Aureus SummaryOrganizational Theory

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Chapter 1: Managers and management What is management?

Organizations: collections of people who work together and coordinate their actions to achieve a wide variety of goals or desired future outcomes. Managers are the people responsible for supervising and making the most of an organization’s human and other resources to achieve its goals. Management: planning, organizing, leading and controlling these resources. Organizational performance: measure of how efficiently and effectively managers use available resources to satisfy customers and achieve goals. Efficiency is a measure of how productively resources are used to achieve a goal. It means minimizing the amount of input resources or the amount of time needed to produce a given output. Effectiveness is a measure of the appropriateness of the goals that managers have selected for the organization to pursue and the degree to which the organization achieves these goals.

Essential managerial tasks

Planning: Identifying and selecting appropriate goals and courses of action; they develop strategies for how to achieve high performance. Step 1: deciding which goals to pursue. Step 2: deciding what strategies to adopt. Step 3: deciding how to allocate resources. Strategy is a cluster of decisions concerning what organizational goals to pursue, what actions to take and how to use resources to achieve these goals. Examples are low-cost strategy and differentiation. Organizing: structuring working relationships, so organizational members interact and cooperate to achieve goals. The outcome of organizing is the creation of an organizational structure; a formal system of task and reporting relationships that coordinates and motivates members so they work together to achieve goals. Leading: articulate a clear vision for the organization’s members to accomplish, energizing and enabling employees, so everyone understands the part he or she plays in achieving goals. Controlling: evaluating how well an organization has achieved its goals and to take any corrective actions needed to maintain or improve performance. The outcome is the ability to measure performance accurately and regulate organizational efficiency and effectiveness. Mintzberg’s typology (p.13) shows that being a manager, in reality often involves acting emotionally and relying on gut feelings (decisional role, interpersonal role, informational role). He identified 10 kinds of specific roles that capture the dynamic nature of managerial work.

Levels and skills of managers

Organizations group managers in two main ways. First they differentiate managers according to their level or rank in the organization’s hierarchy of authority; first-line managers, middle managers, top managers. Second, they group managers into different departments; a group of managers and employees who work together because they possess similar skills/experience or use the same kind of knowledge, tools, or techniques.

Levels of management First-line managers (supervisors): responsible for daily supervision of employees who perform activities necessary to produce goods/service.

Middle managers: Responsible for finding the best way to organize human and other resources to achieve goals. They help first-line managers and employees to increase efficiency. Top managers: are responsible for the performance of all departments (cross-departmental responsibility). The chief executive officer is a company’s most senior and important managers. Together with the chief operating officer, they are responsible for developing good working relationships among the top managers of various departments. A top management team is a group composed of the CEO, the COO, the president and the heads of the most important departments.

Managerial skills

Conceptual skills: general ability to analyse and diagnose a situation and to distinguish between cause and effect. Education and training are important to develop conceptual skills. Human skills: general ability to understand, alter, lead and control the behaviour of other individuals and groups. They can be developed by education and training, as well as experience. Technical skills: Job-specific skills required to perform a particular type of work or occupation at high level. Core competency is often used to refer to the specific set of departmental skills, knowledge, and experience that allows one organization to outperform its competitors (competitive advantage) Absence of one type of managerial skill can lead to failure.

Recent changes in Management Practices

Tasks and responsibilities of managers have been changing dramatically by two major factors: global competition and advances in information technology (IT). Stiff competition has put increased pressure on all managers to improve efficiency and effectiveness. To utilize IT to increase efficiency and effectiveness, CEO’s and top management teams have been restructuring organizations and outsourcing specific organizational activities to reduce the number of the employees on the payroll, and make more productive use of the remaining workforce. Restructuring involves simplifying, shrinking, or downsizing an organization’s operation to lower operating costs. Outsourcing involves contracting with another company, usually abroad, to have it perform a work activity the organization previously performed itself.

Other ways to increase efficiency and effectiveness is empowerment: a management technique that involves giving employees more authority and responsibility over how they perform their work activities. IT is being increasingly used, because it expands employees’ job knowledge and increases the scope of their job responsibilities. It also facilitates the use of a self-managed team; a group of employees who assume collective responsibility for organizing, controlling, and supervising their own work activities.

Challenges for management in a Global Environment The rise of global organizations has pressured many organizations to identify better ways to use their resources and improve their performance. Five major challenges stand out for managers in today’s world: Building competitive advantages

It is the ability of one organization to outperform other organizations because it produces desired goods or services more efficiently and effectively than its

competitors. The four building blocks: efficiency, quality (speed,flexibility), innovation, responsiveness to customers. Many organizations are training their workforces to increase efficiency. The challenge from global organizations also has increased pressure on companies to develop skills and abilities of their workforces to improve quality. Companies can win or lose the competitive race depending on their speed or their flexibility. Innovation, the process of creating new or improved goods and services or developing better ways to produce/provide them, poses a special challenge. Managers must create an organizational setting in which people are encouraged to be innovative. Responsiveness to customers is vital for organizations, but is particularly important for service organizations. Turnaround management is the creation of a new vision for a struggling company based on a new approach to planning and organizing to make better use of a company’s resources and allow it to survive and prosper.

Maintaining Ethical and Socially Responsible Standards

Managers at all levels are under considerable pressure to make the best use of resources to increase the level at which their organization perform. Pressure can be healthy for an organization because it leads managers to question how the organization is working, and it encourages them to find new and better ways to plan, organize, lead and control. However, too much pressure can be harmful; it may induce managers to behave unethically, and even illegally with people in- and outside the organization.

Managing a Diverse Workforce

Major challenge is to recognize the ethical need and legal requirement to treat human resources fairly and equitably. To create a highly trained and motivated workforce, managers must establish HRM procedures and practices that are legal and fair. Managers who value their diverse employees not only invest in developing these employees’ skills and capabilities, but also success best in promoting performance over the long run.

Utilizing IT and E-commerce

Another important challenge is to continually utilize efficient and effective new IT that can link and enable managers and employees to better perform their jobs.

Practicing Global Crisis Management The causes of global crisis fall in two main categories: natural causes and human causes. Human-created crises result from factors such as industrial pollution, poor attention to worker, geopolitical tensions, etc.

Chapter 2: Evolution of Management Thought

Scientific Management Theory

Evolution of modern management began in the closing decades of the 19th century. Managers were trying to find better ways to satisfy customer’s needs. The introduction of steam power and the development of machinery and equipment changed how goods were produced: small workshops were being replaced by large factories. Managers and supervisors found themselves unprepared for the challenges accompanying this change. Soon they began to focus on ways to increase the efficiency of the worker-task mix. Job Specialization and the Division of Labour 200 years before, Adam Smith identified two different manufacturing methods: one where each worker was responsible for all task, other had each worker performing only a few. He found that the performance of the second method was much greater. Conclusion: job specialization improves efficiency and leads to higher organizational performance.

F.W. Taylor and Scientific Management This man is best known for defining the techniques of scientific management; the systematic study of relationships between people and tasks for the purpose of redesigning the work process to increase efficiency. He believed that by reducing time and effort used to finish a good/service by increasing specialization and division of labour, the production process would be more efficient. Four principles to increase efficiency: Principle 1: Study the way workers perform their tasks (Measuring) gather all the informal job knowledge that workers possess, and experiment with ways of improving how tasks are performed (Specialization, simplifying jobs, changing layout) Principle 2: Codify the new methods of performing tasks into written rules and standard operating procedures

Principle 3: Carefully select workers who possess skills and abilities that match the needs of the task, and train them to perform the task according to the established rules and procedures. Principle 4: Establish a fair or acceptable level of performance for a task, and then develop a pay system that rewards performance above the acceptable level.

The Gilbreths

Frank and Lillian Gilbreth refined Taylor’s analyses of work movements and made many contributions to time-and-motion studies. Their aims: (1) to analyze every individual action necessary to perform a particular task and break it into each of tis component actions, (2) find better ways to perform each component action, and (3) reorganize each of the component actions so that the action as a whole could be performed more efficiently. They also became increasingly interested in the studies of fatigue; how physical characteristics of the workplace contribute to job stress that often leads to fatigue and thus poor performance.

Administrative Management theory

The study of how to create an organizational structure and control system that leads to high efficiency and effectiveness.

The theory of Bureaucracy Max Weber developed, to help Germany manage its growing industrial enterprises

while it was striving to become a world power, the principles of bureaucracy: A formal system of organization and administration designed to ensure efficiency and effectiveness.

Principle 1: In a bureaucracy, a manager’s formal authority derives from the position he or she holds in the organization

Principle 2: In a bureaucracy, people should occupy positions because of their performance, not because of their social standing or personal contacts. Principle 3: Authority can be exercised effectively in an organization when positions are arranged hierarchically, so employees know whom to report to and back. Principle 4: Managers must create a well-defined system of rules, standard operating procedures and norms so they can effectively control behaviour within an organization. Rules are formal written instructions that specify actions to be taken under different circumstances to achieve specific goals. Standard operating procedures (SOP) are specific sets of written instructions about how to perform a certain aspect of a task. Norms are unwritten, informal codes of conduct that prescribe how people should act in particular situations.

Fayol’s principles of management He identified principles that he believed essential to increase the efficiency of the management process: Division of labour: down-side of too much specialization: boredom. Fayol advocated that workers be given more job duties to perform or be encouraged to assume more responsibility for work outcomes. Authority and responsibility: Fayol went beyond formal authority, which derives from your position, to recognize informal authority that derives from personal aspects. Unity of command: A reporting relationship in which an employee receives orders from, and reports to, only one superior → dual command should be avoided. Line of authority: The chain of command extending form the top to the bottom of an organization. Fayol pointed out the importance of limiting the length of the chain.by controlling the number of levels in the managerial hierarchy. He also pointed out the importance of allowing first-line and middle managers to interact with managers at similar levels in other departments. Centralization: The concentration of authority at the top of the managerial hierarchy. Fayol believed authority should not be concentrated at the top of the chain of command. If authority if centralized; only managers at the top make important decisions and subordinates simply follow orders. It reduces the motivation, flexibility respond ability of first-line and middle managers. Unity of direction: The singleness of purpose that makes possible the creation of one plan of action to guide managers and workers as they use organizational resources. Equity: The justice, impartiality, and fairness to which all organizational members are entitled. Order: The methodical arrangement of positions to provide the organization with the greatest benefit and to provide employees with career opportunities that satisfy their needs. Fayol recommended the use of charts to show the position and duties of each employee and to indicate which positions an employee might move to or be promoted to in the future.

Initiative: When used properly, it can be a major source of strength for an organization because it leads to creativity and innovation. Discipline: Discipline results in respectful relations between organizational members and reflects the quality of organization’s leadership and manager’s ability to act fairly and equitably. Remuneration of personnel: Effective rewards systems should be equitable for both employees and the organization. Stability of tenure of personnel: He recognized the importance of long-term employment; employees can develop skills that improve the organization’s ability to use its resources. Subordination of individual interest to common interest: The interests of the organization must take precedence over its interest of any individual/group. Esprit de corps: refers to shared feelings of comradeship, enthusiasm or devotion to a common cause among members of a group.

Behavioural Management Theory

American management theorists were unaware of the contributions of European theorists. All these theorists espoused a theme that focused on behavioural management; study of how managers should personally behave to motivate employees and encourage them to perform at high levels and be committed to achieving organizational goals. The work of Mary Perker Follett She pointed out that management often overlooks the multitude of ways in which employees can contribute to the organization when managers allow them to participate and exercise initiative in their everyday work lives. If workers have the relevant knowledge, then they should be in control of the work process, and managers should behave as coaches and facilitators. The Hawthorne Studies and Human Relations This began as an attempt to investigate how characteristics of the work setting affect worker fatigue and performance. They found that regardless of whether they raised or lowered the level of illumination, productivity increased. They asked Elton Mayo to help with his: relay assembly test experiments, designed to investigate the effects of other aspects of the work context on job performance. Outcome: The presence of the researchers was affecting the results because the workers enjoyed receiving attention and being the subject of study (Hawthorne effect) From this view emerged the human relations movement; supervisors be behaviourally trained to manage subordinates in ways that elicit their cooperation and increase their productivity. Other series of experiments: bank wiring room experiments. They discovered two types of group members: Rate busters, performing above the norm, and Chisellers, performing below the norm. Work group members disciplined both of them to create a pace of work that the workers thought was fair. One implication of the Hawthorne studies was that the behaviour of managers and workers in the work setting is as important in explaining the level of performance as the technical aspects of the task. Managers must understand the workings of the informal organization; the system of behavioural rules and norms that emerge in a group. Theory X and Y Douglas McGregor proposed two sets of assumptions about how work attitudes and

behaviours not only dominate the way managers think but also affect how they behave in organizations. Theory X: A set of negative assumptions about workers that leads to the conclusion that a manager’s task is to supervise workers closely and control their behaviour. They see little point in giving workers autonomy to solve their own problems because they think the workforce neither expects nor desires cooperation. Theory Y: A set of positive assumptions about workers that leads to the conclusion that a manager’s task is to create a work setting that encourages commitment to organizational goals and provides opportunities for workers to be imaginative and to exercise initiative and self-direction. Management Science Theory This is contemporary approach to management that focuses on the use of rigorous quantitative techniques to help managers make maximum use of organizational resources. Each branch of management science deals with a specific set of concerns, and IT is affecting the tools managers use to make decisions. Subfields: Quantitative management: uses mathematical techniques to help managers make decisions. Operations management: gives managers a set of techniques they can use to analyse any aspect of organization’s production system to increase efficiency. Total quality management: focuses on analysing an organization’s input, conversion and output activities to increase product quality. Management Information systems: give managers information about events occurring inside the organization as well as in its external environment. Organizational Environment Theory Organizational environment: The set of forces and conditions that operate beyond an organization’s boundaries but affect a manager’s ability to acquire and utilize resources. Open-systems view A system that takes in resources form its external environment and converts or transforms them into goods and services that are sent back to that environment, where they are bought by customers. A closed system is a self-contained system that is not affected by changes in its external environment. The organizations are likely to experience entropy; the tendency to lose ability to control itself and thus to dissolve and disintegrate. Researchers interested in the open-system view are interested in how the various parts of a system work together to promote efficiency and effectiveness. Synergy; the performance gains that result when individuals and departments coordinate their actions, is only possible in an organized system. Contingency Theory; Burns and Stalker The crucial message is that there is no best way to organize: The organizational structures and control systems that managers choose depend on characteristics of the external environment in which the organization operates. An important characteristic of the external environment is the degree to which it is changing. Burns and Stalker proposed two basic ways in which managers can organize and control an organization’s activities to respond to characteristics of its external environment. Mechanistic structure (similar to theory X): an organizational structure in which authority in centralized, tasks and rules are clearly specified and employees are closely supervised.

Organic structure (Theory Y); Authority Is decentralized to middle and first-line managers and tasks and roles are left ambiguous to encourage employees to cooperate and respond quickly to the unexpected.

Chapter 3: The manager as a person Enduring characteristics: personality Traits Enduring characteristics are personality traits; particular tendencies to feel, think and act in certain ways. It is important to understand managers’ characteristics to understand their approach to managing people and resources. The big five personality traits Each of the big five personality traits can be viewed as a continuum along which every manager falls. An easy way to understand how these traits can affect a

person’s approach to management is to describe what people are like at the high and low ends of each trait continuum. The 5 traits: Extraversion: tendency to experience positive emotions and moods and feel good about oneself and the rest of the world. High = extrovert, low = introvert. Negative affectivity: The tendency to experience negative emotions and moods, to feel distressed and to be critical of oneself and others. Agreeableness: the tendency to get along well with others. Conscientiousness: the tendency to be careful, scrupulous and persevering. High = self-disciplined. Openness to experience: The tendency to be original, have broad interests, be open to a wide range of stimuli, be daring, and take risks.

Other personality Traits that affect managerial behaviour Locus of control: People with low locus of control; believe they themselves are responsible for their own fate. They see their own actions and behaviours as being major and decisive determinants of important outcomes. External locus of control means locating responsibility for one’s fate in outside forces and to believe one’s own behaviour has little impact on outcomes. Self-esteem: The degree to which individuals feel good about themselves and their capabilities. Needs for achievement, affiliation and power: Need for achievement is the extent to which an individual has a strong desire to perform challenging tasks well and to meet personal standards for excellence. Need for affiliation is the extent to which an individual is concerned about establishing and maintaining good interpersonal relations. Need for power is the extent to which an individual desires to control or influence others. Values, attitudes, and moods and emotions Values Two kinds of values are terminal; lifelong goal or objective that an individual seeks to achieve, and instrumental; mode of conduct that an individual seeks to follow. Terminal values often lead to the formation of norms. Milton Rokeach identified 18 terminal and instrumental values that describe each person’s value system. The

importance managers place on each terminal value, explains what they try to achieve within the organization. The importance they place on each instrumental value explains their behaviours on the job. Attitudes Job satisfaction: The collection of feelings and beliefs that managers have about their current jobs. It is important for managers to be satisfied for at least two reasons. (1) Satisfied managers may be more likely to go the extra mile for their organization of perform organizational citizenship behaviours; that are not required of organizational members but that contribute to and are necessary for organizational efficiency, effectiveness, and competitive advantage. (2) Satisfied managers are less likely to quit. A growing source of dissatisfaction for many lower- and middle-level mangers is the threat of unemployment and increased workloads from organizational downsizings and layoffs. Organizational commitment: The collection of feelings and beliefs that managers have about their organization as a whole. Differences between countries are likely because they all have different kinds of opportunities and rewards and they face different forces in their organizations’ general environments. Moods and emotions Mood is a feeling or state of mind. Emotions are more intense feelings than moods, are often directly linked to whatever caused the emotion and are short-lived. However, once whatever has triggered emotion has been dealt with, the feelings may linger in the form of a less intense mood. In general, emotions and moods give managers and all employees important information and signals about what is going on in the workplace. Emotional intelligence Emotional intelligence is the ability to understand and manage one’s own moods and emotions and the moods and emotions of other people. It can also help managers perform important roles. It has the potential to contribute to effective leadership in multiple ways and can help managers make lasting contributions to society. Organizational culture Organizational culture comprises the shared set of beliefs, expectations, values, norms and work routines that influence how members of an organization relate to one another and work together to achieve organizational goals. It reflects the distinctive ways in which organizational members perform their jobs and relate to others inside and outside the organization. Managers and organizational culture The firms’ founders create the organizational culture. Benjamin Schneider developed a model called attraction-selection-attrition; A model that explains how personality may influence organizational culture. This model posits that when founders hire employees, they tend to be attracted to and choose employees whose personalities are similar to their own. Also personal characteristics of managers shape the organizational culture, including values, attitudes, moods, etc. The role of values and norms in organizational culture Organizational culture is maintained and transmitted to organizational members through:

The value of the founder: His/her terminal and instrumental values have a substantial influence on the values, norms and standards of behaviour that develop over time within the organization. Socialization: is the process by which newcomers learn an organization’s values and norms and acquire the work behaviours necessary to perform jobs effectively. Most organizations have some kind of socialization program to help new employees learn the ropes of the organization. Ceremonies and rites: Formal events that recognize incidents of importance to the organization as a whole and to specific employees. Rites of passage determine how individuals enter, advance within and leave the organization. Rites of integration build and reinforce common bonds among organizational members. Rites of enhancement

let organizations publicly recognize and reward employees’ contribution and thus strengthen their commitment to organizational values. Stories and language also communicate organizational culture, such as stories about organizational heroes. Organizational language encompasses not only spoken language but how people dress, the cars they drive, etc.

Cultural and managerial action Culture influences how managers perform their four main functions: Planning: Top managers with an innovative culture: encourage lower-level managers to participate in the planning process and develop a flexible approach to planning. Top managers with conservative values: emphasize top-down planning Organizing: Innovative cultures: try to create an organic structure (little hierarchy, authority decentralized). Conservative culture: well-defined hierarchy. Leading: Innovative culture; They are supportive regardless of whether employees succeed or fail. Conservative culture; more likely to use management by objective and to constantly monitor subordinates’ progress towards goals. Controlling: Managers encouraging risk taking, creativity and innovation: Less concerned about employees’ performing their jobs in a specific, predetermined manner. They are also more concerned about the long-term performance. Managers that emphasize caution and maintenance: Set specific, difficult goals for employees, frequently monitor progress toward these goals and develop a clear set of rules.

Chapter 4: Ethics and social responsibility Ethical dilemmas Ethical dilemma is the quandary people find themselves in when they have to decide if they should act in a way that might help another person or group even though doing so might go against their own self-interest. The essential problem in dealing with ethical issues is that no absolute or indisputable rules or principles can be developed to decide whether an action is ethical or not. Ethics and the Law Laws specify what people can do and cannot do, and they specify what sanctions or punishments will follow if those laws are broken. Important is to understand that neither laws nor ethics are fixed principles that do not change over time. Ethical

beliefs change over time; when they do, laws change to reflect the changing ethical beliefs of a society. Changing in Ethics over time As ethical beliefs change over time, some people may begin to question whether existing laws that make specific behaviours illegal are still appropriate. They might argue that although a specific behaviour is deemed illegal, this does not make it unethical and thus the law should be changed. Both ethical and legal rules are relative: no absolute standards exist to determine how we should behave. Stakeholders and ethics Stakeholders are affected by how a company and its managers behave. That’s why the ethics of a company are important to them. Types of stakeholders: Stockholders They have a claim on a company because when they buy its stock or share they become its owners. They are interested in how a company operates because they want to maximize the return on their investment. Managers Managers bear the responsibility to decide which goals an organization should pursue to most benefit stakeholders and how to make the most efficient use of resources to achieve those goals.. Ethics and non-profit organizations Experts hope that introduction of new rules and regulations to monitor and oversee how non-profits spend their funds will result in much more value being created from the funds given by donors. Employees Companies should act ethically towards employees by creating a structure that rewards employees in a fair way (recruitment, training, no discrimination). Suppliers and distributors Many ethical issues arise in how companies contract and interact with their suppliers and distributors. Issues concerning quality and safety are governed by contracts. Customers Managers and employees must work to increase efficiency and effectiveness in order to create loyal customers and attract new ones. Community, society and nation The effects of the decisions made by companies and their managers permeate all aspects of the communities, societies and nations in which they operate. A general decline in business activity affects a whole nation for example. Rules for Ethical Decision Making Managers can use four ethical rules to analyse the effects of their business decisions on stakeholders: Utilitarian rule: An ethical decision as a decision that produces the greatest good for the greatest number of people. Moral rights rule: An ethical decision is one that best maintains and protects the fundamental or inalienable rights and privileges of the people affected by it. One decision that protects the rights of some stakeholders often hurt the rights of others. Justice rule: An ethical decision distributes benefits and harm among people and groups in a fair, equitable or impartial way. They must not give people they prefer bigger raises than others for example.

Practical rule: An ethical decision is one that a manager has no reluctance about communicating to people outside the company because the typical person in a society would think it is acceptable. This ensures that managers are taking into account the interest of all stakeholders. Why should managers behave ethically? Answer is that the relentless pursuit of self-interest can lead to a collective disaster when one or more people start to profit from being unethical because this encourages other people to act in the same way. Unethical behaviour ruins business

commerce and society has a lower standard of living because fewer goods and services are produced. On the other hand, when one person acts in a trustworthy way, this encourages persons to act in the same way. In this way, ethical behaviour becomes a valued social norm, and society in general becomes increasingly ethical. An important safeguard against unethical behaviour is reputation. Behaving unethically in the short run can have serious long-term consequences.

Ethics and social responsibility Societal ethics Societal ethics are standards that govern how members of a society should deal with one another in matters involving issues, such as fairness, justice, poverty and the rights of the individual. People in a country may automatically behave ethically because they have internalized certain beliefs and norms. Occupational ethics Occupational ethics are standards that govern how members of a profession, trade, or craft should conduct themselves when performing work-related activities. Within an organization, occupational rules and norms often govern how employees should make decisions to further stakeholder interests. Individual ethics Individual ethics are personal standards and values that determine how people view their responsibilities to others and how they should act in situations when their own self-interests are at stake. People should develop and follow the ethical criteria described earlier to balance their self-interest against those of others. Organizational ethics Organizational ethics are the guiding practices and beliefs through which a particular company and its managers view their responsibility toward their stakeholders. Managers or workers may behave unethically if they feel pressured by the situation and by unethical top managers. Top managers play a crucial role in determining a company’s ethics. It is important that the board of directors scrutinizes the reputations and ethical records of top managers. Approaches to Social responsibility A company’s ethics determine its position on social responsibility; the way a

company’s managers and employees view their duty to make decisions that protect, enhance, and promote the welfare and well-being of stakeholders and society as a whole. Four different approaches The strengths of companies’ commitment to social responsibility can range from low to high. Obstructional approach, in which companies and their managers choose not to behave in a socially responsible way and instead behave unethically and illegally, is at the low end. A defensive approach, companies and their managers behave ethically to the degree that they stay within the law and strictly abide by legal requirements. An accommodative approach, companies and their managers behave legally and ethically and try to balance interests of different stakeholders as the need arises. A proactive approach, companies and their managers actively embrace socially responsible behaviour, going out of their way to learn about the needs of different stakeholder groups and using organizational resources to promote the interests of all stakeholders. Why be socially responsible? First, demonstrating its social responsibility helps a company build a good reputation. Reputation can enhance profitability and build stockholder wealth. Second, in a capitalist system, companies as well as the government, have to bear the costs of protecting their stakeholders, providing health care and income, paying taxes, etc. So if all companies in a society act responsibly, the quality of life as a whole increases. The role of Organizational Culture Managers’ role in developing ethical values and standers in other employees are important. Employees naturally look to those in authority to provide leadership. Managers can also provide a visible means of support to develop an ethical culture. Increasingly, organizations are creating the role of ethics ombudsperson; manager responsible for communicating and teaching ethical standards to all employees and monitoring their conformity to those standards.

Chapter 6: Managing in the global environment Managers of companies have found that to survive and prosper in the 21st century most organizations must become Global organizations; operates in more than one country. What is global environment? It is a set of forces and conditions in the world outside an organization’s boundary that affect how it operates and shape its behaviour. These forces change over time and thus present managers with opportunities and threats. The quality of managers is to understand the forces in the global environment and their ability to respond appropriately to those forces. To identify opportunities and threats caused by forces in the environment, it is helpful to distinguish between the task environment; set of forces and conditions that originates with global suppliers, distributors, customers and competitors and affects an organization’s ability to obtain inputs and dispose of its outputs because they influence managers daily, and general environment; the wide-ranging global, economic, technological, sociocultural, demographic, political and legal forces that affect an organization and its task environment.

The Task Environment Suppliers Changes in nature, number or type of suppliers produce opportunities and threats to which managers must respond if their organizations are to prosper. A supplier’s bargaining position is especially strong when (1) he is the sole source of an input and (2) the input is vital to the organization. In contrast, when an organization has many suppliers, it is in a relatively strong bargaining position. It is important that managers recognize the opportunities and threats associated with managing the global supply chain. A common problem facing managers of global companies is managing the

development of a global supplier network that will allow their companies to keep costs down and quality high. Global outsourcing: purchase or production of inputs or final products from overseas suppliers to lower costs and improve product quality or design. Global outsourcing has grown enormously to take advantage of national differences in cost and quality of resources. Distributors Organizations that help other organizations sell their goods or services to customers. The changing nature of distributors and distribution methods can bring opportunities and threats for managers. If distributors become so large and powerful that they can control customers’ access to a particular organization’s goods and services, they can threaten the organization by demanding that it reduce the prices of its goods and services. Customers Changes in number, needs and tastes of customers can create opportunities and threats. The success of an organization depends on the responsiveness to customers. It’s the manager’s task to identify the main customer groups, and make the products that best satisfy their particular needs. Competitors Rivalry is potentially the most threatening force managers must deal with. Another major force is Potential competitors. The potential to enter a task environment is a function of barriers to entry; factors that make it difficult and costly for an organization to enter a particular task environment or industry. Barriers to entry result from three main sources: Economies of scales. These are the cost advantages associated with large operations. Brand loyalty; is customer’s preference for products of organizations currently in the task environment. Newcomers must bear huge advertising costs to build customer awareness. Sometimes government regulations function as a barrier: High entry after deregulation, limits for imports of goods by overseas companies. The general environment Managers must continuously analyse forces in the general environment because these forces affect ongoing decision making and planning. Economic forces

These are factors that affect the general health and well-being of the regional economy of an organization (inflation, interest rate, unemployment). Technology is the combination of skills and equipment that managers use in designing, producing, and distributing goods and services. Technological forces are outcomes of changes in that technology. Technological changes can threaten the organization; forcing managers to find new ways to satisfy customer needs. But it can also create opportunities for designing, making or distributing new and better kinds of goods and services. Social cultural forces Are pressures emanating from the social structure of a country or society or from the national culture. Social structure; the traditional system of relationships established between people and groups in a society. National culture; set of values that a society considers important and the norms of behaviour that are approved or sanctioned in that society. Demographic forces Are outcomes of changes in, or changing attitudes toward, the characteristics of a population, such as age, gender, and race. Political and Legal forces Are outcomes of changes in laws and regulations, such as deregulation, privatization. Political processes shape a nation’s law and the international law that govern the relationships between nations. An important force affecting managers/organizations is the political integration of countries. Nations are forming political unions that allow free exchange of resources and capital. The falling legal trade barriers create enormous opportunities to sell goods and services internationally, but also pose a serious threat because of increasing competitors. The changing global environment As a result of falling trade barriers, managers view the global environment as open, in which companies are free to buy/sell goods and services internationally. This open global environment is the result of globalization and the flow of capital around the world. The process of globalization Globalization is the set of specific and general forces that work together to integrate and connect economic, political and social systems across countries, cultures, or geographical regions so that nations become increasingly interdependent and similar. But what drives globalization? It is shaped by the ebb and flow of capital. Four principal forms: Human capital, financial capital, resource capital, political capital. In a positive sense; the faster the flow, the more capital is utilized where it can create most value. Negative sense; a fast flow means that individual countries or world regions can find themselves in trouble when companies and investors move their capital to invest it in more productive ways in other countries. Declining barriers to trade and investment During the 1920s and 1930s countries erected formidable barriers to international trade and investment in the belief that this was the best way to promote their economic well-being. Many of these barriers were high tariffs on imports of manufactured goods. The aim was to protect domestic industries and jobs from overseas competition. Gatt and the rise of free trade: After world war II, advanced Western industrial countries committed themselves to the goal of removing barriers to the free flow of

resources and capital between countries. The free-trade doctrine predicts that if each country specializes in the production of the goods and services that it can produce most efficiently, this will make the best use of global resources. Countries that accepted this doctrine set as their goal the removal of barriers. They attempted to achieve this through the General Agreement on Tariffs (GATT). Declining barriers of Distance and Culture Barriers of distance and culture also closed the global environment and kept managers focused on their domestic market. Since the end of WWII, a continuing stream of advances in communications and transportation technology has worked to reduce these barriers (satellites, digital technology, Internet). One of the most important innovations has been the growth of commercial jet travel. Effects of free trade on Managers The shift toward a more open global economy has created the opportunity to sell and buy from markets abroad. A manager’s job is more challenging in a dynamic global environment. Regional Trade Agreements: The growth of regional trade agreements also presents opportunities and threats for managers. The establishment of free-trade areas creates an opportunity for manufacturing organizations because it lets them reduce their costs. Some managers however, view these trade-agreements as a threat because they expose a company based in one member country to increased competition from companies based in the other member countries. The role of National Culture Despite evidence that countries are becoming more similar, the cultures of different countries still vary widely in their values, norms and attitudes. Cultural values and norms Values: idea about what a society believes to be good, right, desirable or beautiful. Although deeply embedded in society, values are not static. Norms: unwritten, informal codes of conduct that prescribe how people should act in particular situations and are considered important by most members or a group/organization. Two types of norms are mores: Norms that are considered to be central to the functioning of society and to social life. Folkways: the routine social conventions of everyday life. Hofstede’s Model of National Culture Hofstede developed five dimensions along which national cultures can be placed: Individualism vs Collectivism: Individualism is a worldview that values individual freedom and self-expression and adherence to the principle that people should be judged by their individual achievements rather that by their social background. Collectivism is a worldview that values subordination of the individual to the goals of the group and adherence to the principle that people should be judged by their contribution to the group. Power distance: The degree to which societies accept the idea that inequalities in power and wellbeing of their citizens are due to differences in individuals’ physical and intellectual capabilities and heritage. Achievement vs nurturing orientation: Societies that have an achievement orientation: value assertiveness, performance, success, competition and results. Nurturing orientation: value quality of life, warm personal relationships.

Uncertainty avoidance: Low means: easy-going, value diversity, tolerate differences in personal beliefs and actions. High means: rigid and sceptical about people whose behaviours or beliefs differ from the norm. Long-term vs short-term orientation: Long rests on values such as saving and persistence in achieving goal. Short is concerned with maintaining personal stability or happiness and living for the present. National culture and Global Management Differences among national cultures have important implications for managers. Management practices that are effective in one country might be troublesome in another. Often, management practices must be tailored to suit the cultural contexts within which an organization operates. A culturally diverse management team can be a source of strength for an organization participating in the global marketplace. These managers have a better appreciation of how national culture differs, and they tailor their management systems and behaviours to the differences.

Chapter 7: Decision making, learning, creativity and entrepreneurship The nature of Managerial decision making Decision making is the process by which managers respond to opportunities and threats by analysing options and making determinations about specific organizational goals and courses of action. Decision making to opportunities occurs when managers search for ways to improve organizational performance to benefit stakeholder groups. Decision making in response to threats occurs when events inside or outside the organization adversely affect organizational performance and managers search for ways to increase performance. Managers are always searching for ways to make better decisions. Programmed and nonprogrammed decision making Programmed decision making is a routine, virtually automatic decision making that follows established rules or guidelines. Managers can rely on long-established decision rules. Managers can develop rules and guidelines to regulate all routine organizational activities. Nonprogrammed decision making is non-routine decision making that occurs in response to unusual, unpredictable opportunities and threats. They rely on their intuition or they make reasoned judgments. The likelihood of error is much greater in nonprogrammed decision making. The classical model One of the earliest models of decision making is the classical model: a prescriptive approach to decision making based on the assumption that the decision maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most appropriate course of action. In this way, they can make the optimum decision. The administrative model March & Simon proposed that managers do not have access to all the information they need to make a decision. They pointed out that even if all information were readily available, managers would lack the psychological ability to absorb and evaluate it correctly. They developed the administrative model: An approach to decision making that explains why decision making is inherently uncertain and risky

and why managers usually make satisfactory rather than optimum decision. It is based on three important concepts: Bounded rationality: Cognitive limitations that constrain one’s ability to interpret, process and act on information Incomplete information: Because of risk and uncertainty, ambiguity and time constraints. Satisficing: Managers search and choose an acceptable or satisfactory response to problems and opportunities, rather than trying to make the best decision. Steps in the decision-making process 1. Recognize the need for a decision Some stimuli usually spark the realization that a decision must be made. These stimuli often become apparent because changes in the organizational environment result in new kinds of opportunities and threats. Managers must respond in a timely and appropriate way. 2. Generate alternatives One major problem is that managers may find it difficult to view problems from a fresh perspective, instead of a managerial mind-set. 3. Assess alternatives The key to a good assessment is to define the opportunity or threat exactly and specify the criteria that should influence the selection of alternative solutions. Successful managers use four criteria: legality, ethicalness, economic feasibility, practicality. 4. Choose among alternatives The next task is to rank the various alternatives, by using all critical information. 5. Implement the chosen alternative To ensure that a decision is implemented, top managers must assign to middle managers the responsibility for making the follow-up decisions necessary to achieve the goal. 6. Learn from feedback Compare what happened to what was expected, explore why expectations were not met and derive guidelines that will help in future decision making. Cognitive biases and decision making Psychologists Kahneman and Tversky suggested that because all decision makers are subject to bounded rationality, they tend to use heuristics: rules of thumb that simplify decision making. Heuristics can lead to systematic errors, which can lead to cognitive biases. Four sources of bias that can adversely affect the way managers make decisions are: Prior-hypothesis bias: Resulting from the tendency to base decisions on strong prior beliefs even if evidence shows that those beliefs are wrong. Representativeness bias: Resulting from the tendency to generalize inappropriately from a small sample or from a single vivid event of episode. Illusion of control: Resulting from the tendency to overestimate one’s own ability to control activities and events. Escalating commitment: Resulting from the tendency to commit additional resources to a project even if evidence shows that the project is failing. Managers must become aware of biases and their affects and they must identify their own personal style of decision making (by review or listing criteria).

Group decision making Group decision making allows managers to be less likely to fall victim to the biases and errors, and to process more information and to correct one another’s errors. Disadvantages are the time that it takes and the existence of biases in group decisions. The perils of groupthink Groupthink is a pattern of faulty and biased decision making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information relevant to a decision. Managers collectively embark on a course of action without developing appropriate criteria to evaluate alternatives. Devil’s advocacy and dialectical inquiry Two techniques known to counteract groupthink are biases are: devil’s advocacy: critical analysis of a preferred alternative, made in response to challenges raised by a group member who, playing the role of devil’s advocate, defends unpopular or opposing alternatives for the sake of argument. Dialectical inquiry: Critical analysis of two preferred alternatives in order to find an even better alternative for the organization to adopt. Diversity among decision makers Bringing together managers of both genders from various ethnic, national and functional backgrounds broadens the range of life experiences and opinions, is another solution. Organizational learning and creativity Organizational learning is the process through which managers seek to improve employees’ desire and ability to understand and manage the organization and its task environment. A learning organization is one in which managers do everything possible to maximize the ability of individuals and groups to think and behave creatively and thus maximize the potential for organizational learning to take place. Creating a learning organization Senge´s five principles for creating a learning organization: 1. Top managers must allow every person to develop a sense of personal mastery. 2. Organization needs to encourage employees to develop/use complex mental methods. 3. Managers must do everything they can to promote group creativity. 4. Managers must emphasize the importance of building a shared vision. 5. Managers must encourage system thinking. Promoting individual creativity Creativity results when employees have an opportunity to experiment, to take risks, and to make mistakes and learn from them. Once managers have generated alternatives, creativity can be fostered by giving them constructive feedback so they know how well they are doing. Top managers must stress the importance of looking for alternative solutions and should visibly reward employees who came up with creative ideas. Promoting group creativity Brainstorming: Managers meet face-to-face to generate and debate wide variety of alternatives. The main reason for loss of productivity in brainstorming is production

blocking: not remembering everything because of the unstructured nature of brainstorming. Nominal group technique: Group members write down ideas and solutions read their suggestions to the whole group and discuss and then rank the alternatives. Delphi technique: Member do not meet face-to-face but respond in writing to questions posed by the group leader. Entrepreneurship and creativity Entrepreneurs are individuals who notice opportunities and decide how to mobilize the resources necessary to produce new and improved goods and services. Social entrepreneurs focus on social problems and needs to improve society and well-being. Intrapreneurs are people who work inside an organization and notices opportunities to develop new or improved products and better ways to make them. Entrepreneurship and new ventures Characteristics of entrepreneurs: (1) likely to be high on the personality trait of openness to experience, (2) they have internal locus of control, (3) have an high level of self-esteem and (4) have need for achievement. Entrepreneurship and management: It is not the same as management. Management involves encompassing all the decisions involved in planning, organizing, leading and controlling resources. Entrepreneurship is noticing an opportunity to satisfy a customer need and then deciding how to find and use resources to make a product that satisfies that need. An entrepreneur must hire managers who can create an operating system that will let a new venture survive and prosper. Intrapreneurship and organizational learning The higher the level of intrapreneurship, the higher will be the level of learning and innovation. There are a view ways to promote these two: Product champions: Manager who takes ownership of a project and provides the leadership and vision that takes a product from the idea stage to the final customer. Skunkworks: A group of intrapreneurs who are deliberately separated from the normal operation of an organization to encourage them to devote all their attention to developing new products. Rewards for innovation: To encourage managers to bear the uncertainty and risk associated with the hard work of entrepreneurship, it is necessary to link performance to rewards.

Chapter 8: The manager as a Planner and Strategist Planning and Strategy Planning is both goal-making and strategy-making. Planning is a three-step activity: (1) Determining mission and goals. Mission statement; A broad declaration of an organization’s overriding purpose that identifies the organization’s products and customers and distinguishes the organization from its competitors, (2) Formulating a strategy, (3) Implementing strategy. Nature of the Planning Process When managers plan, they must forecast what may happen in the future to decide what to do in the present. However, the external environment is uncertain and

complex and managers must deal with incomplete information and bounded rationality. Why planning is important 1. It is necessary to give the organization a sense of direction and purpose Otherwise, managers may interpret their own specific tasks and jobs in ways that best suit themselves. Result will be multiple and conflicting goals. 2. Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization. 3. A plan helps coordinate managers of the different functions and divisions of an organization to ensure that they all pull in the same direction and work to achieve its desired future state. 4. A plan can be used as a device for controlling managers within an organization Fayol said that effective plans should have four qualities: unity (one central plan), continuity (ongoing process, continue modifying), accuracy (Use all information) and flexibility. Levels and types of planning Planning usually takes place at three levels: Corporate, business/division, department/functional (figure 8.2, page 232). The corporate-level plan contains top management’s decisions concerning the organization’s mission and goals, overall strategy and structure. Corporate-level strategy indicates in which industries and national markets an organization intends to compete. The business-level plan is about divisional managers’ decisions pertaining to division’s long-term goals, overall strategy and structure. Business-level strategy indicates how a division intends to compete against its rivals in an industry. A functional-level plan states the decisions that functional managers make, pertaining to the goals that they propose to pursue to help the division attain its business-level goals. Functional-level strategy improves the ability of each of an organization’s functions to perform its task-specific activities in ways that add value to an organization’s goods and services. Time horizons of plans Plans differ in their time horizons; the intended duration of a plan. Managers usually distinguish along long-term plans (5 years or more); intermediate-term plans (between 1 and 5 years), and short-term plans (1 year or less). Most organizations have an annual planning cycle that is usually linked to the annual financial budget. A rolling plan is a plan that is updated and amended every year to take account of changing conditions in the external environment. Standing plans and single-use plans Standing plans are used in situations in which programmed decision making is appropriate. Managers develop policies, rules and standard operating procedures to control the way employees perform their task. In contrast, single-use plans are developed to handle nonprogrammed decision making in unusual or one-of-a-kind situations. Scenario Planning Is the generation of multiple forecasts of future conditions followed by an analysis of how to respond effectively to each of those conditions. Because future is unpredictable, the best way to improve planning is first to generate ‘multiple futures’

and then to develop different plans that detail what a company should do if one of these scenarios occurs. Determining the Organization’s missions and goals Defining the business To determine the organization’s mission, managers must define its business to identify what kind of value customers are receiving. To define the business, managers must ask three questions: (1) Who are your customers, (2) What customer needs are being satisfied, (3) How are we satisfying customer needs? Establishing major goals Developing goals gives the organization a sense of direction or purpose. The best statements of organizational goals are ambitious: they stretch the organization and require that each of its members work to improve the company performance. Important is Strategic leadership; The ability of the CEO and top managers to convey a compelling vision of what they want the organization to achieve to their subordinates. If subordinates buy into the vision and model their behaviour on their leaders, they develop a willingness to undertake the hard, stressful work that is necessary for creative, risk-taking strategy making. Goals should also be realistic, and finally the time period in which a goal is expected to be achieved should be stated. Formulating Strategy With Strategy formulation, managers work to develop the set of strategies that will allow an organization to accomplish its mission and achieve its goals. Two techniques:

SWOT analysis Is a planning exercise in which managers identify internal organizational strengths and weaknesses, and external environmental opportunities and threats. First step: identify strengths and weaknesses that characterize the present state of the organization. Second step: Identifying opportunities and weaknesses in the environment that affect the organization now or may affect it in the future. Now, managers can continue the planning process and determine specific strategies.

The five forces model Porter identified five factors as major threats because they affect how much profit organizations competing within the same industry can expect to make. 1. The level of rivalry among organizations in an industry 2. The potential for entry into industry 3. The power of large suppliers 4. The power of large customers 5. The threat of substitute products

Today competition is tough in most industries. The term hypercompetition applies to industries that are characterized by permanent, ongoing, intense competition brought about by advancing technology or changing customer tastes and fads and fashions. Formulating business-level strategies Porter also developed a theory of how managers can select a business-level strategy. To obtain high profits, managers must choose between two basic ways of increasing the value of an organization’s products: differentiation products or lowering the costs. Low-cost strategy Managers try to gain a competitive advantage by focusing the energy of all departments/functions on driving the costs down below the costs of the rivals. Companies pursuing low-cost strategy can sell a product for less than their rivals sell it and yet still make a good profit because of their lower costs. Differentiation strategy Managers try to gain competitive advantages by focusing on distinguishing the organization’s products from those of competitors on one or more important dimensions. Organizations using this strategy may be able to charge a premium price for their products. Stuck in the middle Managers must choose between one of the two, according to Porter. Organizations that are stuck in the middle tend to have lower level of performance than the ones that pursue one of the strategies. However, exceptions to this rule can be found. In many organizations managers have been able to drive costs below those of rivals and simultaneously differentiate their products from those offered by rivals. Focused low-cost and differentiation strategies Managers pursuing a focused low-cost strategy, serve one or a few segments of the overall market and aim to make their organization the lowest-cost company serving that segment. In contrast, focused differentiation strategy means serving just one or a few segments of the market and aim to make their organization the most differentiated company serving that market. Formulating corporate-level strategies In formulating a corporate-level strategy, managers ask; how should the growth and development of our company be managed to increase its ability to create value for customers over the long run? The principal corporate-level strategies that managers use to help a company grow and keep it at the top of its industry are: Concentration on a Single industry Reinvest a company’s profits to strengthen its competitive position in the company’s current industry. Most commonly by using its functional skills or expanding the number of locations in which it uses those skills. Vertical integration Vertical integration is expanding a company’s operations either backward into an industry that produces inputs for its products or forward into an industry that uses, distributes or sells its products (see figure 8.6, 247). The reason managers pursue vertical integration is that it allows them either to add value to their products by making them special or unique, or to lower the costs of making and selling them. Vertical integration can also reduce an organization’s flexibility to respond to

changing environmental conditions and create threats that must be countered by changing the organization’s strategy. Diversification Expand a company’s business operations into a new industry in order to produce new kinds of valuable goods or services. Related diversification: Entering a new business or industry to create competitive advantage in one or more of an organization’s existing divisions or businesses. It can add value to an organization’s products if managers can find ways for its various divisions or business units to share their valuable skills or resources so that synergy is created; performance gains that result when individuals and departments coordinate their actions. Unrelated diversification: Entering a new industry or buying a company in a new industry that is not related in any way to an organization’s current businesses or industries. One main reason for this is that sometimes managers can buy a poorly performing company and increase its performance. Another reason is that purchasing a business in different industries, lets managers engage in portfolio strategy; apportioning financial resources among divisions to increase financial returns or spread risks among different business. Too much diversification can cause managers to lose control of their organization’s core business. International Expansion If managers decide that their organization should sell the same standardized product in each national market in which it competes, while using the same marketing approach, they adopt a global strategy. Advantages: cost saving. Disadvantage: vulnerable to local competitors by ignoring national differences. If managers decide to customize products and marketing strategies to specific national conditions, they adopt multidomestic strategy. Advantages: ability to gain market share or charge higher prices. Disadvantage: Raising production costs. Choosing a way to expand internationality: Four basic ways to operate in the global environment are: 1. Importing and exporting. Exporting: Few risks because a company does not have to invest in developing manufacturing facilities abroad. Importing: selling products abroad that are made at home. 2. Licensing and franchising: Licensing: allowing a foreign organization to take charge or manufacturing and distributing a product in its country or world region in return for a negotiated fee. Franchising: Selling to a foreign organization the rights to use a brand name and operating know-how in return for a lump-sum payment and a share of the profits. 3. Strategic alliances: An agreement in which managers pool or share their organization’s resources and know-how with a foreign company, and the two organizations share the rewards and risks of starting a new venture. It can take the form of a written contract, or a joint venture: two companies that agree to jointly establish and share the ownership of a new business. 4. Wholly owned foreign subsidiaries: Production operations established in a foreign country independent of any local direct involvement. This method is much more expensive because it requires a higher level of foreign investment and presents managers with many more threats. On the other hand, the organization gets high potential returns because it does not have to share profits.

Chapter 9: Value Chain Management Functional strategies, the Value Chain and Competitive Advantage Managers can pursue two basic business-level strategies: low-cost strategy and differentiation strategy. There are four specific ways in which managers can use these to obtain a competitive advantage: 1. Achieve superior efficiency 2. Achieve superior quality 3. Achieve superior innovation, speed, and flexibility 4. Attain superior responsiveness to customers. Functional strategies and value chain management Functional-level strategy is a plan of action to improve the ability of each of an organization’s functions to perform its task-specific activities in ways that add value to an organization’s goods and services. A company’s value chain is the coordinated series or sequence of functional activities necessary to transform inputs into the finished goods or services customers value and want to buy. Value chain management is the development of a set of functional-level strategies that support a company’s business-level strategy and strengthen its competitive advantage. The better the fit between functional- and business-level strategies, the greater will be the organization’s competitive advantage, and the better the organization is able to achieve its goal of maximizing the value it gives to customers. The value chain:

Improving responsiveness to customers

The marketing function plays an important role in the value chain, and good value

chain management requires that marketing managers focus on defining their

company’s business in terms of the customer needs and not the type of products.

What do customers want?

Specifying exactly what they need is not possible because their needs vary from

product to product, but it is possible to identify some general product attributes or

qualities that most customers prefer (lower price, high-quality, quick service).

Managers try to develop strategies that allow the organization’s value chain to deliver

to customers either more desired product attributes for the same price, or the same

product attributes for a lower price.

Managing the value chain to increase responsiveness to customers

Because satisfying customers is so important, managers try to design and improve

the way their value chains operate so they can supply products that have the desired

attributes. But managers should not offer a level of responsiveness that result in cost

becoming too high.

Customer relationship Management

CRM is a technique that uses IT to develop an ongoing relationship with customers to

maximize the value an organization can deliver to them over time. CRM IT monitors,

controls and links each of the functional activities involved in marketing, selling, and

delivering products to customers. CRM can recommend ways to improve the current

sales processes, can identify top 10 reasons of customer complaints and top 10 best

services and support practices, and it processes information about changing

customer needs.

Improving quality

There are two reasons for managers to improve the quality of their product: (1)

customers usually prefer a higher-quality product, and (2) higher product quality can

increase efficiency and thereby lower operating costs and boost profits.

Total quality management

TQM is a management technique that focuses on improving the quality of an

organization’s products and services. Steps for implementing TQM are:

1. Build organizational commitment to quality

2. Focus on the customer

3. Find ways to measure quality

4. Set goals and creative incentives

5. Solicit input from employees

6. Identify defects and trace them to their source

7. Introduce JIT inventory systems

8. Work closely with suppliers

9. Design for ease of production

10. Break down barriers between functions.

Six Sigma is a technique used to improve quality by systematically improving how

value chain activities are performed and then using statistical methods to measure

the improvement. It differs with TQM because TQM emphasizes top-down

organization-wide employee involvement, whereas Six Sigma is to create teams of

experts.

Improving efficiency

Facilities layout, flexible manufacturing, and efficiency

The way managers design activities also determine its efficiency. Facilities layout is

the strategy of designing the machine-worker interface to increase operating system

efficiency. Flexible manufacturing the set of techniques that attempt to reduce costs

associated with the product assembly process or the way services are delivered to

customers.

Facilities layout: In product layout, machines are organized so that each operation

is performed at workstations arranged in a fixed sequence. In process layout, a

product goes to whichever workstation is needed to perform the next operation. Fixed

position layout, the product stays in a fixed position.

Flexible manufacturing: One important source of costs is setting up the equipment

needed to make the product. If setup times for complex production equipment can be

reduced, so can setup costs, and efficiency will rise. Flexible manufacturing aims to

reduce this setup time, by redesigning the manufacturing process. Another outcome

is that a company can produce many more products than before, thus it increases

responsiveness to customers.

JIT inventory and efficiency

JIT systems have major implications for efficiency. Great cost savings can result from

increasing inventory turnover and recusing inventory holding costs. Kanban’s are

used as a signal for suppliers to produce another small batch of component parts.

Self-managed work teams and efficiency

Another functional strategy to increase efficiency is the use of self-managed work

teams. It consists of 5-15 employees who produce an entire product instead of a part.

The result is flexible workforce and responsibility. Cost savings arise from eliminating

supervisors and creating a flatter hierarchy.

Process reengineering and Efficiency

This involves the fundamental rethinking and radical redesign of business processes

to achieve dramatic improvement in critical measures of performance such as cost,

quality, service and speed. Process engineering boosts efficiency when it reduces

the number of order fulfilment tasks that must be performed, or reduces the time they

take, and so reduces operating costs.

Information systems, the internet and efficiency

Because of the rapid growth of systems and the internet, information systems

function is moving to centre stage in the quest for operating efficiencies and a lower

cost structure. All large companies use internet to manage the value chain, feeding

real-time information about orders to suppliers, which use this information to

schedule their own production on a JIT basis: this reduces the costs for both

suppliers and companies.

Improving innovation

Two kinds of innovation

Quantum product innovation is the development of new, often radically different,

kinds of goods and services because of fundamental shifts in technology brought

about by pioneering discoveries (e.g. Internet, WWW).

Incremental product innovation is the gradual improvement and refinement of

existing products that occur over time as existing technologies are perfected. Most

managers focus on these kinds of innovations. Quickly developing new and improved

products is important, because the first company who adopts the new technology will

have advantage over their rivals.

Strategies to promote innovation and speed product development

Product development is the management of the value chain activities involved in

bringing new or improved goods and services to the market. The study of

development successes suggests three strategies managers can implement to

increase the likelihood that their product development efforts will result in innovative

and successful new products:

Involve both customer and supplier: Successful product development requires

inputs from more than just an organization’s members.

Establish a stage-gate development funnel: This is a planning model that forces

managers to choose among competing projects so organizational resources are not

spread thinly over too many projects. Stage 1: Employees can come up with new

product ideas as possible. These are written up as brief proposals, which are

submitted to a cross-functional team of managers (gate 1). Stage 2: Other proposals

are turned down and they develop a product development plan, which specifies all

the relevant information that managers need in order to decide whether to proceed

with a full-blown product development effort. Once completed, the plan is reviewed

by a senior management committee (gate 2). If the plan is rejected, it is send back for

revision. Stage 3: Product development starts with the formation of a cross-functional

team that is given responsibility for developing the product. They sign a contract

book, a written agreement that details product development factors.

Establish cross-functional teams: Marketing, engineering and manufacturing

personnel are core members of a successful development team. The reason for

using a cross-functional team is to ensure a high level of coordination and

communication among managers in different functions. A team leader is needed who

can rise above a functional background and take a cross-functional team.

Chapter 10: Managing organizational structure and culture Designing organizational structure

Organizational structure is the formal system of task and job reporting relationships that coordinates and motivates organizational members so they work together to achieve organizational goals. Organizational design is the process by which managers make specific organizing choices that result in a particular kind or organizational structure. Four factors are important determinants of the type of structure a manager selects: - The organizational environment - Strategy

- Technology

- Human resources

The higher the uncertainty of the organizational environment, the more complex its strategy and technologies and the more highly qualified and skilled its workforce, and the more likely managers are to design a structure and a culture that are flexible and has innovate employees. The way an organization’ structure works, depends on the organizing choices managers make about three issues:

1. Grouping Tasks into Jobs: Job design The result of the job design (dividing tasks into jobs) is a division of labor among

employees. In deciding how to assign tasks into individual jobs, managers must be careful not to take job simplification, the process of reducing the number of tasks that each worker performs, too far. Too much job simplification may reduce efficiency and jobs will become monotonous and employees demotivated.

Job enlargement and job enrichment Job enlargement is increasing the number of different tasks in a given job by changing the division of labour. Job enrichment is increasing the degree of responsibility a worker has over his or her job. Managers who enlarge and enrich jobs create a flexible organizational structure.

The Job Characteristics Model Hackman and Oldham’s job characteristics model explains in detail how managers can make jobs more interesting and motivating. According to them, every job has five characteristics that determine how motivating the job is: Skill variety, Task identity, Task significance, Autonomy, Feedback.

2. Grouping jobs into Functions and Divisions

Functional structure

A functional structure is an organizational structure composed of all the departments that an organization requires to produce its goods or services. There are several advantages to grouping jobs according to function. (1) They can learn from observing one another and become more specialized, (2) it is easier for managers to monitor and evaluate their performance, (3) it lets managers create the set of functions they need to scan and monitor the competitive environment and obtain information about how it is changing. When an organization grows, several problems can make a functional structure less efficient and effective. (1) Managers struggle with communication when they are responsible for several products, (2) they may lose sight of organizational goals.

Divisional structure: Product, market and geographic

Divisional structure is composed of separate business units within which are the functions that work together to produce a specific product for a specific customer. Product structure: Each product line or business is handled by a self-contained division (it has a complete set of all the functions). Advantages are (1) functional managers can build expertise and fine-tune their skill in their particular area, (2) each division manager can become expert in their industry, (3) product structure frees

corporate managers from the need to supervise directly each division’s day-to-day operation. Geographic structure: Each region of a country or area of the world is served by a self-contain division. Managers are most likely to do this when they pursue a multidomestic strategy because customers vary widely by country or world region. Market structure: Each kind of customer is served by a self-contained division (customer structure).

Matrix and product team designs

Matrix structure: Organizational structure that simultaneously groups people and resources by function and by product. Each person in a product team reports to two managers (1) a functional boss and (2) the boss of the product team (the two-boss employees). To keep the matrix structure flexible, product teams are empowered and team members are responsible for making most of the important decisions involved in product development. The functional managers try to ensure that the product is the best it can be to maximize its differentiated appeal.

Product team structure: It differs from a matrix structure (1) it does away with dual reporting relationships and two-boss employees, (2) functional employees are permanently assigned to a cross-functional team that is empowered to bring a new or redesigned product to market. A cross-functional team is a group of managers brought together from different departments to perform organizational tasks. Narrow focus on departmental goals is replaced with a general interest in working together to achieve organizational goals. Members of cross-functional teams report only to the product team manager or to one of the subordinates. The heads of the functions have only an informal advisory relationship with members of the product teams.

3.

3.Coordinating functions and divisions

The more complex the structure, the greater are the problems with coordinating and linking different functions and divisions. Allocating authority

To coordinate activities of people, functions and divisions and allow them to work effectively, managers must develop a clear hierarchy of authority. The hierarchy of authority is an organization’s chain of command, specifying the relative authority of each manager. Every manager supervises one or more subordinates. Span control refers to the number of subordinates who report directly to a manager. The line manager is someone in direct line or chain of command who has formal authority

over people and resources at lower levels. A staff manager is someone responsible for managing a specialist function, such as finance or marketing. Tall and flat organizations: a tall organization has man levels of authority relative to company size; a flat organization has fewer levels relative to company size. Communication problems may occur when organization has many levels in the hierarchy. It takes more time to reach other levels and distortion of messages can occur.

The minimum chain of command: Top managers need to ascertain whether they

are employing the right number of middle- and first-line managers, and whether they

can redesign their organizational architecture to reduce the number of managers.

Top managers might follow the principle of minimum chain of command; top

managers should always construct a hierarchy with the fewest levels of authority

necessary to efficiently and effectively use organizational resources.

Centralization and decentralization of authority: decentralizing authority means

giving lower-level managers and non-managerial employees the right to make

important decisions about how to use organizational resources. Too much

decentralization can lead to employees pursuing their own goals and lack of

communication among functions or divisions.

Integrating and coordinating mechanism

When managers have equal authority, the only manager who can tell them what to

do is the CEO. But the need to solve everyday conflicts wastes top management time

and slows strategic decision making. To prevent these problems, top managers

incorporate various integrating mechanisms: organizing tools that managers can

use to increase communication and coordination among functions and divisions:

Liaison roles: One manager in each function or division is given responsibility for

coordinating with the other and both of them meet daily/weekly/monthly.

Task forces: When more than 2 managers share common problems, a committee of

managers from various functions/divisions meet, to solve a specific, mutual problem

(ad hoc committee).

Cross-functional teams: To address recurring problems effectively, managers use

permanent integrating mechanisms such as cross-functional teams.

Integrating roles: It is a role whose only function is to increase coordination and

integration among functions or divisions to achieve performance gains from

synergies.

The higher the complexity, the more managers must increase coordination among

functions/divisions by using complex integrating mechanisms.

Organizational culture

Organization’s Values are shared standards that its members use to evaluate

whether they have helped the company achieve its vision and goals. Her Norms

specify or prescribe the kinds of shared beliefs, attitudes and behaviors that its

members should observe and follow. Ideally a company’s norms help the company

achieve its values. When a strong cohesive set of organizational values and norms is

in place, employees focus on what is best for the organization in the long run.

Where does organizational culture come from?

It is shaped by the interaction of four main factors:

- Characteristics of organizational members: People chose an organization whose

values match theirs and an organization selects them too.

- Organizational ethics: They determine how its members will manage

situations/decisions.

- The employment relationship: Promoting from within will bolster strong values

and norms that build loyalty, align employees’ goals with the organization and

encourage employees to work hard to advance within the organization.

- Organizational structure: To create a certain culture, managers often need to

design a particular type of structure.

Strong, adaptive cultures versus weak, inert cultures

Adaptive cultures are those whose values and norms help organization to build

momentum and to grow and change as needed to achieve its goals and be effective.

Inert cultures are those whose values and norms fail to motivate or inspire

employees. Researchers found that adaptive cultures invest in their employees, by

rewarding them, developing a long-term career path, training. In an inert culture,

employees are content to be told what to do and have little motivation to perform

beyond minimum work requirements.

Chapter 11: Organizational control and change Controlling is the process whereby managers monitor and regulate how efficiently and effectively an organization and its members are performing the activities necessary to achieve organizational goals. The importance of organizational control Managers must be able to determine the efficiency of their resources, the units of input and output. They need measures that let them assess how efficiently the organization is producing goods and services. Without a control system, managers have no idea how well their organization is performing. Effective managers create a control system that consistently monitors the quality of goods and services so they

can continuously improve quality. Effective control can also increase responsiveness to customers. Finally, controlling can raise the level of innovation in an organization. Control systems and IT Control systems are formal target-setting, monitoring, evaluation and feedback systems that provide managers with information about how well the organization’s strategy and structure are working. An effective control system has three characteristics: (1) it provides accurate information about organizational performance, (2) flexible enough to allow managers to respond to unexpected events, (3) gives information in a timely manner. At the input stage, managers use feedforward control: control that allows managers to anticipate problems before they arise. At the conversion stage, managers use concurrent control: Gives managers immediate feedback on how efficiently inputs are being transformed into outputs so managers can correct problems as they arise. At the output stage, feedback control: Gives managers information about customers’ reactions to goods and services so corrective action can be taken if necessary. The control process Step 1: Establish the standards of performance, goals or targets against which performance is to be evaluated. Managers at each level are responsible for selecting standards that will best allow them to evaluate how well the part of the organization they are responsible for is performing. The standards are quality, efficiency, responsiveness and innovation. Step 2: Measure actual performance (actual outputs, behaviours of members). Step 3: Compare actual performance against chosen standards of performance. Step 4: Evaluate the result and initiate corrective action if the standard is not being achieved. Output control The three main mechanisms that managers use to assess output or performance are financial measures, organizational goals and operating budgets. Financial measures of performance - Profit ratios: How efficiently managers are using resources (ROI, Operating margin) - Liquidity ratios: How well managers have protected resources to meet short-term obligations (Current ratio, quick ratio) - Leverage ratios: Degree to which managers use debt or equity to finance ongoing operations (Debt-to-assets ratio, Times-covered ratio) - Activity ratios: how well value is created from organizational assets (inventory turnover, days sales outstanding). Organizational Goals Output control is used at every level of the organization, and it is vital that the goals set at each level harmonize with the goals set at other levels so managers and employees throughout the organization work together to attain the corporate goals that top managers have set. It is also important that goals be set appropriately so managers are motivated to accomplish them. Stretch goals are goals that challenge and stretch manager’s ability but are not out of reach and do not require an impossibly high expenditure of time and energy.

Operating budgets An operating budget is a budget that states how managers intend to use organizational resources to achieve organizational goals. Typically managers at one level allocate to subordinate managers a specific amount of resources to produce goods and services. Once they have been given a budget, these lower-level managers must decide how to allocate money for different organizational activities.

Problems with output control Although output control is a useful tool for keeping managers and employees at all levels motivated and the organization on track, it is only a guide to appropriate action. Managers must be sensitive in how they use output control and must constantly monitor its effect at all levels in the organization and on stakeholders.

Behavior control Behavior control consists of three mechanisms that managers can use to keep subordinates on track and make organizational structures work as they are design to.

Direct supervision

When managers personally supervise subordinates, they lead by example and in this way can help subordinates develop and increase their own skill levels. It is a way of motivating people and promoting behaviors that increase efficiency and effectiveness. Problems are (1) it is expensive because a manager can personally manage only a relative small number of subordinates effectively, (2) It can demotivate subordinates if they are under too close supervision, (3) for many jobs personal control through direct supervision is simply not feasible.

Management by objectives

MBO: a goal setting process in which a manager and each of his or her subordinates negotiate specific goals and objectives for the subordinate to achieve and then periodically evaluate the extent to which the subordinate is achieving those goals. Step 1: Specific goals and objectives are established at each level of the organization

Step 2: Managers and their subordinates together determine the subordinates’ goals. Step 3: They periodically review the progress towards meeting goals. In companies that have decentralized responsibility, it works differently. Managers ask each team to develop a set of goals and then negotiate with each team to establish its final goals and the budget the team will need to achieve. The reward system is linked to team performance in this case. When people work in teams, managers and their subordinates at all levels must believe that performance evaluations are accurate and fair. Also, when people work in teams, contribution to the goals must be fairly evaluated.

Bureaucratic control Bureaucratic control is control of behavior by means of a comprehensive system of rules and standard operating procedures. Recall (chapter 2) that rules and SOPs are formal, written instructions that specify a series of actions that employees should follow to achieve a given end. They guide behavior and specify what employees are to do when they confront a problem that needs a solution. The role of the managers is to develop these rules. When employees follow the rules, their behavior is standardized. There is no need for managers to monitor the output, because standardized behavior leads to standardized outputs.

Problems with bureaucratic control Managers need to be aware of a number of problems associated with bureaucratic control because such problems can reduce effectiveness. First, establishing rules is always easier than discarding them. Organizations tend to become overly bureaucratic over time as managers do everything according to the rule book. Second, because rules constrain and standardize behavior and lead people to behave in predictable ways, people might become so used to automatically following rules that they stop thinking for themselves. Managers must always be sensitive about the way they use bureaucratic control. It is most useful when organizational activities are routine and well understood and when employees are making programmed decisions.

Clan control Clan control is exerted on individuals and groups in an organization by shared values, norms, standards of behavior and expectations. It serves the dual function of keeping organizational members goal-directed while open to new opportunities because it takes advantage of the power of organizational culture.

Organizational change

Organizational change is the movement of an organization away from its present state and toward some preferred future state to increase its efficiency and effectiveness. There is a fundamental need to balance two opposing forces in the control process that influences how organizations change. Managers need to be able to have control and make their operations predictable but at the same time have to be responsive to unpredictable change. Many researchers believe that the highest-performing organizations are those that are constantly changing. Lewin’s Force-field theory of change

According to this theory, a wide variety of forces arise from the way an organization operates (its structure, culture, and control systems), that make organizations

resistant to change. At the same time a wide variety of forces arise from changing task and general environments that push organizations towards change. These two forces are always in opposition in an organization. To get to the P2 level, managers must increase the forces for change, reduce resistance to change, or both. Evolutionary and evolutionary change

Evolutionary change is change that is gradual, incremental and narrowly focused.

Revolutionary change is change that is rapid, dramatic and broadly focused. It involves a bold attempt to quickly find new ways to be effective. Managing change

There are four steps in the process of managing change. 1. Assessing the need for change: Two important activities are recognizing that there is a problem and identifying the source. 2. Decide on the change to make: They have to decide what they think the organization’s ideal future state would be. This also includes identifying obstacles or sources of resistance to change. These are found at the corporate, divisional, departmental and individual levels of the organizations. 3. Implementing the change: Top-down change is a fast, revolutionary approach to change in which top managers identify what needs to be changed and then move quickly to implement the changes throughout the organization. Bottom-up is a gradual or evolutionary approach to change in which managers at all levels work together to develop a detailed plan for change. 4. Evaluating the change: Manager compare pre-change performance with post-change performance. They also use benchmarking, the process of comparing one company’s performance on specific dimensions with the performance of other high performing organizations.

Chapter 13: Motivation and performance The nature of motivation

Motivation is about the forces that determine the direction of a persons’ behavior. Effort reverses to how hard people work. Persistence refers to whether people keep trying or giving up. Intrinsically motivated behavior is behavior that is performed for its own sake. Extrinsically motivated behavior is performed to acquire material or social rewards or to avoid punishment. Whether workers are intrinsically, extrinsically or both depends on: (1) workers’ own characteristics, (2) the nature of their jobs and (3) the nature of the organization. Pro-socially motivated behavior is performed to benefit or help others. Regardless of the kind of motivation, people join and are motivated to work to obtain certain outcomes (pay, job, etc.). Organizations hire people to obtain important inputs (time, effort, education). Managers strive to motivate members to contribute inputs that help the organization achieve its goals by ensuring that they obtain the outcomes they desire (motivation equation).

Expectancy theory

Expectancy theory is the theory that motivation will be high when workers believe

that high levels of effort lead to high performance and high performance leads to the

attainment of desired outcomes. It

identifies three major factors that

determine a person’s motivation:

Expectancy

It is a perception about the extent to which effort results in a certain level of performance. In order for people’s motivation to be high, expectancy must be high.

Instrumentality

This is a perception about the extent to which performance results in the attainment of outcomes. Managers promote high levels of instrumentality when they link performance to desired outcomes. Valence

Is how desirable each of the outcomes available from a job or organization is to a person. Only if these three factors are high, motivation will be high. Need theories

Need theories are theories of motivation that focus on what needs people are trying to satisfy at work and what outcomes will satisfy those needs. There are several need theories: Maslow’s Hierarchy of needs

An arrangement of five basic needs (physiological, safety, belongingness, esteem, self-actualization), that motivate behavior. Maslow proposed that the lowest level of unmet needs is the prime motivator and that only one level of needs is motivational at a time.

Alderfer’s ERG Theory

The theory that three universal needs (growth, relatedness, existence) constitute a hierarchy of needs and motivate behavior. Alderfer proposed that needs, at more than one level, can be motivational at the same time. He suggested that when people experience need frustration they will focus more intently on satisfying needs at the next lowest level in the hierarchy.

Herzberg’s Motivator-hygiene theory

A need theory that distinguishes between motivator needs (related to the nature of the work itself) and hygiene needs (related to the physical and psychological context in which the work is performed) and proposes that motivator needs must be met for motivation and job satisfaction to be high. This theory has contributed to our understanding of motivation is two ways: (1) helped to focus attention on the distinction between intrinsic motivation (motivator needs) and extrinsic (hygiene needs), (2) it prompted to study how jobs could be (re)designed so they are intrinsically motivating.

McClelland’s Needs for achievement, affiliation and power The need for achievement is the extent to which an individual has a strong desire to perform challenging tasks well and to meet personal standards for excellence. Need for affiliation is the extent to which individual is concerned about establishing and maintaining good interpersonal relations, being liked, and having the people around him or her get along with each other. Need for power is the extent to which an individual desires to control or influence others. Although each of the needs is present in each of us for some degree, their importance in the workplace depends on the position one occupies.

Equity theory

Equity theory focuses on people’s perceptions of the fairness of their work outcomes relative to their work inputs. Motivation is influenced by the comparison of one’s own outcome-input ratio with the outcome-input ratio of a referent; another person or a group of people who are perceived to be similar to oneself.

Equity

Equity is the justice, impartial and fairness to which all organizational members are entitled. When equity exists, people are motivated to continue contributing their current levels of inputs to their organizations to receive the current levels op outcomes. Inequity

Inequity is the lack of fairness: Underpayment and overpayment are two types of inequity.

Goal-setting theory

This is a theory that focuses on identifying the types of goals that are most effective in producing high levels of motivation and performance and explaining why goals have these effects. Locke and Latham suggested that the goals members strive to attain are prime determinants of their motivation and subsequent performance. Goals in this way should be specific and difficult. Employees should commit to these goals and in additions, they need to receive feedback about how they are doing. Specific and difficult goals affect motivation in two ways: (1) they motivate people to contribute more inputs to their job; (2) it helps people focus their inputs in the right direction. The fact that goals are specific and difficult also frequently causes people to develop an action plan.

Learning theories

Learning theories focus on increasing employee motivation and performance by linking the outcomes that employees receive to the performance of desired behaviors and the attainment of goals. Training can spur learning in all kinds of jobs and organizations. Operant conditioning theory

Is the theory that people learn to perform behaviors that lead to desired consequences and learn not to perform behaviors that lead to undesired consequences. This theory provides four tools that managers can use to motivate high performance: Positive reinforcement: Giving people outcomes they desire when they perform organizationally functional behaviors. These outcomes are positive reinforces (pay, promotion). Negative reinforcement: Eliminating or removing undesired outcomes when people perform organizationally functional behaviors. These outcomes are negative reinforces (unpleasant assignments, criticism). Negative reinforcement can create a very unpleasant work environment and even a negative culture in an organization. Extinction: Curtailing the performance of dysfunctional behaviors by eliminating whatever is reinforcing them (for examples conversations about hobbies). Punishment: Used when employees are performing dangerous or illegal behaviors. Organizational behavior modification: The systematic application of operant conditioning techniques to promote the performance of organizationally functional behaviors and discourage the performance of dysfunctional behaviors.

Social learning theory

The theory that takes into account how learning and motivation are influenced by people’s thoughts and beliefs and their observations of other people’s behavior. Three motivators:

Vicarious learning: Occurs when the learner becomes motivated to perform a behavior by watching another person performing it and being reinforced for doing so; also called observational learning. Self-reinforcement: When members control their own behavior by self-reinforcement, managers do not need to spend much time as they ordinarily would. Self-reinforces are any desired or attractive outcomes or reward that a person gives to himself or herself for good performance. Self-efficacy: A person’s belief about his or her ability to perform a behavior successfully. This influences motivation both when managers provide reinforcement and when workers themselves provide it.

Pay and motion

Pay can be used to motivate people to perform behaviors that help an organization achieve its goals, and it can be used to motivate people to join and remain an organization. To promote a high motivation, managers should base the distribution of pay to organizational members on performance levels so that high performers receive more pay than low performers: merit pay plan.

Salary increase or bonus?

Manager can distribute merit pay to people in form of salary increase or a bonus on top of the regular salaries. Bonuses tend to have more motivational impact because (1) salary levels are based on factors unrelated to current performance, (2) a current salary increase may be affected by other factors than performance, (3) organizations rarely reduce salaries, salary level tend to vary less than performance levels do. Employee stock option is a financial instrument that entitles the bearer to buy shares of an organization’s stock at a certain price during a certain period or under certain conditions. Some managers offer employees stock options instead of pays. Stock options are used to motivate employees to work in the future for the good of the company as a whole. Examples of Merit Pay Plans

Piece rate pays: Managers base employees’ pay on the number of units each employee produces. Commission pay: Managers base pay on a percentage of sales. Scanlon plan: Members are motivated to propose and implement cost-cutting strategies because a percentage of cost savings is distributed to them. Profit sharing: Employees receive a share of an organization’s profit.

Chapter 14: Leadership Nature of leadership

When leaders are effective, the influence they exert over others helps a group or organization achieve its performance goals. Personal leadership style and managerial tasks

Manager’s personal leadership style shapes how that managers approaches planning, organizing, and controlling. Although leading is one of the four principal tasks of managing, a distinction is often made between managers and leaders: Managers establish and implement procedures to ensure smooth functioning and are accountable for goal accomplishment. Leaders, in contrast, look to the future, chart the course for the organization, impassion employees to work together, etc. A Servant leader (by Greenleaf) is a leader who has a strong desire to serve and work for the benefit of others.

Leadership styles across cultures

Some evidence suggests that leadership styles vary among countries/cultures. Many countries in Europe have more individualistic perspective than Japan and a more humanistic perspective than United States. Another cross-cultural difference occurs in time horizon (long-term vs. short-term).

Power: The key to Leadership

Legitimate power: The authority that a manager has by virtue of his or her position in an organization’s hierarchy. Reward power: The ability of a manager to give or withhold tangible and intangible rewards. Effective managers use their reward power to show appreciation for subordinates’ good work and efforts. Coercive power: The ability of a manager to punish others. Expert power: Power that is based on the special knowledge, skills, expertise that a leader possesses. Effective leaders take steps to ensure that they have an adequate amount of expert power to perform their leadership roles. Referent power: Power that comes from subordinates’ and coworkers’ respect, admiration, and loyalty.

Empowerment: An ingredient in modern management Empowerment is the expansion of employees’ knowledge, tasks, and decision-making responsibilities. Empowered subordinates are given the power to make decisions that their leaders or supervisors used to make. It increases motivation and commitment from workers, gives managers more time to focus on pressing concerns.

Trait and behavior models of leadership

Trait model This model focused on identifying the personal characteristics that cause effective leadership. Traits alone are not they key to understanding leader effectiveness. Some effective leaders do not possess all the traits (table 14.1, 443), and some leaders who possess them are not effective. For this reason, researchers shift their attention away from the traits and to search for new explanations. This resulted in the behavior model. Behavior model Researchers identified two basic kinds of behaviors that many leaders engaged: Consideration: Behavior indicating that a manager trusts, respects, and cares about subordinates. This goes for managers who look out for the wellbeing of their subordinates and do what they can to help them feel good and enjoy their work. Initiating structure: Behavior that managers engage in to ensure that work gets done, subordinates perform their jobs acceptably, and the organization is efficient and effective. Leadership researchers have identified leader behaviors similar to consideration and initiating structure. Effective leaders don’t necessarily have to perform both kinds of behavior, because the relation between them is not clear-cut.

Contingency models of leadership

These models take into account the situation or context within which leadership occurs. Whether or not a manager is an effective leader is the result of the interplay between what the manager is like, what he/she does, and the situation in which leadership takes place.

Fiedler’s Contingency Model Leader style: This refers to a managers’ characteristic approach to leadership and Fiedler identified two basic leader styles: relationship-oriented leaders whose primary concern is to develop good relationships with their subordinates and to be liked by them. Task-oriented leaders whose primary concern is to ensure that subordinates perform at a high level. Situational characteristics: Fiedler identified three situational characteristics that are important determinants of how favorable a situation is for leading: Leader-member relations: The extent to which followers like, trust and are loyal to their leader. Task structure: The extent to which the work to be performed is clear-cut, so that a leader’s subordinates know what needs to be accomplished and how to go about doing it. Position power: the amount of legitimate, reward, and coercive power that a leader has by virtue of his/her position in the organization.

Leader style is something that cannot change, so managers (to be effective), should be placed in leadership situations that fir their style or situation need to be changed to suit the managers.

House’s Path-Goal theory

A contingency model of leadership proposing that leaders can motivate subordinates by identifying their desired outcomes, rewarding them for higher performance and the attainment of work goals with these desired outcomes, and clarifying for them the paths leading to the attainment of work goals. It gives managers three guidelines: 1. Find out what outcomes your subordinates are trying to obtain from their jobs and the organization. 2. Reward subordinates for high performance and goal attainment with the outcomes they desire. 3. Clarify the paths to goal attainment for subordinates, remove any obstacles to high performance, and express confidence in subordinates’ capabilities. It means that managers need to make sure subordinates are clear about what they should be trying to accomplish and have the capabilities, resources, and confidence levels needed to be successful. Path-goal theory identifies four kinds of leadership behaviors that motivate subordinates: Directive behaviors (setting goals, structure), supportive behaviors, participative behaviors (giving subordinates a say), Achievement-oriented behaviors (setting challenging goals, believing in subordinates’ capabilities).

The leader substitutes model A leadership substitute is a characteristic of a subordinate (skills, abilities) or of a situation or context that acts in place of the influence of a leader and makes leadership unnecessary. It suggests that leadership is in some situations unnecessary. Substitutes for leadership can increase organizational efficiency and effectiveness because they free up some managers’ valuable time and allow managers to focus their efforts on discovering new ways to improve organizational effectiveness.

Transformational leadership

Transformational leadership occurs when managers change their subordinates in three important ways: (1) make them aware of how important their jobs and performances are to the organization, (2) aware of their own needs for personal growth, development and accomplishment, (3) motivating them to work for the good of the organization. For a transformational leader, there are several ways in which they can influence their followers: Being a charismatic leader: An enthusiastic, self-confident leader who is able to clearly communicate his or her vision of how good things could be. Stimulating subordinates intellectually: Behavior a leader engages in to make followers aware of problems and view these problems in new ways, consistent with the leader’s vision. Engaging in developmental consideration: The managers goes out of his/her way to support and encourage subordinates, giving them opportunities to enhance their skills and capabilities to grow and excel on the job.

The distinction between transformational and transactional leadership

Transactional leadership motivates subordinates by rewarding them for high performance and reprimanding them for low performance. This goes for managers who influence subordinates without making any dramatic changes. Transformational leaders have their eyes on the bigger picture of the organization.

Gender and leadership

When women advance the top management positions, special attention often is focused on them and the fact that they are women. Research, however, suggests that male and female managers who have leadership positions in organizations behave in similar ways. Research does suggest that leadership style may vary between them. Women tend to be more participative leaders, while men tend to be less. There are at least two reasons: (1) subordinates may try to resist the influence of a female manager more than a male. To overcome this resistance and encourage trust and respect, women may adopt a participative approach. (2) They sometimes have better interpersonal skills than male managers. Conclusion, they are equally effective.

Emotional Intelligence and leadership

A leader’s level of emotional intelligence may play a particularly important role in leadership effectiveness. It may enable leaders to develop a significant identity for their organization and instill high levels of trust and cooperation. It also plays a crucial role in how leaders relate to and deal with their followers, particularly when it comes to encouraging followers to be creative: Creativity is an emotional-laden process.

Chapter 16: Promoting effective communication Communication and management First, communication is a human endeavor and involves individuals and groups. Second, communication does not take place unless a common understanding is reached. Importance of good communication

Communication is important for increase of efficiency; managers must be up to date with new technologies and how to implement them, improving quality; managers need to communicate the importance of quality, employees must report any problems or suggestions, responsiveness to customers; Communicating the needs of customers and how the adapt to them, innovation; Keeping managers and employees informed of new innovations.

Communication process Starting the transmission phase, the sender decides on the message. Then the

sender translates the message into symbols or language, encoding. Once encoded, a message is transmitted to the receiver. A Medium is simply the pathway (phone, call, letter). At the next stage, the receiver interprets and tries to make sense of the message: Decoding. This is the beginning of the feedback phase.

The role of perception in communication

Chapter 5; perception is the process through which people select, organize and interpret sensory input to give meaning and order to the world around them. When senders and receivers communicate, they are doing so based on their own subjective perceptions. Perceptual biases (chapter 5) can hamper effective communication.

Information richness and communication media

There is no one best communication medium for managers to rely on. When choosing one, they should consider three factors: (1) information richness, the amount of information that a communication medium can carry and the extent to which the medium enables the sender and receiver to reach a common understanding, (2) Time needed for communication, (1) Need for a paper or electronic trail. Face-to-face communication

This is the medium with the highest information richness. Managers can take advantage of verbal and nonverbal signals and it enables managers to receive instant feedback. Because of the growing forms of electronic communication, face-to-face communication is reducing. Management by wandering around is a face-to-face technique in which a manager walks around a work area and talk informally with employees about issues and concerns. Because of the amount of time face-to-face takes, managers not always use it as medium. Another option is videoconferencing, which is quick and still face-to-face.

Spoken communication electronically transmitted

This is the second highest in information richness. Over the phone there is now sight in body language, but you do have access to the tone of the voice. Other types of this kind of communication are voicemail and skype.

Personally addressed written communication

Lower in information richness is this kind of communication. The sender can write the message in a way that the receiver is most likely to understand. E-mail fits in this category because senders and receivers are communicating through personally addressed written words. But relying on e-mail can take considerably more time to reach a common understanding. Instant messaging allows people who are online and linked through a buddy or contact list to send instant messages back and forth through a small window on their computer screens, without having the steps of sending and receiving e-mail.

Impersonal written communication

This is lowers in information richness but is well suited for messages that need to reach many receivers (newsletters, paper, electronic trail, blogs, social network). Information overload is the potential for important information to be ignored or overlooked while tangential information receives attention.

Communication networks

Communication networks in groups and teams

Four kinds of communication networks can develop in groups and teams: Wheel network: Information flows to and from one central member of the group. Chain network: Members communicate with one another in a predetermined sequence. Circle network: Group members communicate with others who are similar to them in experience, beliefs, areas of expertise, background, office location. All-channel network: Is found in teams, and characterized by high levels of communication. Each team member communicates with every other team member. Organizational communication networks

An organization chart summarizes the formal reporting relationships in an organization and the formal pathways along which communication takes place. Often, however, communication is informal and flows around issues, goals, projects and ideas instead of moving up and down the organizational hierarchy in orderly fashion. Communication networks thus consists of formal and informal communication pathways and vertical and horizontal communication. The grapevine is an informal communication network along which unofficial information flows.

Information technology and communication

The internet The World Wide Web is the ‘business district’ with multimedia capabilities.

Companies’ home pages on the web are like offices that potential customers can visit. By surfing the web and visiting competitors’ home pages, managers and see what their competitors are doing. Intranets

Intranet is a companywide system of computer networks. They allow employees to have many kinds of information at their fingertips. Intranets can be accessed with different kinds of computers so that all members of an organization can be linked together. Groupware and collaboration software

Groupware is computer software that enables members of groups and teams to share information with one another. This only works if certain conditions are met: The work is group or team-based, groupware has the full support of top-management, culture of the organization stresses flexibility and knowledge sharing, groupware is used for specific purpose and employees receive adequate training about it. Collaboration software is groupware that promotes and facilitates collaborative, highly interdependent interactions and provides an electronic meeting site for communication among team members. This can help organize and centralize the work of a team, help ensure that information is available and makes sure important information is not overlooked.

Communication skills for managers

Communication skills for managers as senders

1. Send clear and complete messages

2. Encode messages in symbols the receiver understands: Jargon is a specialized language that members of an occupation, group, or organization develop to facilitate communication among themselves. 3. Select a medium appropriate for the message

4. Select a medium the receiver monitors

5. Avoid filtering and information distortion: Filtering is withholding part of a message because of the mistaken belief that the receiver does not need or will not want the information. Information distortion is changing of the meaning as a message passes through a series of senders and receivers. 6. Include a feedback mechanism in messages

7. Provide accurate information: Rumors can be misleading and can harm individual employees and their organizations when they are false or unfounded.

Communication skills for managers as receivers

1. Pay attention 2. Be a good listener: (1) managers should refrain from interrupting senders in the middle of a message, (2) they should maintain eye contact with senders, (3) manager should ask questions to clarify point of ambiguity or confusion, (4) managers should paraphrase points senders make that are important. 3. Be empathetic: Trying to understand how the sender feels and try to interpret a message from the sender’s perspective.

Understanding linguistic styles

These are person’s characteristic ways of speaking (tone voice, jokes, pauses). Linguistic styles differ because of several reasons: Cross-cultural differences: This concerns for example the appropriate physical distance between listeners and speakers, formal or informal word use.

Communication misunderstandings can be overcome if managers learn about cross-cultural differences. Gender differences: Tannen, a linguists, suggests that gender differences in linguistic style develops in early childhood: boys tend to play with children of their own gender, while girls play with both of them; boys play in big groups, girls play in small groups. Managing differences in linguistic styles: Managers need to understand differences in linguistic styles.

Chapter 17: Managing conflict, politics and negotiation Organizational conflict Organizational conflict is the discord that arises when the goals, interests, or values of different individuals or groups are incompatible and those individuals or groups block or thwart one another’s attempts to achieve their objectives. The level of conflict present in an organization has important implications for organizational performance (see figure below). Level of conflict is maximum at point B: managers at this point are likely to be open to, and encourage, a variety of perspectives.

Types of conflict

Interpersonal conflict: Conflict between individual members.

Intragroup conflict: Conflict within a group, team or department.

Intergroup conflict: Conflict between groups, teams, or departments.

Inter-organizational conflict: Conflicts across organizations.

Sources of conflict

Different goals and time horizons: Organizing people into departments and

divisions creates different goals and time horizons, and the result can be a conflict.

Overlapping authority: When to or more managers, departments, or functions claim

authority for the same activities, conflict is likely.

Task interdependencies: People are interdependent on the contributions of others,

which can create conflicts when people have different goals or time horizons.

Different evaluation or reward systems: If people have different reward systems,

they might have conflict about what should be emphasized.

Scarce resources: When resources are scarce, management if more difficult and

conflict is possible about who gets raises, or who has access to capital.

Status inconsistencies: Conflicts can result from people being higher regarded than

others.

Conflict management strategies

Functional conflict resolution means the conflict is settles by compromises or by

collaboration between the parties in conflict. Compromise is possible when each

party is concerned about not only its own goal accomplishment, but also the goal

accomplishment of the other party and is willing to engage in a give-and-take

exchange and to make concessions. Collaboration is a way of managing conflict in

which both parties try to satisfy their goals by coming up with an approach that leaves

them better off and does not require concessions on issues that are important to

either party. There are three other, ineffective ways, in which conflicts are sometimes

handled: (1) accommodation, which one party, typically with weaker power, gives in

to the demands of the other party, (2) avoidance, in which the parties try to ignore

the problem, (3) competition, each party tries to maximize its own gain and has little

interest in understanding the other party’s position and arriving at a solution that will

allow both parties to achieve their goals. There are a few strategies to conflict

solving:

Strategies focused on individuals

Increasing awareness of the source of conflict: When conflicts are caused by

communication or personality differences, managers can increase people’s

awareness to help resolve the conflict functionally.

Increasing diversity awareness and skills: Interpersonal conflicts also can arise

because of diversity (e.g. older workers vs. younger supervisors).

Practicing job rotation or temporary assignments: Conflicts can arise because people

do not understand activities and demands that others in organization face.

Using permanent transfers or dismissals when necessary: Sometimes managers

need to take more drastic steps to solve a conflict by transfers or even dismissals.

Strategies focused on the whole organization

Changing an organization’s structure/culture: conflict can signal the need for changes

in an organization’s structure or culture. Think about changing norms or values,

increasing levels of integration, changing the structure (chapter 10).

Altering the source of conflict: When the source is overlapping authority, different

evaluation or reward systems, or status inconsistencies, managers can sometimes

effectively resolve the conflict by directly altering in source.

Negotiation

Sometimes the sides involved in a conflict negotiate directly with each other.

Sometimes they need a third-party negotiator, an impartial individual with expertise

in handling conflicts and negotiations. When this negotiator acts as a mediator,

he/she can facilitate negotiations but has no authority to impose a solution. An

arbitrator does have the authority to impose what he/she thinks to be a fair solution.

Distributive negotiations and integrative bargaining

Distributive negotiation is adversarial negotiation in which the parties in conflict

compete to win the most resources while conceding as little as possible. In

integrative bargaining, parties in conflict work together to achieve a resolution that

is good for them both.

Strategies to encourage integrative bargaining

Emphasizing superordinate goals: These are goals that both parties agree to

regardless of the source of their conflict. Superordinate goals help parties in conflict

to keep in mind the big picture and the fact that they are working together for a larger

purpose or goal, despite their disagreements.

Focusing on the problem, not the people: Instead of attacking the problem, the

parties to the conflict attack each other. They need to keep focused on the problem

or on the source of the conflict.

Focusing on interests, not demands: Demands are what a person wants, interests

are why the person wants them. It is unlikely that the demands of both can be met.

Their underlying interests, however, can be met (integrative bargaining!)

Creating new options for joint gain: Once two parties focus on their interests, they

are on the road to achieving creative solutions that will benefit them both.

Focusing on what is fair: This is consistent with the principle of distributive justice;

the fair distribution of outcomes based on meaningful contributions that people make

to organizations. It will help two parties to come to a mutual agreement about what

the best solution is to the problem.

Organizational politics

Organizational politics are the activities that managers engage to increase their

power and to use power effectively to achieve their goals and overcome resistance or

opposition. Political strategies are the tactics they use in organizational politics.

Political strategies for gaining and maintaining power

Controlling uncertainty: Uncertainty is a threat for individuals, groups and whole

organizations and can interfere with effective performance and goal attainment.

Managers, who can control and reduce it, are likely to see their power increase.

Making oneself irreplaceable: Managers gain power when they have valuable

knowledge and expertise that allow them to perform activities no one else can.

Being in a central position: Managers in key positions have control over crucial

organizational activities and initiatives and have access to important information.

Other employees depend on them for their knowledge, expertise, advice, support.

Generating resources: They need (1) input resources, (2) technical resources, (3)

knowledge resources. To the extent that a manager can generate one or more of

these resources, that manager’s power is likely to increase.

Building alliances: They develop mutually beneficial relationships with people both

inside and outside the organization. They give managers power because they

provide the managers with support for their initiatives.

Political strategies for exercising power

Strategies to exercise power focus on how managers can use their power

unobtrusively; other members may not be aware that the managers are using their

power to influence them.

Relying on objective information: Objective information causes others to believe

that what the manager is proposing is the proper course of action.

Bringing in an outside expert: This lends credibility to a manager’s initiatives, and

causes others to believe that what the manager is proposing is the appropriate or

rational thing to do. Although they sometimes are hired by managers who want them

to support a certain position or decision in an organization.

Controlling the agenda: When managers influence the alternatives that are

considered, they can make sure that each considered alternative is acceptable to

them and that undesirable alternatives are not in the feasible set. They can even

prevent a decision from being made.

Making everyone a winner: They can exercise their power because they make sure

that everyone whose support they need, benefits personally from providing that

support.

Chapter 18: Using information technology to increase performance

Information and the manager’s job Managers need information to make the right decisions. Data are raw, not summarized, and unanalysed facts. Information is data that are organized in a meaningful fashion. Information can communicate a great deal of useful knowledge to the person who receives it, data alone does not tell anything. Attributes of useful information Quality: The greater its accuracy and reliability, the higher is the quality. Timeliness: In today’s rapidly changing world, the need for timely information often means information must be available on a real-time basis: frequently updated information that reflects current conditions. Completeness: One function of IT is to increase the completeness of information. Relevance: Relevant information suits a manager’s particular needs. What is information technology? Information technology is the set of methods or techniques for acquiring, organizing, storing, manipulating, and transmitting information. Management information system is a specific form of IT that managers utilize to generate the specific, detailed information they need to perform their roles effectively. Information and decision, control, coordination To make effective decisions, managers need information from both inside the organization and external stakeholders. Management information systems are used to control all divisional and functional operations. Managers face increasing coordination problems in managing their global supply chains to take advantage of

national differences in production costs. They must adopt ever more sophisticated IT that helps them coordinate the flow of materials and products throughout the world. The IT revolution The effects of advancing IT The revolution began with the development of first computers in the 1950’s. Modern computers can read, process, and store trillions of instruction per second. The products and services that result from advancing IT are all around us (smartphones, networks, cameras). But, IT is both an opportunity and a threat, and managers have to move quickly to protect their companies and maintain competitive advantages. IT and the product life cycle

Product life cycle is the way demand for a product changes in a predictable pattern over time. In the embryonic stage, a product has yet to gain widespread acceptance. In the growth stage, many customers are entering the market and buying the product for the first time: demand increases rapidly. In the maturity stage, the market demand peaks because customers have already bought the product. In the decline stage, the demand starts to fall. The shorter a product’s life cycle because of advancing IT, the more important it is to innovate products quickly and continuously

Types of management information systems Traditionally managers have used the organizational hierarchy as the main way to gather information, but it has several drawbacks (chapter 10). The management hierarchy is still the best information system available today if managers have access to the other kinds of MIS systems. There are six types of management information systems (MIS) that have been helpful to managers as they perform their management tasks. These systems are arranged along a continuum according to the sophistication of the IT they are based on (from programmed decision making to nonprogrammed decision making:

Transaction-Processing system This is a management information system designed to handle large volumes of routine recurring transactions. Most managers use it to handle things as payroll preparation and payment, customer billing, and payment of suppliers. Operations information systems This system gathers, organizes, and summarizes comprehensive data in a form that

managers can use in their nonroutine coordinating, controlling, and decision-making tasks. An operations information system typically accesses data gathered by a transaction-processing system, processes those data into useful information, and organizes that information into a form accessible to managers. Managers use it to get sales, inventory, accounting and other performance-related information. Decision support systems This is an interactive computer-based management information system that managers can use to make nonroutine decisions. It gives managers model-building capability and the chance to manipulate information in a variety of ways. They can use the results as an aid to decision making, it is not meant to make decisions for them. An executive support system is a sophisticated version of a decision support system that is designed to meet the needs of top managers. A group decision support system links top managers so they can function as a team. Artificial intelligence and Expert systems Artificial intelligence is behaviour performed by a machine that, if performed by a human being, would be called ‘intelligent’. It has already made it possible to write programs that can solve problems and perform simple tasks. Expert systems employs human knowledge, embedded in a computer, to solve problems that ordinarily require human expertise. Enterprise resource planning systems This is a multimodule application software package that coordinates the functional activities necessary to move products from the design stage to the customer stage. They (1) help each individual function improve its functional-level skills, (2) improve integration among all functions. E-commerce systems e-commerce is trade that takes place between companies, and between companies and individual customers, using IT and the Internet. Business-to-business commerce is trade that takes place between companies using IT and the internet to link and coordinate the value chains of different companies. B2B commerce increases profitability because it lets companies reduce operating costs and may improve product quality. A principal B2B application is B2B marketplace, an internet-based trading platform set up to connect buyers and sellers in an industry. Business-to-customer (B2C) commerce is trade between a company and individual using IT and the internet. The impact and limitations of IT Strategic, alliances, B2B network structures and IT Increasing globalization and the use of new IT have brought two innovations: (1) strategic alliance, an agreement in which managers pool or share their organization’s resources and know-how with a foreign company, and the two organizations share rewards and risks of starting a new venture, (2) B2B network structure, series of global strategic alliances that an organization creates with suppliers, manufacturers, and distributors to produce and market a product. It allows an organization to manage its global value chain in order to find new ways to reduce costs and increase quality.

Flatter structures and horizontal information flows Modern IT has reduces the need for a hierarchy to function as a means of coordinating and controlling organizational activities. The ability of IT to flatten structure and facilitate the flow of horizontal information between employees has led to the idea of a boundaryless organization: whose members are linked by IT and who rarely, if ever, see one another face-to-face. Large consulting companies use their global consultants in this way. Consultants are connected by laptops to an organization’s knowledge management system, that systematizes the knowledge of its employees and facilitates the sharing and integrating of their experts. Some organizations have gone one step further and created a virtual organization, in which employees are linked to an organization’s centralized databases by IT. A serious potential problem is that in all enthusiasm for MIS, communication via networks might lose the vital human element of communication.