ADMS 1000 Midterm Exam Notes PDF

Chapter 1 1. In a post-pandemic/more isolated work environment, describe the factors requiring managements’ special attention Maintain Culture/Organization Culture: In an isolated work environment, the organizational culture where social norms like people's attitude and behaviors chang...

Chapter 1 1. In a post-pandemic/more isolated work environment, describe the factors requiring managements’ special attention Maintain Culture/Organization Culture: In an isolated work environment, the organizational culture where social norms like people's attitude and behaviors changed due to a change in environments. It was found that good company culture in times like the pandemic and isolation resulted from increased transparency and communication, attention to employee welfare, and strategic adaptation to environments. Foster Trust/the Issue of Trust: In an isolated work environment, trust is essential to any relationship or dynamic, and it is the belief that someone will take care of you. This is also true for worker and employer dynamics, and the key to fostering trust is for employers to have empathy and employee-centricity in their decisions. This is really important to know whether an employer treats their employees as disposable short-term assets or long-term strategic resources. Leaders can earn trust by taking care of their people’s mental health and providing support, offering flexible working policies, and childcare support. Increase Motivation and Productivity at the Workplace/the issue of Motivation and Productivity: In an isolated work environment like during a pandemic, increasing motivation and productivity at the workplace comes with employers helping their employees by offering support, like childcare to take stress off parents. Many companies started to closely monitor their employees reactions to ensure that their employees felt supported 2. Describe the functions of a manager Planning: formulating strategy to achieve organizational goals Organizing: designing work activities and assignment of tasks and authority Leading: guiding and motivating employees and communicating ideas Controlling: conflict and problem resolution and assessing progress and maintaining standards  3. Describe the roles of managers (created by Henry Mintzberg, a management scholar) Information Roles: is being a source of communication for an organization, whether it be gathering or giving out important information to other organizational members or other parties outside of the organization - Monitor: managers monitor the internal and external environments of their organization to gather information to make good decisions - Disseminators: managers spread/share information that they have gained during their roles as monitors. They ensure that their subordinates have the information they need the perform their job effectively, such as offering company expectations of performance standards and an appraisal criteria - Spokesperson: they transmit information to people outside of their area of authority (such as a CEO giving information to the government, or a marketing manager giving information to the engineering department) Interpersonal Roles: are the relationships that a manager has to have with others that arise from their formal authority base - Figurehead: is when a manager is there to do symbolic or ceremonial things, like handing out awards or giving an inspiring speech  - Leader: in this role a manager can be considered a motivator, they are a communicator and coordinator of their subordinates activities, such as conducting performance appraisals, and offering training to a new recruit - Liaison: in this role a manager’s activities could involve doing things to develop relationships with people outside of their area of authority, like getting information and talking with a different manager from a different department or a university dean’s networking relationship with the city council Decisional Roles: are managers that have to process information in order to act as decision makers - Entrepreneur: in this role managers develop new things for the organization and become a so called entrepreneur within the organization (such as a personnel manager creating a new performance appraisal system) and this is a highly valued trait among managers today - Disturbance Handlers: in this role managers deal with resolving conflicts and disputes between people, such as an uncooperative supplier - Resource Allocator: in this role managers are involved in deciding how much resources are given to departments, projects, people, etc…, such as money, equipment, personnel, and time - Negotiator: in this role managers are involved in a negotiation aspect of an organization, this could be with customers, employees, or other departments over issues that affect their department, unit or organization, this could be a manager negotiating with a supplier to speed up the supply of raw materials for a production department 4. Describe the classical approaches to management Management: The creation of management thought was significantly influenced by the Industrial Revolution, which shifted work processes from hand production to machine production. This transformation was fueled by the philosophy of laissez-faire, which was used by Adam Smith in his book, The Wealth of Nations. Laissez-faire is the principle that businesses and manufacturers should have the freedom to determine their production and sales without government interference, allowing them to pursue their own self-interest in economic dealings. The economic view of labor was the relationship where employers purchase labor from employees and employees provide the labor. Furthermore, it was shown that employees were not valued by employers and all of the power was in the hands of the employer which led to different management styles being created. Scientific Management (Fredrick Taylor 1856-1915): A. Standardizing the Work a. Observation and measurement were used to determine the most efficient method of performing a task (like the time and motion studies) b. The belief was that there was one best method for performing a job and it was the manager's job to find that one best way c. Jobs are compartmentalized (broken down into small and simple steps) d. Benefits: i. Easy and inexpensive to train workers ii. Cheap and readily available pool of labor iii. Clear rules in how to perform the job iv. Little to no room for individual decisions or judgements v. Consistent job performance B. Supervising the Workers a. Managers can only take charge of their area of expertise b. Managers’ mental work should be separated from laborers physical work c. Workers are not capable of managing themselves C. Motivating the Workers a. Money is the only factor in motivating workers b. Compensation must be closely tied to performance c. Price-rate pay was desirable (which means you get paid for the amount of work you do, and not by the hour) Administrative Management (Henry Fayol 1841-1925): focuses on the functions of a manager and how they should perform and administrative management dealt with managers at the higher levels A. Division of Work a. Breaking work down into its simplest components and assigning separate tasks to workers b. Manager’s role is to give orders and discipline workers B. Unity of Command a. Each employee reports to only one boss to avoid confusion and conflicting instructions  C. Esprit de Corps a. Team spirit and harmony should be encouraged amongst workers to generate organizational cohesiveness and unity D. Goals of the Company a. Company goals should take precedence over individual interests Bureaucratic Management (Max Weber 1864-1920): strived for organizations to have clear administrative structures that employees would conform to and that their actions would be dealt with by their boss A. Rules and Procedures a. Organizations require stable and documented rules B. Hierarchy of Authority a. Organizations should have fixed positions that are ranked according to their level of power C. Division of Labor a. Simplifying the job will achieve greater efficiencies D. Impersonality a. Rules and procedures, not personal agendas, govern behavior; the individual and organization are professional, not personal E. Selection and Promotion a. Hiring will be based on ability, not friendship or family ties; promotion will be based on job performance, not favoritism 5. Describe the behavioral approaches to management Behavioral Approach to Management: The behavioral approach to management focuses on the social and human aspects of organizations, emphasizing the importance of understanding human factors to achieve maximum productivity. It advocates creating an environment that addresses employees' social needs alongside their economic needs. A. The behavioral approach to management makes managers consider the following two critical features of organizations a. Organizations are designed to produce a good or service efficiently and effectively, which was a view shared by the classical approach to management  b. Consideration must be given to the fact that organizations are social systems through which individuals attempt to satisfy their personal and social needs, as well as their economic needs B. The aim of the behavioral approach to management is to consider factors that influence the motivation of employees, which is a key issue for many of today’s organizations The Human Relations Movement (Elton Mayo 1880-1949): A. When employees have some kind of special attention, productivity increased, and thus when they had attention, motivation increased B. Social factors has a greater impact on productivity than working conditions C. The Hawthorne Effect was the leading force in the human relations movement D. The Hawthorne Effect paved the way from the transition from scientific management to the human relations approach E. The human relations movement focuses on organizations as social systems, rather than formal structures, it stresses the need for managers to recognize that managing involves social interaction Mary Parker Follett (1868-1933): Follet believed that a collaborative approach to management would be most effective for organizations A. Critical factors necessary for effective management a. Coordination i. Coordination emphasizes that a manager's role is to encourage productivity through involvement and harmonization of group efforts, rather than through force or coercion. This approach requires managers to closely engage with their subordinates in daily activities, rather than simply enforcing rules. b. Self-management i. It was believed that individuals would much more prefer managing themselves than being led by a boss ii. Follet felt that decisions regarding how the work is done can often be made by those performing the work, rather than by managers, who may not be as familiar with the task c. Collaboration i. Managers and workers should view themselves as collaborators or partners ii. Follet felt that decisions regarding how the work is done can often be made by those performing the work, rather than by managers, who may not be as familiar with the task Chester Barnard (1896-1961): Barnard believed that a collaborative approach to management would be most effective for organizations A. There are 2 critical functions of managers a. To establish and maintain a communication system with employees, it was believed that organizations, as social systems, require continual communication and cooperation among all members to be effective b. Management must clearly establish the organizational objectives and ensure that all employees are motivated to help attain them, in terms of authority it was believed that authority of management over subordinates must be earned i. Workers will only follow orders to the extent that 1. They understand what it required 2. They see how they relate to organizational goals 3. They believe that they will gain some benefit from accomplishing these goals Modern Behavioural Science and Motivation-Based Perspectives: A. Studied the systematic study of the human element of organizations B. A theme with the Modern Behavioural Science and Motivation-Based Perspectives is the issue of motivation, and that rather than considering the primary role of management to be on of control (the classical approach), these theories consider the role of management as one that must foster a motivated workforce 6. Describe the findings of the Hawthorne studies A. When people have some kind of special attention, their productivity and motivation increased due to them having attention B. The Hawthorne Effect proved that social factors had a greater impact on productivity than working conditions C. When people know they are being watched they will perform better and have an increased productivity and it was due to social factors, rather than working conditions 7. Describe how you would select management approach To determine a management approach you have to consider organizational size, routineness of task and technology, environmental uncertainty and individual differences  8. Why do you think Google is rated as the best employer? A. They have good leaders that help their employees set and reach their career goals, by having weekly or bi-weekly one-on-one conversations with their employees B. Google shares a schedule/agenda with their employees and they are disseminators C. Google invests in employee support, such as coaching, mentoring, and outplacement services to help keep employees motivated, which builds trust among employer and employee D. Employees are empowered by being involved in decisions and they allow them to meet with members of management to pitch their new ideas and projects, which was part of Mary Parker Follet’s self-management and collaboration factors for effective management E. Google believes that it is a leader’s role to give employees the tools to be creative and innovative and advance their goals F. Google employees are expected to follow the 70/20/10 rule, where 70% of their work week focuses on projects delegated by management, 20% of each day is to focus on new ideas related to their main projects, and 10% of their time should be focused on projects they want to pursue of their own accord, which empowers their employees (very behavioral approach) Chapter 3 1. Describe the advantages and the disadvantages of each form of ownership (sole proprietorship, partnership, corporation and cooperative) Sole Proprietorship: A. Advantages a. The owner has freedom to operate without interference from partners or shareholders and is entitled to all the profits (or losses) the business generates b. Are very simple to design and maintain from a tax and accounting perspective c. Least expensive way to establish a business d. Most appealing to small businesses, due to low associated risks B. Disadvantages a. A disadvantage of a sole proprietorship is the lack of legal distinction between the business and the owner, resulting in unlimited liability. This means the owner is personally responsible for all business debts and liabilities. If the business fails or faces legal issues, the owner's personal assets, such as their home and savings, can be seized to repay creditors. This is why businesses that involve high legal risks such as sports  equipment manufacturers or distributors of hazardous materials generally aren’t sole proprietors. b. Difficulty to raise funds and get investors to receive capital c. An individual's skill set can limit and constrain the strategic choices available to the sole proprietor d. Harder to survive in tough economic times because it is magnified for small businesses, since they may not have the financial resources necessary to make it through adversity e. When an owner dies, the business is typically terminated Partnership: I. General Partnership: A. Advantages a. If the management and entrepreneurial expertise possessed by each partner are complementary, the overall capabilities of the business can be enhanced b. By pooling financial and other resources, individual risk can be reduced c. Obtaining necessary funding can become easier in a partnership d. Easy and inexpensive to form a partnership e. Is an extension of two or more individuals who have chosen to combine their financial, managerial, and technical capabilities to form a partnership f. Governments don’t overly regulate them B. Disadvantages a. Each partner is legally entitled to act on behalf of all of the other partners b. The main downside of a general partnership is unlimited liability. Since there is no legal distinction between the partners and the business, partners may risk using their personal assets to pay off business debts if necessary. c. Each partner is held financially responsible for business decisions made by the other partner(s) d. Since partnerships are not recognized as legal entities, each partner is taxed individually e. The loss of a partner can effectively dissolve the partnership, unless it was otherwise stated for continuance in the partnership agreement II. Limited Partnership: A. Advantages a. Has the same unlimited liability as a sole proprietor  b. A partner who is limited has limited liability, which means that the maximum amount they are personally liable for is based on the amount they invested in the business c. Easy to form d. Start-up fees are low e. The government does not overly regulate limited partnerships f. Receives the same tax benefits as general partnerships g. Limited partner are able to attract investors that would not otherwise invest in a partnership h. Limited partnerships tend to have greater available capital than general partnerships do i. A limited partner does not participate in the management or daily operations of a business, allowing them to maintain a level of autonomy while ensuring that a crucial source of equity funding is secured. B. Disadvantages a. The continuation of a limited partnership is entirely dependent on the survival of its members and their willingness to continue with the business b. The income generated by a limited partnership is taxed as the personal income of its members, carrying a higher tax rate with it Corporation: A. Advantage a. Limited liability: Limited liability means that an owner's financial responsibility is restricted to the value of their shares, protecting their entire wealth in the event of corporate bankruptcy. This key feature of corporations ensures that owners are not personally liable for the business's debts or losses, as the corporation has a separate legal existence from its owners. b. Permanence: the death or departure of shareholders, directors or officers does not affect the operations of the corporation, the shares can be transferred to family members or the other entities just like any other asset c. Transferability of Ownership: Selling ownership of a corporation does not affect the operation of the business, as it only involves the sale of shares d. Access to Capital: Corporations have easier access to capital from investors, as their business is run in a corporate structure B. Disadvantage a. High costs associated with forming a corporation  b. Corporations must comply with numerous legal requirements and government regulations that do not apply to other business structures. Failing to meet these regulations can lead to the cancellation of the corporation's charter. c. Corporations are required to maintain extensive records detailing their operations and financial status d. A corporation is required to produce documentation completely disclosing all of its affairs before it can issue shares to the public or have its shares traded on any stock exchange e. The issue of governance, which means that corporate governance is the system of rules, practices, and processes by which a company is directed and controlled, it involves balancing the interests of the many different stakeholders/shareholders Cooperative: A. Advantages a. They are owned, controlled and operated by its members for their benefit b. Members have an equal say in what happens in the company’s operations c. Profit is shared based on the extent to how much each member has contributed to running the business d. Limited liability of its owners e. The right to vote for every member 2. Describe the features of a cooperative A. The members are the owners: a. They have invested in and own the business as a group and therefore share the profits B. The business’s decision-making is democratic: a. Each member has one vote and therefore can equally influence the management of the business 3. Describe the principal-agent problem The agency problem arises when the interests of the shareholders (the principal) are not aligned with the interests of the managerial group (the hired agent).  4. What are the roles of the major groups involved in corporate governance A. Shareholders: they are the owners of a corporation, in most cases the number of rights(votes) a shareholder possesses is based on the number of share they own B. Board of Directors: their job is to ensure that the managers of the business always protect and pursue the interests of the owners/shareholders before any other interests C. Corporate Officers or Management: are hired by the board of directors to oversee the company's daily operations. Alongside the board, top management sets the overall policies for the organization, while middle- and lower-level managers are responsible for implementing these policies and supervising employees on a day-to-day basis. D. Employees: The term employees is used to refer only to the non-managerial employees These four groups are the legal charter, which gives a corporation the right to exist and which details the basic terms of its existence. 5. Describe the features of good governance A. Accountability: management takes responsibility for what they do and can be held accountable for their actions B. Fairness: there is consideration given to all pertinent stakeholders and the each will be treated equitably C. Transparency: Transparency in management means that information is not concealed; instead, processes and transactions are accessible to stakeholders. This involves disclosing important information to keep all stakeholders informed about management activities. D. Reliable Leadership: they are competent and trustworthy to carry out the vision and mission of the business in the best interests of all pertinent stakeholders E. Stakeholder Engagement: it requires that pertinent stakeholders are identified and engaged to ensure that management is fully knowledgeable regarding the expectations and requirements of other stakeholders Chapter 4 1. What is an organization A. Organizations are Social Entities: they are entities that have been generated and maintained by people, they involve some level of human interaction  B. Organizations Interact with the Environment: an organization receives inputs from its environment, either from people, raw materials, technology, or financial capital, all of these inputs get transformed by the organization and then becomes outputs the organization generates C. Organizations are Created to Achieve Goals: they are goal directed/ are designed to achieve some sort of goal D. Organizations Possess some sort of Structure: All organizations need some kind of structure to ensure the work is properly allocated and coordinated The idea that organizations function as living, open systems has shaped theories about their structure and design. In this view, a system consists of interdependent elements working together to achieve common goals, resulting in an entity greater than the sum of its parts. The open systems perspective highlights the significance of environmental interactions, emphasizing that organizations rely on their surrounding environment for survival and success. 2. Describe the elements of organizational structure Organizational structure has been defined as a deliberately planned network or pattern of relationships that exists among individuals in various roles or positions, which includes the formal hierarchy of authority, the distribution or grouping of work like departments, and the rule or procedures that control and coordinate behavior in the organization. A. Work Specialization (Functional or Social): it involves dividing up organizational tasks into separate jobs - there are two different kinds of specialization: functional and social - Functional specialization refers to the division of jobs into simple, repetitive tasks - Social specialization refers to the specialization of individuals, rather than the specialization of jobs, this is accomplished through the employment of professionals whose skills cannot be easily routinized B. Decision-Making Source (Centralized or Decentralized): - Centralized organizations typically require longer timeframes for decisions to be made - Decentralized organizations have their authority spread through the lower levels of the organization and doesn’t just concentrate their authority at the higher levels  C. Levels of Administration (Tall or Flat Structures): - Tall structures are ones with many levels in the hierarchy, which makes it harder to communicate messages from the top to the bottom, also the close supervision they encourage tends to discourage employee autonomy and self-management - flattening the hierarchy includes spreading the decision-making authority down to the lower levels of the organization D. Formalization (High or Low): - High level of formalization means highly standardized work, which means that there are clear rules regarding how the work should be performed E. Departmentation: the dividing or grouping of major functions or work activities into separate units a. TYPES OF DEPARTMENTATION: i. Functional Departmentation: 1. People who perform similar tasks or have similar expertise will be grouped together in one unit or department ii. Product or Divisional Departmentation: 1. People who produce similar products or services will be grouped together iii. Customer Departmentation: 1. Groups activities on the basis of common customers or types of customers iv. Geographic Departmentation: 1. Involves the grouping of work activities and resources in a way that serves customers in different geographical areas Organic and Mechanistic Organizations: they are polar extremes in structure 1. Mechanistic Organizations: maintain jobs that are narrow in scope; decision-making is centralized at the top of the organizational hierarchy, and work is conducted within highly formalized rules and procedures 2. Organic Organizations: they tend to have jobs that are enriched with more variety of tasks and responsibilities; typically, there is a team-based approach rather than a “top-down” approach to authority; control decision-making is decentralized throughout the organization, and workers are less restricted, with fewer rules and regulations.  Mechanistic Organic Work Specialization Functional Social Decision-Making Source Centralized Decentralized Levels of Administration Tall Flat Departmentation Functional Divisional Formalization High Low 3. Describe the contingencies that determine organizational structure These are the sources of influencing structure A. Strategy: an organization’s structure is intended to help achieve its organizational objectives or strategy. In other words, structure should follow strategy. B. Organizational Size: depending on the size of the organization, it can affect the type/style of structure the organization uses C. Technology: Technology essentially refers to how an organization transforms its inputs, such as financial capital and physical and human resources, into services or products. D. Environment: the main elements of an organization's environment are suppliers, customers, competitors, the government, and the general public. a. an organization's environment can be divided into two broad classes: dynamic or static environment b. Static environments experience minimal change, with no new competitors, technologies, or government regulations. In this stable context, a mechanistic structure is appropriate, as it establishes fixed rules and performance methods based on environmental needs that remain unchanged once set. c. A dynamic environment is characterized by uncertainty and frequent change, making an organic structure more suitable due to its adaptability. Competition significantly contributes to the changes within the business environment. 4. Describe the key features of virtual organizations A. Outsourcing: it involves hiring external organizations to conduct work in certain functions for the company B. Networking: it involves building connections with other people/organizations to help improve their efficiency and flexibility in meeting new consumer needs  C. Shedding Non-Core Functions: organizations can become more “virtual” by shedding some of the non-core functions of the company and outsourcing these to affiliated organizations. 5. Describe the benefits and the risks and challenges of virtual organizations A. BENEFITS OF BEING VIRTUAL: a. The Cost Savings are Significant: Virtual organizations achieve significant cost savings by outsourcing functions such as manufacturing, research and development, and sales, allowing them to concentrate on their core competencies rather than maintaining these resources in-house. b. The Virtual Organization is a Great Alternative for Entrepreneurs: they can use their networks to outsource their stuff for their business and therefore they don't have as large of a start-up cost c. Going Virtual can be a Fast way to Develop and Market New Products for a Mature Company: Relying on the expertise of partners means that no huge investment is required to enter a new product or service territory. d. Fast and Flexible are Adjective to Describe the Virtual Organization: Management is not bogged down in peripheral functions, and they can focus only on their central functions B. RISKS AND CHALLENGES OF BECOMING A VIRTUAL ORGANIZATION: a. The Biggest Sacrifice Probably is the Notion of Control: You do not employ your employees and thus you can not control them, as virtual organizations outsource other organizations b. Another Potential Disadvantage of being Virtual is the Lack of Employee Loyalty: If a organization is largely composed of temporary workers and subcontractors, who is really committed to perpetuating the goals of this company, and thus the organization might not have loyal customers/outsourcers c. A Final Significant Risk in Going Virtual is the Potential to Sacrifice Competitive Learning Opportunities: Outsourcing involves the strategic decision to let go of some aspect of the organization  Chapter 5 1. What is strategy and strategic management Strategy: the plans of actions taken by an organization to accomplish an objective Strategic Management: Strategic management involves tools that aid in developing effective strategies to create and maintain an organization’s competitive advantage. This process includes analysis, evaluation, decision-making, implementation, and re-evaluation. Ongoing strategic management is crucial for a firm's performance and survival, as it helps sustain competitive advantage, thereby enhancing overall performance and chances of survival. 2. Describe SWOT analysis The strategic logic behind the SWOT analysis is that firms that strategically use their internal strengths in exploiting environmental opportunities and neutralizing environmental threats while avoiding internal weaknesses are more likely to increase market share, sales, or profitability than other firms. The SWOT analysis can provide insights for managers into strategy formulation for the future. A. Internal a. Strengths & Weaknesses i. Managers can use the VRIO Analysis to identify what kinds of resources and capabilities their firm has to provide the firm with a sustainable competitive advantage, and what kinds of resources and capabilities represent weaknesses of the firm B. External a. Opportunities & Threats i. Can examine the trends of general environments and analyze industry structure (the five forces model) to assess opportunities and threats in the external environment 3. Describe Jay Barney’s VRIO model to identify unique capabilities or resources of a business organization To achieve high performance, managers should seek competitive advantages within their firms by assessing their resources and capabilities. The VRIO model provides a systematic approach for managers to evaluate these resources and capabilities by guiding them to ask four essential questions.  A. The Question of Value (V) a. Managers need to ask if their firms resources and capabilities add any value that will increase their ability to capture market share or enhance profitability, either through exploiting emerging opportunities or by neutralizing threats B. The Question of Rareness (R) a. Valuable resources and capabilities are crucial for a firm's survival, they must be rare and controlled by only a few firms, which provides a competitive advantage. Therefore, managers need to evaluate whether their valuable resources and capabilities are unique compared to those of their competitors. C. The Question of Imitability (I) a. Imitation reduces the rarity of a firm's resources and capabilities, so managers must consider whether their resources are difficult for competitors to imitate and how they can establish barriers to prevent such imitation. D. The Question of Organization (O) a. Managers have to consider whether their firm can be organized in an effective and efficient way, where they can exploit their valuable, rare and difficult to imitate resources and capabilities to maximize their potentials b. Organization of a firm is critical for a firm's success 4. Describe in detail Michael Porter’s five-forces model to identify external threats The five forces model provides managers with an assessment of the industry structure to help them get some sense of industry attractiveness. A. Threats of New Entrants a. New entrants can be in two basic forms: new start-ups or diversification of existing firms in other industries b. New entrants bring new competition, desire to gain market share, and substantial resources and capabilities i. This can result in prices being bid down or incumbents cost inflated, reducing profitability c. You can create barriers to deter new entrants i. Economies of Scale (ECONOMIC ADVANTAGE) 1. Economies of scale involve reducing the cost per unit of production as the number of units produced increases. For new entrants, this creates a barrier to entry because established firms benefit from lower costs, which allows them to compete more effectively on price. As a result, the threat of new entrants is diminished when incumbents leverage economies of scale. ii. Capital Requirements (ECONOMIC ADVANTAGE) 1. In certain industries such as airlines and mining, the capital required to get established is significantly higher than many others, which is why it creates a barriers to potential new entrants, where the threat reduces as the level of required capital increases iii. Switching Costs (ECONOMIC ADVANTAGE) 1. Switching costs refer to the monetary or psychological expenses incurred by a buyer when changing suppliers. Low switching costs enable customers to easily switch from one firm to another, creating opportunities for new entrants to attract customers from established firms. Consequently, a decrease in switching costs increases the threat of new entrants in the market. iv. Access to Distribution Channels (ECONOMIC ADVANTAGE) 1. Accessibility to distribution channels can pose a barrier for new entrants. If established firms control most distribution channels, it becomes challenging for potential entrants to distribute their products or services, deterring their market entry. Therefore, as accessibility to distribution channels decreases, the threat of new entrants diminishes, increasing the barrier to entry. v. Cost Disadvantages Independent of Scale (INDEPENDENT OF ECONOMIC ADVANTAGES) 1. There are advantages independent of the economy, such as governmental policies, legal protection (e.g., patents and trademarks), and proprietary products. These advantages create barriers for potential new entrants, and deter their entry. B. Bargaining Power of Suppliers a. Suppliers can exert bargaining power over organizations or firms by demanding better prices or threatening to reduce the quality of purchased goods or services, this is why suppliers have direct impact on the industry's profitability, as well as the organizations/firms performance b. Two major factors contributing to suppliers power in relation to incumbents in an industry i. When suppliers hold resources the are critical to the incumbents, the suppliers are in good position to demand higher prices from them ii. When the number of suppliers available relative to the number of incumbents in an industry is low, suppliers have more power to negotiate better prices iii. These two factors can independently contribute to supplier power, but if they have both, that is when they have most power C. Bargaining Power of Customers a. Buyer power is the power held by individuals or organizations that purchase incumbents products or services, this can be by demanding lower prices or better quality products and services, or by putting incumbents against one another, these all can affect the industry profitability, as well as the organization's performance b. Factors contributing to buyer power in relation to incumbents in an industry i. Switching Costs 1. The bargaining power of buyers increases as switching costs decrease. Specifically when buyers can easily switch incumbents with little cost in terms of products or services, the incumbents will have little power over the buyers to enhance their performance ii. Undifferentiated Products 1. When incumbents provide similar products or services, they weaken their negotiating position with buyers. Undifferentiated products enable buyers to easily find alternatives among competitors, allowing them to leverage this situation to negotiate for better prices, quality, or service. As a result, the bargaining power of buyers increases. iii. Importance of Incumbents' Products to Buyers 1. when products or services incumbents offer are important or critical to buyers, the buyers’ power will be diminished.  iv. The Number of Incumbents Relative to the Number of Buyers 1. The bargaining power of buyers could be diminished when there are relatively few incumbent offering products or services the buyers need, since the buyers do not have many alternatives from which to choose D. Threats of Substitute Products or Services a. When there are better and cheaper alternatives to something, it creates a threat to other organizations and firms E. Rivalry Among Existing Firms a. Rivalry can be intensified by several interesting factors: i. Lack of Differentiation or Switching Costs 1. When products are largely undifferentiated or switching costs for customers are low, buyers tend to make choices primarily based on price and service. In such scenarios, incumbents face pressure to implement strategic actions to attract new customers or retain existing ones, aiming to improve their short-term performance. ii. Numerous or Equally Balanced Competitors 1. In industries with numerous or evenly matched competitors, the potential for maverick behavior increases, as some firms believe that they can attempt to make strategic decisions without drawing attention. This behavior intensifies rivalry among incumbents, which is most pronounced when firms are similar in size and resources. Such firms typically target the same market niches and share similar resource needs, leading to more direct competition. iii. High Exit Barriers 1. Exit barriers refer to economic, strategic, and emotional factors that keep firms competing even though they may be earning low or negative returns on their investments. Examples of exit barriers include visible fixed costs, specialized assets, escalating commitment of management, and government and social pressures. F. LIMITATIONS OF THE FIVE FORCES MODEL a. The model does not explicitly take the roles of technological change and governmental regulations into considerations, specifically it doesn't address how technological change and governmental regulations affect the power relationships between forces  b. The focus of this model is primarily on the power relationships between each force at a given time, as such it may have limited implications for future strategic decision-making c. The model assumes that all incumbents experience the same power relationship with each force. However, incumbents differ in terms of their resources and firm size, which can give them more or less power in influencing their suppliers or customers 5. Describe business and corporate level strategies with examples Business-Level Strategy: a strategy a firm chooses to compete in a given market. Each business unit in a diversified firm chooses a business-level strategy as a means of competing in individual product markets A. Cost Leadership (Generic Business Strategy) a. To achieve cost leadership it means gaining competitive advantages by reducing economic costs below those of all other competitors, this often means aggressive construction of efficient scale facilities and cost minimization b. 3 Sources of Cost Leadership i. Economies of scale, where firms can increase their production volume to reduce marginal cost ii. Learning curve economies, where firms can reduce marginal costs by improving efficiency and decreasing the number of defects in products or services iii. Low-cost access to factors of production, including access to low costs of raw materials, labor, and location c. When all 3 of these sources are used together imitation becomes more difficult, which give a firm competitive advantages d. Two major advantages associated with cost leadership: i. Being a cost leader gives a firm the highest profit margins in the industry, which allows the firm to obtain abnormal returns (at least for the short term) ii. It gives firms flexibility in response to pressures coming from the five forces of the industry environment B. Product Differentiation (Generic Business Strategy) a. it is about firms attempting to gain competitive advantages by increasing the perceived value of their products or services relative to that of other firms products or services  b. If products or services sold by two different firms are very similar and if customers believe that the first product is more valuable than the second product, then the first product has a differentiation advantage, therefore the firm with the first product may be able to charge a higher price than the other firm c. Firms that obtain competitive advantages by pursuing product differentiation are often in a good position to defend the pressure from the five forces d. Managers pursuing product differentiation must evaluate whether the value they create will be sustainable over time. To achieve abnormal returns, firms need to secure sustainable competitive advantages. Consequently, managers should focus on creating value that is rare, difficult to imitate, and not easily substituted. C. Focus (Generic Business Strategy) a. Cost leadership and product differentiation are oriented to broad markets, where as the focus strategy means to target a particular buyer group, segment of the product line, or geographic market, specifically the focus strategy rests on the premise that a firm is able to complete efficiently or effectively by targeting a particular narrow market b. A firm can earn above normal returns by adopting either a focused low cost strategy or a focused differentiation strategy Corporate-Level Strategy: is about how a firm allocates its resources in different markets to create synergy in order to achieve its organizational goals. Specifies actions taken by the firm to gain a competitive advantage by selecting and managing a group of different businesses competing in several industries and product markets A. Corporate-level strategy addresses two related challenges: a. In which businesses or markets should a firm compete in? b. How can these businesses or markets be managed so they will create synergy? c. In other words, the issues managers deal with involve determining which markets their firms should diversify into in order to create maximum synergies for them and how to achieve high performance, these are critical issues for managers in order for them to continue growing in a single market 6. Describe the types and means of diversification B. Diversification refers to a situation where a firm operates in more than one market simultaneously a. Motives for Diversification i. Diversifying into new markets, allows firms to sustain their growth and increase revenue, along with opportunities to share related activities, which in turn achieves economies of scope and then increases profitability and revenue ii. Economies of scope refers to the situation where the total costs of serving two markets, or producing the products for two markets are less than the cost for only serving them or only producing them b. Types of Diversification i. Related Diversification 1. Is when a firm expands its core businesses or markets into related businesses or markets 2. related diversification usually involves horizontal integration across different business or market domains, it enables a firm to benefit from economies of scope and enjoy greater revenues if these businesses are combined to attain higher levels of sales growth than either could independently ii. Unrelated Diversification 1. It is when a firm diversifies into a new market that is not similar to its current market domains, this kind of unrelated diversification tends to yield few synergies for a firm, given that there are few opportunities for sharing activities or leveraging resources and capabilities iii. Vertical Integration Diversification 1. It is an extension or expansion of the firm's value chain activities by integrating preceding or successive productive processes. That is, the firm incorporated more processes toward the source of the raw materials (backward integration) or toward the ultimate customers (forward integration) 2. Benefits of Vertical Integration are securing raw materials or distribution channels, protection of and control over valuable assets, and reduction of dependence on suppliers or distributors 3. Risks with Vertical Integration are it increases in additional administrative costs associated with managing a more complex set of activities c. Means to Diversify i. Internal development 1. Firms have full control of the process of diversification, and can solely capture the potential revenue and profitability 2. Two major disadvantages of Internal Development are it requires significant resource commitment and time to develop the capability unique to the new markets ii. Mergers and Acquisitions 1. merger refers to two firms merging together to create a new firm with a new identity 2. acquisition refers to a firm acquiring the majority of share of the other firm 3. Mergers and acquisitions offer firms rapid access to new resources and capabilities, enabling them to compete in new markets and increase market power or share quickly. However, like internal development, they carry the risk associated with entering new markets. Additionally, merging two firms presents unique challenges related to administrative issues and organizational culture. Poor management of the merger process can lead to high employee turnover and diminished firm performance. iii. Strategic Alliances 1. Strategic alliances refer to two or more firms or organizations working together to achieve certain common goals 2. Generally strategic alliances provide firms with quick access to new resources and capabilities contributed by alliance partners, but it can also be less costly and involve less resource commitment 3. Firms risks associated with diversification in a strategic alliance is the selection of the alliance partners, as they play a key role in the success of the alliance, though sometimes firms choose the wrong partners due to a misperception of the partner's resources and capabilities 4. There are three major forms of strategic alliances:  a. Non-Equity Alliances i. Refers to the participating of firms working together based on a contractual agreement b. Equity Alliances i. refers to when one firm has partial ownership of another, and they work together to pursue common goals c. Joint Ventures i. refers to two or more firms contributing certain resources to form an independent entity Chapter 6 1. Define decision-making. Describe programmed and non-programmed decisions, and the rational model of decision-making Decision-making: Decision-making has been defined as a conscious process of making choices among one or more alternatives with the intention of moving toward some desired state of affairs A. Two major characteristics of organizational decisions: a. How structured or unstructured is the context within which the decision must be made? b. How much risk or uncertainty is involved in the decision options? Programmed versus non-programmed decisions Programmed decisions is typical in lower level management and nonprogrammed decisions is typical in higher level management Programmed Decisions: Is when you make decisions that are based on routine, where the decisions are made repeatedly using pre-established set of alternatives Nonprogrammed Decisions: Is when you make decisions that are one-time decisions, where there are no ready-made solutions and are typically unstructured and custom made Rational Model of Decision-Making: The clear, organized, systematic, and rational approach of this model is why it is referred to as a prescriptive model of decision-making, it serves as a prescription for how organizational decision-makers SHOULD make decisions. The rational model of decision-making suggests that it is the consequences of decision options that determine the ultimate choice made. A. Identify problems and opportunities a. A manager monitors the environment, and assesses information, the aim is to identify any potential gaps that exist between the current and the desired state of affairs B. Choose the best decision style a. You need to be able to determine your choice of action for the decision, such as who will help you or what resources you need. If it is a programmed problem (like one that could occur multiple times) you can usually follow a rule of thumb or procedure to make your decision. If it is a non-programmed decision, you have to carefully consider your options and ways to properly identify appropriate solutions C. Develop alternative solutions a. When making decisions, it’s important to consider multiple solutions to a problem or opportunity, as their effectiveness depends on the specific situation. Developing a range of solutions provides options for decision-making. Whether the decision is programmed, allowing adherence to policies and procedures, or non-programmed, requiring a custom alternative, both types necessitate the creation of alternative solutions. D. Choose the best solution a. When selecting the best solution from various alternatives, it's essential to systematically compare the advantages and disadvantages of each option to determine which one maximizes benefits and aligns with your goals. This process may involve predetermined decision criteria, such as desired quality, anticipated costs and benefits, and the associated risks or uncertainties of each alternative. E. Implement the solution a. Once the best alternative solution have been chosen, you have to then implement it F. Evaluate decision outcomes a. After the solution has been implemented you have to evaluate how well it did, or if it achieved the goal or objective, was the decision wise or unwise, or if you have affected the desired state of affairs and current state of affairs. This is done so you can assess whether similar decisions or strategies should be under-taken in the future  2. Describe the assumptions in rational decision-making: bounded rationality and satisficing Assumptions of the Rational Model: A. The limited access to complete information, bounded rationality, and the behavior of satisficing suggest that we would not make the most optimized decision, but rather one that is satisfactory or acceptable for the problem or opportunity B. It assumes that you have complete knowledge of all alternatives and outcomes to the decision C. It assumes that individuals are capable of fully processing all available information, in an objective manner, in order to come to decision D. The other fundamental assumption of the model is that decision-makers will choose the best possible solution to a problem or response to an opportunity, this creates the notion that rational decision-makers will seek to maximize benefits in any decision that is made, which assumes that people will also choose the best alternative to deal with a problem a. Bounded Rationality i. The assumption that we have complete access to all information about all alternatives and outcomes, underlines the notion that we can clearly identify what the problems or opportunities we must confront ii. We are limited in our ability to fully gather and process all available information, which is reflected by the notion of bounded rationality iii. Bounded rationality is the human decision-making process in which we attempt to satisfice rather than optimize b. Satisficing i. Herbert Simon argued that decision-makers will typically not optimize their decision-making process but will instead satisfice ii. Satisficing means that once an alternative has been identified and the outcome is considered satisfactory, then the alternative will have been chosen. Thus the search for other alternatives will be stopped once the acceptable alternative is found  3. Describe prospect theory with examples Prospect theory addresses the limitations of the rational decision-making model by highlighting how decision-makers behave in situations of risk and uncertainty. It emphasizes that choices between losses and gains are influenced by how these alternatives are framed in one's mind. The theory posits a "certainty effect," where a decrease in the probability of an initially perceived inevitable event significantly impacts judgment, leading to risk-seeking behavior when framed as a loss. Conversely, decision-makers tend to be risk-averse when choices are framed as gains. Overall, prospect theory reveals that perceived losses have a greater psychological impact than perceived gains and shows that decision-making is non-rational, as choices can vary depending on how options are presented. It underscores two key insights: first, individuals are inconsistent in their choices among alternatives, sometimes acting as risk-seekers and other times as risk-avoiders; and second, decisions are influenced by the framing of options. Prospect theory suggests that humans tend to prefer certainties over probabilities. 4. Describe escalation of commitment with examples. Why do we escalate commitments Escalation of commitment: it is the tendency to continue committing more resources to a failing project mainly because the decision-maker does not want to be wrong or accept defeat. Such as if a person started a project and has invested lots of resources into the project and it doesn’t go anywhere, and so they continue to invest in it because they feel attached to it and feel that it can still work. Typical Escalation Scenarios: A. Initial decision results in loss or negative outcome B. Decision-maker commits more resources to the project C. Further losses experienced Why do we escalate commitments: There are factors that may be related to the nature of a project at hand, or are related to the general nature of the organization, and can be broadly classified as social, structural, and psychological determinants of escalation. When people have invested resources into something, either that be money, time, or energy, people feel that they shouldn’t give up and quit, because they have invested resources into it and they end up focusing on the sunk costs, which are things that have happened in the past that are irreversible. The need to consider sunk costs is based on self-justification and people shouldn’t let sunk costs affect the decision-making process, and should rather focus on the future benefits. In the prospect theory it suggests that those decision-makers who frame their choices as choices among losses are more likely to escalate commitment to a failing course of action.  A. Social and Structural Determinants a. Social Determinants: i. it means it may hold an individual to a course of action, regardless of whether the person has lost faith in the possible success of the project or the utility of its purposes b. Structural Determinants: i. this type of escalation may include a variety of economic, technical, or political obstacles to bailing out of a project, the structural features of an organization and its interaction patterns can influence how escalation situations are handled ii. Administrative inertia can create structural obstacles within organizations, particularly regarding the flow of feedback. For feedback to be effective, it must reach decision-makers; however, in bureaucratic organizations, reversing a failing decision can be challenging once implemented. Decisions may become part of entrenched institutional practices that are difficult to change. As a result, certain practices can become so normalized that even when outcomes seem unfavorable, the established approach of allowing the decision to persist may prevent any rational efforts to reconsider or reverse it. B. Psychological Determinants: a. If decision-makers feel a sense of allegiance to carry out their initial decision, they will be less likely to pull out, even in difficult times, this is because of the notion of saving face, which means maintaining public confidence in one's ability as an effective decision-maker. This all suggests the need for self-justification: convincing oneself of the wisdom of one's choice even in the face of contradictory evidence 5. How can we avoid decision fiascos Avoiding Strategic Decision-Making Fiascos: A. Don't Ignore Negative Feedback a. Decision-makers need to be aware of the human and societal biases that may encourage escalations, and this demands a greater sensitivity toward recognizing the presence of negative feedback as warning signs that can aid in problem recognition b. It's not unusual that someone will convince themself that a project will succeed and that success is just around the corner, this demands that decision-makers continually seek to improve perceptual accuracy in decisions and this may involve increasing  awareness of cognitive biases and personal values, and questioning the mental model assumptions c. when making decisions we need to do multiple framing, which means we need to see the problem and its alternatives in different lights, to ensure we are not being influenced by how are options are framed B. Hire an External Auditor to Provide a More Objective Assessment a. Given that personal biases play a role in making decisions, having an outside party evaluate and gather evidence as to is your decision is advisable or completely wrong C. Don't Be Afraid to Withhold Further Funding a. another way to aid in the withdrawal from a failing course of action is to discontinue the transfer of resources into that action b. Decision-makers need to develop systematic procedures for any problem according to the rational model, and that the outcomes of our decisions need to be monitored c. To avoid escalation of commitment, researchers have suggested that the organization have some kind of stop-loss routine, whereby the decision to abort a project, for example is automatic beyond a certain point, rather than relying wholly on the decision-maker to choose the point at which he or she will pull out of the project D. Don't Obsess Over Managing Impressions a. The notion of face saving is a major influence on escalation, as for most people maintaining a favorable public image is preferred b. Business decision-makers would be more likely to extricate (means to free someone or something from a constraint or difficulty) themselves from failing courses of action when conditions permit them to manage impressions and save face in the process c. If impressions of the decision-maker interfere with rational judgements, then it may be productive to separate the decision-maker from the decision-monitor or implementer, this would avoid the potential pitfall of wanting to keep alive one's own pet project, or save face 6. How can we prevent failing to change strategic direction: distinguish between single-loop and double-loop learning and describe paradigm shift and think outside cognitive scripts A Change in Strategic Direction Requires Double-Loop Learning A. Organizational learning represents the collective experience of individuals within the organization and comes about when organizational procedures change as a result of what has been learned.  B. In a sense, organizational learning has been defined as the detection and correction of error C. Organizations can learn through individuals acting as agents in an effort to critically examine the methods and functioning of their organization There are two types of learning: single-loop learning, and double-loop learning, and it is double-loop learning that constitutes genuine organizational learning and which leads to significant organizational change Single-Loop Learning: - Error detection and correction - Deals with symptoms - Addresses current problems - Maintains status quo Double-Loop Learning: - Examines the underlying system - Looks at root causes - Changes status quo (goals and policies) - Promotes innovation - Identifies new problems & new solutions - Modifies policies Single-Loop Learning: Single-Loop Learning involves the correction of errors that employees may find in organizational methods of performance in order to keep the system working. This approach assumes that the organization has the right systems established by simply needing to fine-tune the present system. Individuals engaging in single-loop learning, or adaptive behavior, are essentially functioning within the boundaries or constraints of the presented problem. Single-loop behavior typically results in making incremental improvements and improving efficiency, such behavior involves at best the modification of strategies or assumptions underlying the strategies in ways that maintain the existing organizational approaches to problems. Double-Loop Learning: Double-loop learning involves individuals critically assessing whether an error or problem exists within an organization, indicating that changes to the underlying systems or assumptions are necessary. This deeper examination is essential for significant organizational change, as it leads to modifications in policies or goals. Double-loop learning challenges the status quo and promotes innovation. Participants explore the assumptions and values guiding the organization, resulting in fundamental changes to the existing system. This process not only identifies new problems but also generates new solutions, ultimately transforming current strategies and assumptions. Single-loop learning results from addressing the symptoms of a problem while double-loop learning results when individuals attempt to uncover the root causes Paradigm Shift: A paradigm shift is a major change in how people think and get things done that upends and replaces a prior paradigm. A paradigm shift can result after the accumulation of anomalies or evidence that challenges the status quo, or due to some revolutionary innovation or discovery A. The term paradigm can be considered to our set of beliefs or mental framework for understanding how the world operates B. Overcoming the resistance to change is all about being able to recognize the current paradigms that govern our behavior and shift to a new paradigm Cognitive Scripts: Cognitive scripts are unconscious mental frameworks that help individuals perform their jobs efficiently by organizing knowledge and guiding behavior in specific situations. They streamline the processing of information and shape expectations about sequences of events based on beliefs about people and circumstances. However, heavy reliance on these scripts can hinder individual change and learning, as they promote a pre-programmed approach that discourages questioning of environmental cues. This reliance can stifle confrontation and development, making it challenging for employees to adapt to new circumstances. Organizations that encourage critical evaluation of these cognitive scripts are more likely to foster a culture of adaptability and motivate employees to embrace changes in strategy. In psychology, a cognitive script is a set of behaviors and instructions that a person uses to remember how to navigate a social situation. Current Issues in Business Chapter 1 1. What does the author mean by organizational paradox? An organizational paradox is when organizations stray away from their main purpose, and at the extreme, organizations end up doing the opposite of what they were designed to do. It is the situation where a system or organization can invariably perform in ways that are precisely the opposite of what was intended.  2. What does the author mention as flaws in a system? System thinking is about seeing the bigger picture rather than focusing narrowly on one or a few simple components, it's about networks, interconnections, and interactions. The first challenge or flaw about systems is inherent to all systems, which is that the system takes on a life of its own. Creating a system is like buying a dog for a pet, it starts as a little puppy and then grows into a big dog, that requires, washes, walks, food, being housebroken, etc… it becomes like a full time job, it takes on a life of its own. Systems need attention. A second flaw is a part of one of the inherent features of systems, which is they are ultimately self-defeating, that is they oppose their own proper functioning. The third flaw is systems are not designed to adapt. Current Issues in Business Chapter 2 1. What is the strategy of the Potemkin village? The term Potemkin Village is used to describe a situation where an undesirable reality exists beneath an impressive facade, it is aimed at deceiving observers into thinking all is well when, in fact, it is not, it is used to serve as a disguise to hide the true motive of the organization. 2. Describe a few examples of this strategy. Enron created a fake trading room at their Houston Headquarters and instructed staff to pretend they were “doing deals” in order to impress Wall Street analysts during the annual shareholder meeting and was exposed for corporate corruption and accounting fraud. Enron was able to mask their dysfunction for a very long time. Another example of a Potemkin village is the FDA, they do not actually test any drugs themselves and conduct only limited research, the people who test the drugs are the manufactures, and are the ones who have been repeatedly exposed for putting profits before public health and safety. It was shown that drugs that have been funded by the pharma industry are five times more likely to report favorable results in the clinical trials as compared to comparable research funded by the government or independent sources. Current Issues in Business Chapter 3 1. Why do organizations seem to be finding it more difficult to strategize? The sense of composure that organizations used to have has been replaced by the feeling of apprehension and anxiety, which leads to companies struggling to chart their future direction, due to the pandemic causing uncertainty. Also, increasing political pressure is another factor interfering with quality decisions by organizations. This is because companies are taking on political ideologies, which complicates the decision making process, as the company may need to consider the political implications of their strategic choice. 2. Describe a few examples of strategies that didn’t work out well. An example is Volkswagen, who created government environmental regulators by installing illegal devices in its vehicles in order for it to make cars that appear environmentally friendly on emissions tests. Wells Fargo is a bank that incentivized their staff to open approximately two million fake bank accounts under customers' names in an effort to boost short-term profits. Pfizer was fined for overcharging people on life-saving epilepsy drugs. Apple faced scrutiny due to working conditions of its contracted manufacturers in China, they forced employees to work long shifts in unhealthy conditions triggering suicidal behavior in some and through negligence they injured over 100 workers by giving them poisonous chemicals to use in cleaning products.