Chapter 9-11 Management

Departmentalization

the basis by which jobs are grouped together o How jobs are grouped together is called departmentalization. Five common forms of departmentalization are used, although an organization may develop its own unique classification. Exhibit 11-3 illustrates each type of departmentalization as well as the advantages and disadvantages of each.

Operating agreement

the document that outlines the provisions governing the way an LLC will conduct business

Initial Public Offering (IPO)

the first public registration and sale of a company's stock

Organizational structure

the formal arrangement of jobs within an organization

Entrepreneurship

the process of starting new businesses, generally in response to opportunities

How are corporate strategies managed?

BCG matrix

S corporation

Up to 75 shareholders, no limits on types of stock or voting arrangement Income and losses "pass through" to partners and are taxed at personal rate; flexibility in profit-loss allocations to partners Limited Easy to set up, limited liability and tax benefits of partnership, can have tax-exempt entity as shareholder Must meet certain requirements, may limit future financing options

line authority

authority that entitles a manager to direct the work of an employee

Centralization

the degree to which decision making is concentrated at upper levels of the organization

Business Plan- Major Areas

- Executive summary - Analysis of opportunity - Analysis of the context - Description of the business - Financial data and projections - Supporting documentation o For many would-be entrepreneurs, developing and writing a business plan seems like a daunting task. However, a good business plan is valuable. It pulls together all of the elements of the entrepreneur's vision into a single coherent document. o If an entrepreneur has completed a feasibility study, much of the information included in it becomes the basis for the business plan. A good business plan covers six major areas: executive summary, analysis of opportunity, analysis of the context, description of the business, financial data and projections, and supporting documentation.

BCG Matrix

(a Boston consulting group came up with this matrix): a strategy tool that guides resource allocation decisions on the basis of market share and growth rate of SBUs o Stars o Cash cows o Question marks o Dogs When an organization's corporate strategy encompasses a number of businesses, managers can manage this collection, or portfolio, of businesses using a tool called a corporate portfolio matrix. This matrix provides a framework for understanding diverse businesses and helps managers establish priorities for allocating resources. The first portfolio matrix—the BCG matrix—was developed by the Boston Consulting Group and introduced the idea that an organization's various businesses could be evaluated and plotted using a 2 × 2 matrix to identify which ones offered high potential and which were a drain on organizational resources. The horizontal axis represents market share (low or high), and the vertical axis indicates anticipated market growth (low or high). A business unit is evaluated using a SWOT analysis and placed in one of the four categories listed.

Types of Competitive Advantage

Quality, Design Thinking, and Social Media

Organizational chart

the visual representation of an organization's structure

Business Valuation Methods

- Asset valuations - Earnings valuations - Cash-flow valuations o Setting a value on a business can be a little tricky. In many cases, the entrepreneur has sacrificed much for the business and sees it as his or her "baby." Calculating the value of the baby based on objective standards such as cash ow or some multiple of net profits can sometimes be a shock. That's why it's important for an entrepreneur who wishes to exit the venture to get a comprehensive business valuation prepared by professionals. o Although the hardest part of preparing to exit a venture is valuing it, other factors also should be considered. 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. The process of exiting the entrepreneurial venture should be approached as carefully as the process of launching it. If the entrepreneur is selling the venture on a positive note, he or she wants to realize the value built up in the business. If the venture is being exited because of declining performance, the entrepreneur wants to maximize the potential return.

Social Responsibility and Ethics Issues Facing Entrepreneurs

- A study of small companies showed that while 95% said developing a positive reputation and relationship in communities where they do business is important, 70% admitted that they failed to consider community goals in their business plans. o As they launch and manage their ventures, entrepreneurs are faced with the often difficult issues of social responsibility and ethics. Just how important are these issues to entrepreneurs? An overwhelming majority of respondents (95%) in a study of small companies believed that developing a positive reputation and relationship in communities where they do business is important for achieving business goals. However, despite the importance these individuals placed on corporate citizenship, more than half lacked formal programs for connecting with their communities. In fact, some 70 percent of the respondents admitted that they failed to consider community goals in their business plans. o Yet, some entrepreneurs take their social responsibilities seriously. Other entrepreneurs have pursued opportunities with products and services that protect the global environment. o Ethical considerations also play a role in decisions and actions of entrepreneurs. Entrepreneurs do need to be aware of the ethical consequences of what they do. The example they set—particularly for other employees—can be profoundly significant in influencing behavior.

The sharing economy

business arrangements that are based on people sharing something they own or providing a service for a fee - Have you ever wanted the companionship of a dog, but because you don't have the time or money to keep one, you "rent" one every weekend? Have you ever rented someone else's bike? Answering yes to either question probably means that you have participated in the sharing economy. - The sharing economy refers to business arrangements that are based on people sharing something they own or providing a service for a fee.

Organizational design

creating or changing an organization's structure

organizing

management function that involves arranging and structuring work to accomplish the organization's goals

Work Specialization

dividing work activities into separate job tasks o Work specialization is dividing work activities into separate job tasks. Individual employees "specialize" in doing part of an activity rather than the entire activity in order to increase work output. It's also known as division of labor. Work specialization makes efficient use of the diversity of workers skills. o Early proponents of work specialization believed it could lead to great increases in productivity. At the beginning of the twentieth century, that generalization was reasonable. Because specialization was not widely practiced, its introduction almost always generated higher productivity.

Harvesting

exiting a venture when an entrepreneur hopes to capitalize financially on the investment in the venture

Decentralization

the degree to which lower-level employees provide input or actually make decisions

Chain of Command

the line of authority extending from upper organizational levels to the lowest levels, which clarifies who reports to whom o People need to know who their boss is. That's what the chain of command is all about. The chain of command is the line of authority extending from upper organizational levels to lower levels, which clarifies who reports to whom. Managers need to consider it when organizing work because it helps employees with questions such as "Who do I report to?" or "Who do I go to if I have a problem?" To understand the chain of command, you have to understand three other important concepts: authority, responsibility, and unity of command.

Responsibility

the obligation or expectation to perform any assigned duties

S corporation

a specialized type of corporation that has the regular characteristics of a C corporation but is unique in that the owners are taxed as a partnership as long as certain criteria are met

Functional Strategies

a strategy used by an organization's various functional departments to support the competitive strategy.

Entrepreneurial Ventures

organizations that pursue opportunities, are characterized by innovative practices, and have growth and profitability as their main goals

Venture Capitalists

external equity financing provided by professionally man-aged pools of investor money

The five common forms of departmentalization

functional, geographical, product, process, customer Look at the images in notes

Employee Empowerment

giving employees more authority (power) to make decisions o As organizations have become more flexible and responsive to environmental trends, there's been a distinct shift toward decentralized decision-making. This trend, also known as employee empowerment, gives employees more authority (power) to make decisions. (We'll address this concept more thoroughly in our discussion of leadership in Chapter 17.) In large companies especially, lower-level managers are "closer to the action" and typically have more detailed knowledge about problems and how best to solve them than top managers.

authority notes in general

o Authority refers to the rights inherent in a managerial position to tell people what to do and to expect them to do it. Managers in the chain of command have authority to do their job of coordinating and overseeing the work of others. Authority can be delegated downward to lower-level managers, giving them certain rights while also prescribing certain limits within which to operate. o 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, as shown in Exhibit 11-4. As a link in the chain of command, a manager with line authority has the right to direct the work of employees and to make certain decisions without consulting anyone. o As organizations get larger and more complex, line managers find that they do not have the time, expertise, or resources to get their jobs done effectively. In response, they create staff authority functions to support, assist, advise, and generally reduce some of their informational burdens. For instance, a hospital administrator who cannot effectively handle the purchasing of all the supplies the hospital needs creates a purchasing department, which is a staff function

Quality

o If a business is able to continuously improve the quality and reliability of its products, it may have a competitive advantage that can't be taken away.

Social Media

o Many organizations are making substantial investments in social media because its use can provide a competitive advantage.

Design Thinking

o 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.

Staff authority

positions with some authority that have been created to support, assist, and advise those holding line authority

What is Strategic Management?

- Strategic Management: what managers do to develop the organization's strategies. o Strategic management is what managers do to develop the organization's strategies. It's an important task involving all the basic management functions—planning, organizing, leading, and controlling.

Researching the Venture's Feasibility- Financing

- Venture capitalists: external equity financing provided by professionally managed pools of investor money - Angel investors: a private investor (or group of private investors) who offers financial backing to an entrepreneurial venture in return for equity in the venture - Initial public offering (IPO): the first public registration and sale of a company's stock o cause funds likely will be needed to start the venture, an entrepreneur must research the various financing options.

Why is Entrepreneurial Process

1. Explore the entrepreneurial context 2. Identify opportunities and possible competitive advantages 3. Start the venture 4. Manage the venture a. Entrepreneurs must address four key steps as they start and manage their entrepreneurial ventures. The first is exploring the entrepreneurial context. The context includes the realities of today's economic, political/legal, social, and work environment. It's important to look at each of these aspects of the entrepreneurial context because they determine the "rules" of the game and which decisions and actions are likely to meet with success. The next step in the entrepreneurial process is starting the venture. Included in this phase are researching the feasibility of the venture, planning the venture, organizing the venture, and launching the venture. b. Finally, once the entrepreneurial venture is up and running, the last step in the entrepreneurial process is managing the venture, which an entrepreneur does by managing processes, managing people, and managing growth.

Cross- Functional Team

: a work team composed of individuals from various functional specialties o Another popular trend is the use of teams, especially as work tasks have become more complex and diverse skills are needed to accomplish those tasks. One specific type of team that more organizations are using is a cross-functional team, a work team composed of individuals from various functional specialties.

feasibility study

A. Introduction, historical background, description of product or service B. Accounting considerations 1. Brief description of proposed entrepreneurial venture 1. Pro forma balance sheet 2. Brief history of the industry 2. Pro forma balance sheet 3. Information about the economy and important trends 3. Projected cash flow analysis 4. Current status of the product or service blank 5. How you intend to produce the product or service blank 6. Complete list of goods or services to be provided blank 7. Strengths and weaknesses of the business blank 8. Ease of entry into the industry, including competitor analysis blank

Purposes of Organizing

Divides work to be done into specific jobs and departments. Assigns tasks and responsibilities associated with individual jobs. Coordinates diverse organizational tasks. Clusters jobs into units. Establishes relationships among individuals, groups, and departments. Establishes formal lines of authority. Allocates and deploys organizational resources.

Developing Strategic Flexibility- Technique's

Encourage leadership unity by making sure everyone is on the same page. Keep resources fluid and move them as circumstances warrant. Have the right mindset to explore and understand issues and challenges. Know what's happening with strategies currently being used by monitoring and measuring results. Encourage employees to be open about disclosing and sharing negative information. Get new ideas and perspectives from outside the organization. Have multiple alternatives when making strategic decisions. Learn from mistakes.

Centralization or Decentralization

More Centralization More Decentralization Environment is stable. Environment is complex, uncertain. Lower-level managers are not as capable or experienced at making decisions as upper-level managers. Lower-level managers are capable and experienced at making decisions. Lower-level managers do not want a say in decisions. Lower-level managers want a voice in decisions. Decisions are relatively minor. Decisions are significant. Organization is facing a crisis or the risk of company failure. Corporate culture is open to allowing managers a say in what happens. Company is large. Company is geographically dispersed. Effective implementation of company strategies depends on managers retaining say over what happens. Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions.

Sole Proprietorship

One owner Income and losses "pass through" to owner and are taxed at personal rate Unlimited personal liability Low start-up costs, freedom from most regulations, owner has direct control, all profits go to owner, easy to exit business Unlimited personal liability, personal finances at risk, miss out on many business tax deductions, total responsibility, may be more difficult to raise financing

Evaluating Potential Ideas

Personal Connection - Do you have the capabilities to do what you've selected? - Are you ready to be an entrepreneur? - Are you prepared emotionally to deal with the stresses and challenges of being an entrepreneur? - Are you prepared to deal with rejection and failure? - Are you ready to work hard? - Do you have a realistic picture of the venture's potential? - Have you educated yourself about financing issues? - Are you willing and prepared to do continual financial and other types of analyses? Marketplace consideration - Who are the potential customers for your idea: who, where, how many? - What similar or unique product features does your proposed idea have compared to what's currently on the market? - How and where will potential customers purchase your product? - Have you considered pricing issues and whether the price you'll be able to charge will allow your venture to survive and prosper? - Have you considered how you will need to promote and advertise your proposed entrepreneurial venture?

Limited Liability Partnership (LLP)

Two or more owners One person has unlimited others haave led Income and losses "pass through" to partners and are taxed at personal rate; flexibility in profit-loss allocations to partners Limited, although one partner must retain unlimited liability Good way to acquire capital from limited partners Cost and complexity of forming can be high, limited partners can't manage w/o losing liability protection

General Partnership

Two or more owners Income and losses "pass through" to partners and are taxed at personal rate; flexibility in profit-loss allocations to partners Unlimited personal liability Ease of formation, pooled talent, pooled resources, somewhat easier access to financing, some tax benefits, Unlimited personal liability, divided authority and decisions, potential for conflict, continuity of transfer of ownership

Stability Strategy

a corporate strategy in which an organization continues to do what it is currently doing

Small Business

an organization 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 o On the other hand, 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. A small business isn't necessarily entrepreneurial because it's small. To be entrepreneurial means that the business must be innovative, seeking out new opportunities. Even though entrepreneurial ventures may start small, they pursue growth. Some new small firms may grow, but many remain small businesses, by choice or by default.

Competitive Startgies

an organizational strategy for how an organization will compete in its business(es)

What is Corporate Strategy?

an organizational strategy that determines what business a company is in or wants to be in, and what it wants to do with those businesses o A corporate strategy is one that determines what businesses a company is in or wants to be in and what it wants to do with those businesses. It's based on the mission and goals of the organization and the roles that each business unit of the organization will play.

Business Model

how a company is going to make money o One term often used in strategic management is business model, which simply is 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

Self-Employment

individuals who work for profit or fees in their own business, profession, trade, or farm o Let's consider three points of comparison. o First, entrepreneurs and self-employed individuals understand market needs. o Second, entrepreneurs may be self-employed or they become employees of the company they have started. o Third, tax requirements and certain laws require that both entrepreneurs and self-employed individuals create a legally recognized organization.

Strategy and Structure

- An organization's structure should facilitate goal achievement. Because goals are an important part of the organization's strategies, it's only logical that strategy and structure are closely linked. o Research has shown that certain structural designs work best with different organizational strategies. For instance, the flexibility and free-flowing information of the organic structure works well when an organization is pursuing meaningful and unique innovations. The mechanistic organization with its efficiency, stability, and tight controls works best for companies wanting to tightly control costs.

Managing Downturns

- Boiled frog phenomenon: a perspective on recognizing performance declines that suggests watching out for subtly declining situations o An entrepreneur should be alert to the warning signs of a business in trouble. Some signals of potential performance decline o 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. o The "boiled frog" is a classic psychological response experiment. In one case, a live frog that's dropped into a boiling pan of water reacts instantaneously and jumps out of the pan. But in the second case, a live frog that's dropped into a pan of mild water that is gradually heated to the boiling point fails to react and dies. A small firm may be particularly vulnerable to the boiled frog phenomenon because the entrepreneur may not recognize the "water heating up"—that is, the subtle decline of the situation. 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.

The Role of Competitive Advantage

- Competitive advantage: What sets an organization apart; its distinctive edge o Developing an effective competitive strategy requires an understanding of competitive advantage, which is what sets an organization apart—that is, its distinctive edge. That distinctive edge can come from the organization's core competencies by doing something that others cannot do or doing it better than others can do it.

The Contingent Workforce

- Contingent workers: temporary, freelance, or contract workers whose employment is contingent on demand for their services o According to the U.S. Bureau of Labor Statistics, contingent workers are persons who do not expect their jobs to last or who reported that their jobs are temporary. Also, they do not have an implicit or explicit contract for ongoing employment. Alternative employment arrangements include persons employed as independent contractors, on-call workers, temporary help agency workers, and workers provided by contract firms. o 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. The decision on who is and who isn't an independent contractor isn't as easy or as unimportant as it may seem. 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. So it's an important decision.

Choosing a Competitive Strategy

- Cost leadership strategy - Differentiation strategy - Focus strategy - Stuck in the middle o When an organization competes on the basis of having the lowest costs (costs or expenses, not prices) in its industry, it's following a cost leadership strategy. A low-cost leader is highly efficient. Overhead is kept to a minimum, and the firm does everything it can to cut costs.

Important Organizational Strategies for Today's Environment

- E-Business strategies - Customer service strategies - Innovation strategies

Motivating Employees through empowerment

- Employee empowerment—giving employees the power to make decisions and take actions on their own to solve problems—is an important motivational approach. o Why? Because successful entrepreneurial ventures must be quick and nimble, ready to pursue opportunities and go off in new directions. 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. o If an entrepreneur implements employee empowerment properly—that is, with complete and total commitment to the program and with appropriate employee training— results can be impressive for the entrepreneurial venture and for the empowered employees. The business can enjoy significant productivity gains, quality improvements, more satisfied customers, increased employee motivation, and improved morale. Employees can enjoy the opportunities to do a greater variety of work that is more interesting and challenging.

Human Resource Management

- Employee recruitment - Employee retention o As employees are brought on board, the entrepreneur faces certain human resource management (HRM) issues. Two HRM issues of particular importance to entrepreneurs are employee recruitment and employee retention. o 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. In fact, the ability of small firms to successfully recruit appropriate employees is consistently rated as one of the most important factors influencing organizational success. o 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.

feasibility study

- Feasibility study: an analysis of the various aspects of a proposed entrepreneurial venture designed to determine its feasibility o 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. Not only is a well-prepared feasibility study an effective evaluation tool to determine whether an entrepreneurial idea is a potentially successful one, it also can serve as a basis for the all-important business plan.

What are the types god corporate strategies?

- Growth strategy: a corporate strategy that's used when an organization wants to expand the number of markets served or products offered, either through its current business(es) or through new business(es) o Concentration- All you have to do is continue what you are doing and get better at it o Vertical integration- 2 types; one is backwards and other is forward Backward- I'm Nike, and Instead of letting some country in Asia, I will become my own supplier. I become my own supplier Forward- instead of selling my shoes through Footlocker, Dick's, etc. I become my own distributor. I become my own distributor and retailers (opening more stores). Companies can do both o Horizontal integration- I want to grow, and instead of vertical, I go to my competition and I buy them out. I go and buy out my competition and merge us. o Diversification- I am going into a different industry now. I am in banking, but now I am about to go into transportation. I will do something different than my core business. I am going into a different industry. Sometimes that are related to what you were doing and sometimes it is not related to what you were doing. Organizations grow by using concentration, vertical integration, horizontal integration, or diversification. An organization that grows using concentration focuses on its primary line of business and increases the number of products offered or markets served in this primary business. A company also might choose to grow by vertical integration, either backward, forward, or both. In backward vertical integration, the organization becomes its own supplier so it can control its inputs. In horizontal integration, a company grows by combining with competitors. Finally, an organization can grow through diversification, either related or unrelated. Related diversification happens when a company combines with other companies in different, but related, industries. Unrelated diversification is when a company combines with firms in different and unrelated industries.

Exiting the Venture

- Harvesting: exiting a venture when an entrepreneur hopes to capitalize financially on the investment in the venture o Getting out of an entrepreneurial venture may seem to be a strange thing for entrepreneurs to do. However, the entrepreneur may decide at some point that it's time to move on. That decision may be based on the fact that the entrepreneur hopes to capitalize financially on the investment in the venture—called harvesting—or that the entrepreneur is facing serious organizational performance problems and wants to get out, or even on the entrepreneur's desire to focus on other pursuits (personal or business). 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.

Why are Strategic Management Important?

- Has a positive impact on performance - Helps managers decide how to act in face of change and uncertainty - Helps complex and diverse organizations work together o Why is strategic management so important? There are three reasons. The most significant one is that it can make a difference in how well an organization performs. In other words, it appears that organizations that use strategic management do have higher levels of performance. And that fact makes it pretty important for managers. o Another reason it's important has to do with the fact that managers in organizations of all types and sizes face continually changing situations. They cope with this uncertainty by using the strategic management process to examine relevant factors and decide what actions to take. o Finally, strategic management is important because organizations are complex and diverse. Each part needs to work together toward achieving the organization's goals; strategic management helps do this.

Step 6: Evaluating Results

- How effective have strategies been at helping the organization achieve its goals - What adjustments are necessary? o The final step in the strategic management process is evaluating results. How effective have the strategies been at helping the organization reach its goals? What adjustments are necessary?

Initiating Change

- 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. o We know that the context facing entrepreneurs is one of dynamic change. Both external and internal forces may bring about the need for making changes in the entrepreneurial venture. Entrepreneurs need to be alert to problems and opportunities that may create the need to change. In fact, of the many hats an entrepreneur wears, that of change agent may be one of the most important. o During any type of organizational change, an entrepreneur may also have to act as chief coach and cheerleader. Because organizational change of any type can be disruptive and scary, the entrepreneur must explain the change to employees and encourage change efforts by supporting employees, getting them excited about the change, building them up, and motivating them to put forth their best efforts.

Environmental Uncertainty and Structure

- In stable and simple environments, mechanistic designs can be more effective. - The greater the uncertainty, the more an organization needs the flexibility of an organic design. o Some organizations face stable and simple environments with little uncertainty; others face dynamic and complex environments with a lot of uncertainty. Managers try to minimize environmental uncertainty by adjusting the organization's structure. The evidence on the environment-structure relationship helps explain why so many managers today are restructuring their organizations to be lean, fast, and flexible. Worldwide economic downturns, global competition, accelerated product innovation by competitors, and increased demands from customers for high quality and faster deliveries are examples of dynamic environmental forces. Mechanistic organizations are not equipped to respond to rapid environmental change and environmental uncertainty. As a result, we're seeing organizations become more organic.

The importance of continuing innovation

- Innovation is a key characteristic of entrepreneurial ventures and, in fact, it's what makes the entrepreneurial venture "entrepreneurial." o What must an entrepreneur do to encourage innovation in the venture? Having an innovation-supportive culture is crucial. What does such a culture look like? o It's one in which employees perceive that supervisory support and organizational reward systems are consistent with a commitment to innovation. o It's also important in this type of culture that employees not perceive their workload pressures to be excessive or unreasonable. And research has shown that firms with cultures supportive of innovation tend to be smaller, have fewer formalized human resource practices, and have less abundant resources

The entrepreneur as a leader

- Leading the venture - Leading employee work teams o Today's successful entrepreneur must be like the leader of a jazz ensemble known for its improvisation, innovation, and creativity. Max DePree, former head of Herman Miller, Inc., a leading office furniture manufacturer known for its innovative leadership approaches, said it best in his book, Leadership Jazz, "Jazz band leaders must choose the music, find the right musicians, and perform—in public. But the effect of the performance depends on so many things—the environment, the volunteers playing the band, the need for everybody to perform as individuals and as a group, the absolute dependence of the leader on the members of the band, the need for the followers to play well....The leader of the jazz band has the beautiful opportunity to draw the best out of the other musicians. We have much to learn from jazz band leaders, for jazz, like leadership, combines the unpredictability of the future with the gifts of individuals." o Employee work teams tend to be popular in entrepreneurial ventures. An Industry Week Census of Manufacturers showed that nearly 68 percent of survey respondents used teams to varying degrees. For team efforts to work, however, entrepreneurs must shift from the traditional command-and-control style to a coach-and-collaboration style.

Step 1: Identifying the Organization's Current Mission, Gals, and Strategies

- Mission: the purpose of an organization o Defining the mission forces managers to identify what it's in business to do. But sometimes that mission statement can be too limiting.

Step 5: Implementing Strategies

- No matter how effectively an organization has planned its strategies, performance, will suffer if the strategies aren't implemented properly. o Once strategies are formulated, they must be implemented. No matter how effectively an organization has planned its strategies, performance will suffer if the strategies aren't implemented properly.

What do Entrepreneurs Do?

- No two entrepreneurs are exactly the same. Generally, they: o Create something new and different o Search for, respond to, and exploit change o Research feasibility o Launch and manage new ventures Describing what entrepreneurs do isn't an easy or simple task! No two entrepreneurs' work activities are exactly alike. In a general sense, entrepreneurs create something new, something different. They search for change, respond to it, and exploit it. After looking at the potential of the proposed venture and assessing the likelihood of pursuing it successfully, the entrepreneur proceeds to plan the venture. Only after these start-up activities have been completed is the entrepreneur ready to actually launch the venture. Once the entrepreneurial venture is up and running, the entrepreneur's attention switches to managing it.

Step 2: Doing an External Analysis

- Opportunities: positive trends in the external environment - Threats: negative trends in the external environment o Analyzing that environment is a critical step in the strategic management process. Managers do an external analysis so they know, for instance, what the competition is doing, what pending legislation might affect the organization, or what the labor supply is like in locations where it operates. In an external analysis, managers should examine the economic, demographic, political/legal, sociocultural, technological, and global components to see the trends and changes. o Once they've analyzed the environment, managers need to pinpoint opportunities that the organization can exploit and threats that it must counteract or buffer against. Opportunities are positive trends in the external environment; threats are negative trends.

Organizational Design and Structure

- Organizational design decisions in entrepreneurial decisions revolve around six key elements: o work specialization One person does this and another does that o Departmentalization Split by department o chain of command o span of control who reports to whom theory called unity if demand and it says only one person needs to report to one person o amount of centralization/decentralization o amount of formalization The choice of an appropriate organizational structure is also an important decision when organizing an entrepreneurial venture. At some point, successful entrepreneurs find that they can't do everything alone. More people are needed. The entrepreneur must then decide on the most appropriate structural arrangement for effectively and efficiently carrying out the organization's activities. Without some suitable type of organizational structure, the entrepreneurial venture may soon find itself in a chaotic situation.

Elements of Organizational Design

- Organizing: management function that involves arranging and structuring work to accomplish the organization's goals - Organizational structure: the formal arrangement of jobs within an organization - Organizational chart: the visual representation of an organization's structure - Organizational design: creating or changing an organization's structure o Organizing is arranging and structuring work to accomplish organizational goals. It's an important process during which managers design an organization's structure. o Organizational structure is the formal arrangement of jobs within an organization.

Managing Growth

- Planning for growth - Organizing for growth - Controlling for growth o Although it may seem we've reverted back to discussing planning issues instead of controlling issues, actually controlling is closely tied to planning, as we will discuss in Chapter 18 (see Exhibit 18-1). And the best growth strategy is a well-planned one. Ideally, the decision to grow doesn't come about spontaneously, but instead is part of the venture's overall business goals and plan. Rapid growth without planning can be disastrous. Entrepreneurs need to address growth strategies as part of their business planning but shouldn't be overly rigid in that planning. The plans should be flexible enough to exploit unexpected opportunities that arise. With plans in place, the successful entrepreneur must then organize for growth.

Sustaining Competitive Advantage

- Porter's five forces model: o Threat of new entrants o Threat of substitutes o Bargaining power of buyers o Bargaining power of suppliers o Current rivalry Many important ideas in strategic management have come from the work of Michael Porter. One of his major contributions was explaining how managers can create a sustainable competitive advantage. An important part of doing this is an industry analysis, which is done using the five forces model.

Researching the Venture's Feasibility- Competitors

- Potential questions include: o What types of products or services are competitors offering? o What are their products' strengths and weaknesses? o How do they handle marketing, pricing, and distribution? o How do they attempt to do differently from other competitors? Part of researching the venture's feasibility is looking at the competitors. What would entrepreneurs like to know about their potential competitors? In addition to those listed above, other possible questions include: Do they appear to be successful at it? Why or why not? What are they good at? What competitive advantage(s) do they appear to have? What are they not so good at? What competitive disadvantage(s) do they appear to have? How large and pro table are these competitors? Once an entrepreneur has this information, he or she should assess how the proposed entrepreneurial venture is going to "fit" into this competitive arena.

Step 3: Doing an Internal Analysis

- Resources: an organization's assets that are used to develop, manufacture, and deliver products to its customers. - Capabilities: an organization's skills and abilities in doing the work activities needed in its business - Core competencies: the organization's major value- creating capabilities that determine its competitive weapons o Now we move to the internal analysis, which provides important information about an organization's specific resources and capabilities. An organization's resources are its assets—financial, physical, human, and intangible—that it uses to develop, manufacture, and deliver products to its customers. They're "what" the organization has. On the other hand, its capabilities are its skills and abilities in doing the work activities needed in its business—"how" it does its work. The major value-creating capabilities of the organization are known as its core competencies. Both resources and core competencies determine the organization's competitive weapons.

Traditional Organizational Design Options

- Simple structure: an organizational design with little departmentalization, wide spans of control, centralized authority, and little formalization - Functional structure: an organizational design that groups together similar or related occupational specialties - Divisional structure: an organizational structure made up of separate, semiautonomous units or divisions o Most companies start as entrepreneurial ventures using a simple structure, an organizational design with low departmentalization, wide spans of control, authority centralized in a single person, and little formalization. As employees are added, however, most don't remain as simple structures. The structure tends to become more specialized and formalized. o A functional structure is an organizational design that groups similar or related occupational specialties together. You can think of this structure as functional departmentalization applied to the entire organization. o The divisional structure is an organizational structure made up of separate business units or divisions. In this structure, each division has limited autonomy, with a division manager who has authority over his or her unit and is responsible for as an external overseer to coordinate and control the various divisions, and often provides support services such as financial and legal.

Identifying Environmental Opportunities and Competitive Advantage

- Sources of opportunity: - The unexpected - The incongruous - The process need - Industry and market structures - Demographics - Changes in perception - New knowledge o The late Peter Drucker, a well-known management author, identified seven potential sources of opportunity that entrepreneurs might look for in the external context. o These include the unexpected, the incongruous, the process need, industry and market structures, demographics, changes in perception, and new knowledge. o Competitive advantage is a necessary ingredient for an entrepreneurial venture's long-term success and survival. Getting and keeping a competitive advantage is tough. However, it is something that entrepreneurs must consider as they begin researching the venture's feasibility.

The Need for Strategic Flexibility

- Strategic Flexibility: the ability to recognize major external changes, to quickly commit resources, and to recognize when a strategic decision was a mistake o Strategic flexibility is the ability to recognize major external changes, to quickly commit resources, and to recognize when a strategic decision isn't working. Given the highly uncertain environment that managers face today, strategic flexibility seems absolutely necessary!

The Need for Strategic Leadership

- Strategic leadership: 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 o By definition, top managers are ultimately responsible for every decision and action of every organizational employee. One important role that top managers play is that of strategic leader. Organizational researchers study leadership in relation to strategic management because an organization's top managers must provide effective strategic leadership.

SWOT analysis

- Strengths: any activities the organization does well or its unique resources - Weakness: activities the organization does not do well or resources it needs but does not possess - SWOT analysis: an analysis of the organization's strengths, weaknesses, opportunities, and threats o After completing an internal analysis, managers should be able to identify organizational strengths and weaknesses. Any activities the organization does well or any unique resources that it has are called strengths. Weaknesses are activities the organization doesn't do well or resources it needs but doesn't possess. o The combined external and internal analyses are called the SWOT analysis, an analysis of the organization's strengths, weaknesses, opportunities, and threats. After completing the SWOT analysis, managers are ready to formulate appropriate strategies—that is, strategies that (1) exploit an organization's strengths and external opportunities, (2) buffer or protect the organization from external threats, or (3) correct critical weaknesses.

Size and Structure

- There's considerable evidence that an organization's size affects its structure, but once an organization grows past a certain size, size has less influence on structure. o Large organizations—typically considered to be those with more than 2,000 employees—tend to have more specialization, departmentalization, centralization, and rules and regulations than do small organizations. However, once an organization grows past a certain size, size has less influence on structure. Why? Essentially, once there are around 2,000 employees, it's already fairly mechanistic. Adding another 500 employees won't impact the structure much. On the other hand, adding 500 employees to an organization with only 300 employees is likely to make it more mechanistic.

Step 4: Formulaating Strategies

- Three main types of strategies managers will formulate: o Corporate Growth- for companies wanting to grow Stability- for companies that do not want to grow Renewal- Organizations that are declining in performance o Competitive o Functional As managers formulate strategies, they should consider the realities of the external environment and their available resources and capabilities in order to design strategies that will help an organization achieve its goals. The three main types of strategies managers will formulate include corporate, competitive, and functional. We'll describe each shortly.

Technology and Structure

- Unit production: the production of items in units or small batches - Mass production: the production of items in large batches - Process production: the production of items in continuous processes o Every organization uses some form of technology to convert its inputs into outputs. The initial research on technology's effect on structure can be traced to Joan Woodward, who studied small manufacturing firms in southern England to determine the extent to which structural design elements were related to organizational success. She couldn't find any consistent pattern until she divided the firms into three distinct technologies that had increasing levels of complexity and sophistication. The first category, unit production, described the production of items in units or small batches. The second category, mass production, described large batch manufacturing. Finally, the third and most technically complex group, process production, included continuous-process production. A summary of her findings is shown in Exhibit 10-9.

Researching the Venture's Feasibility- Ideas

- When exploring idea sources entrepreneurs should look for: o Limitations of what is currently available o New and different approaches o Advances and breakthroughs o Unfilled niches o Trends and changes It's important for entrepreneurs to research the venture's feasibility by generating and evaluating business ideas. Entrepreneurial ventures thrive on ideas. Generating ideas is an innovative, creative process. Where do ideas come from? Studies of entrepreneurs have shown that the sources of their ideas are unique and varied. One survey found that "working in the same industry" was the major source of ideas for an entrepreneurial venture (60 percent of respondents). Other sources included personal interests or hobbies, looking at familiar and unfamiliar products and services, and opportunities in external environmental sectors (technological, sociocultural, demographics, economic, or legal-political). What should entrepreneurs look for as they explore these idea sources? They should look for limitations of what's currently available, new and different approaches, advances and breakthroughs, unfilled niches, or trends and changes.

Span of Control

- the number of employees a manager can efficiently and effectively manage o two pizza theory says that you should not have more managers than two pizzas worth o The traditional view was that managers could not—and should not—directly supervise more than five or six subordinates. Determining the span of control is important because, to a large degree, it determines the number of levels and managers in an organization—an important consideration in how efficient an organization will be. o The contemporary view of span of control recognizes there is no magic number. Many factors influence the number of employees a manager can efficiently and effectively manage. The trend in recent years has been toward larger spans of control, which is consistent with managers' efforts to speed up decision making, increase flexibility, get closer to customers, empower employees, and reduce costs. Managers are beginning to recognize that they can handle a wider span when employees know their jobs well and when those employees understand organizational processes.

First Mover

: an organization that's first. To bring a product innovation to the market or to use a new process innovation Managers use e-business strategies to develop a sustainable competitive advantage. Cost leaders can use e-business to lower costs in a variety of ways. For instance, it might use online bidding and order processing to eliminate the need for sales calls and to decrease sales force expenses; it could use Web-based inventory control systems that reduce storage costs; or it might use online testing and evaluation of job applicants. A differentiator needs to offer products or services that customers perceive and value as unique. For instance, a business might use Internet-based knowledge systems to shorten customer response times, provide rapid online responses to service requests, or automate purchasing and payment systems so that customers have detailed status reports and purchasing histories. Finally, because the focuser targets a narrow market segment with customized products, it might provide chat rooms or discussion boards for customers to interact with others who have common interests, design niche Web sites that target-specific groups with specific interests, or use Web sites to perform standardized office functions such as payroll or budgeting. Having an effective customer communication system is an important customer service strategy. Managers should know what's going on with customers. They need to find out what customers liked and didn't like about their purchase encounter—from their interactions with employees to their experience with the actual product or service. It's also important to let customers know if something is going on with the company that might affect future purchase decisions. Finally, an organization's culture is important to providing excellent customer service. This typically requires that employees be trained to provide exceptional customer service. Innovation strategies aren't necessarily focused on just the radical, breakthrough products. They can include applying existing technology to new uses. And organizations have successfully used both approaches. What types of innovation strategies do organizations need in today's environment? Those strategies should reflect their innovation philosophy, which is shaped by two strategic decisions: innovation emphasis and innovation timing.

Benefits and Drawbacks of Open Innovation

Benefits Drawbacks Gives customers what they want—a voice High demands of managing the process Allows organizations to respond to complex problems Extensive support needed Nurtures internal and external relationships Cultural challenges Brings focus back to marketplace Greater need for flexibility Provides way to cope with rising costs and uncertainties of product development Crucial changes required in how knowledge is controlled and shared

Retrenchment Strategy

Is a short run renewal strategies used for minor performance problems

Mechanistic vs Organic Organization

Mechanistic Organic High specialization Cross-functional teams Rigid departmentalization Cross-hierarchical teams Clear chain of command Free flow of information Narrow spans of control Wide spans of control Centralization Decentralization High formalization Low formalization

C Corporation

Unlimited number of shareholders, no limits on types of stock or voting arrangement Dividend income taxed at corporate and personal shareholder levels, losses and deductions are corporate Limited Limited liability, transferable ownership, continuous existence, easier access to resources Expensive to set up, closely regulated, double taxation, extensive record keeping, charter restrictions

Unity of Command

The unity of command theory says that you only report to one manager; more of a traditional type of structure The opposite is when you report to two or more people. This is a matrix environment violates the unity of command theory (you report to one person)

Limited Liability Company (LLC) most common

Unlimited number of "members", flexible membership arrangements for voting rights and income Income and losses "pass through" to partners and are taxed at personal rate; flexibility in profit-loss allocations to partners Limited Greater flexibility, not constrained by regulations on C and S corporations, taxed as partnership not corporation Cost of switching from one form to this can be high, need legal and financial advice in forming operation agreement

Renewal Strategy

a corporate strategy designed to address declining performance o Examples of a stability strategy include continuing to serve the same clients by offering the same product or service, maintaining market share, and sustaining the organization's current business operations. The organization doesn't grow, but doesn't fall behind, either. o Two types: Turn around- when you have major, major issues. Major problems. This issue did not pop up overnight. I may have to file a chapter 13 and sell off some companies. If we do not turn this around, we will go out of business. Retrenchment- used when you have minor/small issues with the organizations; just need to make a couple of moves. Minor

limited liability (LLP)

a form of legal organization consisting of general partner(s) and limited liability partner(s)

Sole Proprietorship

a form of legal organization in which the owner maintains sole and complete control over the business and is personally liable for business debts

General Partenership

a form of legal organization in which two or more business owners share the management and risk of the business. Even though a partnership is possible without a written agreement, the potential and inevitable problems that arise in any partnership make a written partnership agreement drafted by legal counsel, a highly recommended thing to do.

Limited Liability Company (LLC)

a form of legal organization that's a hybrid between a partnership and a corporation

Corporation

a legal business entity that is separate from its owners and managers - Closely held corporation: a corporation owned by a limited number of people who do not trade the stock publicly o The limited liability partnership (LLP) is a legal organization formed by general partner(s) and limited partner(s). The general partners actually operate and manage the business. They are the ones who have unlimited liability. At least one general partner is necessary in an LLP, but any number of limited partners are allowed. o Of the three basic types of ownership, the corporation (also known as a C corporation) is the most complex to form and operate. A corporation is a legal business entity that is separate from its owners and managers. Many entrepreneurial ventures are organized as a closely held corporation which, very simply, is a corporation owned by a limited number of people who do not trade the stock publicly.

Proactive Personality

a personality trait that describes individuals who are more prone to take actions to influence their environments o We introduce the proactive personality trait in Chapter 15. It's a personality trait of individuals who are more prone to take actions to influence their environment—that is, they're more proactive. Obviously, an entrepreneur is likely to exhibit proactivity as he or she searches for opportunities and acts to take advantage of those opportunities. Various items on the proactive personality scale were found to be good indicators of a person's likelihood of becoming an entrepreneur, including gender, education, having an entrepreneurial parent, and possessing a proactive personality.

Boiled Frog Phenomenon

a perspective on recognizing performance declines that suggests watching out for subtly declining situations

Angel Investors

a private investor (or group of private investors) who offers financial backing to an entrepreneurial venture in return for equity in the venture

Flextime (or flexible work hours)

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 o Organizations may sometimes and they need to restructure work using forms of flexible work arrangements. One approach is a compressed workweek, a workweek where employees work longer hours per day but fewer days per week. The most common arrangement is four 10-hour days (a 4-40 program). o Another alternative is flextime (also known as flexible work hours), 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. A flex-time schedule typically designates certain common core hours when all employees are required to be on the job, but allows starting, ending, and lunch-hour times to be flexible.

Task Force (or ad hoc committee)

a temporary committee or team formed to tackle a specific short-term problem affecting several departments

Telecommuting

a work arrangement in which employees work at home and are linked to the workplace by computer o Information technology has made telecommuting possible, and external environmental changes have made it necessary for many organizations. o Working from home used to be considered a "cushy perk" for a few lucky employees, and such an arrangement wasn't allowed very often. Now, many businesses view telecommuting as a business necessity. o Despite its apparent appeal, many managers are reluctant to have their employees become "laptop hobos." Employees often express the same concerns about working remotely, especially when it comes to the isolation of not being "at work."

Compressed Workweek

a workweek where employees work longer hours per day but fewer days per week

Business Plan

a written document that summarizes a business opportunity and defines and articulates how the identified opportunity is to be seized and exploited o Planning is also important to entrepreneurial ventures. Once the venture's feasibility has been thoroughly researched, the entrepreneur then must look at planning the venture. The most important thing that an entrepreneur does in planning the venture is developing a business plan.

Virtual Organization

an organization that consists of a small core of full-time employees and outside specialists temporarily hired as needed to work on projects o Although the idea of eliminating boundaries may seem odd, many of today's most successful organizations find that they can operate most effectively by remaining flexible and unstructured: that the ideal structure for them is not having a rigid, bounded, and predefined structure. o The type of work virtual interns do typically involves "researching, sales, marketing, and social media development"—tasks that can be done anywhere with a computer and online access. Some organizations are structured in a way that allows most employees to be virtual employees.

Functional Structure

an organizational design that groups together similar or related occupational specialties

Organic Organization

an organizational design that's highly adaptive and flexible o The organic organization is a highly adaptive form that is as loose and flexible as the mechanistic organization is rigid and stable. Rather than having standardized jobs and regulations, the organic organization's loose structure allows it to change rapidly as required. It has division of labor, but the jobs people do are not standardized. Employees tend to be professionals who are technically proficient and trained to handle diverse problems. They need few formal rules and little direct supervision because their training has instilled in them standards of professional conduct.

mechanistic organization

an organizational design that's rigid and tightly controlled o The mechanistic organization (or bureaucracy) was the natural result of combining the six elements of structure. Adhering to the chain-of-command principle ensured the existence of a formal hierarchy of authority, with each person controlled and supervised by one superior. Keeping the span of control small at increasingly higher levels in the organization created tall, impersonal structures. As the distance between the top and the bottom of the organization expanded, top management would increasingly impose rules and regulations. Because top managers couldn't control lower-level activities through direct observation and ensure the use of standard practices, they substituted rules and regulations.

Simple Structure

an organizational design with little departmentalization, wide spans of control, centralized authority, and little formalization

Project Structure

an organizational structure in which employees continuously work on projects o Other popular contemporary designs are the matrix and project structures. The matrix structure assigns specialists from different functional departments to work on projects led by a project manager (see Exhibit 11-9). One unique aspect of this design is that it creates a dual chain of command because employees in a matrix organization have two managers, their functional area manager and their product or project manager, who share authority.

Team Structures

an organizational structure in which the entire organization is made up of work teams o In this structure, employee empowerment is crucial because no line of managerial authority flows from top to bottom. Rather, employee teams design and do work in the way they think is best, but the teams are also held responsible for all work performance results in their respective areas.

Divisional Structure

an organizational structure made up of separate, semiautonomous units or divisions

Matrix Structure

an organizational structure that assigns specialists from different functional departments to work on one or more projects

Formulization

how standardized an organization's jobs are and the extent to which employee behavior is guided by rules and procedures o In highly formalized organizations, there are explicit job descriptions, numerous organizational rules, and clearly defined procedures covering work processes. Employees have little discretion over what's done, when it's done, and how it's done. However, where there is less formalization, employees have more discretion in how they do their work. o Although some formalization is necessary for consistency and control, many organizations today rely less on strict rules and standardization to guide and regulate employee behavior.

Open Innovation

opening up the search for new ideas beyond the organization's boundaries and allowing innovations to easily transfer inward and outward o Another structural option organizations might use is a task force (also called an ad hoc committee), a temporary committee or team formed to tackle a specific short-term problem affecting several departments. The temporary nature of a task force is what differentiates it from a cross-functional team. o The days may be numbered when businesses generate their own product development ideas and develop, manufacture, market, and deliver those products to customers. 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.

Boundaryless Organizational

or external boundaries imposed by a predefined structure an organization whose design is not defined by, or limited to, the horizontal, vertical

Contingent Workers

temporary, freelance, or contract workers whose employment is contingent on demand for their services

Authority

the line of authority extending from upper organizational levels to the lowest levels, which clarifies who reports to whom

unity of command

the management principle that each person should report to only one manager o The unity of command theory says that you only report to one manager; more of a traditional type of structure o The opposite is when you report to two or more people. This is a matrix environment violates the unity of command theory (you report to one person)

Strategies

the plans for how the organization will do what 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 o What are an organization's strategies? They're 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.

Job Sharing

the practice of having two or more people split a full-time job o Organizations might offer job sharing to professionals who want to work but don't want the demands and hassles of a full-time position. For instance, at Ernst & Young and Google, employees in many of the company's locations can choose from a variety of flexible work arrangements, including job sharing. Also, many companies have used job sharing during the economic downturn to avoid employee layoffs.

Process Production

the production of items in continuous processes

Mass production

the production of items in large batches

Unit production

the production of items in units or small batches

Strategic Business Unit (SBU)

the single independent businesses of an organization that formulate their own competitive strategies o For a small organization in only one line of business or a large organization that has not diversified into different products or markets, its competitive strategy describes how it will compete in its primary or main market. For organizations in multiple businesses, however, each business will have its own competitive strategy that defines its competitive advantage, the products or services it will offer, the customers it wants to reach, and the like. o 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).

turnaround strategy

when an organization's problems are more serious, more drastic action is needed