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Chapter 6

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Management (MGT)
Chris Bovaird

Business Strategy Who are Managers All corporations depend on effective management The work of all managers involves developing strategic and tactical plans. They must also analyze their competitive environments and plan, organize, direct, and control day-to day operations Although our focus is on managers in business settings, remember that the principles of management apply to all kinds of organizations  Charities, churches, social organizations, educational institutions, and government agencies Setting Goals and Formulating Strategy The starting point in effective management is setting goals Goals: objectives that a business hopes and plans to achieve Every business needs goals, and we begin by discussing the basic aspects of organizational goal setting A company`s managers must also make decisions about actions that will and will not achieve its goals Strategy: is the broad program that underlines those decisions Setting Goals Goals are performance targets, the means by which organizations and their managers measure success or failure at every level The Purpose of Goal Setting An organization functions systematically because it sets goals and plans accordingly An organization functions as such because it commits its resources on all levels to achieving its goals There are 4 main purposes in organizational goal setting: 1. Goal setting provides direction, guidance, and motivation for all managers. If managers know precisely where the company is headed, there is less potential for error in the difference units of the company  Starbucks, for example, has a goal of increasing capital spending by 15%, with all additional expenditures devoted to opening new stores o This goal clearly informs everyone in the firm that expansion into new territories is a high priority for the firm 2. Goal setting helps firms allocate resources. Areas that are expected to grow will get first priority.  The company allocates more resources to new projects with large scale potential than it allocates to mature products with establishing but stagnant sales potential 1 o Thus, Starbucks is primarily emphasizing new store expansion, while its ecommerce initiatives are currently given a lower priority 3. Goal setting helps to define corporate culture. General Electric`s goal, for instance, is to push each of its divisions to number 1 or 2 in its industry  The result is a competitive, often stressful, environment and a culture that rewards success and has little tolerance for failure o Because of this, GE`s various divisions are among the very best in their respective fields 4. Goal setting helps managers assess performance. If a company sets a goal to increase sales by 10% in a given year, managers in units who attain or exceed the goal can be rewarded  Units failing to reach the goal will also be compensated accordingly o GE has a long-standing reputation for stringently evaluating managerial performance, richly rewarding those who excel – and getting rid of those who do not o Each year the lower 10% of GE`s managerial force are informed that they either make dramatic improvement or consider alternative direction for their careers Kinds of Goals Naturally, goals differ from company to company, depending on the firm`s purpose and mission Every enterprise has a purpose – a reason for being  Businesses seek profit, universities work to discover and transmit new knowledge Most enterprises have a mission statement Mission Statement: an organization`s statement of how it will achieve its purpose in the environment in which it conducts its business  Mission statements should also include some statement about the company`s core values and its commitment to ethical behaviour o Bell Canada`s mission, for example, is to be a world leader in helping communicate and manage information Two business firms can have the same purpose – for example, to sell watches at a profit – yet have very different missions  Timex sell low-cost, reliable watches in outlets ranging from department stores to corner drugstores  Rolex sells high-quality, high-priced fashion watches through selected jewellery stores Regardless of a company`s purpose and mission, every firm needs long-term, intermediate, and short-term goals: Long Term Goals: goals set for extended period of time. Typically five years or more into the future  MasterCard, for example, might set a long-term goal for doubling the number of participating merchants during the next 10 years 2 Intermediate Goals: goals set for a period of 1 to 5 years  Companies usually have intermediate goals in several areas o For example, the marketing department’s goal might be to increase sales by 3% in 2 years o The production department might want to decrease expenses by 6% in 4 years o Human resources might seek to cut turnover by 10% in 2 years o Finance might aim for a 3% increase in return on investment in 3 years Short-Term Goals: goals set for the very near future, typically less than 1 year  Companies usually also have many short-term goals in different areas o Increasing sales by 2% this year o Cutting costs by 1% next quarter o Reducing turnover by 4% over the next six months Formulating Strategy Planning is concerning with the nits and bolts of setting goals, choosing tactics, and establishing schedules In contrast, strategy tends to have a wider scope Strategy: a “broad program” the describes an organization’s intentions  A business strategy outlines how it intends to meet its goals, and includes the organization’s responsiveness to new challenges and new needs Strategy Formulation: creation of a broad program for defining and meeting an organization’s goals. Involves 3 basic steps: 1. Set strategic goals 2. Analyze the organization and analyze the environment 3. Match the organization and its environment (1) Setting Strategic Goals Strategic Goals: long-term goals derived directly from a firm’s mission statement  For example, CEO of Volkswagen, has clear strategic goals for the European market o When the new CEO took over, Volkswagen was only marginally profitable, and was thinking of pulling out of the U.S. market because of its sales were so poor o Over the next few years, however, the CEO totally revamped the firm and now it is making big profits SWOT Analysis After strategic goals have been established, organizations usually go through a process called SWOT Analysis SWOT Analysis: identification and analysis of organizational strengths and weaknesses and environmental opportunities and threats as part of strategy formulation  Note that strengths and weaknesses are internal to the company, while opportunities and threats are external 3 o In formulating strategy, companies attempt to capitalize on organizational strengths and take advantage of environmental opportunities o During this same process, they seek to overcome organizational weaknesses and cope with environmental threats (2) Analyzing the Organization and its Environment Environmental Analysis: the process of scanning the environment for threats and opportunities  Threats include changing consumer tastes and hostile takeover offers  Opportunities include areas in which the firm can potentially expand, grow, or take advantage of existing strengths An name recognition that his businesses enjoyexample would be entrepreneur Richard Branson, owner of Virgin Group Ltd.  It is one of the best known brands in the world, comprising a conglomeration of over 200 entertainment, media and travel companies o Branson sees potential threats from other competitors such as British Airways o But he also sees significant opportunities because of the firm’s strong brand name (Specially in Europe)  Most recent venture is Virgin Mobile Organizational Analysis: the process of analyzing a firm’s strengths and weaknesses (internal factors)  Strengths might include surplus cash, a dedicated work-force, an ample supply of managerial
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