MANAGAEMENT EXAM 1 REVIEW Chapter 1 Strategy: a company’s action plan for outperforming its competitors and achieving superior profitability.

- how to attract and please customers - how to compete against rivals - how to position the company in the marketplace - how to best respond to changing economic and market conditions - how to capitalize on attractive opportunities to grow the business - how to achieve the company’s performance targets.

Strategy is about competing differently from rivals – set them apart

- provides direction and guidance - highlights what a company should or should not do

Sustainable Competitive Advantage

- Provide buyers with what they see as superior value compared to rivals - Offer same product/service at lower cost

1. Strive to be industries low-cost provider, thereby aiming for a cost-based competitive advantage over rivals

2. Outcompeting rivals on the basis of differentiating features, such as higher quality, wider product selection, added performance, value-added services, more attractive styling, and technological superiority

3. Developing an advantage based on offering more value for the money 4. Focusing on narrow market niche within an industry

Understand that a company’s strategy evolves over time because of changing circumstances and ongoing management efforts to improve the strategy A company’s strategy has to be both proactive and reactive

1. proactive – have planned initiatives to improve financial performance 2. reactive – responses to unforeseen developments

- deliberate strategy: consisting of proactive strategy elements that are

both planned and realized as planned - emergent (realized) strategy: consisting of reactive strategy elements

that emerge as changing conditions warrant. Business Model Sets forth logic for how its strategy will create value for customers while at the same time generate revenues sufficient to cover costs and realize a profit. 2 elements of business model:

1. Customer value proposition: lays out company’s approach to satisfying buyer wants and needs at a good price.

2. Profit formula: describes company’s approach to determining a cost structure that will allow for profits.

3 tests can be applied to determine whether a strategy is a winning strategy: 1. Fit Test – does it fit the company’s situation? 2. Competitive Advantage Test – can it help the company achieve a SCA? 3. Performance Test – does it produce good company performance?

Crafting and executing strategy are core management functions. How well a company performs and the degree of market success it enjoys are directly attributable to the caliber of its strategy and the proficiency with which the strategy is executed. Chapter 2 What does the strategy-making, strategy-executing process entail?

1. Developing a strategic vision a. Describes management’s aspirations for the future and delineates

the company’s strategic course and long-term direction. i. Usually is about 1 or 2 paragraphs long and takes 10

minutes to explain ii. The statement should not be vague, dwell on present, be

generic, run on and on, or rely on superlatives iii. The statement should be graphic, focused, forward-looking,

and memorable b. Vision statement leads to a catchy, easy to remember slogan. c. Developing a mission statement

i. Describes purpose and present business, gives company its own identity, identifies company’s products or services, and specifies buyer needs

d. The values within both statements will be what guides the company actions

2. Setting objectives a. Objectives: convert vision and mission into performance targets.

i. Financial objectives: goals of financial performance. A stronger market standing and greater competitive vitality is what enables a company to improve its financial performance.

ii. Strategic objectives: goals concerning marketing standing and competitive position

b. Balanced Scorecard: widely used method for combining the use f both strategic and financial objectives, tracking their achievements, and giving management a more complete and balanced view of how well an organization is performing.

3. Crafting a strategy a. Strategic Vision + Objectives + Strategy = Strategic Plan b. Strategy making hierarchy:

i. Corporate Strategy 1. For the set of businesses as a whole

ii. Business Strategy 1. One for each business the company has diversified

into iii. Functional Area Strategies

1. Within each business iv. Operating Strategies

1. With each functional area 4. Executing the chosen strategy

a. Become aware of what a company must do to achieve operating excellence and it execute its strategy proficiently

b. This is a job for the company’s entire management team. 5. Monitoring developments, evaluating performance, and initiating

corrective adjustments a. Managing strategy is an ongoing process

i. The company’s vision, mission, objectives, and approach to strategy execution are never final

The strategic plan lays out a company’s future direction performance targets and strategy. Corporate Governance: The role of the board of directors in the strategy-crafting, strategy-executing process

1. Oversee the company’s financial accounting and financial reporting practices

2. Critically appraise the company’s direction, strategy, and business approaches

3. Evaluate the caliber of senior executives’ strategic leadership skills 4. Institute a compensation plan for top-executives that rewards them for

actions and results that serve shareholder interests Every corporation should have strong independent board of directors:

- They should be well-informed about company’s performance - They should guide and judge the CEO and other top executives - They should have the courage to curb risky management actions - They should certify to shareholders that the CEO is acting responsibly - They should provide insight and advice to management - They should be highly involved in debating pros and cons of key actions

Chapter 3 Evaluating a company’s external environment Q1: What are the strategically relevant factors in the macro-environment? PESTEL – Political, Economic, Social, Technological, Environmental, Legal Q2: How strong are the industry’s competitive forces? Porter 5 Forces:

1. rival sellers 2. potential new entrants 3. substitute products 4. supplier bargaining power 5. customer bargaining power

Competitive Weapons

o Price discounting, clearance sales o Couponing, advertising items on sale o Advertise product characteristics, enhance company image o Innovating to improve product performance and quality o Introducing new features, increase # of styles o Increase customization of product or service o Building a bigger, better dealer network o Improving warranties, offering low-interest financing o

Q3: What factors are driving industry change, and what impact will they have? Driving forces:

o Changes in long-term growth rate o Increasing Globalization o Emerging new Internet capabilities and applications o Changes in who buys the product and how they use it o Technological change and manufacturing process innovation o Product and marketing innovation o Entry or exit of major firms o Diffusion of technical know-how across companies and countries o Changes in cost and efficiency o Reductions in uncertainty and business risk o Regulatory influences and gov’t policy changes o Changing societal concerns, attitudes, and lifestyles

Q4: How are industry rivals positioned in the market?

Strategic group mapping: technique for displaying the different market or competitive positions that rival firms occupy in the industry. - Strategic group: consists of those industry members with similar

competitive approaches and position in the market Q5: What strategic moves are rivals likely to make next?

Michael Porter – Framework for Competitor Analysis Current Strategy, Objectives, Capabilities, and Assumptions Q6: What are the industry’s key factors?

Key Success Factors (KSFs) – competitive forces that most affect industry members’ ability to survive and prosper in the marketplace

Vary from industry to industry Q7: Is the industry outlook conductive to good profitability?

The anticipated industry environment is fundamentally attractive if it presents a company with good opportunity for above-average profitability; the industry outlook is fundamentally unattractive if a company’s profit prospects are unappealingly lower.

Chapter 4 Evaluating a Company’s resources, capabilities, and competitiveness Q1: How well is the company’s present strategy working? Check on Key financial Ratios - Gross profit margin

- Operating profit margin (or return on sales) - Net Profit margin (or net return on sales) - Total return on assists - Net return on total assets (ROA) - Return on Stockholder Equity (ROE) - Return on invested capital (ROIC) (ROCE)

Q2: What are the company’s competitively important resources and capabilities? Competitive Assets

- Resource and capability analysis: provides managers with a powerful tool for sizing up the company’s competitive assets and determining whether they can provide the foundation necessary for competitive success in the marketplace

- Resource – is a productive input or competitive asset that is owned or controlled by the firm - Capability: the capacity of a firm to perform some internal activity competently - Tangible: resources that can be touched or quantified readily

* financial resources, technological resources, organizational resources

- Intangible: harder to discern, often among the most important of a firm’s competitive assets * brands, image, reputational assets

- Organizational capabilities are knowledge-based, residing in people and in a company’s intellectual capital or in organizational processes and systems, which embody tacit knowledge.

- Resource bundle: linked and closely integrated set of competitive assets centered around one or more cross-functional capabilities

Assess the Competitive Power of a company’s resources and capabilities.

Sustainable Competitive Advantage: what a company is said to have if a certain advantage proves durable despite the best efforts of competitors to overcome it.

The 4 tests of a resources competitive power: VRIN V – is the resource valuable? R – is the resource rare? I – is the resource hard to copy? (inimitable)

social complexity: company culture, interpersonal relationships among managers or R&D teams

casual ambiguity: makes it very hard to figure out and therefore hard to imitate

N – Is the resource non-substitutable? A company’s resources and capabilities must be managed dynamically. The role of dynamic capabilities:

- an ongoing capacity of a company to modify its existing resources and capabilities or create new ones

Q3: Is the company able to seize market opportunities and nullify external threats? SWOT – Strength, Weakness, Opportunity, Threat

Simple but powerful tool for sizing up a company’s strengths and weaknesses, its market opportunities, ad the external threats to its future well being

Assessing a company’s competencies – what activities does it perform well?

Competence – a true capability, an activity that a company has learned to perform with proficiency Core competence – is an activity that a company performs proficiently that is also central to its strategy and competitive success Distinctive competence – is a competitively important activity that a company performs better than its rivals – competitively superior internal strength Weakness - competitive deficiency Strength – competitive asset

Identifying a company’s market opportunities A company is well advised to pass on a particular market opportunity unless it has or can acquire the resources and competencies needed to capture it.

Identifying the threats to a company’s future profitability.

Simply making lists of a company’s strengths, weaknesses, opportunities, and threats is not enough; the payoff from SWOT analysis comes from the conclusion about a company’s situation and the implications for strategy improvements that flow from the four lists.

What do the SWOT listings reveal?

- What are the attractive aspects of the company’s situation? - What aspects are of the most concern? - Are the company’s internal strength and competitive assets sufficiently

strong to enable it to compete successfully? - Are the company’s weaknesses and competitive deficiencies of small

consequence and readily correctable, or could they prove fatal if not remedied soon?

- Do the company’s strengths outweigh its weaknesses by an attractive margin?

- Does the company have attractive market opportunities that are well suited to its internal strengths? Does the company lack the competitive assets to pursue the most attractive opportunities?

- All things considered, where on a scale of 1 to 10 do the company’s overall situation and future prospects rank? A company’s internal strengths should always serve as the basis of its strategy – placing heavy reliance on a company’s best competitive assets is the soundest route of attracting customers and competing successfully again rivals.

Q4: Are the company’s cost structure and customer value proposition competitive?

- The higher the company’s costs are above those of close rivals, the more competitively vulnerable it becomes. - The greater the amount of customer value that a company can offer profitability relative to close rivals, the less competitively vulnerable it becomes. The concept of a company value chain:

Value chain: identifies the primary activities and related support activities that create customer value.

A company’s value chain consists of 2 broad categories of activities: 1. primary activities: foremost in creating value for customers 2. support activities: facilitate & enhance performance of primary

Comparing the value chains of rival companies:

The primary purpose of value chain analysis is to facilitate a comparison, activity-by-activity, of how effectively and efficiently a company delivers value to its customers, relative to its competitors.

A company’s primary and secondary activities identify the major components of its internal cost structure.

A company’s cost competitiveness depends not only on the costs of internally performed activities (its own value chain) but also on costs in the value chains of its suppliers and distribution channel allies.

The Value Chain System

The value chains of a company’s distribution channel partners are relevant because:

1. the costs and margins of a company’s distribution and retail dealers are part of the price the ultimate consumer pays

2. the activities that distribution allies perform affect sales volumes and consumer satisfaction

Accurately assessing a company’s competitiveness entails scrutinizing the nature and costs of value chain activities throughout the entire value chain system for delivering products or services to end-use customers.

Benchmarking: a tool for assessing whether the costs and effectiveness of a company’s vale chain activities are in line.

- this includes comparing how different companies perform various value chain activities. - benchmarking: a potent tool for improving a company’s own internal activities based on learned how other companies perform them and borrowing their “best practices”

Strategic options for remedying a cost or value disadvantage

Three main areas in a company’s total value chain system where company managers can try to improve efficiency and effectiveness in delivering customer value:

1. A company’s own internal activities 2. Suppliers’ part of the value chain system 3. The forward channel portion of the value chain system

Improving internally performed value chain activities: o implement use of best practices o eliminate some cost-producing activities altogether o relocate high-cost activities o outsource activities o invest in productivity enhancing, cost-saving technological

improvements o find ways to detour around the activities or items where costs are

high Improving supplier-related value chain activities: Work with or through suppliers Improve supplier performance (JIT deliveries) Improve value chain activities of forward channel allies:

1. Pressure distributors, dealers, and other forward channel allies to reduce costs and markups

2. Collaborate with forward channel allies to identify win-win opportunities to reduce costs

3. Change to a more economical distribution strategy, including switching to cheaper distribution channels

The means to enhance differentiation through activities at the forward end of the value chain system include:

1. Engaging in cooperative advertising and promotions with forward allies.

2. Creating exclusive arrangements with downstream sellers or other merchants that increase their incentives to enhance delivered customer value.

3. Creating and enforcing stands for downstream activities and assisting in training channel partners in business practices.

Translating proficient performance of value chain activities into competitive advantage:

A company’s value-creating activities can offer a competitive advantage in one of two ways:

1. they can contribute to greater efficiency and lower costs relative to competitors

2. they can provide a basis for differentiation, so customers are willing to pay relatively more for the company’s goods and services

How activities relate to resources and capabilities:

- performing value chain activities with capabilities that permit the company to either outmatch rivals on differentiation or beat them on costs will give the company a competitive advantage.

Q5: Is the company competitively stronger or weaker than key rivals? High weighted competitive strength ratings signal a strong competitive position and possession of competitive advantage; low ratings signal a weak position and competitive advantage. A company’s competitive strength scores pinpoint its strengths and weaknesses against rivals and point directly to the kinds of offensive/defensive actions it can use to exploit its competitive strengths and reduce its competitive vulnerabilities.

Q6: What strategic issues and problems merit front-burner managerial attentions?

Zeroing in on the strategic issues a company faces and compiling a list of problems and roadblocks creates a strategic agenda of problems that merit prompt managerial attention. A good strategy must contain ways to deal with all the strategic issues and obstacles that stand in the way of the company’s financial and competitive success in the years ahead.

Chapter 5 The company’s competitive strategy deals exclusively with the specifics of management’s game plan for competing successfully. 2 main factors that distinguish one competitive strategy from another:

1. Whether a company’s market target is broad or narrow 2. Whether the company is pursuing a competitive advantage linked to

lower costs or differentiation. The 5 generic competitive strategies:

1. Low cost provider strategy: lower overall costs than rivals on comparable products that attract a broad spectrum of buyers.

2. Broad differentiation strategy: seek to differentiate the company’s product offering from rivals’ with superior attributes that will appeal to a broad spectrum of buyers

3. Focused low cost strategy: concentrating on a narrow buyer segment and outcompeting rivals on costs

4. Focused differentiation strategy: concentrating on a narrow buyer segment and outcompeting rivals with a product offering that meets specific tastes.

5. Best-cost provider strategy: give customers more value for their money by satisfying expectations on key quality features while beating price expectations.

LOW COST PROVIDER STRATEGY How to achieve this:

1. perform value chain activities more cost-effectively than rivals 2. revamp the firm’s overall value chain to eliminate or bypass some

cost-producing activities

Cost-efficient management of value-chain activities: Cost driver – a factor that has a strong influence on a company’s cost

Ex – input costs, incentive systems, bargaining power, supply chain efficiencies, communication systems, info technology….

Cost cutting methods that demonstrate an effective use of the cost drivers include:

1. Striving to capture all available economies of scale 2. Taking full advantage of experience and learning cure effects 3. Trying to operate facilities at full capacity 4. Improving supply chain efficiency 5. Using lower cost inputs whenever doing so will not entail too great

a sacrifice in quality 6. Using the company’s bargaining power vis-à-vis suppliers or other

in the value chain system to gain concessions 7. Using communications systems and information technology to

achieve operating efficiencies 8. Employing advanced production technology and process design to

improve overall efficiency 9. Being alert to the cost advantages of outsourcing or vertical

integration 10. Motivating employees through incentives and company culture

Revamping the value chain system to lower costs: - Selling direct to consumers and bypassing the activities and costs of

distributors and dealers o Create own direct sales force o Conduct sales operations at the company’s website

- Streamlining operations by eliminating low value-added or unnecessary work steps and activities

o Ex- supermarkets have reduced in-store meat butchering by shifting to meats that are cut and packaged at the meatpacking plant and then delivered to the stores

- Reducing materials handling and shipping costs by having suppliers locate their plants or warehouses close to the company’s own facilities

EXAMPLES of companies that revamped their value chain to reduce costs: NUCOR CORPORATION: profitable steel producer in the US, largest steel producers worldwide. - they revamped their value chain by using relatively inexpensive electric arc furnaces and continuous casting process

* this helped eliminate many unnecessary steps that traditional steel mills still relied on * this also helped reduce the amount of employees needed for the job – therefore saved money

- Nucor produces steel with a far lower capital investment, far smaller workforce and far lower operating costs than traditional steel mills. - Nucor reported a profit for 176 out of 180 quarters from 1966-2011

SOUTHWEST AIRLINES:

- they reconfigured the traditional value chain of commercial airlines – allowed them to offer travelers dramatically lower fares

* faster turnaround at gate more flights per day with fewer aircrafts generate more revenue per plane than average * eliminated first class seating and service, baggage transfers to connecting flights, or assigned seating – save costs

Keys to being a successful low cost provider:

Low cost providers are champs of frugality, they don’t hesitate to spend aggressively on resources and capabilities that promise to drive costs out of the business.

Ex – Wal-Mart carefully estimates the costs savings of new technologies before it rushes to invest in them

When a low cost provider strategy works best:

1. Price competition among rival sellers is vigorous 2. The products of rival seller are essentially identical and readily

available for many eager sellers 3. There are few ways to achieve product differentiation in ways that

have value to buyers 4. Most buyers use the product in the same ways 5. Buyers incur low costs in switching their purchases from one

seller to another 6. The majority of industry sales are made to a few, large volume

buyers 7. Industry newcomers use introductory low prices to attract buying

and build a customer base

Pitfalls to avoid in pursuing a low-cost provider strategy: - Biggest mistake: overly aggressive price cutting - Second biggest mistake: relying on an approach to reduce costs that can

be easily copied by rivals - Third biggest mistake: becoming too fixated on cost reduction

BROAD DIFFERNTIATION STRATEGY This allows successful firms to:

- Command a premium price for its product - Increase unit sales (because additional buyers are won over by the

differentiating features - Gain buyer loyalty to its brand (because some buys are strongly attracted

to the differentiating features and bond with the company and its products)

Examples: Unique taste: Red Bull, Listerine Multiple features: Apple iPad, Microsoft Office Core concept:

Broad differentiation strategy: is to offer unique product attributes that a wide range of buyers find appealing and worth paying for.

Managing the value chain to create the differentiating attributes:

- Uniqueness drivers: a set of factors (analogous to cost drivers) that are particularly effective in creating differentiation

o ways that managers can enhance differentiation based on these drivers include:

quality control processes product features and performance customer service production R&D technology and innovation input quality employee skill, training, experience sales & marketing

Revamping the value chain system to increase differentiation o coordinating with channel allies to enhance customer perceptions

of value o coordinating with suppliers to better address customer needs

Delivering superior value via a broad differentiation strategy:

o incorporate product attributes and user features that lower the buyer’s overall costs of using the product

o incorporate tangible features that increase customer satisfaction with the product (ie. product specification, functions, and styling

o incorporate intangible features that enhance buyer satisfaction in noneconomic ways (ie. status, image, prestige, upscale, eco-friendly)

o signal the value of the company’s product is offering to buyers this is important when

the nature of differentiation is based on intangible features and therefore is subjective or hard to quantify

when buyers are making a first-time purchase and are unsure what their experience with the product will be

when repurchase is infrequent when buyers are unsophisticated

When a differentiation strategy works best: - buyer needs and uses of the product are diverse - there are many ways to differentiate the product or service that have

value to buyers - few rivals firms are following a similar differentiation approach - technological change is fast-paced and competition revolves around

rapidly evolving products and features Pitfalls to avoid in pursing a differentiation strategy: - a differentiation strategy keyed to product or service attributes that are

easily and quickly copied is always doomed. - the differentiation strategy could product en unenthusiastic response on

the part of buyers - the company could overspend on efforts to differentiate the product, thus

eroding profitability

-Other common mistakes: - offering on trivial improvements in quality, service, or performance features vis-à-vis the products of rivals - adding so many frills and extra features that the product exceeds the needs and use patterns of most buyers

- charging too high a price premium

*** a low cost provider strategy can defeat a differentiation strategy when buyers are satisfied with a basic product and don’t think “extra” attributes are worth a higher price

FOCUSED OR MARKET NICHE STRATEGY Concentrated attention on a narrow piece of the total market

Focused low cost strategy:

- based on low cost aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and lower price than those rival competitors

o Ex – budget motel chains for people looking for a cheap clean place to stay – Motel 6, Sleep Inn, Super 8…

Focused differentiation strategy: - keyed to offering products or services designed to appeal to the unique

preferences and needs of a narrow, well defined group of buyers o Ex –appealing to upscale buyers wanting products and services

with world-class attributes – Godiva Chocolates, Rolls-Royce…

When a focused low cost or focused differentiation strategy is attractive: - the target market niche is big enough to be profitable and offer good

growth potential - industry leaders have chosen not to compete in the niche – in which case

focusers can avoid battling head to head against the industry’s biggest and strongest competitors

- it is costly or difficult for Multisegment competitors to meet the specialized needs of niche buyers and at the same time satisfy the expectations of their mainstream customers

- the industry has many different niches and segments thereby allowing a focuser to pick the niche best suited to its resources and capabilities. Also, with more niches there is more room for focusers to avoid each other in competing for the same customers

- few if any rivals are attempting to specialize in the same target segment – a condition that reduces the risk of segment overcrowding

The ricks of a focused low cost or focused differentiation strategy: - the chance that competitors will find effective ways to match the focused

firms capabilities in serving the target niche – perhaps by coming up with products or brand specifically designed to appeal to buyers in the market niche or by developing expertise and capabilities that offset the focuser’s strengths.

- Potential for the preferences and needs of niche members to shift over time toward the product attributes desired by majority of buyers

- Risk of segment growth occurring too slowly that a focusers’ prospects for future sales and profit gain become dim

BEST-COST PROVIDER STRATEGY

Hybrid of low cost provider and differentiation strategies that aim at providing desired qualities, features, performance, service attributes which beating rivals on price

When a best-cost strategy works best: - in markets where product differentiation is the norm and an attractively

large number of value-conscious buyers can be induced to purchase midrange products rather than cheap, basic products or expensive top-of-the-line products

The big risk of a best-cost provider strategy: - Getting squeezed between the strategies of firms using low-cost and high-

end differentiation strategies. o A best-cost provider has to achieve significantly lower costs in

providing upscale features so it can outcompete high-end differentiators on the basis of a significantly lower price.

o Likewise, it must offer buyers significantly better product attributes in order to justify a price above what low-cost leaders are charging

The contrasting features of the 5 generic competitive strategies:

1. strategic market 2. basis of competitive strategy 3. product line 4. production emphasis 5. marketing emphasis 6. keys to maintaining the strategy 7. resources and capabilities required

Successful competitive strategies are resource-based

- it should be well-matched to a company’s internal situation and predicated on leveraging its collection or competitively valuable resources and capabilities

Chapter 10 Designing Organizational Structure:

Organizational architecture: organizational structure, control systems, culture, and human resource management systems that together determine how efficiently organizational resources are used

Organizational structure: formal system of task and reporting relationships that coordinates and motivates organizational members so they work together to achieve organizational goals

Organizational design: the process by which managers make specific organizing choices that result in a particular kind of organizational structure

Factors affecting organizational structure: 1. Strategy Low cost provider strategy

Broad differentiation strategy Focused low cost strategy Focused differentiation strategy Best-cost provider strategy

2. Technology Combination of skills, knowledge, machines, and computers that are used to design, make and distribute goods and services.

The more complicated the technology the more difficult it is to regulate it the greater need for a flexible structure

3. Human Resources How to group tasks into individual jobs

How to group jobs into functions and divisions How to allocate authority and coordinate functions & divisions 4. Organizational Environment

Grouping tasks into jobs: Job design

Job design: the process by which managers decide how to divide tasks into specific jobs

Job simplifications: the process of reducing the number of tasks that each worker performs

Job enlargement: increasing the number of different tasks in a given job by changing the division of labor

Job enrichment: increasing the degree of responsibility a worker has over his or her job

The job characteristics model: JR Hackman & GR Oldman Model

Explains how managers can make jobs more interesting and motivating. Also, describes the likely personal and organizational outcomes that will result from enriched and enlarged jobs.

5 characteristics that determine how motivating a job is:

1. Skill Variety Requires an employee to use wide range of different skills, abilities, or knowledge

2. Task Identity

Requires a worker perform all tasks necessary to complete the job, from the beginning to the end of the production process.

3. Task Significance The degree to which a worker feels his or her job is meaningful because of its effect on people inside the organization and outside of the organization

4. Autonomy Degree to which a job gives an employee the freedom and discretion needed to schedule different tasks and decide how to carry them out

5. Feedback The extent to which actually doing a job provides a worker with clear and direct information about how well he or she has performed the job

* Hackman and Oldman say that the more employees feel that their work is meaningful and that they are responsible for work outcomes and responsible for knowing how those outcomes affect others, the more motivating work becomes and the more likely employees are to be satisfied and perform at a high level

Grouping jobs into functions and divisions: Designing organizational structure Functional structure: an organizational structure composed of all the departments that an organization requires to produce its goods or services

Divisional structure: an organizational structure composed of separate business units within which re the functions that work together to produce a specific product for a specific customer Product structure: an organizational structure in which each product line or business is handled by a self-contained division Geographic structure: an organizational structure in which each region of a country or area of the world is served by a self-contained division Avon’s global geographic structure resulted in disaster:

- They had too many managers and began to lose money because the only common goal was “to sell as fast as possible” – there was no continuity for the brand throughout the globe. Even after manager cuts were made – the company continued to lose control and money

Market structure: an organizational structure in which each kind of customer is served by a self-contained division

Matrix and product team designs

Matrix structure: an organizational structure that simultaneously groups people and resources by function and by product Product team structure: an organizational structure in which employees are permanently assigned to a cross functional team and report only to the product team manager or to one of his or her direct subordinates Cross-functional team: a group of managers brought together from different departments to perform organizational tasks

Coordinating functions and divisions:

Authority: the power to hold people accountable for their actions and to make decisions concerning the use of organization resources Hierarchy of authority: an organization’s chain of command, specifying the relative authority of each manager Span of control: the number of subordinates who report directly to a manager Line manager: someone in the direct line or chain of command who has formal authority over people and resources at lower levels Staff manager: someone responsible for managing a specialist function, such as finance or marketing Decentralizing authority: giving lower-level managers and non-managerial employees the right to make important decisions about how to use organizational resources

Integrating and coordinating mechanisms

Integrating mechanisms: organizing tools that managers can use to increase communication and coordinating among functions and divisions Task force (ad hoc committee): a committee of managers from various functions or divisions who meet to solve a specific, mutual problem

Organizational culture

- the shared set of beliefs, expectations, values, and norms that influence how members of an organization relate to one another and cooperate to achieve organizational goals

Where does organizational culture come from?

Organizational ethics: the moral values, beliefs, and rules that establish the appropriate way for an organization and its members to deal with each other and with people outside the organization

Different kinds of structure give rise to different kinds of culture Chapter 11 Managing Internal Operations Allocating resources to the strategy execution effort

- a company’s operating budget must be both strategy-driven (in order to amply fund the performance of key value chain activities) and lean (in order to operate as cost-effectively as possible)

Instituting policies and procedures that facilitate strategy execution:

Well-conceived policies and operating procedures facilitate strategy execution in 3 ways:

1. They provide top-down guidance regarding how things need to be done

2. They help ensure consistency in how execution-critical activities are performed

3. They promote the creation of a work climate that facilitates good strategy execution

Institution best practices and employing process management tools Best practice: method of performing an activity that consistently delivers superior results compared to other approaches - to qualify as a legitimate best practice the method must have been

employed by at least one enterprise and shown to unusually effective in lowering costs, improving quality or performance, shortening time requirements, enhancing safety, or achieving some other highly positive operating outcome

Business process reengineering: involves radically redesigning and streamlining how an activity is performed, with the intent of achieving quantum improvements in performance - aims at one-time quantum improvement Total quantum management (TQM): entails creating a total quality culture, involving managers and employees at all levels, bent on continuously improving the performance of every value chain activity - aims at continuous improvement Six Sigma programs: utilize advanced statistical methods to improve quality by reducing defects and variability in the performance of business processes - aims at continuous improvement

Managers can take the following action steps to realize full value from TQM or Six Sigma initiatives and promote a culture of operating excellence:

1. Demonstrating visible, unequivocal, and unyielding commitment to total quality and continuous improvement, including specifying measureable objectives for increasing quality and making continual progress

2. Nudge people toward quality-supportive behaviors by: a. Screening job applicants rigorously and hiring only those

with attitudes and aptitudes right for quality-based performance

b. Providing quality training for most employees c. Using teams and team building to reinforce and nurture

individual efforts d. Recognizing and rewarding individual and team efforts to

improve quality regularly and systematically e. Stressing prevention (doing it right the first time), not

correction 3. Empowering employees so that authority for delivering great

service or improving products is in the hands of the doers rather than the overseers

4. Using online systems to provide all relevant parties with the latest best practices

5. Emphasizing that performance can and must be improved, because competitors are not resting on their laurels and customers are always looking for something better

Installing information and operating systems Amazon.com: has 53 fully computerized warehouses – their warehouse efficiency and cost per order filled are so low that they are one of the fastest-growing and most profitable Information systems need to cover 5 broad areas:

1. customer data 2. operations data 3. employee data 4. supplier/strategic partner data 5. financial performance data

Using rewards and incentives to promote better strategy execution

- a properly designed reward structure is management’s most powerful tool for mobilizing organizational commitment to successful strategy execution

Incentives and motivational practices that facilitate good strategy execution

Some of the most important nonmonetary approaches companies can use to enhance motivation:

providing attractive perks and fringe benefits giving awards and other forms of public recognition to high

performers, and celebrating the achievements of organizational goals

relying on promotion from within whenever possible inviting and acting on ideas and suggestions from

employees creating a work atmosphere in which there is genuine

caring and mutual respect among workers and between management and employees

stating the strategic vision in inspirational terms that make employees feel they are a park of something very worthwhile in a larger social sense

sharing information with employees about financial performance, strategy, operational measures, market conditions, and competitors’ actions

providing a comfortable and attractive work environment Strike the right balance between reward and punishment Guidelines for designing incentive compensation systems:

make the performance payoff a major, not minor, piece of the total compensation package

have incentives that extend to all managers and all workers, not just top management

administer the reward system with scrupulous objectivity and fairness

ensure that the performance targets set for each individual or team involve outcomes that the individual or team can personally affect

keep the time between achieving the performance target and receiving the reward as short as possible

avoid rewarding effort rather than results -