Management 3rd Edition PDF

MANAGEMENT This page intentionally left blank  MANAGEMENT Third Edition Michael A. Hitt Texas A&M University J. Stewart Black INSEAD...

MANAGEMENT This page intentionally left blank  MANAGEMENT Third Edition Michael A. Hitt Texas A&M University J. Stewart Black INSEAD Lyman W. Porter University of California, Irvine Prentice Hall Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Editorial Director: Sally Yagan Senior Art Director: Janet Slowik Editor in Chief: Eric Svendsen Interior Designer: Bobby Acquisitions Editor: Kim Norbuta Starnes/ElectraGraphics, Inc. Director of Editorial Services: Ashley Santora Cover Designer: Wanda España Editorial Project Manager: Claudia Fernandes Cover Photo: Paul Chauncey/Alamy Editorial Assistant: Carter Anderson Manager, Rights and Permissions: Hessa Albader Director of Marketing: Patrice Lumumba Jones Editorial Media Project Manager: Denise Vaughn Marketing Manager: Nikki Ayana Jones MyLab Product Manager: Joan Waxman Marketing Assistant: Ian Gold Media Project Manager: Lisa Rinaldi Senior Managing Editor: Judy Leale Full-Service Project Management and Production Project Manager: Ilene Kahn Composition: Integra Software Services, Inc. Senior Operations Supervisor: Arnold Vila Printer/Binder: Quad/Graphics Versailles Operations Specialist: Cathleen Petersen Cover Printer: Lehigh-Phoenix Color/Hagerstown Creative Director: Christy Mahon Text Font: 10/12, Times Roman Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page in the text. The credit for the part opener is Calvio/istockphoto. Copyright © 2012, 2009, 2005 Pearson Education, Inc., publishing as Prentice Hall, One Lake Street, Upper Saddle River, New Jersey 07458. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458. Many of the designations by manufacturers and seller to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps. Library of Congress Cataloging-in-Publication Data Hitt, Michael A. Management / Michael A. Hitt, J. Stewart Black, Lyman W. Porter. — 3rd ed. p. cm. Includes bibliographical references and index. ISBN 978-0-13-255328-5 1. Management. I. Black, Stewart. II. Porter, Lyman W. III. Title. HD31.H5327 2012 658—dc22 2010045859 10 9 8 7 6 5 4 3 2 1 ISBN 10: 0-13-255328-7 ISBN 13: 978-0-13-255328-5 Brief Contents Preface xv PART 1 Managing Ethically and Globally 1 Chapter 1 The Nature of Management 2 Chapter 2 Social Responsibility and Managerial Ethics 27 Chapter 3 International Management and Globalization 57 PART 2 Planning and Organizing 80 Chapter 4 Strategic Management 81 Chapter 5 Planning 110 Chapter 6 Organizational Structure and Design 132 Chapter 7 Managing Diverse Human Resources 166 PART 3 Leading 203 Chapter 8 Leadership 204 Chapter 9 Motivation 239 Chapter 10 Groups and Teams 270 Chapter 11 Communication and Negotiation 302 Chapter 12 Individual and Group Decision Making 331 PART 4 Controlling 359 Chapter 13 Operations Management 360 Chapter 14 Control 386 Chapter 15 Organizational Change and Development 416 Appendix: The History of Managerial Thought and Practice 452 Glossary 479 Name Index 487 Subject Index 489 v  Contents Preface xv PART 1 Managing Ethically and Globally 1 Chapter 1 The Nature of Management 2 Managerial Challenges from the Front Line 3 What Is Management? 4 Managerial Challenges 5 Managing Change 5 Managing Resources 6 䊏 A MANAGER’S CHALLENGE: Globalization 7 Managing Strategically 8 Managing Entrepreneurially 9 Historical Approaches to Management 9 What Do Managers Do? 10 Planning 11 Organizing 11 Directing 11 䊏 A MANAGER’S CHALLENGE: Change 12 Controlling 13 Managerial Roles 13 A Week in the Managerial Life of Deb M. 15 A Week in the Managerial Life of Greg K. 17 What Skills Do Managers Need? 19 Technical Skills 19 Interpersonal Skills 19 Conceptual Skills 20 The Plan of This Book 20 Managerial Challenges from the Front Line 21 Summary 22 Key Terms 22 Review Questions 23 Assessing Your Capabilities 23 Team Exercise 23 䊏 CLOSING CASE: FedEx’s Successful Internationalization 24 References 25 Chapter 2 Social Responsibility and Managerial Ethics 27 Managerial Challenges from the Front Line 28 How the Ethics of Individual People Develop 29 Basic Approaches to Ethical Decision Making 31 The Utilitarian Approach 31 The Moral Rights Approach 31 The Universal Approach 31 The Justice Approach 32 The Moral Intensity Factor 33 䊏 A MANAGER’S CHALLENGE: Globalization 35 Social Responsibility 36 The Efficiency Perspective 36 䊏 A MANAGER’S CHALLENGE: Ethics 38 vi  CONTENTS vii The Social Responsibility Perspective 39 䊏 A MANAGER’S CHALLENGE: Ethics 40 Comparing the Efficiency and Stakeholder Perspectives 41 How Corporations Respond to the Efficiency and Stakeholder Perspectives 41 The Strategic Corporate Social Responsibility Perspective 42 䊏 A MANAGER’S CHALLENGE: Technology 43 How People and Firms Can Make Better Ethical Decisions 45 The Manager 45 The Organization 45 How Governments Can Foster Ethical Behavior 49 Managerial Challenges from the Front Line 50 Summary 51 Key Terms 51 Review Questions 51 Assessing Your Capabilities 52 Team Exercise 52 䊏 CLOSING CASE: Nicolo Pignatelli and Gulf Italia 53 References 54 Chapter 3 International Management and Globalization 57 Managerial Challenges from the Front Line 58 Globalization 59 Understanding a Country’s Environment 59 䊏 A MANAGER’S CHALLENGE: Globalization 60 The Country’s Institutional Environment 60 Culture 63 International Market-Entry Strategies 65 Exporting 65 Licensing 65 Creating Strategic Alliances 66 䊏 A MANAGER’S CHALLENGE: Change 67 Acquisitions 67 Establishing New, Wholly Owned Subsidiaries 68 Managing International Operations 69 Taking a Global Focus 69 Taking a Region–Country Focus 69 Taking a Transnational Focus 70 Managing Across Cultures 70 Managing Multicultural Teams 72 Developing a Global Mind-set 72 䊏 A MANAGER’S CHALLENGE: Globalization 73 Managerial Challenges from the Front Line 74 Summary 74 Key Terms 75 Review Questions 75 Assessing Your Capabilities 76 Team Exercise 76 䊏 CLOSING CASE: Trying to Change the Corporate Culture of a Multinational Enterprise: General Semiconductor 77 References 78 PART 2 Planning and Organizing 80 Chapter 4 Strategic Management 81 Managerial Challenges from the Front Line 82 What Is a Competitive Advantage? 83 Superior Value 83 Rarity 84 Difficult to Imitate 84 Nonsubstitutability 85 Turning a Competitive Advantage Into Profits 85 viii CONTENTS The Strategic Management Process: Setting Direction 85 Determining the Firm’s Strategic Vision 85 Formulating the Firm’s Mission Statement 86 Conducting an External Environmental Analysis 86 The General Environment 87 The Firm’s Industry and Competitor Environment 90 䊏 A MANAGER’S CHALLENGE: Globalization 91 Internal Analysis 93 Integrating Internal and External Analyses 96 Setting Strategic Objectives 96 The Strategic Management Process: Formulating a Strategy 97 Generic Strategies for Obtaining a Competitive Advantage 97 Other Generic Strategies 99 䊏 A MANAGER’S CHALLENGE: Change 100 The Strategic Management Process: Strategy Implementation 101 䊏 A MANAGER’S CHALLENGE: Change 102 Managerial Challenges from the Front Line 103 Monitoring and Evaluating the Strategy’s Implementation 103 Summary 103 Key Terms 104 Review Questions 104 Assessing Your Capabilities 105 Team Exercise 105 䊏 CLOSING CASE: Blockbuster Is Fighting for Survival 106 References 107 Chapter 5 Planning 110 Managerial Challenges from the Front Line 111 An Overview of Planning 113 Types of Plans 113 The Organizational Levels at Which Plans Are Developed 113 䊏 A MANAGER’S CHALLENGE: Change 115 The Interrelationship between Plan Types and Levels 116 The Planning Process 116 Analyzing the Firm’s External Environment 117 Assessing the Firm’s Internal Resources 119 Setting Objectives 119 䊏 A MANAGER’S CHALLENGE: Technology 121 Developing Action Plans 121 Implementing Plans 122 Monitoring Outcomes 123 䊏 A MANAGER’S CHALLENGE: Ethics 124 Planning Tools 124 Budgets 124 Goal Setting Criteria 125 Managerial Challenges from the Front Line 127 Summary 127 Key Terms 128 Review Questions 128 Assessing Your Capabilities 128 Team Exercise 128 䊏 CLOSING CASE: Planning a New Program Launch at LDC 129 References 130 Chapter 6 Organizational Structure and Design 132 Managerial Challenges from the Front Line 133 Principles of Organizational Structure 134 Differentiation 135 Integration 135 Formalization 137  CONTENTS ix Informalization 139 Centralization and Decentralization 140 䊏 A MANAGER’S CHALLENGE: Diversity 141 Common Organizational Structures 142 Functional Structure 142 䊏 A MANAGER’S CHALLENGE: Change 143 Product Structure 144 Division Structure 146 Customer Structure 146 Geographic or Regional Structure 147 Matrix Structure 148 Mixed Organizational Structures 149 Network Organizational Structures 150 Designing Organizations 152 The External Environment 152 The Organization’s Strategy 153 Organizational Structures in an International Context 154 Organizing to Think Globally and Act Locally 157 䊏 A MANAGER’S CHALLENGE: Change 157 Managerial Challenges from the Front Line 159 Summary 160 Key Terms 161 Review Questions 161 Assessing Your Capabilities 161 Team Exercise 162 䊏 CLOSING CASE: Restructuring the Organizational Structure at Kimberly-Clark 163 References 164 Chapter 7 Managing Diverse Human Resources 166 Managerial Challenges from the Front Line 167 The Strategic Role of Human Resource Management 168 Human Resources and Strategy Formulation 169 Human Resources and Strategy Implementation 169 Human Resource Management Activities That Get the Right People 170 Planning 171 Job Analysis 171 䊏 A MANAGER’S CHALLENGE: Diversity 172 Recruiting 172 Selecting 174 䊏 A MANAGER’S CHALLENGE: Technology 175 Human Resource Management Activities That Maximize Performance 178 Socialization and Training 179 Job Design 181 Evaluating Employees’ Performance 181 Compensation 184 Employee Development 186 Labor Relations 187 Managing a Diverse Workforce 187 Gender and Diversity 188 䊏 A MANAGER’S CHALLENGE: Diversity 189 Sexual Harassment 191 Laws and Regulations Affecting Human Resource Management 191 Diversity and the Firm’s Performance 191 Leveraging the Diversity of Your Firm’s Workforce 193 How Globalization Is Affecting Diversity 193 x CONTENTS Managerial Challenges from the Front Line 194 Summary 195 Key Terms 195 Review Questions 195 Assessing Your Capabilities 196 Team Exercise 197 䊏 CLOSING CASE: Alliant Energy Puts Spark into Diversity 198 References 199 PART 3 Leading 203 Chapter 8 Leadership 204 Managerial Challenges from the Front Line 205 What Is Leadership? 206 䊏 A MANAGER’S CHALLENGE: Diversity 207 Leading and Managing: The Same or Different? 208 Does Leadership Differ Across National Cultures? 208 Leadership and the Use of Power 210 Types and Sources of Power 211 䊏 A MANAGER’S CHALLENGE: Change 212 Using Power Effectively 214 The Leadership Process: Leaders 216 Leaders’ Traits 216 Leaders’ Skills and Competencies 219 Leaders’ Behaviors 220 The Leadership Process: Followers 223 How the Behaviors of Followers Affect the Leadership Process 224 The Leader–Follower Relationship 225 The Leadership Process: Situations 225 Types of Situations Affecting the Leadership Process 225 Leadership Approaches Emphasizing Situational Contingencies 226 䊏 A MANAGER’S CHALLENGE: Globalization 227 Are There Substitutes for Leadership? 228 Managerial Challenges from the Front Line 229 Summary 230 Key Terms 230 Review Questions 230 Assessing Your Capabilities 231 Team Exercise 231 䊏 CLOSING CASE: The New Supervisor 233 References 234 Chapter 9 Motivation 239 Managerial Challenges from the Front Line 240 What Is Motivation? 241 Sources of Motivation 241 Motivation Theories Applicable to Work Situations 242 Content Theories 242 Process Theories 248 䊏 A MANAGER’S CHALLENGE: Globalization 251 Reinforcements and Consequences 253 Reinforcement Approaches 253 Planned Programs of Positive Reinforcement 256 How the Situation Influences Motivation 257 Influence of the Immediate Work Group 257 Influence of Supervisors and Subordinates 257 Influence of the Organization’s Culture 258 The Influence of Values and Attitudes Toward Work 258 Values 258 Attitudes Toward Work 259  CONTENTS xi 䊏 A MANAGER’S CHALLENGE: Change 260 Managerial Challenges from the Front Line 261 Summary 261 Key Terms 262 Review Questions 262 Assessing Your Capabilities 263 Team Exercise 263 䊏 CLOSING CASE: Pamela Jones, Former Banker 266 References 267 Chapter 10 Groups and Teams 270 Managerial Challenges from the Front Line 271 Basic Types of Groups 272 Formal Groups 272 Informal Groups 274 The Formation and Development of Groups and Teams 275 What Influences the Formation of Groups and Teams? 275 The Stages of Group Development 276 The Characteristics of Groups and Teams 277 Structural Characteristics 277 䊏 A MANAGER’S CHALLENGE: Diversity 280 䊏 A MANAGER’S CHALLENGE: Globalization 282 Behavioral Characteristics 283 Norms 283 Cohesion 285 Emerging Types of Groups and Teams in Today’s Organizations 286 Self-Managing Work Groups 287 Cross-Functional, New Product (or Service) Groups 287 Global Teams 288 Virtual Teams 288 䊏 A MANAGER’S CHALLENGE: Technology 289 Building and Managing Groups and Teams 290 Developing Team Competencies 290 Dealing with Team Conflict 290 Improving the Effectiveness of Groups and Teams 292 Managerial Challenges from the Front Line 294 Summary 294 Key Terms 295 Review Questions 296 Assessing Your Capabilities 296 Team Exercise 297 䊏 CLOSING CASE: Uniting a Class-Project Team 298 References 299 Chapter 11 Communication and Negotiation 302 Managerial Challenges from the Front Line 303 The Basic Model of Communication 304 Modes of Communication 304 Verbal Communication 304 Nonverbal Communication 305 Media of Communication 306 The Organizational Context of Communication 307 Directions of Communication Within Organizations 307 Channels of Communication Within Organizations 308 䊏 A MANAGER’S CHALLENGE: Technology 309 Patterns of Organizational Communication 311 Barriers to Communication 312 Interpersonal Barriers 312 Organizational Barriers 313 xii CONTENTS 䊏 A MANAGER’S CHALLENGE: Communications 314 Cultural Barriers 315 䊏 A MANAGER’S CHALLENGE: Globalization 316 Improving Your Communication Skills 318 Improving Your Listening Skills 318 Improving Your Sending Skills 319 Organization-Level Improvements in Communication 319 Communication and Negotiation 320 Why Managers Need Good Negotiation Skills 320 Achieving More Effective Negotiations 320 Key Factors in Cross-national Negotiations 321 Managerial Challenges from the Front Line 324 Summary 324 Key Terms 325 Review Questions 325 Assessing Your Capabilities 325 Team Exercise 326 䊏 CLOSING CASE: Bridging the Generational Communication Gap 327 References 328 Chapter 12 Individual and Group Decision Making 331 Managerial Challenges from the Front Line 332 Individual Decision Making 333 The Classical, or Rational, Model 333 䊏 A MANAGER’S CHALLENGE: Diversity 334 The Bounded Rationality Model 337 The Retrospective Decision Model 338 Types of Decisions 339 What Influences Effective Decision Making? 340 Group Decision Making 341 Group Decision-Making Problems: Groupthink and the Escalation of Commitment 341 Escalating Commitment to a Decision 343 The Contingency Model of Participative Decision Making 345 Who Should Participate? 345 Should the Involvement of Participants Be High or Low? 346 Decision Speed and Quality 347 䊏 A MANAGER’S CHALLENGE: Change 348 Strategies for Improving Decision Making 349 Improving Problem Formulation 349 Improving the Problem-Solution Process 351 䊏 A MANAGER’S CHALLENGE: Technology 351 The Role of Technology 352 Managerial Challenges from the Front Line 352 Summary 353 Key Terms 353 Review Questions 353 Assessing Your Capabilities 354 Team Exercise 355 䊏 CLOSING CASE: To Close or Not? 356 References 357 PART 4 Controlling 359 Chapter 13 Operations Management 360 Managerial Challenges from the Front Line 361 The Nature and Importance of Operations Management 361 Managing Quality 362 Total Quality Management 363 Quantity and Capacity Planning 366  CONTENTS xiii 䊏 A MANAGER’S CHALLENGE: Change 367 The Timing of Products and Services 369 䊏 A MANAGER’S CHALLENGE: Technology 370 Cost Reduction and Productivity 372 䊏 A MANAGER’S CHALLENGE: Technology 376 Managing the Supply Chain 377 Managerial Challenges from the Front Line 380 Summary 381 Key Terms 382 Review Questions 382 Team Exercise 382 䊏 CLOSING CASE: Cranston Nissan 383 References 384 Chapter 14 Control 386 Managerial Challenges from the Front Line 387 The Control Function of Management 388 䊏 A MANAGER’S CHALLENGE: Change 389 The Basic Control Process 390 Establish Standards 390 Measure Performance 391 Compare Performance Against Standards 392 Evaluate Results and Take Action 393 Scope of Control in the Organization 394 Strategic Control 395 Tactical Control 396 Operational Control 402 Control-Effectiveness Factors 403 䊏 A MANAGER’S CHALLENGE: Technology 404 The Focus of Control 405 The Amount of Control to Apply 406 The Quality of Information 406 䊏 A MANAGER’S CHALLENGE: Ethics 407 Flexibility 408 Favorable Cost-Benefit Ratio 408 Managerial Challenges from the Front Line 409 Sources 409 Summary 409 Key Terms 410 Review Questions 410 Assessing Your Capabilities 411 Team Exercise 412 䊏 CLOSING CASE: Disaster in the Gulf of Mexico: A Case of “An Ounce of Prevention...”? 413 References 414 Chapter 15 Organizational Change and Development 416 Managerial Challenges from the Front Line 417 What Causes Organizations to Change? 418 Forces Outside the Organization 418 䊏 A MANAGER’S CHALLENGE: Technology 420 Forces Inside the Organization 421 Determining Where Organizational Changes Should Occur 422 Strategy 423 Structure 423 䊏 A MANAGER’S CHALLENGE: Change 424 Systems 425 Technology 425 Shared Values and Culture 424 Staff 426 xiv CONTENTS Evaluating the Need for Change 426 Recognizing and Assessing the Need for Change 426 Diagnosing Problems 427 The Change Process 427 Phase 1—Unfreezing 428 Phase 2—Movement 429 Phase 3—Refreezing 429 Overcoming Resistance to Change 430 Overcoming Resistance to Unfreeze 430 Overcoming Resistance to Move 430 䊏 A MANAGER’S CHALLENGE: Change 431 Overcoming the Failure to Finish 432 Managing Change 432 Planning and Preparing for Change 433 Implementation Choices 435 Evaluating Change Outcomes 437 Specific Approaches to Planned Change 438 The Organizational Development (OD) Approach to Change 438 䊏 A MANAGER’S CHALLENGE: Change 439 Process Redesign (Reengineering) 441 Organizational Learning 442 Managerial Challenges from the Front Line 444 Summary 444 Key Terms 445 Review Questions 445 Assessing Your Capabilities 445 Team Exercise 447 䊏 CLOSING CASE: Leading Change at LSP 448 References 449 Appendix: The History of Managerial Thought and Practice 452 Glossary 479 Name Index 487 Subject Index 489 Preface What Makes This Book Unique? One of our fundamental objectives as an author team was to create a textbook for students and instructors that was both relevant and rigorous. Despite the number of good textbooks on the market, many of them tend to lean in one of two directions: Some textbooks do a good job of presenting material and integrating research, but students struggle to make the connection between theory and practice. Other textbooks do a good job of relating the material to the real world, but they are not always based on the most current research. Our experience in teaching students, talking with other instructors, and working with practicing managers has led us to develop a textbook that is both relevant and strongly based on current research literature. This combination meets the needs of students for developing skills and having a good working knowledge of management. As an author team we are fortunate to have, collectively, more than 100 years of in-depth experience directly conducting research, reviewing articles, and studying management literature—particularly in the international sphere—and working with colleagues from a variety of different countries and cultures. The breadth and depth of our experience has helped us identify the key theories, concepts, and empirical findings that inform the practice of management in both domestic and global contexts. We have also had a great number of opportunities over the years to teach many students, work with a large number of managers, and consult with various companies, all focused on the practice of management. Like our research, these experiences have taken place in a variety of locations around the world. We have worked with managers from every part of the globe. We believe this experience has helped us understand the challenges that students of management face in tying theory to practice. As a consequence, we have worked hard to relate the findings from current research to the implications they hold for practicing managers. Why a New Edition? The dual objectives of relevance and rigor were the basis of the first two editions of Management, and they continue to be the basis for this third edition. However, as a team, we are great admirers and try to be good examples of the principle of continuous improvement. Toward this end, in this new edition we have made several changes that we believe enhance the book. Additionally, the recent changes in the economic environment and enhanced global interdepen- dencies necessitated changes in many of the cases and examples that are used liberally through- out the book. Following is a summary of the major revisions made in this edition: 䊏 We have updated the information on management concepts based on the most current research. In doing so, a number of new references were inserted into each chapter. In several chapters, 20 to more than 30 new references were used (many published in 2009 and 2010). 䊏 Each chapter contains several “Managerial Challenge” segments (mini-cases showing application of the managerial concepts explained in the chapter). Approximately 50 percent of these are new. The others were reviewed and revised where appropriate to ensure currency and continued accuracy. 䊏 All “Managerial Challenges from the Front Line” (chapter-opening managerial profiles with the “Rest of the Story” at the end of the chapter) were updated, and three new mana- gerial profiles were inserted (Chapters 3, 4, and 15). 䊏 All in-text examples were checked for currency and accuracy, and many examples are new or updated. xv xvi PREFACE 䊏 All end-of-chapter cases were updated except for two new ones that replaced existing cases (Chapters 11 and 14). 䊏 All in-chapter exhibits were checked for continued relevance and currency. Several were updated and a few new ones were inserted (for example, in Chapters 9, 10, and 11). 䊏 There were a number of small, but nontrivial, changes to the content designed to ensure that the content is “cutting-edge” in the literature and both rigorous and relevant. We continue to emphasize the connection between relevance and rigor for students and instructors. For example, we again use the feature that appeared first in the second edition, titled Managerial Challenges from the Front Line. It includes a focused example of a managerial chal- lenge faced by a real person. Several of these people are recent college graduates, and others are more experienced managers. The feature helps students understand and relate the chapter content to managerial practice. We also provide a “Rest of the Story” feature at the end of the chapter that briefly describes how the manager resolved the challenge. A few of the people profiled in them and their stories are new; all others have been updated. Because many undergraduates have not yet had extensive practical experience working in organizations, they are not always able to benefit from the personal insight and awareness that expe- rience can provide. Yet, as we also know, much of a manager’s approach to various managerial activities, such as decision making or communicating, are influenced by his or her own tendencies, orientations, and the like. As a consequence, we continue to have a “Self-Assessment” feature at the end of each chapter to help students evaluate and understand their capabilities (especially related to the material covered in the chapter). This third edition retains our intent to be comprehensive but concise, with 15 chapters. We also continue to include an appendix titled “The History of Managerial Thought and Practice” for students who desire to learn more about the historical development of the management field. Overall, we believe this third edition provides students with a solid and stimulating understanding of the scope and challenges of the function of management in organizations. Supplements to This Book This third edition of Management has been designed specifically to support the instructor teach- ing the course and to be user friendly for students. The following support materials have been developed to accompany the third edition: Instructor Supplements At the Instructor Resource Center, www.pearsonhighered.com/irc, instructors can access a vari- ety of print, digital, and presentation resources available with this text in downloadable format. Registration is simple and gives you immediate access to new titles and new editions. As a reg- istered faculty member, you can download resource files and receive immediate access to and instructions for installing course management content on your campus server. In case you ever need assistance, our dedicated technical support team is ready to help with the media supple- ments that accompany this text. Visit http://247.pearsoned.com for toll-free user support phone numbers and answers to frequently asked questions. The following supplements are available for download to adopting instructors: 䊏 Instructor’s Manual 䊏 Test Item File 䊏 TestGen (test-generating program) 䊏 PowerPoint Slides VIDEOS ON DVD Video segments that illustrate the most pertinent topics in management today and highlight relevant issues that demonstrate how people lead, manage, and work ef- fectively. Contact your Pearson representative for the DVD. Student Supplements COURSESMART eTEXTBOOK CourseSmart is an exciting new choice for students looking to save money. As an alternative to purchasing the print textbook, students can purchase an electronic version of the same content. With a CourseSmart etextbook, students can search the text, make  PREFACE xvii notes online, print out reading assignments that incorporate lecture notes, and bookmark impor- tant passages for later review. For more information or to purchase access to the CourseSmart eTextbook, visit www.coursesmart.com. (www.mymanagementlab.com) is an easy-to-use online tool that personalizes course content and provides robust assessment and reporting to measure individual and class performance. All of the resources that students need for course success are in one place—flexible and easily adapted for your students’ course experience. Some of the resources include an eText version of all chapters, quizzes, video clips, simulations, assessments, and PowerPoint presentations that engage your students while helping them study independently. Acknowledgments We owe a debt of gratitude to Kim Norbuta, our editor, and the rest of the Prentice Hall team, including Claudia Fernandes, Ilene Kahn, and Lynn Savino Wendel, for their efforts to support and help us develop this edition. Grace McLaughlin also again did an excellent job in the devel- opment of the accompanying Instructor’s Manual. We extend special thanks for the excellent feedback from reviewers, users, and focus group participants (designated as “FG”) for the third and previous editions of this textbook. These include: David Albritton, Northern Arizona Pat Hafford, Wentworth Institute University Gary Hensel, McHenry County College Forrest Aven, University of Houston- Tammy Hunt, University of North Downtown Carolina-Wilmington Richard Babcock, University of San Karen Jacobs, LeTourneau University Francisco Connie James, Pepperdine Stacy Ball-Elias, Southwest Minnesota University (FG) State University James H. Kennedy, Angelina College (FG) Stephanie Bibb, Chicago State University Jerry Kinard, Western Carolina University Gene Blackmun III, Rio Hondo Frank Krafka, St. Edward’s University College (FG) Sal Kukalis, California State University, Rochelle Brunson, Alvin Community Long Beach College Leslie Ledger, Central Texas College (FG) Gary Bumgarner, Mountain Empire Community College Lianlian Lin, California State Polytechnic University-Pomona (FG) John Bums, North Harris Montgomery CC Tom Mahafey, Siena College District-Tomball College (FG) Mark Nagel, Normandale Community Barbara Carlin, University of Houston College Macgorine Cassell, Fairmount State Abdul Qastin, Lakeland College University R. Nicholas Panepinto, Flagler College Bruce Chamov, Hofstra University Mark Poulos, St. Edward’s University Michael Drafke, College of DuPage Lois Shelton, Chapman University (FG) N. Mai Lai Eng, San Antonio College Randi Sims, Nova Southeastern Mary Fanning, College of Notre Dame of University Maryland Tom Sy, California State University- Maruffi Fordham, Fordham University Long Beach (FG) xviii PREFACE Pat Tadlock, Horry-Georgetown Bruce Walker, University of Technical College Louisiana-Monroe Spence Tower, Central Michigan University Randy Westgren, University of Illinois, Urbana/Champaign Julia Underwood, Azusa Pacific University (FG) Johnnie Williams, Texas Southern University David G. Vequist, University of the Nancy Zimmerman, Community College Incarnate Word Baltimore/Catonsville Part One Managing Ethically and Globally Chapter 1 The Nature of Management Chapter 2 Social Responsibility and Managerial Ethics Chapter 3 International Management and Globalization 1  1 The Nature of Management LEARNING OBJECTIVES After studying this chapter, you should be able to: Define the term management. Explain the major challenges that managers must address. Describe how historical research on management has contributed to the current practice of management. Identify and discuss the primary managerial functions. Explain the three general roles involved in managerial work and the specific roles within each. Explore and describe the three dimensions of managerial jobs. Discuss the primary skills required to be an effective manager. 2  Managerial Challenges from the Front Line While working at Planet Golf, Halvorson developed a business on the side that was the forerunner of Junk Food. After an investor bought Planet Golf, Halvorson sent him a Photo Courtesy of Blaine Halvorson, Junk Food Clothing new design and his idea for a different T-shirt line. The owner of Planet Golf became an angel investor in Junk Food (a silent partner who provided money while Name: Blaine Halvorson Halvorson and Grof managed the company). The basic idea for Position: Chief Creative Officer (CCO), Junk Food the company was to provide a different product that cus- Alma mater: Montana State University (BA in Fine tomers valued. Halvorson and Grof built the brand name by Arts/Graphic Design) using popular icons. Until then, licensing was used only for mass market merchandise, not “designer clothes,” especially Outside work activities: Leisure time, travel, and painting T-shirts. Starting with names like Twister, Candy Land, and (mainly pop art) My Little Pony, Halvorson and Grof moved to other licensees, First job out of school: Designed clothes for rock bands and such as Sesame Street, Rolling Stones, DC Comics, and Looney MTV while in college; post-college, worked for a short time Tunes. They developed a strong following for the Junk Food at a Los Angeles apparel company followed by Planet Golf, brand, with even the products becoming collectibles because where he oversaw the Japanese distribution of the company’s of the Junk Food brand label. Most recently, the Junk Food products. brand has moved into sports and entertainment, with licenses Hero: Jean-Michel Basquiat—I think that he is an amazing with the NFL, the NBA, and Disney. Junk Food’s products are artist. now sold globally, in Australia, Japan, Mexico, and many European countries, with a strong focus on Germany and Motto to live by: Everyone should take a leap of faith once Asian countries. in their lives and see if they can do something great. To do what Halvorson did—that is, build a successful What drives me: The desire for accomplishment and to take company—requires the willingness to take risks and a desire something to the next level. to create something on your own. It also requires sacrifice, Management style: Not following a straight line—thinking investing substantial amounts of time and effort to make outside of the box and having tremendous drive. the business work. What’s more, it takes significant manage- ment skills. For example, Halvorson had to attract, hire, and Graphic designer Blaine Halvorson, along with his business manage a high-quality team to make Junk Food a success. partner Natalie Grof, are the founders of the multimillion-dollar It also requires perseverance and knowing the market. He clothing-design business Junk Food, Inc. They worked together learned how to mass-produce products and manage the busi- at Planet Golf prior to starting their own company. They built ness’s cash flow, among other challenges. Halvorson describes the company from a two-person business operating out of the process as “moving in 50 different directions simultane- an apartment into the world’s largest licensing T-shirt ously and trying to solve 10 problems at the same time.” manufacturer. Even in the recent economic recession, Junk Food Halvorson experienced early success designing sales increased and the company grew. Because of severe clothes, showing that he had talent and that there was price competition, however, the company moved more of a market for his ideas. He attended trade shows and its production overseas (products made in the United received a lot of positive press. Then, he started receiving States have decreased from 80 percent to 10 percent). large orders for his designs, but did not have the capacity Still, as a known and respected brand, Junk Food has to mass-produce his products. He realized that he had to increased market share. For example, Gap now co-brands learn more about managing a business. His subsequent products with the company. Halvorson obviously learned well learnings helped him make Junk Food a success a few and has become not only a successful entrepreneur but also years later. a highly effective manager. 3 4 PART ONE MANAGING ETHICALLY AND GLOBALLY As described in the opening profile, Blaine Halvorson has built a highly successful company. He did so by developing an idea for a different type of clothing design that customers valued. While Halvorson is a creative and excellent designer, his success was due to much more. For example, early in his career, he showed his talent for developing creative clothing designs that the market desired. However, he also learned how to build and manage a business. Halvorson had to learn how to organize the company to design, manufacture, and distribute Junk Food’s products. He had to hire and manage people to complete these tasks. And finally, he had to ensure that the company used resources efficiently to make a profit and ensure that the business was successful. The profile on Halvorson shows that management is a challenging and necessary part of a successful business. It also depicts management as exciting and yet requiring a lot of hard work and dedication. In this chapter, we introduce the concept of management and show how it is done. We explore the challenges that managers face on a regular basis and the skills they must have to successfully handle them. Now, we turn to a set of basic questions that are the focus for the remainder of Chapter 1: (1) What is management? (2) What are the primary challenges that managers face? (3) What do managers do? (4) What skills do managers need? What Is Management? To begin, we examine the concepts that form the base of this book. management Management is an activity or process. More specifically, management is the process of the process of assembling and assembling and using sets of resources in a goal-directed manner to accomplish tasks in an using sets of resources in a goal- organization. This definition can be subdivided into its key parts: directed manner to accomplish tasks in an organizational setting 1. Management is a process: It involves a series of activities and operations, such as planning, deciding, and evaluating. 2. Management involves assembling and using sets of resources: It is a process that brings together, and puts into use, a variety of resources: human, financial, material, and informational. 3. Management involves acting in a goal-directed manner to accomplish tasks: It is an activity with a purpose and direction. The purpose or direction may be that of the individual, the organization or, usually, a combination of the two. It includes one’s efforts to complete activities successfully and to achieve particular levels of desired results. organization 4. Management involves activities carried out in an organization: It is a process undertaken an interconnected set of in an organization by people with different functions intentionally structured and coordi- individuals and groups who nated to achieve common purposes. attempt to accomplish common goals through differentiated In addition to being “a process” or set of activities, management can also have several other functions and their coordination meanings. The term sometimes designates a particular part of the organization: the set of indi- viduals who carry out management activities. Thus, some may use the phrase “the management of IBM decided...” or “the management of University Hospital developed a new personnel policy....” Often, when the term is used this way, it does not necessarily refer to all members of management but rather to those who occupy the highest-level positions within the organization (top management). Another similar use of the term is to distinguish a category of people (that is, “manage- ment”) from those who are members of collective bargaining units (“union” members or, more informally, “labor”) or those who are not involved in specific managerial activities, whether or not they are union members (“nonmanagement employees” or “rank-and-file employees”). The term member refers to any person (any employee) in an organization without regard to that indi- vidual’s role in the organization. In this book, we use the term manager to refer to anyone who has designated responsibilities for carrying out managerial activities, and managing to refer to the process of completing those activities. However, management is too complex a concept for one definition to capture accurately. Next, we explain several of the challenges that managers must address.  CHAPTER 1 THE NATURE OF MANAGEMENT 5 Managerial Challenges Managers face a number of challenges on a regular basis. The nature of the environment in which managers operate requires that they manage change effectively. Managers are respon- sible for managing resources—financial, human, and otherwise. To ensure that their organi- zation is competitive and survives in a rapidly changing environment, they must manage strategically. Because of the major changes occurring rapidly in the business world today, managers must be entrepreneurial and innovative. Essentially, they must continuously find ways to create more value for customers than do competitors. Managers’ activities take place within organizations. Although managers are the primary “drivers” of their organizations, organizations place boundaries on what managers can and cannot do. We examine each of these challenges next. Managing Change Managing change is the most persistent, pervasive, and powerful challenge with which all man- agers have to deal, regardless of the nature of their organization or its location. No matter how new or experienced managers are, they will be confronted with both the need for change and the opportunity to create change.1 Not making any changes is unlikely to be an option. As a Greek philosopher once wrote many centuries ago, “Change alone is unchanging,” and that statement remains appropriate today.2 Managing change is no simple task, especially because most people naturally resist change. Thus, managers must find ways to gain employees’ acceptance of change in order to implement it effectively. To gain acceptance, it is useful for managers to create “small wins.” For example, the manager might implement the change in one smaller area and make it successful. This suc- cess then makes the change legitimate in the eyes of the employees.3 Two major causes of change that managers must address are new technology and globalization. TECHNOLOGY No managers in today’s world can ignore the impact of technology and the way it affects their jobs and firms. Technology developments often force managers to make changes— whether they want to or not. The Internet is a case in point. The Internet has had far-reaching effects on how managers do their jobs. The introduction of a new technology often leads to the development of new products and new processes for accomplishing tasks. The Internet has created many opportunities to market products differently, to reach distant markets, and to communicate internally and externally in more effective ways. And, some of the technologies developed to use the Internet in more and effective ways have led to the development of complementary technolo- gies and products, such as Apple’s iPod and iPad. Therefore, the Internet has provided many opportunities for managers. Yet, managers must identify these opportunities and find ways to exploit them. If they do not, their competitors are likely to do so and take market share from them. Essentially, the development of new technologies has increased the speed of change, the flow of information, the competitive reach into international markets, and the amount of competition in all markets. The continued development of new technologies and information about them has empha- sized the importance of knowledge and increased the importance of human capital (the holder of the knowledge).4 It has helped many small- and medium-sized firms enter and compete in international markets, thereby enhancing globalization.5 GLOBALIZATION Globalization is the development and observation of the increasing interna- tional and cross-national nature of everything from politics to business. Managers must maintain an awareness of what happens in the rest of the world because events in other countries affect their organizations. Global events will almost certainly affect managers’ goals and decisions, and how they must coordinate and lead the work of other people.6 The opening of many world markets (for example, China), free trade agreements such as GATT, the General Agreement on Tariffs and Trade, and NAFTA, the North American Free Trade Agreement, growing economies around the world, and increases in technology that facilitate global partnerships and competition all contribute greatly to increasing globalization.7 6 PART ONE MANAGING ETHICALLY AND GLOBALLY Opening of markets to foreign firms coupled with economic development increases market opportunities but simultaneously leads to greater global competition. In order to compete effectively in global markets, firms have sought increasingly to outsource activities to people and firms in lower-cost countries like India and China.8 Such actions were taken by the Junk Food Company as explained by Halvorson in the opening profile. And, the firm outsourced its manufacturing activities to overseas companies to reduce their costs, allowing Junk Food to successfully compete on price. Of course, global supply chains can also be risky because they are subject to more potential disruptions, such as host country government export and import controls and other regulations, terrorist actions, and more.9 Globalization promotes greater involvement in international markets. Thus, firms moving into international markets increasingly need to learn about other cultures and the institutional environments in these markets.10 Some firms have facilitated this learning process by developing multicultural management teams. These teams have managers who speak different languages and have knowledge about the markets and environments in different regions of the world in which the firms operate.11 Because of the complexities of operating in multiple countries and regions, some firms focus their international operations in one or a few specific regions of the world. In this way, they can develop the knowledge of the culture, markets, and institutions to operate there effectively.12 The changes and the complexities in the global economic environment are evident in the recent rankings of the world’s most innovative companies. In the first ten years of the twenty- first century, the United States lost 2.6 million manufacturing jobs to China. In addition to the development of low technology manufacturing capabilities, several Asian countries were build- ing the capacity to produce more sophisticated and higher technology products. Companies in these countries have also been developing their innovation capabilities. As a result, by 2010, 15 of the top 50 most innovative companies were based in Asia and a majority of the firms in the top 25 were based outside the United States. This ranking foretells of a major restructure of the global economy.13 Entering into international markets has become a critically important growth strategy for major firms worldwide.14 (Chapter 3 discusses, in further detail, globalization and how firms manage in a global environment.) Wal-Mart’s early entries into foreign markets such as Mexico and Japan were marked by errors suggesting the challenges of operating in foreign markets even for a highly successful and powerful company. But Wal-Mart’s management team learned from these mistakes and has since built its international operations into a $100 billion business. Wal-Mart’s success can be seen in its China unit. The company hires Chinese managers and sources much of its mer- chandise locally; still, managers have Wal-Mart values and are passionate about the company. It is expected that Wal-Mart will face additional challenges entering new foreign markets. For example, some analysts question its plans to enter the Russian market because of significant corruption. However, with Wal-Mart’s financial and political power along with its managerial skills developed from operating in other foreign markets, many believe that the firm is likely to succeed. Managing Resources A major part of a manager’s job is managing the organization’s resources. The manager must ensure the efficient use of resources but also use the resources in ways that maximize achieving the organization’s goals. Among the resources important to managers are financial capital, human capital, physical resources (such as buildings and equipment), and technology. Managers build and manage a portfolio of resources.15 To build the portfolio, they must acquire and develop the resources needed to complete the organization’s tasks. For example, managers need to recruit and select the best-possible employees, then continually develop their knowledge and skills.16 As employees are developed, their value to the organization increases. This implies that managers need to be effective evaluators of people’s skills in order to select the best candidates and identify the skills to be developed. Managers must also design and implement the means to promote learning in the organization.17 After building a portfolio of resources, managers must then allocate and coordinate these resources to accomplish the organization’s tasks.18 Managers are also responsible for developing and implementing a strategy to use the organization’s capabilities to accomplish its goals.19 A major dimension of coordination is interpersonal relationships, with other managers and with  CHAPTER 1 THE NATURE OF MANAGEMENT 7 A MANAGER’S CHALLENGE GLOBALIZATION Wal-Mart’s Global Strategy W al-Mart is the largest company in the world, with Wal-Mart was successful relative to most retailers during slightly more than $400 billion in annual sales. It serves the recent recession. Overall, it experienced sales growth, and more than 200 million customers with over 8,000 retail its international division was a major contributor because units. The company has 2.1 million employees and because U.S. sales declined. Approximately 25 percent of Wal-Mart’s of joint ventures and acquisitions, it operates under 53 dif- annual sales come from its international business. In fact, if ferent names in 15 countries. There is little doubt that Wal- its $100 billion international business were a stand-alone Mart is a major force in the global economy and has many company, it would be among the top five retailers in the more foreign markets to conquer with its current global world. Wal-Mart has plans to increase this unit by entering strategy. Although Wal-Mart has been highly successful in more markets with major operations such as India and the U.S. domestic market, its first forays into foreign Russia. In addition, the company plans to greatly reduce its markets were marked by mistakes and a few failures. For costs by moving to global sourcing directly from the manu- example, Wal-Mart’s first major retail store in Mexico had facturers, where possible. This move alone is expected to save a huge parking lot, similar to stores in the United States, the company billions of dollars. For goods unavailable in this but most customers arrived and departed by buses. And, it way, it has signed a major agreement with Li & Fung to serve also had some early product failures. For example, Wal- as a direct source for major merchandise needs. Li & Fung Mart tried to sell golf balls in Mexico even though most of will focus primarily on emerging markets for the goods. its customers are low-income and could not afford to play Through these efforts, Wal-Mart CEO David Duke expects golf. Wal-Mart has had to learn about and adapt to local the company to maintain its momentum as the global culture: in Japan, for example, low prices are equated with economy continues to improve. low-quality goods and few customers buy large quantities because of very small living quarters. Wal-Mart also had to Sources: K. Talley & K. O’Keeffe, “Wal-Mart, Li & Fung Sign Sourcing Deal,” Wall Street Journal, January 29, 2010, http://www.wsj.com; close operations in Korea and Germany, two major Company Web site, “Wal-Mart Leverages Global Scale to Lower Costs economies. of Goods, Accelerate Speed to Market, Improve Quality of Products,” Yet, the company has learned from early mistakes and http://www.walmart.com, accessed January 28, 2010; J. Krishna, “Bharti Wal-Mart Sets up Farm Produce Sourcing Center,” Wall Street has been more successful in its later entries into foreign Journal, January 20, 2010, http://www.wsj.com; N. Majahan-Bansal, markets. As an example, Wal-Mart has 260 retail outlets “Wal-Mart’s Strategy Through the World,” Business, October 20, 2009, and almost 90,000 employees in China. All of its stores in http://www.business.in.com; M. Boyle, “Wal-Mart’s Painful Lessons,” BusinessWeek, October 13, 2009, http://www.businessweek.com; China are operated by Chinese general managers. “China’s Retail Revolution: An Interview with Wal-Mart’s Ed Chan,” According to Ed Chan, Wal-Mart’s China CEO, all of the McKinsey Quarterly, October 2009, http://www.mckinseyquarterly management team are passionate about Wal-Mart’s values,.com; S. Rosenbloom, “Wal-Mart Outlines Plans to Keep Its Wal-Mart in China, and about China as well. Wal-Mart Momentum,” New York Times, June 6, 2009, http://www.nytimes.com; “Case Study: Wal-Mart Stumbles in Its Global Expansion Strategy,” in sources many of its products locally within China as well, D. M. DePamphilis, Mergers, Acquisitions, and Other Restructuring helping to keep costs low. Activities, http://knoll.google.com. employees. Managers’ interpersonal and communication skills are paramount in this process. We conclude that managers largely get things done with and through people in the organization. As a result, how they manage human capital is critical to their success. Anne Mulcahy, chairman and former CEO of Xerox, is largely credited with turning around that company’s performance. But Mulcahy claims Xerox employees were responsible for the turnaround. She stated that “... attracting them, motivating them, keeping them—making Xerox an employer of choice—is critical to our drive back to greatness.”20 These comments suggest that staffing the organization with the best human capital possible and further developing the knowledge and skills of employees is critical for the success.21 This conclusion emphasizes the importance of managing the organization’s resources (especially the people) to its ability to compete and survive in an increasingly competitive environment.22 8 PART ONE MANAGING ETHICALLY AND GLOBALLY Executives at Xerox know that the company is more than just its machines. Xerox’s CEO, Anne Mulcahy, has emphasized that the firm’s human capital (people) are critical to the company’s success in the highly competitive photocopier market. PhotoDisc/Getty Images Managing Strategically Managerial challenges create an incredibly complex, dynamic, and competitive landscape in which most managers must operate. To survive and perform well in such an environment, managers throughout the organization need to manage strategically.23 Managers at the top of the organization—CEOs like Steve Jobs at Apple—establish goals and formulate a strategy for achieving those goals. To accomplish the goals, the company must effectively implement the strategy, which requires managers at all levels of the organization to set and accomplish goals that contribute to the organization’s ultimate performance. The increasing globalization and the enhanced use of technology have contributed to greater changes emphasizing the importance of knowledge to organizational success.24 The importance placed on the intellectual capital of the organization requires managers to use their portfolio of resources effectively.25 Of primary importance are intangible resources such as the employees and the firm’s reputation. Managers are responsible for building an organization’s capabilities and then leveraging them through a strategy designed to give it an advantage over its competitors.26 They usually do this by creating more value for their customers than their competitors do.27 Managers are responsible for forming the strategies of the major units within the organization as well. Because people in the organization have to implement the strategy, managers must focus heavily on the human factor. As they implement their strategies, they will encounter conflicting conditions. Often this means managing multiple situations simul- taneously and remaining flexible to adapt to changing conditions. In fact, when Unilever experienced problems and changed its strategy in 2005, it also found it lacked the ability to implement and execute the strategy. Therefore, to improve its performance, the company developed and implemented a process called Strategy in Action (SIA). It follows a sequence of activities to which the firm refers as think, plan, deliver and review. The managers begin by developing and testing an excellent strategy followed by planning for its implementation by management teams through the organization. Management teams mobilize to accomplish the goals established in the implementation plan, followed by a review of the results and planning for improvement. This process is based on the principle of Japanese hoshin kanri, or policy deployment.28 Additionally, achieving an organization’s goals requires that managers commit them- selves to always being alert to how they can improve and strengthen strategies in advancing  CHAPTER 1 THE NATURE OF MANAGEMENT 9 the organization’s vision. Finally, the dynamic competitive landscape entails substantial change. To adapt to this change, managers should be innovative and entrepreneurial, continu- ously searching for new opportunities. Managing Entrepreneurially Managers should regularly search for new opportunities in the current marketplace or identify ideas that could create new markets.29 Entrepreneurship involves identifying new opportuni- ties and exploiting them.30 Thus, managers must be entrepreneurial. Entrepreneurial activity is not limited to new, small firms, however. Managers in large firms also must be entrepre- neurial and strive to create new businesses.31 Developing new businesses requires that the lead person, and perhaps others, take entrepreneurial actions. Given the amount of change and innovation encountered in most industries and countries, businesses cannot survive without being entrepreneurial.32 To be entrepreneurial, managers must develop an entrepreneurial mind-set. An entrepreneurial mind-set is a way of thinking about businesses that emphasizes actions to take advantage of uncer- tainty.33 With an entrepreneurial mind-set, managers can sense opportunities and take actions to exploit them. Uncertainty in the environment tends to level the “playing field” for organizations of all sizes. Whether an organization is rich or poor in resources, uncertainty enables them to identify and exploit opportunities to achieve competitive advantage. This is how Google, in its early days, beat larger, more powerful competitors. To develop an entrepreneurial mind-set, managers must first be alert to new ideas and use them to create value for customers.34 Both large and small firms and new and established firms can be entrepreneurial. For rea- sons described earlier, they not only can be, they must be to survive. Polaroid Corporation was once an entrepreneurial company and a market leader in instant photography. But the original Polaroid organization no longer exists: it lost its entrepreneurial nature and saw market share evaporate with the introduction of digital photography technology. The firm that bought the rights to the Polaroid name struggled and went out of business, selling the assets to an entre- preneur who intends to use them to sell specialty film to artists and the few remaining owners of Polaroid cameras. As a whole, small and new firms tend to be more entrepreneurial but Polaroid, once an entrepreneurial often lack the ability to sustain this advantage. On the other hand, large, established firms are company, and a former market good at using their size to gain an advantage and sustaining their positions as long as new, rival products don’t enter the market. However, larger firms have a more difficult time being leader, no longer exists because it entrepreneurial.35 lost its substantial market share to digital photography technology. Historical Approaches to Management While many think that management is a very new concept, it is not. Even ancient civilizations encountered managerial challenges and found ways to cope with them. More than 1,000 years ago, Chinese leaders searched for an effective means of governing a large organization (government) and expressed the importance of open communications and consideration of people’s needs. Additionally, Chinese leaders discussed the value of special- ized labor, hiring and promotions based on merit, and the need to clearly de- scribe jobs.36 The modern field of strategic management owes its origins to military history and an ancient Chinese warrior, Sun Tsu, and his book, The Art of War.37 Long ago, management was already being practiced in many parts of the world. The pyramids, for example, were designed and built in Egypt thousands of years ago. Completing these “wonders of the world” required a significant amount of planning, organization, and management of labor. Likewise, 2,000 years ago, the Roman Empire required effective management to build major monuments and an extensive network of roads and viaducts. Additionally, the development and growth of the Catholic church throughout the world required a significant amount of planning, organizing, and directing people’s efforts and activities. Patrick Strattner\Jupiter Images 10 PART ONE MANAGING ETHICALLY AND GLOBALLY The origins of what is often referred to as “modern management” are found in the Industrial Revolution, which began in England in the mid-eighteenth century and later spread to the United States and other regions of the world. While many have contributed to the development of management thought and practices, American engineer Frederick W. Taylor (1856–1915) is often credited as the “father of modern management.” Taylor’s work on linking workers’ incentives to their performance provided an important base for motivation theory applied to the workplace. He argued that pay was only part of the reward and that employees should be provided regularly with feedback on their performance. His primary legacy is the principles of scientific management that form the base for many of the different functions, roles, and activities of managers explored in this book.38 Research suggests that scientific management was a sophisticated theoretical approach that contributed to other fields as well as institutional economics.39 Many other people have contributed to modern management theory and practice over the course of the last two centuries. Among them are Frank and Lillian Gilbreth, who developed the beginnings of time and motion studies to determine the most efficient manner in which to complete tasks. Alfred P. Sloan (former CEO of General Motors) and Chester Barnard (an executive of AT&T) both contributed to our knowledge of how to build an efficient and effective organization. While Sloan focused on the formal aspects of organizing, such as the functions and divisions, Barnard emphasized the social characteristics of organizing, such as cooperation, building com- mon purpose, and the importance of communication. Mary Parker Follett and Douglas McGregor focused on the importance and value of leadership in organizations. Follett espoused principles related to the importance of integra- tion and treating employees as partners. Similarly, McGregor is best known for promoting “Theory Y” leadership practices with positive assumptions about human nature in which positive leadership can bring forth greater efforts and levels of achievement from employees. And Abraham Maslow and Frederick Herzberg made major contributions to our knowledge of motivation that continue to be present in managerial practices today. Maslow is best known for his “hierarchy of needs” theory and Herzberg for proposing the independence of motivators and hygiene factors. Both of these individuals’ ideas led to the concept of job enrichment used to design tasks that more effectively motivate employees and use more of their skills.40 A more detailed discussion of the history of management thought and practice is presented in the Appendix. The ideas of these management pioneers are evident in the discussion of what managers do in the following sections. What Do Managers Do? In the opening profile about Blaine Halvorson, we learn that management has many dimensions. Halvorson’s first attempt to design and sell clothes was successful because he created a product the market desired. Yet, he was unable to satisfy that demand. He did not know how to develop and manage an organization. His description of what he did in developing and managing Junk Food to be a successful company shows a number of managerial tasks that he had to complete, which include many of the functions described in this section. There are several ways to examine managers’ jobs aside from observing what managers do. Over the years, several systems have been developed to classify (1) managerial functions, (2) the roles in which managers operate, and (3) the characteristics and dimensions of managerial jobs. These typologies can provide useful ways to examine the varied nature of managerial jobs and responsibilities. In effect, they provide a road map for understanding what management is. One way to think about the question “What do managers do?” is to analyze their work according to the different functions that they perform. The first such classification system dates back at least 80 years and, after more than eight decades, this system remains widely used by management scholars and writers.41 A variation of this traditional typology forms the basis for the general sequencing of the chapters in this book (as well as most other textbooks on the subject of management). The four principal managerial functions most applicable to modern organizations are planning, organizing, directing, and controlling.  CHAPTER 1 THE NATURE OF MANAGEMENT 11 Planning Planning involves estimating future conditions and circumstances and, based on these estimations, planning making decisions about the work of the manager and for all employees for whom she or he is estimating future conditions and responsible. This function involves at least three distinct levels or types: circumstances and making decisions about appropriate 1. Strategic planning, which addresses strategic actions designed to achieve the organization’s courses of action long-range goals:42 2. Tactical planning, which translates strategic plans into actions designed to achieve specific and shorter-term goals and objectives;43 and 3. Operational planning, which identifies the actions needed to accomplish the goals of particular units of the organization or particular product lines in their respective markets.44 Planning is important in large and small organizations and in new and established companies. It may be even more important in new and small businesses because they rarely have a surplus of resources available to overcome major mistakes.45 Firms that do not plan are frequently unpre- pared for the unexpected. When unexpected events occur, the firms’ performance suffers, and they may have to take extraordinary actions.46 Thus, planning is a highly important managerial function.47 Organizing To conduct managerial work, resources must be integrated systematically, and this function is called organizing. It involves identifying the appropriate structure of relationships among organizing positions, and the people occupying them, and linking that structure to the overall strategic systematically integrating resources direction of the organization.48 Because today’s world is full of uncertainties and ambigui- to accomplish tasks ties, organizing is a critical function of managers. At its most basic level, the purpose of this managerial function is the attempt to bring order to the organization. Without it, chaos would ensue. Most people think of the organization structure as represented by an organization chart. An organization chart informs others about some portions of the formal structure; yet, organ- izing involves much more. For example, decisions about what units should be represented on the firm’s project teams are a part of organizing.49 The degree of autonomy granted to these units is a managerial organizing decision. Often firms producing modular products also have autonomous modular organization units.50 Such units are becoming more common when inte- grating units from acquired businesses and when establishing international subsidiaries.51 As a result, the organizing function of management is complex and challenging. Home Depot had a decentralized organizational structure prior to Bob Nardelli becoming CEO. The firm’s store managers had a great deal of autonomy to select products and offer serv- ices that satisfied local customers. And, the company achieved significant success using this structure. However, because Nardelli felt the decentralized structure was costly and inefficient, he implemented a centralized structure along with a strong monitoring and control system (for example, a centralized inventory control system). While the new structure was more efficient, it also eroded the entrepreneurial spirit and customer satisfaction suffered. As a result, Home Depot lost market share to competitors and its financial performance declined. These outcomes suggest that organizational structure matters a great deal. This case example also suggests the importance of leadership in developing and implementing changes. Leadership is an important dimension of directing; the next topic to be examined. Directing This function has typically had a number of different labels over the years. Directing is the directing process of attempting to influence other people to attain the organization’s objectives. It heav- the process of attempting to ily involves leading and motivating those for whom the manager is responsible, interacting with influence other people to attain them effectively in group and team situations, and communicating in ways that acknowledge an organization’s objectives and support their efforts to accomplish tasks and achieve organizational goals. Directing has several dimensions, including leadership, motivation, communication, and managing groups or teams. 12 PART ONE MANAGING ETHICALLY AND GLOBALLY CHANGE A MANAGER’S CHALLENGE The Failure of Home Depot’s Organizational Structure Changes H ome Depot was known for its entrepreneurial approach and customer service. To promote an entrepreneurial spirit Charlie Neibergall\AP Wide World Photos and strong customer service, the company was highly decentralized, with much autonomy given to each store in serving its local community and customers. Flexibility of action was valued even at the department level within a store. As a result, Home Depot grew to be large and highly successful. Its sales grew to $45 billion in 2000 from its beginnings in 1979, earning it the title of the fastest- growing retailer in U.S. history. In 2000 Home Depot hired a new CEO: former GE CEO, Frank Blake, (Bob Nardelli’s successor) refocused the executive Bob Nardelli. Nardelli was alarmed at what he business on its original structure with a more considered a lack of control and the need to reduce costs. entrepreneurial spirit. Customer satisfaction once again Thus, he implemented an aggressive plan to institute increased, helping the firm remain financially fit. controls that effectively centralized many merchandise and supply decisions. He bought self-checkout equipment and inventory control systems. The investment of almost $1 employees declined significantly and turnover occurred. billion in new technology allowed top managers to Home Depot’s customer service also declined and competi- measure better the activities at the store level and local tors such as Lowes attained a foothold, taking market share managers were then held accountable for their numbers. away from Home Depot. As a result, Home Depot’s stock Yet, while these centralized controls helped to manage the market performance suffered. Finally, partly because of costs, morale of the many managers and employees these problems and in a dispute with the board of directors, suffered. Bob Nardelli resigned. The management model implemented was more of a The new CEO, Frank Blake, managed to stop the skid military style with a hierarchical approach to decision mak- by closing Home Depot’s specialty stores, refocusing on its ing, emphasizing control and efficiency—a stark contrast to prime business and eliminating expansion, especially dur- the decentralized decision making and entrepreneurial cul- ing the recent economic recession. While the reduction in ture that exist