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This Document Contains Chapters 7 to 9 Chapter 7 Strategic Management: Planning for Long-Term Success CHAPTER OBJECTIVES • Define the term strategic management, and explain its relationship to strategic planning, implementation, and control. • Explain the concept of synergy, and identify four kinds of synergy. • Describe Porter’s model of generic competitive strategies. • Identify and explain the major contribution the business ecosystems model makes to strategic thinking. • Identify seven basic Internet business models and discuss the strategic significance of social media. • Identify and describe the four steps in the strategic management process. • Explain the nature and purpose of a SWOT analysis. • Describe the three types of forecasts. OPENING CASE The Changing Workplace: Looking Backward is a Losing Strategy in the Age of New Media This chapter focuses on strategic management and planning for long-term success. As the opening cases reveals, an important ingredient for long-term success is strategic agility. Companies that have a plan that provides for opportunity recognition, flexibility and the ability to fulfill the organization’s mission and vision while leveraging new opportunities will ultimately achieve long-term success. Companies that embrace uncertainty and change will have a competitive advantage. As we learned from the three television networks that did not recognize and embrace how consumers were changing their viewing habits. As a result, the cable networks (who did understand viewer preferences) quickly moved in on the big three’s revenue from advertising. Technology combined with savvy consumers has led to viewers doing their own programming. Watching what they want, when they want. This shift in the entertainment industry happened quickly and companies who had the foresight to leverage this new viewer mindset reaped the benefits. Pepsi for example began placing ads on cable channels early on, realizing the best way to reach their target market was by advertising on channels such as MTV where viewers fit their customer profile. The result: a big boost to Pepsi’s market share. Companies like Coca-Cola who initially refused to advertise on the new cable channels took four or five years to come to their senses investing in advertising in new media markets. Today, they are hoping technology can save the day and help them gain back some of their lost market share. Ask Students: • What role do they think lower and mid-level managers should play in strategic management? • At Pepsi, do you think it was the CEO that suggested MTV would be a good place to advertise? If not the CEO then who may have been the source of this good idea? • As management students what can we learn from situations like this? LECTURE OUTLINE Strategic management drives the effort to succeed amid constant change, uncertainty, and obstacles. Strategy is not the exclusive domain of top management. There are three reasons why staff specialists and managers at all levels need a general understanding of strategic management. 1. A strategic orientation encourages farsightedness (see Table 7.1). 2. Employees who think in strategic terms will have a better understanding of the reasoning behind top-management decisions. 3. In terms of the five strategy-making modes in Table 7.2, there is a clear trend away from the command, symbolic, and rational modes and toward the transactive and generative modes. That means that today, more middle- and lower-level managers and technical specialists are playing a direct role in both formulating and implementing long-term strategies. I. STRATEGIC MANAGEMENT = STRATEGIC PLANNING + IMPLEMENTATION + CONTROL Strategic management is the ongoing process of ensuring a competitively superior fit between an organization and its changing environment. Strategy has been defined as an integrated and externally oriented perception of how to achieve the organization’s mission. Strategic management effectively merges strategic planning, implementation, and control. II. THINKING AND ACTING STRATEGICALLY (INCLUDING INTERNET AND SOCIAL MEDIA STRATEGIES) Strategic thinking requires every employee, on a daily basis, to consider the “big picture” and to think strategically about gaining and keeping a competitive edge. A. Synergy Synergy occurs when two or more variables interact to produce an effect greater than the sum of the effects of the variables acting independently. In strategic management, managers are urged to achieve as much market, cost, technology, and management synergy as possible when making strategic decisions. 1. Market synergy occurs when one product or service fortifies the sales of one or more other products or services. 2. Cost synergy comes from using the same overhead costs to produce multiple products or from recycling waste products to create another revenue-producing area. 3. Technological synergy involves transferring technology from one application to another, thus opening up new markets. 4. Management synergy occurs when a management team is more productive because its members have complementary rather than identical skills. B. Porter’s Generic Competitive Strategies Michael Porter, a Harvard University economist, developed a model of four generic competitive strategies. Porter’s model (see Figure 7.1) combines two variables, competitive advantage and competitive scope. Competitive advantage can be achieved via low costs or differentiation. Differentiation, according to Porter, “is the ability to provide unique and superior value to the buyer in terms of product quality, special features, or after-sale service.” Competitive scope refers to the firm’s target market—is it broad or narrow? Porter’s model helps managers think strategically. The four generic strategies Porter described are listed below. • Cost Leadership Strategy • An overriding concern for keeping costs, and therefore prices, lower than those of competitors is the essence of this strategy. • Productivity improvement is a high priority for managers using this strategy. • A relatively large market share is required to accommodate this high-volume, low-profit margin strategy. • Differentiation Strategy • The product must be perceived as unique by most of its customers. • Advertising and promotion, design, branding, technology, and service are common methods of differentiating. • This strategy can yield larger profit margins than the low-cost strategy. • Cost reduction is not ignored with this strategy, but it is not the highest priority. • Cost-Focus Strategy: Gaining a competitive edge in a narrow or regional market by exerting strict control. • Focused-Differentiation Strategy: Delivering a superior product and/or service to a limited audience. A contingency management approach is necessary for determining which of Porter’s generic strategies is appropriate. Research on Porter’s model indicates a positive relationship between long-term earnings growth and a good strategy/environment fit. C. Business Ecosystems A business ecosystem is an economic community of organizations and all their stakeholders, including suppliers and customers. According to this model, organizations need to be as good at cooperating as they are at competing if they are to succeed. • A Business Ecosystem in Action Within a dominant business ecosystem, key organizations selectively cooperate and compete to achieve both their individual and their collective goals. • Needed: More Strategic Cooperation Innovation requires cooperation across broad, diverse communities of players—greater cooperation, even among the toughest of competitors. D. Strategies for the Internet and Social Media The Internet is not a fixed thing. It is a complex bundle of emerging technologies at various stages of development. It has evolved into the mobile Internet, smart phones, cloud computing, social media and augmented reality. How can businesses squeeze maximum value from the Internet and social media? • Basic Internet Business Models Relative to buying, selling, and trading things on the Internet, it is possible to fashion a strategy around one or a combination of seven basic business models (see Table 7.3). These are o Commission-based o Advertising-based o Markup-based o Production-based o Referral-based o Subscription-based o Fee-for-service-based • There is No One-Size-Fits-All Internet Strategy Harvard’s Michael Porter sees two major categories of Internet strategies: Dot-coms must develop real strategies that create economic value. Established companies, in turn, need to use the Internet to enhance the distinctiveness of their strategies. • Customer Loyalty Is Built with Reliable Brand Names and “Sticky” Web Sites Web sites doing business need to satisfy three criteria: (1) High-quality layout and graphics (2) Fast, responsive service (3) Complete and up-to-date information (4) High ranking on search engines such as Google. A trusted brand name can add to the “stickiness” of a Web site—bringing customers back again and again. • Emerging Business Models for Social Media o Second-generation web tools include Internet blogs, social networking sites such as Facebook and LinkedIn, microblogging sites such as Twitter, and photo and video sharing sites such as Fickr and YouTube. All of these are examples of user generated content. o Social media empowers users to create and distribute information. This can be both a challenge and opportunity for businesses. Companies must have a social media strategy that is not perceived as over-commercialized. o At a minimum, companies need to monitor social media and respond promptly to postings that company reputations and brands at risk. III. THE STRATEGIC MANAGEMENT PROCESS Strategic plans are formulated during an evolutionary process with identifiable steps. Figure 7.2 outlines the four major steps of the strategic management process. It is important to note that this model represents an ideal approach. Typically, a less systematic process results. A. Formulation of a Grand Strategy The grand strategy is a general explanation of how the organization’s mission is to be accomplished. This strategy is derived from a careful situational analysis of the organization and its environment. • A situational analysis is a technique for matching organizational strengths and weaknesses with environmental opportunities and threats to determine the right niche for the organization (see Figure 7.3). This is often called a SWOT analysis (SWOT stands for strengths, weaknesses, opportunities, and threats). You can perform an actual SWOT analysis in the Action Learning Exercise at the end of the chapter. • A capability profile involves identifying the organization’s strengths and weaknesses. • The strategic need for speed has become an important competitive advantage. Organizations are using reengineering to develop new and better production processes. B. Formulation of Strategic Plans In this second major step in the strategic management process, general intentions are translated into more concrete and measurable strategic plans, policies, and budget allocations. This translation is the responsibility of top management, with input from staff planning specialists and middle managers. The criteria for a good strategic plan: 1. Develop clear, results-oriented objectives in measurable terms. 2. Identify the particular activities required to accomplish the objectives. 3. Assign specific responsibility and authority to the appropriate personnel. 4. Estimate times to accomplish activities and their appropriate sequencing. 5. Determine the resources required to accomplish the activities. 6. Communicate and coordinate the above elements and complete the action plan. This process is not easy or fast. Strategic plans usually evolve over a period of months. IV. STRATEGIC IMPLEMENTATION AND CONTROL The entire strategic management process is only as strong as these two areas, which are traditionally underemphasized. A. Implementation of Strategic Plans Top managers need to do a better job of facilitating the implementation process and building middle-manager commitment. • A systematic filtering-down process: Strategic plans require further translation into successively lower-level plans. Top management can do some groundwork for this by asking four key questions. o Organizational structure. Is it compatible with the strategy? o People. Is the right combination of skills, abilities, and development in place? o Culture. Is it compatible with the strategy, or does it have to be modified or “managed around”? o Control systems. Is the necessary apparatus in place to support the plan and assess performance? Strategic plans that address these four questions have a much greater chance of successful implementation. • Building Middle-Manager Commitment o Resistance among middle managers can kill an otherwise excellent strategic management program. One primary reason for resistance is the perception (or the reality) that the plan is not in their self-interest. o Participative management (see Chapter 12) and influence tactics (see Chapter 14) can foster middle-management commitment. B. Strategic Control A formal control system is needed to keep strategic plans on track. The ultimate goal of a strategic control system is to detect and correct downstream problems in order to keep strategies updated and on target, without stifling creativity and innovation in the process. C. Corrective Action Based on Evaluation and Feedback Corrective action makes the strategic management process a dynamic cycle (refer to Figure 7.2). In the absence of prompt corrective action, problems can rapidly worsen. V. FORECASTING Forecasts may be defined as predictions, projections, or estimates of future events or conditions in the environment in which an organization operates. Forecasts vary in reliability from sophisticated statistical analyses to educated guesses. A. Types of Forecasts (Table 7.4) 1. Event outcome forecasts are predictions of the outcome of highly probable future events. 2. Event timing forecasts predict when, if ever, given events will occur. 3. Time series forecasts seek to estimate future values in a sequence of periodically recorded statistics. B. Forecasting Techniques • Informed Judgment: Judgmental forecasts are both fast and inexpensive, but their accuracy depends greatly on how well informed the strategist is. • Scenario Analysis: The preparation and study of written descriptions of alternative but equally likely future conditions. Scenarios are visions of what “could be.” o Longitudinal scenarios describe how the present is expected to evolve into the future. o Cross-sectional scenarios, the more common type, simply describe future situations at a given time. o “No surprise” strategic planning uses two to four scenarios for narrowly defined topics as focal points for developing alternative strategies. As the future unfolds, the strategy matching the most realistic scenario is used. • Surveys A forecasting technique that involves face-to-face or telephone interviews and Internet or mailed questionnaires. Surveys can provide comprehensive and fresh information. They can also be difficult to construct, time-consuming to administer and interpret, and expensive. • Trend Analysis The hypothetical extension of a past pattern of events or time series into the future. This assumption that past trends will continue into the future does not anticipate trend shifts. Each forecasting technique has limitations, so strategists are wise to use two or more methods to help validate the projections. Chapter 8 Decision Making and Creative Problem Solving CHAPTER OBJECTIVES • Specify at least five sources of decision complexity for modern managers. • Explain what a condition of risk is and what managers can do to cope with it. • Define and discuss the three decision traps: framing, escalation of commitment, and overconfidence. • Discuss why programmed and nonprogrammed decisions require different decision-making procedures, and distinguish between the two types of knowledge in knowledge management. • Explain the need for a contingency approach to group-aided decision making. • Identify and briefly describe five of the ten “mental locks” that can inhibit creativity. • List and explain the four basic steps in the creative problem-solving process. • Describe how causes of problems can be tracked down with fishbone diagrams. OPENING CASE The Changing Workplace: Boeing’s Costly Outsourcing Decision With their newest plane, the 787 Dreamliner, Boeing switched from their proven “build-to-print” system for manufacturing to a new approach. They anticipated a record setting go-to-market assembly for the 787 of just three days, one-tenth the normal time for a plane that size. With almost nine hundred orders waiting what they got instead was a program more than a year behind schedule. What was the flaw in the new approach? They designed production to integrate twelve hundred components and it arrived in thirty thousand pieces. The root of this disaster goes back to a decision to move forward with an outsourcing strategy they did not fully understand. With products that require complex integration of disparate subcomponents outsourcing does not make sense because coordination costs are high and just getting the product to work is challenging. Ask Students: • After reviewing Figure 8.1 and reading the section on Challenges for Decision Makers: what factors did Boeing fail to consider when making the decision to outsource both the design and build for the 787 Dreamliner? • If they were to advise Boeing in the future who would they suggest be part of the decision making process? LECTURE OUTLINE Decision making is the process of identifying and choosing among alternative courses of action in a manner appropriate to the demands of the situation. I. CHALLENGES FOR DECISION MAKERS In an era of accelerating change, the pace of decision making also has accelerated. A. Dealing with Complex Streams of Decisions (See Figure 8.1) 1. Multiple criteria. An example is balancing conflicting interests. 2. Intangibles. Examples include customer goodwill and employee morale. 3. Risk and uncertainty. Poor choices can prove costly. 4. Long-term implications. Major decisions generally have a ripple effect, with today’s decisions creating the need for later rounds of decisions. 5. Interdisciplinary input. Both time and complexity are increased by the need to consult technical specialists for some decisions. 6. Pooled decision making. Many people may be involved in the decision process. 7. Value judgments. People with differing backgrounds, perceptions, aspirations, and values may disagree on decisions. 8. Unintended consequences. The law of unintended consequences states that you cannot always predict the results of purposeful action—in other words, there can be a disconnect between intentions and actual results. B. Coping with Uncertainty Life is filled with uncertainties, and managers are continually asked to make the best decisions they can in spite of this. There is a negative correlation between uncertainty and the decision maker’s confidence in a decision (see Figure 8.2). The key lies not in eliminating uncertainty, because you can’t, but in learning to work within an acceptable range of uncertainty. • Certainty A condition of certainty exists when there is no doubt about the factual basis of a particular decision and its outcome can be predicted accurately. This condition is basically theoretical. • Risk A condition of risk is said to exist when a decision must be made on the basis of incomplete but reliable factual information. There are two basic types of probabilities: • Objective probabilities are derived mathematically from reliable historical data. • Subjective probabilities are estimated from past experience or judgment. • Uncertainty A condition of uncertainty exists when little or no reliable factual information is available. Still, judgmental or subjective probabilities can be estimated. In this case, decision confidence is lowest because decisions are based on educated guesses rather than on hard factual data. C. Information-Processing Styles The quality of our decisions is a direct reflection of how we process information. Researchers have identified two general information-processing styles: 1. The thinking style. Managers who rely predominantly on the thinking style tend to be logical, precise, and objective. They prefer routine and systematic assignments that require attention to detail. 2. The intuitive style. Managers who are predominantly intuitive like rapidly changing situations in which they can be creative and follow their hunches. Intuitives see things in complex patterns rather than in logically ordered bits and pieces. Many people use a combination of these two styles to process information. The thinking style is standard in more traditional organizations, but both styles can be useful in any organization. Both styles should be cultivated because they complement one another. D. Avoiding Perceptual and Behavioral Decision Traps Certain common human tendencies can erode the quality of decision making. Three well-documented ones follow: 1. Framing Error. The tendency to evaluate positively presented information favorably and negatively presented information unfavorably. 2. Escalation of Commitment. The tendency of individuals and organizations to get locked into losing courses of action because quitting is personally and socially difficult. 3. Overconfidence. Researchers have discovered that the more difficult the task, the greater the tendency for people to be overconfident. II. MAKING DECISIONS A. Making Programmed Decisions 1. Programmed decisions are those that are repetitive and routine. Managers tend to devise fixed procedures for handling these. • A decision rule is a statement that identifies the situation in which a decision is required and specifies how the decision will be made. • The decision-making process can be streamlined by allowing lower-level managers to assume responsibility for programmed decisions and freeing higher-level managers for nonprogrammed decisions. B. Making Nonprogrammed Decisions Nonprogrammed decisions are those made in complex, important, and nonroutine situations, often under new and largely unfamiliar circumstances. Six questions need to be asked prior to making a nonprogrammed decision: 1. What decision needs to be made? 2. When does it have to be made? 3. Who will decide? 4. Who will need to be consulted prior to the making of the decision? 5. Who will ratify or veto the decision? 6. Who will need to be informed of the decision? Nonprogrammed decision making calls for creative problem solving. C. A General Decision-Making Model Figure 8.4 shows an idealized, logical, and rational model of organizational decision making. The first step, scanning, answers the question “How do I know a decision should be made?” According to Chester I. Barnard, the occasions for decision originate in three distinct fields. 1. From authoritative communications from superiors 2. From cases referred for decision by subordinates 3. From cases originating in the initiative of the manager concerned D. Knowledge Management: A Tool for Improving the Quality of Decisions Knowledge management (KM) is defined as “the development of tools, processes, systems, structures, and cultures explicitly to improve the creation, sharing, and use of knowledge critical for decision making.” • Two Types of Knowledge Tacit knowledge is personal, intuitive, and undocumented information about how to skillfully perform tasks, solve problems, and make decisions. Explicit knowledge is readily sharable information because it is in verbal, textual, visual, or numerical form. • Improving the Flow of Knowledge Knowledge resides in different places and needs to be shared, as shown in Figure 8.6. The flow of constructive tacit knowledge between coworkers is a top priority. According to KM advocates, it is important to know what you know, to know what you don’t know, and know to how to find what you need to know. III. GROUP-AIDED DECISION MAKING: A CONTINGENCY PERSPECTIVE Typically, decision making is a highly social activity. A. Collaborative Computing Collaborative computing (also known as Groupware) is a catchphrase for software and hardware that helps people work better together and creates an environment for sharing information without the constraints of time and space. Unfortunately, this resource is not being implemented as effectively as it could. Most people use it simply as a communication tool. B. Group Involvement in Decisions At least five aspects of the decision-making process can be assigned to groups: 1. Analyzing the problem 2. Identifying components of the decision situation 3. Estimating components of the decision situation 4. Designing alternatives 5. Choosing an alternative C. The Problem of Dispersed Accountability Although a group decision has the advantage of shared experience and wisdom, personal accountability is lost. There are three situations in which individual accountability for a decision is necessary. • The decision will have a significant impact on the success or failure of the unit or organization. • The decision has legal ramifications. • A competitive reward is tied to a successful decision. D. Advantages and Disadvantages of Group-Aided Decision Making A manager encounters various positive and negative factors when others become part of the decision-making process. See Table 8.2 for a list of these advantages and disadvantages. E. A Contingency Approach Is Necessary Whether the group approach is better than the individual approach depends on the nature of the task, the ability of the contributors, and the form of interaction (see Figure 8.6). One researcher came to the following conclusions on the subject: • Groups tend to do quantitatively and qualitatively better than the average individual. • Exceptional individuals tend to outperform the group, particularly when the task is complex and the group is made up of relatively low-ability people. IV. MANAGERIAL CREATIVITY Nearly all managerial problem solving requires a healthy measure of creativity. A. What Is Creativity? • Creativity is the reorganization of experience into new configurations. • According to one management consultant specializing in creativity, it is a function of knowledge, imagination, and evaluation. • One writer isolated three overlapping domains of creativity: art, discovery, and humor. The discovery domain is the most relevant to management. B. Workplace Creativity: Myth and Modern Reality • Recent research has shown that creative people are not necessarily nonconformists. One theory to explain this is that it requires patience and the ability to build support to succeed with an idea. • Today’s managers are challenged to create an organizational culture and climate capable of bringing to the surface the often hidden creative talents of every employee. C. Learning to Be More Creative Creative ability can be learned, once our thoughts are released from the bonds of convention, lack of self-confidence, and narrow thinking. Creativity specialist Roger von Oech says that the following mental locks, or attitudes, tend to stifle creativity: (1) Looking for the “right” answer (2) Always trying to be logical (3) Strictly following the rules (4) Insisting on being practical (5) Avoiding ambiguity (6) Fearing and avoiding failure (7) Forgetting how to play (8) Becoming too specialized (9) Not wanting to look foolish (10) Saying “I’m not creative” The Cooperative Learning Tool (“How Creative Are You?”) at the end of this chapter on creativity is a good team activity for students. V. CREATIVE PROBLEM SOLVING Most daily problem solving is done on a haphazard, intuitive basis. In management, a more systematic problem-solving process is required for tackling difficult and unfamiliar nonprogrammed decision situations. In the context of management, problem solving is the conscious process of bringing the actual situation closer to the desired situation. Managerial problem solving consists of the four-step sequence outlined below (see also Figure 8.6). A. Identifying the Problem The most common problem-solving difficulty lies in the identification of problems. • What Is a Problem? A problem is defined as the difference between an actual state of affairs and a desired state of affairs. Managers need to define problems according to the gaps between the actual and desired situations. • Stumbling Blocks for Problem Finders There are three common stumbling blocks when identifying problems. 1. Defining the problem according to a possible solution means limiting oneself by ruling out alternative solutions in the way one states a problem. 2. Focusing on narrow, low-priority areas is less beneficial than focusing on problems that really make a difference. 3. Diagnosing problems in terms of their symptoms rather than their causes will not offer a long-term solution. Causes are variables that, because of their presence or absence from the situation, are primarily responsible for the difference between the actual and the desired conditions. • Pinpointing Causes with Fishbone Diagrams These work especially well in group problem-solving situations. (A sample fishbone diagram appears at the end of this chapter.) B. Generating Alternative Solutions This is the creative step in problem solving. Unfortunately, creativity is often shortchanged. Some techniques for stimulating individual and group creativity are • Brainstorming • Free association • Edisonian (trial-and-error) experimentation • Attribute listing • The scientific method • Creative leaps C. Selecting a Solution Due to time, financial constraints, and political considerations, best is a relative term when speaking of solutions. Alternative solutions should be screened for the “best” balance of effectiveness and efficiency, in view of relevant constraints and intangibles. Russell Ackoff, a specialist in managerial problem solving, says that three things can be done about problems. 1. Resolving the Problem This involves a course of action that is good enough to meet the minimum constraints. The term satisfice has been applied to the practice of settling for solutions that are “good enough” rather than persevering to find the best possible solution. According to Ackoff, most managers settle for resolving the problem. 2. Solving the Problem This is when the best possible solution is selected. Managers optimize when they systematically research alternative solutions through scientific observation and quantitative measurement and select the one with the best combination of benefits. 3. Dissolving the Problem This is when the situation is changed so that the problem no longer exists. Problem dissolvers are said to idealize because they actually change the nature of the system in which a problem resides. Ackoff gave the following advice: “Few if any problems … are ever permanently resolved, solved, or dissolved; every treatment of a problem generates new problems.” D. Implementing and Evaluating the Solution Time is the true test of any solution. Should the alternative selected not solve the problem, a manager can choose another alternative or go back and start over with newly discovered information. Chapter 9 Organizations: Effectiveness, Design, and Cultures CHAPTER OBJECTIVES 1. Identify and describe four characteristics common to all organizations, and distinguish between line and staff positions. 2. Describe a business organization in terms of the open-system model, and explain the 3. Describe the time dimension of organizational effectiveness. 4. Explain the concept of contingency organization design, and distinguish between mechanistic and organic organizations. 5. Identify and briefly describe the five basic departmentalization formats. 6. Describe how a highly centralized organization differs from a highly decentralized one. 7. Define the term delegation, and list at least five common barriers to delegation. 8. Explain how the traditional pyramid organization is being reshaped. 9. Describe at least three characteristics of organizational cultures, and explain the cultural significance of stories. OPENING CASE The Changing Workplace: A Culture of Truth Helps Create a Learning Organization Kent Thiry, CEO of DaVita strives to create a culture where people are free to admit they need help, admit what they don’t know, and promise to find out the answers to questions they can’t answer. He believes one of his jobs is to lead by example and he is willing to do this even if it means he has to say, “I don’t know. I’ll have to get back to you on that.” Show this level of honesty in front of 440 employees at a town hall meeting certainly exemplifies walking the talk. The next step in this cultural transformation is rewarding people who identify problems, tell the truth, and suggest solutions. Put these elements in place to develop a culture of trust, foster a learning organization and ultimately achieve long-term business success. Ask Students: • Have you ever tried to bluff your way out of a difficult situation where you thought you should know the answer so you took you best guess? How did that turn out for you? • Have you ever heard a leader or business executive say, “I don’t know. I’ll have to get back to you on that.” ? How did you perceive this person as a result of these comments? Did you think they were more trustworthy or simply unprepared and lacking knowledge? LECTURE OUTLINE Organizations are social entities that enable people to work together to achieve objectives they normally could not achieve working alone. I. ORGANIZATIONAL STRUCTURE AND EFFECTIVENESS An organization is a cooperative social system involving the coordinated efforts of two or more people pursuing a shared purpose. A. Characteristics Common to All Organizations According to Edgar Schein, a prominent organizational psychologist, all organizations share four common characteristics. 1. Coordination of Effort 2. Common Goal or Purpose 3. Division of Labor 4. Hierarchy of Authority Putting All the Pieces Together All four of the foregoing characteristics are necessary before an organization can be said to exist. B. Organization Charts An organization chart is a diagram of an organization’s official positions and formal lines of authority. These charts are a useful management tool because they are an organizational blueprint for deploying human resources (see Figure 9.1). • Vertical and Horizontal Dimensions o Vertical hierarchy establishes the chain of command, or who reports to whom. o Horizontal specialization establishes the division of labor. • Line versus Staff Positions A line and staff organization is an organization in which line managers make decisions and staff personnel provide advice and support. C. Organizations as Open Systems An open-system model encourages managers to think about the organization’s life support system (see Figure 9.2) by using the open-system premise that systems are made up of interacting subsystems. • Inputs for the organization include capital, labor, raw materials, and market information. • Outputs include goods, services, profits, and waste materials (if not recycled). • We can identify three prominent organizational subsystems: o Technical: the core of the organization o Boundary-spanning: interface functions that are directed outward toward the general environment o Managerial: serves as a bridge between the other two subsystems, controlling and directing them D. Organizational Learning According to Harvard’s David Garvin, a learning organization is one that can create, acquire, and transfer knowledge and can adapt its behavior accordingly. For a learning organization to bridge the gap between theory and practice and for managers to more skillfully manage change they must proceed through three stages (Figure 9.3): 1. Cognition (learning new concepts) 2. Behavior (developing new skills and abilities) 3. Performance (actually getting something done) For organizations to thrive (not just survive) they must have five organizational skills: 1. Solving problems 2. Experimenting 3. Learning from own experience and history 4. Learning from others 5. Transferring and implementing E. Organizational Effectiveness • No Silver Bullet According to one management scholar, “no single approach to the evaluation of effectiveness is appropriate in all circumstances or for all organizational types.” To be truly effective, today’s productive organizations need to strike a generally acceptable balance between organizational and societal goals. • A Time Dimension Organizational effectiveness can be defined as meeting organizational objectives and prevailing societal expectations in the near future, adapting and developing in the intermediate future, and surviving in the distant future. Figure 9.4 shows effectiveness criteria in the near, intermediate, and distant future. II. CONTINGENCY DESIGN Contingency design is the process of determining the degree of environmental uncertainty and adapting the organization and its subunits to the situation. The contingency approach to designing organizations boils down to two questions: 1. How much environmental uncertainty is there? (See Table 9.1) 2. What combination of structural characteristics is most appropriate? A. The Burns and Stalker Model Burns and Stalker distinguished between mechanistic and organic organizations. • Mechanistic organizations tend to be rigid in design and have strong bureaucratic qualities • Organic organizations tend to be quite flexible in structure and adaptive to change. B. Telling the Difference Table 9.2 is a good guide to the differences between the two types of organizations. C. Situational Appropriateness • Successful organizations in relatively stable and certain environments tend to be mechanistic. • Relatively organic organizations tend to be the successful ones when the environment is unstable and uncertain. D. Basic Departmentalization Formats It is through departmentalization that related jobs, activities, or processes are grouped into major organizational subunits. There are five basic types of departmentalization. • Functional Departments Functional departments categorize jobs according to the activity performed (see Figure 9.5A). A negative aspect of this is that local departmental concerns and loyalties tend to override strategic organizational concerns. • Product-Service Departments In product-service departmentalization, the product or service is the unifying theme of the department (see Figure 9.5B). This approach allows products to be managed as semiautonomous businesses. • Geographic Location Departments In organizations with nationwide or worldwide markets, geography may dictate structural format (see Figure 9.5C). This structure allows multinational companies to serve local markets better. • Customer Classification Departments This structural format centers on various customer categories (see Figure 9.5D). This approach shares a weakness with product-service and geographic location concepts: all three can create costly duplication of personnel and facilities. • Work Flow Process Departments in Reengineered Organizations Driving factors behind reengineering are lower costs, better quality, greater speed, better use of modern information technology, and improved customer satisfaction. This focus is outward, as opposed to the inward focus of functional departments. These organizations (see Figure 9.5E) are called horizontal organizations because they emphasize the smooth and speedy horizontal flow of work between two key points: identifying customer needs and satisfying the customer A. Span of Control The number of people who report directly to a manager represents that manager’s span of control. Situational factors such as those listed in Figure 9.7 are a useful starting point when determining the correct span of control. No ideal span of control exists for all kinds of work. B. Centralization and Decentralization Centralization is the relative retention of decision-making authority by top management. Decentralization is the granting of decision-making authority by management to lower-level employees. See Figure 9.8 for more insight. III. EFFECTIVE DELEGATION Delegation is the process of assigning various degrees of decision-making authority to lower-level employees. Figure 9.9 illustrates five different degrees of delegation. It is important to remember that although authority can be delegated to subordinates, ultimate responsibility cannot be passed along. A. The Advantages of Delegation By passing along well-defined tasks to lower-level people, managers can free their time for important chores such as planning and motivating. Delegation is also a helpful management training and development tool. B. Barriers to Delegation • Belief in the fallacy “If you want it done right, do it yourself” • Lack of confidence and trust in lower-level employees • Low self-confidence • Fear of being called lazy • Vague job definition • Fear of competition from those below • Reluctance to take the risks involved in depending on others • Lack of controls that provide early warning of problems with delegated duties • Poor example set by bosses who do not delegate Drucker said, “Delegation … requires that delegators follow up … to make sure that the task gets done—and done right.” IV. THE CHANGING SHAPE OF ORGANIZATIONS All of the social, political-legal, economic, and technological changes discussed in Chapter 3 threaten to make traditional organizations obsolete because they are too slow, unresponsive, uncreative, costly, and hard to manage. Today, a reorganization revolution is under way. Figure 9.10 illustrates three different ways in which the traditional pyramid organization is being reshaped. These new models embody three organizational trends: fewer layers, greater emphasis on teams, and smallness within bigness. A. Hourglass Organizations The hourglass organization consists of three layers, with the middle layer distinctly pinched. The top layer consists of strategists; at the bottom are the technical specialists and frontline producers. Managers in the middle are generalists, people comfortable dealing with complex cross-functional problems. B. Cluster Organizations In cluster organizations, teams are the primary structural unit. Multiskilled people move from team to team as projects dictate. C. Virtual Organizations • Virtual organizations are flexible networks of value-adding subcontractors, linked by the Internet and modern telecommunications technology. • From a personal perspective, life in virtual organizations is hectic as everything moves at Internet speed. Change and learning are constant. • Stress and burnout are unavoidable by-products of constant change. The growing gap between information haves and have-nots produces resentment and alienation among low-paid workers employed by factory, data-processing, and shipping subcontractors. V. ORGANIZATIONAL CULTURES Organizational culture is the collection of shared (stated or implied) beliefs, values, rituals, stories, myths, and specialized language that fosters a feeling of community among organization members. Research shows that firms with people-friendly cultures saved $6 million in human resource costs because of lower turnover rates. One anthropologist-turned-manager said that corporate culture cannot be forced upon employees by top management. It is a reality of human social organization that must be taken into account. A. Characteristics of Organizational Cultures Although cultures vary widely, they share six characteristics: 1. Collective. Cultures are social entities, requiring collective agreement and action. 2. Emotionally charged. Organizational cultures serve as a security blanket, and people will fight to protect them. 3. Historically based. Shared experiences over time build trust and loyalty. 4. Inherently symbolic. Memorable symbolic actions are the lifeblood of organizational culture. 5. Dynamic. Although cultures promote predictability, conformity, and stability, change boils below the surface. 6. Inherently fuzzy. Organizational cultures are characterized by ambiguity, contradictions, and multiple meanings. B. Forms and Consequences of Organizational Cultures Figure 9.11 lists major forms and consequences of organizational cultures. Organizational values are shared beliefs about what the organization stands for. C. The Process of Organizational Socialization Organizational socialization is the process through which outsiders are transformed into accepted insiders. • Orientations. Orientation programs are an important first step in the socialization process. Research shows that structured orientation programs lead to better retention rates and allow employees to reach full productivity two months sooner. • Storytelling. Often stories are part of the socialization process, offering “social road maps” for employees during the socialization process. In fact, stories are remembered longer than abstract facts, rules, or regulations. D. Strengthening Organizational Cultures Symptoms of a weak organizational culture include • Inward focus • Morale problems • Fragmentation/inconsistency • Ingrown subcultures • Warfare among subcultures • Subculture elitism Each of these symptoms can be a formidable barrier to organizational effectiveness. Instructor Manual for Management Robert Kreitner, Charlene Cassidy 9781111221362
