BADM 310: Exam 2

Improving Efficiency

The fewer the input resources required to produce a given volume of output, the higher will be the efficiency of the operating system. So efficiency is a useful measure of how well an organization uses all its resources—such as labor, capital, materials, or energy—to produce its outputs, or goods and services. Developing functional strategies to improve efficiency is an extremely important issue for managers because increased efficiency lowers production costs, which lets an organization make a greater profit or attract more customers by lowering its price.

Mission Statement

The first step of planning is determining the organization's mission and goals. Mission Statement: broad declaration of an organization's overriding purpose, what it is seeking to achieve from its activities; this statement also identifies what is unique or important about its products to its employees and customers; finally, it distinguishes or differentiates the organization in some ways from its competitors

Formulating Corporate-LevelStrategies

The principal corporate-level strategies that managers use to help a company grow and keep it at the top of its industry, or to help it retrench and reorganize to stop its decline, are (1) concentration on a single industry, (2) vertical integration, (3) diversification, and (4) international expansion. An organization will benefit from pursuing any of these strategies only when the strategy helps further increase the value of the organization's goods and services so that more customers buy them. Specifically, to increase the value of goods and services, a corporate-level strategy must help a company, or one of its divisions, either (1) lower the costs of developing and making products or (2) increase product differentiation so that more customers want to buy the products even at high or premium prices. Both of these outcomes strengthen a company's competitive advantage and increase its performance.

Cross-Functional Team

The reason for using a cross-functional team is to ensure a high level of coordination and communication among managers in different functions. Input from both marketing and manufacturing members of Thermos's lifestyle team determined the characteristics of the barbecue that the engineers on the team ended up designing. If a cross-functional team is to succeed, it must have the right kind of leadership and it must be managed effectively. To be successful, a product development team needs a team leader who can rise above a functional background and take a cross-functional view

Formulating Strategy

The second step. Managers analyze the organization's current situation and then conceive and develop the strategies necessary tp attain the organization's mission and goals.

Process Reengineering

The value chain is a collection of functional activities or business processes that transforms one or more kinds of inputs to create an output that is of value to the customer. Process reengineering process reengineering The fundamental rethinking and radical redesign of business processes to achieve dramatic improvement in critical measures of performance such as cost, quality, service, and speed. involves the fundamental rethinking and radical redesign of business processes (and thus the value chain) to achieve dramatic improvements in critical measures of performance such as cost, quality, service, and speed

Licensing

a company (the licenser) allows a foreign organization (the licensee) to take charge of both manufacturing and distributing one or more of its products in the licensee's country or world region in return for a negotiated fee. The advantage of licensing is that the licenser does not have to bear the development costs associated with opening up in a foreign country; the licensee bears the costs. The risks associated with this strategy are that the company granting the license has to give its foreign partner access to its technological know-how and, so, risks losing control of its secrets.

Rolling Plan

a corporate- or business-level plan that extends over several years is typically treated as this; rolling plan is a plan that is updated and amended every year to take account of changing conditions in the external environment

Scenario Planning

(also known as contingency planning) is the generation of multiple forecasts of future conditions followed by an analysis of how to respond effectively to each of those conditions. Scenario planning is a learning tool that raises the quality of the planning process and can bring benefits to an organization. A major advantage of scenario planning is its ability not only to anticipate the challenges of an uncertain future but also to educate managers to think about the future—to think strategically.

Four Ways to Create Competitive Advantage

1. Achieve superior efficiency. Efficiency is a measure of the amount of inputs required to produce a given amount of outputs. The fewer the inputs required to produce a given output, the higher is efficiency and the lower the cost of outputs. 2. Achieve superior quality. Quality means producing goods and services that have attributes—such as design, styling, performance, and reliability—that customers perceive as being superior to those found in competing products.15 Providing high-quality products creates a brand-name reputation for an organization's products, and this enhanced reputation allows it to charge higher prices. 3. Achieve superior innovation, speed, and flexibility. Anything new or better about the way an organization operates or the goods and services it produces is the result of innovation. Successful innovation gives an organization something unique or different about its products that rivals lack—more attractive, useful, sophisticated products or superior production processes that strengthen its competitive advantage. Innovation adds value to products and allows the organization to further differentiate itself from rivals and attract customers who are often willing to pay a premium price for unique products. 4. Attain superior responsiveness to customers. An organization that is responsive to customers tries to satisfy their needs and give them exactly what they want. An organization that treats customers better than its rivals do also provides a valuable service some customers may be willing to pay a higher price for. Managers can increase responsiveness by providing excellent after-sales service and support and by working to provide improved products or services to customers in the future.

3 Steps in Planning

1. Determining the organization's mission and goals (define the business. establish major goals.) 2. Formulating strategy (analyze current situation and develop strategies.) 3. Implementing strategy (allocate resources and responsibilities to achieve strategies.)

4 Reasons Planning is Important

1. Planning is necessary to give the organization a sense of direction and purpose. A plan states what goals an organization is trying to achieve and what strategies it intends to use to achieve them. Without the sense f direction and purpose that a formal plan provides, managers may interpret their own specific tasks and job in ways that best suit themselves. The result will be an organization that is pursuing multiple and often conflicting goals and a set of managers who do not cooperate and work well together. By stating which organization goals and strategies are important, a plan keeps managers on track so they use the resources under their control efficiently and effectively. 2. Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization. Effective planning gives all managers the opportunity to participate in decision making. At Intel, for example, top managers, as part of their annual planning process, regularly request input from lower-level managers to determine what the organization's goals and strategies should be. 3. A plan helps coordinate managers of the different functions and same divisions of an organization to ensure that they all pull in the same direction and work to achieve its desired future state. Without a well-thought-out plan, for example, it is possible that the manufacturing function will make more products than the sales function can sell, resulting in a mass of unsold inventory. 4. A plan can be used as a device for controlling managers within an organization. A good plan specifies not only which goals and strategies the organization is committed to but also who bears the responsibility for putting the strategies into action to attain the goals. When managers know they will be held accountable for attaining a goal, they are motivated to do their best to make sure the goal is achieved.

Planning Process

1. managers must establish and discover where an organization is at the present time 2. determine where it should be in the future, its desired future state 3. decide how to move forwards to reach that future state - When managers plan, they must forecast what may happen in the future to decide what to do in the present; Planning and strategy super important because if managers' predictions are wrong and strategies fail, organization performance falls.

Six Sigma

A TQM technique. has gained increasing popularity in the last decade, particularly because of the well-publicized success GE enjoyed as a result of implementing it across its operating divisions. The goal of Six Sigma is to improve a company's quality to only three defects per million by systematically altering the way all the processes involved in value chain activities are performed, and then carefully measuring how much improvement has been made using statistical methods

The Five Forces Model

A well-known model that helps managers focus on the five most important competitive forces, or potential threats, in the external environment is Michael Porter's five forces model. Porter identified these five factors as major threats because they affect how much profit organizations competing within the same industry can expect to make: The level of rivalry among organizations in an industry: The more that companies compete against one another for customers—for example, by lowering the prices of their products or by increasing advertising—the lower is the level of industry profits (low prices mean less profit). The potential for entry into an industry: The easier it is for companies to enter an industry—because, for example, barriers to entry, such as brand loyalty, are low—the more likely it is for industry prices and therefore industry profits to be low. The power of large suppliers: If there are only a few large suppliers of an important input, then suppliers can drive up the price of that input, and expensive inputs result in lower profits for companies in an industry. The power of large customers: If only a few large customers are available to buy an industry's output, they can bargain to drive down the price of that output. As a result, industry producers make lower profits. The threat of substitute products: Often the output of one industry is a substitute for the output of another industry (plastic may be a substitute for steel in some applications, for example; similarly, bottled water is a substitute for cola). When a substitute for their product exists, companies cannot demand high prices for it or customers will switch to the substitute, and this constraint keeps their profits low. It is the job of managers at the corporate, business, and functional levels to formulate strategies to counter these threats so an organization can manage its task and general environments, perform at a high level, and generate high profits.

Strategy

Different strategies often call for the use of different organizational structures and cultures. For example, a differentiation strategy aimed at increasing the value customers perceive in an organization's goods and services usually succeeds best in a flexible structure with a culture that values innovation; flexibility facilitates a differentiation strategy because managers can develop new or innovative products quickly—an activity that requires extensive cooperation among functions or departments. In contrast, a low-cost strategy that is aimed at driving down costs in all functions usually fares best in a more formal structure with more conservative norms, which gives managers greater control over the activities of an organization's various departments.15 In addition, at the corporate level, when managers decide to expand the scope of organizational activities by vertical integration or diversification, for example, they need to design a flexible structure to provide sufficient coordination among the different business divisions.16 As discussed in Chapter 8, many companies have been divesting businesses because managers have been unable to create a competitive advantage to keep them up to speed in fast-changing industries. By moving to a more flexible structure, managers gain more control over their different businesses.

What do Customers Want?

Given that satisfying customer demand is central to the survival of an organization, an important question is "What do customers want?" Although specifying exactly what customers want is not possible because their needs vary from product to product, most customers prefer A lower price to a higher price High-quality products to low-quality products Quick service and good after-sales service to slow service and poor after-sales support Products with many useful or valuable features to products with few features Products that are, as far as possible, customized to their unique needs Managers know that the more desired product attributes a company's value chain builds into its products, the higher the price that must be charged to cover the costs of developing and making the product. So what do managers of a customer-responsive organization do? They try to develop functional strategies that allow the organization's value chain to deliver to customers either more desired product attributes for the same price or the same product attributes for a lower price.

Global Strategy

If managers decide that their organization should sell the same standardized product in each national market in which it competes, and use the same basic marketing approach, adopt this.

Organizational Environment

In general, the more quickly the external environment is changing and the greater the uncertainty within it, the greater are the problems managers face in trying to gain access to scarce resources. In this situation, to speed decision making and communication and make it easier to obtain resources, managers typically make organizing choices that result in more flexible structures and entrepreneurial cultures.14 They are likely to decentralize authority, empower lower-level employees to make important operating decisions, and encourage values and norms that emphasize change and innovation—a more organic form of organizing. Managers in this situation prefer to make decisions within a clearly defined hierarchy of authority and to use detailed rules, standard operating procedures (SOPs), and restrictive norms to guide and govern employees' activities—a more mechanistic form of organizing

Implementing Strategy

Managers decide how to allocate the resources and responsibilities required to implement the strategies among people and groups within the organization.

Defining the Business

Managers must first define its business so they can identify what kinds of value customers are receiving. To define the business, managers must ask three related questions about a company's products: (1) Who are our customers? (2) What customer needs are being satisfied? (3) How are we satisfying customer needs?23 Managers ask these questions to identify the customer needs that the organization satisfies and how the organization satisfies those needs. Answering these questions helps managers identify not only the customer needs they are satisfying now but also the needs they should try to satisfy in the future and who their true competitors are

Core Members

Marketing, engineering, and manufacturing personnel are core members of a successful product development team—the people who have primary responsibility for the product development effort

Formulating Business-Level Strategies

Michael Porter, the researcher who developed the five forces model, also developed a theory of how managers can select a business-level strategy—a plan to gain a competitive advantage in a particular market or industry.39 Porter argued that business-level strategy creates a competitive advantage because it allows an organization (or a division of a company) to counter and reduce the threat of the five industry forces. That is, successful business-level strategy reduces rivalry, prevents new competitors from entering the industry, reduces the power of suppliers or buyers, and lowers the threat of substitutes—and this raises prices and profits. According to Porter, to obtain these higher profits managers must choose between two basic ways of increasing the value of an organization's products: differentiating the product to increase its value to customers or lowering the costs of making the product.

Importance of Planning

Almost all managers participate in some kind of planning because they must try to predict future opportunities and threats and develop a plan and strategies that will result in a high-performing organization. In addition, the absence of a plan often results in hesitations, false steps, and mistaken changes of direction that can hurt an organization or even lead to disaster.

Concentration on a Single Industry

Most growing companies reinvest their profits to strengthen their competitive position in the industry in which they are currently operating; in doing so, they pursue the corporate-level strategy of concentration on a single industry. Most commonly, an organization uses its functional skills to develop new kinds of products, or it expands the number of locations in which it uses those skills.

Establishing Major Goals

Once the business is defined, managers must establish a set of primary goals to which the organization is committed. Developing these goals gives the organization a sense of direction or purpose. Although goals should be challenging, they should also be realistic. Challenging goals give managers at all levels an incentive to look for ways to improve organizational performance, but a goal that is clearly unrealistic and impossible to attain may prompt managers to give up

Customer Relationship Management (CRM)

One functional strategy managers can use to get close to customers and understand their needs. CRM is a technique that uses IT to develop an ongoing relationship with customers to maximize the value an organization can deliver to them over time. By the 2000s most large companies had installed sophisticated CRM IT to track customers' changing demands for a company's products; this became a vital tool to maximize responsiveness to customers. CRM IT monitors, controls, and links each of the functional activities involved in marketing, selling, and delivering products to customers, such as monitoring the delivery of products through the distribution channel, monitoring salespeople's selling activities, setting product pricing, and coordinating after-sales service. CRM systems have three interconnected components: sales and selling, after-sales service and support, and marketing. Suppose a sales manager has access only to sales data that show the total sales revenue each salesperson generated in the last 30 days. This information does not break down how much revenue came from sales to existing customers versus sales to new customers. What important knowledge is being lost? First, if most revenues are earned from sales to existing customers, this suggests that the money being spent by a company to advertise and promote its products is not attracting new customers and, so, is being wasted. Second, important dimensions involved in sales are pricing, financing, and order processing. In many companies, to close a deal, a salesperson has to send the paperwork to a central sales office, which handles matters such as approving the customer for special financing and determining specific shipping and delivery dates. In some companies, different departments handle these activities, and it can take a long time to get a response from them; this keeps customers waiting—something that often leads to lost sales. Recognizing that these delays were causing lost sales, Empire decided to examine how a CRM system could improve the sales process. Its managers chose a web-based system so agents themselves could calculate the insurance quotes online. Once an agent enters a customer's data, a quote is generated in just a few seconds. The agent can continually modify a policy while sitting face-to-face with the customer until the policy and price are agreed upon. As a result, the sales process can now be completed in a few hours, and customers receive their insurance cards in 2 to 3 days rather than 10. When a company implements after-sales service and support CRM software, salespeople are required to input detailed information about their follow-up visits to customers. Because the system tracks and documents every customer's case history, salespeople have instant access to a record of everything that occurred during previous phone calls or visits. They are in a much better position to respond to customers' needs and build customer loyalty, so a company's after-sales service improves. A CRM system can also identify the top 10 reasons for customer complaints. Sales managers can then work to eliminate the sources of these problems and improve after-sales support procedures. The CRM system also identifies the top 10 best service and support practices, which can then be taught to all sales reps. Finally, as a CRM system processes information about changing customer needs, this improves marketing in many ways. Marketing managers, for example, have access to detailed customer profiles, including data about purchases and the reasons individuals were or were not attracted to a company's products. Armed with this knowledge, marketing can better identify customers and the specific product attributes they desire. Traditional CRM systems were organized by having salespeople input customer information. Now social CRM systems can track customers on social media and put them on a company's radar.

Total Quality Management (TQM)

At the forefront of the drive to improve product quality is a functional strategy known as total quality management. TQM focuses on improving the quality of an organization's products and stresses that all of an organization's value chain activities should be directed toward this goal. TQM requires the cooperation of managers in every function of an organization and across functions 10 steps: 1. Build organizational commitment to quality 2. Focus on the customer (what customer wants from good or service, what company actually provides, and gap between the two) 3. Find ways to measure quality 4. Set goals and create incentives 5. Solicit input from employees 6. Identify defects and trace them to their source 7. Introduce just-in-time inventory systems 8.Work closely with suppliers 9. Design for ease of production 10. Break down barriers between functions

Improving Responsiveness to Customers

Because customers are vital to organizational survival, managers must correctly identify their customers and pursue strategies that result in products that best meet their needs. This is why the marketing function plays such an important part in the value chain, and good value chain management requires that marketing managers focus on defining their company's business in terms of the customer needs it is satisfying, not by the type of products it makes—or the result can be disaster.

Value Chain and Customers

Because satisfying customers is so important, managers try to design and improve the way their value chains operate so they can supply products that have the desired attributes—quality, cost, and features. Although managers must seek to improve their responsiveness to customers by improving how the value chain operates, they should not offer a level of responsiveness to customers that results in costs becoming too high—something that threatens an organization's future performance and survival.

Multidomestic Strategy

But if managers decide to customize products and marketing strategies to specific national conditions, they adopt this.

Stage--Gate Development Funnel

One strategy for solving this problem is for managers to develop a structured process for evaluating product development proposals and deciding which to support and which to reject. Def: a technique that forces managers to choose among competing projects so functional resources are not spread thinly over too many projects. The funnel gives functional managers control over product development and allows them to intervene and take corrective action quickly and appropriately. At stage 1 the development funnel has a wide mouth, so top managers initially can encourage employees to come up with as many new product ideas as possible. Managers can create incentives for employees to come up with ideas. Many organizations run "bright-idea programs" that reward employees whose ideas eventually make it through the development process. New product ideas are written up as brief proposals. The proposals are submitted to a cross-functional team of managers, who evaluate each proposal at gate 1. The cross-functional team considers a proposal's fit with the organization's strategy and its technical feasibility. Proposals that are consistent with the strategy of the organization and are judged technically feasible pass through gate 1 and into stage 2. Other proposals are turned down (although the door is often left open for reconsidering a proposal later). Stage 2: Product Development Plan Stage 3: Development Phase

Strategic Alliance

One way to overcome the loss-of-control problems associated with exporting, licensing, and franchising is to expand globally. Def: managers pool or share their organization's resources and know-how with those of a foreign company, and the two organizations share the rewards or risks of starting a new venture in a foreign country. Sharing resources allows a U.S. company, for example, to take advantage of the high-quality skills of foreign manufacturers and the specialized knowledge of foreign managers about the needs of local customers and to reduce the risks involved in a venture. At the same time, the terms of the alliance give the U.S. company more control over how the good or service is produced or sold in the foreign country than it would have as a franchiser or licenser.

Organizational Structure

Organizing is the process by which managers establish the structure of working relationships among employees to allow them to achieve an organization's goals efficiently and effectively. Def: is the formal system of task and job reporting relationships that determines how employees use resources to achieve an organization's goals.

Planning

Process managers use to identify and select appropriate goals and courses of action for an organization. Organization plan that results from the planning process details the goals of the organization and the specific strategies managers will implement to attain those goals. Has 3 steps.

Contract Book

a written agreement that details factors such as responsibilities, resource commitments, budgets, time lines, and development milestones. Signing the contract book is viewed as the symbolic launch of a product development effort. The contract book is also a document against which actual development progress can be measured.

Hypercompetition

applies to industries that are characterized by permanent, ongoing, intense competition brought about by advancing technology or changing customer tastes and fads and fashions. Clearly, planning and strategy formulation are much more difficult and risky when hypercompetition prevails in an industry.

Unity

at any time only one central, guiding plan is put into operation to achieve an organizational goal; more than one plan to achieve a goal would cause confusion and disorder

Strategy

cluster of related managerial decisions and actions to help an organization attain one of its goals (planning is a goal-making and strategy-making process)

Corporate-Level Plan

contains top management's decisions concerning the organization's mission and goals, overall (corporate-level) strategy, and structure

Materials Management Function

controls the movement of physical materials from the procurement of inputs through production and to distribution and delivery to the customer. The efficiency with which this is carried out can significantly lower costs and create more value.

Business-Level Plan

details: 1. the long-term divisional goals that will allow the division to meet corporate goals 2. division's business-level strategy and structure necessary to achieve divisional goals

Single-Use Plans

developed to handle non-programmed decision making in unusual or one-of-a-kind situations. Examples of single-use plans include programs, which are integrated sets of plans for achieving certain goals, and projects, which are specific action plans created to complete various aspects of a program

Franchising

franchising is pursued primarily by service organizations. a company (the franchiser) sells to a foreign organization (the franchisee) the rights to use its brand name and operating know-how in return for a lump-sum payment and share of the franchiser's profits. The downside is that the organization that grants the franchise may lose control over how the franchisee operates, and product quality may fall.

Improving Quality

high-quality products possess attributes such as superior design, features, reliability, and after-sales support; these products are designed to better meet customer requirements.32 Quality is a concept that can be applied to the products of both manufacturing and service organizations. Often providing high-quality products creates a brand-name reputation for an organization's products. This enhanced reputation may allow the organization to charge more for its products than its competitors can charge, and thus it makes greater profits. The second reason for trying to boost product quality is that higher product quality can increase efficiency and thereby lower operating costs and boost profits. Achieving high product quality lowers operating costs because of the effect of quality on employee productivity: Higher product quality means less employee time is wasted in making defective products that must be discarded or in providing substandard services; thus, less time has to be spent fixing mistakes. This translates into higher employee productivity, which also means lower costs.

Levels of Planning

in large organizations, planing usually takes place at 3 levels of management: 1. corporate 2. business or division 3. department or functional

Vertical Integration

is a corporate-level strategy in which a company expands its business operations either backward into a new industry that produces inputs for the company's products (backward vertical integration) or forward into a new industry that uses, distributes, or sells the company's products (forward vertical integration). Managers pursue vertical integration because it allows them either to add value to their products by making them special or unique or to lower the costs of making and selling them. An example of using forward vertical integration to increase differentiation is Apple's decision to open its own stores to make its unique products more accessible to customers who could try them out before they bought them.

SWOT Analysis

is a planning exercise in which managers identify internal organizational strengths (S) and weaknesses (W) and external environmental opportunities (O) and threats (T) The first step in SWOT analysis is to identify an organization's strengths and weaknesses.The task facing managers is to identify the strengths and weaknesses that characterize the present state of their organization.The second step in SWOT analysis begins when managers embark on a full-scale SWOT planning exercise to identify potential opportunities and threats in the environment that affect the organization now or may affect it in the future. Scenario planning is often used to strengthen this analysis.

Joint Venture

is a strategic alliance between two or more companies that agree to jointly establish and share the ownership of a new business.88 An organization's level of involvement abroad increases in a joint venture because the alliance normally involves a capital investment in production facilities abroad in order to produce goods or services outside the home country. Risk, however, is reduced. The Internet and global teleconferencing provide the increased communication and coordination necessary for global partners to work together.

Flexible Manufacturing

is a strategy based on the use of IT to reduce the costs associated with the product assembly process or the way services are delivered to customers. For example, this might be how computers are made on a production line or how patients are routed through a hospital. In a manufacturing company, a major source of costs is setting up the equipment needed to make a particular product. One of these costs is that of production forgone because nothing is produced while the equipment is being set up

Synergy

is obtained when the value created by two divisions cooperating is greater than the value that would be created if the two divisions operated separately and independently.

Organizational Architecture

is the combination of organizational structure, culture, control systems, and human resource management (HRM) systems that determines how efficiently and effectively organizational resources are used.

Value Chain

is the coordinated series or sequence of functional activities necessary to transform inputs such as new product concepts, raw materials, component parts, or professional skills into the finished goods or services customers value and want to buy. Each functional activity along the chain adds value to the product when it lowers costs or gives the product differentiated qualities that increase the price a company can charge for it.

Diversification

is the corporate-level strategy of expanding a company's business operations into a new industry in order to produce new kinds of valuable goods or services.

Task Analyzability

is the degree to which programmed solutions are available to people or functions to solve the problems they encounter.

Value Chain Management

is the development of a set of functional-level strategies that support a company's business-level strategy and strengthen its competitive advantage. Functional managers develop the strategies that increase efficiency, quality, innovation, and/or responsiveness to customers and, thus, strengthen an organization's competitive advantage. So the better the fit between functional- and business-level strategies, the greater is the organization's competitive advantage, and the better able the organization is to achieve its mission and goal of maximizing the amount of value it gives customers. Each function along the value chain has an important role to play in value creation.

Product Development

is the management of the value chain activities involved in bringing new or improved goods and services to the market. The steps that Monte Peterson, former CEO of Thermos, took to develop a new barbecue grill show how good product development should proceed. Peterson had no doubt about how to increase Thermos's sales of barbecue grills: motivate Thermos's functional managers to create new and improved models. So Peterson assembled a cross-functional product development team of five functional managers (from marketing, engineering, manufacturing, sales, and finance) and told them to develop a new barbecue grill within 18 months. To ensure that they were not spread too thin, he assigned them to this team only. Peterson also arranged for leadership of the team to rotate. Initially, to focus on what customers wanted, the marketing manager would take the lead; then, when technical developments became the main consideration, leadership would switch to engineering; and so on.

Task Variety

is the number of new or unexpected problems or situations that a person or function encounters in performing tasks or jobs

Organizational Design

is the process by which managers create a specific type of organizational structure and culture so a company can operate in the most efficient and effective way. Once a company decides what kind of work attitudes and behaviors it wants from its employees, managers create a particular arrangement of task and authority relationships, and promote specific cultural values and norms, to obtain these desired attitudes and behaviors. The challenge facing all companies is to design a structure and a culture that (1) motivate managers and employees to work hard and to develop supportive job behaviors and attitudes and (2) coordinate the actions of employees, groups, functions, and divisions to ensure they work together efficiently and effectively.

Organizational Culture

is the shared set of beliefs, values, and norms that influence how people and groups work together to achieve an organization's goals

Facilities Layout

is the strategy of designing the machine-worker interface to increase operating system efficiency. The way in which machines, robots, and people are grouped together affects how productive they can be. Figure 9.4 shows three basic ways of arranging workstations: product layout, process layout, and fixed-position layout.

Related Diversification

is the strategy of entering a new business or industry to create a competitive advantage in one or more of an organization's existing divisions or businesses. Related diversification can add value to an organization's products if managers can find ways for its various divisions or business units to share their valuable skills or resources so that synergy is created.

Product Layout

machines are organized so that each operation needed to manufacture a product or process a patient is performed at workstations arranged in a fixed sequence. In manufacturing, workers are stationary in this arrangement, and a moving conveyor belt takes the product being worked on to the next workstation so that it is progressively assembled. Mass production is the familiar name for this layout; car assembly lines are probably the best-known example.

Exporting

makes products at home and sells them abroad. An organization might sell its own products abroad or allow a local organization in the foreign country to distribute its products. Few risks are associated with exporting because a company does not have to invest in developing manufacturing facilities abroad. It can further reduce its investment abroad if it allows a local company to distribute its products.

Differentiation Strategy

managers try to gain a competitive advantage by focusing all the energies of the organization's departments or functions on distinguishing the organization's products from those of competitors on one or more important dimensions, such as product design, quality, or after-sales service and support. Often the process of making products unique and different is expensive. This strategy, for example, frequently requires that managers increase spending on product design or R&D to differentiate products, and costs rise as a result. Organizations that successfully pursue a differentiation strategy may be able to charge a premium price for their products; the premium price lets organizations pursuing a differentiation strategy recoup their higher costs. Coca-Cola, PepsiCo, and Procter & Gamble are some of the many well-known companies that pursue a strategy of differentiation. They spend enormous amounts of money on advertising to differentiate, and create a unique image for, their products. Also, differentiation makes industry entry difficult because new companies have no brand name to help them compete and customers don't perceive other products to be close substitutes, so this also allows premium pricing and results in high profits. According to Porter's theory, managers cannot simultaneously pursue both a low-cost strategy and a differentiation strategy. Porter identified a simple correlation: Differentiation raises costs and thus necessitates premium pricing to recoup those high costs. For example, if BIC suddenly began to advertise heavily to try to build a strong global brand image for its products, BIC's costs would rise. BIC then could no longer make a profit simply by pricing its blades or pens lower than Gillette or Cross. According to Porter, managers must choose between a low-cost strategy and a differentiation strategy. He refers to managers and organizations that have not made this choice as being "stuck in the middle."

Low-Cost Strategy

managers try to gain a competitive advantage by focusing the energy of all the organization's departments or functions on driving the company's costs down below the costs of its industry rivals. This strategy, for example, would require that manufacturing managers search for new ways to reduce production costs, R&D managers focus on developing new products that can be manufactured more cheaply, and marketing managers find ways to lower the costs of attracting customers. According to Porter, companies pursuing a low-cost strategy can sell a product for less than their rivals sell it and yet still make a good profit because of their lower costs. Thus, such organizations enjoy a competitive advantage based on their low prices. For example, BIC pursues a low-cost strategy: It offers customers razor blades priced lower than Gillette's and ballpoint pens less expensive than those offered by Cross or Waterman. Also, when existing companies have low costs and can charge low prices, it is difficult for new companies to enter the industry because entering is always an expensive process.

Strategy Formulation

managers work to develop the set of strategies (corporate, divisional, and functional) that will allow an organization to accomplish its mission and achieve its goals. Strategy formulation begins with managers' systematically analyzing the factors or forces inside an organization and outside in the global environment that affect the organization's ability to meet its goals now and in the future. SWOT analysis and the five forces model are 2 hand techniques managers can use to analyze these factors.

Accuracy

means that managers need to make every attempt to collect and use all available information in the planning process. of course managers must recognize uncertainty exists and that information is almost always incomplete

Continuity

means that planning is an ongoing process in which managers build and refine previous plans and continually modify plans at all levels -- corporate, business, and functional -- so they all fit together into one broad framework.

Business-Level Strategy

outlines the specific methods a division, a business unit, or an organization will use to compete effectively against its rivals in an industry

Just-in-time (JIT) Inventory System

parts or supplies arrive at the organization when they are needed, not before. Also, under a JIT inventory system, defective parts enter an organization's operating system immediately; they are not warehoused for months before use.

Functional-Level Strategy

plan of action that managers of individual functions (such as manufacturing or marketing) can follow to improve the ability of each function to perform its task-specific activities in ways that addd value to an organizations' goods and services and thereby increase the value customers receive

Functional-Level Strategy

plan of action to improve the ability of each of an organization's functions or departments (such as manufacturing or marketing) to perform its task-specific activities in ways that add value to an organization's goods and services

Sales Function

plays a crucial role in locating customers and then informing and persuading them to buy the company's products. Personal selling—that is, direct face-to-face communication by salespeople with existing and potential customers to promote a company's products—is a crucial value chain activity. Which products retailers choose to stock, for example, or which drugs doctors choose to prescribe often depends on the salesperson's ability to inform and persuade customers that his or her company's product is superior and, thus, the best choice.

Production Function

responsible for creating, assembling, or providing a good or service—for transforming inputs into outputs. For physical products, when we talk about production, we generally mean manufacturing and assembly. For services such as banking or retailing, production takes place when the service is actually provided or delivered to the customer (for example, when a bank originates a loan for a customer, it is engaged in "production" of the loan). By performing its activities efficiently, the production function helps to lower costs. The production function can also perform its activities in a way that is consistent with high product quality, which leads to differentiation (and higher value) and to lower costs.

Incremental Product Innovation

results in gradual improvements and refinements of products over time as existing technologies are perfected and functional managers, like those at Apple, Toyota, and McDonald's, learn how to perform value chain activities in better ways—ways that add more value to products

Quantum Product Innovation

results in the development of new, often radically different, kinds of goods and services because of fundamental shifts in technology brought about by pioneering discoveries. Examples are the creation of the Internet and the World Wide Web that have revolutionized the computer, cell phone, and media/music industries, and biotechnology, which has transformed the treatment of illness by creating new, genetically engineered medicines. Chipotle started a restaurant trend called "fast casual" that offers rapidly prepared but high-quality food in an upscale dining environment. Prices are higher than typical fast-food chains

Importing

sells products at home that are made abroad (products it makes itself or buys from other companies).

Focused Differentiation Strategy

serve just one or a few segments of the market and aim to make their organization the most differentiated company serving that segment.

Focused Low-Cost Strategy

serve one or a few segments of the overall market and aim to make their organization the lowest-cost company serving that segment

Flexible

so plans can be altered if the situation changes; managers must not be bound to a static plan

Product Development Plan

specifies all of the relevant information that managers need to decide whether to go ahead with a full-blown product development effort. The product development plan should include strategic and financial objectives, an analysis of the product's market potential, a list of desired product features, a list of technological requirements, a list of financial and human resource requirements, a detailed development budget, and a time line that contains specific milestones (for example, dates for prototype completion and final launch). A cross-functional team of managers normally drafts this plan. Good planning requires a good strategic analysis (see Chapter 8), and team members must be prepared to spend considerable time in the field with customers, trying to understand their needs. Drafting a product development plan generally takes about three months. Once completed, the plan is reviewed by a senior management committee at gate 2 (see Figure 9.5). These managers focus on the details of the plan to see whether the proposal is attractive (given its market potential) and viable (given the technological, financial, and human resources that would be needed to develop the product). Senior managers making this review keep in mind all other product development efforts currently being undertaken by the organization. One goal at this point is to ensure that limited organizational resources are used to their maximum effect.

Corporate-Level Strategy

specifies in which industries and national markets an organization intends to compete and why

Functional-Level Plan

states the goals that the managers of each function will pursue to help their division attain its business-level goals, which, in turn, will allow the entire company to achieve its corporate goals

Strategic Leadership

the ability of the CEO and top managers to convey a compelling vision of what they want to achieve to their subordinates, is important here

Determining an Organization's Mission

the overriding reason it exists to provide customers with goods or services they value: Define Business and then Establish Major Goals

Time Horizons

the periods of time over which they are intended to apply or endure (plans). Managers usually distinguish among long-term plans, intermediate plans, and short-term plans. Typically, corporate- and business-level goals and strategies require long- and intermediate-term plans, and functional-level goals and strategies require intermediate- and short-term plans

Fixed-Position Layout

the product stays in a fixed position. Its component parts are produced in remote workstations and brought to the production area for final assembly. Increasingly, self-managed teams are using fixed-position layouts. Different teams assemble each component part and then send the parts to the final assembly team, which makes the final product.

Inventory

the stock of raw materials, inputs, and component parts, that an organization has on hand at a particular time

Wholly Owned Foreign Subsidiary

they invest in establishing production operations in a foreign country independent of any local direct involvement.

Intermediate-Term Plan

time horizon between 1-5 years

Short-Term Plans

time horizon of 1 year or less

Customer Service Function

to provide after-sales service and support. This function can create a perception of superior value in the minds of customers by solving customer problems and supporting customers after they have purchased the product. For example, FedEx can get its customers' parcels to any point in the world within 24 hours, creating value and support for customers' businesses. Customer service controls the electronic systems for tracking sales and inventory, pricing products, selling products, dealing with customer inquiries, and so on, all of which can greatly increase responsiveness to customers. Indeed, an important activity of sales and customer service is to tell product development and marketing why a product is meeting or not meeting customers' needs so the product can be redesigned or improved. Hence, a feedback loop links the end of the value chain to its beginning

Standing Plans

used in situations in which programmed decision making is apporpraite. When the same situation occur repeatedly, managers develop policies, rules, and standard operating procedures (SOPs) to control the way employees perform their tasks. A policy is a general guide to action; a rule is a formal, written guide to action; and a standard operating procedure is a written instruction describing the exact series of actions that should be followed in a specific situation.

Unrelated Diversification

when they establish divisions or buy companies in new industries that are not linked in any way to their current businesses or industries. One main reason for pursuing unrelated diversification is that sometimes managers can buy a poorly performing company, transfer their management skills to that company, turn around its business, and increase its performance—all of which create value

Long-Term Plan

with time horizon of 5 or more years

Process Layout

workstations are not organized in a fixed sequence. Rather, each workstation is relatively self-contained, and a product goes to whichever workstation is needed to perform the next operation to complete the product. Process layout is often suited to manufacturing settings that produce a variety of custom-made products, each tailored to the needs of a different kind of customer.