get too comfortable with early agreement; appreciate skeptics and let them help you see things differently in sorting out what to do.
6.
Be ready to “fight fire with fire”
—When things are going wrong and no one seems to care, you may have to fuel the crisis to get their attention.
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planning
planning involves looking ahead, identifying exactly what you want to accomplish, and deciding how best to go about it.
Among the four management functions shown in Figure 5.1, planning comes first. When done well, it sets the stage for the others: organizing—allocating and arranging resources to accomplish tasks; leading—guiding the efforts of human resources to ensure high levels of task accomplishment; and controlling—monitoring task accomplishments and taking necessary corrective action.
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four management functions
planning, organizing, leading, controlling, organizing
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steps in the planning process
1. define your objectives
2. determine where you stand vis a vis objecives
3. develop premises regarding future conditions
4. make a plan
5. implement the plan and evaluate results
50
objectives
Step 1 in planning is to define your objectives and to identify the specific results or desired goals you hope to achieve. This step is important enough to stop and reflect a moment. Whether you call them goals or objectives, they are targets. They point us toward the future and provide a frame of reference for evaluating progress. With them, as the module subtitle suggests, you should get where you want to go and get there faster
51
good planning makes us...
Action oriented—keeping a results-driven sense of direction
•
Priority oriented—making sure the most important things get first attention
•
Advantage oriented—ensuring that all resources are used to best advantage
•
Change oriented—anticipating problems and opportunities so they can be best dealt with
52
complacency trap
Planning helps us avoid the complacency trap of being lulled into inaction by successes or failures of the moment. Instead of being caught in the present, planning keeps us looking toward the future. Management consultant Stephen R. Covey described this as an action orientation with a clear set of priorities.4 He said the most successful executives “zero in on what they do that adds value to an organization.” They know what is important, and they work first on the things that really count. They don't waste time by working on too many things at once.
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hierchy of objectives
a hierarchy of objectives. This is a means-ends chain in which lower-level objectives (the means) lead to the accomplishment of higher-level objectives (the ends). An example is the total quality management program shown in Figure
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short vs long range plans
short-range plans cover a year or less, whereas long-range plans look ahead three or more years into the future.
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strategic plans
When planning for the organization as a whole or a major component, the focus is on strategic plans. These longer-term plans set broad and comprehensive directions for an organization. Well crafted strategic plans create a framework for allocating resources for best long-term performance impact.
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vision
They take a vision that clarifies the purpose of the organization and what it hopes to be in the future and set out the ways to turn that vision into reality.
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operational plans
The same logic holds true for organizations. Operational plans, also called tactical plans, are developed to implement strategic plans.
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functional plans
. In the sports context, you might think of tactical plans as involving the use of “special teams” plans or as “special plays” designed to meet a particular threat or opportunity. In business, tactical plans often take the form of functional plans that indicate how different parts of the enterprise will contribute to the overall strategy. Such functional plans might include the following:
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policy
A policy communicates broad guidelines for making decisions and taking action in specific circumstances. Common human resource policies address such matters as employee hiring, termination, performance appraisals, pay increases, promotions, discipline, and civility. Consider the issue of sexual harassment. How should individual behavior be guided? A sample sexual harassment policy states: “Sexual harassment is specifically prohibited by this organization. Any employee found to have violated the policy against sexual harassment will be subject to immediate and appropriate disciplinary action including but not limited to possible suspension or termination.”
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procedures
Procedures, or rules, describe exactly what actions to take in specific situations. They are often found in employee handbooks or manuals as SOPs (standard operating procedures). Whereas a policy sets broad guidelines, procedures define specific actions to be taken. A sexual harassment policy, for example, should be backed up with procedures that spell out how to file a sexual harassment complaint, as well as the steps through which any complaint will be handled.12 When Judith Nitsch started her engineering consulting business, for example, she defined a sexual harassment policy, established clear procedures for its enforcement, and designated both a male and a female employee for others to talk with about sexual harassment concerns.13
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budget
A budget is a plan that commits resources to activities, programs, or projects. It is a powerful tool that allocates scarce resources among multiple and often competing uses. Managers typically negotiate with their bosses to obtain budgets that support the needs of their work units or teams. They are also expected to achieve performance objectives while keeping within their budgets.
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types of budgets and defined
Managers deal with and use various types of budgets. Financial budgets project cash flows and expenditures. Operating budgets plot anticipated sales or revenues against expenses. Nonmonetary budgets allocate resources such as labor, equipment, and space. A fixed budget allocates a fixed amount of resources for a specific purpose, such as $50,000 for equipment purchases in a given year. A flexible budget allows resources to vary in proportion with various levels of activity, such as monies to hire temporary workers when workloads exceed certain levels.
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forecasting
Forecasting is the process of predicting what will happen in the future. Periodicals such as Business Week, Fortune, and The Economist regularly report forecasts of industry conditions, interest rates, unemployment trends, and national economies, among other issues.16 Some rely on qualitative forecasting, which uses expert opinions to predict the future. Others involve quantitative forecasting, which uses mathematical models and statistical analysis of historical data and surveys.
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contingency planning
Contingency planning identifies alternative courses of action that can be implemented to meet the needs of changing circumstances. A really good contingency plan will contain “trigger points” for activating preselected alternatives. This is really an indispensable planning tool. But, it's surprising how many organizations lack good contingency plans to deal with unexpected events.
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scenario planning
A long-term version of contingency planning, called scenario planning, identifies several alternative future scenarios. Managers then make plans to deal with each, so they will be better prepared for whatever occurs.18 In this sense, scenario planning forces them to really think far ahead.
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benchmarking
Planning helps us deal with such tendencies by challenging the status quo and reminding us not to always accept things as they are. One way to do this is through benchmarking, a planning technique that makes use of external comparisons to better evaluate current performance
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best practices
Managers use benchmarking to discover what other people and organizations are doing well and plan how to incorporate these ideas into their own operations. They search for best practices inside and outside the organization and among competitors and noncompetitors alike. These are things that others are doing and that help them to achieve superior performance. As a planning tool, benchmarking is basically a way of learning from the successes of others. There's little doubt that sports stars benchmark one another; scientists and scholars do it; executives and managers do it. Could you be doing it, too?
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participatory planning
Participatory planning, as shown in Figure 5.3, includes in all steps of the process those people whose ideas and inputs can benefit the plans and whose support is needed for implementation. It has all the advantages of group decision making discussed in Chapter 4
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stretch goals
Jack Welch, former CEO of GE, believed in stretch goals —performance targets that we have to work extra hard and really stretch to reach.25 Would you agree that stretch goals can add real strength to the planning process, for organizations and for individuals?
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criteria for great goals
1.
Specific—clearly target key results and outcomes to be accomplished.
2.
Timely—linked to specific timetables and “due dates.”
3.
Measurable—described so results can be measured without ambiguity.
4.
Challenging—include a stretch factor that moves toward real gains.
5.
Attainable—although challenging, realistic and possible to achieve.
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controlling
Step 1—Control begins with objectives and standards.
•
Step 2—Control measures actual performance.
•
Step 3—Control compares results with objectives and standards.
•
Step 4—Control takes corrective action as needed
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purpose of controlling
Managers understand controlling as a process of measuring performance and taking action to ensure desired results. Its purpose is straightforward—to make sure that plans are achieved and that actual performance meets or surpasses objectives.
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after action review
Effective control offers the great opportunity of learning from experience. Consider, for example, the program of after-action review pioneered by the U.S. Army and now utilized in many other organization settings. It is a structured review of lessons learned and results accomplished through a completed project, task force assignment, or special operation. Participants answer questions like: “What was the intent?” “What actually happened?” “What did we learn?”4 The after-action review encourages everyone involved to take responsibility for his or her performance efforts and accomplishments.
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output standards
Things like earnings per share for a business and standing ovations for a symphony are examples of output standards. They measure actual outcomes or work results. When Allstate Corporation launched a new diversity initiative, it created a “diversity index” to quantify performance on diversity issues. The standards included how well employees met the goals of bias-free customer service and how well managers met the firm's diversity expectations.
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input standards
input standards to measure work efforts. These are helpful in situations where outputs are difficult or expensive to measure. Examples of input standards for a college professor might be having an orderly course syllabus, showing up at all class sessions, and returning exams and assignments in a timely fashion. Of course, as this example might suggest, measuring inputs doesn't mean that outputs, such as high-quality teaching and learning, are necessarily achieved. Other examples of input standards in the workplace include conformance with rules and procedures, efficiency in the use of resources, and work attendance or punctuality.
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feedforward controls
Feedforward controls, also called preliminary controls, take place before work begins. Their goal is to prevent problems before they occur. This is a forward-thinking and proactive approach to control, one that we should all try to follow whenever we can. At McDonald's, for example, preliminary control of food ingredients plays an important role in the firm's quality program. Suppliers of its hamburger buns produce them to exact specifications, covering everything from texture to uniformity of color. Even in overseas markets, the firm works hard to develop local suppliers of dependable quality.11
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concurrent controls
Concurrent controls focus on what happens during the work process; they take place while people are doing their jobs. The goal is to solve problems as they occur. Sometimes called steering controls, they make sure that things are always going according to plan. The ever-present shift leaders at McDonald's restaurants are a good example of how this happens through direct supervision. They constantly observe what is taking place, even while helping out with the work. They are trained to correct things on the spot. The question continually asked is: “What can we do to improve things right now?”
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feedback controls
Feedback controls, or post-action controls, take place after a job or project is completed. Think about your experiences as a student. Most course evaluation systems ask, “Was this a good learning experience?” only when the class is almost over
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internal control
internal control, or self-control, or self-control, in the workplace. According to Douglas McGregor's Theory Y perspective, discussed in Chapter 2, people are ready and willing to exercise self-control in their work.13 This potential is increased when capable people have a clear sense of organizational mission, know their goals, and have the resources necessary to do their jobs well
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external control
external control to structure situations so that things happen as planned.14 The alternatives include bureaucratic or administrative control, clan control, and market control.
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bureacratic control
The logic of bureaucratic control is that authority, policies, procedures, job descriptions, budgets, and day-to-day supervision help make sure that people behave in ways consistent with organizational interests. As discussed in the previous chapter on planning, for example, organizations typically have policies and procedures regarding sexual harassment. They are designed to make sure people behave toward one another respectfully and without sexual pressures or improprieties.
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clan control
clan control influences behavior through social norms and peer expectations. This is the power of collective identity; persons who share values and identify strongly with each other tend to behave in ways that are consistent with one another's expectations. Just look around the typical college classroom and campus. You'll see clan control reflected in dress, language, and behavior as students tend to act consistent with the expectations of those peers and groups they identify with. The same holds true in organizations where close-knit employees display common behavior patterns
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market control
Market control is essentially the influence of market competition on the behavior of organizations and their members. Business firms adjust products, pricing, promotions, and other practices in response to customer feedback and competitor moves. An example is the growing emphasis on “green” products and practices. When a firm such as Wal-Mart starts to get good publicity from its expressed commitment to eventually power all its stores with renewable energy, the effect is felt by its competitors.15 They have to adjust practices to avoid giving up this public relations advantage to Wal-Mart. In this sense, the time-worn phrase “Keeping up with the competition” is really another way of expressing the dynamics of market controls in action.
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managing by objectives
s managing by objectives. Often called MBO, it is a structured process of regular communication in which a supervisor or team leader and a subordinate or team member jointly set performance objectives and review accomplished results.16 As Figure 6.4 shows, the process creates an agreement between the two parties regarding performance objectives for a given time period, plans for accomplishing them, standards for measuring them, and procedures for reviewing them.
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improvement objectives
. Improvement objectives document intentions for improving performance in a specific way. An example is “to reduce quality rejects by 10%.” Personal development objectives focus on expanding job knowledge or skills. An example is “to learn the latest version of a computer spreadsheet package.”
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total quality management
term total quality management (TQM) is quite common in modern management.
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continuous improvement
It is used to describe operations that make quality an everyday performance objective and strive to always do things right the first time.20 A foundation of TQM is the quest for continuous improvement, meaning that one is always looking for new ways to improve on current performance.21 The notion is that you can never be satisfied, that something always can and should be improved on.
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control chart
A quality tool often used in manufacturing, for example, is the control chart shown here.
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project managemetn
Project management is responsibility for the overall planning, supervision, and control of projects. Basically, a project manager's job is to ensure that a project is well planned and then completed according to plan—on time, within budget, and consistent with objectives. In practice, this is often assisted by two control techniques known as Gantt charts and CPM/PERT.
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gantt chart
A Gantt chart like the one shown here graphically displays the scheduling of tasks that go into completing a project. As developed in the early 20th century by Henry Gantt, an industrial engineer, this tool has become a mainstay of project management. One of the biggest problems with projects, for example, is that delays in early activities create problems for later ones. The Gantt chart's visual overview shows what needs to be done when, and allows for progress checks at different time intervals. It helps with activity sequencing to make sure that things get accomplished in time for later work to build on them.
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cpm/pert
CPM/PERT—a combination of the critical path method and the program evaluation and review technique. Project planning based on CPM/PERT uses network charts that break a project into a series of small sub activities with clear beginning and end points. These points become “nodes” in the charts, and the arrows between nodes show in what order things must be done. The full diagram shows all the interrelationships that must be coordinated for the entire project to be successfully completed.
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critical path
critical path. It represents the quickest time in which the entire project can be finished, assuming everything goes according to schedule and plans. In the example, the critical path is 38 days.
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inventory control
Cost control ranks right up there with quality control as an important performance concern. And a very good place to start is with inventory. The goal of inventory control is to make sure that any inventory is only big enough to meet one's immediate performance needs.
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economic order quantity
he economic order quantity form of inventory control, shown in the figure, automatically orders a fixed number of items every time an inventory level falls to a predetermined point. The order sizes are mathematically calculated to minimize costs of inventory. A good example is your local supermarket. It routinely makes hundreds of daily orders on an economic order quantity basis.
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just in time scheduling
just-in-time scheduling (JIT). First made popular by the Japanese, these systems reduce costs and improve workflow by scheduling materials to arrive at a workstation or facility just in time for use. Because JIT nearly eliminates the carrying costs of inventories, it is an important business productivity tool. But, the recent tsunami and nuclear disaster in Japan also showed some of the risks of JIT. Many global companies, among them Boeing and Dell, faced product delays when just-in-time shipments were disrupted as Japanese firms in their supply chains were closed or their operations scaled back due to the disaster
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breakeven point
“What is the breakeven point?” Figure 6.5 shows that breakeven occurs at the point where revenues just equal costs. You can also think of it as the point where losses end and profit begins. A breakeven point is computed using this formula
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breakeven analysis
n breakeven analysis to perform what-if calculations under different projected cost and revenue conditions.
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balance sheet
balance sheet shows assets and liabilities at a point in time. It will be displayed in an assets = liabilities
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liquiduity
Liquidity—measures ability to meet short-term obligations
| Higher is better: You want more assets and fewer liabilities.
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leverage
Leverage—measures use of debt.
| Lower is better: You want fewer debts and more assets
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asset managemen
Asset Management—measures asset and inventory efficiency
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Profitability—measures profit generation.
Higher is better: You want as much net income or profit as possible for sales, assets, and equity.
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current ratio
current assets / current liabilities
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quick ratio
(current assets - inventory )/ current liability
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debt ratio
total debts / total assets
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asset turnover
sales / total assets
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inventory turnover
sales / average inventory
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net margin
net income/ sales
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return on assets
net income / total assets
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return on equity
net income / owner's equity
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balanced scorecards
balanced scorecard in respect to management control.26 It gives top managers, as they say, “a fast but comprehensive view of the business.” The basic principle is that to do well and to win, you have to keep score. And like sports teams, organizations perform better when all members know the score.
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strategy
is a comprehensive plan for achieving competitive advantag
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t strategic intent
A good strategy provides leaders with a plan for allocating and using resources with consistent strategic intent. Think of this as having all organizational energies directed toward a unifying and compelling target or mission, one that is highly aspirational.4
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competitive advantage.
This means that it is able to outperform rivals. The very best strategies provide sustainable competitive advantage. This doesn't mean that the competitive advantage lasts forever, but it does mean that for a period of time their success is hard for competitors to imitate.
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corporate strategy
corporate strategy provides direction and guides resource allocation for the organization as a whole. The strategic question at the corporate strategy level is: In what industries and markets should we compete? In large, complex organizations, such as PepsiCo, IBM, and General Electric, decisions on corporate strategy identify how the firm intends to compete across multiple industries, businesses, and markets.
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business strategy
Business strategy focuses on the strategic intent for a single business unit or product line. The strategic question at the business strategy level is: How are we going to compete for customers within this industry and in this market? Typical business strategy decisions include choices about product and service mix, facilities locations, new technologies, and the like. For smaller, single-business enterprises, business strategy is the corporate strategy.
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functional strategy
Functional strategy guides activities to implement higher-level business and corporate strategies. This level of strategy unfolds within a specific functional area such as marketing, manufacturing, finance, and human resources. The strategic question for functional strategies is: How can we best utilize resources within the function to support implementation of the business strategy? Answers to this question involve a wide variety of practices and initiatives to improve things such as operating efficiency, product quality, customer service, or innovativeness.
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growth strategies
concentration, diversification, vertical integration
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concentration
concentration seeks expansion within an existing business area, one in which the firm has experience and presumably expertise. You don't see McDonald's trying to grow by buying bookstores or gasoline stations; it keeps opening more restaurants at home and abroad. You don't see Wal-Mart trying to grow by buying a high-end department store chain or a cell-phone company; it keeps opening more Wal-Mart stores. These are classic growth by concentration strategies.
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diversification
diversification, where expansion occurs by entering new business areas. As you might expect, diversification involves risk because the firm may be moving outside existing areas of competency. One way to moderate the risk is to pursue related diversification, expanding into similar or complementary new business areas. PepsiCo did this when it purchased Tropicana. Although Tropicana's fruit juices were new to Pepsi, the business is related to its expertise in the beverages industry.
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unrelated diversification
unrelated diversification by seeking growth in entirely new business areas. Did you know, for example, that Exxon once owned Izod? Does that make sense? Can you see the risk here and understand why growth through unrelated diversification might cause problems? Research, in fact, is quite clear that business performance may decline for firms that get into too much unrelated diversification
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vertical integration
vertical integration. This is where a business acquires its suppliers (backward vertical integration) or its distributors (forward vertical integration). Backward vertical integration has been a historical pattern in the automobile industry as firms purchased parts suppliers, although recent trends are to reverse this. It's now evident at Apple Computer. The firm has bought chip manufacturers to give it more privacy and sophistication in developing microprocessors for products like the iPad. In beverages, both Coca-Cola and PepsiCo have pursued forward vertical integration by purchasing some of their major bottlers.
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retrenchment strategy
When organizations run into performance difficulties, perhaps because of too much growth and diversification, these problems have to be solved. A retrenchment strategy seeks to correct weaknesses by making radical changes to current ways of operating.
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most extreme type of retrenchment
liquidation
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liquidation
where a business closes down and sells its assets to pay creditors.
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restructuring
This involves making major changes to cut costs, gain short-term efficiencies, and buy time to try new strategies to improve future success.
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chapter 11 bankruptcy
When a firm is in desperate financial condition and unable to pay its bills, a situation faced by Chrysler and General Motors during the financial crisis, restructuring by Chapter 11 bankruptcy is an option under U.S. law. This protects the firm from creditors while management reorganizes things in an attempt to restore solvency. The goal is to emerge from bankruptcy as a stronger and profitable business, something achieved by both GM and Chrysler.
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downsizing
Downsizing is a restructuring approach that often makes the news. It cuts the size of operations and reduces the workforce.7 When you learn of organizations downsizing by across-the-board cuts, however, you might be a bit skeptical. Research shows that downsizing is most successful when cutbacks are done selectively and focused on key performance objectives.8
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divestiture
Finally, restructuring by divestiture involves selling parts of the organization to refocus on core competencies, cut costs, and improve operating efficiency. This type of retrenchment often occurs when organizations have become overdiversified. eBay once spent $3.1 billion to buy the Internet telephone service Skype. After the expected synergies between Skype and eBay's online auction business never developed, Skype was sold to private investors.9 They, in turn, sold it to Microsoft, which is still trying to integrate Skype into its business model.
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globalization strategy
a globalization strategy tend to view the world as one large market. They try to advertise and sell standard products for use everywhere. For example, Gillette sells and advertises its latest razors around the world; you get the same product in Italy or South Africa as in America.
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multidomestic strategy
multidomestic strategy customize products and advertising to fit local cultures and needs. Bristol Myers, Procter & Gamble, and Unilever all vary their products to match consumer preferences in different countries and cultures
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transnational strategy
transnational strategy, where firms seek a balance between efficiencies in global operations and responsiveness to local markets. A transnational firm tries to operate without a strong national identity, hoping instead to blend with the global economy. Firms using a transnational strategy try to fully utilize business resources and tap customer markets worldwide. Ford, for example, draws on design, manufacturing, and distribution expertise all over the world to build car platforms. These are then modified within regions to build cars that meet local tastes.
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strategic alliances
often in strategic alliances, where two or more organizations join together in partnership to pursue an area of mutual interest. A common form involves outsourcing alliances, contracting to purchase specialized services from another organization. Many organizations today, for example, are outsourcing their IT function to firms such as Infosys and IBM. The belief is that these services are better provided by a firm with special expertise in this area.
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supplier alliances
Cooperation in the supply chain also takes the form of supplier alliances, which guarantee a smooth and timely flow of quality supplies among alliance partners. We also see cooperation in distribution alliances where firms join together to accomplish product or services sales and distribution.
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co-opetition
Some cooperation strategies even involve strategic alliances with competitors. Known as co-opetition, it has been called a “revolution mindset” that business competitors can be co-operating partners.12 United and Lufthansa are international competitors, but they cooperate in the Star Alliance network that allows customers to book each other's flights and share frequent flyer programs. Likewise, luxury car competitors Daimler and BMW are cooperating to co-develop new motors and components for hybrid cars.13
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web based models
advertising, brokerage, community, freemium, infomediary, merchant, referral, subscription
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advertising
Provide free information or services and then generate revenues from paid advertising to viewers (e.g., Yahoo!, Google)
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brokerage
Bring buyers and sellers together for online business transactions and take a percentage from the sales (e.g., eBay, Priceline)
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community
Provide a meeting point sold by subscription or supported by advertising (e.g., eHarmony, Facebook)
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freemium
Offer a free service and encourage users to buy extras (e.g., Skype, Zynga)
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infomediary
Provide a free service while collecting information on users and selling it to other businesses (e.g., Epinions, Yelp)
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merchant
Sell products direct to customers through the Web—e-tailing (e.g., Amazon, Apple iTunes Store)
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referral
Provide free listings and get referral fees from online merchants after directing customers to them (e.g., Shopzilla, PriceGrabber)
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subscription
Sell access to high-value content through a subscription Web site (e.g., Netflix, Wall Street Journal Interactive)
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social media strategy
social media strategy. Think of this as an organization using social media such as Facebook or Twitter to better engage with customers, clients, and external audiences. How often do you hear or read “Find us on Facebook”? That's what Procter & Gamble says. Its Facebook page on Pampers sells the product, hosts a discussion forum for users, and encourages viewers to enter free Pampers sweepstakes.
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crowdsourcing
Crowdsourcing is a special type of social media strategy. It uses the Internet to engage customers and potential customers to make suggestions and express opinions on products and their designs. An example is Threadless.com. The firm's website allows online visitors to submit designs for T-shirts. The designs are voted on by other viewers—the “crowd”—and top-rated ones get selected for production and sale to customers
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strategic management
strategic management as the process of formulating and implementing strategies to accomplish long-term goals and sustain competitive advantage.
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strategy formation
Strategy formulation is the process of crafting strategy. It reviews current mission, objectives, and strategies, assesses the organization and environment, and develops new strategies to deliver future competitive advantage
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strategy implementation
. Strategy implementation is the process of putting strategies into action. It leads and activates the entire organization to put strategies to work.
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mission
mission describes the purpose of an organization, its reason for existence in society.18 The best organizations have clear missions that communicate a sense of direction and motivate members to work hard in their behalf
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operating objectives
They also link these missions with well-chosen operating objectives that serve as short-term guides to performance.20 A sampling of typical business operating objectives includes profitability, cost efficiency, market share, product quality, innovation, and social responsibility.
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SWOT analysis
A SWOT analysis involves a detailed examination of organizational strengths and weaknesses as well as environmental opportunities and threats. As Figure 7.2 shows, the results of this examination can be portrayed in a straightforward and very useful planning matrix.
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profits
Profits
| —operating with revenues greater than costs
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cost efficiency
Cost efficiency
| —operating with low costs; finding ways to lower costs
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market share
Market share
| —having a solid and sustainable pool of customers
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product quality
Product quality
| —producing goods and services that satisfy customers
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talented workforce
Talented workforce
| —attracting and retaining high-quality employees
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innovation
Innovation
| —using new ideas to improve operations and products
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social responsibility
Social responsibility
| —earning the respect of multiple stakeholders
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sustainability
Sustainability
| —developing sustainable processes, products, and supply chains
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core competencies
y core competencies. These are special strengths that the organization has or does exceptionally well in comparison with its competitors. When an organization's core competencies are unique and costly for others to imitate—say, for example, Amazon's “1-Click” order technology and efficient logistics, they become potential sources of competitive advantage.21 Organizational weaknesses are the flip side of the picture. They must also be understood to gain a realistic sense of the organization's capabilities.
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porter's five forces
competitors, new entrants, suppliers, customers, substitutes
Porter's five forces model of industry attractiveness is shown in Figure 7.3. An unattractive industry will have intense competitive rivalries, substantial threats in the form of possible new entrants and substitute products, and powerful suppliers and buyers who dominate any bargaining with the firm. As you might expect, this is a very challenging environment for strategy formulation.
Strategic management is very challenging in an unattractive industry that has intense competitive rivalries, substantial threats in the form of possible new entrants and substitute products, and powerful suppliers and buyers who dominate any bargaining with the firm. Strategy management is less of a problem in an attractive industry that has little existing competition, few threats from new entrants or substitutes, and low bargaining power among suppliers and buyers.
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differentiation strategy
A differentiation strategy seeks competitive advantage through uniqueness. This means developing goods and services that are clearly different from the competition. The strategic objective is to attract customers who stay loyal to the firm's products and lose interest in those of its competitors.
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cost leadership strategy
A cost leadership strategy seeks competitive advantage by operating with lower costs than competitors. This allows organizations to make profits while selling products or services at low prices their competitors can't profitably match. The objective is to continuously improve operating efficiencies in purchasing, production, distribution, and other organizational systems.
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focused differentiation
The focused differentiation strategy offers a unique product to customers in a special market segment. For example, NetJets offers air travel by fractional ownership of private jets to wealthy customers.
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focused cost leadership
The focused cost leadership strategy tries to be the low-cost provider for a special market segment. Low-fare airlines, for example, offer heavily discounted fares and “no frills” service for customers who want to travel point-to-point for the lowest prices.
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bcg matrix
BCG Matrix. This strategic framework asks managers to analyze business and product strategies based on market growth rate and market share.26
The BCG Matrix is useful in situations where managers must make strategic decisions that allocate scarce organizational resources among multiple and competing uses. This is a typical situation for organizations that have a range of businesses or products. The BCG Matrix sorts businesses or products into four strategic types (dogs, stars, question marks, and cash cows), based on market shares held and market growth rates. Specific master strategies are recommended for each strategic type.
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stars
Stars in the BCG Matrix have high market shares in high-growth markets. They produce large profits through substantial penetration of expanding markets. The preferred strategy for stars is growth. The BCG Matrix recommends making further resource investments in them. Stars are not only high performers in the present, they also offer future potential to do the same or even better.
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cash cow
Cash cows have high market shares in low-growth markets. They produce large profits and a strong cash flow, but with little upside potential. Because the markets offer little growth opportunity, the preferred strategy for cash cows is stability or modest growth. Like real dairy cows, the BCG Matrix advises firms to “milk” these businesses to generate cash for investing in other more promising areas.
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question marks
Question marks have low market shares in high-growth markets. Although they may not generate much profit at the moment, the upside potential is there because of the growing markets. Question marks make for difficult strategic decision making. The BCG Matrix recommends targeting only the most promising question marks for growth, while retrenching those that are less promising.
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dogs
Dogs have low market shares in low-growth markets. They produce little if any profit, and they have low potential for future improvement. The preferred strategy for dogs is straightforward: retrenchment by divestiture.
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strategic leadership
strategic leadership—the capability to inspire people to successfully engage in a process of continuous change, performance enhancement, as well as implementation and control of organizational strategies
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strategic control
. One of the lessons business firms learned from the recent economic crisis is that a strategic leader has to maintain strategic control. This means that the CEO and other top managers must always be in touch with the strategy, know whether it is generating performance success or failure, and recognize when the strategy needs to be tweaked or changed
A strategic leader has to be the guardian of trade-offs.
It is the leader's job to make sure that the organization's resources are allocated in ways consistent with the strategy. This requires the discipline to sort through many competing ideas and alternatives to stay on course and not get sidetracked.
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A strategic leader needs to create a sense of urgency.
The leader must not allow the organization and its members to grow slow and complacent. Even when doing well, the leader keeps the focus on getting better and being alert to conditions that require adjustments to the strategy.
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A strategic leader must make sure that everyone understands the strategy.
Unless strategies are understood, the daily tasks and contributions of people lose context and purpose. Everyone might work very hard, but unless efforts are aligned with strategy, the impact is dispersed and fails to advance common goals.
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A strategic leader must be a teacher.
It is the leader's job to teach the strategy and make it a “cause,” says Porter. In order for strategy to work, it must become an ever-present commitment throughout the organization. This means that a strategic leader must be a great communicator. Everyone must understand the strategy and how it makes the organization different from others.
