Management 300 Study Guide CHAPTER ONE ∙ Management- the pursuit of organizational goals efficiently and effectively by integrating the work of people through planning, organizing, leading, and controlling the organization’s resources o Managers work within an organization- a grouIf you want to learn more check out bsc 108 exam 1
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p of people who work together to achieve some specific purpose. o Efficiency- the “means” - to use resources wisely and cost-effectively (what you get is what you put into the job) o Effectiveness- the “ends” - to achieve results, to successfully carry out the organization’s goals (doing the right job) EX: Many companies use a recorded “telephone menu” of options to answer customer calls. This is efficient but not effective, as many customers prefer a live agent ∙ Multiplier effect: influence on the organization is multiplied far beyond the results that can be achieved by just one person alone ∙ Seven Challenges to Being an Exceptional Manager 1. Competitive Advantage - ability to produce goods or services more efficiently than competitors (requires: responsiveness, innovation, quality, and efficiency) Alabama vs. Oklahoma competitive advantage. People know our offense and the hurry-up exposes our defense. Chick-fil-a & KFC competitive advantages Newspaper losing competitive advantage Gave away the product to promote themselves, relied too much on advertising revenue, and now the Boston Globe and Washington Post have been bought out 2. Diversity - the future won’t resemble the past. Customers and employers are becoming more diverse, older people and newer workers. Challenge to manage people of different ages, genders, races, and ethnicities Percentage of non-Hispanic Whites expected to decline as percentage of voting population beyond 2012 election (whites will be a minority by 2050); see current Immigration Bill 3. Globalization - the expanding management universe, past our borders Global employment markets: outsourcing, offshoring, onshoring, Maquiladoras, Autos Foreign Direct Investment (FDI) in Mexico EBay makes it possible for small businesses to sell globally Cultural differences: avoiding eye contact in Japan 4. Information Technology - far ranging e-management and e-communication, allows for accelerated decision making, conflict, and stress E-commerce - buying and selling of goods via computer networks E-business - using the Internet to facilitate every aspect of running a business Project management software - programs for planning and scheduling the people, costs, and resources to complete a project on time Collaborative computing - using state-of-the-art computer software to help people work better together Knowledge management - implementing of systems and practices to increase the sharing knowledge and information throughout an organization Changes in organizational structure, jobs, goal setting, and knowledge management Example: Using Skype to conference or customer feedback on store websites 5. Ethical Standards Bernie Madoff’s $50 billion Ponzi Scheme (lend money at high interest and use that to get more money and pay off debt) Fraud at HealthSouth & Enron Insider Trading at Galleon and Goldman Sachs 6. Sustainability - economic development that meets the needs of the present without comprising the ability of future generations to meet their own needs Green Moving Nashville - Biodiesel trucks Wal-Mart 7. Happiness & Life Goals - fitting into an organization ∙ What Managers Do: The Four Principal Functions o Planning - setting goals and deciding how to achieve them o Organizing - arranging tasks, people, and other resources to accomplish the work o Leading - motivating, directing, and influencing people to work hard to achieve the organization’s goals o Controlling - monitoring performance, comparing it with goals, and taking corrective action if needed ∙ Three Levels of Management o Top Managers - make long-term decisions about the overall direction of the organization and establish the objectives, policies, and strategies for it o Middle Managers - implement the policies and plans of the top managers above them and supervise and coordinate the activities of the first-line managers below them (titles include plant, district, or regional manager) Hit by the recession the most “Manage managers” o First-Line Managers - make short-term operating decisions, directing the daily tasks of nonmanagerial personnel, responsible for direct outputs of goods/services ∙ Areas of Management - Functional vs. General o Functional Manager - Responsible for just one organizational activity (i.e. just Director of Finance or Administrator for Human Resources) o General Manager - Responsible for several organizational activities (i.e. Executive Vice President) ∙ For-profit vs. Nonprofit vs. Mutual benefit o For profit wants to earn a profit, nonprofit managers are “administrators” o Commonwealth organizations - nonprofit organizations that offer services to all clients within their jurisdictions (such as the US Postal Service) o Mutual-benefit organizations are voluntary collections of members such as political parties or labor unions ∙ Henry Mintzberg’s 3 Useful Findings o Managers rely more on verbal than written communication (Managing by walking around) o Managers work long hours at an intense pace o Managers’ work is characterized by fragmentation, brevity, and variety ∙ Three Types of Managerial Roles o Interpersonal Roles- Figurehead, Leader, and Liaison - managers interact with people inside and outside their work units o Informational Roles- Monitor, Disseminator, and Spokesperson - managers receive and communicate information with people inside and outside their organization o Decisional Roles- Entrepreneur, Disturbance Handler, Resource Allocator, and Negotiator- use information to make decisions to solve problems or take advantage of opportunities ∙ The Entrepreneurial Spirit - Entrepreneurship is the process of taking risks to try to create a new enterprise. There exist two types: o Entrepreneur- someone who sees a new opportunity for a product or service and launches a business to realize it Game Day Tents & Events, Pedicab, Stadium Student Seating App, Forza o Intrapraneur- someone who works inside an existing organization who sees an opportunity for a product or services and mobilizes the organization’s resources to try to realize it o Difference between entrepreneur and manager: entrepreneur wants to start a business; a manager wants to grow or maintain a business. Can be both, of course o Necessity entrepreneurs vs. Opportunity entrepreneurs Necessity entrepreneurs must earn a living by trying to replace lost income and hope a job comes along Opportunity entrepreneurs start their business out of a burning desire rather than because they lost their job ∙ The Skills Exceptional Managers Need - researcher Robert Katz came up with three skills managers acquire: o Technical Skills - job-specific knowledge needed to perform well in a specialized field o Conceptual Skills- the ability to think analytically, to visualize an organization as a whole and understand how the parts work together o Human Skills- the ability to work well in cooperation with other people to get things done ∙ The Most Valued Traits in Managers o The ability to motivate and engage otherso The ability to communicate o Work experience outside the U.S. o High energy level to meet the demands of global travel & a 24/7 world CHAPTER TWO ∙ Peter Drucker - “creator and inventor of modern management” ∙ Evidence-based management- translating principles based on best evidence into organizational practice, bringing rationality to the decision-making process ∙ Historical vs. Contemporary Management o Historical perspective includes three viewpoints: classical, behavioral, and quantitative o Contemporary Perspective includes three viewpoints: systems, contingency, and quality-management ∙ Classical viewpoint- finding ways to manage work more efficiently. Assumes people are rational o Two branches: scientific and administrative o Scientific management- emphasized the scientific study of work methods to improve the productivity of individual workers Frederick W. Taylor: “Father of Scientific Management” - motion studies Scientifically study each part of the task, carefully select workers with the right abilities, give workers the training and incentives to do the task, and use scientific principles to plan the work methods Henry Ford used this in his assembly lines Frank and Lillian Gilbreth - Cheaper by the Dozen o Administrative management- concerned with managing the total organization Henri Fayol- first to identify the major functions of management (planning, organizing, leading, and controlling) Max Weber- believed that bureaucracy was a rational, efficient, ideal organization based on principles of logic. Grew out of German military led by incompetent officers who had position based on family and connections o The problem with classical viewpoint: mechanistic & tends to view humans as cogs within a machine, not taking into account the importance of human needs o Why it is important: work activity was amenable to a rational approach, through the application of scientific methods, time and motion studies, and job specialization it was possible to boost productivity, and it still works for some companies i.e. UPS still doesn’t make left turns ∙ Behavioral viewpoint: human behavior is important and motivating employees towards achievement (three phases: early behaviorism, human relations movement, and behavioral science) o Early Behaviorism- Hugo Munsterberg (Father of industrial psychology) Study jobs and determine which people are best suited to specific jobs, identify the psychological conditions under which employees do their best work, devise management strategies to influence employees to follow management’s interests Mary Parker Follet- social worker who believed organizations should be operated as communities, conflicts should be resolved by talks between managers and workers, work process should be under control of workers Hawthorne effect (Elton Mayo): employees worked harder if they received added attention, thought that managers cared about their welfare and that supervisors paid special attention to them (increase lighting, productivity goes up, decrease lighting it goes up too. But they actually were more productive because of attention paid to them) o Human relations movement- proposed that better human relations could increase worker productivity (Abraham Maslow and Douglas McGregor) Maslow’s Hierarchy of Needs: Physiological, Safety, Love-Belonging, Esteem, and Self-actualization (move up the list) McGregor’s Theory X vs. Theory Y ∙ Theory X: pessimistic, negative view of workers; they are irresponsible, resistant to change, lack ambition, hate work ∙ Theory Y: optimistic, positive view of workers; they are responsible, self-controlled, and creative ∙ Why this is important: help managers how their beliefs affect their behavior. Managers can be more effective by considering how their behavior is shaped by their expectations about human nature o Behavioral Science- relies on scientific research for developing theories about human behavior that can be used to provide practical tools for managers (includes psychology, sociology, and economics) ∙ Quantitative Management- application to management of quantitative techniques, such as statistics and computer simulations. Two branches of quantitative management are management science and operations management o Management science- stresses the use of rational, science-based techniques and mathematical modes to improve decision making and strategic planning o Operations Management- focuses on managing the production and delivery of an organization’s product or services more effectively; work scheduling, production planning, facilities, location and design Rational management of resources and distribution of goods and services, helps ensure that business operations are efficient and effective ∙ Systems Viewpoint- regards the organization as a system of interrelated parts, collection of subsystems, part of a larger environment, open or closed systems o Four parts of a system: Inputs, transformation processes, outputs, and feedback o Open system: interacts with environment, stresses feedback from the internal and external environment; closed system does not interact with it o Complexity theory: the study of how order and pattern arise from very complicated, apparently chaotic systems ∙ Contingency Viewpoint- emphasizes that a manager’s approach should vary according to (be contingent on) the individual and the environmental situation o Most practical because it addresses problems on a case-by-case basis∙ Quality Management- quality control, quality assurance, and total quality management o Quality- the ability of a product/service to meet customer needs o Quality control- strategy for minimizing errors by managing each stage of production o Quality assurance- focuses on performance of workers, urging employees to strive for “zero defects” o Total Quality Management- comprehensive approach, led by top management and supported throughout the organization, dedicated to continuous quality improvement, training, and customer satisfaction Make continuous improvement a priority, get every employee involved, listen to and learn from customers and employees, and use accurate standards to identify and eliminate problems o Learning organization- an organization that actively creates, acquires, and transfers knowledge within itself and is able to modify its behavior to reflect new knowledge CHATPER THREE ∙ Internal & External Stakeholders - people who interests are affected by an organization’s activities o Internal Stakeholders- consists of employees, owners (consists of all those who can claim the organization as their legal property) and the board of directors (members elected by the stockholders to see that the company is being run according to their interests) o External Stakeholders- people or groups in the organization’s external environment that are affected by it Task/Specific Environment ∙ Customers (those who pay to use goods or services) ∙ Competitors (people the org. competes against) ∙ Suppliers (supplies raw materials, equipment, etc.) ∙ Example: Amazon.com and the Customer Experience- Jeff Bezos, the founder and CEO is obsessed with customer service, believes that the company’s success is driven by customer’s experience, in 2011 revenue increase 41% ∙ Distributor (helps another organization sell its goods to customers) ∙ Strategic alliance (two organizations who join forces to achieve advantages neither can perform as well alone) ∙ Employee Organizations: Unions & Associations ∙ Local Communities (depend on tax revenue & employment) o Clawbacks- rescinding the tax breaks when firms don’t deliver promised jobs ∙ Financial Institutions ∙ Government regulators (establish ground rules under which organizations may operate)∙ Special Interest Groups (influence specific issues) ∙ Mass Media (positive or negative stories about company, i.e. clothing companies in Bangladesh were bashed for the working conditions) The General Environment (affects everyone, the macroenvironment) ∙ Economic forces- general economic conditions and trends unemployment rate, inflation, interest rates, economic growth things that may affect an organization’s performance ∙ Technological Forces - new developments in methods for transforming resources into goods and services, disruptive technology (ex: email) ∙ Sociocultural forces- influences and trends originating in a country’s/society’s, or a culture’s human relationships and values that may affect an organization (i.e. obesity rate) ∙ Demographic forces- influences on an organizations arising from changes in the characteristics of a population, such as age, gender, or ethnic origin (i.e. rising number of Hispanics, rising population) ∙ Political-legal forces- changes in the way politics shape laws and laws shape the opportunities for and threats to an organization (new and changing regulations) ∙ International forces- changes in the economic, political, legal, and technological global system that may affect an organization (World Trade Organization, Bank secrecy laws, Arab Spring, Syrian uprising) ∙ Ethical Responsibilities Required for a Manager o Ethical dilemma- situation in which you have to decide whether to pursue a course of action that may benefit you or your organization but that is unethical or even legal (i.e. high sales commissions used to hide kickbacks, paying small bribes at border crossings) o Ethics- standards of right and wrong that influence behavior Ethical behavior- behavior that is accepted as “right” as opposed to “wrong” according to those standards o Values- relatively permanent and deeply held underlying beliefs and attitudes that help determine a person’s behavior o Value system- the pattern of values within an organization ∙ Organizations have two important value systems that can conflict: 1. Value system stressing financial performance 2. Value system stressing cohesion and solidarity in employee relationships ∙ Four Approaches to Deciding Ethical Dilemmas o Utilitarian Approach- guided by what will result in the greatest good for the greatest number of people, cost-benefit analysis Managers often take this approach, using financial performance- such as efficiency and profit- as the best definition as what constitutes as the greatest good for the most peopleo Individual Approach- guided by what will result in the individual’s best long-term interests, which ultimately are in everyone’s self interest. Individual acts ethically in the short run to avoid others harming the individual in the long run Flaw: one person’s goal might not be everyone’s o Moral Rights Approach- guided by respect for fundamental rights of human beings; Life, liberty, health, safety (the Bill of Rights) o Justice Approach- guided by respect for impartial standards of fairness and equity; impartial treatment in decisions regardless ∙ Sarbanes-Oxley Act of 2002- established requirements for proper financial record keeping for public companies and penalties as much as 25 years in prison for noncompliance. Arose from corporate scandals such as WorldCom and Enron in the 90’s ∙ How Organizations Can Promote Ethics o Creating of a strong ethical climate Ethical climate- represents employees’ perceptions about the extent to which work environments support ethical behavior o Screening prospective employees o Instituting ethics codes and training programs Code of ethics- formal written set of ethical standards guiding an organization’s actions o Rewarding ethical behavior: protecting whistle-blowers ∙ Social Responsibilities Required of You as a Manager o Social Responsibility- manager’s duty to take actions that will benefit the interests of society as well as the organization Corporate social responsibility- notion that corporations are expected to go above and beyond following the law and making a profit (i.e. buying “ethical coffee or enforcing law rules on foreign suppliers) o Two types of social responsibility: Philanthropy- making charitable donations to benefit humankind, sponsorships, volunteerism Corporate governance- the system of governing a company so that the interests of corporate owners and other stakeholders are protected o Corporate Social Responsibility Pyramid- invented by Archie Carroll, says that a organization should be: Good global corporate citizen (philanthropic responsibility) Be ethical in its practices (ethical responsibility) Obey the law (legal responsibility) Make a profit consistent with expectations for international business (economic responsibility) ∙ The Need for Independent Directors- more attention is being paid to strengthening corporate governance so that directors are clearly separated in their authority from the CEO o Better serving shareholders needs rather than management needs, weak boards contributed to the late 90’s business scandalsCHAPTER FOUR ∙ Globalization- the trend of the world economy toward becoming a more interdependent system. The “shrinking” of time and space as air travel and electronic media have made it much easier and less costly for the people of the globe to communicate and do business o Offshoring and foreign direct investment in America (emerging auto industry in the Alabama/the South, Mercedes, Hyundai) o Example: Amazon & Jeff Bezos: expanded from books to nonbook areas and can deliver goods to anywhere in the world o Global village- refers to the “shrinking” of time and space (see above) ∙ Global economy- the increasing tendency of the economies of the world to interact with one another as one market instead of many national markets o Positive effects: more markets for American exports o Negative effects: vast surplus funds from global investments flowed into US that were invested badly in subprime mortgages ∙ Ethnocentric managers- “we know best”- believe that their native country, culture, language, and behavior are superior to all others o Parochialism- narrow view in which people see things solely through their own perspective (American systems in Japan don’t work quite effectively, i.e.) ∙ Polycentric managers- take the view that native managers in the foreign offices best understand native personnel and practices, and so the home office should leave them alone ∙ Geocentric managers- accept that there are differences and similarities between home and foreign personnel and practices and that they should use whatever techniques are most effective ∙ Why Companies Expand Internationally o Availability of supplies o New Markets o Lower labor costs Maquiladoras- manufacturing plants allowed to operate in Mexico with special privileges in return for employing Mexican citizens o Access to financial capital o Avoidance of tariffs & import quotas ∙ Five Ways of Expanding Internationally o Global outsourcing- using suppliers outside the US to provide labor and goods o Importing- a company buys goods outside the country and resells them domestically o Exporting- a company produces goods domestically and sells them outside the country o Countertrading- bartering, goods for goods o Licensing- allowing a foreign company to pay it a fee to distribute the first company’s product or serviceo Franchising- form of licensing in which a company allows a foreign company to pay it a fee and a share of the profit in return for using the first company’s brand name and package of materials and services o Joint ventures- known as a strategic alliance, with a foreign company to share the risks and rewards of starting a new enterprise together in a foreign country China enforces these on automakers o Wholly-owned subsidiaries- foreign subsidiary that is totally owned and controlled by an organization Greenfield venture- foreign subsidiary that the owning organization has built from scratch ∙ Barriers to International Trade o Tariffs- customs duty, or tax, levied mainly on imports (NAFTA) o Import quotas- limits on the number of a product that can be imported o Embargoes- complete ban on the import or export of certain products (Cuba) o Subaru trucks had 25% tax to US so they made them into cars o Dumping- practice of a foreign company’s exporting products abroad at a lower price than the price in the home market- or even below the cost of production- in order to drive down the price of the domestic product o Trade wars - raise taxes and retaliation ∙ World Trade Organization- designed to monitor and enforce trade agreements, agreements are based on the General Agreement on Tariffs and Trade ∙ World Bank- purpose is to provide low-interest loans to developing nations for improving transportation, education, health, and telecommunications ∙ International Monetary Fund- designed to assist in smoothing the flow of money between nations ∙ Trading Bloc- group of nations within a geographic region that have agreed to remove trade barriers with one another (aka economic community) o NAFTA- US, Canada, Mexico o EU o APEC- 21 Pacific Rim countries o ASEAN- 11 countries in Asia o Mercosur- Latin America o CAFTA- Central America ∙ Most favored nation status- trading status describes a condition in which a country grants other countries favorable trading treatment such as the reduction of import duties ∙ Culture- the shared set of beliefs, values, knowledge, and patterns of behavior common to a group o Low-context culture- shared meanings are primarily derived from written and spoken words o High-context culture- people rely heavily on situational cues for meaning when communicating with others o HSBC commercials- show that their bank adapts to all cultures ∙ The GLOBE Project’s Nine Cultural Dimensionso Power distance- how much unequal distribution of power should there be in organizations and society o Uncertainty avoidance- how much should people rely on social norms and rules to avoid uncertainty o Institutional collectivism- how much should leaders encourage and reward loyalty to the social unit o In-group collectivism- how much pride and loyalty should people have for their family or organization o Gender egalitarianism- how much should society maximize gender role differences o Assertiveness- how confrontational and dominant should individuals be in social relationships o Future orientation- how much should people delay gratification by planning and saving for the future o Performance orientation- how much should individuals be rewarded for improvement and excellence o Humane orientation- how much should society encourage and reward people for being kind, fair, friendly, and generous o US scored highest on assertiveness and performance orientation- why Americans are regarded as pushy and hardworking ∙ Other Cultural Variations o Language o Interpersonal space o Communication o Time orientation (Monochronic time- doing one thing at a time vs. Polychronic time- doing more than one thing at a time) o Religion ∙ Expatriates- 10%-20% of US managers sent abroad returned early because dissatisfied of job or adjustment difficulties ∙ Hofstede’s 5 Cultural Dimensions o Long-term orientation o Uncertainty Avoidance o Masculinity o Individualism o Power distance CHAPTER FIVE ∙ Planning- coping with uncertainty by formulating future courses of action to achieved specified results, setting goals and deciding how to achieve them ∙ Steps to planning and strategic management: Establish the organization’s mission and vision, formulate the grand strategy, formulate the strategic plans, then the tactical and operational plans, implement the strategic plans, and control the strategy ∙ How planning helps:o Helps you check on your progress o Helps you coordinate activities o Helps you think ahead o Helps you cope with uncertainty o See: failure of Kodak, not adapting to its environment ∙ Four Basic Strategy Types: o Defenders- expert at producing and selling narrowly defined products (i.e. Legacy Airlines, Macy’s, JC Pennys, United Airlines)- not innovating, expanding their turf. Going down as of late. It is fine to do this in a business sector with not so many competitors o Prospectors- focus on developing new products and in seeking out new markets, rather than waiting for things to happen (i.e. GAP and Apple) o Analyzers- let other organizations take the risks of product development and marketing and then imitate what seems to work the best (i.e. Microsoft) o Reactors- make adjustments only when finally forced to by environmental pressures (i.e. Kmart, Sears). Will defend to absolute end until market hits them (also known as extreme defenders) ∙ Adaptive Cycle- portrays businesses as continuously cycling through decisions about three kinds of business problems o Entrepreneurial (selecting and making adjustments of products) o Engineering (producing and delivering the products) o Administrative (Establishing roles, relationships, and organizational processes) ∙ Mission Statement- expresses the purpose of the organization ∙ Vision Statement- long-term goal describing what an organization wants to become ∙ Three levels of planning for management: Strategic, Tactical, and Operational o Strategic planning- top management- determine what the organization’s long-term goals should be for the next 1-5 years with the resources they expect to have o Tactical planning- middle management- determine what contributions their departments or similar work units can make with their given resources during the next 6-24 months o Operational planning- first-line managers- determine how to accomplish specific tasks with available resources within the next 1-52 weeks ∙ Goals- specific commitment to achieve a measurable result within a stated period of time, also known as an objective (you can have strategic, tactical, and operational goals) o Strategic goals- set by and for top management and focus on objectives for the organization as a whole o Tactical goals- set by and for middle managers and focus on actions needed to achieve strategic goals o Operational goals- set by and for first-line managers and are concerned with short-term matters associated with realizing tactical goals o Means-end chain- because in the chain of management (operational, tactical, strategic) the accomplishment of low-level goals is the means leading to the accomplishment of high-level goalso Operating plan- designed for a 1-year period, defines how you will conduct your business based on the action plan; it identifies clear targets such as revenues, cash flow, and market share ∙ Action plan- defines the course of action needed to achieve the stated goal ∙ Southwest Airlines Example o Strategic goal Profitability Low cost, low cares Keep passengers happy (on-time record) Standardized Boeing 737 Strong corporate culture emphasizing individual initiative and responsibility taking “Fun airline” Efficiency and teamwork o Tactical goal Control cost, lowest cost provider More work on planes when in for a check Quick turn around of planes Flies to less congested airports Few additional fees o Operational goal First-line managers enhance productivity Ground crews ready to serve the plane Boarding passes organized in a three-tiered system using information technology ∙ Standing Plans- plans developed for activities that occur repeatedly over time o Policy- standing plan that outlines the general response to a problem o Procedure- standing plan that outlines the response to particular problems o Rule- standing plan that designates specific required action ∙ Single-use plans- plans developed for activities that are not likely to be repeated in the future o Program- single-use plan encompassing a range of projects or activities (i.e. the Challenger Mission) o Project- single-use plan of less scope and complexity than a program (i.e. Space Shuttle Discovery) ∙ SMART Goals o Specific - who, what, when, where, and why? o Measurable - where is the finish line? o Attainable - realistic o Results-oriented - “to complete, acquire, increase” o Target dates - deadlines ∙ Management by Objectives- four-step process in which managers and employees jointly set objectives for the employee, managers develop action plans, managers and employeesperiodically review the employee’s performance, and the manager makes a performance appraisal and rewards the employee according to the results o Management deals with motivating people through teamwork, culture o Three types of objectives used: Improvement objectives- performance to be accomplished Personal development- express personal goals Maintenance objectives- maintain performance at previously established levels o Cascading objectives: top management must be committed, it must be applied organization wide, and objectives must cascade Cascading objectives down through the organization means the objectives are structured in a unified hierarchy, becoming more specific at lower levels of the organization ∙ Planning/control cycle- has two planning steps and two control steps 1. Make the plan 2. Carry out the plan 3. Control the direction by comparing results with the plan 4. Control the directing by taking corrective action in two ways a. Correcting deviations b. Improving future plans CHAPTER SIX ∙ Business plan- a document that outlines a proposed firm’s goals, the strategy for achieving them, and the standards for measuring success ∙ Strategy- large-scale action plan that sets the direction for an organization o Strategic management- process that involves managers from all parts of the organization in the formulation and all the implementation of strategies and strategic goals o Strategic planning- determines where an organization is going over the next year or more, how it’s going to get there, and how it’ll know if it got there or not o Wal-Mart: “find out what the customers want, then provide it to them as cheaply and quickly as possible” o Why Strategic management & strategy is important: Provide direction and momentum Encourage new ideas Develop a sustainable competitive advantage ∙ Sustainable competitive advantage occurs when an organization can stay ahead in: responsiveness to customers, innovation, quality, and effectiveness ∙ Strategic positioning- attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company, “performing different activities from rivals, or performing similar activities in different ways”, “how are you good at what you do?” o Developed by Michael Porter (see Porter’s 5 Forces) ∙ Three Key Principles for an Effective Strategy o Strategy is the Creation of a Unique & Valuable Position Few needs, many customers - Jiffy Lube Broad needs, few customers - Wealth management Broad needs, many customers- Carmike Cinemas o Strategy requires trade-offs in competing (choose which strategy to follow and which not to follow) o Strategy involves creating a fit (synergy) among activities Activities align and reinforce one another ∙ Grand strategies- assessment of current organizational performance, then explains how the organization’s mission is to be accomplished. Three types: o Growth strategy: involves expansion- as in sales revenues, market share, number of employees, number of customers, new products or services, merge, acquire similar businesses o Stability strategy: involves little or no significant change o Defensive strategy: involves reduction in the organization’s efforts, freeze hiring, sell or liquidate assets, phase out product lines, sell divisions, declare bankruptcy ∙ Three kinds of strategic planning tools: competitive intelligence, SWOT analysis, and forecasting ∙ Competitive intelligence- gaining information about one’s competitor’s activities so that you can anticipate their moves and react appropriately (public prints and advertising, investor information, informal sources, data mining, business analytics) ∙ Environmental scanning- careful monitoring of an organization’s internal and external environment to detect early signs of opportunities and threats that may influence the firm’s plans ∙ SWOT Analysis- also known as situational analysis, search for the Strengths, Weaknesses, Opportunities, and Threats affecting the organization o Organizational strengths- skills and capabilities that give the organization special competencies and competitive advantages in executing strategies o Organizational weaknesses- drawbacks that hinder an organization in executing strategies in pursuit of its mission (culture, IT infrastructure, company image) o Organizational opportunities- environmental factors that the organization may exploit for competitive advantage o Organizational threats- environmental factors that hinder an organization’s achieving a competitive (technological change, government intervention) o SWOT analysis of Toyota: Internal strengths: attention to detail and a frugality that shuns waste Internal weaknesses: parts were supplied by outside companies rather than trusted traditional suppliers External opportunities: stressed commitment to customers, high quality ∙ Forecast- a vision or projection of the futureo Trend analysis- hypothetical extension of a past series of events into the future o Contingency planning- scenario planning, creation of alternative hypothetical but equally likely future conditions ∙ Porter’s Five Competitive Forces o Threat of new entrants o Bargaining power of suppliers (easy supplier switching) o Bargaining power of buyers (bigger customer gets better deals) o Threat of substitute products or services o Rivalry among competitors (level of competition) ∙ Porter’s Four Competitive Strategies o Differentiation strategy- offer products that are of unique and superior value compared to those of competitors but to target a wide market (Dell, Home Depot) o Cost-leadership strategy- keep the costs, and hence prices, of a product or service below those of competitors and to target a wide market (Wal-Mart, McDonald’s) o Cost-focus strategy- keep the costs of a product below those of competitors and to target a narrow market (low-cost beer or cigarettes) o Single-product strategy- company makes and sells only one product within its market (benefit-focus, risk-vulnerability) ∙ Diversification- operating several businesses under one ownership that are not related to one another (related: Disney; unrelated: General Electric) ∙ Synergy- the economic value of separate, related businesses under one ownership and management is greater together than the business are worth separately ∙ Boston Consulting Group (BCG) Matrix- a means of evaluating strategic business units on the basis of their business growth rates and their share of the market o Stars, Question Marks, Cash Cows, and Dogs ∙ Execution- central part of company’s strategy. Consists of using questioning, analysis, and follow through to mesh strategy with reality, align people with goals, and achieve the results promised o Know your people & your business o Insist on realism o Set clear goals & priorities o Follow through o Rewards the doers o Expand the capabilities o Know yourself ∙ Teri Bauer- jokes on jokes