MGMT 3820
What Is Corporate Strategy?
Corporate strategy is an organizational strategy that determines what businesses a company is in, should be in, or wants to be in, and what it wants to do with those businesses.
LEADING ISSUES
In an entrepreneurial venture, the management function of leading plays an important role in the success of the business.
Legal Forms of Organization.
1. In organizing a new business, the entrepreneur must first determine the form of legal ownership for the venture. The two primary considerations in this decision are taxes and legal liability. 2. An entrepreneurial venture may be organized in one of three basic ways: sole proprietorship, partnership, and corporation. 3. These three basic ways, together with variations of these alternatives, offer the six possible choices listed below (see Exhibit 10-4):
What Is Strategic Management?
Strategic management is what managers do to develop the organization's strategies.
ORGANIZING FOR FLEXIBILITY IN THE TWENTY-FIRST CENTURY
Today's increasingly dynamic and complex environment demands greater flexibility and innovation in organizational structure. Many organizations are abandoning traditional organizational designs in favor of more organic approaches. A. Team Structures. One of the newer concepts in organizational design is team structure, an organizational structure in which the entire organization is made up of work groups or teams. B. Matrix and Project Structures. Other variations in organizational arrangements are based on the fact that many of today's organizations deal with work activities of different time requirements and magnitude. 1. One of these arrangements is the matrix structure, an organizational structure that assigns specialists from different functional departments to work on one or more projects (see Exhibit 11-9). STUDY QUESTION: With the availability of advanced information technology that allows an organization's work to be done anywhere at any time, is organizing still an important managerial function? Why or why not? 2. Another of these designs is the project structure, an organizational structure in which employees continuously work on projects. C. The Boundaryless Organization. Another approach to organizational design is the boundaryless organization, an organization whose design is not defined by, or limited to, the horizontal, vertical, or external boundaries imposed by a predefined structure. 1. The Virtual Organization. A virtual organization operates with a small core of full-time employees, while hiring outside specialists to work on projects temporarily, as needed. 2. Task Forces. Another structural option an organization might use is a task force (also called an ad hoc committee), which is a temporary committee or team formed to tackle a specific short- term problem affecting several departments. a. Today, many companies are trying open innovation, opening up the search for new ideas beyond the organization's boundaries and allowing innovations to easily transfer inward and outward. The benefits and drawbacks of open innovation are described in Exhibit 11- 10. D. Telecommuting. Telecommuting is a work arrangement in which employees work at home and are linked to the workplace by computer. 1. Telecommuting provides the company a way to grow without having to incur any additional fixed costs such as office buildings, equipment, or parking lots. In addition, some companies view the arrangement as a way to combat high gas prices and to attract talented employees who want more freedom and control. 2. Some managers are reluctant to have their employees become "laptop hobos." They argue that employees will waste time surfing the Internet or playing online games instead of working, that they'll ignore clients, and work responsibilities. 3. Employees often express the same concerns about working remotely, especially when it comes to the isolation of not being "at work." 4. Managing telecommuters then becomes a matter of keeping employees feeling like they're connected and engaged, a topic we delve into at the end of the chapter as we look at today's organizational design challenges. E. Compressed Workweeks, Flextime, and Job Sharing. 1. Compressed workweek, which is a workweek where employees work longer hours per day but fewer days per week. 2. Flextime (also known as flexible work hours), which is a scheduling system in which employees are required to work a specific number of hours a week but are free to vary those hours within certain limits. 3. Job sharing, which is the practice of having two or more people split a full-time job. F. The Contingent Workforce. Contingent Workers are temporary, freelance, or contract workers whose employment is contingent upon demand for their services. 1. As organizations eliminate full-time jobs through downsizing and other organizational restructurings, they often rely on a contingent workforce to fill in as needed. 2. One of the main issues businesses face with their contingent workers, especially those who are independent contractors or freelancers, is classifying who actually qualifies as one. a. Companies don't have to pay Social Security, Medicare, or unemployment insurance taxes on workers classified as independent contractors. And those individuals also aren't covered by most workplace laws.
ORGANIZING ISSUES
When the start-up and planning issues for the entrepreneurial venture have been addressed, the entrepreneur begins to consider the organization of the proposed business.
Personality Characteristics of Entrepreneurs.
1. It has been difficult to identify specific personality traits that all entrepreneurs share. 2. Evidence suggests an entrepreneur is likely to have a proactive personality: a personality trait that describes individuals who are more prone to take actions to influence their environments. 3. Studies have shown that entrepreneurs have greater risk propensity than managers do. However, this propensity is moderated by the entrepreneur's primary goal.
SIX ELEMENTS OF ORGANIZATIONAL DESIGN
Managers need to establish structural designs that will best support and allow employees to do their work effectively and efficiently. Several important terms must be defined in order to understand the elements of organizational structure and design: 1. Organizing is arranging and structuring work to accomplish the organization's goals. This process has several purposes, as shown in Exhibit 11-1. 2. Organizational structure is the formal arrangement of jobs within an organization. 3. Organizational design is developing or changing an organization's structure. This process involves decisions about six key elements: work specialization, departmentalization, chain of command, span of control, centralization-decentralization, and formalization. A. WorkSpecialization.Workspecializationisdividingworkactivitiesinto separate job tasks. Most of today's managers regard work specialization as an important organizing mechanism, but not as a source of ever-increasing productivity. Exhibit 11-2 illustrates the human diseconomies from division of labor— boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, and high turnover— that eventually exceed the economic advantages created by work specialization. B. Departmentalization. When work tasks have been defined, they must be arranged in order to accomplish organizational goals. This process, known as departmentalization, is the basis by which jobs are grouped. There are five major ways to departmentalize (see Exhibit 11-3): 1. Functional departmentalization groups jobs by functions performed. 2. Product departmentalization groups jobs by product line. 3. Geographical departmentalization groups jobs on the basis of geographical region. 4. Process departmentalization groups jobs on the basis of product or customer flow. 5. Customer departmentalization groups jobs on the basis of specific and unique customers who have common needs. 6. Today's View. Popular trends in departmentalization include the following: a. Customer departmentalization continues to be a highly popular approach because it allows better monitoring of customers' needs and responds to changes in the needs of customers. b. Cross-functional teams, which are work teams composed of individuals from various functional specialties, are being used along with traditional departmental arrangements. C. Chain of Command. The chain of command is the line of authority extending from upper organizational levels to the lowest levels, which clarifies who reports to whom. Three concepts related to chain of command are authority, responsibility, and unity of command. 1. Authority is the rights inherent in a managerial position to tell people what to do and to expect them to do it. a. The acceptance theory of authority proposed by Chester Barnard says that authority comes from the willingness of subordinates to accept it. Barnard contended that subordinates will accept orders only if the following conditions are satisfied: 1. They understand the order. 2. They feel the order is consistent with the organization's purpose. 3. The order does not conflict with their personal beliefs. 4. They are able to perform the task as directed. b. Line authority entitles a manager to direct the work of an employee. It is the employer-employee authority relationship that extends from the top of the organization to the lowest echelon, according to the chain of command. c. Staff authority functions to support, assist, advise, and generally reduce some of their informational burdens. 2. Responsibility is the obligation to perform any assigned duties. 3. Unity of command is the management principle that each person should report to only one manager. 4. Today's View. Information technology has made some of the early theories of management less relevant. While in the past elements like chain of command, authority, responsibility, and unity of command were essential, in today's organization information that used to be only available to managers is easily accessible and employees can communicate with each other without going through a traditional chain of command. D. Span of Control. Span of control is the number of employees a manager can efficiently and effectively manage. 1. The span of control concept is important because it determines how many levels and managers an organization will have (See Exhibit 11-4 for an example). 2. What determines the "ideal" span of control? Contingency factors such as the skills and abilities of the manager and the employees, the characteristics of the work being done, similarity and complexity of employee tasks, the physical proximity of subordinates, the degree to which standardized procedures are in place, the sophistication of the organization's information system, the strength of the organization's culture, and the preferred style of the manager influence the ideal number of subordinates. 3. The trend in recent years has been toward wider (larger) spans of control. E. Centralization and Decentralization. The concepts of centralization and decentralization address who, where, and how decisions are made in organizations. 1. Centralization is the degree to which decision-making is concentrated at upper levels of the organization. 2. Decentralization is the degree to which lower-level employees provide input or actually make decisions. 3. The current trend is toward decentralizing decision-making in order to make organizations more flexible and responsive. 4. A number of factors influence the degree of centralization or decentralization in an organization (see Exhibit 11-5). 5. Today's View. Employee empowerment is giving employees more authority (power) to make decisions. F. Formalization refers to the degree to which jobs within an organization are standardized and the extent to which employee behavior is guided by rules and procedures. 1. In a highly formalized organization, employees have little discretion, and a high level of consistent and uniform output exists. Formalized organizations have explicit job descriptions, many organizational rules, and clearly defined procedures. 2. In a less-formalized organization, employees have much freedom and can exercise discretion in the way they do their work. 3. Formalization not only fosters relatively unstructured job behaviors but also eliminates the need for employees to consider alternatives. 4. Today's View. The degree of formalization can vary widely between organizations and even within organizations.
Organizational Design and Structure.
1. As the business grows, the entrepreneur must hire employees to help in the business. At this point, the entrepreneur must decide on the most appropriate structural arrangement to effectively and efficiently carry out the organization's activities. 2. Organizational design choices are based on the six key elements of organizational structure presented in Chapter 11.
Human Resource Management Issues.
1. As an entrepreneurial venture grows, additional employees will need to be hired to perform the increased workload. 2. Employee recruitment. An entrepreneur wants to ensure that the venture has the people to do the required work. Recruiting new employees is one of the biggest challenges that entrepreneurs face. 3. Employee retention. Getting competent and qualified people into the venture is just the first step in effectively managing the human resources. An entrepreneur wants to keep the people he or she has hired and trained.
How Are Corporate Strategies Managed?
1. Corporate portfolio analysis is used when an organization's corporate strategy involves a number of businesses. Managers can manage this portfolio of businesses using a corporate portfolio matrix, such as the BCG matrix. The BCG matrix is a strategy tool that guides resource allocation decisions on the basis of market share and growth rate of SBUs. 2. A business unit is evaluated using a SWOT analysis and placed in one of the four categories, which are as follows: a. Stars: High market share/High anticipated growth rate b. Cash Cows: High market share/Low anticipated growth rate c. Question Marks: Low market share/High anticipated growth rate d. Dogs: Low market share/Low anticipated growth rate
Initiating Change.
1. If changes are needed in the entrepreneurial venture, often it is the entrepreneur who first recognizes the need for change and acts as the catalyst, coach, cheerleader, and chief change consultant.
Types of competitive advantages
1. Quality as a Competitive Advantage. If implemented properly, quality can be one way for an organization to create a sustainable competitive advantage. 2. Design Thinking as a Competitive Advantage. A company's ability to use design thinking in the way its employees and managers strategically manage can be a powerful competitive tool. Using design thinking means thinking in unusual ways about what the business is and how it's doing what it's in business to do. 3. Social Media as a Competitive Advantage. Investments in social media can lead to a competitive advantage. In addition to providing social connections, social media can also help boots an organization's productivity. 4. Sustaining Competitive Advantage. An organization must be able to sustain its competitive advantage; it must keep its edge despite competitors' action and regardless of evolutionary changes in the organization's industry. 5. Five Forces Model. Michael Porter's work explains how managers can create and sustain a competitive advantage that will give a company above-average profitability. He says there are five competitive forces at work in an industry; together, these five forces determine industry attractiveness and profitability. Porter proposes that the following five factors can be used to assess an industry's attractiveness:
Strategic Management Important?
1. Strategic management has a significant impact on how well an organization performs. 2. In today's business world, organizations of all types and sizes must manage constantly changing situations. 3. Today's companies are composed of diverse divisions, departments, functions, and work activities that must be coordinated. 4. Strategic management is involved in many of the decisions that managers make.
A business model
A business model is simply how a company is going to make money. It focuses on two things: (1) whether customers will value what the company is providing and (2) whether the company can make any money doing that.
The Role of Competitive Advantage
A competitive advantage is what sets an organization apart, that is, its distinctive edge. Anorganization's competitive advantage can come from its core competencies.
Entrepreneurship Versus Self-Employment?
Are entrepreneurship and self-employment the same? 1. Self-employment refers to individuals who work for profit or fees in their own business, profession, trade, or farm. Three points of comparison: a. Entrepreneurs and self-employed individuals understand market needs. b. Entrepreneurs may be self-employed or they become employees of the company they have started. c. Tax requirements and certain laws require that both entrepreneurs and self-employed individuals create a legally recognized organization.
What Do Entrepreneurs Do?
Entrepreneurs create something, search for a change, respond to it, and exploit it.
The Entrepreneurial Process.
Entrepreneurs must address four key steps as they begin and manage their entrepreneurial ventures: 1. Explore the entrepreneurial context. 2. Identify opportunities and possible competitive advantages. 3. Start the venture. 4. Manage the venture.
START-UP AND PLANNING ISSUES
Entrepreneurs must first identify opportunities and possible competitive advantages. Next, they should research the feasibility of the venture and carefully plan for its launch.
Researching the Venture's Feasibility—Competitors.
Possible questions entrepreneurs might consider in researching their potential competitors include the following items: 1. What types of products or services are competitors offering? 2. What are the major characteristics of these products or services? 3. What are their products' strengths and weaknesses? 4. How do they handle marketing, pricing, and distributing? 5. What do they attempt to do differently from other competitors? 6. Do they appear to be successful at it? Why or why not? 7. What are they good at? 8. What competitive advantage(s) do they appear to have? 9. What are they not so good at? 10. What competitive disadvantage(s) do they appear to have? 11. How large and profitable are these competitors?
liability types
Sole proprietorship: the form of legal organization in which the owner maintains sole and complete control over the business and is personally liable for business debts. b. General partnership: a form of legal organization in which two or more business owners share the management and risk of the business. c. Limited liability partnership (LLP): a legal organization formed by general partner(s) and limited partner(s). The general partners actually operate and manage the business. d. C corporation: a legal business entity that is separate from its owners and managers. e. S corporation: a specialized type of corporation that has the regular characteristics of a corporation but is unique in that the owners are taxed as a partnership as long as certain criteria are met. f. Limited liability company (LLC): a relatively new form of business organization that's a hybrid between a partnership and a corporation. The LLC offers the liability protection of a corporation, the tax benefits of a partnership, and fewer restrictions than an S corporation.
Strategies are?
Strategies are the plans for how the organization will do whatever it's in business to do, how it will compete successfully, and how it will attract and satisfy its customers in order to achieve its goals.
WHY THE HRM IS IMPORTANT AND THE HRM PROCESS
Various studies have concluded that an organization's human resources can be an important strategic tool and can help establish a firm's sustainable competitive advantage. A. Human resource management (HRM) is important for several reasons: 1. Various studies have shown HRM can be a significant source of competitive advantage. 2. HRM is an important part of organizational strategies. 3. Studies that have explored the link between HRM policies and practices and organizational performance have found that certain HRM policies and practices have a significant impact on performance. a. These high-performance work practices are human resource policies and practices that lead to both high individual and high organizational performance. b. Examples of high-performance work practices are shown in Exhibit 12-1. 2. The human resource management process consists of eight activities necessary for staffing the organization and sustaining high employee performance. See Exhibit 12-2.
Social Responsibility and Ethics Issues Facing Entrepreneurs.
a. In a study of small companies, 95 percent of respondents indicated that developing a positive reputation and relationship with the community where their business is located is important for achieving their business goals. b. In a survey of employees from businesses of various sizes, 20 percent of employees at companies with 99 or fewer employees disagreed when asked if they thought their organization was highly ethical.
A competitive strategy
strategy focused on how the organization will compete in each of its businesses. When an organization is in several different businesses, those single businesses that are independent and that have their own competitive strategies are referred to as strategic business units (SBUs).
The strategic management process is a six-step process
that encompasses strategic planning, implementation, and evaluation. (See Exhibit 9-1) A. Step 1: Identifying the Organization's Current Mission, Goals, and Strategies. STUDY QUESTION: Why is strategic management important for organizations? Can an organization be successful without a strategic plan? Why or why not? 1. Every organization needs a mission, which is a statement of the purpose of an organization. The mission statement addresses the question: What is the organization's reason for being in business? 2. The organization must also identify its current goals and strategies. See Exhibit 9-2 for a list of components of a mission statement. B. Step 2: Doing an External Analysis. 1. Managers in every organization need to conduct an external analysis. Influential factors such as competition, pending legislation, and labor supply are included in the external environment. 2. After analyzing the external environment, managers must assess what they have learned in terms of opportunities and threats. Opportunities are positive trends in external environmental factors; threats are negative trends in environmental factors. 3. Because of different resources and capabilities, the same external environment can present opportunities to one organization and pose threats to another. C. Step 3: Doing an Internal Analysis. 1. Internal analysis should lead to a clear assessment of the organization's resources and capabilities. 2. The organization's major value-creating skills and capabilities that determine its competitive weapons are the organization's core competencies. 3. Any activities the organization does well or any unique resources that it has are called strengths. 4. Weaknesses are activities the organization does not do well or resources it needs but does not possess. 5. Organizational culture is important in internal analysis; the company's culture can promote or hinder its strategic actions. 6. SWOT analysis is an analysis of the organization's strengths, weaknesses, opportunities, and threats. D. Step 4: Formulating Strategies. 1. After the SWOT, managers develop and evaluate strategic alternatives and select strategies that are appropriate. 2. Strategies need to be established for corporate, business, and functional levels. E. Step 5: Implementing Strategies. 1. A strategy is only as good as its implementation. F. Step 6: Evaluating Results. 1. The final step in the strategic management process is evaluating results. How effective have the strategies been at helping the organization reach its goals?
Researching the Venture's Feasibility
—Researching Financing. Possible financing options available to entrepreneurs are outlined in Exhibit 10-3. The entrepreneur must devote time and effort to carefully researching a number of varied financing options.
The Sharing Economy.
Business arrangements that are based on people sharing something they own or providing a service for a fee are known as the sharing economy.
Researching the Venture's Feasibility—Ideas. Where do ideas come from?
1. Generating Ideas. Sources for an entrepreneurial venture include working in the same industry, personal interests or hobbies, examining existing products and services, and opportunities in external environmental sectors. 2. Evaluating Ideas. Some questions entrepreneurs might ask when they evaluate potential ideas are described in Exhibit 10-1. 3. A more structured evaluation approach that an entrepreneur might want to use is a feasibility study—an analysis of the various aspects of a proposed entrepreneurial venture designed to determine its feasibility.
The Entrepreneur as Leader.
1. Leading the Venture: leadership combines the unpredictability of the future with the gifts of individuals. The way an entrepreneur leads the venture should be much like the jazz leader—drawing the best out of other individuals, even given the unpredictability of the situation. 2. Leading Employee Work Teams: the three most common entrepreneurial teams are: empowered teams (teams that have the authority to plan and implement process improvements), self- directed teams (teams that are nearly autonomous and responsible for many managerial activities), and cross-functional teams (work teams composed of individuals from various specialties who work together on various tasks).
The Importance of Continuing Innovation.
1. Organizations must continually innovate new products and services if they want to compete successfully. 2. Innovation is a key characteristic of entrepreneurial ventures. 3. The entrepreneur must provide the supervisory support, organizational reward systems, and a culture that are consistent with a commitment to innovation.
Motivating Employees through Empowerment.
1. Successful entrepreneurial ventures must be quick and nimble, ready to pursue opportunities and go off in new directions. 2. Empowered employees can provide that flexibility and speed. When employees are empowered, they often display stronger work motivation, better work quality, higher job satisfaction, and lower turnover. 3. It's hard for many entrepreneurs to empower employees because they have devoted so much into their business—it's a gradual process of building trust in employees. 4. Entrepreneurs can begin by using participative decision-making in which employees provide input into decisions.
Porter proposes that the following five factors can be used to assess an industry's attractiveness:
1. Threat of new entrants. How likely is it that new competitors will come into the industry? 2. Threat of substitutes. How likely is it that products of other industries could be substituted for a company's products? 3. Bargaining power of buyers. How much bargaining power do buyers (customers) have? 4. Bargaining power of suppliers. How much bargaining power do a company's suppliers have? 5. Current rivalry. How intense is the competition among current industry competitors?
TRADITIONAL ORGANIZATIONAL DESIGN OPTIONS
A number of different organizational designs can be found in today's organizations. Exhibit 11-8 summarizes the strengths and weaknesses of each of these designs. A. Simple Structure. A simple structure is an organizational design with low departmentalization, wide spans of control, authority centralized in a single person, and little formalization. 1. Strengths of the simple structure are its flexibility, speed, clear accountability, and low maintenance costs. 2. The major limitation of a simple structure is that it is most effective when used in small organizations. B. As an organization grows, its structure tends to become more specialized and formalized. When contingency factors favor a bureaucratic or mechanistic design, one of the following two options is likely to be used: functional structure or divisional structure. C. Functional Structure. A functional structure is an organizational design that groups similar or related occupational specialties together. D. Divisional Structure. A divisional structure is an organizational structure made up of separate, semiautonomous units or divisions.
CURRENT STRATEGIC MANAGEMENT ISSUES
A. The Need for Strategic Leadership. Strategic leadership is defined as the ability to anticipate, envision, maintain flexibility, think strategically, and work with others in the organization to initiate changes that will create a viable and valuable future for the organization. Top managers can provide effective strategic leadership using eight principles including: determining the organization's purpose or vision, exploiting and maintaining the organization's core competencies, developing the organization's human capital, creating and sustaining a strong organizational culture, creating and maintaining organizational relationships, reframing prevailing views by asking penetrating questions and questioning assumptions, emphasizing ethical organizational decisions and practices, and establishing appropriately balanced organizational controls (see Exhibit 9-4). B. The Need for Strategic Flexibility. There is no guarantee that a well thought out strategy will lead to positive outcomes. A key element to the strategic management process is the ability to recognize major external changes, to quickly commit resources, and to recognize when a strategic decision isn't working. Exhibit 9-5 provides suggestions for developing strategic flexibility. C. Important Organizational Strategies for Today's Environment. 1. E-Business Strategies. Using the Internet, companies have created knowledge bases that employees can tap into anytime, anywhere. E-business as a strategy can be used to develop a sustainable competitive advantage; it can also be used to establish a basis for differentiation or focus. 2. Customer Service Strategies. These strategies give customers what they want, communicate effectively with them, and provide employees with customer service training. 3. Innovation Strategies. These strategies focus on breakthrough products and can include the application of existing technology to new uses. An organization that is first to bring a product innovation to the market or to use a new process innovation is called a first mover. Exhibit 9-6 lists the advantages and disadvantages associated with being a first mover.
EXTERNAL FACTORS THAT AFFECT THE HRM PROCESS
A number of environmental forces constrain human resource management activities. The factors most directly influencing the HRM process are economic conditions, employee labor unions, governmental laws and regulations, and demographic trends. A. The Economy. 1. Recent economic changes have had a profound impact on the nature of work. Unemployment (and under employment) is high in most developed countries due to the latest recession felt worldwide. Economic news, whether good or bad, has an effect on employment, attitudes toward work, careers, and retirement. B. Labor Unions. 1. Unionization can affect a company's human resource management activities. a. A labor union is an organization that represents workers and seeks to protect their interests through collective bargaining. b. Good labor-management relations, the formal interactions between unions and an organization's management, are important. c. Only about 11.1 percent of the workforce in the United States is unionized; that percentage is higher in other countries. C. Laws and Rulings. 1. Federal laws and regulations have greatly expanded the federal government's influence over HRM (see Exhibit 12-3). a. Balance of the "should and should-not's" of many of these laws often fall within the realm of affirmative action— programs that enhance the organizational status of members of protected groups. b. Managers that operate in an international context must also be aware of specific laws that apply to the countries in which they do business. Canadian laws most closely mirror those in the United States. In Mexico, employees are more likely to be unionized. In Australia, discrimination laws are fairly new and generally apply to affirmative action for women. In Germany, companies are required to have a high degree of worker participation in management through the use of work councils and board D. Demography. representatives. 1. Demographic trends will continue to play an important role in the Human Resource function as the pool of workers change, i.e., increase in older workers ready for retirement and greater ethnic diversity due to an increasing number of Hispanics residing in the United States. a. The oldest, most experienced workers (those born before 1946) make up 6 percent of the workforce. b. The baby boomers (those born between 1946 and 1964) make up 41.5 percent of the workforce. c. Gen Xers (those born from 1965 to 1977) make up almost 29 percent of the workforce. d. Gen Yers (those born from 1978 to 1994) make up almost 24 percent of the workforce.
Developing a Business Plan.
A written document that summarizes a business opportunity and defines and articulates how the identified opportunity is to be seized and exploited is a business plan. 1. A good business plan covers six major areas: a. Executive summary b. Analysis of opportunity c. Analysis of the context d. Description of the business e. Financial data and projections f. Supporting documentation
RETAINING COMPETENT, HIGH-PERFORMING EMPLOYEES
A. Employee Performance Management. Managers need to know whether their employees are performing their jobs efficiently and effectively or whether improvement is needed. A performance management system establishes performance standards that are used to evaluate employee performance. 1. Performance Appraisal Methods (Exhibit 12-10 summarizes the advantages and disadvantages of each of these methods.) a. A written essay appraises performance through a written description of an employee's strengths and weaknesses, past performance, and potential. b. Critical incidents are used to appraise performance by focusing on the critical job behaviors. In this technique, the appraiser writes anecdotes to describe what the employee did that was especially effective or ineffective. Only specific behaviors, rather than vaguely defined personality traits, are cited. c. The use of graphic rating scales is one of the oldest and most popular performance appraisal methods. This method appraises performance using a rating scale on a set of performance factors. Graphic rating scales list a set of performance factors; the evaluator goes down the list and rates the employee on each factor, using an incremental scale. d. Using behaviorally anchored rating scales (BARS) is an appraisal approach that appraises performance using a rating scale on examples of actual job behavior. BARS combines major elements from the critical incident and graphic rating scale approaches. The appraiser rates an employee according to items along a scale, but the items are examples of actual behavior on the job rather than general descriptions or traits. e. Multi-person comparison appraises performance by comparing it with others' performance. f. Management by objectives (MBO) is another mechanism for appraising performance. It is often used to assess the performance of managers and professional employees. g. 360 degree feedback appraises performance by using feedback from supervisors, employees, and coworkers. B. Compensation and Benefits. How do organizations determine the compensation levels and benefits that employees will receive? 1. The purpose of having an effective reward system is to attract and retain competent and talented individuals who can help the organization achieve its mission and goals. 2. A compensation system can include base wages and salaries, wage and salary add-ons, incentive payments, and benefits and services. 3. What factors determine the compensation and benefits packages for different employees? A number of factors influence these differences (see Exhibit 12-11): a. Under a skill-based pay system, employees are compensated for the job skills they can demonstrate. Research shows that skill-based pay systems tend to be more successful in manufacturing organizations than in service organizations. b. Under a variable pay system, an individual's compensation is contingent on performance. c. Flexibility is becoming a key consideration in the design of an organization's compensation system.
CONTEMPORARY ISSUES IN MANAGING HUMAN RESOURCES
A. Managing Downsizing. Downsizing is the planned elimination of jobs in an organization; it is a challenge for management in a tight economy. Downsizing can occur when management faces (1) a poor management past, (2) declining market share, and/or (3) overly aggressive organizational growth. 1. Exhibit 12-12 lists some ways that managers can lessen the trauma both for the employees being laid off and for the survivors B. Managing Sexual Harassment. Sexual harassment is any unwanted action or activity of a sexual nature that explicitly or implicitly affects an individual's employment, performance, or work environment. 1. Sexual harassment isn't a problem just in the United States. It's a global issue. Studies show that 40 to 50 percent of female employees in European Union countries, 33 percent in Australia, and up to 56 percent in Japan have experienced some form of sexual harassment. Sexual harassment charges have also been filed against employers in other countries such as New Zealand and Mexico. 2. What can an organization do to protect itself against sexual harassment claims? The courts want to know two things: First, did the organization know about, or should it have known about, the alleged behavior? And secondly, what did managers do to stop it? C. Controlling HR Costs. 1. Employee Health Care Costs. With health care costs rising rapidly, it is important for employers to keep their portion of what they pay for health insurance low. Two factors that affect what employers pay for their premiums are smoking and obesity. To keep costs low, employers are responding by offering wellness programs, reimbursing employees for health club costs (or providing fitness equipment and classes on site), and offering healthy food choices in their cafeterias. STUDY QUESTION: List the factors that influence employee compensation and benefits. 2. Employee Pension Plan Costs. Employee pension plans are other increasing costs. The choice for employers is whether to suspend offering pension plans or to continue to offer new retirement choices to attract employees.
PROVIDING EMPLOYEES WITH THE NEEDED SKILLS AND KNOWLEDGE
A. Orientation. Orientation is introducing a new employee to his or her job and the organization. 1. Work unit orientation familiarizes the employee with the goals of the work unit, clarifies how his/her job contributes to the unit's goals, and includes an introduction to his or her coworkers. 2. Organization orientation informs the new employee about the organization's objectives, history, philosophy, procedures, and rules. 3. Major objectives of orientation include the following: a. To reduce initial anxiety. b. To familiarize new employees with the job, the work unit, and the organization. c. To facilitate the outsider-insider transition. 4. Formal orientation programs are prevalent in many organizations, particularly in large ones. Managers have an obligation to new employees to ensure that their integration into the organization is as smooth and as comfortable as possible. B. Employee Training. Employee training is a critical component of the human resource management program. 1. Types of Training. Types of training include general and specific. See Exhibit 12-8. 2. Training Methods. Exhibit 12-9 describes the major types of training that organizations provide. a. Traditional Training methods. On-the-job training is very common, and it may involve job rotation. Job rotation is on-the-job training that involves lateral transfers to enable employees who work on the same level of the organization to work in different jobs. On-the-job training can also involve mentoring, coaching, experiential exercises, and classroom training. b. Technology-driven training methods. Today's organizations are increasingly relying on technology-based training, including e-learning applications, to communicate important information and to train employees.
Entrepreneur
Entrepreneurs engage in a variety of activities through their performance of the four managerial functions of planning, organizing, leading, and controlling. A. What is Entrepreneurship? Entrepreneurship is important to every industry sector in the United States and in most advanced countries throughout the world. 1. There are key differences between entrepreneurial ventures and small businesses. 2. Organizations that pursue opportunities, are characterized by innovative practices, and have growth and profitability as their main goals are entrepreneurial ventures, while a small business is one that is independently owned, operated, and financed; has fewer than 100 employees; doesn't necessarily engage in any new or innovative practices; and has relatively little impact on its industry.
CONTROLLING ISSUES
Entrepreneurs must consider a number of issues relating to the control of their venture's operations in order to survive and prosper. These control issues include the following: A. Managing Growth. 1. Planning for Growth: Entrepreneurs need to address growth strategies as part of their business planning but shouldn't be overly rigid in that planning. 2. Organizing for Growth: The key challenges for an entrepreneur in organizing for growth include finding capital, finding people, and strengthening the organizational culture. (Exhibit 10-5) 3. Controlling for Growth: Maintaining good financial records and financial controls over cash flow, inventory, customer data, sales orders, receivables, payables, and costs should be a priority of every entrepreneur. B. Managing Downturns. 1. Recognizing Crisis Situations: Some signals of potential performance decline include inadequate or negative cash flow, excess number of employees, unnecessary and cumbersome administrative procedures, fear of conflict and taking risks, tolerance of work incompetence, lack of a clear mission or goals, and ineffective or poor communication within the organization. a. "Boiled frog" phenomenon in which subtly declining situations are difficult to recognize. b. When changes in performance are gradual, a serious response may never be triggered or may be initiated too late to intervene effectively in the situation. 2. Dealing with Downturns, Declines, and Crises a. It's important to have an up-to-date plan for covering crises. b. This plan should focus on providing specific details for controlling the most fundamental and critical aspects of running the venture—cash flow, accounts receivable, costs, and debt. C. Exiting the Venture. At some point, an entrepreneur may decide to capitalize financially on the investment in the venture (harvesting) or simply wants to get out for other reasons. The issues involved with exiting the venture include choosing a proper business valuation method and knowing what's involved in the process of selling a business. 1. Business Valuation Models a. Asset valuation b. Earnings valuation c. Cash flow valuations 2. Other Important Considerations in Exiting a Venture: These factors include being prepared, deciding who will sell the business, considering the tax implications, screening potential buyers, and deciding whether to tell employees before or after the sale.
Identifying Environmental Opportunities and Competitive Advantage.
Entrepreneurs must see opportunities quickly, before those opportunities disappear or are exploited by other individuals. 1. Peter Drucker identified the following seven potential sources of opportunity that entrepreneurs might seek to identify in the external context: a. The unexpected b. The incongruous c. The process need d. Industry and market structures e. Demographics f. Changes in perception g. New knowledge
IDENTIFIYING AND SELECTING COMPETENT EMPLOYEES
The first phase of the HRM process involves three tasks: human resource planning, recruitment and decruitment, and selection. A. Human Resource Planning. Human resource planning is ensuring that the organization has the right number and kinds of capable people in the right places at the right times. 1. Current Assessment. Managers begin HR planning by conducting a current assessment of the organization's human resource status. a. This assessment is typically accomplished through a human resource inventory. b. Another part of the current assessment process is the job analysis, which is an assessment that defines jobs and the behaviors necessary to perform them. c. From this information, management can draw up a job description (or position description), which is a written statement that describes a job. d. In addition, management must develop a job specification, which is a statement of the minimum qualifications that a person must possess in order to perform a given job successfully. 2. Meeting Future HR Needs. Future HR needs are determined by looking at the organization's mission, goals, and strategies. Developing a future program requires estimates in which the organization will be understaffed or overstaffed. 3. Increased Scrutiny in the Selection Process. Companies that do not carefully scrutinize the qualifications or backgrounds of employees surely pose risks of increased liability, poor reputation, and lower performance. B. Recruitment and Decruitment. 1. Recruitment is the process of locating, identifying, and attracting capable applicants. Job candidates can be found using a number of different sources (see Exhibit 12-4). 2. Decruitment is reducing an organization's workforce. Decruitment options include firing, layoffs, attrition, transfers, reduced workweeks, early retirements, and job sharing (see Exhibit 12-5). C. Selection. Selection is screening job applicants to ensure that the most appropriate candidates are hired. Selection is an exercise in prediction. 1. Prediction is important because any selection decision can result in four possible outcomes (see Exhibit 12-6). The major aim of any selection activity should be to reduce the probability of making reject errors or accept errors, while increasing the probability of making correct decisions. 2. Validity and Reliability. Validity is the proven relationship that exists between a selection device and some relevant job criterion. Reliability is the ability of a selection device to measure the same thing consistently. 3. Types of Selection Devices. Managers can select employees using numerous and varied selection devices. Exhibit 12-7 lists the strengths and weaknesses of each of these devices. 4. Realistic Job Previews. A realistic job preview is a preview of a job that provides both positive and negative information about the job and the company. Including an RJP can increase job satisfaction among employees and reduce turnover.
Why is Entrepreneurship Important?
The importance of entrepreneurship can be found in four areas: 1. Innovation. Entrepreneurial firms act as "agents of change." Small organizations generate 30 times more patents per employee than large patenting firms. 2. Number of new start-ups. According to the U.S. Bureau of Labor Statistics, the growth rate of new start-ups has been steady every year since 2005. 3. Job creation. Job creation is important to overall long-term economic health. During the last two decades, small businesses created more than 60 of net new jobs. 4. Global entrepreneurship. Entrepreneurship contributes to the growth and development of a country.
What Are the Types of Corporate Strategy?
There are three main types of corporate strategies: a. A growth strategy is a corporate strategy that is used when an organization wants to grow and does so by expanding the number of products offered or markets served, either through its current business(es) or through new business(es). b. A stability strategy is a corporate strategy characterized by an absence of significant change in what the organization is currently doing. c. A renewal strategy is a corporate strategy designed to address organizational weaknesses that are leading to performance declines. Two such strategies are retrenchment strategy and turnaround strategy.
Choosing a Competitive Strategy. According to Porter, managers must
choose a strategy that will give their organization a competitive advantage. Porter identifies three generic competitive strategies. Which strategy managers select depends on the organization's strengths and core competencies and the particular weaknesses of its competitor(s). a. A cost leadership strategy is a business or competitive strategy in which the organization competes on the basis of having the lowest costs in its industry. b. A differentiation strategy is a business or competitive strategy in which a company offers unique products that are widely valued by customers. c. A focus strategy is a business or competitive strategy in which a company pursues a cost or differentiation advantage in a narrow industry segment. d. An organization that has been not been able to develop either a cost or differentiation advantage is said to be "stuck in the middle." e. Subsequent research indicates that it is possible, though very difficult, for organizations that are stuck in the middle to achieve high performance. f. Functional strategy is the strategies used by an organization's various functional departments to support the business or competitive strategy.