Principles of Management E-book PDF - ADBM 21.1F

Module Lecturer – Prasangika Maithripala Consultant/Lecturer Content 01. Introduction -Module Descriptors 02. Pre-reading Materials 03. Session Plan Introduction to the Science of Management Traditional and Contemporary Issues and Challenges in Management The organizational environment and Culture of Organizations Planning and decision making in organizations Managing Decision Making and Problem Solving Basic Elements of Organizing Managing Organizational Design Leadership and influencing process Employee motivation Organizational communication Group dynamics and team work The control process 04. References 05. Model Paper 06. Case Studies 2 Table of Figures Figure 1 Management as a process............................................................................................................. 16 Figure 2 Kinds of Managers....................................................................................................................... 18 Figure 3 Managerial Skills......................................................................................................................... 20 Figure 4 A model of Organizational Effectiveness.................................................................................... 36 Figure 5 The Planning Process - Griffin 2013............................................................................................ 40 Figure 6 Components of Decision Making................................................................................................. 54 Figure 7 Classical Model of decision making............................................................................................ 55 Figure 8 Evaluating alternatives in the decision making process............................................................... 56 Figure 9 Steps in the rational decision making process.............................................................................. 59 Figure 10 A Model of Job Specialization................................................................................................... 66 Figure 11 Authority delegation process...................................................................................................... 68 Figure 12 system 01 and system 04 designs............................................................................................... 74 Figure 13 U-Functional or U-Form design for small manufacturing company.......................................... 78 Figure 14 Conglomerate (H-Form) design at SAMSUNG......................................................................... 79 Figure 15 Multidivisional (M-Form) design at HILTON hotels................................................................ 79 Figure 16 Matrix Organization................................................................................................................... 80 Figure 17 Common Organizational designs for International Organizations............................................. 83 Figure 18 Leadership Grid.......................................................................................................................... 87 Figure 19 LPC Model of Leadership.......................................................................................................... 89 Figure 20 Path Goal Theory of Leadership................................................................................................ 90 Figure 21 LMX Approach.......................................................................................................................... 90 Figure 22 Motivation Framework............................................................................................................... 96 Figure 23 Maslow's Hierachy of Needs...................................................................................................... 99 Figure 24 Two factor Theory of motivation............................................................................................. 101 Figure 25 The Expectancy model of motivation......................................................................................103 Figure 26 The Parter-Lawer extension of expectancy theory...................................................................104 Figure 27 The expanded goa setting theory of motivation.......................................................................106 Figure 28 - Communication Process........................................................................................................110 Figure 29 Impact of Cohesiveness on Performance.................................................................................117 Figure 30 The purpose of Control............................................................................................................120 Figure 31 Levels of Control......................................................................................................................121 Figure 32The Controlling Process............................................................................................................122 Figure 33 Forms of Control......................................................................................................................123 3 MODULE DESCRIPTOR MODULE TITLE Principles of Management MODULE CODE ADBM CREDITS 05 MEDIUM OF INSTRUCTION English Lectures Assignments Case Analysis Self-Learning TIME ALLOCATION 45 hours 15 Hours 10 Hours 50 Hours MODULE AIM(S) This module provides an understanding of the evolution of different management styles and basic concepts of organizational structures. It develops an understanding of the importance of due recognition of the behaviour of individuals within the organization and how they would be motivated to achieve organizational goals. MODULE LEARNING OUTCOMES On completion of this module, a successful student should be able to: 1. Identify the different management approaches adopted by contemporary organizations 2. Explain how the evolution of management thought has affected contemporary management practices. 3. Explain the effect of macro and micro environment on the organization and evaluate the effect of those influences. 4. Examine the planning process in the organization and its implications 5. Examine different organizational structures and their uses and the environmental influences 6. Describe different factors influencing individual and group behaviour in organizations 7. Explain different theoretical and practical approaches to employee motivation. 8. Examine different leadership styles and the effectiveness of each style in different situations. 4 9. Explain the communication process and the group dynamics in the organization. 10. Describe how control processes could be effectively used in organizational management. INDICATIVE CONTENT Introduction to the Science of Management Traditional and Contemporary Issues and Challenges in Management The organizational environment and Culture of Organizations Planning and decision making in organizations Managing Decision Making and Problem Solving Basic Elements of Organizing Managing Organizational Design Leadership and influencing process Employee motivation Organizational communication Group dynamics and team work The control process 5 INDICATIVE CONTENT IN ALIGNMENT WITH LEARNING OUTCOMES Learning Topic Outcomes 1 Introduction to Management 1 2 The Evolution of Management Thought 2 3 The Organizational Environment 3 4 Fundamentals of Planning 4 5 Fundamentals of Organizing 5 6 Common Organizational Structures 5 Introduction to leading process and organizational 7 6 communication 8 Basic concepts and theories of motivation 7 9 Basic concepts and theories of Leadership 7 10 The Process of controlling 8 TEACHING AND LEARNING METHODS The module will be delivered in a combination of lectures, assignments, and case studies both as online and offline basis. Lectures will focus on the understanding and explanation of key concepts and theories of business Management. Group discussions and activities will be arranged to stimulate students’ interests or their awareness of practical implications of some concepts. Assignments and case studies will provide students with the opportunity to deepen their understanding and to explore further the applications of theories taught. ASSESSMENT A variety of assessment tools will be used to develop and assess students’ achievement of the subject intended learning outcomes. 6 Specific assessment % weighting methods/tasks Mid Term Evaluation 10 Company Analysis and 40 Presentation Final Exam 50 Total 100 MODULE GRADING Your final grade (after rounding) will be recorded as shown below. Range Of Grade Marks 85-100 A+ 70-84 A 65-69 A- 60-64 B+ 55-59 B 45-54 C+ 40-44 C 35-39 D+ 30-34 D 00-29 F Late work will not be accepted, and make-up exams will only be given in extreme circumstances, for which written documentation for excuse (e.g., doctor’s note) is required. ATTENDANCE Attendance will be recorded daily. If you must miss class, you are responsible for the notes and assignments you missed. Students who fail to fulfill 70% attendance requirement will NOT be eligible to sit for the module examination. 7 EXAMS Each student is required to take module end examination. In the event that you cannot attend the exam on a scheduled date, you must notify the instructor in advance, so that a special arrangement can be made. You will also be asked to provide a legitimate reason (with evidence when appropriate) for missing the due date to the instructor. Failure to do so may result in “zero” points for the exam and quizzes. GROUP ASSIGNMENT GUIDELINES - COMPANY ANALYSIS AND PRESENTATION Advanced Diploma in Business Management …….F Principles of Management Final Group Assignment & Presentation Learning Outcomes 1. Improve the understanding about the functional areas in Management, conducting business analysis and evaluating the results Y 2. Develop a set of skills important to successful performance in business context, including critical analysis and working in a group environment Y Module Lecturer: ……….. Due Date: ……. Marks: 40 marks Assignment Brief A. Select an established Sri Lankan business organization and critically evaluate the following aspects; 1. Introduction to the organization (Eg-Company information, vision, mission, business strategy) 2. The planning process 3. Organizational structure and design 4. The Leading Process 8 5. The Control Process (Eg- Workforce control/quality control methods, steps & techniques) 6. Environmental Analysis of the organization (Eg- Identification of suppliers, competitors…etc & other rules & regulations applicable for operations) 8. SWOT analysis for the organization 9. Identification of issues 10. Recommendations to overcome the identified issues Report Structure/Contents: 1. Cover Page: Should contain the student names as in attendance register, index numbers, name of the programme, name of the module and date of submission. 2. Content (As mentioned above) 3. List of References 4. Appendix Formatting Guidelines: 1. Margins: Left – 1.5”, Right – 1”, Top – 1”, Bottom – 1” 2. Fonts a. Main title (On Cover page/Title page): Calibri 18 Bold b. Sub Titles: Calibri 14 bold c. Text: Calibri 12 light 3. Spacing: 1.5 4. Alignment: Justify 5. Page Numbers 6. All text should be in Black 7. Pictures and graphs are permitted to be inserted in colors 8. All tables, figures and graphs must be headed by a number followed by a clear, descriptive title or caption 9 General Guidelines: 1. Group Composition: All groups should consist of XX members. (Gender balance in each group is highly appreciated) Requests to add more than XX members or have less than XX members shall be strictly forbidden. 2. Lack of team effort and cohesiveness may result in deduction of marks. 3. A group leader should be elected, and it is the collective responsibility of all group members to work towards achieving success for the group. Please note that, you are required to continue with the same group for both assignment & presentation 4. Number of pages: 12-15 (Excluding list of references. Content page and Appendix) 5. Upload the Final report as a PDF File. 6. Students should strictly follow the given outline 7. Plagiarism shall be forbidden and dealt on disciplinary grounds. Students are strictly advised to provide due reference to the material they borrow from any other author or document. Criteria for Assessment: Your work will be marked against the following criteria: Comprehensive report & group Presentation – 20 Marks for each Instructions Regarding the Group Presentations a. Time allocation: 20 minutes b. All members of the group should present c. Slides should be professional, communicative and less crowded (ppt only) d. Dress code: Ladies: White lady’s shirt tucked in to black long office pants or a black office wear skirt above knee length, black office wear shoes, hair, makeup and accessories to suit a professional occasion. Gents: White Shirt, Tie, black office trousers, office wear shoes, hair/beard properly groomed to suit a professional occasion. 10 COURSE MATERIALS R. W Griffin, Management (12th Edition), Cengage Learning Richard L Daft, Management (11th Edition), South Western College Reading RECOMMENDED READING R. W Griffin, Management (12th Edition), Cengage Learning CELL PHONE POLICY Please turn off or silence all cell phones during class. This means NO texting, messaging, or web surfing during class time. Also note that you may not use your cell phone as your calculator. ACADEMIC INTEGRITY All exams and quizzes (except where team effort is required and as such specified) are to be individual work with no discussion or collaboration with others permitted. In-class assignments may be either individual or group work as directed by lecturer. Students are expected to adhere to the code of conduct as outlined in the National Institute of Business Management. Any incidents of academic misconduct such as cheating, plagiarism, copying others’ work, or other inappropriate assistance on examinations will be treated with zero tolerance and will result in a grade of "F" for the course. Breaches of academic integrity may also result in other action being taken by the Institute. 11 Pre-reading Materials 1. Let’s Learn Management - https://www.youtube.com/watch?v=RJ0_Hzr39OQ 2. History is connected to the present and future – Let’s have a look at the historical era of Management - https://www.youtube.com/watch?v=EobeHwOw3S4 3. Why do organizations need to have an effective Communication network - Let's listen to Ted talk - https://youtu.be/LImUb_yf_ps 4. Team based organizational Culture is the new Trend. Let's listen to Jack Ma https://leaderonomics.com/business/5-leadership-lessons-from-jack-ma 5. Success Story of Walmart - https://www.youtube.com/watch?v=CMwpATjdE1c 6. Secrets of success driven Organizations - Listen to this story based on Apple Founder Steve Jobs - https://www.clearreview.com/6-employee-performance-management-ted- talks/ https://www.ted.com/talks/tristan_harris_how_a_handful_of_tech_companies_control_bil lions_of_minds_every_day?language=en 7. Leadership Skills - https://www.youtube.com/watch?v=jdPg3slKDwA 8. How to become an effective Leader - Words from CEO https://www.youtube.com/watch?v=E0GepZk3gOw https://getlighthouse.com/blog/effective-listeners-managers-better/ 9. Management Style of Apple https://study.com/academy/lesson/business-case-study-apples-management-style.html 12 Session 01 Introduction to the Science of Management 13 Preparatory Questionnaire Refer the relevant chapter of your text book and answer the given questions before you come to the Lecture 1. Define the term “Management” and its importance to the contemporary organizations 2. Define & explain the management process adopted by contemporary organizations. Compare the interrelationship between each component in the process 3. Contrast efficiency and effectiveness 4. Who is a manger & what are the levels of management existing in an organization? 5. Briefly explain the duties performed by managers who handle different areas of management in the organization 6. What are the 03 basic categories of managerial skills illustrated by Henry Minzberg. Briefly explain the roles belong to each category by including the sample for each role. 7. List and define the basic managerial skills which effect to the performance of the organization 8. “Is management a science or an art”. Critically evaluate the given statement considering the different perspectives of management 9. How does a manager can acquire the adequate skills for the success of the business? Describe using the roles of a manager 10. “The scope of management is directed towards both of profit- oriented and non-profit oriented organizations”. Explain this statement mentioning the examples from the global content 14 What is an Organization? A group of people working together in structured and coordinated fashion to achieve a set of goals. Common elements of an organization – People – Structures – Common Objective Definitions of Management. “The art of getting things done through others” (Merry Parker, 1868 - 1933) “Knowing exactly what you want to do, then seen that they do it in the best cheapest way” (F.W. Taylor, 1856 - 1915) “Management is a multipurpose organ that manage a business and manages managers and manages workers and work.” (Peter Drucker, 1909 - 2005) “Management means, in the last analysis, the substitution of thought for brawn and muscle, of knowledge for folklore and superstation, and of cooperation for force” (Peter Drucker, 2007) Management is the attainment of organizational goals in an effective and efficient manner through planning, organizing, leading and controlling organizational resources. (Daft, 2014) 15 Necessity of Management To achieve organizational goals and objectives with efficiency and effectiveness. To obtain the maximum usage of resources. To respond the environmental changes. To ensure the survival of the organization. Management as a Process A set of activities (including planning and decision making, organizing, leading, and controlling) directed at an organization’s resources (human, financial, physical, and informational), with the aim of achieving organizational goals in an efficient and effective manner. Figure 1 Management as a process Inputs / Organizational Resources Human Resources – People, Financial resources – Money, Physical Resources – Land, Buddings, Machineries etc., Information – Relevant details 16 Functions of Management /Activities Planning & Decision Making – Planning is a process of setting organizational objectives and identifying strategies to achieve the set objectives. Decision making is a process of selecting the most appropriate option out of several alternatives. Organizing – Organizing is a process of allocating duties, resources and authority among people. Leading – It is a process of directing subordinates toward the organizational goals. It include there main sub activities such as motivation, leadership and communication. Controlling – is a process of comparing actual outcomes with the expected outcomes and make corrections for the deviations. Outcome Achieving organizational objectives efficiently and effectively. Efficiency – Doing things right Effectiveness – Do the right thing Kinds of Managers Manager is someone whose primary responsibility is to carry out the management process. Managers can be classified in to three basic levels. 17 Figure 2 Kinds of Managers Top Managers - Small group of executives who manage the overall organization at the strategic level. Ex: CEO, MD, GM, DG Middle Managers - A large group that implements the strategies developed at the top. Ex: All functional level managers (HR Manager, Finance Manager), Branch Managers First-Line Managers - Supervise and coordinate the activities of operating employees. Ex: Supervisors, Foremen, Executives (HR Executive, Marketing Executive etc.), Branch Managers Skills needed for Managers Managers need different skills to be performed as a successful manager. The most fundamental skills are: Technical - Necessary to accomplish or understand the specific kind of work being done. It is basically the knowledge in the field. Interpersonal - The ability to communicate with, understand, and motivate both individuals and groups. Conceptual - A manager’s ability to think in the abstract. The mental capacity to: Understand organizational goals and its environment, How the organization is structured, Viewing the organization as system. 18 Diagnostic - Skills that enable a manager to visualize the most appropriate response to a situation. Communication - A manager’s abilities both to effectively convey ideas and information to others and to effectively receive ideas and information from others. Decision-making - A manager’s ability to correctly recognize and define problems and opportunities and to then select an appropriate course of action to solve problems and capitalize on opportunities. Time-management - The manager’s ability to prioritize work, to work efficiently, and to delegate appropriately. SKILL REQUIREMENT AT DIFFERENT MANAGERIAL LEVELS Conceptual Human Technical Top Level Middle Level Lower Level 19 Sources of Managerial Skills Figure 3 Managerial Skills Managerial Roles Henry Mintzberg, a prominent management scholar undertook a careful study of executives to determine what they did on their jobs. Accordingly he concluded there are 10 basic roles of managers. Main Role Sub Roles Description Interpersonal Figurehead Symbolic head ; required to perform a number of duties of a legal or social nature Leader Responsible for motivating and directing subordinates Liaison, Coordinator Maintain a network of outside contacts Informational Monitor Collecting relevant information Disseminator Distributing relevant information 20 Spokesperson Making speeches at relevant occasions Decisional Entrepreneur Make decisions as the owner of the company. Disturbance Handler Resolving conflicts Resource Allocator Decides who gets the resources Negotiator Reaching agreements with key parties. THE NATURE OF MANAGEMENT The manager’s job is filled with: Uncertainty, Change, Interruption, Fragmented activities 21 Session 02 Traditional and Contemporary Issues and Challenges in Management 22 Preparatory Questionnaire Refer Chapter 2 of the text book and jot down the answers to following questions before you come to the Lecture 1. Explain the importance of studying the history & theory of management. Explain from the management perspective 2. Explain the basic elements of scientific management introduced by F.W Taylor 3. Briefly describe the differences between the scientific approach & human relations approach of management using the theory X and theory Y developed by Douglas McGregor 4. List down 4 contemporary management challenges faced by managers who operate within a competitive work environment 5. Describe the difference between the classical management perspective & behavioral management perspective 6. What were the outcomes of the Hawthrone studies done by Elton Mayo 23 The role and the theory of Management Theory is a conceptual framework for organizing knowledge and providing a blueprint for action. Understanding the historical context of management provides a sense of heritage and can help managers to make good decisions. All the theories and concepts can be classified as follows. The Classical Management Perspective Ideas of the early 20th century theorists and managers converged with the emergence and evolution of large-scale business and management practice. This perspective includes two different viewpoints. 1. SCIENTIFIC MANAGEMENT Concerned with improving the performance of individual workers. 2. ADMINISTRATIVE MANAGEMENT Focused on managing the total organization 24 Main Contributors of Scientific Management F.W Taylor 1856-1915 Frederick Taylor is known today as the “Father of Scientific Management” and his main concept is “Soldering”. According to his concept he believes that, “The employees deliberately working at a slow pace than their capabilities” and recommended piecework pay systems. Further, based on his main concept he has introduced the scientific management approach. Scientific management approach Develop a science for each element of the job to replace old rule-of-thumb methods (Rule-of- thumb methods - wrong, inefficient methods of doing things brought from tradition) Scientifically select employees and then train them to do the job Supervise the employees to make sure they follow the prescribed methods Continue to plan the work, but use workers to actually get the work done. Frank Gilbreth & Lillian Gilbreth Frank and Lillian Gilbreth were prolific researcher and they have introduced the concepts of time study and motion study. Time study focused on timing how long it takes good workers to complete each part of their jobs and motion study focused on breaking each task into its separate motions and then eliminating those that are unnecessary or repetitive. Accordingly, their main concept was achieving efficiency by reducing the unnecessary movements. Henry Gantt His main concept was scheduling the works in an orderly manner within a time frame and introduced the Gantt chart. 25 Main Contributors of Administrative Management Henry Fayol Fayol has introduced 14 principles of management and he is considered to be among the most influential contributors to the modern concept of management. Principle Description Division of A high degree of specialization should result in efficiency. Both Labor managerial and technical work are amendable to specialization. Authority Authority is needed to carry out managerial responsibilities Unity of Each subordinate should report to one supervisor Command Unity of Similar activities in an organization should be group together under one Direction manager. Discipline People in the organization must respect the rules that govern the organization Subordination Interests of individuals should not be placed before the goals of the overall organization. Remuneration Compensation should be fair both to employees & to the organizations. Centralization Power and authority should be concentration at the upper level as much as possible. Scalar chain A chain of authority should extent from the top to the bottom and should be followed at all times. Order Human and Material resources should be coordinated at the required place and time Equity Managers should be kind and fair when dealing with subordinates. 26 Stability High turnover of employees should be avoided. Initiative Subordinate should have the freedom to take initiative Esprit de corps Team work, Team spirit and a sense of unity should be fostered and maintained. Max Weber Max Weber proposed bureaucracy as the optimum form of organization and he thought bureaucracy would result in the highest level of efficiency, rationality, and worker satisfaction. This concept is based on several key rules such as set of clearly defined objectives, formal system of rules and regulations, division of work and specialization, hierarchy based on authority. The Behavioral Management Perspective During this era, much more emphasis on individual attitude, their behaviors and group processes. Main Contributors of behavioral perspective Elton Mayo Professor George Elton Mayo (1880-1949) has secured fame as the leader in a series of experiments which became one of the great turning-points in management thinking. At the Hawthorne plant of Western Electric, he discovered that job satisfaction increased through employee participation in decisions rather than through short-term incentives. The experiment was focused on several steps. Illumination Studies Relay Assembly Test Room – (Incentive, Salaries) Bank wiring Observation Room – Incentives Plant – wide View Interview (Supervision, Environmental Factors) Personnel Counseling – (Identify the Importance of social factors) 27 At the end of the experiment Mayo concluded that, “Man is a social creature that should be motivated by acknowledging his/her social needs.” Accordingly study shows the need for social relationships is more important than the physical work environment or monetary incentives. Hugo Munsterberg As a Psychologists he made a valuable contribution to managerial decision making in the areas of employee motivation. He is known as the “Father of industrial psychology”. Mary Parker She suggested two main concepts in order to improve the organizational performance. Participative Management - workers help in analyzing their jobs for improvements since the worker knows the best way to improve the job. Empowerment - If workers have relevant knowledge of the task, then they should control the task. Douglas McGregor In 1960, Douglas McGregor formulated Theory X and Theory Y suggesting two aspects of human behavior at work. Theory X managers tend to take a pessimistic view of their people, and assume that they are naturally unmotivated and dislike work. Theory Y managers have an optimistic, positive opinion of their people, and they use a decentralized, participative management style. The Quantitative Management Perspective This perspective focuses on applying quantitative techniques to management in order to maximize the use of organizational resources. This perspective consists of two main quantitative approaches. Management Science - focuses specially on the development of mathematical models Operations management - this is a form of applied management science and generally concerned with helping the organization to produce its products or services more efficiently. 28 The Systems Perspective During this era, each organization was viewed as system. Accordingly it was configured based on several important concepts such as, Open system, subsystem, synergy and entropy. Open system – A system interact with its environment Sub system – A system within another system Synergy - two or more subsystems working together to produce more than the total of what they might produce working along. Entropy - Inability to adopt to the changing environment may results in failure of the business Accordingly to system perspective the main concern is to continually reenergize the organization to avoid the entropy. The Contingency Perspective During this era it was suggested that the universal theories cannot be applied to every organization, because each is unique and there is no one best way’ of managing all situations. So, the management technique that best contributes to the attainment of organizational goals might vary in different types of situations. The Quality Management Perspective This perspective consists of three major views points as quality control, quality assurance, and total quality management. Accordingly quality is the total ability of a product or service to meet customer needs, and is one of the best ways to add value to a product and differentiate it from others. Quality control is the strategy for minimizing errors by managing each stage of production and quality assurance focuses on the performance of workers, and emphasizes a goal of zero defects 29 Session 03 The organizational environment and Culture of Organizations 30 Preparatory Questionnaire Refer the relevant Chapter of the text book and jot down the answers to following questions before you come to the lecture 1. What are the two types of organization’s environments? Define & differentiate using suitable examples 2. Briefly explain the importance of the external environment to the overall performance of the organization based on different dimensions of it. 3. “The advancement of the technological dimension will eventually result in achieving the expected milestones of the business. “. Describe the validity of the given statement relating to a real-world example 4. What are the elements of the task environment? Explain with examples taken from that of McDonalds. 5. Briefly explain the importance managing organizational culture for long term existence of the organization 6. Illustrate Michael porter’s five forces model with suitable examples 7. What are the basic mechanisms through which organizations adopt to their environment. 31 Organizations cannot operate independent of its environment. The actors and forces within and outside are affecting to the organization. Organizational environment can be categorized as follows. The Internal Environment Owners – In Sri Lanka, Ownership can be identified in two main ways as public and private. Board of directors – The management team who involves with decision making. Employees – The people who work for the company. Culture - The set of values, beliefs, behaviors, customs, and attitudes that helps the members of the organization understand what it stands for, how it does things, and what it considers important. Physical Environment - consists of organizational resources such as land, buildings, vehicles, physical layouts etc. 32 The Task Environment Suppliers - Individuals and organizations that provide an organization with the input resources that it needs to produce goods and services. Ex: Raw materials, component parts, labor Distributors - Organizations that help other organizations sell their goods or services to customers Customers - Individuals and groups that buy goods and services that an organization produces. Competitors - Organizations that produce goods and services that are similar to a particular organization’s goods and services. Potential competitors also can be included to this category. Regulators - The institutions or parties who enforce rules and regulations to the company. Ex: Telecommunication companies are monitored by Telecommunication and Regulatory Commission (TRC) Strategic Partners – are the companies attached to the same organizations. The General Environment Political Forces - Outcomes of changes in laws and regulations, such as the deregulation of industries, the privatization of organizations, and increased emphasis on environmental protection Economic Forces - Interest rates, inflation, unemployment, economic growth Socio-cultural Forces - Pressures derive from the social structure of a country, society or national culture. Technological Forces - Outcomes of changes in the technology that managers use to design, produce, or distribute goods and services. Demographic Forces - Outcomes of changing attitudes toward, the characteristics of a population, such as age, gender, race, and social class Global Forces - Outcomes of changes in international relationships; changes in nations’ economic, political, and legal systems; and changes in technology, such as falling trade barriers 33 Organizational Environment Analysis SWOT Analysis This tool assesses the internal and external influences for a business. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Porters five force Model This tool is introduced by Michael porter and its focus on analyzing the organizational task environment. Threat of new entrants Bargaining Bargaining Rivalry power of power of buyers Among existing competitors Threat of Substitutes 34 PEST Analysis This is a general environment analysis tool and basically identify the impact of followings factors towards the business. Political influences Economic influences Social influences Technological influences How Organizations adopt to their Environment Each organization must assess its own unique situation and adapt according to the wisdom of senior management. Followings can be identified as basic strategies. Information Management Strategic responses Mergers, acquisitions, and alliances Organizational design and flexibility Direct influence of the environment 35 A MODEL OF ORGANIZATIONAL EFFECTIVENESS Figure 4 A model of Organizational Effectiveness This model focus on how well the organization understands, reacts to influences of its environment. The systems resources approach - extent to which the organization can acquire needed resources. The internal processes approach - internal mechanisms of the organization and forces on minimizing strain. The goal approach - how well the firm attain the goals. Strategic constituencies approach: how organization satisfy the stakeholders Combined approach – how the company make arrangements to get future resources easily 36 Session 04 Foundation of Planning & Decision Making 37 Preparatory Questionnaire Refer the relevant chapter of the text book and jot down the answers to following questions before you come to the lecture 1. Define Succession planning? 2. Compare the relationship between planning & decision making 3. “Goals are critical to organizational effectiveness & they serve a number of purposes.” Briefly explain the validity of the given statement describing the purposes of setting goals 4. List down the elements of developing and executing of tactical plans. What is more important? Developing or executing? 5. List down few essentials of formal goal setting process 6. What are the disadvantages that may arise due to formal goal-setting approach? 38 Decision making is the cornerstone of planning. Clearly, then, decision making is the catalyst that drives the planning process. An organization's goals follow from decisions made by various managers. Likewise, deciding on the best plan for achieving particular goals also reflects a decision to adopt one course of action as opposed to others. Decision making underlies every aspect of setting goals and formulating plans. The planning process itself can best be thought of as a generic activity. All organizations engage in planning activities, but no two organizations plan in exactly the same fashion. Figure 1.1 is a general representation of the planning process that many organizations attempt to follow. But, although most firms follow this general framework, each also has its own nuances and variations. As Figure 1.1 shows, all planning occurs within an environmental context. If managers do not understand this context, they will be unable to develop effective plans. Thus understanding the environment is essentially the first step in planning. The previous chapters cover many of the basic environmental issues that affect organizations and how they plan. With this understanding as a foundation, managers must then establish the organization's mission. The mission outlines the organization's purpose, premises, values, and directions. Flowing from the mission are parallel streams of goals and plans. Directly following the mission are strategic goals. These goals and the mission help determine strategic plans. Strategic goals and plans are primary inputs for developing tactical goals. Tactical goals and the original strategic plans help shape tactical plans. Tactical plans, in turn, combine with the tactical goals to shape operational goals. These goals and the appropriate tactical plans determine operational plans. Finally, goals and plans at each level can also be used as input for future activities at all levels. The planning process takes place within an environmental context. Managers must develop a complete and thorough understanding of this context to determine the organization’s mission and to develop its strategic, tactical, and operational goals and plans. 39 Figure 5 The Planning Process - Griffin 2013 Organizational Goals Goals are critical to organizational effectiveness, and they serve a number of purposes. Organizations can also have several different kinds of goals, all of which must be appropriately managed. And a number of different kinds of managers must be involved in setting goals. In this lesson followings key areas will be discussed Purposes of Goals Kinds of Goals Responsibilities for Setting Goals Managing Multiple Goals 40 Purposes of Goals Goals serve four important purposes (Richards, 1986). First, they provide guidance and a unified direction for people in the organization. Goals can help everyone understand where the organization is going and why getting there is important (Collins,1999). Second, goal-setting practices strongly affect other aspects of planning. Effective goal setting promotes good planning, and good planning facilitates future goal setting. The strong growth goal should encourage managers to plan for expansion by looking for new market opportunities, for example. Similarly, they must also always be alert for competitive threats and new ideas that will help facilitate future expansion. Third, goals can serve as a source of motivation for employees of the organization. Goals that are specific and moderately difficult can motivate people to work harder, especially if attaining the goal is likely to result in rewards (Thompson, Hochwarter, and Mathys,1997). Finally, goals provide an effective mechanism for evaluation and control. This means that performance can be assessed in the future in terms of how successfully today's goals are accomplished. Kinds of Goals Organizations establish many different kinds of goals. In general, these goals vary by level, area, and time frame (Bateman, Neill and Uren, 2002) Level Goals are set for and by different levels within an organization. As we noted earlier, the four basic levels of goals are the mission and strategic, tactical, and operational goals. An organization's mission is a statement of its “fundamental, unique purpose that sets a business apart from other firms of its type and identifies the scope of the business's operations in product and market terms (Pearce and David, 1987). Eg: Starbucks’ mission statement is to be “the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.” 41 Strategic goals Goals set by and for top management of the organization. They focus on broad, general issues. For example, Starbucks has a strategic goal of increasing the profitability of each of its coffee stores by 25 percent over the next five years. Tactical goals Goals set by and for middle managers. Their focus is on how to operationalize actions necessary to achieve the strategic goals. To achieve Starbucks’ goal of increasing its per-store profitability, managers are working on tactical goals related to company-owned versus licensed stores and the global distribution of stores in different countries. Operational goals Goals by and for lower-level managers. Their concern is with shorter-term issues associated with the tactical goals. An operational goal for Starbucks might be to boost the profitability of a certain number of stores in each of the next five years. Area Organizations also set goals for different areas. As an example Hewlett-Packard (HP) routinely sets production goals for quality, productivity, and so forth. By keeping activities focused on these important areas, HP has managed to remain competitive against organizations from around the world. Human resource goals might be set for employee turnover and absenteeism. 3M and Rubbermaid set goals for product innovation. Similarly, Bath and Body Works has a goal that 30 percent of the products sold in its retail outlets each year will be new. In addition to its profit growth goals, Starbucks also has financial goals related to return on investment and return on assets. Time Frame Organizations also set goals across different time frames. Some goals have an explicit time frame (open 150 new restaurants during the next ten years), and others have an open-ended time horizon (maintain 10 percent annual growth). Finally, we should also note that the meaning of different time frames varies by level. For example, at the strategic level, “long term” often means ten years or longer, “intermediate term” around five years or so, and “short term” around one year. But two 42 or three years may be long term at the operational level, while short term may mean a matter of weeks or even days. Responsibilities for Setting Goals Who sets goals? All managers should be involved in the goal-setting process. Each manager, however, generally has responsibilities for setting goals that correspond to his or her level in the organization. The mission and strategic goals are generally determined by the board of directors and top managers. Top and middle managers then work together to establish tactical goals. Finally, middle and lower- level managers are jointly responsible for operational goals. Many managers also set individual goals for themselves. These goals may involve career paths, informal work-related goals outside the normal array of official goals, or just about anything of interest or concern to the manager. Managing Multiple Goals Organizations set many different kinds of goals and sometimes experience conflicts or contradictions among goals. Eg: Nike had problems with inconsistent goals a few years ago. The firm was producing high- quality shoes (a manufacturing goal), but they were not particularly stylish (a marketing goal). As a result, the company lost substantial market share when Reebok and Adidas started making shoes that were both high quality and fashionable. When Nike management recognized and corrected the inconsistencies, Nike regained its industry standing. To address such problems, managers must understand the concept of optimizing. Optimizing involves balancing and reconciling possible conflicts among goals. Because goals may conflict with one another, the manager must look for inconsistencies and decide whether to pursue one goal to the exclusion of another or to find a midrange target between the extremes. Organizational Planning Given the clear link between organizational goals and plans, we now turn our attention to various concepts and issues associated with planning itself. In particular, this section identifies kinds of plans, time frames for planning, who is responsible for planning, and contingency planning. 43 Kinds of Organizational Plans Organizations establish many different kinds of plans. At a general level, these include strategic, tactical, and operational plans. Strategic Plans Strategic plans are the plans developed to achieve strategic goals. More precisely, a strategic plan is a general plan outlining decisions of resource allocation, priorities, and action steps necessary to reach strategic goals. These plans are set by the board of directors and top management, generally have an extended time horizon, and address questions of scope, resource deployment, competitive advantage, and synergy. Tactical Plans A tactical plan, aimed at achieving tactical goals, is developed to implement specific parts of a strategic plan. Tactical plans typically involve upper and middle management and, compared with strategic plans, have a somewhat shorter time horizon and a more specific and concrete focus. Thus tactical plans are concerned more with actually getting things done than with deciding what to do. Operational Plans An operational plan focuses on carrying out tactical plans to achieve operational goals. Developed by middle and lower-level managers, operational plans have a short-term focus and are relatively narrow in scope. Each one deals with a fairly small set of activities. Time Frames for Planning Strategic plans tend to have a long-term focus, tactical plans an intermediate-term focus, and operational plans a short-term focus. Time frames vary widely from industry to industry. A long-range plan covers many years, perhaps even decades. The founder of Matsushita Electric (maker of Panasonic and JVC electronic products), Konosuke Matsushita, once wrote a 250-year plan for his company!19 Today, however, most managers recognize that environmental change 44 makes it unfeasible to plan too far ahead, but large firms like Ford Motor Company and ExxonMobil still routinely develop plans for five- to ten-year intervals. An intermediate plan is somewhat less tentative and subject to change than is a long-range plan. Intermediate plans usually cover periods from one to five years and are especially important for middle and first-line managers. Thus they generally parallel tactical plans. For many organizations, intermediate planning has become the central focus of planning activities. Nissan, for example, fell behind its domestic rivals Toyota and Honda in profitability and productivity. To turn things around, the firm developed several plans ranging in duration from two to four years, each intended to improve some part of the company's operations. One plan (three years in duration) involved updating the manufacturing technology used in each Nissan assembly factory. Another (four years in duration) called for shifting more production to foreign plants to lower labor costs. And the successful implementation of these plans helped turn things around for Nissan. Short-range plans, which have a time frame of one year or less. Short-range plans greatly affect the manager's day-to-day activities. There are two basic kinds of short-range plans. An action plan operationalizes any other kind of plan. An action plan thus coordinates the actual changes at a given factory. A reaction plan, in turn, is a plan designed to allow the company to react to an unforeseen circumstance. Responsibilities for Planning All managers engage in planning to some degree. Marketing sales managers develop plans for target markets, market penetration, and sales increases. Operations managers plan cost-cutting programs and better inventory control methods. As a general rule, however, the larger an organization becomes, the more the primary planning activities become associated with groups of managers rather than with individual managers. 45 Planning Staff Some large organizations maintain a professional planning staff. General Motors, Caterpillar, Raytheon, Ford, and Boeing all have planning staffs. Organizations might use a planning staff for a variety of reasons. In particular, a planning staff can reduce the workload of individual managers, help coordinate the planning activities of individual managers, bring to a particular problem many different tools and techniques, take a broader view than individual managers, and go beyond pet projects and particular departments. In recent years, though, some businesses have realized that they can plan more effectively by diffusing planning responsibility throughout their organization and/or by using planning task forces. Planning Task Force Organizations sometimes use a planning task force to help develop plans. Such a task force often comprises line managers with a special interest in the relevant area of planning. The task force may also have members from the planning staff if the organization has one. A planning task force is most often created when the organization wants to address a special circumstance. Board of Directors Among its other responsibilities, the board of directors establishes the corporate mission and strategy. In some companies the board takes an active role in the planning process (Kerr and Werther ,2008). Chief Executive Officer The chief executive officer (CEO) is usually the president or the chair of the board of directors. The CEO is probably the single most important individual in any organization's planning process. The CEO plays a major role in the complete planning process and is responsible for implementing the strategy. Executive Committee The executive committee is usually composed of the top executives in the organization working together as a group. Committee members usually meet regularly to provide input to the CEO on 46 the proposals that affect their own units and to review the various strategic plans that develop from this input. Members of the executive committee are frequently assigned to various staff committees, subcommittees, and task forces to concentrate on specific projects or problems that might confront the entire organization at some time in the future. Line Management The final component of most organizations’ planning activities is line management. Line managers are those persons with formal authority and responsibility for the management of the organization. They play an important role in an organization's planning process for two reasons. First, they are a valuable source of inside information for other managers as plans are formulated and implemented. Second, the line managers at the middle and lower levels of the organization usually must execute the plans developed by top management. Line management identifies, analyzes, and recommends program alternatives, develops budgets and submits them for approval, and finally sets the plans in motion. Contingency Planning and Crisis Management Contingency planning —the determination of alternative courses of action to be taken if an intended plan of action is unexpectedly disrupted or rendered inappropriate (Scharfstein, and Stein, 1994). Crisis management, a related concept, is the set of procedures the organization uses in the event of a disaster or other unexpected calamity. Some elements of crisis management may be orderly and systematic, whereas others may be more ad hoc and develop as events unfold. An excellent example of widespread contingency planning occurred during the late 1990s in anticipation of what was popularly known as the “Y2K bug.” Concerns about the impact of technical glitches in computers stemming from their internal clocks’ changing from 1999 to 2000 resulted in contingency planning for most organizations. Many banks and hospitals, for example, had extra staff available; some organizations created backup computer systems; and some even stockpiled inventory in case they could not purchase new products or materials (Wall Street Journal, December 23, 1999). 47 Unfortunately, however, because it is impossible to forecast the future precisely, no organization can ever be perfectly prepared for all crises. For example, due to 2011's disastrous earthquake and tsunami in Japan, many U.S. companies faced shortages of goods and materials imported from that country. General Motors was the first automaker forced to temporarily shut down one of its truck plants because it could not get enough Japanese-made parts. Two months after the disaster, Toyota's facilities in the United States were operating at less than 30 percent of capacity and did not return to full production until several months later.27 Contingency planning is becoming increasingly important for most organizations, especially for those operating in particularly complex or dynamic environments. Few managers have such an accurate view of the future that they can anticipate and plan for everything. 48 Session 05 Managing Decisions & Problem Solving 49 Preparatory Questionnaire Refer Chapter 8 of the text book and jot down the answers to following questions before you come to the lecture; 1. Differentiate business level strategy & corporate level strategy 2. “The sales volume of products changes over the life of products”. Explain the given statement using the using a specific model. 3. ABC Company focuses to gain the competitive advantage by reducing its costs. Suggest & explain an appropriate generic strategy of porter in this regard. 4. Compare & Contrast the implementation issues of Miles &Snow’s strategies & Porter’s generic strategies 5. List down 4 advantages of related & unrelated diversification 6. What are the basic strategies available for a global business organization. Explain 7. Give a real world example of a corporation who are following each of the give strategies - Analyzer strategies - Single product strategy - Unrelated diversification 50 Decision Making Decision making can refer to either a specific act or a general process. Decision making per se is the act of choosing one alternative from among a set of alternatives. The decision-making process, however, is much more than this. One step of the process, for example, is that the person making the decision must both recognize that a decision is necessary and identify the set of feasible alternatives before selecting one. Hence, the decision-making process includes recognizing and defining the nature of a decision situation, identifying alternatives, choosing the “best” alternative, and putting it into practice (Harrison,1999). Types of Decisions Managers must make many different types of decisions. In general, however, most decisions fall into one of two categories: programmed and non-programmed ( Huber and Foresman, 1980). A programmed decision is one that is relatively structured or recurs with some frequency (or both). Nonprogrammed decisions , on the other hand, are relatively unstructured and occur much less often. Decision-Making Conditions Just as there are different kinds of decisions, there are also different conditions in which decisions must be made. Managers sometimes have an almost perfect understanding of conditions surrounding a decision, but at other times they have few clues about those conditions. In general, as shown in Figure 1.1, the circumstances that exist for the decision maker are conditions of certainty, risk, or uncertainty (Huber, 1976). Decision Making under Certainty When the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative, a state of certainty exists. 51 For example, that managers at Singapore Airlines make a decision to buy five new jumbo jets. Their next decision is from whom to buy them. Because there are only two companies in the world that make jumbo jets, Boeing and Airbus, Singapore Airlines knows its options exactly. Each has proven products and will guarantee prices and delivery dates. The airline thus knows the alternative conditions associated with each. There is little ambiguity and relatively little Decision Making under Risk A more common decision-making condition is a state of risk. Under a state of risk , the availability of each alternative and its potential payoffs and costs are all associated with probability estimates (Stulz, 2009). Suppose, for example, that a labor contract negotiator for a company receives a “final” offer from the union right before a strike deadline. The negotiator has two alternatives: to accept or to reject the offer. 52 Do you Know? When negotiators for Ford Motor Company and the United Auto Workers meet to discuss new labor contracts, they make decisions under conditions of risk. Each side tries to understand what its counterparts want and how much they are willing to compromise. If they manage risk properly, then each side can get an acceptable outcome. But if they manage risk incorrectly, the result might be a costlystrike. 53 Figure 6 Components of Decision Making As indicated in the above figure, decision making under conditions of risk is accompanied by moderate ambiguity and chances of a bad decision. Decision Making under Uncertainty Most of the major decision making in contemporary organizations is done under a state of uncertainty. The decision maker does not know all the alternatives, the risks associated with each, or the likely consequences of each alternative. This uncertainty stems from the complexity and dynamism of contemporary organizations and their environments. The emergence of the Internet as a significant force in today's competitive environment has served to increase both revenue potential and uncertainty for most managers. To make effective decisions in these circumstances, managers must acquire as much relevant information as possible and approach the situation from a logical and rational perspective. Intuition, judgment, and experience always play major roles in the decision-making process under conditions of uncertainty. 54 Rational Perspectives on Decision Making The Classical Model of Decision Making The classical decision model is a prescriptive approach that tells managers how they should make decisions. It rests on the assumptions that managers are logical and rational and that they make decisions that are in the best interests of the organization. Figure 1.2 shows how the classical model views the decision-making process. 1. Decision makers have complete information about the decision situation and possible alternatives. 2. They can effectively eliminate uncertainty to achieve a decision condition of certainty. 3. They evaluate all aspects of the decision situation logically and rationally. Figure 7 Classical Model of decision making Steps in Rational Decision Making A manager who really wants to approach a decision rationally and logically should try to follow the steps in rational decision making , listed in Table 1.1. These steps in rational decision making help keep the decision maker focused on facts and logic and help guard against inappropriate assumptions and pitfalls. 55 Recognizing and Defining the Decision Situation The first step in rational decision making is recognizing that a decision is necessary—that is, there must be some stimulus or spark to initiate the process. For many decisions and problem situations, the stimulus may occur without any prior warning. Identifying Alternatives Once the decision situation has been recognized and defined, the second step is to identify alternative courses of effective action. Developing both obvious, standard alternatives and creative, innovative alternatives is generally useful (Litchfield, 2008). In general, the more important the decision, the more attention is directed to developing alternatives. Evaluating Alternatives The third step in the decision-making process is evaluating each of the alternatives. Figure 1.3 presents a decision tree that can be used to judge different alternatives. The figure suggests that each alternative be evaluated in terms of its feasibility, its satisfactoriness, and its consequences. The first question to ask is whether an alternative is feasible. Is it within the realm of probability and practicality? For a small, struggling firm, an alternative requiring a huge financial outlay is probably out of the question. Other alternatives may not be feasible because of legal barriers. And limited human, material, and information resources may make other alternatives impractical. Figure 8 Evaluating alternatives in the decision making process 56 Selecting an Alternative Even though many alternatives fail to pass the triple tests of feasibility, satisfactoriness, and affordable consequences, two or more alternatives may remain. Choosing the best of these is the real crux of decision making. One approach is to choose the alternative with the optimal combination of feasibility, satisfactoriness, and affordable consequences. Implementing the Chosen Alternative After an alternative has been selected, the manager must put it into effect. In some decision situations, implementation is fairly easy; in others, it is more difficult. In the case of an acquisition, for example, managers must decide how to integrate all the activities of the new business, including purchasing, human resource practices, and distribution, into an ongoing organizational framework. Following Up and Evaluating the Results The final step in the decision-making process requires that managers evaluate the effectiveness of their decision—that is, they should make sure that the chosen alternative has served its original purpose. If an implemented alternative appears not to be working, the manager can respond in several ways. Another previously identified alternative (the original second or third choice, for instance) could be adopted. 57 STEPS IN THE RATIONAL DECISION-MAKING PROCESS Although the presumptions of the classical decision model rarely exist, managers can still approach decision making with rationality. By following the steps of rational decision making, managers ensure that they are learning as much as possible about the decision situation and its alternatives. Step Detail Example 1. Recognizing and Some stimulus indicates that a decision A plant manager sees that defining the must be made. The stimulus may be employee turnover has increased decision situation positive or negative. by 5 percent. 2. Identifying Both obvious and creative alternatives The plant manager can increase alternatives are desired. In general, the more wages, increase benefits, or change important the decision, the more hiring standards. alternatives should be generated. 3. Evaluating Each alternative is evaluated to Increasing benefits may not be alternatives determine its feasibility, its feasible. Increasing wages and satisfactoriness, and its consequences. changing hiring standards may satisfy all conditions. 4. Selecting the best Consider all situational factors and Changing hiring standards will take alternative choose the alternative that best fits the an extended period of time to cut manager's situation. turnover, so increase wages. 5. Implementing the The chosen alternative is implemented The plant manager may need chosen alternative into the organizational system. permission from corporate headquarters. The human resource department establishes a new wage structure. 58 STEPS IN THE RATIONAL DECISION-MAKING PROCESS Although the presumptions of the classical decision model rarely exist, managers can still approach decision making with rationality. By following the steps of rational decision making, managers ensure that they are learning as much as possible about the decision situation and its alternatives. Step Detail Example 6. Following up and At some time in the future, the manager The plant manager notes that, six evaluating the should ascertain the extent to which the months later, turnover dropped to results alternative chosen in step 4 and its previous level. implemented in step 5 has worked. Figure 9 Steps in the rational decision making process Behavioral Aspects of Decision Making If all decision situations were approached as logically as described in the previous section, more decisions might prove to be successful. Yet decisions are often made with little consideration for logic and rationality. On the other hand, sometimes when a decision is made with little regard for logic, it can still turn out to be correct. An important ingredient in how these forces work is the behavioral aspect of decision making. The administrative model better reflects these subjective considerations. Other behavioral aspects include political forces, intuition and escalation of commitment, risk propensity, and ethics. The Administrative Model Herbert A. Simon was one of the first experts to recognize that decisions are not always made with rationality and logi. Simon was subsequently awarded the Nobel Prize in economics. Rather than prescribing how decisions should be made, his view of decision making, now called the administrative model , describes how decisions often actually are made. 59 As illustrated in above table, the model holds that managers (1) Use incomplete and imperfect information, 2) Are constrained by bounded rationality, and (3) Tend to “satisfice” when making decisions. Bounded rationality suggests that decision makers are limited by their values and unconscious reflexes, skills, and habits. They are also limited by less-than-complete information and knowledge. Essentially, then, the concept of bounded rationality suggests that although people try to be rational decision makers, their rationality has limits. Another important part of the administrative model is satisficing. This concept suggests that rather than conducting an exhaustive search for the best possible alternative, decision makers tend to search only until they identify an alternative that meets some minimum standard of sufficiency. Because of the inherent imperfection of information, bounded rationality, and satisficing, the decisions made by a manager may or may not actually be in the best interests of the organization. In summary, then, the classical and administrative models paint quite different pictures of decision making. Which is more correct? Actually, each can be used to better understand how managers make decisions. The classical model is prescriptive: It explains how managers can at least attempt to be more rational and logical in their approaches to decisions. The administrative model can be used by managers to develop a better understanding of their inherent biases and limitations. Political Forces in Decision Making Political forces are another major element that contributes to the behavioral nature of decision making. A coalition is an informal alliance of individuals or groups formed to achieve a common goal. This common goal is often a preferred decision alternative. For example, coalitions of stockholders frequently band together to force a board of directors to make a certain decision. The impact of coalitions can be either positive or negative. They can help astute managers get the organization on a path toward effectiveness and profitability, or they can strangle well-conceived strategies and decisions. Managers must recognize when to use coalitions, how to assess whether 60 coalitions are acting in the best interests of the organization, and how to constrain their dysfunctional effects. Intuition and Escalation of Commitment Two other important decision processes that go beyond logic and rationality are intuition and escalation of commitment to a chosen course of action. Intuition Intuition is an innate belief about something, without conscious consideration. Managers sometimes decide to do something because it “feels right” or they have a “hunch.” This feeling usually is not arbitrary, however. Rather, it is based on years of experience and practice in making decisions in similar situations (Brousseau, Driver, Hourihan, and Larsson, 2006 Escalation of Commitment Another important behavioral process that influences decision making is escalation of commitment to a chosen course of action. In particular, decision makers sometimes make decisions and then become so committed to the courses of action suggested by those decisions that they stay with them even when the decisions appear to have been wrong (Staw and Ross, 1988 Risk Propensity and Decision Making The behavioral element of risk propensity is the extent to which a decision maker is willing to gamble when making a decision. Some managers are cautious about every decision they make. They try to adhere to the rational model and are extremely conservative in what they do. Such managers are more likely to avoid mistakes, and they infrequently make decisions that lead to big losses. Other managers are extremely aggressive in making decisions and are willing to take risks (McNamara and Bromiley, 1999). 61 Ethics and Decision Making Individual ethics are personal beliefs about right and wrong behavior. Ethics are clearly related to decision making in a number of ways. For example, suppose that, after careful analysis, a manager realizes that his company could save money by closing his department and subcontracting with a supplier for the same services. But to recommend this course of action would result in the loss of several jobs, including his own. His own ethical standards will clearly shape how he proceeds.37 Indeed, each component of managerial ethics (relationships of the firm to its employees, of employees to the firm, and of the firm to other economic agents) involves a wide variety of decisions, all of which are likely to have an ethical component. A manager must remember, then, that, just as behavioral processes such as politics and risk propensity affect the decisions he makes, so, too, do his ethical beliefs (Tenbrunsel and Crowe, 2008). 62 Session 06 Basic Elements of Organizing 63 Preparatory Questionnaire (Session 06 & 07) Refer Chapter 11 of the text book and jot down the answers to following questions before you come to the lecture 1. Define the meaning and the components of Organizing as a management function 2. Explain the importance of designing jobs in decision making process 3. Briefly explain 5 major alternatives to job specialization 4. “Grouping jobs can be done based on functions performed, nature of customers, product and locations”. Prove the given statement using the bases of departmentalization 5. What is the meaning of “span of control”? List down the factors influencing the span 6. What are the basic steps of the authority delegation process? 7. Differentiate Centralization & decentralization as concepts of problem delegation 8. Most of the successful organizations like General Electric follow the method of decentralization in the process of problem delegation. List down few advantages of this method. 64 Organizing is deciding how best to group organizational activities and resources. The organizing process leads to the creation of organizational structure. Organizational structure is the building blocks used to form an organization. One of the manager’s jobs is to know how to put the building blocks together. The organizational chart is the visual presentation of the organizational structure. It clearly identifies a company's characteristics to enable both employees and bodies external to your company (customers, suppliers etc.) to identify the make-up of the company. Elements of Organizational Structure Job (work)Specialization Departmentalization Chain of command Span of Management Delegation Formalization Coordination 65 Job Specialization The degree to which the overall task of the organization is broken down and divided into smaller component parts. There are some alternatives to Job Specialization such as, Job Rotation - Involves systematically moving employees from one job to another Job Enlargement - Involves increasing the total number of tasks worker performs Job Enrichment - Involves increasing both the number of tasks the worker does and the control the worker has over the job Work Teams - Allows an entire group to design the work system it will use to perform an interrelated set of tasks. Job Characteristics Approach - The job characteristics approach suggests that jobs should be diagnosed and improved along five core dimensions: Skill variety, Task identity, Task significance, Autonomy, Feedback Figure 10 A Model of Job Specialization 66 Departmentalization The process of grouping jobs according to some logical arrangement. Departmentalization mainly can be seen in five basic forms. Vertical functional structure Divisional structure Matrix structure Team-based structure Virtual network structure Chain of Command This is the line of authority extending from upper organizational levels to lower levels, which clarifies who reports to whom. Span of Management/ Span of Control This determines the number of levels and managers in an organization. There are some important factors that influencing the Span of Management such as competence of supervisor and subordinates, dispersion (Distribution) of subordinates, extent of non-supervisory work, degree of required supervision, extent of standard procedures, similarity of tasks, frequency of new problems, preferences of supervision. Ex: assume the company consists of 4096 employees and the span is 8 at each levels. 1 8 64 512 4096 Employees 67 Accordingly, we can identify the company consists of four (4) managerial levels and 585 managers. Delegation The process by which managers assign a portion of their total workload to others. This enable the manager to get more work done by utilizing the skills and talents of subordinates. Figure 11 Authority delegation process The main difference between responsibility and accountability is that responsibility can be shared while accountability cannot. Being accountable not only means being responsible for something but also ultimately being answerable for your actions. Formalization This Refers to how standardized an organization’s jobs are and the extent to which employee behavior is guided by rules and procedures. Coordination The process of linking the activities of the various departments of the organization. 68 Session 07 Managing Organizational Design 69 The Nature of Organization Design What is organization design? Organization design is the overall set of structural elements and the relationships among those elements used to manage the total organization (Griffin, 2013). Thus organization design is a means to implement strategies and plans to achieve organizational goals (Greenwood and Miller, 2010). As we discuss organization design, keep in mind two important points. First, organizations are not designed and then left intact. Most organizations change almost continuously as a result of factors such as situations and people. Second, organization design for larger organizations is extremely complex, with so many nuances and variations that no description of it can ever be a full and complete explanation. Universal Perspectives on Organization Design The foundation of contemporary thinking about organization design can be traced back to two early universal perspectives: the bureaucratic model and the behavioral model. Bureaucratic Model Max Weber, an influential German sociologist, was a pioneer of classical organization theory. At the core of Weber's writings was the bureaucratic model of rganizations (Weber, 1947).The Weberian perspective suggests that a bureaucracy is a model of organization design based on a legitimate and formal system of authority. Many people associate bureaucracy with “red tape,” rigidity, and passing the buck. Weber viewed the bureaucratic form of organization as logical, rational, and efficient. He offered the model as a framework to which all organizations should aspire—the “one best way” of doing things. 70 According to Weber, the ideal bureaucracy exhibits five basic characteristics: 1. The organization should adopt a distinct division of labor, and each position should be filled by an expert. 2. The organization should develop a consistent set of rules to ensure that task performance is uniform. 3. The organization should establish a hierarchy of positions or offices that creates a chain of command from the top of the organization to the bottom. 4. Managers should conduct business in an impersonal way and maintain an appropriate social distance between themselves and their subordinates. 5. Employment and advancement in the organization should be based on technical expertise, and employees should be protected from arbitrary dismissal. Perhaps the best examples of bureaucracies today are government agencies and universities. Consider, for example, the steps you must go through and the forms you must fill out to apply for admission to college, request housing, register each semester, change majors, submit a degree plan, substitute a course, and file for graduation. A primary strength of the bureaucratic model is that several of its elements (such as reliance on rules and employment based on expertise) do, in fact, often improve efficiency. Bureaucracies also help prevent favoritism (because everyone must follow the same rules) and make procedures and practices very clear to everyone. Unfortunately, however, this approach also has several disadvantages. One major disadvantage is that the bureaucratic model results in inflexibility and rigidity. Once rules are created and put in place, making exceptions or changing them is often difficult. In addition, the bureaucracy often results in neglect of human and social processes within the organization. 71 Behavioral Model Another important universal model of organization design was the behavioral model , which paralleled the emergence of the human relations school of management thought. Rensis Likert, a management researcher, studied several large organizations to determine what made some more effective than others (Likert, , 1967). He found that the organizations in his sample that used the bureaucratic model of design tended to be less effective than those that used a more behaviorally oriented model consistent with the emerging human relations movement—in other words, organizations that paid more attention to developing work groups and were more concerned with interpersonal processes. Likert developed a framework that characterized organizations in terms of eight important processes: leadership, motivation, communication, interactions, decision making, goal setting, control, and performance goals. Likert believed that all organizations could be measured and categorized along a continuum associated with each of these dimensions. He argued that the basic bureaucratic form of organization, which he called a System 1 design , anchored one end of each dimension. The characteristics of the System 1 organization in Likert's framework are summarized in the left column of Table 2.1. Also summarized in the right column of this table are characteristics of Likert's other extreme form of organization design, called System 4 design , based on the behavioral model. SYSTEM 1 AND SYSTEM 4 ORGANIZATIONS The behavioral model identifies two extreme types of organization design called System 1 and System 4. The two designs vary in eight fundamental processes. The System 1 design is considered to be somewhat rigid and inflexible. System 1 Organization System 4 Organization Source: Adapted from Rensis Likert, The Human Organization, 1967. Copyright © 1967 The McGraw-Hill Companies, Inc. Reprinted with permission. Leadership process includes no Leadership process includes perceived perceived confidence and trust. confidence and trust between superiors Subordinates do not feel free to and subordinates in all matters. discuss job problems with their Subordinates feel free to discuss job 72 SYSTEM 1 AND SYSTEM 4 ORGANIZATIONS The behavioral model identifies two extreme types of organization design called System 1 and System 4. The two designs vary in eight fundamental processes. The System 1 design is considered to be somewhat rigid and inflexible. System 1 Organization System 4 Organization superiors, who in turn do not solicit problems with their superiors, who in turn their ideas and opinions. solicit their ideas and opinions. Motivational process taps only Motivational process taps a full range of physical, security, and economic motives through participatory methods. motives through the use of fear and Attitudes are favorable toward the sanctions. Unfavorable attitudes organization and its goals. toward the organization prevail Communication process is such that among employees. information flows freely throughout the Communication process is such that organization—upward, downward, and information flows downward and laterally. The information is accurate and tends to be distorted, inaccurate, and undistorted. viewed with suspicion by Interaction process is open and extensive. subordinates. Both superiors and subordinates are able Interaction process is closed and to affect departmental goals, methods, and restricted. Subordinates have little activities. effect on departmental goals, Decision process occurs at all levels methods, and activities. through group processes; it is relatively Decision process occurs only at the decentralized. top of the organization; it is relatively Goal-setting process encourages group centralized. participation in setting high, realistic Goal-setting process is located at the objectives. top of the organization; discourages Control process is dispersed throughout group participation. the organization and emphasizes self- control and problem solving. 73 SYSTEM 1 AND SYSTEM 4 ORGANIZATIONS The behavioral model identifies two extreme types of organization design called System 1 and System 4. The two designs vary in eight fundamental processes. The System 1 design is considered to be somewhat rigid and inflexible. System 1 Organization System 4 Organization Control process is centralized and Performance goals are high and actively emphasizes fixing of blame for sought by superiors who recognize the mistakes. necessity for making a full commitment to Performance goals are low and developing, through training, the human passively sought by managers who resources of the organization. make no commitment to developing the human resources of the organization. Figure 12 system 01 and system 04 designs Situational Influences on Organization Design The situational view of organization design is based on the assumption that the optimal design for any given organization depends on a set of relevant situational factors. In other words, situational factors play a role in determining the best organization design for any particular circumstance (Anand and Daft, 2007). Four basic situational factors—technology, environment, size, and organizational life cycle—are discussed here. Core Technology Technology consists of the conversion processes used to transform inputs (such as materials or information) into outputs (such as products or services). Most organizations use multiple technologies, but an organization's most important one is called its core technology. Although most people visualize assembly lines and machinery when they think of technology, the term can also be applied to service organizations. 74 Thus technology clearly appears to play an important role in determining organization design. As future technologies become more diverse and complex, managers will have to be even more aware of different technologies’ impact on the design of organizations. Environment Environmental elements and organization design are specific

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