6-16-1 Visit UMT online at © 2005 UMT MGT100 Version: 09-13-05 INTRODUCTION TO BUSINESS University...

6-1Visit UMT online at www.umtweb.edu© 2005 UMT MGT100Version: 09-13-

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INTRODUCTION TO INTRODUCTION TO BUSINESSBUSINESS

University of Management and Technology1901 N. Fort Myer Drive

Arlington, VA 22209 USAPhone: (703) 516-0035

Fax: (703) 516-0985Website: www.umtweb.edu


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PART 2PART 2

UNDERSTANDING THE UNDERSTANDING THE BUSINESS OF MANAGINGBUSINESS OF MANAGING


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Chapter 6:Chapter 6:Managing the Business Managing the Business EnterpriseEnterprise

Griffin, R. W. & Ebert, R. J. Business (7th ed.)

© 2004 Prentice Hall.

6-4Visit UMT online at www.umtweb.edu© 2005 UMTMGT100

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Learning ObjectivesLearning Objectives

Upon successful completion, the student will be able to:Describe Who Are Managers?

Explain Setting Goals and Formulating Strategy

Define The Management Process

Describe Types of Managers

Describe Basic Management Skills

Understand Management and the Corporate Culture


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Who Are Managers?Who Are Managers?

All corporations depend on effective management. Regardless of whether they run a major international shipping business like Yellow Freight or a small local or regional delivery company, they perform many of the same functions, are responsible for many of the same tasks, and have many of the same responsibilities.

The work of all managers involves developing strategic and tactical plans.

Along they with numerous other things, they must analyze their competitive environments and plan, organize, direct, and control day-to-day operations.


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Who Are Managers?Who Are Managers?

Remember, too, that managers bring to small organizations much the same kinds of skills—the ability to make decisions and respond to variety of challenges—that they bring to large ones.


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Setting Goals and Formulating Setting Goals and Formulating StrategyStrategy

The starting point in effective management is setting goalsGoals are long-term objectives that a business hopes and plans to achieve.

Every business needs goals.

Remember, however, that deciding what it intends to do is only the first step for an organization.

Managers must also make decisions about actions will and will not achieve company goals.

Decisions cannot be made on a problem-by-problem basis or merely to meet needs as they arise.

In most companies, a broad program underlies those decisions.


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Setting Goals and Formulating Setting Goals and Formulating StrategyStrategy

What do you believe was the cause of business failure for players between well known rivalries.

For example:In the 1980’s Wal-Mart was not the largest retailer in the US. Until 1990, Kmart had greater revenues than Wal-mart, and before that it was Sears.

In software, what happened to Lotus 123, IBM OS2, WordPerfect, etc. In games, where is Sega?

One possibility is poor management on the one hand and better goal setting and strategy formulation on the other.


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What Is Strategy?What Is Strategy?

Broad set of organizational plans for implementing the decisions made for achieving organizational goals


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Types of StrategyTypes of Strategy

The figure shows the relationship among the three types of strategy that are usually considered by a company.

Hierarchy of StrategyHierarchy of Strategy


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Corporate strategy—Strategy for determining the firm’s overall attitude toward growth and the way it will manage its businesses or product lines.

Under Kenneth Chenault, AmEx corporate strategy calls for strengthening operations through a principle of growth called e-partnering—buying shares of small companies that can provide technology that AmEx itself does not have.

Business (or competitive) strategy—Strategy at the business-unit or product-line level focuses on a firm’s competitive position.

At this level, AmEx makes decisions about how best to compete in an industry that includes Visa, MasterCard, and other credit card companies.


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Functional strategy—Strategy by which managers in specific areas decide how best to achieve corporate goals through productivity.

At AmEx, each business unit has considerable autonomy in deciding how to use the single Web site at which the company has located its entire range of services.


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Purposes of Goal SettingPurposes of Goal Setting

An organization functions systematically because it sets goals and plans accordingly. An organization commits its resources on all levels to achieving its goals.

Specifically, we can identify four main purposes in organizational goal setting:

Goal setting provides direction and guidance for managers at all levels.

If managers know precisely where the company is headed, there is less potential for error in the different units of the company.

Goal setting helps firms allocate resources.The company allocates more resources to new projects with large sales potential than it allocate to mature products with established but stagnant sales potential.


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Purposes of Goal SettingPurposes of Goal Setting

Goal setting helps to define corporate culture.For years, the goal at General Electric www.ge.com has been to push each of its divisions to first or second in its industry.

Goal setting helps managers assess performance.If a unit sets goal of increasing sales by 10 percent in a given year, managers in that unit who attain or exceed the goal can be rewarded. Units failing to reach the goal will also be compensated accordingly.


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Kinds of GoalsKinds of Goals

Goals differ from company, depending on the firm’s purpose and mission. Every enterprise has a purpose, or a reason for being.

Business seek profits and government agencies seek to set and enforce public policy.

Many enterprises also have missions and Mission Statement—organization’s statement of how it will achieve its purpose in the environment in which it conducts its business.

A company’s mission is usually easy to identify, at least at a basic level.

Businesses often have to rethink their missions as the competitive environment changes.


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Determining a successful company’s basic mission is usually fairly simple, since marketing promotion typically stems directly from the mission.

“Think” (IBM)IBM Mission: We strive to lead in the creation, development, and manufacture of the industry’s most advanced information technologies, including computer systems, software, networking systems, storage devices, and microelectronics.

We translate these advanced technologies into value for our customers through our professional solutions and services businesses worldwide. (Source: www.ibm.com)


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“Think Different” Apple Computer: Apple is committed to bringing the best personal computing experience to students, educators, creative professionals, and consumers around the world through its innovative hardware, software, and Internet offerings. (Source: www.apple.com)

“Just do it” Nike: Nike is committed to serving the athlete.

“Committed to Building Futures”UMT


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Regardless of a company’s purpose and mission, however, every firm has long-term, intermediate, and short-term goals: Long-term goals are set for an extended time, typically 5 years or more into the future.

For example, American Express might set a long-term goal of doubling the number of participating merchants during the next 10 years.

Intermediate goals are set for a period of 1 to 5 years.For example, the marketing department’s goal might be to increase sales by 3 percent in two years.

Short-term goals are set for the very near future, typically less than 1 year.

Increasing sales by 2 percent this year, cutting costs by 1 percent next quarter, and reducing turnover by 4 percent over the next six months are examples of short-term goals.Short-term goals are often called objectives.


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Formulating StrategyFormulating Strategy

Planning is often concerned with the nuts and bolts of setting goals, choosing tactics, and establishing schedules.

In contrast, strategy tends to have a wider scope. It is by definition a broad program that describes an organization’s intentions.

A business strategy outlines how the business intends to meet its goals and includes the organization’s responsiveness to new challenges and new needs.

Because a well-formulated strategy is so vital to a business’s success, most top managers devote substantial attention and creativity to this process.


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Formulating StrategyFormulating Strategy

Formulating Strategy—The creation of a broad program for defining and meeting an organization’s goals.

Strategy formulation involves the three basic steps summarized in the figure.


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Setting Strategic GoalsSetting Strategic Goals

Described as long-term goals, strategic goals are derived directly from a firm’s mission statement.

For example, Ferdinand Piëch, CEO of Volkswagen www.vw.com, has clear strategic goals for the European carmaker.

When he took over 1993, Volkswagen was only marginally profitable, was regarded as an also-ran in the industry, and was thinking about pulling out of the U.S. market altogether because its sales were so poor.

Over the next few years, however, Piëch totally revamped the firm and has it making big profits. Volkswagen is now a much more formidable force in the global automobile industry.


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Setting Strategic GoalsSetting Strategic Goals

SWOT AnalysisAfter strategic goals have been established, organizations usually go through a process called a SWOT analysis as they continue to formulate their strategy.

This process involves assessing organizational strengths and weaknesses (the S and W) and the environmental opportunities and threats (the O and T).

In formulating strategy, they then attempt to capitalize on organizational strengths and take advantage of environmental opportunities.

During this same process, they may seek ways to overcome or offset organizational weaknesses and avoid or counter environmental threats.


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Analyzing the Organization and Analyzing the Organization and Its EnvironmentIts Environment

Scanning the environment for threats and opportunities is often called environment analysis.

Changing consumer tastes and fighting hostile takeover offers are threats, as are new government regulations that will limit a firm’s opportunities.

Even more important threats come from new products and new competitors. Opportunities, meanwhile, are areas in which the firm can potentially expand, grow, or take advantage of existing strengths.


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In addition to performing an environmental analysis, which is an analysis of external factors, managers must also examine internal factors.

The purpose of organizational analysis is to better understand a company’s strengths and weaknesses.

Strengths might include surplus cash, a dedicated workforce, an ample supply of managerial talent, technical expertise, or little competition.

A cash shortage, aging factories, a heavily unionized workforce, and a poor public image can all be important weaknesses.


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The final step in strategy formulation is matching environmental threats and opportunities against corporate strengths and weaknesses.

This matching process is at the heart of strategy formulation.

More than any other facet of strategy, matching companies with their environments lays the foundation for successfully planning and conducting business.


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A Hierarchy of PlansA Hierarchy of Plans

The plans can be views on three levels: strategic, tactical, and operational. Managerial responsibilities are defined at each level.

The levels constitute a hierarchy because implementing plans is practical only when there is a logical flow from one level to the next level

Strategic plans reflect decisions about resource allocations, company priorities and steps needed to meet strategic goals

Tactical plans are shorter-range plans for implementing specific aspects of the company’s strategic plans

Operational plans set short-term targets for daily, weekly or monthly performance


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Contingency Planning and Crisis Contingency Planning and Crisis ManagementManagement

Because business environments are often difficult to predict and because the unexpected can create major problems, most managers recognize that even the best-laid plans sometimes simply do not work out.

Managers prepare for these situations with contingency planning and crisis management.

Contingency Planning—recognizes the need to find solutions to specific aspects of a problem by seeking to identify in advance important aspects of a business or its market that might change.

Crisis Management—describes an organization’s methods for dealing with emergencies.


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The Management ProcessThe Management Process

The process of planning, organizing, directing, and controlling an organization’s resources to achieve its goals.

The four functions of management are not discrete. They overlap and influence one another.

To transform a vision into a successful business, managers must perform the functions of planning, organizing, leading, and controlling.

Planning—management process of determining what an organization needs to do and how best to get it done.

Yahoo’s creation of partnership agreements with firms like Reuters, Standard & Poor’s, and the Associated Press for the new coverage it provides it users represent a form of operational planning.


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Organizing—management process of determining how best to arrange an organization’s resources and activities into a coherent structure.

Hewlett-Packard’s realignment into an integrated, centralized firm, rather than a corporate confederation of individual businesses, has served its comeback strategy well.

Directing—management process of guiding and motivating employees to meet an organization’s objectives.

Gordon Bethune, CEO of Continental Airlines, has turned around morale and performance through his leadership skill, listening to and rewarding employees to guide the company back on track.


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Controlling—management process of monitoring an organization’s performance to ensure that it is meeting its goals.

Bethune of Continental instituted a variety of performance indicators including on-time arrivals, baggage-handling errors, number of empty seats per plane, and surveys of customer and employee satisfaction.


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The figure illustrates the control process that begins when management establishes standards, often for financial performance.

The Control ProcessThe Control Process


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Levels of ManagementLevels of Management

Top Managers—managers responsible to the board of directors and stockholders for a firm’s overall performance and effectiveness. They set strategic goals, make long-range plans, establish major policies, and represent the company to the outside world.Middle Managers—managers responsible for implementing the strategies, policies, and decisions made by top managers. They may function as team leaders, acting as consultants who must understand every department’s function and are granted more decision-making authority, previously reserved for high-ranking executives.First-line Managers—managers responsible for supervising the work of employees.


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Types of ManagersTypes of Managers

Why has the traditional pyramidal organization structure been changing over the past few years? Is it still effective today?

Many organizations are eliminating layers of middle management in an effort to make their organizations more responsive to changes in the environment.

The three levels of management are still the basis of the structure of most organizations, but many are using teams to work on projects, solve problems, and improve quality.

Today’s workforce is better educated and more diverse. They prefer to have more control over their work.


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Areas of ManagementAreas of Management

Human Resources—responsible for hiring and training employees, evaluating performance, and determining compensation.Operations—responsible for the production system, inventory and inventory control, and quality control.Marketing—responsible for the development, pricing, promotion, and distribution of goods and services.Information Managers—responsible for designing and implementing systems to gather, organize, and distribute information.Financial Managers—responsible for the firm’s accounting functions and financial resources.Other Managers—other specialized managers include public relations, research & development, etc.


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Basic Management SkillsBasic Management Skills

Whatever the type or size of the organization, managers employ basic kinds of skills.

As they rise through the hierarchy, managers need to strengthen one or more of these skills.

Technical Skills—skills needed to perform specialized tasks such as writing computer code, drawing animated characters, or auditing a company’s records.

Human Relations Skills—skills in understanding and getting along with people, such as communicating and motivating.

Conceptual Skills—abilities to think in the abstract, diagnose and analyze different situations, and see beyond the present situation to recognize future market opportunities and threats.


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Decision-Making Skills—skills in defining problems and selecting the best course of action.

Basic steps in decision making:define the problem, gather facts, and identify alternative solutions

evaluate each alternative and select the best one

implement the chosen alternative, periodically following up and evaluating the effectiveness of that choice


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The figure illustrates the following basic steps in decision making

The Decision-Making ProcessThe Decision-Making Process


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Time Management Skills—refer to the productive use that managers make of their time.

To manage time effectively, managers must address four leading causes of waste time:

Paperwork: Some managers spend too much time deciding what to do with letters and reports.

Telephone: Experts estimate that managers get interrupted by the telephone every five minutes.

Meetings: Many managers spend as much as four hours a day in meetings.

Email: Increasingly, managers are relying on e-mail and other forms of electronic communication.


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Management Skills for theManagement Skills for the21st Century21st Century

Global Management Skills—special tools, techniques, and skills necessary to compete in a global environment.

Managers need to understand foreign markets, cultural differences, and the motives and practices of foreign rivals as well as understanding international operations.

Management and Technology Skills—abilities to process, organize, and interpret a plethora of data and information.

Information now flows to everyone in the organization simultaneously, decisions are made more quickly, and more people are involved.


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Management and the Corporate Management and the Corporate CultureCulture

Corporate Culture—The shared experiences, stories, beliefs, and norms that characterize an organization.

A strong corporate culture directs employees’ efforts and helps everyone work toward the same goals and helps newcomers learn accepted behaviors.

Culture either originates with the company’s founders (as at Walt Disney Co, Wal-Mart, and JC Penney) or is forged over a long period guided by a constant, focused business strategy (as at PepsiCo).

Some cultures are best described as “countercultures,” such as Apple’s self-styled image as the alternative to staid competitors in the computer industry.


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Communicating the Culture Communicating the Culture and Managing Changeand Managing Change

Corporate culture influences management philosophy, style, and behavior.

Managers, therefore, must carefully consider the kind of culture they want for their organizations and then work to nourish that culture by communicating with everyone who works there.

Wal-Mart, for example, is acutely conscious of the need to spread the message of its culture as it opens new stores in new areas.

One of the company’s methods is to regularly assign veteran managers to lead employees in new territories.


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Communicating the CultureCommunicating the Culture

To use a firm’s culture to its advantage, managers must accomplish several tasks, all of which hinge on effective communication.

First, managers themselves must have a clear understanding of the culture.Second, they must transmit the culture to others in the organization.

Thus, communication is one aim in training and orienting newcomers. A clear and meaningful statement of the organization’s mission is also a valuable communication tool.Finally, managers can maintain the culture by rewarding and promoting those who understand it and work toward maintaining it.


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Managing ChangeManaging Change

Organizations must sometimes change their cultures and also communicate the nature of the change to both employees and customers.

The process has three stages:Analysis of the company’s environment highlights change as the most effective response to its problems

Top management begins to formulate a vision of a new company.

The firm sets up new systems for appraising and compensating employees who enforce the firm’s new values.


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SummarySummary

Setting goals and formulating strategies are the starting points of effective management.

Goals—the performance targets of an organization—can be long term, intermediate term, or short term.

Strategies—the methods an organization uses to meet its goals—are created when management reviews strategic goals, analyzes the organization and its environment, and matches the organization with its environment. The result is a strategic plan.


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SummarySummary

Management is the process of planning, organizing, directing, and controlling an organization’s resources to achieve its goals.

Planning means determining what the company needs to do and how to get it done.

Plans can be strategic, tactical, and operational. Most organizations also develop contingency plans and plans for crisis management.

Organizing means determining how best to arrange a business’s resources and the necessary jobs into an overall structure.

Directing means guiding and motivating employees to meet the firm’s objectives.

Controlling means monitoring the firm’s performance to ensure that it is meeting its goals.


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SummarySummary

Specific managerial responsibilities vary by management level. Top managers set policies, formulate strategies, and approve decisions. Middle managers implement strategies, policies, and decisions. First line managers usually work with and directly supervise employees.

To be effective, managers must develop and exercise technical skills, human relations skills, conceptual skills, decision-making skills, and time management skills.

Global management and technology skills are also becoming increasingly important.


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SummarySummary

A healthy, well-defined corporate culture—the shared experiences, stories, beliefs, and norms that characterize an organization—can influence management styles and help a business reach its goals.

Successful managers understand the culture, and communicate it effectively to others.

This is especially important when an organization deems it necessary to change the corporate culture.

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