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BADM 310 Final (6, 10, 8, 11, 9, 5, 4, 12)

Terms in this set (38)

Forces in the task environment result from the actions of suppliers, distributors, customers, and competitors both at home and abroad
These four groups affect a manager's ability to obtain resources and dispose of outputs daily, weekly, and monthly and thus have a significant impact on short-term decision making.

SUPPLIERS (individuals and companies that provide an organization with the input resources (such as raw materials, component parts, or employees) it needs to produce goods and services.)

A supplier's bargaining position is especially strong when
(1) the supplier is the sole source of an input
(2) the input is vital to the organization.

managers who fail to use low-cost overseas suppliers create a threat and put their organizations at a competitive disadvantage

-Global Outsourcing (when a company contracts with suppliers in other countries to make the various inputs or components that go into its products or to assemble the final products to reduce costs.)

DISTRIBUTORS (organizations that help other organizations sell their goods or services to customers.)

The changing nature of distributors and distribution methods can bring opportunities and threats for managers.

It is illegal for distributors to collaborate or collude to keep prices high and thus maintain their power over buyers; however, this frequently happens.

CUSTOMERS (the individuals and groups that buy the goods and services an organization produces.)

Changes in the number and types of customers or in customers' tastes and needs create opportunities and threats.

The most obvious opportunity associated with expanding into the global environment is the prospect of selling goods and services to millions or billions of new customers

COMPETITORS (organizations that produce goods and services that are similar and comparable to a particular organization's goods and services.)

Rivalry between competitors is potentially the most threatening force managers must deal with.

A high level of rivalry typically results in price competition, and falling prices reduce customer revenues and profits.

Although extensive rivalry between existing competitors is a major threat to profitability, so is the potential for new competitors to enter the task environment
-Potential Competitors

BARRIERS TO ENTRY (factors that make it difficult and costly for a company to enter a particular task environment or industry.)

the more difficult and costly it is to enter the task environment, the higher are the barriers to entry.

Three main sources:
-economies of scale
-brand loyalty
-government regulations that impede entry
ECONOMIC FORCES (affect the general health and well-being of a country or world region. They include interest rates, inflation, unemployment, and economic growth.)

-Technology (combination of tools, machines, computers, skills, information, and knowledge that managers use to design, produce, and distribute goods and services)
-Technological force (outcomes of changes in that technology)

SOCIOCULTURAL FORCES (pressures emanating from the social structure of a country or society or from the national culture, such the concern for diversity, discussed in the previous chapter.)
-Social Structure (traditional system of relationships established between people and groups in a society)
-National Culture (set of values that a society considers important and the norms of behavior that are approved or sanctioned in that society)

DEMOGRAPHIC FORCES (outcomes of changes in, or changing attitudes toward, the characteristics of a population, such as age, gender, ethnic origin, race, sexual orientation, and social class)

POLITICAL AND LEGAL FORCES (outcomes of changes in laws and regulations. They result from political and legal developments that take place within a nation, within a world region, or across the world and significantly affect managers and organizations everywhere.)

Deregulation, privatization, and the removal of legal barriers to trade are just a few of the many ways in which changing political and legal forces can challenge organizations and managers. Others include increased emphasis on environmental protection and the preservation of endangered species, increased emphasis on workplace safety, and legal constraints against discrimination on the basis of race, gender, or age.
Managers need to recognize that companies compete in a truly global marketplace, which is the source of the opportunities and threats they must respond to.

All large companies must establish an international network of operations and subsidiaries to build global competitive advantage.

THE PROCESS OF GLOBALIZATION (set of specific and general forces that work together to integrate and connect economic, political, and social systems across countries, cultures, or geographic regions.)

Perhaps the most important reason why the global environment has become more open and competitive is the increase in globalization.

The result of globalization is that nations and peoples become increasingly interdependent because the same forces affect them in similar ways.

Path of globalization is shaped by the ebb and flow of capital

The four principal forms of capital that flow between countries are:
-Human capital: the flow of people around the world through immigration, migration, and emigration.
-Financial capital: the flow of money capital across world markets through overseas investment, credit, lending, and aid.
-Resource capital: the flow of natural resources, parts, and components between companies and countries, such as metals, minerals, lumber, energy, food products, microprocessors, and auto parts.
-Political capital: the flow of power and influence around the world using diplomacy, persuasion, aggression, and force of arms to protect the right or access of a country, world region, or political bloc to the other forms of capital.

When capital leaves a country, the results are higher unemployment, recession, and a lower standard of living for its people.

One of the main factors that has speeded globalization by freeing the movement of capital has been the decline in barriers to trade and investment
-Tariff (tax that a government imposes on goods imported into one country from another.)

GATT AND THE RISE OF FREE TRADE (This commitment was reinforced by acceptance of the principle that free trade, rather than tariff barriers, was the best way to foster a healthy domestic economy and low unemployment)
-Free-trade doctrine (predicts that if each country agrees to specialize in the production of the goods and services that it can produce most efficiently, this will make the best use of global capital resources and will result in lower prices.)


Regional trade agreements
-North American Free Trade Agreement (NAFTA)
-Central American Free Trade Agreement (CAFTA)
Organizing is the process by which managers establish the structure of working relationships among employees to allow them to achieve organizational goals efficiently and effectively.

-Organizational Structure (formal system of task and job reporting relationships that determines how employees use resources to achieve organizational goals.)
-Organizational Culture (shared set of beliefs, values, and norms that influence how people and groups work together to achieve organizational goals)
-Organizational Design (process by which managers create a specific type of organizational structure and culture so a company can operate in the most efficient and effective way)

Once a company decides what kind of work attitudes and behaviors it wants from its employees, managers create a particular arrangement of task and authority relationships, and promote specific cultural values and norms, to obtain these desired attitudes and behaviors.
-The challenge facing all companies is to design a structure and culture that
(1) motivate managers and employees to work hard and to develop supportive job behaviors and attitudes
(2) coordinate the actions of employees, groups, functions, and divisions to ensure they work together efficiently and effectively.

Four factors are important determinants of the type of organizational structure or culture managers select:
1. the nature of the organizational environment
2. the type of strategy the organization pursues
3. the technology (and particularly information technology) the organization uses
4. the characteristics of the organization's human resources

In general, the more quickly the external environment is changing and the greater the uncertainty within it, the greater are the problems managers face in trying to gain access to scarce resources
-In this situation, to speed decision making and communication and make it easier to obtain resources, managers typically make organizing choices that result in more flexible structures and entrepreneurial cultures.
-They are likely to decentralize authority, empower lower-level employees to make important operating decisions, and encourage values and norms that emphasize change and innovation—a more organic from of organizing.

if the external environment is stable, resources are readily available, and uncertainty is low, then less coordination and communication among people and functions are needed to obtain resources.

-Task Variety
-Task analyzability
The way an organization's structure works depends on the organizing choices managers make about three issues:
-How to group tasks into individual jobs.
-How to group jobs into functions and divisions.
-How to allocate authority and coordinate or integrate functions and divisions
The first step in organizational design is job design (The process by which managers decide how to divide tasks into specific jobs., the process by which managers decide how to divide into specific jobs the tasks that have to be performed to provide customers with goods and services.)

Establishing an appropriate division of labor among employees is a critical part of the organizing process, one that is vital to increasing efficiency and effectiveness.

Managers of every organization must analyze the range of tasks to be performed and then create jobs that best allow the organization to give customers the goods and services they want.

In deciding how to assign tasks to individual jobs, however, managers must be careful not to take job simplification (The process of reducing the number of tasks that each worker performs, too far)

-Job enlargement (increasing the number of different tasks in a given job by changing the division of labor)
-job enrichment (increasing the degree of responsibility a worker has over a job by)
for example:
(1) empowering workers to experiment to find new or better ways of doing the job
(2) encouraging workers to develop new skills
(3) allowing workers to decide how to do the work and giving them the responsibility for deciding how to respond to unexpected situations
(4) allowing workers to monitor and measure their own performance.

-Skill variety: The extent to which a job requires that an employee use a wide range of different skills, abilities, or knowledge. Example: The skill variety required by the job of a research scientist is higher than that called for by the job of a McDonald's food server.

-Task identity: The extent to which a job requires that a worker perform all the tasks necessary to complete the job, from the beginning to the end of the production process. Example: A craftsworker who takes a piece of wood and transforms it into a custom-made desk has higher task identity than does a worker who performs only one of the numerous operations required to assemble a flat-screen TV.

-Task significance: The degree to which a worker feels his or her job is meaningful because of its effect on people inside the organization, such as coworkers, or on people outside the organization, such as customers. Example: A teacher who sees the effect of his or her efforts in a well-educated and well-adjusted student enjoys high task significance compared to a dishwasher who monotonously washes dishes as they come to the kitchen.

-Autonomy: The degree to which a job gives an employee the freedom and discretion needed to schedule different tasks and decide how to carry them out. Example: Salespeople who have to plan their schedules and decide how to allocate their time among different customers have relatively high autonomy compared to assembly-line workers, whose actions are determined by the speed of the production line.

-Feedback: The extent to which actually doing a job provides a worker with clear and direct information about how well he or she has performed the job. Example: An air traffic controller whose mistakes may result in a midair collision receives immediate feedback on job performance; a person who compiles statistics for a business magazine often has little idea of when he or she makes a mistake or does a particularly good job.

Hackman and Oldham argue that these five job characteristics affect an employee's motivation because they affect three critical psychological states:
1. Experienced meaningfulness of work
2. Experienced responsibility for work outcomes
3. Knowledge of results of work
Once managers have decided which tasks to allocate to which jobs, they face the next organizing decision: how to group jobs together to best match the needs of the organization's environment, strategy, technology, and human resources.

-Function (group of people, working together, who possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs.)
-Functional Structure (an organizational structure composed of all the departments that an organization requires to produce its goods or services)

There are several advantages to grouping jobs according to function
-First, when people who perform similar jobs are grouped together, they can learn from observing one another and thus become more specialized and can perform at a higher level.
- Second, when people who perform similar jobs are grouped together, it is easier for managers to monitor and evaluate their performance
-Third, managers appreciate functional structure because it lets them create the set of functions they need to scan and monitor the competitive environment and obtain information about how it is changing.

-Divisional Structure
-Division (Each division is a collection of functions or departments that work together to produce the product.)

When managers organize divisions according to the area of the country or world they operate in, they adopt a geographic structure. When managers organize divisions according to the type of customer they focus on, they adopt a market structure.

To perform a functional activity successfully, managers must have experience in specific markets or industries.

Consequently, if managers decide to diversify into new industries or to expand their range of products, they commonly design a product structure to organize their operations

Using a product structure An organizational structure in which each product line or business is handled by a self-contained division., managers place each distinct product line or business in its own self-contained division and give divisional managers the responsibility for devising an appropriate business-level strategy to allow the division to compete effectively in its industry or market.

Grouping functions into divisions focused on particular products has several advantages for managers at all levels in the organization.

which divisions are broken down by geographic location
-global geographic structure

groups divisions according to the particular kinds of customers they serve


Matrix Structure (managers group people and resources in two ways simultaneously: by function and by product.)
-Employees grouped by functions
-Employees grouped into product teams
-Result is a network
-Each person in a product team reports to two managers:
(1) a functional boss, who assigns individuals to a team and evaluates their performance from a functional perspective
(2) the boss of the product team, who evaluates their performance on the team.
-Thus, team members are known as two-boss employees

managers have devised a way of organizing people and resources that still allows an organization to be flexible but makes its structure easier to operate: a product team structure.

-Product team structure (differs from a matrix structure in two ways: (1) It does away with dual reporting relationships and two-boss employees, and (2) functional employees are permanently assigned to a cross-functional team that is empowered to bring a new or redesigned product to market)
-Cross-functional team (a group of managers brought together from different departments to perform organizational tasks.)
-Members of a cross-functional team report only to the product team manager or to one of his or her direct subordinates.
The more complex the structure a company uses to group its activities, the greater are the problems of linking and coordinating its different functions and divisions.

At the functional level, the manufacturing function typically has a short-term view; its major goal is to keep costs under control and get the product out the factory door on time.

By contrast, the product development function has a long-term viewpoint because developing a new product is a relatively slow process and high product quality is seen as more important than low costs.

-Authority (the power vested in a manager to make decisions and use resources to achieve organizational goals by virtue of his or her position in an organization. )
-Hierarchy of authority (an organization's chain of command—the relative authority that each manager has—extending from the CEO at the top, down through the middle managers and first-line managers, to the nonmanagerial employees who actually make goods or provide services.)
-Span of control (the number of subordinates who report directly to a manager.)
-line manager (someone in the direct line or chain of command who has formal authority over people and resources.)
-staff manager

-Tall Organization (has many levels of authority relative to company size)
-Flat Organization (has fewer levels relative to company size )

THE MINIMUM CHAIN OF COMMAND ( top managers should always construct a hierarchy with the fewest levels of authority necessary to efficiently and effectively use organizational resources.)
-To ward off the problems that result when an organization becomes too tall and employs too many managers, top managers need to ascertain whether they are employing the right number of middle and first-line managers and whether they can redesign their organizational architecture to reduce the number of managers.

-Another way in which managers can keep the organizational hierarchy flat is by decentralizing authority
(Giving lower level managers and nonmanagerial employees the right to make important decisions about how to use organizational resources.—that is, by giving lower-level managers and nonmanagerial employees the right to make important decisions about how to use organizational resources)
-Manage by exception

To increase communication and coordination among functions or between divisions and to prevent these problems from emerging, top managers incorporate various integrating mechanisms (Organizing tools that managers can use to increase communication and coordination among functions and divisions. into their organizational architecture.)

Organization Culture (is the shared set of beliefs, expectations, values, and norms that influence how members of an organization relate to one another and cooperate to achieve organizational goals.)

Culture influences the work behaviors and attitudes of individuals and groups in an organization because its members adhere to shared values, norms, and expected standards of behavior.

Employees internalize organizational values and norms and then let these values and norms guide their decisions and actions.

A company's values are the shared standards that its members use to evaluate whether they have helped the company achieve its vision and goals.

A company's norms specify or prescribe the kinds of shared beliefs, attitudes, and behaviors that its members should observe and follow.

Ideally a company's norms help the company achieve its values


In managing organizational architecture, some important questions that arise are these:
Where does organizational culture come from?
Why do different companies have different cultures?
Why might a culture that for many years helped an organization achieve its goals suddenly harm the organization?

Organizational culture is shaped by the interaction of four main factors:
-the personal and professional characteristics of people within the organization
-organizational ethics
-the nature of the employment relationship, and the design of its organizational structure

The ultimate source of organizational culture is the people who make up the organization

(which are the moral values, beliefs, and rules that establish the appropriate way for an organization and its members to deal with each other and with people outside the organization)
-A third factor shaping organizational culture is the nature of the employment relationship a company establishes with its employees via its human resource policies and practices

-Different kinds of structure give rise to different kinds of culture; so to create a certain culture, managers often need to design a particular type of structure.

-Adaptive cultures (are those whose values and norms help an organization to build momentum and to grow and change as needed to achieve its goals and be effective)
-inert cultures (are those whose values and norms fail to motivate or inspire employees; they lead to stagnation and, often, failure over time)
Essentially, to perform the planning task, managers:
(1) establish and discover where an organization is at the present time
(2) determine where it should be in the future, its desired future state
(3) decide how to move it forward to reach that future state.

1. Planning is necessary to give the organization a sense of direction and purpose.
2. Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization.
3. A plan helps coordinate managers of the different functions and divisions of an organization to ensure that they all pull in the same direction and work to achieve its desired future state.
4. A plan can be used as a device for controlling managers within an organization.

Henri Fayol, the originator of the model of management, said that effective plans should have four qualities: unity, continuity, accuracy, and flexibility

-In large organizations planning usually takes place at three levels of management: corporate, business or division, and department or functional.
-At the business level are the different divisions or business units of the company that compete in distinct industries
-Each division or business unit has its own set of divisional managers who control planning and strategy for their particular division or unit.
-Going down one more level, each division has its own set of functions or departments, such as manufacturing, marketing, human resource management (HRM), and research and development (R&D)
-Each division's functional managers are responsible for the planning and strategy making necessary to increase the efficiency and effectiveness of their particular function.

-Corporate-level plan (contains top management's decisions concerning the organization's mission and goals, overall (corporate-level) strategy, and structure)
-Corporate-level strategy (specifies in which industries and national markets an organization intends to compete and why.)
-At the business level, the managers of each division create a business-level plan
(Divisional managers' decisions pertaining to divisions' long-term goals, overall strategy, and structure. that details (1) the long-term divisional goals that will allow the division to meet corporate goals and (2) the division's business-level strategy and structure necessary to achieve divisional goals.)
-Business level strategy (outlines the specific methods a division, business unit, or organization will use to compete effectively against its rivals in an industry. )
- At the functional level, the business-level plan provides the framework within which functional managers devise their plans
-Functional-level plan (states the goals that the managers of each function will pursue to help their division attain its business-level goals, which, in turn, will allow the entire company to achieve its corporate goals)
-Functional-level strategy (is a plan of action that managers of individual functions (such as manufacturing or marketing) can follow to improve the ability of each function to perform its task-specific activities in ways that add value to an organization's goods and services and thereby increase the value customers receive)

-In the planning process, it is important to ensure that planning across the three different levels is consistent—functional goals and strategies should be consistent with divisional goals and strategies, which, in turn, should be consistent with corporate goals and strategies, and vice versa.

Plans differ in their time horizons (the periods of time over which they are intended to apply or endure)

Managers usually distinguish among:
-long-term plans, with a time horizon of five years or more
-intermediate-term plans, with a horizon between one and five years
-short-term plans, with a horizon of one year or less

Another distinction often made between plans is whether they are standing plans or single-use plans
-Standing plans (are used in situations in which programmed decision making is appropriate)
-Single-use plans (single-use plans are developed to handle nonprogrammed decision making in unusual or one-of-a-kind situations)

Earlier we noted that effective plans have four qualities: unity, continuity, accuracy, and flexibility.

-Scenario planning ((also known as contingency planning) is the generation of multiple forecasts of future conditions followed by an analysis of how to respond effectively to each of those conditions.)
Strategy formulation (managers work to develop the set of strategies (corporate, divisional, and functional) that will allow an organization to accomplish its mission and achieve its goals)

SWOT ANALYSIS (is a planning exercise in which managers identify internal organizational strengths (S) and weaknesses (W) and external environmental opportunities (O) and threats (T).)
1. The first step in SWOT analysis is to identify an organization's strengths and weaknesses.
2. The second step in SWOT analysis begins when managers embark on a full-scale SWOT planning exercise to identify potential opportunities and threats in the environment that affect the organization now or may affect it in the future.

Michael Porter's five forces model.

-The level of rivalry among organizations in an industry:
The more that companies compete against one another for customers—for example, by lowering the prices of their products or by increasing advertising—the lower is the level of industry profits (low prices mean less profit).
-The potential for entry into an industry:
The easier it is for companies to enter an industry—because, for example, barriers to entry, such as brand loyalty, are low—the more likely it is for industry prices and therefore industry profits to be low.
-The power of large suppliers:
If there are only a few large suppliers of an important input, then suppliers can drive up the price of that input, and expensive inputs result in lower profits for companies in an industry.
-The power of large customers:
If only a few large customers are available to buy an industry's output, they can bargain to drive down the price of that output. As a result, industry producers make lower profits.
The threat of substitute products:
Often the output of one industry is a substitute for the output of another industry (plastic may be a substitute for steel in some applications, for example; similarly, bottled water is a substitute for cola). When a substitute for their product exists, companies cannot demand high prices for it or customers will switch to the substitute, and this constraint keeps their profits low.

Hypercompetition (applies to industries that are characterized by permanent, ongoing, intense competition brought about by advancing technology or changing customer tastes and fads and fashions.)
Porter argued that business-level strategy creates a competitive advantage because it allows an organization (or a division of a company) to counter and reduce the threat of the five industry forces.

That is, successful business-level strategy reduces rivalry, prevents new competitors from entering the industry, reduces the power of suppliers or buyers, and lowers the threat of substitutes—and this raises prices and profits.

According to Porter, to obtain these higher profits managers must choose between two basic ways of increasing the value of an organization's products: differentiating the product to increase its value to customers or lowering the costs of making the product.

Porter also argues that managers must choose between serving the whole market or serving just one segment or part of a market.
-Based on those choices, managers choose to pursue one of four business-level strategies: low cost, differentiation, focused low cost, or focused differentiation

LOW-COST STRATEGY (managers try to gain a competitive advantage by focusing the energy of all the organization's departments or functions on driving the company's costs down below the costs of its industry rivals.)

DIFFERENTIATION STRATEGY (managers try to gain a competitive advantage by focusing all the energies of the organization's departments or functions on distinguishing the organization's products from those of competitors on one or more important dimensions, such as product design, quality, or after-sales service and support.)
-premium price

According to Porter's theory, managers cannot simultaneously pursue both a low-cost strategy and a differentiation strategy.
-Porter identified a simple correlation: Differentiation raises costs and thus necessitates premium pricing to recoup those high costs.

-Managers pursuing a focused low-cost strategy Serving only one segment of the overall market and trying to be the lowest-cost organization serving that segment. serve one or a few segments of the overall market and aim to make their organization the lowest-cost company serving that segment.
-Managers pursuing a focused differentiation strategy Serving only one segment of the overall market and trying to be the most differentiated organization serving that segment. serve just one or a few segments of the market and aim to make their organization the most differentiated company serving that segment.
- Companies pursuing either of these strategies have chosen to specialize in some way by directing their efforts at a particular kind of customer
Once managers have formulated the business-level strategies that will best position a company, or a division of a company, to compete in an industry and outperform its rivals, they must look to the future

Recall that corporate-level strategy is a plan of action that involves choosing in which industries and countries a company should invest its resources to achieve its mission and goals.

In choosing a corporate-level strategy, managers ask, How should the growth and development of our company be managed to increase its ability to create value for customers (and thus increase its performance) over the long run?

The principal corporate-level strategies that managers use to help a company grow and keep it at the top of its industry, or to help it retrench and reorganize to stop its decline, are
(1) concentration on a single industry
(2) vertical integration
(3) diversification
(4) international expansion

Specifically, to increase the value of goods and services, a corporate-level strategy must help a company, or one of its divisions, either
(1) lower the costs of developing and making products
(2) increase product differentiation so more customers want to buy the products even at high or premium prices.

Most growing companies reinvest their profits to strengthen their competitive position in the industry in which they are currently operating; in doing so, they pursue the corporate-level strategy of concentration on a single industry. Reinvesting a company's profits to strengthen its competitive position in its current industry.

VERTICAL INTEGRATION ( corporate-level strategy in which a company expands its business operations either backward into a new industry that produces inputs for the company's products (backward vertical integration) or forward into a new industry that uses, distributes, or sells the company's products (forward vertical integration))

DIVERSIFICATION (the corporate-level strategy of expanding a company's business operations into a new industry in order to produce new kinds of valuable goods or services.)
-Related Diversification ( the strategy of entering a new business or industry to create a competitive advantage in one or more of an organization's existing divisions or businesses)
-Synergy (obtained when the value created by two divisions cooperating is greater than the value that would be created if the two divisions operated separately and independently)
UNRELATED DIVERSIFICATION (Managers pursue unrelated diversification Entering a new industry or buying a company in a new industry that is not related in any way to an organization's current businesses or industries. when they establish divisions or buy companies in new industries that are not linked in any way to their current businesses or industries)
-One main reason for pursuing unrelated diversification is that sometimes managers can buy a poorly performing company, transfer their management skills to that company, turn around its business, and increase its performance—all of which create value
- Another reason for pursuing unrelated diversification is that purchasing businesses in different industries lets managers engage in portfolio strategy (which is apportioning financial resources among divisions to increase financial returns or spread risks among different businesses, much as individual investors do with their own portfolios)

As if planning whether to vertically integrate, diversify, or concentrate on the core business were not a difficult enough task, corporate-level managers also must decide on the appropriate way to compete internationally.
-Global Strategy (selling the same standardized product in each national market in which it competes, and use the same basic marketing approach
-Multidomestic Strategy (customize products and marketing strategies to specific national conditions)


-Exporting (makes products at home and sells them abroad)
-Importing (sells products at home that are made abroad (products it makes itself or buys from other companies).)

-Licensing (a company (the licenser) allows a foreign organization (the licensee) to take charge of both manufacturing and distributing one or more of its products in the licensee's country or world region in return for a negotiated fee. )
-Franchising (a company (the franchiser) sells to a foreign organization (the franchisee) the rights to use its brand name and operating know-how in return for a lump-sum payment and share of the franchiser's profits.)

STRATEGIC ALLIANCES (managers pool or share their organization's resources and know-how with those of a foreign company, and the two organizations share the rewards or risks of starting a new venture in a foreign country)
-Joint venture (a strategic alliance among two or more companies that agree to jointly establish and share the ownership of a new business)

WHOLLY OWNED FOREIGN SUBSIDIARIES (invest in establishing production operations in a foreign country independent of any local direct involvement.)
controlling is the process whereby managers monitor and regulate how efficiently and effectively an organization and its members are performing the activities necessary to achieve organizational goals.

Control, however, does not mean just reacting to events after they have occurred. It also means keeping an organization on track, anticipating events that might occur, and then changing the organization to respond to whatever opportunities or threats have been identified

Control is concerned with keeping employees motivated, focused on the important problems confronting the organization, and working together to make the changes that will help an organization improve its performance over time.

To understand the importance of organizational control, consider how it helps managers obtain superior efficiency, quality, responsiveness to customers, and innovation—the four building blocks of competitive advantage.

To determine how efficiently they are using their resources, managers must be able to accurately measure how many units of inputs (raw materials, human resources, and so on) are being used to produce a unit of output

Finally, controlling can raise the level of innovation in an organization.

-Control Systems (formal target-setting, monitoring, evaluation, and feedback systems that provide managers with information about whether the organization's strategy and structure are working efficiently and effectively)
-Input stage, feedforward control
-Feedforward control (anticipate problems before they arise so problems do not occur later during the conversion process)
-Conversion Stage, concurrent control
-Concurrent control (gives managers immediate feedback on how efficiently inputs are being transformed into outputs so managers can correct problems as they arise)
-Output stage, Feedback control
-Feedback control (provide information about customers' reactions to goods and services so corrective action can be taken if necessary)

The control process, whether at the input, conversion, or output stage, can be broken down into four steps: 1. establishing standards of performance
2. then measuring
3. comparing
4. evaluating actual performance
1. Profit Ratios (measure how efficiently managers are using the organization's resources to generate profits.)
-Return on investment (ROI) (an organization's net income before taxes divided by its total assets, is the most commonly used financial performance measure because it allows managers of one organization to compare performance with that of other organizations.)
-Operating Margin (calculated by dividing a company's operating profit (the amount it has left after all the costs of making the product and running the business have been deducted) by sales revenues.)

2. Liquidity Ratios (measure how well managers have protected organizational resources to be able to meet short-term obligations.)
-Current ratio (current assets divided by current liabilities) tells managers whether they have the resources available to meet the claims of short-term creditors.
-Quick Ratio (shows whether they can pay these claims without selling inventory.)

3. Leverage Ratios (such as the debt-to-assets ratio and the times-covered ratio, measure the degree to which managers use debt (borrow money) or equity (issue new shares) to finance ongoing operations.)

4. Activity Ratios (show how well managers are creating value from organizational assets.)
-Inventory Turnover (measures how efficiently managers are turning inventory over so excess inventory is not carried.)
-Days Sales Outstanding (reveals how efficiently managers are collecting revenue from customers to pay expenses.)

Once top managers consult with lower-level managers and set the organization's overall goals, they establish performance standards for the divisions and functions.

Output control is used at every level of the organization, and it is vital that the goals set at each level harmonize with the goals set at other levels so managers and other employees throughout the organization work together to attain the corporate goals that top managers have set

It is also important that goals be set appropriately so managers are motivated to accomplish them.
-Stretch Goals

Once managers at each level have been given a goal or target to achieve, the next step in developing an output control system is to establish operating budgets that regulate how managers and workers attain their goals
-Operating budget (a blueprint that states how managers intend to use organizational resources to achieve organizational goals efficiently)

In summary, three components—objective financial measures, challenging goals and performance standards, and appropriate operating budgets—are the essence of effective output control.

three mechanisms of behavior control that managers can use to keep subordinates on track and make organizational structures work as they are designed to work:
1. direct supervision
2. management by objectives
3. rules and standard operating procedures

The most immediate and potent form of behavior control is direct supervision by managers who actively monitor and observe the behavior of their subordinates, teach subordinates the behaviors that are appropriate and inappropriate, and intervene to take corrective action as needed

Three problems with direct supervision

a formal system of evaluating subordinates on their ability to achieve specific organizational goals or performance standards and to meet operating budgets.

Management by objectives involves three specific steps:
1. Specific goals and objectives are established at each level of the organization.
2. Managers and their subordinates together determine the subordinates' goals
3. Managers and their subordinates periodically review the subordinates' progress toward meeting goals.

BUREAUCRATIC CONTROL (control by means of a comprehensive system of rules and standard operating procedures (SOPs) that shapes and regulates the behavior of divisions, functions, and individuals)


To use output control and behavior control, managers must be able to identify the outcomes they want to achieve and the behaviors they want employees to perform to achieve those outcomes. For many of the most important and significant organizational activities, however, output control and behavior control are inappropriate for several reasons:

-A manager cannot evaluate the performance of workers such as doctors, research scientists, or engineers by observing their daily behavior.
-Rules and SOPs are of little use in telling a doctor how to respond to an emergency situation or a scientist how to discover something new.
-Output controls such as the amount of time a surgeon takes for each operation or the costs of making a discovery are crude measures of the quality of performance.
Organizational Change (is the movement of an organization away from its present state toward some preferred future state to increase its efficiency and effectiveness.)

According to his force-field theory, a wide variety of forces arise from the way an organization operates—from its structure, culture, and control systems—that make organizations resistant to change.

These two sets of forces are always in opposition in an organization.

When the forces are evenly balanced, the organization is in a state of inertia and does not change. To get an organization to change, managers must find a way to increase the forces for change, reduce resistance to change, or do both simultaneously. Any of these strategies will overcome inertia and cause an organization to change.

-Evolutionary Change (is gradual, incremental, and narrowly focused. Evolutionary change is not drastic or sudden but, rather, is a constant attempt to improve, adapt, and adjust strategy and structure incrementally to accommodate changes taking place in the environment.
-Revolutionary change (is rapid, dramatic, and broadly focused. Revolutionary change involves a bold attempt to quickly find new ways to be effective.)

The need to constantly search for ways to improve efficiency and effectiveness makes it vital that managers develop the skills necessary to manage change effectively

1. Assessing the need for change
2. Deciding on the change to make
3. Implementing the change
-Top-down change (is implemented quickly: Top managers identify the need for change, decide what to do, and then move quickly to implement the changes throughout the organization.)
-Bottom-up change (typically more gradual or evolutionary. Top managers consult with middle and first-line managers about the need for change. Then, over time, managers at all levels work to develop a detailed plan for change)
4. Evaluating the change
Managers can use two basic business-level strategies to add value to an organization's products and achieve a competitive advantage over industry rivals.
-First, managers can pursue a low-cost strategy and lower the costs of creating value to attract customers by keeping product prices as low as or lower than competitors' prices.
-Second, managers can pursue a differentiation strategy and add value to a product by finding ways to make it superior in some way to the products of other companies.

The four specific ways in which managers can lower costs and/or increase differentiation to obtain a competitive advantage

1. Achieve superior efficiency.
2. Achieve superior quality.
3. Achieve superior innovation, speed, and flexibility
4. Attain superior responsiveness to customers

-Functional-level strategy ( is a plan of action to improve the ability of each of an organization's functions or departments (such as manufacturing or marketing) to perform its task-specific activities in ways that add value to an organization's goods and services)
- Value Chain Management (is the development of a set of functional-level strategies that support a company's business-level strategy and strengthen its competitive advantage. )
-Value Chain (is the coordinated series or sequence of functional activities necessary to transform inputs such as new product concepts, raw materials, component parts, or professional skills into the finished goods or services customers value and want to buy)
-Product development (is the engineering and scientific research activities involved in innovating new or improved products that add value to a product.)
-Once a new product has been developed, the marketing function's task is to persuade customers that the product meets their needs and convince them to buy it.
-Marketing then presents its suggestions to product development, which performs its own research to discover how best to design and make the new or improved products.
-At the next stage of the value chain, the materials management function controls the movement of physical materials from the procurement of inputs through production and to distribution and delivery to the customer
- The production function is responsible for creating, assembling, or providing a good or service—for transforming inputs into outputs.
- At the next stage in the value chain, the sales function plays a crucial role in locating customers and then informing and persuading them to buy the company's products
-Finally, the role of the customer service function is to provide after-sales service and support.
high-quality products possess attributes such as superior design, features, reliability, and after-sales support; these products are designed to better meet customer requirements

Why do managers seek to control and improve the quality of their organizations' products?
1. customers usually prefer a higher-quality product to a lower-quality product
2. higher product quality can increase efficiency and thereby lower operating costs and boost profits

TOTAL QUALITY MANAGEMENT (TQM; focuses on improving the quality of an organization's products and stresses that all of an organization's value chain activities should be directed toward this goal.)

What are the 10 steps in TQM that made this possible?
1. Build organizational commitment to quality.
2. Focus on the customer.
3. Find ways to measure quality.
4. Set goals and create incentives
5. Solicit input from employees.
6. Identify defects and trace them to their source
7. Introduce just-in-time inventory systems
-Inventory (is the stock of raw materials, inputs, and component parts that an organization has on hand at a particular time.)
-Just-in-time (JIT) Inventory (parts or supplies arrive at the organization when they are needed, not before)
8. Work closely with suppliers
9. Design for ease of production
10. Break down barriers between functions

The goal of Six Sigma is to improve a company's quality to only three defects per million by systematically altering the way all the processes involved in value chain activities are performed, and then carefully measuring how much improvement has been made using statistical methods.

Six Sigma shares with TQM its focus on improving value chain processes to increase quality; but it differs because TQM emphasizes top-down organizationwide employee involvement, whereas the Six Sigma approach is to create teams of expert change agents, known as "green belts and black belts," to take control of the problem-finding and problem-solving process and then to train other employees in implementing solutions
The third goal of value chain management is to increase the efficiency of the various functional activities. The fewer the input resources required to produce a given volume of output, the higher will be the efficiency of the operating system

So efficiency is a useful measure of how well an organization uses all its resources—such as labor, capital, materials, or energy—to produce its outputs, or goods and services.

-Facilities Layout (is the strategy of designing the machine-worker interface to increase operating system efficiency)
-Flexible Manufacturing (is a strategy based on the use of IT to reduce the costs associated with the product assembly process or the way services are delivered to customers.)

three basic ways of arranging workstations: product layout, process layout, and fixed-position layout.
-Product layout (machines are organized so that each operation needed to manufacture a product or process a patient is performed at workstations arranged in a fixed sequence)
-Process layout (workstations are not organized in a fixed sequence. Rather, each workstation is relatively self-contained, and a product goes to whichever workstation is needed to perform the next operation to complete the product.)
-Fixed-position layout (the product stays in a fixed position. Its component parts are produced in remote workstations and brought to the production area for final assembly)

In a manufacturing company, a major source of costs is setting up the equipment needed to make a particular product
-Flexible manufacturing aims to reduce the time required to set up production equipment

gets components to the assembly line just as they are needed and thus drives down costs

A typical self-managed team consists of 5 to 15 employees who produce an entire product instead of just parts of it

The value chain is a collection of functional activities or business processes that transforms one or more kinds of inputs to create an output that is of value to the customer
-Process Reengineering (involves the fundamental rethinking and radical redesign of business processes (and thus the value chain) to achieve dramatic improvements in critical measures of performance such as cost, quality, service, and speed)

With the rapid spread of computers, the explosive growth of the Internet and corporate intranets, and high-speed digital Internet technology, the information systems function is moving to center stage in the quest for operating efficiencies and a lower cost structure.
technology comprises the skills, know-how, experience, body of scientific knowledge, tools, machines, computers, and equipment used in the design, production, and distribution of goods and services.

-Quantum Product Innovation (results in the development of new, often radically different, kinds of goods and services because of fundamental shifts in technology brought about by pioneering discoveries. )
-Incremental Product Innovation (results in gradual improvements and refinements of existing products over time as existing technologies are perfected and functional managers)

-product development (is the management of the value chain activities involved in bringing new or improved goods and services to the market.)

- stage-gate development funnel (A planning model that forces managers to choose among competing projects so organizational resources are not spread thinly over too many projects., a technique that forces managers to choose among competing projects so functional resources are not spread thinly over too many projects.)
-product development plan (specifies all of the relevant information that managers need to decide whether to go ahead with a full-blown product development effort. )
-contract book (a written agreement that details factors such as responsibilities, resource commitments, budgets, time lines, and development milestones.)
-Core members (the people who have primary responsibility for the product development effort.)
One of the most important management issues to emerge over the last 30 years has been the increasing diversity of the workforce
-Diversity is dissimilarities—differences—among people due to age, gender, race, ethnicity, religion, sexual orientation, socioeconomic background, education, experience, physical appearance, capabilities/disabilities, and any other characteristic that is used to distinguish between people)

Diversity raises important ethical issues and social responsibility issues. It is also a critical issue for organizations, one that if not handled well can bring an organization to its knees, especially in our increasingly global environment.

There are several reasons why diversity is such a pressing concern and issue both in the popular press and for managers and organizations:
-There is a strong ethical imperative in many societies that diverse people must receive equal opportunities and be treated fairly and justly. Unfair treatment is also illegal.
-Effectively managing diversity can improve organizational effectiveness.16 When managers effectively manage diversity, they not only encourage other managers to treat diverse members of an organization fairly and justly but also realize that diversity is an important organizational resource that can help an organization gain a competitive advantage.
-There is substantial evidence that diverse individuals continue to experience unfair treatment in the workplace as a result of biases, stereotypes, and overt discrimination. In one study, résumés of equally qualified men and women were sent to high-priced Philadelphia restaurants (where potential earnings are high). Though equally qualified, men were more than twice as likely as women to be called for a job interview and more than five times as likely to receive a job offer. Findings from another study suggest that both women and men tend to believe that women will accept lower pay than men; this is a possible explanation for the continuing gap in pay between men and women.

-Glass ceiling (alludes to the invisible barriers that prevent minorities and women from being promoted to top corporate positions)

The increasing diversity of the environment—which, in turn, increases the diversity of an organization's workforce—increases the challenges managers face in effectively managing diversity.

-In each of their managerial roles managers can either promote the effective management of diversity or derail such efforts; thus they are critical to this process
-Given the formal authority that managers have in organizations, they typically have more influence than rank-and-file employees
-Moreover, when managers commit to diversity, their commitment legitimizes the diversity management efforts of others
-Two other important factors emphasize why managers are so central to the effective management of diversity.
1. The first factor is that women, African-Americans, Hispanics, and other minorities often start out at a slight disadvantage due to how they are perceived by others in organizations, particularly in work settings where they are a numerical minority
2. The second factor is that research suggests that slight differences in treatment can accumulate and result in major disparities over time. Even small differences—such as a very slight favorable bias toward men for promotions—can lead to major differences in the number of male and female managers over time

-Effectively managing diversity not only makes good business sense (which is discussed in the next section) but also is an ethical imperative in U.S. society.
-Two moral principles guide managers in their efforts to meet this imperative: distributive justice and procedural justice.

DISTRIBUTIVE JUSTICE (dictates fair distribution of pay, promotions, job titles, interesting job assignments, office space, and other organizational resources among members of an organization.)

PROCEDURAL JUSTICE (requires that managers use fair procedures to determine how to distribute outcomes to organizational members)

Procedural justice exists, for example, when managers (1) carefully appraise a subordinate's performance,
(2) take into account any environmental obstacles to high performance beyond the subordinate's control, such as lack of supplies, machine breakdowns, or dwindling customer demand for a product, and
(3) ignore irrelevant personal characteristics such as the subordinate's age or ethnicity.

Diverse organizational members can be a source of competitive advantage, helping an organization provide customers with better goods and services.
each person's interpretation of a situation, and subsequent response to it, is affected by his or her own age, race, gender, religion, socioeconomic status, capabilities, and sexual orientation
-Perception (is the process through which people select, organize, and interpret sensory input—what they see, hear, touch, smell, and taste—to give meaning and order to the world around them)
-Bad decisions concerning diversity for reasons of age, ethnicity, or sexual orientation include (1) not hiring qualified people, (2) failing to promote top-performing subordinates, who subsequently may take their skills to competing organizations, and (3) promoting poorly performing managers because they have the same "diversity profile" as the manager or managers making the decision.

-Schemes (are abstract knowledge structures stored in memory that allow people to organize and interpret information about a person, an event, or a situation)
-Gender Schemes (are a person's preconceived notions about the nature of men and women and their traits, attitudes, behaviors, and preferences.)

-Stereotype (which is composed of simplistic and often inaccurate beliefs about the typical characteristics of particular groups of people)
-Biases (are systematic tendencies to use information about others in ways that result in inaccurate perceptions.)

OVERT DESCRIMINATION (or knowingly and willingly denying diverse individuals access to opportunities and outcomes in an organization, is intentional and deliberate)
-Quid pro quo sexual harassment (harasser asks or forces an employee to perform sexual favors to keep a job, receive a promotion, receive a raise, obtain some other work-related opportunity, or avoid receiving negative consequences such as demotion or dismissal)

-Hostile work environment sexual harassment (Telling lewd jokes, displaying pornography, making sexually oriented remarks about someone's personal appearance, and other sex-related actions that make the work environment unpleasant.)

-Develop and clearly communicate a sexual harassment policy endorsed by top management.
-Use a fair complaint procedure to investigate charges of sexual harassment.
-When it has been determined that sexual harassment has taken place, take corrective actions as soon as possible
-Provide sexual harassment education and training to all organizational members, including managers.

Additional steps:
-Every sexual harassment charge should be taken seriouslyEmployees who go along with unwanted sexual attention in the workplace can be sexual harassment victims.
-Employees sometimes wait before they file complaints of sexual harassment.
-An organization's sexual harassment policy should be communicated to each new employee and reviewed with current employees periodically.
-Suppliers and customers need to be familiar with an organization's sexual harassment policy.
-Managers should give employees alternative ways to report incidents of sexual harassment.
-Employees who report sexual harassment must have their rights protected; this includes being protected from any potential retaliation.
-Allegations of sexual harassment should be kept confidential; those accused of harassment should have their rights protected.
-Investigations of harassment charges and any resultant disciplinary actions need to proceed in a timely manner.
-Managers must protect employees from sexual harassment from third parties they may interact with while performing their jobs, such as suppliers or customers