MGCR 423

The Configurations - Mintzberg

- Assumption: That a limited number of configurations can help explain much of what is observed in organizations. -Entrepreneurial organization has a simple structure, coordinated through direct supervision. Little of the behavior is formalized and minimal use is made of planning, or training. It must be flexible because it operates in a dynamic environment. -The Machine environment - Requires a large technostructure to design and maintain its systems of standardization, those that formalize its behaviors and plans its actions. The technostructure thus gains a good deal of informal power, resulting in a limited amount of horizontal decentralization, reflecting the pull to rationalize. Structure is centralized vertically, as a hierarchy of middle-line managers emerges to control the specialized work of the operating core. -The Professional organization relies on standardization of skills rather than of work processes. The pull to professionalize dominates. The organization surrenders a good deal of its power not only to the professionals but also to the associations and institutions that select and train them in the first place --> highly decentralized horizontally. The professional organization is called for whenever an organization finds itself in an environment that is stable yet complex. Complexity requires decentralization to highly trained individuals, and stability enables them to apply standardized skills and so to work with a good deal of autonomy. -In the diversified organization entities are units in the middle line, called divisions, rather than individuals. It is not a complete structure but a partial one superimposed on the others. Each division has its own structure. An organization divisionalizes because its product lines are diversified. To supervise, HQ relies on performance control systems; the standardization of outputs. HQ uses a small technostructure to design these control systems. -The Innovative organization is an 'adhocracy'; a flexible, adaptable and informal organizational structure without bureaucratic policies or procedures. Dominated by the experts' pull to collaborate. Relies on mutual adjustment, power is distributed unevenly, all over the structure, according to expertise and need. These organizations are found in environments that are both complex and dynamic, because those are the ones that requires sophisticated innovation, the type that calls for the cooperative efforts of many different kinds of experts. -The missionary organization is dominated by its ideology. Its members are encouraged to pull together , so there tends to be a loose division of labor, and little job specialization. The standardization of norms holds the organization together. New members are indoctrinated (socialized) into the organization, and then given considerable freedom to make decisions. This is the most complete form of decentralization. Formalizes little of its behavior and makes minimal use of planning and control systems, thus it has little technostructure. - The political organization has no dominant part, or mechanism of coordination and no stable form of centralization or decentralization. Thus it has difficulty tempering the conflicts within its midst. What characterizes its behavior is the pulling apart of its different parts. Some political organizations are temporary, reflecting difficult transitions in strategy or structure that evoke conflict.

Corporate Governance & Social Responsibility - Wheelen & Hunger

- Corporate Governance refers to the relationship between shareholder, management and board of directors in determining the direction and performance of the corporation. -Kozlowski regularly took millions of dollars of unauthorized loans and gifts from Tyco. - "By operating without a second-in-command and by hand picking top managers who were 'smart, poor, and want-to-be-rich," [the CEO of Tyco] kept personal control of the corporation." (Rubber-stamp board, mushroom treatment) -The SEC revealed why the board of directors had been so silent during this period of top management excess: Of the 10 directors, 3 were Tyco executives who had serious conflicts of interest, and the outside directors had such deep ties to Tyco, that it raised questions about the board's ability to oversee management. -The passivity of Tyco's board made the widespread corruption possible. - The legal duty of the board is to represent the shareholders and protect their interests. -The board has both the authority and the responsibility to establish basic corporate policies and to ensure that they are followed. - Inside directors are typically officers or executives employed by the corporation. Concern is that they may use their position to feather their own nests. - Outside directors may be executive's of other firms but are not employees of the board's corporation. Concern is that they often lack sufficient knowledge, involvement and enthusiasm to do an adequate job of monitoring and providing guidance to top management. But they tend to be less biased and evaluate management performance objectively, therefore more than 80% of board members in large US corporations are outside directors. -However, not all outside directors are truly objective, they can be affiliated (handle the legal or insurance work, or are suppliers, and thus are dependent on management for a key part of their business). Retired directors (such as past CEO who is responsible for much of the firm's current strategy, and likely groomed the current CEO as their replacement, so they cannot objectively evaluate the firm's performance). Family Directors (have personal agendas based on family relationship with current CEO). - The gov't has intervened and now board members are charged by law to act with due care. As a result, boards are becoming more active and more professional. Directors can be held personally liable for harm done to the company. -The board of directors role in strategic management: 1.Monitor - stay aware of developments inside and outside the corporation, bringing to management's attention developments it might have overlooked. 2.Evaluate and influence - Examine management's proposals, decisions, and actions; give advice and offer suggestions. 3. Initiate and determine - A board can delineate a corporation's mission and specify strategic options to its management. -The NYSE requires that each company listed on the exchange have an audit committee composed entirely of independent, outside members. This is in accord with agency theory. - Agency Theory states that problems arise in corporations because the agents (top management), who are hired by the board of directors, who in turn are appointed by the directors, sometimes act selfishly to the expense of the principals (shareholders). This occurs when 1. the desires of the owners and the agents conflict, or when it is difficult or expensive for the owners to verify what the agent is actually doing. Ex: when management is more interested in raising its own salary (through acquisitions) than in increasing stock dividends. Or when 2. Owners and agents have different attitudes toward risk. These problems are more likely to occur when stock is widely held, when the board is composed of people who are personal friends of top management, or when a high percentage of board members are inside directors. To better align the interests of the agents with those of the owners, agency theory suggests that top management have a significant degree of ownership in the firm and/or have a strong financial stake in its long term performance. -Stewardship Theory: In contrast to agency theory, stewardship theory suggests that executives tend to be more motivated to act in the best interests of the corporation. Focuses on higher-order needs such as achievement and self-actualization. Over time executives see the corporation as an extension of themselves, and are more interested in seeing the continued life and success of the corporation than in using the firm for their own needs. Stakeholders can sell their stock at any time (short-term oriented) so they might prefer management to take extraordinary risk and get higher returns, whereas it is much harder for executives to leave their jobs when in difficulty, so they are more interested in merely satisfactory return and heavy emphasis on firm's continued survival. - Codetermination is the cooperation of management and its workers in making decisions, by including the corporation's workers on its board. - Interlocking Directorate is when executives or board members from other firms serve on another firm's board. Can be indirect or direct. This is a useful method for gaining both inside information about an uncertain environment and objective expertise about potential strategies and tactics. -A staggered board is one in which only a portion of the board stands for election each year. This provides continuity by reducing the chance of an abrupt turnover in its membership and reduces the likelihood of electing people who are interested in a hostile takeover. -Governance is a major strategic issue, boards are getting more involved in shaping firm's strategy, shareholders are demanding that directors and top managers own more than token amounts of stock in the corporation. Outside members are increasing their numbers and power in publicly held corporations. Boards are increasingly being expected to balance profitability with the social needs of society. -The CEO 1. articulates a strategic vision for the corporation. 2. Presents a role for others to identify with and to follow. 3. Communicates high performance standards and also shows confidence in the follower's abilities to meet these standards. -Bottom-up strategic planning may be most appropriate in multidivisional corporations operating in relatively stable environments. -Top-down strategic planning may be most appropriate for firms operating in turbulent environments.

Vertical Integration: Entering New Industries to Strengthen the Core Business Model - Hill and Gareth

-In pursing vertical integration a company is entering new industries to support the business model of its core industry. -The multibusiness model justifying vertical integration is based on a company entering industries that add value to its core products because this increases product differentiation and/or lowers its cost structure. -Backward vertical integration is when a company expands its operations backward into an industry that produces inputs for the company's products. -Forward vertical integration is when a company expands its operations forward into an industry that uses, distributes, or sells the company's products. -Often the firm has to invest in its own specialized assets, because its suppliers and the firm are worried about mutual dependance (this is also called the risk of holdup). This is how specialized assets lead to vertical integration. -Vertical integration can also make it quicker, easier, and more cost effective to plan, coordinate, and schedule the transfer of a product, such as raw materials or component parts, between adjacent stages of the value-added chain. Also enables a company to respond better to sudden changes in demand. Problems with vertical integration: 1. Higher cost structure can result from in-house suppliers knowing that they already have their customer and don't have to compete with independent suppliers for orders. Therefore, they have much less incentive to look for new ways to reduce operating costs or increase quality. -Bureaucratic costs refers to the costs of solving the transaction difficulties that arise from managerial inefficiencies and from the need to manage the handoffs or exchanges between business units. -A taper integration strategy can reduce these costs, because then in-house suppliers do have to compete with independent suppliers. 2. Technological change - when technology is changing fast, vertical integration may lock a company into an old, inefficient technology. 3. Vertical integration can be risky when demand is unpredictable because it is hard to manage the volume or flow of products. Following a taper strategy, firms can keep their in-house suppliers running at full-capacity and increase or decrease its orders from independent suppliers to match changing demand conditions. -Given today's increasing globalization, firms should be just as willing to vertically disintegrate as they are to vertically integrate when individual suppliers can produce their parts more efficiently or when bureaucratic costs increase cost structure. Alternatives: Cooperative Relationships -The firm benefits from short-term contracts which force suppliers to compete over price, driving cost of inputs down. -But, because the strategy of short-term contracting and competitive bidding signals a company's lack of long-term commitment to its suppliers, it will be difficult or impossible for that company to realize the gains associated with vertical integration such as specialized equipment for specialized parts, and no tight scheduling (which would increase suppliers costs and profitability). -Strategic alliances are long-term agreements between two or more companies to jointly develop new products that benefit all companies concerned. Typically, one company agrees to supply the other, and the other company agrees to continue purchasing from that supplier; both make a commitment to jointly seek ways to lower costs or increase input quality. This allows both companies to share in the same kinds of benefits that result from vertical integration but avoids problems such as lack of incentives or changing technology. How to protect yourself in a strategic alliance: 1. Hostage taking is a means of guaranteeing that a partner will keep its side of the bargain. Each company makes a specialized investment in supplying the other company, thus they are mutually dependent. This is an insurance against any attempt by the other company to renege on its prior pricing agreements because it knows the other could do the same. 2. A credible commitment is a believable promise or pledge to support the development of a long-term relationship between companies (can be through contract or investment). 3. Maintaining market discipline is a way to make sure its supplier doesn't get lazy or inefficient because it knows it doesn't need to compete for customers. Contracts are periodically renegotiated, so supplier knows if it doesn't perform well the company may not renew the contract. Second is a parallel sourcing policy which is when a company uses two suppliers for the same part. This lets the supplier know that if they don't perform well the company can switch all its business to the other supplier. -The large number of low-cost global suppliers as well as the growing importance of just-in-time inventory systems is increasing pressure on companies to form strategic alliances in a wide range of industries. -When a company chooses to outsource a value chain activity, it is choosing to focus on fewer value creation activities to strengthen its business model. -Outsource activities that are not a source of competitive advantage. -Virtual corporation is a term to describe the companies that have pursued extensive strategic outsourcing. -Outsourcing activities to specialists means lower costs and enhanced differentiation. i.e., higher quality because a specialist may be able to achieve a lower error rate in performing an activity because it focuses solely on that activity and has developed a strong distinctive competency in it. -Risks of outsourcing include hold up, the risk that a company will become too dependent on the specialist provider of an outsourced activity and that the specialist will use this to raise prices. Can mitigate this risk by outsourcing to several suppliers and pursuing a parallel sourcing policy. Loss of (competitive) information can occur when a critical point of contact with the customer, and a source of important feedback, is lost (ex. outsourcing customer service). Be sure to have good communication flow between the outsourcing specialist and the company.

Macau's Big Gamble

-Macau's economy growing by 20% per year vs. China's overall 10% growth. -A version of the Las Vegas strip is being created in Macau, Macau is the only part of Chinese territory where casino gambling is legal. -Macau overtook Las Vegas in gambling revenues. -1962: Stanley Ho took over monopoly rights to run all casinos in Macau. Suspected of having ties to criminal gangs from Macau. -Commission is now considering whether one of its licensees, MGM Mirage, can enter a partnership with Stanley's daughter, Pansy Ho. The decision will turn on whether she can prove that she is wholly independent of her father's influence. -1999: Macau was handed over to China, and Edmund Ho (not related to Stanley), was selected as Macau's chief executive. Edmund reformed Macau, he believed in good government. -Edmund ended Stanley's monopoly and opened the casino business to foreign competitors, who answer to laws and regulations outside Macau. -Gambling business is "supply driven": The more places and ways there are to bet money, the more money people will bet. -A sustained worldwide surge in demand for gambling seems to be underway. -In Vegas, slot machines account for roughly 60% of the total casino win; in Macau, roughly 5%. -In Macau, there is basically no alcohol in casinos, they believe that placing bets requires full concentration and gamblers don't want to dull their senses or skills. -Chinese like gambling more than other people. The overall rate of 'pathological gambling' is 1.8% in the United States, and 3% for Chinese Americans and Chinese immigrants. - This is because in Chinese cultures a larger proportion of people have a 'lack of probabilistic thinking', a belief that a player's skill can surmount the odds, and have the 'delusion that one can foresee results by intuition and control results by ritual.' They also have the traditional belief that money won in gambling is as respectable as money earned any other way. -The system of VIP rooms has been the foundation of Macau's gambling economy, and poses the greatest challenge to Macau's ability to come into sync with international norms. -In the VIP rooms, private gambling occurs, and this makes up most of the gambling economy. -These rooms make corruption very convenient in the form of money laundering. The Chinese government doesn't allow wealthy individuals to easily take money out of the country, so the room's operator lends VIP players money for gambling—often large sums, worth thousands or millions of U.S. dollars. The loan is in Hong Kong dollars. If the Chinese gambler wins, he now has hard currency. If he loses, he settles the debt back in China, in RMB. -VIP rooms and other Macau-based services are assumed to be a major channel for money flowing illegally out of China and North Korea. -Economically, the VIP rooms are too important for any company to forgo, but legally, they are risky for international companies (who are subject to international laws and regulations) to accept. -America's big gambling companies have been made into tribunes for good governance, transparency, the international rule of law, and a cleanup of the VIP business. -The American gambling industry is licensed more carefully than any other industry that exists. The state gaming commissions want to see similar strictures in Macau for anyone operating a VIP room, as well as leakproof systems to prevent money laundering. -Goldman Sachs, Merrill Lynch, Deutsche Bank and Citibank are financing Macau's current expansion, and spend much of their due diligence time vetting the casinos' provisions against money laundering, so as to avoid what one banker called the "franchise risk" of winding up as the financiers of Chinese criminals. -So which side will prevail in the battle of Macau? The shady system that has been the backbone of its economy, and that local companies still rely on? Or the international standards that the Nevada Gaming Commission and the shareholders of the world are forcing on the likes of Wynn, Adelson, and MGM Mirage? -Fahrenkopf (president of the American gaming association) says Macanese and Chinese officials would cooperate in cleaning up the VIP system because Americans technology, and expertise in running a modern gaming business, which they need. -China's interests support this as they want Macau to prosper by international standards. Macau Today: Following 2007 Macau saw a gaming boom, following the opening of the Venetian. Revenues rose from just over $5bn in 2004 to a peak of more than $45bn in 2013, seven tmes that of Las Vegas. But the sector is underfire for its VIP rooms, and its pivotal role in enabling welathy Chinese to take vast sums of money out of the country. This has made Macau a focal point in Beijing's sweeping anti-graft campaign. Thus, last year Macau saw a decline in gambling revenue due to the "chilling effect" of the anti-graft campaign. But gov't doesn't seem phased because they want to make the territory a "world centre for leisure and tourism", they want people from across Asia to come t Macau to shop, see the sights and use it as a base for exploring southern China. They want to diversify. Macau is pursuing a sustainable growth model; despite the decrease in gambling it has low unemployment levels, gov't revenue rose US$22bn in 2013, up 21% from a year earlier, and now its pie is very large, its big enough for the gov't to take care of the development of Macau. Macau is using celebrities such as David Beckham and Katy Perry to promote its resorts and casinos. The shift towards entertainment is Western, and is familiar to the likes of Wynn, Sands, and MGM all of whom did something similar in Las Vegas during the 90's. In addition, Chinese mass-market gamers come with margins 4 times higher than VIPs because there is no need to provide a free room, meal or any extra service that high-rollers might require. But, 88-99% of casino revenue is from gaming, whereas in Las Vegas it typically accounts for less than half the operators' revenues. This is what is making Macau's transition a difficult one, most non-gaming businesses struggle to make a profit, the city's casino operators still rely on gambling revenue, mostly from high-rollers. Mr. Ho's SJM Holdings get just over 1% of its income from non-gaming, while the most diversified player, Sands China, gets 12%. Macau will never be like Las Vegas in terms of the importance of non-gaming revenues, the investment that companies in Macau are making in non-gaming is merely a requirement. It is the cost of staying business in Macau. High rollers are looking at casinos in Australia and the Philippines, whose revenues have been soaring, while Macau's has been sinking, as wealthy Chinese gamble beyond Beijing's watchful eye. Despite the downturn in revenue, the building boom remains undisturbed. Melco Crown's Studio City - a vast Hollywood-themed complex is scheduled to open later this year. Lawrence Ho, son of SJM Holdings chairman Stanley Ho, is the CEO of Melco and promised to would diversify Macau's leisure experiences, when he annoucnced a tie-up with DC Comics and Warner Bros films for the project earlier this year. In conclusion, with VIP gaming taking a massive hit, casino owners are placing their bets on the middle income Chinese visitor- the mass market.

Chapter 11 - Organizational Structure and Controls

-Organizational structure details the work to be done in a firm and how that work is to be accomplished. Organizational controls guide the use of strategy, and suggest actions to take to improve performance when it falls below expectations. A proper match between strategy and structure can lead to a competitive advantage. -Strategic controls and financial controls are the two types of organizational controls used to support the implementation of a strategy -Firms tend to change structure when declining performance forces them to do so. Effective managers anticipate the need for structural change and quickly modify structure to better accommodate the firm's strategy when evidence calls for that action. -Functional structure is used to implement business level strategies -The cost leadership strategy requires a centralized functional structure - one in which manufacturing efficiency and process engineering are emphasized. -The differentiation strategy's functional structure decentralizes implementation-related decisions, especially those concerned with marketing, to those involved with individual organizational functions. -Focus strategies, often used in small firms, require a simple structure until such time that the firm diversifies in terms of products or markets. -Different forms of structure are also matched with corporate-level diversification strategies... -The multi-domestic strategy is implemented through the world-wide geographic area structure, emphasizes decentralization and locates all functional activities in the host country or geographic area. -The transnational strategy is implemented through the combination structure. Since it must be simultaneously centralized and decentralized, integrated and nonintegrated, formalized and non-formalized, the combination structure is difficult to organize and successfully manage. The matrix or the hybrid structure with both geographic and product-oriented divisions can be used to implement the transnational strategy. -Business-level strategies are often employed in vertical and horizontal alliance networks. -Corporate-level cooperative strategies are used to pursue product and market diversification. Franchising is one corporate strategy that uses a strategic network to implement this strategy. -Combination structure - a structure drawing characteristics and mechanisms from both the worldwide geographic area structure and the worldwide product divisional structure. -In the worldwide product divisional structure, decision-making authority is centralized in the worldwide division headquarters to coordinate and integrate decisions and actions among divisional business units -The worldwide geographic area structure emphasizes national interests and facilitates the firm's efforts to satisfy local differences -The cooperative form is an M-form structure in which horizontal integration is used to bring about interdivisional cooperation. -The strategic business unit (SBU) form is an M-form consisting of three levels: corporate headquarters, strategic business units (SBUs), and SBU divisions. -Organizational controls guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when the difference is unacceptable. -Strategic controls are largely subjective criteria intended to verify that the firm is using appropriate strategies for the conditions in the external environment and the company's competitive advantages. -Financial controls are largely objective criteria used to measure the firm's performance against previously established quantitative standards. -The functional structure consists of a chief executive officer and a limited corporate staff, with functional line managers in dominant organizational areas such as production, accounting, marketing, R&D, engineering, and human resources. -The multidivisional (M-form) structure consists of a corporate office and operating divisions, each operating division representing a separate business or profit center in which the top corporate officer delegates responsibilities for day-to-day operations and business-unit strategy to division managers. -The simple structure is a structure in which the owner-manager makes all major decisions and monitors all activities, while the staff serves as an extension of the manager's supervisory authority. -Sales growth creates coordination and control problems the existing organizational structure can no longer handle. New organizational structure is needed when the existing structure lacks the sophistication required to support using the new strategy. Simple structure --> functional --> multidivisional.

Lord Nelson at Trafalgar

-The results of Trafalgar provided England undisputed supremacy of the seas for over 100 years, insured that Napoleon could never threaten an invasion of England, and made it possible for Britain to send its armies, such as the one led by Wellington, abroad without fear of those armies being destroyed en route in naval action. -At trafalgar, the Royal Navy was commanded by Lord Nelson. -Napoleon wanted to invade England, to do so he needed to gain sea power in order to cross the English Channel without his ships being destroyed in the process. -The English maintained a very powerful fleet off the northwest coast of France, guarding the entrance to the English Channel. -1805: He devised a plan which seemed doable to him but proved ineffective when applied to soldiers. -His plan was for all of his ships to meet in the West Indies and together sail to the Channel and either battle the British or draw them away from the Channel so the crossing could be accomplished. -The admirals had their doubts because fleets at sea had no way of communicating with each other, and since they relied on wind for propulsion, the chances of fleets being able to keep schedules were impossible. -So instead Napoleon marched his army south, and the combined French-Spanish fleet, having failed to link up with other French squadrons, sailed back to the west coast of Spain when they heard Nelson's fleet was closing in on them (even though Nelsons fleet was half the size). There they were attacked by a British squadron and lost two ships. From there they headed to Cadiz, where the British fleet and Nelson's fleet took up blockade positions. It was clear Napoleons fleet would have to battle them. -As a boy, Nelson was fascinated by the sea and sailing and longed for a career in the Royal Navy. -Nelson was fearless, and consistently exposed himself to every bit as much danger if not more than he asked any subordinate to face. -He believed in divine intervention and that his fate was to accomplish for his nation great victories at sea, only to be killed in the process. -He was most generous with praise of his colleagues and subordinates. His subordinates found a faithful friend and superior they knew they could count on in him. -He held his crew to high standards, and had a willingness to trust subordinate officers and rely on their individual initiative in executing his plans. -He had a willingness himself to deviate from orders when he perceived greater advantage could be gained by following another course of action. -Nelson was perhaps the most innovative commander the Royal Navy had at the time. Most officers were schooled in a very regimented approach, normally involving engaging the enemy in a parallel fashion in line of battle. But in his two most important victories prior to Trafalgar Nelson improvised tactics quite different from this approach, and his enemies had no idea what he would do. -Napoleon never had a great deal of confidence in Villeneuve or any of his naval commanders. So with little combat experience and having never successfully led a naval attack against the British, Villeneuve was sent out by Napoleon to face Nelson. -Villeneuve had little confidence in his own tactical skills and in his French subordinates or Spanish allies. -Nelson used his frigates as forward observers and scouts while his main ships stayed out of sight of the enemy. His frigates were able to tell him the course, disposition and position of the enemy. -Comparative advantages of the Royal Navy: largely intangible such as seamanship, leadership, morale, cohesiveness, and determination to decide the issue regardless of the costs. -England possessed a maritime culture which prized seamanship. Nelson, his officers and sailors had in fact been raised to go to sea. -The Royal Navy had an officer corps which was accomplished, confident, and determined. It had an apprenticeship system which insured a continuous flow of young men who had practical experience to induct into its officer corps as lieutenants. -The Navy was one of the few avenues for upward mobility open to a child of a rural parson, as it was influenced mainly by individual merit rather than political influence. Commands were given to officers depending on performance, not seniority or rank. -Keeping officers at home with half pay during peace time insured that the Navy would be able to quickly staff its ships when war did break out. This also provided continuity. -By contrast, the officers of the French Navy with long naval careers fell from favor while young officers rose through the ranks quickly. Villeneuve was considerably younger than Nelson at Trafalgar and had seen limited action during the course of his career. -The English shared a common culture, whereas the French and Spanish officers were at best somewhat suspicious of each other. -The morale of Napoleon's fleet was low and this filtered through the ranks. They approached the battle of trafalgar with much trepidation. -However, the French and Spanish ships were considered superior to the Royal Navy's. -Villeneuve and his Navy followed a time-honored doctrine in terms of how a battle should be fought. -But Nelson's success in battles was in fact attributable to his veering away from traditional doctrine. "The Nelson touch" inspired the Royal Navy and created dread in his opponents. -Nelson resolved to attack the enemy's fleet in two separate columns, in a perpendicular directions as two wedges going through the single line of enemy ships. He wanted to do this 'to surprise and confound the enemy'. -Simply having Nelson in command seems to have added to the fleet's confidence level and eagerness for the coming battle. -There was strong reluctance on the part of some French and virtually all the Spaniards to leave Cadiz, they felt their men needed additional training, the weather appeared threatening. -Because of the large lumbering ships and the reliance on windspeed, once committed an admiral had to rely upon the initiative of his individual captains and ships, something Nelson felt very good about doing. -Ultimately, Nelson died at Trafalgar, and the Royal Navy won the battle, and Britain was given undisputed supremacy at sea. -Lord Nelson knew his ships and men, knew his enemy, and designed a strategy which was likely to work in only that one moment in history. His genius in all his battles was recognizing the uniqueness of the circumstances and acting accordingly. Nelson's lasting contribution to naval warfare was to recognize there were no strategies which were always appropriate.

Ch. 8 - International Strategy

International strategy - A strategy through which the firm sells its goods or services outside its domestic market. Multidomestic strategy - An international strategy in which strategic and operating decisions are decentralized to the strategic business unites in individual countries or regions for the purpose of allowing each unit the opportunity to tailor products to the local market. Global strategy - An international strategy in which a firm's home office determines the strategies that business units are to use in each country or region. Transnational strategy - An international strategy through which the firm seeks to achieve both global efficiency and local responsiveness. Greenfield venture - An entry mode through whcih a firm invests directly in another country or market by establishing a new wholly owned subsidiary. International diversification strategy - A strategy through which a firm expands the sales of its goods or services across the borders of global regions and countries into a potentially large number of geographic locations or markets. -When used effectively, international strategies yield three basic benefits: increased market size, economies of scale and learning, and location advantages. Firms use international business-level and international corporate-level strategies to geographically diversify their operations. -International business-level strategies are usually grounded in one or more home-country advantages. Research suggests that there are four determinants of national advantage: factors of production; demand conditions; related and sup- porting industries; and patterns of firm strategy, structure, and rivalry. Two global environmental trends—liability of foreignness and regionalization—are influencing firms' choices of international strategies as well as their implementation. Liability of foreign- ness challenges firms to recognize that distance between their domestic market and international markets affects how they compete. Some firms choose to concentrate their international strategies on regions (e.g., the EU and NAFTA) rather than on individual country markets. ■ Firms can use one or more of five entry modes to enter international markets. Exporting, licensing, strategic alliances, acquisitions, and new wholly owned subsidiaries, often referred to as greenfield ventures, are the five entry modes. Most firms begin with exporting or licensing because of their lower costs and risks. Later they often use strategic alliances and acquisitions as well. The most expensive and risky means of entering a new international market is establishing a new wholly owned subsidiary (greenfield venture). On the other hand, such subsidiaries provide the advantages of maximum control by the firm and, if successful, the greatest returns. Large, geographically diversified firms often use most or all five entry modes across different markets when implementing international strategies. ■ Firms encounter a number of risks when implementing inter- national strategies. The two major categories of risks firms need to understand and address when diversifying geograph- ically through international strategies are political risks (risks concerned with the probability that a firm's operations will be disrupted by political forces or events, whether they occur in the firm's domestic market or in the markets the firm has entered to implement its international strategies) and eco- nomic risks (risks resulting from fundamental weaknesses in a country's or a region's economy with the potential to adversely affect a firm's ability to implement its international strategies).

Strategy Bites Back - Mintzberg

What's in a Buzzword? - Lucy Kellaway -Buzzwords can be ambiguous enough to be unchallengeable -Words such as deliver, value, solutions, to drive, to leverage, to unleash, unparalleled, and track record are words overly used in reports that don't actually have any meaning. The Economist -Very few managers ever refer to their corporate strategy. -How a company views strategy depends largely on its circumstances. -All firms should try to exploit and hone their skills, but there is no single way to approach the future. *What is Strategy? -John Kay -Strategy translates to expensive or important -There is more vacuity about strategy than about any other topic in business today. -Because strategy is based on distinctive capabilities, there are no generic strategies, there are many interpretations of strategy, strategy is what is right for you. *Strategy As a LBD - Jeanne Liedtka -Like a LBD, strategy should focus on basic elements of an enduring nature, incorporating a versatility and openness that invites their 'wearers' to add the adornments they saw fit to the occasion at hand. -A strategy that would make us feel better about ourselves when we worked with it, in a quiet way that emphasized our positives while acknowledging our flaws, all in the service of offering us hope for a better/thinner tomorrow. The CEO As Strategist - Porter -The CEO doesn't have to invent the strategy, but has to be a strong leader who is willing to make the ultimate act of choice. -The critical job of a leader is to provide the discipline and the glue that keeps such a unique position/strategy sustained over time. -Great leaders are able to enforce trade off's, based on what ideas are consistent with their strategy. -Leader has to make sure that everyone understands the strategy. -Strategy is something that a company is continually getting better at -The best CEOs are teachers -A strategy is about being different, so if you have a really great strategy, people get excited about it. The Manager as Conductor? *The Tortoise and The Hare - John Kay -A happy creature is one whose characteristics match the environment within which it operates, and that is what the gradual process of biological evolution helps to achieve. -Hares do best in wide open spaces where their speed gives them a competitive advantage. Tortoises survive for many years in hostile territory, where their shells protect them from predators and the weather. -Instead of hiring (expensive and important) consultants to tell you to turn into a jaguar, find an environment, or industry, in which your characteristics will give you a competitive advantage (similar to resource based model in chapter 1). Jack's Turn - Mintzberg -Jack becomes CEO of a furniture company, an industry he is passionate about, with his courage to be decisive and to challenge conventional thinking. *Planning in Case - Wilkinson -How do we strike a balance between prediction and paralysis-letting the uncertainties freeze us into inactivity? -"long fuse, big bang" problems -Its simply impossible to research away the uncertainties on which the success of a key decision will hang. -Scenario planning derives from the observation that, given the impossibility of knowing precisely how the future will play out, a good decision or strategy to adopt is one that plays out well across several possible futures. -Identify focal issue or decision, identify the primary 'driving forces' at work in the present (social, economic, political, technological issues), identify predetermined elements, sort out critical uncertainties (ones relevant to our focal issue). -Ultimately, scenario planning helps us understand the uncertainties before us and what they might mean. Forecasting:Whoops! Plans in Case You Are Stuck - Karl Weick -When you are lost, any old map will do -Lost unit in the Alps used a map of the Pyrenees to find their way back to camp. -When you are confused, any old strategy will do. Plans are like maps in that they animate and orient people. Once people begin to act, they generate tangible outcomes in some context, and this helps them discover what is occurring, what needs to be explained, and what should be done next. -It is what you do, not what you plan, that explains success. -If you have seen one mountain range you have seen them all... if you have seen one organization you have seen them all. -Any old plan will work because people usually learn by trial and error -Meaning is produced because the leader treats a vague map or plan as if it had some meaning, even though he knows full well that the real meaning will come only when people respond to the map and do something. -The leader creates the combination of optimism and action that allows people to turn their confusion into meaning and find their way home. *Planning & Flexibility- Mintzberg -The planning of Passchendaele -The problem here was the tradition of separating strategy from tactics, formulation from implementation, thinking from acting. -Dysfunction of traditional military organization lies in the officers in the rear who have the power to formulate the plans and direct their execution, while the troops at the front who have first hand experience, can only implement the plans given to them. -Conditions entering into the drawing up of plans are of a different order than those determining their execution...Thus while the battle of Passchendaele may have been 'strategically desirable', it proved 'tactically impossible'. -The fallacy of formalization -Compared strategic planning to communism; the vain hope that systems could do in overgrown organizations what detached managers could not. -Strategic planning has often ruined strategic thinking -'Innovation has never been institutionalized'. -The failure of strategic planning is the failure of formalization- of systems to do better than flesh and blood people. -The failure of forecasting to predict discontinuities, of programming to provide creativity, of hard data to substitute for soft, of scheduling to handle the dynamics. -Systems could never internalize, comprehend or synthesize data. -The grand fallacy of strategic planning is that because analysis is not synthesis, strategic planning has never been strategy making. -'Strategic planning' should really be called 'strategic programming', and used as a process to formalize the consequences of strategies already developed.... Ultimately, the term 'strategic planning' has proved itself to be an oxymoron. Entrepreneurship and Planning - Amar Bhide -Very few entrepreneurs bother with well-formulated plans because they thrive in rapidly changing industries and niches that tend to deter established companies. Under these fluid conditions, an ability to roll with the punches is much more important than careful planning. Biases and Limitations of Judgment: Humans - Makridakis -90% of all the information we are searching for aims at supporting views, beliefs, or hypotheses that we have long cherished. -The higher up a manager is in an organization, the information he receives is increasingly filtered by several levels of subordinates who think they know what the manager wants to hear and selectively present supportive information. -Groupthink -Conventional wisdom: We accept certain statements as true, even though they may not be. We believe the more information we have, the more accurate our decisions will be. Instead, more information merely seems to increase our confidence that we are right without necessarily improving the accuracy of our decisions. -All economic theories assume rationality. But in reality, irrational behaviors abound in any organization; jealousy, excessive ambition, breakdowns in communication, etc. Strategies That Learn - Gary Hamel -The dirty little secret of the strategy industry is that it doesn't have any theory of strategy creation. -Strategizing must be a skill as deeply embedded as total quality, cycle-time reduction, or customer service. -New voices: diversity was a requirement for the development of life; so too is it a requirement for the emergence of new strategy -New Conversations: strategizing depends on creating a rich and complex web of conversations that cut across previously isolated pockets of knowledge and create new and unexpected combinations of insight. Conversations cannot be hurried or scripted. -New Perspectives: "Changes in latitudes, changes in attitudes". Gain a new vantage point by immersing yourself in other cultures; opportunities for innovative strategy don't emerge from sterile analysis and number crunching - they emerge from novel experiences that can create opportunities for novel insights. -New Passions: We often ignore the emotional commitment of people at the bottom who are being asked to devote their lives to carrying out a new strategy... one way of raising commitment is to get individuals throughout the organization deeply involved in the process of creating strategy. Individuals should have a say in determining the destiny of the organizations to which they devote their efforts. -Experimentation: The more experimentation, the faster a company can understand precisely which strategies are likely to work. The goal is not to develop 'perfect' strategies, but to develop strategies that take us in the right direction, and then progressively refine them through rapid experimentation and adjustment. 5 Easy Steps to Destroying A Rich Culture - Mintzberg. 1. Manage the bottom line 2. Make a plan for every action; no spontaneity, no learning 3. Move managers around so they never get to know anything but management well (and kick the boss upstairs - better to manage a portfolio than a real business). 4. Treat people as objects and resources 5. Do everything in 5 easy steps.

Taleb: the prophet of boom and doom

-Black Swans: the world is random, intrinsically unknowable. You will never be able to control randomness. -Most economists and almost all bankers are subhuman and very, very dangerous. They live in a fantasy world in which the future can be controlled by sophisticated mathematical models and elaborate risk-management systems.

Moral Relativism

-Claims that morality is relative to some personal, social, or cultural standard and that there is no method for deciding whether one decision is better than another.

Building Your Companies Vision - Collins & Porras

-Companies that enjoy enduring success have core values and a core purpose that remain fixed while their business strategies and practices endlessly adapt to a changing world. -Preserving the core while stimulating progress. -Vision provides guidance about what core to preserve and what future to stimulate progress toward. -Vision consists of core ideology and envisioned future -Core ideology (Yin) defines what we stand for and why we exist. It provides the glue that holds an organization together through time. It is unchanging and complements Yang, the envisioned future. "It is more important to know who you are than where you are going". Core ideology endures as a source of guidance and inspiration. -Core ideology consists of core values (a set of guiding principles and tenets with intrinsic value to those in the organization) and core purpose (the organizations reason for existence, raison d'etre) -When determining your core values, ask if the circumstances changed and penalized us for holding these core values, would we keep it? If not, then the value is not core. -Core purpose should capture the soul of the organization rather than just describe the output or target customers. It should describe reasons for its existence beyond just making money. You cannot fulfill a purpose, it is forever pursued but never reached. Purpose doesn't change, it inspires change. Ask the five why's. How could we frame the purpose of this organization so that if you woke up tomorrow with enough money in the bank to retire, you would nevertheless keep working here? What deeper sense of purpose would motivate you to continue to dedicate your precious creative energies to this company's efforts? -The authenticity, discipline and consistency with which the ideology is lived-not the content of the ideology-differentiate visionary companies from the rest of the pack... (multiple companies can have the same core values or purpose) -"If its not core, its up for change" -Envisioned future (Yang) is what we aspire to become, to achieve, to create-something that will require significant change and progress to attain. Consists of two parts; A BHAG and vivid descriptions of what it will be like to achieve the BHAG. -Companies need an audacious 10-to-30 year goal to progress toward an envisioned future. -A true BHAG is clear and compelling, serves as a unifying focal point of effort, and acts as a catalyst for team spirit, it has a clear finish line. -A vision-level BHAG applies to the entire organization and requires 10 to 30 years of effort to complete. Inventing such a goal forces an executive team to be visionary, rather than just strategic or tactical. -The vivid description should be a vibrant, engaging, and specific description of what it will be like to achieve the BHAG. Translate the words into pictures to make the BHAG tangible in people's minds. -What's needed is such a big commitment that when people see what the goal will take, there's an almost audible gulp.

"Management and Magic" - Gimpl and Dakin

-Paradox: the more unpredictable the world becomes, the more we seek out and rely upon forecasts and predictions to determine what we should do. -Planning and forecasting are a manifestation of anxiety-relieving superstitious behavior, and have the same function that magical rites have. -"Illusion of Control"; the belief that events are causally related when objectively they are not. These are easy to establish under conditions of uncertainty and are highly resistant to change. -Improving Decision Making: Logical Incrementalism: Be vague and imprecise in your decisions in ambiguous situations, and constantly refine and reshape your strategy as new information appears. Take adequate precautions by ensuring a sufficient number of alternative courses of action.

Porter's 5 Forces

1. Threat of entry 2. Bargaining power of buyers 3. Bargaining power of suppliers 4. Product substitutes 5. Intensity of rivalry among competitors.

Friedman and Carroll in Corporate Governance & Social responsibility - Wheelen & Hunger

Friedman takes a laissez-faire view and argues that by acting socially responsible, the firm is spending the shareholders money for a general social interest. In the long run, this may harm the very society the firm is trying to help (the business becomes less efficient by prices going up, or investment in new research is postponed). There is only one social responsibility of business- to increase profits so long as it stays within the rules of the game. Carroll proposes that managers have 4 responsibilities: 1. Economic 2. Legal 3. Ethical - to follow the generally held beliefs about behavior in society. 4. Discretionary - Purely voluntary obligations a corporation assumes (philanthropic contributions, training the hard-core unemployed, providing day care centers). -Carroll suggests that to the extent that business corporations fail to acknowledge discretionary or ethical responsibilities, society, through government, will act, making them legal responsibilities, this increased gov't regulation reduces a firm's efficiency. The discretionary responsibilities of today may be the ethical responsibilities of tomorrow.

Kohlberg's Levels of Moral Development

Kohlberg proposes that a person progresses through three levels of moral development. 1. The preconventional level: Characterized by a concern for self. Small children and others at this stage evaluate behaviors on the basis of personal interest. 2. The conventional level: Characterized by considerations of society's laws and norms. Actions are justified by an external code of conduct. 3. The principled level: Characterized by a person's adherence to an internal moral code. The individual looks beyond norms or laws to find universal values or principles.

Ch. 7 - Merger & Acquisition Strategies

Merger - A strategy through which two firms agree to integrate their operations on a relatively coequal basis. Acquisition - A strategy through which one firm buys a controlling, or 100%, interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. Takeover - A special type of acquisition where the target firm does not solicit the acquiring firms bid; thus, takeovers are unfriendly acquisitions. Restructuring - A strategy through which a firm changes its set of businesses or its financial structure Downsizing - A reduction in the number of a firm's employees, and sometimes in the number of its operating units; but the composition of businesses in the company's portfolio may not change through downsizing. Downscoping - Eliminating businesses that are unrelated to a firm's core business Firms use acquisition strategies to: ■ increase market power ■ overcome entry barriers to new markets or regions ■ avoid the costs of developing new products and increase the speed of new market entries ■ reduce the risk of entering a new business ■ become more diversified ■ reshape their competitive scope by developing a different portfolio of businesses ■ enhance their learning as the foundation for developing new capabilities Among the problems associated with using an acquisition strategy are: - the difficulty of effectively integrating the firms involved - incorrectly evaluating the target firm's value - creating debt loads that preclude adequate long-term investments (e.g., R&D) - overestimating the potential for synergy - creating a firm that is too diversified - creating an internal environment in which managers devote increasing amounts of their time and energy to analyzing and completing the acquisition - developing a combined firm that is too large, necessitating extensive use of bureaucratic, rather than strategic, controls -Restructuring by downsizing involves reducing the number of employees and hierarchical levels in the firm. Although it can lead to short-term cost reductions, the reductions may be realized at the expense of long-term success because of the loss of valuable human resources (and knowledge) and overall corporate reputation. -The goal of restructuring through downscoping is to reduce the firm's level of diversification. Often, the firm divests unre- lated businesses to achieve this goal. Eliminating unrelated businesses makes it easier for the firm and its top-level managers to refocus on the core businesses. -Through a leveraged buyout (an LBO), a firm is purchased so that it can become a private entity. LBOs usually are financed largely through debt, although limited partners (institutional investors) are becoming more prominent. General partners have a variety of strategies, and some emphasize equity versus debt when limited partners have a longer time horizon. Management buyouts (MBOs), employee buyouts (EBOs), and whole-firm LBOs are the three types of LBOs. Because they provide clear managerial incentives, MBOs have been the most successful of the three. Often, the intent of a buyout is to improve efficiency and performance to the point where the firm can be sold suc- cessfully within five to eight years.

Cases: Alcan A & Alcan B

Why did Rio want to buy Alcan? -Rio is a mining company that goes after long-life, low cost assets. -Continuity agreement: major deal with the province of QC to receive large interest-free loans and access to more public electricity. In return Alcan would make $1.88B in investments over the next 10 years. The gov't wanted to ensure that any possible acquirer would respect Alcan's side of the deal. If not, the province maintained the right to revoke the new entitlements. The board was now legally obligated to negotiate on behalf of the social and economic well-being of the Quebec communities. -Alcan is a major producer of aluminum -Option 1: Alcoa is similar to Alcan and wants to buy Alcan to grow horizontally. There would be $1B in synergies. The proposed merger was driven by the desire to create a more competitive North American firm that could better compete against Russian and Chinese aluminum. -Alcan and Alcoa are both vertically integrated. They had large in-house engineering and packaging divisions. -Trend in industry: Many large aluminum producers had merged to unlock synergies and fend off competition. By consolidating operations they had increased their levels of productivity as well as the size of their markets. This was the rationale behind Alcan's acquisition of Pechiney in 2003 and Alusuisse in 2000. -(ALCAN B: Reacting to the Alcoa offer): Alcoa was aggressive and decided it would not take no for an answer, after 2 years of talks Alcoa informed Alcan that it would go directly to shareholders and make an unsolicited offer. Alcan made a strategic committee to recommend action on the offer. It was important for Alcan that it would be a "merger of equals". Alcoa offered a premium of 32%. The merger would result in a firm that produced 30% of world alumina and 23% of aluminum, resulting in significant market power. Important divestitures would be needed to satisfy regulators. Now that the offer had become hostile, even in a "merger of equals" the composition of the board would be at Alcoa's discretion. -Option 2: Rio tinto was run with a very different business model. It was a mining giant, holding a portfolio of minerals and few downstream operations. Its mantra was "long life, low cost assets". Rio synergies are $600M. Aluminum only represented 15.5% of sales for Rio. Production of aluminum was to small for the firm to enjoy economies of scale. If the acquisition went through, Alcan's packaging and engineered products segments would be the first of their kind at Rio Tinto. These segments require unique skills to run, they are marketing driven rather than technology and efficiency driven. It therefore risked being even more difficult to manage for Rio Tinto. Few regulatory hurdles were expected here because of the relatively minor role aluminum played at Rio Tinto. However, Alcan's CEO was concerned over about the role the Alcan leadership would have asserting itself within a much larger organization whose executives had to contend with diverse problems around the globe. Alcan's downstream operations and focus on innovation might not be the primary concern for the management of Rio Tinto, which was more accustomed with dealing with problems of mining and processing. -Option 3: Go it alone: There benefits of remaining the lcoal giant; Alcan received interest-free loans, extensions to certain water rights to produce power and securing access to more public power and support to build an AP50 pilot plant. In return for investments into the region. IF they decided to go it alone, they would have to convince shareholders that they could make up the 32% premium offered by Alcoa.-External environment: Because the civilian (rather than military) market was still small, companies focused on expanding the range of applications for aluminum and increasing the public's awareness. In 2006, aluminum was experiencing a run up in prices. The demand was fueled by China's economic expansion and supported by steady Russian and Middle Eastern growth. China already had the largest smelting capacity in the world and this was growing fast. Despite high costs of production in China, the country still remained the lowest cost location to establish new refineries and smelters. -Rio got into a bidding war with Alcoa and paid a huge premium for Rio. -The rationale for the merger was so that Rio would have a strong position in iron, ore, copper and aluminum to meet demand for China's rapidly growing economy. But Rio ended up paying a premium of 65% ($38.1B), and there have been major challenges. The premium deal came at a cyclical peak - and then aluminum prices crashed as China over produced and consumer demand plummeted with the financial crisis. Risks that remain for the industry are volatile metals prices.

Hustle As Strategy - A. Bhide

• Some companies operate well without strategic plans obsessing over rivalry • What mostly counts is vigor and nimbleness...opportunities to gain lasting advantage through 'blockbuster strategic moves' are very rare. • In a world where there are no secrets, where innovations are quickly imitated or become obsolete, the theory of competitive advantage may have had its day. • The high profits in the financial services industry "stem largely from superior execution or forceful opportunism, not structural competitive barriers". • While it is important to understand and anticipate your opponent's reactions, instead of devising a consistent and long-term strategy for the match, you play each hand as it is dealt and quickly vary tactics to suit conditions. The way a firm hustles or takes advantage of transitory opportunities makes a real difference in how consistently it wins. • Flexibility, agility, and hustle are more important than a fixed plan. • Since financial institution senior managers can't easily stay on top of the competitive interplay, they can and should claim only limited influence over decisions that in many other industries the company presidents approve. Otherwise, financial institutions become bureaucratic and unresponsive.

Ch. 6 - Corporate Level Strategy

-A Corporate-Level Strategy specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markers. -Economies of scope are cost savings a firm creates by successfully sharing resources and capabilities or transferring one or more corporate-level core competencies that were developed in one of its businesses to another of its businesses. -Economies of scope and market power are the main sources of value creation when a firm uses a corporate-level strategy to achieve diversification. -Corporate-level core competencies are complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience and expertise. -Corporate-level strategy adds value across a firms set of businesses above what the individual businesses could create individually (economies of scope). -Market power exists when a firm is able to sell its products above the existing competitive level or to reduce the costs of primary and support activities below the competitive level, or both. -A diversified company is a company that has multiple, unrelated businesses. Unrelated businesses are those which (1) require unique management expertise, (2) have different end customers and (3) produce different products or provide different services. -Multipoint competition exists when two or more diversified firms simultaneously compete in the same product areas or geographical markets. -Financial economies are cost savings realized through improved allocations of financial resources based on investments inside or outside the firm. -Product proliferation - when firms market many variations of the same product. -Activity sharing is costly to implement and coordinate, may create unequal benefits for the divisions involved in the sharing, and can lead to fewer managerial risk-taking behaviors. -Firms using the unrelated diversification strategy focus on creating financial economies to generate value. -Diversification is sometimes pursued for value-neutral reasons such as tax incentives, antitrust gov't policies, low performance or uncertainties about future cash flow. -Over diversification destroys value. Need to consider external and internal environment when making decisions about the optimum level of diversification.

Conventional Wisdom - JK Galbraith

-Because economic and social phenomena yield few hard tests of what exists and what does not, the individual is permitted to believe what he pleases. -So there is a never ending competition between what is relevant and what is merely acceptable. -Ideas tend to be organized around what the community as a whole finds acceptable. -We associate truth with convenience-with what most closely accords with self-interest and individual well-being. People approve most of what they best understand, and what is familiar to them. -Familiarity is the touchstone of acceptability, and this is why acceptable ideas have such stability. They are highly predictable. -These ideas are the conventional wisdom. -People like to hear articulated that which they approve because it serves the ego. -The articulation of the conventional wisdom is similar to a religious rite. -The conventional wisdom is dependent on the individual's view (the comfortable and the familiar) of the world, which is forever changing, the conventional wisdom is always threatened by obsolescence. -The fatal blow to the conventional wisdom comes when the conventional ideas fail to deal with some new contingency, making them irrelevant.

The Holistic Risk Management Model (HRMM) - Vit

-Basic premise: A combination of different and powerful views of risk management can be used to explain why large organizations that are full of clever people often do silly things. -Model is mechanistic and prescriptive. -Rigorous internal and external analysis is ongoing, and that this in turn results in optimal rules, decisions and actions. And assumes a high degree of technical and economic rationality and predictability. Routines are put in place to manage risk. -Implicit assumptions: Model is highly prescriptive, it assumes that if senior managers exclusively use a highly quantitative model, they will be more successful than those who do not. Second, the model assumes that top managers within organizations can have a significant impact on their domain and are subjects that anticipate, analyze, decide and optimize. They are assumed to be able to create successful strategies and act upon the world so as to significantly change it. Success may be attributed to this activity, yet may be unrelated to it. Third, numbers, financial models and large volumes of hard data are relied upon, and strategies are codified, aggregated and formalized. Soft data, holistic approaches and intuition are excluded. Fourth, the model is temporal centric, or assumed to be the most advanced to date, even though similar approaches have existed over the last century, and USA centric as it is often espoused by US business schools and US consultants. -Numbers, rationality and quantification are necessary but not sufficient to manage risk since strong corporate culture and mindless organizational routines, habits and patterns of behavior often trump this economic logic. -HRMM demonstrates that the same risk management logics that promote critical thought and judgment within risk management systems can also be used to explain processes that resulted in the decoupling of numbers and economic rationality. -Quadrant 2: Institutional risk management: suggests that, contrary to rational risk management assumptions of analysis and rules driving optimizing organizational action, the weight of social structure within an organization and particularly its industry and broader institutional environment creates its own action and inaction. For example, within the banking industry external legitimacy is built and institutions are fortified by management consultants, bond rating agencies, auditors, industry associations and journals which assist at arriving at event 1, the social override of economic risk management. -Quadrant 4: Evolutionary risk management: suggests that many small chance events may contribute to eventual quantum change, and that micro-routines and habits are obstacles to adaptation until an organization is faced with a big crisis. Risk governor ignorance of both economic rationality and social and ideological pressures may allow small chance events and the Riemann sum of many small meaningless organizational routines to combine to create big suboptimal events such as fraud or trading excesses that could threaten the survival of an organization. -Quadrant 3: Contrarian risk management: suggests that some individuals and groups have a holistic understanding of economic, institutional and evolutionary risk management processes and allows them to take a contrarian view and use these understandings to their advantage. The contrarian model is applicable to risk governors and risk fraudsters (legal and illegal). It represents an in-groups insight into all logics that may be necessary to override red flags produced by technical rationality between event 1 and 2. -An awareness of the dynamics of the logics presented in the quadrants that is represented by contrarian quadrant 3 will improve a risk manager's ability to conceptualize holistic risk as well as quantitative measures of financial risk.

Can You Say What Your Strategy Is? - HBR

-Very few executives can honestly summarize their strategy in 35 words or less. -Companies with a clear, concise strategy statement - one that employees can easily internalize and use as a guiding light - often turn out to be industry stars. -Any strategy statement must begin with a definition of the objective, or the goal that the strategy is designed to achieve. It is also crucial to define the scope, or domain, of the business. Companies also need to have a clear sense of advantage - the means by which the business will achieve its stated objective. -The trade-offs the firm makes in defining its objective, scope, and advantage is what distinguish them strategically from other firms... if your firm's strategy can be applied to any other firm, you don't have a very good one. - A relatively simple description in a strategy statement provides an incisive characterization that could not belong to any other firm. This is the goal. When that statement has been internalized by all employees, they can easily understand how their daily activities contribute to the overall success of the firm and how to correctly make the difficult choices they confront in their jobs. - The strategy will really have traction only when executives can be confident that the actions of empowered frontline employees will be guided by the same principles that they themselves follow. -Before developing your strategy and crafting your statement, you'll want to carefully evaluate the industry landscape. This includes market segmentation and identifying unique ways of delivering value to the customers the firm targets. -The key is to find the sweet spot where the firm's capabilities and customers' needs align in a way that competitors cannot match. -Vision, Advantage, Scope and Objective (VASO)

Chapter 4 - Business Level Strategy

-A business-level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets. -Firms' relationships with customers are characterized by three dimensions: 1. Reach - Concerned with the firm's access and connection to customers. In general, firms seek to extend their reach, adding customers in the process. 2. Richness - Concerned with the depth and detail of the two-way flow of information between the firm and the customer (Internet and e-commerce transactions have substantially reduced the costs of meaningful information exchanges. ex: Amazon). 3. Affiliation - Concerned with facilitating useful interactions with customers. Viewing the world through the customer's eyes (which enhances customer satisfaction and produces fewer customer complaints) and constantly seeking ways to create more value for the customer have positive effects in terms of affiliation. -Market Segmentation - a process used to cluster people with similar needs into individual and identifiable groups. -Firms using the cost leadership strategy must understand that in terms of sources of differentiation among the cost leader's product, the customer defines acceptable. -Strategic fit among the many activities is critical for competitive advantage. It is more difficult for a competitor to match a configuration of integrated activities than to imitate a particular activity such as sales promotion, or process technology. 5 Business-Level Strategies: 1. Cost leadership - Produce goods/services that are acceptable to customers at the lowest cost, relative to that of competitors. 2. Differentiation - Produce goods/services at an acceptable cost that customers perceive as being different in ways that are important to them. The more differentiated the product, i.e., the less similarity to competitor's products, the more buffered a firm is from competition with its rivals. 3 & 4. Focused cost leadership and Focused differentiation - Produce goods/services that serve the needs of a particular competitive segment. This strategy is successful when firms have the core competencies required to provide value to a specialized market segment that exceeds the value available from firms serving customers across the total market (industry). 5. Integrated cost leadership/differentiation - Engaging in primary value-chain activities and support functions that allow a firm to simultaneously pursue low cost and differentiation. To efficiently produce products with some differentiated features. Firms need flexibility in their value chain activities and support functions to allow them to produce differentiated products at relatively low costs. This is facilitated by flexible manufacturing systems and improvements and interconnectedness in information systems within and between firms (buyers and suppliers).

Chapter 9: Cooperative Strategy: Strategic Alliances and the Network Organization

-A cooperative strategy is one through which firms work together to achieve a shared objective. -Strategic alliances, where firms combine some of their resources for the purpose of creating a competitive advantage, are the primary form of cooperative strategies. -Joint ventures, equity strategic alliances, nonequity strategic alliances (where firms cooperatve through a contractual relationship) -Outsourcing also commonly occurs when firms form nonequity strategic alliances. -Collusive strategies are usually illegal unless protected by gov't sanctions. With globalization, there are less gov't sanctions. Tacit collusion is when firms cooperate to reduce industry output below the potential competitive output level in order to raise prices above the competitive level. -Slow cycle markets are markets in which the firm's competitive advantages are shielded from imitation for long periods of time, and in which imitation is costly. Firms use strategic alliances to enter these markets. -Fast cycle markets are markets in which the firm's capabilities that contribute to competitive advantages are not shielded from imitation and where imitation is often rapid and inexpensive. In these markets, firms use strategic alliances to move quickly from one competitive advantage to another. -Standard cycle markets are markets in which the firm's competitive advantages are moderately shielded from imitation and where imitation is moderately costly. In these markets, firms use strategic alliances to gain market power. -Complementary alliances (vertical and horizontal) have the highest probability of helping a firm form a competitive advantage, competition-reducing alliances have the lowest probability. -Corporate-level cooperative strategies are used to engage in product or geographic diversification. Firms agree to share some of their resources to enter new markets or produce new products. -Synergistic alliances are ones where firms share some of their resources to develop economies of scale. Similar to business-level horizontal complementary alliances. -Franchising is a corporate-level cooperative strategy where the franchisor uses a franchise as a contractual relationship to specify how resources will be shared with franchisees. -A cross-border strategic alliance can be used when there are governmental restrictions on a firms efforts to grow through mergers and acquisitions. -In a network cooperative strategy, several firms agree to form multiple partnerships to achieve shared objectives. In rapidly changing environments, dynamic networks are used primarily as a tool of innovation. -Trust is an important aspect of successful cooperative strategies.

Why the A**holes are Winning: Money Trumps All - Pfeffer

-Corporate performance and reputation are not that highly correlated (Amazon ex.) -numerous behaviors suggest that it seemingly doesn't matter what an individual or a company does, to human beings or the environment, as long as they are sufficiently rich and successful -Moreover, because money can serve as a signal of competence and worth, no amount of money is ever enough -The motivation for people to believe that the world is a just and fair place is from people's desire for a sense of controllability. The acceptance of the unacceptable: -People who experience a misfortune often have negative traits attributed to them by others as a way of explaining why they 'deserved' their misfortune. -People who experience good fortune will have positive attributes applied to them so as to make sense of their success. And it is always possible to reconstruct facts to put them in a positive light, thereby justifying the success of the successful -moral rationalization and moral decoupling -People have a motivation to achieve cognitive consistency; Consistency in attitudes and beliefs by rationalizing bad behavior as not being so bad in light of this person achieving financial success/social status. -People infer traits of social actors from the outcomes those actors have obtained... great success and performance create their own reality. -A successful social actor can say or do almost anything, as the success makes the statements true and the behavior intelligent. -People have a powerful motive to self-enhance and feel good about themselves by associating with successful individuals and organizations. -The focus on maximizing shareholder value helps to legitimize, create, and perpetuate institutions that thereby ensure their continued dominance, contribute to why money trumps all. How Organizational Studies Got Off Track: -Focus on the economic costs of toxic workplaces, rather than on the human toil -Its location in business schools where the focus is on profits, and its withering away in psychology departments, where the focus is on the human experience. Conclusion -The focus on costs, profits, and economic success has pushed concerns of human well-being to the side. And this economic focus has apparently led to a belief, at least as reflected in choices about who and what to honour, that the ends surely justify the means, no matter how harsh. -We need to expand our dependent variables to consider general employee well-being, because they are important outcomes in their own right.

Mintzberg - "Crafting Strategy"

-Equates the process of strategy making to the process of making pottery. -strategies are patterns that are put into action over time; but strategies may emerge in a different direction than tradition has previously held -strategy making must be a deliberate process; thought must precede action. But "strategies can form as well as be formulated" -strategies can emerge any time and at any place; errors themselves may become chances for opportunity. The image of a craftsman is someone who is dedicated, passionate, intimately involved with the materials, has a personal touch, has mastered the detail of their art, and is experienced. The strategist must also be someone who is involved and connected with their industry and who is personally involved with the industrial processes (rather than a detached manager). Finally, just as a craftsman may see things that other people miss, the strategist must be able to see emerging patterns and guide them into place as strategies.

The Problem of Conformity in Financial Organizations - Vit

-Four alternative risk models that seek to explain how very risky bets happen in financial organizations are the dominant and mainly quantitative risk analysis model, the contrarian model, the evolutionary model, and the institutional structure model. -Many of the people who suffered heavy losses in these case studies were betting upon applied quantitative financial models. -This risky economic activity was further reinforced at higher levels of analysis by a mimetic institutional field and the boom phase of an economic cycle. -Event 1 (bubble building): The accumulation of risky activities by employees within a group of insiders, of an organization, which at some point secretly "bets the farm" or threatens the survival of an organization. Somehow the economic rationality of quantitative models is undermined and overriden. Although numbers may tell a different story, a highly profitable fictive quantitative model/money machine is hailed by quant insiders as having been found. This is Event 1, social override. -Event 2 (bubble bursting): Management and related parties realize that there is a dire problem on hand. This results in the recognition of large existing or potential losses, and often causes a credit, liquidity and confidence crisis. -Given the synchronous nature of most large financial institutions and markets, imitative behavior may occur. -Adam Smith's "over-trading": the decoupling of economic and technical rationality and its override by social forces drive revenues and asset prices even higher. -Non-economic social logics deal with the seemingly obvious massive red flags thrown up by risk management system's economic and technical warnings. Eventually there is the collective realization by a consensus of managerial and market participants that there is a clear absence of numerate technical/economic rationality behind asset price gains and a return to assumptions of technical rationality which then results in financial collapse.

Chapter 2 - External & Industry Analysis

-General environment, industry environment (factors that influence a firm, its actions and responses, and the industry's profitability potential... Porter's 5 forces), competitor environment (in which the firm analyzes each major competitor's future objectives, current strategies, assumptions and capabilities). -By studying the 5 forces, the firm finds a position in an industry where it can influence the forces in its favor or where it can buffer itself from the power of the forces to achieve strategic competitiveness and earn above-average returns. General Environment segments: 1. Demographic 2. Economic 3. Political/legal 4. Sociocultural 5. Technological 6. Global 7. Sustainable physical (the physical environment and its sustainability). -Scanning, monitoring, forecasting, and assessing are the 4 parts of the external environmental analysis process. 1. Scanning - Identifying early signals of environmental changes and trends. 2. Monitoring - Detecting meaning through ongoing observations of environmental changes and trends. 3. Forecasting - Developing projections of anticipated outcomes based on monitored changes and trends. 4. Assessing - Determining the timing and importance of environmental changes and trends for firms' strategies and their management. - Companies try to recognize trends in each segment of the general environment and predict each trends effect on the company. -Globalfocusing is a way to mitigate risks when entering international markets. These firms focus on global niche markets. This allows them to build on to and use their core competencies while limiting their risks within the niche market.

Conrad Black

-Hollinger controlled the Black newspaper empire -Black forced to resign as CEO. -Tweedy Browne is a shareholder (owns 18%) of Hollinger International. -Facing legal challenges and an investigation by the SEC -Tweedy Browne became frustrated by the inexplicably large sums of money being paid to Lord Black and other senior directors or companies controlled by them or Ravelson. -Ravelston Corp. is a group of companies Black uses as the control vehicle for his various investments. -Black decried concerns about corporate governance as nothing more than a 'fad'. -32$M of payments not authorized by the board -Hundreds of millions of dollars of approved payments to Ravelston. -The boards of both Hollinger Inc and Hollinger International are made up of Black's friends and business associates. -The board of Black's close friends and those that hold similar views to him, is anathema to good corporate governance. -The entire board is at fault because if they weren't party to those decisions they weren't fulfilling their responsibilities to shareholders. -Kissingers "Loyalty [to Black] is obfuscating his responsibility to shareholders". -Black's wife was also on Hollinger's Board. -1992 Black floated the Telegraph on the stock market and cut his stake to 57% just before slashing the Telegraph's cover price, causing the share price to collapse. -Breeden, former SEC chairman was hired to find the $32M of unauthorized payments, and plays the role of the corporate governance enforcer. -Hollinger International sued Black for racketeering. -Allegations: Black wrongly took money via inflated management fees and 'non-compete' payments when newspapers were sold. Black used Hollinger as "a cash cow to be milked of every drop of cash". -His wife described herself as having "an extravagance that knows no bounds". Personal expenses often charged to Hollinger International.

Current Event for Midterm: A Cleaning Start-Up Wielding Mops, Buckets and 700 Data Points - NY Times

-Simon Brooks unknowingly started a start-up when he raised his hand to volunteer to clean the Hacker Dojo (a community space for tech start-ups whose members have round-the-clock access) for a free membership in return. -His cleaning company relies on analytics to improve efficiency and set prices. -He realized that the cleaning market was a $51B industry (external environment) -His service is differentiated because it is unusually high-tech for the industry. It collects more than 700 points of data, like the time it takes to mop a square foot, and uses the information to improve and refine its cleaning methods, and to set prices, rather than charge by the number of labor hours. Margins in this industry are so low, that it is important to use this data to shave off every bit of labor they can. -Squiffy Clean pays a higher hourly wage ($17/hr vs. about $11), and gives cleaners equity in the company and makes their safety a top priority. This makes for happier and thus more dedicated, motivated and efficient workers. -To address concerns of sexual assault/safety for women in the business, the night crews clean in teams of at least 4, and there is never a lone woman on the team. "A lot of people view janitorial work as just a way to make money, but Simon embraces it as the very important job it is and takes a very scientific approach to it," said Tom LeGan, the facilities manager at Singularity. "He's also very compassionate about his workers. You don't see that in many corporations, let alone a janitorial services company."

Chapter 3 - Internal Environment: Core Competencies

-The most effective organizations recognize that strategic competitiveness and above-average returns result only when core competencies are matched with opportunities in the external environment. -Because competitive advantages are not sustainable, firms must exploit their current advantages while simultaneously using their resources and capabilities to form new advantages that can lead to future competitive success. -The knowledge the firm's human capital possesses is among the most significant of an organization's capabilities. -Capabilities are more difficult for competitors to imitate than are resources. -To be a core competence and competitive advantage, a capability must be valuable, rare, costly to imitate, and nonsubstitutable. -Core competencies cannot be allowed to become core rigidities. -Value chain analysis is used to identify and evaluate the competitive potential of resources and capabilities. -Outsourcing is considered when the firm cannot create value in either a value chain activity or support function. -A global mind set is the ability to analyze, understand, and manage an internal organization in ways that are not dependent on the assumptions of a single country, culture, or context.

Case: Cirque du Soleil

-The organization needs to balance the tension between commercial and artistic success. -Decentralized human resources because of 2500 employees who are mostly international. -Pamper their talent so that the retention period is 3-6 years where the norm is less than 1 year. -Won the WORKFORCE Magazine Optimas Award which recognizes an HR department that has created a program or strategy to help a company succeed in the world marketplace. -Vertical and horizontal internal job mobility allows the firm to fill 90% of its openings internally. -Privately held firm which liberates it from the typical demands of short-term growth made by the financial markets. Instead the firm has the freedom to make decisions based on artistic and creative criteria rather than on industry benchmarks and ratios. -In order to diversify, announced plans to establish mega entertainment complexes around the globe. These were cancelled because of creative control issues as well as the post 9/11 tourism market. -Talked about plans to start a tv show in order to diversify and move onto new platforms. -As the Cirque reached its saturation point? Can the Cirque burn any brighter, or if by trying to spread, in fact burn out?

Current Event for Midterm: AT&T and Time Warner $85B merger

-The pace of innovation in terms of delivering meaningful content to customers on mobile devices is going to change. - By putting these two companies together, we're going to change how the customer views content. -Our consumers are consuming more content than ever but in different places; on the go, on the tablet and mobile devices. -If we can actually innovate and curate the content differently, and bring it to the customer differently, this demand will continue to grow. -Customers will be able to stream any kind of content, anywhere so we will be able to compete head to head with the cable companies. -Content and mobility are merging. -This deal is unique because this is a true vertical integration of two companies; Time Warner is a supplier to AT&T. -Consumers will have more choices of different packages for the TV and tablet; uninterrupted streaming from the TV to the tablet. -Mobile-centric package with premium Time Warner content. - This will help us do even more investment, variety and keep evolving the distribution system, leading to more competition and lower prices. We need to get this out across the world in a way that harnesses the 21st century of mobile devices. -This is one of the biggest media mergers in history. -AT&T's wireless and internet service coming together with CNN, HBO and other big brands. -AT&T says it will lead next wave of converging media and communications industry, create new customer choices, provide significant financial benefits, offers competitive alternative to cable; provide better value, more choices. -Now AT&T has a whole new customer base, with actual content to provide to customers. -AT&T now owns a major news brand division -AT&T says "the future of mobile is video, and future of video is mobile".

Foreseeing the Problem of Conformity in Strategy - Vit

-The strategy student is exposed to reductionist frameworks, checklists and generic recipes without questioning their underlying taken-for-grantedness. -Implicit assumptions behind the dominant model: 1. If managers use the prescribed model, they will be more competitive and achieve greater shareholder wealth creation than those that do not. 2. Assumes that the organization is a subject that can act upon the world and 'make' the 'right' optimal rational strategic choices (analysis formulation and optimized action vs. emergent strategies and unintended actions). 3. Hard data and analysis are relied upon and ignores soft data and intuition. The model is also assumed to be a top-down activity reserved for senior management, when in reality many organizations create loose boundaries and use individuals on the bottom to help create new visions of their futures. 4. Temperal-centric in that it assumes that it is the most advanced and contemporary way of dealing with strategy. USA-centric in that these models became embedded within business schools in the US, and schools outside the US engaged in mimetic perpetuation of the dominant model. 5. Old ideas are modified incrementally; stasis is maintained in many large organizations by the 'strategic management process' until crisis causes change to happen in quantum leaps. -De-freezing: describing prescription -Re-freezing: prescribing description

Competitive Advantage - Hill & Jones

-Two basic conditions determine a company's profit rate and hence whether it has a competitive advantage: 1. The amount of value customers place on the company's goods or services 2. The company's costs of production. -The price charged often tends to be less than the value placed on the product by many customers due to competition. -A company has high profits, and thus a competitive advantage, when it creates more value for its customers than do rivals. In other words, the concept of value creation lies at the heart of competitive advantage. -Compaq's competitive advantage against AST came from a combination of a low cost structure and differentiation, therefore they created more value for customers (V-C was greater for them than for AST). -So this competitive advantage was based on superior value creation. - 4 factors build competitive advantage: 1. Efficiency: outputs/inputs. The more efficient a company is, the fewer inputs it takes to produce a given output, leading to a lower cost structure, or cost-based competitive advantage. 2. Quality - High quality increases the value of the product to customers, and allows the firm to charge a premium price. Higher product quality also leads to greater efficiency and lower unit costs because less employee time is wasted making defective products so less time has to be spent fixing mistakes. 3.Innovation - Anything new or novel about the way a company operates or the products it produces. This differentiates the firm from rivals, and lets it charge a premium price for its product, or reduce its unit costs far below those of competitors. By the time competitors imitate the innovation, the innovator has already built up such strong brand loyalty that its position is hard to attack. 4. Customer responsiveness - Identifying and satisfying customer needs. Achieving superior quality and innovation are an integral part of achieving superior customer responsiveness. Offering customizable goods and services to meet the unique demands of individual customers is also a form of customer responsiveness. Customer response time is the time it takes for a good to be delivered or a service to be performed. Superior customer responsiveness allows the firm to charge a higher price.

Studying Family Businesses - Danny Miller & Isabelle Le Breton-Miller

-Unlike most large, publicly traded companies, family businesses often outperform by being managed for the long run. They have 4 priorities: 1. continuity and persistence in pursuing a substantive rather than a financial mission. 2. Exceptional attention to the internal community of employees. 3. Unusually close connection to key external stakeholders. 4. Courageous commanding leadership that resists pressures from shortsighted owners. -CEOs are often given short term incentives such as rapidly vesting stock options... often there are disastrous incidences of short-termism. -By law, top managers and board members must be accountable only to their shareholders. -Family businesses actually represent 92% of American businesses and 35% of the Fortune 500. -Family businesses outperform their non family counterparts in market valuations, shareholder returns, return on capital, etc. and are shown to survive 2 to 3 times as long. -Not much attention given to quarterly numbers, stock price or earnings, emphasis on the substantive achievements and the health of the organization as a whole. -CEOs had little interest in drawing attention to themselves, no lavishness in lifestyle, perks or compensation. -All dominated by the same theme or approach "managing for the long run". -Priorities of the management philosophy: 1. Continuity - substantive rather than financial mission, built focal competencies over a sustained period, fostered long executive apprenticeships and tenures to match these investment time horizons. 2. Community - Embraced strong values, underhired, trained and mentored deeply, unusually loyal and generous to employees. Insisted that everyone buy into the values of the company. 3. Connection - Favored long-term, win-win relationships with external stakeholders over bargains and transactions. 4. Command. - Courageous governance, incentive to invest for the long run came from the future reputations, fortunes, and careers of their children at stake. -Executives at successful FCBs are concerned with the long-run interests of the company and all its stakeholders. It is a truly blessed paradox that shareholders, ultimately, will gain the most only when these other interests (employees, clients, partners, and society) are taken care of. Here is a situation in which traveling the high road benefits everyone-in time.

Six Basic Parts of the Organization - Mintzberg

1. The operating core - operators perform the basic work of producing the products and rendering the services. 2. Strategic apex - occupied by the manager(s), where the whole system is overseen. 3. Middle line - a hierarchy of authority between the operating core and the strategic apex. 4. Techno-structure - The analysts who perform administrative duties - to plan and control formally the work of others. 5. Support Staff - Provide various internal services 6. Ideology - "culture" encompasses the traditions and beliefs of an organization that distinguish it from other organizations and infuse a certain life into the skeleton of its structure. -Internal coalition is all the people who work inside the organization to make its decisions and take its actions, may be thought of as influencers who form a kind of internal coalition. A system within which people vie among themselves to determine the distribution of power. -External coalition is composed of the various outside parties trying to influence the firm. -Every organized human activity gives rise to two fundamental and opposing requirements: the division of labor into various tasks to be performed and the coordination of those tasks to accomplish the activity. 1. Mutual adjustment achieves coordination of work by the simple process of informal communication. It is the most obvious way to coordinate but also used in the most complex situations because it is the only means that can be relied upon under extremely difficult situations. 2. Direct supervision in which one person coordinates by giving orders to others. This tends to come into play after a certain number of people must work together. 3. Standardization of work processes means the programming of the content of the work, the procedures to be followed. Typically the job of the analysts to program the work of different people in order to coordinate it tightly. 4. Standardization of outputs means the specification not of what is to be done but of its results. 5. Standardization of skills is where the worker rather than the work or the outputs that is standardized. He or she is taught a body of knowledge and a set of skills which are then applied to the work. (Ex: University). The standards are internalized by the operator. Coordination is then achieved by virtue of various operators' having learned what to expect of each other. 6. Standardization of norms means that the workers share a common set of beliefs and can achieve coordination based on it. -These mechanisms can be considered the most basic elements of structure, the glue that holds organizations together. -Typically all of these mechanisms will be found in an organization, but many organizations favor one over the others. Organizations that do not favor any one mechanism are prone to becoming politicized. Simply because of the conflicts that naturally arise when people have to vie for influence in a relative vacuum of power.

Financial Service Industry Mismanagement - Vit

Isomorphism - the institutional process by which organizations become homogenous and resemble each other. Isomorphic behavior is transmitted between organizations through written and unwritten norms, ideology and structural features. o Paradox: The more organizations try to be innovative, the more they resemble each other. o Institutional fortress model of mismanagement- a firm within an industry may be viewed as an organization that is protected within invisible walls or norms. This model is offered as a first step in explaining why highly institutionalized financial service industry organizations are comprised of rational individuals who collectively at times 'mismanage' or behave irrationally. • Walls are erected around key inputs such as raw materials/capital/technology/labor. Formal laws or informal practices also protect outputs. • With age, the walls get thicker and taller until the firms within the fortress can no longer see the competition, thus activity within the fortress becomes routine and turns away from the efficient allocation of scarce resources as they are relatively abundant. Instead, the organization focuses on ritual and ceremony. • Wall maintenance outside the fortress is achieved by legitimacy-building activities. o "mismanagement" - when the effectiveness of maintaining the walls (protected inputs/outputs) becomes more important than the efficiency of the firms within them. o Given this comfortable arrangement, those within the fortress would like to remain there and those outside it should be clamoring to get inside → isomorphism o DiMaggio and Powell maintain that large organizations which have existed for a long time in non-perfectly competitive markets will resemble one another. o Article argues that a deeper understanding of an organization's institutional environment provides another valuable level of analysis, in addition to highly rationalized and prescriptive frameworks

Case: The Honda Effect

Japanese view on strategy: distrustful of a single strategy for in their view any idea that focuses attention does so at the expense of peripheral vision, which they believe is essential to discerning changes in the customer, or the environment, and is the key to corporate survival over the long haul. -Examples of 3 cases involving American conglomerates , wedded to the portfolio concept that classified pianos, zippers and motorcycles as cash cows, (mature businesses to be harvested rather than nourished and defended), had lost to their Japanese counterparts. -Widespread tendency in American corporations to misapply concepts and become strategically myopic; ignoring the marketplace, the customer, and the problems of execution. -Honda's strategy of taking position as low cost producer and exploiting economies of scale -Honda's success can be attributed to serendipity, organizational learning and miscalculation. -For Mr. Honda, the successful higher horsepower engine opened the possibility of pursuing one of his central ambitions - to race his motorcycle and win - "You meet the nicest people on a Honda" campaign -The "Honda Effect": How an organization deals with miscalculation, mistakes, and serendipitous events outside its field of vision is often crucial to success over time. Honda's success was achieved by senior managers humble enough not to take their initial strategic positions too seriously. The cumulative impact of "little brains" all contributing incrementally to the quality and market position Japanese companies enjoy today. -Middle & upper management saw their primary task as guiding and orchestrating this input from below rather than steering the organization form above along a predetermined strategic course. -Japanese think of strategy in terms of 'strategic accommodation' or 'adaptive persistence' underscoring their belief that corporate direction evolves from an incremental adjustment to unfolding events -It is this ability of an organization to move information and ideas from the bottom to the top and back again in continuous dialogue that the Japanese value above all things. -In conclusion, strategy is defined as 'all the things necessary for the successful functioning of organization as an adaptive mechanism' -This contradicts some of the basic assumptions in the textbook because textbook strategy relies on rigid assumptions and planning, which takes away from the 'peripheral vision'. Textbook strategy is not adaptive and struggles to identify changing customer trends and behavior. American strategy is wedded to the portfolio concept, often classifying ventures as cash cows rather than adapting their strategy to defend and grow these ventures. This is how the Americans lost to their Japanese counterparts.