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RUTGERS / Business Management / MGMT 111 / Why do businesses exist?

Why do businesses exist?

Why do businesses exist?


School: Rutgers University
Department: Business Management
Course: Introduction to Management
Professor: Denis hamilton
Term: Spring 2019
Tags: Management
Cost: 50
Name: Introduction to Management Exam 1 Study Guide
Description: These notes cover the material for the first exam.
Uploaded: 02/22/2019
14 Pages 20 Views 8 Unlocks

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Session 1 - The History of Management

Why do businesses exist?

Why do businesses exist?

● The purpose of a business is so serve society’s needs of goods and services ● To use resources productively to create value for customers, employees, and shareholders ● And finally, to create jobs and to be good citizens in the communities they serve Scientific Management Theory 

● Adam Smith was a key contributor to this theory with his ideas of job specialization and the division of labor

● Frederick Taylor was also significant for his four principles to increase efficiency ● The Gilbreaths discussed 3 steps for efficiency: If you want to learn more check out What is the difference between hydrophobic and hydrophilic?

○ Analyse tasks, break down into components

○ Find better ways to perform each of the components

What is organizational environment theory?

We also discuss several other topics like What is the definition of net present value?

○ Reorganize each component so it is more efficient overall

Administrative Management Theory 

● Max Weber’s 5 principles of Bureaucracy to increase efficiency and effectiveness ● Henri Fayol’s 14 principles of efficiency

Behavioral Management Theory 

● Mary Parker Follet: emphasized the human side of management; importance of cross functional- collaboration of different departments across an organization

● Elton Mayo: contributed the Hawthorne Studies, rise of the human relations movement ● Douglas McGregor: known for his contribution of Theory X and Theory Y Management Science Theory 

● Quantitative Management- use of data and math based models, simulations, and techniques to aid in decision making

What is management?

● Operations Management- specialized techniques for optimizing production systems ● Total Quality Management- use of process management, measurement/ evaluation, and proven improvement methods to improve effectiveness and efficiency

● Management Information Systems- provide easy access to internal and external data to enhance the decision making process We also discuss several other topics like What is planetary motion?

Organizational Environment Theory 

● Open Systems View

○ Key contributors: Katz, Kahn, Thompson

○ Resources come from the external environment and are converted internally, ten sent back to the external environment as finished goods and services

● Contingency Theory

○ Key contributors: Burns, Stalker, Lawrence, Lorsch

○ Said that there isn’t one single best way to organize

■ In a stable environment, use mechanistic structure

■ In a rapidly changing environment, use organic structure

Leadership and Innovation

● Leadership vs Management

○ Emotional intelligence

● Importance of innovation

○ Impact of technologies

○ Employee engagement

Over time, since the late 1900s, there has been declining confidence in our business leaders from our citizens

● Possible reasons of change include:

○ Deregulation Don't forget about the age old question of What are the different approaches to business ethics?

○ Globalization

○ Technology

○ Mergers & acquisitions If you want to learn more check out What are knapp’s stages?

○ Business education

○ Capitalism Model Focus

● Additionally, job satisfaction is also declining; it was 45.3% in 2009

○ This is strange because even though a so many working conditions have drastically improved, employees are still discontent

○ The youngest age group, workers under 25, are the least satisfied

■ This age group wants management with expertise and speed, they want to work with technology, and they want their managers to be mentors and

teach them

● Better management → more engaged workforce → more satisfied employees → more productive employees

● Management is generally defined as: getting the right work done well ○ There is not necessarily one best way, but there is nearly always a better way to do something

Session 2- Introduction to Management

● Why should we learn about management? Many companies and businesses don’t do an adequate job managing their organizations, and learning basic concepts can improve this situation

● Most managers think they do a good job, when in reality this might not be the case at all ● Most managers don’t ever receive any formal training

● New practices can take a long time to implement sometimes If you want to learn more check out What does the hausman test do?

● Does management really work? YES, BUT sometimes good management practices simply aren’t enough

Session 3A: Strategic Management: What is Strategy?

● Business model: how a company’s strategy will create value for the customer and at the same time, generate revenues that surpass costs to make a profit

● Two components of the business model:

○ Customer value proposition

■ Describes the company’s approach to satisfying buyer needs/wants at a price the customer considers to be a good value

■ Value offered by the firm >= Price to the customer

○ Profit formula

■ How effectively the company can deliver on the value proposition at a profit

■ Price charged to customer > Cost incurred by the firm to make the value ● For a business model to be successful, V >= P and P > C

● Strategy: a company’s action plan for outperforming its competitors and achieving superior profitability

● Firms have strategies to improve their financial performance, strengthen their competitive position, and gain a sustainable competitive advantage over their market rivals ● A company’s strategy needs to have some distinctive element that brings customers in ○ Do what rival firms don’t do or can’t do

● A company has a competitive advantage when it provides buyers with superior value compared to rival sellers, or offers the same value at a lower cost to the firm ○ It is sustainable if it persists, despite the best efforts of competitors to match or surpass the advantage

● Develop a strategic vision, mission statement, and set of core values, set objectives, craft a strategy, and execute the chosen strategy

● Strategic vision- describes management’s aspirations and goals for the company’s future, as well as the course of action and direction that will be taken to achieve said goals

○ Future oriented

○ Aspirational

○ Relatively high level

● Mission statement- describes the firm’s present business and purpose: who we are, what we do, and why we are here

○ Present oriented

○ Focused on purpose, not the goal

○ More focused and specific

● Values- the beliefs, traits, and behavioral norms that employees are expected to display in conducting and carrying out business and pursuing its strategic vision and mission ● Objectives- organization’s performance targets - the specific results that management wants to achieve

○ Financial objectives

■ Related to financial or monetary performance targets to reach or surpass

○ Strategic objectives

■ Related to targets that indicate a company is increasing its market standing ■ Objectives should be “stretch objectives”

● Set high enough to stretch an organization to perform at its full

potential and deliver best possible results

■ Consist of both short term (typically less than 1 year) and long term goals (3+ years)

■ Created at all levels (all departments, divisions)

■ SMART Goals

● Specific

● Measurable

● Actionable

● Realistic

● Time Bound

● Firm strategies evolve over time due to changes in the market, new technology, new market opportunities, new ideas for improving strategy

● Deliberate strategy consists of proactive strategy elements that are planned ● Emergent strategy consists of reactive strategy elements that emerge as changing conditions warrant

● Realized strategy is a combination of proactive and reactive

● A winning strategy must pass 3 tests:

○ Fit test

○ Competitive advantage test

○ Performance test

■ Competitive strength and market standing

■ Profitability and financial strength

 Session 3B- Strategic Management External Analysis

● 2 aspects that make up a company’s current strategic situation are:

○ External environment- competitive conditions of the company’s industry ○ Internal environment- company’s resources and capabilities

● The “Macro Environment” is the broad environmental context where a company’s industry is

● The “immediate industry and competitive environment” is specific to the industry in which a company competes

● Analysis of the macro environment includes PESTEL Analysis

○ Political factors

○ Economic conditions

○ Sociocultural forces

○ Technological factors

○ Environmental forces

○ legal/ regulatory factors

● Analysis of industry and competitive environment includes:

○ Five forces

■ Diagnose the principal competitive pressures in an industry

■ Assess the potential for profitability within an industry

■ Five forces are: rivals, potential new entrants, producers of substitutes, bargaining power of suppliers, bargaining power of customers

○ Driving forces

■ Causes of change in industry and competitive conditions

■ 3 steps: identify the driving forces in the industry, assess whether the drivers of change are making the industry more or less attractive,

determine what strategy changes are needed to prepare for the impact of the driving forces

○ Key success factors

■ Strategy elements, product attributes, operational approaches, resources, and competitive capabilities that are essential to surviving in an industry ■ Must pay attention to this or you risk failing

■ Vary from company to company

○ Industry outlook for profitability

■ Determine whether the industry presents the company with opportunities for growth and profitability

Session 3C- Strategic Management Internal Analysis

● Various analytic tools have been developed to look at the internal environment of a company:

○ Resource and capability analysis

■ Identify firm’s resources and capabilities

■ Resource- input or asset that is owned or controlled by the firm

● Tangible resources- can be touched or quantified easily

● Intangible resources- human assets, intellectual capital, anything

that isn’t physical

■ Capability- capacity of the firm to perform internal activity competently ● More complex than resources

● Most are knowledge based

■ Together, they are the basis on which a firm competes against rivals ○ VRIN testing

■ The competitive power of a resource or capability is measured by how many of 4 tests it can pass:

● Valuable: does it help the firm compete?

● Rare: is it something that rivals lack?

● Inimitable: is it difficult or expensive to imitate?

● Non Substitutable: is there a low threat of substitutes?

■ Passing all 4 tests can provide the firm with a sustainable competitive advantage

○ Value chain analysis

■ A company’s value chain identifies the primary activities that create

customer value

■ Support activities facilitate the performance of the primary activities

■ the value chain helps identify the ways value is created for the customer ■ Deep look at the firm’s cost structure and ability to offer low prices

○ SWOT Analysis

■ Combines both external and internal analysis

■ Strengths, Weaknesses, Opportunities, and Threats

■ Competence is an activity that a company has learned to perform with proficiency, AKA capability

■ Distinctive competence is a capability that enables a company to perform activities better than its rivals

■ Core competence is an activity that a company performs proficiently and is central to its strategy and competitive success

■ Companies have limited resources, so they cannot pursue all of their

potential opportunities

■ 2 types of threats:

● Normal course-of-business threat

● Sudden-death (survival) threat

Session 3D- Strategic Management Executing Strategy

● 5 generic competitive strategies

○ Low-cost provider: achieve low overall costs than rivals on products that attract a broad range of buyers

■ The objective is to have meaningfully lower costs than rivals but not

necessarily the lowest possible cost

■ Can potentially lead to price wars if competitors also lower their prices ■ To achieve a low-cost advantage over rivals, a firm’s total costs across its rival chain must be lower than competitors’ total costs

● Perform value chain activities more cost-effectively than rivals

● Restructure the firm’s overall value chain to eliminate or bypass

some cost-producing activities

■ Firm must manage cost drivers, which are factors that have a strong

influence on a company’s costs

○ Broad differentiation: differentiating the firm’s product

■ Offer unique product attributes that a wide range of buyers find appealing and worth paying more for

■ Offering customers something that rivals cannot

■ Can be based on tangible or intangible attributes

■ Value driver- a factor that can have a strong differentiating effect

○ Focused Strategies

■ Target a narrow part of the market

■ Geographic segment, customer segment, product segment

■ Focused low-cost: concentrating on a narrow price-sensitive buyer

segment and on costs to offer a lower-priced product

■ Focused differentiation: meeting specific tastes and requirements of niche members

○ Best-cost provider: upscale product attributes at a lower cost than rivals ■ Think Lexus class example: Lexus offers many luxury features that

competitors have but at a much lower price than rivals like BMW or


■ Hybrid of low-cost provider and differentiator that aim at providing more desirable attributes while beating rivals on prices

■ Aimed at value-conscious buyers who shy away from cheap low-end products and high-end expensive products

■ Give customers more value for the money

● Each generic strategy positions the firm differently in its market

● Strategy is about making choices that enable the firm to uniquely and profitably serve the requirements of its customers

Session 5A: Governance

● Having a strong strategy isn’t enough to succeed

● There are several processes to regulate the behavior of managers and employees: ○ Corporate governance

○ Control

○ Enterprise risk management

● Corporate governance deals with the relationship between shareholders, management, and the board of directors in determining the direction and performance of the corporation

● Shareholders are the owners of a corporation

○ They invest their money and receive shares of common stock in return ○ The goal is a return on investment

○ They want to select a qualified CEO and senior managers

○ They want the ability to influence significant strategic decisions

● For large corporations, there is a separation between the shareholders of the corporation and the managers

● Corporate governance helps align the interests of shareholders and managers ● 3 mechanisms of CG:

○ Committed and involved Board of Directors

■ Has fiduciary responsibility to ensure that the company is run consistent with long-term interest of its shareholders

■ Acts as intermediary between shareholders and management

■ Boards are usually made of broad diversity of members with professional expertise, experience, different demographics, personalities, etc

■ Board of directors are charged with keeping a close watch over the firm - “oversight function”

○ Shareholder activism

○ Reward and compensation agreements

Session 5B- Control and Enterprise Risk Management

● Control is any process that directs the activities of individuals towards achieving goals ● Planning and control are both required processes for firms to operate effectively ● 3 strategies for achieving organizational control

○ Bureaucratic control- use of formal rules, standards, legitimate authority ■ 1. Setting performance standards

■ 2. Measuring performance

■ 3. Comparing performance against standards and determining deviations ■ 4. Taking action to correct problems and reinforce successes

○ Market control- uses prices, competition, and exchange relationships ○ Clan control- involves culture, shared values, beliefs, expectations, trust ● Standards are the expected performance for a given goal; a target that establishes a desired performance level, motivates performance, and serves as a benchmark ● Types of control:

○ Feedforward control- collecting performance information before a task is done ■ Preventing future problems

○ Concurrent control- collecting performance info in real time while a task is done ■ Action can be taken immediately to fix anything

○ Feedback control- collecting performance info after a task is done

■ Used to correct future performance of the task

■ May occur too late to improve anything

■ Used extensively despite its limitations

● Budgetary control is a type of bureaucratic control; one of the most commonly used methods of managerial control

○ Ties together all three types of control mentioned above

○ Types of budgets:

■ Sales

■ Production

■ cost/ expense

■ Cash

■ Capital

■ Master

● Downside of bureaucratic controls

○ Rigid bureaucratic behavior- people often act in ways that will make themselves look good which can result in rigid, inflexible behavior geared towards doing only what the system requires

○ Tactical behavior- control systems will be ineffective if employees engage in tactics aimed at beating the system

■ Most common type is to manipulate info or report false performance data ○ Resistance- people often resist control systems

● To optimize the effectiveness of control, managers should:

1. Establish valid performance standards

2. Provide adequate info to employees

3. Ensure acceptability to employees

4. Maintain open communication between managers and employees

5. Use multiple approaches

● Transfer pricing is a common method to regulate internal exchanges of goods/ services between business units

○ It is the price charged by one business unit to another unit within the same organization

○ Provides incentive to increase productivity and cost effectiveness

● Clan control- reliance on organizational culture and empowerment to regulate employee behavior

○ Use has grown in organizations

○ Managers must create a strong culture of high standards and integrity ○ Employees are motivated to act in accordance with the set values and expectations ● Empowerment is the delegation of responsibility to employees for behaving and making decisions in the best interest of the firm

● Enterprise risk management (ERM) bridges corporate governance and controls ○ Intended to help firms achieve their strategic objectives

○ Management of all of an enterprise’s risks in a consistent and unified manner to help the firm achieve strategic objectives

● Types of risks

○ Financial risks- associated with financial assets, liabilities, financial contracts ■ Market risk- risk that the price of financial assets will change

■ Liquidity risk- the risk that firms will not have access to funds when


■ Credit risks- the risk that a counterparty will default on what they owe the firm

○ Hazard risks- property damage, lawsuits, natural disasters, etc

○ Operational risks- reputational damage, technology failures, employee fraud, loss of employees to competitors

○ Strategic risks- competition, unforeseen external events

● ERM addresses all risks

● Corporate boards are charged with risk management governance and oversight ● 4 choices in risk management:

○ Avoid risk

○ Transfer risk to third parties

○ Mitigate risk

○ Accept risk

● Firms with an ERM process typically have a position called the Chief Risk Officer (CRO)

○ Responsible for managing the ERM process

Session 5C- Leadership

● Leadership- the process of influencing an organized group toward achieving its goals ● Important aspects of leadership are:

○ Leadership as art and science

○ Leadership as rational and emotional

○ Leadership vs management

● Many challenges and opportunities for women in leadership

○ Most common barrier for women is masculine stereotyping

○ There is no difference in men and women’s leadership styles in large organizations

○ In mid-size organizations, women rely more on socialization skills whereas men rely more on authority

○ 4 factors that contribute to women’s increasing participation in senior roles: ■ Women are changing

■ Leadership roles are changing

■ Organizational practices are changing

■ Culture is changing

Session 7A- Organization Design

● Organization design helps to smoothly connect inputs to create outputs

● Organization design is the process by which managers create a specific type of organizational structure and culture so that a company can operate in the most efficient and effective way

● 4 steps:

1. Create productive and meaningful jobs

○ Create enriched jobs because increasing workers’ responsibilities

increases their involvement and interest

2. Group jobs and create organizational structure

○ Create a structure of working relationships among employees to allow them to achieve an organization’s goals effectively and efficiently

○ Organizational structure is a formal system of task reporting relationships that coordinates and motivates members so they work together to achieve the goals

○ Structural models:

■ Functional structures

■ Product market and geographical structures

■ Matrix structures

■ Product team structures

○ Four factors that affect organizational structure:

■ Organizational environment

■ Technology

■ Human resources

■ Strategy

○ Flat structures- have fewer levels and wide spans of control

■ Results in quick communications but can lead to overworked


○ Problems with too many organizational levels

■ Communication problems

■ Distortion of messages

■ Too many managers (too expensive)

3. Integrate and coordinate work flows

○ What are the issues?

■ The traditional mode of integration via hierarchy and direct

oversight is no longer adequate

■ Structure, culture, strategy, incentives, and monitoring are all

needed for effective integration

4. Establish organization culture

○ Organization culture is defined as the shared set of beliefs, expectations, values, and norms that influence how members or an organization relate to one another and cooperate to achieve the organization’s goals

○ Sources of organization culture:

■ Characteristics of organizational members

■ The employment relationship

■ Organizational structure

■ Organization ethics

Session 7B- Human Resource Management

● Human resource management is defined as all the activities managers engage in to attract and retain employees and to ensure that they perform at a high level and contribute to the accomplishment of organizational goals

● Components of HRM System:

○ Recruitment and selection

■ Human resource planning → determine recruitment and selection needs ← job analysis

■ Selection comes from background info, references, paper and pencil tests, physical ability tests, performance tests, and interviews

○ Training and development

○ Performance appraisal and feedback

■ Appraisal is the evaluation of employee’s job performance and

contributions to the organization

● Types: trait, behavior, results, objective, subjective

■ Feedback is the process through which managers share performance

appraisal information with their subordinates

○ Pay and benefits

■ Pay structure is the arrangement of jobs into categories , reflecting their relative importance to the organization and its goals, levels of skills

required, and other characteristics

■ Benefits include legally required benefits and discretionary benefits

○ Labor relations

■ The activities managers engage in to ensure that they have effective

working relationships with the labor unions that represent their employees interests

■ Unions represent workers’ interests in organizations

■ Collective bargaining- negotiation between labor unions and managers to resolve conflicts and disputes about important issues like working hours,

wages, conditions, job security

● Equal employment opportunity is the equal right of all citizens to the opportunity to obtain employment regardless of their gender, age, race, country of origin, religion, or disabilities

Session 9- Employee Engagement

● Workers’ performance is affected by perceptions, emotions, and motivations triggered by workday events

● Inner work life remains mostly visible to managers

● IWL (inner work life) Dynamics - emotions, perceptions, motivations ● The inner work life argues that engaged people are more:

○ Creative

○ Productive

○ Committed

○ Collegial

● Inputs- workday events

● Outputs/ outcomes- work performance

● When something happens at work, it immediately triggers perceptual, emotional, and motivational responses

● 2 actions managers can take to improve OWL experience of their employees: ○ Enable employees to move forward in their work

○ Treat them decently as human beings

● Employee engagement- an employee’s “state of mind in, and behavior in relation to the performance of their formal work role

○ More than just employee satiation, mind set, and proclivity; it also includes activity and discretionary effort (can be positive or negative)

○ Includes employee behavior concerning their work

● Studies show that as many as 70% of employees are actively disengaged from their work ● Customers obviously prefer working with engaged employees

● Disengaged employees are:

○ Disconnected

○ Indulge in contagious negativity

○ Have lower productivity

○ Contribute non discretionary effort

○ Have lower creativity

● Successful organizations have:

○ Above average leadership capability

○ Considerably superior levels of employee engagement

● Management actions to engage employees:

1. Develop a mission supported by clear strategies

2. Create a well-designed organization

3. Implement an effective performance management system 4. Establish strong values and culture

5. Implement proactive HR practices and policies 6. Hire, train, and develop emotionally intelligent supervisors

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