MGMT 309 - Wesson Exam 2 (Ch 6, 7, 8, 20)

Chapter 6: Basic Elements of Planning and Decision Making

(One pair of the 5 total basic elements of management) As we saw in Chapter 1.

Implementing Porter's Generic Strategies

- Differentiation: -- An organization seeks to distinguish itself from competitors through the quality of its products or services - Overall Cost Leadership: -- Marketing and sales focus on simple product attributes and how these product attributes meet customer needs in a low-cost and effective manner - Focus: -- Either differentiation or cost leadership, depending on which one is the proper basis for competing in or for a specific market segment, product category, or group buyers

Miles and Snow's Strategy Types

- Prospector -- Encourages creativity to seek out new market opportunities and to take risks -- Develops the flexibility to meet changing market conditions by decentralizing its organizational structure - Defender -- Focuses on defending its current markets by lowering its costs and/or improving the performance of its current products - Analyzer (Prospector + Defender) -- Incorporates elements of both the prospector and the defender strategies to maintain business and to be somewhat innovative - Reactor -- Has no clear strategy, reacts to changes and events -- (Leads to crisis management, generally go out of business)

*Lecture addition* Criteria for Effective Goals:

- Specific and measurable - Cover key result areas - Challenging but realistic - Defined time period - Linked to rewards -- Pay increase, promotion *Don't confuse goals vs expectations: ex: Your goal can't be just to come to class. *If the goal isn't challenging, you'll probably do worse and work less ex: Calculating grade needed for final.. need between 70 to 110 for an A.. you decide to shoot for a 70.. you'll get a lower grade than 70 and get a B.. SO: shoot for the 100.

SWOT Analysis and Strategy (cont'd)

- Sustained competitive advantage -- Occurs when a distinctive competence cannot be easily duplicated. -- Is what remains after all attempts at strategic imitations cease - Strategic imitation of a distinctive competence is difficult when: -- It is based on unique historical circumstances -- It is difficult for competitors to understand its nature or character -- It is based on a complex phenomenon (e.g., organizational culture, unique historical event)

Managing Diversification (cont'd)

BCG Matrix - Evaluates a portfolio of businesses on the growth rate of their respective markets and each business's relative share of its market - Classifies the type of businesses in a diversified firm's portfolio as: -- "Dogs" have small market shares and no growth prospects -- "Cash cows" have large shares of mature markets -- "Question marks" have small market shares in quickly growing markets -- "Stars" have large shares of rapidly growing markets - So get rid of dogs and put the money your cash cows generate into your question marks and stars

Managing Goal-Setting and Planning Processes

Barriers to Goal Setting and Planning - As part of managing the goal-setting and planning process, managers must understand the barriers that can disrupt them - Managers must also know how to overcome them - Major barriers: -- Inappropriate goals, improper reward system, dynamic and complex environment, reluctance to establish goals, resistance to change, constraints - Overcoming the barriers -- Understanding the purposes of goals and planning, communication and participation, consistency, revision, and updating, effective reward system *Sell the value to the top. Do people value that?

Implementing Corporate-Level Strategies (cont'd)

Becoming a diversified firm (cont'd): - Merger -- Purchase of one firm by another firm of approximately the same size - Acquisition -- Purchase of a firm by another firm that is considerably larger - Purposes of mergers and acquisition -- To diversify through vertical integration -- To acquire complementary products or services linked by a common technology and common customers -- To create or exploit synergies that reduce the combined organizations' costs of doing business to increase revenues

Implementing Corporate-Level Strategies

Becoming a diversified firm: - Internal development of new products -- Developing products and services within the boundaries of traditional business operations. - Replacement of suppliers and customers -- Backward vertical integration --- Beginning a business that furnishes resources previously handled by a supplier -- Forward vertical integration --- Beginning a business previously handled by an intermediary and selling more directly to customers

Making Group and Team Decisions More Effective

Being aware of the pros and cons of having a group or team make a decision Setting deadlines for when decisions must be made Avoiding dominance problems by managing group membership Having each group member individually critically evaluate all alternatives Not making your position known too early Appointing a group member to be a "devil's advocate." Holding a follow-up meeting to recheck the decision

Behavioral Aspects of Decision Making

Bounded Rationality - Decision makers are limited by their values and unconscious reflexes, skills, and habits Satisficing - The tendency to search for alternatives only until one is found that meets some minimum standard of sufficiency to resolve the problem Coalition - A positive or negative political force in decision making which consists of an informal alliance of individuals or groups formed to achieve a goal

Types of Strategic Alternatives

Business level strategy: - The set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or a particular market Corporate level strategy: - The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets

Kinds of Goals

By level: - Mission statement is a statement of an organization's fundamental purpose. - Strategic goals are goals set by and for top management of the organization that address broad, general issues (long term, 5+ years) - Tactical goals are set by and for middle managers; their focus is on how to operationalize actions to strategic goals (intermediate term, 1-2 years) - Operational goals are set by and for lower-level managers to address issues associated with tactical goals (short term, 1 year or less) By area: - Different functional areas of the organization By time frame: - Long-term, intermediate term, or short-term time frames and explicit time frames or open ended.

Contingency Planning and Crisis Management

Contingency Planning - The determination of alternative courses of action to be taken if an intended plan is unexpectedly disrupted or rendered inappropriate - These plans help managers to cope with uncertainty and change Crisis Management - The set of procedures the organization uses in the event of a disaster or other unexpected calamity - Difficult to anticipate Operational. Contingency Planning is done proactively before Crisis Management. Done to avoid having to go into Crisis Management. Also have to be prepared for the unpreparable.

*Lecture addition* Apollo 13 Movie Clip

Contingency plan Crisis management CO2 problem, astronauts

The Decision Making Process

Decision Making - The act of choosing one alternative from among a set of alternatives Decision Making Process - The process of recognizing and defining the nature of a decision situation, identifying alternatives, choosing the "best" alternative, and putting it into practice - An effective decision optimizes some set of factors such as profits, sales, employee welfare, and market share

Decision-Making Conditions

Decision Making Under Certainty - The decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative Decision Making Under Risk - The availability of each alternative and its potential payoffs and costs are all associated with risks Decision Making Under Uncertainty - The decision maker does not know all the alternatives, the risks associated with each, of the consequences of each alternative

Decision Making and Planning

Decision Making: - Is the cornerstone of planning - Is the catalyst that drives the planning process - Underlies every aspect of setting goals and formulating plans Planning: - All organizations plan, but not in the same fashion - All planning occurs within an environmental context - All goals require plans to guide in their achievement - All goals are tied to higher goals and plans

Designing Operations Systems

Determining Product-Service Mix - Involves deciding how many and what kinds of products to offer in the marketplace Capacity Decisions - Involve choosing amount of products, services, or both that can be produced by an organization - Can be high-risk decisions due to uncertainty about future product demand and incurred costs of additional, possibly excess, capacity

International and Global Strategies

Developing International and Global Strategies - Global efficiencies -- Location efficiencies - seeking lower input cost locations -- Economies of scale - larger facilities result in lower costs -- Economies of scope - Multimarket flexibility -- International businesses may respond to a change in one country by implementing a change in another country - Worldwide learning -- The diverse operating environments of multinational corporations (MNCs) contribute to organizational learning that can be transferred to other operating environments

Components of Strategy

Distinctive Competence: - Something an organization does exceptionally well Scope: - Range of markets in which an organization will compete Resource Deployment: - How an organization will distribute its resources across the areas in which it competes

Designing Operations Systems (cont'd)

Facilities Decisions - Facilities are the physical locations where products or services are created, stored, and distributed -- Location is the physical positioning or geographic site of facilities -- Layout is the physical configuration of facilities, the arrangement of equipment within facilities, or both Types of layouts - Product layout: facilities arranged around the product; used when large quantities of a single product are needed - Process layout: facilities arranged around the process; used in facilities that create or process a variety of products - Fixed position layout: facilities arranged around a single work area; used for the manufacture of large and complex products - Cellular layout: a configuration of facilities used when families of products can follow similar paths

Group and Team Decision Making in Organizations

Forms of Group Decision Making - Interacting groups or teams -- Are the most common form of decision-making groups which consists of an existing group or newly formed team interacting and then making a decision - Delphi groups -- Are sometimes used for developing a consensus of expert opinion from a panel of experts who individually contribute through a moderator - Nominal groups -- Are a structured technique designed to generate creative and innovative ideas through the individual contributions of alternatives that are winnowed down through a series of rank-ordering of the alternatives to reach a decision - Brainstorming

Managing Diversification (cont'd)

GE Business Screen - A method of evaluating businesses in a diversified portfolio along two dimensions, each of which contains multiple factors: -- Industry attractiveness -- Competitive position (strength) of each firm in the portfolio - In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business

Disadvantages of Group and Team Decision Making

Groupthink and compliance may occur - Groupthink: the group's desire for consensus and cohesiveness overwhelms its desire to reach the best possible decision - Compliance: people conform to others' expectations or behaviors in the hope of acquiring rewards or avoiding punishment

*Lecture addition* Video: Ice Cream Wars

Hagen Daas: luxury, sensual, differentiation Ben & Jerrys: Focus, caring consumers, still expensive Porter's generic strategies Bluebell focusing on south

Strategic Alternatives for International Businesses

Home Replication - Utilizing a core competency or a firm-specific advantage developed at home as a main competitive weapon in foreign markets Multi-Domestic Strategy - Managing a corporation as a collection of independent operating subsidiaries frees a firm to customize its products, its marketing campaigns, and operating techniques to meet local customer needs Global Strategy - Viewing the world as a single marketplace and having as a primary goal the creation of standardized goods and services that will address the needs of customers worldwide Transnational Strategy - Attempting to combine the benefits of scale efficiencies pursued by a global corporation, with the benefits and advantages of local responsiveness of a multi-domestic corporation

Implementing Business-Level Strategies

Implementing Miles and Snow's Strategies - Prospector -- Encourage creativity to seek out new market opportunities and to take risks -- Develop the flexibility to meet changing market conditions by decentralizing its organizational structure - Defender -- Focus on defending its current markets by lowering its costs and/or improving the performance of current products - Analyzer -- Incorporate elements of both the prospector and the defender strategies maintain business and to be somewhat innovative

Managing Productivity (cont'd)

Improving Productivity - Improving Operations -- Spending more resources on research and development helps identify new products, new uses for existing products, and new methods for making products -- Reworking transformation processes and facilities can boost productivity - Increasing Employee Involvement -- Increased employee participation can increase both quality and productivity -- Cross-training of employees allows firms to function with fewer workers -- Rewards are essential to success in improving productivity

Behavioral Aspects of Decision Making

Intuition - An innate belief about something without conscious consideration Escalation of Commitment - Staying with a decision even when it appears to be wrong Risk Propensity - The extent to which a decision maker is willing to gamble when making a decision

Factors That Prevent Rationality

Lack of Consensus - There must be a general agreement of the definition of problems, decisions and decision-making goals at the beginning Unclear Means-end Relations - It is impossible to generate an exhaustive list of alternatives then select the most promising Noisy Environment - The link between outcome and actions is hard to predict

Managing Diversification

Major tools for managing diversification - Organization structure -- Chapter 11 - Portfolio management techniques -- Methods used by diversified firms to make decisions about what businesses to engage in and how to manage these businesses to maximize corporate performance - Two important portfolio management techniques -- the BCG matrix -- the GE business screen

Using Goals to Implement Plans

Management by Objectives (MBO) - A technique for integrating formal goal setting and planning by giving subordinates a voice and clarifying what they are expected to accomplish. - Manager and subordinate together set the goal

Organizational Technologies

Manufacturing Technology - Technology -- The set of processes and systems used by organizations to convert resources into products or services - Automation -- The process of designing work so that it can be completely or almost completely performed by machines - Robot -- Any artificial device that can perform functions ordinarily thought to be appropriate for human beings - Robotics Service Technology - Services are rapidly moving toward automated systems and procedures

Types of Operations

Manufacturing organization: - A form of business that combines and transforms resource inputs into intangible outcomes that are then sold to others Service organization: - An organization that transforms resources into an intangible output and creates time and place utility for its customers

Implementing Business-Level Strategies

Product Life Cycle - Introduction Stage -- Focus on getting the product out the door without sacrificing quality - Growth Stage -- Focus on ensuring quality and delivery, and begin to differentiate product - Mature Stage -- Focus on low costs and new products. Essential stage if company is going to survive in the long-run - Decline Stage -- entropy, catalyst for change, reinvent, revitalize, harder to get out the longer you stay in this stage

The Nature of Operations Management

Operations Management: - The set of managerial activities used by an organization to transform resource inputs into products, services, or both Importance of Excellence in Operations: - Is necessary for competitiveness and overall organization performance - Creates value and utility through the production of products and services

Responsibilities for Planning

Planning Staff - Gather information, coordinate planning activities, and take a broader view than individual managers. Planning Task Force - Created when the organization wants a special circumstance addressed (shorter term in duration) Board of Directors - Establishes corporate mission and strategy - May engage in strategic planning Chief Executive Officer - May serve as president or board chair; has a major role in planning and implementing the strategy Executive Committee - Is composed of top executives - Meets regularly with the CEO to review strategic plans Line Management - Have formal authority (power granted to them because of their position in the organization) and have responsibility for management of the organization - Help to formulate strategy by providing information - Are responsible for executing the plans of top management

Formulating Business-Level Strategies

Porter's Generic Strategies: - Differentiation strategy: -- An organization seeks to distinguish itself from competitors through the quality of its products or services - Overall cost leadership strategy: -- An organization attempts to gain competitive advantage by reducing its costs below the costs of competing firms - Focus strategy: -- An organization concentrates on a specific regional market, product line, or group of buyers.

Managing Productivity

Productivity - An economic measure of efficiency that summarizes the value of outputs relative to the value of the resources used to produce them Levels of Productivity - The unit of analysis used to calculate or define productivity -- Aggregate productivity: the total level of productivity for a country -- Industry productivity: the total productivity of all the firms in an industry -- Company productivity: the level of productivity of a single company -- Unit productivity: the productivity level of a unit or department -- Individual productivity

Types of Decisions

Programmed Decision - Is a fairly structured decision or one that recurs with some frequency or both - EX: starting your car in the morning Nonprogrammed Decision - Is relatively unstructured and occurs much less often a programmed decision - EX: choosing a vacation destination

Operations Systems in Supply Chain Management (cont'd)

Purchasing Management (Procurement) - Controlling the buying of the materials and resources is at the heart of effective supply chain management Inventory Management - Inventory control (Materials control) -- Managing the organization's raw materials, work-in-process, finished goods, and product in-transit - Just-in-time (JIT) method -- An inventory system than has necessary materials arriving as soon as they are needed (just in time) so that the production process is not interrupted

Organizational Goals

Purpose of Goals: - Provide guidance and a unified direction for people in the organization - Strong affect on the quality of other aspects of planning - Serve as a source of motivation for employees - Provide a mechanism for evaluation and control of the organization

Advantages of Related Diversification

Reduces an organization's dependence on any one of its business activities and thus reduces economic risk Reduces overhead costs associated with managing any one business through economies of scale and economies of scope Allows an organization to exploit its strengths and capabilities in more than one business Synergy exists among a set of businesses when the businesses' value together is greater than their economic value separately

Behavioral Aspects of Decision Making

Risk Propensity - The extent to which a decision maker is willing to gamble when making a decision Ethics and Decision Making - Individual ethics (personal beliefs about right and wrong behavior) combine with the organization's ethics to create managerial ethics - Components of managerial ethics -- Relationships of the firm to employees -- Employees to the firm -- The firm to other economic agents

Operations and Organizational Strategy

Role of Operations in Organizational Strategy - Operations management has a direct impact on competitiveness, quality, productivity, and effectiveness - Operations management and organizational strategy have reciprocal effects on each other - Strategic goals cannot be met if there are deficiencies and insufficiencies in operations resources

*Lecture addition* Types of Operational Plans

Single use plan: - program, project Standing plan: - policy, standard operating procedure, rules and regulations

Corporate-Level Strategies

Single-Product Strategy - An organization manufactures one product or service and sells it in a single geographic market Related Diversification - A strategy in which an organization operates in several different businesses, industries, or markets that are somehow linked - Basis of relatedness -- Similar technology, common distribution and marketing skills, common brand name and reputation, common customers

Formulating Corporate-Level Strategies

Strategic Business Units (SBU): - Each business or group of businesses within an organization is engaged in serving the same markets, customers, or products Diversification: - The number of businesses an organization is engaged in and the extent to which these businesses are related to one another

Strategic Formulation and Implementation

Strategic Formulation: - The set of processes involved in creating or determining the organization's strategies; it focuses on the content of strategies Strategy Implementation: - The methods by which strategies are operationalized or executed within the organization; it focuses on the processes through which strategies are achieved Deliberate Strategy: - A plan, chosen and implemented to support specific goals, that is the result of a rational, systematic, and planned process of strategy formulation and implementation Emergent Strategy: - A pattern of action that develops over time in the absence of goals or missions, or despite goals and missions

Kinds of Organizational Plans

Strategic plans: - A general plan set by and for top management that outlines resource allocation, priorities, and action steps to achieve strategic goals (long term, 5+ years) Tactical plans: - A plan aimed at achieving the tactical goals set by and for middle management (intermediate term, 1-5 years) Operational plans: - Short term focus plans that are set by and for lower level managers (short term ~1 year) Goals lead to plans.

The Nature of Strategic Management

Strategy: - Is a comprehensive plan for accomplishing an organization's goals Strategic Management: - Involves formulating and implementing strategies to take advantage of business opportunities and meet competitive challenges Effective Strategies: - Promote superior alignment between an organization, its environment, and its goals.

The Effectiveness of Formal Goal Setting

Strengths (Success): - Improved employee motivation - Enhances communication - Fosters more objective performance appraisals - Focuses attention on appropriate goals and plans - Helps identify managerial talent - Provides a systematic management philosophy - Facilitates control of the organization Weaknesses (Failure): - Poor implementation of the goal setting process - Lack of top-management support for goal setting - Delegation of the goal-setting process to lower levels - Overemphasis on quantitative goals - Too much paperwork and record keeping - Managerial resistance to goal setting *the top has to buy into it *don't focus too much on #'s or quantifiable part

Operations Systems in Supply Chain Management

Supply Chain Management - The process of managing operations control, resource and inventory acquisition and purchasing, and thus improving overall efficiency and effectiveness Operations Management as Control - Coordinating operations management with other functions helps insure the system focuses on critical elements crucial to goal attainment

Managing Total Quality (cont'd)

TGM Tools and Techniques - Benchmarking -- The process of learning how and what other firms do in an exceptionally high-quality manner - Outsourcing -- Subcontracting operations/services to those who can do them cheaper and/or better - Reduces cycle time -- Table 20.3 - Statistical quality control (SQC) -- Acceptance sampling -- In-process sampling

Managing Total Quality (cont'd)

The Importance of Quality (cont'd) - Competition -- Quality has become one of the most important competitive points in business today - Productivity -- Quality enhancement programs decrease defects, reduce rework, and eliminate the need for inspectors as employees assume responsibility for quality - Costs -- Improved quality reduces costs from customer returns, warranty, and lawsuits for faulty products, and lost sales to future customers

Managing Total Quality

The Meaning of Quality - The totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs - Quality is both a relative and absolute concept - Quality is relevant to both products and services The Importance of Quality - Malcolm Baldrige Award -- Named after a former secretary of commerce, this award is given by the Commerce Department to firms that achieve major quality improvements

Time Frames for Planning

The Time Dimension of Planning: - Planning must provide sufficient time to fulfill the managerial commitments involved Long-range Plans Intermediate Plans - Usually cover from 1 to 5 years and parallel tactical plans Short-range Plans - Short-range (operational) action and contingency plans of 1 year or less

Unrelated Diversification

Unrelated Diversified Organization - Operates multiple businesses that are not logically associated with one another - Advantages -- Stable performance over time due to business cycle differences among the multiple businesses -- Allocation of resources to areas with the highest return potentials to maximize corporate performance - Disadvantages -- Poor performance due to the complexity of managing a diversity of businesses -- Failing to exploit key synergies puts the firm at a competitive disadvantage to firms with related diversification strategies

Responsibilities of Setting Goals

Who Sets Goals? - All managers -- Managerial responsibility for goal setting should correspond to the manager's level in the organization. Managing Multiple Goals - Optimizing allows managers to balance and reconcile inconsistent or conflicting goals -- Managers can pursue one goal and exclude all others or to seek a mid-range goal ** Optimization: reconciling inconsistent or conflicting goals

SWOT Analysis and Strategy

[Evaluating Organizational Strengths] - Organizational Strengths: -- Are skills and abilities enabling an organization to conceive of and implement strategies - Common Organizational Strengths: -- Are organizational capabilities possessed by numerous competing firms - Distinctive Competencies: -- Are useful for competitive advantage and superior performance - Imitation of Distinctive Competencies: -- Removes the competitive advantage of the competency

SWOT Analysis and Strategy (cont'd)

[Evaluating Organizational Weaknesses] - Organizational weaknesses: -- Skills and capabilities that do not enable an organization to choose and implement strategies that support its mission - Weaknesses can be overcome by: -- Investments to obtain the strengths needed. -- Modification of the organization's mission so it can be accomplished with the current workforce - Competitive disadvantage: -- Occurs when an organization fails to implement strategies being implemented by competitors

SWOT Analysis and Strategy (cont'd)

[Evaluating an Organization's Opportunities and Threats] - Organizational opportunities: -- Are areas in the organization's environment that may generate high performance - Organizational threats: -- Are areas in the organization's environment that make it difficult for the organization to achieve high performance