Review Session
Examination #2
Chapters 6 through 11
Chapter Six
Managing in a Global Environment
Organizational Environment
The external forces and conditions that can
affect the way an organization operates
• Task Environment: Immediate and direct forces
and conditions imposed by suppliers,
distributors, customers and competitors – the
inner ring somewhat within your control
• General Environment: General forces and
conditions imposed by economic, social, legal,
political, and technological factors – the outer
ring largely beyond your control
How Factors Can Change
• Foreign competitors enter your market, raising quality and/or
lowering prices
• Domestic competitors grow stronger
• Existing suppliers fail and new ones arise
• Quantum technological advances obsolete your product
• Customer needs evolve
• Interest rates rise or the economy goes into recession
• New government regulations increase your costs
• A foreign government nationalizes your operations in their country
• New trade agreements open opportunities or create restrictions
Competition is growing more complex and global. If you don’t go
find the world, it will come and find you.
Either way you must deal with it!
Barriers to Trade and Investment
Tariff: a tax government imposes on imported
goods in order to protect domestically produced
goods;
Usually self-defeating because trading partners
retaliate (manipulating the currency exchange
rate can achieve the same objective)
Slowly developing free-trade agreements are
gradually eliminating tariffs, creating global trade
opportunities and heightening competition in all
markets.
Declining Barriers…
Distance: The slow boat to China is now a
jet airplane
Communication: Easy, cheap and secure
long-distance communication has
facilitated overseas expansion,
management coordination, and global
competition
Culture: Inter-cultural barriers are
decreasing, but still must be considered
Role of National Culture
Values and Norms (clothing, table
manners, terms of address, gender roles,
national values, etc.) vary from nation to
nation.
To do business in a foreign culture, you
must understand and abide by its values
and norms.
When in Rome…
Hofstede’s Model
Individualism values, individual freedom,
self-expression and achievement (U.S.)
Collectivism subordination of individual
goals to group goals (Japan)
Power-Distance tolerates differences in
well-being due to differences in heritage
and physical or intellectual capabilities
(India=high) or doesn’t (U.S.=low)
Hofstede’s Model
Achievement versus Nurturing strongly
value individual achievement and assertiveness
(U.S., Korea) or place more value on quality of
life, service and personal relations (Sweden,
Denmark)
Uncertainty Avoidance tolerate a wide range of
opinions and beliefs (U.S.) or are more rigid and
expect conformity (Japan, France)
Long-term/Short-term Outlook value savings
and persistence (Japan) or seek immediate
gratification and are willing to go into debt to
achieve it (U.S.). “grasshoppers versus ants”
Chapter Seven
Manager as Decision-Maker
• Programmed versus non-programmed decisions
• Intuition versus judgment
• Evolution of decision-making process: classical model to
administrative model to…
• Six-step model:
–
–
–
–
(1) Recognize need
(2) Generate alternatives
(3) Evaluate alternatives for strength and weakness
(4) Evaluate alternatives for legality, ethicality, economic
feasibility and practicality
– (5) Implement
– (6) Learn from feedback and improve (PDCA)
Filters, Assumptions and
Teamwork
• Assumption is the mother of all SUs
• Examples: prior hypothesis bias,
representativeness, illusion of control, escalating
commitment
• Strengths and weaknesses of group decisionmaking (more at the table, but also can deliver
lowest-common-denominator thinking)
• Methods to improve group decision-making:
dialectical inquiry, devil’s advocacy, diversity,
brainstorming
• Question, question and question (what if?)
Tool Box
• Maintain a diverse, creative, learning
organization that rewards risk-taking.
• Use cross-functional teams, brainstorming,
devil’s advocacy and dialectical inquiry to
maximize the number of thoroughly
analyzed alternatives.
• Constantly re-examine basic assumptions
as new information becomes available or
the business environment changes.
Tool Box (cont.)
• Make a decision only when necessary unless
early foreclosure of alternatives will deliver
substantial first-mover advantage.
• Thoroughly prepare and when decision-time
arrives, don’t hesitate – you will never have
perfect knowledge.
• Learn from success and failure; use PDCA to
institutionalize learning and continuous
improvement (kaizen).
• Be skeptical, question, dig, find the facts!
Chapter Eight
Manager as Planner and Strategist
• Planning: the process of selecting an
organization’s goals and the detailed steps
to achieve them (i.e., drawing the “road
map”)
• Strategy: the set of decisions and actions
designed to direct an organization and
help it achieve its goals (i.e., the “road
map” produced by planning)
Planning
“An infinite capacity for taking pains”
Knute Rockne
“Chance favors the prepared mind.”
Louis Pasteur
“Planning keeps you on your feet when life
pulls the rug out from under them.”
Purpose, Values, Vision, Strategy
•
•
•
•
Purpose:
Values:
Vision:
Strategy:
Why are we here?
What do we hold most dear?
Where are we going?
How will we get there?
Mission Statements
•
Simple, short, direct declaration
designed to:
1. Define an organization’s purpose
2. Direct and motivate employees to
achieve it
3. Differentiate the organization from
its competitors
4. Attract customers to the
organization.
Key Planning and Operational
Procedures
1.
2.
3.
4.
5.
6.
7.
Infect everyone with the corporate DNA.
Determine/define/refine vision, mission and goals.
Formulate appropriate strategy based on SWOT analysis of internal
strengths-weaknesses and external opportunities-threats.
Communicate vision, mission, goals and strategy to organization (topdown).
Require the organization to respond with suggested tactics, timetables
and resource requests in order to find best ideas, create organizational
alignment, and build ownership of the plan (bottom-up).
Bracket (best, likely, worst-case scenarios) to provide on-the-shelf
capability for dealing with rapid change; worst-case scenario should be
the perfect storm; never over-extend by implementing a best-case
scenario -- even to fully exploit opportunities.
Finalize and implement the three “R’s” by assigning responsibility,
allocating resources and demanding results.
Key Procedures…
8. Establish Key Performance Indicators (KPIs) to measure
performance – you get what you measure.
9. Recognize and reward good teamwork and good results
-- you get what you reward.
10. Compare results with targets, improve process and reimplement (i.e., use PDCA to achieve continuous
improvement).
11. Use budget discipline and supply-chain management to
harvest savings for re-investment.
12. Occasionally stretch the organization with a BHAG (Big
Hairy Audacious Goal) that will build new competitive
capabilities.
13. Always run scared and play the what-if game.
Types of Strategies
•
•
•
•
•
Focused low-cost (Kia)
Differentiation (Lexus and Scion)
Focused differentiation (Porsche)
Porter: “Don’t get stuck in the middle.”
But some corporations have been able to
successfully straddle – feeding
differentiation with savings generated by
low-cost; the ideal position to achieve
(e.g., Toyota)
Planning Levels
1.
2.
3.
•
Corporate (TMC)
Division or Business (TMA)
Functional (TMS & TEMA)
Linkage of corporate, division and
functional plans vital to clarify roles and
responsibilities and assure unified,
synergistic execution
How To Grow
• Local, regional, national, multi-national, global
• Export and import
• License (risk technology), franchise (risk
reputation), strategic alliance or joint venture
(augment your resources with those of an
outsider), wholly owned foreign subsidiary
(expensive but maximizes control)
• Any growth strategy must strive to optimize the
balance between cost and control. How much
control can I afford?
Tool Box
• The basic motivation for business planning is to answer
four questions:
1. What is my product or service?
2. Who will buy it?
3. What do they want (product, sales, service)?
4. How can we give it to them in ways that will
differentiate us from competitors, capture customer
loyalty, and make money?
The ultimate goal of business planning is to answer
these basic questions with plans and actions that will
eventually build sustainable competitive advantage.
Chapter Nine
Value Chain Management
• Improving a company’s system for
transforming inputs (money, manpower,
material and information) into outputs
(products and services):
1. Product development
2. Production
3. Marketing
4. Selling
5. Servicing
Goals of VCM
•
•
•
•
•
Attain superior efficiency by driving out waste and cost.
Attain superior quality.
Attain superior speed, flexibility and innovation.
Attain superior responsiveness to customers.
Gain brand strength and market share to deliver superior
profit for re-investment in the process.
• Apply PDCA to institutionalize continuous improvement.
• Congratulations, you have created competitive
advantage.
• Now do it over and over forever!
Improving Quality
• Providing more by increasing QDR (Quality,
Durability, Reliability), adding features, reducing
cost, or all of them
• Enables you to build superior product reputation,
which can lead to ability to charge more and
deliver strong profits for re-investment.
• Both the high road (brand strength) and the low
road (cost reduction) deliver higher profit. If you
do both, you will develop a huge competitive
advantage!
Total Quality Management:
Focusing all activity on improving
customer-defined quality
1. Focus on the customer.
2. Build organizational commitment.
3. Solicit employee input (creativity, innovation, ownership).
4. Involve suppliers and distributors.
5. Establish quality metrics (what and how to measure – KPI’s).
6. Set goals and create incentives.
7. Tear down walls, create teams, empower, train and support people.
8. Identify defects, trace to root cause, fix problem.
9. Drive out waste and cost.
10. Introduce JIT inventory (warning: vulnerable to stoppages).
11. Design for production (easy and idiot-proof).
12. Institutionalize continuous improvement (kaizen) with PDCA.
Manufacturing Improvements
• Flexible manufacturing: re-program and
re-arrange rather than replace in order to
reduce downtime, machinery and set-up
costs
• Facilities lay-out:
1. Product (car assembly line)
2. Process (custom product – chairs)
3. Fixed-position (aircraft)
Chapter Ten
Managing Structure
• Structure: formal system of task and reporting
relationships showing how workers use
resources to create value (the “org. chart”).
• Different bottles for different wine (matched to
internal resources and external environment).
• Stable environment allows tall command-andcontrol structure (not used much anymore).
• Quickly changing, uncertain environment favors
flat and flexible structure designed to facilitate
communication, speed decision-making, foster
innovation and enhance adaptability. Remember
that elephants can’t dance!
Job Design
• Dividing tasks into specific jobs to create
required structure
Job simplification (less tasks)
Job enlargement (more tasks)
Job enrichment (more responsibility)
Divisional Structure
• A separate division dedicated to each
business. Structure can be based upon:
1. Product
2. Geography
3. Customer (market)
Tool Box
• Base structure on internal resources, corporate culture and external
environment.
• In most cases, lean, simple, flexible and flat is best.
• Decentralize, empower and drive authority down.
• Widely share actionable knowledge.
• Re-assess often to assure structure stays in tune with business
environment – smart managers continuously destroy yesterday and
recycle the resources to create tomorrow.
• Strengthen corporate culture as you decentralize and empower;
implant corporate DNA in each person so aggregate decisionmaking reflects ideal corporate culture and strategy – the individual,
internal gyroscope.
• Don’t let the bread dough grow.
• Never get complacent – run scared!
Chapter Eleven
Organizational Control and Change
• You have built the machine, now how do you drive it?
• Control Systems:
1. Target-setting (carefully pick objectives together)
2. Monitoring (feedback metrics – KPIs)
> Financial controls (return on investment, etc.)
> Activity ratios (days’ supply, inventory turn-over, etc.)
3. Evaluation (compare against targets)
4. Adjust or Improve (PDCA)
5. Process control (for goals difficult to quantify)
6. Behavior control through direct supervision
7. Bureaucratic control (SOPs) – ossification and red tape
8. Clan/culture control: GE Way, H-P Way, Toyota Way,
GM Way
9. Incentives tied to performance (bonus, pay increase, etc.)
You get what you reward!
Control Systems
• A good control system should be flexible and provide
accurate feedback that is as nearly real-time as possible.
• Feed-forward controls (before) are used in the input
stage to anticipate problems and head them off.
• Concurrent controls (during) are used during the
conversion process to react to problems as they arise.
• Feedback controls (after) are used after the conversion
process to gain information managers can use to
improve the process next time.
Notice how feedback becomes feed-forward,
completing the PDCA cycle that yields continuous
improvement
The Control Process
PDCA
1.
2.
3.
4.
5.
Carefully establish performance standards, goals and
a way to measure success (KPIs) – What gets
measured gets done!
Warning:
>weigh short-term against long-term
>stretch but don’t break
Measure the outputs delivered or the behavior that
delivers them.
Compare performance against goals.
Evaluate results, find the root cause of any problems
and take corrective action.
Do it all again and again and again…
The Change Process
Evolutionary Change
 gradual, incremental, narrowly focused
 PDCA
Revolutionary Change
 Rapid, dramatic, broadly focused
 Likely to shatter and replace old processes,
goals and structure
 Usually the result of not institutionalizing
evolutionary change (PDCA)
The Change Process
• Assess the need for change.
• Create organizational urgency: what do we want
to look like when the first cycle of change is
completed?
• Find the root cause(s).
• Benchmark the best, then formulate the plan
(top-down/bottom-up)
• Identify and remove obstacles to change.
• Implement.
• Measure results, adjust and re-establish
evolutionary change (PDCA).
Revolutionary Change Goal
The primary goal of revolutionary change
is to realign and re-purpose the
organization so that it can once again
successfully pursue evolutionary change.
The Social Contract
“There are management tools and
techniques, concepts and principles, and
perhaps even a universal discipline called
management…But management also is a
culture and a system of values and
beliefs.. Through which a society makes
productive its own values and beliefs…to
serve the common purposes of mankind.”
Lessons From the Meltdown
“We make things.”
• Valuable products to satisfy customers
• Exciting jobs, satisfaction, fulfillment
• Community contributions (taxes, payroll,
philanthropy, expertise, etc.)
• Profit to fund social and material progress
• All of this is our best defense.
Dr. Shoichiro Toyoda
Lessons
“We package deals.”
• Enticed into credit they couldn’t afford
• Disguised bad debt like rotten peaches
• Persuaded raters to endorse peaches
• Sold the peaches to trusting, ignorant, lazy
financial institutions
• Meltdown “Not our fault!”
Lessons
• Business is about pursuing excellence,
satisfying customers, and creating economic and
social value
• Basic tools are practical, principled, ethical and
don’t change much
• Fact-based “learning” culture constant at core,
adaptive at margin
• Authentic, attached leaders who learn, teach
and extract extraordinary performance from
ordinary people by empowering, supporting and
holding them accountable
Lessons
• Maintain margin of safety, observe and
evolve with environment, never overreach
• Control cost, avoid waste, enforce ethics,
always try to get more from less
• Trust must be big part of the transaction
process at the heart of business
No trust = Meltdown