Managing: A Competency-Based Approach (11th Edition) - Chapter 8 PDF

Don Hellriegel Susan E. Jackson John W. Slocum, Jr. MANAGING: A COMPETENCY BASED APPROACH 11th Edition Chapter 8—Fundamentals of Decision Making Prepared by Argie Butler Texas A&M University  Learning Goals 1. Explain certainty, risk, and uncertainty and how they affect decision making 2. Describe...

Don Hellriegel Susan E. Jackson John W. Slocum, Jr. MANAGING: A COMPETENCY BASED APPROACH 11th Edition Chapter 8—Fundamentals of Decision Making Prepared by Argie Butler Texas A&M University  Learning Goals 1. Explain certainty, risk, and uncertainty and how they affect decision making 2. Describe the characteristics of routine, adaptive, and innovative decisions 3. Discuss the rational and bounded rationality models of managerial decision making 4. Explain the features of political managerial decision making Chapter 8: PowerPoint 8.1 1. 2. 3. 4. defining problems, gathering information, generating alternatives, and choosing a course of action We’ve got lots of challenges ahead of us. I spend about 75% of my time solving problems of one sort or another. The other 25% is really wonderful, though. Watching people grow, develop, achieve, and do good things and seeing the company succeed is very rewarding and lots of fun. David Hoover Chairman, CEO and President Ball Corporation Chapter 8: PowerPoint 8.2 Certainty Objective probabilities Uncertainty Risk Chapter 8: PowerPoint 8.3 (Adapted from Figure 8.1) Subjective probabilities  The condition under which individuals are: 1. fully informed about a problem, 2. alternative solutions are known, and 3. the results of each solution are known  Both the problem and alternative solutions are totally known and well defined  Exception for most managers Chapter 8: PowerPoint 8.4 What is Risk?  The condition under which individuals can: 1. 2. 3. 4. define a problem, specify the probability of certain events, identify alternative solutions, and state the probability of each solution leading to a result  Probability: the percentage of times that a specific result would occur if an individual were to make the same decision a large number of times Chapter 8: PowerPoint 8.5 What is Risk? (cont’d)  Objective probability: the likelihood that a specific result will occur, based on hard facts and numbers  Subjective probability: the likelihood that a specific result will occur, based on personal judgment Chapter 8: PowerPoint 8.6  What is Uncertainty?  Condition under which individuals do not have the necessary information to assign probabilities to the outcomes of alternative solutions  May not even be able to define the problem, much less identify alternative solutions and possible outcomes Chapter 8: PowerPoint 8.7 Examples of Possible Crises as Sources of Uncertainty and High Risk Economic Crises Physical Crises Recessions Stock market crashes Hostile takeovers Industrial accidents Supply breakdowns Product failures Natural Disasters Other crises Fires Floods Earthquakes Chapter 8: PowerPoint 8.8 (Adapted from Table 8.1) Information Crises Theft of proprietary information Tampering with company records Cyberattacks Problem Types Unusual and Innovative ambiguous Decisions Uncertainty Adaptive Decisions Routine Decisions Risk Certainty Known and well defined Solution Types (Alternative Solutions) Chapter 8: PowerPoint 8.9 (Adapted from Figure 8.2) Untried and ambiguous  Relatively common and well defined  Unusual and ambiguous  Firefighting 1. Solutions are incomplete 2. Problems recur and cascade 3. Urgency supersedes importance 4. Some problems become crises Chapter 8: PowerPoint 8.10  Standard choices made in response to relatively well-defined and common problems and alternative solutions  Typically made under certainty and objective probability  Standards often used to set the framework for making routine decisions Chapter 8: PowerPoint 8.11 Reservations Hotel Arrival Phone service will be highly The doorman (or first-contact efficient, including: answered employee) will actively greet before the fourth ring; no hold guests, smile, make eye contact, longer than 15 seconds; or, in and speak clearly in a friendly case of longer holds, callmanner Examples of backs offered, then provided decision rules in less than three minutes at Four Seasons hotels Messages and Paging Hotel Departure and resorts Phone service will be highly No guest will wait longer efficient, including: answered before the fourth ring; no longer than 15 seconds Chapter 8: PowerPoint 8.12 (Excerpts from Table 8.2) than five minutes for baggage assistance, once the bellman is called (eight minutes in resorts)  Adaptive Decisions  Choices made in response to a combination of moderately unusual problems and alternative solutions  Convergence—a business shift in which two connections with the customer that were previously viewed as competing or separate (e.g., brick-and-mortar bookstores and Internet bookstores) come to be seen as complementary  Continuous improvement—a management philosophy that approaches the challenge of product and process enhancements as an ongoing effort to increase the levels of quality and excellence Chapter 8: PowerPoint 8.13 Snapshot “Visa continuously strives against outages and defects on two broad fronts. Its physical processing operations are protected by multiple layers of redundancy and backups. The company’s IT staff continuously conducts extensive and refined software testing. We make 2,500 system changes to VisaNet per month and modify 2 million lines of code annually.” Richard Knight Senior VP for Global Operations Inovant LLC, a Visa Subsidiary Chapter 8: PowerPoint 8.14  Choices based on the discovery, identification, and diagnosis of unusual and ambiguous problems and/or the development of unique or creative alternative solutions  Three forms of innovation for economic progress: 1. Institutional innovation: includes the legal and institutional framework for business, such as deregulation 2. Technological innovation: creates the possibility of new products, services, and production methods 3. Management innovation: major changes in the way organizations are structured and how managers perform their functions Chapter 8: PowerPoint 8.15 Snapshot “You have to innovate and optimize at the same time. After all, you’re under pressure to optimize 24 hours a day, but no one is pushing you to innovate. In order for us to be able to compete over a long period of time, we give everyone in our organization all of the information needed so they can make decisions that will drive innovation throughout our company.” Jack Stack CEO Springfield ReManufacturing Corporation Chapter 8: PowerPoint 8.16  Prescribes a set of phases that individuals or teams should follow to increase the likelihood that their decisions will be logical and optimal  Rational decision: results in the maximum achievement of a goal in a situation  Usually focuses on means—how best to achieve one or more goals Chapter 8: PowerPoint 8.17 Environmental influences 1 Define and diagnose the problem 2 Set goals 3 Search for alternative solutions 4 Compare and evaluate alternative solutions 7 Follow-up and control the results 6 Implement the solution selected Environmental influences Chapter 8: PowerPoint 8.18 (Adapted from Figure 8.3) 5 Choose among alternative solutions Rational Model: Define and Diagnose the Problem  Noticing skill: identifying and monitoring numerous external and internal environmental factors and deciding which ones are contributing to the problem(s)  Interpreting skill: assessing the factors noticed and determining which are causes, not merely symptoms, of the real problem(s)  Incorporating skill: relating those interpretations to the current or desired goals  Need to ask probing questions Chapter 8: PowerPoint 8.19  Goals: results to be attained and indicate the direction toward which decisions and actions should be aimed  General goals: provide broad direction for decision making in qualitative terms  Operational goals: state what is to be achieved in quantitative terms, for whom, and within what time period  Hierarchy of goals: represents the formal linking of goals between organizational levels Chapter 8: PowerPoint 8.20 Rational Model: Search for Alternative Solutions …I think many people in a rush to make a decision do not have enough of the alternatives out in the open. So, they have two of the alternatives and say, “Okay, I’m going this way” but they didn’t think through it enough when there were possibly three or four alternatives. One of the hidden ones might have been the best, and so the issue is making sure that either all or enough of the alternatives are out in the open to allow you to make the best decision. Gary Tooker Former CEO & Chairman of Board of Directors Motorola Chapter 8: PowerPoint 8.21  Contends that the capacity of the human mind for formulating and solving complex problems is small compared with what is needed for objectively rational behavior Decision Biases Inadequate Problem Description Limited Search for Alternatives Limited Information Satisficing Chapter 8: PowerPoint 8.22 (Adapted from Figure 8.5) Bounded Rationality Model: Decision Biases Selective perception bias Gambler’s fallacy bias Chapter 8: PowerPoint 8.23 Concrete information bias Availability bias Law of small numbers bias …When someone comes to you, you often have a bias about what they are talking about. If you have been in business for 20 to 30 years, chances are you’ve been there and done that. Their idea is generally not so new or innovative as they think. You have a strong prejudice about outcomes. That is a dangerous thing. One of the things you have to do very cognitively to be a good leader is not let your biases or your filters totally cloud the message someone’s trying to deliver. Jeffrey McKeever Chairman and CEO MicroAge Chapter 8: PowerPoint 8.24  Inadequate problem definition  New problems often are viewed as being like old problems  Too much focus on symptoms as problems  Laziness  Limited search for alternatives  Options considered until one that seems adequate  Limited information  Ignorance: the lack of relevant information or the incorrect interpretation of the information that is available Chapter 8: PowerPoint 8.25 Satisficing is intended to be used in contrast to the classical economist’s idea that in making decisions in business or anywhere in real life, you somehow pick, or somebody gives you, a set of alternatives from which you select the best one— maximize. The satisficing idea is that first of all, you don’t have the alternatives, you’ve got to go out and scratch for them—and that you have mighty shaky ways of evaluating them when you do find them. So you look for alternatives until you get one from which, in terms of your experience and in terms of what you have reason to expect, you will get a reasonable result. Herbert Simon Recipient of Nobel Prize in Economics Chapter 8: PowerPoint 8.26 Bounded Rationality Model Level of Satisficing Can be Raised By: 1. Personal determination 2. Setting higher individual or organization standards (goals) 3. Use of management science and computerbased decision-making and problemsolving techniques 4. Following the seven steps in the rational model Chapter 8: PowerPoint 8.27 Multiple stakeholders with power such as: Customers Investors Employees Divergence in problem definition Divergence in goals Divergence in solutions Unions Suppliers Political decision making Regulatory Agencies Chapter 8: PowerPoint 8.28 (Adapted from Figure 8.6) Competitors Legislative Bodies  Snapshot Recognize up front the amount of time and attention to organizational politics, the informal systems and processes that influence so much about how things actually get done in an organization…Politics, by the way, is not a bad thing. Any enterprise has its own political system, if we can call it that. But, I think what makes the difference is the curiosity and the inquiry by you to learn how the political system works. Eliza Hermann Vice president for Human Resources Strategy BP PLC Chapter 8: PowerPoint 8.29 Entrepreneurship Fostering MANAGING: A COMPETENCY BASED APPROACH 11th Edition Chapter 6: Fostering Entrepreneurship Don Hellriegel Susan E. Jackson John W. Slocum, Jr. Prepared by Argie Butler Texas A&M University Entrepreneurship Fostering  Learning Goals 1. Explain the nature of entrepreneurship and the impact the environment has on it 2. Describe the competencies that contribute to entrepreneurs’ success 3. Outline the planning essentials for potential entrepreneurs 4. Describe the basic essentials of corporate entrepreneurship Chapter 6: PowerPoint 6.1 Entrepreneurship Fostering Entrepreneurship: Its Meaning and Scope What is Entrepreneurship?  The creation of an innovative organization for the purpose of economic gain or growth under conditions of risk or uncertainty Chapter 6: PowerPoint 6.2 Common Components of Entrepreneurship Something new Something better New delivery system or distribution channel Entering an underserved or new market Entrepreneurship Fostering How Does the Environment Affect Entrepreneurship? Business incubation: a business support process that accelerates the successful development of start-up and fledging companies by providing entrepreneurs with an array of targeted resources and services Common features in business incubators  Management and technical guidance  Networking  Rental space/flexible leases  Shared business services and equipment  Psychological and moral support Assistance in obtaining financing Chapter 6: PowerPoint 6.4 Entrepreneurship Fostering  Small business—one that is independently owned and operated and which is not dominant in its field of operation  SBA defines size by number of employees or dollars of sales, depending upon industry  Small business firm may be entrepreneurial, depending upon its initiatives Chapter 6: PowerPoint 6.5 Entrepreneurship Fostering Are Family Businesses Entrepreneurial Firms?  Family business: one owned and managed mostly by people who are related by blood and/or marriage  May or may not be entrepreneurial  30% of family businesses survive to the second generation, 12% to the third generation, and 3% to the fourth and beyond Chapter 6: PowerPoint 6.6 Entrepreneurship Fostering Self management  Need for achievement  Desire for independence  Self confidence  Self sacrifice Communication Planning Teamwork Strategic and administration action Successful entrepreneurs Multicultural Specialized Knowledge Varies by type of business launched Chapter 6: PowerPoint 6.7 (Figure 6.1) Entrepreneurship Fostering Communication Competency  Successful entrepreneurs score higher than 82 percent of the population on their ability to express support and encouragement  Successful entrepreneurs succeed by helping other people—their employees, partners, investors, suppliers—become successful themselves Chapter 6: PowerPoint 6.11 Entrepreneurship Fostering Planning Essentials for Entrepreneurs  Business Plan  Snapshot  Describes the basic idea that is the foundation for the start-up and outlines how that idea can be turned into reality “Someone once said: If you don’t know where you’re going, any road will take you there. You need to know exactly where you want to go, what route you’re going to take, when you will arrive and what you are to do upon arrival—no guesswork at all. You need to determine whether there is a demand for your service and, if so, what constitutes your market.” Don Doggett Management Counselor Counselors to America’s Small Business Chapter 6: PowerPoint 6.12 Entrepreneurship Fostering Business Plan: Essential Components I. Executive Summary  What, how, why, where, and when must be summarized II. Business Description Component  The name of the business  The potential and uniqueness of the new venture Chapter 6: PowerPoint 6.13 (Adapted from Table 6.1) (continued) Entrepreneurship Fostering Business Plan: Essential Components (cont’d) III. Marketing Component  Convince investors that sales projections and competition can be met  Identify target market, market position, market share, pricing strategy  Evaluate all competition and state why and how you will be better than your competitors  Identify advertising plans with cost estimates Chapter 6: PowerPoint 6.14 (Adapted from Table 6.1) Entrepreneurship Fostering Business Plan: Essential Components (cont’d) IV. Location Component  Describe the advantages of your location (zoning, tax laws, wage rates); list the production needs in terms of facilities (plant, storage, office space) and equipment (machinery, furnishings, supplies)  Indicate proximity to your suppliers Chapter 6: PowerPoint 6.15 (Adapted from Table 6.1) Entrepreneurship Fostering Business Plan: Essential Components (cont’d) V. Management Component  Supply résumés of all key people in the management of your venture  Describe the legal structure of your venture (sole proprietorship, partnership, or corporation)  Give information on how and how much everyone is to be compensated Chapter 6: PowerPoint 6.16 (Adapted from Table 6.1) Entrepreneurship Fostering Business Plan: Essential Components (cont’d) VI. Financial Component  Describe the needed sources for your funds and the uses you intend for the money  Develop an estimated budget, cash flow statement, and profit and loss statement  Create stages of financing for purposes of allowing evaluation by investors at various points Chapter 6: PowerPoint 6.17 (Adapted from Table 6.1) Entrepreneurship Fostering Business Plan: Essential Components (cont’d) VII. Potential Critical-Risks Component  Any potentially unfavorable industry-wide trends, such as price cutting by competitors  Design or manufacturing costs in excess of estimates  Sales projections not achieved  Product development schedule not met  Provide some alternative courses of action Chapter 6: PowerPoint 6.18 (Adapted from Table 6.1) Entrepreneurship Fostering Business Plan: Essential Components (cont’d) VIII. Milestone Schedule Component  Develop a timetable or chart to demonstrate when each phase of the venture is to be completed IX. Appendix or Bibliography Chapter 6: PowerPoint 6.19 (Adapted from Table 6.1) Entrepreneurship Fostering How to Start the Business Buy Strategy Start-up strategy Other options Franchise strategy Chapter 6: PowerPoint 6.20 Entrepreneurship Fostering Factors That Favor a Global Start-up Human Resources Are Dispersed Among Countries Foreign Financing is Better Target Customers Require an International Presence Global Start-Up Foreign Competition Will Quickly Enter the Market Domestic Market is Too Small to Support Expenses Chapter 6: PowerPoint 6.23 (Adapted from Figure 6.2) Domestic Inertia Could Impede Later Efforts to Internationalize Entrepreneurship Fostering Recommendations to Ensure a Successful Family Business Clear Job Explicit Hiring Criteria Responsibilities For Family Members And Authority Relationships Commitment to Resolving Conflicts Quickly Plan for Management Transitions Chapter 6: PowerPoint 6.24 (Figure 6.3) Use of Outside Advisors/Directors Entrepreneurship Fostering Corporate Entrepreneurship  What is Corporate Entrepreneurship?  The development, promotion, and implementation of innovation initiatives in established firms for the purpose of generating growth and, thus, profits under risky or uncertain conditions  Essential for the survival of firms  Who Is a Corporate Entrepreneur?  Someone in an organization who champions turning new ideas into profitable realities Chapter 6: PowerPoint 6.25 Formulating Plans and Strategies MANAGING: A COMPETENCY BASED APPROACH 11th Edition Chapter 7—Formulating Plans and Strategies Don Hellriegel Susan E. Jackson John W. Slocum, Jr. Prepared by Argie Butler Texas A&M University Formulating Plans and Strategies Formulating Plans and Strategies  Learning Goals 1. Describe the importance and core components of strategic and tactical planning 2. Discuss the effects of organizational diversification strategies on planning 3. Describe the basic levels of strategy and planning 4. State the primary tasks of the strategic businesslevel planning process 5. Explain the generic competitive strategies model 6. Explain the integrated strategy/model Chapter 7: PowerPoint 7.1 Formulating Plans and Strategies What Is Strategic Planning?  The process of: 1. Diagnosing the organization’s external and internal environments 2. Deciding on a vision and mission 3. Developing overall goals 4. Creating and selecting general strategies to be pursued 5. Allocating resources to achieve the organization’s goals Chapter 7: PowerPoint 7.3 Formulating Plans and Strategies What is Strategic Planning?  Contingency planning—preparation for unexpected, major, and quick changes (positive or negative) in the environment that will have a significant impact on the organization and require immediate responses 1. Plan for 3 to 5 potentially critical and unanticipated events 2. Supports orderly and speedy adaptation Chapter 7: PowerPoint 7.4 Formulating Plans and Strategies Interrelated Core Components in Strategic Planning Vision and Mission Resource Allocation Strategic planning Strategies Chapter 7: PowerPoint 7.5 Organizational Goals Formulating Plans and Strategies What is Strategic Planning?  Vision: Expresses an organization’s fundamental aspirations and purpose, usually by appealing to its members’ hearts and minds  eBay: To pioneer new communities around the world built on commerce, sustained by trust, and inspired by opportunity Chapter 7: PowerPoint 7.6 Formulating Plans and Strategies What is Strategic Planning?  Mission: The organization’s purpose or reason for existing; often answers questions such as: 1. What business are we in? 2. Who are we? 3. What are we about?  eBay: To serve as the world’s online marketplace for the sale and payment of goods and services by a diverse community of individuals and businesses Chapter 7: PowerPoint 7.7 Formulating Plans and Strategies  Organizational goals: the results that the managers and others have selected and are committed to achieving for the long-term survival and growth of the firm 1. May be expressed qualitatively and quantitatively 2. Qualitative: simplify the sales process within six months 3. Quantitative: reduce operating costs by $1 billion within eighteen months Chapter 7: PowerPoint 7.8 Formulating Plans and Strategies  Strategies: the major courses of action (choices) selected and implemented to achieve one or more goals The essence of most good strategies is the need to make many choices that are all consistent—choices about production, service, design, and so on. Companies cannot randomly make a lot of choices that all turn out to be consistent. It’s statistically impossible. That means companies need to grasp at least a part of the whole. As we study the histories of successful companies, we see that someone or some group developed insight into how a number of choices fit together… Michael Porter Harvard Business School Chapter 7: PowerPoint 7.9 Formulating Plans and Strategies  Resource allocation: assigning money, people, facilities, and other resources among various current and new business opportunities  Key part: allocating money, through budgets, for various purposes Chapter 7: PowerPoint 7.10 Formulating Plans and Strategies Diversification Strategies and Planning: Diversification  Diversification The variety of goods and/or services produced by an organization and the number of different markets it serves  Snapshot “We are always looking for companies, products, or emerging technologies that will complement and strengthen our existing businesses, lead us into new therapeutic areas to address unmet medical needs, enhance our research and development capabilities, and, ultimately, further our strategy for growth. Each acquisition is different, and in each situation, we carefully examine the best way to integrate that technology, product, or organization into our family of companies.” William C. Weldon Chairman and CEO, Johnson & Johnson Chapter 7: PowerPoint 7.13 Formulating Plans and Strategies Types of Diversification Strategies  Single-business strategy: providing a limited number of goods or services to one particular market  Dominant-business strategy: serving various segments of a market  Related-business strategy: providing complementary goods and/or services a variety of  Unrelated-business strategy: providing diverse products (goods and/or services) to many different types of markets Chapter 7: PowerPoint 7.15 High Complexity of Strategic Planning Formulating Plans and Strategies Types of Diversification Strategies and Planning  General Electric Johnson & Johnson  MTV Networks Google Low Singlebusiness strategy DominantRelatedbusiness business strategy strategy Diversification Strategy Chapter 7: PowerPoint 7.16 (Figure 7.2) Unrelatedbusiness strategy Formulating Plans and Strategies Strategy Levels and Planning: Corporate-Level Strategy Focuses on:     the types of businesses the firm wants to be in, ways to acquire or divest businesses, allocation of resources among the businesses, and ways to develop learning and synergy among those businesses  Corporate-level Management  Guides and reviews performance of strategic units  Strategic business unit (SBU): a division or subsidiary of a firm that provides a related set of products or services and usually has its own mission and goals Chapter 7: PowerPoint 7.17 Formulating Plans and Strategies Business-Level Strategy The resources allocated and actions taken to achieve desired goals in serving a specific market with a highly interrelated set of goods and/or services  Plans and strategies developed for 1. maintaining or gaining a competitive edge in serving its customers, 2. determining how each functional area can best contribute to its overall effectiveness, and 3. allocating resources for expansion and among its functions Chapter 7: PowerPoint 7.20 Formulating Plans and Strategies Business-Level Planning  Basic Questions 3. How will customers’ needs be satisfied? 2. What customer needs will be satisfied? 1. Who will be served? Chapter 7: PowerPoint 7.21 Formulating Plans and Strategies  The actions and resource commitments established for operations, marketing, human resources, finance, legal services, accounting, and the organization’s other functional areas  Should support business-level strategies and plans HR Chapter 7: PowerPoint 7.22 Finance Other Broad Strategic Target Formulating Plans and Strategies Generic Competitive Strategies Model Narrow Differentiation Strategy Cost Leadership Strategy Focused Differentiation Strategy Focused Cost Leadership Strategy Uniqueness Low Cost (price) Sources of Advantage Chapter 7: PowerPoint 7.30 (Adapted from Figure 7.7)