This Document Contains Chapters 4 to 6 Chapter 4 International Management and Cross-Cultural Competence CHAPTER OBJECTIVES • Describe the six-step internationalization process, and distinguish between a global company and a transnational company. • Identify at least four of the nine cross-cultural competencies of global managers, and contrast ethnocentric, polycentric, and geocentric attitudes toward foreign operations. • Explain from a cross-cultural perspective the difference between high-context and low-context cultures, and identify at least four of the GLOBE cultural dimensions. • Discuss Hofstede’s conclusion about the applicability of American management theories in foreign cultures, and explain what comparative management researchers have learned about management styles. • Summarize the leadership lessons from the GLOBE Project. • Identify the four leading reasons why U.S. expatriates fail to complete their assignments, and discuss the nature and importance of cross-cultural training in international management. • Summarize the situation of North American women on foreign assignments. OPENING CASE The Changing Workplace: China Myths, China Facts Anyone working with the Chinese will find a multifaceted, fast-changing culture. Myth 1: Collectivism Reality: Individualism, the part of the myth that is true – decisions are often made in groups and the Chinese are highly skilled at working in teams. Myth 2: Long-term Deliberation Reality: Real-time Reaction, the part of the myth that is true- business relationships and government policies are both built for the long term. Myth 3: Risk Aversion Reality: Risk Tolerance, the part of the myth that is true – Chinese workers often hesitate to give individual opinions or brainstorm openly when more-senior people are present. LECTURE OUTLINE International management, the pursuit of organizational objectives in an international and cross-cultural setting, has become an important discipline. I. GLOBAL ORGANIZATIONS FOR A GLOBAL ECONOMY A. The Internationalization Process There is an internationalization process with identifiable stages. The following stages should not be viewed as a lockstep sequence. Stage 1: Licensing Stage 2: Exporting Stage 3: Local warehousing and selling Stage 4: Local assembly and packaging Stage 5: Joint ventures (also known as strategic alliances or strategic partnerships). Stage 6: Direct foreign investments and cross-border mergers B. From Global Companies to Transnational Companies • Transnational companies are evolving and represent a futuristic concept. • Global companies, such as the giants in Table 4.1, do business in many countries simultaneously. • A global company is a multinational venture centrally managed from a specific country. • A transnational company is a global network of productive units with a decentralized authority structure and no distinct national identity. II. TOWARD GREATER GLOBAL AWARENESS AND CROSS-CULTURAL EFFECTIVENESS Americans, and American business students and managers in particular, are often considered too narrowly focused for the global stage. To compete successfully in a dynamic global economy, present and future managers need to develop their international and cultural awareness. A. Needed: Global Managers with Cultural Intelligence and Cross-Cultural Competencies • Cultural intelligence (CQ) is the ability of an outsider to read individual behavior, group dynamics, and situations in a foreign culture as well as the locals do. • You can boost your cultural intelligence by mastering the nine cross-cultural competencies listed in Table 4.2 and understanding the concepts in this chapter. B. Contrasting Attitudes Toward International Operations • Some people say that a true global company has subsidiaries in at least six nations or a certain percentage of capital or operations in foreign countries. • Howard Perlmutter suggests that management’s predominating attitude toward foreign operations is what really counts. Perlmutter identified three managerial attitudes toward international operations (see Table 4.3): • Managers with an ethnocentric attitude are home-country-oriented. Home-country personnel, ideas, and practices are viewed as inherently superior to those from abroad and are used for evaluation purposes. • A polycentric attitude is a host-country orientation based on the assumption that because cultures are so different, local managers know what is best for their operations. • Managers with a geocentric attitude are world-oriented. Skill, not nationality, determines who gets promoted or transferred to key positions around the globe. C. The Cultural Imperative Culture has a powerful impact on people’s behavior, and people who defy cultural traditions do so at their own risk. Sensitivity to cross-cultural differences is imperative for people who do business in other countries. • Culture Defined • Culture is the pattern of taken-for-granted assumptions about how a given collection of people should think, act, and feel as they go about their daily affairs. • Societal culture acts as the social glue made up of norms, values, attitudes, role expectations, taboos, symbols, heroes, beliefs, morals, customs, and rituals. • Cultural undercurrents make international dealings immensely challenging for international managers. III. Are U.S. Global Corporations Turning the World into a Single “Americanized” Culture? • Protestors have decried the global reach of American corporate giants such as McDonald’s, predicting a homogenizing of the world’s unique cultures, a world where American culture will prevail. • University of Michigan researchers, who have been tracking cultural values in 65 societies for over 20 years, concluded that the effects of global communication may be overestimated. Cultural roots run deep, have profound impacts on behavior, and are not readily altered. A. Understanding Cultural Diversity Dealing effectively with both coworkers and customers in today’s diverse workplace requires a good deal of cultural intelligence. • High-Context and Low-Context Cultures • In high-context cultures, people rely heavily on nonverbal and subtle situational messages when communicating with others. Japanese, Arab, Chinese, and Korean cultures are high-context cultures. • People from low-context cultures convey essential messages and meaning primarily with words. Body language is secondary to spoken and written words. Low context cultures include Germany, Switzerland, Scandinavia, North America and Great Britain. • According to international communication experts, in high-context cultures the process of forging a business relationship is as important as, if not more important than, the written details of the actual deal. • Patience is a prime virtue for low-context managers doing business in high-context cultures. • Nine Dimensions of Culture from the GLOBE Project The GLOBE (Global Leadership and Organizational Behavior Effectiveness) project is a massive ongoing effort to collect data from around the world, building a comprehensive model of both similarities and differences across the world’s cultures. Thanks to the first two phases of the GLOBE project, we have a research-based list of key cultural dimensions (see Table 4.4). • Other Sources of Cultural Diversity Managers headed for a foreign country need to do their homework on the following cultural variables to avoid awkwardness and problems. • Individualism versus collectivism is the distinction between “me” and “we” cultures. a. People in individualistic cultures such as the United States & Canada focus primarily on individual rights, roles, and achievements. b. People in collectivist cultures such as Egypt, Mexico, India, and Japan rank duty and loyalty to family, friends, organization, and country above self-interests. • Time was called the silent language of culture by Hall. a. Monochronic time is based on the perception that time is a unidimensional straight line divided into standard units. Everyone is on the same clock, it is important to be on time, and time is treated like money. b. Polychronic time involves the perception of time as flexible, elastic, and multidimensional. Schedules are loose and overlapping. • Interpersonal space. Different cultures have different comfort zones in terms of how close people should be to each other when talking • Language. There really is no adequate substitute for a thorough knowledge of the local language • Religion. Care needs to be taken not to offend others’ religious beliefs and customs. IV. COMPARATIVE MANAGEMENT INSIGHTS Comparative management is the study of how organizational behavior and management practices differ across cultures. This is a relatively new field of inquiry, and there is disagreement about theories and research frameworks. A. Made-in-America Management Theories Require Translation Geert Hofstede, a Dutch researcher, classified 40 different countries according to four cultural dimensions where he found a great deal of cultural diversity. He recommended that American managers adapt to the local culture rather than imposing on them. B. Management Styles Vary Across Countries and Cultures A study of how management is actually practiced in 17 countries measured three broad areas: monitoring, targets, and incentives. Table 4.5 shows the rankings of the five countries ranked highest in “overall management”. One of the points this study makes is that countries with strong overall management are not all alike. Thus, international managers need to use their CQ to identify local management preferences. C. Lessons in Leadership from the GLOBE Project • GLOBE researchers focused on the following five different leadership styles: charismatic/value-based, team-oriented, participative, humane-oriented, and self-protective. • The matrix in Figure 4.1 rates these five leadership styles for ten cultural clusters. • According to the matrix, the charismatic/value-based and team oriented leadership styles have the greatest cross-cultural applicability. • International managers need a full repertoire of leadership styles that they can use contingently in a culturally diverse world. V. STAFFING FOREIGN POSITIONS In our global economy, successful foreign experience is becoming a required steppingstone to top management. Unfortunately, owing largely to the sink-or-swim approach to foreign assignments, Americans reportedly have a higher-than-average failure rate. Estimates vary from a modest 3.2 percent to as many as 25 percent of American managers failing overseas, meaning they are either fired or sent home early. This turnover is expensive. With the typical assignment lasting three to four years, the investment in an expatriate can easily be an average of $1 to $2 million. A. Why Do U.S. Expatriates Fail? • The term expatriate today refers to those who live and work in a foreign country. • Expatriates typically experience some degree of culture shock—defined as feelings of anxiety, self-doubt, and isolation brought about by a mismatch between one’s expectations and reality. • Table 4.6 shows some important facts about the reasons for corporate expatriate failures. • Job performance—either so poor that it prompted recall or so good that it attracted outside job offers—was the leading cause of expatriate failure. Culture shock and homesickness were also high on the list. B. Cross-Cultural Training • People tend to be very protective of their cultural identity, and carelessness by outsiders can result in grave personal insult and put important business dealings at risk. Fortunately, cultural sensitivity can be learned through cross-cultural training. • Cross-cultural training is defined as any form of guided experience aimed at helping people live and work successfully in another culture. • Specific Techniques Here is a list of five basic cross-cultural training techniques, ranked in order of increasing complexity and cost. o Documentary programs o Culture assimilator o Language instruction o Sensitivity training o Field experience • Is One Technique Better Than Another? • One research study suggests that a combination of documentary and interpersonal training seems to work well. • However, many companies have no formal expatriate training programs, so the key issue is not which type of training is better, but whether any training is offered at all. • An Integrated Expatriate Staffing System • Cross-cultural training should be only one part of an integrated, selection-orientation-repatriation process focused on a distinct career path. • One important part is an orientation for the spouse and family, to enable them to understand the changes and evaluate their ability to handle them. • Upon arrival, family sponsors or mentors can be effective at reducing culture shock. • Finally, candidates for foreign assignments deserve a firm commitment that a successful tour of duty will lead to a step up the career ladder. C. What About North American Women on Foreign Assignments? • Historically, companies in Canada and the United States have sent very few women on foreign assignments—from 3 percent in the early 1980s to a still small 14 percent. • Conventional wisdom—that women could not be effective because of foreign prejudice—has turned out to be a myth. • In reality, North American women have enjoyed above average success on foreign assignments. The greatest barriers are self-disqualification and prejudice among home-country managers. Culture is a bigger hurdle than gender. D. Relying on Local Managerial Talent • The problems with expatriates and general trends toward geocentrism and globalism have resulted in a greater reliance on managers from host countries. • Foreign nationals know the local language and culture, but they may have inadequate knowledge of home-office goals and procedures. • Decisions on this have to be made on a case-by-case basis. Chapter 5 Management’s Social and Ethical Responsibilities CHAPTER OBJECTIVES • Define the term corporate social responsibility (CSR), and specify the four levels in Carroll’s global CSR pyramid. • Contrast the classical economic and socioeconomic models of business, and summarize the arguments for and against CSR. • Identify and describe the four social responsibility strategies, and explain the concept of enlightened self-interest. • Summarize the four practical lessons from business ethics research. • Distinguish between instrumental and terminal values, and explain their relationship to business ethics. • Identify and describe at least four of the ten general ethical principles. • Discuss what management can do to improve business ethics. OPENING CASE The Changing Workplace: The Two Faces of Pfizer • THE BAD: In the largest health care fraud settlement in history – Pfizer paid $2.3 billion to resolve criminal and civil allegations. $102 million of that will be divided among six whistleblowers. Half of it going to the first employee to file a whistleblower lawsuit, former Pfizer sales representative John Kopchinski, who was fired by Pfizer. • THE GOOD: Free drug program implemented for people who have lost their jobs. Although this effort demonstrates social responsibility it also was a conscious effort to repair the company’s damaged public image. Ask students: - is Pfizer the standard bearer for social responsibility? - or are they the corporate bad guy? - If you worked for Pfizer and you knew they were illegally promoting uses of four of its drugs would you blow the whistle? Explain why or why not. - Was Kopchinski’s reward fair and appropriate? LECTURE OUTLINE Today it is far less acceptable for businesses to have profit as their only goal. Managers in all types of organizations are expected to make a wide variety of economic and social contributions. I. SOCIAL RESPONSIBILITY: DEFINITION AND PERSPECTIVES Companies are involved in a wide variety of social programs, many of which have no impact on their bottom line. These programs include everything from helping to feed the hungry to the arts, urgan renewal, education reform and environmental protection. Regardless of the program, the key is for managers to implement social responsibility in an effective and efficient manner. A. What Does Social Responsibility Involve? Social responsibility is a relatively new concern in the business community—and the idea is evolving. Corporate social responsibility (CSR) is “the notion that corporations have an obligation to constituent groups in society . . . beyond that prescribed by law or union contract.” • CSR for Global and Transnational Corporations Today’s global and transnational companies have four areas of responsibility: economic, legal, ethical, and philanthropic. This means the global corporation should o Make a profit consistent with expectations for international business. o Obey the law of host countries as well as international law. o Be ethical in its practices, taking host-country and global standards into consideration. o Be a good corporate citizen, especially as defined by the host country’s expectations. All four responsibilities are intertwined and need to be fulfilled if a company is to be called socially responsible. However, in the long term, a company must consistently satisfy the bottom three levels before exercising philanthropic responsibility. Figure 5.1 shows Carroll’s Global Corporate Responsibility Pyramid. • CSR Requires Voluntary Action One key factor in CSR is that the actions taken must be voluntary to qualify as socially responsible actions – rather than reluctant compliance with new laws or court orders, nor a reaction to public pressures. B. What Is the Role of Business in Society? Is business an economic entity responsible only for making a profit for its stockholders? Or is it a socioeconomic entity obligated to make both economic and social contributions to society? • The Classical Economic Model Adam Smith, father of the classical economic model, believed that an “invisible hand” promoted the public welfare. Smith believed that the public interest was served best by individuals pursuing their own self-interests. This model has survived into modern times. • The Socioeconomic Model In this model, business is seen as one subsystem among many in a highly interdependent society. This model recognizes that companies have stakeholders other than their stockholders. A stakeholder audit allows companies to systematically identify all parties that could possibly be impacted by the company’s performance (see Figure 5.2). According to this view, business has an obligation to respond to the needs of all stakeholders while pursuing a profit. C. Arguments For and Against Corporate Social Responsibility • Arguments For • Business is unavoidably involved in social issues. • Business has the resources to tackle today’s complex societal problems. • A better society means a better environment for doing business. • Corporate social action will prevent government intervention. • Arguments Against • Profit maximization ensures the efficient use of society’s resources. • As an economic institution, business lacks the ability to pursue social goals. • Business already has enough power. • Because managers are not elected, they are not directly accountable to the people. These arguments are based on the assumption that business should stick to pursuing a profit- leave social goals to governments, schools, and religious organizations. II. TOWARD GREATER SOCIAL RESPONSIBILITY It has been said that business is bound by an iron law of responsibility, which states that “in the long run, those who do not use power in a way that society considers responsible will tend to lose it.” If the clear demand by society for business to act more responsibly is not met voluntarily, government reform legislation will probably force business to meet it. A. Social Responsibility Strategies There are four strategies that run along a continuum for management’s response to the issue of social responsibility (see Figure 5.3). 1. Reaction: Businesses that follow a reactive social responsibility strategy will deny responsibility while striving to maintain the status quo. 2. Defense: A defensive social responsibility strategy uses legal maneuvering and/or a public relations campaign to avoid assuming additional responsibilities. 3. Accommodation: The organization that follows an accommodative social responsibility strategy must be pressured into assuming additional responsibilities. 4. Proaction: A proactive social responsibility strategy involves taking the initiative to formulate a program that serves as a model for the industry in addressing related social issues. Advocates for social responsibility would like to see proactive strategies become management’s preferred response in both good times and bad. B. Who Benefits from Corporate Social Responsibility? There is a question as to whether social responsibility has to be a hardship for the organization. For those who see social responsibility as an expense, altruism, an unselfish devotion to the interests of others, is seen as the motivation for social responsibility. • Enlightened self-interest is the realization that business ultimately helps itself by helping to solve societal problems. Advocates of this approach say that social responsibility expenditures are motivated by profit. • Corporate philanthropy, the charitable donation of company resources, supports this contention. Researchers have concluded that corporate giving is actually a form of profit-motivated advertising. • An Array of Benefits for the Organization • Tax-free incentives to employees • Retention of talented managers by satisfying their altruistic motives • Help in recruiting talented and socially conscious personnel • Swaying public opinion against government intervention • Improved community living standards for employees • Attracting socially conscious investors • Matching funds giving a nontaxable benefit for employees Social responsibility can be a “win-win” proposition for both society and the socially responsible organization. III. THE ETHICAL DIMENSION OF MANAGEMENT There is widespread cynicism about business ethics today. Public disgust has surfaced in opinion polls: “In one annual survey of corporate reputations, 69 percent hold a negative view about banks and finance corporations and 64 percent hold a negative view of any large firm. Ethics is the study of moral obligation involving the distinction between right and wrong. Business ethics narrows the frame of reference to productive organizations. A. Practical Lessons from Business Ethics Research On-the-job research of business ethics has produced four practical insights for managers: ethical hot spots, pressure from above, discomfort with ambiguity, and the rationalization of unethical and illegal conduct. • Ethical Hot Spots: These areas have been found to be responsible for triggering unethical and illegal conduct: • Balancing work and family • Poor internal communications • Poor leadership • Work hours, work load • Lack of management support • Need to meet sales, budget, or profit goals • Little or no recognition of achievements • Company politics • Personal financial worries • Insufficient resources • Pressure from Above Pressure from superiors can lead to unhealthful conformity. Managers who are aware of this pressure can (1) Consciously avoid putting personal pressure on others. (2) Prepare to deal with excessive organizational pressure. • Ambiguous Situations Employees can experience discomfort when they are faced with a situation that has no clear-cut ethical guidelines. People who face ethically ambiguous situations want formal guidelines, such as ethical codes, to help sort things out. • Rationalization: How Good People End Up Doing Bad Things Rationalizations involve perceiving an objectively questionable action as normal and acceptable. Employees commonly use six rationalization strategies to justify misdeeds in the workplace. (See Table 5.1 for more information.) • Denial of responsibility • Denial of injury • Denial of victim • Social weighting • Appeal to higher loyalties • Metaphor of the ledger • A Call to Action Every manager needs to draw an ethical line—the line beyond which they will not go and will not allow their organization to go. People can begin the process of improving business ethics by looking in the mirror. B. Personal Values as Ethical Anchors Values are too often ignored in discussions of management. Values are abstract ideals that shape an individual’s thinking and behavior. Instrumental and Terminal Values • An instrumental value is an enduring belief that a certain way of behaving is appropriate in all situations. (Example: “Honesty is the best policy.”) • A terminal value is an enduring belief that a certain end-state of existence is worth striving for and attaining. (Example: Eternal salvation) • Instrumental values (modes of behavior) help achieve terminal values (desired end-states). • Identifying Your Own Values – encourage students to go to the end of the chapter to complete the Action to Learning exercise that will help them assess their own values. The top five instrumental values in a survey of 220 eastern U.S. managers were as follows: (1) Honest (2) Responsible (3) Capable (4) Ambitious (5) Independent The five most common terminal values for the group were as follows: (1) Self-respect (2) Family security (3) Freedom (4) A sense of accomplishment (5) Happiness C. General Ethical Principles Like your personalized value system, your ethical beliefs have been shaped by many factors. We use ethical principles both consciously and unconsciously when dealing with an ethical dilemma. The principles are 1. Self-interests 2. Personal virtues 3. Religious injunctions 4. Government requirements 5. Utilitarian benefits 6. Universal rules 7. Individual rights 8. Economic efficiency 9. Distributive justice 10. Contributive liberty Sometimes, in complex situations, a combination of principles is applicable. IV. ENCOURAGING ETHICAL CONDUCT To encourage ethical conduct, words must be supported by action. Four ways to encourage ethical conduct within the organization are ethics training, ethical advocates, ethics codes, and whistle-blowing. A. Ethics Training Amoral managers are neither moral nor immoral but indifferent to the ethical implications of their actions. According to ethics researcher Archie B. Carroll, amoral managers far outnumber both moral and immoral managers. If this contention is correct, there is great need for ethics training and education, a need that too often is not adequately met. Key features of effective ethics training programs: • Top management support • Open discussion of realistic ethics cases or scenarios • A clear focus on ethical issues specific to the organization • Integration of ethical themes into all training • A mechanism for anonymously reporting ethical violations • An organizational climate that rewards ethical conduct B. Ethical Advocates An ethical advocate is a business ethics specialist who sits as a full-fledged member of the board of directors and acts as the board’s social conscience. The goal is to have someone assigned as a critical questioner to test the ethical implications of decisions. See Table 5.2. C. Codes of Ethics An organizational code of ethics is a published statement of moral expectations for employee conduct. Codes of ethics are a step in the right direction but not a cure-all. There are two requirements for codes to encourage ethical conduct: • They should refer to specific practices, such as gifts and kickbacks rather in generalities. • They should be firmly supported by top management and equitably enforced through the reward-and-punishment system. D. Whistle-Blowing Whistle-blowing is the practice of reporting perceived unethical practices to outsiders such as the news media, government agencies, or public-interest groups. Many managers see whistle-blowing as the epitome of disloyalty, but others perceive it as the last recourse of employees when an organization is behaving in an unethical manner. As we saw in the opening case, John Kopchinski, was fired by Pfizer for being a whistleblower. However, he was ultimately rewarded for his ethical actions when he received more than 50 million dollars from the Pfizer settlement. Here are some steps that organizations can take to reduce the need for whistle-blowing: • Encourage the free expression of controversial and dissenting viewpoints. • Streamline the organization’s grievance procedure so that problems receive a prompt and fair hearing. • Find out what employees think about the organization’s social responsibility policies and make appropriate changes. • Let employees know that management respects and is sensitive to their individual consciences. • Recognize that the harsh treatment of a whistle-blower will probably lead to adverse public opinion. In the final analysis, individual behavior makes organizations ethical or unethical, but by clearly identifying and rewarding ethical conduct, organizational forces can help bring out the best in people. Chapter 6 The Basics of Planning and Project Management CHAPTER OBJECTIVES • Distinguish among state, effect, and response uncertainty. • Identify and define the three types of planning. • Write good objectives, and discuss the role of objectives in planning. • Describe the four-step management by objectives (MBO) process, and explain how it can foster individual commitment and motivation. • Discuss project planning within the context of the project life cycle, and list six roles played by project managers. • Compare and contrast flow charts and Gantt charts, and discuss the value of PERT networks. • Explain how break-even points can be calculated. OPENING CASE The Changing Workplace: Facebook: From Dorm Room to Global Dominance at Web Speed Mark Zuckerberg, founder of Facebook appears to be a natural planner. When he arrived at his dorm at Harvard’s Kirkland House he had with him an eight-foot-long whiteboard. He used this as a planning tool to illustrate his ideas for new software products, or to map out computer code. Zuckerberg’s success is evidence that starting with a vision and formulating detailed plans to realize the vision are key ingredients when navigating a world of uncertainty. Of course, planning alone cannot eliminate uncertainty but it certainly can help managers anticipate and prepare a course of action resulting in greater efficiency and higher likelihood of success. Ask Students: • What tools have they used for planning? • Do they draw or write down their visions, dreams, and goals? • What steps have they taken to increase their likelihood of success in facing uncertainty? LECTURE OUTLINE Planning is the process of coping with uncertainty by formulating future courses of action to achieve specified results. Because it affects all downstream management functions (see Figure 6.1), it has been called the primary management function. I. COPING WITH UNCERTAINTY A. Three Types of Uncertainty Environmental uncertainty has been a catchall term through the years. There are three types: (1) State uncertainty occurs when the environment or a portion of the environment is considered unpredictable. (2) Effect uncertainty is a manager’s attempt to predict the effects of specific environmental changes or events on the organization. (3) Response uncertainty relates to being unable to predict the consequences of a particular decision or organizational response. B. How Individuals Handle Uncertainty Because people perceive and deal with uncertainty in different ways, one strategy managers can use is the formation of diverse teams. Forming a group that includes people who thrive on change and ambiguity with those who are concrete thinkers and desire order will likely improve people’s tolerance for uncertainty. C.. Organizational Responses to Uncertainty Organizations cope with environmental uncertainty by adopting one of four positions (see Table 6.1). 1. Defenders focus on one market or concept and stick with it. A defender can be successful only as long as its primary technology and narrow product line remain competitive. 2. Prospectors are innovative, making things happen rather than waiting for them to happen. In the short term, defenders generally outperform prospectors. Prospectors have what strategists call a first-mover advantage. This first-to-market approach can lead to big profits, or big losses, as the dot-com disaster demonstrates. Over the long haul, research has shown that early movers tend to be considerably less profitable than later entrants. 3. Analyzers take an essentially conservative “me too” response to the market, letting others lead the way into new markets and ideas and imitating what works. Analyzer organizations break up monopolies with lower prices. This slower approach can pay off when the economy drops and market leaders stumble. 4. Reactors are the opposite of prospectors. They wait for problems before taking corrective steps. Their strategic responses to changes in the environment are often late. This is the least profitable approach of the four. D. Balancing Planned Action and Spontaneity in the Twenty-First Century • Exacting plans were a critical part of the old command and control model of management. However, this led to inflexibility and derailing. • Today’s managers see plans as general guidelines for action, based on imperfect and incomplete information, and involving all those who carry out the plans because they are closer to the customer. • Planning should be a springboard to success, not a barrier to creativity. II. THE ESSENTIALS OF PLANNING A plan is a specific, documented intention consisting of an objective and an action statement. Properly conceived plans tell what, when, and how something is to be done. The concepts essential to an understanding of sound planning include organizational mission, types of planning, objectives, priorities, and the planning/control cycle. A. Organizational Mission Periodically redefining an organization’s mission is both common and necessary in an era of rapid change. A clear, formally written, and publicized statement of an organization’s mission is the cornerstone of any planning system that will effectively guide the organization through uncertain times. A well-written mission statement • Defines your organization for key stakeholders • Creates an inspiring vision of what the organization can be and can do • Outlines how the vision is to be accomplished • Establishes key priorities • States a common goal and fosters a sense of togetherness • Creates a philosophical anchor for all organizational activities • Generates enthusiasm and a “can do” attitude • Empowers present and future organization members to believe that every individual is the key to success B. Types of Planning Ideally, planning begins at the top of the organizational pyramid and filters down. • Strategic, Intermediate, and Operational Planning • Strategic planning is the process of determining how to pursue the organization’s long-term goals with the resources expected to be available. • Intermediate planning is the process of determining the contributions subunits can make with allocated resources. • Operational planning is the process of determining how specific tasks can best be accomplished on time with available resources. • Planning Horizons The term planning horizon refers to the time that elapses between the formulation and the execution of a planned activity. As planning moves from strategic to operational, planning horizons shorten (see Figure 6.2). C. Objectives An objective is a specific commitment to achieve a measurable result within a given time frame. • Writing Good Objectives An authority on objectives recommends that “as far as possible, objectives are expressed in quantitative, measurable, concrete terms, in the form of a written statement of desired results to be achieved within a given time period.” • The Importance of Objectives o Objectives provide targets for people to aim for. o Objectives are measuring sticks to evaluate how well a unit or individual has performed. o Objectives can foster commitment. o Good objectives represent a challenge and thus provide motivation. • The Means-Ends Chain of Objectives Like the overall planning process, objective setting is a top-to-bottom proposition (see Figure 6.3). Lower-level objectives provide the means for accomplishing higher-level goals. D. Priorities (Both Strategic and Personal) Priorities are defined as a ranking of goals, objectives, or activities in order of importance. Establishing priorities helps determine how to allocate limited time, talent, financial, and material resources. Establishment of priorities is a key factor in managerial and organizational effectiveness. The A-B-C Priority System: Despite training programs and software claims, establishing priorities is a subjective process. There is no standard formula or method, but the following system is helpful. • “A” priorities: “Must do” objectives critical to successful performance • “B” priorities: “Should do” objectives necessary for improved performance • “C” priorities: “Nice to do” objectives desirable for improved performance but not critical to survival or necessary for improved performance The 80/20 principle (or Pareto analysis) asserts that a minority of causes, inputs, or effort usually lead to a majority of the results, outputs, or rewards. Avoiding the Busyness Trap: The busyness trap occurs when managers confuse being busy with being effective and efficient. Results are what really count. E. The Planning/Control Cycle There is a cyclical relationship between planning and control (see Figure 6.4). Planning gets things headed in the right direction, and control keeps them headed in the right direction. III. MANAGEMENT BY OBJECTIVES AND PROJECT PLANNING Management by objectives (MBO) is a comprehensive management system based on measurable and participatively set objectives. MBO has been adopted by most public and private organizations of any significant size. • The MBO Cycle There are four stages to the MBO planning/control cycle. Step 1: Setting Objectives. This is a hierarchy of challenging, fair, and internally consistent objectives, with an emphasis on employee participation and involvement. Step 2: Developing Action Plans. This completes the planning phase of MBO. Step 3: Periodic Review. This is generally in the form of face-to-face meetings at three-month intervals, to review progress, assess the amendment needs, and give feedback. Step 4: Performance Appraisal. This is usually an annual event to evaluate employees based on success with their objectives and reward or take corrective action as necessary. Off-the-shelf software programs are available today to help facilitate the MBO process. • Strengths and Limitations of MBO Figure 6.5 illustrates four primary strengths of MBO and four common complaints about it. MBO will probably work when organizational conditions are favorable. A positive climate includes • Top-management commitment • Openness to change • Theory Y management • Employees who are willing and able to shoulder greater responsibility Research indicates that top-management commitment is the most important aspect. Indeed, MBO results in productivity gain of 56 percent with high commitment and only 6 percent with low commitment. A. Project Planning and Management Project-based organizations are becoming the norm today in order to shorten the time to market and allow cross-functional teams to work together. According to the Project Management Institute, “A project is a temporary endeavor undertaken to achieve a particular aim.” Project managers face many difficult challenges because they work outside the normal hierarchy of command, so they must rely more on people skills to get the work done, and they are both intermediate/tactical and operational planners. • The Project Life Cycle There are four stages to every project: conceptualization, planning, execution, and termination. (See Figure 6.6) Project Management Software • Making sure that planned activities occur as appropriate and taking corrective action when necessary can be overwhelming for the manager of a complex project. • There are hosts of software programs designed to make a project manager’s job more manageable. Here are some screening criteria to apply in choosing such a program. o Identify and ultimately schedule need-to-do activities o Ability to dynamically shift priorities and schedules, and view resulting impact o Provide critical path analysis o Provide flexibility for plan modifications o Ability to set priority levels o Flexibility to manage all resources: people, hardware, environments, cash o Ability to merge plans o Management alerts for project slippage o Automatic time recording to map against project o Identification of time spent on activities Six Roles Played by Project Managers Interviews with 40 project managers revealed six roles effective project managers play. In addition to the key role of implementer, effective project managers played the roles of entrepreneur, politician, friend, marketer, and coach (see Table 6.2). Project Management Guidelines Project managers need a working knowledge of the tools presented in this chapter and to be aware of the following: • Projects are schedule-driven and results-oriented. • The big picture and the little details are of equal importance. • Project planning is a necessity, not a luxury. • Project managers know the motivational power of a deadline. IV. GRAPHICAL PLANNING/SCHEDULING/CONTROL TOOLS A. Sequencing with Flow Charts Flow charts are used by computer programmers for identifying task components and by TQM (Total Quality Management) teams for work simplification. A sample flow chart is shown in Figure 6.7. User-friendly computer programs make flow-charting fun and easy today. Flow charts encourage analytical thinking but have two disadvantages: • They do not indicate the time dimension. • They are not practical for complex endeavors in which several activities take place at once. B. Scheduling with Gantt Charts A Gantt chart, named after Henry L. Gantt, is a graphical scheduling technique historically used in production operations. Figure 6.8 shows an updated version of a Gantt chart. Gantt charts can show timelines, but they share the flow chart’s disadvantage of being cumbersome with complex endeavors. C. PERT Networks PERT is one of the most widely recognized programming tools used by managers. PERT, an acronym for Program Evaluation and Review Technique, is a graphical sequencing and scheduling tool for large, complex, and nonroutine projects. • History of PERT PERT was developed in 1958 by a team of consultants for the U.S. Navy Special Projects Office to help with the Polaris submarine project. PERT is not a panacea. It is a specialized planning and control tool requiring skillful application. • PERT terminology • A PERT event is a performance milestone representing the start or finish of some activity. • A PERT activity represents work in process. Activities begin and end with events. • PERT times are estimated times for the completion of PERT activities. These are weighted averages of three time estimates: (1) Optimistic time (2) Most likely time (3) Pessimistic time The critical path is the most time-consuming chain of activities and events in a PERT network. This longest path is critical, because a delay in this path will delay the entire project. • PERT in Action A PERT network is shown in Figure 6.9. The critical path for the figure shown is A-B-C-F-G-H-I. • Positive and Negative Aspects of PERT • PERT is an excellent scheduling tool for large, nonroutine projects. • It is helpful for planning because it forces managers to envision projects in their entirety. • It enables managers to predict resource needs, potential problem areas, and the impact of delays on project completion. • It is only as good as its underlying assumptions. False assumptions, particularly in more subjective areas such as time, can render it ineffective. • PERT is inappropriate for routine work such as assembly-line operations. • Critics say that PERT is too time-consuming. Project management software with computerized PERT programs helps deal with this problem. V. BREAK-EVEN ANALYSIS The break-even point is the level of sales at which the firm neither suffers a loss nor realizes a profit. The critical part of a break-even analysis is separating fixed costs from variable costs. A. Fixed versus Variable Costs • Fixed costs are contractual costs that must be paid regardless of the level of output or sales. Examples include rent, insurance, utilities, and management salaries. • Variable costs are costs that vary directly with the firm’s production and sales. Examples include materials, supplies, and hourly laborsales commissions. • As output/sales increase, fixed costs remain the same, but variable costs accumulate. B. The Algebraic Method The formula for calculating the break-even point (in units of output) is where: FC = total fixed costs P = price (per unit) VC = variable costs (per unit) BEP = break-even point The contribution margin per unit is the difference between the selling price and the per-unit variable costs. • Price Planning. Price planning using the break-even analysis is an excellent “what if” tool for planners to evaluate the impact of price changes on profit. • Profit Planning Planners often set profit objectives and then work back to determine the required level of output. The modified break-even formula for profit planning is C. The Graphical Method The break-even point can also be plotted graphically, with costs and revenues on the vertical axis and unit sales on the horizontal axis. Figure 6.10 illustrates this method. D. Break-Even Analysis: Strengths and Limitations Strengths • It forces planners to interrelate cost, volume, and profit in a realistic way. • It allows planners to ask “what if” questions concerning the impact of price changes and varying profit objectives. Limitations • A neat separation of fixed and variable costs can be difficult. • Because it does not factor in supply and demand, break-even analysis is a general planning and decision-making aid, not a tool for setting prices. Instructor Manual for Management Robert Kreitner, Charlene Cassidy 9781111221362
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