MAN3025 EXAM 1 STUDY GUIDE
MAN3025 EXAM 1 STUDY GUIDE MAN3025
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MAN3025 EXAM 1 STUDY GUIDE AN INTRODUCTION TO MANAGEMENT Managers: People who accomplish things through others Make decisions from shortterm scheduling to longterm strategic decisions Management: Use of the key functions to achieve organizational goals effectively and efficiently Efficiency vs. Effectiveness Efficiency: Wise and costeffective use of resources (people, raw materials, money) Manager can improve when the organization can do the same amount of work with fewer resources Means by which organizational goals are accomplished Effectiveness: Achievement of results Manager can improve when the organization can produce better results (higher revenues or profits) independent of the resources required Refers to the ends Multiplier effect—Managers are able to do more by delegating more work to other employees then they could do alone Effective and efficient—Choose the right goals and make the best use of organizational resources Products that customers want, at a price that they can afford EX. Apple o Introduced the correct mix of products to meet consumer demand o Delivers those products to customers in an efficient manner o Highquality reputation allowing them to charge a premium price Effective and inefficient—Company can’t produce enough to meet the high demand EX. DeLorean (Car in Back to the Future) Ineffective and efficient—Choose the wrong goals but make good use of resources Results in a highquality, affordable product that customers simply don’t want EX. VW Touareg o Affordable, wellbuilt car, with low sales Ineffective and inefficient—Choose the wrong goals and make poor use of resources Result in a lowquality product that customers don’t want EX. Pontiac Aztek o Ugly, lowquality car that few people wanted The Management Process Planning: Setting goals and deciding how to achieve them Organizing: Utilization of the company’s resources and capabilities to achieve organizational goals Arrange tasks, people, and other resources to accomplish these goals Leading: Motivating, directing, and otherwise influencing people to work hard to achieve the organization’s goals Provide a vision and direction for the organization, have an understanding of human behaviors Controlling: Monitoring performance, comparing it with goals, and taking corrective action as needed What Do Managers Do? Setting objectives Set objectives for the group and plan for the achievement of those objectives Organizing Organize resources under their command in order to meet organizational objectives Divide work into smaller activities Assign tasks to people working under them Motivating others and communicating with others Ensure that they are working towards a common goal in a productive way Effective communications Make critical decisions about pay and promotions Measuring progress Set, standards, regularly measure progress toward those standards, and compare actual performance with planned performance Developing people Broaden their subordinates’ skill sets Make them more productive and happier with their jobs Provide their subordinates with opportunities to grow, learn, and move up the corporate ladder SEVEN MANAGERIAL CHALLENGES Achieving a Competitive Advantage Competitive Advantage: Ability of an organization to produce goods or services more effectively and efficiently than competitors, outperforming them Goal is to achieve and maintain a sustainable competitive advantage that always gives the firm a leg up in the industry Seek to achieve competitive advantage in four areas Responsiveness—Responsive to customer needs and wants (first law in business take care of the customer) Innovation—Finding ways to deliver new or better goods and services Quality—Constantly strive to improve the quality of the goods and services that they product so that they can stay ahead of competitors and continue to satisfy customers’ needs (consumers will often pay a higher price for a higherquality product) Efficiency—Produce as much as possible, using as few employees and raw materials as possible Best companies do not rely on a single area for competitive advantage, they deliver on two or more of the four pillars Embracing Diversity The workforce is becoming increasingly diverse, and rapidly changing technology has dramatically increased the variety of jobs that managers have to oversee Trends in workplace diversity Women Older people Immigrants and minorities A more diverse group of people may be a more effective and creative problemsolving unit because it may bring more ideas to the table Sometimes these differences between individuals in a group can inhibit communication and group success Manager must find ways to maximize diversity of input while minimizing the destructive conflict that results from differences within the group Managing for Globalization Globalization: Worldwide interdependence of business competition, resource flows, and product markets in the new economy Advantages and opportunities of globalization Greater price competition More consumer choice Potential for quicker dissemination of technology Disadvantages and challenges of globalization Puts more pressure on domestic firms because it introduces competition from abroad Managers must be sensitive to different cultures and traditions Managers must be concerned about exchange rates Overall trends relating to globalization The changing world output and world trade picture The changing foreign direct investment picture The changing nature of multinational enterprise The changing world order Incorporating Information Technology Make ecommerce and ebusiness easier and more important than ever by facilitating communication over large distances A challenge is that firms have to be sure that messages are properly transmitted across time zones and into different languages EBusiness: Use of the Internet to facilitate running a business Intersection of technology and globalization has made it easier for small companies to go global online, which increases competition Information technology, in the forms of big data, cloud computing, and cognitive systems, will come to revolutionize the business market in the new few years Showrooming: Practice of going to a brickandmortar location to check a product out, only to return home and buy the product from an online retailer at a lower price (Best Buy) Technology has a number of implications for the pace of globalization Lower transportation costs Lower information processing costs Cheaper global communication Creation of a global marketplace that is open 24/7 Incorporating Ethics Ethics: The standards or right and wrong that influence behavior Managers must manage according to ethical standards Difficult in an increasingly diverse workplace, as ethical approaches differ across generations, from culture to culture, and from place to place Global managers have to be concerned with at least two sets of laws Laws of the host country Laws of the home country Managing for Sustainability Sustainability: Meeting the needs of the present without compromising future generations’ ability to meet their needs 19451960—Average firm was blinded by the “smell of money” and in denial about its contribution to pollution 1970s1980s—Simply pay fines or donate money to charities to reduce the negative impact of business practices Mid 1980s—Government regulations led to the rise of “ecoefficiency”, which was a winwin because by becoming more efficient, companies saved money and lessened the impact on the environment Customers started to care if the products they purchased harmed the environment Currently—Transition to “ecoeffectiveness” and clean technology Natural Capital: (Planet portion of the triple bottom line) Value of national resources that humans depend on Managing Happiness and Life Goals Achieve worklife balance so that they can gain satisfaction from their personal lives while accomplishing workrelated goals One’s professional life often bleeds into his or her personal life LEVELS AND AREAS OF MANAGEMENT Traditional management pyramid groups managers by levels and functional areas Top Managers: Make longterm decisions about the overall direction of the organization and establish the longterm objectives, policies, and strategies for it Devise strategies for dealing with problems in the organization’s environment Must maintain a future orientation to deal with uncertain, competitive conditions Tend to have more experience and be relatively older, compared to lowerlevel managers Responsible for the entire organization’s success or failure, including the performance of all of the organization’s departments Crossdepartmental responsibilities and must make highlevel decisions about how the departments should interact with one another Spend the most amount of time planning Known as general managers (focus on several aspects) Know as the “Cs” of the firm: Chief Financial Officer (CFO), Chief Operating Officer (COO) Middle Managers: Implement the policies and plans of the top managers above them Supervise and coordinate the activities of the firstline managers below them Known as functional managers (focus on one aspect of the firm) May have titles such as ‘business unit head’ or ‘department manager’ Firstline Managers: Make shortterm operating decisions, directing the daily tasks of non managerial personnel Spend the greatest amount of time leading since they spend the most time actually interacting with and motivating the greatest number of employees on a regular basis Usually specialists with skills in their specific area of expertise Where most managers start their managerial careers NonManagerial Personnel: Employees who carry out the instructions of firstlevel managers and are the ones who ultimately do the work Do not have any subordinates Line Jobs: Have actual authority to make decisions Staff Jobs: Support jobs MANAGERIAL ROLES Henry Mintzberg’s Managerial Characteristics (1960s) Managers rely on oral communication more than written communication (persontoperson interaction) Managers work hard for long hours (usually salaried, so they don’t get paid for overtime) Managers perform a variety of fragmented, brief tasks (work is continually interrupted, must multitask) Interpersonal Roles: Roles in which managers provide direction and supervision to the organization and its employees Figurehead—Symbolizes the organization’s objectives and mission Leader—Manager trains, mentors, and counsels employees in order to achieve high performance Liaison—Manager connects and coordinates the activities of individuals, both inside and outside of the organization Informational Roles: Roles in which managers receive and communicate information Monitor—Manager gathers and analyzes information from the environment (inside and outside the organization) o Keep an eye on the market and make changes when needed Disseminator—Manager conveys information to employees in order to impact their attitudes and behaviors Spokesperson—Manager conveys information to influence the way that people both inside and outside the organization respond to it Decisional Roles: Roles in which managers obtain, transmit, and use information to make decisions to solve problems or take advantage of opportunities (most difficult roles for managers) Entrepreneur—Manager decides which programs and projects the organization should take on Disturbance Handler—Manager deals with unexpected events or crises Resource Allocator—Manager sets budgets of lowerlevel managers and assigns resources between the various functions and divisions of the organization Negotiator—Manager brokers agreements between customers, unions, shareholders, and other managers Individual managers place more emphasis on some roles than others, and the importance of a role may differ over time and may depend on environmental circumstances MANAGERIAL SKILLS Proposed by Robert Katz Technical Skills: Jobspecific knowledge needed to perform well in a specialized field Conceptual Skills: Ability to think analytically, visualize an organization as a whole, and understand how the parts work together Human Skills: Ability to work well in cooperation with other people Listening to others is one of the most important skills a manager can develop Intuition and instinct are other important human skills Important for managers at all levels Becoming a New Manager Firstline supervisors suffer more burnout and attrition than any other managers Must change the way one thinks of oneself and transforming from an individual identity to a managerial identity Individual is a specialist (specific tasks), manager is a generalist (diverse array of tasks) Individual does things on their own, manager gets things done through others (networks) Individual works independently, manager works interdependently ENTREPRENEURSHIP AND MANAGEMENT Entrepreneurship: Process of thinking strategically and taking risks to try to create new opportunities for the individual or for the organization Entrepreneur: Sees a new opportunity for a product or service and launches a business to try to realize it Intrapreneur: Works inside an existing organization, sees an opportunity for a product or service, and mobilizes the organization’s resources to try to realize it Entrepreneurs have what it takes to start a new business where managers have what it takes to grow and maintain a business Rare for these skills to overlap Sanjiv Goenka believes entrepreneurs have a “vision” and see ways to fills holes in business processes and services, and then implement that plan Psychological characteristics common to most entrepreneurs High need for achievement—Motivated to achieve moderately difficult goals Internal locus of control—Believe that they control their own destiny and that external forces have little influence High energy level and action orientation—Invest a lot of time and energy into their new enterprise and are anxious to get things done High tolerance for ambiguity—Try to accomplish that which they have not done before Selfconfidence and tolerance for risk—Must act decisively INTRODUCTION TO THE HISTORY OF MANAGEMENT The Changing Environment Management practices are influenced by these environmental factors Social forces—Culture guides people and relationships and thus influences managerial practices Political forces—Important for managers to understand the political and legal institutions in the countries where they work Economic forces—Availability, production, and distribution of resources impacts managerial practices EvidenceBased Management: Involves translating principles based on best evidence into organizational practice and bringing rationality into the decisionmaking process Jeffrey Pfeffer and Robert Sutton (1980s) Management practices should be tested using scientific methods o Make observations and gather facts o Propose a possible explanation or solution based on those facts o Develop a prediction based on those facts o Test the prediction under controlled conditions Management practices should be rigorously tested before they are widely implemented THE HISTORICAL PERSPECTIVE The Classical Viewpoint Classical Viewpoint: Emphasizes finding ways to manage work more efficiently through time andmotion studies, scientific methods, and job specialization Developed in the late 1800s and early 1900s, during the Industrial Revolution and the rise of the factory system Managers are focused on finding ways to get people to do work more efficiently Scientific Management: Emphasizes the scientific study of work methods to improve the productivity of individual workers Timeandmotion studies can be used to study how people do work and how their processes can be improved to increase productivity and efficiency Focused on finding the single best way to perform every job Workers could then be selected and trained, and managers could provide incentives to encourage workers to increase their output First serious attempt to carefully study tasks and jobs to improve efficiency Demonstrated the importance of personnel selection, training, and appropriate compensation Frederick W. Taylor o “Father of scientific management” o Four principles of scientific management Carefully study each component of a task Select the appropriate workers Train and incentivize them appropriately Use scientific principles to plan work methods to help workers better perform their jobs o Believed workers could be “retooled like machines” o Differential rate system—Workers earn more money if they are more productive Frank and Lillian Gilbreth o Used timeandmotion studies with movie cameras to isolate the different parts of a job o Eliminating unnecessary motions and taught workers the best way to accomplish their tasks o Reduced worker fatigue and increased productivity o Developed the concept of scaffolding so workers didn’t have to waste time going down a ladder when constructing buildings Henry Gantt o Gantt Chart—Simple tool used to break work into subtasks and assign those tasks to workers Still widely used in business today Drawbacks o Viewed workers as drones rather than individuals o Ignored the importance of “higher” needs such as social needs Administrative Management: More holistic approach that is concerned with managing the entire organization Management and ownership should be separated by a clearly defined hierarchy which serves as a blueprint for the authority/responsibility relationships Promotes the use of formal recordkeeping Showed how standardized rules and procedures could generate consistent, reliable behaviors and results Emphasized the importance of rewarding and promoting employees based on merit and technical qualifications rather than personality Henri Fayol o French engineer who was the first to identify the major functions of management o Five basic functions of management: planning, organizing, commanding, coordinating, and controlling o General principles of management Unity of command—Subordinates should receive orders from one and only one superior Division of work—Workers should specialize whenever possible Unity of direction—Managers should be responsible for coordinating similar activities in an organization Scalar chain—The organization should be arranged in a hierarchy of authority that includes every employee o Managers should treat workers with kindness and fairness (equity) o Management theories and practices should be scientifically tested o Not always one “best” way to do a job (management should be flexible) Max Weber o German sociologist who described bureaucracy as an efficient, rational, ideal organization based on logical principles o Ideal bureaucracy has five features Impersonality Meritbased careers Clear division of labor Welldefined hierarchy of authority Formal rules and procedures o Major factors that drive the need for bureaucracy Growth of space or population Growth in administrative complexity Existence of an economy based on money rather than a barter system First attempt to apply scientific methods to management Drawbacks Too mechanistic, views humans as cogs in a machine instead of people with needs The Behavioral Viewpoint Behavioral Viewpoint: Emphasized the importance of understanding human behavior and motivating employees to achieve Early Behaviorism Managers should study both jobs and workers in order to correctly match the right worker to the job Consider the psychological aspects that might encourage an employee to perform better Hugo Munsterberg o German doctor who is known as the “father of industrial psychology” (study of human behavior in the workplace) o Believed top managers should do the following Study jobs and match wellsuited employees to them Determine the psychological conditions under which employees perform at their best in the workplace Determine how to influence employees to align personal interests with management’s interests Mary Parker Follett o Social worker and social philosopher who envisioned democratic cooperation between mangers and employees rather than the traditional hierarchical arrangement o Workers should belong to a workplace community not a bureaucracy, mutual respect between employees and managers (not treated like cogs in a machine) o Knowledgeable workers should be empowered to control their own work processes instead of deferring to managers o Managers and workers should resolve conflicts by talking them over and finding common solutions o One of the first people to advocate employee empowerment where managers give lower level employees decisionmaking authority o Proposed several management tools used today, including selfmanaged teams and crossfunctional teams Elton Mayo o Management theorist who led the “Hawthorne experiments” o Originally sought to determine how different levels of illumination affected worker productivity o Discovered that when workers perceived that they were receiving attention, they tended to work harder (Hawthorne effect) Human Relations Movement Proposed that better human relations could increase productivity Workers are not drones, and treating them like human beings can yield positive productivity results Abraham Maslow o Hierarchy of Needs Theory: People are motivated by five levels of needs Physiological needs—The most basic needs, including food, water, shelter, clothing, selfpreservation, and sex Safety needs—Physical safety and emotional security Social needs—Love, friendship, and affection Esteem needs—Reputation, recognition, selfrespect, and selfconfidence Selfactualization needs—Developing one’s potential and being the best one can be Individuals seek to meet basic needs before they go on to more advanced needs Douglas McGregor o Theory X—Managers who believe workers are irresponsible, resist change, have no ambition, dislike work, and want to be led (pessimistic) o Theory Y—Managers who believe workers are selfdirected, imaginative, creative, self controlled, and capable of taking on responsibility (optimistic) o SelfFulfilling Prophecy: Take a Theory X view of the world and the world responds to that attitude in a Theory X way (can be avoided if managers are aware of their attitudes towards employees) Behavioral Science Approach Behavioral Science: Relies on scientific research for developing theories about human behavior Highlights the critical element of human relations Helps managers understand how their beliefs and expectations about human nature influence their behavior and that of their employees Drawback o Not all behavior can be changed o Viewpoint isn’t flexible enough to account for environmental change or the diversity of circumstances that managers face on a daily basis The Quantitative Viewpoint Quantitative Management: Application of quantitative techniques (statistics and computer simulations) to management Management Science (Operations Research) Management ScienceMathematics Stresses the use of rational, sciencebased techniques and mathematical models to improve decisionmaking and strategic planning Uses mathematics to solve management problems Goal is to achieve consistency in decisionmaking through the use of quantitative rigor Often relies on simulationbased evidence Operations Management Focuses on more effectively managing the production and delivery of an organization’s products or services Helps managers make decisions about such practical matters as production planning, facilities location, inventory levels, purchasing, and work scheduling Drawbacks Mathematical models rely on predictions, and they are not equally suited for all industries Can’t control for the uncertainty inherent in any process that involves people THE CONTEMPORARY PERSPECTIVE The Systems Viewpoint Systems Viewpoint: Regards the organization as a system—a set of interrelated parts operating together to achieve a common purpose Looks at organizations as a set of parts (subsystems) making up the entire system, which is a part of the greater environment Goal is to achieve synergy (whole is greater than the sum of its parts) Open Systems: Continually interact with their environment Closed Systems: Have little interaction with their environment Not enough for managers to understand various parts of the system but must also understand how these various subsystems interact and the complexities involved in making the system work as a whole Four parts of any system Inputs—People, money, information, equipment, and materials required to produce an organization’s goods or services Transformation processes—Organization’s capabilities in management and technology that are applied to converting inputs to outputs Outputs—Products, services, profits, losses, employee satisfaction or discontent, and other aspects of an organization’s products Feedback—Information about the reaction of the environment to the outputs, this can then affect the inputs Complexity Theory: Study of how highly complex, apparently chaotic systems give rise to order and pattern Addresses how the many independent pieces of the organizational system work together in a predictable way The Contingency Viewpoint Contingency Viewpoint: Emphasizes that a manager’s approach should vary according to the individual and the environmental situations Combination of the systems and the behavioral viewpoint Organizations should strive to adapt in a way that matches their internal competencies with environmental demands Approach each situation on a casebycase basis and tailor their approach to the environmental situation Contingency factors determine which management styles and organizational structures are more effective Drawback There is no standardization of responses, which can lead to inefficiency The QualityManagement Viewpoint QualityManagement Viewpoint: Quality control and quality assurance Seek to prevent problems instead of fixing them once they occur Quality: Total ability of a product or service to meet customer needs (essentially effectiveness) Two was firms can ensure quality Quality Control: Minimizing errors managing each stage of production (related to efficiency) Quality Assurance: Performance of workers, urging employees to strive for “zero defects” THE TRIPLE BOTTOM LINE Triple Bottom Line: (3 P’s) People, planet, and profit Measures the organization’s performance in terms of its social, environmental, and financial contributions Social Audit: Systematically assessing the extent to which the organization has successfully implemented socially responsible programs THE ORGANIZATIONAL ENVIRONMENT Stakeholders: People whose interests are affected by the organization’s activities (employees, customers, community) Internal Stakeholders Owners o Those who can claim it as their legal property o Elect members of the board of directors o Stockholders are the owners (publicly held companies) Employees o Carry out organizational work o Paid by owners and overseen by management Board of Directors o Elected by stockholders to ensure that the company is being run according to their interests o Can consist of both inside directors (also employees or officers in the company) and outside directors (not employees or officers) External Stakeholders People or groups in the organization’s external environment that it affects Consists of the task environment and the general environment Stakeholder Analysis: Process in which a manager determines how to effectively communicate with key stakeholders in the business EXTERNAL STAKEHOLDERS: TASK AND GENERAL ENVIRONMENTS The Task Environment Task Environment: Groups that can impact the day to day operations of a business and manager Customers—Those who pay to use an organization’s good or services Competitors—People or organizations that compete for customers or resources Suppliers—People or organizations that provide supplies (raw materials, services, equipment, labor, energy) to other organizations Distributors—People or organizations that help another organization sell its goods and services to customers, mainly by providing place utility Middlemen between firms and their ultimate customers Strategic Allies—Two organizations that join forces to achieve advantages neither can attain alone Employee Organizations Labor UnionHourly workers Professional AssociationsSalaried workers Financial Institutions—Commercial banks, credit card companies, investment banks, and insurance companies interact with and rely on businesses for their own success Local Communities—Companies provide a tax base to local governments and jobs to local citizens Many companies rely on tax incentives from communities to relocate or build new plants Clawbacks: If a community promises a company certain benefits, the company must bring new jobs and revenue to that area or the community has the right to take back those benefits Government Regulators—Regulatory agencies that establish ground rules under which organizations may operate EX. FDA (Food and Drug Administration) Special Interest Groups—Groups whose members try to influence decisions on specific issues EX. PETA Mass Media—TV, radio, print, and the Internet Playing a much more important role in the task environment Firms can no longer afford to ignore what people are saying about them online The General Environment General Environment: Forces that cannot be controlled by the organization but will eventually impact the task environment Economic Forces—General economic conditions and trends (unemployment, inflation, interest rates, economic growth) that may affect an organization’s performance Technological Forces—New developments in methods for transforming resources into goods and services Sociocultural Forces—Influences and trends originating from human relationships and values within countries, societies, and cultures that may affect an organization Demographic Forces—Influences on an organization arising from changes in the characteristics of a population, such as age, gender, or ethnic origin PoliticalLegal Forces—Changes in the way politics shapes laws and laws shape the opportunities for and threats to an organization International Forces—Changes in the economic, political, legal, and technological global system that may affect an organization Balance the needs and wants of all the groups (stakeholders) and determine which groups have priority ETHICS AND MANAGEMENT Ethics: Standards of right and wrong that influence behavior Different cultures, countries, organizations, and people have different standards of right and wrong, so what may be ethical to one person may not be to another Five main categories of unethical behavior Toward Customers—Deceptive sales tactics, falsifying product quality data or submitting misleading invoices Toward Financers—Fabricating financial reports, abusing confidential information or breaching database controls Toward Society—Putting the public in danger, violating international human rights laws, and violating environmental standards Towards SuppliersAccepts favors or kickbacks, or violates an agreement with its supplier Toward Employees—Employee discrimination, hostile work environments and health and safety violations Ethical Dilemma: Situation in which you have to decide whether to pursue a course of action that may benefit you or your organization but is also unethical or even illegal Values: Relatively permanent and deeply held underlying beliefs and attitudes that help determine a person’s behavior Value System: Pattern of values within an organization Approaches Dealing with Ethical Dilemmas Utilitarian Approach: Ethical dilemma is resolved in a way that will generate the greatest good for the greatest number of people Individual Approach: Ethical dilemma is resolved in a way that will result in the individual’s best longterm interests, which ultimately are in everyone’s selfinterest Treat others like you would like to be treated Problem—Approach focuses on longterm interests, at the expense of shortterm needs MoralRights Approach: Ethical dilemma is resolved in a way that respects the fundamental rights of human beings, including such things as privacy, consent, and freedom of speech Justice Approach: Ethical dilemma is resolved in a way that respects impartial standards of fairness and equity Three Levels of Personal Moral Development Laurence Kohlberg Preconventional (Level 1) Individual who follows rules and obeys authority to avoid unpleasant consequences Individual is primarily driven by selfinterest Obedient for the sake of avoiding punishment Managers need to be very autocratic and demanding Employees focus on task accomplishment Conventional (Level 2) Individual who generally adheres to the expectations of others Gives in to peer pressure and societal expectations Managers overseeing this level are more teamoriented and encouraging Employees focus on work group collaborations Postconventional (Level 3) Individual who is guided by their own internal values Own sense or right and wrong Become their own person, developing their own moral compasses, and make decisions on their own Managers can engage in transforming, servant leadership Employees are fullyparticipating and empowered Only 20% of American managers reach this highest level Promoting Ethical Behavior Create a strong ethical climate through policies, procedures, and practices that convey the company’s expectations Screen prospective employees with personality tests and integrity tests to ensure that the personal values of the prospective employees align with those of the company Institute ethics codes and training to instruct employees on how to behave in certain situations Reward ethical behavior rather than punish whistleblowers (employees that disclose unethical behavior practices within a company) Business Case for Ethics and Social Responsibility Social Responsibility: Manager’s duty to take actions that will benefit the interests of society as well as the interests of the organization Investors and consumers are paying more and more attention Corporate Social Responsibility (CSR): Idea that corporations should do more than just follow the law and make a profit Carroll’s Views on Global Corporate Social Responsibility Being a good global corporate citizen should be the priority for any company, followed by being ethical, obeying the law, and making a profit Philanthropic Responsibility—Be a good global corporate citizen and do what global stakeholders desire Ethical Responsibility—Be ethical and do what global stakeholders expect Legal Responsibility—Obey the law and do what global stakeholders require Economic Responsibility—Be profitable and do what global capitalism requires Social Media and CSR Social media has created a world of “Radical Transparency” where organizations are closely observed by the public “Age of Damage” where groups of observers can create a movement against a company that has behaved badly and can dramatically impact its bottom line Corporate Governance Corporate Governance: Considers stakeholders and their relationships and decides how to direct the strategy and performance of a company Can result in Agency Problems: Goals of the people making decisions (agents) conflict with those of the owners and other stakeholders (principals) Gives the shareholders a way to ensure that the managers have behaved appropriately Provides a mechanism by which shareholders can replace managers who have behaved inappropriately In place to ensure that the people running the company are acting in the shareholders’ best interests Characteristics of good corporate governance policies Shareholder rights should be protected All shareholders should be treated equally Many different kinds of stakeholders should be involved The actions of the directors and officers should be transparent and regularly disclosed The board of directors should be monitored and held accountable The SarbanesOxley Act of 2002 SarbanesOxley Act of 2002: Regulates how CEOs can be held accountable for their actions, and it regulates the appropriate composition of the board of executives, requiring a certain number of outside managers Requirements for proper financial record keeping for public companies and penalties for noncompliance Securities and Exchange Commission (SEC) has also introduced legislation to regulate the board of directors in a company Insider Trading: Illegally trading a company’s stock through the use of confidential company information Ponzi scheme: Using new investors’ cash to pay off older investors INTRODUCTION TO THE GLOBAL ENVIRONMENT Global Village: “Shrinking” of time and space as air travel and electronic media have made it easier for people around the world to communicate with one another Advances in transportation methods are the original catalyst for globalization The Global Economy Global Economy: The increasing tendency of world economies to interact with one another and to behave as one market instead of many national markets Financial problem in one market affects all other markets BRIC Nations: Brazil, Russia, India, and China Advantages of the trend toward a unified global economy Larger market for firms—Provides domestic firms with more marketplaces to sell their goods in Lower prices for consumers—Lower prices because firms enjoy a lower cost structure due to outsourcing and access to new materials Enhanced economic growth—Greater competition spurs economic growth leading to more income and more jobs for the nation as a whole Disadvantages of the trend toward a unified global economy Job losses in certain industries Environmental issues—Firms choose to produce in countries where environmental standards are the weakest leading to potential environmental degradation Cultural imperialism—Some are concerned that globalization allows the world’s largest companies and media organizations to have a disproportionate influence over the world population The Rationale for Trade Globalization causes job losses Critics—Advanced economies are losing jobs to lowwage nations as trade barriers are reduced Supporters—Some do lose their jobs, but the economy as a whole is better off because countries are able to specialize in producing the goods and services that they are good at producing (competitive advantage) Globalization allows companies to take advantage of lax environmental and labor standards Critics—Globalization allows firms to preferentially locate their facilities in countries that have lax environmental and labor regulations, which leads to environmental destruction and the mistreatment of workers Supporters—Environmental and labor regulations improve as a country gets richer and globalization helps countries get richer Technology and the Success of Minifirms Globalization provides an incentive for firms to become very large in order to access large numbers of customers Reason we have seen a number of mergers of large global firms Information and communication technology allows firms to instantaneously communicate with one another around the globe making it easier for minifirms (small companies) to enter the market and achieve success globally Better able to get started and be flexible in the global economy Able to specialize and thrive Megamergers: Mergers of large firms in order to take advantage of the economies of scale inherent in larger firms THE INTERNATIONAL BUSINESS ENVIRONMENT International Management: Management of business operations conducted in ore than one country Must be keenly aware of cultural differences to achieve success The Economic Environment Economic development—Depends on market size, government policies, financial markets, and infrastructure Resource and product markets—Managers must decide whether raw materials and other necessary resources are available in a different country and whether market demand for the company’s product is high in that country The LegalPolitical Environment Political risk—A company’s risk of losing its assets, earning power, or managerial control due to politically based events or actions by host governments International businesses risk government takeovers, instability, and the possibility of burdensome laws and regulations Repatriation—Backing out of deals with international firms that were given the right to exploit natural resources Political instability—Events such as riots, revolutions, or government upheavals that affect the operations of an international company Companies are hesitant to invest in countries where political risk and instability are high The Sociocultural Environment Differences in social values Differences in communication Other key cultural differences—Language, religion, attitudes, social organization, and education INTERNATIONAL MANAGEMENT Actors in International Business Multinational Corporations (MNCs): (Multinational enterprises (MNEs)) Business firms with operations in several countries Multinational Organizations (MNOs): Nonprofit organizations with operations in several countries Motivation for International Expansion Availability of supplies—Companies must get their supplies from the countries where their raw materials are located New markets—When a company has exhausted domestic demand, further growth may require it to expand to new markets in other countries Lower labor costs Access to financial capital—Foreign companies or countries might offer financial capital or a more sophisticated financial system to entice a company to expand overseas Avoidance of tariffs and import quotas—A company might situate its operations directly in a foreign country to avoid these tariffs and quotas Methods of International Expansion Start out on the left and move toward the right in the evolutionary process of going abroad Global Outsourcing (Global Sourcing or Offshoring)—Practice of using suppliers outside the U.S. to provide labor, goods, or services Engage because foreign firms have specialized resources, such as raw materials, expertise, or cheaper labor Importing, Exporting, and Countertrading—Marketseeking motivation for going abroad Importing: Buying goods outside the country and reselling them domestically Exporting: Producing goods domestically and selling them outside the country Countertrading: Trading goods for other goods (bartering) Licensing and Franchising Licensing: Arrangement where one company allows another foreign company to make or distribute their product or service for a fee Franchising: One company allows another foreign company to pay it a fee and a share of the profits in return for using their brand name and package on materials and services Joint Ventures—(Form of strategic alliance) Arrangement with a foreign company or a foreign government to share the risks and rewards of starting a new enterprise together in a foreign country Two joining companies establish a legally distinct entity subject to the laws of the country in which it operates Often local laws prohibit foreign firms from owning more than a certain percentage of a firm outright so a joint venture is necessary WhollyOwned Subsidiaries—Foreign subsidiary that is totally owned and controlled by an organization Greenfield Venture: Foreign subsidiary that the parent organization has built from scratch FREE TRADE AND REGIONAL ECONOMIC COOPERATION Free Trade: Movement of goods and services among nations without political economic obstruction International Trade: Export of goods and services to consumers in other countries Foreign Direct Investment (FDI): Occurs when a firm makes a direct investment of its resources in business activities in a foreign country Barriers to International Trade Trade Protectionism: Use of government regulations to limit the import of goods and services so domestic industries are protected against competition Tools for trade protectionism Tariff: Trade barrier in the form of a customs duty, or tax, levied mainly on imports mainly for political or economic reasons Import Quota: Trade barrier in the form of a limit on the amount of a product that can be imported o Common for agricultural products such as sugar, cotton, and peanuts o Dumping: Occurs when a foreign company exports products abroad at a price lower than that in the home market to drive down the price of the domestic product Embargo: Complete ban on the import or export of certain products o Can be established against a product or against all products from a certain country Organizations Promoting International Trade World Trade Organization (WTO): Designed to monitor and enforce trade agreements Now the global forum for negotiations about trade, and it has a legal structure for ruling on disputes between nations 154 members (2010) International Monetary Fund (IMF): Designed to assist in smoothing the flow of money between nations World Bank: Provides lowinterest loans to developing nations for improving transportation, education, health, and telecommunications Corruption Most corrupt countries are Sudan, North Korea, and Somalia Particular problem in Russia and countries that were once part of the Soviet Union In some emerging markets, worker safety is being sacrificed for rapid economic expansion Major Trading Blocs Trading Bloc: (Economic community) A group of nations within a geographical region that have agreed to remove trade barriers with one another Economic benefits—Lower tariffs and quotas and increased crossborder business Noneconomic benefits—Strengthening political ties and easier travel for citizens of member countries Major international trading blocs NAFTA—North American Free Trade Agreement (U.S., Canada, and Mexico) EU—European Union (28 trading partners in Europe) APEC—AsiaPacific Economic Cooperation (21 Pacific Rim countries) ASEAN—Association of Southeast Asian Nations (10 Asian countries) Mercosur—Largest trading bloc in Latin America CAFTA—Central America Free Trade Agreement (U.S., Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua) Trade flows tend to be stronger in a trading bloc than outside a trading bloc NATIONAL CULTURE Culture: Shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people LowContext vs. HighContext Cultures LowContext Cultures: Shared meanings are primarily derived from written and spoken words Germany, Switzerland, North American countries, English countries “What you see is what you get” regarding communication HighContext Cultures: People rely heavily on situational cues for meaning when communicating with others China, Korea, Japan, Vietnam Things like trust, status, and family connections are important The GLOBE Project Model of Cultural Dimensions Global Leadership and Organizational Behavior Effectiveness (GLOBE) Project: Massive, ongoing, crosscultural investigation of nine cultural dimensions involved in leadership and organizational processes 1993 by Robert J. House Power distance—Extent to which people expect power to be unequally distributed Uncertainty avoidance—Extent to which a culture alleviates the unpredictability of the future by relying on social norms and procedures Institutional collectivism—Extent to which cultures value allegiance to a social group over individual performance Ingroup collectivism—Extent to which cultures value being a member of a family, work organization, or close circle of friends, and how much pride and loyalty people have for their family or organization Gender egalitarianism—Extent to which a society minimizes role inequalities and gender discrimination Assertiveness—Extent to which people are expected to be competitive and confrontational as opposed to modest and tender Future orientation—Extent to which investment in the future (planning and saving) is encouraged Performance orientation—Extent to which members of society are encouraged to improve performance and excel Humane orientation—Extent to which a society encourages individuals to be caring, kind, fair, and altruistic Other Cultural Variations Language Interpersonal Space Communication Time Orientation Monochronic Time: Preference for doing one thing at a time (meeting scheduled for 11 be there at 11) Polychronic Time: Preference for doing more than one thing at a time (meeting scheduled for 11 may show up at noon) Religion Law and Political Stability Instability Expropriation: The government seizes a company’s assets Corruption Labor Abuses Managerial Approaches Ethnocentric Manager: Believes their native country, culture, language, and behavior are superior to all others Demonstrate parochialism (narrow view where people see things solely from their own perspective) Polycentric Managers: Believe that native managers in foreign offices best understand native personnel and practices, so the home office should leave them alone Geocentric Managers: Accept the fact that there are differences and similarities between home and foreign personnel and practices and strive to use the techniques that are most effective Pragmatic approach that involves being flexible and adaptable and taking the best approach under the given circumstances Best approach that international managers should strive for Better able to learn from locals in the countries where they operate Reverse innovation: (“trickleup innovation”)?
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