MANAGEMENT
ADVANCED DIPLOMA IN
MANAGEMENT
MANAGEMENT
MODULE GUIDE
Copyright © 2021
REGENT BUSINESS SCHOOL
All rights reserved; no part of this book may be reproduced in any form or by any means, including
photocopying machines, without the written permission of the publisher.
ADVANCED DIPLOMA IN MANAGEMENT
MANAGEMENT
Table of Contents
INTRODUCTION TO MANAGEMENT .............................................................3
CHAPTER 1:
Management Theories .....................................................................................7
CHAPTER 2:
Managers and Managing................................................................................26
CHAPTER 3:
Current Management Challenges ..................................................................43
CHAPTER 4:
Management Functions ..................................................................................66
CHAPTER 5:
Managing in the Global Environment .............................................................86
CHAPTER 6:
General Management Principles ..................................................................118
BIBLIOGRAPHY ..........................................................................................181
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List of Tables and Figures
Figure 1.1: Timeline of different Management Theories………………………….9
Figure 1.2: Evolution of Management Thought ………………………………….16
Figure 2.1: Levels of Management ………………………………………………..33
Figure 2.2: Effects of Changes in Global Competition…………………………...36
Figure 3.1: March and Simon’s Decision-making steps………………………... 47
Figure 4.1: Designing an Organisation………………….………………………...68
Figure 5.1: Building Competitive Advantage……………………………………...88
Figure 6.1: The planning Process ................................................................. 122
Figure 6.2: Leadership .................................................................................. 138
Figure 6.3: Degrees of Leadership Styles ...................................................... 142
Figure 6.4: Types of Leaders ......................................................................... 149
Figure 6.5: Transformational and Transactional Leader Differences .............. 152
Figure 6.6: The Control System ..................................................................... 156
Figure 6.7: The Control Process .................................................................... 158
Figure 6.8: Output Controls ............................................................................ 161
Figure 6.9: Organisational Change Management ........................................... 168
Table 2.1: Management Tasks ....................................................................... 28
Table 3.1: Comparison between individual and group decision-making ......... 55
Table 4.1: Designing Tasks into Jobs............................................................. 71
Table 4.2: Job Characters Model ................................................................... 73
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INTRODUCTION TO MANAGEMENT
1. Introduction
Welcome to the Advanced Diploma in Management programme. As part of your
studies, you are required to study and successfully complete the module in
Management.
2. Module Overview
Management comprises all the activities and responsibilities that go with running any
successful business and it includes all the functions that form part of this, which you
will learn about in this module. A manager plays a big part in a management team,
although various managers in this team will have different roles and responsibilities.
The aim of this team is to ultimately build and maintain a successful and prosperous
business for the stakeholders, whether they are the business owners, or the
shareholders of the company. This module has been developed to provide you with
the intermediate-level knowledge in the realities of management in general and the
skills and competencies developed through studying this module.
3. Aim of the Module
This module aims to assist the student in being able to:
▪
Demonstrate knowledge of management theories.
▪
Define Management.
▪
Elaborate on the role of management in an organisation.
▪
Demonstrate an understanding of the management environment.
▪
Identify and describe the challenges that managers currently face.
▪
Elaborate on the various management functions.
▪
Discuss the skills that managers need in order to successfully perform their
functions.
▪
Elaborate on the differences and likeness in the different types and roles of
managers.
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4. Essential (Prescribed) Reading
Your essential (prescribed) reading comprises the following:
4.1. Prescribed Reading
Jones, G. & George, J. (2020). Contemporary Management – 11th Edition. McGraw
Hill International
4.2. Recommended Reading
How
to
manage
in
organisations
/
Free
Management
Library:
https://managementhelp.org/. [Accessed: 14 6 2021]
5. How to use the Module
This module should be studied using the recommended and prescribed textbook/s and
the relevant sections of this module. You must read about the topic that you intend to
study in the appropriate section before you start reading the textbook/s in detail.
Ensure that you make your own notes as you work through both the textbook/s and
this module. You will find a list of outcomes at the beginning of each section. These
outline the main points that you need to understand when you have completed the
section/s. The purpose of this guide is to help you study. It is important for you to work
through all the tasks and self-assessment exercises as they provide guidelines for
examination purposes.
6. Navigational Icons
Think Point
When you see this icon, you should think about and reflect on the
issues/challenges/themes presented.
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Tasks
When you see this icon, you will know that you are required to perform
some kind of task to gauge how well you remember or understand
what you have read or how good you are at applying what you have
learnt.
Definitions
This icon will alert you to a specific definition related to the topic under
discussion
Case Studies
Case studies are often used to illustrate a concept within the setting
of a real-life scenario. Answer the questions that follow to ensure that
you have a proper understanding of what has been discussed.
7. Specific Outcomes and Chapter Alignment
SPECIFIC PROGRAMME OUTCOMES
CHAPTER
ALIGNMENT
SO 1:
Display knowledge of management in general
Chapter 1
SO 2:
Demonstrate an understanding of the individual functional
Chapter 2
areas of management
SO 3:
Identify and solve management problems across the
Chapter 3
various functional areas
SO 4:
Understand the role of management and the various
Chapter 4
functional areas in achieving organisational success
SO 5:
Demonstrate knowledge in a range of core management
Chapter 5
disciplines
SO 6:
Apply
competence
and
skills
related
to
general
Chapter 6
management principles of planning, organising, leading
and controlling.
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8. Specific Outcomes and Assessment Criteria
SPECIFIC PROGRAMME OUTCOMES
ASSESSMENT CRITERIA
The student should demonstrate the ability to:
SO 1:
Display knowledge of
▪
management in general
Apply
and
evaluate,
after
having
identified and described the challenges
managers face, the key aspects related
SO 2:
to the discussion via, for example, a
Demonstrate an understanding
case study and comparison tables
of the individual functional
inclusive of the various skills necessary
areas of management
for effective performance
SO 3:
Identify and solve management
problems across the various
functional areas
SO 4:
Understand the role of
▪
management and the various
functional areas in achieving
organisational success
Show
their
SO 6:
of
the
development of management theory
▪
Identify,
reflect
analyse,
on
problems,
SO 5:
understanding
and
evaluate,
critically
address
complex
applying
evidence-based
Demonstrate knowledge in a
solutions and theory-driven arguments
range of core management
within the scope of the topics covered in
disciplines
the module
Apply competence and skills
related to general management
principles of planning,
organising, leading and
controlling.
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CHAPTER 1:
Management Theories
Follow along in your textbook. Evolution of Management Thought:
See chapter 2, from page 30 - 51.
Learning Outcomes
Upon completion of this chapter, the learner should be able to:
▪
Demonstrate knowledge of management theories.
This relates to:
SO 1: Display knowledge of management in general
1.1. Introduction to Management Theories
Management theories explain how management thought has evolved over time. We
will unpack the main ideas relating to scientific management theory. We will move on
to the main ideas behind administrative management theory, behavioural
management theory and management science theory. Finally, we will discuss
organisational environmental theory in terms of changes in management practices as
they relate to the external environment and the effects on organisations and
managers.
Think about how management has changed over time. Are there
elements in the various management theories that we are discussing
that are still present in current management styles? Have you
observed any being practiced?
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Key Words and Definitions
Authority: The power to hold people accountable for their actions and
to make decisions concerning the use of organisational resources.
Bureaucracy: A formal system of organisation and administration
designed to ensure efficiency and effectiveness.
Centralisation: The concentration of authority at the top of the
managerial hierarchy.
Closed system: A system that is self-contained and thus not affected
by changes occurring in its external environment.
Discipline: Obedience, energy, application, and other outward marks
of respect for a superior’s authority.
Informal organisation: The system of behavioural rules and norms
that emerge in a group.
Norms: Unwritten, informal codes of conduct that prescribe how
people should act in particular situations and are considered important
by most members of a group or organisation.
Organisational behaviour: The study of the factors that have an
impact on how individuals and groups respond to, and act in
organisations.
Theory X: A set of negative assumptions about workers that leads to
the conclusion that a manager’s task is to supervise workers closely
and control their behaviour.
Theory Y: A set of positive assumptions about workers that leads to
the conclusion that a manager’s task is to create a work setting that
encourages commitment to organisational goals and provides
opportunities for workers to be imaginative and to exercise initiative
and self-direction.
Unity of command: A reporting relationship in which an employee
receives orders from, and reports to, only one superior.
Unity of direction: The singleness of purpose that makes possible the
creation of one plan of action to guide managers and workers as they
use organisational resources.
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Figure 1.1: Timeline of Different Management Theories over the years
Source: Creative Commons License
1.2. Scientific Management Theory
This theory relates specifically to the systematic study of relationships
between people and tasks for the purpose of redesigning the work
process to increase efficiency.
Managers of all types of organisations were trying to find better ways to satisfy
customers’ needs.
Many major economic, technical, and cultural changes were taking place at this time.
The introduction of steam power and the development of sophisticated machinery and
equipment changed how goods were produced. Small workshops run by skilled
workers who produced hand-manufactured products were being replaced by large
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factories in which sophisticated machines controlled by hundreds or even thousands
of unskilled or semiskilled workers, made products.
Owners and managers of the new factories found themselves unprepared for the
challenges accompanying the change from small-scale crafts production to largescale mechanised manufacturing.
Job Specialisation and the Division of Labour
Increasing the level of job specialisation which is the process by which a division of
labour occurs as different workers specialise in tasks and improves efficiency by
leading to higher organisational performance. This means that the performance of
factories in which workers specialise in only one or a few tasks, is much greater than
the performance of the factory in which each worker performs multiple tasks.
F.W Taylor and Scientific Management
Taylor determined that if the amount of time and effort that each worker expends to
produce a unit of output (a finished good or service) can be reduced by increasing
specialisation and the division of labour, the production process will become more
efficient. From a performance perspective, the combination of the two management
practices:
1) achieves the right worker and task specialisation; and
2) links people and tasks by the speed of the production line
which will produce the huge cost savings and dramatic output increases that occur in
large, organised work settings.
The Gilbreths
They refined Taylor’s analysis of work movements and made many contributions to
time-and-motion study.
In comparison with the old crafts system, jobs in the new system were more repetitive,
boring, and monotonous as a result of the application of scientific management
principles, and workers became increasingly dissatisfied.
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Frequently the management of work settings became a game between workers and
managers. Managers tried to initiate work practices to increase performance, and
workers tried to hide the true potential efficiency of the work setting to protect their
own well-being.
1.3. Administrative Management Theory
The study of how to create an organisational structure and control
system that leads to high efficiency and effectiveness.
Administrative management is the study of how to create an organisational structure
and control system that leads to high efficiency and effectiveness.
An organisational structure is the system of task and authority relationships that
controls how employees use resources to achieve the organisation’s goals.
The Theory of Bureaucracy (Max Weber)
The theory of bureaucracy is a formal system of organisation and administration
designed to ensure efficiency and effectiveness and is based on five principles:
▪
A manager’s formal authority derives from the position he or she holds in the
organisation and has the power to hold people accountable for their actions and
to make decisions concerning the use of organisational resources.
▪
People should occupy positions because of their performance, not because of
their social standing or personal contacts.
▪
The extent of each position’s formal authority and task responsibilities, and its
relationship to other positions in an organisation, should be clearly specified.
▪
Authority can be exercised effectively in an organisation when positions are
arranged hierarchically, so employees know whom to report to and who reports
to them, and
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▪
Managers must create a well-defined system of rules, standard operating
procedures and norms so they can effectively control behaviour within an
organisation.
Fayol’s Principles of Management
Fayol identified 14 principles that he believed essential to increase the efficiency of
the management process and these were:
▪
Division of Labour: workers should be given more job duties to perform or be
encouraged to assume more responsibility for work outcomes.
▪
Authority and Responsibility: recognise the informal authority that derives from
personal expertise, technical knowledge, moral worth, and the ability to lead
and to generate commitment from employees.
▪
Unity of Command: the principle of unity of command specifies that an
employee should receive orders from, and report to, only one superior.
▪
Line of Authority: the chain of command extending from the top to the bottom
of an organisation. When organisations are split into different departments or
functions, each with its own hierarchy, it is important to allow middle and firstline managers in each department to interact with managers at similar levels in
other departments. This interaction helps speed decision making.
▪
Centralisation: is the concentration of authority at the top of the managerial
hierarchy.
▪
Unity of Direction: the singleness of purpose that makes possible the creation
of one plan of action to guide managers and workers as they use organisational
resources. An organisation without a single guiding plan becomes inefficient
and ineffective.
▪
Equity: the justice, impartiality, and fairness to which all organisational
members are entitled is receiving much attention today; the desire to treat
employees fairly is a primary concern of managers.
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▪
Order: the methodical arrangement of positions to provide the organisation with
the greatest benefit and to provide employees with career opportunities that
satisfy their needs.
▪
Initiative: managers must also encourage employees to exercise initiative, the
ability to act on their own without direction from a superior. Used properly,
initiative can be a major source of strength for an organisation because it leads
to creativity and innovation.
▪
Discipline: the obedience, energy, application, and other outward marks of
respect for a superior’s authority.
▪
Remuneration of Personnel: reward systems should include bonuses and
profit-sharing plans.
▪
Stability of Tenure of Personnel: when employees stay with an organisation for
extended periods, they develop skills that improve the organisation’s ability to
utilise its resources.
▪
Subordination of Individual Interest to the Common Interest: the interests of the
organisation must take precedence over the interests of any individual or group
if the organisation is to survive.
▪
Esprit de Corps: refers to shared feelings of comradeship, enthusiasm, or
devotion to a common cause among members of a group.
1.4. Behavioural Management Theory
The study of how managers should behave to motivate employees
and encourage them to perform at high levels and be committed to
the achievement of organisational goals.
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Behavioural Management is the study of how managers should behave to motivate
employees and encourage them to perform at high levels, and to be committed to the
achievement of organisational goals.
The work of Mary Parker Follet
Management often overlooks the multitude of ways in which employees can contribute
to the organisation.
Follet determined that because workers know the most about their jobs, they should
be involved in job analysis, and managers should allow them to participate in the work
development process.
She advocated what she called “cross-functioning”: members of different departments
working together in cross-departmental teams to accomplish tasks.
Knowledge and expertise, and not managers’ formal authority, should decide who will
lead at any “particular” moment. She took a horizontal view of power and authority.
The difference between horizontal and vertical lines of management
authority (power and authority):
▪
Vertical management authority has a top-down structure.
▪
Horizontal management authority has a flat structure for
greater employee autonomy.
Hawthorne Studies and Human Relations
Research, now known as the Hawthorne studies, began as an attempt to investigate
how characteristics of the work setting, now known as ergonomics, specifically in
relation to the level of lighting or illumination and how it affects worker fatigue and
performance.
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The researchers discovered that their presence was affecting the results because the
workers enjoyed receiving attention and being the subject of study and were willing to
cooperate with the researchers to produce the results which the workers believed the
researchers would want. This effect became known as the Hawthorne effect.
The significant finding was that each manager’s personal behaviour or leadership
approach can affect performance. From this view emerged the human relations
movement, where supervisors should be behaviourally trained to manage employees
in ways that gain their cooperation and increase their productivity.
Managers must understand the workings of the informal organisation, the system of
behavioural rules and norms that emerge in a group, when they try to manage or
change behaviour in organisations.
The increasing interest in management known as organisational behaviour, the study
of the factors that have an impact on how individuals and groups respond to and act
in organisations, dates from these early studies.
Theory X and Theory Y
According to the assumptions of Theory X, the average worker is lazy, dislikes work,
and will try to do as little as possible. To keep workers’ performance at a high level,
the manager must supervise workers closely and control their behaviour by means of
“the carrot and stick” rewards and punishments.
Managers who accept the assumptions of Theory X design and shape the work setting
to maximise their control over workers’ behaviours and minimise workers’ control over
the pace of work.
Theory Y assumes that workers are not inherently lazy, do not naturally dislike work,
and, if given the opportunity, will do what is good for the organisation. The
characteristics of the work setting determine whether workers consider work to be a
source of satisfaction or punishment, and managers do not need to tightly control
workers’ behaviour to make them perform at a high level because workers exercise
self-control when they are committed to organisational goals.
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Managers who believe workers are motivated to help the organisation reach its goals
can decentralise authority and give more control over the job to workers.
Figure 1.2: Evolution of Management Thought
Source: Creative Commons License.
1.5. Management Science Theory
An approach to management that uses rigorous quantitative
techniques to help managers make maximum use of organisational
resources.
Management Science Theory is a contemporary approach to management that
focuses on the use of rigorous quantitative techniques to help managers make
maximum use of organisational resources to produce goods and services.
There are many branches of management science; information technology (IT), which
are having a significant impact on all kinds of management practices and affect the
tools managers use to make decisions. Each branch of management science deals
with a specific set of concerns:
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▪
Quantitative management uses mathematical techniques—such as linear and
nonlinear programming, modelling, simulation, queuing theory, and chaos
theory which help managers decide, for example, how much inventory to hold
at different times of the year, where to locate a new factory, and how best to
invest an organisation’s financial capital.
▪
Operations management gives managers a set of techniques they can use to
analyse any aspect of an organisation’s production system to increase
efficiency.
▪
Total quality management (TQM) focuses on analysing an organisation’s input,
conversion, and output activities to increase product quality.
▪
Management information systems (MISs) give managers information about
events occurring inside the organisation as well as in its external environment,
which is the information that is vital for effective decision making.
1.6. Organisational Environment Theory
An approach to management that examines the set of forces and
conditions that operate beyond an organisation’s boundaries but
affects a manager’s ability to acquire and utilise resources.
The study of the external environment and its impact on an organisation has become
a central issue in management thought. There are three focus areas that we will
examine namely the open system, versus the closed system, contingency theory, and
mechanistic and organic structures where we will be focusing on dynamic capabilities.
The Open-Systems View
The Open-systems view is a system that takes in resources from its external
environment and converts or transforms them into goods and services that are then
sent back to the environment, where they are bought by customers.
▪
At the input stage an organisation acquires resources such as raw materials,
money, and skilled workers to produce goods and services.
▪
Once the organisation has gathered the necessary resources, conversion
begins.
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▪
At the conversion stage the organisation’s workforce, using appropriate tools,
techniques, and machinery, transforms the inputs into outputs of finished
goods and services.
▪
At the output stage the organisation releases finished goods and services to its
external environment, where customers purchase and use them to satisfy their
needs.
A closed system on the other hand, is a self-contained system that is not affected by
changes in its external environment. Organisations that operate as closed systems,
that ignore the external environment, and that fail to acquire inputs are likely to
experience entropy, which is the tendency of a closed system to lose its ability to
control itself, and thus, to dissolve and disintegrate.
Contingency Theory
The contingency theory is the idea that the organisational structures and control
systems managers choose are contingent on the characteristics of the external
environment in which the organisation operates.
An important characteristic of the external environment that affects an organisation’s
ability to obtain resources is the degree to which the environment is changing.
Changes in the organisational environment include changes in technology, which can
lead to the creation of new products and can result in the obsolescence of existing
products; the entry of new competitors; and unstable economic conditions.
Dynamic Capabilities
Dynamic capabilities explains the process of having two basic ways in which
managers can organise and control an organisation’s activities to respond to
characteristics of its external environment.
Mechanistic structure where the authority is centralised at the top of the managerial
hierarchy, and the vertical hierarchy of authority is the main means used to control
employees’ behaviour. This structure provides the most efficient way to operate in a
stable environment.
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Organic structure where the authority is decentralised to middle and first-line
managers to encourage them to take responsibility and act quickly to pursue scarce
resources. This structure provides the most efficient way to operate in a rapidly
changing environment.
Dynamic capabilities which is a theory that organisations have the ability to build,
integrate, and reconfigure processes to address rapidly changing internal and external
environments. There are three types of managerial activities that can help make a
process or activity dynamic: sensing, seizing, and transforming.
Sensing refers to identifying and assessing opportunities outside the company.
Seizing describes the action of mobilising company resources to capture value for the
organisation from these opportunities.
Transforming is an organisation’s ability to continue making changes as needed to
maintain success.
1.7. Conclusion
We have now examined the evolution of management theory. You will see in the rest
of the chapters how these theories have developed and refined management in
general.
In Scientific Management Theory, we were introduced to the principles of Taylor and
Gilbreth and the improvements in person-task relationships to increase efficiency.
Particularly as it related to job specialisation and the division of labour. Lean
production and total quality management are considered advances on their principles.
Administrative Management introduced us to Weber and Fayol’s principles of
bureaucracy and administration. These have been refined to suit contemporary
conditions, and cross-departmental teams and worker empowerment are issues still
being faced by managers.
For Behavioural Management Theory we looked at three main approaches relating to
management behaviour, namely Mary Parker Follet and her theory on managerial
behaviours, and cross-functioning teams. Hawthorne Studies and Human Relations
where you were introduced to the Hawthorne effect, and Theories X and Y.
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Management Science Theory introduced us to the quantitative techniques that
managers use to gain more control over their organisation’s use of resources in
producing goods and services.
Organisational Environmental Theory focused us on contemporary management
research in the external environment where organisational resources are positioned
for global competition which led to the development of open systems and contingency
theories with more recent approaches that include dynamic capabilities.
Self-Assessment Questions
1. What characteristic is NOT a key feature of the “open systems
model of management?
a) Morale
b) Innovation
c) Growth resource
d) Adaptation.
2. What is the guiding principle of scientific management?
a) Experimentation
b) Fluid working relationships
c) Freedom of association
d) One best way to do the job.
3. What is Frank Gilbreth’s work most known for?
a) Working conditions
b) Time and motion studies
c) Work psychology
d) Work as a social setting.
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4. Which one of the following is NOT a characteristic of a
bureaucratic organisation?
a) Authority
b) Regulations
c) Command structure
d) Change.
5. What feature does NOT form one of Fayol’s 14 principles of
management?
a) Esprit de corps
b) Initiative
c) Order
d) Individualism.
Answers: A, D, B, D, D,
Case Synopsis: How Red Robin Is Trying to Fly High
(international question)
Red Robin operates more than 550 casual restaurants in the United
States and Canada. The burger-focused company, based in
Greenwood Village, Colorado, has been struggling with sales declines
in a difficult business environment. Consumers today have many
alternatives to cooking, including a wide array of restaurants and
services that will deliver prepared food. At the same time, restaurants
have difficulty limiting the cost of labour, for two reasons. First, the
minimum wages paid to many restaurant workers have been rising,
and second, the demand for workers has been high, as reflected in
several years of low nationwide unemployment rates.
To counter these problems, former chief operating officer Guy
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Constant used cross-training and a team approach to reduce the
overall number of staff to cut costs. Although labour costs did fall, so
did customer sales. Wait times worsened and the number of
customers leaving before being served increased 85 percent in a year.
Guy Constant and his boss, chief executive Denny Marie Post were
both replaced.
Red Robin brought in a new CEO, Paul Murphy, from his previous
position at Noodles & Company, to turn around the company just as it
was reporting its first quarter of sales gains in a year and a half. Murphy
has been focusing on quality improvements in the food and service.
He increased the use of technology in order taking, increased
employee pay and adjusted employee schedules to better cover busy
periods. Murphy is expanding its agreement to serve Donatos pizzas
in the restaurants and cut other menu items by 10 percent.
Early results have been positive, and not just in continued sales gains
at stores open at least a year. Customer visits were still down, but
customers were spending more per cheque (bill), and sales have been
increasing for catering and delivered food. Traffic in restaurants with
Donatos pizza on the menu have actually seen an upswing in the
number of customers. Murphy reported that manager positions have
been fully staffed and there is lower turnover of hourly employees. The
result is more experienced employees who are better able to handle
the traffic and keep customers satisfied. Ticket times have gotten
shorter as well. Murphy has predicted steady growth in revenues, with
profitability to follow as the initiatives to improve service take off.
Questions
1. Give an example of a type of problem management science could
solve for Red Robin. What limits, if any, do you see on the ability of
management science to help Red Robin’s managers solve business
challenges described in this case?
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2. Apply the theory of dynamic capabilities to the situation at Red
Robin. How well would you say management has performed at
sensing, seizing, and transforming? Would you describe Red Robin
as dynamic? Explain.
Possible answers:
Answer to question 1:
Management science could provide data on almost every area of
operations for Red Robin. Used correctly, the data would guide
managers in increasing efficiency. However, data itself does not
guarantee it can be translated into information that will inform
decisions. Guy Constant had a financial background and data to tell
him Red Robin’s cost of doing business and where the cost could be
reduced. As it turned out, those cuts were counterproductive, but it was
not a flaw in the data itself that resulted in poor operational decisions.
Data is no substitute for informed perspectives such as Murphy’s belief
that “highly-paid” managers are more loyal and a great resource for
directing excellent customer service on the ground.
Answer to question 2:
The theory of dynamic capabilities explains how companies must be
stable enough to deliver value to customers, yet resilient and flexible
enough to shift focus when situations demand a different approach.
Dynamic capabilities involve the activities of sensing, seizing, and
transforming. Using these tools, companies can identify and assess
external opportunities (sensing), mobilise company resources to
capture value from the opportunities (seizing) and make changes as
needed to maintain success (transforming). When Murphy took over
the top spot at Red Robin, dynamic capabilities appeared to be
brought to the fore. He is currently working to transform the company
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using those capabilities. I would describe Red Robin as becoming
dynamic, because their changes would still be a work in progress.
Visit at least two organisations in your community and identify those that
seem to operate with a Theory X or a Theory Y approach to management.
(local/regional question)
Possible answers:
Theory X:
Theory X approach to management: According to this theory, managers believe the
average worker is lazy, dislikes work, and will try to do as little as possible. These
managers believe that it is their job to counteract the natural tendencies of workers
to avoid work, by closely supervising and controlling them. Control is exercised
through a system of rewards and punishments. This theory asserts that managers
need to maximise control and minimise employee autonomy over their work and
work pace. Cooperation is neither expected nor desired by the workforce. The role
of managers is to closely monitor workers to ensure they contribute to the production
process and follow the rules and standard operating procedures of the organisation,
and that they do not threaten product quality.
Typical examples of Theory X organisations include fast-food restaurants and
retail stores. Employee turnover tends to be extremely high, and employees are
motivated mostly by the money, and many will quit as soon as a short-term financial
objective is achieved (pay off a traffic ticket, buy books for the semester, buy car
insurance). Rules, procedures, and strict managerial oversight are often effective in
these organisations.
Theory Y:
Theory Y Approach to Management: According to Theory Y, workers do not naturally
dislike work; the work setting itself determines whether or not work is seen as a
source of satisfaction or punishment. Given the chance or opportunity, workers will
do what is good for the organisation. It is the manager’s task to create a work setting
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that encourages commitment to organisational objectives. If managers believe that
workers are motivated, they can decentralise authority and give more control over
the job to workers. A manager’s role is not to control employees, but to provide
support and advice.
Typical examples of Theory Y organisations include law offices, hospitals, and
schools. These are organisations that employ highly skilled, highly educated
employees who are often experts at what they do. They are motivated by their
enjoyment of their work, ambition, and the desire to be perceived as excellent at
what they do. Managers mostly just need to point the way and the employees will
take care of the rest.
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CHAPTER 2:
Managers and Managing.
Follow along in your textbook. Managers and Managing: see chapter
1, from page 2 - 18.
Learning Outcomes
Upon completion of this chapter, the learner should be able to:
•
Define Management.
•
Elaborate on the role of management in an organisation.
•
Demonstrate an understanding of the management environment.
This relates to:
SO 2: Demonstrate an understanding of the individual functional areas of
management.
2.1. Introduction to Managers and Managing
In order to make decisions and lead others successfully, managers need a specific set
of skills, knowledge and abilities that will assist them to interpret and gauge cues that
they obtain from their environment. They can then respond in a suitable manner and
lead their organisations effectively. We will therefore examine what management is,
and how to manage by defining the essential managerial tasks. We will look at the
levels of management in an organisation and determine what each level requires in
terms of skills, and finally we will evaluate recent changes in management practices.
What are the most common challenges that managers currently face?
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2.2. Defining Management
The planning, organising, leading, and controlling of human and other
resources to achieve organisational goals efficiently and effectively
All managers work in organisations. Organisations are collections of people who work
together and coordinate their actions to achieve a wide variety of goals or desired
future outcomes.
Managers are the people responsible for supervising and making the most of an
organisation’s human and other resources to achieve its goals.
Management is the planning, organising, leading, and controlling of human and other
resources in order to achieve the organisation’s goals effectively and efficiently.
An organisation’s resources include assets such as people and their skills, know-how,
and experience; machinery; raw materials; computers and information technology;
and patents, financial capital, and loyal customers and employees.
Management Goals
One of the most important goals that organisations and their members try to achieve
is to provide a “good” or a “service” that customers value or desire.
Organisational performance is a measure of how efficiently and effectively a manager
uses resources to satisfy customers and achieve organisational goals.
▪
Efficiency is a measure of how productively resources are used to achieve a
goal.
▪
A manager’s responsibility is to ensure that an organisation and its members
perform as efficiently as possible, all the activities needed to provide goods and
services to customers.
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▪
Effectiveness is a measure of the appropriateness of the goals that managers
have selected for the organisation to pursue and the degree to which the
organisation achieves those goals.
2.3. Essential Management Tasks
Managers accomplish the company objectives by performing four essential
managerial tasks: planning, organising, leading, and controlling.
Table 2.1: Management Tasks
Source: Creative Commons License
Planning
Identifying and selecting appropriate goals; one of the four principal
tasks of management.
To perform the planning task, managers identify and select appropriate organisational
goals and courses of action; they develop strategies for how to achieve high
performance.
The three steps involved in planning are:
▪
Deciding which goals the organisation will pursue.
▪
Deciding what strategies to adopt to attain those goals.
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▪
Deciding how to allocate organisational resources to pursue the strategies that
attain those goals.
The outcome of planning is a strategy, a cluster of decisions about what goals to
pursue, what actions to take, and how to use resources to achieve goals.
▪
A low-cost strategy is a way of obtaining customers by making decisions that
allow an organisation to produce goods or services more cheaply than its
competitors, so it can charge lower prices than they do.
▪
A differentiation strategy can be a way of obtaining customers by making
decisions that allow an organisation to produce new, exciting, and unique goods
or services.
A planning strategy is complex and difficult, especially because planning is done under
uncertainty when the result is unknown, so that either success or failure is a possible
outcome of the planning process.
Organising
Structuring working relationships in a way that allows organisational
members to work together to achieve organisational goals; one of the
four principal tasks of management.
Organising is structuring working relationships so organisational members interact
and cooperate to achieve organisational goals.
The outcome of organising is the creation of an organisational structure, a formal
system of task and reporting relationships that coordinates and motivates members,
so they work together to achieve organisational goals.
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Leading
Articulating a clear vision and energising and enabling organisational
members so that they understand the part they play in achieving
organisational goals; one of the four principal tasks of management.
An organisation’s vision is a short, succinct, and inspiring statement of what the
organisation intends to become and the goals it is seeking to achieve.
Leading is the articulation of a clear vision and energising and enabling organisational
members, so they understand the part they play in achieving organisational goals.
Leadership involves managers using their power, personality, influence, persuasion,
and communication skills to coordinate people and groups so their activities and efforts
are in harmony.
Controlling
Evaluating how well an organisation is achieving its goals and taking
action to maintain or improve performance; one of the four principal
tasks of management.
Controlling is the process of evaluating how well an organisation is achieving its goals
and taking corrective actions to maintain or improve performance.
The outcome of the control process is the ability to measure performance accurately
and regulate organisational efficiency and effectiveness.
To exercise control managers must decide which goals to measure, such as goals
that relate to productivity, quality, and responsiveness to customers, and then they
must design control systems that will provide the information necessary to assess
performance, which is, to determine to what degree the goals have been met.
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The controlling task also helps managers evaluate how well they are performing the
other three tasks of management, such as planning, organising, and leading, and
then take corrective action.
Performing Management Tasks (Mintsberg’s typology)
Henry Mintsberg, by following managers and observing what they ‘actually’ do hour by
hour and day-by-day, identified 10 kinds of specific roles, or sets of job responsibilities,
that capture the dynamic nature of managerial work.
He grouped these roles according to whether the responsibility was primarily
decisional, interpersonal, or informational:
▪
Decisional:
o Entrepreneur
o Disturbance Handler
o Resource Allocator
o Negotiator
▪
Interpersonal:
o Figurehead
o Leader
o Liaison
▪
Informational:
o Monitor
o Disseminator
o Spokesperson
These roles explain the different responsibilities of the manager as they relate to
performing management tasks.
2.4. Level and skills of Managers
To perform the four managerial tasks efficiently and effectively, organisations group or
differentiate their managers in two main ways by level in hierarchy and by type of skill.
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Organisations differentiate managers according to their level or rank in the
organisation’s hierarchy of authority. The three levels of managers are first-line
managers, middle managers, and top managers which are arranged in a hierarchy.
Organisations group managers into different departments (or functions) according to
their specific job-related skills, expertise, and experiences, such as a manager’s
engineering skills, marketing expertise, or sales experience.
A department is a group of people who work together and possess similar skills or
knowledge, tools, or techniques to perform their jobs.
Levels of Management
First-line manager: A manager who is responsible for the daily
supervision of non-managerial employees.
Middle manager: A manager who supervises first-line managers and
is responsible for finding the best way to use resources to achieve
organisational goals.
Top manager: A manager, who establishes organisational goals,
decides how departments should interact, and monitors the
performance of middle managers.
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Figure 2.1: Levels of management: Top manager, Middle manager and First line
Manager
Organisations normally have three levels of management: first-line managers, middlemanagers, and top managers
At the base of the managerial hierarchy are first-line managers, often called
supervisors. They are responsible for daily supervision of the non-managerial
employees who perform the specific activities necessary to produce goods and
services.
Supervising the first-line managers are middle managers, responsible for finding the
Best way to use resources to achieve organisational goals.
Top managers establish organisational goals, decide how departments should
interact, and monitor the performance of middle managers. They have cross
departmental responsibility.
▪
The chief executive officer (CEO) is a company’s most senior and important
manager, the one all other top managers report to.
▪
The term chief operating officer (COO) often refers to the top manager who is
being groomed to take over as CEO when the current CEO becomes the chair
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of the board, retires, or leaves the company.
▪
Together the CEO and COO are responsible for developing good working
relationships among the top managers of various departments; usually these
top managers have the title “vice president.”
▪
A central concern of the CEO is the creation of a smoothly functioning top
management team, a group composed of the CEO, the COO, and the vice
presidents most responsible for achieving organisational goals.
The relative importance of planning, organising, leading, and controlling which are the
four Principal managerial tasks which are allocated to any ‘particular’ manager,
depends on the manager’s position in the managerial hierarchy.
The amount of time a manager spends planning and organising resources to maintain
and improve organisational performance increases as they ascend the hierarchy.
Types of Managerial Skills
Both education and experience enable managers to recognise and develop the
personal skills they need to put organisational resources to their best use.
Research has shown that education and experience help managers acquire and
develop three types of skills: conceptual, human, and technical.
Conceptual skills are demonstrated in the general ability to analyse and diagnose
a situation and to distinguish between cause and effect.
▪
Top managers require the best conceptual skills because their primary
responsibilities are planning and organising.
▪
Formal education and training are important in helping managers develop
conceptual skills.
▪
Today, continuing management education and training, including training in
advanced technology, are an integral step in building managerial skills,
because new theories and techniques are constantly being developed to
improve organisational effectiveness.
▪
Organisations may also wish to develop a particular manager’s abilities in a
specific skill area.
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Human skills include the general ability to understand, alter, lead, and control the
behaviour of other individuals and groups.
▪
The ability to communicate, coordinate, and motivate people, and to mould
individuals into a cohesive team, distinguishes effective from ineffective
managers.
▪
These skills can be learned through education, training, and experience.
Technical skills are the job-specific skills required to perform a particular type of
work or occupation at a high level.
▪
The array of technical skills managers need depends on their position in their
organisations.
▪
Managers and employees who possess the same kinds of technical skills
typically become members of a specific department.
▪
an organisation will group managers into departments on the basis of their jobspecific skills.
The term core competency is often used to refer to the specific set of departmental
skills, knowledge, and experience that allows one organisation to outperform its
competitors.
▪
Departmental skills that create a core competency give an organisation a
competitive advantage.
Effective managers need all three types of skills which include conceptual, human,
and technical, in order to help their organisations perform more efficiently and
effectively.
Developing new and improved skills through education and training has become a
priority for both aspiring managers and the organisations they work for.
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Figure 2.2: Effects of changes in global competition
Source: Creative Commons License.
2.5. Recent Changes in Management Practices
Two major factors that have led to these changes are global competition and advances
in technology.
Restructuring and Outsourcing
Restructuring involves simplifying, shrinking, or downsizing an organisation’s
operation to lower operating costs. It downsizes an organisation by eliminating the jobs
of large numbers of top, middle, and first-line managers and non-managerial
employees.
Modern technology’s ability to improve efficiency has increased the amount of
downsizing in recent years because technology makes it possible for fewer employees
to perform a given task.
Outsourcing involves contracting with another company, usually in a low-cost country
abroad, to have it perform a work activity the organisation previously performed itself.
▪
Outsourcing increases efficiency because it lowers operating costs, freeing up
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money and resources that can be used in more effective ways such as
developing new products.
▪
The need to respond to low-cost global competition has speeded outsourcing
dramatically in the 2000s.
Large for-profit organisations today typically employ 10% to 20% fewer people than
they did 10 years ago because of restructuring and outsourcing.
Empowerment and Self-Managed Teams
Self-managed
team:
A
group
of
employees
who
assume
responsibility for organising, controlling, and supervising their own
activities and monitoring the quality of the goods and services they
provide.
Empowerment is a management technique that involves giving employees more
authority and responsibility over how they perform their work activities. It is the
expansion of employees’ knowledge, tasks, and decision-making responsibilities.
Technology is being increasingly used to empower employees because it expands
employees’ job knowledge and increases the scope of their job responsibilities.
Technology also facilitates the use of a self-managed work team, a group of
employees who assume collective responsibility for organising, controlling, and
supervising their own work activities.
2.6. Conclusion
We have now considered what managers do with the skills and knowledge that they
must possess in order lead their organisations. We discussed the concepts related to
what it means to manage, such as the manager’s role in utilising the organisation’s
resources to achieve organisational goals effectively and efficiently through planning,
organising, leading, and controlling in order to make the most productive use of the
organisation’s resources. Appropriate goals are then pursued to use these resources
to either create goods or provide services that customers want.
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Essential management tasks were discussed as they relate to planning, organising,
leading and controlling where the different levels of management were introduced
along with their requisite roles. The skills levels of the various management levels
were examined as they relate to conceptual, human and technical, where these skills
were then utilised into departmental and job-specific responsibilities and goal setting
for the organisation which is undertaken by top management with the departmental
managers utilising the organisational resources in order to achieve these goals.
We then analysed the recent changes in management practices that have assisted
organisations to remain relevant and profitable. These themes related to restructuring,
downsizing and outsourcing in order to remain cost effective, and finally we looked at
how companies are empowering their workforce and using self-managed teams to
continue to be more efficient and effective along with technology to assist managers
to meet their objectives.
Self-Assessment Questions
1. In what order do managers typically perform management
functions?
a) organising, planning, controlling, leading
b) organising, leading, planning, controlling
c) planning, organising, leading, controlling.
d) planning, organising, controlling, leading.
2. At what level of an organisation does a corporate manager
operate?
a) First line
b) Top level
c) Middle level
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3. What is not a recognised key skill of management?
a) Conceptual
b) Interpersonal
c) Technical
d) Writing
4. What the interpersonal roles of managers?
a) Figurehead, leader, and liaison
b) Spokesperson, leader, coordinator
c) Director, coordinator, disseminator
d) Communicator, organiser, spokesperson
Answers: C, B, D, A
Case Synopsis: GE Drives Away from Transportation
(International Question)
When John Flannery took over as CEO of GE, his overall vision was
to make the company simpler and leaner. Flannery determined that
GE would focus on its three most profitable lines of business: aviation,
(Making jet engines), power generation, and health care (especially
imaging equipment). He spun off GE’s railroad business, one of North
America’s leading makers of locomotives for freight trains. The
business unit, GE Transportation, combined with Wabtec, a company
that manufactured equipment for freight railways and mass-transit
operations, to make a new company. The deal gave GE part ownership
of the new entity and $2.9 billion in cash.
The new combined company was expected to save up to $250 million
in operating costs each year. To cut costs further, they built
manufacturing facilities in Fort Worth, Texas and reduced employees
from 5,000 to 3,000 in GE’s Lawrence Park facility, which GE had
owned and run since 1907. Lawrence Park came with a GE-planned
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community which was home to many of the employees.
Lawrence Park utilised new technologies to allow production at the
facility to be accomplished at former levels, even with roughly 40
percent fewer employees. Many of the remaining jobs at Lawrence
Park were high-tech positions in advanced manufacturing, which
enabled the facility to produce greater output with fewer workers.
Wabtec could also focus on the very lucrative locomotive
refurbishment business. Locomotives have an operating life of about
50 years, so at about 25 years, upgrades in sensors and software can
increase their efficiency and power. Wabtec acquired RELCO
Locomotives, a well-known player in the locomotive overhaul and
refurbishing industry, to help increase capacity to meet the
exceptionally large demand for refurbishment services.
Questions:
1. What kinds of decisions and actions were taken by GE and the
managers at Lawrence Park and Fort Worth? Categorise these as
planning, organising, leading, and controlling.
2. How have new technologies been utilised at the Lawrence Park
facility to help save local jobs?
Possible answers:
Answer to question 1:
Planning: designing the agreement with Wabtec to buy the
locomotive business GE wanted to spin off; moving part of Lawrence
Park operations to Texas; acquiring RELCO Locomotives to improve
capacity for locomotive refurbishing.
Organising: updating manufacturing processes at the Lawrence Park
facility so the factory could run with 40% fewer employees.
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Leading: managers establishing and maintaining a high-performance
culture.
Controlling: checking profitability of all lines of business; continual
monitoring of plant efficiencies.
Answer to question 2:
New technologies at the Lawrence Park facility allow production at
the facility to be accomplished at former levels with roughly 40%
fewer employees. Many of the remaining jobs at Lawrence Park are
high-tech positions in advanced manufacturing, which enables the
facility to produce greater output with fewer workers.
Why good employees can be bad managers?
You have a good employee, a hard worker, technically proficient. You promote
him, and it turns out to be a bad decision. You have promoted your best
technical employee, and in the process, lose a good employee and gain a poor
manager. How does this happen?
(Local / general question)
Possible answer:
Good technical employees can make good managers, of course, but many do not.
Good technical specialists such as engineers, accountants, computer gurus,
financial analysts, statistical experts are more likely to have introvert personalities.
Introverts prefer to work alone. They revel in painstaking details, meaningful
paperwork, tedious activities, and precision. They can focus for hours on extracting
meaningful data from mounds of information. The presence of ambiguity and clutter
motivates them to find the “perfect solution.”
The traits that make technical experts successful actually get in the way of managing
others. The world of the worker encourages them to seek precision and order. By
contrast, the management role is messy, complicated, and ambiguous. Additionally,
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the sense of pride and reward for completing a task is missing.
Relationship complexities are more dynamic than task complexities. Management
analysis must account for distasteful political elements, egos, pride, insecurities,
envy, hurt feelings, and petty conflicts.
To make the successful transition to leadership, technical experts learn to rely more
upon their instincts, insights, intuitions, and tolerance for human equations,
underlying values, and their “feel” for things. Rational analysis is still important; it
just is not sufficient.
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CHAPTER 3:
Current Management Challenges
Follow along in your textbook. Decision Making, Learning, Creativity
and Entrepreneurship: see chapter 7, from page 182 - 203.
Learning Outcomes
Upon completion of this chapter, the learner should be able to:
▪
Identify and describe the challenges that managers currently face.
This relates to:
SO 3: Identify and solve management problems across the various functional
areas.
3.1. Introduction to Current Management Challenges
Decision-making can have a profound influence on organisational effectiveness,
particularly in relation to the types of decisions that the various role-players make.
These decisions affect a variety of organisational factors. We will be discussing the
nature of managerial decision-making and look at some models of the process of how
decisions are made, which you will find can be quite complex. We will analyse the
effects of bias and group decision-making, and finally, how managers can promote
organisational learning and creativity, and improve the quality of decision making
throughout an organisation.
What are the biases that managers face, that may cause poor
decision-making?
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Key Words and Definitions
Ambiguous information: Information that can be interpreted in
multiple and often conflicting ways.
Bounded rationality: Cognitive limitations that constrain one’s ability
to interpret, process, and act on information.
Dialectical inquiry: Critical analysis of two preferred alternatives in
order to find an even better alternative for the organisation to adopt.
Intuition: Feelings, beliefs, and hunches that come readily to mind,
require little effort and information gathering, and result in on-the-spot
decisions.
Product champion: A manager who takes “ownership” of a project
and provides the leadership and vision that take a product from the
idea stage to the final customer.
Production blocking: A loss of productivity in brainstorming sessions
due to the unstructured nature of brainstorming.
3.2. Managerial Decision-Making
Decision making is the process by which managers respond to the opportunities and
threats that confront them by analysing the options and making determinations or
decisions about specific organisational goals and courses of action.
A good decision results in the selection of appropriate goals and courses of action
that increase organisational performance. Bad decisions result in lower performance.
Decision making in response to opportunities occurs when managers search for ways
to improve organisational performance. Decision making in response to threats
occurs when events are adversely affecting organisational performance and
managers are searching for ways to increase performance.
Decision making is central to being a manager, and whenever managers engage in
planning, organising, leading, and controlling, they are constantly making decisions.
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Managers are always searching for ways to improve their decision making to improve
organisational performance.
Programmed and Non-programmed Decision-Making
Programmed decision making: Routine, virtually automatic decision
making that follows established rules or guidelines.
Nonprogrammed decision making: Non-routine decision making
that occurs in response to unusual, unpredictable opportunities and
threats.
Programmed decision making is a routine, virtually automatic process. These
decisions have been made so many times in the past that managers have been able
to develop rules or guidelines to be applied when certain situations inevitably occur.
Most decision making that relates to day-to-day running of an organisation is
programmed decision making. Programmed decision making is possible when
managers have the information they need to create rules that will guide decision
making.
Non-programmed decision making is required for non-routine decisions. Nonprogrammed decisions are decisions that are made in response to unusual or novel
opportunities or threats. These occur when there are no ready-made decision rules
that managers can apply to a situation.
To make decisions in the absence of decision rules, managers may rely upon their
intuition, or they may make reasoned judgments. When using intuition, managers rely
upon feelings, beliefs, and hunches that come readily to mind, require little effort and
information gathering, and result in on-the-spot decisions. Reasoned judgments are
decisions that take time and effort and result from careful information gathering,
generation of alternatives, and evaluation of alternatives.
Although ‘exercising’ one’s judgment is a more rational process than ‘going’ with one’s
intuition, both processes are often flawed and can result in poor decision making.
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Thus, the likelihood of error is much greater in non-programmed decision making than
in programmed decision making.
Sometimes managers have to make rapid decisions and do not have the time for a
more careful consideration of the issues involved, while at other times, they do have
the time available to make reasoned judgments.
The Classical Model
Classical decision-making model: A prescriptive approach to
decision making based on the assumption that the decision maker can
identify and evaluate all possible alternatives and their consequences
and rationally choose the most appropriate course of action.
The classical model is one of the earliest models of decision-making. It is prescriptive.
This means that it specifies how decisions should be made. Managers using this
model make a series of simplifying assumptions about the nature of the decisionmaking process.
The model’s premise is that managers have access to all the information they need to
make the optimum decision. It also assumes that managers can easily list and rank
each alternative from most to least preferred in order to reach and optimum decision.
The Administrative Model
Administrative model: An approach to decision making that explains
why decision making is inherently uncertain and risky and why
managers usually make satisfactory rather than optimum decisions.
The administrative model explains why decision making is always inherently risky and
uncertain. It is based upon three important concepts: bounded rationality, incomplete
information, and satisficing.
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Bounded rationality describes the situation in which the number of alternatives a
manager must identify is so great and the amount of information so vast that it is
difficult to evaluate it all.
Information is incomplete because in most cases the full range of decision-making
alternatives is unknown, and the consequences associated with known alternatives
are uncertain. In other words, information is incomplete because of risk and
uncertainty, ambiguity, and time constraints.
▪
Risk is present when managers know the possible outcomes of a particular
course of action and can assign probabilities to them.
▪
Uncertainty exists when the probabilities of alternative outcomes cannot be
determined, and future outcomes are unknown.
▪
Ambiguous information occurs when the meaning of information is not clear
when it can be interpreted in multiple and often conflicting ways.
▪
Time constraints and information costs create problems because managers do
not have the time or the money to search all possible alternative solutions and
evaluate all the potential consequences of those alternatives.
Satisficing is the way managers cope with bounded rationality and incomplete
information. Satisficing means that managers explore a limited sample of all potential
alternatives, and they choose an acceptable or satisfactory alternative from that limited
sample rather than trying to make the optimal decision.
Figure 3.1: March and Simon’s Decision-making steps
Source: Creative Commons License
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3.3. Steps in the Decision-Making Process [ March and Simon]
Using the work of March and Simon as a basis, researchers have developed a stepby-step model of the decision-making process. There are six steps that managers
should consciously follow to make a good decision.
Recognising the Need for a Decision
Some stimuli usually spark the realisation within the organisation that a decision needs
to be made. The stimuli may originate from the actions of managers inside of the
organisation or from changes in the external environment. Be it proactive or reactive,
it is imperative that managers immediately recognise this need and respond in a timely
and appropriate manner.
Generating Alternatives
A manager must generate a set of feasible alternative courses of action to take in
response to the opportunity or threat. Failure to properly generate and consider a
variety of alternatives can lead to bad decisions. Sometimes managers find it difficult
to generate creative, alternative solutions to specific problems. Generating creative
alternatives may require that we abandon our existing mid-sets and develop new ones.
Assessing Alternatives
Once managers have generated a set of alternatives, they must evaluate the
advantages and disadvantages of each one. Successful managers use four criteria to
evaluate the pros and cons of alternative courses of action. Often a manager must
consider these four criteria simultaneously. Some of the worst managerial decisions
can be traced to poor assessment of the alternatives.
Legality: Managers must ensure that a possible course of action is legal.
Ethicalness: Managers must ensure that a possible course of action is ethical and that
it will not unnecessarily harm any stakeholder group.
Economic feasibility: Managers must decide whether the alternatives can be
accomplished, given the organisation’s performance goals, and do not cause harm to
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other goals of the organisation.
Practicality: Managers must decide whether they have the capabilities and resources
required to implement the alternative.
Choosing Alternatives
The next step is to rank the various alternatives using the criteria listed above in order
to ‘make a decision’. Managers must be sure all the information that is available is
used. Sometimes managers ‘have a tendency’ to ignore critical information, even
when it is available.
Implementing Chosen Alternatives
Once a course of action has been determined, it must be implemented. Many
managers ‘make a decision’ and then fail to act on it. Thousands of subsequent
decisions are necessary to implement a course of action. To ensure that
implementation occurs, top managers must assign to middle managers the
responsibility for making follow-up decisions and must give them the sufficient
resources required to achieve the goal and hold them accountable for their
performance.
Learning from Feedback
Effective managers always conduct a retrospective analysis in order to learn from
past successes or failures. To ensure that they learn from experience, managers
should establish a formal procedure that includes the following steps:
▪
Compare what actually happened to what was expected to happen as a result
of the decision.
▪
Explore why any expectations for the decision were not met.
▪
Develop guidelines that will help in future decision making.
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3.4. Cognitive Biases in Decision-Making
Heuristics: Rules of thumb that simplify decision making.
Systematic errors: Errors that people make over and over and that
result in poor decision making.
As all decision makers are subject to bounded rationality, they tend to use heuristics,
and rules of thumb that simplify the process of making decisions. Systematic errors
are errors that people make over and over, and that results in poor decision making.
Because of cognitive biases, which are caused by systematic errors, otherwise
capable managers may end up making bad decisions. Four sources of cognitive bias
that can adversely affect the way managers make decisions are prior hypothesis
(confirmation bias), representativeness, the illusion of control, and escalating
commitment.
Confirmation Bias
Prior-hypothesis bias: A cognitive bias resulting from the tendency
to generalise inappropriately from a small sample or from a single vivid
event or episode.
Decision makers who have strong prior beliefs about the relationship between two
variables tend to make decisions based on those beliefs even when presented with
evidence that their beliefs are wrong. In doing so, they are falling victim to confirmation
bias.
Representative Bias
Representativeness bias occurs when decision makers inappropriately generalise
from a small sample or even from a single vivid case or episode.
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Illusion of Control
Illusion of control: A source of cognitive bias resulting from the
tendency to overestimate one’s own ability to control activities and
events.
Illusion of control is the tendency of decision makers to overestimate their ability to
control activities and events.
Escalating Commitment
Escalating commitment: A source of cognitive bias resulting from the
tendency to commit additional resources to a project even if evidence
shows that the project is failing.
Escalating commitment occurs when some managers continue to commit more
resources to a project even if they receive feedback that the project is failing. They do
so because their feelings of personal responsibility apparently bias their analysis of
the situation.
Be Aware of your Biases.
Managers must become aware of biases and their effects, and they must identify their
own personal style of making decisions.
One way to do this is for managers to review two decisions that they made recently–
one that turned out well and one that turned out poorly. Problem-solving experts
recommend that they start by determining how much time was spent on each of the
decision-making steps to ensure that the amount time allocated was adequate.
Another technique is for managers to list the criteria they typically use to assess and
evaluate alternatives and then critically evaluate the appropriateness of these factors.
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Many individual managers are likely to have difficulty identifying their own biases, so
it is often advisable for managers to scrutinise their own assumptions by working with
other managers to help expose weaknesses in their decision-making style.
3.5. Group Decision-Making
Many important decisions are made by groups or teams of managers instead of
individuals.
When managers work as a team, their choices of alternatives are less likely to suffer
from biases.
They are able to draw on the group’s combined skills and accumulated knowledge.
Group decision making allows managers to process more information and correct
each other’s errors.
Managers included in the making of a decision will most likely cooperate with its
implementation. When a group ‘makes a decision’, each group member is usually
committed to it, thereby increasing the likelihood of its successful implementation.
The disadvantages of group decision making include the length of time it often takes,
and the possibility of the decision being undermined by biases. A major source of
group bias is groupthink.
The Perils of ‘Group-Think’
Groupthink: A pattern of faulty and biased decision making that
occurs in groups whose members strive for agreement among
themselves at the expense of accurately assessing information
relevant to a decision.
Groupthink is a pattern of faulty and biased decision making that occurs in groups
whose members strive for agreement within the group at the expense of accurately
assessing information.
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When managers are subject to groupthink, they collectively embark on a course of
action without developing appropriate criteria to evaluation alternatives. Typically, the
group rallies around one central manager and becomes blindly committed to that
manager’s preferred course of action without evaluating its merits.
Pressures for harmony and agreement have the unintended impact of discouraging
individuals from raising dissenting opinions.
“Playing” Devil’s Advocate
Devil’s advocacy: Critical analysis of a preferred alternative, made in
response to challenges raised by a group member who, playing the
role of devil’s advocate, defends unpopular or opposing alternatives
for the sake of argument.
Both Devil’s Advocacy and Dialectical Inquiry can counter the effects of cognitive
biases and groupthink. In practice, devil’s advocacy is probably the easier to
implement.
Devil’s advocacy is a technique used to counteract groupthink. It involves a critical
analysis of the group’s preferred alternative in order to ascertain its strengths and
weaknesses before implementation. One member of the decision-making group plays
the role of devil’s advocate by critiquing and challenging the way in which the group
evaluated alternatives and selected one alternative over the other.
Dialectical inquiry goes one step further. Two groups of managers are assigned to a
problem and each group is responsible for evaluating alternatives and selecting one
of them. Each group presents its preferred alternative to top management, each group
critiques the other, and a debate ensues. Both groups are then challenged to uncover
potential problems and perils associated with their solutions, with the goal of identifying
the best alternative course of action for the organisation to adopt.
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Diversity among Decision-Makers
Promoting diversity within decision-making groups also improves group decision
making by broadening the range of experiences and opinions that the group members
can draw from as they generate, assess, and choose among alternatives.
Groups containing members from diverse backgrounds are less prone to groupthink
because of the differences that exist.
3.6. Organisational Learning and Creativity
Organisational learning: The process through which managers seek
to improve employees’ desire and ability to understand and manage
the organisation and its task environment.
The quality of organisational decision making ultimately depends on innovative
responses to opportunities and threats.
Organisational learning is the process through which managers seek to improve
employees’ desire and ability to understand and manage the organisation. A learning
organisation is one in which managers do everything possible to maximise the
potential for organisational learning to take place. At the heart of organisational
learning is creativity, the ability of a decision maker to discover original and novel ideas
that lead to feasible alternative courses of action.
Creating a Learning Organisation [Peter Senge]
Peter Senge developed five principles for creating a learning organisation. They are:
▪
Top managers must allow every person in the organisation to develop a sense
of personal mastery.
▪
Organisations need to encourage employees to develop and use complex
mental models.
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▪
Managers must do everything they can to promote group creativity and team
learning.
▪
Managers must put emphasis on the importance of building a shared vision.
▪
Managers must encourage systems thinking.
Building a learning organisation is neither a quick nor easy process. It requires
managers to change their management assumptions radically.
Table 3.1: Comparison between individual and group decision-making
Source: Creative Commons License
Promoting Individual Creativity
Research indicates that when certain conditions are met, managers are more likely
to be creative. They include:
▪
Providing employees the opportunity and freedom to generate new ideas.
▪
Allowing them an opportunity to experiment, to take risks, and to make mistakes
and learn from them.
▪
Employees must not fear that they will be penalised or looked down upon for
ideas that at first seem outlandish.
Other ways of promoting individual creativity are providing constructive feedback so
that employees will know how they are doing and visibly rewarding employees who
come up with creative ideas.
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Promoting Group Creativity
Brainstorming, nominal group technique, and the Delphi technique are used to
encourage creativity at the group level.
Brainstorming: is a group problem-solving technique in which
managers meet face-to-face to generate and debate a wide variety of
alternatives from which to ‘make a decision’.
Brainstorming is especially useful in some situations, but at other times can result in a
loss of productivity due to production blocking, which occurs because group members
cannot always simultaneously make sense of all the alternatives being generated,
think up additional alternatives, and remember what they were thinking.
A brainstorming session is conducted as follows:
▪
One manager describes the problem in broad outline.
▪
Group members share their ideas and generate courses of action.
▪
Group members are not allowed to criticise each alternative until all have
been heard.
▪
Group members are encouraged to be as creative as possible. Anything goes,
and the greater the number of ideas put forth, the better.
When all alternatives have been generated, the group members debate the pros and
cons of each and develop a list of the best alternatives.
Nominal group technique: A decision-making technique in which
group members write down ideas and solutions, read their suggestions
to the whole group, and discuss and then rank the alternatives.
The nominal group technique provides a more structured way of generating
alternatives in writing. It avoids production blocking and is especially useful when an
issue is controversial. A nominal group technique session is conducted as follows:
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▪
One manager outlines the problem to be addressed and group members write
down ideas and solutions.
▪
Managers read their suggestions to the group with no criticism allowed.
▪
The alternatives are discussed, and group members can critique or ask for
clarification.
▪
Each member ranks all the alternatives, and the highest-ranking one is
selected.
Delphi technique: A decision-making technique in which group
members do not meet face-to-face but respond in writing to questions
posed by the group leader.
If managers are in different locations, video-conferencing [Zoom, Microsoft Teams] is
one way to bring them together to brainstorm. Another way is to use the Delphi
Technique, a written approach to creative problem solving. It works as follows:
▪
The group leader writes a statement of the problem and a series of questions
to which participating managers respond.
▪
The questionnaire is sent to the managers and departmental experts who are
most knowledgeable about the problem; they are asked to generate solutions
and mail the questionnaire back to the group leader.
▪
A team of top managers records and summarises the responses. The results
are then sent back to the participants with additional questions to be answered
before a decision can be made.
▪
The process is repeated until a consensus is reached and the most suitable
course of action is apparent.
3.7. Conclusion
Managers face many challenges, and as we have now gathered, particularly when it
comes to making decisions. We looked at the decision-making process as it relates to
programmed decisions, those that have been made in the past for which there are
now guidelines and rules, and non-programmed decisions for when unforeseen
circumstances (inevitably) occur, and for which managers are required to make non-
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routine decisions for which there are no ready-made decision rules. We looked at the
classical model of decision-making where there is an assumption that the manager
has all the facts, and the information is presented in an objective and rational manner
and optimum decisions can be made, and we looked at the administrative model which
explains why decision making is inherently uncertain and risky and why managers
usually make satisfactory rather than optimum decisions.
When managers make decisions, they take six steps, which we examined in detail as
they relate to the recognition that a decision needs to be made, generating
alternatives, assessing the alternatives, choosing a suitable alternative, implementing
the chosen alternative, and learning from feedback provided.
During this process, we learned that on the whole, managers are good at making
decisions, however, cognitive bias creeps in and results due to human judgement and
systemic errors are made in the way information is processed by the relevant decisionmaker such as confirmation bias, representative bias, the illusion of control and
escalating commitment.
Managers should therefore be cognisant by undergoing
personal decision audits to become aware of their biases and improve their decisionmaking.
The last element of the decision-making process that we analysed was group decisionmaking and we looked at areas that can affect decision-making such as ‘group-think’.
We went through the tools to prevent this, such as devil’s advocacy, dialectical inquiry
and increasing diversity in the decision-making group.
We moved our attention to the last part of the decision-making process, namely
organisational learning where the manager uses this as a process to improve an
employee’s desire and ability to understand and manage the organisation, and its
decision-making tasks to develop organisational effectiveness through the use of
improved and creative decision-making.
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Self-Assessment Questions
1. The selection of best alternative from many alternatives:
a) selection.
b) decision-making.
c) organising.
d) budgeting.
2. Deal with routing and repetitive problems is a:
a) programmed decision.
b) non-programmed decision.
c) major decision.
d) minor decision.
3. The decision taken by lower-level management is a:
a) programmed decision.
b) non-programmed decision.
c) major decision.
d) minor decision.
4. The decision to deal with a novel and non-repetitive problem is a:
a) programmed decision.
b) non-programmed decision.
c) individual decision.
d) non-economic decision.
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5. Decision taken by a committee formed by the top management for
a specific purpose is:
a) group decision.
b) organisational decision.
c) personal decision.
d) operative decision.
Answers: B, A, A, B, A
Case Synopsis: Teaching Soldiers to Be Creative on the
Battlefield
(International Question)
Warfare has largely changed from the army-against-army model to
one of army-against-insurgent. The freedom fighters/insurgents are
innovative and make weapons from unconventional items, which can
be difficult for soldiers to anticipate or spot.
The U.S. Marine Corps has been seeking greater agility in this
environment of constant change. Its Next Generation Logistics
(NexLog) group, charged with applying technology to logistics,
embraced the so-called maker movement, in which individuals apply
the power of computer-aided technologies to create and build devices
whose manufacture once required a fully equipped factory.
Technologies central to the maker movement include computer-aided
design (CAD), 3D printing, microcontrollers, and laser cutting. A
person equipped with a laptop can quickly make precision parts to
build robots, drones, and other devices.
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NexLog set up a program called Marine Maker to prepare soldiers to
use these skills and technologies on the battlefield. Essentially, it is
creating hackers, in the sense of people who craft solutions from
whatever is at hand. Most who enter the program have aptitude but do
not possess high tech or engineering training. The rationale is that
people with specific training tend to rely on that training to solve
problems and this group needs to rely instead on innovation and
creative solutions. Soldiers are put through Innovation Boot Camp
where they are given exercises to craft solutions with limited supplies
in limited time. This training design ensures they will be able to react
quickly in combat conditions.
In the NexLog rollout of Marine Maker training, hundreds of Marines
have completed Innovation Boot Camp at maker labs in California,
North Carolina, Virginia, and Washington, D.C., as well as on the
ground in Kuwait. Trainers are looking at expanding into programs
focused on specific kinds of capabilities, such as anti-drone warfare
and explosive ordnance disposal. One NexLog leader envisions a
future in which agile-thinking Marines can develop customised drones
on demand for a given mission—perhaps in a city or in cold weather—
and deploy them as needed. NexLog’s mission is to prepare for the
logistics needs of the next decade. Marine Maker is already helping to
create that future.
Questions:
1. Which type of decision making are Marines being taught in the
Marine Maker training: programmed or nonprogrammed decisions?
Explain.
2. Does the classical model or the administrative model of decision
making better fit the decision process of the Marine Maker program?
Why?
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Possible Answers:
Answer to Question 1:
Non-programmed decision making is taught in the training because it
requires non-routine decisions. Non-programmed decisions are
decisions that are made in response to unusual or novel opportunities
and threats. In this case, the opportunities are unpredictable and
require creative solutions.
Answer to Question 2:
The classical model of decision making assumes that decision makers
have complete information; are able to process that information in an
objective, rational manner; and make optimum decisions. The
administrative model is based on the belief that decision making is
inherently uncertain and risky. It is based on three important concepts:
bounded rationality, incomplete information, and satisficing.
Because the Marine Maker program is teaching soldiers to operate
with incomplete information, as well as limited time and resources, the
decision process of the program better fits the administrative model.
How Do You Make Decisions?
Pick a decision you made recently that has had important consequences for
you. It may be your decision about which college to attend, which major to
select, whether to take a part-time job, or which part-time job to take. Using
the material in this chapter, analyse how you made the decision:
1. Identify the criteria you used, either consciously or unconsciously, to guide your
decision making.
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2. List the alternatives you considered. Were they all possible alternatives? Did you
unconsciously (or consciously) ignore some important alternatives?
3. How much information did you have about each alternative? Were you making
the decision on the basis of complete or incomplete information?
4. Try to remember how you reached the decision. Did you sit down and consciously
think through the implications of each alternative, or did you make the decision
on the basis of intuition? Did you use any rules of thumb to help you make the
decision?
5. In retrospect, do you think your choice of alternative was shaped by any of the
cognitive biases discussed in this chapter?
6. Having answered the previous five questions, do you think you made a
reasonable decision? What, if anything, might you do to improve your ability to
make good decisions in the future?
(local/general question)
Possible Answers:
Example Answer to question 1:
John decided to take up a part-time job as a research assistant in the management
department during his second year in college. He wanted to gain valuable learning
experience as well as some extra money to spend. When John was offered the
position at the end of his freshman year, he allowed himself the summer to think
about it.
Example Answer to question 2:
John listed alternatives before he made his decision. He thought that he could:
▪
take the job in the management department.
▪
take a different part-time job somewhere else, either within the university or
the community.
▪
not accept the position nor seek other employment, in order to concentrate
on his classes.
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John did not consider any other alternatives. It seemed to him that these were all
the alternatives that were possible. One alternative that John did not consider was
the option of taking out a student loan to cover his expenses. John did not think that
he would be eligible for such a loan, and it did not occur to him to go to the financial
aid office to see if it was possible for him to get a loan.
Example Answer to question 3:
John had some information about the job in the management department, such as
the hours he would be required to work, his duties, and his pay rate. He did not know
if he would like the job or if he would prefer to do something else with his time.
John did not know if he would be able to get another job at the university, or if there
were any jobs in the community that would be practical for him to take.
John also did not know the amount of work he would need to put in for his classes.
He did not know for sure how much studying and time he would need to devote to
his classes in order to achieve his goals.
John also did not have enough information about his financial status and was not
aware of the resources available through loans and scholarships. John was making
his decision on the basis of incomplete information.
Example Answer to question 4:
John sat down and consciously thought through the implications of each alternative.
He realised that working would interfere with doing other things, like socialising with
friends or playing on a sports team. He also realised that it would be a good
experience and would look impressive on his resume. John thought it might also
allow him to make contacts that might help him to find a job when he graduated.
Also, the skills of time management and organisation that John would develop would
be beneficial to everything else in his life. John’s intuition also told him that he would
be able to juggle the demands of his studies and his job because he had held a parttime job in high school and had managed to do well in school.
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Example Answer to question 5:
Although John did not know how much time he needed to devote to his classes and
studying, his intuition told him that he could handle both work and school without a
problem. This may indicate that John had an illusion of control, since incomplete
information prevented him from knowing this for sure, and he had no previous
experience to base this assumption on.
Example Answer to question 6:
John made many contacts and gained valuable experience during his employment
in the management department. Through his job there, he was able to obtain an
internship position for the summer that further advanced his education and career
opportunities. John found that the real world was not as easily arranged as his
textbooks had led him to believe. He learned how to get along with people and apply
his academic knowledge to real situations.
John might have improved his decision-making process by obtaining feedback from
other students who were working during the school year to see how they handled
all their responsibilities. He might have talked to the faculty or managers in the
community concerning the value of what he would learn by taking the position.
Additionally, John could have spoken with his parents and the financial aid office to
seek additional financial support.
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CHAPTER 4:
Management Functions
Follow along in your textbook. Managing Organisational Structure
and Culture: see chapter 10, from page 274 - 296.
Learning Outcomes
Upon completion of this chapter, the learner should be able to:
▪
Elaborate on the various management functions.
This relates to:
SO 4: Understand the role of management and the various functional areas in
achieving organisational success.
4.1. Introduction to Management Functions
An Organisational structure’s design affects employee behaviour and how well the
organisation will function. Managers at all levels of the organisation need to identify
the best way to organise people and resources so that efficiency and effectiveness
can be increased. To this end, we will be looking at how an organisational structure is
designed, what an organisational environment consists of, how to group tasks into
jobs, how to group jobs into functions and divisions, and then finally we will wrap up
by defining what functions and divisions are coordinated to ensure that the
organisation operated at maximum efficiency.
What is the major difference between designing a job and designing a
task?
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Key Words and Definitions
Authority: The power to hold people accountable for their actions and
to make decisions concerning the use of organisational resources.
Decentralising authority: Giving lower-level managers and nonmanagerial employees the right to make important decisions about
how to use organisational resources.
Hierarchy of authority: An organisation’s chain of command,
specifying the relative authority of each manager.
Integrating mechanisms: Organising tools that managers can use to
increase communication and coordination among functions and
divisions.
Line manager: Someone in the direct line or chain of command who
has formal authority over people and resources at lower levels.
Market structure: An organisational structure in which each kind of
customer is served by a self-contained division; also called customer
structure.
Matrix structure: An organisational structure that simultaneously
groups people and resources by function and by product.
Organisational architecture: The organisational structure, control
systems, culture, and human resource management systems that
together determine how efficiently and effectively organisational
resources are used.
Staff manager: Someone responsible for managing a specialist
function, such as finance or marketing.
4.2. Designing an Organisational Structure
Organisational structure: A formal system of task and reporting
relationships that coordinates and motivates organisational members
so that they work together to achieve an organisation’s goals.
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An organisational design is the process that a manager uses to create a specific type
of organisational structure and culture so that a company can operate efficiently and
effectively.
Organising is therefore the process by which managers establish the structure of
working relationships among employees to allow them to achieve organisational goals
efficiently and effectively.
The organisational structure is the formal system of task and reporting relationships
that determines how employees use resources to achieve goals, and the
organisational culture is the shared set of beliefs, values, and norms that influence the
way people and groups work together to achieve organisational goals.
The challenge facing all companies is to design a structure and culture that:
▪
Motivates managers and employees to work hard and to develop supportive
job behaviours and attitudes.
▪
Coordinates the actions of employees, groups, functions, and divisions to
ensure they work together efficiently and effectively.
According to contingency theory, managers design organisational structures to fit the
factors or circumstances that are affecting the company and causing them the greatest
uncertainty. Thus, there is no one best way to design an organisation.
Figure 4.1: Designing an Organisation.
Source: Creative Commons License.
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4.3. The Organisational Environment
The more quickly the external environment is changing and the greater the uncertainty
within it, the greater the need to speed decision-making and communication so that
scarce resources can be obtained.
In such situations, the manager’s goal is to make organising decisions that result in
greater flexibility and an entrepreneurial culture. Therefore, they are likely to
decentralise authority, empower lower-level employees, and encourage values and
norms that emphasize change and innovation.
In contrast, if the external environment is relatively stable, uncertainty is low, and
resources are readily available, managers make organising decisions that bring more
stability or formality to the organisation’s structure. They also choose values and
norms that emphasise obedience and being a team player.
Managers in this situation prefer a clearly defined hierarchy of authority, standard
operating procedures, and restrictive norms to guide employee activities. In today’s
marketplace, increasing competition is putting pressure on managers to find ways to
structure organisations that allow people and departments to behave flexibly.
Strategy
Different strategies often call for the use of different organisational structures and
cultures. For example, a differentiation strategy aimed at increasing quality usually
succeeds best in a flexible structure with a culture that values innovation.
In contrast, a low-cost strategy aimed at driving down costs works best in a more
formal structure with more conservative norms, which gives managers greater control.
At the corporate level, when managers pursue a strategy of vertical integration or
diversification, a flexible structure is needed to provide sufficient coordination between
different business divisions. Managers are also challenged to create organisational
structures that allow flexibility on a global level.
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Technology [Charles Perrow]
Technology is the combination of skills, knowledge, tools, machines, computers, and
equipment that are used in the design, production, and distribution of goods and
services. The more complicated the technology, the greater the need for a more
flexible structure that allows managers to respond quickly to unexpected situations. If
technology is routine, a formal structure is more appropriate because tasks are simple
and procedures for performing tasks can be outlined in advance.
Charles Perrow argued that two factors determine how complicated or nonroutine
technology is: task variety and task ‘analysability’.
▪
Nonroutine technologies are characterised by high task variety and low task
analysability.
▪
Routine technologies are characterised by low task variety and high task
analysability.
▪
Examples of nonroutine technology are found in the work of scientists in a
research and development laboratory who develop new products.
▪
Examples of routine technology include typical mass production or assembly
operations, where workers perform the same task repeatedly and managers
identify programmed solutions necessary to perform a task efficiently.
Human Resources
The more highly skilled a workforce and the more people are required to work together
in groups or teams to perform tasks, the more likely an organisation is to use a flexible,
decentralised structure and a professional culture based on values and norms that
foster employee autonomy and self-control. Flexible structures, characterised by
decentralised authority and empowered employees, are well suited to the needs of
highly skilled people. Similarly, when people work in teams, they must be allowed to
interact freely and develop norms and guide their own work interactions, which is also
possible in a flexible organisational structure. The way an organisation’s structure
works depends upon the organising choices that managers make about three issues:
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•
How to group tasks into individual jobs.
•
How to group jobs into functions and divisions.
•
How to allocate authority and coordinate or integrate jobs, functions, and
divisions.
Table 4.1: Designing Tasks into Jobs
Source: Creative Commons License
4.4. Grouping Tasks into Jobs: Job Design
The Job Characteristics Model: The first step in organisational design is job design,
the process by which managers decide how to divide into specific jobs the tasks that
have to be performed. The result of the job design process is a division of labour
among employees. Establishing an appropriate division of labour among employees
is vital to increasing efficiency and effectiveness.
When deciding how to assign tasks to individual jobs, managers must be careful not
to oversimplify jobs. Job simplification is the process of reducing the number of tasks
that each worker performs. Too much job simplification may reduce efficiency rather
than increase it if workers become bored and unhappy.
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Job Enlargement and Job Enrichment
Job enlargement: Increasing the number of different tasks in a given
job by changing the division of labour.
Job enrichment: Increasing the degree of responsibility a worker
has over his or her job.
Job enlargement is increasing the number of different tasks in a given job by changing
the division of labour. By increasing the range of tasks performed by a worker,
managers hope to reduce boredom and increase motivation to perform at a high level.
Job enrichment is increasing the degree of responsibility a worker has in his or her job
by:
▪
Empowering workers to experiment to find new or better ways of doing the job.
▪
Encouraging workers to develop new skills.
▪
Allowing workers to decide how to do the work and giving them the
responsibility for deciding how to respond to unexpected situations.
▪
Allowing workers to monitor and measure their own performance.
▪
Expecting that employee’s level of involvement in their work will increase,
thereby increasing productivity.
Managers who make design choices such as these are likely to increase the degree
to which workers behave flexibly rather than mechanically. Narrow, specialised jobs
lead people to behave in predictable ways. In contrast, workers who perform a variety
of tasks are encouraged to discover new ways to perform their jobs and are more likely
to act flexibly and creatively.
The Job Characters Model [Hackman and Oldham]
J. R. Hackman and G. R. Oldham’s job characteristics model explains how managers
can make jobs more interesting and motivating. According to Hackman and Oldham,
every job has five characteristics that determine how motivating the job is. They are:
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▪
Skill variety, which examines the extent to which a job requires an employee to
use a wide range of different skills, abilities, or knowledge.
▪
Task identity, which examines the extent to which a job requires a worker to
perform all the tasks from the beginning to the end of the production process.
▪
Task significance, which examines the degree to which a worker feels his or
her job is meaningful because of its effect on people outside of the organisation.
▪
Autonomy, which examines the degree to which a job gives an employee the
freedom and discretion needed to schedule different tasks and decide how to
carry them out.
▪
Feedback, which is the extent to which a worker receives clear and direct
information regarding how well he or she has performed the job.
The five job characteristics affect an employee’s motivation by impacting three critical
psychological states. They are:
▪
Feeling that one’s work is meaningful.
▪
Feeling responsible for work outcomes.
▪
Feeling responsible for knowing how those outcomes affect others.
Table 4.2: Job Characters Model
Source: Creative Commons License
4.5. Grouping Jobs into Functions and Divisions
The next organising decision is how to group jobs together to best match the needs of
the organisation’s environment, strategy, technology, and human resources. Most top-
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management teams group jobs into departments and develop a functional structure.
As the organisation grows, managers design a divisional structure or a more complex
matrix or product team structure.
Functional Structure
Functional structure: An organisational structure composed of all
the departments that an organisation requires to produce its goods or
services.
A function is a group of people working together who possess similar skills or use the
same knowledge, tools, or techniques to perform their jobs, and a functional structure
is a structure composed of all the departments that an organisation requires to produce
its goods or services.
The advantages of grouping jobs according to function are:
▪
When people who perform similar jobs are grouped together, they can learn
from observing one another.
▪
When people who perform similar jobs are grouped together, it is easier for
managers to monitor and evaluate their performance.
▪
The functional structure allows managers to create the set of functions they
need to scan and monitor the task and general environments.
As an organisation grows, the functional structure may become less efficient and
effective for the following reasons:
▪
Managers in different functions may find it more difficult to communicate and
coordinate with one another.
▪
Functional managers may become so preoccupied with supervising their own
specific departments that they lose sight of organisational goals.
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Divisional Structures: Product, Market and Location
As the problems associated with growth and diversification increase over time, most
managers of large organisations choose a divisional structure and create a series of
business units, each of which produces a specific kind of product for a specific kind of
customer. Each division is a collection of functions or departments that work together
to produce the product. There are three different forms of divisional structure: product
structure, geographic structure, and market structure.
When a manager organises his division according to the type of goods or service that
is provided, this is known as a product structure. Managers might create divisions
according to the type of product or service they provide if they decide to diversify into
new industries or to expand their range of products. By placing each distinct line or
business in its own self-contained division and giving the divisional managers the
responsibility for devising the right business-level strategy, the division will be in a
better position to compete effectively in that industry or market.
However, should the manager organise his division according to the area of the
country, or world that he operates in, this is known as a geographic structure. A
geographic structure may be adopted when organisations are expanding rapidly both
at home and abroad, and managers find it increasingly difficult to manage, from one
central location, the problems and issues that may arise in each region of the country
or area of the world. When shifting to this structure, management breaks down
divisions by geographic location, giving managers the flexibility, they need to best
meet the needs of regional customers.
When the organisation is managed according to divisions based on the type of
customer that is being targeted, this is known as a market structure. A market structure
is appropriate when an organisation needs to group functions according to the type of
customer buying the product. This structure allows managers to be more responsive
to the needs of their customers and allows them to act flexibly to make decisions that
are needed to quickly respond to changing customer needs. This structure is beneficial
in organisations where the time factor is critical.
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Matrix and Product Team Designs
Product structure: An organisational structure in which each product
line or business is handled by a self-contained division.
Product team structure: An organisational structure in which
employees are permanently assigned to a cross-functional team and
report only to the product team manager or to one of his or her direct
employees.
Cross-functional team: A group of managers brought together from
different departments to perform organisational tasks.
The dual reporting relationships of a matrix structure have always been difficult for
managers and employees to deal with. To avoid these problems, managers have
devised another way of organising people and resources: a product team structure.
The product team structure differs from a matrix in that: (1) it does away with dual
reporting relationships and two-boss managers, and (2) functional employees are
permanently assigned to a cross-functional team.
A cross-functional team is a group of managers brought together from different
departments to perform organisational tasks. They report only to the product team
manager or to one of his or her employees.
Increasingly, organisations are making empowered cross-functional teams an
essential part of their organisational architecture to help them gain a competitive
advantage in fast-changing organisational environments.
4.6 Coordinating Functions and Divisions
The more complex the structure a company uses to group its activities, the greater are
the problems of linking and coordinating its different functions and divisions.
Coordination becomes a problem because each function or division develops a
different orientation toward the other groups that affects the way it interacts with them.
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Allocating Authority
To coordinate the activities of people, functions, and divisions and to allow them to
work together, managers must develop a clear hierarchy of authority. Authority is the
power vested in a manager to make decisions and use resources to achieve
organisational goals by virtue of his or her position in an organisation. The hierarchy
of authority is an organisation’s chain of command. Every manager, at every level of
the hierarchy, supervises one or more employees.
The term span of control refers to the number of employees who report directly to a
manager.
A line manager is someone who is in the direct line or chain of command and has
formal authority over people and resources below him.
A staff manager is a manager responsible for managing a specialist function.
Managers at each level of the hierarchy confer upon managers below them in the
chain of command the authority to make decisions.
By accepting this authority, those lower-level managers then become responsible for
their decisions and are accountable for how well they make them.
Integrating and Coordinating Mechanisms
Managers can use various integrating mechanisms to increase communication and
coordination among functions and divisions. The greater the complexity of an
organisation’s structure, the greater is the need to increase communication and
coordination among functions and divisions.
Liaison Roles:
When the volume of contacts between two functions increases, one way to improve
coordination is to give one manager in each function or division the responsibility for
coordinating with the other. The responsibility for coordination is a part of the liaison’s
full-time job. Usually, an informal relationship forms between the people involved,
greatly easing strains between functions.
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Task force: A committee of managers from various functions or
divisions who meet to solve a specific, mutual problem; also called ad
hoc committee.
Task Forces:
If two or more functions share common problems and direct contact and liaison roles
do not provide sufficient coordination, a task force may be appropriate. One manager
from each relevant function or division is assigned to a task force that meets to solve
the specific, mutual problem.
Members are responsible for reporting back to their own departments on issues
addressed and solutions recommended. Task forces are often called ad hoc
committees because they are temporary. Once the problem is resolved, the task force
is disbanded.
Cross-functional team: A group of managers brought together from
different departments to perform organisational tasks.
Cross-Functional Teams:
To address recurring problems effectively, managers are increasingly using
permanent integrating mechanisms such as cross-functional teams. An example of a
cross functional team is a new product development committee that is responsible for
the choice, design, manufacturing, and marketing of a new product. Such an activity
requires a great deal of integration among functions if new products are to be
successfully introduced, and using a complex integrating mechanism such as a crossfunctional team accomplishes this.
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Integrating mechanisms: Organising tools that managers can use to
increase communication and coordination among functions and
divisions.
Integrating Roles:
An integrating role is a role whose only function is to increase coordination and
integration among functions or divisions to achieve performance gains from synergies.
Usually, senior managers who can envision how to use the resources of the functions
or divisions to obtain new synergies are chosen to perform such roles. Once again,
the more complex an organisation, the more important integrating roles become.
4.7. Conclusion
There are various forms of organisational structures, but the business type will
determine the organisational design choice that managers make. We discussed the
four main determinants of organisational structures namely, the external environment,
strategy, technology, and human resources. The higher the level of uncertainty, the
more likely a flexible, adaptable structure will be chosen.
Job design was looked at, as it relates to the process used by managers to group tasks
into jobs. We learnt that managers are able to enrich and enlarge jobs to create a
more interesting working environment. The job characteristics model is used to
measure how motivating, or satisfying a job is.
The organisational structure in terms of jobs grouped into functions and divisions was
examined in terms of the best use of resources and was dependent on the specific
organising problems that managers face, such as functional, product, geographic,
market, matrix, product team and hybrid structures.
The final area that we analysed related to coordinating functions and divisions in terms
of authority distribution, divisional structures and matrix and product team design.
With the growth of organisations, another area that we looked at was the integration
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and coordination between functions and divisions with the mechanisms to assist this
being liaison roles, task forces, cross functional teams and integrating roles.
Self-Assessment Questions
1. An organisational structure composed of all the departments that an
organisation requires to produce its goods or services is known as
a …….
2. An organisational structure composed of separate business units
within which are the functions that work together to produce a
specific product for a specific customer is known as a….
3. The process by which managers decide how to divide tasks into
specific jobs is known as …..
4. Increasing the number of different tasks in a given job by changing
the division of labour is called…
5. Increasing the degree of responsibility a worker has over his or her
job is called….
Answers:
1. Functional structure 2. Divisional structure 3. Job design
4. Job enlargement 5. Job enrichment
Case Synopsis: Restructuring and Rebranding Go Hand in Hand
at Ogilvy
When John Seifert took over as CEO of the advertising agency Ogilvy
& Mather in 2016, the company was a struggling success story. It was
a success because turbulence in the ad industry had not prevented
the company from growing into a global giant. Ogilvy & Mather had a
well-respected name, more than 15,000 employees working in 450
offices in 120 countries, and a host of big clients buying a wide variety
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of services—advertising, public relations, direct marketing, branding
programs, and much more. The agency continues to be known for
famous ad campaigns such as Dove’s “Campaign for Real Beauty”
and American Express’s “Don’t Leave Home without It.” But much of
its growth came from acquiring smaller agencies, and the result was a
hodgepodge of independently operating entities whose work was
poorly coordinated.
Seifert was determined to simplify operations. The effort started with
Ogilvy’s U.S. operations. Lou Aversano, the CEO of U.S. operations,
set up a USA Capabilities team, headed by a chief strategy officer and
including members in charge of particular functions, such as data
analysis and digital advertising. Management shrank the size of the
top leadership team and the number of advertising groups serving
different customers out of separate offices.
As the Ogilvy USA project began to show results, Seifert announced a
global rollout, which included rebranding the firm as Ogilvy Group. The
new structure is built on what Ogilvy’s strategists define as its six core
capabilities. These are the areas of expertise in which Ogilvy offers
services: brand strategy, advertising, customer engagement and
commerce, public relations and influence, digital transformation, and
partnerships. The orientation to “crafts” helps employees see that they
all have something to contribute toward the broader objective of
serving clients.
An important objective of the restructuring was to promote coordination
and efficiency—acting as a kind of global partnership, rather than a set
of independent offices. Management began to shift away from offices
being financially independent of one another and groups measure their
financial performance on a shared statement. Managers had to shift to
seeing the offices united in serving clients and carrying out Ogilvy’s
mission of “making brands matter.” To enable the coordination, Ogilvy
added information technology to make it easy for employees at any of
its locations to share and look up knowledge online. Increased
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coordination is not just an end, but also a means to help the
organisation respond faster when a customer need arises.
The smoother operations should reduce expenses. But more than that,
CEO Seifert hopes this reorganisation will help existing and potential
clients understand what Ogilvy is—a brand representing an agency
that offers, above all, creativity.
Questions:
1. Where do you see examples of a functional structure and a
divisional structure in the redesigned version of Ogilvy?
2. What was Ogilvy’s approach to coordinating functions and
divisions in its restructured organisation? What other
methods of coordination might it use?
Potential Answers:
Answer 1:
The core capabilities were designed around services to clients, also
known as functions. The functions are then organised into divisions.
Answer 2:
Ogilvy depended on technology to unite the functions. They used a
common communications system to enable the functions to
communicate among themselves and between each other. They also
coordinated profit and loss along functional lines instead of by location,
which promoted a sense of shared success. They might also organise
into product teams or a matrix organisation.
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1. Would a flexible or a more formal structure be appropriate for each of
these organisations? (a) A large department store (b) a Big Five
accountancy firm (c) a biotechnology company. Explain your
reasoning.
2. Using the job characteristics model as a guide, discuss how a manager
can enrich or enlarge employees’ jobs.
3. How might a salesperson’s job or an administrative assistant’s job be
enlarged or enriched to make it more motivating?
4. When and under what conditions might managers change from a
functional to a (a) product (b) geographic, or (c) market structure?
Potential Answers:
Example Answer to Question 1:
A large department store should utilise a formal structure. The retail business is a
relatively stable environment. Resources are readily available, and uncertainty is
low. Less coordination and communication among people and functions is needed
to obtain resources. In a department store, most important decisions can and should
be made by top managers within a clearly defined hierarchy of authority. Employees
do not need to decide which products to sell or how the store will market itself.
Employee activities should be governed by extensive rules and standard operating
procedures.
A Big Five accountancy firm should utilise a more flexible structure. Most of these
firms are expanding globally, and global expansion is facilitated by a flexible
structure that allows for more autonomy at lower levels in the organisation. Also,
professionals primarily staff an accounting firm. Flexible structures are best suited
to the needs of highly skilled people. Most accountants have learned professional
honesty and integrity in their training, and would likely resent close supervision, a
distinct feature of a formal structure.
A biotechnology firm should also implement a flexible structure, due to the ever-
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changing, developing environment in which it operates. A flexible structure makes it
easier to speed decision making and communication and makes it easier to obtain
resources. In addition to the environment, technology is also a factor. The more
complicated the technology, the greater the need for a more flexible structure.
Biotechnology firms have incredibly complicated skills, knowledge, tools, machines,
and computers that they use to conduct research and develop products. Many of
their human resources are skilled, as scientists or doctors, and do not require close
management supervision.
Example Answer to Question 2:
A university has many different departments and positions, so a typical job may not
be easy to identify. Since a secretary would be found in most departments, that will
be used as an example.
A secretary of a department may have duties like typing, answering the telephone,
taking messages, accepting packages, and mailing out information. The skill variety
may be sufficient if the secretary feels that a wide range of skills, abilities, and
knowledge are being used. Task identity may not be very high for a secretary, since
most tasks, such as typing a letter or sending out department information, probably
don’t require much process. Increased task identity can be gained by having the
secretary give input concerning the type of information the department sends out, or
having the secretary contribute to the content of this information. Secretaries can
often feel that they have task significance when faculty or staff thank them for
completing a task and therefore show them that their work is important.
Example Answer to Question 3:
Allowing them to schedule their various activities and be responsible for reporting to
management on their progress could enrich a salesperson’s job. A salesperson
could also be charged with the task of finding new ways to approach customers or
close a sale that make repeat business more likely. Management might encourage
their sales force to develop new skills, such as marketing techniques and knowledge
that can be applied to their current jobs. A workshop for salespeople could be
arranged to help figure out ways to respond to unexpected situations, with various
workshop members offering suggestions and solutions. Finally, making a
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salesperson responsible for developing and maintaining customer relationships
increases skill variety, task identity, task significance, and autonomy.
Giving them the opportunity to handle new responsibilities could enrich a secretary’s
job. A manager could encourage a secretary to develop new skills or extend the
opportunity to decide how to do the work, for example, developing a new way of
organising files or documents. Allowing a secretary to monitor and measure his or
her own performance might also give him or her a feeling of job involvement and
encourage flexibility rather than rigidity in the work setting.
Example Answer to Question 4:
A functional structure is a structure that is composed of all the necessary
departments that an organisation requires to produce its goods or services. A
functional structure might be changed to a product structure if growth and
diversification in an organisation become a problem over time. Managers might
create divisions according to the type of product or service they provide if they
decide to diversify into new industries or to expand their range of products. By
placing each distinct line or business in its own self-contained division and giving
the divisional managers the responsibility for devising the right business-level
strategy, the division will be in a better position to compete effectively in that industry
or market.
A geographic structure may be adopted when organisations are expanding rapidly
both at home and abroad, and managers find it increasingly difficult to manage, from
one central location, the problems and issues that may arise in each region of the
country or area of the world. When shifting to this structure, management breaks
down divisions by geographic location, giving managers the flexibility they need to
best meet the needs of regional customers.
A market structure is appropriate when an organisation needs to group functions
according to the type of customer buying the product. This structure allows
managers to be more responsive to the needs of their customers and allows them
to act flexibly to make decisions that are needed to quickly respond to changing
customer needs. This structure is beneficial in organisations where the time factor
is critical.
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CHAPTER 5:
Managing in the Global Environment
Follow along in your textbook. Managers and Managing: see chapter
1 pages 19 – 24 and Managing in a Global Environment: see chapter
6 from page 152 – 170.
Learning Outcomes
Upon completion of this chapter, the learner should be able to:
▪
Discuss the skills that managers need in order to successfully perform their
functions.
This relates to:
SO 5: Demonstrate knowledge in a range of core management disciplines.
5.1. Introduction to Managing in the Global Environment
Today’s global environment presents many challenges for managers currently, such
as building a competitive advantage so that quality products and services are
produced efficiently and flexibly by using speed and innovation that is responsive to
customer’s needs. Managers are required to behave ethically and in a socially
responsible manner both inside and outside the organisation. In addition to this is the
added challenge of managing a diverse workforce, utilising new technologies and
practicing global crisis management. To this end, we will be looking at what makes up
the global, task and general environment, and what is changing in this environment.
As a manager, in this current global environment, what do you think
you should be focussing on, your human resources [people] or
technology?
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Key Words and Definitions
Achievement orientation: A worldview that values assertiveness,
performance, success, and competition.
Brand
loyalty:
Customers’
preference for
the
products
of
organisations currently existing in the task environment.
Economies of scale: Cost advantages associated with large
operations.
Individualism: A worldview that values individual freedom and selfexpression and adherence to the principle that people should be
judged by their individual achievements rather than by their social
background.
Long-term orientation: A worldview that values thrift and persistence
in achieving goals.
Power distance: The degree to which societies accept the idea that
inequalities in the power and well-being of their citizens are due to
differences in individuals’ physical and intellectual capabilities and
heritage.
Short-term orientation: A worldview that values personal stability or
happiness and living for the present.
Social structure: The traditional system of relationships established
between people and groups in a society.
Tariff: A tax that a government imposes on imported or, occasionally,
exported goods.
Uncertainty avoidance: The degree to which societies are willing to
tolerate uncertainty and risk.
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5.2. Challenges for Management in a Global Environment
Globalisation: The set of specific and general forces that work
together to integrate and connect economic, political, and social
systems across countries, cultures, or geographical regions so that
nations become increasingly interdependent and similar.
Global organisation: An organisation that operates and competes in
more than one country.
Global outsourcing: The purchase or production of inputs or final
products from overseas suppliers to lower production costs and
improve product quality or design.
The rise of global organisations, organisations that operate and compete in more than
one country, has pressured many organisations to identify better ways to use their
resources and improve their performance. Five major challenges stand out for
managers in today’s world:
▪
Building a competitive advantage.
▪
Maintaining ethical standards.
▪
Managing a diverse work force.
▪
Utilising new information systems and technologies.
▪
Practicing global crisis management.
Figure 5.1: Building Competitive Advantage
Source: Creative Commons License.
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Building a Competitive Advantage
Competitive advantage is the ability of one organisation to outperform other
organisations because it produces desired goods or services more efficiently and
effectively than its competitors. The four building blocks of competitive advantage are
superior:
▪
Efficiency
▪
Quality
▪
Speed, flexibility, and innovation
▪
Responsiveness to customers
Organisations increase their efficiency when they reduce the quantity of resources,
they use to produce goods or services.
Many organisations are training their workforces in the new skills and techniques
needed to operate heavily computerised assembly plants.
One major thrust to improving quality has been to introduce the quality-enhancing
techniques known as total quality management (TQM).
Employees involved in TQM are often organised into quality control teams and are
responsible for finding new and better ways to perform their jobs; they also must
monitor and evaluate the quality of the goods they produce.
Today companies can win or lose the competitive race depending on their speed—
how fast they can bring new products to market—or their flexibility —how easily they
can change or alter the way they perform their activities to respond to actions of their
competitors.
▪
Companies that have speed and flexibility are agile competitors: Their
managers have superior planning and organising abilities; they can think
ahead, decide what to do, and then speedily mobilise their resources to respond
to a changing environment.
Innovation, the process of creating new or improved goods and services that
customers want or developing better ways to produce or provide goods and services,
poses a special challenge.
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▪
Managers must create an organisational setting in which people are
encouraged to be innovative.
Organisations compete for customers with their products and services, so training
employees to be responsive to customers’ needs is vital for all organisations, but
particularly for service organisations.
▪
Many organisations are empowering their customer service employees and
giving them the authority to take the lead in providing high-quality customer
service.
Sometimes the best efforts of managers to revitalise their organisations’ fortunes fail;
and faced with bankruptcy, the directors of these companies are forced to appoint a
new CEO who has a history of success in rebuilding a company.
▪
Turnaround management is the creation of a new vision for a struggling
company based on a new approach to planning and organising, to make better
use of a company’s resources and allow it to survive and prosper.
Achieving a competitive advantage requires that managers use all their skills and
expertise, as well as their companies’ other resources, to find new and improved ways
to improve efficiency, quality, innovation, and responsiveness to customers.
Maintaining Ethical and Socially Responsible Standards
Managers at all levels, especially after the recent economic crisis, are under
considerable pressure to make the best use of resources to increase the level at which
their organisations perform.
Pressure to increase performance can be healthy for an organisation, because it leads
managers to question how the organisation is working, and it encourages them to find
new and better ways to plan, organise, lead, and control.
However, too much pressure may induce managers to behave unethically, and even
illegally, when dealing with people and groups inside and outside the organisation.
The issue of social responsibility centres on deciding what obligations a company has
toward the people and groups affected by its activities, such as employees, customers,
or the cities in which it operates.
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Maintaining a Diverse Workforce
A major challenge for managers everywhere is to recognise the ethical need and legal
requirement to treat human resources fairly and equitably. Today the age, gender,
race, ethnicity, religion, sexual preference, and socioeconomic composition of the
workforce present new challenges for managers. To create a highly trained and
motivated workforce, and to avoid lawsuits, managers must establish human resource
management (HRM) procedures and practices that are legal and fair and do not
discriminate against any organisational members.
Managers who value their diverse employees succeed best in promoting performance
over the long run. Today more organisations are realising that people are their most
important resource and that developing and protecting human resources is the most
important challenge for managers in a competitive global environment.
Utilising New Technologies
Increasingly, new kinds of technology enable not just individual employees but also
self-managed teams by giving them important information and allowing virtual
interactions around the globe using the Internet. Increased global coordination helps
improve quality and increase the pace of innovation.
Practicing Global Crisis Management
The causes of global crises or disasters fall into two main categories:
▪
Natural causes: crises that arise because of natural causes, including
hurricanes, tsunamis, earthquakes, famines, and diseases.
▪
Human causes: human-created crises result from factors such as industrial
pollution, poor attention to worker and workplace safety, global warming, the
destruction of the natural habitat or environment, and geopolitical tensions and
terrorism.
Crisis management involves making important choices about how to:
▪
Create teams to facilitate rapid decision making and communication.
▪
Establish the organisational chain of command and report the relationships
necessary to mobilise a fast response.
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▪
Recruit and select the right people to lead and work in such teams.
▪
Develop bargaining and negotiating strategies to manage the conflicts that arise
whenever people in groups have different interests and objectives.
5.3. The Global Environment
Global environment: The set of global forces and conditions that
operates beyond an organisation’s boundaries but affects a manager’s
ability to acquire and utilise resources.
The global environment is a set of forces and conditions outside of the organisation’s
boundaries that affects the way it operates and shapes its behaviour. These forces
change over time and thus present managers with opportunities and threats. To
identify opportunities or threats caused by forces in the environment, it is helpful for
managers to distinguish between the task environment and the more encompassing
general environment.
The task environment is the set of forces and conditions that affect an organisation’s
ability to obtain inputs used to manufacture and sell its products or services. It consists
of the organisation’s suppliers, customers, distributors, and competitors, and has the
most immediate and direct effect on managers.
The general environment includes the wide-ranging economic, technological, sociocultural, demographic, political and legal, and global forces that affect the organisation
and its task environment.
5.4. The Task Environment
Task environment: The set of forces and conditions that originates
with suppliers, distributors, customers, and competitors and affects an
organisation’s ability to obtain inputs and dispose of its outputs
because they influence managers on a daily basis.
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There are four groups that make up the task environment which consist of actions
taken by suppliers, distributors, customers, and competitors both at home and
overseas. They will affect the manager’s ability to get the resources needed and
dispose of the outputs [goods and services] daily, weekly, and monthly and therefore
has a significant impact on short term decision-making.
Suppliers
Suppliers: Individuals and organisations that provide an organisation
with the input resources that it needs to produce goods and services.
Suppliers are the individuals and organisations that provide the input resources
needed by an organisation to produce its goods and services. In exchange for
providing an organisation with inputs, the supplier is compensated. Inputs may include
raw materials, component parts, or employees.
Changes in the nature, number or type of suppliers may result in opportunities and
threats to which managers must respond. Depending upon these factors, a supplier’s
bargaining position may be either strong or weak. A supplier’s bargaining position is
strong when:
▪
The supplier is the sole source of an input.
▪
The input is vital to the organisation.
At a global level, managers have the opportunity to buy products from foreign suppliers
or to become their own supplier and manufacture their own products abroad. It is
important that managers recognise the opportunities and threats associated with
managing a global supply chain.
Although the purchasing activities of global companies have become increasingly
complicated as a result of the development of skills and competencies in different
countries around the world, the Internet often eases the process of coordinating
complicated international transactions.
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Most large global companies utilise global outsourcing, which is the process by which
organisations purchase inputs from other companies or produce inputs themselves
throughout the world, for the purpose of lowering production costs and improving the
quality or design of their products.
Distributors
Distributors: Organisations that help other organisations to sell their
goods or services to customers.
Distributors are organisations that help other organisations sell their goods or services
to customers.
Changes among distributors and distribution methods can create opportunities or
threats for managers. The changing nature of distributors and distribution methods
can bring opportunities and threats to managers. The power of a distributor may be
strengthened or weakened depending upon its size and the number of distribution
options available. The structure of a country’s distribution system may serve as an
opportunity or threat for a manager.
Customers
Customers: Individuals and groups that buy the goods and services
that an organisation produces.
Customers are individuals and groups that buy goods and services that an
organisation produces. An organisation’s success depends on its ability to respond to
the needs of its customers. Changes in the number and types of customers or in
customers’ tastes and needs can result in opportunities or threats for managers.
The most obvious opportunity associated with expanding into the global environment
is the prospect of selling goods and services to new customers.
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Today, distinct national markets are merging into one huge marketplace where the
same basic product can be sold to customers worldwide. However, differences in
national cultures may require managers to customise product in order to suit local
preferences.
Competitors
Competitors: Organisations that produce goods and services that
are similar to a particular organisation’s goods and services.
Competitors are organisations that produce goods and services that are similar to a
particular organisation’s goods and services. In other words, competitors are vying for
the same customers.
Rivalry between competitors is usually the most threatening and problematic force with
which managers must deal.
Potential competitors are the organisations that are not presently in a task environment
but could enter if they so choose.
The probability of new competitors entering an industry is a function of that industry’s
barriers to entry. Barriers to entry are factors that make it difficult and costly for an
organisation to enter a particular task environment. The greater the barriers to entry,
the smaller the number of competitors.
Barriers to entry result from three sources: economies of scale, brand loyalty, and
government regulations.
Economies of scale are the cost advantages associated with large operations. They
may result from manufacturing products in large quantities, buying inputs in bulk, or
by fully utilising the skills and knowledge of employees.
Brand loyalty is a customer’s preference for the products of organisations currently
existing in the task environment. If established organisations enjoy significant brand
loyalty, a new entrant will find it difficult and costly to obtain market share.
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At the national and global level, government regulations sometimes function as
administrative roadblocks that create barriers to entry and limit.
5.5. The General Environment
General
environment:
The
wide-ranging
global,
economic,
technological, sociocultural, demographic, political, and legal forces
that affect an organisation and its task environment.
An organisation’s general environment can have profound effects upon its task
environment, which may not be evident to managers. Therefore, managers must
constantly analyse forces in the general environment because these forces affect
ongoing planning and decision-making.
Economic Forces
Economic forces: Interest rates, inflation, unemployment, economic
growth, and other factors that affect the general health and well-being
of a nation or the regional economy of an organisation.
Economic forces affect the general health and well-being of a country or world region.
They include interest rates, inflation, unemployment, and economic growth, which
affect the general health and well-being of a nation or region of the world. Economic
forces produce many opportunities and threats for managers.
Strong macroeconomic conditions, such as low levels of unemployment and falling
interest rates, often create opportunities for organisations.
Worsening macroeconomic conditions, such as recession or rising inflation rates, often
pose a threat to organisations because they limit management’s ability to gain access
to the resources they need.
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Technological Forces
Technological forces: Outcomes of changes in the technology
managers use to design, produce, or distribute goods and services.
Technology is the combination of skills and equipment that managers use in the
design, production, and distribution of goods and services. Technological forces are
the outcomes of changes in the technology that managers use to design, produce, or
distribute goods and services and can have profound implications for managers and
organisations.
Technological change can create a threat to organisations by making established
products obsolete. It can also create a host of opportunities for the development of
new products or processes. Managers must often move quickly to respond to such
technological change if their organisations are to survive and prosper.
Changes in information technology are also changing the very nature of work itself.
Telecommuting, videoconferencing, e-mail networks, and video cameras attached to
personal computers have changed the way managers within many companies
communicate with each other.
Sociocultural Forces
Sociocultural forces: Pressures emanating from the social structure
of a country or society or from the national culture.
Sociocultural forces are pressures emanating from the social structure of a country or
from its national culture. Social structure is the arrangement of relationships between
individuals and groups within a society. National culture is the set of values that a
society considers important and the norms of behaviour that are approved or
sanctioned in that society.
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A society’s social structure and national culture can also change over time. For
example, in the United States, attitudes toward the role of women, love, sex, marriage
and the LGBTQ community have changed in past decades. Throughout much of
Eastern Europe, new values emphasising individualism and entrepreneurship are
replacing communist values based upon collectivism and obedience to the state. The
pace of change is accelerating.
Demographic Forces
Demographic forces: Outcomes of changes in, or changing attitudes
toward, the characteristics of a population, such as age, gender, ethnic
origin, race, sexual orientation, and social class.
Demographic forces are outcomes of changes in, or changing attitudes toward the
characteristics of a population, such as age, gender, ethnic origin, race, sexual
orientation, and social class.
Demographic forces present managers with opportunities and threats and can have
major implications for organisations. For example, most industrialised nations are
experiencing the aging of their populations as a consequence of falling birth and death
rates and the aging of the Baby Boomer generation. This demographic change has
led to increasing opportunities for organisations that cater to older people.
The aging of the population also has several implications for the workplace, such as
the relative decline in the number of young people joining the workforce and the
willingness of older employees to postpone retirement past the age of 65. The financial
crisis late in the first decade of 2000 made it impossible for millions of older workers
to retire because their savings were all but wiped out. This change forced
organisations to find ways to motivate older workers and find ways to use their skills
and knowledge.
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Political and Legal Forces
Political and legal forces: Outcomes of changes in laws and
regulations, such as deregulation of industries, privatisation of
organisations, and increased emphasis on environmental protection.
Political and legal forces are outcomes of changes in laws and regulations resulting
from political and legal developments within a nation, world region, or across the world.
A nation’s political processes shape laws that constrain the operations of organisations
and managers, thereby creating both opportunities and threats. The movement toward
deregulation and privatisation of organisations formerly owned or controlled by the
state is an example of this.
The increasing political integration around the world that has been taking place during
the past decades is another important political and legal force affecting managers. The
growth of the EU is an example of this. The fall in legal trade barriers can create both
opportunities and threats.
5.6. The Changing Global Environment
Managers need to recognise that their organisations exist and compete in a global
environment.
Managers also view today’s global environment as open. In an open environment,
global companies are free to trade in whatever nations they choose. They are also
free to establish foreign subsidiaries that help them to become strong global
competitors.
The Process of Globalisation
Globalisation is the set of specific and general forces that work together to integrate
and connect economic, political, and social systems across countries, cultures, or
geographical regions. The result of globalisation is that nations and people become
increasingly interdependent because the world’s markets and businesses become
increasingly interconnected.
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The path of globalisation is shaped by the ebb and flow of capital, that is, valuable,
wealth-generating assets, as it moves through companies, countries, and world
regions seeking its most highly valued use. The four forms of capital that flow between
countries are:
Human capital: The flow of people around the world through immigration, migration,
and emigration.
Financial capital: The flow of money across world markets through overseas
investment, credit, lending, and aid.
Resource capital: The flow of natural and semi-finished products between companies
and
countries
such
as
metal,
minerals,
lumber,
energy,
food
products,
microprocessors, and auto parts.
Political capital: The flow of power and influence around the world using diplomacy,
persuasion, aggression, and armed forces to protect access to the other forms of
capital by a nation, world region, or political bloc.
Declining Barriers to Trade and Investment
Barriers to entry: Factors that make it difficult and costly for an
organisation to enter a particular task environment or industry.
During the 1920s and 1930s, many countries erected barriers to international trade
called tariffs, a tax that a government imposes on imported goods or occasionally
exported goods. The aim of import tariffs is to protect domestic industries and jobs
from foreign competition.
The reason for removing tariffs is that, very often, when one country imposes an import
tariff, others follow suit, and the result is a series of retaliatory moves as countries
progressively raise tariff barriers against each other. In the 1920s, such behaviour
helped usher in the Great Depression.
GATT and the Rise of Free Trade
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The free-trade doctrine predicts that if each country agrees to specialise in the
production of goods and services that it can produce most efficiently, this will make
the best use of global resources and result in lower prices.
Historically, countries that accept the free-trade doctrine, set as their goal the removal
of barriers to allow free flow of goods between countries. They attempted to achieve
this through an international treaty known as the General Agreement on Tariffs and
Trade (GATT). The Uruguay round of GATT negotiations involved 117 countries and
resulted in tariffs that were lowered by over 30% of previous levels.
GATT has been replaced by the World Trade Organisation (WTO) that continues the
struggle to reduce tariffs. It has more power to sanction countries than previous global
agreements.
Declining Barriers of Distance and Culture
In the past, barriers of distance and culture were major contributors to a closed global
environment. However, advances in communication and transportation technology
have reduced these barriers.
Satellites, digital technology, optical fibre telephone lines, the Internet, global computer
networks, and video teleconferencing have revolutionised global communications over
the past 30 years. As a result, reliable, secure, and instantaneous communication is
now possible in nearly any part of the world.
Innovations in transportation technology have made the global environment more
open. The growth of commercial jet travel has reduced the time it takes to reach any
location.
The Internet and its millions of websites facilitating the development of global
communications networks and media have helped to create a worldwide culture above
and beyond unique national cultures. Also, television networks such as CNN, BBC,
HBO, ESPN and MTV can be received in many foreign nations, and Hollywood films
are distributed globally.
The lowering of barriers to trade and investment and the decline of distance and
culture barriers have created enormous opportunities for organisations to expand the
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market for their goods and services through exports and investments in foreign
countries.
Effects of Free Trade on Managers
The manager’s job is more challenging in a dynamic, global environment because of
the increased intensity of competition that comes with lower barriers to trade and
investment.
Regional Trade Agreements: The growth of regional trade agreements such as
NAFTA and CAFTA also presents opportunities and threats for managers and their
organisations.
NAFTA (the North American Free Trade Agreement), which became
effective in 1994, aimed to abolish tariffs on all goods and services
traded between Mexico, Canada, and the U.S. by 2004. Although it
has not achieved this lofty goal, NAFTA has removed most barriers on
the cross-border flow of resources.
The establishment of free trade areas creates opportunities for manufacturing
organisations because it allows them to reduce their costs. However, some managers
might see free trade agreements as a threat because they expose a company to
increased competition.
Over the past several years, negotiating teams from the United States, Mexico, and
Canada have worked through more than seven rounds of meetings to renegotiate and
modernise NAFTA. The new agreement, now called the United States Mexico Canada
Agreement (USMCA), has been ratified by both Mexico and the United States, with
Canada working to review and approve the new agreement in early 2020. Once
Canada gives the new agreement its stamp of approval, which may take several
months of negotiations among Canadian lawmakers, USMCA will go into effect 90
days after Canada ratifies the trade agreement. USMCA includes major changes on
car manufacturing rules; new policies on labour and environmental standards;
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intellectual property and digital trade protections; and increased access to the
Canadian dairy market by U.S. farmers.
Other areas to take note of in terms of upcoming, potential free-trade agreements are
the BRICS grouping of nations. Chris Devonshire-Ellis (2019) makes a compelling
case should an agreement between these nations come to pass. You can read about
it in the Think point article on the next page.
Op/Ed by Chris Devonshire-Ellis (19 November 2019) Silk Road
Briefing: BRICS to Open Up to Free Trade Via The EAEU?
The BRICS grouping of nations: Brazil, Russia, India, China, and
South Africa, have been holding their Ministerial summit in Brazil this
week as they look at developing the groups’ connectivity. The BRICS
countries are expected to produce 50% of global GDP output by 2030.
However, the BRICS group of nations is not a common Free Trade
market.
A declaration of intent has followed the summit, at which the BRICS
nations have said they “Find it necessary to coordinate actions at a
global level to reach maximum economic growth.”
“We support the conclusion of the BRICS Trade Ministers that bold,
coordinated international action is required to increase economic
growth and sustainability. Increased trade can help with global growth,
but the demand deficit in the global economy requires additional
sources of growth, which could include infrastructure investment,
including in digital infrastructure, skills development, particularly for
young people, sustainable investment, investment in local basic
services, and outward investment to areas of high potential growth,
including on the African continent.”
Although the declaration does not state how these broad objectives
will be achieved, it is conceivable that a Free Trade Agreement could
be reached, either between the nations concerned, or perhaps to make
it more attractive to each of them, to fold such a deal into the existing
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Eurasian Economic Union (EAEU). The EAEU is a Moscow derived
initiative that includes Armenia, Belarus, Kazakhstan, Kyrgyzstan, and
Russia, sitting on territory that extend from the borders of the European
Union to the borders of China. It has a population of 390 million and a
GDP of US$1.9 trillion. Intra-EAEU trade has been growing at 30% per
annum. The EAEU is a Free Trade bloc, a structure that China has not
developed as part of its own free trade agenda. Although the proposed
pan-Asian RCEP deal is being viewed in some quarters as being
Chinese-led, that is inaccurate – it was first proposed by ASEAN and
has been widely supported by Japan. China in terms of Free Trade
has instead concentrated on bilateral FTA and has additionally
launched the Belt & Road Initiative – although that is not a Free Trade
area – and neither is BRICS. The BRICS’ need to enter into some sort
of FTA will become more pressing now the member states have
agreed on the need to “increase economic growth”.
We can examine each of the BRICS member states and their current
situation as regards Free Trade as follows:
Brazil
Brazil is a member of the Mercosur Free Trade market, which also
includes Argentina, Paraguay, and Uruguay. Mercosur operates as a
customs union, in which there is free intra-zone trade and a common
trade policy between member countries. It is the world’s fourth largest
trading bloc after EU, NAFTA, and ASEAN. Mercosur is home to more
than 250 million people and accounts for almost three-fourths of total
economic activity in South America. Otherwise, Brazil has not been
especially active in signing off global free trade, and it does not have
agreements with any of the other BRICS nations, although through
Mercosur it does have a Preferential Trade Agreement with India and
the Southern African Customs Union.
In terms of Double Tax Agreements (DTA), Brazil has signed off deals
with China, India, and South Africa, but not yet with Russia or any of
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the EAEU nations. Brazil has not signed off an agreement with China’s
Belt & Road Initiative.
Russia
As mentioned, Russia is a founding member state of the Eurasian
Economic Union, which also has FTA with Iran, Singapore, Serbia &
Vietnam. Numerous other nations are currently negotiating FTA with
the EAEU, (see map below) including China, who have signed off on
a deal but have yet to agree tariffs on specified products. That can be
expected to change by 2021.
Russia also has FTA with the
Commonwealth of Independent States (CIS) which also includes, in
addition to the EAEU members, Moldova and Tajikistan. Russia has
numerous Double Tax Treaties in place, including with BRICS
members China, (and Hong Kong), India and South Africa. Russia has
signed off on China’s Belt & Road Initiative.
India
India has a patchy record with Free Trade Agreements, and has
recently opted out of the RCEP deal, in decisions made we explained
here and alternative options we discussed here. Otherwise, India has
FTA with the ASEAN group of countries (Brunei, Cambodia, Indonesia,
Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand &
Vietnam), as well as the South Asia Free Trade Area (SAFTA)
grouping which includes Afghanistan, Bangladesh, Bhutan, Maldives,
Nepal, Pakistan, and Sri Lanka. We have discussed these previously
here India also has FTA with Japan and South Korea.
In terms of DTA, India has 88 DTA in force, including agreements with
all of the BRICS nations, as well as EAEU members Armenia, Belarus,
Kazakhstan, and Kyrgyzstan, however it has not signed off on China’s
Belt & Road Initiative.
China
China has sixteen FTAs with its trade and investment partners and is
negotiating or implementing an additional eight. China’s FTA partners
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are ASEAN, Singapore, Pakistan, New Zealand, Chile, Peru, Costa
Rica, Iceland, Switzerland, Maldives, Georgia, Hong Kong, Macao,
and Taiwan. China has also recently signed FTAs with Korea and
Australia, both of which include investment details. In terms of DTA,
China has numerous agreements in place, including with BRICS
members India, Russia, and South Africa, as well as with members of
the EAEU. It often also offers preferential trade terms to countries
along its Belt & Road Initiative.
South Africa
South Africa is a member of the African Continental Free Trade
Agreement (ACFTA) which reduces, over the coming five-year period,
intra-border taxes on 90% of all products traded within Africa to zero.
It is also a member of the South African Customs Union (SACU) which
also provides free trade between its member states including
Botswana, Lesotho, Namibia and eSwatini, and the Southern African
Development Community (SADC) which also includes free trade
among the SACU members in addition to Madagascar, Mauritius,
Mozambique, Tanzania, Zambia, and Zimbabwe. It also has partial
FTA with Mercosur via the SACU and the European Union. South
Africa has also been active in signing numerous DTA, including all
other BRICS members in addition to EAEU member state Belarus.
South Africa is a signatory to China’s Belt & Road.
Clearly, more alignment needs to be carried out between the BRICS
member states in terms of bilateral agreements, several of which still
need to be cleared up if the blocs ambitions to increase trade among
them are to be realised. Such agreements most notably not yet in place
include free trade agreements between Brazil, China, India, and
Russia, as well as China with India and South Africa.
However, the introduction of Free Trade between BRICS members
and the Eurasian Economic Union remains an interesting one. The
EAEU has already stated it is prepared to sign off agreements with
non-Eurasian countries, and at present Morocco, Egypt, along with
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Mozambique and Namibia (border countries with fellow BRICS
member South Africa) are on the agenda.
5.7. The Role of National Culture
Values: Ideas about what a society believes to be good, right,
desirable, or beautiful.
Despite evidence that countries are becoming similar to one another, and that the
world is on the verge of becoming a global village, significant cultural differences still
exist between nations. National culture includes the set of values, norms, knowledge,
beliefs, moral principles, laws, customers, and other practices that unite the citizens
of a country. National culture shapes individual behaviour by specifying appropriate
and inappropriate behaviour and interaction with others.
The importance of Cultural Values and Norms
Norms: Unwritten, informal codes of conduct that prescribe how
people should act in particular situations and are considered important
by most members of a group or organisation.
Values are ideas about what a society believes to be good, right, desirable, or
beautiful. They are deeply embedded in society, carry a great deal of emotional
significance, and any change is likely to be slow and painful. While norms are unwritten
social rules and codes of conduct that prescribe appropriate behaviour in particular
situations and shape the behaviour of people toward one another.
Two types of norms play a role in national culture: mores and folkways.
▪
Mores are norms that are considered to be central to the functioning of society
and to social life. They have greater significance than folkways, and the
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violation of them may result in serious punishment. There are many differences
in mores from one society to another. In many societies mores have been
enacted into law.
▪
Folkways are the routine social conventions of everyday life, such as good
social manners, dressing appropriately, eating with the correct utensils, and
behaving neighbourly. Folkways define the way people are expected to behave,
but violation of folkways is not a serious matter. In many countries, foreigners
may be excused initially for violating folkways, but repeated violations will not
be excused.
National Culture: Hofstede’s Model
Geert Hofstede, a psychologist for IBM, collected data on values and norms from
more than 100,000 IBM employees from 64 countries. He used this data to develop
a model of national culture, which is widely accepted and used.
Individualism is a worldview that values individual freedom and self-expression and
adherence to the principle that people should be judged by their own individual
achievements rather than their social background.
In contrast, collectivism values subordination of the individual to the goals of the group
and adherence to the principle that people should be judged by their contribution to
the group. Collectivism was widespread in communist countries but has become less
prevalent since the collapse of those nations. Japan is a non-communist country
where collectivism is highly valued.
By power distance, Hofstede meant the degree to which societies accept that
inequalities in the power and well-being of their citizens are due to differences in
individuals’ physical and intellectual capabilities and heritage.
Societies in which inequalities are allowed to persist or grow have high power distance.
Workers who are professionally successful amass wealth and pass it on to their
children, allowing inequalities between rich and poor that may grow over time. In
societies with low power distance, large inequalities are not allowed to develop. The
governments of these countries use taxation and social welfare programs to reduce
the gap between the rich and the poor.
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Societies that have an achievement orientation value assertiveness, performance,
competition, and success. Societies that have a nurturing orientation value the
quality of life, warm personal relationships, and service and care for the ‘weak’. Japan
and the United States tend to be achievement oriented, while the Netherlands,
Denmark, and Sweden are more nurturing oriented.
Societies as well as individuals differ in their tolerance for uncertainty and risk.
Societies low on uncertainty avoidance such as the United States and Hong Kong
are easy-going, value diversity, and tolerate differences in personal beliefs. Societies
high on uncertainty avoidance such as Japan and France are more rigid and sceptical
about people whose behaviours differ from the norm.
A national culture with a long-term orientation rests on values such as thrift and
persistence in achieving goals, whereas a national culture with a short-term
orientation is concerned with personal stability or happiness and living in the present.
The GLOBE Project
Hofstede’s research has inspired other major international research projects, including
the GLOBE Project, which extends Hofstede’s work by looking at additional cultural
dimensions. The GLOBE Project looks at nine cultural dimensions:
▪
Performance Orientation: The degree to which individuals in a society are
rewarded for performance improvement and excellence.
▪
Assertiveness: The degree to which members of organisations are
confrontational and aggressive in their relationships with others.
▪
Future Orientation: The extent to which individuals engage in behaviours such
as planning, investing in the future, and delaying gratification.
▪
Humane Orientation: The degree to which an organisation encourages and
rewards individuals for being fair, altruistic, generous, caring and kind to others.
▪
Institutional Collectivism: The degree to which organisational and societal
practices encourage and reward collective distribution of resources and
collective action.
▪
In-Group Collectivism: The degree to which individuals express pride, loyalty,
and cohesiveness in their organisations or families.
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▪
Gender Egalitarianism: The degree to which an organisation minimises
gender inequality.
▪
Power Distance: The extent to which the community accepts and endorses
authority, unequal distribution of power, and status privileges.
▪
Uncertainty Avoidance: The extent to which a society or organisation uses
rules, regulations, and procedures to alleviate the unpredictability of future
events.
National Culture and Global Management
Differences among national cultures have important implications for managers.
Because of cultural differences, management practices that are effective in one
country might be troublesome in another.
Often, management practices must be tailored to suit the cultural context within which
an organisation operates. Managers doing business with individuals from another
country must be sensitive to the value systems and norms of that country and behave
accordingly.
A culturally diverse management team can be a source of strength for an organisation
participating in the global marketplace. Organisations that employ managers from a
variety of cultural backgrounds are often better at appreciating the differences in
national culture and tailoring their management systems and behaviour to
accommodate those differences.
5.8. Conclusion
Many managers operate in a global environment where they compete with other
companies for scarce and valuable resources.
In order to survive, thrive and prosper companies must become global organisations
where operations are conducted domestically and overseas. Organisations that
operate in a global environment must manage in an uncertain and unpredictable
environment which is complex and ever-changing.
In order to be successful,
managers must learn to understand the forces in which they operate. To this end we
examined some of the challenges that managers must overcome in order that their
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organisations prosper such as building a competitive advantage to increase efficiency,
quality, speed, flexibility, and innovation in response to customers. We examined how
to manage a diverse workforce, the importance of utilising technology and what to
focus on when practicing global crisis management.
The global environment was the next area on which we focused our attention, namely
that it consists of forces and conditions that operate beyond an organisation’s borders
affecting the manager’s ability to acquire and utilise resources, where we were
introduced to the task and general environment.
The task environment, we learnt, is a set of forces and conditions that originate with
four groups comprising of the global supplier, distributor, customer, and a set of
competitors, and became more complex to manage in terms of threats and
opportunities, the bigger the organisation became.
This led us to the general
environment in relation to the global economic, technological, sociocultural,
demographic, political and legal forces that affect the organisation and its task
environment.
With the recent shift to a more open global environment with free-flowing people,
capital and companies in search of new opportunities to create profit and wealth, we
explored the changing global environment in terms of the specific and general forces
that both integrate and connect economic, political and social systems across
countries, cultures and geographic regions with the resultant effect of increasing
national interdependence and similarity, and finalised our exploration by looking at the
process of globalisation in terms of declining barriers to international trade and
investment, and the declining barriers of both distance and culture.
Self-Assessment Questions
1. In a global marketplace ____________.
a) the entire world is a marketplace.
b) national borders are irrelevant.
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c) the potential for organisations to grow expands
dramatically.
d) all of the above.
2. In a global marketplace a manager must _____________
a) deal with economic, political, and cultural differences.
b) expect competitors to suddenly appear at any time from
any place.
c) not take specific differences of a local environment into
consideration.
d) a and b.
3. In a highly collectivist culture, a leader would need to emphasize:
a) Long-term implications of the change on the wider
community.
b) Short-term implications of the change on the wider
community.
c) Material implications of the change on the wider
community.
d) Personal implications of the change on the wider
community.
4. Which of the following is NOT an example of barriers to entry?
a) Buyer switching costs.
b) Licence Regulations.
c) Trade barriers.
d) High cost of entry.
Answers: D, D, A, A
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Case Synopsis: Huawei’s Contentious but High-Potential
Environment
(International Question)
Huawei Technologies, based in China, is the world’s largest maker of
telecommunications
equipment
and
second-largest
maker
of
cellphones. It builds fifth generation (5G) wireless networks for sharing
information and controlling Internet-connected products such as selfdriving vehicles and robot-operated factories. The federal government
has cautioned that Huawei technology can invade privacy and has
charged the company with stealing intellectual property from several
U.S. companies.
The United States alleges that Huawei’s products would enable it to
fulfill requests from the Chinese government for information about
users. This concern is based on a Chinese law requiring businesses
and individuals to assist in intelligence gathering if requested to do so.
If Huawei were to comply with such a request, China could obtain
information about Internet use from Huawei’s monitoring of networks
using its equipment.
The U.S. government and businesses have also accused Huawei of
stealing intellectual property such as patents. A criminal filing charged
Huawei employees in China with pressuring U.S. colleagues to share
information about a competitor’s robot used for testing mobile phones.
The United States, besides enforcing laws related to cybersecurity and
intellectual property theft, has urged businesses and governments to
avoid signing contracts with Huawei.
Huawei has denied charges of using its technology to spy and said it
would sign sales agreements that ban spying. Although the ban on
U.S. components poses a serious challenge because half of Huawei’s
microchips come from U.S. suppliers, the company anticipated the ban
and built an inventory of parts to use while it prepares a way forward.
Meanwhile, Huawei’s product developers in China are working around
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the clock to write software and design components it can make there,
instead of importing.
The Chinese government has stood firmly behind Huawei. Support
from the government has totaled $75 billion in tax waivers, loans, lines
of credit, grants, and discounts on land purchases.
In this environment, Huawei has generated profit growth by offering a
wide range of reliable, advanced products coupled with financing at
favourable terms. In 5G, few competitors are as far along in the
development of the technology. As of early 2019, Huawei had
participated in the development of 10 countries’ 5G networks and had
plans to do so in 20 more countries by year-end. Low prices and
financing are especially helpful for selling in high growth developing
markets such as Vietnam and Zambia. When the U.S. ban on selling
components was announced, sales of cellphones dipped and then
steadied. Huawei ended the year with record profits despite growth
slightly below expectations.
Questions:
1. Briefly summarise the threats and opportunities you see for Huawei
in its task environment. Consider suppliers, distributors, customers,
and competitors, if applicable.
2. Briefly summarise the threats and opportunities you see for Huawei
in its general environment. Consider economic, technological,
sociocultural, demographic, and political/legal forces, if applicable.
3. In Hofstede’s model of national culture, China has been found to
score relatively high on collectivism and extremely high on long-term
orientation. Considering what this chapter says about those
dimensions, how would you predict that Huawei’s Chinese managers
and employees will deal with their opportunities and challenges?
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Possible Answers:
Potential Answer to question 1:
According to the text, the task environment is the set of forces and
conditions that originates with global suppliers, distributors, customers,
and competitors and influences managers daily. The opportunities and
threats associated with forces in the task environment become more
complex as a company expands globally.
Students could respond that Huawei has threats of continued bans on
sales to it from the United States and other countries. Customers for
its 5G network are limiting their purchases to non-sensitive
components.
Opportunities include expanded business in the United States and
other countries if current bans are lifted, development of expertise in
microchips to replace those sold to Huawei by U.S. companies, and
the increase in expertise in other technology they previously obtained
from suppliers. This vertical integration opportunity would have the
added advantage of reducing uncertainty in the company’s supply
chain.
Potential Answer to question 2:
The general environment comprises wide-ranging global economic,
technological, sociocultural, demographic, political, and legal forces
that affect an organisation and its task environment.
Threats to Huawei from the general environment include the changing
political environment in the United States with a new president, who
may enact different policies and tariffs, the possibility that a new U.S.
president may re-establish a common front with its allies to work
against the perceived threat of Huawei’s potential spying and theft of
intellectual property.
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Opportunities from a continual increase in the acceptance and reliance
on technology like 5G and other services in which Huawei possesses
a competitive advantage.
Potential Answer to question 3:
Students may point out that because of the Chinese national culture of
collectivism and long-term orientation, Huawei’s managers and
employees will work together to overcome the loss of imported
components and become more vertically integrated, which may
provide a long-term competitive advantage to the company. An
alternative to vertical integration is to partner with another Chinese
company to replace the overseas suppliers. The managers and
employees will be undeterred by short-term challenges and losses in
pursuit of their goals.
The Changing Environment of Retailing
1. Analyse the major forces in the task environment of a retail clothing store.
2. Devise a program that will help other managers and employees to better
understand and respond to their store's task environment.
(General Questions)
Potential Answers:
Potential Answer to question 1:
Retail clothing is by definition a representation of old and new. The old is
represented by those consumers who do not care about the latest fashions and
purchase the same styles they always have. The new are those who love to keep
up with the latest fashions that they see on TV, in the movies, in magazines, or on
friends. Both can be lucrative markets, but one must first analyse the environment.
This includes the competition as well as the general social, economic, political, and
global trends. For example, Levi Strauss responded to Casual Fridays by marketing
Dockers. Levi Strauss is a good example of a company that markets a standard
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brand with little change and is still in demand, while also responding to changing
trends such as relaxed fit for the expanding waists of Baby Boomers. Many
catalogue stores (L.L. Bean and Lands End) have also developed websites that
allow customers to shop from catalogues and order online.
Major forces in the task environment include suppliers, customers, and competitors.
Competitors may operate in market niches that are not direct competition, or they
may arise when your product offerings are either not keeping up with changing
customer requirements or when you are not noticing a needed service or market
niche. Suppliers provide the fashion. Fashion trends change rapidly, roughly every
three months. Suppliers that are in tune with customer preferences will provide an
advantage to their customers, the retail stores. Retail stores need to both provide
suppliers with information on customer preferences and to always be searching for
new suppliers that may offer fashion that is more up to date, more cost effective, or
can be delivered quickly as fashion trends change. Finally, retail clothing stores
need to be highly aware of their customers’ preferences, whether they are for
traditional, conservative fashions or trendy, creative fashion. Finally, they need to
be aware of services that customers may desire, such as salesperson advice,
notification of upcoming sales, return policies, store ambiance, and other services
that make the store an attractive shopping experience for their intended market.
(You could also include, with the onset of the Covid-19 pandemic, how online
shopping is becoming more prevalent, along with drive-throughs, onsite deliveries
and so on.)
Potential Answer to question 2:
One approach would be to look at the websites of online retailers, such as L.L. Bean
and Lands End. These could be used as training tools for employees and managers
to see what the competition is offering. The company could appoint a group of
employees and managers from various departments within the store to keep track
of trends and to compare notes. This group could devise customer surveys, read
trade journals, and observe the fashions of those working and those attending
school. The group could visit one or more college campuses to gather information
by observing students or conducting group interviews. The company could also
solicit feedback from customers concerning customer satisfaction levels and
merchandise suggestions using email, phone surveys, or on-site questionnaires.
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CHAPTER 6:
General Management Principles
Follow along in your textbook. The Manager as Planner and
Strategist: see chapter 8 from page 213, Leadership: see chapter 14
from page 406 and Organisational Control and Change: see chapter
11 from page 310,
Learning Outcomes
Upon completion of this chapter, the learner should be able to:
▪
Elaborate on the differences and likeness in the different types and roles of
managers.
This relates to:
SO 6: Apply competence and skills related to general management principles of
planning, organising, leading and controlling.
6.1. Introduction to General Management Principles
The manager’s role is both as planner and strategist. We will discuss the nature and
importance of planning, the kinds of plans managers develop, and the levels at which
planning takes place, the three major steps in the planning process in determining an
organisation’s mission and major goals, choosing, or formulating the strategies to
realise the mission and goals, and in selecting the most effective ways to implement
and put these strategies into action. We also examine several techniques, such as
scenario planning and SWOT analysis, that can help managers improve the quality of
their planning, and the range of strategies that managers can use to give their
companies a competitive advantage over their rivals. Managers play a vital role in
carrying out when they plan, develop, and implement strategies to create a highperforming organisation.
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Managers also need to be leaders; we will therefore examine what leadership is and
explore the major leadership models to shed light on the factors that contribute to a
manager being an effective leader. We will look at the trait and behaviour models
which focus on what leaders are like and what they do, and contingency models such
as Fiedler’s contingency model, path-goal theory, and the leader substitutes model.
Each of these models consider the complexity surrounding leadership and the role of
the situation in leader effectiveness. We will look at how managers can use
transformational leadership to dramatically affect their organisations and the issues
that managers face in their quest to be effective leaders.
Managers’ first task is to establish a structure of task and job reporting relationships
which allows the workforce to be optimally utilised in relation to organisational
resources. This will involve the management principles of planning and leadership;
however, these two principles do not occur without the second management task,
which is to control the organisation through influencing, shaping, and regulating the
activities of the organisation’s divisions, functions, and employees to achieve the
mission and goals of the organisation. The organisation’s structure control system
allows the manager to regulate and govern its activities and gives the manager specific
feedback on how well the organisation and its members [workforce, or employees] are
performing. Organising and controlling are thus inseparable. To this end, we will look
at the nature of organisational control so that we can get a sense of the main steps in
the control process. This includes the different types of control systems that are
available to managers in order to shape and influence the organisational activities
through output control, behaviour control and clan control. We will then analyse the
factors involved in organisational control which assists in adjusting, altering, or
transforming people and group behaviour. Control is thus an important element to
increasing organisational performance.
What do you think is the most important management task, Planning,
or Leading, or Organising and Controlling?
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Key Words and Definitions
Benchmarking: The process of comparing one company’s
performance on specific dimensions with the performance of other,
high-performing organisations.
Concurrent control: Control that gives managers immediate
feedback on how efficiently inputs are being transformed into outputs
so that managers can correct problems as they arise.
Consideration: Behavior indicating that a manager trusts, respects,
and cares about employees.
Control systems: Formal target-setting, monitoring, evaluation, and
feedback systems that provide managers with information about how
well the organisation’s strategy and structure are working.
Developmental consideration: Behaviour a leader engages in to
support and encourage followers and help them develop and grow on
the job.
Empowerment: The expansion of employees’ knowledge, tasks, and
decision-making responsibilities.
Feedforward control: Control that allows managers to anticipate
problems before they arise.
Feedback control: Control that gives managers information about
customers’ reactions to goods and services so corrective action can
be taken if necessary.
Franchising: Selling to a foreign organisation the rights to use a brand
name and operating know-how in return for a lump-sum payment and
a share of the profits.
Hyper competition: Permanent, ongoing, intense competition
brought about in an industry by advancing technology or changing
customer tastes.
Intellectual stimulation: Behaviour a leader engages in to make
followers aware of problems and view these problems in new ways,
consistent with the leader’s vision.
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Leader–member relations: The extent to which followers like, trust,
and are loyal to their leader; a determinant of how favourable a
situation is for leading.
6.2. Planning and Strategy
Planning: Identifying and selecting appropriate goals and courses of
action; one of the four principal tasks of management.
Strategy: A cluster of decisions about what goals to pursue, what
actions to take, and how to use resources to achieve goals.
Synergy: Performance gains that result when individuals and
departments coordinate their actions.
Planning is a process that managers use to identify and select appropriate goals and
courses of action for an organisation. The organisational plan that results from the
planning process details how managers intend to attain those goals. A strategy is a
cluster of related managerial decisions and actions to help an organisation attain one
of its goals. Planning is a three-step activity:
▪
The first step is determining the organisation’s mission and goals. A mission
statement is a broad declaration of an organisation’s purpose that identifies the
organisation’s products and customers and distinguishes the organisation from
its competitors.
▪
The second step is formulating strategy.
▪
The third step is implementing strategy.
The Nature of the Planning Process
To perform the planning task, managers:
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▪
Establish and discover where an organisation is at the present time.
▪
Determine where it should be in the future, its desired future state.
▪
Decide how to move it forward to reach that future state.
▪
Managers must consider the future and forecast what may happen to deal
with future opportunities and threats.
Planning is difficult because managers must often deal with a complex and uncertain
external environment, incomplete information, and bounded rationality.
Figure 6.1: The Planning Process
Source: Creative Commons License
The Importance of Planning
Almost all managers participate in some kind of planning because they must try to
predict future opportunities and threats and develop a plan and strategies that will
result in a high-performing organisation.
Planning is important for four main reasons:
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▪
It is necessary to give the organisation a sense of direction and purpose.
▪
It is a useful way of getting managers to participate in decision making about
the appropriate goals and strategies for an organisation.
▪
It helps coordinate managers of the different functions and divisions to ensure
that they are all pulling in the same direction.
▪
A plan can be used as a device for controlling managers within an organisation.
Effective plans should have four qualities: unity, continuity, accuracy, and flexibility.
▪
Unity means that at any one time only one central plan is put into operation.
▪
Continuity means that planning is an ongoing process.
▪
Accuracy means that managers should attempt to collect all available
information.
▪
The planning process should have enough flexibility so that plans can be
altered and changed if situations change.
Levels of Planning
In large organisations, planning usually takes place at three levels of management:
corporate, business or division, and department or functional. At the corporate level
are the CEO, other top managers, and their support staff. At the business level are the
different divisions or business units that compete in distinct industries.
Each division or business unit has its own set of divisional managers who control
planning strategy for their particular division or unit. Each division has its own set of
functions or departments, such as manufacturing, marketing, R&D, human resources,
and so on.
Time Horizons of Plans
Time horizon: The intended duration of a plan.
The corporate-level plan contains top management’s decisions pertaining to the
organisation’s mission and goals, overall strategy, and structure. Corporate-level
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strategy indicates in which industries and national markets an organisation intends to
compete, and why.
At the business level, the managers of each division create a business-level plan
detailing long-term divisional goals that will allow the division to meet corporate goals
and the division’s business-level strategy and structure.
Business-level strategy states the methods a division or business intends to use to
compete against its rivals in an industry.
Plans differ in their time horizon, the periods of time over which they are intended to
apply or endure.
Long-term plans have a horizon of five years or more. Intermediate-term plans have a
horizon between one and five years. Short-term plans have a horizon of one year or
less.
A corporate-level or business-level plan that extends over five years is typically treated
as a rolling plan, a plan that is updated and amended every year to account for
changes in the external environment.
Most organisations have an annual planning cycle linked to their annual financial
budget.
Standing Plans and Single-Use Plans
Standing plans are used in situations in which programmed decision making is
appropriate. Standing plans include when the same situations occur repeatedly,
managers develop policies, rules and standing operating procedures to control the
way in which employees perform their tasks.
A policy is a general guide to action and a rule is a formal, written guide to action. A
standard operating procedure is a written instruction describing the exact series of
actions that should be followed in a specific situation.
Single-use plans are developed to handle non-programmed decision making. Singleuse plans include:
▪
Programmes, which are integrated sets of plans for achieving certain goals.
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▪
Projects, which are specific action plans created to complete various aspects
of a programme.
Scenario Planning
Scenario planning: The generation of multiple forecasts of future
conditions followed by an analysis of how to respond effectively to
each of those conditions.
Scenario planning, also known as contingency planning, is the generation of multiple
forecasts of future conditions, followed by an analysis of how to respond effectively to
each of those conditions. A major advantage of scenario planning is its ability to
anticipate the challenges of an uncertain future and to help managers to think
strategically about it.
6.3. Determining the Mission, Goals and Formulating Strategy
Mission statement: A broad declaration of an organisation’s
purpose that identifies the organisation’s products and customers and
distinguishes the organisation from its competitors.
To determine an organisation’s mission, managers must first define its business by
asking three questions:
▪
Who are our customers?
▪
What customers’ needs are being satisfied?
▪
How are we satisfying customer needs?
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Defining the Business and Establishing Major Goals
Once the business is defined, managers must establish a set of primary goals to which
the organisation is committed. These goals give the company a sense of direction or
purpose.
Strategic leadership, the ability of the CEO and top managers to convey a compelling
vision of what they want subordinates to achieve is an important part of the process.
Goals typically possess the following characteristics:
▪
They are ambitious, stretch the organisation, and require managers to improve
performance capabilities.
▪
They are challenging but realistic—a goal that is impossible to attain may
prompt managers to give up.
▪
The period in which a goal is expected to be achieved should be stated. This
injects a sense of urgency and acts as a motivator.
Formulating Business-Level Strategies
In strategy formulation, managers work to develop the set of strategies that will allow
an organisation to accomplish its mission and achieve its goals.
It begins with managers systematically analysing an organisation’s current situation
and then developing strategies to accomplish its mission and achieve its goals.
SWOT analysis: A planning exercise in which managers identify
organisational strengths (S) and weaknesses (W) and environmental
opportunities (O) and threats (T).
SWOT Analysis
This is a planning exercise in which managers identify organisational strengths,
weaknesses, opportunities, and threats. Based upon a SWOT analysis, managers at
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each level of the organisation identify strategies that will best position the company to
achieve its mission and goals.
The first step in SWOT analysis is to identify an organisation’s strengths and
weaknesses that characterise the present state of the organisation.
The next step requires managers to identify potential opportunities and threats in the
environment that affect the organisation in the present or possibly in the future.
When SWOT analysis is completed, managers can begin developing strategies.
These strategies should allow the organisation to attain its goals by taking advantage
of opportunities, countering threats, building strengths, and correcting organisational
weaknesses.
Michael Porter’s Five Forces Model
This well-known tool helps managers focus on the most important external
environmental forces that are potential threats. They are:
▪
The level of rivalry among organisations within an industry.
▪
The potential for entry into an industry.
▪
The power of suppliers.
▪
The power of customers.
▪
The threat of substitute products.
The term hyper competition has been coined to describe those industries that are
characterised by permanent, ongoing, intense competition brought about by
advancing technology or changing customer tastes, fads, and fashions.
Michael Porter also formulated a theory of how managers can select a business-level
strategy to give them a competitive advantage in a particular market or industry.
According to Porter, managers must choose between two basic ways of increasing the
value of an organisation’s products: differentiating the product to increase its value to
customers or lowering the costs of making the product. Porter also argues that
managers must choose between serving the whole market or serving just one
segment.
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Other business-level strategies
Differentiation strategy: Distinguishing an organisation’s products
from the products of competitors on dimensions such as product
design, quality, or after-sales service.
When managers are faced with deciding between serving the whole market or serving
just one segment, they need to decide on one of the four following strategies to select:
Low-Cost Strategy; Differentiation Strategy; Focused Low-Cost Strategy; and
Focused Differentiation Strategy.
▪
With a low-cost strategy, managers try to gain a competitive advantage by
focusing the energy of all the organisation’s departments on driving the
organisation’s costs down. Organisations pursuing a low-cost strategy can sell
a product for less than their rivals and still make a profit.
▪
With a differentiation strategy, managers try to gain a competitive advantage
by focusing all the energies of the organisation’s departments on distinguishing
the organisation’s products from those of competitors. Because the process of
making products unique and different is expensive, organisations that
successfully pursue a differentiation strategy often charge a premium price for
their products.
“Stuck in the Middle” which according to Porter, a company cannot pursue a lowcost and a differentiation strategy at the same time. He refers to managers who have
selected between the two as being “stuck in the middle.” Exceptions to this rule exist.
Porter identified two other strategies used by companies wishing to specialise by
serving the needs of customers in only one or a few segments of the market, which
are the focused low-cost strategy and the focused differentiation strategy.
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Focused low-cost strategy: Serving only one segment of the overall
market and trying to be the lowest-cost organisation serving that
segment.
Focused differentiation strategy: Serving only one segment of the
overall market and trying to be the most differentiated organisation
serving that segment.
▪
A company pursuing a focused low-cost strategy serves one or a few
segments of the market and aims to be the lowest-cost company serving that
segment.
▪
A company pursuing a focused differentiation strategy serves just a few
segments and aims to be the most differentiated firm serving that market
segment.
Formulating Corporate-Level Strategies
Corporate-level strategy is a plan of action that determines the industries and countries
an organisation should invest its resources in to achieve its mission and goals.
Managers of effective organisations actively seek out new opportunities to use
organisational resources to satisfy customer needs. Also, some managers must help
their organisations respond to threats due to changing forces in the task or general
environment. The principal corporate-level strategies that managers use are:
▪
concentration on a single industry
▪
vertical integration
▪
diversification and
▪
international expansion.
An organisation benefits from pursuing any of these only when the strategy helps
increase the value of the organisation’s goods for customers.
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Concentration on a single industry
Concentration on a single industry: Reinvesting a company’s
profits to strengthen its competitive position in its current industry.
A corporate-level strategy aimed at concentrating resources in one business or
industry is used by most organisations as they are beginning to grow and develop.
Concentration on a single industry can be an appropriate strategy when managers see
the need to reduce the size of their organisation in order to improve performance.
Vertical integration
Vertical integration: Expanding a company’s operations either
backward into an industry that produces inputs for its products or
forward into an industry that uses, distributes, or sells its products.
The corporate-level strategy that involves a company expanding its business
operations either backward into a new industry that produces inputs for the company’s
products (backward vertical integration) or forward into a new industry that uses,
distributes, or sells the company’s products (forward vertical integration).
Managers pursue vertical integration because it allows them to either add value to
their products by making them special or unique or to lower the costs associated with
the development of value creation.
Vertical integration can help an organisation to grow rapidly, but it can reduce an
organisation’s flexibility to respond to changing environmental conditions.
Some companies have exited the components industry, thus, vertically disintegrating
by outsourcing the production of component parts to other companies.
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Diversification
Diversification: Expanding a company’s business operations into a
new industry in order to produce new kinds of valuable goods or
services.
Diversification is the corporate-level strategy of expanding operations into a new
business or industry and producing new goods or services There are two main types
of diversification: related and unrelated.
Related diversification: Entering a new business or industry to
create a competitive advantage in one or more of an organisation’s
existing divisions or businesses.
Related Diversification is the strategy of entering a new business or industry to
create a competitive advantage in one or more of an organisation’s existing divisions
or businesses.
Synergy is obtained when the value created by two divisions cooperating is greater
than the value that would be created if the two divisions operated separately. In
pursuing related diversification, managers seek new businesses in which existing skills
and resources can be used to create synergies.
Unrelated diversification consists of managers pursuing unrelated diversification
when they enter new industries or buy companies in new industries that are not related
to their current businesses or industries.
By pursuing unrelated diversification, managers can buy a poorly performing company
and use their management skills to turn the business around, thereby increasing its
performance.
Managers also engage in unrelated diversification, which is the practice of
apportioning financial resources among divisions in order to increase financial returns
and decrease risks. According to research, too much diversification can cause
managers to lose control of their organisation’s core business.
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International expansion.
Corporate-level managers must decide on the appropriate way to compete
internationally. If competing in more than one national market, managers must ask
themselves to what extent their company should customise its products’ features and
marketing plans to suit differing national conditions.
Global strategy: Selling the same standardised product and using
the same basic marketing approach in each national market.
Global strategy is selling the same standardised product and using the same basic
marketing approach in each national market.
Multidomestic strategy: Customising products and marketing
strategies to specific national conditions.
If managers decide to customise products to specific national conditions, they adopt a
multidomestic strategy.
Both global and multidomestic strategies have their advantages and disadvantages.
The major advantage of a global strategy is the significant cost savings associated
with not having to customise products and marketing approaches to differing national
conditions. Its disadvantage is that by ignoring national differences, managers may
leave themselves vulnerable to local competitors that do differentiate their products.
The advantages and disadvantages of a multidomestic strategy are the opposite of
those of a global strategy.
A more competitive global environment has proven to be both an opportunity and
threat to organisations. Before setting up foreign operations, managers must analyse
the forces in the environment of a particular country and choose the best method to
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expand and respond to those forces in the most appropriate way. There are four basic
ways of operating in the global environment.
Exporting: Making products at home and selling them abroad.
Importing: Selling products at home that are made abroad.
The least complex global operations are exporting and importing. A company
engaged in exporting makes products at home and sells them abroad. A company
engaged in importing sells products at home that are made abroad (products it makes
itself or buys from other companies).
Licensing: Allowing a foreign organisation to take charge of
manufacturing and distributing a product in its country or world region
in return for a negotiated fee.
In licensing, a company allows a foreign organisation to take charge of both
manufacturing and distributing one or more of its products in the licensee’s country or
region of the world in return for a negotiated fee. In franchising, a company sells to a
foreign organisation the rights to use its brand name and operating know-how in return
for a lump sum payment and a share of the franchiser’s profits.
Strategic alliance: An agreement in which managers pool or share
their organisation’s resources and know-how with a foreign company,
and the two organisations share the rewards and risks of starting a
new venture.
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In a strategic alliance, managers pool or share their organisation’s resources and
know-how with those of a foreign company, and the two organisations share the
rewards and risks of starting a new venture in a foreign company.
Joint venture: A strategic alliance among two or more companies
that agree to jointly establish and share the ownership of a new
business.
A joint venture is a strategic alliance among two or more companies that agree to
jointly establish and share the ownership of a new business. Risk is reduced and a
capital investment is generally involved.
Joint venture: A strategic alliance among two or more companies
that agree to jointly establish and share the ownership of a new
business.
Wholly Owned Foreign Subsidiaries: When managers decide to establish a wholly
owned foreign subsidiary, they invest in establishing production operations in a foreign
country, independent of any local investments. This method is much more expensive
than others but also offers the highest potential returns.
6.4. Implementing Strategy
After identifying appropriate strategies, managers confront the challenge of putting
those strategies into action for the purpose of changing the organisation. Strategy
implementation is a five-step process:
▪
Allocating responsibility for implementation to the appropriate individuals or
groups.
▪
Drafting detailed action plans that specify how a strategy is to be implemented.
▪
Establishing a timetable for implementation that includes precise, measurable
goals linked to the attainment of the action plan.
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▪
Allocating appropriate resources to the responsible individuals or groups
responsible for the attainment of corporate, divisional, and functional goals.
▪
Holding specific individuals or groups responsible for the attainment of
corporate, divisional, and functional goals.
6.5. The Nature of Leadership
Leadership: The process by which an individual exerts influence
over other people and inspires, motivates, and directs their activities
to help achieve group or organisational goals.
Leader: An individual who is able to exert influence over other people
to help achieve group or organisational goals.
Leadership is the process by which a person exerts influence over other people and
inspires, motivates, and directs their activities to help achieve group or organisational
goals. The person who exerts such influence is a leader.
When leaders are effective, the influence they exert over others helps a group achieve
its performance goals. When leaders are ineffective, their influence does not contribute
to, and often detracts from, goal attainment.
Effective leadership increases an organisation’s ability to meet all contemporary
challenges, including the need to obtain a competitive advantage, the need to foster
ethical behaviour, and the need to manage a diverse workforce fairly and equitably.
Personal Leadership Style and Managerial Tasks
Servant leader: A leader with a strong desire to serve and work for
the benefit of others.
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A manager’s personal leadership style is the specific way in which he or she chooses
to influence other people. It shapes how that manager approaches planning,
organising, and controlling. Managers at all levels and in all kinds of organisations
have their own personal leadership styles that determine how they lead employees
and how they perform other management tasks. Although leading is one of the four
principal tasks of managing, a distinction is often made between managers and
leaders.
When this distinction is made, managers are thought of as those organisational
members who establish and implement procedures and processes to ensure smooth
functioning and who are accountable for goal accomplishment.
Leaders, on the other hand, look to the future, chart the course for the organisation,
and attract, retain, motivate, and inspire, and develop relationships with employees
based on trust and mutual respect.
As part of their personal leadership style, some leaders strive to truly serve others.
The term servant leadership came into use to describe these types of leaders.
▪
Servant leaders are those leaders who have a strong desire to serve and work
for the benefit of others.
▪
Servant leaders share power with followers and pay attention to those who are
least well off in society.
However, this is not the only leadership style. The other styles are transformative
leadership, Autocratic leadership, Laissez-Faire Leadership and Charismatic
Leadership. These will be discussed shortly.
Leadership Styles across Cultures
Some evidence suggests that leadership styles vary not only among individuals, but
also among countries and cultures. Some research suggests that European managers
tend to be more humanistic or people-oriented than both Japanese and American
managers.
Japan’s collectivistic culture places its primary emphasis on the group rather than the
individual, so the importance of the individual’s needs, desires, and personality is
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minimised. In the United States, organisations tend to be very profit-oriented and thus
downplay the needs and desires of individual employees.
Another noted cross-cultural difference is in time horizons.
U.S. managers tend to have a personal leadership style that reflects the short-term
profit orientation of their organisations, while Japanese managers tend to have
personal leadership styles that reflect their organisations’ long-term growth orientation.
Managers in Europe’s large international firms have a philosophy that lies in between
the long-term approach of the Japanese and the short-term approach of the United
States.
Research on the global aspects of leadership is in its infancy. As it continues, more
cultural differences in managers’ leadership styles may be discovered.
Power: The Key to Leadership
A key component of effective leadership is found in the power the leader must have to
affect other people’s behaviour and get them to act in certain ways.
There are several types of power:
▪
Legitimate power.
▪
Reward power.
▪
Coercive power.
▪
Expert power.
▪
Referent power.
Effective leaders take steps to ensure that they have sufficient levels of each type and
that they use their power in beneficial ways.
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Figure 6.2: Leadership
Source: Creative Commons License.
Legitimate Power
Legitimate power: The authority that a manager has by virtue of his
or her position in an organisation’s hierarchy.
Legitimate power is the authority a manager has by virtue of his or her position in an
organisation’s hierarchy. Personal leadership style often influences how a manager
exercises legitimate power.
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Reward Power
Reward power: The ability of a manager to give or withhold tangible
and intangible rewards.
Reward power is the ability of a manager to give or withhold tangible rewards such as
pay raises, bonuses, and choice job assignments, as well as intangible rewards such
as verbal praise, a pat on back, or respect.
Effective managers use their reward power to show appreciation for employees’ good
work and effort. Ineffective managers use rewards in a more controlling manner that
signals to employees that the manager has the upper hand.
Coercive Power
Coercive power: The ability of a manager to punish others.
Coercive power is the ability of a manager to punish others. Punishment may include
verbal reprimands, reductions in pay or hours, or actual dismissal. Managers who rely
heavily on coercive power tend to be ineffective as leaders and sometimes even get
fired themselves.
Expert Power
Expert power: Power that is based on the special knowledge, skills,
and expertise that a leader possesses.
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Expert power is based on the special knowledge, skills, and expertise that a leader
possesses. The nature of expert power varies, depending on the leader’s level in the
hierarchy.
First level and middle managers often have technical expertise relevant to the tasks
their employees perform. Their expert power gives them considerable influence over
employees.
Effective leaders take steps to ensure that they have an adequate amount of expert
power to perform their leadership roles. Expert power tends to be best used in a
guiding or coaching manner rather than in an arrogant, high-handed manner.
Referent Power
Referent power: Power that comes from employees’ and co-workers’
respect, admiration, and loyalty.
Referent power stems from employees’ and co-workers’ respect, admiration, and
loyalty. It is more informal than the other kinds of power. Leaders who are likable and
whom employees admire as their role model are likely to possess referent power.
Because referent power is a function of the personal characteristics of a leader,
managers can increase their referent power by taking time to get to know their
employees and showing interest in them.
Power: The Key to Leadership
Empowerment is the process of giving employees at all levels in the organisation the
authority to make decisions, be responsible for their outcomes, improve quality, and
cut costs. It is becoming increasingly popular in organisations and can contribute to
effective leadership. Empowered employees are given the power to make some
decisions that their leaders or supervisors used to make.
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Empowerment might seem to be the opposite of effective leadership because
managers are allowing employees to take a more active role in leading themselves;
however, it can contribute to effective leadership for several reasons:
▪
It increases a manager’s ability to get things done as the manager has the
support and help of employees who may have special knowledge of work tasks.
▪
It often increases workers’ involvement, motivation, and commitment and
ensuring that they are working toward organisational goals.
▪
It gives managers more time to concentrate on their pressing concerns because
they spend less time on day-to-day supervisory responsibilities.
The personal leadership style of managers who empower employees often entails
developing employees’ ability to make good decisions as well as being their guide,
coach, and source of inspiration.
6.6. Trait and Behaviour Models of Leadership
Because leading is such an important process in all organisations, it has been
researched for decades. Early approaches to leadership, called the trait model and
the behaviour model, sought to determine what effective leaders are like as people
and what they do that makes them so effective.
The Trait Model
The trait model of leadership focused on identifying the personal characteristics that
are responsible for effective leadership. Decades of research indicates that certain
personal characteristics do appear to be associated with effective leadership.
Although this model is called the “trait” model, some of the personal characteristics
that it identifies are not personality traits per se but, rather, are concerned with a
leader’s skills, abilities, knowledge, and expertise. Leaders who do not possess these
traits may be ineffective. However, traits alone are not the key to understanding leader
effectiveness. Some effective leaders do not possess all of the traits identified in this
model, and some leaders who do possess them are not effective in their leadership
roles.
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This lack of a consistent relationship between leader traits and leader effectiveness
led researchers to shift their attention away from what leaders are like (their traits) to
what effective managers actually do, i.e., their behaviours which allow them to
influence their employees to achieve group and organisational goals.
The Behaviour Model
Figure 6.3: Degrees of Leadership Styles
Source: Creative Commons License.
Researchers at Ohio State University in the 1940s and 1950s identified two basic kinds
of leader behaviours that many leaders engaged in to influence their employees:
consideration and initiating structure.
Consideration: Leaders engage in consideration when they show their employees
that they trust, respect, and care about them. Managers who truly look out for the wellbeing of their employees and do what they can to help employees feel good and enjoy
their work, perform consideration behaviours.
Initiating Structure: Leaders engage in initiating structure when they make sure that
work gets done, employees perform their jobs acceptably, and the organisation is
effective and efficient. Examples of initiating structure include:
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▪
Assigning tasks to individuals or work groups.
▪
Letting employees know what is expected of them.
▪
Deciding how work should be done.
▪
Making schedules.
▪
Encouraging adherence to rules and regulations.
▪
Motivating employees to do a good job.
Initiating structure: Behaviour that managers engage in to ensure
that work gets done, employees perform their jobs acceptably, and
the organisation is efficient and effective.
Initiating structure and consideration are independent leader behaviour. Leaders can
be high on both, low on both, or high on one and low on the other. Leadership
researchers have identified leader behaviours similar to consideration and initiating
structure.
Researchers at the University of Michigan identified two categories of leadership
behaviours, employee-centred behaviours and job-oriented behaviours that roughly
correspond to consideration and initiating structure, respectively.
Paul Hersey and Kenneth Blanchard’s model focuses on supportive behaviours
(similar to consideration) and task-oriented behaviours (similar to initiating structure).
According to these researchers, leaders need to consider the nature of their
employees when trying to determine the extent to which they should perform these
two behaviours.
Blake and Mouton’s Managerial Grid focuses on concern for people (similar to
consideration) and concern for production (similar to initiating structure). Blake and
Mouton suggest that effective leadership combines both concern for people and
production.
Research has found that the relationship between performance of consideration and
initiating structure behaviours and leader effectiveness is not clear. Some leaders are
effective even though they do not perform consideration or initiating structure
behaviour, while other leaders who perform both are ineffective.
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6.7. Contingency Models of Leadership
Contingency models of leadership consider the situation or context within which
leadership occurs. According to contingency models, whether or not a manager is an
effective leader is the result of the interplay between what the manager is like, what
he or she does, and the situation in which leadership takes place. Three prominent
contingency models developed to shed light on what makes managers effective
leaders:
▪
Fiedler’s contingency model.
▪
House’s path-goal theory.
▪
The leader substitutes model.
Fiedler’s Contingency Model
Fiedler’s contingency model helps explain why a manager may be an effective leader
in one situation and ineffective in another. It also suggests which kinds of managers
are likely to be most effective in which situations.
Leader Style:
Fiedler hypothesised that a leader’s personal characteristics can influence their
effectiveness. He uses the term leader style to refer to a manager’s characteristic
approach to leadership and identified two basic leader styles: relationship-oriented and
task-oriented; all managers can be described as having one style or the other.
Relationship-oriented leaders are primarily concerned with developing good
relationships with their employees and being liked by them. They get the job done
while focusing on maintaining high-quality interpersonal relationships with employees.
Task-oriented leaders are primarily concerned with ensuring that employees perform
at a high level and focus on task accomplishment.
Situational Characteristics:
According to Fiedler, leadership style is an enduring characteristic; managers neither
change their style, nor can they adopt different styles in different kinds of situations.
Fiedler identified three situational characteristics that are important determinants of
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how favourable a situation is for leading. They are leader-member relations, task
structure, and position power.
According to Fiedler, if a situation is favourable for leading, it is relatively easy for a
manager to influence employees, so they perform at a high level and contribute to
organisational efficiency and effectiveness. In a situation that is unfavourable for
leading, it is much more difficult for a manager to exert influence.
Leader-member relations is the extent to which followers like, trust, and are loyal to
their leader. Situations are more favourable for leading when leader-member
relationships are good.
Task structure: The extent to which the work to be performed is clearcut so that a leader’s employees know what needs to be accomplished
and how to go about doing it; a determinant of how favourable a
situation is for leading.
Task structure is the extent to which the work to be performed is clear-cut so that the
leader’s employees know what needs to be accomplished and how to go about doing
it. When task structure is high, the situation is favourable for leading; when it is low,
the situation is unfavourable for leading.
Position power: The amount of legitimate, reward, and coercive
power that a leader has by virtue of his or her position in an
organisation; a determinant of how favourable a situation is for leading.
Position power is the amount of legitimate, reward, and coercive power a leader has
by virtue of his or her position in an organisation. Leadership situations are more
favourable for leading when position power is strong.
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Combining Leader Style and the Situation:
By taking all possible combinations of good and poor leader–member relations, high
and low task structure, and strong and weak position power, Fiedler identified eight
leadership situations which vary in their favourability for leading.
Based on extensive research, he determined that relationship-oriented leaders are
most effective in moderately favourable situations and task-oriented leaders are most
effective in very favourable or very unfavourable situations.
Putting the Contingency Model into Practice
Leader style is an enduring characteristic that managers cannot change. This
suggests that for managers to be effective, either managers need to be placed in
leadership situations that fit their style or situations need to be changed to suit the
managers. Situations can be changed, for example, by giving a manager more position
power or taking steps to increase task structure, such as by clarifying goals.
Path-goal theory: A contingency model of leadership proposing that
leaders can motivate employees by identifying their desired outcomes,
rewarding them for high performance and the attainment of work goals
with these desired outcomes, and clarifying for them the paths leading
to the attainment of work goals.
House’s Path-Goal Theory
In his path-goal theory, researcher Robert House focused on what leaders can do to
motivate their employees to achieve group or organisational goals. The premise is that
effective leaders motivate employees to achieve goals by:
▪
Clearly identifying the outcomes that employees are trying to obtain from the
workplace.
▪
Rewarding employees with these outcomes for high performance and the
attainment of work goals.
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▪
Clarifying for employees the paths leading to the attainment of work goals.
▪
Based on the expectancy theory of motivation, path-goal theory provides
managers with three guidelines to follow to be effective leaders:
▪
Find out what outcomes your employees are trying to obtain from their jobs and
the organisation.
▪
Reward employees for high performance and goal attainment with the
outcomes they desire.
Clarify the paths to goal attainment for employees, remove any obstacles to high
performance, and express confidence in employees’ capabilities.
Path-goal theory identifies four kinds of behaviours that leaders can engage in order
to motivate employees, which behaviours managers should use to lead effectively
depends upon the nature of the employees and the kind of work they do. The
behaviours are:
Directive behaviours, which are similar to initiating structure and include setting
goals, assigning tasks, showing employees how to complete tasks, and taking
concrete steps to improve performance.
Supportive behaviours, which are similar to consideration and include expressing
concern for employees and looking out for their best interests.
Participative behaviours, which give employees a say in matters and decisions that
affect them.
Achievement-oriented behaviours, which motivate employees to perform at the
highest level possible by, for example, setting particularly challenging goals, expecting
that they be met, and believing in employees’ capabilities.
▪
Directive behaviours may be beneficial when employees are having difficulty
completing assigned tasks, but they might be detrimental when employees are
independent thinkers who work best when left alone.
▪
Supportive behaviours are often advisable when employees are experiencing
high levels of stress.
▪
Participative behaviours can be particularly effective when employees’ support
of a decision is required.
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▪
Achievement-oriented behaviours may increase motivation levels of highly
capable employees who are bored from having too few challenges, but they
might backfire if used with employees who are already pushed to their limit.
The Leader Substitutes Model
Leadership substitute: A characteristic of a subordinate or of a
situation or context that acts in place of the influence of a leader and
makes leadership unnecessary.
The leader substitutes model suggests that leadership is sometimes unnecessary
because substitutes for leadership are present.
A leadership substitute is something that acts in place of the influence of a leader and
makes leadership unnecessary. It is a characteristic of a subordinate or of a situation
or context that acts in place of the influence of a leader and makes leadership
unnecessary.
▪
Characteristics of employees, such as their skills, abilities, experience,
knowledge, and motivation, can be substitutes for leadership.
▪
Characteristics of the situation or context, such as the extent to which the work
is interesting and enjoyable, can also be substitutes.
▪
When managers empower their employees or use self-managed teams, the
need for leadership influence is decreased because team members manage
themselves.
Substitutes for leadership can increase organisational efficiency and effectiveness
because they free up some of the leaders’ valuable time allowing them to focus their
efforts on discovering new ways to improve organisational effectiveness.
Bringing All the Models Together
The three contingency models help managers hone in on the necessary ingredients
for effective leadership. They are complementary because each one looks at the
leadership question from a different angle.
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Fiedler’s contingency model explores how a manager’s leadership style needs to
be matched to that person’s leadership situation for maximum effectiveness.
House’s path–goal theory focuses on how managers should motivate employees and
describes the specific kinds of behaviours managers can engage in to have a highly
motivated workforce.
The leadership substitutes model alerts managers to the fact that sometimes they
do not need to exert influence over employees and thus can free up their time for other
important activities.
Figure 6.4: Types of Leaders
Source: Creative Commons License.
6.8. Transformational Leadership
Transformational leadership occurs when managers change (or transform) their
employees in three important ways.
▪
Transformational managers make employees aware of how important their jobs
are to the organisation and how important it is that they perform those jobs as
best they can, so that the organisation can attain its goals.
▪
Transformational managers make their employees aware of their own needs
for personal growth, development, and accomplishment.
▪
Transformational managers motivate their employees to work for the good of
the organisation as a whole, not just for their own personal gain or benefit.
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When managers engage in transformational leadership, employees trust the
managers, are highly motivated, and help the organisation achieve its goals.
Transformational leaders can influence their followers in at least three ways:
1. By being a charismatic leader.
2. By intellectually stimulating employees.
3. By engaging in developmental consideration.
Being a Charismatic Leader
Charismatic leader: An enthusiastic, self-confident leader who is able
to clearly communicate his or her vision of how good things could be.
Charismatic leaders are enthusiastic, self-confident leaders who are able to clearly
communicate their vision of how good things could be in their groups and
organisations that is in contrast with the status quo. Their vision usually includes
dramatic improvements in both group and organisational performance as a result of
changes in the organisation’s structure, culture, strategy, decision making, and other
critical processes and factors. This vision paves the way for gaining a competitive
advantage. The essence of charisma is having a vision and enthusiastically
communicating it to others.
Stimulating Employees Intellectually
Transformational managers openly share information so that employees are aware of
problems and the need for change. They help employees to view problems from a
different perspective that is consistent with the manager’s vision.
Intellectual stimulation is the behaviour a leader engages in to make followers aware
of problems and view these problems in new ways, consistent with the leader’s vision.
They engage and empower employees to take personal responsibility for helping to
solve problems.
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Engaging in Developmental Consideration
Developmental consideration: Behaviour a leader engages in to
support and encourage followers and help them develop and grow on
the job.
When a manager engages in developmental consideration, they go out of their way to
support and encourage employees, giving them opportunities to enhance their skills
and capabilities and to grow and excel on the job. They must go one step further than
merely demonstrating true concern for the well-being of employees. While the benefits
of transformational leadership are often most apparent when an organisation is in
trouble, transformational leadership can be an enduring approach to leadership,
leading to long-term organisational effectiveness.
The Distinction Between Transformational and Transactional Leadership
Transactional leadership: Leadership that motivates employees by
rewarding them for high performance and reprimanding them for low
performance.
Transformational leadership: Leadership that makes employees
aware of the importance of their jobs and performance to the
organisation and aware of their own needs for personal growth and
that motivates employees to work for the good of the organisation.
Transformational leadership is often contrasted with transactional leadership.
Transactional leadership involves managers using their reward and coercive power to
encourage high performance. When managers reward high performers, reprimand low
performers, and motivate employees by reinforcing desired behaviours, and
extinguishing or punishing undesired ones they are engaging in transactional
leadership.
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Many transformational leaders engage in transactional leadership, but at the same
time have their eyes on the bigger picture of how much better things could be in their
organisations.
Research has found that when leaders engage in transformational leadership,
employees tend to have higher levels of job satisfaction and performance.
Also, they are more likely to trust their leaders, trust their organisations, and feel that
they are being treated fairly. This, in turn, may positively influence their motivation
level.
Figure 6.5: Transformational and Transactional Leader differences
Source: Creative Commons License
6.9. Gender and Leadership
Although there are relatively more women in management positions today than ten
years ago, there are still relatively few women in top management, and in some
organisations, even in middle management.
When women do advance to top management positions, special attention is often
focused on the fact that they are women. A widespread stereotype of women is that
they are nurturing, supportive, and concerned with interpersonal relations, whereas
men are stereotypically viewed as being directive and focused on task
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accomplishment. Such stereotypes suggest that women tend to be more relationshiporiented as managers and engage in more consideration behaviours, whereas men
are more task-oriented and engage in more initiating-structure behaviours.
Research suggests that male and female managers in leadership positions behave in
similar ways. Women do not engage in more consideration than men, and men do not
engage in more initiating structure than women. However, research does suggest that
men and women may differ in leadership style. Women tend to be more participative
than men, involving employees in decision making and seeking their input.
Male managers tend to be less participative than are female managers, making more
decisions on their own and wanting to do things their own way. Also, research
suggests that men tend to be harsher when they punish their employees than women.
There are at least two reasons why women leaders are more participative than male
leaders:
▪
Women must sometimes work harder to overcome the resistance to their
leadership and encourage employees’ trust and respect.
▪
They sometimes possess stronger interpersonal skills.
The key finding from research on leader behaviours is that male and female managers
do not differ significantly in their propensities to perform different leader behaviours.
Also, across different kinds of organisational settings, male and female managers tend
to be equally effective as leaders.
6.10. Emotional Intelligence and Leadership
Preliminary research suggests that emotions and moods of leaders at work influence
their behaviour and effectiveness as leaders. A leader’s level of emotional intelligence
may play a strong role in leadership effectiveness. Emotional intelligence may help
leaders develop a vision for their organisations, motivate their employees to commit
to this vision, and energise them to enthusiastically work to achieve this vision.
Moreover, emotional intelligence may enable leaders to develop a significant identity
for their organisation and instil high levels of trust and cooperation throughout the
organisation while maintaining the flexibility needed to respond to changing conditions.
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Emotional intelligence also plays a crucial role in how leaders relate to and deal with
their followers, particularly when it comes to encouraging followers to be creative.
6.11. Organisational Control
Controlling is the process whereby managers monitor and regulate how efficiently and
effectively an organisation and its members are performing the activities necessary to
achieve organisational goals.
In controlling, managers monitor and evaluate whether their organisation’s strategy
and structure are working as intended, how they could be improved, and how they
might be changed if they are not working. Control involves keeping an organisation on
track and anticipating events that might occur.
It is also involved with keeping
employees motivated and focused upon important problems facing the organisation
and working together to take advantage of opportunities.
The Importance of Organisational Control
Organisational
control
helps
managers
obtain
superior
efficiency,
quality,
responsiveness to customers, and innovation which are the four building blocks of
competitive advantage.
A control system contains the measures or yardsticks that allow managers to assess
how efficiently the organisation is producing goods and services. Without a control
system in place, managers have no idea how their organisation is performing and how
its performance can be improved.
Organisational control is important in determining the quality of goods and services
because it gives managers feedback on product quality.
Effective managers create a control system that consistently monitors the quality of
goods and services so that they can make continuous improvements to quality. By
developing a control system to evaluate how well customer contact employees are
performing their jobs, managers can make their organisations more responsive to
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customers. Monitoring employee behaviour can help managers find ways to increase
employees’ performance levels.
Controlling can raise the level of innovation in an organisation by creating an
organisational setting in which employees feel empowered to be creative and in which
authority is decentralised to employees, so they feel free to experiment and take
control of their work activities. Deciding on the appropriate control systems to
encourage risk taking is an important management challenge; organisational culture
is vital in this regard.
Control Systems and Technology
Control systems are formal target-setting, monitoring, evaluation, and feedback
systems that provide managers with information about whether the organisation’s
strategy and structure are working efficiently and effectively. An effective control
system has three characteristics:
▪
It is flexible enough to allow managers to respond as necessary to unexpected
events.
▪
It provides accurate information about organisational performance.
▪
It provides managers with the information in a timely manner.
New forms of IT have revolutionised control systems because they facilitate the flow
of accurate and timely information up and down the organisational hierarchy and
between functions and divisions. Control and information systems are developed to
measure performance at each stage in the conversion of inputs into finished goods
and services.
At the input stage, managers use feedforward control to anticipate problems before
they arise so that problems do not occur later during the conversion process. At this
stage, technology can be used to keep in contact with suppliers, monitor their
progress, and control the quality of inputs received from them. In general, the
development of management information systems promotes feedforward control that
gives managers timely information about changes in the task and general
environments that may impact their organisation later on. Effective managers always
monitor trends and changes in the external environment to try to anticipate problems.
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At the conversion stage, concurrent control gives managers immediate feedback on
how efficiently inputs are being transformed into outputs, so managers can correct
problems as they arise. Concurrent control through technology alerts managers to the
need to react quickly to the source of the problem. Concurrent control is at the heart
of total quality management programs. When problems are corrected on an ongoing
basis, the result is finished products that are more valuable to customers and
command higher prices.
At the output stage, managers use feedback control to provide information about
customers’ reactions to goods and services so that corrective action can be taken if
necessary.
Figure 6.6: The Control System
Source: Creative Commons License.
The Control Process
The control process, whether at the input, conversion, or output stage, can be broken
down into four steps.
Step 1: Establish the standards of performance, goals, or targets against which
performance is to be evaluated. The standards of performance that managers select
measure efficiency, quality, responsiveness to customers, and innovation.
Performance standards selected at one level affect those at the other levels, and
ultimately the performance of individual managers is evaluated in terms of their ability
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to reduce costs. Managers at each level are responsible for selecting standards that
will best allow them to evaluate how well the part of the organisation they are
responsible for is performing. Managers must be careful to choose standards of
performance that let them assess how well they are doing with all four building blocks
of competitive advantage.
Step 2: Measure actual performance. Managers can measure or evaluate two things—
the actual outputs that result from the behaviour of their members and the behaviours
themselves (hence the terms output control and behaviour control). In general, the
more nonroutine or complex organisational activities are, the harder it is for managers
to measure outputs or behaviours. Outputs, however, are usually easier to measure
than behaviours because they are more tangible and objective.
Step 3: Compare actual performance against chosen standards of performance.
Managers at successful companies are well known for the way they try to improve
performance in manufacturing settings by constantly raising performance standards
to motivate managers and workers to find new ways to reduce costs or increase
quality. If performance is too low and standards were not reached, or if standards were
set so high that employees could not achieve them, managers must decide whether
to take corrective action. It is easy to take corrective action when the reasons for poor
performance can be identified.
Step 4: Evaluate the result and initiate corrective action (that is, make changes) if the
standard is not being achieved. If performance is higher than expected, then standards
may need to be raised—in any case employees need to be recognised for the
achievement. If performance is too low, then either corrective action needs to be taken
so that performance is achieved in the future, or standards may be too high and might
have to be adjusted. It may be very difficult to identify the cause of the poor
performance and may require significant data collection and analysis in order to
determine the appropriate corrective action.
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Figure 6.7: The Control Process
Source: Creative Commons License.
6.12. Output Control
All managers develop a system of output control for their organisations. The three
main mechanisms that managers use to assess output or performance are financial
measures, organisational goals, and operating budgets.
Financial Measures of Performance
Top managers use various financial measures to evaluate overall organisational
performance. The most common financial measures are profit ratios, liquidity ratios,
leverage ratios, and activity ratios.
Profit ratios measure how efficiently managers are using the organisation’s resources
to generate profits. Return on investment (ROI) is an organisation’s net income before
taxes divided by its total assets; it is the most commonly used financial performance
measure because it allows managers of one organisation to compare performance
with that of other organisations. ROI lets managers assess an organisation’s
competitive advantage. Operating margin is calculated by dividing a company’s
operating profit (the amount it has left after all the costs of making the product and
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running the business have been deducted) by sales revenues. It provides information
about how efficiently an organisation is using its resources.
Liquidity ratios measure how well managers have protected organisational resources
to be able to meet short-term obligations. The current ratio (current assets divided by
current liabilities) tells managers whether they have the resources to meet claims for
short-term creditors. The quick ratio tells whether they can pay these claims without
selling inventory.
Leverage ratios, such as the debt-to-assets ratio and the times-covered ratio, measure
the degree to which managers use debt (borrow money) or equity (issue new shares)
to finance ongoing operations. An organisation is highly leveraged if it uses more debt
than equity.
Activity ratios provide measures of how well managers are creating value from assets.
Inventory turnover measures how efficiently managers are turning over inventory.
‘Day’s sales outstanding’ provide information on how efficiently managers are
collecting revenue from customers to pay expenses.
Financial controls tell managers when a corporate reorganisation might be necessary,
when they should sell off divisions and exit businesses, or when they should rethink
their corporate-level strategies.
Financial information informs managers about the results of past decisions but does
not tell them how to find new opportunities to build competitive advantage in the future.
To encourage a future oriented approach, organisational goals are needed.
Organisational Goals
After top managers have set the organisation’s overall goals, they then establish
performance standards for the various divisions and functions. These standards
specify for divisional and functional managers the level at which their units must
perform if the organisation is to achieve its overall goals.
Divisional managers then develop a business-level strategy that they hope will allow
them to achieve the specific goal. In consultation with functional managers, they
specify the functional goals that managers of different functions need to achieve to
allow the division to achieve its goals. In turn, functional managers establish goals that
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first-line managers and non-managerial employees need to achieve to allow the
function to achieve its goals.
It is vital that the goals set at each level harmonise with the goals set at other levels
so that managers and other employees throughout the organisation work together to
attain the corporate goals that top managers have set.
Goals should be set appropriately so that managers are motivated to accomplish them.
Research suggests that the best goals are specific, difficult goals that will challenge
and stretch managers’ ability but are not out of reach and do not require an impossibly
high expenditure of managerial time and energy. These are called stretch goals.
Deciding what is a specific difficult goal and what is a goal that is too difficult or too
easy is a skill that managers must develop.
Operating Budgets
An operating budget is a blueprint that states how managers intend to use
organisational resources to achieve organisational goals efficiently.
Managers at one level allocate to subordinate managers a specific number of
resources to use to produce goods and services. These lower-level managers are
evaluated on their ability to stay within the budget and to make the best use of
resources.
Large organisations often treat each division as a stand-alone responsibility centre,
and then corporate managers evaluate each division’s contribution to corporate
performance.
▪
Managers of a division may be given a fixed budget for resources and be
evaluated for goods or services they can produce from using those resources
(a cost or expense budget approach).
▪
Managers may be asked to maximize the revenues from the sales of goods and
services produced (a revenue budget approach).
▪
Managers may be evaluated on the difference between the revenues generated
and the budgeted cost of making those goods and services (a profit budget
approach).
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▪
Managers may be evaluated on the difference between the revenues generated
by the sales of goods and services and the budgeted cost of making those
goods and services (a profit budget approach).
Figure 6.8: Output Controls
Source: Creative Commons License
Problems with Output Control
When designing an output control system, managers must be sure that the output
standards they create motivate managers at all levels and do not encourage
inappropriate behaviour as a way to achieve organisational goals.
A manager’s primary concern should be long-term effectiveness. Therefore, if
conditions change, it is probably better that ‘top managers’ communicate to those
lower in the hierarchy that they are aware of the changes taking place and are willing
to revise and lower goals and standards.
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Managers must be sensitive to how they use output control and constantly monitor its
effects at all levels in the organisation. Output controls should serve as a guide to
appropriate action.
6.13. Behaviour Control
Behaviour control, along with output control, is a method of motivating employees.
There are three mechanisms of behaviour control that a manager can use: direct
supervision, management by objectives, and rules and standard operating
procedures.
Direct Supervision
The most immediate and potent form of behaviour control is direct supervision by
managers. Under direct supervision, managers actively monitor and observe the
behaviour of their employees, teach them behaviours that are appropriate and
inappropriate, and intervene with corrective actions whenever necessary.
When managers personally supervise employees, they lead by example and in that
way, help employees develop and increase their own skills. Several problems
associated with direct supervision include:
▪
It is expensive because a manager can personally manage only a small number
of employees effectively. For this reason, output control is usually preferred
over behaviour control.
▪
Direct supervision can demotivate employees if they feel that they are not free
to make their own decisions or if they feel they are not being evaluated in an
accurate and impartial way.
▪
For many jobs direct supervision is not feasible. The more complex a job, the
more difficult it is for a manager to evaluate how well an employee is performing.
Management by Objectives
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Management by objectives (MBO): A goal-setting process in which
a manager and each of his or her employees negotiate specific goals
and objectives for the subordinate to achieve and then periodically
evaluate the extent to which the subordinate is achieving those goals.
To provide a framework within which to evaluate employees’ behaviour, many
organisations implement some version of management by objectives. Management by
objectives (MBO) is a formal system of evaluating employees on their ability to achieve
specific organisational goals or performance standards and to meet operating
budgets. It involves three steps:
▪
Step 1: Specific goals and objectives are established at each level of the
organisation.
▪
Step 2: Managers and their employees together determine the employees’
goals.
▪
Step 3: Managers and their employees periodically review the employees’
progress toward meeting goals.
In companies in which responsibilities have been decentralised to empowered teams,
MBO works somewhat differently.
▪
Managers ask each team to develop a set of goals and performance targets
that the team hopes to achieve.
▪
Managers then negotiate with each team to establish its final goals and the
budget the team will need to achieve them.
▪
Rewards are linked to team performance, not to the performance of any one
team member.
Balanced Scorecard, an extension of the MBO approach to organisational control has
become popular, which provides a more balanced view of a company’s performance.
Developed by Robert Kaplan and David Norton in the early 1990s, the balanced
scorecard addresses financial measures as well as three other operational
components: customer service, internal business processes, and an organisation’s
potential for learning and growth.
Bureaucratic Control
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Bureaucratic control: Control of behaviour by means of a
comprehensive system of rules and standard operating procedures.
When direct supervision is too expensive and MBO is inappropriate, managers may
use bureaucratic control. Bureaucratic control is control of behaviour by means of a
comprehensive system of rules and standard operating procedures (SOPs) that shape
and regulate the behaviour of divisions, functions, and individuals.
Rules and SOPs guide behaviour and specify what employees are to do when they
confront a problem. It is the responsibility of a manager to develop rules that allow
employees to perform their activities efficiently and effectively.
When employees follow the rules, their behaviour is standardised, where actions are
performed in the same way time and time again and the outcomes of their work are
predictable. There is no need to monitor the outputs of behaviour because
standardised behaviour leads to standardised outputs.
Problems with Bureaucratic Control
With a bureaucratic control system in place, managers can manage by exception and
intervene and take corrective action only when necessary. The following problems
have been associated with bureaucratic control, which can reduce organisational
effectiveness. They are:
▪
Establishing rules is always easier than discarding them. If the amount of ‘red
tape’ becomes onerous, sluggishness can imperil an organisation’s survival.
▪
Because rules constrain and standardise behaviour, there is a danger that
people become so used to automatically following rules that they stop thinking
for themselves. Innovation is incompatible with the use of extensive
bureaucratic control.
▪
Bureaucratic control is most useful when organisational activities are routine
and when employees are making programmed decisions. It is less useful where
non-programmed decisions must be made and managers have to react quickly
to changes.
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For many of the most significant organisational activities, output control and behaviour
control are inappropriate, for the following reasons:
▪
A manager cannot evaluate the performance of workers such as doctors,
research scientists, or engineers by observing their behaviour on a day-today basis.
▪
Rules and SOPs are of little use in telling a doctor how to respond to an
emergency situation or telling a scientist how to discover something new.
▪
Output controls such as the amount of time a surgeon takes for each
operation or the costs of making a discovery are crude measures of the
quality of performance.
6.14. Clan Control
Clan control: The control exerted on individuals and groups in an
organisation by shared values, norms, standards of behaviour, and
expectations.
Clan control takes advantage of the power of internalised values and norms to guide
and constrain employee attitudes and behaviour in ways that increase organisational
performance. Clan control serves the dual function of keeping organisational members
goal-directed while also open to new opportunities, because it takes advantage of the
power of organisational culture.
Organisational culture functions as a kind of control system because managers can
deliberately try to influence the kind of values and norms that develop in an
organisation—values and norms that specify appropriate and inappropriate
behaviours and so determine the way its members behave.
6.15. Organisational Change
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Organisational change: The movement of an organisation away from
its present state and toward some desired future state to increase its
efficiency and effectiveness.
If an organisation does not have effective control over its activities, it may not be able
to change or adapt in response to a changing environment. Organisational change is
the movement of an organisation away from its present state and toward some
preferred future state to increase its efficiency and effectiveness.
Interestingly enough, there is a fundamental tension or need to balance two opposing
forces in the control process that influences the way organisations change.
Even though it is important to adopt the correct set of output and behaviour controls
to improve efficiency, because the environment is dynamic and uncertain, employees
also need to feel that they have the autonomy to depart from routines as necessary to
increase effectiveness.
The highest-performing organisations are considered to be those that are constantly
changing—and thus become experienced at doing so—in their search to become
more efficient and effective.
Lewin’s Force-Field Theory of Change
According to Lewin’s force-field theory, there are a wide variety of forces arising from
the way an organisation operates, from its structure, culture, and control systems that
makes it resistant to change. At the same time, there are a wide variety of forces
arising from a changing task and general environment that push organisations toward
change.
▪
These two sets of forces are always in opposition.
▪
When the forces are evenly balanced, the organisation is in a state of inertia
and does not change.
▪
To get an organisation to change, managers must find a way to increase the
forces for change, reduce resistance to change, or do both simultaneously.
Evolutionary and Revolutionary Change
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Evolutionary change: Change that is gradual, incremental, and
narrowly focused.
Revolutionary change: Change that is rapid, dramatic, and broadly
focused.
There are several types of change that a manager can adopt to help their organisations
achieve desired future states and in general, these types of change fall into two broad
categories: evolutionary change and revolutionary change. Evolutionary change is
gradual, incremental, and narrowly focused.
▪
It is not drastic or sudden but a constant attempt to improve, adapt, and adjust
strategy and structure incrementally to accommodate changes taking place in
the environment.
▪
Sociotechnical systems theory and total quality management, or kaizen, are
two instruments of evolutionary change. Such improvements might entail using
technology in a better way or reorganising the work process.
Revolutionary change is rapid, dramatic, and broadly focused. It involves a bold
attempt to quickly find new ways to be effective. It is also likely to result in radical shifts
in ways of doing things, new goals, and a new structure for the organisation. The
process has repercussions at all levels in the organisation, from corporate, divisional,
and functional groups, to the individual. Reengineering, restructuring, and innovation
are three important instruments of revolutionary change.
Managing Change
Several experts have proposed a model of change that a manager can follow to
implement change successfully.
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Figure 6.9: Organisational Change management
Source: Creative Commons License
Assessing the Need for Change
Assessing the need for change calls for two important activities—recognising that
there is a problem and identifying its source. Sometimes the need for change is
obvious, but at other times, problems develop gradually, making it more difficult to
recognise that change is needed. Thus, during the first step in the change process,
managers need to recognise that there is a problem that requires change. To discover
the source of organisational problems, managers need to look both within and outside
of the organisation. Outside the organisation, they must examine how changing
environmental forces may be creating opportunities and threats that are affecting
internal work relationships. Managers also need to look within the organisation to see
whether its structure is causing problems between departments.
Deciding on the Change to Make
Once managers have identified the source of the problem, they must decide what they
think the organisation’s ideal future state would be and plan how they are going to
attain that state. This step also includes identifying obstacles or sources of resistance
to change.
Obstacles to change are found at the corporate, divisional, departmental, and
individual levels of the organisation. Corporate-level changes in the organisation’s
strategy, even seemingly trivial ones, may significantly affect how divisional and
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departmental managers behave. For this reason, an organisation’s present strategy
and structure can be powerful obstacles to change.
Whether a company’s culture is adaptive or inert can also facilitate or obstruct change.
Organisations with entrepreneurial, flexible cultures are much easier to change than
are organisations with more rigid cultures.
The same obstacles to change exist at the divisional and departmental levels as well.
Division managers may differ in their attitudes toward changes proposed by top
managers, and if their interests and power seem threatened, will resist those changes.
Managers at all levels usually fight to protect their power and control over resources.
At the individual level, people are often resistant to change because change brings
uncertainty and stress. Managers must recognise and take into consideration potential
obstacles that can make change a slow process.
Improving communication and empowering employees by inviting them to participate
in the planning for change can help to overcome resistance and allay fears. In addition,
managers can sometimes overcome resistance by emphasising group or shared
goals, such as organisational efficiency and effectiveness. The larger and more
complex an organisation, the more complex the change process is.
Implementing the Change
Generally, managers introduce and manage change from the top down or from the
bottom up.
Bottom-up change: A gradual or evolutionary approach to change in
which managers at all levels work together to develop a detailed plan
for change.
Top-down change: A fast, revolutionary approach to change in which
top managers identify what needs to be changed and then move
quickly to implement the changes throughout the organisation.
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Top-down change is implemented quickly where top managers identify the need for
change, decide what to do, and then move quickly to implement the changes
throughout the organisation. With top-down change, the emphasis is on making the
changes quickly and dealing with problems as they arise; it is revolutionary in nature.
Bottom-up change is typically more gradual where top managers consult with middleand first-line managers, and then over time, managers at all levels work to develop a
detailed plan for change. A major advantage of bottom-up change is that it can co-opt
resistance to change from employees. Because the emphasis in bottom-up change is
on participation and on keeping people informed about what is going on, uncertainty
and resistance are minimised.
Evaluating the Change
The last step in the change process is to evaluate how successful the change effort
has been in improving organisational performance. Using such measures as market
share, profits, or the ability of managers to meet their goals, managers can compare
how well an organisation is performing after the change with its performance prior to
the change.
Managers can also use benchmarking, which is the comparison of one company’s
performance on specific dimensions with the performance of high performing
organisations, to decide how successful a change effort has been. Benchmarking is a
key tool in total quality management.
6.16. Conclusion
Planning, under any circumstance, is a three-step process. For a manager this will
consist of determining the organisation’s mission and goals, and then formulating and
implementing the strategy. We looked at goal setting and the levels of management
involved in planning, and the relevant time horizons. We went on to analyse how to
determine the mission, goals and formulate strategy and implement this strategy in
order to allocate responsibilities, establish a timetable for the strategies to be
implemented, allocate resources, and ensure accountability that the plans and goals
are achieved.
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Leading a company is the role of the management team and in which they will exert
influence over their workforce in order to inspire, motivate and direct activities to
achieve group or organisational goals. Power is used as part of this influence and we
went through the different types of power as they relate to legitimate power, reward
power, coercive power, expert power, and referent power. We observed the trait and
behaviour models relating to a manager’s personal characteristics that can contribute
to effective leadership and then moved our attention to the behaviour model which
deals with consideration and initiating structures. We looked at the contingency
models of leadership as they related to Fielder’s model on effective and ineffective
leadership, House’s path-goal theory on leader motivation, and then moved out
attention to the leader-substitute model. We concluded our examination on leadership
by touching on transformational leadership, gender and leadership and the importance
of emotional intelligence and leadership.
Controlling is the process where a manager monitors and regulates how efficiently and
effectively an organisation, and its members perform the activities in order to achieve
the organisational goals. Controlling as we have seen is a four-step process that
consists of establishing performance standards, measuring actual performance,
comparing this performance against the agreed to standard and evaluating the results
and initiating corrective action if needed.
Output control was discussed in relation to the financial measures of performance, the
organisational goals, the operating budget, and problems that can occur and actions
to be taken to mediate such problems. This was in relation to measuring efficiency,
quality, innovation, and responsiveness to customers at corporate, divisional,
departmental, and individual levels.
When evaluating behaviour control, we used the following control measures to
ascertain how this is conducted, namely direct supervision where a manager can
actively monitor and observe employee behaviour, management by objectives where
a framework is used to evaluate employee performance and the balanced scorecard
which looks at financial, customer service, internal business processes and strategic
learning and growing and bureaucratic control and its challenges where we examined
the mechanisms that shape and regulate the behaviour of divisions, functions and
individuals within the organisation. Clan control was another element that we looked
at in terms of the control exerted on individuals, and groups as they relate to shared
values, and norms that top management believe will lead to high performance.
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Organisational change was the last element we analysed in relation to general
management principles, and it related to the balancing of control processes to which
management has access namely, that management has the ability to control
organisational activities and ensure routine and predictability, and on the other hand
they may be required to respond to unpredictable events. We examined the four steps
which related to assessing the need for change; deciding on the change to be made
and sources of possible resistance; implementing the change; and finally evaluating
the results of the change.
Self-Assessment Questions
1. Which level of management is responsible for establishing a
vision for the organisation, developing broad plans and strategies,
and directing subordinate managers?
a) First level managers.
b) Middle managers.
c) Executive managers.
d) Second level managers.
2. Which of the following will help motivate employees?
a) Compromise on poor performance.
b) Ask for performance and set standards.
c) Use positive reinforcement and generalise it.
d) Use the same methods of reinforcement for everyone.
3. Which statement about power is true?
a) Authority gives power.
b) Power can be delegated.
c) Power must be earned.
d) Power is given through the legitimacy of the position.
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4. Which style of leadership asks for subordinates’ input, using
them to reinforce their position on how the task should be done,
and the methods to be used?
a) Autocratic.
b) Delegating.
c) Relationship.
d) Task.
5. The right or privilege to direct or request a behaviour or action,
along with the right to discipline is:
a) Control.
b) Power.
c) Authority.
d) Leadership.
6. In any useful description of management you will find two
premises, which statement contains one of those premises:
a) Develop people and direction of things.
b) Develop people and not the direction of things.
c) Direction of things and not the development of people.
d) Management performs task rather than corrects
workers mistakes.
7. Managers should know and use the three types of planning.
These are:
a) Emergency, Task, & Contingency.
b) Goal, Long range, & Contingency.
c) Short range, long range, & Contingency.
d) Task, Long range, & Emergency.
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8. To be able to formulate a workable plan you must first:
a) Have knowledge of utilities’ policies & rules.
b) Know of available resources.
c) State the objective to be achieved.
d) Understand the utilities’ methods & procedures.
9. Managing change is about:
a) Crisis & conflict management.
b) Aligning the organisation & its people to the
environment.
c) Improving performance in individuals and
organisations.
d) All of the above.
10. Which of the following are reasons why organisations engage
in managing change:
a) To make employees feel inferior.
b) To become more flexible and to adapt to the changing
environment.
c) To decrease productivity.
d) An organisation does not need to manage change.
11. Which of the following statements best describes change
management:
a) An analysis of the external trends impacting on the
organisation.
b) Identification and removal of blockages within the
organisation.
c) Improving the effectiveness of organisations & teams.
d) All of the above.
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12. Which is the worst way to change organisational culture:
a) Create value and belief.
b) Enforce the new culture.
c) Practice effective communication.
d) Review organisational structure.
e) Redesign approach towards recognition.
f) Review all work systems.
Answers:
C, B, D, C, B, A, C, C, A, B, B, B
Case Synopsis: How Stitch Fix Controls Inventory and
Customer Experience
(International Question)
Stitch Fix, a San Francisco-based company, applies data capabilities
to make online retailing more like a personal shopping assistant.
CEO Katrina Lake created Stitch Fix as a retailer grounded in data
science. The focus on data is apparent in its hiring of more than 80
data scientists, who work in a group reporting directly to the CEO.
Typically, data analytics is a support function reporting to a
technology or other support executive, but this organisational
structure keeps the company’s leaders focused on data as a driver
of success.
Customers complete a questionnaire about their size, tastes, desired
price ranges, and clothing needs. Periodically, according to the
schedule selected by the consumer, Stitch Fix sends out a box
containing
several
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items
compatible
with
the
consumer’s
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questionnaire responses. Clothing purchases have an emotional
component, so human stylists make the final selections in each box
based on the data-driven recommendations, personal information
that shoppers choose to share, and their own sense of style. For each
box, the company charges a $20 styling fee, which is applied to
reduce the price of any items purchased. The consumer decides
which items to keep and returns the others along with feedback. The
choices and feedback shape the next round of selections.
This business model involves significant risks. The company must
acquire a wide variety of inventory and then hope that consumers will
want to pay for those items. If consumers return most of them, the
company has to pay for buying, storing, and shipping clothes without
earning much from the expense. The primary quality control Stitch
Fix uses is the application of data analytics to ensure that the choices
the company makes are likely to appeal to its customers. When this
works, Stitch Fix sells items fast enough that it can pay vendors with
earnings from sales. In addition, data analytics helps the company
control costs.
Having employed highly educated scientists to solve problems with
data, Stitch Fix gives them latitude to apply their skills throughout the
organisation. The group has created programs for timing reorders of
inventory, selling which warehouses will fill particular orders, and
arranging workflow in warehouses.
As of 2019, Stitch Fix had 3.4 million active clients (customers who
received a shipment during the previous 12 months), revenues
exceeding $1 billion, and an inventory drawn from hundreds of
brands. It has expanded from women’s apparel to include offerings
for men and children. However, growth in the number of active clients
has slowed, and other retailers have observed Stitch Fix’s initial
success and are preparing to compete. The company has planned
an entry into the United Kingdom, where it will hire local stylists who
can recommend brands familiar to local consumers. Managers at
Stitch Fix also have to figure out how to stay ahead of the curve in
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anticipating consumers’ wishes. The better the company predicts
what shoppers will order, the less it will spend on shipping and
inventory of unwanted items. Even more importantly, it will retain
more loyal customers to fuel future growth.
Questions:
1. In general terms, according to the information provided, what
measures of efficiency and effectiveness are important for controlling
Stitch Fix’s corporate performance?
2. How can Stitch Fix’s organisational culture support the
achievement of its goals?
3. How do you think the establishment of Stitch Fix might have
created a need for organisational change at other clothing retailers?
How might their responses create a need for organisational change
at Stitch Fix?
Possible Answers:
Potential Answer to question 1:
According to the article, Stitch Fix is more profitable when customers
buy most of the items in their clothing boxes. Ratio of items sent to
items purchased would be a good measure of overall effectiveness
(their ability to anticipate customer preferences). Efficiency could be
measured by the carrying time of warehoused items, workflow
process and overall shipping costs. Financial results will also be an
important measure of overall company performance.
Potential Answer to question 2:
Because Stitch Fix is a data-driven company, an organisational
culture that values data analysis and embraces its application in all
aspects of the business will support the achievement of its goals. The
article references the gains in cost saving.
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Potential Answer to question 3:
Any time a competitor changes the landscape in how customers are
served, in this case customers are being served by an automated
personal shopper service, other companies must monitor the
change and potentially respond—or risk losing market share. Stitch
Fix can anticipate other retailers creating similar services for
customers. They will need to change to keep up with the competitive
response and potential shift in consumer expectations.
1. What is the relationship between organising and controlling?
2. How do output control and behaviour control differ?
3. Why is it important for managers to involve employees in the control
process?
4. What kind of controls would you expect to find most used in (a) a hospital,
(b) the Navy, (c) a city police force? Why?
5. What are the main obstacles to organisational change? What techniques
can managers use to overcome these obstacles?
(General Questions)
Potential Answers:
Potential Answer to question 1:
The text defines controlling as the process whereby managers monitor and regulate
how efficiently and effectively organisations and its members are performing the
activities necessary to achieve organisational goals.
In previous chapters the text defines planning and organising as the process
whereby managers develop the organisational strategy and structure, they hope will
allow the organisation to use resources most effectively to create value for
customers.
In order to control the organisation, managers must monitor and evaluate whether
their organisation’s strategy and structure (which was developed during the
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organising function) are working as they intended, how they could be improved, and
how they might be changed if they are not working.
Potential Answer to question 2:
In an output control system, managers must first choose the set of goals or output
performance standards or targets that they think will best measure efficiency,
quality, innovation, and responsiveness to customers for their organisation. Then
they measure whether or not the performance goals and standards are being
achieved at the four main levels in an organisation (corporate, divisional, functional,
and individual levels.)
As its name implies, behaviour control systems involve providing mechanisms to
ensure that workers behave in ways that make the structure work. It concentrates
on controlling the behaviour of the workers opposed to their output or results. The
three kinds of behaviour control systems are direct supervision, monitoring progress
toward goals, and bureaucratic control.
Potential Answer to question 3:
It is especially important to involve employees in the control process in order to
achieve success in any organisation. If employees are involved in setting the goals
and standards, they will feel a sense of ownership toward them, which will motivate
them to work to achieve those goals. They will be more committed to goals that they
helped to design. It will also help to ensure that unrealistic goals are not created.
Potential Answer to question 4:
(a) A hospital would most likely use output and behaviour control systems. Ratios
such as the number of days outstanding for receivables are used to determine the
economic health of the hospital. Operating budgets are used for each department
as well as each function (i.e., marketing and advertising) of the hospital.
Organisational goals, such as the desire to achieve the best reputation in the
treatment of heart disease, are usually established.
Behaviour controls, such as direct supervision and bureaucratic control, are also
quite common. Interns and residents of the hospital are regularly monitored to
ensure that they are making the correct diagnoses for patients. Bureaucratic controls
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are evident in the abundance of rules, policies and procedures that are established
and must be obeyed. This is done to ensure the safety, health, and well-being of the
employees and patients of the hospital.
(b) The Navy primarily uses behaviour and culture control systems. The behaviour
of enlisted personnel is constantly monitored, and they are expected to follow a
plethora of rules, including the way that they should walk, talk, and respond to
superiors. There is a deep culture entrenched in the military. Since members of the
Navy are representing their country and their arm of the military at all times, there is
a high level of behaviour that is expected of them, especially when they are in
uniform.
(c) A city police force uses output, behaviour, and clan control systems. Since the
city established a budget for the police force, they are under the control of their
output. They are expected to keep the crime level below certain levels, working
within their budget. Behaviour controls are used when policemen are expected to
follow established procedures in many of their duties. A culture is created within the
police force with regard to the way that they fulfil their duties. Because of their
purpose to protect the people, they should deal with the community in a professional
manner and develop a trusting relationship with its members.
Potential Answer to question 5:
According to researcher Kurt Lewin, there are a wide variety of forces that arise
within an organisation that make it resistant to change. Such forces include its
structure, culture, and control systems. To get an organisation to change, a manager
must find a way to increase the forces for change, reduce the resistance to change,
or do them both simultaneously.
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How to manage in organisations / Free Management Library:
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Jones, G. & George, J. (2020). Contemporary Management – 11th Edition. McGraw
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