1. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 1 Chapter 1 Foundations of Management

2. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 2 Learning Objectives After studying Chapter 1, you will know: the major challenges of managing in the new era the drivers of competitive advantage for your company the functions of management and how they are evolving in today’s business environment the nature of management at different organizational levels the skills you need to be an effective manager

3. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 3 New Era Management Technological Change Collaboration Across “Boundaries” Knowledge Management Globalization Managing In The New Era Managerial practices will always separate effective from ineffective organizations Four key elements are new elements in business today

4. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 4 Managing In The New Era (cont.) Globalization far more than in the past, enterprises are global competing globally is not easy companies often overestimate the attractiveness of foreign markets even small firms that do not operate on a global scale must make strategic decisions based on international considerations face intense competition from high-quality foreign producers

5. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 5 Managing In The New Era (cont.) Technological Change communication technologies are driving massive change initial enthusiasm for e-business has dwindled 25% of publicly-held Web companies became profitable in 2002 most profitable Web companies sell information-based products that don’t require shipping old economy types now using the Internet as a tool to solidify their future

6. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 6 Managing In The New Era (cont.) Knowledge management practices aimed at discovering and harnessing an organization’s intellectual resources unlock people’s expertise, skills, wisdom, and relationships intellectual capital is the collective brainpower of the organization Collaboration across “boundaries” capitalize on the ideas of people outside the traditional company “boundaries” occurs between as well as within organizations e.g., must effectively capitalize on customers’ brains

7. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 7 Competitive Advantage Cost Competitiveness Speed Quality Innovation Managing For Competitive Advantage Best managers and companies deliver all four

8. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 8 Managing For Competitive Advantage (cont.) Innovation the introduction of new goods and services comes from people must be a strategic goal must be managed properly Quality excellence of a product, including its attractiveness, lack of defects, reliability, and long-term durability importance of quality has increased dramatically catering to customers’ other needs creates more perceived quality

9. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 9 Managing For Competitive Advantage (cont.) Speed fast and timely execution, response, and delivery of results often separates winners from losers in world competition requirement has increased exponentially Cost competitiveness costs are kept low enough so that you can realize profits and price your products at levels that are attractive to consumers key is efficiency - accomplishing goals by using resources wisely and minimizing waste little things can save big money cost cuts involve tradeoffs

10. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 10 The Functions Of Management Management the process of working with people and resources to accomplish organizational goals good managers must be: effective - achieve organizational goals efficient - achieve goals with minimum waste of resources there are timeless principles of management still important for making managers and companies great must add fresh thinking and new approaches

11. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 11 Staffing Leading Controlling The Functions Of Management (cont.) Organizing The manager who does not devote adequate attention and resources to all five functions will fail Planning

12. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 12 The Functions Of Management (cont.) Planning specifying the goals to be achieved and deciding in advance the appropriate actions taken to achieve those goals delivering strategic value - planning function for the new era a dynamic process in which the organization uses the brains of its members and of stakeholders to identify opportunities to maintain and increase competitive advantage process intended to create more value for the customer

13. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 13 The Functions Of Management (cont.) Organizing assembling and coordinating the human, financial, physical, informational, and other resources needed to achieve goals building a dynamic organization - organizing function for the new era viewing people as the most valuable resource the future requires building flexible organizations

14. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 14 The Functions Of Management (cont.) Leading stimulating people to be high performers in the new era, managers must be good at mobilizing people to contribute their ideas Controlling monitoring progress and implementing necessary changes makes sure that goals are met new technology makes it possible to achieve more effective controls for the future, will have to be able to monitor continuous learning and changing

15. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 15 Management Levels Top-level managers (strategic managers) senior executives responsible for the overall management and effectiveness of the organization focus on long-term issues emphasize the survival, growth, and effectiveness of the firm concerned with the interaction between the organization and its external environment titles include Chief Executive Officer (CEO), Chief Operating Officer (COO), company presidents and vice presidents

16. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 16 Management Levels (cont.) Middle-level managers (tactical managers) located between top-level and frontline managers in the organizational hierarchy responsible for translating strategic goals and plans into more specific objectives and activities traditional role was that of an administrative controller who bridged the gap between higher and lower levels provide operating skills and practical problem solving the keep the company working

17. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 17 Management Levels (cont.) Frontline managers (operational managers) lower-level managers who supervise the operational activities of the organization directly involved with nonmanagement employees increasingly being called on to be innovative and entrepreneurial titles include supervisor or sales manager Working leaders with broad responsibilities in small firms and large firms that have adapted to the times, managers have strategic, tactical, and operational responsibilities

18. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 18 Management Skills Skill - specific ability that results from knowledge, information, and aptitude Technical skill ability to perform a specialized task that involves a certain method or process managers at higher levels rely less on technical skills Conceptual and decision skills ability to identify and resolve problems for the benefit of the organization assume greater importance as manager acquires more responsibility

19. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 19 Management Skills (cont.) Interpersonal and communication skills ability to lead, motivate, and communicate effectively with others people skills important throughout your career at every level of management

20. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 20 Evolution of Management Throughout history most managers operated strictly on a trial-and-error basis The management profession as we know it today is relatively new wide swings in management approaches over the last 100 years parts of each approach have survived and been incorporated into modern perspectives on management

21. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 21 BUREAUCRATIC MANAGMENT Max Weber – late 19 th century Germany RULES – uniformity/stability IMPERSONALITY – fairness for clients and employees DIVISION OF LABOR – functional specialization HIERARCHICAL STRUCTURE – decentralization AUTHORITY STRUCTURE – rational-legal authority LIFELONG CAREER COMMITEMENT RATIONALITY – logical and scientific

22. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 22 BUREAUCRATIC MANAGEMENT BENEFITS Consistency Jobs clearly defined Expertise/specialization Continuity Efficient under conditions of stability COSTS Rigid rules and red tape Protection of authority Slow decision making Incompatibility with changing technology Incompatibility with worker values

23. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 23 ASSESSING BUREAUCRATIC MANAGEMENT MOST EFFECTIVE WHEN: 1. Standardized information/production requiring efficiency 2. Needs of customers known and not changing 3. Technology is routine and stable 4. Need to coordinate activities of large numbers of employees

24. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 24 SCIENTIFIC MANAGEMENT Frederick W. Taylor – early 20 th century Methods engineering/time and motion studies Basic observations Great loss through inefficiencies Remedy in systematic management Best management is a true science Standardization of job performance and uniformity of behavior Impersonalization and replaceability of workers is key to efficiency Motivation through monetary incentive systems

25. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 25 SCIENTIFIC MANAGEMENT STUDIES AT BETHLEHEM IRON WORKS IN 1898 REPORTED BY TAYLOR Picked Schmidt (Nolls) as his subject Trotted to and from work (over a mile) Had purchased land and was building a house Had reputation of being “close with a dollar” Increased from 12 ½ to 47 tons Pay increased from $1.15 to $1.85 Earlier studies had failed because of social influences

26. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 26 SCIENTIFIC MANAGEMENT Frank and Lillian Gilbreth Developed tools for scientific management – time and motion studies Trained industrial engineers Popular subjects for newsreels in the 1920s “Cheaper by the Dozen” movie (not the new one) Economic needs versus other needs

27. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 27 ADMINISTRATIVE MANAGEMENT Henri Fayol – French industrialist – 14 principles 1. Division of labor – specialization 2. Authority and responsibility – delegation 3. Discipline – clear rules and consequences for violating 4. Unity of command – one boss for each employee 5. Unity of direction – similar activities under one manager 6. Subordination of individual interests to the common good 7. Remuneration – fair pay 8. Centralization – power and authority at the top

28. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 28 ADMINISTRATIVE MANAGEMENT 9. Scalar Chain – from the lowest employee to the top 10. Order – human and materials coordinated 11. Equity – managers should be fair with subordinates 12. Stability and tenure of staff – avoid high turnover 13. Initiative – free to take initiative 14. Esprit de corps – team spirit, sense of unity

29. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 29 BEHAVIORAL VIEWPOINT Chester Barnard’s Acceptance Theory of Authority Different from traditional view of authority that authority flows from top down Effective authority requires willingness of employees to follow management’s orders Zone of indifference

30. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 30 HAWTHORNE STUDIES Lighting studies by industrial engineers Productivity continued to increase even when lighting was reduced below starting levels Motivational factor Relay Assembly Test Room Studies Five workers plus supervisor Error in text concerning financial incentives Group incentive plan Mayo (not a researcher in the study) concluded that the results supported his theories concerning work groups replacing family

31. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 31 HAWTHORNE STUDIES Five workers not randomly selected Two workers replaced because not cooperating Replacements wanted to be in the experiment because of the financial incentives – one of these became the informal leader Workers formed tightly knit, cohesive work group with high production goals operating under informal, participative leadership plus a strong informal leader within the group If all of the results are considered, the behavioral approach has consistencies with the original scientific management studies

32. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 32 Quantitative Management Teams of quantitative experts tackle complex issues facing large organizations Helps management make a decision by developing formal mathematical models of the problem Personalities military planners in World War II mathematics and u-boats –Bletchley Park

33. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 33 Quantitative Management (cont.) Application of quantitative analysis to management decisions Developed specific mathematical methods of problem analysis Helped managers select the best alternative among a set Models neglect nonquantifiable factors Managers not trained in these techniques may not trust or understand the techniques’ outcomes Not suited for nonroutine or unpredictable management decisions Key concepts Limitations Contributions

34. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 34 Systems Theory Organization is viewed as a managed system Management must interact with the environment Organizational goals must address effectiveness and efficiency Organizations contain a series of subsystems There are many avenues to the same outcome Synergies enable the whole to be more than the sum of the parts Recognized the importance of the relationship between the organization and the environment Does not provide specific guidance on the functions of managers Key concepts Limitations Contributions

35. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 1 - 35 Contingency Perspective Situational contingencies influence the strategies, structures, and processes that result in high performance There is more than one way to reach a goal Managers may adapt their organizations to the situation Identified major contingencies Argued against universal principles of management Not all important contingencies have been identified Theory may not be applicable to all managerial issues Key concepts Limitations Contributions