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Management Notes-3
Management (Katholieke Universiteit Leuven)
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Chapter 1: What is Management
Pre-analysis
• Majorly men because of their social identity
• Men are already in higher positions
• Blame it on TV & stereotypes
• Management -> dealing, motivating & leading your people
Selafield plant
• Bad management -> bad execution -> trouble
• Data control not done by the employees -> wanted to be the manager
Management Functions: POLC
• Planning – select goals and ways to obtain them
• Organizing – assign responsibilities for task accomplishment
• Leading – use influence to motivate employees
• Controlling – monitor activities and make corrections
•
•
Management is the art of getting things done through people
People are not difficult tools but added values (motivation, purpose)
1. Who are the managers?
•
Someone who coordinates and oversees the work of other people so that organizational
goals can be accomplished
2. What is management?
•
•
•
The attainment of organizational goals in an effective and efficient manner through
planning, organizing, leading & controlling
Management involves coordinating and overseeing the work activities of others so that
their activities are completed efficiently and effectively
The process of working with and through others to achieve organizational objectives in a
changing environment
•
•
•
Get things done -> attainment of organizational goals
Success -> activities to be completed efficiently and effectively
In a changing environment
•
Managerial concerns
o Efficiency -> doing things right – most output for the least inputs
o Effectiveness -> doing the things right – attaining organizational goals
§ Competing value approach of Quinn& Rohrbaugh
§ Leads to the 4 different management models
The 4 different management models
•
Human relations model
o Teamwork, participation, attention to employees concerns
o Means: cohesion, morale
o Internal focus + flexibility
o Clan culture: extended family, mentoring, nurturing, coaching
o Simple organizations – family firms
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Open systems model
o Adaptation, creativity, innovation -> client centricity
o Means: flexibility, readiness
o Flexibility + External focus
o Adhocracy: dynamic, entrepreneurial, risk taking, innovation
o Adhocracy/network organizations – IT companies (Google)
•
Internal processes model (machine)
o Stability, predictability, order
o Means: information management, control
o Internal focus + control
o Hierarchy: culture of structure, control coordination, formalization, efficiency
o Machine organizations – manufacturing plants
•
Rational Goal Model
o Outcome, excellence, goal attainment -> market share
o Means: goal setting, planning, evaluation
o External focus + control
o Market oriented culture: results oriented, achievement, competition
o Division organization – Procter & Gamble
Critiques
•
•
Methodological issues
Other research – what is not true?
o Adhocracies are less innovative than market cultures
o Quadrants are not paradoxes, they complete each other
3. What managers do
•
Functions they perform
o These functions are not sequential -> Management process
o Managers continuously take decisions concerning planning, organizing, leading
and controlling
o What managers do mostly depends on their levels
o
o
Management Levels
§ Top:
§ Middle:
§ First-line:
CEO, group head or VPA
BU head (products), dept. managers (functional)
Functional head (start managers)
Staff vs. Line Functions
§ Staff functions Managers help out Line functions managers
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Roles they play
o Informational roles -> 75% is the communication
§ Monitor: seek and receive information
§ Dissemination*: forward information to others
§ Spokesperson*: transmit information to outsiders
o
Interpersonal roles -> dealing with people and relations
§ Figurehead*: perform ceremonial duties
§ Leader: direct and motivate subordinates
§ Liaison*: maintain information links
o
Decisional roles -> entrepreneur, negotiator, disturbance handler
§ Entrepreneur: initiate improvement projects
§ Disturbance handler: take corrective actions
§ Resource allocator*: decide who gets resources
§ Negotiator*: represent departments during negotiations
§
•
*: Higher managerial positions
Skills they need
o The higher your managing position, the most human skills you need
o Organizational failure -> bad managers
§ Ineffective communication skills and practices
§ Poor work relationships/interpersonal skills
§ Person-job mismatch
§ Failure to clarify direction or performance expectation
§ Failure to adapt and break old habits
§ Breakdown of delegation and empowerment
§ Lack of personal integrity and trustworthiness
§ Inability to develop cooperation and teamwork
§ Inability to lead/motivate others
§ Poor planning practices/reactionary behavior
o
A good manager needs good human skills (30% of the job)
§ Diagnostic (analyze) & Conceptual (synthesis)
§ Proactively
§ Ambition & Inspiring
§ Communication & Relational Skills
§ Goal efficiency & Understanding facts and figures
o
EQ -> Emotional intelligence
§ Self-awareness – the ability to read one’s emotions and recognize their
impact while using gut feelings to guide decisions
§ Self-management – involved controlling one’s emotion and impulses and
adapting to changing circumstances
§ Social awareness and empathy – the ability to sense, understand and react
to others’ emotions while comprehending social networks
§ Relationship management (social skills) – the ability to inspire, influence
and develop others while managing conflicts
4. Does management matter?
•
•
Management scores were compared with performance data
Signification correlation was found between average overall Management Score and:
o ROCE – return on capital employed
o TFP – total factor productivity (points to efficiency)
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•
•
§ 1 point improvement of MS lead to a 6% increase in TFP
o Higher sales per employee
o Higher stock market valuations
Conclusions: companies that adopt best-practice management perform better & the better
a company is managed, the more likely its workforce is to have a good work-life balance
In the breakdown of the management score
o 2% accounts for country
o 42% accounts for industry and sector
o Leaving 56% to be determined solely by what managers decide to do
Management matters!!
5. Always fun to be a manager?
•
Stressors
o Increased workload
o Challenge of supervising former peers
o The headache of responsibility for other people
o Caught in the middle
o Bad work-life balance
•
Like or don’t like?
o Leading, innovating, networking
o Controlling, desk work, working under time pressure
6. What is an organization?
•
•
A deliberate arrangement of people assembled to accomplish some specific purpose (that
individuals independently could not accomplish alone)
Common characteristics
o Have a distinct purpose
o Composed of people
o Have a deliberate structure
7. Management of small business and non-profits
•
•
Small business
o Less hierarchy
o Less specialization
o Less resources for things outside the core
o Entrepreneurship
Non-profit
o Less tangible added value
o Accountability
o Different culture and values
8. Why to study management
•
•
Once you will be managed and once you will manage
Are you ready to become a manager? Practical implications
o Management is about people
o Your success as a manager depends on other people
o But, tools and techniques help
o Management is about working hard
o Management is about dealing with change
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Chapter 1Bis: The History of Management
General Management and Strategy
Management history
• "You cannot manage third generation strategies with second generation organizations and
first generation managers"
1. Is management new?
•
•
•
•
•
Adam Smith is the first to talk about management – 1776
Specialization is an important key to simplifying management
Industrial revolution:
o Machine power substituted for human labor
o Large organizations emerged “in need for management”
Management becomes a “scientific discipline” in the 1940s
o Emergence of Big 5 Consultancy agencies
Management becomes a profession
2. Why history matters?
•
•
•
•
Nil novum sub sole est -> empowerment, generation Y/Z
Recurring patterns -> crisis: autocratic management styles emerge
Learning from other persons’ mistakes
Learning why things happen
3. The history of Management Thinking
Classical Perspective
• Scientific management
o Frederick Taylor – Taylorism
§ Aim: efficiency
§ People don’t like they’re work -> why should they
§ There is “one best way”
§ Scientific study of tasks (time and motion study) -> standardization of the
working processes
o
o
o
Principles of Taylor
§ Specialization -> scientific study of the tasks (time and motion study)
§ Select, train and develop each employee instead of leaving them
§ Detailed instruction and supervision -> standardization/formalization
§ Separation of thinking and doing
Scientific management principles
§ Analysis of jobs to be done
§ Horizontal differentiation (specialization)
§ Standardization (of processes)
§ Control (direct supervision)
§ Vertical differentiation (lines of authority)
§ Centralization
§ Salary increase for productiveness
§ Application: Fordism, Stakhanovism
Frank & Lillian Gilbreth
§ Use of motion pictures
§ Design and use of proper tools and body movements
§ Bricklaying experiments
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•
Today
§
§
§
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General Administrative theory – Henry Fayol
o Aim: order and efficiency
o Role of management
§ Planning
§ Organizing resources and people
§ Leading: make people work
§ Coordinate: make specialized functions work together
§ Control: Are plans executed and goals attained
§
§
§
§
§
§
•
Division of work – specialization
Authority – balanced with responsibility
Discipline – obedience
Unity of command/direction – a place for everyone and everyone in his
place
Centralization – subordination of individual interests to the general
interest
L’esprit de corps – stability of tenure of personnel & initiative
General administrative theory: Weber
o Aim: stop corruption and nepotism
o Came up with the idea of bureaucracy
§ Career orientation: managers are career professionals not owners of units
they manage
§ Division of Labor: jobs broken down in well-defined simple tasks
§ Authority hierarchy: organization with a clear chain of command
§ Formal selection: jobs selection based on technical qualifications
§ Formal rules and regulations: system of written rules and SOPs
§ Impersonality: uniform application of rules and controls
o
•
Use time and motion studies to increase productivity
Hire the best qualified employees
Design incentive systems based on outputs
Look at safety industry, production facilities
Bureaucracy today
§ Government
§ Hospitals
§ Multinationals
§ Universities
Drawbacks of classical perspective
o Human beings are treated as machines
o Learned helplessness
o Bermuda triangle -> if you don’t get the order to do the job, it vanishes
o Not flexible
o External blindness, risk averse
o Empire building and games
o Satisficing -> difficult learning process
o May cause decisions to pile on top – hierarchy overload
o Not client-oriented
o Perrow paradox
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Humanistic perspective/behavioral approach
• Early advocates
o Mary Paker Follet
§ Reaction against scientific management
§ The social perspective of management
§ Within organization: individual and group behavior
§ Informal processes within organizations
o
Chester Barnard
§ Informal organization
§ An organization is a social system where people work together
§ Culture and subcultures
§ People have a free will and can choose to (dis)obey
§ Communication and motivation
o
Impetus behavioral review: Hawthorne studies or Mayo studies (Google it)
§ Mayo concluded that the efficiency of the employee depends on both
satisfaction with the job and the social environment
§ The Hawthorne plant of Western Electric company in Illinois
§ Study 1: the Ladies -> attention
§ Study 2: the Gentlemen -> intelligence
•
Human relations movement
o People are much more than just machines
o If you treat them better, output will be better (the dairy farm approach)
•
Human resources perspective (revisionism)
o Dairy approach is too narrow
o People have unlocked potential, how do you unlock that?
o What are needs? What is motivation? What is training?
o
Maslow
§ Lower-order needs – satisfied externally; physiological & satisfy needs
§ Higher-order needs – social, esteem & self-actualization needs
o
Theory X and Y
§ Theory X
• Employees are inherently lazy and will avoid work if they can
• Employees must be coerced, controlled, directed and threated with
punishment to get them put to effort
• Employees have little ambition, wishes to avoid responsibility and
want security
§
§
§
Theory Y
• Employees do not dislike work
• Employees may be ambitious and self-motivated and exercise selfcontrol, when committed
• Employees will seek responsibility under the right conditions
• Employees are ambitious and creative
Use this potential by communicating, decision sharing and creating an
environment in which subordinates can develop and use their abilities
Motivating by job design the way in which employees can be internally
motivated by changing their jobs/work environment
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Management science perspective (quantitative approach/operations research)
• Evolved form mathematical and statistical methods developed to solve WWII military
logistics and quality control problems
• Focuses on improving managerial decision making by applying:
o Statistics, optimization models, informal models & computer simulations
Modern Trends
• System approach (1960) – 1+1=3
o System Defined
§ A set of interrelated and interdependent parts arranged in a manner that
produces a unified whole
o Basic Types of Systems
§ Closed: aren’t influenced by and don’t interact with their environment
§ Open: dynamically interact to their environments by taking in inputs and
transforming them into outputs that are distributed into their environment
o
Open system approach: consequences
§ Parts must work together in order to reach firm’s goals
§ Coordination of the organization’s parts is essential for proper functioning
of the entire organization
§ The whole will be greater than the sum of its parts
§ Decisions and actions taken in one area of the organization will have an
effect in other areas of the organization
§ Organizations are not self-contained and, therefore, must adapt to changes
in their external environment
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The contingency approach
o There is no one universally applicable set of management principles by which to
manage organizations
o Organizations are individually different, face different situations (contingency
variables), and require different ways of managing
o
Organization size
§ As size increases, so do the problems of coordination
o
Routineness of task technology
§ Routine technologies require organizational structures, leadership styles,
and control systems that differ from those required by customized or nonroutine technologies
o
External environment/Environmental uncertainty
§ What works best in a stable and predictable environment may be totally
inappropriate in a rapidly changing and unpredictable environment
o
Individual differences
§ Individuals differ in terms of their desire for growth, autonomy, tolerance
of ambiguity and expectations
•
Total Quality Management
o TQM is an integrative philosophy of management for continuously improving the
quality of products and processes
o Functions on the premise that the quality of the products and processes is the
responsibility of everyone who is involved with the creation or consumption of the
products or services offered by the organization. In other words, TQM capitalizes
on the involvement of management, workforce, suppliers, and even customers, in
order to meet or exceed customer expectations
o The culture of the company should aim at developing employees ability to work
together to improve quality
•
Six sigma
o Six Sigma focuses on improving quality by reducing the number of defects and
impurities -> only 3.4 defective features/ million opportunities
o The better the quality, the less costs to reproduce that item
o A clear commitment to making decisions on the basis of verifiable data and
statistical methods, rather than assumptions and guesswork
Current trends in management
• Change and its impact
o Changing technology -> flexible work arrangements, empowered employees
o Increased emphasis on organizational & managerial ethics -> rebuilding trust
o Increased competitiveness -> customer service, innovation
o Changing security threats -> globalization concerns, discrimination concerns
•
Trends
o Globalization & outsourcing
o Climate change, crisis
o Diversity, Generation Y
o CSR, Social networking
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Empowerment
o The opportunity to exercise discretion/choice is an important element
contributing to employee engagement and well-being
§ Sharing information
§ Autonomy (linked with feedback)
§ Often self-managed teams
•
Management innovation
o Centralized management structure will seem most antiquated
o People will chuckle at the concept that a very small group of individuals who are
the most removed from the actual work, sequestered in a conference room can, in
isolation envision the future course which will be accepted and embraced by the
entire organization
o Rigid organization structures/designs
o Restricted, controlled flow of information shall be the most antiquated feature
o Shareholder value fundamentalism, organizations will balance human values and
not focus just on economic value
•
Google’s management
o Super flat, decentralized chaotic network
§ Self-managed teams (3/4 persons)
§ Super flat hierarchy -> supervision = peer discussion
§ Free choice of projects
§ Grassroots strategy
§ Decision based on consensus
§ Meritocracy (high pay)
§ Horizontal communication (network within the organization) -> blogs
•
o
Innovation
§ 70/20/10 rule -> hobby time/googlettes (20%)
§ Culture: “just try, cut your losses”
§ High pay
o
Mission
§ Organizing the world’s information and make it universally accessible and
useful
Whole Foods
o High trust organization
§ Less management-> decentralized self-managed team
• Peer evaluation (hiring performance evaluation, bonus)
• Teams choose their own products, buy at local farmers
• Open accounting
§ Mission (purpose), community that binds people
• Whole foods, whole people, whole plant
• Sustainability
• CSR (fairtrade)
§ Remuneration
• Highest pay is 19 times average pay
§ Culture
• Transparency
• Trust, fairness
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Generation Y
o They’re young, smart, brash. They wear flip-flops to the office or listen to iPods at
their desk. They want to work, but they don’t want work to be their life
o Change careers fast -> don’t like to stay too long in one assignment
o Multi-taskers
o Less likely to respond to the traditional command-and-control type of
management
o Have been pampered, grew up in small families -> very demanding
o Technically savvy
o No followers, question their superiors -> never shut up
o Work-life balance isn’t just a buzz word
o Higher value of fulfillment
•
Generation Z
o Work
§
§
§
§
§
o
Values
§ Cosmopolitan
§ Being digital is in their DNA
o
Past
§
§
§
o
•
Extremely technological savvy and driven
Entrepreneurial and creative
Persuasive
Prefer face to face communication
Intrinsic motivated
Grew up during crisis, have been pampered
Terror
Technology: got a smartphone at 7 years
Gen Z is Gen Y on steroids
New diversity
o Salary: important for all generations
§ Fair, conditio sine qua non
o Car: important status motivator for older generations
o Training and formation: not that important for Gen Y
§ Gen Y: Formation must be personally useful and broad
§ Older gen: Formation must enable you doing your job
o Gen Y: feed back, relatively important and must be positive
§ However, a boss must be able to deal with negative feedback
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Introduction to Management and Strategy I
Chapter 2 & 3: Constraints and challenges for the global manager
1. Why does environment matter?
• Internal environment (organizational culture) -> the personality of the company
• External environment -> contingency factor
o Inputs & outputs
o Important to know your environment for strategizing
2. External and Internal Environment
External environment
• What is it?
o Demography -> demographic cohorts
o Economic
o Social/cultural
o Technological
o Ecological
o Political/judicial
•
Why is the external environment important?
o Environmental (un)certainty - extent to which managers have knowledge of and
predict change in their organization’s external environment is affected by:
§ Complexity of the environment (Simple – Complex)
§ Degree of change in environmental components (Dynamic – Stable)
o How
to know more about
the
external
environment?
§
Boundary-spanning roles -> dept. in touch with the environment
• Information (sales and marketing), representing interests (PR)
§
Competitive intelligence
• The action of defining, gathering, analyzing, and distributing
intelligence about products, customers, competitors and any aspect
of the environment needed to support executives and managers in
making strategic decisions for an organization
Internal environment: organizational culture as it solved
• What is it?
o A pattern of shared basic assumptions that the group learned as it solved its
problems of external adaptation and internal integration, that has worked well
enough to be considered valid and, therefore, to be taught to new members as the
correct way to perceive, think, and feel in relation to those problems and function
as the glue that holds the organization together.
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o
•
How to analyze/look at an organizational culture
o Seven dimensions of organizational culture
§ Innovation and risk taking: degree to which the employees are encouraged
to be innovative and risk taking
§ Attention to detail: degree to which the employees are expected to exhibit
precision and attention to detail
§ Outcome orientation: degree to which managers focus on results rather
than how to achieve them
§ People orientation: degree to which management decision take into
account the effect on people within the organization
§ Team orientation: degree to which work is organized around teams rather
than individuals
§ Aggressiveness: degree to which employees are aggressive and
competitive rather than cooperative
§ Stability: degree to which organizational decisions and actions emphasize
maintaining the status quo
o
•
A system of shared meaning held by members that distinguishes the organization
from other organizations
Schein’s model of organizational culture
§ Norms and values
• Espoused: stated or desired cultural elements (written or stated
tone that the management wish to instill)
• Enacted: the actual values that the culture represents
§ Artifacts and products
• Material, buildings, slogans, clothing, ceremonies
Importance of an organizational culture
o Code of Conduct
§ The way things get done around here
§ Influences atmosphere
§ Influences the kind of decisions taken
§ Influences management style – empowerment or autocratic
§ Influences how people deal with each other
o
Managerial decision affected by culture
§ Planning
• The degree of risk that plans should contain
• Whether plans should be developed by individuals or teams
• The degree of environmental scanning in which management will
engage
§ Organizing
• How much autonomy should be designed into employees’ jobs
• Whether task should be done by individuals or teams
• The degree to which department managers interact with each
other
§ Leading
• The degree to which managers are concerned with increasing
employee job satisfaction
• What leadership styles are appropriate
• Whether all disagreements – even constructive ones – should be
eliminated
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§
•
Controlling
• Whether to impose external controls or to allow employees to
control their own actions
• What criteria should be emphasized in employee performance
evaluations
• What repercussions will occur from exceeding one’s budget
o
Culture’s Basic Five Functions
§ Code of conduct: coordination and control mechanism
§ Defines boundaries
§ Conveys a sense of identity
§ Generates commitment beyond oneself
§ Enhances social stability (social glue)
• Sense of direction of decisions
• Sense making
• Person-organization firm
• Acts like formalization
o
Culture and performance
§ Adaptive culture translates into organizational success; it is characterized
by managers paying close attention to all their constituencies, initiating
change when needed, and taking risks
§ Culture is no off the shelf recipe
§ What works now will not necessarily work tomorrow
Strong vs. Weak culture
o In a strong culture, the organization’s core values are both intensely held and
widely shared
o Strong cultures will:
§ Have great influence on the behavior of its members
§ Increase cohesiveness
§ Acts like formalization
§ Results in lower employee turnover
§ And maybe better performance (??)
o
Strong cultures
§ Values widely shared
§ Culture conveys consistent messages about what’s important
§ Most employees can tell stories about company heroes
§ Employee strongly identify with culture
§ Strong connection between shared values and behaviors
o
Weak Cultures
§ Values limited to a few people – usually top management
§ Culture sends contradictory messages about what’s important
§ Employees have little knowledge about company heroes
§ Employees have little identification with culture
§ Little connection between shared values and behaviors
o
Factors influencing the strength of culture
§ Size of organization
§ Age of organization
§ Rate of employee turnover
§ Strength of the original culture
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Clarity of cultural values and beliefs
• Not many subcultures
•
Dysfunctional aspects of strong culture
o Barrier to change
§ Culture is slow to change – even in a dynamic environment
o Barrier to diversity
§ Managers want employees that accept the values of the firm
§ Strong cultures put pressure to conform
o Barrier to acquisition and mergers
§ Most mergers fail due to cultural incompatibility
•
Typologies of culture
o Quinn & Cameron based on competing values (OCAI test)
§ Clan/family
• Vision, shared goals, outputs and outcomes, loyalty
• Flexibility + internal focus -> involvement
• Leaders are mentors
§ Hierarchy
• Formalization, specialization, respect and efficiency
• Control + internal focus -> consistency
• Leaders are coordinators and organizers
§ Adhocracy
• Speed, adaptability, teams, experimenting, innovation
• Flexibility + external focus -> adaptability
• Leaders are visionaries
§ Market
• Sales driven, competition, minimal cost & delay, market share
• Control + external focus -> achievement
• Leaders are hard-driving
o
OCAI-test: organizational culture assessment instrument based on six criteria
§ Dominant organizational characteristics
• A very personal place like family or competitive and achievement
oriented
§ Leadership style
• Mentoring, facilitating, nurturing, no-nonsense, aggressive
§ Management of employees
• Teamwork, consensus, participation, uniqueness, freedom
§ Organizational glue
• Loyalty and mutual trust or procedures
§ Strategic emphasis
• Human development or competitive actions and winning
§ Criteria for success
• Development of human resources, teamwork, and concern for
people or having the most unique and newest products and
services
o
Deal & Kennedy
§ Tough guy macho culture
• High risk + quick feedback
• E.g.: fast moving financial activities and in team sports
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§
§
§
Work hard play hard culture
• Low risk + quick feedback
• E.g.: FMCG
Bet your company culture
• High risk + slow feedback
• E.g.: R&D projects which take years to come to fruition, such as oil
prospecting
Process culture
• Low risk + slow feedback
• E.g.: overly cautions bureaucratic but likely to produce consistent
results, public services
•
Do organizations have uniform cultures?
o The dominant culture expresses the core values that are shared by a majority of
the organization’s members
o Subcultures tend to develop in large organizations to reflect common problems,
situations or experiences of members (also top management)
o Subcultures mirror the dominant culture but may not add to or modify the core
values
•
How are cultures created and sustained?
o Creating Culture
§ Ultimate source of an organization’s culture is its founders
• Clear vision and unconstrained by previous visions
• Hire and keep employees who think like them
• Founders act as role model -> becomes a myth if successful
• Also industry and national culture plays a role
o
Keeping a culture alive
§ Seek out those who fit it-> Selecting and hiring
§ Kick out those who don’t
§ Socialization
• Formal -> written values, training
§ Informal
• Stories -> top management examples, leadership styles
§ Structure
o
How is culture transmitted?
§ Informal socialization – culture is transmitted to employees through:
• Stories – provide explanations/legitimacy
• Rituals – reinforce key values
• Material symbols – convey importance
• Language – identify and segregate members
• Developing an Innovative Culture
o
Developing an innovative culture
§ Challenge and involvement
§ Freedom
§ Trust and openness
§ Idea Time
§ Playfulness/humor
§ Conflict resolution
§ Debates, expression of opinion
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§
§
§
•
Diversity
Risk-taking
Accepting Failure
o
Developing a Customer-Responsive Culture
§ Hiring the right type of employees
• Having good listening skills in relating customers’ messages
• Having conscientious, caring employees willing to take initiative
§ Having few rigid rules, procedures and regulations
§ Using widespread empowerment of employees
§ Providing role clarity to employees to reduce ambiguity and conflict and
increase job satisfaction
o
Developing an ethical culture
§ Formal socialization
• Expectations about ethics must be clear: communication of ethical
vision and values
• Ethical training and codes
§ Informal socialization
• Top managers must be role models of ethical behavior -> stories,
myths
§ Performance appraisals and rewards for ethical conduct
§ Not too high bonuses and expectations
§ Encourage whistle blowers
Changing a Culture
o Culture is not easy to change
§ Especially a strong culture
§ Factors that might ‘ease’ changing a culture
• Dramatic crisis
• Turn over in leadership
• Young and small organizations
• Weak culture
§ How?
• The process: change management
• What? The star model
o
Implications for managers
§ Create the culture you want when the organization is small and new
§ If established culture needs to be changed, expect it to take years
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3. Intercultural differences
• Concepts
o Multinational Corporation (MNC) -> maintain operations in multiple countries
o Multi-domestic Corporation -> MNC that decentralizes management and other
decisions to the local country
o Global Company -> MNC that centralizes its management and other decisions in
the home country
o Transnational Corporation -> MNC that has eliminated structural divisions that
impose artificial geographic barriers and is organized along business lines that
reflect a geocentric attitude
•
How organizations go international
•
Importance of national culture
o National culture influences how people behave and has an influence on
organizational culture
o Born – totally immersed in that culture
o It is about: values, religion, ethics, gender issues, communication
o Important for multinational companies
•
Ethnocentrism
o The belief that one’s native country, culture, language and habits are superior to all
others -> home country people are put in key positions and are more highly
rewarded
o How to deal with ethnocentrism
§ Education
§ Cross cultural awareness
§ International experience
§ Humility
o
•
Meetings in different countries
§ Germany: punctual, structured, formal, communication through elder
§ France: not punctual, structured, communication through boss
§ Netherlands: basic agenda, quite informal, straight forward
§ UK: serious, stiff, diplomatic, never articulate things negatively
Geert Hofstede
o Study involving 116000 IBM employees over 40 countries in the 1980s
o How do national values influence work behavior?
o The 5 dimensions of national culture
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§
§
§
§
§
•
Individualism vs. Collectivism
• People look at their own interests
• People expect the group to protect them
High power distance vs. Low power distance
• Great respect for those in authority, accept power difference
• Bosses aren’t unapproachable, play down inequalities
High uncertainty avoidance vs. Low uncertainty avoidance
• Threatened with ambiguity and high level of anxiety
• Comfortable with risk, tolerant of different opinions
Achievement vs. Nurturing
• Values: assertiveness, acquiring goods and money, competitive
• Values: relationship, concern for others
Long-term orientation vs. Short-term orientation
• People look to the future, value thrift and persistence
• People value tradition and past
The Globe Studies
o Robert house
o Global leadership and organizational behavior
o 173000 managers in 951 organizations in 62 cultures
o Globe’s 9 cultural dimensions
Hofstede
Power distance
Uncertainty avoidance
Masculinity
Social collectivism
Long term orientation
•
Globe
Power distance
Uncertainty avoidance
Results orientation
Assertiveness
Gender differentiation
Social collectivism
Individual collectivism
Future orientation
Humane orientation
High context vs. low context national culture
o High context national culture (e.g.: China, Korea, Japan)
§ Establish social trust first
§ Value personal relations and goodwill
§ Agreement by general trust
§ Negotiations are slow and ritualistic
§ Polychromic time
§ Intimate personal space
o
Low context national culture (e.g.: Germany, Scandinavia, North America)
§ Go down to business first
§ Value expertise and performance
§ Agreement by legal contract
§ Negotiation as efficient as possible
§ Monochromic time
§ Personal/social space
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•
What about a unified corporate culture?
o A unified organizational culture
§ The corporate culture of an international company can very well be
uniform across borders, whereas the deep rooted values of different
people from different cultures potentially still exist
• To streamline the behavior of the employees
• To smoothen out managerial problems arising from cultural
differences
o
•
When does this work?
§ The practices of the corporate culture should be very like the normal
practices found in the national culture
§ A unified culture is determined by the importance of maintaining uniform
product offerings, leadership styles & management systems…
• IKEA, McDonalds, Body Shop vs. Unilever
Expatriates
o Research shows they are often inept and prone to failure
o Reasons:
§ Spouse or kids cannot adjust
§ Lack of proper motivation for foreign assignment
§ Immature
§ Sometimes, not technically competent
o
What to do to avoid this?
§ Personal traits: open to new experiences and friendliness
§ Adventurous family
§ Manage expectations
§ Cross cultural training
§ Support during the foreign assignment by both other expats and locals
§ Avoiding re-entry shock
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Introduction to Management and Strategy II
Chapter 5: Managing in the twenty-first century (CSR)
1. Stakeholder theory
• Stakeholder
o In an organization, it is any group or individual who can affect or is affected by the
achievement of the organization’s objectives – Freeman
o Who or what really counts
o Broad vision: unions, employees, customers, media, suppliers & competitors…
•
Managing Stakeholders
o Identity the organization’s external/internal stakeholders -> mapping
o Determine the particular interests and concerns of the stakeholders
o Decide how critical each stakeholder is to the organization
o Determine how to manage each individual stakeholder relationship
o E.g.:
§ Government: interested in VAT
§ Employees: interested in job security
§ Customers: value and quality
§ Suppliers: business opportunities
§ Creditors: money back
§ Unions: staff protection
o One, two or three attributes present
§ Power, Legitimacy and Urgency
§ If there are more than one attribute you get problems you need to manage
§ E.g.: A laid off employee (power) goes to the media (urgency)
•
Advantages of stakeholder management -> represent a cost
o Image, brand -> Reputation
o Reduces risks of liability, costly legal expenses
o Preventing that a company is targeted by all kinds of pressure groups & NGOs
2. Corporate Social Responsibility
• CSR (classical/minimalistic view)
o Milton Friedman: management’s responsibility is making profit in the interest of
one stakeholder (shareholder)
o There is one and only social responsibility of business – to use its resources and
engage in activities designed to increase its profits so long as it stays within the
rules of the game, which is to say, engage in open and free competition, without
deception or fraud
o Compliance with the law is sufficient
•
CSR (social economic view)
o Chester Bernard, …
o Bowen (1953): Businessmen must pay attention to the impact of their activities on
society
o Carroll: Business would embrace responsibility for the impact of their activities on
the environment, consumers, employees, communities, stakeholders and all other
members of the public sphere. Furthermore, business would proactively promote
the public interest by encouraging community growth and development, and
voluntarily eliminating practices that harm the public sphere, regardless of legality
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The pyramid of CSR (Carroll)
o Philanthropic responsibilities: be good corporate citizen
o Ethical responsibilities: be ethical, obligation to do what is right and fair
o Legal responsibilities: obey the law, law is society’s code of right and wrong
o Economic responsibilities: be profitable, the foundation up which all others rest
•
CSR – differences between Common law and the European countries
o European Countries
§ Legislation (e.g. social legislation, environmental legislation…)
§ Commission: to fully meet their social responsibility, enterprises should
have in place a process to integrate social, environmental, ethical and
human rights concerns into their business operations and core strategy in
close collaboration with their stakeholders
o Common law
§ Voluntary (codes)
o Discussion around philanthropy
Corporate sustainability (today’s term of CSR)
o Firms’ engagement with social and environmental issues in addition to their
economic activities
o The integration of social, environmental, and economic concerns into an
organization’s culture, decision-making, strategy and operations (TBL)
•
•
Social Impact Management
o Considering the firm’s intentions: decisions and the implications for consumers,
employees, and community members, given the different choices around growth
objectives and product development. These broader questions consider short and
long term views, a wider set of actors and stakeholders, and a more complex set of
metrics.
o Considering the Social Context
§ Are the legitimate rights and responsibilities of multiple stakeholders
considered?
§ Is a proposed strategy evaluated not only in terms of predicted business
outcomes, but also in terms of its broader impacts?
• Family/community impacts of employee time use
• Impacts of labor standards –risk and safety, child labor
• Workplace equity and diversity issues
•
Social accounting
o The process of communicating the social and environmental effects of
organizations’ economic actions to particular interest groups within society and to
society at large
§ AAA 1000 standard -> John Elkington’s TBL
§ ISO 14000 environmental management standard
§ UN Global Compact -> companies have to share their process
• Support and respect the Human Rights
• Make sure corporation don’t abuse them
• Freedom of association
• Elimination of compulsory labor
• Abolition of child labor
• Elimination of discrimination
• Support of environmental precautions
• Promote a greater environmental responsibility
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Encourage environmentally friendly technologies
Work against corruption
•
•
•
How can we know if companies involve in CSR?
o Examples
§ Social accounting
§ Fairtrade and other labels
§ Global compact member
§ FTSE scores
o
•
FTSE4Good Index series: doesn’t give financial advice to clients which allows for
the provision of truly objective market information – good index: child labor,
pollution, product safety…
Why should organizations be socially involved? (Business case of CSR)
o Ethical obligation
o Legitimation
o Public expectations
o Public image, better brand
o Reduced operating costs
o Ethical consumerism
o Increased staff commitment and involvement
⇒ Is this more profitable?
o
Ethical consumerism
§ Customers want and buy products that they consider ethical -> impact on
environment, climate, animals
§ Critiques -> considered as a movement in marketing, which may or may
not reflect actual changes in the practices of businesses
o
Does CSR affect a company’s economic performance?
§ Numerous studies -> Yes, correlation/No
§ But
• How do you measure CSR -> press, reputation, FTSE index
• How do you measure LT economic performance
• Is there causation -> high profits allow CSR?
§
•
A company’s social actions seem not to hurt economic performance
Social Entrepreneurship
o Using a market-driven business model to address key social and environmental
issues
o The real bottom line for a social enterprise, the goal by which its success should
ultimately be evaluated, is its social (or environmental) impact, and being
profitable (or at least financially sustainable) is the entirely necessary means to
that end
3. Triple bottom line (TBL)
•
Definition
o Sometimes called ‘profit’, must also be enjoyed by the host society
o Crossing point of people, prosperity and planet
o Some equal triple bottom line to CSR
o Other equal triple bottom line to sustainability
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Triple/Quadruple P model
o People
o Planet
o Prosperity
o Sometimes the fourth P is Project: beauty, aesthetic
•
AAA 1000 standard -> triple bottom line reporting
•
Example: BOP -> Bottom of the Pyramid
o Part of prosperity and people
o In economics, the bottom of the pyramid is the largest, but poorest socio-economic
group. In global terms, it’s the 3 billion people who live on less than $2.50 per day.
4. Sustainability
•
Premise
o The economy is, in the first instance, a subsystem of human society… Which is
itself, in the second instance, a subsystem of the totality of life on Earth
(biosphere). And no subsystem can expand beyond the capacity of the total system
of which it is apart.
o Economy -> Society -> Environment
o Brundtland commission of the UN
§ Sustainable development meets the needs of the present generations
without compromising the ability of future generations to meet their needs
and aspirations
o Goes further than the pure green thought
•
Definition
o Integration of social, environmental and economic concerns into an organization’s
culture, decision-making, strategy and operations
5. Green Management
•
The recognition of the close link between an organization’s decision and activities and its
impact of the natural environment
•
Global environment problems
o Air, water, and soil pollution from toxic wastes
o Global warming from greenhouse gas emissions
o Natural resource depletion
•
Some techniques
o Life cycle assessment
o Ecological footprint analysis
o Green Building
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100Global.org – world leaders in clean capitalism
o Annual project by Corporate Knights Inc.
o Extensive data-driven sustainability assessment of 100 large companies WW
6. Corporate Governance
•
What is it?
o Is an internal system encompassing policies, processes and people, which serves
the needs of shareholders and other stakeholders, by directing and controlling
management activities with good business savvy, objectivity, accountability and
integrity
o Needs of shareholders are served (agency theory) and nowadays serving other
stakeholders -> social CG
o Legislation but often codes (soft law) - Code Lippens, code Buysse, tabaksblatt
•
Themes of CG
o Disclosure and transparency
§ Reporting, audit, clarity
o Control
§ Internal control and auditors
§ The independence of external auditors and the quality of their audits
§ Oversight and management of risk
•
o
Structure of board of directors
§ Real Power?
§ Which individuals are nominated for positions
o
Agency problem
§ Review of the compensation agreements for CEO and executives
§ Stocks for management
What’s in for me?
o The perceived quality of a company’s corporate governance can influence its share
price
o Reputation, trust in company (other investors, customers)
o Less uncalculated risks
o Long term continuity of the firm
o If management has more than 20% of the stock, they become greedy
o But when management possesses stock, they’re more engaged
7. The ethical manager
• Cases: Enron, Lehman
o Enron: the story of greed
§ The success company (fortune 500, best companies to work for)
§ 2001: Enron Scandal – Reported financial condition was sustained
§
§
substantially by institutionalized, systematic, and creatively planned
accounting fraud
Method of projected earnings
Aggressive company culture of Profit
• High bonuses
• Managers earned millions
• Artificially high stock prices
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§
§
Executives began to work on insider information and traded
millions of dollars worth of Enron stock
Dark constructions with thousands of companies
Accountants destroyed evidence
• December 2001 – bankruptcy of Enron (21k laid off)
• Their auditor lost its license (85k laid off)
o Lehman
§ Fourth largest investment bank in the USA
§ 2008 – Lehman’s shares plunged 45%
§ Aggressive culture of profit
• Promotion based on strong deals
• High bonuses and extra’s for top
§ Top management knew that risky deals were made
• Reshuffling some papers to get expenses off the balance sheet
• EY was their auditor
o
What do we learn from these examples?
§ Prevention of scandals -> bankruptcy, reputation?
§ Often self enrichment (top management)
§ Often aggressive corporate culture of profit
§ Bonus - promotion
•
Business Ethics (definition)
o A form of applied ethics that examines ethical principles or ethical problems that
arise in a business environment. It applies to all aspects of business conduct and is
relevant to the conduct of individuals and business organizations as a whole
o The code of moral principles and values that govern the behaviors of a person or
group with respect to what is right or wrong
•
Business ethics (applications)
o Accounting
§ Insider trading, executive compensation, facilitation payments
o Human resource management
§ Discrimination, sexual harassment, drug testing, slavery, safety
o Production
§ Emission, tobacco, modified food, testing on animals
o Sales and Marketing
§ Skimming, price discrimination, misleading commercials, dangerous goods
•
Ethical dilemma/problem
o Definition
§ Actions of one person/organizations will disadvantage others
§ What is good for one, is bad for another
§ One vs. Many: one firm against local people
§ Many vs. One: privacy of person against the interest of the firm
o
How to solve ethical dilemmas
§ Norms or criteria to define “good” and “wrong” based on different
“philosophical schools”
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§
Utilitarian approach
• Bentham & Stuart
• Moral behaviors should produce the “greatest good for the greatest
number” -> best for most
• Privacy issues vs. safety in the workplace
§
Moral Rights approach
• Immanuel Kant
• Moral decisions maintain best the rights of those affected
• Right of free consent, right of speech, right to life and safety
§
Fairness/Justice approach
• Aristotle
• Decisions must be based on standards of equity & impartiality
• Individuals who are similar in ways relevant to a decision must be
treated equally
• No discrimination nor favoritism (me=women)
§
Individualism approach
• Acts are moral when they promote the individual’s best long-term
interests
• Individualism is believed to lead to honesty and integrity as people
learn to accommodate to each other in their long-term self-interest
• Leads to behavior towards others that fits standards of behavior
people want towards themselves
§
The common-good approach
• Plate, Cicero, Aristotle
• People are in society, common goals & values must be served
• For society to thrive, we need to guard the sustainability of our
community for the good of all, including our weakest members
o Peace between nations -> public safety
o No pollution
o Fair justice
Factors that determine ethical and unethical behavior
o Individual: stage of moral development
§ Preconventional
• Follow rules to avoid punishment
• Acts in own interest
o
§
Conventional
• Lives up to others expectations
• Upholds law
§
Postconventional
• Follows self-principles of justice and right
• Seeks creative solutions to ethical dilemmas
• Balances concern for individuals & concern for common good
Individual characteristics
§ Values
• Basic convictions about right or wrong
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Personality
• Ego strength: a personality measure of ‘the strength of a person’s
convictions’, self discipline, taking accountability
•
•
Locus of control: a personality attribute that measures the degree
to which people believe to control their own life
o Internal: belief that you control your destiny
o External: belief that what happens to you is luck/chance
§
Organizational/Structural variables
• Are to goals to be attained high?
o People who do not reach set goals are more likely to engage
in unethical behavior
• Organizational characteristics and mechanisms that guide and
influence individual ethics:
o Performance appraisal systems
o Reward allocation systems
o Behaviors of managers
§
Organizational culture
• Is it ethical? Is it strong?
§
Issue intensity
• Greatness of harm – how many people will be harmed
• Consensus of wrong – how many people think it’s wrong
• Probability of harm – how likely will there be harm
• Immediacy of consequences – will it harm directly
• Proximity to victim – how close are they to us
• Concentration of effect – how concentrated is the effect
Are ethical standards universal?
o They are not universal
§ Social and cultural differences determine acceptable behaviors
o
The global compact
§ Signed by more than 6000 companies
•
How managers can improve ethical behavior organization?
o Hire individuals with high ethical standards
o Establish code of ethics and decision rules
o Lead by example (ethical culture)
o Set realistic job goals and include ethics in performance appraisal
o Provide ethics training
o Conduct independent social ethics
o Provide support for individuals facing ethical dilemmas such as whistle blowers
•
Effective use of a code of ethics
o Develop a code as a guide in handling ethical dilemmas in decision making
o Communicate the code regularly to employees
o Have all level of management continually reaffirm the importance of the ethics
code and the organization’s commitment to the code
o Publicly reprimand and consistently discipline those who break the codes
o Reward those who follow the code
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Introduction to Management and Strategy III
Chapter 7: Planning and Decision Making
1. Decisions
•
Decision-making is the essence of management
o Managers are decisions makers
o They make decisions
o Good decisions are important for good management
•
Half of the decisions made in organizations fail
o The success rate of business decisions increases by 50% when organizations have
better decision-making processes
o Examples of mistakes:
§ The rush-to-judgment blunder (bad problem/goal definition)
§ Misuse of resources
§ Failing to learn from mistakes by ignoring their existence
§ Ignoring ethical questions
•
Decision definition
o Problem – a perceived discrepancy between the current state of affairs and a
desired state
o Decisions – choices made from among alternatives developed form data perceived
as relevant
•
Problem with problem
o Perceived – a problem for me isn’t necessarily a problem for you
o Problems are organizational culture bound
o Problems and power & politics
o Problems and strategic issue diagnosing
o Definition of the problem gives indication for solution -> can be dangerous
•
How decisions are made, depends on
o Content of decisions
§ Structured or unstructured problems**
§ Strategic or operational
o
Context
§ Urgency, threat, opportunity
§ Organizational characteristics – structure, culture, reward systems
§ Decision makers’ attributes – propensity to risk, tolerance for ambiguity
2. Types of problems and decisions
•
Unstructured problems and non-programmed decisions
o Unstructured problems
§ Problems that are new or unusual and for which information is ambiguous
or incomplete
§ Problems that will require custom-made solutions
o
•
Non-programmed decisions
§ Decisions that are unique and nonrecurring
§ Decisions that generate unique response
What is a good decision? The story of Ashley Revell
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o
o
o
•
Sold everything he owned to bet in Vegas
He bets everything he has on Red
Everything went right -> the ball arrived on red
Hindsight bias
o What is a good decision
o Those that went well after all
o Hindsight bias is the inclination to see events that have occurred as being more
predictable than they were before they took place
3. Decision making models
•
Rational decision-making – Homo economicus
o Searching for the best value maximizing choice
1. Define the problem
2. Identify the decision criteria and allocate weights to the criteria
3. Develop the alternatives
4. Evaluate the alternatives
5. Select the best alternatives
6. Implementation
7. Evaluation
•
Rational decision making
o Assumptions of the ‘Rational model’
§ Complete knowledge of the situation/problem
§ All relevant options are known in an unbiased manner
§ Clear goal: the decision-maker seeks the highest utility
o In reality?
1. Limited search for problem definition, criteria and alternatives – familiar criteria
and easily found alternatives
2. Choose alternatives, similar to those already in effect
3. Satisficing – selecting the first alternative that is ‘good enough’ (stick effect)
•
Decision Making in Bounded Rationality
o Managers are bounded (limited) by their availability to process information
o Why? Perception, Emotion, Bias, Satisficing
o
Perception
§ A process by which individuals organize and interpret their sensory
impressions in order to give meaning to their environment. The world as it
is perceived is the world that is behaviorally important
§ Perception is sometimes very different from reality
§ People perceive things differently
§ Factors that influence perception
• Factors in the situation (time, work setting, culture)
• Factors in the perceiver (attitudes, motives, interests, values)
• Factors in the target (novelty, motion, sounds, size)
§
§
We perceive things/events as a whole (gestalt)
Stages of perception
• Selective attention – competing environmental stimuli
• Encoding and simplification – interpretation and categorization
• Storage and retention – storage in memory
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§
o
o
o
Retrieval and response – judgments and decisions
Perception influences
• Awareness that a problem exists
• The interpretation and evaluation of information
• Analysis and conclusions
Sense making: giving meaning
§ Scanning
§ Noticing
• People extract cues from the context to help them decide on what
information is relevant and what explanations are acceptable
§ Interpretation
• Giving data meaning
• Developing mental models for interpretation
§ Action
§ Enactment
Emotion
§ Neo cortex: critical thinking, logic
• Human being van think Long Term
§ Mammals’ brain: emotion, love, passion
• Especially active when taking important decisions
• Scans: First mammals’ brain, then neo cortex
• Without emotions we can’t take decisions
Bias
§
How we develop explanations about why do people act as they act
§
Attribution theory
• Attributions are cognitive evaluations attempting to explain why
things happen, why people behave and attribution influences
decision making
o Internal attributions – behavior is believed to be under the
personal control of the individual
o External attributions – the person is forced into the
behavior by outside events/causes
§
Fundamental attribution bias
• Towards others
o The tendency to underestimate the influence of external
factors and overestimate that of internal factors when
judging others
o Is culture dependent (individualistic/collectivist)
§
•
Towards yourself
o Self-serving bias – Taking quick credit for successes and
blaming outside factors for failures
o Interpret ambiguous information in their favor
•
Differences in how actors (employees) and observers (supervisors)
perceive events
Other frequently used shortcuts in ‘judging others’
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•
•
•
•
•
•
o
Other examples
§ Loss aversion
• People can not stand loosing
• People’s tendency to prefer avoiding losses to acquiring gains.
• Losses are twice as powerful as gains
§
§
o
The Haloo effect – first impression last
Contrast effect – place in interview
Stereotyping
Self-fulfilling prophecy (Pygmalion effect)
Selective attention
Dearborn study -> invisiblegorilla.com
Value function
• Gain is less valued
• Loss is felt deeper
• E.g.: gambling and its prospect in different cases
Framing Bias
• Tversky and Kahneman (1981) demonstrated systematic reversals
of preference when the same problem is presented in different
ways
• Applications in marketing -> contains 5% fat – 95% fat free
§
Endowment effect
• Linked with loss version
• Once we get something, we adjust to our level of ownership -> this
becomes the baseline for judging gains of losses
• People ascribe more value to something once they own it
§
Thirty days money back guarantee
• Not many people take advantage of these sort of guarantees
• Loss aversion and endowment effect at play in ethical situations
o We don’t want to loose our clients, perks
o A client that wants to do something abusive will have more
luck inducing a long-term accountant to go along than one
it has just hired
Other frequently used shortcuts in judging others
§ Escalation of commitment
o You can behave unethically in order to reach your goal
o Especially when prior investments have been made
o Money, reputation
§
Confirmation Bias
• Tendency to interpret or/and search for information in a way that
confirms one’s preconceptions
• Contributes to overconfidence in personal beliefs and can maintain
or strengthen beliefs in the face of contrary evidence
• Examples
o Cognitive inertia and strategic myopia
o If we believe there is no ethical wrong-doing, we will not
see any wrong-doing
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o
§
Overconfidence Bias
• Poll
o 90% of US adults expected they go to heaven
o Only 86% thought that mother Theresa is in heaven
• Ego gets in the way
• Especially when issues are outside their area
• Become knowledgeable to avoid overconfidence bias
• Are we more ethical than the others?
o The fact that we believe we are ethical leads people to make
decisions that have significant ethical implications without
engaging in serious reflection
§
Availability bias
• Phenomenon in which people predict the frequency of an event,
based on how easily an example can be brought to mind
• E.g.: based on recent behavior (media coverage)
§
Anchoring bias (application of framing)
• Describes the common human tendency to ‘anchor’ on one piece of
information when making decisions
• Our mind gives a disproportionate amount of emphasis to the first
information when making decisions
o Important in negotiating: you set the first offer good
§
Illusionary correlation bias
• No difference after research
• Are Belgian happier than French?
§
Representativeness bias
• People judge the probability or frequency of a hypothesis by
considering how much the hypothesis resembles available data
• Hypothesis: librarians are tidy, eye for detail, helpful
Other biases
§ Selective attention/perception
• We see most salient things
§
Bandwagon effect
• The tendency to do (or believe) things because many other people
do the same. Related to groupthink and herd behavior
§
Denomination effect
• The tendency to spend more money when it is denominated in
small amounts (e.g. coins) rather than large amounts
§
Negativity bias
• The tendency to pay more attention and give more weight to
negative than positive experiences or other kinds of information
§
Post-purchase rationalization
• The tendency to persuade oneself through rational argument that a
purchase was a good value
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§
•
Randomness bias
• Creating unfounded meaning out of random events.
What about intuition
o Based on the implicit knowledge available to the decision-maker
o When?
§ Rule: together with rational decision making
§ Mainly intuition
• Dealing with people – hiring, firing, performance evaluation
§ When decisions must be made quickly and unexpectedly
§ Situations lacking clear guidelines
o
The use of intuition would depend on
§ Decision making style
§ Mood
• Good mood: more intuition
• Bad mood: more deliberative
§ Gender: women would use a less intuitive decision style at work!
§ You should not take your intuitions at face value
§ Overconfidence is a powerful source of illusions
§ Experience?
o
Some tips
§ Recognition of decision requirement
• Define the problem – go to the essence!
• Reach unanimity about the problem
§
Diagnosis and analysis of causes
• Use technical experts, people from the frontline
• Formulate clear goals, 25% of your time
§
Development of alternatives
• Be aware of satisficing
• Don’t stick to the first alternatives, be creative
• Second opinion, search disconfirmative informative
§
Selection of desired alternative
• Be aware for new criteria, changing goals
• Be objective
• Stakeholders
§
Implementation of chosen alternative
• Adapt if needed (change)
• Know when it is time to quit: cut your losses
§
Evaluation and feedback
• Don’t be tricked by your success
• Be aware of blind spots
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4. Decision making styles
5. Creativity
•
The ability to produce novel and creative ideas
6. Decision making in groups/teams
•
Are two head better than one?
o Juries in court
o Top management teams
o Team Assignments
o But how come that many bad decisions are taken at management ‘committees’
•
Advantages of group decision making
o Generates more complete information and knowledge
o Increase diversity of views -> creativity
o Increases acceptance of a solution
•
Disadvantages of group decision making
o Time consuming
o
Groupthink
§ A deterioration of individual’s mental efficiency as a result of group
pressures, conformity, wanting to belong
§ ‘Symptoms’
• Group pressures doubters to support the majority
• Group rationalizes away resistance to assumptions
• Illusion of invulnerability (risky shift)
• Stereotyping those who are opposed to the group as weak
• Doubters keep silent/minimize their remarks (self-censorship)
• Group interprets silence as ‘yes’ vote (illusion of unanimity)
o
Conformism
§ Group pressure
§ Asch experiment
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Groupshift – Risky shift
§ Groups often take positions of greater risk
§ Group discussions lead members to assume new, more extreme, positions
§ May be due to diffused responsibility
o
Groupthink can be dangerous as it leads to risky shifts and unethical decisions
§ Groupthink especially occurs under
• High pressure cohesiveness
• Lack of impartial leadership
• Lack of methodological procedures
• Highly stressful (external) threats
• Recent failures
• Moral dilemmas
•
Tips for minimizing groupthink
o Limit group size (under 10)
o Encourage group leaders to actively seek input from all members
o Leaders avoid expressing their own opinions – have to play an impartial role
o Appoint a ‘devil’s advocate’
o Use outside experts
o Be aware of ‘correlated errors’
•
Group decision-making techniques
o Brainstorming
§ Meant to overcome pressures of conformity
§ Generates a list of creative alternatives
§ Problem: production blocking
o
Nominal Group Technique NGT
§ Restricts discussion during the decision-making process to encourage
independent thinking
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Introduction to Management and Strategy III
Chapter 9: Strategic Management
1. Introduction: What is strategy?
•
Strategy is about winning
o E.G.: Madonna
§ Was this all luck? Only hard work?
§ She is talented but not outstanding
§ And at the end sill made it as a superstar
§ It wasn’t luck but strategy
• Clear simple long term goal (clarity of direction)
• Understand the environment (external) – industry/market
• Understand resources (internally) – strengths/weaknesses
o
A firm’s strategy is its ‘theory’ of how to complete successfully!
§ Where is the business trying to get to in the long-term (Direction)
§ Which markets should a business compete in and what kind of activities
are involved in such markets? (Markets, scope)
§ How can the business perform better than the competition in those
markets? (Advantage)
§ What external, environmental factors affect the businesses’ ability to
compete? (Environment)
§ What resources (skills, assets, finance, relationships, technical competence,
facilities) are required in order to be able to compete? (Resources)
§ What are the values and expectations of those who have power in and
around the business? (Stakeholders)
o
Basic framework for strategy analysis
§ Simple, consistent long term goals, understanding the competitive
environment, objective understanding of resources and exploiting them
§ Effective implementation, Structure and systems -> strategy
o
Is SWOT ‘the thing’ to do?
§ Internal analysis: Strengths & Weaknesses
§ External analysis: Opportunities & Threats
§ The firm’s competences must be matched with its environment
§ SWOT tool gained popularity in the 1970s
§ Alfred Humphrey -> Stanford university
o
Strategic Issue Diagnosing
§ Interpretations of threat or opportunity and their influence on strategic
decisions
§ SID claims that decision-makers are put ‘on automatic’ in their diagnosis of
strategic issues, with direct implications for the process and content of
strategic action
§ The threat label
• Implies lower control and should lead attention on internal actions
• As threat is associated with potential loss, the theory posing that
people risk more to avoid a loss than to gain the same amount,
leads to the hypothesis that greater risk will be taken in response
to threats as opposed to opportunities
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§
o
o
The opportunity label
• Should lead to external oriented actions
• Less risk will be taken (except for opportunities in a turbulent
environment)
Corporate and business strategy
§ Corporate-level strategy:
• What business are we in?
• Which industries and markets – investment, diversification,
acquisitions
§
Business-level strategy:
• How do we compete?
• How to reach a competitive advantage?
§
Functional-level strategy
• How do we support the business-level strategy?
§
Strategic management
• Formulation -> implementation -> evaluation
Why strategy? The different roles of strategic management within the firm
§ Strategy/Planning is one of the 4 functions of management
§ Strategy ad decision support
• Strategy guides decisions, simplifies decision making – noses n
same direction (Ryanair)
§ Strategy
2. Goals of strategy
•
Profit
o Profit is needed for the survival of the company
o Main condition for CSR and sustainability
o Isn’t the goal that inspires the workforce
•
Creating value
o For customers (competitive advantage)
§ Money that they are willing to pay for goods or services
§ Value added: sales revenue – cost of inputs
o Value for whom? See stakeholder management
o
•
Definition of competitive advantage:
§ An advantage that firms have over their competitors, allowing them to
generate greater sales or margins and/or retain more customers than their
competitors. There can be many types:
• Product offerings, distribution network…
Vision/Mission
o Vision
§ Mental image of a possible and desired future of the firm
§ What should the firm become on LT
• Most fundamental reason of being
• Encompasses the core ideology and values
• A vision is short and powerful
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o
§
Two kinds of dreams
• Biggest, greatest, best, first
• More inspiring dreams
§
Advantages of good vision
• Path for growth
• Framework for strategy
• Part of organizational culture
Mission
§ Identity kit of the firm
• Why do we exist – license to operate
• What are we going to sell
• Who will be our clients
• How are we doing business – value culture
• Differentiate the firm from its competitors
§
§
Advantages of a good mission
• Internal and external communication
• Guides decisions
• Basis for strategy
Be aware of hollow missions!!
Does every firm have a mission/vision?
§ More missions than visions
§ 85%-93% of the firms have missions
Beyond profit: values
o A firm’s choice of goals is influenced by its values
o Businesses that generate the most profit are mostly driven by other ambitions
than profit -> values (innovation, sustainability, happiness)
o Role of ethical values
§ Place constraints on the means by which the firm will pursue shareholder
value maximization
§ Increase the effectiveness with which the firm builds competitive
advantage through reinforcing strategic intent and building internal
consensus and commitment
o
•
3. Industry Analysis – the five forces that shape strategy
• Industrial Organization Economics
o Premise: companies within a similar sector have similar resources
o Industry and the place of the firm are determinants for
§ Structure-Conduct-Performance paradigm holds a firm’s conduct
§ Performance is determined by the environment
o
Industry analysis is key
§ Where to compete? How? Sustainable?
o
Structure-Conduct-Performance
§ Structure
• Number and size of the firms/customers
• Switching costs
• State owned company?
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•
§
Conduct
• Where do firms compete? Price, talent, features
• Differentiation or follow me too strategies
• Enlarge the market or steal customers
§
Performance
• Size of business profits
• Spending on R&D -> fast innovations
• Spending on human capital -> rising productivity
Industry matters -> each industry works differently
The five forces that shape strategy
o What are forces
§ Influencing competition and hence profitability (rate of return to capital
relative to the costs of capital)
§ Profitability has much to do with
• Pricing power/sales
o Customers: substitute and bargaining power
o Competition: intensity and new entrants
• And costs
o Suppliers: bargaining power
o Purpose Analysis of the external environment
§ Goal: identify the sources of profit in the external environment
• Corporate strategy
o Industry attractiveness: take or leave
•
o
Business strategy (positioning)
o Competitive advantage -> how to sell more
o Is it sustainable?
Porter’s Framework
§ Rivalry between established firms
• Concentration (number and size)
o Oligopoly: collusion on prices -> different image
o Many firms: unlikely that one firm will cut prices
o Low concentration = high internal rivalry
•
Industry growth
o Slow growth involves fight for market share
o Slow growth = high internal rivalry
•
Low cost to change brands
o When switching is easy, firms can steal each others’
customers -> monetary, psychological
o Low switching cost = high internal rivalry
•
Excess capacity
o Reduces profit due to price cuts & high storage cost
o More excess capacity = high internal rivalry
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§
•
Product differentiation
o Similar offer leads to price cuts due to big chance of
substitution
o Less differentiation = high internal rivalry
•
High exit barriers forcing a firm to stay in a country
o Job protection leads to$ overcrowded industry thus price
cuts
o High exit barriers = high internal rivalry
•
Perishable products
o Temptation to cut prices in order to sell products
o Perishable products = high internal rivalry
•
Economies of scale
o Optimal scale = output level where LT average costs are
low
o To get more sales volume firms cut prices
o Economies of scale = high internal rivalry
•
Industries where fixed cost are high wrt variable cost
o Hotels or Airlines
o Get more sales volumes means price cuts
o High FC industries = high internal rivalry
Threat of new entry
• A profitable industry acts like a magnet
o New entrants want their share
o New entrants can leverage on their capacities and cash
§ Prices go down to the competitive level
§ Decline in profitability
• Threat of entry can make firms lower their prices
• Interesting to have barriers to entry
•
Capital requirements
o If high -> discourage others
o High capital requirements = high barrier to entry
•
Economies of scale
o Refers to the decreased per unit cost as output increases
o Problems for new entrants
§ Start on small scale -> higher costs
§ Must invest in large scale but risk to underutilize
their capacity and have high inventory costs
o High economy of scale = high barrier to entry
•
Absolute cost advantage (e.g.: Saudi Petrol)
o Due to access to raw material or experience and learning
o High absolute cost advantage = high barrier to entry
•
Product differentiation
o Brand invested in advertising with good tech & design…
o High product differentiation = high barrier to entry
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•
Channels of distribution
o The war for limited shelf space in shops -> e-commerce
o Difficult distribution = high barrier to entry
•
Governmental and legal barriers
o License, patents, investment restrictions, high standards
issued or regulated by public authorities
o More Gov. and legal barriers = high barrier to entry
•
Retaliation
o The empire strikes back
o New entrants look at niche segments to avoid retaliation
o High chance of retaliation = high barrier to entry
•
Be aware of the creative strategies of new entrants
§
Threat of substitutes from adjoining industries
• Substitutes are dangerous when
o High price sensitivity – price increase, switch to substitute
o Switching costs are low
§
Bargaining power of buyers
• Your buyers
o Force prices down
o Demand better quality
o Play suppliers off against each other
•
§
Bargaining power of suppliers
• Your suppliers
o Force prices up
o Deliver less quality
•
o
Depends on
o Which buyers
o Buyers’ price sensitivity
o Can your buyer easily refuse the deal
Suppliers are powerful
o Have a quasi monopoly
o Very specialized products
o High switching cost for buyers
How to apply this framework and what can I learn from it?
§ Forecast future industry profitability
• Is my competitive advantage still sustainable?
• Rivalry
o Concentration (big players, what influence?)
o Slowly growing industry?
o Perishable products?
o Rivals have similar objectives, cost structure?
o Product differentiation (am I strong?)
o How is the evolution of industry capacity?
o What investment does the competition make?
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§
•
Are new entrants seeking to enter (barriers)
o Expiration of patents?
o Capital requirements (outsourcing?)
o Sector where economies of scale play?
o Who owns distribution channels, easy access?
o Is knowledge and experience important?
o Is the industry evolving to more commodities?
o What is my USP? (Strong brand…)
o Will incumbents fight back?
•
Substitutes from other industries
o What problems does your product/service solve?
o What are other reasonable ways to solve them?
o Look at technological advances
o Dangerous? Price sensitivity and switching cost
•
Evolution of buyers
o Who are they?
o Many small clients or few big ones?
o M&A -> strong big buyers
•
Evolution of suppliers
o Many suppliers or few big ones?
o Are the affected by M&AN
(Re)positioning my business or competitive advantage
• Competitive advantage is not so sustainable
o Where in the industry are these forces the weakest?
§ Should I go for a niche segment?
§ Where can I find a new CA?
§ What is the potential of that niche?
o
§
How to differentiate?
Critique on Porter’s framework
• Only some forces get strong empirical support
o E.g.: many players in market and price cutting
• Limited attention for factors ‘changing demands’
o E.g.: customer preferences
• Missing players
o Government
o ‘Complemetors’: goods that are complements to those
supplied by the firm
4. Resources Based View of Barney
• Core idea of RBV
o The firm is a pool of resources and capabilities
§ They are the primary determinants of its strategy and performance
§ Not the markets or industries they serve
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o
Two premises
§ Resource heterogeneity
• Resources within a company (people, capital, skills…) differ
between companies and are determinants for performance and
strategy not the industry -> internal factors
§
o
Resource immobility
• Not all resources can be bought or copied
Based on these resources and capabilities a company can build a sustainable CA
•
What are firm resources?
o Physical capital resources: machinery, location…
o Human capital resources: training, experience, relationships and know-how…
o Organizational capital resources: organization design, culture, reporting…
•
Capabilities
o What the firm can do, resources must work together to create capabilities
o Firm’s capacity to deploy resources to undertake a particular productive activity
o Other terminology
§ Distinctive competences
§ Core competences
§ The secret: organizational routines
• Patterns of activity made up of coordinated actions by individuals
• Learning by doing
o Resources (what we have) -> capabilities (what we can do)
§ Material (computers, raw) -> plant optimization, flexibility
§ Financial (cash flow) -> ability to raise funds and manage cash
§ Human (managers, employees) -> knowledge, skills and relations
•
What resources and capabilities are interesting?
o To offer a competitive advantage, resources and capabilities should be
o VRIN framework
§ Valuable (relevance)
• Relevant to the factors for success in the industry
• Enabling to improve efficiency and effectiveness (low prod costs)
• Exploit opportunities and neutralize threats
• Most important condition
• What is your USP (award-winning, reputation)
§ Rareness (scarcity)
• Resources that can be acquired by one or few companies
• /!\ Not neglecting resources that are valuable and common
§
Imperfectly imitable (non replicable)
• Due to historical conditions, causal ambiguity, social complexity
• Easily imitable: cash, commodities
• Imitable (may not be): capacity, economies of scale
• Difficultly imitable: loyalty, employee satisfaction reputation
• Inimitable: patents, unique location, unique assets
§
Not substitutable
• No equivalent substitutes to get the same results
• Can competitors reproduce the same product?
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§
•
VRIO -> organization: organized to capture value = appropriable
• Does your company have a strategic management process?
• Effective motivation and reward systems in action?
• Good management and control systems?
How to apply the RBV
o Identify the key resources and capabilities
§ Functional analysis
• Corporate functions (e.g.: innovation – Google)
• Research & development (e.g.: innovative product dev. – Apple)
• Operations (e.g.: continuous improvement – Toyota)
• Marketing (e.g.: branding – P&G)
• Sales and distribution (e.g.: speed of distribution – Amazon)
§
Value chain analysis
• Is a process where a firm identifies its primary and support
activities that add value to its final product and then analyze these
activities to reduce costs or increase differentiation.
§
Use Grant’s framework
5. Innovation
• Dynamic capabilities
o Sustaining competitive advantage over time especially in rapid changing markets
§ Sense and shape opportunities
§ Seize opportunities/mobilize resources
§ Continued renewal, transforming your business
•
Open Innovation
o Get outside your industry to improve your profit
§ Crowdsourcing (e.g.: Lays taste contest)
§ Presuming
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6. Corporate Strategy
• The Boston Consulting Group Matrix
o
Dogs
§
§
§
Low ROI, Low Growth
Don’t generate cash or profit for the company (break-even)
Should be sold off
o
Question marks
§ Low ROI, High Growth
§ Have potential (starting point of businesses) -> can become everything
§ Must be analyzed carefully before investing into them
o
Cash cows
§ High ROI, Low Growth
§ Generate cash with few investments -> profitable
§ ‘Milked’ continuously without much investment (lost cause low growth)
o
Stars
§
§
§
High ROI, High Growth
Big profit with big investments -> break even
The goal is to become a cash cow on LT to ensure future cash generation
•
Business Level
o Low Cost position = Low cost target
o Unique position (differentiation) = Higher segment focus
o Be aware of being stuck in the middle
•
Blue Ocean Strategy
o Value innovation
§ Not matching your competitors strategy
§ Not leveraging existing assets
§ Thinking as a new entrant -> put aside conventional logic & assumptions
§ New creative thinking -> focus on the customers’ taste
§ Offering unprecedented value differentiation at low cost
o
What to do?
§ Combine differentiation (value to customers) and low cost
§ Steal ideas from other sectors
§ Kick-out unimportant costs
§ Combine segments -> what do customers want?
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Introduction to Management and Strategy IV
Chapter 10 & 11: Foundations of organizational design &
Contemporary organizational design
1. Organizational design? What?
• Organizing
o Division of labor
§ Breaking the task into a number of simpler tasks and assigning these tasks
§
to specific jobs, departments and levels
Also called differentiation -> different tasks call for different skills
o Coordination
§ Making different specialists/departments/levels work together to fulfill
desired goals in an organization
o Organizational charts
2. Why is organizational design important?
•
Why does it matter?
o Power – Strategy
o Effectiveness – Efficiency
o Shareholders (agency)
o Adaptation, responding to change -> clients, crisis
o Innovation
o Atmosphere, HRM practices, motivation
⇒ Performance
•
Organizational design is important
o For CEO’s and top management
o For middle management
o For employees
What happens if design is poor -> Kodak, IBM
•
3. Structural dimensions of organizational design
• Differentiation – division of labor
o Work specialization or division of labor is the degree to which activities in the
organization are subdivided into separate jobs
o
Horizontal: specialization
§ Functional
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•
•
•
§
Group jobs according to function
Efficient, in-depth specialization, easy to coordinate
Poor communication, limited view of goals
Divisional grouping
• Group jobs according to product
o Product specialization, expert manager, close to customer
o Double functions, limited view of goals
•
Group jobs according to client
o Customers’ needs are met by specialists
o Double functions, limited view of goals
•
Group jobs according to region
o Specialization in a local market
o Double functions, limited view of goals
§
Combined
• Group jobs according to product and client
§
Product team
• Group jobs around a product
• Each product has one manager and fully working team
§
Matrix
• Group jobs around a product but working together with the same
segments of the other products (Marketing P1 – Marketing P2)
• Good communication between projects, allows personal flexibility
• Too much meetings, unclear roles and responsibilities, too many
people to refer too
§
Horizontal grouping
• Groups jobs in terms of processes
• Various functions in the same process
§
Outsourcing
• Lightweight structure and flexibility
• Loss of control due to numerous partners
§
Too much specialization
• Results in boredom, fatigue, stress, poor quality
• Too much departmentalization leads to disintegration
o Vertical differentiation: lines of hierarchy
§ Chain of Command
• The continuous line of authority that extends from upper levels of
§
an organization to the lowest levels of the organization and
clarifies who reports to whom
How many layers?
• Depends on Span of Control
o The number of employees who can be effectively and
efficiently directly supervised by a manager
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§
Width of Span is affected by
• Skills and abilities of the managers
• Employee characteristics
• Characteristics of the work being done (complexity of tasks,
similarity of tasks, amount of control needed)
• Physical proximity of subordinates
§
How far should one go?
• The bigger the organization -> the bigger the need for more layers
• Too much layers -> disadvantages
§
Too many layers
• Bad communication
• Slows down decision making
• High bureaucratic costs
• Be aware of ‘Parkinson’s law’
§
Parkinson’s Law
• British navy: decrease of ships but increase of dockyard officials
• Managers value their rank
• The more managers beneath them the greater their empire
• These subordinates want also to have subordinates
• Officials make work for each other -> more managers lead to more
work: work expands so as to fill the time available
o How to enlarge span of control?
§ By decreasing need for direct supervision
• Standardization and formalization of tasks (similar and less
§
§
•
complex)
• Empowerment – training
• Sophistication of the organization’s information system
• Strength of the organization’s culture
But! Supervision is often key in motivation
In some industries delayering might be dangerous
Coordination
o (De)centralization
§ Centralization
• The degree to which decision making is concentrated at upper
levels in the organization -> organizations in which top managers
make all the decisions and lower-level employees simply carry out
those orders
§
Vertical Decentralization
• Organizations in which decision making is pushed down to lower
level managers who are closest to the action
§
Horizontal Decentralization
• Power is dispersed out of the line of hierarchy any given to rather
non-managers such as analysts, support specialists and team
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§
How much (de)centralization
• More centralization
o Environment is stable
o Lower-level managers are not as capable or experienced at
making decisions as upper-level managers
o Lower-level managers don’t want to take part in decisions
o Organization is facing a crisis or the risk of failure
o Company is large
o Effective implementation of company strategies depends
on mangers retaining say over what happens
More decentralization
o Environment is complex, uncertain
o Lower-level managers are capable to take decisions
o Lower-level managers want a voice in decisions
o Corporate culture is open allowing managers to have a say
in what happens
o Company is geographically dispersed
o Effective implementation of company strategies depends
on managers having involvement and flexibility to make
decisions
•
o
Formalization/standardization vs. Socialization
§ Standardization of processes – How -> procedure
§ Standardization of Output – How much
§ Standardization of Input – Who
§ Standardization by culture -> socialization (here no formalization)
§ In reality all forms are used
o
Control
§ Control before – Budgeting
§ Control during
§ Control after – Performance measurement
§ Vs. Mutual agreement
4. Contextual dimensions
•
Size
o
o
o
Number of employees, turnover
Big
§ Centralization, formalization, top down, many layers, specialization,
control, standardization…
Small
§ Flexible, decentralization (vertical and horizontal), delayering, mutual
agreement, less formalization, less specialization
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•
Environment (rules of thumb), incl. sector
o Low uncertainty: cars, cans
o Low moderate uncertainty: universities, audit firms
o High moderate uncertainty: fashion, music, toys, film
o High uncertainty: ICT, aerospace, telco
•
Strategy
o Innovation – Differentiation strategy (high uncertainty)
o Production – Low cost strategy (low uncertainty)
o Structure follows strategy (Chandler 1962)
§ Organization is the means through which strategy is realized
o Alternative view: The organization sets the context for strategy
§ The organization and administrative heritage constrain strategic choice
§ Competencies are embedded in the organization
§ Few companies are able to transform themselves to another business
o Holistic view!
•
Design problem
o Balancing centralization and decentralization
o Balancing specialization and integration/coordination
o Balancing control/formalization and mutual agreement
5. Organization assessment tool
•
•
Mechanistic
o High specialization
o Rigid departmentalization
o Clear chain of command
o Narrow spans of control
o Centralization
o High formalization
Organic
o Cross-functional teams
o Cross-hierarchical teams
o Free flow of information
o Wide spans of control
o Decentralization
o Low formalization
6. Mintzberg’s ideal types
•
Basic idea: System of six organizational parts
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External coalition
§ Employee associations, suppliers, clients, partners, competitors, all kinds
of publics, governments and interest group…
o
The basic premise
§ A limited number of configurations can explain what happens in
organizations
§ Depending on
• Key organizational parts of the organization
• Coordination mechanism
o Direct supervision
o Standardization of processes
o Standardization of output
o Standardization of input (professionalism)
o Mutual agreement/informal communication
o Standardization by culture/set of beliefs
7. The ideal types
• Entrepreneurial/ simple organization
o Small organization run firmly and personally by one leader
o Where: start, up innovative, local producers & BU existing firms with strong
leaders
o Key: survival – things must be done
o Simple and unstable environment, often young
o Coordination mechanism: One leader -> direct supervision
o Strategy: boss’s vision & strategy, flexible, often client focused
o
o
C
u
lture
§
§
§
§
Informal, flexible, results/goal oriented and client focused
Identification with the organization
Charismatic/autocratic leadership -> sometimes fear
Busy-ness
Structural dimensions
§ “Non structure”
§ Centralization: The Boss
§ No/low division of labor, no/low
formalization and standardization,
no/low intensive use of planning,
no/low training
§ Often high socialization
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o
•
Inadequacies
§ Continuity (firm grows, stubborn boss, boss leaves)
§ Overdependence on the founder
§ “Too many emotions”
§ Personal status culture of the boss
Machine Organization
o Where: mass production, government, safety business, mature companies
o Key:
§ Efficiency & internal control (simple and repetitive work)
§ No surprises! “Uncertainty is the biggest enemy”
o Environment: Simple and stable environment
o Coordination mechanism: standardization of processes (procedures)
o Strategy: strategic programming, cost leadership -> efficiency (TQM)
o
Culture
§ Obsessed with control
§ No surprises -> efficiency
§ Lot of policies -> conservative
o
Structural dimensions
§ High formalization & specialization
§ Standardization of processes
§ Big administration -> centralization
§ Hierarchy of authority -> many
layers
Inadequacies -> bureau pathologies
§ Lack of personal freedom (standardization) -> compensated by high wages
§ Not client-focused
§ Designed for productivity not strategy -> back to strategy basics if needed
§ Perrow paradox
Diversified Organization
o Where: fortune 500 companies, big conglomerates
o Key: control by Headquarters -> spread of risk
o Environment: simple and unstable environment
o Coordination mechanism:
§ Standardization of output
§ HQ controls BU, which are relatively autonomous
§ Don’t exaggerate decentralization
o Strategy: strong overall corporate strategy (HQ)
o
•
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•
o
Culture
§ Politics amongst Business Unit
§ Risk averse
o
Structural dimensions
§ Centralization
to
HQ
->
standardization of outputs (higher
volumes)
§ Control: budgets & performance
reports -> Big administration
§ Delegation of authority to BU
managers (not too much)
§ Often matrix, based on products,
regions
o
Inadequacies
§ One division can pull down the whole organization
§ Conflicts between divisions for budget
§ Not always innovative
§ Control kills entrepreneurship
§ Big administration (high costs)
§ Economic goals drive out social goals
Professional organization
o Where: liberal professions, consultancies, universities, R&D departments
o Key: offering highly skilled but stable services
o Environment: complex and stable environment
o Coordination mechanism: coordination by input/skills (pigeon holing)
o Strategy: sometimes lack of a well-formulated coherent strategy which is often
made by committees where some professionals reside
o
Ideology
§ Fine line between collegiality and self interest
§ Indoctrination (skills)
§ Culture of individuals
o
Structural dimensions
§ Standardization by input (skills)
§ Decentralization
§ No control: except peer evaluation
§ Formal rules
§ Pigeonholing
§ Mutual agreement
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•
Inadequacies
§ Pigeonholing – every professional has its department to take care of
• For me – not for me -> categorizing
• Not innovative
§ Not customer focused
• Horror hospital stories
• ‘Why should the dentist make a cheap diagnosis’
• New problems are forced in old pigeonholes
§ No clear strategy
Innovative organization/Adhocracy
o Where: creative industry, innovative consultants, manufacturer of complex
prototypes, high technology, networks/ young companies & industries
o Key: adjusting to the environment, innovation, flexibility
o Environment: hyper-turbulent environment (raplex)
o Coordination mechanism: mutual agreement in mixed teams
o Strategy: innovation, often evolving via bottom up processes (grass root)
o
S
tructural dimensions
§ Horizontal decentralization, organic,
teams
§ Coordination by agreement: liaison
personnel -> low control
§ Often matrix structure (projects)
§ Little formalization & specialization
o
Culture
§ Entrepreneurship – strong culture of innovation, freedom
§ Inefficiency is tolerated
o
Inadequacies of adhocracy
§ Ambiguity, prone to politics
§ Inefficient, high communication costs
§ Often they quickly turn towards a more formalized way, once they succeed
and know what they are good in
o
Explosion of new forms (& names)
§ Hollow network/organization
§ Virtual organization
§ Boudaryless organization
§ Cloverleaf organization
§ Business Webs
§ Plug and play company
o
The learning organization (contemporary structure)
§ Developed the capacity to continuously learn, adapt, and change through
the practice of knowledge management by employees
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§
o
Characteristics of a learning organization
• Open team-based organization that empowers employees
• Extensive and open information sharing
• Leadership providing a shared vision of the organization’s future
• A strong culture of shared values
The boundaryLess organization (contemporary structure)
§ Idea: eliminating internal and external boundaries
• Eliminating internal boundaries
o Low horizontal differentiation
o Low vertical differentiation
o Uses empowerment terms rather than departments
o Has limitless spans of control
•
•
•
Eliminating external boundaries
o Separating the company from stakeholders
o Often virtual network designs are used
o Open innovation and strategic partnerships are important
Ideological/missionary organization
o Where: Japanese organizations, service clubs, alumni associations, political parties
o Key: very strong ideology, sense for survival
o Environment: unstable and complex environments
o Coordination mechanisms: standardization by norms – indoctrination, selection
of people (membership) – formalization (rites) – decentralized
o Strategy: the notion of ‘mission’ is at core; worldview
o
Ideology:
§ Collective enthusiasm -> belief in causes
§ Will & power to survive
§ Members work for free
§ Internal tensions are strictly taboo
o
Inadequacies – implementation
§ As soon as its deals, values, ideology need to be converted into concrete
objectives, many members no longer ‘recognize’ their organization, they
believe the objectives are no longer ‘pure’
Some of Mintzberg’s rules
o The older an organization, the more formalized its behavior
o Large organization = elaborated structure = formalized behavior
o Structure reflects ‘the age of industry’
o Fashions favors the structure of the day, even when inappropriate
o The more dynamic an organization’s environment, the more organic its structure
o The more hostility in its environment (crisis) drives any organization to centralize
STRUCTURAL DIMENSION =/= ORGANIZATIONAL PARTS
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Introduction to Management and Strategy V
Chapter 16: Motivation
1. What is motivation – Importance
• The processes that accounts for an individual’s intensity, direction and persistence of
effort towards attaining an organizational goal
o Intensity: the amount of effort
o Direction: channeled towards goal
o Persistence: the duration of the effort
2. Motivation theories
• Old motivation theories based on needs
o Maslow
§ Hierarchy of needs
• High-order: needs satisfied internally – social, esteem and selfactualization
• Low-order: needs satisfied externally – physiological and safety
o
§
In practice
• A satisfied need may loose its motivational potential
• Physiological: good wages and work conditions (breaks)
• Safety: job security
• Social: networking, creating a feeling of acceptance
• Esteem: provide status, recognition
• Self-actualization: challenge & meaning -> creativity & progress
§
Critiques
• People value the same needs differently
• Identical rewards may satisfy different needs
• Same needs but different ways to satisfy them
Theory X & Y (Mc. Gregor)
§ Theory X
• Assume that workers have little ambition, dislike work, avoid
responsibility and require close supervision
§ Theory Y
• Assume that workers can exercise self-direction, desire
responsibility and like to work
§
Assumption
• Motivation is maximized by participative decision making,
interesting jobs, and good group relations
§
Critiques
• No evidence that either set of assumptions is good
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o
Two factor theory (Hertzberg)
§ Reasons to feel bad about your job (hygiene factors) -> extrinsic
• Quality of supervision
• Pay
• Company policies
• Physical working conditions
• Relations with boss and subordinates
• Job security
• Personal life
• Status
§
Reasons to feel good about your job (motivation factors) -> intrinsic
• Recognition
• Achievement
• Responsibility
• Promotional opportunities
• Opportunities for personal growth
• Work itself
§
In practice
• Possibility to motivate people with motivators related with the
content of the task being performed
• Extrinsic factors do not motivate per se -> eliminate dissatisfiers
• E.g.: salary increases -> short duration motivational effect
§
Critique
• Methodology
• Other research showed that his dissatisfiers are actual motivators
o Job security, benefits & salary
McClelland’s theory of needs
§ Three needs -> Thematic Apperception Test
• Need for achievement
• Need for affiliation
• Need for power
§
o
In practice
• What to look for when hiring good managers
• Since good managers have a relatively high need for achievement
o Offer them challenging jobs and obtainable goals
What do we learn from these older theories
§ Extrinsic motivation
• People look for pay, job security and security
• Individuals engage in behaviors merely because of the objective
consequences that might attract, like tangible rewards or praise
§ Intrinsic motivation
• People have social needs
• Some people seek personal growth
• Individuals engage in behaviors they perceive as inherently
interesting, gratifying, fulfilling and enjoyable
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•
Contemporary theories
o Cognitive evaluation theory
§ Extrinsic + intrinsic -> do they add up?
§ External events can impact intrinsic motivation
• Some extrinsic rewards (pay, deadlines) tend to reduce intrinsic
motivation
• Other extrinsic rewards (positive feedback, trophies) tend to
intensify intrinsic motivation
• Depends whether the event/reward promote or not greater
perceived competence (self-efficacy)
o
Goal setting theory
§ What leads to motivation?
• Set specific goals
• Even difficult goals are accepted
• External or self-generated feedback
• Participation in setting-goals
§
§
o
o
BUT
•
•
•
Wanting it (make it public)
Rather for simple and know tasks
Typical for western culture
In practice
• Set specific and difficult goals
• Promote goal commitment
o Must be fair, obtainable and reasonable
o Let employees set goals themselves
o Give tools and resources
o Promote self-efficacy
• Give support and feedback
Reinforcement theory
§ Reinforcement
• Providing a reward for a desired behavior
• Removing an unpleasant consequence when the desired behavior
occurs
§
Punishment
• Applying an undesirable condition to eliminate an undesirable
behavior
§
Extinction
• Withholding reinforcement of a behavior to cause its cessation
§
Reinforcement works better than punishment
Equity theory
§ Model of motivation that explains how people strive for fairness
§ Employees expect a fair return for what they contribute to their job
§ They compare their output-input ratio with the one of relevant others
§ Cognitive dissonance
• How do we react if the other has more /less than us?
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o
o
§
Distributive and procedural justice
• Distributive: greater influence on job satisfaction
• Procedural: greater influence on organizational commitment
§
Choices for dealing with inequity
• Change inputs (slack off)
• Change outcomes (increase output)
• Distort/change perceptions of self/others
• Choose a different referent person
• Leave the field (quit the job)
Expectancy theory
§ If people expect that an act will be followed by an outcome that will reward
the individual -> people will act
§ Three key relationships
• Expectancy (effort-performance linkage)
o The perceived probability that one’s effort will result in a
certain level of performance, seen positive by the appraiser
•
Instrumentality (performance-reward linkage)
o The perception that a particular level of performance will
result in the attaining of a desired outcome (reward)
•
Valence (reward-personal goal linkage)
o The attractiveness of the performance reward (outcome) to
the individual
§
In practice
• FedEx example
• Align rewards to what people value
• Keep promises towards employees
• Install a clear and approved appraisal system
§
Critiques
• Does the organization know what the employee values
• There is no universal principal that shows what motivates people
• Effort and performance: people must be able
• Research has shown that few individuals perceive a high
correlation between effort and reward
Motivating by job design
§ Job Characteristic model
• Internal motivation -> sum of three psychological states
o Experienced meaningfulness
o Experienced responsibility
o Knowledge of results
•
Five core dimensions
o Skill variety – different activities and various skills
o Task identity – complete a whole piece of work
o Task significance – impact on other peoples’ lives
o Autonomy – discretion in use of time and procedures
o Feedback – receive clear performance reports
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•
Computing a motivating potential score MPS
! !"#$ !"#$"%"&'$&(
o 𝑀𝑃𝑆 = (!"#$$ !"#$%&' ! !"#$ !"#$%!%&
)×𝑎𝑢𝑡𝑜𝑛𝑜𝑚𝑦 × 𝑓𝑒𝑒𝑑𝑏𝑎𝑐𝑘
!
o Motivating jobs must
§ At least one of the three meaningfulness factors
§ Autonomous
§ Provide feedback
o
•
Jobs diagnostic survey
§ Calculates the motivating potential of a job
•
In practice
o Job rotation (shift to other tasks on same level)
o Job enlargement (increase number and variety of tasks)
o Job enrichment (increase the degree of control of tasks)
o Flextime (flexibility in work shifts)
o Job sharing (share a traditional job)
o Telecommuting (work remotely part of the time)
•
Be aware
o Job redesign often reduces the quantity of output
o Good change management is advisable
Integrating motivation theories
o Lessons learned
§ Money is not everything
§ What motivates people -> listen to your employees
§ Make goals specific and difficult
§ Motivation can be increased by raising employee confidence in their own
abilities (self-efficacy)
§ Be aware of the Pygmalion effect
§ Pay attention to employees’ perceptions of what is fair and equitable
3. Motivating unique groups of workers
• Men are from Mars, Women from Venus
o Women are more motivated to get along
o Women desire learning opportunities, flexible work schedules and good relations
o Men are more motivated to get ahead
o Men desire more autonomy than do women
•
Professionals
o Loyalty is to their profession, not to their employer
o Have the need to regularly update their knowledge
o Don’t define their workweek as 9 to 5
o Job challenge
o Organizational support of their work
•
Low-skilled, minimum-waged employees
o Good wage/bonuses
o Employee recognition programs
o Provision of sincere praise
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Introduction to Management and Strategy V
Chapter 17: Leadership
1. Leadership, the concept
•
Importance
o To influence subordinates
o Leadership plays a critical role in ethical shortcomings
o Motivation, increased commitment
o Job satisfaction
o Link with performance
•
Definition
o Leaders ‘make a difference’ by who they are
o They have a positive impact
o It is no role, function, position
o Its about relationships with people
o Leaders influence
§ Without a leader people behave differently
§ Leaders make people things do out of free will
o Leadership is ‘attributes’ when results are shown
o Leadership is often situational
o Leaders have followers
Management vs. Leadership
o Leadership: the ability to influence a group toward the achievement of goals
§ About coping with change
§ Establish direction with a vision
§ Align resources and inspire workers to complete the vision
§ Leadership is doing the right things
o Management: use of authority inherent in designated formal rank to obtain
compliance from organizational members
§ About coping with complexity
§ Brings about order and consistency
§ Draws up plans, structures, and monitors results
§ Management is doing the things right
•
•
•
Are all managers’ leaders?
o All managers should be leaders, as leading is a managerial function
o Often in groups/teams informal leaders emerge
o The studies discussed here are studies about leadership from a managerial
perspective
Leadership is culturally bound
o France: more bureaucratic view on leaders, task oriented, autocratic
o Nordic: leaders are interpersonal, enthusiastic, informal, inspirational
o Germany: independent, autonomous, unique
o Latin: visionary, team oriented and status conscious
o US: obsession with leadership, the sky is the limit
2. Leadership theories
•
Caution
o Old phenomenon -> systematic studies only started in 1930s
o Leadership literature often reflects Western industrialized culture
o Almost 98% of empirical evidence is American in character
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Trait theories
o Considers that personality, social, physical or intellectual traits differentiate
leaders from non-leaders (Mann, Stogdill)
o Lack of valid measurement instruments
o Traits and characteristics: Intelligence, alertness, responsibility, influence…
o
Revival of trait theories in 1980s
§ Mental models about leadership (Implicit Leadership Theories)
§ 7 traits of Kirckpatrick & Locke
§ In the 1980s resurgence of traits associated with personality big V theory
§ Role of emotional intelligence
§ Whether or not traits work depends on situations
• Strong masking situations -> organizational structure
o
Implicit Leadership Theories (Lord, DeVader, Alliger)
§ Mental models about leadership
• ILT assert that people’s underlying mental models influence the
extent to which they view someone as a good leader
• Intelligence, Dominance and Masculinity
• Confirmation bias -> Halo effect
§
The leadership practices inventory -> traits to have to be a good leader
• Integrity – honesty and trustworthiness
• Intelligence – intellectual ability (verbal, perceptual, reasoning)
• Self-confidence – be certain about one’s skills and competences
• Determination – desire to get the job done
• Sociability – ability to have good relations
o
7 traits associated with leadership (Kirkpatrick, Locke)
§ Drive – will of persistent achievement
§ Desire to lead – strong desire to influence
§ Integrity and honesty – build trusting relations
§ Self-confidence – in order to convince followers
§ Intelligence – gather, synthetize and interpret large amount of data
§ Job relevant knowledge – in-depth knowledge about industry, company
§ Extraversion – be sociable and assertive
o
Leadership and Big V (Zaccaro, Kemp, Bader
§ Leaders are:
• Extravert – sociable, talkative, outgoing (extravert)
• Conscientious – dependable, responsible, persistent (focused)
• Open to new experiences – broadminded, curious (explorer)
• Agreeable – cooperative, warm, trusting (adapter)
• Emotionally stable – self-confident, relaxed, secure (stable)
o
Leadership and emotional intelligence (EQ)
§ Self-awareness – reading one’s emotions & use gut feeling
§ Self-management – controlling one’s emotions & adapt to circumstances
§ Social awareness and empathy – sense, understand and react to others’
emotions while comprehending social networks
§ Relationship management – ability to inspire, influence and develop others
while managing conflict
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•
o
Physical theories
§ Large people have more self-confidence and therefore have more chance to
become leaders
o
Are leaders born?
§ Old trait theories assume that leaders are born
§ Behavioral theories say it’s a mix of nature and nurture
o
Critique on traits
§ No universal trait that predicts leadership in all situations
§ Leadership is situational and culture-bound
§ No evidence of relation between leadership and trait
§ Halo effect of ILT
• Mental representation of traits
• Tend to perceive that someone with these traits is a leader
o
What’s in for me
§ Given direction to which traits are good to have -> hiring people
§ Relate leadership and personality (specifies traits for specific positions)
§ If you do not possess them you can try to posses them
Behavioral Theories
o Style approach
§ Behavior of leader -> what does he do/how does he act
§ Certain behavior influences subordinates’ effectiveness
§ Result -> task oriented behavior & people oriented behavior
• Task oriented behavior -> more productivity
o Emphasizes technical or task aspect of job
o Organize work, work relationships and goals
• People oriented behavior -> job satisfaction, respect for leader
o Emphasizes interpersonal relations
o Personal interest in needs of employees and accepts
individual differences among members
§
Blake & Mouton’s leadership grid
§
What’s in for me?
• Isn’t a prescriptive tool -> assessment tool
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Skills approach
§ Skills and abilities of leader
§ Can be learned and developed -> experience plays a role
§ Which skills
• Problem solving skills -> creative ability to solve new problems
• Social judgment skills -> understand people and social systems
• (Technical) knowledge
§
•
What’s in for me?
• It’s a descriptive theory
• What skills do I need to develop?
Situational theories
o Hersey and Blanchard Situational Leadership Theory Model
§ Right leadership style is contingent with the level of followers’ readiness
§ Leaders should change their style to fit followers’ degree of readiness
§ Train leaders to fit their style to their follower
§
o
What’s in for me?
• Emphasis on leader flexibility
• What are your subordinates needs and act accordingly
Fiedler Model (Contingency theory of leadership)
§ Leaders have a certain style (task or relationship motivated)
§ Style does not easily change
§ For a certain situation (degree of control) there is a best style
§ Or change situation in order to fit style or change leader
§
Contingency variables
• Leader-member relations – confidence, respect (good/poor)
• Task structure – formalized and structured jobs (high/low)
• Leader influence – punish, reward (strong/weak)
§
Task or relationship
• Good leader-member relations and one other positive variable
o High control situation, favorable for leader
o Task behavior
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§
o
Poor leader-member relations and low task structure
o Low control situation, not favorable for leader
o Task behavior
•
All other combinations
o Moderate control situation
o Relationship behavior
What’s in for me?
• What can I do to fit my leadership style to a situation?
• Effective in one position = effective in another?
Path-Goal Model
§ Subordinates will be motivated if they think they are capable at performing
at heir work
§ Leader’s job: assist his followers to attain their goals and provide direction
to ensure their goals are compatible with organizational goals
§ If a leadership style is motivating depends on subordinates and task
• Directive leader – gives structure, command, direction
• Supportive leader – shows concern, friendly, people oriented
• Participative leader – participates in decision making
• Achievement oriented leader – sets BHAGs
§
•
•
What leadership style to apply?
• Tasks are clear and/or formal authority system
o Less directive, more supportive
• Workgroup conflict
o More directive
• High internal locus of control
o More participative
• High experience and high perceived ability
o Less directive, more achievement oriented
Leaders-Followers approach
o Leader Member Exchange theory (LMX)
§ Interactions: relations between leader and follower
§ Leaders treat followers differently
§ In-group members (vs. out-group members)
• Close to leader in attitude or personality
• Have more of the leader’s attention
• Get special privileges -> higher performance ratings
• Lower turnover -> greater satisfaction
§
What’s in for me?
• Improve leadership behavior paying attention to treat followers
equally and develop special relations with all subordinates
3. New Leadership paradigm
• How leaders achieve extraordinary followership, trust, admiration..
o Affective elements of leadership
o Symbolic and emotionally appealing aspects of leadership
o Followers are not only satisfied -> adhere to visions
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•
•
Transactional vs. Transformational leadership
o Transactional leadership
§ Approaches followers to exchange one thing for another
§ These leaders pursue an economic exchange to meet the subordinates
needs in return for ‘contracted’ services rendered by the subordinate
o
Transformational leadership
§ These leaders connect with their followers and raise their level of
motivation and morality for the good of the organization and beyond
§ The followers feel trust, admiration and respect for the leader so are
willing to work harder than expected
o
Transformational leadership via the 4 I’s
§ Inspirational motivation
• Provide vision, sense of mission -> instill pride, gain, respect, trust
• Supported by communication skills that make the vision precise
§
Idealized influence
• Leaders must be credible and act like role models
§
Intellectual stimulation
• Promote intelligence, rationality and creativity
• Challenge assumptions to look at old problems in new ways
§
Individualized consideration
• Give personal attention, treat employees individually (coaching)
• Increase self-efficacy
Charismatic Leadership
o Charisma
§ A certain quality of someone, setting him apart from normal people and is
treated as endowed with specifically endowed powers
o
Charismatic leaders
§ Inspire a shared vision
• Idealized goal, better future
• Communicate high expectations (symbols, emotional language)
• Express confidence that followers can attain
§
§
§
§
o
Willing to take personal risks (self sacrifice) to achieve the vision
Model the way: exhibit unconventional behaviors
Enable others to act: teamwork and cooperation
Encourage the heart: sensitive to followers’ needs and rewards them
Born or made?
§ Charisma can be created by
• Developing an a charismatic aura
o Be optimistic and passionately enthusiastic
o Communicate with body, not only with words
o Maintain eye-contact, clear facial expressions
• Drawing others in -> inspire others
• Tapping into emotions -> bring out others’ potential
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o
Charisma and the situation
§ Charisma correlates to high performance and satisfaction
§ Best used when:
• Environment is uncertain or stressful
• Ideology is involved
§ Most closely associated with upper level executives
§ Works well with people with low self-esteem
o
Potential dark side
§ Use organizational resources for personal benefit
§ Remake companies in the leader’s image
§ Allow self-interest and personal goals to override organizational goals
§ No critic: surrounded by Yes people
§ Many of these leaders can be psychopaths, narcissistic and self-centered
•
Level 5 leaders
o Individual capability
o Team skills
o Managerial competence
o Ability to stimulate others
o Personal humility and professional will
•
Authentic Leadership
o These leaders know who they are (self-awareness), what they believe in and value,
and act on those values openly
§ They have a sense for purpose -> internalized moral perspective
§ Followers see them as ethical
§ Use ethical means to get followers to achieve their goals (also ethical)
§ Have self-discipline -> don’t abuse power to attain goals
§ Create trust, communicate openly, soften the leader boundary around
them and are therefore willing to help others
o Develops over time
•
Ethical Leadership
o Reputation as
§ Moral person
• Honest, trustworthy, integer
• Genuine concern for others
• Approachable
• Fair and principled
§
Moral manager
• Creates a strong ethical message influencing subordinates’
thoughts and behavior
• Role model
• Ethical goals
• Ethical rewards/punishment
o
Would lead to
§ Ethical behavior of followers
§ Ethical climate/culture
o
Ethical managers have better chance for promotions to senior management
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•
Men are form Mars, Women from Venus
o Men and women use different management styles
§ Women tend to adopt a more democratic or participative style unless
• Encourage participation and enhance followers’ self-worth
§
Women tend to use more transformational and charismatic leadership
• Use their interpersonal skills
§
Men tend to use transactional leadership
• Use a directive tool and command style -> rely on formal position
-- THE END -Liam Inc.
© Liam Inc. – Making studying less boring. Since 1999.
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