Management Essentials: Strategy, Ethics, HR, and Organizational Control

Management Fundamentals: Definitions and Roles

Core Management Concepts

• Management: A set of activities designed to achieve organizational goals by using available resources effectively and efficiently in a changing environment.
• Organization: A group of individuals working together to achieve a common goal.
• Resources: People, equipment, finances, and data used by organizations to achieve their common goal.
• Stakeholders: All individuals that can affect or are affected by the organization’s goals or means of reaching the goal.
• Profit: The gains collected by the company after reaching its goal.
  • Gross Profit: Total profit – the cost of goods sold.
  • Net Profit: Total profit – Total cost.

Functions of a Manager (POLC)

• Planning: The process of deciding an organization's common goal and the methods for reaching it.
• Organizing: Designing jobs for employees, grouping these jobs into departments, and developing the working environment within the organization.
• Leading: Influencing and motivating others' activities to reach the common goal.
• Controlling: Ensuring that everything is going according to the plan to achieve the common goal.

Management Roles (Mintzberg)

A set of similar activities that serve a specific purpose to the organization:

• Interpersonal Roles: Involve interacting with others within or outside the organization to gather information and help make decisions.
  • Figurehead: Attending important events.
  • Liaison: Coordinating production schedules.
  • Leadership: Maintaining the status of employees’ work.
• Informational Roles: Working on collected data/information and implementing it in the organization. Activities include reporting, preparing data analysis, briefing, emailing, websites, etc.
  • Monitor: Making sure everything happening in the company is legal.
  • Disseminator: Connection between employees and the organization.
  • Spokesperson: Representation of the organization (e.g., for consumers).
• Decisional Roles: Dealing with the allocation of resources.
  • Entrepreneur: Initiating change and innovation.
  • Disturbance Handler: Working to resolve issues when there is a change in the external environment.
  • Resource Allocator: Distributing available resources to different departments.
  • Negotiator: Reaching agreements with different groups within the organization, and also with external agencies and the company.

Management Skills

• Interpersonal Skills: Communication, listening, taking control/responsibility.
• Technical Skills: Having the specific knowledge and ability to work on technology, taxes, accounting systems, human resources, etc. (Similar to Job Knowledge).
• Conceptual Skills: Ability to work with organizational information to make accurate decisions in order to reach the goal effectively and efficiently.
• Oral Communication: Good communication skills.
• Persuasiveness: Essential when dealing with other companies or proposing new ideas for the company.
• Problem Analysis: Ability to come up with solutions.
• Other Key Traits: Cooperativeness, Tolerance of stress, Negotiation, Assertiveness (Ability to express one’s point of view clearly), Initiative (Taking the initiative to come up with ideas, start the process).

Levels of Management

• Upper Managers (Top Level): Work on planning and leading the company; they make ultimate decisions. Example: CEO, CFO.
• Middle Managers: Control a particular department. Receive orders from the upper level and execute them within a department. Example: Head of HR.
• Lower Managers (First-Line): Have a direct relation with consumers and work on executing the planning decided by above. Example: Store managers.

Functional Areas of Management

• Human Resource: Employee selection, training, and compensation.
• Marketing: Promoting the organization and its products.
• Finance: Allocation of money and determining where the money should be used.
• Production and Operation: The making of goods and services (maintaining the quality of the product and the procedure of making those products).
• Information Technology (IT): Maintaining and controlling technological applications.
• Sales: Selling the company’s product.
• Administrative: Overall company management.
• Legal: Making sure the company is not involved in anything illegal.
• Ethics: Making sure all company processes are ethical.
• Corporate Social Responsibility (CSR): Making sure the organization has a positive impact on society.

Profit vs. Non-profit Organization

• Profit Organization: Main purpose is to make a financial profit.
• Non-Profit Organization: Main purpose is not to make financial profit, but to serve a charitable, educational, or literary purpose.

Case Study: Jeff Bezos, Amazon

Bezos prioritizes consumer needs first, often plowing profits back into the company (maintaining a close relationship with the customer). Despite sometimes operating at a loss, he makes necessary strategic decisions, such as buying warehouses or removing competition. By maintaining a close relationship with every department, he ensures optimum work from each employee. His use of the Controlling function is evident: he ensures everything is going according to plan, often sending direct emails to the concerned party if something is unsatisfactory.

Business Ethics and Corporate Social Responsibility

Defining Ethics and Its Role

• Business Ethics: Refers to policies, practices, principles, and values that are acceptable in an organization.
• The Role of Ethics in Business:
  • Helps to attract customers.
  • Encourages employees to stay with the organization.
  • Attracts potential employees.

Ethical Issues in Management

• Discrimination
• Harassment
• Employee theft
• False advertisement
• Compliance and governance issues
• Misuse of organization’s resources
• Bribery
• Fairness and honesty issues

Factors Influencing Ethical Behavior

• Individual Factors: Based on one's personal values, which shape decisions on what to do and how to do it.
• Organizational Factors: The organizational environment shapes how an employee performs/achieves goals. Managers set standards for employees to maintain ethical behavior (influence, motivate).
• Opportunity: Refers to conditions that limit unfavorable behavior (punishment) and reward favorable behavior. The desire for higher profit or success can sometimes lead to unethical behavior.

Effective Ethics and Compliance Programs

Steps to develop an ethical culture in an organization:

• Ethics: Maintenance of culture in the company.
• Compliance: Rewards for ethical behavior and punishment for unethical behavior.
• Code of Ethics: Formalized rules and standards that describe the expectations for employees.

Corporate Citizenship and Social Responsibility

• Corporate Citizenship: The social responsibility of businesses and the extent to which they meet legal, ethical, and economic responsibilities, as established by the shareholder.
• Social Responsibility (SR): The obligation a business assumes to maximize its positive impact and minimize its negative impact on society.

Dimensions of Social Responsibility (Pyramid)

It is important for long-term profit and economic survival:

1. Stage 1: Financial Viability (Economic responsibility)
2. Stage 2: Compliance with Legal Requirements (Legal responsibility)
3. Stage 3: Ethics, Principles, and Values (Ethical responsibility)
4. Stage 4: Corporate Citizenship (Philanthropic responsibility)

Social Responsibility Issues by Stakeholder

• Employees: Compensation and benefits, diversity, occupational health, safety, and communication.
• Customers: Product safety and quality, customer satisfaction, handling complaints, truthful sales/promotion, and service accessibility (e.g., for handicapped customers).
• Investors: Transparency of financial information, shareholder rights, and return/benefits of investment.
• Environment: Following EPA guidelines/rules, minimizing energy use, maximizing efficiency, and minimizing pollution.
• Community: Public health/safety, corporate citizenship, and economic contribution.

How Ethics Relates to Social Responsibility

Ethics has a micro effect, focusing on the involvement of stakeholders only. Social Responsibility (SR) has a macro effect, affecting everyone, even people who are not directly involved with the organization. Ethical behavior ultimately leads to a positive impact on society.

Case Studies in Ethical Failure

• Volkswagen Case: Involved the use of a defect device to falsify emission data, making emissions appear lower than they truly were, leading to significant societal consequences.
• Nissan Case: Misuse of the company’s resources by the CEO, Mr. Ghosn.

Strategic Management and Planning Process

The Nature and Steps in Planning

Planning is a set of activities intended to achieve a goal, whether for an entire organization, a department, or an individual.

1. Make Mission Statement: A statement indicating who the organization is, what they do, and what they stand for.
2. Assessing the Current Situation: Knowing what the company can do with its currently available resources.
3. Stating Goals: Goals can be categorized by level (strategic, tactical, operational) and time frame (long-term, mid-term, and short-term).
4. Assuming the Environment: Recognizing that the external environment cannot always be anticipated.

Types of Goals

• Strategic Goals: Decided by leaders, focusing on long-term effects.
• Tactical Goals: More specific, designed to stimulate actions necessary for achieving strategic goals (e.g., changing price, technology change).
• Operational Goals: Helps to perform day-to-day activity, typically set by lower-level managers.

Strategic Management Process

All the processes an organization undertakes to develop and implement its strategic plan to achieve its goals:

1. Mission Statement and Goal Identification
2. SWOT Analysis
3. Strategy Formulation (done by top management)
4. Strategy Implementation & Evaluation (involvement of the entire organization)
5. Strategic Control (management ensures the strategy is being followed)

SWOT Analysis

The evaluation of the organization’s internal Strengths and Weaknesses and the external Opportunities and Threats associated with the business environment. SWOT emphasizes that an organization’s strategy should be built around its own capabilities as well as the environment it operates in.

Case Study: Flanagan Corporation

Due to a change in consumer demand, the corporation had to change its strategy and goals accordingly.

Organizational Design: Jobs, Departments, and Structure

Organizational Culture and Structure

• Organization Culture: The adopted shared beliefs, values, norms, and rules that the organization uses to implement its vision. It is the blueprint or identity of the firm.
• Formal Relationship: Relationships among positions connected by the organizational chart.
• Informal Organization: Relationships among positions that are not connected by the organizational chart.
• Organizational Structure: Division of labor and patterns of coordination, communication, workflow, and formal power that direct organizational activities.

Elements of Organizational Structure

• Departmentalization: Charts of departments.
• Span of Control: The actual number of subordinates over which a position has authority (the number of people who directly report to the next level).
• Delegation: Assigning work and authority to a subordinate with a specific goal stated.
• Decentralization: Power is distributed among many people; increases as companies grow.
• Centralization: Formal decision-making authority is held by a few people, usually at the top.
• Formalization: Rules, procedures, and training used to standardize behavior. High formalization can hinder employees' ability to adapt quickly to changes in the environment.

Centralization vs. Decentralization

Benefits of Centralization

• Faster implementation since there is no need to consult with many people.
• Small organizations often perform better with centralized power.

Benefits of Decentralization

• Generates many ideas, allowing managers to choose the best input from various different perspectives.
• Large-sized companies often perform better with decentralized power.

Developing Organizational Structure

Departmentalization involves grouping related jobs to form an administrative unit (department, area, or center).

• Functional Structure: Used by small companies producing one or several closely related goods and services, focusing on areas like marketing, finance, etc.
  • Advantage: High level of specialization; employees become experts.
  • Disadvantage: Unhealthy competition between areas, risk of boredom/lack of innovation, decreased flexibility.
• Multidivisional Structure: A group of several divisions under the same organization. This occurs when a firm grows so large that a functional structure cannot manage every aspect.
  • Advantage: Eases the work of top managers, provides more perspective.
  • Disadvantage: Managers may feel they are losing power, divisions may develop their own practices and potentially hide important information.
• Matrix Structure: Members of different functional departments within a multidivisional organization are chosen to work together temporarily on a specific contract or project.
  • Advantage: Different perspectives, avoids duplication of function.
  • Disadvantage: Employees report to two or three managers, creating confusion and pressure to satisfy multiple parties.
• Outsourcing (Network Structure): A structure that works with other organizations to produce, distribute, and sell products, rather than necessarily producing all goods and services internally. Example: Oil companies.

Two Broader Organizational Forms

• Mechanistic Structures: Characterized by a narrow span of control and high centralization.
• Organic Structures: Characterized by a wider span of control and decentralization. These structures are more competitive, highly complex, and constantly changing.

Case Study: GE

GE utilizes both a Matrix Structure and a Multidivisional Structure.

Human Resource Management (HRM) Activities

HRM Definition and Main Activities

Human Resources Management: All the activities that forecast the number and type of employees an organization will need, and then find and develop employees with the necessary skills.

Main Activities include:

• Developing employee skills/training sessions.
• Forecasting human capital needs.
• Recruiting employees.
• Orientation.
• Ensuring employees comply with rules and regulations.
• Managing promotion and raises.

Planning for Human Resource Needs

• Job Analysis (KSA: Knowledge, Skills, Abilities) for forecasting future demand of employees.
• Job Description.
• Job Specification.
• Publicizing the availability of positions.

Recruiting and Selection

• Sources: Internal (recommendation within organization, promotion) and External (applicants).
• Collecting systematic information from applicants.
• Using data to decide whom to select.
• Interviewing.
• Reference checking.
• Final selection.

Developing the Workforce

• Orientation: Familiarizing newly hired employees with the company, its policy, culture, and other employees.
• Training: Instructing/guiding employees in their job tasks and socializing them into the organization’s values, attitudes, and culture.
• Professional Development: Education and continuous learning.

Assessing Performance

Testing employees’ ability to work in the company (also done before hiring through various tests). While working, employees are assessed on how well they perform their duties.

Compensating the Workforce

The basis on which an organization gives goods, services, or money to its employees in exchange for their work. Compensation can be determined by performance appraisal (bonuses, benefits like health/security) and salary determination.

Workforce Diversity

Diversity includes differences in terms of race, sex, age, education, and ability. Diversity improves company operations by bringing different perspectives, attracting diverse consumers (increasing profit), and helping employees be more tolerant as they continually interact with people from different backgrounds.

Leadership, Management, and Sources of Power

Leadership vs. Management

Leadership is a process of influencing the activities of an individual or a group toward the achievement of a goal. Management involves activities such as planning, organizing, controlling, and leading to achieve a goal.

Leaders develop a vision; managers work on implementing and achieving that vision (the goal).

Leadership Styles

• Autocratic Leaders: Have control over all decisions and take little input from group members. They typically make choices based on their ideas and judgments and rarely accept advice from followers.
• Democratic Leaders: Encourage members of the group to take a more participative role in the decision-making process.
• Free Rein Leaders (Laissez-faire): Are hands-off and allow group members to make the decisions. They set objectives, and employees are free to do whatever is appropriate to accomplish those objectives.

Sources of Power

Power is the ability of a manager to influence the behavior and attitudes of others. Leaders can use several sources of power:

• Legitimate Power: Having the formal authority. Example: Jeff Bezos.
• Reward Power: A person's ability to give rewards. Example: Indra Nooyi.
• Coercive Power: Control over punishment or the capacity to deny rewards.
• Expert Power: Having special knowledge or expertise in a particular area.
• Referent Power: Personal power derived from others admiring the leader.
• Charisma: Ability to inspire admiration, respect, and loyalty through good work.
• Information Power: Having access to important information.
• Affiliative Power: Association with important people.

Transactional vs. Transformational Leadership

• Transactional Leadership: More traditional; promotes compliance by followers through both rewards and punishments.
• Transformational Leadership: Modern approach; inspires employees to look beyond their own self-interest and works collaboratively with employees.

Trait Approach to Leadership

Key traits often associated with leadership:

• Drive and motivation.
• Honesty and integrity (will do what they said they will do).
• Self-confidence.
• Cognitive ability (analytical ability, good judgment).
• Business knowledge (technical expertise).

Criticism: There is no certainty that having these traits guarantees a good leader, as leadership success highly depends on the situation and context.

Steps for Effective Leadership

• Be a role model.
• Maintain great/clear communication skills.
• Encourage participation.
• Define core values.
• Listen actively.
• Empower employees to make decisions.
• Maintain ethics.
• Maintain strong relationships.
• Evaluate employees effectively.
• Engage in continuous improvement.

While there are no definable traits that make a leader successful in every situation, traits like self-confidence, being driven, motivating employees, taking risks, and being honest increase the likelihood of a leader being effective.

Gender and Leadership

Both genders are equally effective, but recent studies show that females score higher on interpersonal skills, teamwork, empathy, and mentoring. However, women remain underrepresented in top leadership roles.

Leadership Cases

• Being a Boss in Different Countries: Different countries have different ways of running an organization, affecting decision-making (centralized or decentralized) and attitudes towards authority.
• Indra Nooyi: Demonstrated business knowledge, risk-taking, reward power, charisma, and expert power.

Employee Motivation Theories and Strategies

Motivation and Morale

• Motivation: Having the drive to reach your goal without relying solely on external factors affecting behavior.
• Morale: The sum of employees’ attitudes toward their jobs, employer, and colleagues.

Intrinsic and Extrinsic Motivation and Rewards

These describe the reason for doing something:

• Intrinsic Motivation: Engaging in an activity for its pure enjoyment or inherent satisfaction.
• Extrinsic Motivation: Doing something for a separable outcome or external reward (e.g., salary, bonuses).

Three Categories of Motivation Theories

• Content (Internal): Focuses on variables within the individual that motivate them towards certain behavior (e.g., needs).
• Process: Emphasizes the nature of interaction between the individual and the environment (e.g., fairness perception).
• External (Context): Focuses on environmental elements to explain motivation (e.g., rewards and punishments).

Key Theories of Employee Motivation

• Maslow’s Needs Hierarchy Theory: Suggests an order of needs that must be satisfied, starting from basic needs up to self-actualization needs. While lacking universal empirical support, it generated a holistic, humanistic, and positive perspective of motivation.
• Learned Needs Theory: Needs can be learned, amplified, or suppressed through self-concept, social norms, and past experience. The three learned needs are the need for achievement, the need for affiliation, and the need for power.
• Expectancy Theory: Motivation is determined by the effort put in, the expected outcome, the value the outcome has to the person, and the effort required for performance.
• Equity Theory: Motivation is affected by comparing our outcome-to-input ratio to somebody else's ratio.
• Job Characteristic Model: Tries to determine how managers can motivate workers by helping them achieve higher-level needs (i.e., a job that provides personal challenges, a sense of accomplishment, and personal growth).
• Reinforcement Theory: Assumes that behavior may be reinforced by relating it to its consequences (Positive reinforcement, avoidance, punishment, extinction).

Strategies for Motivating Employees

• Designing Jobs: Structuring jobs to increase productivity.
• Flexible Scheduling Strategies:
  • Job Sharing (two people work on one job).
  • Teleworking and Flextime (choosing when you work).
• Pay for Performance.

The Fun Theory

Something as simple as fun is often the easiest way to change people’s behavior for the better (e.g., using a staircase instead of an escalator).

Motivation Cases

• Indra Nooyi: (Same as leadership case, focusing on motivation through vision and rewards).
• Wyndham: Focuses on the principle that happy employees lead to happy customers.

Building Effective Groups and Teams

Groups vs. Teams

• Group: Two or more individuals who communicate with one another, share a collective identity, and have a common goal.
• Team: A small number of people with complementary skills who are committed to a common purpose and set of performance goals, holding themselves mutually accountable.

Types of Teams

• Top Management Team: High executives who set goals.
• Task Force: Temporary employee group formed for a specific purpose.
• Committee: Permanent formal team assigned a specific task.
• Project Team: Similar to a task force, but often totally in control of the project.
• Product Development Team: Special type of project team focused on innovation.
• R&D Team: Focuses on discovering new approaches.
• Quality Assurance Team: Focuses on product quality.
• Self-Directed Work Team: Provides good service to customers with high autonomy.
• Virtual Team: Members are in different regions and communicate primarily through technology.

Benefits and Challenges of Teams

Benefits

• Motivate each other.
• Improve quality efforts.
• Foster innovation.
• Enhance productivity.
• Enhance workers’ involvement.

Challenges

• Uncertainty of roles.
• Lack of trust.
• Disagreement/Conflict.
• Talent differences.
• Unclear goals.

Team Size

Small teams generally perform better due to less process loss, better coordination, easier conflict resolution, more engagement, and faster implementation. However, teams must be large enough to accomplish the task effectively.

Team Development Stages

1. Forming: Members become familiar with each other.
2. Storming: Members decide roles, goals, and processes; conflicts occur.
3. Norming: Conflicts are resolved, and cohesion develops.
4. Performing: Task development and execution occur.
5. Adjourning: Completion of the task and disbanding of the team.

Effective Team Members

Effective teams require members who are willing and able to work together, ensure engagement of every member, possess good communication and coordinating skills, handle conflict constructively, and cooperate. If a person lags, the team is less effective.

Conflict Management Styles

• Competing: Using aggressive management tactics to win.
• Avoiding: Ignoring others’ concerns or withdrawing from the conflict.
• Accommodating: Encouraging harmony by yielding to others' concerns.
• Compromising: Adjusting, negotiating, and letting go of some demands to reach an agreement.
• Collaborating: Joint venture; working together to find a solution that satisfies all parties.

Characteristics of High Performing Teams

• Clear and compelling goal.
• Appropriate structure and processes (communication, accountability, feedback).
• Competent members (having different skills).
• Positive culture (trust and commitment).
• Support and recognition (rewards).

Case Study: Zappos

Zappos is known for having very informal team communication and a strong focus on culture.

Organizational Communication: Process and Barriers

Importance and Definition of Communication

Communication: The process by which information is transmitted and understood between people.

Importance of Communication:

• Engaging in planning, organizing, leading, and controlling activities.
• Improving performance.
• Coordinating work activities.
• Organizational learning.
• Better decision making.
• Changing others' behavior.
• Employee well-being.

The Communication Process

The process involves a sender who relays/shares information using a medium (channel) to share the information. The medium prescribes the information to the receiver, who receives and decodes the information (perception). Finally, feedback is provided, notifying the sender that the receiver has received and understood the message.

Channel of Communication

• Verbal, Written, Digital, Nonverbal (action and behavior), and Listening.
• Channel Richness: Face-to-face communication has high channel richness; a formal report has low channel richness.

Communication Barriers (Noise)

Barriers, often referred to as noise, occur during the process of coding and encoding, leading to misinterpretation or failure to portray the intended message.

• Language problems.
• Information overload.
• Lack of clarity or emotion (especially in digital communication).

Formal and Informal Communication

• Formal Communication: Intentionally defined and designed by the organization (e.g., organizational structure, upward, downward, horizontal, and diagonal communication).
• Informal Communication: Not deliberately designed by the organization.
  • Grapevine: Gossip and cluster chain communication.
  • Management by Walking Around (MBWA): Managers interact with employees on a day-to-day basis.

The Impact of Technology in Organizational Communication

Benefits

• Reduces status differences and stereotypes.
• Increases upward communication and improves relations with management.

Problems

• Miscommunication.
• Lack of clarity.
• Absence of emotion/nonverbal cues.

Improving Communication

• Provide feedback.
• Practice empathy.
• Be a good listener.
• Repeat the message for confirmation.
• Ensure clarity in messaging.

Management Control Systems and Processes

Control in an Organization

Control refers to activities in an organization that ensure its actions lead to the achievement of its objectives. It helps managers readily assess where the firm actually is relative to where it wants to be.

The Control Process

1. Establishing performance standards.
2. Measuring performance.
3. Comparing performance against standards.
4. Evaluation and corrective action.

Forms of Management Control

• Organizational Control: Pertains to all organizational activities.
  • Bureaucratic Control: Hierarchical, strict, formal rules.
  • Clan Control: Informal, self-controlled, extensive employee input.
• Operation Control: Regulates the operating system, quality and quantity of organization’s inputs, regulates the transformation of input, and provides feedback on output and employee performance evaluation.
• Strategic Control: Ensures that the organization understands and responds to the environment, working according to changes in the environment.
• Financial Control: Making budgets, analyzing the balance sheet and income statement, and examining the firm’s financial record.
• Non-financial Control: Focuses on ethics, compliance activities, and sustainability, including the social, environmental, and economic impact of a company’s operation.

Managing the Control Process

A control system should be:

• Customized.
• Flexible to changes in the environment.
• Accurate according to current needs.
• Timely.
• Objective.

Resistance to Control

Resistance can be caused by overcontrol (monitoring every step an employee takes), inappropriately focused control, inefficiency in employees' work, or excessive accountability. To resist this, managers should involve employees in the control process.

Case Study: Home Depot

One manager used bureaucratic control (strict rules), while another used planned control (decentralized). Former CEO Nardelli was criticized for over-controlling, leading to employee dissatisfaction. Frank Blake later turned the pyramid upside down, placing customers at the top and managers at the bottom.

Operations Management and Productivity

Operations Management

Operations Management: The development and administration of the activities involved in transforming resources into goods and services.

• Inputs: Land, labor, capital, time, knowledge, raw materials, energy, information.
• Transformations/Conversion: Procedures, equipment, facilities, and technology.
• Outputs: Goods, services, ideas.

Types of Products

Products include Goods and Services, which can be Tangible or Intangible.

Planning Operations

1. Plan the product.
2. Design operations product.
3. Planning capacity.
4. Plan facility.
5. Plan technology.

Supply Chain Management

Components of Supply Chain Management:

• Purchase
• Inventory control
• Outsourcing
• Routing
• Scheduling management

Productivity

Productivity: Measures the relationship between outputs produced and the inputs used to produce them.

Productivity = Outputs / Inputs