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ORGANIZATIONAL STRUCTURE AND PROCESSES 3

3.1 RISK/CONTROL IMPLICATIONS OF ORGANIZATIONAL STRUCTURES

1. Basic Approac!s "o Or#a$i%a"io$a& D!si#$

traditional or classical approach '!a(iora& approac co$"i$#!$c) approac

More deterministic less deterministic combines traditional and

behavioral principles of

organization

the person is selected for the

 job.

 job is designed for the person. job and the person must fiteach other.

primary goal is profit. multiple motives. multiple motives.

Narrow control Widen control Varies

2. U$i") o* O'+!c"i(!

1 ! structure is !**!c"i(! if it contributes to unity of objective.2 ! structure is !**ici!$" if it does so with a minimum of waste

". Spa$ o* Co$"ro&

narrows widen

1 #he wor$ done becomesmore co,p&!-.2 #he fre%uency and intensityof re%uired supervisionincrease." #he time needed forcoordination with othersupervisors increases.& #he time needed for planning

increases.

1 'ubordinates( jobs are similar and whose procedures ares"a$ari%!.2 Managers have fre%uent contact2 Managers are willing to delegate authority and thereforehave more time to devote to subordinates." Managers are well trained and communicate effectivelywith subordinates.& 'ubordinates( jobs are similar and whose procedures arestandardized.) Managers and subordinates are in the same physical

location

1 *ncreasing autonomy and morale of individual wor$ers byreducing the time available to a manager to direct them +themore people per manager, the less time available per person2 -ecreasing communication problems by reducingorganizational levels +given a fied number of employees, thenarrower the span of control, the taller the organization, andthe greater the number of levels

Ta&& s"rc"r!s F&a" s"rc"r!s

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" #he changing nature of wor$ environments from predominantly production to predominantlyservice ma$es assignment of responsibility more difficult.

6. M!ca$is"ic (s. Or#a$ic S"rc"r!s

M!ca$is"ic Or#a$ic S"rc"r!s

tight controls, etensive division of labor, i#

*or,a&i%a"io$, centralization. employeesrarely participate in decision ma$ing

decentralized and has low compleity and

formalization. employees participate indecision ma$ing

information networ$ is limited etensive information system

'table environments unstable and uncertain environments

7ostminimization *nnovation focuses

3 *mitation is adopted by organizations that enter new mar$ets only after smaller competitorshave demonstrated the potential for success. *mitation is best suited to a structure thatcombines mechanistic and organic components.

8. Or#a$i%a"io$a& S"rc"r!sa. !ccording to 9enry Mintzberg, an organization has five basic parts

1 #he five parts of an organization are the following:

'trategic ape top managersMiddle line managers who connect the core to the ape

;perating core wor$ers who perform the basic tas$s related to production

'upport staff indirect support services#echnostructure analysts who achieve a certain standardization

32 #he following are the five structures

 ! simple structure low compleity and formality, authority is centralizedT! s"ra"!#ic ap!- is the dominant component

 ! machine bureaucracy a comple, formal, and centralized organization#he "!c$os"rc"r! dominates

 ! professional bureaucracy comple and formal but decentralized organizationwhich highly trained specialists have great autonomy#he op!ra"i$# cor! dominates

 ! divisional structure selfcontained organization#he ,i&! &i$! dominates

 !n adhocracy +an organic structure low compleity, formality, and centralization#he emphasis is on fleibility and responseSppor" s"a**  dominates

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3. DEPARTMENTATION

1. Di(isio$ o* La'or 

2. T)p!s o* D!par",!$"a"io$

by *$c"io$ mar$eting, production,and finance +thoughother terms may beused

;ccupationalspecialization, simplifiedtraining, andrepresentation of primaryfunctions at the top levelof the organization

lac$ of coordination amongprimary functions andabsence of profit centers

within the organization

by "!rri"or) used by national ormultinationalfirms and government

agencies with

dispersed resources,

offices, or plants

a =uic$er reaction tolocal mar$et changes,b >reater familiarity withlocal problems or uni%uegeographic concerns,and

c ?educed shippingcosts and travel time

a More delegation ofauthority to regionalmanagers,b @roblems of control forhead%uarters, andc -uplication of facilities

and service functions+personnel, purchases,

etc..

by proc"

or s!r(ic!

Managers must havea broad perspective,notmerely a functional

orientation

a Aetter use ofspecialized capital ands$ills,b 5ase of coordination,c 'impler assignment ofprofit responsibility,d 7ompatibility with adecentralization strategy,

ande ! basis for allocatingcapital efficiently toproducts or servicesli$ely toachieve the best returns.

a #he re%uirement for agreater number of personswith managerial ability,b -uplication of facilitiesand service functions, andc -ifficulty integrating

operations

by cs"o,!r  service to a particularcustomer to beprovided under the

management of a

subunit

a *mproved customerservice as a result ofgreater epertise in aparticular business and

b 5ase in identifyingcontributions to profit bydifferent types andlocations of customers.

a -ifficulties incoordination with otherunits in the organization,b @ressure to givepreferential treatment to

certain customers, andc -uplication of facilities

and service functions.

by pro+!c" appropriate for

eperimental or one

time activities

specialization and easeof communication andcoordination

the need for reorganizationat the end of the project,problems of recruitment at

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!$(iro$,!$" and certain environment environment

). S"ra"!#ic Bsi$!ss U$i"s

a. decentralization used by large corporations see$ing to enjoy the entrepreneurialadvantages of smaller entitiesb. /unction as an i$!p!$!$" 'si$!ss, including development of its o0$ s"ra"!#icp&a$s1 *s not merely a supplier of the parent, but serves its own mar$ets2 5ncounters competition" *s a profit center & Ma$es all important decisions about its business although it may shareresources with the parent

. D!&!#a"io$

#raditional approach Aehavioral view 7ontingency approach

 !void delegation

+delegation avoidsresponsibility

Bseful in every organization -ependent on the situation

3.7 SUPPL8 C9AIN MANAGEMENT

1. T! Spp&) Cai$

a. #he supply chain consists of flows from sources of +1 raw materials, +2 components,+" finished goods, +& services, or +) information through intermediaries to ultimateconsumers

2. Spp&) Cai$ Coori$a"io$

a. 'haring of information and coordination among the organizations in the supply chaincan avoid the bullwhip, or whiplash, effect on inventories

b. ! desired result of the sharing of information by all functions and organizationsin the supply chain is:

a Minimization of inventories held by suppliers, manufacturers, retailers0 b !voidance of stac$outs0

c /ewer rush orders0 andd @roduction as needed by retailers

". Dis"ri'"io$

&. Dis"ri'"io$ Ca$$!&

a. *ntermediaries +also called middlemen between sellers and buyers:

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5ample: *ntermediaries include merchant wholesaler ). Ca$$!& S"rc"r!s

7onventional system 7onsist of one or more independent producers,wholesalers, and retailers, each of which is aseparate profit maimizing business.

Not managingconflict

Vertical system @roducers, wholesalers, and retailers act as aunified system

Managing conflict

9orizontal system 7onsist of two or more entities at one level ofthe channel wor$ing together to eploit newopportunities, such as the introduction of !#Msin supermar$ets.

Managing conflict

Multichannel system a single entity sets up two or more channels toreach one or more customer segments

Managing conflict

. I$(!$"or) P&ac!,!$"

3.: BUSINESS PROCESS ANAL8SIS

1. O(!r(i!0

a. @rocess analysis: lowering costs and increasing effectiveness +accomplishment ofobjectives and efficiency while producing items of appropriate %uality

1 *t differs from traditional product +or service %uality control, which involvesinspection during production to eliminate unacceptable results

2. ;!i$# T!or)6 a form of wor$flow analysis

a. -etermine the operating characteristics of a waiting line: the probability thatno units are in the system, the average units in the line, the average units in the

system, the average time a unit waits, the average time a unit is in the system,the probability that a unit must wait, and the probability of a given number of unitsin the system. 9owever, the actual time spent in the queue cannot bedetermined from the model .b. #he most significant aspects of %ueuing theory are the number of lines and theservice facility structure

c. concerned with balancing the cost of waiting in the %ueue with the cost ofproviding service

d. #he arrivals in a %ueuing model occur in accordance with a @oisson process

'ingle channel, single phase !ll users form a single line

and are served at one point or multiple service points

 !n automated teller machine

+!#M, ban$, airline chec$incounter 

'ingle channel, multiplephase

 !ll users form a single lineand must passthrough more than oneservice point

 ! fastfood drivethrough

Multiple channel, single phase many service points,each with its own line

chec$out area in a large retailstore

Multiple channel, multiple Bsers form many lines, and hospital

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phase each linehas multiple, se%uentialservice points

". Li$!ar Pro#ra,,i$#

a. linear programming can be used to maimize revenue or profit or minimize cost, givenlimited resources +to choose the best solution from a potentially infinite number ofpossibilities

&. T!or) o* Co$s"rai$"s < O(!r(i!0

a. ! basic principle of #;7 analysis is that shortterm profit maimizationre%uires maimizing the contribution margin through the constraint, calledthe throughput margin or throughput contribution

b. #hroughput margin C 'ales D -irect materialsc. ! constraint is managed using the drumbufferrope +-A? system

d. 'teps1 *dentify the constraint.2 -etermine the most profitable product mi given the constraint." Maimize the flow through the constraint.& *ncrease capacity at the constraint.) ?edesign the manufacturing process for greater fleibility and speed.

3 T! &o$#"!r, so&"io$ is "o r!!$#i$!!r "! !$"ir! proc!ss.

). D!"ai&! S"!ps i$ P!r*or,i$# a TOC A$a&)sis

. R!!$#i$!!ri$# O(!r(i!06 process innovation and core process redesign +4ongterm

6. O"!r Asp!c"s

a. -rawbac$: Ausiness process reengineering +A@?, or business processanalysis, involves process innovation and process redesign. *nstead of improvingeisting procedures, it finds new ways of doing things. ;ne major drawbac$ ofA@? is that employees may be resistant due to fear of layoffs, being replaced, orinsecurity about new re%uired s$ills or tas$s that the employee now has toperform

BUSINESS PROCESSES AND RISKS 7

7.1 MANAGING IN5ENTOR8 COSTS AND ;UANTITIES

1. Cos"s o* I$(!$"or)

a. ;ne purpose of inventory control is to determine the optimal level of inventory necessary to minimize costs

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7arrying costs ?ent, insurance, taes, security, depreciation, and opportunity cost

;rdering costs /ied costs of placing an order with a vendor and receiving the goods,independent of the number of units ordered

'afety stoc$ #he etra inventory $ept to guard against stoc$outs

'. *nventory management: minimizes the total costs of inventory+1 #he total costs of inventory C carrying cost E ordering costs

2. Eco$o,ic Or!r ;a$"i") =EO;2 Mo!&6 to determine the minimum point onthe total cost curve

a. 1 #he basic formula isEOQ = √2aD/k 

*f: a C variable cost per order +or production setup  D C periodic demand in units  k C unit periodic carrying cost

b. #he limitations of the 5;= model

1 #he three variables in the formula remain constant throughout the period.2 'toc$out costs are zero, and no safety stoc$ is held.

7. IN5ENTOR8 MANAGEMENT MET9ODS

1. ABC I$(!$"or) Ma$a#!,!$"

a. #he !A7 system is a simple inventory management techni%ue. *t controls inventoriesby dividing items into three groups

b. managerial control over inventory to be eercised in the most costeffective manner >roup ! 9ighmonetaryvalue items 1FG of the total reviewed on a regular basis

>roup A Mediummonetaryvalue items 2FG of the total Aetween ! H 7

>roup 7 4owmonetaryvalue items 6FG of the total reviewed even less fre%uently

. >s"i$Ti,! =>IT2

a. I*# limits output to the amount re%uired +the demand by the net operation in theproduction process

b.  ! I*# system reduces carrying costs by eliminating inventories and increasingsupplier deliveries

c. @ull systemd. increases the ris$ of stoc$out costse. the dependability of suppliers is crucial

3. Ma"!ria&s R!?ir!,!$"s P&a$$i$# =MRP2

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a. !n integrated computerbased system designed to p&a$ a$ co$"ro& ,a"!ria&ss! i$ proc"io$

'. @ush system +the demand for raw materials is driven by the forecast demand for thefinal product, which can be programmed into the computer

c. 'i&& o* ,a"!ria&s =BOM2, a record of which +and how many subassemblies go into thefinished product

d. M?@, in effect, creates schedules of when items of inventory will be needed in theproduction departments

7. Ma$*ac"ri$# R!sorc! P&a$$i$# =!-pa$! (!rsio$ o* MRP2 MRPII

a. epands the scope of M?@ to integrate all facets of a manufacturing business,including production, sales, inventories, schedules, and cash flows

:. Co,p"!rI$"!#ra"! Ma$*ac"ri$# =CIM2

a. the automation of actual production process +e. 7!-

b. /leibility is a $ey advantage

7.3 EDI@ EFT@ AND ECOMMERCE

1. E&!c"ro$ic Da"a I$"!rca$#! =EDI2

a. #he communication of electronic documents directly from a computer in oneorganization to a computer in another organization+1 5-* was developed to enhance I*# +justintime inventory management

  b. ?is$s of 5-*:+1 'ecurity of information: 5ndtoend data encryption+2 4oss of data: Aac$up

2. EDI T!r,s a$ Co,po$!$"s

a. Aecause 5-* formats and elements vary, trading partners must negotiate 5-*standards.b. ! large organization may gain a competitive advantage by forcing its trading partners

to adopt its standards". M!"os o* EDI Co,,$ica"io$

@ointtopoint connections Aoth parties had fied, dedicated computer connections

Valueadded networ$s +V!Ns @rivate mailbotype services in which the sender(s andreceiver(s computers are never directly connected to eachother +No same standard re%uired

• 5ncryption, preferably by physically secure hardware

rather than software, is a critical control

*nternet +7ost advantages 7an be used in a more open environment in which one firmtransmits documents to another 

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&. I,p&ica"io$s *or I$"!r$a& Ai"ors

a. 5-* eliminates the paper documents, both internal and eternal

b. *nternal auditors must see$ new forms of evidence to support assertions about 5-*transactions

c. *nternal auditors must evaluate digital signatures and reviews when testing controls.

d. *nternal auditors may need to consider other subsystems when testing a particularsubsystem.

). EDI Co$"ro&s

a. @rotection of message integrity by authentication is especially important for such 5-*applications as 5/# and ordering

. E&!c"ro$ic F$s Tra$s*!r =EFT2

a. 5/# is a service provided by financial institutions worldwide that is based onelectronic data interchange +5-* technology

1 5/# transaction costs are lower 2 -irect deposit, telephone bills, etc.

6. ECo,,!rc!

8. S!cri") Iss!s *or Eco,,!rc!

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b. #he intent of the standards is to ensure the %uality of the process, not the product.2. Basic R!?ir!,!$"s o* a$ ISO ;MS

". Asp!c"s o* ISO C!r"i*ica"io$

a. 'ome entities are obtaining *'; certification because of concern that the 5uropean

Bnion will re%uire compliance with the standards in an attempt to restrict imports

1 #he standards are not yet mandatory. 9owever, they are re%uired for certainregulated products

&. O"!r Ar!as o* S"a$ari%a"io$

7. OUTSOURCING

1. Bsi$!ss Proc!ss O"sorci$#

a. #ransfer of some of an organization(s business processes to an outside provider 

1 7ost savings2 ;perating effectiveness" ;perating efficiency

2. Ma$a#!,!$" R!spo$si'i&i"i!s

a. Management is still responsible for ensuring that an ade%uate system of internalcontrol eists over processes performed by an eternal service provider 

". A(a$"a#!s a$ Disa(a$"a#!s

COMMUNICATION ::.1 NATURE OF COMMUNICATION1. O(!r(i!0

a. #he communication process has si elements#he sender originates the message

5ncoding #ranslating thoughts into a message the receiver can understand#he medium #he channel through which the message flows

-ecoding #he act of understanding a message

#he receiver #he person who decodes the message and interprets the sender(s meaning

/eedbac$ !c$nowledging to the sender that the message was correctlyunderstood

2. T)p!s o* Co,,$ica"io$

a. Managers must spend most of their time communicating with subordinates, peers./ormalcommunication

formal structure of the organization budgets, bonus programs,memoranda

*nformalcommunication

outside the formal organization >rapevine +accurate, but it cancarry gossip

Writtencommunication

a permanent record of the message !ccurate, time consuming, inhibitsfeedbac$

;ral less formal less accurate, immediate feedbac$

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2 Arand identity of eisting products is wea$." 7osts of switching suppliers are low.& 5isting firms do not have the cost advantages of vertical integration.) @roduct differences are few. !ccess to eisting suppliers is not bloc$ed, and distribution channels arewilling to accept new products.

6 7apital re%uirements are low.8 5isting firms are unli$ely to retaliate against a new firm.

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Scop! =I$s"r) 0i!2 S"ra"!#)

Narro0

=Mar4!" s!#,!$"2

Focs! S"ra"!#)6

Cos"

Focs! S"ra"!#)6

Di**!r!$"ia"io$

2. Cos" L!a!rsip

". Di**!r!$"ia"io$

&. Cos" Focs

a. 7ost focus is the generic strategy of a firm that see$s competitive advantage throughlower costs but with a narrow competitive scope

). Focs! Di**!r!$"ia"io$

. Co,'i$a"io$ S"ra"!#i!s

6. Por"!rs Fi(! Forc!s

8. Mar4!"Bas! S"ra"!#i!s

Market

Leader

1.Market-penetration strategy:

Focus on who might use the product

2.New-market segment strategy:

Who have never used the product

3.Geographical expansion strategy:

Users in un-served localities

Dominant firm to expand the

total market

Market

Challenger

May attack the leader Trailing firm

Market

Follower

Tend to imitate the leader Do not wish to challenge the

leader

Market

Niche

(small)

Risk is that a niche may evaporate or be

entered by a larger firm

Small or mid-size firms that

compete in smack markets

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• Firm Orientations

Product-centered firms Focus primarily on the product

Competitor-centered firms Moves on competitors’ actions & reactions

Customer- centered firms Focus on delivering value to customer

Market-centered firms Watch both customers & competitors

6.4 COMPETITIVE ANALYSIS

1. Competitive Intelligence: Analyzing competitors

a.The establishment of a competitive intelligence

(1) Setting up the system

(2) Collecting data

(3) Analyzing the data

(4) Disseminating the information:Transmit timely information to 

decision makers and respond to queries

2. Customer Value Analysis

a. The steps in a CVA

(1) Determine what customers value.

(2) Assign quantitative amounts to the elements of customer value and have

customers rank their relative significance.

(3) Evaluate how well the firm and its competitors perform relative to each

element.

(4) Focus on performance with respect to each element, vis-a-vis animportant competitor in a given market segment.

(5) Repeat the foregoing steps as circumstances change.

b.Using the results of the CVA, the firm may then target a given class of competitors

Targeting weak competitors The cheapest way to gain market share

Close competitors Similar: any beverage may be a competitor of soft drink makers

Bad competitors They disturb the competitive equilibrium

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3. Integration and Diversification: Firms use diversification to grow, improve profitability, and

manage risk

Vertical integration upstream (backward) by acquiring suppliers or downstream 

(forward) by acquiring wholesalers and retailers

Horizontal integration the acquisition of competitors

Concentric diversification developing or acquiring related businesses that 

do not have products, services, or customers in common with

current businesses(internal synergies)

Horizontal diversification the acquisition of businesses making products unrelated to 

current offerings

Conglomerate diversification he acquisition of wholly unrelated businesses

4. The Growth-Share Matrix

a. A large firm may be viewed as a portfolio of investments in the form of strategic 

business units (SBUs)

b. One of the models most frequently used for competitive analysis was created by the 

Boston Consulting Group (BCG)

Market Growth Rate (MGR): constant units of the currency used in the measurement

  HIGH

  10%

  LOW

  10 HIGH

1.0 LOW 0.1

Relative Market Share (RMS):

competitive position in the market

segment

STARS QUESTION MARKS

CASH COWS DOGS

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(1) STARS:generate large amounts of cash, need heavy investment to grow and

maintain competitive positioning, but usually have modest net cash flow

(2) QUESTION MARKS: weak competitors and poor cash generators in high-growth

markets. Need large amounts of cash not only to finance growth and compete in the

market, but also to increase RMS(3)CASH COWS:strong competitors and cash generators in low-growth markets.

Financing for expansion is not needed

(4)(4) DOGS: weak competitors in low-growth markets. Their net cash flow (plus/minus)

is modest

c. Each SBU should have objectives, a strategy should be formulated to achieve 

those objectives, and a budget should be allocated. 

Hold strategy used for strong cash cow

Build strategy   Necessary for a question mark with the potential to be a star

Harvest strategy Maximizes short-term net cash inflow. Zero-budgeting R&D, reducing

marketing costs, not replacing facilities.Used for weak cash cows

and possibly question marks and dogs

Divest strategy

5. Problems with Matrix Approaches

a.Managers may find it difficult to measure market share and growth or even define SBUs

6.5 MARKET SIGNALS

1. Overview

a.#he firm must understand competitors so as not to ignore, or be deceived by, their

signals.

2. Types of Signals

a. ! *ir,s i(!r#!$c! *ro, i$s"r) pr!c!!$", e.g., isco$"i$# o* $!(!r'!*or!

isco$"! i"!,s, implies aggressive intent

b. A cross-parry: an indirect response by the defending firm that potentially avoids 

destructive conflict in the newly penetrated market (Initiate a move in the market where

the competitor is strong)

c.A "r! ,ar4!" si#$a& ,a) '! a$ a""!,p" "o ,i$i,i%! a *"r! pro(oca"i(!

,o(!

3. Relationship between Signals and Actions

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INDUSTR8 E5OLUTION AND EN5IRONMENTS H

H.1 INDUSTR8 E5OLUTION

1. Basis *or A$a&)sis

2. Proc" Li*! C)c&! S"a#!s

@re commercialization

+product development stage

the entity has no sales high investment costs

introduction stage slow sales growth, lac$ of

profits

high epenses of promotion

percustomer cost is highgrowth stage sales and profits increase

rapidly

cos" r!c"io$s is a" i"s,a-i,,

new competitors enter an

epanding mar$et

new product models andfeatures are introduced

to build brand loyalty and

achieve the maimum share

of the mar$et

advance by these means byachieving economies of productive scale

,a"ri") s"a#! sales pea$ but growth declines

co,p!"i"io$ is #r!a"!s" but

may begin to decline in number 

cos"s ar! a" "!ir &o0!s"

@rofits are high for large

mar$etshare entities

i(!rsi*ica"io$ o* 'ra$s and

models to enter new mar$etsegments

a(!r"isi$# &o0!r pric!s

a$ sp!rior ?a&i")

decline stage sa&!s a$ pro*i"s rop as

prices are cut

some entitiesleave the mar$et

". I$s"r) E(o&"io$

&. Ma+or E(o&"io$ar) Proc!ss!s

a. -iffusion of proprietary $nowledge will tend to reduce entry barriers

H. INDUSTR8 EN5IRONMENT < FRAGMENTED

1. Fra#,!$"! I$s"ri!s

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a. *ndividual firms have insignificant mar$et shares and little influence on industry outcomeb. @ure competition

2. Eco$o,ic Cas!s o* Fra#,!$"a"io$a. 4ow entry barriers, 5conomies of scale and a learning curve +eperience effect usually donot eist, 9igh transportation costs, 9igh inventory carrying costs

". O(!rco,i$# Fra#,!$"a"io$a. to use technology to create economies of scale in productionb. 'tandardizing diverse mar$et needs may result from introducing a new product =Fra$cis!sa&& s! s"a$ari%! proc"s "o r!c! cos"s

&. Copi$# 0i" Fra#,!$"a"io$a. Sp!cia&i%a"io$ ') proc" ")p! or s!#,!$" is a *ocs s"ra"!#)

). S"ra"!#ic Trapsa. O(!rc!$"ra&i%a"io$ o* "! or#a$i%a"io$a& s"rc"r! is o*"!$ a ,is"a4!6 *n theintense competition of a fragmented industry, %uic$ response times, local

contacts, personal service, and tight operating control are essential

. Co,p!"i"i(! S"ra"!#) i$ a Fra#,!$"! I$s"r)

determine the causes offragmentation

analyze whether the causescan be overcome

can be overcome evaluate whether the newstructure will yieldacceptable returns and theposition needed to earn thosereturns

cannot be overcome select the best strategy foroperating in a

fragmented environment

determining the beststrategy

H.3 INDUSTR8 EN5IRONMENTS < EMERGING

1. E,!r#i$# I$s"ri!s

a. !n emerging industry is new or newly formed and is small initially. *t results frominnovation, changes in cost structures, new customer needs, or another factor thatcreates an opportunity for selling a product or service

2. S"rc"ra& Carac"!ris"ics o* E,!r#i$# I$s"ri!s

a. #echnological uncertainty

b. S"ra"!#ic $c!r"ai$") arises because effective strategies have not yet been identified.

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c. *nitial costs are high, but the learning curve is steep.

d. 5mbryonic companies +firms newly formed are numerous because entry is notdiscouraged by the presence of economies of scale or strategic certainty

". Li,i"s o$ D!(!&op,!$"

a. R!#&a"or) appro(a& ,a) '! ar "o o'"ai$

b. Ra0 ,a"!ria&s a$ co,po$!$"s may be scarce

c. ?aw materials prices may increase

d. *nfrastructure +e.g., distribution channels, service centers, s$illed labor, andcomplementary products or services may not be available

e. Proc" ?a&i") ,a) '! $!(!$ because of the presence of many new firms andtechnological uncertainty +and the lac$ of technical standards.

&. For!cas"i$# Mar4!"s

). S"ra"!#ic Coic!s

a. #he following are strategic choices in emerging industries

1 ! firm in an emerging industry needs to consider eternalities

2 ! firm benefits by early awareness of the changing role of suppliers and distributionchannels, which may be more cooperative as the industry strengthens" 5arly mobility barriers may disappear & T! $a"r! o* !$"ra$"s ,a) ca$#! to include larger firms attracted by the proven

and less ris$y industry) #iming of entry is critical: early commitment to suppliers and ta$ing advantage oflower capital costs if investors are attracted

H.7 INDUSTR8 EN5IRONMENTS < DECLINING

1. D!c&i$i$# I$s"ri!s

a. ! declining industry has sustained a permanent decrease in unit sales over the long run2. S"rc"ra& Carac"!ris"ics

a. 'tructure and competition in the decline phase are determined by the decreased profits

resulting from lower unit sales and more intense competition.

b. 9igh eit barriers may restrain firms from leaving the industry.1 'pecialized assets and inventory in a declining industry may have a lowli%uidation value

2 Net li%uidation value is reduced when the fied costs of eit are high

c. Pric! 0ars ar! ,or! &i4!&) i$ "! !c&i$! pas!

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". S"ra"!#ic Coic!s

a. #he following are strategic choices in declining industries:

leadership strategy adopted by a firm that believes itcan achieve mar$et share gains to

become the dominant firm

;ne assumption is thatadditional

investment can be recovered

 ! second assumption is thatsuccess will allowthe firm to maintain its position

or subse%uently to follow a

harvest strategy

niche strategy see$s a mar$et segment +poc$etof demand with stable or slowlydecreasing demand with thepotential for aboveaverage

returns

#he firm may eventually

change to a harvest or divest

strategy

harvest strategy in effect a controlled, gradual

li%uidation

#o be successful, the strategy

assumes no intense

competition

%uic$ divestment strategy #he highest net recovery isobtained by sale early in thedecline phase

Bncertainty about the industryLsfuture is greatest andother mar$ets for the assetsare most favorable

-ivestiture may be indicated

during the maturity phase prior 

to decline

&. Coosi$# a S"ra"!#)

H.: COMPETITION IN GLOBAL INDUSTRIES

1. G&o'a& Co,p!"i"io$

a. >lobal competition obviously differs in important ways from national competition. /oreample, costs, mar$et characteristics, and the roles of governments vary amongcountries. !vailable resources, competitive monitoring, and objectives also vary

&. E(o&"io$ o* G&o'a& Mar4!"sa. #he triggers of global mar$et evolution establish or eploit the sources of globalcompetitive advantageb. S"ra"!#ic i$$o(a"io$s ,a) '!#i$ #&o'a&i%a"io$

). S"ra"!#ic Coic!s

a. #he following are strategic choices in global industries

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 ! global focus strategy #he focus of competition is low cost or product

differentiation+limited to an industry segment

 ! national focus strategy 4ow cost or product differentiation is the focus

of competition+limited to a national mar$et

 ! protected niche strategy to be effective in mar$ets with governmentalconstraints and re%uires close attention to thenational government+applied in nations whereglobal competitors are discouraged bygovernmental impediments

b.A #!$i$!&) #&o'a& i$s"r) 0i&& a(! si#$i*ica$" !-por" ac"i(i") or ir!c"

i$(!s",!$"

STRATEGIC DECISIONS

.1 INTEGRATION STRATEGIES 

1. 5!r"ica& I$"!#ra"io$

a. Vertical integration occurs upstream +bac$ward by ac%uiring suppliers ordownstream +forward by ac%uiring wholesalers and retailers

2. G!$!ric S"ra"!#ic B!$!*i"s

a. >eneric strategic benefits of vertical integration

Ups"r!a, ='ac40ar2

i$"!#ra"io$

 !c%uisition by eternal partiesthat are suppliers of the firm.

a car manufacturer ac%uires acompany that supplies tires for automobiles

Do0$s"r!a, =*or0ar2i$"!#ra"io$

 !c%uisition by customers a car manufacturer ac%uirescar dealerships that sell andlease the company(s cars

. CAPACIT8 EPANSION

1. O(!r(i!0

a. #he $ey forecasts are longterm demand and behavior of competitorsb. #he $ey strategic issue is avoidance of industry overcapacity

1 Bndercapacity in a profitable industry tends to be a shortterm issue

2 ;vercapacity tends to be a longterm problem because firms are more li$ely tocompete intensely rather than reverse their epansion

2. T! D!cisio$ "o E-pa$ Capaci")

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a. @orter(s model of the decision process for capacity epansion

1 I!$"i*) "! op"io$s in relation to their size, type, degree of vertical integration +ifany, and possible response by competitors2 For!cas" !,a$, input costs, and technology developments. #he firm must beaware that its technology may become obsolete or that future design changes to allow

epansion may or may not be possible" A$a&)sis o* co,p!"i"ors to determine when each will epand& Usi$# "! i$*or,a"io$ from the first three steps, the firm predicts total industrycapacity and firms( mar$et shares) #he final step is testing for inconsistencies

". Cas!s o* O(!r!-pa$sio$

a. poorly played games of preemption

b. commodities usually cyclical so that capacity is always ecessive at low points inthe cycle

c. #he following are "!c$o&o#ica& *ac"ors that may lead to overbuilding:

d. #he following are s"rc"ra& *ac"ors that may lead to overbuilding:

1 5it barriers are high.

2 /ace their own competitive pressures." 7redibility of new products is promoted by capacity epansion that givesassurance to large buyers.

e. #he following are co,p!"i"i(! *ac"ors that may lead to overbuilding:

1 Want to improve mar$et share

2 #he lac$ of a credible mar$et leader 

" 4ow entry barriers and favorable economic conditions& /irst mover advantages may be significant.

f. #he following are i$*or,a"io$ *&o0 *ac"ors that may lead to overbuilding:

1 /uture epectations may be inflated

2 /irms( assumptions or perceptions may be inaccurate

" Mar$et signaling may be ineffective

& 7hanges in industry structure may lead uncertainties

) Management(s optimistic comments to the financial community may be ta$enas aggressive signals by competitors

g. #he following are ,a$a#!ria& *ac"ors that may lead to overbuilding:

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1 Management that is productionoriented

2 ! manager(s career ris$ is asymmetric +overcapacity appear to be less seriousthan those of undercapacity

h. #he following are #o(!r$,!$"a& *ac"ors that may lead to overbuilding:

1 #a incentives

2 ! nation may wish to create a local industry.

" >overnmental employment pressures

&. Pr!!,p"i(! S"ra"!#i!s

a. @reemption re%uires investments in plant facilities and the ability to accept shorttermunfavorable results.

b. #he following conditions must be met for the strategy to succeed:

1 #he epansion must be large relative to the mar$et, and competitors must believethat the move is preemptive2 5conomies of scale should be large in relation to demand, or the learningcurveeffect will give an initial large investor a permanent cost advantage." #he preempting firm must have credibility to support its statements& #he firm must provide credible signals before action by competitors.) #he competitors of the firm should be willing not to act.

.3 ENTR8 INTO NE BUSINESSES

1. E$"r) "ro# I$"!r$a& D!(!&op,!$"

a. 5ntry through internal development ordinarily involves creation of a new businessentity. #his internal entrant must cope with structural barriers and retaliation by eistingfirms.b. 7osts include:

1 *nitial investments to overcome entry barriers

2 ;perating losses in the startup phase

" #he effects of retaliation

& @rice increases for factors of production that may result because of the new5ntry

c. #he internal entrant should underta$e a structural analysis, including consideration of profitability as a function of the five competitive forces, to identify target industries.

*f the industry is in

e%uilibrium

the internal entrant should epectnormal +average profits

unless the firm has specialadvantages, it should most li$ely nottarget an industry in e%uilibrium

 !n industry may to achieve aboveaverage profitsby choosing

*n a new industry, +a the structure isnot established, +b entry barriers are

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be in

dise%uilibrium

appropriate targets low, +c retaliation is unli$ely, +dresource supplies are not yetcontrolled by eisting firms, and +ebrands are not well developed

2. E$"r) ') Ac?isi"io$

a. !c%uisitions are most li$ely to earn aboveaverage profits when

1 #he floor value is low

2 #he mar$et for ac%uisitions is imperfect.

" #he buyer may have a uni%ue ability to operate the seller.

.7 FORECASTING TIMESERIES MODELS

1. /orecasting methods: -5M!N- /;?57!'#*N>=ualitative method ?ely on eperience and human

intuition-elphi +opinions of eperts

=uantitative method 7ausal relationship forecasting%uantifies the lin$ between somefactor in theorganization(s environment +theindependent variable, plotted on thehorizontalais and an outcome at a moment intime +the dependent variable, plottedon

the vertical ais.

4inear regression

2. #rend analysisa. #o remove the effect of seasonal variation from a time series, the original data aredivided by the seasonal factor 

". Moving average: When the demand for a product is relatively stable and not subject toseasonal variations

a. 5ach period(s average includes the newest observation and discards the oldest one&. 5ponential smoothing: when large amounts of data cannot be retained

a. >reater weight is placed on the most recent data, with the weights of all datafalling off eponentially as the data age

). 4earning curves

.: FORECASTING PROBABILISTIC MODELS

'imulation 4ogical andmathematical modelsusing a computer 

Monte 7arlo uses a random !llow the firm to

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simulation number generator toproduce individualvalues for a randomvariable

gauge the effects onfuture revenueswithout $nowing forcertain thecompetitor(s launchdate

'ensitivity !nalysis 5amines how themodel(s outcomeschange as theparameters change

Mar$ov process =uantifies theli$elihood of a futureevent based on thecurrent stateof the process

estimate itsallowance fordoubtful accounts

>ame theory -ecision ma$ingwhen confronted withan enemy or

competitor 

 ! decision that resultsin neither playerimproving hisJher

position is anowin strategy.

2. -ecision ma$ing under uncertaintya. Various decision rules based on the level of ris$ accepted by the ma$er 

Maimacriterion

 !pplied by ris$see$ing, optimisticdecision ma$ers

'elect the option with the highestpotential payoff 

Maimin criterion  !pplied by conservative +ris$averse decision ma$ers

'elect the option with the lowestpotential loss +or the highestpotential payoff from the set of

worst possible outcomesMinima regretcriterion

 !pplied by decision ma$ers withmoderate appetites for ris$

#o minimize the effect of a baddecisionin either direction +minimizeopportunity loss.

5pected value When ris$ is %uantifiable, epectedvalue is a rational means of ma$ingthe best decision

. REGRESSION AND CORRELATION

1. Si,p&! R!#r!ssio$

a. ?egression analysis is particularly valuable for budgeting and cost accountingpurposes

1 ;ne etremely common application of simple regression in a business setting isthe estimation of a mied cost function, i.e., one with a fied component and avariable component.2 #he yais intercept is the fied portion, and the slope of the regression line is

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the variable portion

2. M&"ip&! R!#r!ssio$

a. Multiple regression is used when there is more than one independent variable.

". Asp!c"s o* R!#r!ssio$ A$a&)sis

a. #he linear relationship established for x and y is only valid across the relevant range.

b. ?egression analysis assumes that past relationships can be validly projected into thefuture.

&. 9i#Lo0 M!"o

a. #he highlow method is used to generate a regression line by basing the e%uation ononly the highest and lowest of a series of observations.

1 #he major criticism is that the high and low points may be abnormalities notrepresentative of normal events

). Corr!&a"io$ A$a&)sis

. D!"!r,i$a"io$

6. S"a$ar Error 

a. 'tandard error measures how well the linear e%uation represents the data.

1 #he closer the data points are to the regression line, the lower the standard error 

.H O5ER5IE OF ;UALIT8

Quality control

1. The most important component of quality control

a. Ensuring goods & services conform to the design specications

b. =uality control circles are used to obtain voluntary input from employees topromote problem solving

1. P!rsp!c"i(!s o$ ;a&i")

#he traditional %ualitycontrol

the mass inspection of goods asthey came off the assembly line

?ewor$ed ;? scrappedand written off 

Modern %ualitymanagement

preventing defects, not detectingthem after production is finished

improves every phase of anentity(s operations

a. @roduct %uality is the conformance of the entity(s output with customer epectationsb. #he most important component of a %uality control system is ensuring the %uality of

the product.

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2. M!asr!sa. Most measures of %uality are nonfinancial.

". B!$c,ar4i$#a. Aenchmar$ing is the comparison of some aspect of an organization(s performancewith bestinclass performance.1 #he process should be continuous and constantly reevaluated.

b. #he following are eamples of %uality benchmar$s:*nternal division that reports highest overall customer satisfaction5ternal Aiggest competitor(s customer satisfaction as reported in a thirdparty consumer

comparison survey

c. Aenchmar$ing can be carried out as a continuous process together with the plandochec$act +@-7! cycle.

&. Kai%!$a. #he continuous pursuit of improvement in every aspect of organizational operations

). ;a&i") Circ&!sa. a process $now best how to improve it.1 =uality circles are a means of obtaining ideas for improving %uality. #hey tend to

be unstructured gatherings meant to encourage brainstorming and candid discussion.. Si- Si#,a

a. 'i 'igma is meant to reduce the number of defects per million opportunities +-@M;in a massproduction process to ".&, a level of good output of

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ORGANIZATIONAL BE9A5IOR.

.1 Or#a$i%a"io$a& T!or)

1. O(!r(i!0

a. #he four elements of an organization

1 7oordination of effort in a cooperative social arrangement2 ! common objective or purpose" -ivision of labor +efficient specialization& ! hierarchy of authority

'. Or#a$i%a"io$a& car"s

1 Vertical hierarchy and horizontal specialization

2. T!ori!s o* Or#a$i%i$#

a. #heories of organizing

closedsystem opensystem

#raditional Modern

focused on economicefficiency in a reasonably predictable

environment

focused on survival in anuncertain environment

'r!acrac) co$"i$#!$c) approac

". Or#a$i%a"io$a& P!r*or,a$c!

a. ;rganizational decline +infleibility and loss of effectiveness and efficiency may leadto downsizing, merger, reorganization, or li%uidation. *t results from decreased demand,resource limitations, or mismanagement.1 Management complacency is the most important cause of organizational decline.

. Mo"i(a"io$

2. O(!r(i!0

". Mas&o0s 9i!rarc) o* N!!s

a. 4owerlevel needs must be satisfied before higherlevel needs can influence+motivate the individual. +human needs are a hierarchy, from lowest to highestb. Maslow(s i!rarc) o* $!!s is listed below, from lowest to highest:

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1 P)sio&o#ica& $!!s2 S!cri") or sa*!") $!!s" A**i&ia"io$ or acc!p"a$c! $!!s& Es"!!,) S!&*ac"a&i%a"io$

c. Maslow(s hierarchy does not apply e%ually to all situations. *t is dependent on thesocial, cultural, and psychological bac$grounds of the people involved.

7lassical views stress fear and economics as motivators bonuses are economicrewards, 4oss of employment,monetary incentives

Aehaviorists participation and personal involvement inthe wor$ situation as motivational factors

a limitation of the participativeapproach is that it is unli$elythat allemployees are willing andable to be involved in decisionma$ing

T!or) a$ 8 #heory : 7lassic the autocratic manager  #heory : Modern permissive manager  

T0oFac"orT!or) o*Mo"i(a"io$

-issatisfiers: not motivate people, but theirabsence will lead to diminished performance

;rganizational policy,'upervision, 'alary and status

'atisfiers: motivational factors !dvancement, >rowth in the job, ?esponsibility

E-p!c"a$c)T!or)

based on the commonsense idea thatpeople have +1 subjective epectations ofrewards, +2 beliefs as to what is valuable,and +" epectations of receiving theserewards if they eert effort

5pectancy results from pasteperiences and measuresthe strength of belief +theprobability assessments thata particular act will be followedby a specific outcome

Goa&S!""i$#T!or)

@erformance improves when goals arespecific rather than general, difficult ratherthan easy, and participative +selfset ratherthan imposed by others

2. >o' D!si#$a. Iob design lin$s tas$s to particular jobs in a way consistent with the organization(sstrategies, structure, and resources +including technology.

C&assic =- "!or)26

adapt people to the

 jobs

R!a&is"ic +o' pr!(i!0 full eplanation of what the job involves

+eliminate false epectations

>o' ro"a"io$ change in boring, highly specialized jobs+benefits as crossfunctional training

Co$"i$#!$" "i,! o**  early completion of a fair performance %uota fora day(s wor$ without loss of pay

Mo!r$ =) "!or)26

adapt the job to the

>o' !$&ar#!,!$" reduce boredom in repetitive or fastpaced jobsthrough the assignment of a variety of simpletas$s as part of one job +horizontally loaded

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people >o' !$ric,!$" each wor$er participates in planning andcontrolling

". R!0ars

E?i") "!or) employee motivation is affected significantly by relative aswell as absolute rewards

Co#$i"i(! !(a&a"io$ "!or) intrinsic rewards +such as competence, responsibility, andachievement tend to be reduced when etrinsic rewards +suchas higher pay, promotion, and better wor$ing conditions areprovided for superior performance

.3 Or#a$i%a"io$a& Po&i"ics

1. O(!r(i!0

a. ;rganizational politics, or impression management, is acting in one(s selfinterestgiven actual or perceived opposition in the wor$place

2. B!a(iors

a. 'elfinterested behaviors are those not based solely on competence and diligence or resulting from good fortune

@ositive political behaviors coalition building, networ$ing, and see$ing mentors

Negative political behaviors whistleblowing, sabotage, threats, ta$ing credit for others( wor$ orideas, and building revolutionary coalitions

". Or#a$i%a"io$a& C&"r!

a. #he organizational culture may encourage politics by creating unreasonable obstaclesto group and individual advancement.

&. Po&i"ica& Tac"ics

Pos"ri$# attempt to ma$e a goodimpression

#a$ing credit for others( wor$

E,pir! 'i&i$# attempt to control greaterresources

a manager with a larger budgetmay believe that +she is in a safer

position and is more influentialMa4i$# "! sp!r(isor&oo4 #oo

effort to impress the person who controls one(s career path

Co&&!c"i$# a$ si$#socia& IOUs

a manager may helpanother to loo$ good

concealing a mista$e

Cr!a"i$# po0!r a$&o)a&") c&i?!s

cohesive group has more power than an individual

E$#a#i$# i$ !s"rc"i(! gossip, lying, and sabotage

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co,p!"i"io$

). Li,i"i$# Po&i"icsa. 4imiting organizational politics is desirable because it may reduce productivity. ?otate jobs to develop a broader perspective and understanding of the problems

of others.7 Grop D)$a,ics

1. O(!r(i!0

. For,a& #rops

For,a& #rops organization assembled to perform a

productive activity, /ormal groups are

more structured

eplicitly designated leaders

I$*or,a& Grops 'mall and often very comple satisfy esteem needs

+friendship.

". I$*or,a& Grops

*nformal groups tend to be small and are often very comple

&. Grop Co,,i",!$"

a. 7ommitment to a group depends on its attractiveness and cohesiveness.

A""rac"i(!$!ss favorable view from the outside

Co!si(!$!ss tendency of members to adhere to the group and unite against outsidepressures

Disa(a$"a#!6 >roup members avoid epressing opinions that deviatefrom what appears to be the group consensus.

). Ro&!s a$ Nor,s

Ro&!s behavior epected of a person in a specific position

Nor,s general standards of conduct and have a broader effect than roles

. Co$*or,i")

a. 7onformity is compliance with roles and norms.

b. ;ne danger of cohesive groups is #rop"i$4

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*t is the tendency of individuals committed to the group to ignore input that varies fromthe group opinion

6. GropAi! D!cisio$ Ma4i$#

advantages diverse views, >roup involvement provides training for the less eperienced

members

disadvantages social pressure, may be dominated by a few aggressive members, may suffer

from groupthin$, tend to ta$e longer than individuals

1 #he difficulty associated with groupaided decision ma$ing isaccountability for the decision. *f a decision is made by a group, no one person isresponsible. #he best method is for the group to recommend a decision but for amanager to assume responsibility for ma$ing the final decision

a. >roup decision ma$ing differs from groupaided decision ma$ing.1 >roups submerge individual identity and responsibility and conceal the lin$

between individual effort and outcome. #hus, greater acceptance of ris$ resultsbecause accountability is dispersed.

.: S"a#!s o* Grop D!(!&op,!$"

1. O(!r(i!0

2. Ma"r! Grop

a. ! mature group is the end stage of group development. *t tends to be effective and

productive compared with groups in earlier stages.

1 !wareness of members( strengths and wea$nesses related to the group(sfunction2 !cceptance of members( differences" !cceptance of group authority and interpersonal relationships& ?ational discussion of decisions with tolerance of dissent) 4imitation of conflict to substantive rather than emotional issues, e.g., groupobjectives and the means of reaching them Members( awareness of their roles in group processes

". S"a#!s o* D!(!&op,!$"

a. #he principal issue in the early stages is uncertainty about power and authorityrelationships. #he principal issue in the later stages is uncertainty about interpersonalrelationships

ori!$"a"io$ stage the least mature, effective, and efficient Bncertainties are high and

temporary leaders emerge

co$*&ic" a$ leaders are opposed by people orsubgroups with differing agendas

?edistribution of power and

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ca&&!$#! stage authority may occur  

co!sio$ stage members agree about authority,

structure, and procedures

identify with the group

!&sio$ stage members must overcome a false sense

that all issues have been resolved

9armony is emphasized.

isi&&sio$ stage cohesiveness diminishes as themembers realize that their epectations are not being met

 !bsenteeism increases. 'omemembers ris$ urgingthe group to do better 

acceptance stage tend to be effective and efficient #rust producescohesiveness and a free

echange of information

among group member 

. Ma$a#i$# 9,a$ R!sorc!s

1. O(!r(i!0

a. #he human resource strategy is a systems approach that treats employees as humancapitalb. 9uman resource planning forecasts future employment re%uirements. *t includes thehiring, training, and monitoring of employees.

2. D!si#$i$# "! >o'

a. Iob analysis ! +o' !scrip"io$ >o' sp!ci*ica"io$s

". R!cri",!$"

a. #he criteria for employee selection are the job specifications developed from each jobdescription.

&. S!&!c"io$

). Trai$i$# a$ D!(!&op,!$"

a. 5valuation and appraisal help identify individual strengths and wea$nesses. !lso, jobsand mar$ets change, leading to a need for wor$ers with different s$ills

. P!r*or,a$c! E(a&a"io$

6. Ma+or T)p!s o* Appraisa&s

Management by ;bjectives

+MA;

'upervisors and subordinates

mutually establish objectives

Aased on achievement of theobjectives

Aehaviorally !nchored

?ating 'cales +A!?'

describe good and bad

performance

Iob analysis for a number ofspecific jobrelated behaviors

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7hec$theAo a list of categories for ratingperformance for the supervisorto chec$ off 

 ! chec$list of statements

relating to job performance

7omparative Methods comparing an employee(s

performance with the wor$ of

others

?an$ing all employees fromhighest to lowest +can lenditself to bias on the part of the

evaluatorNarrative Method essays and critical incidents

+specific inferior or superior performance. Aoth re%uire

large amounts of time.

to prepare the evaluation for each employee based on the

supervisor(s input

"FO @erformance !ppraisal anonymous feedbac$ by peers,

customers, supervisors, and

subordinates

5valuations do not include

copies of job descriptions or

performance goals.

LEADERSHIP AND CONFLICT MANAGEMENT.1010.1 LEADERSHIP STYLES

1. Ma$a#!,!$"@ L!a!rsip@ a$ Po0!r 2. I$*&!$c!

a. *nfluence in the wor$ environment is an attempt to change the behavior of superiors,peers, or lowerlevel employees.b. #he generic influence tactics noted by researchers:

7onsultation other person+s to participate in the decision or change

?ational persuasion tries to convince others by reliance on a detailed plan, supportingevidence, and reason +participative managers

*nspirational appeals emotions, values, or ideals*ngratiating tactics to raise the other person(s selfesteem prior to a re%uest

7oalition tactics see$ the aid of others to persuade someone to agree

@ressure tactics intimidation, threats, and demands

Bpward appeals the formal or informal support of higher management

5change tactics an echange of favors, a reminder of a past favor, or an offer of apersonal sacrifice

". Po0!r6 the ability to do thingsa. @ower is the ability to influence employees to do what they would not ordinarily do.b. !uthority is the right to manage others.

L!#i"i,a"! or posi"io$ po0!r  5mployees tend not to completely obey someone who relies

solely on legitimate authorityE-p!r"is! the power eerted by *# professionals

R!*!r!$" po0!r leader(s charisma +#he negative is that the individuals whohave it often abuse it

Co!rci(! po0!r  the fear or threat of punishment

Co$"ro& o* r!0ars @erformance may determine pay raises and promotions

&. Trai"is" Approaca. !ccording to this approach, authority, decision ma$ing, and responsibility all may be

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decentralized to some etent.). L!a!r B!a(ior 

a. Aehaviororiented researchers have eamined leader behavior to determine whether leaders conduct themselves in certain ways.b. 'tyles of leadership are emphasized in behavioral approaches. #he following are thetraditional styles:

 !uthoritarianor !utocratic

#he manager does not shareauthority and responsibility

dictates all decisions to employees,communication is downward with little employeeinput

-emocratic delegates substantialauthority

5mployees participate in defining and assigningtas$s, and communicationis actively upward as well as downward

4aissez faire 5mployees in a group aregiven the authority andresponsibility to ma$etheir own decisions

7ommunication is mostly horizontal

. Si"a"io$a& T!ori!s

a. the appropriate leadership style depends on the situation +co$"i$#!$c) "!or)b. #he dimensions of the four styles of leadership described in the model are tas$ andrelationship behaviorsc. #he dimensions of the four styles of leadership

S!&&i$# eplains decisions and provides opportunity for clarification +high tas$ and highrelationship

T!&&i$# provides specific instructions and closely supervises performance +high tas$ andlow relationship.

Par"icipa"i$# encourages the sharing of ideas and facilitates decision ma$ing +low tas$ andhigh relationship.

D!&!#a"i$# turns over responsibility for decisions and implementation +low tas$ and lowrelationship

d. Pa"#oa& "!or) emphasizes motivation. *t combines the research on initiatingstructure and consideration with epectancy theory. & leardership

ir!c"i(! leader gives specific guidance on how to accomplish tas$s

sppor"i(! leader friendly and shows concern for the needs of theemployees +best when tas$s are highly structured and theauthority relationships are clear and bureaucratic

par"icipa"i(! leader consults with employees and considers their suggestionsbefore ma$ing a decision

aci!(!,!$"ori!$"! leader a facilitator who sets challenging goals and epectsemployees to perform at their highest level +appropriate whentas$s are nonrepetitive and ambiguous and employeecompetence is high

6. Tra$s*or,a"io$a& L!a!rsip

transformationalleader 

charisma, is inspirational, providesintellectual stimulation to wor$ers

motivates employees to go beyondepectations

transactional leader emphasizes monitoring ofemployees so that they adhereto standards

ensures that epectations are met

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8. B!a(ior Moi*ica"io$a. Aehavior modification is the management of environmental factors to encouragedesirable behavior and to discourage undesirable behavior.

@ositive reinforcement rewards for certain responses the most effective approach

Negative reinforcement the withdrawal of an eisting unpleasant condition

+such as a threat when the desired behavior occurs5tinction discourages a behavior by ignoring it@unishment most effective when it immediately follows an undesirable behavior 

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Co,p!"i"i(! co$*&ic" destructive neither side trusts or believes the other +winlose

". Co$*&ic" Tri##!rsa. 7onflict may be triggered by the following:1 Ba&) !*i$! +o' !scrip"io$s +jurisdictional boundariesa ?eorganization may be the solution.

2 Scarci") of people, funds, or other resourcesa *ncreasing resources may be the solution.12 SU 10: Leadership and Confli! "ana#e$en! " Fai&r! o* co,,$ica"io$a ?emoving obstacles that hinder effective twoway communication is essential, but theproblem is perennial.& D!a&i$!sa #ime pressure may induce better performance +constructive or anger and frustration+destructive.) @olicies, procedures, rules, or other standards viewed by employees as $*air a *f very unpopular, they should be changed to avoid competitive conflict. *ndividual p!rso$a&i") i**!r!$c!s

a ?eassignment or termination of employees may be the solution.6 Di**!r!$c!s i$ s"a"s, an issue in any hierarchical entitya #he remedy is respect for the ideas, values, and concerns of lowerlevel employees.8 No" ,!!"i$# !-p!c"a"io$sa #he problem can be avoided through clarifying in advance the epectationsemployees have about their jobs.

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10.4 NEGOTIATION SKILLS

1. O(!r(i!0a. #woparty and threeparty negotiations are common.

#woparty a person sells hisJher car to a used car dealer 

threeparty a person(s sale of stoc$ through a bro$er 

2. E**!c"i(! N!#o"ia"io$a. 5ffective negotiation emphasizes a a zerosum game12 0i$&os! a""i"! a zerosum game +co,p!"i"i(!22 winwin attitude a zerosum game +coop!ra"i(!2

". B!s" A&"!r$a"i(! "o a N!#o"ia"! A#r!!,!$" =BATNA2a. #he A!#N! is the acceptable minimum outcome if a negotiator cannot obtain thedesired result.b. ! reasonable A!#N! protects against bad decisions caused by the following:

Fra,i$# !rror  presentation or contet of informationmay bias its interpretation

attractive appearance of a rPsumPwill sway the judgment

Esca&a"io$ o*co,,i",!$" a failing course of action when a purely objective decision ma$er wouldabandon it

O(!rco$*i!$c! to overestimate the chances of success

c. #he A!#N! also helps to define the 'ar#ai$i$# %o$!.

&. S"!ps "o O(!rco,! R!sis"a$c!). O"!r N!#o"ia"io$ Co$c!p"s

10.5 CHANGE MANAGEMENT

1. O(!r(i!02. T)p!s o* Ca$#!

a. 7ultural change: total %uality management approach is adoptedb. ! product change: product(s physical attributes

c. ! structural change: organization(s systems or structures". R!sis"a$c!

a. ;rganizational and procedural changes often are resisted by the individuals andgroups affected.

&. Or#a$i%a"io$a& D!(!&op,!$" =OD2

1. Pro+!c" ,a$a#!,!$"1. #o aid the planning and control of largescale projects having many interrelated activities

 !. #he process of managing the tradeoff between the two major inputs +"i,! a$ cos" andthe major output +?a&i"). #he project management triangle graphically depicts thisrelationship.

A. @5?#J7@M is a networ$ techni%ue for scheduling interrelated time series

activities and identifying

A. any critical paths in the series of activities The critical path is the longest path

through the network.

2. 7ommon project management techni%ues

>ranttcharts

'how the projected start andfinish times for each tas$ as

'impleNo special tools or 

Bnsuitable for a very largescale project

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well as for the project as awhole +Ay order

mathematics #he interdependenciesamong tas$s becomeunmanageable+no criticalpath

@5?# #o control largescale,comple projects

 ! networ$ diagram withcircles+called nodes3#he critical path is thelongest path in time throughthe networ$

*ncorporatingprobabilistic time

estimates andidentifying thecritical path.

7omple

3'lac$: the amount of timethat commencement of anactivity can be delayedwithout forcing adelay of the entire project

7ritical@athMethod

4i$e @5?#, 7@M is a networ$techni%ue-eterministic method

-eterministicmethod7ost amounts

When making a cost-time

trade-off, the first activity to

be crashed (have its

completion time

accelerated) is one on thecritical path. The initial

activity chosen should be

the one with the

completion time that

can be accelerated at the

lowest possible cost per

unit of time savedNetwor$models

#o solve managerialproblems pertaining toprojectscheduling, informationsystems design, andtransportation systemsdesign

 ! shortestroutealgorithmminimizes totaltravel time fromone site to each of the other sites in atransportationsystem

GLOBAL BUSINESS EN5IRONMENT 1

1.1 ASPECTS OF GLOBAL BUSINESS DE5ELOPMENT

1. O(!r(i!0

a. #echnological and political factors are intertwined with social changes. +a >reater concern for the rights of women and minorities0+b #he advance of multilingualism0 and+c #he convergence of tastes in fashion, music, and certain other cultural factors.

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2 #hese factors favor globalization by reducing trade barriers, reducing costs of coordination,

increasing economies of scale, and encouraging standardization and global branding

b. " major factors of >lobalization: Po&i"ica&@ "!c$o&o#ica&@ a$ socia&

2. E$"!ri$# T! G&o'a& Mar4!"p&ac!

a. -irect investment: Mos" ris4) 3+currencyQ#he advantages include

i 7heaper materials or labor,ii ?eceipt of investment incentives from the host government,iii ! strong relationship with interested parties in the host country,iv 7ontrol of the investment,v ! better image in the host country, andvi Mar$et access when domestic content rules are in effect

b. *ndirect eport re%uires lower investment than direct eport and is less ris$ybecause of the intermediaries( epertise

c. #he internationalization process is of crucial interest to nations that wish toencourage local firms to grow and to operate globally

a. Methods of epanding into international mar$ets include the following

Lic!$si$# firms in foreign countries the right toproduce or mar$et products orservices within a geographical areafor a fee+a way to enter a foreign mar$et withlittle immediate ris$

i #he licensor may have insufficientcontrol over the licensee(s operationsii #he licensor loses profits if thearrangement succeedsiii #he licensee ultimately maybecome a competitor 

5porting*n multiple or

 joint venturesA$ i$ir!c"!-por"

;perates through intermediaries lower investment than direct eportand is less ris$y

Dir!c"i$(!s",!$"

i 7heaper materials or labor ii ?eceipt of investment incentivesfrom the host governmentiii ! strong relationship withinterested parties in the host countryiv 7ontrol of the investmentv ! better image in the host country

vi Mar$et access when domesticcontent rules are in effect

i 5posure to currency fluctuations,ii 5propriation,iii @otentially high eit barriers, andiv ?estraints on sending profits outof the country.

• #he internationalization process

a Lac4 o* r!#&ar !-por"s

b2 E-por" (ia i$!p!$!$" a#!$"s to a few mar$ets, with later epansion to more countries

c2 Cr!a"io$ o* sa&!s s'siiari!s in larger mar$ets

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d Es"a'&is,!$" o* p&a$"s in foreign countries

". Li,i"! E$"r)

a. #he following are factors indicating that few national mar$ets should be entered:

1 5ntry costs are high02 Mar$et control costs are high0" @roduct adaptation costs are high0& 7ommunication adaptation costs are high0) #he first countries selected have large populations, high income, and a high

  rate of growth0 ! dominant firm can erect high entry barriers.

&. Pro#r!ssio$ o* I$"!r$a"io$a& Mar4!"i$#

a. *nternational mar$eting has three broad stages:

E-por" i(isio$. a firm(s initial entry is in other mar$ets that share a common language

or similar cultural normsI$"!r$a"io$a& i(isio$ focus their efforts in certain geographical regions that are led either

from a central structure or are locally run and managed

G&o'a& or#a$i%a"io$ directed toward creating and selling products to a worldwide mar$et

). Fac"ors o* Na"io$a& A(a$"a#!

a. ! firm has a competitive advantage: can produce most efficiently

. S"ra"!#i!s *or G&o'a& Mar4!"i$# Or#a$i%a"io$

M&"i$a"io$a& ="ra$s$a"io$a&2s"ra"!#)

a por"*o&io approacemphasis is on national

mar$ets +-ecentralized

customized for each mar$et

most effective given large

differences between countries

#ransnational firms lac$ a

national identity

G&o'a& s"ra"!#) the world as one mar$et

+centralized S"ro$# c!$"ra&

co$"ro&

#he product is essentially the

same in all countries

/aster product development

and lower production

I$"!r$a"io$a& s"ra"!#) 7ontrolled and mar$eted fromthe organization(s home

country, but products are sold

globally

M&"i&oca& or M&"io,!s"ic

s"ra"!#)

Bses subsidiaries in the hostcountries

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needs of a foreign mar$et

7ommunication adaptation Not change the product, but advertising and mar$etingcampaigns are changed to reflect the local culture and beliefs

 ! dual adaptation strategy 7hanges both the product and the promotion toprovide the best chance of acceptance in a foreign mar$et

c. @rice

+1 >ray mar$et activity: a form of arbitrage

#o prevent this activity

*. ?aise prices charged to lowercost distributors.**. @olice the firmsL distributors.***. 7hange the product

d. #he price escalation: caused by an accumulation of additional costs

+1 #hree strategies address price escalation

set a standard price globally unprofitable in some mar$ets and too high in

others

set a mar$etbased price in each mar$et *gnores cost differences

7reate a gray mar$etset a cos"'as! pric! in each mar$et with a

standard mar$up

*n a region or country where cos"s ar! i#,this strategy may result in prices that ar! "ooi# "o '! co,p!"i"i(! within the local mar$et

=2 ! transfer price: the price charged by one subunit of a firm to another 

3the higher the transfer pricehigher the potential tariffshigher ac%uisition

costlower the ta levied

+" -istribution channels: transferred from the production facility to end users

3 #hree distinct lin$s that must wor$ well together 

#he international mar$eting head%uarters eport department or international division

7hannels between nations carry goods

to foreign borders

agents or trading companies

7hannels within nations ta$e the goodsfrom the border to the ultimateusers of the products

2. S"!ps "o Bra$ G&o'a&&)

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a. T! *ir, so& !"!r,i$! "! ra"io o* s"a$ari%a"io$ a$cs"o,i%a"io$.

+1 @roducts that can be sold virtually unchanged throughout severalmar$ets provide a greater profit opportunity for a global firm. 9owever, culturaldifferences may re%uire etensive customization to appeal to mar$ets in different

countries.

1.3 LEADERS9IP IN GLOBAL OPERATIONS

1. Carac"!ris"ics o* Scc!ss*& L!a!rs

a. #he common characteristics of leaders of global firms

+1 #he leaders tended to have multidisciplinary problem solving ability

2. L!a!rsip S")&!s

 a. /our basic styles of leadership-irective style 'pecific epectations, guidelines,schedules, rules, and standards

least acceptedinternationally

'upportive style 5mployees as e%uals and attempts toimprove their circumstances

@articipative style 7onsultation with employees andserious attention to their ideas

T! ,os" 0i!&) acc!p"!i$"!r$a"io$a&&)

 !chievementorientedstyle

'ets high goals, emphasizescontinuous improvement, andmaintains confidence that employeeswill perform

". Ma$a#!ria& A""i"!s

a. #he importance of managerial attitudes +" basic types

5thnocentric attitude home country(s people, practices,andideas are superior to all others

A i# (o&,! o*

i$*or,a"io$ *&o0 i$ "!

*or, o* or!rs a$

a(ic! "o s'siiari!s

@olycentric attitude local managers toma$e most decisions because theyare more $nowledgeable about localconditions than are central

administrators

R!&a"i(!&) &i""&! !cisio$

,a4i$# ') "! c!$"ra&a,i$is"ra"i(! a"ori")

>eocentric attitude truly internationally oriented whileabsorbing the best thatvarious cultures offer 

A$ i!$"i*ica"io$ 0i"$a"io$a& p!rsp!c"i(!s!(!$ "o# "! *ir, is#!$i$!&)

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="! '!s" 'a&a$c! o* &oca& a$

0or&0i! o'+!c"i(!s2

i$"!r$a"io$a&

1.7 9UMAN RESOURCES ISSUES IN GLOBAL OPERATIONS

1. O(!r(i!0

high-context cultures meaning is transmitted by

nonverbal cues

Japanese, Chinese, Arabic,

and Korean

low-context cultures primary messages are

transmitted verbally

Northern European and North

American

2. O"!r Cas!s o* C&"ra& Di(!rsi")

a. Cultures are different in many ways.

Individualistic cultures higher value on the rights of

individual persons within the

society

U.S., the U.K., Canada, and

Australia

Collectivist cultures more on the goals of family,

friends, country, and the

organization

China, India, Mexico, Japan, 

and Egypt

Ti,!

Polychronic time Nonlinear, flexible, and

multidimensional

Mediterranean, Latin 

American, and Arabic cultures

Monochronic time Time is the same for everyone

and is measurable in standard

units

Northern Europe and the U.S

". G&o'a& Mi$s!"

&. 9o0 A,!rica$ Ma$a#!,!$" T!ori!s or4 i$ O"!r Co$"ri!s

). Trai$i$# *or or4 i$ a For!i#$ C&"r!

. Ma$a#i$# M&"ic&"ra& T!a,s

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LEGAL@ ECONOMIC@ AND REGULATOR8 ISSUES

.1 CONTRACTS

1. Co$"rac" La0

2. A#r!!,!$"

". Co$si!ra"io$

&. Capaci")

). L!#a&i")

. ri""!$ Co$"rac"s

. ECONOMIC MEASURES

1. M!asri$# "! Gross Do,!s"ic Proc"

2. Bsi$!ss C)c&!s

". Eco$o,ic I$ica"ors

&. I$*&a"io$ a$ Co$s,!r Pric! I$!-

). U$!,p&o),!$"

. Mo$!"ar) Po&ic)

.3 INTERNATIONAL TRADE

1. Co,para"i(! A(a$"a#!

2. Tra! Barri!rs

.7 CURRENC8 EC9ANGE RATES AND MARKETS

1. B)i$# i$ a For!i#$ Mar4!"

2. Fi-! E-ca$#! Ra"!s

". F&oa"i$# =F&!-i'&!2 E-ca$#! Ra"!s

&. Spo" a$ For0ar E-ca$#! Ra"!s

). Mi"i#a"i$# E-ca$#! Ra"! Ris4

.: MET9ODS OF TAATION

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1. Ta- Us!s

2. Ta- Ra"! S"rc"r!s

". Ta- Ra"!s

&. Dir!c" (s. I$ir!c"

). Ta- Cr!i"s

. I$ci!$c! o* Ta-a"io$

6. I$"!r$a"io$a& Ta- Co$si!ra"io$s

8. 5a&!A! Ta- =5AT2

. REGULATION OF BUSINESS

1. A#!$ci!s a$ Co,,issio$s

2. Eco$o,ic R!#&a"io$

". Socia& R!#&a"io$

&. S!cri"i!s La0

). A$"i"rs" La0

. Co$s,!r Pro"!c"io$

6. E$(iro$,!$"a& Pro"!c"io$