MGMT Exam 2

What is bounded rationality?

A concept suggesting that decision makers are limited by their values and unconscious reflexes, skills and habits. Partially explains why US auto execs allowed Japanese automakers to get a strong foothold in the US market.

What is escalation of commitment?

A decision maker's staying with a decision even when it appears to be wrong. Adidas flip-flop in athletic shoe market. Pulled out way too early and stuck with it instead of re-entering market to compete with Nike.

What is a single product strategy and how does it work?

A strategy in which an organization manufactures just on product or service and sells it in a single geographic market. Think Red Bull, different variations of Red Bull but just one product: energy drink. The single-product strategy has one major strength and one major weakness. By concentrating its efforts so completely on one product and market, a firm is likely to be very successful in manufacturing and marketing the product. Because it has staked its survival on a single product, the organization works very hard to make sure that the product is a success. Of course, if the product is not accepted by the market or is replaced by a new one, the firm will suffer.

How do we define productivity and how does it work?

An economic measure of efficiency that summarizes what is produced relative to resources used to produce it. Aggregate- level of productivity achieved by country. Industry- productivity achieved by all firms in an industry. Company- productivity in a country Unit/Individual- achieved by a unit or department in an organization. Total factor productivity: Productivity=Outputs/Inputs Labor Productivity=outputs/direct labor

What is Just-in-time inventory?

An inventory system that has necessary materials arriving as soon as they are in need (just in time) so that the production process is not interrupted. Popularized by the Japanese. Small firm for Honda assembles stereo speakers and delivers them three times a day, making it unnecessary for Honda to carry large quantities in inventory. Reduce investment in storage space and material costs. Requires high levels of coordination and cooperation.

What is backward vertical integration?

An organization's beginning the business activities formerly conducted by its suppliers.

What is the impact of automation on manufacturing?

Automation is the process of designing work so that it can be completely or almost completely performed by machines. People who have manufacturing jobs in the short run lost their jobs. In the long run, more jobs are created than lost. Automation of coal industry has cost many workers their jobs. Automation has created jobs in electronic manufacturing. Automation came about in the 1950s with automobile manufacturing.

What is optimization?

Balancing and reconciling possible conflicts among goals. Ex: Home Depot wanting to keep individual customers happy while also satisfying needs of professional contractors.

What is the BCG matrix and how do we use it?

Boston Consulting Group matrix. A method of evaluating businesses relative to the growth rate of their market and the organization's share of the market. Helps managers develop a better understanding of how different strategic business units contribute to the organization. By assessing each SBU on the basis of its growth market rate and relative market share, managers can make decisions about whether to commit further financial resources to the SBU or to sell or liquidate it. Low to high Market Growth Rate. High to Low Relative Market Share. Four categories: Stars- high growth, high market share Cash Cows- low growth rate, high market share Question Marks- high growth, low market share Dogs- low market share, low growth

What is capacity utilization?

Capacity is the amount of products, services or both that can be produced by an organization. The capacity decision is truly a high-risk one because of the uncertainties of future product demand and the large monetary stakes involved. An organization that builds capacity exceeding its needs may commit resources (capital investment, space, and so forth) that will never be recovered. Alternatively, an organization can build a facility with a smaller capacity than expected demand. Doing so may result in lost market opportunities, but it may also free capital resources for use elsewhere in the organization. Very important part of operations management.

What is satisficing?

The tendency to search for alternatives only until one is found that meets some minimum standard of sufficiency

What is the labor productivity index?

Labor productivity= Outputs/Direct Labor This method has two advantages. First, it is not necessary to transform the units of input into some other unit. Second, this method provides managers with specific insights into how changing different resource inputs affects productivity. Suppose that an organization can manufacture 100 units of a particular product with 20 hours of direct labor. The organization's labor productivity index is 100/20, or 5 (5 units per labor hour). Now suppose that worker efficiency is increased (through one of the ways to be discussed later in this chapter) so that the same 20 hours of labor results in the manufacture of 120 units of the product. The labor productivity index increases to 120/20, or 6 (6 units per labor hour), and the firm can see the direct results of a specific managerial action.

What is a product life cycle and how does it work?

Managers can use the framework of product life cycle-introduction, growth, maturity and decline-to plot strategy. For example, management may decide on a differentiation strategy for a product in the introduction state and a prospector approach for a product in the growth stage. By understanding this cycle and where a particular product falls within it, managers can develop more effective strategies for extending product life. Intro- high demand Growth- more firms produce product and sales grow. Maturity- Overall demand growth begins to slow down. Essential for long run survival. Decline- Demand drops. Producers drop. Sales drop.

What is operations improvement and how does it work?

Operational plans are derived from tactical plans and are aimed at achieving operational goals. Thus operational plans tend to be narrowly focused, have relatively short time horizons, and involve lower-level managers. Two basic forms of operational plans: single-use and standing plan. Single use plans have two types: program (for a large set of activities) or project (less scope and complexity than a program). Standing plan has three types: policy (Standing plan specifying the organization's general response to a designated problem or situation), SOP (Standing plan outlining steps to be followed in particular circumstances) and rules and regulations (Standing plans describing exactly how specific activities are to be carried out).

What is operations improvement?

Operations management is the set of managerial activities used by an organization to transform resource inputs into products and services. One way that firms can improve operations is by spending more on research and development. Research and development (R&D) spending helps identify new products, new uses for existing products, and new methods for making products. Each of these contributes to productivity. For example, Bausch & Lomb almost missed the boat on extended-wear contact lenses because the company had neglected R&D. When it became apparent that its major competitors were almost a year ahead of Bausch & Lomb in developing the new lenses, management made R&D a top-priority concern. As a result, the company made several scientific breakthroughs, shortened the time needed to introduce new products, and greatly enhanced both total sales and profits—and all with a smaller workforce than the company used to employ. Even though other countries are greatly increasing their R&D spending, the United States continues to be the world leader in this area. Another way firms can boost productivity through operations is by reassessing and revamping their transformation facilities. We noted earlier how one of GE's modernized plants does a better job than six antiquated ones. Just building a new factory is no guarantee of success, but Maytag, Ford, Caterpillar, and many other businesses have achieved dramatic productivity gains by revamping their production facilities. Further, facilities refinements are not limited to manufacturers. Most McDonald's restaurants now have drive-through windows, and many have moved soft-drink dispensers out to the restaurant floor so that customers can get their own drinks. Each of these moves is an attempt to increase the speed with which customers can be served, and thus to increase productivity.

What is an organizational threat vs. an organizational opportunity?

Organizational opportunities is an area in the environment that, if exploited, may generate higher performance. Organization threats are an area in the environment that increases the difficulty of an organization's achieving high performance.

What are the various business strategies including focus, reactor, etc.?

Porters 5 Forces Strategies: Differentiation Strategy- a strategy in which an organization seeks to distinguish itself from competitors through the quality of its products or services (Rolex, Lexus, Godiva) Overall Cost Leadership Strategy- A strategy in which an organization tries to gain a competitive advantage by reducing its costs below the costs of competing firms. Focus strategy- A strategy in which an organization concentrates on a specific regional market, product line or group of buyers (Edward Jones focus on small-town markets). Miles and Snowe strategies: Prospector Strategy- A strategy in which the firm encourages creativity and flexibility and is often decentralized. Defender Strategy- A strategy in which the firm focuses on lowering costs and improving the performance of current products. Analyzer- A strategy in which the firm tries to maintain its current businesses and be somewhat innovative in new businesses. Reactor- A strategy in which a firm has no consistent approach to strategy.

What is strategic imitation?

Practice of duplicating another firm's distinctive competence and thereby implementing a valuable strategy.

What are the various production layouts and how do they work?

Product Layout- A physical configuration of facilities arranged around the product; used when large quantities of a single product are needed. Process Layout- a physical configuration of facilities arranged around the process; used in facilities that create or process a variety of products. Fixed position Layout- a physical configuration of facilities arranged around a single work area; used for the manufacture of large and complex products like airplanes. Cellular Layouts- a physical configuration of facilities used when families of products can follow similar paths.

How is operations management used?

Set of managerial activities use by an organization to transform resource inputs into products, services, or both. Harley Davidson luxury motorcycles or Delta airlines quality service. Provides utility to the organization. Manufacturing provides form utility. It provides time and place utility in a service.

What is strategy formulation and how does that work?

Set of processes involved in creating or determining the strategies of the organization; focuses on the content of strategies. Business or Corporate level strategies. Creates a plan, doesn't execute. Sometimes the processes of formulating and implementing strategies are rational, systematic, and planned. This is often referred to as a deliberate strategy—a plan chosen and implemented to support specific goals.

What is synergy and how do we define it?

Synergy is one benefit of related diversification. It exists among a set of businesses when the businesses value together is greater than separately.

What are the models of decision making?

The Classical Decision model is a prescriptive approach to decision making that tells managers how they should make decisions; assumes that managers are logical and rational and that their decisions will be in the best interests of the organization. Assumes the following conditions: 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. This is rarely, if ever, true. Steps in Rational Decision Making: 1. Recognize and define the decision situation; 2. identify appropriate alternatives; 3. evaluate each alternative in terms of its feasibility, satisfactoriness, and consequences; 4. select the best alternative; 5. implement the chosen alternative; 6. follow up and evaluate the results of the chosen alternative Evidence Based Management (EBM) Face the hard facts and build a culture in which people are encouraged to tell the truth, even if it's unpleasant. Be committed to "fact-based" decision making—which means being committed to getting the best evidence and using it to guide actions. Treat your organization as an unfinished prototype— encourage experimentation and learning by doing. Look for the risks and drawbacks in what people recommend (even the best medicine has side effects). Avoid basing decisions on untested but strongly held beliefs, what you have done in the past, or on uncritical "benchmarking" of what winners do. Administrative Model: A decision-making model that argues that decision makers (1) use incomplete and imperfect information, (2) are constrained by bounded rationality, and (3) tend to "satisfice" when making decisions.

What are the various decision-making types, decision models, etc.?

Two basic decision types. Programmed and Nonprogrammed. Programmed is structured or recurs with some frequency (or both). Nonprogrammed is unstructured and occurs less often. Decision makers typically face conditions of certainty, risk and/or uncertainty. State of Certainty being a condition in which the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative. State of risk being a condition in which the availability of each alternative and its potential payoffs and costs are all associated with probability estimates. State of uncertainty being a condition in which the decision maker does not know all the alternatives, the risks associated with each, or the consequences each alternative is likely to have. Behavioral Elements in Decision Making: Admin model, political forces, intuition, escalation of commitment, risk propensity and ethics. Group Decision-Making: Advantages: 1. More info and knowledge. 2. More alternatives likely generated. 3. More acceptance of final decision likely. 4. Enhanced communication of the decision may result. 5. Better decisions generally emerge. Disadvantages: 1. The process takes longer and is costlier. 2. Compromise decisions may emerge. 3. One person dominates. 4. GroupThink might occur.

What is computer aided design (CAD)?

Uses computers to design parts, complete products and simulate performance. Used in conjunction with CAM (which is used to plan and control the process) in computer integrated manufacturing (CIM) to adjust computer networks and enhance the complexity and flexibility of scheduling.