Business Volume 1: Custom 2 Edition Textbook Notes (MGTA01 2013)
Chapter 6: Managing the Business Enterprise
Setting Goals and Formulating Strategy
=> goals: objectives that a business hopes and plans to achieve.
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.
- Four main purposes can be identified in organizational goal setting.
=> 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 different units of the company.
=> 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 sales
potential than it allocates to mature products with established but stagnant sales potential.
=> Goal setting helps to define corporate culture.An example can be seen in General
Electric, which strives to push its divisions to number one or two in its industry.As a
result, it encourages and maintains a competitive, often stressful environment that
rewards success and has little tolerance for failure. General Electric however maintains a
top spot in each of its respective industries, because of these work ethics.
=> 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 and/or surpass that goal can be
reward. However the managers of units who fail to reach that goal will also be
Kinds of Goals:
=> mission statement: an organization’s statement of how it will achieve its purpose in
the environment in which it conducts its business.
=> long-term goals: goals set for extended periods of time, typically five years or more
into the future.
=> intermediate goals: goals set for a period of one to five years.
=> short-term goals: goals set for the very near future, typically less than one year.
=> strategy formulation: creation of a broad program for defining and meeting an
=> strategic goals: long term goals derived directly from a mission statement.
Setting Strategic Goals:
=> SWOT analysis: identification and analysis of organizational strengths and weakness
and environmental opportunities and threats as part of a strategy formulation.
The S and W refer to the capitalization of Strengths and overcoming Weaknesses. These Business Volume 1: Custom 2 Edition Textbook Notes (MGTA01 2013)
are internal to the company. The O and T refer to taking advantages of environmental
Opportunity and Threats, and are more external factors.
Analysing the Organization and its Environment:
=> environmental analysis: the process of scanning the environment for threats and
=> organizational analysis: the process of analysing a firm’s strengths and weaknesses.
AHierarchy of Plans:
=> strategic plans: plans that reflect decisions about resources allocations, company
priorities, and steps needed to meet strategic goals.
=> tactical plans: generally, short-range plans concerned with implementing specific
aspects of a company’s strategic plans.
=> operational plans: plans setting short-term targets for daily, weekly or monthly
-identifies the various businesses that a company will be in, and how these businesses
will relate to each other.
=> concentration strategy: involves focussing the company on one product or product
- companies have several growth strategies, all of whom focus on internal activities that
will result in growth.
=> market penetration: boosting sales of present products by more aggressive selling in
the firm’s current markets.
=> product development: developing improved products for current markets.
=> geographic expansion: expanding operations in new geographic areas or countries.
- there are tow basic integration strategies, both of which focus on external activities.
=> horizontal integration: acquiring control of competitors in the same or similar
markets with the same or similar products.
=> vertical integration: owning or controlling the inputs to the firm’s processes and/or
channels through which the products or services are distributed.
=> diversification: expanding into related or unrelated products or market segments.
=> related diversification: means adding new but relating products or services to an
=> conglomerate diversification: means diversifying into products or markets that are
not related to the firm’s present businesses.
=> retrenchment: the reduction of activity or operations.
=> divestments: another investment reduction strategy involving seeing or liquidating
one or more of a firm’s businesses.
=> investment reduction: reducing the company’s investment in one or more of its lines
Business-Level (Competitive) Strategies:
=> cost leadership: becoming the low cost leader in an industry. Business Volume 1: Custom 2 Edition Textbook Notes (MGTA01 2013)
=> differentiation strategy: a firm seeks to be unique in its industry along some
dimension that is valued by buyers.
=> focus strategy: selecting a market segment and serving the customers in that market
niche better than competitors.
- a functional strategy is the basic course of action that each department follows so that
the business accomplishes its overall goals.
- an example can be seen in McDonalds, who implemented its cost-leadership strategy by
pursuing a functional strategy of satellite-based warehousing that drove distribution costs
down to a minimum.
The Management Process
=> management: the process of planning, organizing, leading and controlling a
business’s financial, physical, human and information resources in order to achieve its
=> planning: the portion of a manager’s job concerned with determining what the
business needs to do and the best way to achieve it.
- there are five steps in the planning process.
- step 1: goals are established for the organization.
- step 2: managers identify whether a gap exists between the company’s desire and actual
- step 3: managers develop plans to achieve the desired objectives.
- step 4: the plans that have been decided on are implemented.
- step 5: the effectiveness of the plan is assessed.
=> organizing: the portion of a manager’s job concerned with mobilizing the necessary
resources to complete a particular task.
=> leading: also referred to as directing, the portion of a manager’s job concerned with
guiding and motivating employees to meet the firm’s objectives.
=> controlling: the portion of a manager’s job concerned with monitoring the firm’s
performance, and if necessary acting to bring it in line with the firm’s goals.
Type of Managers Business Volume 1: Custom 2 Edition Textbook Notes (MGTA01 2013)
Levels of Management:
=> top managers: managers responsible for a firm’s overall performance and
effectiveness and for developing long-range plans for the company. Common titles
include president, vice-president, treasurer, chief executive officer (CEO) and chief
financial officer (CFO).
=> middle managers: managers responsible for implementing the decisions made by top
managers. Common titles include plant managers, operations managers and division
=> first-line managers: managers responsible for supervising the work of employees.
Common titles for supervisors, office managers and group leaders.
Areas of Management:
=> marketing managers: market managers are responsible for getting a product or
service to buyers. Marketing includes the development, pricing, promotion and
distribution of a product or service.
=> financial managers: financial managers are responsible for planning and overseeing
its financial resources. Management of a firm’s finances, including its investments and
accounting functions, is extremely important to its survival.
=> operation managers: operations managers are responsible for production control,
inventory control and quality control, among other duties.Afirm’s operations are the
systems by which it creates goods and services.
=> human resource managers: human resource managers are responsible for providing
assistance to other managers when they are hiring employees, training them, evaluating
their performances, and determining their compensation level.
=> information managers: information managers are responsible for designing and
implementing various systems to gather, process and disseminate information.
- other specialised managers include research and development managers (found working
for chemical companies) and public relations managers, although the list can be endless.
Basic Management Skills
=> technical skills: skills associated with performing specialized tasks within a firm.
- developed through education and experience.
- considered to be of great importance to first-line managers, although the importance
diminishes further up the corporate ladder.
Human Relations Skills:
=> human relations skills: skills in understanding and getting along with people.
- considered to be of high importance to middle managers, who must often act as bridges
between top managers and first-line managers. Business Volume 1: Custom 2 Edition Textbook Notes (MGTA01 2013)
=> conceptual skills: abilities to think in the abstract, diagnose and analyze different
situations and see beyond the present situation.
- help managers recognize new market opportunities or threats, and analyze the probable
outcomes of their decisions.
- top managers require conceptual skills the most, as they are the ones who are in charge
of the main decision-making in the company.
=> decision making skills: skills in defining problems and selecting the best course of
- three basic steps in decision making:
- step 1: define the problem, gather facts, and identify alternative solutions.
- step 2: evaluate each alternative and select the best one.
- step 3: implement the chosen alternative, periodically following up and evaluating the
effectiveness of that choice.
Time Management Skills:
=> time management skills: skills associating with the productive use of time.
- there are four leading causes of wasting time:
- paperwork: too much time deciding what to do with letters and reports.
- telephones: interruptions by telephones.
- meetings: managers spent at least four hours per day on meetings.
- email: more and more managers rely too heavily on email and other forms of electronic
Chapter 7: Organizing the Business Enterprise
What is Organizational Structure?
=> organizational structure: the specification of the jobs to be done within a business
and within a business and how these jobs relate to one another.
The Chain of Command Business Volume 1: Custom 2 Edition Textbook Notes (MGTA01 2013)
=> organization chart: a physical depiction of the company’s structure showing
employee titles and their relationship to one another.
=> chain of command: reporting relationships within a business; the flow of decision
making power in a firm.
- determining who will do what
=> job specialization: the process of identifying the specific jobs that need to be done
and designating the people who will perform them.
- a large task, such as manufacturing and selling cars is split into small tasks (developing
the car frame, creating tires, building engines, advertising the product, etc), with each
task assigned to a different individual.
- has certain advantages such as high efficiency in job performance, easy to replace
anyone who leaves the organization, and easier to learn the task.
- however if job specialization is carried too far and jobs become too narrowly defined,
people get bored and derive less satisfaction from their jobs, as well as losing sight of
how their contributions contribute into the overall organization.
=> departmentalization: the process of grouping jobs into logical units
=> profit centre: a separate company unit responsible for its own costs and profits.
- departmentalized companies benefit from the division of activities.
- control and coordination are narrowed and made easier; and top managers can see more
easily how various units are performing.
- it also allows the firm to treat a department as a profit centre
- by assessing profits from sales in a particular area, Sears can decided whether to expand
or curtail promotions in that area.
- managers do not group jobs randomly, but logically via some common thread or
purpose (consumer, functional, geographic and/or process)
Establishing the Decision-Making Hierarchy
=> assigning tasks: determining who can make decisions and specifying how they
should be made.
=> responsibility: is the duty to perform an assigned task.
=> authority: the power to make the decisions necessary to complete the task.
=> distributing authority: determining whether the organization is to be centralized or
decentralized. Business Volume 1: Custom 2 Edition Textbook Notes (MGTA01 2013)
=> performing task: implementing decisions that have been made.
=> delegation: assignment of a task, a responsibility or authority by a manager to a
=> accountability: liability of subordinates for accomplishing tasks assigned by
How to Delegate:
=> there are four things to keep in mind when delegating:
- tip #1: decide on the nature of the work to be done
- tip #2: match the job with the skills of the subordinates.
- tip #3: make sure the person chosen understands the objectives he or she is supposed to
- tip #4: make sure subordinates have the time and training necessary to do the task.
Problems in Small Business Delegation:
=> experts pinpoint that managers (particularly those in small business) have trouble
delegating effectively due to:
- the feeling that employees can never do anything as well as they can
- the fear that something will go wrong if someone else takes over a job
- the lack of time for long ranging planning because they are bogged down in day-to-day
- the sense of being in the dark about industry trends and competitive products because of
the time they devote to day-to-day operations.
Problems in Large Company Delegation:
=> some managers also face similar problems in delegation due to:
- the fear that subordinates don’t really know how to do the job
- the fear that a subordinate might “show the manager up” in front of others by doing a
- the desire to keep as much control as possible over how things are done
- a simple lack of ability as to how to effectively delegate to others
=> centralized organization: top managers retain most decision-making rights for
themselves. Business Volume 1: Custom 2 Edition Textbook Notes (MGTA01 2013)
=> decentralized organization: lower and middle-level managers are allowed to make
Tall and Flat Organizations:
=> flat organization structure: an organization with relatively few layers of management
(example: for a law firm, chief partner > partners > associates)
=> tall organization structure: an organization with many layers of management.
(example: for the Canadian forces, general > colonels > majors > captains and lieutenants
> warrant officers > sergeants > corporals > privates)
Span of Control:
=> span of control: the number of people managed by one manager
- if lower level managers are given more authority in terms of making decisions, then the
supervisors will have less work to handle, thus allowing a large span of control since
those managers can also oversee and coordinate the work of more subordinates.
=> downsizing: the planned reduction in the scope of an organization
Basic Organizational Structures
Functional Structure and its Advantages and Disadvantages:
=> functional structure: various units are included in a group based on functions that
need to be performed for the organization to reach its goals.
- focuses attention on key activities that must be performed
- expertise develops within each function
- employees have clearly defined career paths
- the structure is simple and easy to understand
- eliminates duplication of activities
- conflicts may arise among functional areas
- no single function responsible for overall organizational performance
- employees in each functional area have narrow view of organization
- decision making slowed because functional areas must get approval from top
management for variety of reasons
- coordinating highly specialized functions may be difficult
Divisional Structure and its Advantages and Disadvantages:
=> divisional structure: divides the organization into divisions, each of which operates
as a semi-autonomous unit.
- accommodates change and expression
- increases accountability Business Volume 1: Custom 2 Edition Textbook Notes (MGTA01 2013)
- develops expertise in various divisions
- encourages training for top management
- activities may be duplicated across divisions
- lack of communication among divisions may occur
- adding diverse divisions may blur focus of organization
- company politics may affect allocation of resources
Organizational Design for the 21 Century
=> team organization: relies almost exclusively on project-type teams, with little to no
underlying functional hierarchy.
=> virtual organization: closely related to the team organization, it consists of a handful
of permanent employees, very small staff and modest administration, and has little or not
=> learning organization: works to integrate continuous improvement with continuous
employee learning and development.
The Informal Organization
=> informal organization: a network of personal interactions and relationships among
employees unrelated to the firm’s formal authority structure.
=> organizational grapevine: an informal communications network that carries gossip
and other information throughout an organization.
Chapter 8: Managing Human Resources
The Foundations of Human Resource Management
=> human resource management: set of organizational activities directed at attracting,
developing and maintaining an effective workforce.
Human Resource Planning
=> job analysis: a detailed study of the specific duties in a particular job and the human
qualities required for that job.
=> job description: the objectives, responsibilities and key tasks of a job; the condition
under which it will be done; its relationship to other positions; and the skills needed to Business Volume 1: Custom 2 Edition Textbook Notes (MGTA01 2013)
=> job specification: the specific skills, education, and experiences needed to perform a
Forecasting HR Demand and Supply:
=> forecasting internal supply: the number and type of employees who will be in the
firm at some future date.
=> forecasting external supply: the number and type of people who will be available for
hiring from the labour market at large.
=> replacement charts: a human resources technique that lists each important
managerial position, who occupies it, how long he or she will probably stay in it before
moving on, and why (by name) is now qualified or soon will be qualified to move into it.
=> employee information system (skills inventories): computerized systems that
contains information on each employee’s education, work experience and career
Matching HR Supply and Demand:
- after comparing future demand and internal supply, managers can make plans to manage
predicted shortfalls or overstaffing.
- if a shortfall is predicted, new employees can be hired, present employees can retrained
and transferred into understaffed areas, individuals planning for retirement can be
convinced to stay on, or labour-saving o