Intro to Management Midterm Exam 1 (Dr Hamilton)

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Rutgers University
Introto Management( Dennis Hamilton)

1 Introduction DOES MANAGEMENT REALLY WORK? (HBR ARTICLE) 3 Core Management Elements 1. Targets 2. Incentives 3. Monitoring Evaluated these 3 management practices in both private and public sector Very few were well managed Many were poorly managed What if firms adopt these management practices? Results from controlled study showed improvement So why don’t managers in firms with poor practices adopt these proven management practices? 79% of firms in the study claimed to have above average management practices managers lousy at self-evaluation of their management practices don’t recognize (or don’t want to admit) the problem Why is adoption so difficult? Sometimes national policies/cultures perpetuate ineptness Human nature to resist change (uncomfortable) Need a burning platform  motivation to change Resistance can also be overcome with small successful trials Takes long time to implement, progress can be slow at first Does Management Really Work? – YES but Sometimes good management practices are necessary but not sufficient Sometimes other factors allow a business to succeed in spite of its inept management practices THE EVOLUTION OF MANAGEMENT THEORY Management Theory has endured a healthy tension between The Scientists (engineer, economists, process managers) The Humanists (sociologists, psychologists) The Evolution of Management Theory reflects this tension 3 Stages of Management Theory Evolution AGE OF SCIENTIFIC MANAGEMENT (1880-1940) Frederick Taylor – Principles of Scientific Management “the best management is a true science, resting upon clearly defined laws, rules, and principles” – Taylor The laborer should work according to a process analyzed and designed by management for optimum efficiency, “the one best way”, allowing him to do as much as possible within a specific time period -- Taylor HUMAN RELATIONS OR BEHAVIORAL MOVEMENT (1940- 1980) Mary Parker Follett (1924) – Power with rather than power over employees Hawthorne Studies (1924- 1932) – Elton Mayo Factories in Cicero, Illinois Controlled studies to evaluate various factors (physical conditions, work schedules, incentive systems) on worker productivity These factors could not explain the change in productivity which consistently increased 2 unexpected factors appeared in results: Group dynamics: the workers working as a team encouraging each other The workers had been engaged by management in soliciting their feedback and input Humanistic Psychology applied to social institutions Peter Drucker, corporation as a social institution in which the capacity and potential of everyone involved were to be respected Douglas McGregor Theory X: people are inherently lazy Theory Y: people want to find meaning in their work and will contribute in positive ways if the work is well-designed STRATEGIC MANAGEMENT (1980- Present) Initially driven by economics Bruce Henderson (1963) – analytical approach to developing business strategy Drucker (1964) – Results Driven Management, business exist to produce results John Kenneth Galbraith (1967) – raises concern about the fact that the top 200 US firms controlled 67% assets, and 60% sales, employment and income – consolidation of industrial power Strategic Management Evolves through Turbulent Times Declining confidence in business leaders (1966: 55% of Americans had great confidence in leaders, 1975: only 15%) Forces of Change Deregulation (airlines, railroads, trucking, telecomm, finance) Globalization (new entrants, Japan, Russia, China, India) Technology (computers, software changed productivity) Mergers & Acquisitions (25% of firms on Fortune 500 in 1980 were acquired by 1989) Shareholder capitalism starts to override Stakeholder capitalism Michael Porter 1980 Competitive Strategy (the 5 forces, generic strategies) 1985 Competitive Advantage (value chain) Strategic Management Integrates Both Perspectives Agency Theory – Jensen 1980 In Search of Excellence – Peters & Waterman 1982 Reengineering – Michael Hammer 1990 Human/Social Perspective Leads to a melding of scientific perspective, shareholder capitalism, and human relations with new themes of: Leadership (controversial topic) Innovation – essential for survival and growth 2 strategic management 10/17/2013 STRATEGY DEFINED Strategy: its action plan for outperforming its competitors and achieving superior profitability What is our present situation?: business environ & industry conditions, firm’s financial & competitive capabilities Where do we want to go from here?: creating a vision for firm’s future direction How are we going to get there?: crafting an action plan that will get us there Strategy is all about how How to outcompete rivals How to respond to economic and market conditions and growth opportunities How to manage functional pieces of the business How to improve the firm’s financial and market performance WHY COMPANIES NEED A SOUND STRATEGY TO COMPETE SUCCESSFULLY Why DO strategy? Improve its financial performance Strengthen its competitive position Gain sustainable competitive advantage over market rivals A creative, distinctive: can yield above-average profits; make competition difficult for rivals Strategy and Competitors – strategy is about competing differently from rivals The Quest for Competitive Advantage Competitive Advantage: meeting customer needs more effectively, with products or services that customers value more highly, or more efficiently, at lower cost Sustainable Competitive Advantage: giving buyers lasting reasons to prefer a firm’s products or services over those of its competitors 4 STRATEGIC APPROACHES FOR SETTING A COMPANY APART FROM RIVALS Low-cost provider Differentiation on features Focus on market niche Best-cost provider Building Competitive Advantage 2 strategic management 10/17/2013 Building a competitive advantage by: 1. LOW-COST PROVIDER: Efficiency: striving to become industry’s low-cost provider 2. DIFFERENTIATION ON FEATURES: Effectiveness: outcompeting rivals on differentiating features 3. FOCUS ON MARKET NICHE: Efficiency and/or effectiveness: focusing on better serving a niche market’s needs 4. BEST-COST PROVIDER: offering the lowest (best) prices for differentiated goods How to create a Sustainable Competitive Advantage: Develop valuable expertise and competitive capabilities over the long-term that rivals cannot readily copy, match or beat Put the constant quest for sustainable competitive advantage at center stage in crafting your strategy WHY STRATEGY TENDS TO EVOLVE OVER TIME Managers modify strategy in response to Changing market conditions Advancing technology Fresh moves of competitors Shifting buyer needs Emerging market opportunities New ideas for improving the strategy A Company’s Strategy is a Blend of Proactive Initiatives and Reactive Initiatives IMPORTANCE OF A VIABLE BUSINESS MODEL–customers value proposition & profit formula How the business will make money 2 strategic management 10/17/2013 By providing customers with value: the firm’s customer value proposition By generating revenues sufficient to cover costs and produce attractive profits: the firm’s profit formula It takes a proven business model – one that yields appealing profitability to demonstrate the viability of a firm’s strategy 2 strategic management 10/17/2013 Customer Value Proposition – satisfying buyer wants and needs at a price customers will consider a good value The greater the value provided (V) and the lower the price (P), the more attractive the value proposition is to customers Profit Formula – creating a cost structure that allows for acceptable profits, given that pricing is tied to the customer value proposition V- value provided to customers P- price charged to customers C- firm’s costs The lower the C for a given customer value proposition (V-p), the greater the ability of the business model to be a moneymaker 3 TESTS OF A WINNING STRATEGY The Strategic Fit Test: dynamic fit with firm’s external and internal situation The Competitive Advantage Test: help firm attain significant and sustainable competitive advantage The Performance Test: can it produce good performance? Profitability 2 strategic management 10/17/2013 Market standing Competitive strengths 5 STAGES OF THE STRATEGY PROCESS 1. Vision, Mission & Values Developing Strategic Vision 1. Delineates management’s future aspirations for business to stakeholders 2. Provides direction – “where we are going” 3. Sets out the compelling rationale for firm’s direction 4. Uses distinctive and specific language to set the firm apart from its rivals Crafting a Mission Statement Uses specific language to give the firm its own unique identity Describes the firm’s current business and purpose – “who we are, what we do, why we are here” Should focus on describing the company’s business, not on “making a profit” – earning a profit is an objective not a mission Core Values – The beliefs, traits and behavioral norms that employees are expected to display in conducting the firm’s business and in pursuing its strategic vision and mission become an integral part of firm’s culture and what makes it tick when strongly espoused and supported by top management matched with the firm’s vision, mission, and strategy contributes to firm’s success 2. Setting Objectives o The Purposes of Setting Objectives: • To convert the vision and mission into specific, measurable, timely performance targets • To focus efforts and align actions throughout the organization 2 strategic management 10/17/2013 • To serve as yardsticks for tracking a firm’s performance and progress • To provide motivation and inspire employees to greater levels of effort Need for Short-term and Long-term Objectives Short-Term Objectives: focus attention on quarterly and annual performance improvements to satisfy near-term shareholder expectations Long-Term Objectives: force consideration of what to do now to achieve optimal long-term performance; stand as a barrier to an undue focus on short-term results The Need for Objectives at ALL Organization Levels Breaks down performance targets for each of the organization’s separate units Fosters setting performance targets that support achievement of firm-wide and financial objectives Extends the top-down objective-setting process to all org. levels 3. Crafting Strategy to Achieve Objectives o Strategy Making • Addresses a series of strategic how’s • Requires choosing among strategic alternatives • Promotes actions to do things differently from competitors rather than running with the herd • Is a collaborative team effort that involves managers in various positions at all organizational levels Who is Involved in Strategy Making Chief Executive Officer (CEO): has ultimate responsibility for leading the strategy-making process as strategic visionary and as chief architect of strategy Senior Executives: fashion the major strategy components involving their areas of responsibility Managers of subsidiaries, divisions, geographic regions, plants, and other operating unites Utilize on-the-scene familiarity with their business units to orchestrate their specific pieces of the strategy Characteristics of Strategic Intent 2 strategic management 10/17/2013 Indicates firm’s intent to making quantum gains in competing against key rivals and to establishing itself as a winner in the marketplace, often against long odds Involves establishing a grandiose performance target out of proportion to immediate capabilities and market position but then devoting the firm’s full resources and energies to achieving the target over time Entails sustained, aggressive actions to take market share away from rivals and achieve a much stronger market position 4. Executing the Strategy o Converting strategic plans into actions requires • Directing org action • Motivating people • Building and strengthening the firm’s competencies and competitive capabilities • Creating and nurturing a strategy-supportive work climate • Meeting or beating performance targets Managing the Strategy Execution Process Staffing the firm with the needed skills and expertise. Building and strengthening strategy-supporting resources and competitive capabilities. Organizing work effort along the lines of best practice. Allocating ample resources to the activities critical to strategic success. Ensuring that policies and procedures facilitate rather than impede effective strategy execution Installing information and operating systems that enable effective and efficient performance. Motivating people and tying rewards and incentives directly to the achievement of performance objectives. Creating a company culture and work climate conducive to successful strategy execution. Exerting the internal leadership needed to propel implementation forward and drive continuous improvement of the strategy execution processes. 5. Monitoring and Adjusting 2 strategic management 10/17/2013 o Evaluating Performance: deciding whether the enterprise is passing the 3 tests of a winning strategy – good fit, competitive advantage, strong performance o Initiating Corrective Adjustments • Deciding whether to continue or change the firm’s vision and mission, objectives, strategy, and/or strategy execution methods • Based on organizational learning 3 strategic mgmt 10/17/2013 EXTERNAL ANALYSIS WHAT IS THE MACRO-ENVIRONMENT? Macro-environment: encompasses the broad environmental context in which a company’s industry is situated that includes strategically relevant components over which the firm has no direct control PESTEL Analysis: focuses on principal components of strategic significance in the macro- environment: Political factors Economic conditions (local/worldwide) Sociocultural forces Technological factors Environmental factors Legal/regulatory conditions 1. HOW STRONG ARE THE INDUSTRY’S COMPETITIVE FORCES? 5 Competitive Forces (Porter) competition from rival sellers competition from potential new entrants competition from producers of substitute products supplier bargaining power customer bargaining power 2. DRIVING FORCES IN INDUSTRY, WHAT IMPACT WILL THEY HAVE ON COMPETITIVE INTENSITY & INDUSTRY PROFITABILITY Most Common Drivers of Industry Change Changes in the long-term industry growth rate 3 strategic mgmt 10/17/2013 Increasing globalization Emerging new internet capabilities and applications Changes in who buys the product and how they use it Technological change and manufacturing process innovation Product and marketing innovation Entry or exit of major firms Diffusion of technical know-how across firms and countries Changes in cost and efficiency Reductions in uncertainty and business risk Regulatory influences and government policy changes Changing societal concerns, attitudes, and lifestyles 3. MARKET POSITIONS/HOW ARE INDUSTRY RIVALS POSITIONED IN THE MARKET? Strategic Group: consists of those industry members with similar competitive approaches and positions in the market Having comparable product-line breadth Emphasizing the same distribution channels Depending on identical technological approaches Offering the same product attributes to buyers Offering similar services and technical assistance Value of Strategic Group Maps: maps are useful in identifying which industry members are close rivals and which are distant rivals Not all map positions are equally attractive 3 strategic mgmt 10/17/2013 4. WHAT STRATEGIC MOVES ARE RIVALS LIKELY TO MAKE NEXT? Competitive Intelligence: information about rivals that is useful in anticipating their next strategic moves Signals of the Likelihood of Strategic Moves: Rivals under pressure to improve financial performance Rivals seeking to increase market standing Public statements of rivals’ intentions Profiles developed by competitive intelligence units 5. WHAT ARE THE INDUSTRY’S KEY SUCCESS FACTORS (KSFs)? Key Success Factors (KSFs) Are the strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities that are necessary for competitive success by any and all firms in an industry Vary from industry to industry, and over time within the same industry, and in importance as drivers of change and competitive conditions change 6. IS THE INDUSTRY OUTLOOK CONDUCIVE TO GOOD PROFITABILITY? The anticipated industry environment is fundamentally attractive if it presents a company with good opportunity for above-average profitability Factors to Consider in Assessing Industry Attractiveness 1. The industry’s gro
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