CH-1-4 Understanding the Manager’s Job – Fundamentals of Management : Book Guide

This Document Contains Chapters 1 to 4 Chapter 1 Understanding the Manager’s Job END-OF-CHAPTER Questions for Review 1. What are the three basic levels of management that can be identified in most organizations? How precise are the lines differentiating these levels? In which of the basic areas do managers work? Top managers manage the overall organization. They create the organization’s goals, overall strategy, and operating policies. Middle managers are primarily responsible for implementing the policies and plans developed by top managers and for supervising and coordinating the activities of lower-level managers. First-line managers supervise and coordinate the activities of operating employees. How well defined are the lines differentiating these levels often depends on the type of organization and its size. Managers may work in various areas within an organization. Common areas include marketing, financial, operations, human resources, and administrative. 2. What four basic functions make up the management process? How are they related to one another? Planning and decision making, leading, organizing, and controlling are the four basic management functions. Each is related to and must occur simultaneously with the others. Planning and decision making are perhaps the most intertwined with the three other functions. For example, managers must plan and make decisions about how to lead, organize, and control. Another example of an important interrelationship is how managers must balance the need for control against the need for autonomy that makes leadership easier. 3. Identify several of the important skills that help managers succeed. Give an example of each. How might the importance of different skills vary by level and area within an organization? Managerial skills include technical, interpersonal, conceptual, diagnostic, communication, decision making, and time management. Technical skills are specialized skills related to a specific area or a specialized industry. An example is an oil and gas exploration project leader who holds an engineering degree. Interpersonal skills are the ability to understand and motivate others. An example is a manager who knows how to give rewards that will motivate workers. Conceptual skills consist of abstract and logical thinking that will aid the manager as an innovator and an integrator. An example is an architect who is able to see what a house will look like from just studying a blueprint. Diagnostic skills are the ability to observe the current situation and understand the cause-and-effect relationships that are leading to success or failure. An example is a manager who recognizes that productivity is dropping in an area and is able to investigate and isolate the problem. Communication skills are the ability to give and receive information. An example is a manager who has the skills needed to plan and run an effective business meeting. Decision-making skills are the capacity to choose the correct course of action, based on information. An example is a manager who introduces a new product just at the time when customers are demanding that product. Time management skills are the ability to prioritize appropriately and to use time resources effectively. An example is a manager who spends more time on critical tasks, such as training workers, and less time on routine tasks, such as reading routine reports. In a large organization with distinct layers of management, these skills are likely to vary significantly, but may not be so in smaller organizations where these levels are not distinct. 4. Briefly describe the principles of scientific management and administrative management. What assumptions do these perspectives make about workers? To what extent are these assumptions still valid today? The principles of scientific management and administrative management are founded upon concerns about efficiency. Scientific management looks at the performance of individual workers and attempts to improve productivity through measures such as incentive pay systems, optimal task design, specialized training, and careful selection of the most productive workers. Administrative management looks at the performance of the organization as a whole and attempts to improve overall organizational efficiency by utilizing bureaucracy, effective planning, top-down coordination and control, and so on. Both scientific management theory and administrative management theory assume that workers do not like to work, accept responsibility, or change their behavior; that they are motivated only by money; and that they prefer to be told exactly what to do. One could argue that many of these assumptions are valid even today. 5. Describe the systems perspective. Why is a business organization considered an open system? The systems perspective describes an organization as a set of elements that function together as a whole. The theory looks at the linkages between elements and at the functioning of the system, from inputs to transformation processes to outputs and feedback. Systems theory also investigates the interaction of the system with its environment. A business organization has a lot of interactions with its environment, including the labor force, customers, regulators, and local communities. Thus a business organization is considered to be an open system because it interacts with its environment. Questions for Analysis 1. Recall a recent group project or task in which you have participated. Explain how members of the group displayed each of the managerial skills. Clearly, answers will vary. Students should have no trouble thinking of a situation. They should then describe how technical, interpersonal, conceptual, diagnostic, communication, decision-making, or time management skills were used in that situation. 2. The text notes that management is both a science and an art. Recall an interaction you have had with someone at a higher level in an organization (manager, teacher, group leader, or the like). In that interaction, how did the individual use science? If he or she did not use science, what could have been done to use science? In that interaction, how did the individual use art? If he or she did not use art, what could have been done to use art? Students’ answers will vary, depending on the situation they describe. Examples of the use of science would include mention of rational, systematic, objective decision making or the use of quantitative models and scientific approaches to problem solving. Examples of the use of art would include mention of intuition, experience, instinct or personal insights. Other examples would include the use of communication or interpersonal skills. 3. Watch a movie that involves an organization of some type. Harry Potter, Avatar, The Avengers, Flight, and Up in the Air would all be good choices. Identify as many management activities and skills as you can. Depending on the movie selected, answers will vary. Students who choose a Harry Potter movie, for example, will find examples of leading and planning as well as a variety of roles and skills. 4. Young, innovative, or high-tech firms often adopt the strategy of ignoring history or attempting to do something radically new. In what ways might this strategy help them? In what ways might this strategy hinder their efforts? Innovations that are truly radical are the only ones that have the potential to break through tradition and create something that has a chance of great success. Also, if the new firm is able to innovate in a way that is valued by consumers, they will attain an advantage over their rivals that may endure for a long time—a sustainable competitive advantage. On the other hand, willfully ignoring history increases the chances of repeating an error—for example, of trying a strategy or creating a product that has already been shown to be a failure or dead end. Also, by ignoring history, firms reject strategies and techniques that are known to work, and so they risk terrible failure. 5. Can a manager use tools and techniques from several different perspectives at the same time? For example, can a manager use both classical and behavioral perspectives? Give an example of a time when a manager did this and explain how it enabled him or her to be effective. Managers can and do use multiple tools and techniques at the same time. This is often necessary to effectively cope with complex, varied situations and persons. Students will give different examples, but here is one possibility. “When I worked at a fast food restaurant, the manager had problems with one employee. This employee made mistakes, arrived at work late, and had a poor attitude. First, the manager tried to use a behavioral approach, where the manager reasoned with the employee and asked the other employees to use peer pressure to change the problem employee’s behavior. Next, the manager tried to use needs theories of motivation by threatening to cut the employee’s pay if the employee continued to create difficulties. Finally, the manager used scientific management to assign that employee to tasks where politeness, accuracy, and timeliness were less important, such as cleaning the restrooms and taking out the trash.” Building Effective Time-Management Skills Exercise Teaching Tip: Each chapter concludes with three skill-building exercises. These are designed for both groups and individuals. Some are best done during class, while others are intended to be begun or completed outside of class. a. Purpose This exercise allows students to assess their current time-management skills and to understand ways to improve in this area. b. Format This exercise must be done individually, outside of class. It will take about 20 minutes to complete. The results may be discussed in class. c. Exercise Task 1. Visit the web site of Franklin Covey, at www.franklincovey.com. Click on the tab marked “Effectiveness Zone,” then select “assessment center.” Take the Urgency Analysis Profile. This short online survey will require you to answer several questions and take about 10 minutes. 2. Look at your profile. Explore the information available there, including the assessment of your current use of time and the suggestions for how you can improve your time management. Covey’s site shows students that they spend time on tasks of four different types: critical but not urgent, urgent but not critical, critical and urgent, and neither urgent nor critical. Covey recommends that students spend the most time on tasks that are both critical and urgent, and that they do not neglect tasks that are critical but not urgent. 3. Think of a task that you regularly perform and that, if you were being perfectly honest, you could label not urgent and not critical. How much time do you spend on this task? What might be a more appropriate amount of time? To what tasks could you give some of the time that you spend on this not urgent and not critical task? Students’ opinions will vary. Covey’s characterization can be useful because it points out that too many people spend most of their time on urgent tasks, especially on urgent tasks that are not critical. 4. What is one thing that you can do today to make better use of your time? Try it, and see if your time management improves. Covey’s web site makes few suggestions in this regard (although his books do a very thorough job of this). Upon reflection, however, students should be able to think of ideas for better time-management on their own. Remind students that it’s not really a good use of time to try to eliminate all non-critical, non-urgent tasks. Some of these tasks, such as hanging out with friends or watching TV, can be relaxing and allow one to return to urgent and critical tasks with a fresh enthusiasm. Building Effective Decision-Making Skills Exercise a. Purpose This exercise is designed to help students develop their decision-making skills, emphasizing the importance of system interdependencies in organizations. b. Format This exercise is designed so that it can be effective when done individually or in small groups. Answers could be written or presented to the class for evaluation. It should take less than a half hour. c. Follow-up 1. Carefully examine each of the three alternatives under consideration. In what ways might each alternative impact other parts of the organization? The option to buy lower-grade materials will require changes in purchasing, but it will also impact workers, because they will have to work harder to make a good quality product from inferior materials. It may also have a major impact on sales, if the decline in quality is recognized by buyers. The layoff option will create anxiety and resentment in those workers remaining in the firm, and it will probably raise overall wage expense, because the less skilled workers will not work as efficiently as those who have better training. The option to purchase new equipment requires the most up-front investment, but has the greatest potential for cost savings later. 2. Which is the most costly option (in terms of impact in other parts of the organization, not absolute dollars)? Which is the least costly? Both layoffs and inferior materials will be very costly for the organization. The use of inferior materials may be the “most costly,” because it could cause customers to buy competitors’ products and, eventually, lead to the failure of the firm. The least costly option is the purchase of new equipment. (See reasons under item 1 above.) 3. What are the primary obstacles that you might face regarding each of the three alternatives? The option to use inferior materials may cause dissatisfaction from the workers and will certainly cause customers’ dissatisfaction, if it is detected. The layoff option will encounter resistance from workers, and the best, most experienced workers may leave the company for other employment. The purchase of new equipment will likely encounter resistance from the CEO or other financial personnel, based on the increase in up-front costs. 4. Can you think of other alternatives that might accomplish the cost-reduction goal? Students may suggest cost-cutting ideas, such as better inventory control or improved use of information systems. They may also suggest a closer integration with suppliers or use of a less expensive distribution channel. There are possibilities for cost savings in every functional area of the firm. Skills Self-Assessment Instrument Self-Awareness a. Purpose This instrument is designed to help students become more self-aware of their possession or lack of skills generally felt to be required of effective managers. The intent is that students will use the feedback from this self-assessment to focus better on the skills they need to develop to increase their chances of being an effective manager. b. Format Students should respond individually and privately to the items in this self-assessment. c. Interpretation Students’ total numerical score (obtained by finding the sum of the individual scores) suggests their perceptions of their possession of the skills of effective managers—the lower the total score, the lower the level of skills. Students should be encouraged to examine their item scores for lower numbers and then to try to use their educational experiences to develop more skill in the areas identified. Experiential Exercise Johari Window a. Purpose This exercise has two purposes: to encourage students to analyze themselves more accurately and to start them working on small-group cohesiveness. This exercise encourages students to share data about themselves and then to assimilate and process the feedback. b. Format Students individually complete three lists: Quadrant 1—things that they and others know about themselves Quadrant 3—things that they know about themselves that others do not know Quadrant 2—things that they did not know about themselves but that they learned from others last semester c. Follow-up You might want to lead a group discussion on interpersonal perception as a follow-up to this exercise. Any students who wish to share how they have moved information about themselves from, say, Quadrant 3 to Quadrant 1 should be encouraged to do so. If you are doing a major group project throughout the course, you may want to use this exercise around the middle of the term, having each student focus on Johari Window as it relates to his or her group. management at work some keys to making a steinway The case details the painstaking way in which Steinway & Sons builds its pianos, world-renowned instruments that have earned the company plaudits from generations of professional musicians. A variety of processes—sourcing inputs, employing skilled labor—are used to build the product and extreme care is taken every step of the way. The vignette illustrates a variety of management principles at work, such as the systems view and the contingency perspective of management. 1. Explain the process by which a Steinway grand piano is constructed as a subsystem of a larger system. From what the text tells you, give some examples of how the production subsystem is affected by the management, financial, and marketing subsystems. The company Steinway & Sons is a large system that is made up of several interrelated subsystems such as operations, management, and marketing. The operations subsystem is responsible for constructing pianos. Here, skilled employees use various inputs (wood, glue, etc.) to make the product. The operations subsystem at Steinway (and in any organization) is, however, not independent of the other subsystems in the organization. For example, the employees have to be recruited, trained, and retained by the organization (the management subsystem), the inputs have to paid for and the cash flow managed over the long period from when inputs are sourced until the piano is sold (the finance subsystem), and the operations process must work in tandem with the marketing subsystem to synchronize the demand and supply of the product. 2. Discuss the Steinway process in terms of the systems perspective of organizations summarized in Figure 1.4. Explain the role of each of the three elements highlighted by the figure—inputs from the environment, the transformation process, and outputs into the environment. Steinway & Sons illustrates all three essential elements of the systems perspective. The company obtains various kinds of inputs—materials (wood, glue), human inputs (skilled labor, for example), financial inputs (cash from sales of pianos)—to run the business. In turn, it uses its labor and technology to transform inputs into finished products, and finally, it sells the product in the market to complete the cycle. 3. Discuss some of the ways in which the principles of behavioral management and operations management can shed light on the Steinway process. How about the contingency perspective? In what ways does the Steinway process reflect the universal perspective and in what ways does it reflect a contingency perspective? Behavioral management comes into play at Steinway when it comes to managing its employees. Its skilled employees—many of them with long tenures—are most likely the company’s most valuable resource and they have to be managed with care, keeping their motivation, their stake in the company, and their personal growth in mind. Operations management is important because Steinway builds its product very carefully and its product is meant to both perform well and be long lasting. Steinway illustrates both the universal and the contingency perspective at work. Some things at Steinway are universal, such as building the piano. The case describes how the company “bends” wood to take the shape of the outer case. This is a practice that has remained unchanged over the years. The contingency perspective is reflected in the situation involving the loss of a worker due to an accident. The company had to change its plans, in this case to slow down its production, until a replacement could be found. You Make the Call Reed Hastings Doesn’t Like Standing Still 1. You’re a Netflix employee and Reed Hastings has just stopped by your desk. “I’d like to know,” he says, “what you like most and least about working here.” How do you think you might respond? Student response may vary depending upon how they approach work. Some may like the work culture at Netflix that fosters innovation and unleashes their creativity. Others may prefer a more structured workplace. 2. You’re a major Netflix stockholder attending the firm’s annual board meeting. When you bump into Reed Hastings at a reception, he asks you, “How do you think we’re doing with this company?” How would you respond? Netflix’s financial performance is mixed: it has had its ups and downs in recent years. On the one hand, if you were a stockholder at the very beginning (when the company did its IPO), you would have been handsomely rewarded, given that the company’s market price (and hence the value of your shares) peaked in 2014. On the other hand, if you were a stockholder in 2011 when the company briefly split into two parts and saw an adverse downturn in its stock price, you would have seen a sharp decline in your investments. Your question to him could be how to compete in an industry with significant technology shifts. 3. You’re the founder and owner of a small media company and Netflix has indicated an interest in buying your business. In addition to price, what other factors, if any, are important to you? Responses may vary depending upon one’s personal values. Relevant questions might include whether the employees of the acquired company would be retained, and what the role of the new company would be in Netflix. 4. You’ve been contacted by a marketing research company doing work for Netflix. The researcher asks if you use Netflix and if not, why not? If you do use Netflix and the researcher asks what you like and dislike most about it, what would you say? This question is from the perspective of a user or a potential user of Netflix, so opinions are likely to vary considerably. Issues such as availability of content and price are relevant here. Chapter 2 The Environments of Organizations and Managers END-OF-CHAPTER Questions for Review 1. Identify and discuss each major dimension of the general environment and the task environment. Because the environment provides the context in which a business operates, it determines the firm’s eventual success or failure. The general environment consists of three dimensions: economic, technological, and political-legal. The economic dimension includes macroeconomic trends that impact all businesses, such as inflation and unemployment. The technological dimension includes advances in computing and communications. The political-legal dimension consists of legislation, legal proceedings, and the political climate. The task environment of an organization consists of specific dimensions of the organization’s surroundings that are very likely to influence the organization. Competitors, customers, suppliers, regulators, and strategic allies comprise the task environment. Competitors are firms that are competing for resources, and customers are those that purchase the firm’s products. Suppliers include any organizations or individuals that supply resources to the firm. Regulators provide oversight to the firm and include regulatory agencies and interest groups. Strategic allies are partners with the firm in joint ventures. 2. Do organizations have ethics? Why or why not? As defined here, organizations do not have ethics—only individuals have ethics. However, the ethical norms and climate that exist within an organization can significantly affect the organization. 3. What are the arguments for and against social responsibility on the part of businesses? In your opinion, which set of arguments is more compelling? Arguments for social responsibility include: (a) organizations create problems and should be responsible for solving them; and (b) corporations are citizens in our society, too, and should not avoid their obligations as citizens. Arguments against include: (a) businesses should simply focus on making a profit, (b) there is the potential for a conflict of interest, and (c) businesses lack the expertise to understand how to assess and make decisions about worthy social programs. 4. Describe the basic levels of international business involvement. Why might a firm use more than one level at the same time? There are four levels of international business activity: (1) A domestic business has no international ties and buys and sells goods only in its own country. (2) An international business primarily resides in one country but purchases components from abroad or sells a substantial amount of finished products to other countries. (3) A multinational business has a worldwide marketplace from which it buys raw materials, borrows money, manufactures its products, and to which it sells its products. (4) A global business transcends national boundaries and is not committed to a single home country. Many organizations use more than one level at the same time. This is done in order to adapt to the needs of different countries or regions, or to implement different strategies for different countries. 5. Describe various barriers to international trade. Why do such barriers exist? The economic environment, the political-legal environment, and the cultural environment are three areas of challenge to international managers. Numerous specific instances of each can be identified. They exist for a variety of reasons including the interests of the host government in protecting home businesses and simply the differences across countries. Questions for Analysis 1. Can you think of dimensions of the task environment that are not discussed in the text? Indicate their linkages to those that are discussed. Student responses will vary, but one environmental dimension that was not discussed in the text was climate and weather. The climate and weather may have a great impact on the farming industry. A late frost in Florida may hurt the orange crop, or a drought in the Midwest may be responsible for poor grain yields. For the downhill skiing industry, sustained low temperatures and snow are prerequisites, so climate in this instance may dictate the location of the industry. Climate and weather are also important to surgeons specializing in skin cancer and orthopedic surgeons who specialize in broken limbs. 2. What is the relationship between the law and ethical behavior? Can a behavior be ethical but illegal at the same time? The law mandates or prohibits certain behaviors, with relatively little flexibility or subjectivity. Ethics suggests desired behaviors, but is equally concerned with the intention and reasons behind a behavior as with the behavior itself. Ethics is based on standards that are flexible and subjective. Individuals or organizations can act in what they feel is an ethical manner while also breaking the law. For example, some individuals try to block abortion clinics in an effort to stop actions that they believe are harmful. In their eyes, these actions are ethical, but to the police, who may arrest them for trespassing, the actions are illegal. In the news today are stories about pharmaceutical companies in China, Africa, and India that illegally produce patented drugs, which they feel is an ethical necessity to stop the spread of contagious diseases in countries where drugs produced in the United States are prohibitively expensive. 3. What is your opinion of whistle-blowing? If you were aware of a criminal activity in your organization but knew that reporting it would likely cost you your job, what would you do? Answers will vary. Some will say that it is their duty to society to report criminal activities, whereas others may feel it is their duty to protect the organization and not report criminal activity. Still others will feel that their primary responsibility is to themselves or their families, which would require them to protect their jobs. 4. What industries do you think will feel the greatest impact of international business in the future? Will some industries remain relatively unaffected by globalization? If so, which ones? If not, explain why not. International industries generally involve mass-produced consumer or industrial products such as automobiles, electronics, steel, chemicals, and so forth. In contrast, industries that would experience high costs for shipping or manufacturing goods in distant locations are somewhat sheltered from the effects of globalization, as are industries where local tastes and needs are very different from global tastes. Examples would include restaurants, home builders, and plant nurseries. However, you can point out to students that consumer preferences are becoming more global, with more Americans buying imported chocolates and more Latin Americans buying Nikes, for example. 5. What is the culture of your college, university, or place of employment? How clear is it? What are its most positive and its most negative characteristics? Students should recognize that all organizations have a culture, but they may differ in their perceptions of the existence of a culture and what that culture is. Generally, a majority will agree on a “party,” “athletics,” “research,” or “scholarly” culture. Words such as these will be used to describe the culture to outsiders. You can remind students that every culture has its positive and negative characteristics, encouraging them to think more deeply about culture’s effects. Building Effective Interpersonal Skills Exercise a. Purpose This exercise uses a fun, easy scenario-based exercise to help students understand the complexities of culture in various countries when it comes to communication. b. Format This exercise is most effective if administered in class. That way, students can work individually and then share their responses with the class. This exercise takes about 15–20 minutes to administer, but the discussion could take much longer. c. Follow-up In terms of difficulty (easiest first), the following is the likely rank order. German and French colleagues exchanging emails about a new project Young U.S. female manager meeting with older female manager from Mexico Telephone conference call between a young Indian male manager and an older Chinese male manager A face-to-face committee meeting with five people of the same gender from Indonesia, Russia, Canada, Pakistan, and Israel Skype call involving a male Jordanian manager, a female Australian manager, and a male Israeli manager This can then set up a class discussion to examine and assess the rankings. Building Effective Communication Skills Exercise a. Purpose This exercise assigns students the difficult—but realistic—task of persuading a superior that his or her ideas may be inadequate. The task requires students to justify the need to gather more information about the customer segment of the environment. b. Format This exercise is best done outside of class by individual students, and it requires about 20–30 minutes. c. Follow-up (1) With this background in mind, compose a written proposal for your boss, outlining your position. Be sure to emphasize your fundamental concern—that the marketing department needs to better understand the needs of each customer segment in order to provide products that meet those needs. Consider ways to persuade your boss to change his or her mind. (Hint: Telling him or her bluntly that he or she is wrong is unlikely to be effective.) Students’ answers will focus on the importance of understanding the specific needs of various groups of consumers. Students are likely to describe the importance of consumers to the firm, the necessity of obtaining accurate and specific feedback, and the likely negative consequences if consumer feedback is not obtained. The challenge for students will be to present their position in a forceful yet tactful way. (2) On the basis of what you wrote in response to Exercise Task 1 above, do you think your boss will change his or her mind? If yes, what persuaded him or her to change his or her mind? If no, what other actions could you take to attempt to have your ideas adopted by the firm? Students’ answers will vary. They will see that persuasion requires tact as well as strong logical arguments. For additional actions, students might suggest an appeal to a superior, gathering the feedback anyway without informing the boss, or simply dropping the idea. For each of these actions, ask students to consider what would happen then. For example, how would their boss respond to finding out that he had been deceived? Skills Self-Assessment Instrument Global Awareness a. Purpose This self-assessment is designed to help students understand their readiness to respond to managing in a global context through assessing their knowledge of cultural differences among countries. b. Format Students should respond individually to the items in this self-assessment using the scale provided. c. Interpretation All of the statements are true, so a perfect score would be 40. The closer a student’s score is to that, the more knowledge he or she has of cultural differences among countries and the more he or she understands the global context of organizational environments. The closer the score is to 10 (the minimum possible score), the less the student knows and the less prepared the student is for managing in a global context. Students should be encouraged to improve their knowledge for any area in which they had a low score. They should be encouraged to read Nancy Adler’s International Dimensions of Organizational Behavior, 2nd ed. (Boston: PWS-Kent, 1991). Experiential Exercise Assessing Organizational Culture Purpose: While organization culture is intangible, it is not difficult to observe. This activity will help to improve your skills in observing and interpreting organization culture, which can help to make you a more effective participant and leader in organizations. Introduction: Clues to organization culture may be found by observing details that relate to member behavior, traditions or customs, stories, attitudes, values, communication patterns, organization structure, employee dress and appearance, and even office space arrangements. Do members address each other by first names? Are office doors left open or closed? What do members wear? How are achievements recognized? Does the workplace feel energized or laid-back? Do members smile and laugh often? Does seniority or expertise earn more respect? Instructions: First, observe clues to organization behavior at your school, college, or university. To the extent possible, observe a diversity of members including students, teaching faculty, and non-teaching staff. Write down specific examples. For example, students typically wear blue jeans, while instructors usually wear suits. In the cafeteria, freshmen sit mainly with other freshmen. A professor may be referred to as “Doctor” by staff, while she may refer to staff by their first name. It is possible that variations exist across schools within the same university. Students are likely to see a different set of norms in nonprofessional schools (where they are likely to have had classes) in comparison to those at professional schools. Second, interpret the facts. Use your observations to describe the organization’s core values. What does it value most? How did you come to that conclusion? Do some schools value the end results and downplay the means leading to those results? Again, it is possible to see variations across programs. Third, with the class or in small groups, discuss your facts and interpretations. Focus especially on areas of disagreement. Where individuals disagree about the culture, try to understand why the disagreement occurs. If the facts differ, perhaps the individuals observed two different groups. For example, students majoring in business may be different than students in engineering or education. Or perhaps the organization culture tolerates or encourages lots of differences. If there is agreement on facts but interpretations differ, then perhaps the individuals making the interpretations can explore their differing perceptions. It is also possible that traditional students in the class may have a different viewpoint as compared to nontraditional students. Older students returning to the classroom after years of work in the “real” world may have opinions about organization culture different from those of younger students. MANAGEMENT AT WORK IS FAIR TRADE A FAIR TRADE-OFF? The case features the world market for cocoa. The world market for cocoa beans is highly volatile. Consequently, farmers in cocoa export-dependent nations such as Ivory Coast strive for any means to cut costs. One such measure is to employ child labor, who work long hours in poor conditions. The Fairtrade Labeling Organization (FLO) addresses this concern by promoting programs designed to ensure that export-dependent farmers in developing countries receive fair prices for their crops. The organization has its critics, though, who contend that the program enriches the middlemen and do not really benefit the farmers. 1. How does the environment affect fair trade? To help students with this answer, it may be a good idea to get students to think of the entire cocoa supply chain, from farmers in Africa to retailers of chocolates worldwide. Each is affected by various types of environmental changes. For example, everyone in the chain is affected by the global economic environment. In addition, farmers in Africa are affected by a changing social environment where views on child labor are changing. 2. What are the trade-offs in the fair-trade process? Do you think that fair trade promotes fair trade-offs? Why or why not? Fair trade protects suppliers. The trade-off, though, is that fair trade products cost more. This is a question that is likely to provide contrasting viewpoints among students as they look at the cost versus benefits of fair trade. 3. Do you pay attention to fair-trade products in your own purchasing behavior? For what kind of products might you be willing to pay premium prices? Responses will vary depending on how the student views fair trade. 4. Under what circumstances might fair trade actually cause harm? To whom? At what point would fair-trade trade-offs no longer be acceptable? If the price of fair trade products to consumer become so high that they are uncompetitive it may have an adverse effect on demand, which may, in turn, affect suppliers. Fair trade would be acceptable till such a point is reached. YOU MAKE THE CALL Social Entrepreneurship at its Finest 1. What environmental events and forces have led to the existence of organizations such as Mercy Corps? A variety of environmental threats – economic, social, natural disasters – have led to the existence of an organization like Mercy Corps. When a disaster hits an area – such as the earthquake in Haiti – everything is in disarray and an organization like Mercy Corps. provides the infrastructure and support for regular life to go on. 2. In what ways does Mercy Corps interact with its environment in order to fulfill its mission? It is important to note that Mercy Corps believes communities that are affected must be the agents of their own change. This means that Mercy Corps interacts with the social, cultural, economic, and political environments of the place that it is providing relief in. 3. Discuss how economic, global, and ethical environments interact with respect to an organization like Mercy Corps. Take the Haiti earthquake as an example. When Mercy Corps landed in Haiti to address the effects of the disaster, it had to deal with the economic environment (providing a means of income to people by getting them to clear the debris, for example), the global environment (coordinating the worldwide response to the disaster) and the ethical aspects of its work. 4. If you were asked to critique Mercy Corps in terms of effectiveness, what factors would you focus on? While student responses will vary, they have to keep in mind that in measuring how well an organization like Mercy Corps function, one has to see what its mission is and judge it based on that. For example, Mercy Corps’ mission says that the affected community must take ownership of the change. A Mercy Corps mission is effective if this actually happens. Chapter 3 Planning and Strategic Management END-OF-CHAPTER Questions for Review 1. Describe the nature of organizational goals. Be certain to include both the purposes and the kinds of goals. The purposes of goals are to (1) provide guidance and direction, (2) facilitate planning, (3) serve as a source of motivation and inspiration, and (4) aid in evaluation and control. Businesses that move aimlessly cannot survive in today’s economy. Goal development is essential because it helps guide the planning process. When employees know and understand the direction of the business, they are more motivated to accomplish the goals of the organization. Finally, the goals can be monitored as a control device. Goals at higher levels are best at fulfilling these purposes in a more general way, while goals at lower levels fulfill these purposes in specific ways. 2. Identify and describe Porter’s generic strategies. Porter’s generic strategies are as follows: (1) differentiation: a firm seeks to distinguish itself from competitors through the quality of its products or services; (2) overall cost leadership: a firm attempts to gain a competitive advantage by reducing its costs below the costs of competing firms; and (3) focus: a firm concentrates on a specific market, product line, or group of buyers. 3. What are the basic differences among a single-product strategy, a strategy based on related diversification, and one based on unrelated diversification? A single-product strategy involves manufacturing just one product or service and selling it in a single geographic market. A related diversification strategy involves operating multiple businesses that are related to one another in some way. An unrelated diversification strategy involves operating multiple businesses that are not related to one another. 4. What is tactical planning? What is operational planning? What are the similarities and differences between them? Tactical plans are developed to implement parts of a strategic plan. Operational plans are aimed at achieving operational goals; they are narrowly focused, have short time frames, and involve lower-level managers. Two common forms of operational plans are single-use plans and standing plans. Tactical and operational plans differ in that operational plans are derived from tactical plans and are more specific and focused. The level of manager involved in developing these two plans also differs. Tactical plans are developed by middle and upper-level managers, while operational plans are developed by middle and lower-level managers. Tactical and operational plans are similar in that both are designed to implement the overall strategic plan outlined by the organization. 5. What is contingency planning? How is it similar to and different from crisis management? Contingency plans are alternative plans developed in advance of need, in response to situations which may or may not arise. Crisis management is the planned and practiced response that an organization intends to make when an emergency situation occurs. While engaging in crisis management, organizations will rely heavily on contingency planning. However, crisis management must also entail a nonspecific yet effective way to respond to events that cannot be anticipated, such as the 9/11 attacks. Questions for Analysis 1. Managers are sometimes criticized for focusing too much attention on the achievement of short-term goals. In your opinion, how much attention should be given to long-term versus short-term goals? In the event of conflict, which should be given priority? Explain your answers. Goals provide consistency in organizational action. Long-term goals provide the target for the firm to achieve in the next five, ten years, while short-term goals provide direction for the immediate future. Short-term goals should be consistent with long-term goals and hence, if there is a conflict, long-term goals should be given the priority. 2. Which strategy—business-level or corporate-level—should a firm develop first? Describe the relationship between a firm’s business- and corporate-level strategies. Both must be developed together, at the same time. Decisions made at the corporate level, such as to increase or decrease diversification, will then require changes in the firm’s business-level strategy. Decisions made at the business level, for example to pursue a differentiation strategy, will require changes at the corporate-level also. Most firms that are being just founded have only a single business and in those firms, the business-level strategy will be developed first. However, for a diversified firm, corporate and business strategies are formulated and implemented simultaneously. 3. Volkswagen sold its original Beetle automobile in the United States until the 1970s. The original Beetle was made of inexpensive materials, was built using an efficient mass-production technology, and offered few options. Then, in the 1990s Volkswagen introduced its new Beetle, which has a distinctive style, provides more optional features, and is priced for upscale buyers. What was Volkswagen’s strategy with the original Beetle—product differentiation, low cost, or focus? What strategy did Volkswagen implement with its new Beetle? Explain your answers. The original Beetle was clearly part of a low cost strategy with its emphasis on efficiency, inexpensive components, lack of distinguishing features, and low price. The new Beetle signals a switch to a differentiation strategy because of its style, customization, upscale target market, and higher price. 4. Which kind of plan—tactical or operational—should be developed first? Why? Does the order really matter? Why or why not? Tactical plans should be developed prior to operational plans. This is because operational plans are a subunit of tactical plans; that is, operational plans are derived from tactical plans. In order for middle and lower-level managers to develop operational plans, they must have some idea of the scope and focus of tactical plans; thus it is important that tactical plans are developed first. 5. Cite examples of operational plans that you use or encounter (now or in the past) at work, at school, or in your personal life. While students’ answers will differ due to their personal experiences, one example of each type of operational plan is provided. Program—Determining which college to attend requires a great deal of information collecting, telephoning, and time. The activities that must occur prior to making that decision vary and can take over a year. Some individuals make campus visits, others telephone or write to the school, while others interview former or current students. These activities may not be used again, once a decision is made. Project—Deciding where to live can be viewed as a project. While the same information-collecting activities, telephoning, and time discussed above are required, the length of the decision time normally will be much shorter. Often, individuals schedule a one-week “house-hunting” trip in order to find a place to live. Policy—Employees of a restaurant are often approached by various organizations requesting support or a donation for a worthy cause. The restaurant manager may have issued a statement (policy) about how this type of solicitation should be handled. When approached, the employee will simply read or explain the policy to the solicitor. SOP—Any person who has been informed of the appropriate evacuation procedures for exiting a building in case of a fire has been involved with a standard operating procedure. Rules and regulations—The specific rules and guidelines that are taught to new employees fall into this category. For example, when working behind a service counter where numbers are not given to customers to determine the order in which they should be helped, a company may require its employees to mentally note the order in which the customers arrived, or to query the group after completing an order for one individual and before moving on to the next. Building Effective Decision-Making Skills Exercise a. Purpose This exercise will encourage students to consider how a SWOT analysis would be performed in a real organization, including which sources should be used, and the validity of the information at those sources. b. Format This decision-making exercise can be performed by individuals or groups. It should take about 15–20 minutes to complete. c. Follow-up (1) List the sources that you’ll use to gather information about the firm’s strengths, weaknesses, opportunities, and threats. Students will find a variety of sources, including online and print sources and information from personal contacts, such as a conversation with someone who works for that firm. (2) Then ask yourself: For what types of information are data readily available on the Internet? What categories of data are difficult or impossible to find on the Internet? (Note: When using the Internet, be sure to provide specific websites or URLs.) Financial statements and annual reports are very easy to find on the Web. Other information that is readily obtainable from the Internet includes corporate mission and marketing statements, analysts’ evaluations of industries and companies, news about industries and companies, and data from government agencies, such as the Census Bureau or Federal Trade Commission. With some diligence, students can usually uncover negative information about firms, often reported on watchdog or regulatory websites. Confidential information from inside the firm is the most difficult to obtain, either from print or Internet sources, and is best sought from company insiders. (3) Next, rate each source in terms of its probable reliability. There will be considerable variation in students’ answers to this question. Students should notice that the various sources differ a great deal in their reliability. Corporate websites, for example, are best viewed as advertising for the firm and will not typically contain any negative information. (4) Finally, ask yourself how confident you would be in making decisions based on the information obtained. Again, answers will vary. Because it is difficult to get reliable information about some issues, decision makers must choose based on the information they have, but they should be aware of the potential for faulty information. This awareness may lead them to compensate for their lack of confidence, for example, by developing multiple contingency plans or performing statistical sensitivity analyses to check the robustness of their choices. Building Effective Communication and Interpersonal Skills Exercise a. Purpose This exercise allows you to think through issues of communication and interaction as they relate to an actual planning situation. b. Format This exercise is based on watching a clip of the 1995 movie Apollo 13 and answering questions based on the clip. c. Follow-up There are three questions that relate communication and interaction to planning within the context of the lunar mission. Skills Self-Assessment Instrument Goal-Setting Questionnaire a. Purpose This exercise allows the student to understand how to conceptualize the elements of goal setting and his/her own goal-setting tendencies. b. Format Students should perform this assessment individually. The student should complete the questionnaire by circling the appropriate number on the scale for each of the 20 statements. c. Interpretation Sum up your score on the 20-item scale. Score can range from 20-100 and a high score indicates that you are closer to effective goal-setting behaviors. EXPERIENTIAL EXERCISE The SWOT Analysis Purpose: SWOT analysis provides the manager with a cognitive model of the organization and its environmental forces. By developing the ability to conduct such an analysis, the manager builds both process knowledge and a conceptual skill. This skill builder focuses on the administrative management model. It will help you develop the coordinator role of the administrative management model. One of the skills of the coordinator is the ability to plan. Introduction: This exercise helps you understand the complex interrelationships between environmental opportunities and threats and organizational strengths and weaknesses. Strategy formulation is facilitated by a SWOT analysis. First, the organization should study its internal operations in order to identify its strengths and weaknesses. Next, the organization should scan the environment to identify existing and future opportunities and threats. Then the organization should identify the relationships that exist among these strengths, weaknesses, opportunities, and threats. Finally, major business strategies usually result from matching an organization’s strengths with appropriate opportunities or from matching the threats it faces with weaknesses that have been identified. Instructions: First, read the short narrative of Trek Bicycle Corporation’s external and internal environments, found below. Second, divide into small group and conduct a SWOT (strengths, weaknesses, opportunities, threats) analysis for Trek Bicycle Corporation, based on the short narrative. You may also use your general knowledge and any information you have about Trek or the bicycle manufacturing industry. Then prepare a group response to the discussion questions. Third, as a class, discuss both the SWOT analysis and the groups’ responses to the discussion questions. Discussion Questions: 1. What was the most difficult part of the SWOT analysis? Student responses will vary. Most students will find it difficult to separate strengths from opportunities and threats from weaknesses. It is important to remember that strengths and weaknesses are internal to the firm while opportunities and threats are external to the firm. 2. Why do most firms not develop major strategies for matches between threats and strengths? The idea is to exploit an organization’s opportunities and strengths, neutralize its threats, and avoid or correct its weaknesses. Matching opportunities and strengths is more proactive because the firm is leveraging its competencies in those areas where the payoff is maximized. 3. Under what conditions might a firm develop a major strategy around a match between an opportunity and a weakness? If the opportunity is a major one and can lead to substantial gains in the future, then the organization has to use its weakness as the starting point and think of ways to change them to take advantage of the opportunities. For example, if the opportunities in Internet retailing are tremendous for a brick-and-mortar retailer but the retailer is currently weak in this area, it makes sense for this retailer to convert its weakness into a strength. Trek’s External and Internal Environments Today in the United States, inflation, cost of materials, and unemployment are fairly low and are not increasing. Emerging economies are growing more rapidly than the U.S. economy. Foreign trade is relatively open, so manufacturers face intense international and local competition, with pressure to keep prices low, and also have the opportunity to utilize low-cost labor and raw materials from around the world. New manufacturing technologies, futuristic materials, and e-commerce are becoming more prevalent and affordable. The political-legal climate is favorable to business in the United States and most developing nations, while regulation is higher in the E.U. The standard of living is stable, the population is aging, and ethnic diversity is increasing. Today in the bicycle-manufacturing industry, manufacturers must invest heavily in research and development (R&D) to effectively compete on a global scale. Domestically, the bicycle manufacturing industry is fragmented, with the largest firm, Trek, controlling just 24 percent of sales. The industry’s customers are primarily local, independent bike retailers, a very fragmented group. The Internet and eBay, in particular, provide alternate channels for new and used bike sales. Bike riders, the ultimate purchasers, are interested in style, comfort, and high-tech features, as well as environmental and health issues. Suppliers of many bike components are small, local manufacturers located in developing countries. However, a few suppliers are more powerful, such as Shimano, an internationally known maker of bicycle components and cycling gear. Regulators are not a significant force for bicycle manufacturers, but Trek and others have numerous joint ventures. In one example, Trek teamed with AMD, Nike, and other companies to produce the high-performance cycle used by Lance Armstrong in the Tour de France and other races. Trek has excellent R&D capability and effectively utilizes low-cost manufacturers in producing the more affordable products in its broad line of bikes. However, its Wisconsin factory produces its high-end lines and can customize a bike to a customer’s exact specifications. Trek is beginning a push to improve the customer bike-buying experience. The company will limit the number of retailers it uses and require retailers to stock a higher percentage of Trek products. In return, it will provide training and funds to improve in-store marketing and increase customer loyalty. MANAGEMENT AT WORK ACTING ON A STRATEGIC VISION In the rapidly growing video game industry, two players, Electronic Arts (EA) and Activision exhibit different strategies. EA makes sizeable investments to create blockbusters based on movies (The Lord of the Rings) or sports (Madden NFL). It uses a centralized approach to the development of games. In contrast, Activision acquires game developing companies and gives them immense freedom to come up with hits such as Guitar Hero and Call of Duty. Company Update: In late May 2014, Activision Blizzard’s market cap was $14.79 billion, while EA’s was $10.78 billion. 1. How might a SWOT analysis have helped Electronic Arts assess its slippage in the video-game market? A SWOT analysis may have pointed out that its one time strength in centrally developing games was no longer valued in the marketplace. They should have seen the threat of Activision with its policy of giving considerable latitude to the creative people in the organization. In short, a SWOT analysis would have pointed out that many of EA’s erstwhile strengths had turned to weaknesses, and also it would have pointed out the competitive threat of smaller, more nimble players such as Activision. 2. How might Porter’s generic strategies theory help to explain why Electronic Arts lost its leadership in the video-game market to Activision Blizzard? Activision successfully differentiated itself via its cutting edge products such as Guitar Hero and Call of Duty, while EA was not able to sustain its differentiation advantage. Porter’s model would have showed EA what its strategy was and how it was threatened by Activision. 3. Is the concept of product life cycle relevant to the video game market? Why or why not? The video game market goes through product life cycles first when new consoles comes on the market and second when major technology shifts occur. For example, when a new version of PlayStation comes out with better graphics and faster interaction, game makers have to adjust and create new versions of games. Similarly, when gaming went mobile, it started a new life cycle. 4. If you ran a small video-game start-up, what would be your strategy for competing with EA and Activision Blizzard? A niche or a focus strategy is the best bet for a start up. The key would be to identify an underserved niche and develop games to cater to that niche. Going head on with EA and Activision may not be a good idea. 5. If you’re a video game player, what aspects of Activision’s strategy have led to your playing more (or fewer) of its games? If you’re not a video game player, what aspects of Activision Blizzard’s strategy might induce you to try a few of its games? Answers will vary according to the interests of students. For some, the learning curve involved may play a role so that an easier interface might result in greater interest. For others, cost could be a factor. YOU MAKE THE CALL Google’s Strategy for Dominance 1. Explain how each of its strategic components—distinctive competence, scope, and resource deployment—plays a role in Google’s success. Google’s distinctive competence is its ability to use advanced mathematics to create a search algorithm that is both fast and accurate. In terms of scope, it used this distinctive competence to first succeed in the U.S. and then overseas. Google has deployed its resources (principally the intellectual talents of its workforce) to become the dominant global player in Internet search. 2. In what ways is Google prepared to respond to both organizational opportunities and organizational threats in the U.S. market? The big organizational opportunity is the increase in the use of Internet and, hence, the need for search services. The big threat is the advent of competition. Google is poised to parlay opportunities in search growth by employing a vast number of highly talented people. The same approach, and by creating opacity about its future plans, it plans to keep competition at bay. 3. How can Porter’s generic strategies approach help to explain Google’s U.S. strategy? Google uses a broad market strategy and positions itself as the differentiator (to those who pay for ads, the search itself is free to consumers) to compete effectively. 4. Identify situations in which Google might use tactical, operational, and contingency planning. It would use tactical planning when competitors may charge a lower price for ads, at which time Google has to come up with a response. It would use operational planning to translate a new pricing strategy to ad buyers, and a contingency plan if the shift to mobile computing is faster than it anticipated. Chapter 4 Managing Decision Making END-OF-CHAPTER Questions for Review 1. Describe the difference between programmed and nonprogrammed decisions. What are the implications of these differences for decision makers? Programmed decisions are either structured or recur frequently, or both. Nonprogrammed decisions are those that cannot be structured or that occur with much less frequency. Programmed decisions can be made with less time and other resources. In many cases, programmed decisions can be made routine so that real decision making is unnecessary. On the other hand, nonprogrammed decisions are typically complex, lengthy, and difficult to resolve. 2. What are the different conditions under which decisions are made? Under certainty, the decision maker knows the alternatives and the conditions associated with them with reasonable certainty. Under risk, the probabilities of the conditions are known or can be estimated. Under uncertainty, the alternatives, the risks associated with them, and the likely consequences are unknown. 3. Describe the behavioral nature of decision making. Be certain to provide some detail about political forces, risk propensity, ethics, and commitment in your description. Political forces in decision making are common. Coalitions often attempt to influence the decision-making process in organizations. Some managers will be very conservative and try to adhere to the rational model of decision making. Others will be more aggressive and willing to take bigger risks. The organization’s culture will influence the manager’s attitude toward risk. Each individual has his or her own beliefs about which behavior is right and wrong. These beliefs factor into the decision-making process. Intuition and the escalation of commitment may also have an impact on the decision. 4. What is meant by the term escalation of commitment? In your opinion, under what conditions is escalation of commitment likely to occur? Escalation of commitment occurs when a decision maker persists in supporting his or her original decision, in spite of evidence that demonstrates that that decision is ineffective. Escalation of commitment is likely to occur when decision makers must make a public show of support for their decision. Once they have done that, it is much more difficult for them to admit they were wrong. 5. Explain the differences among three common methods of group decision making—interacting groups, Delphi groups, and nominal groups. Interacting groups are the most common of the three and consist of a group of individuals who meet, freely discuss issues, and then reach a decision. Delphi groups are highly structured panels of experts. The experts do not meet. Instead, their responses are collected and reported to the group. This process continues until consensus is reached. Nominal groups meet together, but do not freely interact. Instead, they individually generate ideas, share them with the group, clarify and discuss the ideas, and then reach a final decision with a vote. Questions for Analysis 1. Was your decision about what college or university to attend a rational decision? Did you go through each step in rational decision making? If not, why not? Two extreme possible answers are as follows: (1) My decision to come to this university was not a rational one. My mother attended this school and most of my high school friends decided to come here. (2) My decision to come to this university was quite rational. I wanted to major in accounting, and I wanted to stay within a five-hour drive of home. With that in mind, I set out to find all of the colleges within a five-hour drive that offered accounting. I then rated these colleges based on cost and quality. I applied to ten schools that were within my financial means. This was my first choice, and I was pleased when I was accepted for admission. 2. Most business decisions are made under conditions of either risk or uncertainty. In your opinion, is it easier to make a decision under a condition of risk or a condition of uncertainty? Why? Answers will vary. Some students may prefer risk, in which the possible alternatives are known and there is some probability associated with each alternative. Other students, who are more comfortable in open-ended situations, may prefer uncertainty. In a condition of uncertainty, the alternatives and probabilities are unknown, which some students might find gives them more freedom in their decision. 3. Recall a decision that you recently made that had ethical implications. Did these implications make the decision easier or harder? Students should have no trouble thinking of recent decisions that contained ethical components. Examples could include confronting a roommate over undesirable behavior, telling the truth, plagiarism and other issues of scholastic honesty, and so on. In general, most people find that decisions where the ethical component is strong are more emotional and can be more subjective. Some students will find that moral judgments make decisions easier, while others may find it makes them more difficult. Use this question as an opportunity to remind students that many, many decisions have ethical implications. 4. In what ways are escalation of commitment and decision making under conditions of risk related to one another? Escalation of commitment occurs when outcomes are not certain, but managers have reason to believe that a positive outcome may result. Under conditions of certainty, managers would not continue to invest in projects with low probabilities of payoff. Under conditions of uncertainty, most managers would readily admit that they don’t know the likely outcomes. However, conditions of risk give managers reason to “hope for the best,” even if the chances of the “best” occurring are low, and that can lead to escalation of commitment. 5. Consider the following list of business decisions. Which decisions would be handled most effectively by group or team decision making? Which would be handled most effectively by individual decision making? Explain your answers. • A decision about switching pencil suppliers • A decision about hiring a new CEO • A decision about firing an employee for stealing • A decision about calling 911 to report a fire in the warehouse • A decision about introducing a brand-new product Switching pencil suppliers is a fairly routine, programmed decision and could be made by an individual. Hiring a new CEO will affect every stakeholder group and the future of the organization, and so many different types of input are needed in the process. Firing an employee for stealing will likely be a group decision making process, in order to guard against charges of discrimination or unfair termination. Also, human resources managers are likely to be involved in any firing. Calling 911 should not be a group decision because speed is essential. There’s simply not time to meet as a group and discuss the fire. Introducing a brand-new product must be a group decision because it will require information from accounting, finance, marketing, logistics, R&D, and other functions within the firm. Building Effective Conceptual Skills Exercise a. Purpose This exercise gives students a demonstration of the power of behavioral factors. b. Format The survey portion of this exercise takes about 10 minutes. Discussion time will vary. c. Follow-up Duplicate the following pages and then cut along the dotted lines so that every student will have one slip of paper. Distribute the slips and ask the students to answer without talking or sharing answers. Alternate Forms P and N so students will not look at each other’s answers. After students answer the question, ask for a show of hands and fill in each of the squares in this matrix. Show the chart to the students.
Positive Negative
Certainty number who chose A number who chose C
Risk number who chose B number who chose D
Every one of the outcomes (A, B, C, and D) have exactly the same expected value—that is, that 200 people will live and 400 people will die. There are two differences in the way that the scenarios are presented. Form P (for positive) phrases all the outcomes in positive terms, focusing on how many lives will be saved. Form N (for negative) phrases all the outcomes in negative terms, focusing on how many deaths will occur. On both forms, students are choosing between a known outcome and a probabilistic or risky outcome. The main message of this survey is: “Humans are non-rational.” In a perfectly rational world, students would be indifferent between the four cells of the matrix and they all would have about the same number of responses. However, more people are likely to choose the A and D cells because of the way individuals think about risk. When faced with a positive outcome or gain, people tend to want to hold on to it. They imagine the regret they would feel if they took the risk (chose B over A) and then got the bad outcome. But when faced with a negative outcome or loss, people tend to want to avoid the loss and are willing to take big risks to do so. They imagine how pleased they will feel if they manage to avoid the loss. Students may reject this interpretation. Often, they don’t like being told that they are non-rational. Reassure them that this is universal and doesn’t mean anything bad. It just shows the prevalence of behavioral factors in decision making. If they continue to resist or need further demonstration, use the following scenario. Say to the students, “Imagine I offer you a (hypothetical) gift. I will pay anyone $10 right now. Or, if you prefer to gamble, I will let you pick a number between 1 and 10. If you choose one of the nine ‘wrong’ numbers, I will pay you nothing. But if you choose the one ‘right’ number, I will pay you $100. Assume the gamble is honest. What would you do?” Point out to them that the expected value is the same in both cases: $10. The only difference is the choice between a certainty and a risk. Ask for a show of hands, and record the number who would prefer the certainty and the risk. Then say to the students, “Now, imagine I lock the classroom door. I will permit anyone to leave if they pay me $10. Or, if you prefer to gamble, I will let you pick a number between 1 and 10. If you choose the one ‘wrong’ number, you must pay me $100 to leave. But if you choose one of the nine ‘right’ numbers, you may leave for free. Assume the gamble is honest. What would you do?” Again, both scenarios give an expected value of $10. Again, ask for a show of hands and record the responses. Most students will prefer the sure $10 than the chance to gamble for the right to leave the room. As a further demonstration, most of the students will change their vote if you increase or decrease the amount of money. Students who are willing to give up a sure $10 to gamble for $100 probably aren’t willing to give up a sure $10,000 to gamble for $100,000. The regret at losing the larger amount would simply be too great. If the students like these games (and most will), here’s a couple of other related examples. Scenario A: Imagine that you decided to see a play and paid the admission price of $10 per ticket. As you enter the theater, you discover that you have lost the ticket. The seat was not marked and the ticket cannot be recovered. Would you pay $10 for another ticket? Scenario B: Imagine that you decided to see a play and planned to buy a $10 ticket at the door. But when you arrived at the ticket booth, you discovered that you have lost a $10 bill from your wallet. Would you pay $10 for a ticket? Most students will not want to pay for another ticket in Scenario A but will in Scenario B. Although these two events are exactly the same in their financial consequences, students irrationally “blame” the theater for their problems in Scenario A, while Scenario B seems to be nobody’s fault. Scenario A: Imagine that you are about to purchase a jacket for $150 and a calculator for $25. The salesman informs you that the calculator you wish to buy is being given away for free at another branch of the store, located 10 minutes’ drive away. Would you make the trip to the other store? Scenario B: Imagine that you are about to purchase a jacket for $150 and a calculator for $25. The salesman informs you that the jacket is on sale for $125 at another branch of the store, located 10 minutes’ drive away. Would you make the trip to the other store? This is an example of anchoring and adjustment. A $25 discount on a $25 item seems much larger than a $25 discount on a $150 item. Most students therefore will make the drive in Scenario A, but not in Scenario B, although financially, the two choices are equivalent. Answer the question below. Form P Imagine that the United States is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Which program do you favor? If Program A is adopted, 200 people will be saved. If Program B is adopted, there is a 1/3 probability that 600 people will be saved and a 2/3 probability that no people will be saved. ----------------------------------------------------------------------------------------------------------------Answer the question below. Form N Imagine that the United States is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Which program do you favor? If Program C is adopted, 400 people will die. If Program D is adopted, there is a 1/3 probability that nobody will die and a 2/3 probability that 600 people will die. ----------------------------------------------------------------------------------------------------------------Answer the question below. Form P Imagine that the United States is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Which program do you favor? If Program A is adopted, 200 people will be saved. If Program B is adopted, there is a 1/3 probability that 600 people will be saved and a 2/3 probability that no people will be saved. ---------------------------------------------------------------------------------------------------------------- Answer the question below. Form N Imagine that the United States is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Which program do you favor? If Program C is adopted, 400 people will die. If Program D is adopted, there is a 1/3 probability that nobody will die and a 2/3 probability that 600 people will die. Answer the list of brief questions that your professor will provide to you. No answer is correct or incorrect; simply choose your most likely response. Then, when the professor asks, share your answers with the class. (1) Discuss the answers given by the class. Why do students’ answers differ? Students will likely find that there are more answers in cells A and D, for reasons given above. (2) What have you learned about decision-making biases and risk propensity from these experiments? Students will learn about how risk propensity changes for one individual, depending on whether the decision frame is negative or positive. However, more fundamentally, students will learn that decision-making biases are present in everyone and that they will impact many decisions. Being aware of and understanding one’s biases can therefore lead to more effective decision making. Building Effective Technical Skills a. Purpose This exercise enables you to practice technical skills using the Internet to obtain information for making a decision. b. Format This exercise is designed to be done individually by students, although groups could be formed at the end to compare and discuss results. c. Follow-up There are no follow-up questions associated with this exercise. However, you could ask students to answer questions about the outcomes of the exercise, such as “What was the best way to find the necessary information to make a decision?” “Were any of the cities similar?” and “What did you learn from other students that you overlooked yourself?” Skills Self-Assessment Instrument Decision-Making Styles a. Purpose The purpose of this self-assessment is to help students understand their decision-making styles. b. Format Students should respond individually and privately to the items in this self-assessment, although class or small-group discussion should follow to expand upon the points illustrated in the assessment. c. Interpretation Generally there are three decision-making styles: reflexive, consistent, and reflective. Students determine their styles by totaling the numbers assigned to each response and comparing their totals to the following scale: 10–16, reflexive; 17–23, consistent; and 24–30, reflective. Reflexive decision makers like to make quick decisions without taking the time to get all the information that may be needed and without considering all the alternatives. They are decisive, however, and do not procrastinate. Students who tend to be reflexive should be cautioned to slow down a bit. Consistent decision makers are more balanced with a mix of both reflexive and reflective styles. Therefore, they tend to have the best record for making good decisions. Reflective decision makers tend to take plenty of time to make decisions, gathering considerable information and analyzing several alternatives. While they do not make hasty decisions, they can procrastinate, waste resources searching for information, and be viewed as wishy-washy and indecisive. Students who tend to be reflective should be cautioned to speed up their decision processes. Experiential Exercise Decision Making with Journaling and Affinity Diagrams a. Purpose This exercise is designed to help students understand the nature and use of journaling and affinity diagrams as a way to improve their decision making. b. Format Students will make Students will individually come up with ideas and then arrange their ideas into common themes. c. Follow-up (1) Did the techniques of journaling and affinity diagramming help you generate more ideas and better see the connections between ideas? If so, explain how. If not, what technique(s) would have worked better? While class experiences may vary, it is highly likely that not only are more ideas generated, but also that students can identify common themes in these ideas. (2) Note that both of these techniques explicitly encourage the behavioral aspects of decision making, especially intuition. Do you think this is appropriate when making this type of decision? Or would a more rational approach work? Class experiences may vary, but it is important to keep in mind that the decision being worked on is a person’s choice of where to live. (3) How might a manager use these techniques at work? What situations would not be appropriate for the use of these techniques? While this may take some amount of time to arrive at a decision, a manager can use the ideas of journaling and affinity diagrams at work, particularly when it comes to situations where creative decisions are required. Certain investment decisions, however, may not be right for these techniques. MANAGEMENT AT WORK THE VERDICT ON GROUPTHINK The closing case highlights the growing divide between intuition-based decision making and fact or evidence-based decision making. Malcolm Gladwell’s 2005 book Blink put intuition-based decision making into the forefront, yet many critics argue that because firms have adequate time to make most decisions, these decisions need to be carefully thought out and based upon evidence. 1. In your experience, have you found that decision-making groups tend toward groupthink? If so, what factors contributed to this tendency? If not, what factors helped to prevent it? Ask students to think of a class project that they worked on as a group. Since group projects are common in college, it is likely that everyone will have an anecdote or an experience regarding group projects and groupthink. 2. Review the steps in the rational decision-making model (especially steps 1-4). This model, of course, applies to individuals and might be difficult to apply to group decision-making situations. If, however, you were a juror, how might you apply these steps to your own deliberations? How might they give you some useful guidance? What adjustments would you have to make because of the context (a trial) and situation (a group process)? The first four steps in the rational decision-making process are recognizing and defining the decision situation, identifying alternatives, evaluating alternatives, and selecting the best alternatives. Adjustments have to be made because of the situation to these steps because, for example, alternatives are not necessarily different courses of action here, rather, they are different explanations for what had happened in the case. Given that, the model can be applied because it calls for framing the problem, considering various alternatives and deciding the best course. 3. In what ways might bounded rationality affect a juror’s approach to a decision? How about satisficing? Intuition? Ethics? Of course, this could very well depend on the gravity of the case, such as one where a traffic accident caused minor injuries to the plaintiff versus one that involves death. Bounded rationality may come to play because of time pressures as well as scarcity of relevant information (that is not presented during the courtroom proceedings). Similarly, intuition and ethics of the juror may play a part. 4. A recent study found that racially mixed juries “deliberated longer, raised more facts, and conducted broader and more wide-ranging deliberations” than either all-white or all-black juries. Why do you think this is so? Do you think that “mixed” juries are more likely to avoid groupthink than racially homogeneous juries? Explain your reasoning. Since a mixed jury is made of people with different backgrounds, chances are groupthink can be avoided. The jury in the Twelve Angry Men movie was all-white males. However, a mixed jury may react differently to the problem at hand because the thinking process of the individual members may be different. YOU MAKE THE CALL The Embargo Grinds On 1. Describe the original decision made by the U.S. government to impose a trade embargo on Cuba. What conditions existed at the time, and what behavioral forces may have come into play? In 1962, three years after Fidel Castro overthrew the Bautista regime, the United States enacted an embargo against American companies doing business with Cuba. This meant that could be no trade of any kind between the two nations. The U.S. government’s actions was in response to Castro’s government appropriating American land holdings in that country. Political forces may have had a big say in the U.S. decision. 2. In your opinion, is Thanksgiving Coffee’s Paul Katzeff doing the right thing in working against the U.S. embargo? Explain your opinion. If your answer is yes, can you think of any additional steps that Katzeff might take? Since this is an opinion question, student responses may vary. It is important for students to understand that Katzeff is not breaking any law in that he is still abiding by the embargo and not trading with Cuba. All he is doing is protesting the embargo. If students answer that Katzeff is doing the right thing, then they are likely to indicate that if his goal is to bring public awareness to the unfairness of the embargo, he could be doing a lot more. For example, he could go on TV, write articles explaining his stance, etc. 3. Speculate on behavioral forces that might affect Katzeff’s decisions. Katzeff realizes that his competitors are not playing fair. Many of them are selling non-Cuban coffee but labeling them as “Made in Cuba.” Katzeff’s decision to publicize the unfairness of the embargo may simply come from the fact that his company is at an unfair disadvantage. In addition, while rationally his stance could be costing his company time and money, perhaps his heart is with the Cuban people. 4. How might U.S. businesses best prepare themselves for a possible elimination of the embargo? What kinds of decisions do they need to be making? The fifty-plus years of the U.S. embargo has opened the doors for foreign competitors to move into Cuba. As the case points out, both Nestle and Unilever are big there. There is every likelihood that the embargo is not permanent and may be lifted in the near future. U.S. companies have to prepare to enter the Cuban market once it is opened up. They have to make decisions regarding various aspects of market entry, particularly as a late entrant. Solution Manual for Fundamentals of Management Ricky W. Griffin 9781285849041, 9780357039168