Management Notes PDF

lOMoARcPSD|25794848 MGMT Notes All Chapters Principles of Management (University of Guelph) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Trilo ([email protected]) ...

lOMoARcPSD|25794848 MGMT Notes All Chapters Principles of Management (University of Guelph) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 Chapter 1: Introduction to Management and Organizations - Management: coordinating work activities so that they are completed efficiently and effectively with and through other people. - Efficiency: getting the most output from the least amount of inputs. - Effectiveness: completing activities so that organizational goals are achieved. - Manager: someone who works with and through other people by coordinating their work. - Organization: a deliberate arrangement of people who act together to accomplish some specific purpose. Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Nonmanagerial employees: people who work directly on a job or task and have no responsibility for overseeing the work of others. - Top managers: managers at or near the top level of the organization, who are responsible for making organization-wide decisions and establishing the plans and goals that affect the entire organization. - Middle managers: managers between the first-line level and the top level of the organization, who manage the work of first-line managers. - Lower-level managers: managers at the lowest level of the organization, who manage the work of nonmanagerial employees directly or indirectly involved with the production or creation of the organization’s products. - First-line managers: supervisors responsible for directing the day-to-day activities of nonmanagerial employees. - Team leaders: individuals who are responsible for managers and facilitating the activities of a work team. Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Private sector: the part of the economy run by organizations that are free from direct government control; enterprises in this sector operate to make a profit. - Publicly held organization: a company whose shares are available on the stock exchange for public trading by brokers/dealers. - Privately held organizations: companies whose shares are not available on the stock exchange but are privately held. - Nonprofit sector: the part of the economy run by organizations that operate for purposes other than making a profit (that is, providing charity or services). - Nongovernmental organization (NGO): a nongovernmental organization that emphasizes humanitarian issues, development, and sustainability. - Public sector: the part of the economy directly controlled by the government. - Civil servants: people who work in a local, provincial, or federal government department. - Crown corporations: commercial companies owned by the government but independently managed. - Universality of management: the reality that management is needed in all types and sizes of organizations, at all organizational levels, in all organizational work areas, and in organizations in all countries around the globe. - Management functions: planning, organizing, leading, and controlling - Planning: a management function that involves defining goals, establishing a strategy for achieving those goals, and developing plans to integrate and coordinate activities. - Organizing: a management function that involves determining what tasks are to be done, who is to do them, how the tasks are to be grouped, who reports to whom, and where decisions are to be made. - Leading: a management function that involves motivating subordinates, directing the work of individuals or teams, selecting the most effective communication channels, and resolving employee behaviour issues. - Controlling: a management function that involves monitoring actual performance, comparing actual performance to a standard, and taking corrective action when necessary. - Management roles: specific categories of managerial behaviour. Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - 4 general management skills: conceptual, interpersonal, technical, and political. - Conceptual skills: a manager’s ability to analyze and diagnose complex situations to see how things fit together and to facilitate making good decisions. - Interpersonal skills: a manager’s ability to work with, understand, mentor, and motivate others, both individually and in groups. - Technical skills: job-specific knowledge and techniques needed to perform work tasks. - Political skills: a manager’s ability to build a power base and establish the right connections to get needed resources for their groups. - Social media: forms of electronic communication through which users create online communities to share ideas, information, personal messages, and other content. - Sustainability: a company’s ability to achieve its business goals and increase long-term shareholder value by integrating economic, environmental, and social opportunities into its business strategies. - Inherent diversity: the gender, racial, and socioeconomic diversity of an organization. Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Acquired diversity: a company’s acquisition of a global mindset and social media skills to enable it to better understand and appreciate diversity. - Reverse mentoring: a junior employee providing insight and expertise on a certain topic to a senior executive. - Group mentoring: millennials sharing ideas in groups in a peer-to-peer format. - Anonymous mentoring: using a mentor outside an organization who can provide anonymity and perspective. Supplement 1A – A Brief History of Management - Early Management o Management has been practised a long time o Organized endeavours directed by people responsible for planning, organizing, leading, and controlling activities have existed for thousands of years. o Regardless of what these individuals were called, someone had to perform those functions o Industrial Revolution: the advent of machine power, mass production, and efficient transportation that began in the late eighteenth century in Great Britain. o Division of labour (or job specialization): the breakdown of jobs into narrow repetitive tasks. - Classical Approaches o Beginning around the start of the twentieth century, the discipline of management began to evolve as a unified body of knowledge. o Rules and principles were developed that could be taught and used in a variety of settings o These early management proponents were called classical theorists o Scientific management: the use of the scientific method to define the one best way for a job to be done. o General administrative theory: descriptions of what managers do and what constitutes good management practice. o Principles of management: Fayol’s fundamental or universal principles of management practice. - Behavioural Approach Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Focused on actions of workers o How do you motivate and lead employees in orders to get high levels of performance? o Hawthorne studies: research done in the late 1920s and early 1930s devised by Western Electric industrial engineers to examine the effect of different work environment changes on worker productivity, which led to a new emphasis on the human factor in the functioning of organizations and the attainment of their goals. o Organizational behaviour (OB): the field of study that researches the actions (behaviours) of people at work. - Quantitative Approach o Focuses on application of stats, optimization models, information models, computer simulations, and other quantitative techniques to management activities o Provided tools for managers to make their jobs easier o Quantitative approach: the use of quantitative techniques to improve decision making. o Total quality management (TQM): a managerial philosophy devoted to continual improvement and responding to customer needs and expectations. - Contemporary Approach o Most of the early approaches to management focused on managers’ concerns inside the organization o Starting in the 60s, management researchers began to look at what was happening in the external environment outside the organization o Systems approach: an approach to management that views an organization as a system, which is a set of interrelated and interdependent parts arranged in a manner that produces a unified whole. o Open systems: systems that dynamically interact with their environment. Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Contingency approach (or situational approach): an approach to management that says that individual organizations, employees, and situations are different and require different ways of managing. Supplement 1B – Small and Medium-Sized Enterprises and Organizations - Small and medium-sized enterprises (SMEs) refer to all businesses with fewer than 500 employees, whereas firms with 500 or more employees are classified as “large” businesses - Canada has more than 1.5 million SMEs which generate close to half of Canada’s private-sector GDP - Majority of SMEs are self-managed enterprises - Biggest challenges for SMEs are o finding new markets and customers o dealing with finances o handling government regulations and paperwork - Failure rates are relatively high in first few years after startup - Debt financing is primary source of financing for SMEs - Use more informal financing sources, including owner savings and retained earnings - Use of government financing is less important for SMEs than other types of financing - Small and medium-sized organizations (SMOs) are community organizations that, like SMEs, have fewer than 500 paid staff - SMOs comprise nearly 99% of nonprofits in Canada - The term community organization is used broadly to include a wide variety of nonprofit organizations in Canada: charitable and voluntary orgs.; parapublic orgs. such as hospitals and postsecondary education institutions; and social economy orgs., community economic development orgs., and cooperatives - SMOs participate fully in social, economic, community, and civic life - The run food banks and homeless shelters, provide childcare, build bike paths, and welcome new Canadians to the country - Governments at all levels rely on community orgs. to deliver essential public services - SMOs face significant challenges including: o increasing service demands o diminishing financial resources o staff burnout - receive most revenue from earned income and government recourses - large community orgs. represent less than 1% of market but receive almost 1/3 of revenues Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 Chapter 2: Environmental Constraints on Managers The External Environment - Managers are faced with opportunities and challenges of managing in a global environment - External environment: outside forces and institutions that can potentially affect the organization’s performance o Made up of 3 components: the specific environment, the general environment, and the global environment - Specific environment: the part of the external environment that is directly relevant to the achievement of an organization’s goals o Represents the micro level and includes those external forces that have a direct and immediate impact on manager’s decisions and actions - Managers are affected by the nature of the relationships they have with external stakeholders o The more obvious and secure these relationships become, the more influence managers will have over organizational outcomes Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Stakeholders: any constituencies in the organization’s external environment that are affected by the organization’s decisions and actions - They have stake in or are significantly influenced by what the org. does - In turn, these groups can influence the org. - Stakeholders include external and internal groups because both affect what an org. does and how it operates - Internal stakeholders are often called primary stakeholders in that they engage in direct transactions with the business (such as shareholders, customers, suppliers, creditors, and employees) - Secondary stakeholders are predominantly external and are on the periphery but can still be impacted by or have some influence on the org. (such as the general public, local communities, and the media) - Taking stakeholders’ interests into account in management decisions can lead to organizational outcomes such as improved predictability of environmental changes, more successful innovations, a greater degree of trust among stakeholders, and greater organizational flexibility to reduce the impact of change - An org. depends on these external groups as sources of input (resources) and as outlets for outputs (goods and services), and managers should consider these external groups’ interests as they make decisions and take actions - The more critical the stakeholder and the more uncertain the environment, the more managers need to rely on establishing explicit stakeholder partnerships rather than just acknowledging their existence. - General environment: broad external conditions that may affect the organization o Represents the macro level and includes the broad political, economic, sociocultural, technological, environmental, and legal conditions that may affect the org. - Changes in any of these areas usually do not have as large an impact as changes in the specific environment, but managers must consider them as they plan, organize, lead, and control - PESTEL is an acronym for the 6 macro environmental factors - Political Conditions: o Include political climate, the general stability of a country in which an org. operates, and the attitudes that elected government officials hold toward business o Influences businesses and also has major impact on consumer confidence and spending o In Canada, orgs. have generally operated in stable political environment o Stability allows businesses to invest in and enter new markets o Orgs. spend great deal of time and money meeting gov’t regulations, but the effects of these regulations go beyond time and money o Can reduce managerial discretion by limiting the choices available for managers Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o The Competition Act of 1985 created the Bureau of Competition Policy (now called the Competition Bureau) to oversee and encourage competition in Canada. - Economic Conditions: o Interest rates, inflation, changes in disposable income, stock market fluctuations, and the stage of the general business cycle are some examples of the economic factors that can affect management practices in Canada o Economic indicators such as GDP, price indices, and unemployment are used to reflect the health of the economy o GDP is the broadest indicator of a country’s economic activity, expressed in the market value of goods and services produced in a country o Consumer price index (CPI) measures purchasing power and rises and falls with inflation and deflation o Has an impact on wages paid and the prices of products and services o Unemployment rate is calculated by the number of workers above 16 who are not working o There are several complicating factors, such as seasonal and cyclical changes, but the unemployment rate is used by gov’t and businesses for planning purposes o The sharing economy is an economic environment in which asset owners share with other individuals through a peer-to-peer service, for a fee, their utilized physical assets (such as a home, car, clothing, tools, or other physical assets)  Companies that are a part of the sharing economy are Airbnb, Uber, Zipcar, SnapGoods, Kickstarter, and MeetUp  Some analysts have included the sharing of knowledge, expertise, skills, or time as well o Concept of sharing economy is to put underutilized assets to good use o Asset owners rent out assets they’re not using to consumers who need those assets but don’t want to or who can’t afford to purchase them. o Some economics experts have said that these arrangements aren’t really “sharing” but better described as market-mediated, since there’s a service or company that mediates the exchange between consumers o They suggest that the arrangement is more like an “access economy,” because what consumers are looking for is convenient access to assets they need but don’t have, and they’re not concerned with developing a business or social relationship with the asset owner - Sociocultural Conditions: o Managers must adapt their practices to the changing expectations of the societies in which they operate o As societal values, customs, and tastes change, managers also must change o These trends may pose a constraint on managers’ decisions and actions o If an org. does business in other countries, managers need to be familiar with those countries Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Values and cultures and manage in ways that recognize and embrace those specific sociocultural aspects o Demographics are part of sociocultural conditions and encompass trends in the physical characteristics of a population, such as gender, age, level of education, geographic location, income, family composition, and so forth o Changes in these characteristics may constrain how managers plan, organize, lead, and control - Technological Conditions: o Most rapid changes have occurred in technology o There is continuous technological change o Information gadgets are getting smaller and more powerful o Automated offices, electronic meetings, robotic manufacturing, lasers, integrated circuits, faster and more powerful microprocessors, synthetic fuels, and entirely new models of doing business in an electronic age o Companies that capitalize on technology prosper o Many successful retailers, such as Walmart, use sophisticated info systems to keep on top of current sales trends o Similarly, hospitals, universities, airports, police departments, and even military orgs, that adapt to major tech. advances have a competitive edge over those that do now o Whole area of tech is radically changing the fundamental ways that orgs. are structured and the way that managers manage - Environmental Conditions: Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Environment has become a bigger issue in terms of sustainability of raw materials o Triple bottom line approach indicates the importance of the environmental bottom line for companies o Reducing carbon footprint has become a focus for many orgs. as they attempt to reduce waste; protect air, water, and land quality; and increase biodegradable and recyclable packaging - Legal Conditions: o Often closely related to political environment because laws and regulations are enacted by politicians o Laws related to employment, health and safety, and product safety can have a major impact on how businesses operate o Federal, provincial, and local governments influence what organizations can and cannot do o Some federal legislation has significant implications o Canadian Human Rights Act makes it illegal for any employer or service provider falling within federal jurisdiction to discriminate on the following grounds: race, national or ethnic origin, colour, religion, age, sex (including pregnancy and childbirth), marital status, family status, mental or physical disability (including previous or current drug or alcohol dependence), pardoned conviction, or sexual orientation o The Act covers federal departments and agencies, Crown corporations, chartered banks, national airlines, interprovincial communications and telephone companies, interprovincial transportation companies, and other federally regulated industries, including certain mining operations Understanding the Global Environment - Global environment presents both opportunities and challenges for managers - With entire world as a market and national borders becoming increasingly irrelevant, the potential for orgs. to grow is expanding drastically - Large successful orgs. with talented managers face challenger in managing global environment - Managers must deal with cultural, economic, and political differences - New competitors can suddenly appear at any time from any place on the globe - Managers who make no attempt to learn and adapt to changes in the global environment end up reacting rather than innovating - As a result, orgs. often become uncompetitive and fail - Important feature is global trade - When trade is allowed to flow freely, countries benefit from economic growth, and productivity gains because they produce the goods they are best at producing and import goods that are efficiently produced elsewhere - Global trade is constantly changing for countries like Canada Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 PESTEL–Global Environment - Canadian managers are accustomed to stable legal and political systems - Changes are slow, and legal and political procedures are well established - Stability of laws governing the actions of individuals and institutions allows for accurate predictions - Managers in global orgs. must stay informed of the specific laws in countries where they do business - Some countries have a history of unstable gov’ts; managers of businesses in these countries face dramatically greater uncertainty as a result of political instability or interference - Managers must recognize these differences to understand the constraints under which they operate and the opportunities that exist - Global manager must also be aware of economic issues when doing business in other countries - Understanding the type of economic system under which the country operates is crucial - Two major types are market economy and a planned economy o Market economy: an economic system in which resources are primarily owned and controlled by the private sector o Planned economy: an economic system in which all economic decisions are planned by a central government o No economy is purely market or planned - Managers need to know about a country’s economic system because it has the potential to constrain decisions and actions - Other economic issues a manager would need to understand include currency exchange rates, inflation rates, and diverse tax policies What it Means to be Global - There are 3 different ways for organizations to be considered global - Orgs. are considered global if they exchange goods/services with consumers in other countries - Such market globalization is the most common approach to being global - Many orgs., especially high-tech orgs., are considered global because they use managerial and technical employee talent from other countries - One factor that effects talent globalization is immigration laws and regulations - Managers must be alerted to changes in those laws - Also can be considered global if it uses financial sources and resources outside its home country, which is known as financial globalization - Global economic slowdown severely affected the availability of financial resources globally Different Types of Global Organizations - Orgs. in different industries and from different countries are pursuing global opportunities Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Multinational corporation (MNC): a broad term referring to any and all types of international companies that maintain operations in multiple countries - Multidomestic corporation: an international company that decentralizes management and other decisions to the local country o Relies on local employees to manage the business o Tailors strategies to each country’s unique characteristics o Is used by many consumer product companies - Transnational (borderless) organization (TNC): a type of international company in which artificial geographical barrier are eliminated o Country of origin o place where business is conducted becomes irrelevant o Increases efficiency and effectiveness in a competitive global marketplace - Global corporation: an international company that centralizes management and other decisions in the home country o The world market is treated as an integrated whole o Focus is on control and global efficiency How Organizations Go Global - Often use different approaches depending on whether they are just starting or have been doing business internationally for a while - During initial stages of going global, managers look at ways to get into a global market without having to invest a lot of capital - At this stage, companies may start with global sourcing (also called global outsourcing) o Global sourcing: purchasing materials or labour from around the world, wherever they are cheapest - The goal is to take advantage of lower costs in order to be more competitive - Although global sourcing is often the first step in going global, many orgs. continue to use this approach even as they become more international, because of the competitive advantages it offers - Beyond global sourcing, each successive stage of becoming more international requires more investment and thus entails more risk for the org. - Importing and Exporting: Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Exporting: an approach to going global that involves making products at home and selling them abroad o Importing: an approach to going global that involves acquiring products made abroad and selling them at home o Both exporting and importing are small steps toward becoming a global business and usually involve minimal investment and minimal risk o Many orgs. start doing business globally this way o Many, especially small businesses, continue with exporting or importing as the way they do business globally - Licensing and Franchising: o Some managers use licensing or franchising in the early stages of doing business internationally o Licensing and franchising are similar in that they both involve one organization giving another the right to use its brand name, technology, or product specifications in return for a lump-sum payment or a fee that is usually based on sales o Licensing: an approach to going global in which a manufacturer gives another organization the right to use its brand name, technology, or product specification o Franchising: an approach to going global in which a service organization gives a person or group the right to sell a product, using specific business methods and practices that are standardized o Involve more risk and investment than exporting and importing because the company’s brand is more at stake - Strategic Alliance: o Once an org. has been doing business internationally for some time and has gained experience in international markets, managers decide to make a more direct investment o Strategic alliance: an approach to going global that involves a partnership between a domestic and a foreign company in which both share resources and knowledge in developing new products or building production facilities o The partners also share the risks and rewards of this alliance o Finding a partner is not always easy though o Joint venture: an approach to going global in which the partners agree to form a separate, independent organization for some business purpose; it is a type of strategic alliance o These partnerships provide a faster and more inexpensive way for companies to compete globally than doing it on their own - Foreign Subsidiary: o Foreign subsidiary: an approach to going global that involves a direct investment in a foreign country by setting up a separate and independent production facility or office o Can be managed as a MNC (domestic control) or a TNC organization (foreign or global control) Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o This arrangement involves the greatest commitment of resources and poses the greatest amount of risk Which is More Important to a Manager: National Culture or Organizational Culture? - Geert Hofstede developed one of the most widely references approaches to understanding 6 key dimensions of national cultures - National culture: the values and attitudes shared by individuals from a specific country that shape their behaviour and beliefs about what is important - Hofstede indicates that national culture has a greater effect on employees than does their organization’s culture Organizational Culture - Organizational culture: a system of shared values, norms, and beliefs held by organization members that determines, in large degree, how employees act - Represents a common perception held by an organization’s members that influences how they behave - In every org., there are values, symbols, rituals, myths, and practices that have evolved over time Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - These shared values and experiences mainly determine what employees perceive and how they respond to their world - When faced with problems or issues, the organizational culture–the way we do things around here–influences what employees can do and how they conceptualize, define, analyze, and resolve issues - Definition of organizational culture implies 3 things: o Culture is perceived, shared, and descriptive - 7 dimensions that capture the essence of an org.’s culture - Each dimension ranges from low (not very typical of the culture) to high (very typical of the culture) - Appraising an org. on these 7 dimensions gives a composite picture of the org.’s culture - In many orgs., one of these cultural dimensions is often emphasized more than the others essentially shapes the org.’s personality and the way org. members work Strong Versus Weak Cultures - Although all orgs. have cultures, not all cultures have an equal impact on employees’ behaviour and actions - Strong cultures: organizational cultures in which the key values are deeply and widely shared - Strong cultures have a greater influence on employees than do weak cultures - The more employees accept the org.’s key values and the greater their commitment to those values, the stronger the culture is Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Whether an org.’s culture is strong, weak, or somewhere in between depends on factors such as the size of the org., how long it have been around, how much turnover there has been among employees, and the intensity with which the culture began - Some orgs. do not make clear what is important and what is not - This lack of clarify is a characteristic of weak cultures - In such orgs., culture is unlikely to greatly influence managers - Most orgs., however, have moderate to strong cultures - There is relatively high agreement on what is important, what defines “good” employee behaviour, what it takes to get ahead, and so forth - Strong cultures are associated with high organizational performance - It is easy to understand why a strong culture enhances performance - After all, when values are clear and widely accepted, employees know what they are supposed to do and what is expected of them - They are able to act quickly to take care of problems, preventing any potential performance decline - Drawback is that the same strong culture might prevent employees from trying new approaches, especially during periods of rapid changes - Strong cultures do not always yield positive results Developing an Organization’s Culture - An org.’s culture is derived from the founders’ philosophy - The culture, in turn, strongly influences the selection criteria used to hire new employees - Clan control requires careful selection and socialization of employees who will support the org.’s culture, both of which include making sure to manage diversity in the workforce - The actions of the current top managers set the general expectations as to what is acceptable behaviour and what is not Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Through the socialization process, new employees learn the org.’s way of doing things - If socialization is successful, new employees will learn the values of the org. and behave accordingly, and the org.’s culture will be preserved - Org. culture constrains a manager’s decision-making options in all management functions How the Environment Affect Managers - Knowing what the various components of the environment are is important to managers - Understanding how the environment affects managers is equally important - Environment affects managers through the degree of environmental uncertainty that is present, through the various stakeholder relationships that exist between the org. and its external constituencies, and through the challenges of managing in a global environment Assessing Environmental Uncertainty - Not all environments are the same - Environmental uncertainty: the degree of change and the degree of complexity in an organization’s environment - The first dimension is the degree of change o If components in an org.’s environment change frequently, we call it a dynamic environment o If change is minimal, we call it a stable environment o A stable environment might be one in which there are no new competitors, few technological breakthroughs by current competitors, little activity by pressure groups to influences the org., and so forth - The second dimension of uncertainty describes the degree of environmental complexity Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Environmental complexity: the number of components in an organization’s environment and the extent of the organization’s knowledge about those components o The fewer competitors, customers, suppliers, government agencies, and so forth that an org. must deal with, the less complex and, therefore, the less uncertainty in its environment - Complexity is also measured in terms of the knowledge an organization needs to have about its environment - Because uncertainty is a threat to an org.’s effectiveness, managers try to minimize it - Given a choice, managers would prefer to operate in environments such as those in cell one - However, they rarely have full control over that choice - Most industries today are facing greater dynamic change, making their environments more uncertain - Thus, managers need to consider the environment they currently face, as well as thinking ahead about possible changes in the environment, and act accordingly - In a simple, stable environment, a manager may decide to continue doing things in the usual way - In a dynamic, complex environment, a manager may want to establish plans to keep the organization ahead of competitors or develop new niches in which to operate Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 Chapter 3: Decision Making The Decision-Making Process: - Decision: a choice from two or more alternatives - Decision making is a comprehensive process, not just a simple act of choosing among alternatives - Decision-making process: a set of eight steps that includes identifying a problem, selecting an alternative, and evaluating the decision’s effectiveness - Many individuals use most or all of the steps implicitly, if not explicitly - Often, when a poor decision is made, it is because one of the steps was not carefully considered - Step 1: Identify a Problem o Problem: a discrepancy between an existing and a desired state of affairs o Decision-making process starts with existence of a problem o Problem identification is subjective o A manager who mistakenly solves the wrong problem perfectly is just as likely to perform poorly as the manager who fails to identify the right problem and does nothing o Managers have to make a comparison between current reality and some standard, which can be (1) past performance, (2) previously set goals, or (3) the performance of some other unit within the organization or in other organizations - Step 2: Identify Decision Criteria o Decision criteria: criteria that define what is relevant in making a decision o Decision criteria must be identified to solve the problem o Every decision maker has criteria, whether explicitly stated or not, that guide their decision making o Note that in this step in the decision-making process, what’s not identified can be as important as what is because it’s still guiding the decision - Step 3: Allocate Weights to Criteria o If the criteria in step 2 are not equally important, the decision maker must weigh the items in order to give them the correct priority in the decision o A simple approach is to give the most important criterion a weight of 10 and then assign weights to the rest against that standard o A criterion with a weight of 10 would be twice as important as one given of 5 o Could use 100 or 1000 or any number you select as the highest weight Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Idea is to prioritize the criteria identified in step 2 by assigning a weight to each - Step 4: Develop Alternatives o Fourth step requires the decision maker to list viable alternatives that could successfully resolve the problem o No attempt is made in this step to evaluate these alternatives, only to list them - Step 5: Analyze Alternatives o Once the alternatives have been identified, the decision maker critically analyzes each one o Analyzed by evaluating it against the criteria o Strengths and weaknesses of each alternative becomes evident as they’re compared with the criteria and weights established in steps 2 and 3 o The point is that most decisions by managers involve judgements–the criteria chosen in steps 2, the weights given to the criteria in step 3, and the analysis of alternatives in step 5 - Step 6: Select an Alternative o Choose the best alternative from among the ones assessed o Because we determined all the pertinent factors in the decision, weighted them appropriately, and identified and assessed the viable alternatives, this step is fairly simple o We choose the alternative that generated the highest score in step 5 - Step 7: Implement the Alternative o Concerned with putting the decision into action o This step involved conveying the decision to those affected by it and getting their commitment to it o Managers often fail to get buy-in from those around them before making a decision, even though successful implementation requires participation - Step 8: Evaluate Decision Effectiveness o Managers appraise the outcomes of the decision to see whether the problem was resolved Factors Affecting Decision Making: - Everyone in an organization makes decisions, but it is particularly important to managers - Managers makes decisions–mostly routine one like which employee will work what shift, what information to include in a report, how to resolve a customer’s complaint, and so on– as they plan, organize, lead, and control - Managers want to be good decision makers and exhibit good decision-making behaviours so they appear competent and intelligent to their boss, employees, and co- workers Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - 3 approaches managers use to make decisions - Rational decision making: making decisions that are consistent and value-maximizing within specified constraints - Bounded rationality: limitations on a person’s ability to interpret, process, and act on information o Most decisions managers make do not fit the assumption of perfect rationality o No one can possibly analyze all the info on all the alternatives, so they satisfice rather than spend time and resources trying to maximize o Satisfice: to accept solutions that are “good enough” o Most managerial decisions do not fit the assumption of perfect rationality but can still be influences by (1) the org.’s culture, (2) internal politics, (3) political considerations, and (4) a phenomenon called escalation of commitment–an increased commitment to a previous decision despite evidence that it may have been wrong o May escalate commitment to a bad decision for two reasons: (1) they hate to admit that their initial decision may have been flawed, and (2) they do not want to search for new alternatives Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Intuitive decision making: making decisions on the basis of experience, feelings, and accumulated judgement Types of Problems and Decisions: - The types of problems managers face in decision-making situations often determine how a decision is handled - How do problems differ? - Some problems are straightforward; the goal of the decision maker is clear, the problem familiar, and info about the problem easily defines and complete - Structured problems: a straightforward, familiar, and easily defined problem Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Ex. supplier late with important delivery, customer who wants to return purchase, university help student with financial aid - Unstructured problems: problems that are new or unusual and for which information is ambiguous or incomplete o Decision to enter new market segment, hire architect to design new office park, merge two orgs., decision to invest in new unproven tech - Decisions are divided into two categories: programmed and nonprogrammed - Programmed, or routine, decisions are the most efficient way to handle structured problems - Programmed decision: a repetitive decision that can be handled using a routine approach - Decisions are programmed to the extent that (1) they are repetitive and routine and (2) a specific approach has been worked out for handling them - Because the problem is well structured, the managers does not have to go to the trouble and expense of an involved decision process - Programmed decision making is relatively simple and tends to rely heavily on previous solutions - The develop-the-alternatives stage in the decision-making process is either nonexistent or given little attention - Once the structured problem is defined, its solution is usually self-evident or at least reduced to only a few alternatives that are familiar and that have proved successful in the past - Procedure: a series of interrelated, sequential, steps used to respond to a structured problem - Only real difficulty is identifying the problem - Once the problem is clear, so it the procedure - Rule: an explicit statement that tells a decision maker what they can or cannot do - Rules are frequently used by managers who confront a structured problem because they’re simple to follow and ensure consistency - Policy: a guideline for making a decision - Policies provide guidelines to channel a manager’s thinking in a specific direction - Ex. of a policy is “we promote from within, whenever possible” - In contrast to a rule, a policy establishes parameters for the decision maker rather than specifically stating what should or should not be done - Policies often leave interpretation up to the decision maker - When problems are unstructured, managers must rely on nonprogrammed decisions to develop unique solutions - Nonprogrammed decisions: decisions that are unique and nonrecurring and require custom-made solutions o Ex. deciding whether to acquire another org., deciding which global markets offer the most potential, or deciding whether to sell off an unprofitable division - When a manager confronts an unstructured problem, no cut-and-dried solution is available - A custom-made, nonprogrammed response is required Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Creation of a new organizational strategy is a nonprogrammed decision - This decision is different from previous organizational decisions because the issue is new; a different set of environmental factors exists and other conditions have changed Decision-Making Conditions: - When managers make decisions, they face 3 conditions: certainty, risk, and uncertainty - Certainty: a condition in which a decision maker can make accurate decisions because the outcome of every alternative is known o The idea condition for making decisions o Most managerial decisions are not like this - Risk: a situation in which a decision maker is able to estimate the likelihood of certain outcomes o Far more common condition o The ability to assign probabilities to outcomes may be the result of personal experiences or secondary information o With risk, managers have historical data that let them assign probabilities to different alternatives - Uncertainty: a condition in which a decision maker is not certain about the outcomes and cannot even make reasonable probability estimates o Managers do face decision-making situations of uncertainty o Under these conditions, the choice of alternative is influences by the limited amount of information available to the decision maker and by the psychological orientation of the decision maker o The optimistic manager will follow a maximax choice (maximizing the maximum possible payoff) in order to get the largest possible gain o The pessimist will follow a maximin choice (maximizing the minimum possible payoff) to make the best of a situation should the worst possible outcome occur o The manager who desires to minimize their maximum “regret” will opt for a minimax choice, to avoid having big regrets after decisions play out Group Decision Making: - Many organizational decisions are made by groups - It is a rare organization that does not at some time use committees, task forces, review panels, study teams, or similar groups to make decisions - It is possible for groups to be assigned any of the 8 steps in the decision-making process - Advantages to group decisions over individual decisions: o More complete information and knowledge – a group brings a diversity of experience and perspectives to the decision process that an individual cannot o More diverse alternatives – because groups have a greater amount and diversity of info, they can identify more diverse alternatives than an individual o Increased acceptance of a solution – group members are reluctant to fight or undermine a decision they have helped develop o Increased legitimacy – decisions made by groups may be perceived as more legitimate than decisions made unilaterally by one person - Group decisions also have disadvantages: Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Increased time to reach a solution – groups almost always take more time to reach a solution than it would take an individual o Opportunity for minority domination – the inequality of group members creates the opportunity for one or more members to dominate others. A dominant and vocal minority frequently can have an excessive influence on the final decision o Ambiguous responsibility – group members share responsibility, but the responsibility of any single member is diluted o Pressures to conform – there can be pressures to conform in groups. This pressure undermines critical thinking in the group and eventually harms the quality of the final decision - Groupthink: the withholding by group members of different views in order to appear to be in agreement Individuals Versus Group Decision Making: - Determining whether a group or individua will be more effective in making a particular decision depends on the criteria you use to assess effectiveness - Group decisions are preferable when accuracy, creativity, and degree of acceptance are required - Individual decision making offers greater speed and efficiency - Effectiveness of group decision making is also influences by the size of the group Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Larger groups provides greater opportunity for diverse representation, it also requires more coordination and more time for members to contribute their ideas - Groups should not be too large - Groups of 5 to 7 are most effective - Off number in the group helps avoid decision deadlocks - Groups are large enough for members to shift roles and withdraw from unfavourable positions but still small enough for quieter members to participate actively in discussions - Employee involvement, present in every org. to some extent, leaders to higher commitment from employees for decisions - 4 contingencies are: o Decision structure – programmed decisions require less employee involvement o Source of decision knowledge – employees may have more relevant and timely information than managers, increasing the need for involvement o Decision commitment – if participants might be against a decision without their input, then involvement is more necessary o Risk of conflict – if there are conflicting employee and organizational goals, involvement is useful in minimizing conflict Decision-Making Biases and Errors: - Heuristics: rules of thumb that managers use to simplify decision making - Rules of thumb can be useful to decision makers because they help make sense of complex, uncertain, and ambiguous info Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Even though managers may use rules of thumb, that does not mean those rules are reliable because they may lead to errors and biases in processing and evaluating info - Overconfidence bias o Decision makers tend to think they know more than they do or hold unrealistically positive views of themselves and their performance - Sunk-costs error o Decision makers forget that current choices cannot correct the past o They incorrectly fixate on past expenditures of time, money, or effort in assessing choices rather than on future consequences - Selective perception bias o Decision makers selectively organize and interpret events based on their biased perceptions o This bias influences the info they pay attention to, the problems they identify, and the alternatives they develop - Confirmation bias o Decision makers seek out info that reaffirms their past choices and discount information that contradicts past judgements o These people tend to accept at face value info that confirms their preconceived views and are critical and skeptical of info that challenges these views - Escalation-of-commitment error o Decisions can also be influences by a phenomenon called escalation of commitment o Escalation of commitment: an increased commitment to a previous decision despite evidence that the decision might have been wrong - Self-serving bias o Decision makers take credit for their successes and blame failure on outside factors - Hindsight bias Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Once an outcome is actually known, decision makers falsely believe that they would have accurately predicted that outcome - Main strategy to avoid decision errors and biases is to be aware of them and then try not to exhibit them - Managers should also pay attention to “how” they make decisions: they should try to identify the heuristics they typically use and critically evaluate how appropriate those are - Managers might want to ask people around them to help identify weaknesses in their decision-making style of try to improve Contemporary Issues in Managerial Decision Making - Today’s business world, revolves around making decisions, often risky ones, usually with incomplete or inadequate information, and under intense time pressure - Most managers make one decision after another; more is at stake than ever before since bad decisions can cost millions National Culture Affecting Managers’ Decision Making: - Decision-making practices differ from country to country to some extent - The way decisions are made–whether by a group, but team members, participatively, or autocratically by an individual manager– and the degree of risk a decision maker is willing to take are just 2 examples of decision variables that reflect a country’s cultural environment - As managers deal with employees from diverse cultures, they need to recognize common and accepted behaviour when asking them to make decisions - Some individuals may not be as comfortable as others with being closely involved in decision making, or they may not be willing to experiment with something radically different - Managers who accommodate the diversity in decision-making philosophies and practices can expect a high payoff if they capture the perspectives and strengths that a diverse workforce offers Importance of Creativity and Design Thinking in Decision Making: - Creativity: the ability to produce novel and useful ideas - A decision maker needs creativity - These ideas are different from what’s been done before but are also appropriate to the problem or opportunity presented - Creativity is important to decision making because it allows the decision maker to appraise and understand the problem more fully, including “seeing” problems others can’t see - Creativity’s most obvious value is in helping the decision maker identify all viable alternatives - Most people have creative potential that they can use when confronted with decision- making problem - To unleash that potential, they have to get out of the psychological ruts most of us get into and learn how to think about a problem in divergent ways Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - People differ in their inherent creativity - Exceptional creativity is scarce - Most people have some creative potential if we can learn to unleash it - 3 component model of creativity o Proposes that individual creativity essentially requires expertise, creative- thinking skills, and intrinsic task motivation - Expertise is the foundation of all creative work; potential for creativity is enhanced when individuals have abilities, knowledge, proficiencies, and similar expertise in their fields of endeavour - Creative-thinking skills encompasses personality characteristics associated with creativity, the ability to use analogies, as well as the talent to see the familiar in a different light o The following individual traits have been found to be associated with the development of creative ideas: intelligences, independence, self-confidence, risk taking, internal locus of control, tolerance for ambiguity, and perseverance in the face of frustration o Effective use of analogies allows decision makers to apply an idea from one context to another o Some people have developed their skill at being able to see problems in a new way o Able to make the strange familiar and the familiar strange - Intrinsic task motivation is the desire to work on something because it’s interesting, involving, exciting, satisfying, or personally challenging o This motivational component is what turns creative potential into actual creative ideas o Determines the extent to which individuals fully engage their expertise and creative skills o Creative people often love their work, to the point of seeming obsessed o An individual’s work environment and the organization’s culture can have a significant effect on intrinsic motivation - 5 organizational factors have been found that can impede creativity: o Expected evaluation – focusing on how your work is going to be evaluated o Surveillance – being watches while you’re working o External motivators – emphasizing external, tangible rewards o Competition – facing win-lose situations with your peers o Constrained choices – being given limits on how you can do your work - The way managers approach design making–using rational and analytical mindset in identifying problems, coming up with alternatives, evaluating alternatives, and choosing one of those alternatives–may not be the best and certainly not the only choice in today’s environment - Design thinking: approaching management problems as designers approach design problems - More orgs. are beginning to recognize how design thinking can benefit them Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - While managers don’t deal specifically with produce or process design decisions, they still make decisions about work issues that arise, and design thinking can help them be better decision makers - Design thinking says that managers should look at problem identification collaboratively and integratively, with the goal of gaining a deep understanding of the situation - Should look not only at the rational aspects, but also the emotional aspects - Then invariably, design thinking would influence how managers identify and evaluate alternatives - Design thinking means opening up your perspective and gaining insights by using observation and inquiry skills, and not relying simply on rational analysis How Big Data is Changing the Way Managers Make Decisions: - There’s a ton of info out there and businesses and other orgs. are finally figuring out how to use it - Big data: the vast amount of quantifiable information that can be analyzed by highly sophisticated data processing - Big data described with the 3V’s: high volume, high velocity, and/or high variety information assets - With this type of data at hand, decision makers have very powerful tools to help them make decisions - Experts caution that collecting and analyzing data for data’s sake is a wasted effort - Goals are needed when collection and using this type of info - Big data is using math modelling, predictive algorithms, and artificial intelligence software to measure and monitor people and machines like never before - Managers need to really examine and evaluate how big data might contribute to their decision making before jumping in with both feet - Managers sometimes use aids and techniques such as the following to assist in the decision-making process and provide more complete information to make better- informed decisions o Payoff matrices are used in decision making to identify risk in daily and billion- dollar decisions by considering the expected monetary value (EMV) of the outcome; decision is selected if it fits the risk preferences of the business; payoff matrices are also popular in game theory o Decisions trees are typically used to encompass expected value analysis by assigning probabilities to each possible outcome and calculating payoffs for each decision path o Break-even analysis is a technique for identifying the point at which total revenue is just sufficient to cover total costs o Ratio analysis is used to compare two significant figures from the financial statements and express them as a percentage or ratio o Linear programming is a mathematical technique that solves resource allocation problems Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Queuing theory is a way of balancing the cost of having a waiting line versus the cost of maintaining the line; management wants to have as few stations open as possible to minimize costs without testing the patience of its customers o Economic order quantity is a model that seeks to balance the costs involved in ordering and carrying inventory, thus minimizing total costs associated with ordering and carrying costs Ethics, Corporate Social Responsibility, and Decision Making - Managers at all levels, in all areas, in all kinds of organizations, will face ethical issues and dilemmas - As managers plan, organize, lead, and control, they must consider ethical dimensions - Ethics: rules and principles that define right and wrong behaviour - Ethics of a situation are not always black and white - For some decisions, you can make choices exercising complete freedom of choice with no regard for others - For other decisions, your behaviour will be guided by a set of laws - In between are situations where you might want to consider the impact of your decision on others, even though there are no laws regarding your behaviour - This middle zone is the grey area of behaviour - Laws often develop because people did not act responsibly when they had a choice Four Views of Ethics: - There are 4 views of ethics: the utilitarian view, the rights view, the theory of justice view, and the integrative social contracts theory - Utilitarian view of ethics: a view of ethics maintaining that ethical decisions are made solely on the basis of their outcomes or consequences o Uses a quantitative method for making ethical decisions by looking at how to provide the greatest good for the greatest number o Encourages efficiency and productivity and is consistent with the goal of profit maximization o Can result in biased allocations of resources, especially when some of those affected by the decision lack representation or a voice in the decision o Can also result in the rights of some stakeholders being ignored - Rights view of ethics: a view of ethics concerned with respecting and protecting individual liberties and privileges o Such as rights to privacy, freedom of conscience, free speech, life and safety, and due process o Positive side Protects individuals’ basic rights o Drawback of it is that it can hinder productivity and efficiency by creating a work climate more concerned with protecting individuals’ rights than with getting the job done - Theory of justice view of ethics: a view of ethics in which managers impose and enforce rules fairly and impartially, and do so by following all legal rules and regulations Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o A manager following this view would decide to provide the same rate of pay to individuals who are similar in their levels of skills, performance, or responsibility, and not base that decision on arbitrary differences such as gender, personality, race, or personal favourites o Using standards of justice also has pluses and minuses o Protects interests of those stakeholders who may be underrepresented or lack power, but it can encourage a sense of entitlement that might make employees reduce risk taking, innovation, and productivity - Integrative social contracts theory: a view of ethics proposing that ethical decisions be based on existing ethical norms in industries and communities in order to determine what constitutes right and wrong o Based on the integration of two “contracts”: the general social contract that allows businesses to operate and defines the acceptable ground rules, and a more specific contract among members of s community that addresses acceptable ways of behaving - Most businesspeople follow the utilitarian approach because it’s consistent with such business goals as efficiency, productivity, and profits - However, that perspective needs to change because of the changing world facing managers - Trends toward individual rights, social justice, and community standards mean that managers need ethical standards based on nonutilitarian criteria - This new demand is an obvious challenge for managers because making decisions based on criteria involves far more ambiguities than using utilitarian criteria such as efficiency and profits - The result is that managers increasingly find themselves struggling with the question of the right thing to do Improving Ethical Behaviour: - Managers can do a number of things if they are serious about reducing unethical behaviour in their orgs. - They can seek to hire individuals with high ethical standards, establish codes of ethics and decision rules, lead by example, delineate job goals and performance appraisal mechanisms, provide ethics training, conduct independent social audits, and provide support to individuals facing ethical dilemmas - Taken individually, these actions will probably not have much impact - But when all or most of them are implemented as part of a comprehensive ethics program, they have the potential to significantly improve an organization’s ethical climate - The key term here is potential - There are no guarantees that a well-designed ethics program will lead to the desired outcome - Complexity of ethical dilemmas requires orgs. to balance transparency with confidentiality - Focus on ethics is a constant part of day to day actions and not just something to consider when facing a crisis Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Start by getting the facts identifying whether the problem is an ethical one - Identify alternative solutions from multiple stakeholder perspectives and implement the decision that is not only the “best” but also the “most ethical” - Some firms implement codes of ethics to help encourage regular discussion of ethical issues both within orgs. and across the industry - CODES OF ETHICS AND DECISION RULES: - Toronto-based Royal Bank of Canada has had a corporate code of conduct for more than 25 years - Christina Donely, the bank’s senior adviser on employee relations and policy governance, says that the code “focuses on outlining behaviours that support honesty and integrity…and covers environmental and social issues” - Not the only way it is in all orgs. - US gov’t passed the Sarbanes-Oxley Act in 2002 to crack down on business wrongdoing in publicly traded companies - Following American example, Canadian Securities Administers put best corporate governance practices into effect in March 2004, although these are not as tough as the American rules - Securities regulators in all ten provinces and 3 territories have proposed that all public companies adopt written codes of ethics and conduct or explain why they do not have them - These proposals carry no enforcement requirements or mechanisms - Ambiguity about what is and is not ethical can be a problem for employees - Code of ethics: a formal statement of an organization’s primary values and the ethical rules it expects its employees to follow - A code of ethics is a popular choice for reducing that ambiguity - Codes of ethics are also becoming more popular globally - Suggested that codes should be specific enough to show employees the spirit in which they are supposed to do things yet loose enough to allow for freedom of judgement - Many company codes fall into 3 categories: (1) be dependable organizational citizen; (2) don’t do anything unlawful or improper that will harm the organization; and (3) be good to customers - Codes of ethics in reality are not always effective in encouraging ethical behaviour in organizations - Companies with codes of ethics may not do enough monitoring - Doesn’t mean that a code of ethics shouldn’t be developed, but there are some suggestions that managers can follow o Org.’s code of ethics should be developed and then communicated clearly to employees o All levels of management should continually reaffirm the importance of the ethics code and the organization’s commitment to it, and consistently discipline those who break it o When managers consider the code of ethics important, regularly affirm its content, and publicly reprimand rule breakers, ethics codes can supply strong foundations for effective corporate ethics program Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Org.’s code of ethics might be designed around the 10 questions listed below, which can be used a decision rules to guide managers when they handle ethical dilemmas in decision making Corporate Social Responsibility: - few terms have been defined in as many different ways as social responsibility–profit maximization, going beyond profit making, voluntary activities, and concern for the broader social system are but a few - These descriptions fall into two camps - One side is classical/purely economic view that management’s only social responsibility is to maximize profits - Other side is the socioeconomic position, which holds that management’s responsibility goes beyond making profits to include protecting and improving society’s welfare - Social responsibility (corporate social responsibility, or CSR): a business firm’s intention, beyond its legal and economic obligations, to do the right things and act in ways that are good for society o Assumes that a business obeys the law and pursues economic interests o Also note that this definition views a business as a moral agent o In its effort to do good for society, it must differentiate between right and wrong - Can understand social responsibility better if we compare it to two similar concepts - Social obligations: when a business firm engages in social actions because of its obligation to meet certain economic and legal responsibility o It does the minimum that the law requires and pursues social goals only to the extent that they contribute to its economic goals - Social responsiveness: when a business firm engages in social actions in response to some popular social need - Managers in these companies are guided by social norms and values and make practical, market-oriented decisions about their actions Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - For many businesses, their social actions are probably better viewed as being socially responsive rather than socially responsible, at least according to the definitions - Such actions are still good for society - Social responsibility adds an ethical imperative to do those things that make society better and to not do those that could make it worse - Great deal of attention has been focused on the extent to which orgs. and management should act in socially responsible ways - On one side is the classical/purely economic view and the other side is the socioeconomic view o Some even try to measure their triple bottom line which takes into account not only financial responsibilities but social and environmental ones as well - The defensive approach is consistent with the classical view, while the accommodative and proactive approaches are consistent with the socioeconomic view - There is a positive relationship between social involvement and economic performance - Firms’ corporate social performance was positively associated with both prior and future assumptions from these findings because of methodological questions associated with trying to measure CSR and economic performance - A company’s social performance by analysing the content of annual reports, citations of social actions in news articles on the company, or reputation indexes based on public perception - Such criteria certainly have drawbacks as reliable measures of CSR - Importance of CSR surfaced in the 1960s when social activists questions the singular economic objective of business - Even today, good arguments can be made for and against businesses being socially responsible - Managers regularly confront decisions that have a dimension of social responsibility: philanthropy, pricing, employee relations, resource conservation, product quality, and doing business in countries with oppressive governments are just a few - To address these issues, managers may reassess packaging design, recyclability or products, environmental safety practices, outsourcing decisions, foreign supplier practices, employee policies, and the like - Another way to look at this issue is whether social involvement affects a company’s economic performance, which numerous studies have done Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Although most found a small positive relationship between social involvement and economic performance, no generalizable conclusions can be made because these studies have shown that the relationship is affected by various contextual factors such as firm size, industry, economic conditions, and regulatory environment - Concluded that managers can afford to be and should be socially responsible Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 Chapter 4: Planning and Strategic Management What is Planning and Why do Managers Need to Plan? - Planning: a management function that involves defining goals, establishing a strategy for achieving those goals, and developing plans to integrate and coordinate activities - Concerned both with ends (what is to be done) and means (how it is to be done) Planning Defined: - Can either be formal or informal - In informal planning, nothing is written down, and there is little or no sharing of goals with others - Informal planning is general and lacks continuity - Informal planning exists in some large orgs. but more common in smaller orgs. - Some small businesses may have very sophisticated planning processes and formal plans - Term planning generally refers to formal planning - In formal planning, specific goals covering a period of years are defined - These goals are written and shared with org. members - Then a specific action program for the achievement of these goals is developed: managers clearly define the path they want to take to get the organization and the various work units from where they are to where they want them to be - Effective plans need to be ongoing, accurate, and flexible Why Do Managers Plan? - Planning is often called primary management function because it establishes basis for all other functions - Without planning, managers would not know what to organize, lead, or control - Managers plan for at least 4 key reasons 1. Planning provides direction to both managers and employees o When everyone in the org or work unit understands what they must contribute to reach goals, they can coordinate their activities, cooperate with each other, and what it takes to accomplish those goals o Without planning, depts. and individuals might work at cross purposes, prevented the org. from moving efficiently towards goals 2. Planning reduced uncertainty o By forcing managers to look ahead, anticipate change, consider impact of change, and develop appropriate responses o Increased prep for change helps develop managers’ skills and provides flexibility to the org 3. Planning reduces overlapping and wasteful activities o Coordinating work activities in advance is likely to uncover redundancy and enhance time management o When means and ends are made clear through planning, inefficiencies become obvious and can be corrected or eliminated 4. Planning establishes goals or standards that facilitate control Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o When managers plan, they develop goals and plans o When managers control, they compare actual performance against goals, identify any significant deviations, and take any necessary corrective action o Without planning, there are no goals against which to measure or evaluate work efforts Planning and Performance: - Results from studies examining performance in orgs. that plan are generally positive - Cannot say orgs. that formally plan always outperform those that do not Criticisms of Planning: - Critics have challenged some of the basic assumptions underlying planning - Planning may create rigidity o Formal planning efforts can lock an org. into specific goals to be achieved within specific time-tables o Such goals may have been set under the assumption that the environment would not change o Forcing course of action when environment is fluid can result in disaster o Managers need to remain flexible and not be tied to a course of action simply because it is the plan - Formal plans cannot replace intuition and creativity o Successful orgs. are typically the result of someone’s innovative vision, which has a tendency to become formalized as it evolves o If formal planning efforts turn that vision into a programmed routine, disaster may be awaiting the firm o Planning is meant to enhance and support intuition and creativity instead of replacing it - Planning focuses managers’ attention on today’s competition, not on tomorrow’s survival o Formal planning has a tendency to focus on how to capitalize on existing business opportunities within an industry o Often does not allow managers to consider creating or reinventing an industry o Managers need to be open to untapped opportunities and new directions - Formal planning reinforces success, which may lead to failure o Successful plans may provide a false sense of security, generating more confidence in the formal plans than is warranted o Many managers will not face the unknown until they are forced to do so by environmental changes o Managers need to face the unknown and be prepared to adapt before environmental changes make it too late to do so How Do Managers Set Goals and Develop Plans? - Planning involves two important elements: goals and plans Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Goals (objectives): are the desired outcomes for individuals, groups, or entire organizations - Plans: documents that outline how goals are going to be met and describe resource allocations, schedules, and other necessary actions to accomplish the goals What Types of Goals Do Organizations Have, and How Do They Set Those Goals? - Goals provide directions for all management decisions and actions and form the criteria against which actual accomplishments are measured - That is why they are often called the foundation of planning - Everything organizational members do should be oriented toward helping both their work units and the organization achieve the goals that have been set - Goals and objectives are very similar and are often confused with each other - The main differences between goals and objectives are in scope, specificity, and time frame - Goals tend to be broader, more general, and have longer time frame - Objectives are narrow and more specific, with a shorter time frame - First step toward diversity is for an org. to conduct an employee census or ask employee to self-identify based on demographic categories - Understanding demographics allows organizations to identify gaps in representation and determine inclusion issues and barriers to advancement, helping them set goals, establish appropriate programs and initiatives, and measure results, and ensuring that they are building a pipeline of the leaders of tomorrow - CIDI (Canadian Institute of Diversity) found that the following standard metrics were commonly used o Representation of diverse/under-represented groups by job level o Recruitment, promotion, and turnover stats by demographic group o Employee engagement scores by demographic group o Diversity-related or inclusiveness questions on employee surveys o Human rights, harassment, or discrimination complaints o Participation in training and diversity, inclusiveness, equity, and human rights o Participation in employee resources/networking groups - Traditional goal setting: an approach to setting goals in which goas are set at the top of the organization and then broken into subgoals for each organizational level o This process works reasonably well when an org. is hierarchically structured o This traditional perspective assumes that top managers know what is best because they see the big picture o Thus, the goals that are established and passed down to each succeeding level serve to direct and guide, and in some ways constrain, individual employees’ work behaviours o Employees work to meet the goals that have been assigned in their areas of responsibility - Management by objectives (MBO): an approach to goal setting in which specific measurable goals are jointly set by employees and their managers, progress toward Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 accomplishing those goals periodically reviewed, and rewards are allocated on the basis of this progress o Rather than using goals only as controls, MBO uses them to motivate employees as well o Employees will be more committed to goals that they help set o These goals must align with the overall organizational goals set by top management - Management by objectives consists of 4 elements: goal specificity, participative decision making, an explicit time period, and performance feedback - Its appeal lies in its focus on the accomplishment of participatively set objectives as the reason for and motivation behind individuals’ work efforts - Characteristics of well-designed goals: o Goals are not all created equal o Some goals are better than others o Well-designed goals should have the following characteristics  Written in terms of outcomes rather than actions  Measurable and quantifiable  Clearly specify a time frame  Challenging yet attainable  Flexible  Feature participation and feedback from all necessary organizational members - Steps in goal-setting process: 1. Review the organization’s vision and mission o Vision and mission: the purpose of the organization o Reflects purpose of org. as statements of what the org. hopes to accomplish o Reviewing these statements before writing goals is important, because the goals need to reflect what is contained in the vision and mission statements 2. Evaluate available resources Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Avoid setting goals that are impossible to achieve given your available resources o Goals that are challenging and realistic considering the resources for employees to work with have a greater chance of being met 3. Determine the goals individually or with input from others o The goals reflect desired outcomes and should be consistent with org.’s mission and goals in other organizational areas o These goals should be measurable, specific, and include a time frame for accomplishment 4. Ensure the goals are well-written and communicated to all who need to know o Writing down and communicated goals forces people to think them through 5. Review results and assess whether goals are being met o If goals aren’t being met, change them as needed 6. Link rewards to goal attainment o Linking rewards to goals answers the question “what’s in it for me?” for the employees What Types of Plans Do Managers Use and How Do They Develop Those Plans? - Managers need plans to help them clarify and specify how goals will be met - Types of plans: - The most popular ways to describe an org.’s plans are by their breadth (strategic vs. operational), time frame (short term vs. long term), specificity (directional vs. specific), and frequency of use (single use vs. standing) - These planning classifications are not independent - Strategic plans are long term, directional, and single use, while operational plans are short term, specific, and standing - Breadth o Strategic plans: plans that apply to the entire organization, establish the organization’s overall goals, and seek to position the organization in terms of its environment o Operational plans: plans that specify the details of how the overall goals are to be achieved o Strategic plans tend to cover a longer time frame and a broader view of the org. o Strategic plans also include the formulation of goals, whereas operational plans define ways to achieve the goals o Also, operational plans tend to cover short time periods–monthly, weekly, and day to day - Time Frame o Number of years used to define short-term and long-term plans has shortened significantly due to environmental uncertainty o Long-term plans: plans with a time frame beyond one year o Short-term plans: plans with a time frame of one year or less - Specificity o Intuitively, it would seem that specific plans would be preferable to directional, or loosely guided, plans Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 o Specific plans: plans that are clearly defined and leave no room for interpretation o They have clearly defined objectives o There is no ambiguity and no problem with misunderstanding o Drawbacks to specific plans are that they require clarity and sense of predictability that often do not exist o When uncertainty is high and managers must be flexible in order to respond to unexpected changes, directional plans are preferable o Directional plans: plans that are flexible and that set out general guidelines o Provide focus but don’t lock managers into specific goals or courses of action o Flexibility inherent in directional plans must be weighed against the loss of clarity provided by specific plans o Some plans that managers develop are ongoing, while others are used only once o Single-use plan: a one-time plan specifically designed to meet the needs of a unique situation o Budgets and projects are examples of single-use plans o Standing plans: ongoing plans that provide guidance for activities performed repeatedly  Include policies, rules, and procedures - Developing plans: o 3 contingency factors affect the choice of plans: (1) organizational level, (2) degree of environmental uncertainty, and (3) length of future commitments o For the most part, lower-level managers do operational (or tactical) planning, while upper-level managers do strategic planning o The second contingency factor is environmental uncertainty o When uncertainty is high, plans should be specific but flexible o Managers must be prepared to change or amend plans as they’re implemented o Last contingency factor is also related to the time frame of plans o Commitment concept: the idea that plans should extend far enough to meet those commitments made when the plans were developed o Planning for too long or too short a time period is inefficient and ineffective Downloaded by Trilo ([email protected])  lOMoARcPSD|25794848 - Planning tools and techniques: o Managers use various tools and techniques to maximize the benefits of planning - Forecasting: o The attempt to predict future trends based on past events and management insight o Expert opinions and statistical analysis are two types of forecasting techniques - Scenario planning: o A type of contingency planning that involves a longer time frame - Benchmarking: o Involves the search for the best practices among competitors or noncompetitors that lead to their superior performance o The basic idea underlying benchmarking is that management can improve quality by analyzing and them copying the methods of leaders in various fields - Process planning: o Is used in project management to help select resources for use in the execution and completion of a project o Organizations use project planning when structuring a new project or strategic direction Organizational Strategy: Choosing a Niche Downloaded by Trilo (trilos