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CHAPTER 1 Managing and the Manager’s Job CHAPTER SUMMARY Chapter 1 provides an overview of management and the manager’s job. After a brief introduction, the chapter describes the management process around which the book is organized. It then identifies and describes various kinds of managers. Next, the chapter discusses basic managerial roles and skills. After an analysis of the nature of managerial work, the chapter examines the scope of management in profit-seeking and not-for-profit organizations. In conclusion, the chapter addresses a variety of challenges facing managers today. LEARNING OBJECTIVES After covering this chapter, students should be able to: 1. Describe the nature of management, define management and managers, and characterize their importance to contemporary organizations. 2. Identify and briefly explain the four basic management functions in organizations. 3. Describe the kinds of managers found at different levels and in different areas of the organization. 4. Identify the basic managerial roles played by managers and the skills they need to be successful. 5. Discuss the science and the art of management, describe how people become managers, and summarize the scope of management in organizations. 6. Characterize the new workplace that is emerging in organizations today. The opening incident describes personality and leadership skills of Netflix co-founder and CEO, Reed Hastings. Netflix entered the movie rental industry by disrupting the (then) current model in two ways. It rented movies by mail and also had a subscription format. Netflix has had a remarkable run under reed Hastings, first upending the incumbent leader, Blockbuster, and later, successfully changing consumer behavior with respect to watching movies at home. However, as the vignette points out, Hastings hasn’t always been right with his moves. His idea of splitting Netflix into two companies, with the DVD rental business called Qwikster, resonated poorly with the company’s customers. Management Update: The New York Times reported on October 25, 2011, that Netflix ‘s shares fell 25 percent in after-hours trading the previous day in spite of reporting better than expected revenues and profits. The key reason for the plunge in stock price? For the first time in Netflix’s history, the company actually had lost subscribers in the third quarter of 2011. LECTURE OUTLINE Organizations and their managers play an important role in contemporary society. An organization is defined as a group of people working together in a structured and coordinated fashion to achieve a set of goals. Teaching Tip: Note the names of your school and several local organizations as further examples of different kinds of organizations that exist in your town. These examples will help make the material immediately relevant and realistic for your students. I. AN INTRODUCTION TO MANAGEMENT Many different definitions of management exist. This book uses a resource-based definition. Resources is defined broadly to include human, financial, physical, and information resources. Teaching Tip: Note the similarities and differences among the kinds of resources used by profit-seeking and not-for-profit organizations. For example, both an airline and a university may buy food in bulk, but they have different revenue sources to pay for that food. Group Exercise: A good icebreaking exercise for the first day of class is to have students form small groups, select two or three different kinds of organizations, and identify examples of the different kinds of resources used by those organizations. As indicated in Figure 1.1, management is a set of activities—including planning and decision making, organizing, leading, and controlling—directed at an organization’s human, financial, physical, and information resources with the aim of achieving organizational goals in an efficient and effective manner. Teaching Tip: Review the definition of management with your students and stress its connection with the overall text layout. In particular, note that each of the basic management functions—planning, organizing, leading, controlling—mentioned in the definition is covered in a major part of the book. Efficient means using resources wisely and without unnecessary waste. Effective means doing the right things successfully. A manager is someone whose primary responsibility is to carry out the management process.
In particular, a manager is someone who plans and makes decisions, organizes, leads, and controls human, financial, physical, and information resources. Teaching Tip: Again, note the relationship of the definition of a manager to the overall framework and structure of the book itself. Be sure to stress, however, that these management functions are not likely to be performed in an orderly or routine sequence. Discussion Starter: Ask students to identify other examples of managers, with an emphasis on as many different kinds of organizations and management positions as possible. The wide variety of answers that is likely to emerge can be used to stress the diversity that exists in managerial work. II. THE MANAGEMENT PROCESS The management process, as noted earlier, involves the four basic functions of planning and decision making, organizing, leading, and controlling. These functions provide the framework around which this book is organized. Cross-Reference: Note that Figure 1.2 is actually the center part of Figure 1.1, with extra annotations describing the four management functions. The interactive arrows are meant to convey a sense of continuous movement among the functions, rather than a predictable and orderly sequence. Extra Example: Jeff Bezos, CEO of, can also be used to illustrate the basic management functions. He planned the expansion of his firm into new products and markets. He designed his firm around a number of cooperative arrangements, such as Amazon’s alliances with Target, Office Depot, and Toys ‘R’ Us. As a leader, he rewards creativity and insists on efficiency. A. Planning and Decision Making: Determining Courses of Action Planning means setting an organization’s goals and deciding how best to achieve them. Decision making, a part of the planning process, involves selecting a course of action from
a set of alternatives. Teaching Tip: There are five types of themed inserts that appear throughout the text. They feature management issues related to ethics, globalization, technology, diversity, or contemporary management controversies. Cross-Reference: Note for students that Chapters 7–10 in Part III of the book discuss planning and decision making in detail. B. Organizing: Coordinating Activities and Resources Organizing is grouping activities and resources. Cross-Reference: Organizing is discussed more fully in Chapters 11–14 in Part IV. C. Leading: Motivating and Managing People Leading is the set of processes used to get people to work together to further the interests of the organization. Cross-Reference: Leading is discussed more fully in Chapters 15–19 in Part V. D. Controlling: Monitoring and Evaluating Activities Controlling means monitoring the progress of the organization as it works toward its goals. Cross-Reference: Controlling is discussed more fully in Chapters 20–22 in Part VI. III. KINDS OF MANAGERS A. Managing at Different Levels of the Organization Figure 1.3 illustrates the different kinds of managers in an organization by level and by area. 1. Top managers are the small group of executives who control the organization by setting its goals, overall strategy, and operating policies. Job titles for top managers include CEO, president, and vice president. These managers make important decisions about which activities the organization should be involved in, such as acquisitions, research and development, and expanding capacity. Management Update: CEO pay is often a controversial topic. The average CEO pay (for large, publicly owned companies in the S&P 500 Index) was $11.4 million in 2010, which was a 23 percent increase over the previous year. Critics argue that CEO pay often does not reflect corporate performance and are far more than what an average employee gets. 2. Middle managers constitute the largest group of managers in most companies. These managers hold positions such as plant manager, operations manager, and division head. They primarily put the strategies designed by top managers into action, and they supervise lower-level managers. 3. First-line managers supervise and coordinate the activities of operating employees. They often have job titles such as foreman, supervisor, and office manager. The majority of their work is direct supervision of the work of their subordinates. Teaching Tip: Use examples from your college or university to illustrate the various levels and areas of management discussed in this section. B. Managing in Different Areas of the Organization 1. Marketing managers work in areas related to the marketing function of the organization. They help to find ways to get consumers and clients to buy the organization’s products. 2. Financial managers deal primarily with an organization’s financial resources and are involved in such activities as accounting, cash management, and investments. 3. Operations managers are concerned with creating and managing the systems that create an organization’s products and services. They achieve their goals through production control, inventory control, quality control, and plant site selection and layout. 4. Human resource managers are responsible for hiring and developing employees.
They are concerned with the flow of employees into the organization (selection and recruitment), through the organization (training and development, compensation and benefits, and performance appraisal), and out of the organization (discharging). 5. Administrative managers are generalists who have some basic familiarity with all functional areas of management rather than specialized training in any one area. 6. Other kinds of managers include public relations managers, who deal with the public and media on behalf of their firm, and research and development managers, who coordinate the activities of scientists and engineers working on scientific projects. Discussion Starter: Point out for students that their major will play a large role in determining the
area of management they enter after graduation (assuming they go to work for a large organization). For example, a marketing major’s first job is likely to be a first-line management position in the marketing function, whereas a finance major will more likely start out as a first-line finance manager. IV. BASIC MANAGERIAL ROLES AND SKILLS Table 1.2 illustrates the basic managerial roles. A. Managerial Roles 1. Interpersonal roles Figurehead attends activities to represent the organization; leader encourages employees to improve productivity and shows them how to do it; and liaison coordinates the activities of two or more people, groups of people, or organizations. 2. Informational roles Monitor actively seeks information that may be of value to the organization; disseminator transmits information to others in the organization; and spokesperson transmits information about the organization to people outside the organization. Discussion Starter: In their spokesperson role, CEOs may represent their firms in advertising. A recent example is Bill Ford, CEO of Ford Motors. Ask students to discuss the pros and cons of this strategy. 3. Decisional roles Entrepreneur develops new ideas and initiates changes in the organization; disturbance handler handles problems that arise such as strikes, copyright infringements, and energy shortages; resource allocator determines who should receive the available resources and who should have access to the manager’s time; and negotiator represents the organization in a negotiation setting such as collective bargaining for a union contract or developing an agreement with a consultant. B. Managerial Skills 1. Technical skills—the skills necessary to accomplish or understand the specific kind of work being done in an organization 2. Interpersonal skills—the ability to communicate with, understand, and motivate individuals and groups 3. Conceptual skills—the ability to think in abstract terms and the mental capacity to understand the “big picture” or the overall workings of the organization and its environment Extra Example: Bill Gates, co-founder of Microsoft, has excellent conceptual skills. Indeed, his skills are often credited with keeping the software giant at the forefront of its industry. 4. Diagnostic skills—the ability to recognize the symptoms of a problem and then determine an action plan to fix it 5. Communication skills—the ability to effectively convey ideas and information to others and to effectively receive ideas and information from others 6. Decision-making skills—the ability to correctly recognize and define problems and opportunities and to then select an appropriate course of action for solving problems and capitalizing on opportunities 7. Time-management skills—the ability to prioritize work, to work efficiently, and to delegate appropriately Management Update: In recent years, there has been a renewed interest in the concept of managerial skills. There are useful skill development exercises found at the end of each chapter in this book. V. THE NATURE OF MANAGERIAL WORK Managerial work is fast paced, uncertain, and filled with interruptions and fragmented activities. The tasks performed by a manager every day are varied and intense. However, managers who are able to make good decisions in a short amount of time find a great deal of satisfaction in their jobs. Teaching Tip: If you have any students in class who are or have been managers, ask them to describe the nature of their work. A. The Science and the Art of Management 1. The science of management Some aspects of management are objective and can be approached with rationality and logic. Discussion Starter: The science of management might be analogous to the activities of developing computer hardware or playing a violin. There are specific right and wrong ways of doing things, and mistakes are easily noted. 2. The art of management Other aspects of management are subjective and are based on intuition and experience. Discussion Starter: The art of management might be analogous to the activities of writing computer software or conducting the orchestra. More intuition and “feel” are needed to complete these activities, and mistakes may be harder to pinpoint. B. Becoming a Manager Figure 1.4 indicates the sources of management skills. 1. The role of education Education plays an important part in the development of a manager. Many managers have a bachelor’s degree or an MBA; others have returned to school to participate in management development programs or intensive training in a particular area. Developing a store of knowledge about the field of management is the goal of management education. Teaching Tip: If your school or a neighboring one offers the MBA degree or has an executive MBA program, students might be interested in a summary of program requirements. Global Connection: Many universities in other countries have added business programs in recent years. Discuss how the curriculum of a business school in Europe or Japan might compare to your school’s curriculum. 2. The role of experience Experience is just as important as education. Just because a manager has a solid understanding of the field of management doesn’t mean he or she will be a successful manager. Management skills must be learned through experience. Facing the day-to-day pressures of a managerial position leads to the development of insights that cannot be learned from books. Teaching Tip: Note that most top MBA programs will not accept students directly out of an undergraduate program. Instead, they require that the student get an undergraduate degree and then work at least two years in a meaningful job before entering graduate school. C. The Scope of Management 1. Managing in Profit-Seeking Organizations Large businesses supply us with the majority of knowledge we have about management. Examples include Tenneco, Citicorp, State Farm, Sears, and General Motors. Small and start-up businesses must run as efficiently as large businesses (if not more efficiently) because they have less of a margin for error. Some small businesses grow into large businesses over time. Teaching Tip: Mention the names of large companies headquartered in your area or that hire large numbers of graduates from your school. International management has increased in importance over the years. Currently there are companies that are headquartered in the United States but sell overseas, such as General Motors and Boeing. There are also firms that are headquartered overseas and sell in the United States, such as Nestlé and Royal Dutch Shell Group. Cross-Reference: Note that international management is discussed in detail in Chapter 5. You might also note whether your school offers a separate course in international management. 2. Managing in Not-for-Profit Organizations Government organizations are supported by tax dollars, so efficiency and effectiveness is critical. Examples include the Federal Trade Commission and state highway departments. Educational organizations need to be run efficiently because the funds they are supported by, tax dollars, have been cut and severely limited in the past few years. Healthcare facilities have changed dramatically in recent years due to new forms of organization and increased financial pressure. Nontraditional organizations—organized crime, religious institutions, fraternities and sororities, households—also have a need for good management to achieve their goals. Teaching Tip: Note that some organizations may fall into more than one category. For example, a state university is both an educational organization and a government organization. Likewise, a teaching hospital is both an educational organization and a healthcare organization. Discussion Starter: Ask students to identify other nontraditional examples of management that they may have encountered. VI. THE NEW WORKPLACE A. Diversity—differences among people—is increasing in the workforce. Workforce demographic changes include increasing participation of women in the workforce and women’s increasing movement into occupations traditionally dominated by men. Another significant change is the increasing ethnic diversity of the workforce, reflecting the increasing diversity of American society. Another important trend is the increasing participation of disabled workers. B. Workplace changes not related to demographics include the “yuppie” work ethic prevalent in the 1980s, the “Generation X” ethic of the 1990s, and the as-yet-undetermined ethic of workers entering the workforce after 2000. C. Thus, managers must create an attractive environment and appropriate motivators for diverse workers, and they must be prepared to cope with continual change in their workers and in the environment. D. The new workplace also faces changes in technology and in new ways of organizing, such as virtual organizations and teams-based organization structure. Cross-Reference: Many aspects of the new workplace are covered in detail in other parts of this book. For example, diversity is covered in detail in Chapter 6. CHAPTER 2 Traditional and Contemporary Issues
and Challenges CHAPTER SUMMARY Chapter 2 summarizes the history of management and identifies the major challenges facing managers today. First, the historical context of business is discussed, then three traditional management perspectives—the classical, behavioral, and quantitative—are introduced. Contemporary perspectives, including the systems and contingency approaches, are described. The chapter concludes with a discussion of a variety of contemporary management issues and challenges. LEARNING OBJECTIVES After covering this chapter, students should be able to: 1. Justify the importance of history and theory to management, and discuss precursors to modern management theory. 2. Summarize and evaluate the classical perspective on management, including scientific and administrative management, and note its relevance to contemporary managers. 3. Summarize and evaluate the behavioral perspective on management, including the Hawthorne studies, the human relations movement, and organizational behavior, and note its relevance to contemporary managers. 4. Summarize and evaluate the quantitative perspective on management, including management science and operations management, and note its relevance to contemporary managers. 5. Discuss the systems and contingency approaches to management, and explain their potential for integrating the other areas of management. 6. Identify and describe contemporary management issues and challenges. The case describes the operations process at Steinway, the piano maker. It details the meticulous attention to craftsmanship – the company needs 12 months, 12,000 parts, 450 craftspeople, and countless hours of skilled labor to produce a grand piano – that makes Steinway’s products epitomes of quality. Discussion Starter: To what extent should managers stick to what they and their firm does best, and to what extent should they be flexible and adaptive? Does the answer depend on environmental conditions? For a lively classroom discussion, ask students to address these questions. Encourage them to use the example of Steinway and other companies. LECTURE OUTLINE I. THE ROLE OF THEORY AND HISTORY IN MANAGEMENT A. The Importance of Theory and History 1. Why theory?—A theory is simply a conceptual framework for organizing knowledge and providing a blueprint for action. Teaching Tip: Many students seem to react negatively to the concept of a “theory.” Ask for student opinions about the reasons for the popularity or lack of popularity for a particularly high-profile politician (such as the president) or other public figure (such as a sports figure or movie star). Then point out that their explanation is a theory. Go on to stress the point that theories are simply frameworks of thought and that most people hold a number of different theories. Management Update: Andrew Grove, former CEO of Intel, continued to espouse his theory of organizations until his retirement in 1990. He gave the theory credit for Intel’s continued success in the semiconductor business. Grove’s theory is that technology companies face recurring “strategic inflection points” where radical changes force firms to completely transform themselves or die. He warned that “only the paranoid survive,” meaning that firms cannot sit on their success and must adapt continuously. 2. Why history?—Contributions from past industrialists have molded the American culture, and managers can benefit from an awareness of these contributions. Discussion Question: Ask students if they have read any books about history that may help them be better managers. B. Precursors to Management Theory 1. Management in antiquity—Although the practice of management can be traced back to 3000 B.C., it was not given serious attention until the 1800s when large organizations emerged during the Industrial Revolution. Extra Example: The construction of ancient wonders such as Stonehenge, the Egyptian pyramids and the Great Wall of China would not have been possible without effective management. Global Connection: Use Figure 2.1 as a framework to underscore the fact that management history has its roots in many different cultures, countries, and eras. Global Connection: Many Japanese executives today give some of the credit for their success to a book written in 1645. The book, entitled A Book of Five Rings, was written by a samurai warrior. The book describes numerous ideas and concepts for successful competition that can be generalized to management. 2. Early management pioneers Robert Owen was one of the first managers to show respect and dignity to workers in his factory. He implemented better working conditions, raised the minimum age for child labor, reduced hours, and supplied meals. Charles Babbage applied mathematical principles to find ways to make the most efficient use of facilities and materials. He also advocated profit-sharing plans. Global Connection: Note that many of the early management pioneers were British. One reason is that the Industrial Revolution advanced in England more quickly than in most other parts of the world. Extra Example: Note that the very first introductory management textbook (Principles of Management, by George Terry) was published in 1953, over 40 years ago. Extra Example: Andrew Ure was one of the world’s first professors to teach management principles at Anderson’s College in Glasgow. II. THE CLASSICAL MANAGEMENT PERSPECTIVE A. Scientific Management Scientific management focuses on ways to improve the performance of individual workers. Frederick W. Taylor saw workers soldiering, or deliberately working beneath their potential. He designed a four-step method to overcome this problem—breaking the job into small tasks, selecting and training the best employees, monitoring to ensure compliance, then replace employees who do not show high achievement. Discussion Question: Ask students if they have ever observed soldiering. Ask them if they have ever been “guilty” of such behavior themselves. Extra Example: Frederick Taylor applied many of the concepts of scientific management to his favorite sports, lawn tennis and croquet. Discussion Question: As noted in the text, Taylor apparently falsified some of his results. In what ways, if any, does this diminish his contributions to the field of management? The Gilbreths, a husband and wife team, also helped find more efficient ways for workers to produce output. Frank Gilbreth made his most important contribution in the field of bricklaying. He changed an 18-step process into a 5-step process and increased productivity by about 200 percent. Extra Example: Another area in which Frank and Lillian Gilbreth made substantial contributions was in assisting the handicapped. In particular, they helped develop vocational training methods for assisting disabled veterans. Interestingly, Steve Martin’s movie Cheaper by the Dozen was based on the life of the Gilbreths. Henry Gantt introduced the Gantt chart, which is a way to schedule work. This type of chart is still used today. Harrington Emerson was an advocate of specialized management roles in organizations. He testified before the Interstate Commerce Commission that the railroad could save $1 million a day by using scientific management. Extra Example: Other businesses today that rely heavily on scientific management concepts include poultry processing plants and recycling centers that sort glasses, plastics, and papers into different categories. B. Administrative Management Administrative management focuses on managing the total organization. Henri Fayol was the first to identify the four management functions—planning, organizing, leading, and controlling—and he developed guidelines for managers to follow. These guidelines form fourteen principles for effective management. Discussion Starter: Ask students to discuss the relevance of each of Fayol’s principles to modern management. Cross-Reference: In addition to Fayol, many other writers over the years have attempted to develop so-called principles, rules, or guidelines for management. However, these principles have never been widely applicable. The reasons for this are discussed later in the chapter. Lyndall Urwick is best known for integrating scientific management with administrative management. Max Weber outlined the concept of bureaucracy based on a rational set of guidelines for structuring organizations in the most efficient manner. His work is the foundation of contemporary organization theory. Global Connection: Again, note the influence of foreign scholars. For example, Fayol was French, Urwick was British, and Weber was German. Cross-Reference: Weber’s work is discussed in more detail in Chapter 12. Chester Barnard wrote in a book called The Functions of the Executive about the acceptance
of authority and how managers get employees to do what they ask. C. The Classical Management Perspective Today Teaching Tip: Table 2.1 summarizes the contributions and limitations of the classical management perspective.
Contributions: (1) Laid the foundation for management theory
(2) Identified key processes, functions, and skills of managers that are still important today
(3) Made management a valid subject of scientific inquiry
Limitations: (1) Best used in simple, stable organizations
(2) Provided universal procedures that are not appropriate in all settings
(3) Most viewed employees as tools rather than as resources
III. THE BEHAVIORAL MANAGEMENT PERSPECTIVE Hugo Munsterberg applied psychological concepts to industrial settings, founding the field of industrial psychology around 1900. Global Connection: Again, note the international influence on management as evidenced by Hugo Munsterberg, a German psychologist. Another pioneer of behavioral management was Mary Parker Follett. A. The Hawthorne Studies The Hawthorne studies were held at Western Electric and sponsored by General Electric. Elton Mayo and his colleagues controlled the lighting in one room of workers but not in another. When the illumination was increased in the experimental group, productivity increased in both groups. The increase in productivity was attributed to the fact that the workers were having extra attention paid to them, maybe for the first time. Other studies found that employees will not work as fast as they can when being paid piecework wages. Instead, they will perform to the level informally set by the group in order
to be accepted by the group. These two studies, and others, led Mayo to the conclusion that individual and social processes play a major role in shaping employee attitudes and behavior
at work. Discussion Starter: Recent evidence suggests that important details about the Hawthorne studies were not reported properly. For example, all the workers in the illumination study were paid extra for participating. What, if any, implications might be drawn from this? B. The Human Relations Movement The human relations movement, which stemmed from the Hawthorne studies, is based on the idea that a manager’s concern for workers will lead to their increased satisfaction and improved performance. The movement includes the need theories of motivation, such as Maslow’s hierarchy of needs, and McGregor’s Theory X, a negative view of workers based on scientific management and Theory Y, a positive view based on behavioral approaches. Teaching Tip: Use Table 2.2 to summarize Theory X and Theory Y. Cross-Reference: Maslow’s theory is discussed in more detail in Chapter 16. C. The Emergence of Organizational Behavior The emergence of organizational behavior occurred because of the too-simplistic descriptions of work behavior by the human relationists. Organizational behavior takes a holistic view of behavior by addressing individual, group, and organizational processes. Extra Example: Many business programs today have separate courses in organizational behavior. If your school has such a course, identify its number and title for your students and briefly review its topical coverage (i.e., its course description). D. The Behavioral Management Perspective Today Teaching Tip: Table 2.3 summarizes the contributions and limitations of the behavioral management perspective.
Contributions: (1) Gave insights into interpersonal processes such as motivation and group dynamics in organizations
(2) Focused managerial attention on these processes
(3) Challenged the view of employees as tools and not resources
Limitations: (1) Prediction was difficult due to the complexity of human behavior
(2) Managers were reluctant to adopt some of the behavioral concepts
(3) Contributions were often not communicated to the practicing managers in an understandable form
IV. THE QUANTITATIVE MANAGEMENT PERSPECTIVE The quantitative management perspective focuses on decision making, economic effectiveness, mathematical models, and the use of computers. The two branches of the quantitative approach are management science and operations management. A. Management Science Management science focuses specifically on the development of mathematical models. These models help organizations try out various activities with the use of a computer. Modeling can help managers determine the best way to do things, saving money and time. B. Operations Management Operations management is an applied form of management science that helps organizations develop techniques to produce their products and services more efficiently. Extra Example: Many business programs today have separate courses in management science and/or operations management. If your school has either or both courses, identify them by number and title for your students and briefly review their topical coverage (i.e., their course descriptions). Cross-Reference: Operations management is discussed in more detail in Chapter 21. C. The Quantitative Management Perspective Today Teaching Tip: Table 2.4 summarizes the contributions and limitations of the quantitative management perspective.
Contributions: (1) Developed sophisticated quantitative techniques to assist in decision making
(2) Increased awareness of complex processes and aided in planning and control
Limitations: (1) Cannot fully explain or predict behavior of people
(2) Mathematical sophistication may come at the expense of other important skills
(3) Models may require unrealistic or unfounded assumptions
V. INTEGRATING PERSPECTIVES FOR MANAGERS Integrating perspectives, including the systems and contingency perspectives, bring together aspects of classical, behavioral, and quantitative approaches. A. The Systems Perspective A system is an interrelated set of elements functioning as a whole. Cross-Reference: Remind your students that we introduced the concept of a system in Chapter 1 and used it as a framework for our definition of management. An organization as an open system is composed of four elements: inputs (material or human resources), transformation processes (technological and managerial processes), outputs (products or services), and feedback (reactions from the environment). Group Exercise: Break students up into small groups. Have them select an organization and diagram its inputs, transformation processes, outputs, and feedback mechanisms. Open systems interact with their environment. Closed systems do not interact with their environment. Subsystems are systems within a broader system. Synergy are units that are more successful working together than working alone. Entropy is the process that leads to decline. Teaching Tip: Note the subtle but important distinction between entropy and poor management. B. The Contingency Perspective Appropriate managerial behavior depends on the elements of the situation. A universal perspective tries to identify the “one best way” to manage organizations. A contingency perspective argues that universal theories cannot be applied to organizations because each is unique. C. An Integrating Framework Managers need to include the parts from each perspective that are relevant to their situation and apply them using both the systems and contingency approaches. The basic premise of the integrative framework is that elements of the classical, behavioral, and quantitative perspectives may all be relevant. However, none is likely to provide a complete explanation. Therefore, managers need to carefully assess situations and then select those elements from each perspective that can be applied. Group Exercise: Form small groups of students. Have them identify a problem or opportunity facing a business or other organization. Then have them identify elements and ideas from the classical, behavioral, and quantitative perspectives that might be relevant. In addition, have them discuss how systems and contingency perspectives might affect the situation. VI. CONTEMPORARY MANAGEMENT ISSUES AND CHALLENGES Teaching Tip: Figure 2.5 is a useful mechanism for illustrating the time frames across which different management perspectives have evolved. A. Contemporary Applied Perspectives The Theory Z model and the concern for excellence were important seminal work in the early 1980s. More recent advancements have been made by Peter Senge, Stephen Covey, Tom Peters, Michael Porter, John Kotter, and Gary Hamel. Discussion Starter: Ask students if they have read—or even heard of—Theory Z. Since most will not, use this fact to discuss the faddish nature of many new approaches and ideas. B. Contemporary Management Challenges 1. Sluggish economy 2. Diversity 3. Technology and the Internet 4. Globalization 5. Ethics, social responsibility, and corporate governance 6. Quality 7. Shift to service economy Cross-Reference: Many of the contemporary management challenges are covered in detail in other parts of this book. For example, globalization is covered in detail in Chapter 5. CHAPTER 3 The Environment and Culture of Organizations Part II of this book is entitled THE ENVIRONMENTAL CONTEXT OF MANAGEMENT. Its fundamental purpose is to describe the environment in which organizations and managers operate. Part II consists of four chapters. Chapter 3 provides an overview of the environment of business organizations, including a discussion of organization culture. Chapters 4 through 6 deal with especially important dimensions or parts of the environment. Chapter 4 describes the ethical and social environment, Chapter 5 addresses the global environment, and Chapter 6 focuses on diversity and the multicultural environment. CHAPTER SUMMARY Chapter 3 focuses on the general environmental context of management. Note from the outline that the chapter first introduces the concept of environment, discusses external and internal environments, then focuses on organization culture. Organization-environment relationships are then described. Finally, the impact of the environment on organizational effectiveness is detailed. LEARNING OBJECTIVES After covering this chapter, students should be able to: 1. Discuss the nature of the organizational environment and identify the environments of interest to most organizations. 2. Describe the components of the general and task environments and discuss their impact on organizations. 3. Identify the components of the internal environment and discuss their impact on organizations. 4. Discuss the importance and determinants of an organization’s culture and how the culture can be managed. 5. Identify and describe how the environment affects organizations and how organizations adapt to their environment. 6. Describe the basic models of organizational effectiveness and identify contemporary examples of highly effective firms. The opening case describes why NetApp, a Sunnyvale, California-based data-management company has perennially come out high on Fortune magazine’s “100 Best Companies to Work For” list. Its organizational is a key factor in this – its open-door culture and collaborative work processes, in particular. Discussion Starter: Ask students what do they look for in an employer? Would a company such as NetApp be appealing to them? Why or why not? LECTURE OUTLINE Managers must develop and maintain a deep understanding and appreciation of the environment in which they and their organization function. I. THE ORGANIZATION’S ENVIRONMENTS The external environment is everything outside an organization that might affect it. Teaching Tip: Stress the fact that an organization’s boundaries are not always clear and precise. As a result, it may not always be clear whether a particular individual or group is part of an organization or part of its environment. The internal environment consists of conditions and forces within the organization. Discussion Question: As a follow-up, ask students whether they think alumni, campus recruiters, and bookstores are part of the university organization or part of its environment. Teaching Tip: Point out again the “fuzziness” that may exist regarding boundaries. For example, although this book treats a corporation’s owners as part of the internal environment, it could also be argued that owners are part of the external environment as well. II. THE EXTERNAL ENVIRONMENT The general environment of an organization is the set of broad dimensions and forces in its surroundings that create its overall context. The task environment of an organization consists of specific organizations or groups that are likely to affect it. A. The General Environment Group Exercise: Divide your class into small groups and have each group develop a diagram similar to Figure 3.2 for an organization in a different environment. Good examples to work with include IBM, Sears, Exxon, Domino’s Pizza, and Procter and Gamble. The general environment of a business has five dimensions: economic, technological, sociocultural, political-legal, and international. 1. The economic dimension—the overall health of the economic system in which the organization operates. Factors of interest include inflation, interest rates, unemployment, and demand. Management Update: Note that the generally strong economy of the United States through much of the 1990s and into 2000 has slowed dramatically since 2008. Companies continue to announce layoffs and closures in 2011 causing economic hardships to many communities. Extra Example: Point out to students that events in other dimensions of the general environment, such as the attacks of September 11th, have a strong impact on the economic dimension. This example highlights the interrelatedness of each of the dimensions. Extra Example: Note how economic conditions have affected your college or university. Specific points can be made regarding state revenues, alumni contributions, government grants, and endowment earnings. 2. The technological dimension—refers to the methods available for converting resources into products or services. Extra Example: Note that Kodak has been hurt by the shift to digital photography. For long, Kodak felt that its dominance in analog photography was unshakeable. As the world moved to digital, Kodak was slow to change its strategic direction caused by the shift in technology. 3. The sociocultural dimension—includes the customs, mores, values, and demographic characteristics of the society in which the organization functions. The sociocultural processes determine the products, services, and standards of conduct that society values. Extra Example: The text notes that the sociocultural dimension of the general environment affects alcohol and tobacco products. Point out the recent rise in patriotism (part of the sociocultural dimension) is affecting the sales of sports utility vehicles, G.I Joe action figures, and a host of other products. 4. The political-legal dimension—refers to government regulation of business and the relationship between business and government. Extra Example: Under the leadership of former President George W. Bush and a Republican-controlled Congress, several environmental regulations have been weakened to the benefit of firms competing in the oil and gas and chemical industries. 5. The international dimension—refers to the extent to which an organization is involved in or affected by business in other countries. Cross-Reference: International issues are discussed in more detail in Chapter 5. B. The Task Environment The task environment, as defined earlier, consists of specific organizations or groups that are likely to affect the organization. 1. Competitors—other organizations that compete for the same resources This can include rivals selling similar or substitute products, or firms competing for resources other than customer dollars. Discussion Question: Ask students to identify the primary competitors of your college or university. 2. Customers—whoever pays money to acquire an organization’s product or service Discussion Question: Ask students to identify the customers of your college or university. Should parents of students be included if they are financing their child’s education? 3. Suppliers—organizations that provide resources for other organizations Discussion Question: Ask students to identify the various suppliers that your college or university might use. 4. Regulators—units in the task environment that have the potential to control, regulate, or influence an organization’s policies and practices Two types of regulators are regulatory agencies and interest groups. Regulatory agencies are created by the government to protect the public from certain business practices or to protect organizations from one another. Examples include the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA). Extra Example: Point out to students the various regulatory agencies that most directly affect your college or university (e.g., state coordinating boards, etc.). Interest groups are groups organized by their members to attempt to influence organizations. Examples include the National Organization for Women (NOW) and Mothers Against Drunk Drivers (MADD). Discussion Question: Ask students if they can identify interest groups that specifically affect your college or university. 5. Strategic partners (also called strategic allies) are two or more companies that work together in joint ventures. Group Exercise: The group exercise included later in this chapter of the manual involves students identifying general environment dimensions for different companies. Repeat the exercise here using the same organizations but instead focus on identifying dimensions and examples of the task environment. III. THE INTERNAL ENVIRONMENT A. Owners Owners are whoever can claim property rights on an organization. In smaller businesses, the owner is likely also to be the manager. In a larger business, however, managers are more likely to be professional employees of the firm, while owners are typically shareholders. Teaching Tip: Stress for students the significance of institutional owners and investors in corporations today. Such owners and investors can exert enormous power over a corporation. B. Board of Directors A board of directors is required of organizations that are incorporated; however, many other firms have them. The board of directors is elected by the stockholders and is charged with overseeing the general management of the firm to ensure that it is being run in a way that best serves the stockholders’ interests. Extra Example: Starting in 2002, directors at Enron Corporation heard reports from auditors about the risks inherent in Enron’s aggressive and unorthodox accounting methods. The warnings were ignored by the board, and board members were blamed for the subsequent collapse of the firm. Group Exercise: Assign groups of students to a company and have them identify the members who serve on its board of directors. Are the members likely to provide an effective oversight in protecting stockholders’ interests? Why or why not? C. Employees Employee issues today include coping with increasing diversity, the use of “temp” workers, and the changing role of labor unions. Global Connection: Note that many Japanese firms used to offer guaranteed lifetime employment to some employees. In recent years, however, this practice has been abandoned by many firms. D. Physical Work Environment The physical work environment includes the facility location as well as its design and layout. The physical environment communicates an important symbolic message about the firm. Extra Example: Note that the recent trend toward home offices, telecommuting, and similar alternative work arrangements all relate to the physical work environment. IV. THE ORGANIZATION’S CULTURE Organization culture is the set of values, beliefs, behaviors, customs, and attitudes that helps an organization’s members understand what it stands for, how it does things, and what it considers important. A. The Importance of Organization Culture A strong organization culture can shape the firm’s overall effectiveness and long-term success and help employees be more productive. Extra Example: Firms with strong cultures include GE, 3M, Coca-Cola, UPS, and Wal-Mart. Discussion Starter: Ask students to discuss the culture that exists in your college or university. B. Determinants of Organization Culture Culture develops and blossoms over a long period of time. It often starts with the organization’s founder; however, corporate success and shared experiences also shape organization culture. Extra Example: Founder and CEO Michael Dell has made a strong imprint on Dell’s culture, which expresses the youthful enthusiasm and focus on efficiency of its leader. C. Managing Organization Culture In order to manage corporate culture, managers must first understand the current culture. If the culture is one that is in the best interests of the firm, managers can reward behavior that is consistent with the existing culture in order to reinforce it. If the culture needs to be changed, managers must know what kind of culture they want and then bring in outside people, adopt slogans, or tell stories—among other things—to achieve that goal. Cross-Reference: Note that we discuss change in Chapter 13. V. ORGANIZATION-ENVIRONMENT RELATIONSHIPS A. How Environments Affect Organizations The environment affects organizations in many different ways. 1. Environmental change and complexity—The level of change—a great amount (dynamic) or a little amount (stable)—and the degree of homogeneity of the environment—simple (few elements, little segmentation) or complex (many elements, much segmentation)—combine to determine the level of uncertainty an organization faces. The least amount of environment uncertainty is found in organizations with stable, simple environments, whereas the most environmental uncertainty is found in organizational environments that are dynamic and complex. Teaching Tip: Students sometimes have trouble with the distinction between degree of change, degree of homogeneity, and uncertainty. Make an extra effort to ensure that students understand their differences before proceeding. Discussion Question: Ask students to identify other examples of organizations that fit into each cell of Thompson’s model. Discussion Question: Ask students to think about organizations that may have recently moved from one cell to another cell. That is, identify organizations that have experienced changes in their relative degree of environmental uncertainty. 2. Competitive forces a) The threat of new entrants is determined by the extent to which new competitors can easily enter the market or market segment. b) Competitive rivalry is the nature of the competitive relationship between dominant firms in the industry. c) The threat of substitute products is the extent to which alternative products or services may supplant or diminish the need for existing products or services. d) The power of buyers is the extent to which buyers of the products or services in an industry have the ability to influence the suppliers. e) The power of suppliers is the extent to which suppliers have the ability to influence potential buyers. Group Exercise: Have students working in small groups identify other examples of organizations for which the various competitive forces are especially relevant. 3. Environmental turbulence consists of changes in the organization’s environment that may or may not be expected. Crisis is the most common form of turbulence. Discussion Question: Ask students to identify recent examples of organizational crises that managers have had to confront. B. How Organizations Adapt to Their Environments Organizations are not totally at the mercy of their environments. Indeed, several options exist through which they may adapt to, or directly influence, their environments. Teaching Tip: Discuss Figure 3.5 as a summary framework for understanding how organizations adapt to their environments. Cross-Reference: Note that social responsibility is given more extensive coverage in Chapter 4. 1. Information management—collecting, monitoring, and reading the information available to the firm. There are various techniques available to manage information. Cross-Reference: Note that information management is the subject of Chapter 22. a) Boundary spanner—someone who spends much of his or her time in contact with others outside the organization. b) Environmental scanning—process of actively monitoring the environment through activities such as observation and reading. c) Information systems—electronic systems designed to gather and organize relevant information for managers and assist in summarizing that information in the form most pertinent to each manager’s needs. 2. Strategic response—realizing that something has changed and determining what action, if any, should be taken to deal with the change. Cross-Reference: Strategic response is discussed more fully in Chapter 8. 3. Mergers, acquisitions, and alliances a) A merger occurs when two or more firms combine to form a new firm. Extra Example: Other examples of mergers include the joining of Newell and Rubbermaid, and the merger of Chrysler with Daimler-Benz that created DaimlerChrysler. b) An acquisition occurs when one firm buys another but the acquired firm operates as a subsidiary of the acquiring firm. Most acquisitions are friendly. However, one type of acquisition, a hostile takeover, occurs when one firm buys another, sometimes against its will, and folds it into the buying firm’s organization. The firm that is taken over ceases to exist. c) In an alliance (also called a partnership), the firm undertakes a new venture with another firm. Global Connection: Most airlines enter into alliances with travel-related businesses overseas in order to increase their ability to serve customers traveling across borders. For example, American Airlines has relationships with British Airways, Hong-Kong-based Cathay Pacific, and Finnair, as well as with dozens of hotels, car rental agencies, and cruise lines. 4. Organization design and flexibility—how an organization designs its structure Organizations can select a tightly monitored design in a stable environment or a less tightly monitored one in a dynamic environment. Extra Example: Under the leadership of former CEO, Anne Mulcahy, Xerox changed its organization design in an effort to become more flexible and adaptive. 5. Direct influence of the environment—Firms may try to influence their environments. For example, firms can sign long-term contracts with suppliers to control prices, or acquire firms that produce their needed resources in order to ensure a continuous supply. Discussion Question: Ask students for other examples to illustrate how organizations can influence their environments. Discussion Question: Ask students to think of organizations that are more likely or less likely to be able to influence their environments. VI. THE ENVIRONMENT AND ORGANIZATIONAL EFFECTIVENESS A. Models of Organizational Effectiveness 1. The systems resource approach focuses on the extent to which the organization can acquire the resources it needs. 2. The internal processes approach deals with minimizing strain, integrating individuals and the organization, and conducting smooth and efficient operations. 3. The goal approach focuses on the degree of goal attainment by the organization. 4. The strategic constituencies approach focuses on the groups that have a stake in the organization. Teaching Tip: Use Figure 3.6 to show the process by which the four basic models of effectiveness can be integrated. Note that most organizations use all four of these approaches simultaneously. B. Examples of Organizational Effectiveness Success can be defined in many different ways, depending on which of the models of organizational effectiveness are in use. Teaching Tip: Note from Table 3.1 that different indicators of effectiveness can lead to substantially different conclusions. Group Exercise: Have teams of students update the information in Table 3.1 and discuss similarities and differences. Instructor Manual for Management Ricky W. Griffin, 9781111969714

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