Fourth Edition Copyright ©2003 Prentice Hall, Inc. PART Understanding the Business of Managing

Copyright ©2003 Prentice Hall, Inc Chapter 5 Managing the Business Enterprise

Copyright ©2003 Prentice Hall, Inc “Some men see things as they are and say why. I dream of things that never were and say why not.” ~ John F. Kennedy

Copyright ©2003 Prentice Hall, Inc Key Topics Setting goals and formulating strategies The management process Types of managers by level and area The five basic management skills The development and importance of corporate culture

Copyright ©2003 Prentice Hall, Inc Discussion Some of you have worked in organizations with very different corporate cultures (e.g. an advertising agency, a law office, a film production company, a coffee house), you may speak for a few moments about the culture of your workplace. Possible questions to answer: Who has power, and how do you know that? What is the level of formality, and how do you know that? How do people dress? How do people communicate regarding large issues? Regarding small issues? How are offices distributed and decorated? Who gets the good gossip? Is there a difference between who has official power, and who has “real” power?

Copyright ©2003 Prentice Hall, Inc Culture and development One could easily argue that the key strengths of American business are vision and innovation. American entrepreneurs have developed breakthrough products and services that have changed the lives of people around the world.

Copyright ©2003 Prentice Hall, Inc Managers are responsible for business performance and effectiveness. Managers are accountable to all key stakeholders. EFFECTIVE MANAGERS An Invaluable Resource for Business

Copyright ©2003 Prentice Hall, Inc Strategy: The broad set of action plans to achieve company goals Corporate Strategy Business Strategy Functional Strategy Setting Goals Is the Starting Point of Effective Management

Copyright ©2003 Prentice Hall, Inc Setting Goals Is the Starting Point of Effective Management Strategy: The broad set of action plans to achieve company goals. Corporate strategy: Strategy for determining a firm’s overall attitude toward growth and the way it will manage its businesses or product lines. At times a company may decide to retrench, or reduce its activities or investment, rather than to grow. Business or competitive strategy: Strategy, at the business- unit or product-line level, focusing on a firm’s competitive position. Functional strategy: Strategy by which managers in specific areas (e.g. marketing, operations, etc.) decide how best to achieve corporate goals by being as productive as possible.

Copyright ©2003 Prentice Hall, Inc Business Goals Are Performance Targets Goals are performance targets with a range of different purposes: The purposes of goal-setting: To provide direction for managers To help firms allocate resources To help define corporate culture To help managers assess performance

Copyright ©2003 Prentice Hall, Inc The purposes of goal-setting Providing direction: Goals help managers at all levels to focus on key priorities. Allocating resources: Goals provide managers with direction in terms of allocating key resources (money, time, and talent). Defining corporate culture: Goals help determine the values and environment of an organization. Assessing performance: Goals help managers assess performance of both individual employees and the organization as a whole. Example on this:

Copyright ©2003 Prentice Hall, Inc Effective Organizations Set Goals at Many Different Levels Mission Statement: How a business will achieve its fundamental purpose Long-term Goals Intermediate Goals Short-term Goals

Copyright ©2003 Prentice Hall, Inc Mission IBM Mission: We strive to lead in the creation, development, and manufacture of the industry’s most advanced information technologies, including computer systems, software, networking systems, storage devices, and microelectronics. We translate these advanced technologies into value for our customers through our professional solutions and services businesses worldwide. (Source:

Copyright ©2003 Prentice Hall, Inc Vision Statements Answers the question: “What do we want to become?”  First step in strategic planning  Oftentimes a single sentence Microsoft: “A computer on every desk, and in every home, running on Microsoft software”> “Our vision is to take care of your vision.” (Stokes Eye Clinic, Florence, South Carolina) Strategic Management Terms (Cont’d)

Copyright ©2003 Prentice Hall, Inc Vision & Mission (Cont’d) Mission statement answers the question: “What is our business?”

Copyright ©2003 Prentice Hall, Inc Components of Mission (Cont’d) Components of mission and corresponding questions to be answered: Customers:  “Who are the firm’s customers?” Products or services:  “What are the firm's major products or services?”

Copyright ©2003 Prentice Hall, Inc Components of Mission (Cont’d) Markets:  “Geographically, where does the firm compete?” Technology:  “Is the firm technologically current?”

Copyright ©2003 Prentice Hall, Inc Components of Mission (Cont’d) Concern for survival, growth, and profitability:  “Is the firm committed to growth and financial soundness?” Philosophy:  “What are the basic beliefs, values, aspirations, and ethical priorities of the firm?”

Copyright ©2003 Prentice Hall, Inc Components of Mission (Cont’d) Self-concept:  “What is the firm’s distinctive competence or major competitive advantage?” Concern for employees:  “Are employees a valuable asset of the firm?”

Copyright ©2003 Prentice Hall, Inc Goals –Long-term goals are set for extended periods of time, typically 5+ years, and usually encompass the entire organization. Example: “Achieve number one market share in each industry where we compete.” –Intermediate goals are set for a period of one to five years, and are usually set in several areas (e.g. marketing, finance, production, etc.). Example: “Human resources might aim to decrease employee turnover by 10% in the next two years.” –Short-term goals are set for a year or less, and are usually developed in multiple areas. Example: “Process 100 orders each day in customer service.”

Copyright ©2003 Prentice Hall, Inc A Well-Formulated Strategy Is Vital to a Business’s Success Strategy Formulation Set Strategic Goals Analyze the Organization Analyze the Environment Match the Organization and its Environment Formulate Strategy

Copyright ©2003 Prentice Hall, Inc Steps to formulating a successful business strategy: Set strategic goals: Strategic goals should fall directly from an organization’s mission statement. Possible example: “Match the market leader in terms of quality by the end of the next fiscal year.” Analyze the organization and its environment: This step is also known as a SWOT analysis (strengths, weaknesses, opportunities, and threats). The starting point is organizational analysis: What are the strengths and weaknesses of the organization itself? Possible strengths include a strong brand name, technical expertise, seasoned management, etc., and possible weaknesses include poor financing, high worker turnover, etc. Next, the organization must examine the opportunities and threats in its external environment. Possible opportunities include lack of competition, changes in consumer attitudes, etc., and possible threats include intense competition, government regulation, etc.

Copyright ©2003 Prentice Hall, Inc Discussion Do a SWOT analysis of your college. What are the internal strengths and weaknesses, and the external opportunities and threats? What action steps emerge from their analysis? Match the organization and its environment: The final step is the heart of strategy formulation, leading to plans with a higher likelihood of success.

Copyright ©2003 Prentice Hall, Inc The Management Process Planning Strategic Tactical Operational Contingency Crisis Organizing Directing Controlling

Copyright ©2003 Prentice Hall, Inc The Management Process Management is the process of planning, organizing, directing, and controlling an organization’s resources to achieve its goals. All four aspects of management are interrelated, with fluid boundaries between them. Planning, in the most basic sense, is determining what needs to be done and how best to do it. Strategic plans reflect decisions about resource allocation and company priorities, and are usually created by top management. Tactical plans involve implementing specific aspects of the strategic plans, and are usually created by upper and middle management. Operational plans set short-term targets for daily, weekly, or monthly performance. Contingency plans are hedges against changes that might occur in a business or its environment, and plans for how to respond. Crisis plans are methods of dealing with emergencies (NY businesses engaged in crisis management after the 9/11 attacks). IUG engaged in crisis management during Israeli closures and separations to Gaza Strip.

Copyright ©2003 Prentice Hall, Inc The Management Process Organizing is determining the best way to arrange an organization’s resources and activities into a coherent structure. Directing, or leading, is the process of guiding and motivating employees to meet an organization’s objectives. Controlling is the process of monitoring an organization’s performance to ensure that it is meeting its goals.

The Control Process Establish Standards Measure Performance Does measured performance match standards? YESNO Continue Current Activities Adjust Performance or Standards

Copyright ©2003 Prentice Hall, Inc Levels of Management Top Managers Middle Managers First-Line Managers

Copyright ©2003 Prentice Hall, Inc Levels of Management »Top managers are responsible for a firm’s overall performance and effectiveness. Common titles include chief executive officer (CEO), president, vice-president, chief financial officer (CFO), and treasurer. Responsibilities include setting general policies, formulating strategies, approving significant decisions, and representing the company to other firms and governmental bodies. »Middle managers are responsible for implementing the policies, strategies, and decisions made by top managers. Common titles include plant manager, operations manager, and division manager. »First-line managers are responsible for directly supervising employees as they implement company tactics on a day-by- day basis. Common titles include supervisor, office manager, and group leader.

Copyright ©2003 Prentice Hall, Inc Human Resources Marketing Financial Operations Information Other Areas of Management

Copyright ©2003 Prentice Hall, Inc Areas of Management Human resources managers: Hire and train employees, evaluate performance, and help determine compensation. Operations managers: Handle production, inventory, and quality control, among other responsibilities. Marketing managers: Handle the development, pricing, promotion, and distribution of goods and services. Information managers: Design and implement systems to gather, organize, and distribute information. Financial managers: Plan and oversee accounting and financial resources. Other managers: This category encompasses a variety of other special functions. Two examples (among many possibilities) are public relations managers, and research and development managers.

Copyright ©2003 Prentice Hall, Inc Basic Management Skills Human Relations Skills Technical Skills Conceptual Skills Time Management Skills Decision- Making Skills

Copyright ©2003 Prentice Hall, Inc Basic Management Skills To be effective, managers must develop a range of skills. Also, they must be able to recognize their own limitations, and learn how to compensate. Key skills include: Technical skills: Ability to perform specialized tasks (e.g. an animator’s ability to draw, an accountant’s ability to analyze spreadsheets, a salesperson’s ability to “close the deal”). Human relations skills: Ability to understand and get along with other people. Communication skills often play a crucial role in strong human relations. Conceptual skills: Ability to think in the abstract, to diagnose and analyze different situations, and to see beyond the present situation. Decision-making skills: Ability to define problems and select the best course of action. Time management skills: Ability to use time productively. Managers must learn to effectively address the four leading timewasters: paperwork, telephone, meetings, and .

Copyright ©2003 Prentice Hall, Inc Discussion Which skills are most necessary at which levels of management? Why? You should recognize that while all skills are needed at all levels, technical skills are most necessary for first-line managers (directly supervising those who “do the work”), human relations skills are most necessary for middle managers (acting as bridges between first-line and senior managers), conceptual skills are most necessary for top managers (charting the course for the organization). the transition through management ranks can be rather difficult, since different skills come more into play at different levels.

Copyright ©2003 Prentice Hall, Inc How to Spot the E-CEO Traditional CEO EncouragingAlert\vigilantCordial\friendly Fast moving Anti-ambiguity Age: 57 RichE-CEO Evangelizing\ very enthusiasm Paranoid\fearful Brutally frank Faster moving Pro-ambiguity Age: 38 Richer

Copyright ©2003 Prentice Hall, Inc Management Skills for the Future Global Management Skills Information & Technology Skills

Copyright ©2003 Prentice Hall, Inc Management Skills for the Future »Looking to the future, new skill requirements for managers continue to emerge: »Global management skills: Managers will need to understand not only cultural differences, foreign markets, and the motives and practices of foreign rivals, but also the managerial complexities of international operations. »Information and technology skills: As organizations are bombarded with ever-increasing amounts of information, the ability to quickly process and interpret input will become even more important.

Copyright ©2003 Prentice Hall, Inc Management Is Tightly Linked to Corporate Culture Corporate Culture: The shared experiences, stories, beliefs, and norms that characterize an organization Communicating the Culture Managing Change

Copyright ©2003 Prentice Hall, Inc Corporate culture »Corporate culture: The shared experiences, stories, beliefs, and norms that characterize an organization. »Successful managers understand and communicate the culture of an organization, quickly integrating newcomers. »Organization culture created by the founders and continue to be developed by the successors. »When corporate culture needs to change, direction must come from the top, with a new system of rewards that reflects the new culture. »Discussion: What is the “corporate culture” of your college or university? Is it a healthy culture? Why or why not?

Copyright ©2003 Prentice Hall, Inc Questions for Review What are the four main purposes of setting goals in an organization? To provide direction and guidance for managers at all levels To help firms allocate resources To help define corporate culture To help managers assess performance Identify and explain the three basic steps in strategy formulation. 1. Setting strategic goals, which stem from the organization’s mission statement 2. Analyzing the organization and its environment for strengths, weaknesses, opportunities, and threats 3. Matching environmental threats and opportunities against the organization’s strengths and weaknesses

Copyright ©2003 Prentice Hall, Inc Questions for Review Relate the five basic management skills to the four activities in the management process. For example, which skills are most important in directing? Technical skills may be most important in controlling. Human relations skills are especially important in organizing and directing. Conceptual skills are essential in planning. Decision making and time management skills are important for all management activities. What is corporate culture? How is it formed? How is it sustained? Corporate culture is the shared stories, experiences, beliefs, and norms that characterize an organization. Factors that form culture can range from the personality of the founder, to the firm’s overall philosophy, to daily operating methods. Culture is sustained by communicating the culture to all employees (especially newcomers), and by rewarding and promoting those who understand and maintain the culture.