Management in Organizations Chapter 1

Management in Organizations

• An organization is a group of people working together in a structured fashion to attain a set of goals.

Manager's Job

• Management involves considering available assistance, high motivational possibilities of work, and spans of management.
• Tall structures have many hierarchical levels and narrow spans of control, while flat structures have few hierarchical levels and wide spans of control.
• Downsizing is the process of reducing the layers of middle management, increasing spans of control, and shrinking the size of the work force.
• Restructuring is the process of making a major change in organization structure, often involving reducing management levels and changing components of the organization.

Organizational Environments

• The external environment includes factors such as market share, competing products, global economies, foreign affiliations, proprietary and key account advantages, price competitiveness, technological advancements, population shifts, interest rates, and pollution abatement.
• The internal environment includes factors such as relationships with suppliers or distributors, key external factors, and opportunities and threats.

Planning

• Establishing organizational goals and plans involves the overall planning process, organizational goals, and organizational plans.
• Managing innovation and change involves the nature of change and innovation, organizational life cycles, the change and innovation process, and key organizational change components.
• Decision-making involves the nature of managerial decision making, differences in decision-making situations, managers as decision-makers, overcoming barriers to effective decision making, group decision making, and the creativity factor in decision making.

Organizing

• Organizational structure involves the nature of organization structure, job design, types of departmentalization, methods of vertical coordination, and methods of horizontal coordination.
• Organization design involves designing organization structures, functional structure, divisional structure, hybrid structure, matrix structure, and weighing contingency factors.

Centralization and Decentralization

• Centralization is the extent to which power and authority are retained at the top organizational levels.
• The advantages of centralization include easier coordination, ensuring similar activities are not carried out by different units, and strong leadership.
• Decentralization is the extent to which power and authority are delegated to lower levels.
• The advantages of decentralization include easing workloads, acquiring data, and competitive benchmarking.

Porter's Five-Forces Model of Competition

• The model serves as a tool to determine whether competition within a particular industry allows a firm to achieve acceptable profits.
• The five forces are:
  • The influence of industry competition intensity
  • The threat of new entrants
  • The bargaining power of suppliers
  • The bargaining power of buyers
  • The threat of substitute products or services

Benchmarking

• Benchmarking involves identifying and adopting best practices in the industry to improve strategic competitiveness.
• The advantages of benchmarking include:
  • Incorporating best practices into your own business
  • Stimulating and motivating personnel
  • Eliminating resistance to change
  • Determining achievable costs
  • Expanding professional knowledge
• The essential elements for successful benchmarking include:
  • Aligning benchmarking with the organization's mission
  • Setting measurable objectives
  • Securing commitment from top management
  • Building a robust team
  • Directing team efforts towards the most pertinent issues
  • Selecting competitor firms whose practices merit study
  • Cultivating a culture of change within the organization

Organization Structure and Environment

• Two major issues related to the influence of environment on organization structure:
  • Mechanistic and organic characteristics
  • Differentiation and integration

Mechanistic and Organic Characteristics

• Firms operating in a stable environment tend to have mechanistic characteristics:
  • Highly centralized decision making
  • Many rules and regulations
  • Hierarchical communication channels
  • Emphasis on vertical coordination
  • Limited delegation from one level of management to the next
• Firms operating in a highly unstable and uncertain environment tend to have organic characteristics:
  • Decentralized decision making
  • Few rules and regulations
  • Both hierarchical and lateral communication channels
  • Emphasis on horizontal coordination
  • Considerable delegation from one level of management to the next

Differentiation and Integration

• Differentiation is the extent to which organization units differ from one another in terms of:
  • Behaviors and orientations of their members
  • Formal structures
• Integration is the extent to which there is collaboration among departments that need to coordinate their efforts

Strategic Management

• Definition: The art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives
• Involves:
  • Managing an organization's resources
  • Analyzing internal and external forces
  • Developing strategies to achieve its vision and mission
• Evaluating the effectiveness of implemented strategies using defined metrics
• Monitoring the business landscape and internal operations to maintain effective strategies

The External Environment

• Examining the external environment involves:
  • Compiling a list of potential advantages for a firm
  • Identifying threats to be mitigated
• Focus on key variables, not all opportunities and threats

The General Environment

• Includes external forces that do not directly affect short-term activities but may influence long-term decisions
• Examples:
  • Political and legal forces (e.g., environmental protection laws, tax regulations, import-export policies)
  • Economic forces (e.g., changes in consumer demand, market segmentation strategies)

Bargaining Power of Suppliers

• Suppliers can impact industries by:
  • Raising prices
  • Reducing product/service quality
• Supplier power is strong when:
  • Industry is dominated by a limited number of suppliers
  • Products or services are unique with no substitutes
  • Suppliers can integrate downstream and compete with current buyers

External Factor Evaluation (EFE) Matrix

• A strategic management tool used to visualize and prioritize opportunities and threats
• Steps:
  • List factors and categorize them into opportunities and threats
  • Assign weights to each factor (0-1, cumulative value = 1)
  • Rate factors (1-4, reflecting how effectively the firm's current strategies address the factor)
  • Multiply weights by ratings to calculate the weighted score for each factor
  • Total all weighted scores to derive the total weighted score for the company

Strategic Group Mapping

• An analytical tool used to show the different market or competitive positions that rival firms occupy in the industry
• A strategic group consists of a set of firms emphasizing similar strategies with similar resources
• Guidelines for constructing strategic group maps:
  • Use two variables with no correlation
  • Select variables with a big difference between them
  • Use discrete variables (e.g., sales, market share)
  • Analyze the overall industry and identify competitive characteristics that differentiate firms

Strategic Alliances

• Examples:
  • Spotify and Uber
  • MasterCard and Apple Pay
  • Chevrolet and Disney
• Benefits:
  • Drive significant revenue and growth
  • Provide a competitive edge
  • Increase brand presence
  • Address bugs and resolve issues efficiently

Organization and Management

• An organization is a systematic effort to accomplish an activity, involving two or more persons.
• Management is the process of administering the activity of an organization or division.
• To manage means to handle, be in charge of, control, and administer an activity.

Frederick Winslow Taylor and Henry Fayol

• Frederick Winslow Taylor defined management as knowing exactly what people should do and seeing that they do it in the best and cheapest way.
• Henry Fayol defined management by naming its major components: forecasting, planning, organizing, commanding, coordinating, and controlling.

Contemporary Approach to Management

• The four functions of management are planning, organizing, leading, and controlling.
• Management is the process of achieving organizational goals by engaging in these four functions.

Matrix Structure

• Advantages of matrix structure:
  • Flexible use of human resources
  • Efficient use of support systems
• Disadvantages of matrix structure:
  • High administrative costs
  • Potential confusion over authority and responsibility
  • Heightened prospects for interpersonal conflicts
  • Excessive focus on internal relations
  • Overemphasis on group decision making
  • Possible slow response to change

Contingency Factors

• The best structure for a given organization depends on contingency factors such as technology, size, and environment.
• Technology is the set of knowledge, tools, equipment, and work techniques used by an organization in delivering its product or service.
• There are two critical aspects of technology: technological complexity and technological interdependence.

Technology and Organization Structure

• Three types of technology:
  • Unit and small-batch production
  • Large-batch and mass production
  • Continuous-process production
• Each type of technology requires an appropriate organization structure.

Technological Interdependence

• Technological interdependence is the degree to which different parts of the organization must exchange information and materials in order to perform their required activities.
• Three major types of technological interdependence.

Competitive Intelligence

• Competitive intelligence is a systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’s own goals.
• Sources of strategic information:
  • Surveys and interviews
  • On-site observations
  • Defensive competitive intelligence
  • Reverse engineering
  • Government agencies
  • Searching online databases

Internal Environment Analysis

• Internal environment analysis requires gathering and assimilating information about a firm’s management, marketing, finance and accounting, production and operations, research and development, and management information systems.
• The internal analysis is conducted in parallel with the analysis of the external environment.
• Advantages of performing an internal audit:
  • Excellent occasion for improving communication
  • Provides opportunity for managers and employees to understand their roles in the organization
  • Enables the company to gain competitive advantage
  • Helps the company to have a clear view of its future strategy

Resources and Competencies

• Resources of a firm serve as inputs in the production or service process and can be categorized as tangible or intangible.
• Tangible resources are assets that are observable and quantifiable, such as financial resources, equipment, facilities, and raw materials.
• Intangible resources lack a physical presence but provide substantial benefits to the organization.

Value Chain Activities

• Value chain activities are categorized into primary and support activities.
• Primary activities:
  • Inbound logistics
  • Operations
  • Outbound logistics
  • Marketing and sales
  • Service
• Support activities:
  • Procurement
  • Technological development
• Primary activities create value, while support activities play a crucial role in providing necessary assistance for primary activities.

Organizational Structure

• A tall structure has many hierarchical levels and narrow spans of control, while a flat structure has few hierarchical levels and wide spans of control.
• Downsizing is the process of reducing the layers of middle management, increasing spans of control, and shrinking the size of the workforce.
• Restructuring is the process of making a major change in organization structure, often involving reducing management levels and changing components of the organization.

Centralization and Decentralization

• Centralization is the extent to which power and authority are retained at the top organizational levels.
• Decentralization is the extent to which power and authority are delegated to lower levels.
• Positive aspects of centralization:
  • Easier coordination of activities
  • Ensuring similar activities are not carried out by different units
  • Top managers have more experience and a broader perspective
  • Promotes strong leadership
• Positive aspects of decentralization:
  • Eases the workload of executives
  • Allows for more focus on major issues

Functional Structure

• A type of departmentalization in which positions are grouped according to their main functional area.
• Common functions include:
  • Production (operations)
  • Marketing
  • Research and development (R&D)
  • Finance
  • Accounting
  • Human resources
• Advantages of functional structure:
  • In-depth development of expertise
  • Clear career path within function
  • Efficient use of resources
  • Possible economies of scale
  • Ease of coordination within function
  • Potential technical advantage over competitors
• Disadvantages of functional structure:
  • Slow response time on multifunctional problems
  • Backlog of decisions at top of hierarchy
  • Bottlenecks due to sequential tasks
  • Restricted view of organization among employees
  • Inexact measurement of performance
  • Narrow training for potential managers

Business Level Strategies

• Strategies are formulated on different hierarchical levels within a firm:
  • Firm level: establishing fields of activities and markets
  • Business level: establishing how to compete in a business
  • Functional level: developing functional strategies to implement business strategy
• Sources of competitive advantage:
  • Unique product differentiation
  • Excelling as the industry's lowest-cost producer
  • Targeting a broad market or a specific niche market

Generic Strategies

• Cost leadership strategy:
  • Firms offer standardized goods or services
  • Produce goods or services with features that are acceptable to customers at the lowest cost
  • Targeting customers with small and medium income
• Differentiation strategy:
  • Firms offer value to customers through unique characteristics of products or services
  • Manufacturing differentiated products to satisfy specific needs of customers
  • Prices are high
  • Targeting customers with high and medium income
• Focus strategy:
  • Firms choose a focus strategy to serve the needs of a particular industry segment or niche at the exclusion of others.

Organizational Structure

• A tall structure has many hierarchical levels and narrow spans of control, while a flat structure has few hierarchical levels and wide spans of control.
• Downsizing is the process of reducing the layers of middle management, increasing the spans of control, and shrinking the size of the workforce.
• Restructuring is the process of making a major change in organization structure, often involving reducing management levels and changing components of the organization.

Centralization and Decentralization

• Centralization: power and authority are retained at the top organizational levels, promoting strong leadership and easier coordination of activities.
• Decentralization: power and authority are delegated to lower levels, easing the workloads of executives, enriching the jobs of lower-level employees, and leading to faster decision making.
• Four main factors lead to decentralization: large size, geographic dispersion, technological diversity, and environmental uncertainty.

Delegation

• Delegation is the assignment of part of a manager's work to others, along with the responsibility and authority necessary to achieve expected results.
• Responsibility: the obligation to carry out duties and achieve goals related to a position.
• Authority: the right to make decisions, carry out actions, and direct others in matters related to the duties and goals of a position.
• Accountability: the requirement to provide satisfactory reasons for significant deviations from duties or expected results.

Line and Staff Departments

• Line positions: have authority and responsibility for achieving the major goals of the organization.
• Line departments: have line authority, which is authority that follows the chain of command established by the formal hierarchy.
• Staff positions: provide specialized expertise and assistance to line positions.
• Staff departments: have functional authority, which is authority of staff departments over others in the organization in matters related directly to their respective functions.

Horizontal Coordination

• Horizontal coordination: linking of activities across departments at similar levels.
• Three major means of promoting horizontal coordination: slack resources, information systems, and lateral relations.

Functional Structure

• Functional structure: a type of departmentalization in which positions are grouped according to their main functional (or specialized) area.
• Common functions: production, marketing, research and development, finance, accounting, and human resources.
• Advantages of functional structure: in-depth development of expertise, clear career path within function, efficient use of resources, possible economies of scale, ease of coordination within function, and potential technical advantage over competitors.
• Disadvantages of functional structure: slow response time on multifunctional problems, backlog of decisions at the top of the hierarchy, bottlenecks due to sequential tasks, restricted view of organization among employees, inexact measurement of performance, and narrow training for potential managers.

Competitive Intelligence

• Competitive intelligence: collecting and analyzing information about competitors to gain a competitive advantage.
• Methods of collecting information: directly contacting the corporation, competitive benchmarking, and using AI-driven tools.
• Importance of assimilating and evaluating information, and prioritizing critical external factors that can affect the organization's success.
• Porter's Five-Forces Model of Competition: a tool to determine the impact of industry competition intensity on a firm's success, considering five forces: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products, and rivalry among existing competitors.