MGMT 100: Fundaments of Management W1 / L1: Introduction and Organisation What is an organisation? Common purpose Deliberate structure People success Example: Air NZ o common purpose: to be ‘number one’ o deliberate structure: organisational structure o people: advertisement with real staff instead of actors Why do we need organisations? Organisational provide a way for people to achieve goals within: o Political systems: form organised societies o Economic systems: societies achieve growth o Social systems: human interaction o Value creation: an organisation using its resources in the right way, at the right time and at minimum costs to create high-quality goods and services What is the managers responsibility in an organisation? Omnipotent view of management: When profits (or some other measure of success) are up o Management takes the credit and rewards itself with bonuses, share options, etc When profits (or some other measure of success) are down o Top management staff are often replaced, or in the case of smaller businesses they simply go out of business Forces outside manager’s control Symbolic view of management Failure of an organisation may be influenced by: o The economy, market changes, government policies, competitors’ actions, state of industry, decision made by previous managers The Reality of Managers Responsibility What is management? o Management is about setting goals, organising people, places and systems, motivating and communicating measuring performance and developing o Develop, align, and integrate purpose, people and process o Management is about success (subjective and dependent on different people) W1, L2: The Evolution of Management – Functions, Roles and Skills Management Types Vertical differences o Top managers – are at the top of the hierarchy and responsible for whole org o Middle managers – responsible for business units and departments o First-line managers – responsible for productions of G&S and in change of small work groups Horizontal differences o Functional managers – responsible for departments that perform a specific task o General managers – responsible for self-contained divisions and all functional departments within it The Management Process Management is the process of achieving organisational goals through four functions of management: 1. Planning – setting future goals (objectives) and how to accomplish them 2. Organising – implementation phase: grouping and assigning task, allocating resources and coordinating 3. Leading – influencing others to do their best work for the org 4. Controlling – measuring performance against desired result What do Managers actually do? (Henry Mintzberg) Work long hours Work at an intense pace Work is fragmented and varied Work with many communication media (but prefer verbal) Working largely through interpersonal relationships Managerial Skills Skills should provide a context for their activities and managers need an understanding of the industry in which they operate Technical Skills: (programmed) ability to apply expertise and perform a special task Human Skills: ability to work well with other people and through other people Conceptual Skills: (unprogrammed) ability to see the organisation as a whole and the relationships between parts and to think analytically and see the ‘big picture’ Manager’s Roles (Mintzberg) Informational – maintain and developing an information network Interpersonal – pertains to managing relationships inside and outside of the organisation Decisional – those events about which a manager must make choices and take action The Management Cube Effectiveness vs Efficiency Effectiveness – ‘doing the right thing’ – measure of task or goal accomplishment Efficiency – ‘doing things right’ – measure of resource cost associated with goal accomplishment W1, L3: The Evolution of Management – History of Management History: Why is it Important? History remains with us: ideas and practices developed many years ago continue to be influential in shaping our philosophies and practices of management in the present and our development of management ideas in the future By understanding where management has been, we develop a greater appreciation of where it is today and where it can go in the future Historical forces and management theory Political forces – influence of political and legal institutions Economic forces – availability, production and distribution of resources in society Technological forces – (social media, AI) Social forces – aspects that influence relationships among people Types of history of management perspectives 1. Classical perspectives – Scientific management Frederick Taylor (1845 – 1915) – father of scientific management Addressed the question of how to increase productivity given a shortage of labour Focus on production staff Time and motion studies underpinning 4 principles a. Study task and work out best method b. Select workers with right abilities c. Carefully train workers and give the proper incentives d. Support workers through careful planning Bureaucratic Emphasises the need for organisations to operate in a rational manner rather than relying n the arbitrary whims of owners and managers Max Weber (1864 – 1920) coined the term ‘bureaucracy’ to apply to the idea of large organisations operating on rational basis The term bureaucracy has taken on a negative meaning and is associated with endless rules and delays in getting things done Weber’s idea of bureaucracy Weber’s bureaucracy was that rules, procedures and standardised ways create extremely efficient organisations Clear division of labour Well-defined hierarchy of authorityFormal rules and procedures Personnel selection and career advancement based on merit Administrative acts and decisions are recorded Management separates from ownership of the organisation Administrative Focuses on the principles that can be used by managers to co-ordinate the internal activities of the organisation Henry Fayol (1841 – 1925) defined the major managerial functions - Planning (foresight), organising (organisation), leading (commanding & co-ordinating), controlling (control) 2. Humanistic Perspective Contributors like Mary Follett and Hugo Munsterberg started to take into account individuals and groups who work in organisations Significant breakthrough were the Hawthorne studies conducted at Western Electric in the 1920s and 1930s, which resulted in the development of the Human Relations School of Thought The Hawthorne Effect The possibility that individuals singles out for a study may improve their performance simply because of the added attention they receive from researchers, rather than because of any specific factors being tested Human Resource Approach The key to productivity, at that point, appeared to be demonstrating greater concern for workers Emphasis on building more collaborative and co-operative relationships between supervisors and workers Allowed for self-actualisation Behavioural Science The most studied areas of behaviour are: o Job satisfaction o Motivation o Interpersonal behaviour o Group dynamics o Communication o Leadership 3. Management Science Perspective This movement back to rational, scientific approach, and was adopted because of the need to solve complex problems in business Application of mathematics, statistics and other quantitative techniques to management decision making and problem solving 4. Contemporary Perspective – Recent Trends This grew from recognising every changing: social, political and economic forces That no one model or universally theory fits all organisations People and situations are complex, variable and can change over time Variances must be taken into account Systems Theory Contingency Classical theorist attempted to find ‘the one best way’ or set of universal principles for managers Though things are not so simple, consequently contingency theory began to develop W2, L1: Planning – Decision Making Decision Making A decision is a choice made from available alternatives Decision-making has been called ‘the essence of the manager’s job’ Every task the manager undertakes involves making decision that will solve problems: o In planning – what strategy? o In organising – what structure? o In leading – which style? o In controlling – what information to gather what action to take? Nature & Types of Problems Crisis problem – serious difficulty requiring immediate action Non-crisis problem – requires resolution but not immediately Opportunity problem – strong potential for gain Types of Decisions Programmed o Decisions that are made in routine, repetitive, well-structured situations o Situations that have occurred often enough to enable rules to be developed and applied in the future (Kanban method) Non-programmed o Decisions made in response to a situation that is unique, poorly defines and largely unstructured and have important consequence - Pre-determined rules are impractical - Any decision is likely to involve uncertainty which infers risk Types of Decision – Management Levels Decision Conditions Decision-Making Models: The Classical Model – Rational Decision Making Making economically sensible decisions – in the best economic interest of the organisation Offers the ‘ideal’ model of decision making. That is: Managers have all relevant information and probability can be calculated In reality unattainable by REAL people in REAL organisations How Managers Actually Make Decisions 1. Satisficing and Bounded Rationality Bounded Rationality means that managers ability to be rational is limited by factors such as cognitive and time constraints Satisficing means managers seek alternatives only until they find one that looks satisfactory, rather than seek the optimal decision 2. Intuition This means that a manager makes an immediate comprehension of a decision situation based on past experience This is not arbitrary or irrational because it is based o years of practice and hands-on experience that enable a manager to quickly identify solution without going through painstaking calculations o A survey found nearly half of executives say they rely more on intuition than the rational analysis to run their companies Very useful in problem situations of high uncertainty or ambiguity BUT it does not always work out Mangers walk a fine line between: o Random or pre-determined decisions without careful considerations versus o Obsessive rational analysis (paralysis by over-analysis) The Decision-Making Process 1. Recognition of Decision Requirement Is there a problem that requires a decision? Remember there can be crisis, non-crisis and opportunity problems Common mistakes when identify problems are: dysfunctional responses such as complacency (we are ok) or defensive avoidance (deny or avoid the important of danger) 2. Diagnosis and Analysis of Causes Analysing the underlying causal factors associated with the decision situation Common mistakes when diagnosing are: o Choosing the wrong problem – deal with important problem and don’t focus on symptoms o Poorly defining the problem 3. Development of Alternatives Generate possible solutions that will respond to the needs of the situation and correct the underlying causes o One approach is Brainstorming – free wheeling and building on one another's ideas, without criticism Common error is selecting a particular solution to quickly o The key problem is that searching for alternatives costs time and money. However in actual practice, the great majority of managers fail to search for enough viable alternatives Or not getting past this stage! (Again paralysis by over-analysis) 4. Selection of Desired Alternative Choosing the most promising of several alternative courses of action Non- programmed decisions Typically an alternative with the least amount of risk and uncertainly Some intuition and experience used here Risk propensity – the willingness to undertake risk with the opportunity of gaining an increased pay-off Heuristic Influences on Decision Making The challenge is to recognise common decision-making biases - for example: Representativeness: People can be over influenced by stereotypes Availability: Recall ability of similar instances Framing: People make decisions based on how the problem is presented to them 5. Implementation of Chosen Alternatives Managers must act! The ultimate success of a chosen alternative depends on whether it can be translated into action Communication, motivation and leadership skills are need here to ensure that the decision is carried out. Note: When employees see managers following up on their decisions by tracking implementation and success, they are more committed to positive action 6. Evaluation and Feedback Gathering information on how well the decision was implemented and whether it effectively solved the problem Challenge to avoid the decision escalation phenomenon. Escalation situations are those in which future actions have the potential of either reversing a situation or compounding initial losses. Escalating commitment is to continue to “throw good money after bad”. Costs which have already occurred should be considered sunken costs. i.e. future decisions should not be based on past expenditure on failed decisions. Wk 2, L2 and L3 At bottom W3, L1 & L2: Organising – Organisational Structure Organising – Definition The deployment of organisational resources to achieve strategic goals o Division of labour o Formal lines of authority o Specific departments o Mechanisms for co-ordinating diverse o Specific jobs organisation task What is Formal Organisational Structure? The way in which the various parts of an organisation are formally arranged The system of task, workflows, reporting relationships, communication channels that link the work of diverse people and groups Main aim is to improve the effectiveness of an organisation achieving its goals o The way we put people / jobs together and define their roles and relationships is an important determinant in whether an organisation is successful in achieving its goals Informal Structure ‘Shadow organisation’ Unofficial but often critical working relationships between organisational staff – created by staff, NOT the organisation It cuts across all levels of the organisation (e.g., people meeting for coffee, exercise groups, etc) Very personal and network oriented Basic Elements of Formal Organisational Structure The four elements of organisational structure 1. Work specialisation 2. Departmentalisation 3. Differentiation 4. Integration Organisational Chart is a diagram that shows formal reporting relationships and formal arrangements of work position – created by the organisation 1st Element: Job Design Work specialisation – degree to which the work necessary to achieve organisational goals is broken down into various jobs Job design – specification of task activities associated with a particular job o Task activities need to be groups reasonably logical ways o The way the jobs are configured influences employee motivation There are four approaches to job design 1.1 Job Simplification o Each employee performs task that is broken down to be made simple o Advantage – gain efficiencies o Disadvantages – job dissatisfaction - repetitive and boring jobs 1.2 Job Rotation o Rotating employees to perform new task o Advantage – cross-train and development of employees o Disadvantage – job dissatisfaction – combating of boredom is short-lived 1.3 Job Enlargement o Advantage – Broadens scope of job and helps individual’s motivation o Disadvantage – problems can arise from under-training or overworking staff 1.4 Job Enrichment o It’s not ‘just’ about doing your job. It’s about: - Job depth, in skills and significance - Perceptions, personalities, attitudes, emotions and moods o To move beyond simple specialisation job needs potential for: - Meaningfulness in their work - Taking responsibility for their work - Knowledge about their outcomes Influences individual’s behaviour at work Job Characteristics Model Job Design Alternatives Importance of the Meaning of Work At an individual’s work is more important than the simple task involved, and the money earned. Ros (1999): o Intrinsic value – internal value, happiness, self-esteem, etc o Extrinsic value – money, benefits and other rewards o Social value – friends, networks, social activities, etc o Prestige value – promotion, status, perception of the work, etc 2nd Element: Departmentalisation Commonly termed the departmental structure The clustering of individuals into units, units in larger units and departments in order to facilitate achieving organisational goals Two Fundamental Departmentalisation o Functional: - This is the type of departmentalisation in which staff positions (jobs) are group according to what they do o Divisional: - The type of departmentalisation where positions are grouped according to product or service, or type of client or geography - Each division as a degree of autonomy and retains its own fictional activities 2.1 Functional Advantages: o In-depth expertise developed o Clear career path within functions o Economies of scale Disadvantages: o Conflict between departments o Performance often difficult to measure o Managers may be trained too narrowly 2.2 Divisional The three major forms are: o Product / Service Division – created to concentrate on single product or service or at least relatively similar set o Geographic Division – designed to serve different geographic areas o Customer Division – set up to serve particular types of clients or customers Advantages: o Can focus on own client o Performance easier to measure o Managers have a broad training Disadvantages: o Duplication of resources o In-depth expertise may be sacrificed o Divisions may compete rather than work together 2.3 Hybrid Structure Where no one single ‘pure’ structure is used A common form is to use a combination of division and functional Advantages o Greater central control o Economies of scale o Effective for large organisations Disadvantages o More complexity so more difficulty to manage o Can become highly bureaucratic / centralised o Can have conflict between functional and divisional 2.4 Matrix Structure This is a type of departmentalisation which superimposes a horizontal set of divisional reporting relationships onto a hierarchal functional structure It therefore can be functional and divisional structure at the same time Employees report to two bosses – i.e., a functional group manager and program or project team leader – Unity of Command Principle Advantages o Decision making decentralised o Response to environment increases o Functional specialists can be added to reassigned to projects as needed Disadvantages o Confusion over chain of command o Increases administration cost o Increased politicisation of organisation 3rd Element: Differentiation Horizontal differentiation Vertical differentiation Spatial Dispersion 3.1 Horizontal Differentiation Horizontal differentiation refers to the degree to which the organisation is separated into different units on the basis of the tasks performed by the organisation members It refers to the degree of specialisation in the organisation Groups of specialists (job specialisation) are normally grouped into departments Often termed ‘creating organisational silos’ and each silo may have different: o Goal emphasis, time orientations, work vocabulary 3.2 Vertical Differentiation Vertical differentiation refers to the number of layers of management in an organisation The greater the number of layers, the more complex and organisation becomes and the more potential for communication breakdown Barriers Within Downward Communication Channels Downward communication through several levels can get very distorted Upward communication through several levels can get very distorted Why is Managing Complexity Important? The higher the complexity, the greater the amount of attention management must give to dealing with problems of communication, coordination and control and the maintenance of the organisation itself Increasing complexity also contributes to greater difficulties in managing organisational change Vertical Differentiation Span of control refers to the number of subordinates (staff) a supervisor can effectively control All things being equal, the narrower the span of control the taller the organisation (more layers) Spatial Dispersion The degree to which the location of an organisation’s offices, plant and personnel is dispersed Spatial dispersion is high when the operation of an organisation are geographically widely spread Greater spatial dispersion increases complexity 4th Element: Integration The levels of coordination achieved among an organisation’s internal units: formalisation & centralisation 4.1 Formalisation The degree to which jobs and procedures within the organisation are standardised High Formalisation o Minimum discretion over when and what is done o Clear job descriptions o Many rules to follow Low Formalisation o Employee behaviour relatively non-programmed o Greater job discretion Formalisation Techniques Selection: select people that will ‘fit in’ Role requirements: high or low formalisation Rules, procedures and polices: specific standards and statements that govern or guide employees and often result in uniform behaviours or outputs Socialisation: the adaptation process by which individuals learn the values, norms and expected behaviour patterns Product / operation scheduling: coordinating 4.2 Centralisation Centralisation refers to the degree to which decision making in made at a single point in the organisation In common usage, centralised decision making occurs when most decisions are made by top management On the other hand, when decision making is widely dispersed within the organisation it is termed decentralisation W3, L3: Organising – Contingency and Organisational Design Why is Change Important? “Companies that are successful will have cultures that thrive on change, even though change makes most people uncomfortable.” One BEST Organisational Design? Organisational Design refers to the process by which an organisation’s structure is determined There is NO best organisational design. It is situational (contingency theory) Types of Design Bureaucratic Organisation (Mechanistic Design) Adaptive Organisation (Organic Design) 1. Bureaucratic Organisations Organisational design based on logic, order and legitimate use of formal authority o Clear cut division of labour o Strict hierarchy of authority o High level of formal rules and procedures o Promotion base on competency Today the term ‘bureaucracy’ has negative connotations (they have limitations but also their uses) E.g., Smith and Caughey – What organisational structure are evident in this case? (Job design, departmentalisation, Differentiation, integration) – very bureaucratic o Job design – everyone has their own job, clear jobs and task based o Departmentalisation – differentiated through products o Differentiation – clear hierarchy and level of command o Integration – centralised 2. Adaptive Organisations Organisational designs emphasis flexibility, speed and performance objectives o Adaptive organisations – operate with minimum bureaucratic feature and with cultures that encourage worker empowerment and participation o Organic Designs – relatively loose systems in which a lot of work gets done through informal structures and networks of interpersonal contacts E.g., Google - What organisational structure are evident in this case? (Job design, departmentalisation, Differentiation, integration) o Job design – skill based, rather than task based o Departmentalisation – project-based team with people that have an interest and the right skills o Differentiation – little horizontal or vertical, differentiation on skills and projects o Integration – informal, culture based and self-developed team rules Mechanistic vs Organic Contingences of Organisational Design Good organisations design decisions should result in supportive structures that satisfy situational demands and allow all resources to be used to best advantage: o Environment, strategy (technology), size and life cycle (Human resources) 1. Environment Certain Environment o Composed of relatively stable and predictable element o So, organisation has to go through few changes, products and production processes change very little Uncertain Environment o Has more dynamic and less predictable elements o Changes occur frequently and can catch decision makers by surprise 2. Strategy Strategy can often change when there is an new leader such as a new CEO appointment, or if there is an major crisis for the organisation Organisational strategies and objectives should influence the choice of structure o Stability oriented strategy: bureaucratic (mechanistic) organisational designs o Growth oriented strategy: adaptive (organic) organisational designs 3. Size and Life Cycle Structure changes with growth (or down-sizing) Organisational Lifecycle: o Birth stage – founded by entrepreneur o Youth stage – starts to grow rapidly o Midlife stage – grown large and successful o Maturity stage – stabilises at large size o Next stage? – downsizing OR new growth structure e.g., simulations systems – organic & bureaucratic W4, L1: Control – Formal Control Process Control The process through which managers regulate organisational activities to make them consistent with established in plans and standards of performance Actual performance conforms to expected organisational standards and goals Requires information on standards and actual performance Regulates the quality of product (TQM) Encourages wanted behaviours and discourages unwanted behaviours of individuals Relationships of Control to Other Management Functions. Levels of Planning and Control Role of Control: Help Managers Avoid Problems More specifically controls play five important roles: o Coping with uncertainty: monitoring specific activities and reacting quickly o Detecting underside able irregularities: product defects, cost overruns, rising staff turnover o Altering managers to possible opportunities: highlighting better than expected situations o Handling complex situations: enhancing coordination within large organisations o Decentralising authority: encourage controlled lower-level decision-making Determine Areas to Control It is impractical if not impossible to control every aspects of an organisation’s activities (employees more often than not resent having every move controlled) Managers must make choices usually based on organisational goals and objectives developed during the planning process Control: The 4 Step Model 1. Establishing Standards Output Standards o Quality e.g. % error rate o Quantity e.g. units / hr o Time – to compete service o Complaints Input Standards o Staff - can conform to rules and procedures & productivity o Input materials quality 2. Measure Performance How to measure performance and how often to do so (related to a given standard)? o Measuring depends on set performance objectives and standards as well as measurement mode o This can be quantitative measures (e.g., units produced, profit, quality of output) or qualitative measures e.g., MBWA – management by wandering about o Various factors impact on measurement period e.g., the critical nature of heat control in nuclear power plants requires constant measurement 3. Compare Performance to Standards Compare planned versus actual results Manager may compare performance and standards through personal observation or summarised reports o Management by expectation is a control principle that suggest managers should be informed of a situation only if control data show a significant deviation from standard 4. Take Corrective Action Performance Standards met or exceeded o No corrective action is necessary o Give some recognition to employees exhibiting above-standard performance Performance standards not met o Assess the reason why standards are not met, and take corrective action o Check standards and related performance measures to ensure they are still realistic Adjust Standards Control is a dynamic process Standards and measure need to be checked periodically for relevance Is cost of meeting certain standards with the resources consumed? Dysfunctional Side Effects of Control Systems Behaviour Displacement o Inadequate analysis of controls in relation to desired outcomes o Emphasis on quantification over qualitative aspects o Emphasis on activities over end results Game Playing o Cheat or manipulate resource usage, system and/or data rather than bona fide performance improvements Operating Delays o Delays caused by bureaucratic controls Negative Attitudes o The result of excessive or poorly designed or poorly implemented controls The Balanced Scorecard Balanced Perspective: Management control systems that balances traditional financial measures with operational measures relating to the critical factors for the company’s success Financial Performance: focuses on how to organisation’s activities contribute to improved short-term and long-term financial performance Internal Business Processes: focuses on production and operating statistics Potential for Learning and Growth: focuses on how well resources and human capital are being managed for the company’s future W4, L2: Control – OM: Processes, Product Design, Location & Layout What is IManagement (QM)? The tools and techniques used to ensure that goods and services are delivered successfully to customers Is the set of processes that transforms inputs into outputs What is a Process? A process is any activity or group activities that takes one or more inputs, transformation and adds value to them and provides one or more outputs for its customers Irrelevant steps that do not add value! Operations Management as a Value Chain Difference Between Manufacturing and Services Manufacturing Organisations Produce physical goods Goods can be stored for later consumption Production process removed from customer Commonly have standardised outputs Service Organisations Produce non-physical goods Simultaneous production and consumption Consumer participates in production process Commonly have customised outputs Product and Service Design The product design affects: o The appeal to the customer o Its costs and usability In today’s market, customers often think how a product looks is just as important as how it works Product & Services Strategy Options Organisations can differentiate themselves with their products and services Organisations can take a low-price strategy Organisations can take a strategy of rapid response Designing Process Questions to ask when analysing and designing processes: o Is the process designed to achieve competitive advantage in terms of differentiation, response or low cost? o Does the process eliminate steps that do not add value? o Does the process maximise customer value as perceived by the customers? Product Development Decision An effective product strategy links products decision with: o Producibility – can we make it? o Costs – what is the sum of ALL costs? o Quality – what does the customer want? o Reliability – will product function as designed? Location Strategy Analysing locatin patterns to discover a form’s underlying reasons for being there is fascinating Factors such as transport, materils, costs, taxes and assess to customers influence decisions “Location ultimately has the power to make (or break) a company’s business strategy.” – McKinsey Consulting Group Service Location Strategy Manufacturing sector location (minimising cost) Service sector location (maximising revenue) Types of Facilities Layout An effective layout facilitates the flow of materials, people and information within and between areas (Centres) Approaches include: o Process-oriented layout o Product-oriented layout 1. Process-Oriented Layout Can simultaneously handle a wide variety of products or services Best for low-volume, high variety production Operations managers must organise resources (employees & equipment) around the process (NOT the products) 2. Product-Oriented Layout Seeks the best personnel and machine utilisation in repetitive or continuous production Makes assumptions such as: o High volume o Product demand is high (continuous) o Standardised enough W4, L3: Control – OM: Productivity, Value Chain and Inventory What is Productivity? Productivity = outputs / inputs o Example: onions cut / hour of labour Outputs – 2000 / input – 8 hours = 250 onions / hrs Competitive advantage: allows and organisation to deal with market and environmental forces better than competitors and countries Supply Chain Management Managing the sequence of suppliers, manufacture, intermediaries and finished goods to final customers Effective management maximises customer value and return to organisation Most firms spend the largest proportion of sales dollars and on purchases. Hence relationships with suppliers are increasingly integrated and long-term Joint effort that improves innovation, speed design and reduce costs are common Supply Chain Economics The value chain provides a major opportunity to reduce costs For both goods and services, supply-chain costs as a percentage of sales are often substantial Logistics Management: Internal & External The efficient integration of material acquisition, movement and storage activities Potential competitive advantage can be gained from reduced costs and improved customer service Distributions systems include trucking, railroads, airfreight, waterways and pipelines Supply Chain Strategies For goods and services to be obtained from outside sources the firm must decide on a supply chain strategy. Three examples are: o Negotiate with many suppliers o Long term ‘partnering’ o Vertical integration Many Suppliers Suppliers respond to the demands and specifications of a ‘request for quotation’ with order usually going to the lowest bidder Fewer Suppliers Implies that buyer is better off forming a long-term relationship with a few dedicated suppliers Vertical Integration Developing the ability to produce goods and services previously purchased or actually buying a supplier to distributor Can forward or backward integrate Can yield cost reduction, quality, adherence and timely delivery Inventory Management (Stock) Inventory is an amount of materials or products kept in storage. Firms maintain four types of inventory: 1. Raw Material 3. Maintenance / repair / operating 2. Work-in progress 4. Finished goods How much inventory is enough? Pressures to reduce the inventory held by organisation o Interest or opportunity cost: many borrow or forgo another investment to purchase inventory o Storage and handling costs: inventory take up space and must be moved in and out of storage Pressures to increase the inventory held by organisations o Customer service: speed delivery, avoid stockouts, etc o Administration cost: reduced paperwork, negotiation time, transport costs, etc W2, L2: Planning – Introduction to Planning The Roles of Planning in Management Planning is considered the most fundamental Goals, Plans and Performance Mission: a unique declaration of the basic purpose and scope – how do we see ourselves? Goals: a desired future circumstance or condition an organisation (or individuals) attempts to realise – where are we going? Plans: blueprints for goal achievement and resource allocation (schedules, tasks, actions) – how are we going to get there? o The concept of planning usually incorporates all three Because goals define desired outcomes for organisations (or individuals), they also serve as performance criteria o They provide a standard of assessment The overall planning process prevents mangers from thinking merely in terms of day-today activities Drifting away from goals and plans typically causes trouble To a Manager: What are the Benefits of Planning? Protective benefits – reducing the chances of errors or waste Responsibility – so all employees know their responsibilities Communication – all involved will know he overall objectives Commitment – assuming an organismal ownership Organisation Theories: Levels of Planning An Approach to the Planning Process 1. Start with the mission statement 2. Define your goals (objective) 3. Determine where you stand in relation to the goals (strengths and weaknesses) 4. Develop premises regarding future conditions (i.e. alternative scenarios) 5. Analyse and choose among plan alternatives 6. Implement the plan and evaluate results A Simplified Model of the Planning Process Mission Statement A unique broad declaration of the basic purpose and scope of the organisation that distinguishes it from others o NB: personal mission statements are also common It is usually a statement of rationale for existence, shared goals, core values and philosophies A written mission statement can be anything from a few sentences to several pages Analysis of Mission The reasons for an organisation’s existence Good mission statements identify: 1. Customers 2. Products and/or services 3. Location 4. Underlying philosophy An important test of the mission is ow well it serves the organisation’s stakeholders Goals (Objectives) Setting: SMART Goals S = specific: goals need to be clearly defined and easy to understand M = measurable: either quantitative or qualitative, but the goal must be measurable in some form A = actionable: authority and resources to achieve the goal R = reasonable: goal should be challenging but realistic as unrealistic goals are a disincentive for managers and staff T = timetabled: clearly defined time period for the goal Types of Plan Used by Managers Plans specify the means to achieving goals o Mission: how do we see ourselves? o Goals: Where are we heading? o Plans: how are we going to get there? Plans According to Use Single-Use Plans - Plans that are developed to achieve a set of goals that are unlikely to be repeated in the future Standing Plans - Ongoing plans used to provide guidance for tasks performed repeatedly within the organisation Single Use Plans A single use plan may be made up of the following sub-units o Program: covers the whole events, outlines major steps, persons responsible, order and timing o Projects: smaller portions of the programs o Budgets: financial imperatives Standing Use Plans Policy: a general guideline for decision-making Standard Procedures: a specific set of instructions, translating company policy into prescribed set of actions to be followed by staff Rules: a statement of action that should or should not be taken in a specific situation Scenario Planning Identifying alternative future scenarios then making plans to deal with each alternative In a fast changing and often unpredictable world, it is often necessary to have multiple scenarios for planning purposes Generate a series of ‘what if’ scenarios W2, L3: Planning – Strategy What is Strategic Thinking? In essence it means taking a long-term view and to see the big picture ‘Strategic thinking and planning’ positively affect an organisation’s performance and financial success Strategic thinking should happen at all levels of an organisation Basic Concepts of Strategy Strategic management is the set of decisions and actions used to formulate and implement strategies that will provide and organisation with competitive advantage in its environment Strategic management involves an explicit strategy which is: o An action plan providing long-term direction and guiding the use of its resources to accomplish organisational goals ‘A pattern in a stream of decision’ - Mintzberg Competitive advantage Competitive advantage means operating in a successful way that is difficult for competitors to imitate, it is what sets the organisation part from others Sustainable competitive advantage is consistently dealing with market and environmental forces better than competitors Elements of Competitive advantage Basic Concepts of Strategy Strategic intent: focusing all organisational resources and energies on unifying and compelling goal(s) Strategic management process o Involves assessing existing strategies, the organisation and its environment o Then developing new strategies and strategic plans capable of delivery future competitive advantage The Strategic Management Process SWOT: Analysis of Organisational Resources and Capabilities Scan internal environment (capabilities, value, culture) o Identifying core competencies: what we are good or bad at? o Strategic factors – strengths and weaknesses Scan external environment (general and task) o Identifying national and global factors: what is changing and will impact us? o Strategic factors – opportunities and threats How are strategies formulated? 1. Porter’s Generic Strategies Model Generic strategies for gaining competitive advantage: o Differentiation strategy o Cost leadership strategy o Focused differentiation strategy o Focused cost leadership strategy 2. Product Life Cycle A series of stages that a product or service goes through during the life of its marketability Stages of the life cycle are typically: o Introduction and Growth stages - Use of differentiation and prospector strategies (promoting and gaining a market presence) o Maturity stage - Uses focus and / or cost leadership strategies (keeping customers and production efficiencies) o Decline stage - Uses defender or analyser strategies (exit strategies) Implement Strategy No strategy, no matter how well formulated, can achieve longer term success if it is not properly put into action Implementation is beyond the scope of this sources, but ‘in brief’ emphasis can be on:
