1. Welcome to AB140 The Foundations of Management (the Environment of Business) Michael B. McKenna.

2. Unit 2 Outcomes Describe the business organization as an open system Identify the role of internal and external environmental factors in business Identify significant past and current management theories

3. Businesses are Open Systems “The essence of a business is outside itself.” – Peter Drucker

4. Organization Inputs and Outputs Businesses are Open Systems 2-4 Figure 2.1

5. Open Systems Open systems -Organizations that are affected by, and that affect, their environment. 2-5

6. What are Inputs and Outputs Inputs: Goods and services that organizations take in and use to create products or services. Outputs: The products and services that organizations create.

7. Open Systems Macroenvironment -The general environment; includes governments, economic conditions, and other fundamental factors that generally affect all organizations. 2-7

8. The External Environment Bateman/Snell: Management

9. Laws and Regulations  Regulators include agencies such as: - Occupational Safety and Health Administration (OSHA) - Interstate Commerce Commission (ICC) - Federal Aviation Administration (FAA) - Equal Employment Opportunity Commission (EEOC) - National Labor Relations Board (NLRB) 2-9

10. The Economy The economic environment dramatically affects managers’ ability to function effectively and influences their strategic choices. Interest and inflation rates affect the availability and cost of capital, growth opportunities, prices, costs, and consumer demand for products. 2-10

11. The Economy In publicly held companies, managers may feel required to meet Wall Street’s earnings expectations. Managers may focus on short-term results at the expense of long-term success Some managers may be tempted to engage in unethical or unlawful behavior that misleads investors 2-11

12. Managing the Macro Environment The economy affects a company’s value Technology is changing every business function Demographics describe employees and customers Social issues shape attitudes toward your company and its products Laws and regulations Government Agencies

13. Competitive Environment Who is the competition? How do they compete? What are competitors doing?

14. New Entrants New entrants arise when barriers to entry are low Barriers to entry – conditions that prevent new companies from entering an industry Government policy (e.g., patent laws) Capital requirements (start-up costs) Brand identification (consumer brand loyalty) Cost disadvantages (Established economies of scale) Distribution channels (e.g., supermarket shelf space)

15. Substitutes and Compliments Substitute Potential threat Customers use it as an alternative, buying less of one kind of product but more of another. Complement: Potential opportunity Customers buy a product because it is used in conjunction with another product

16. Substitutes and Compliments Substitute Movie Theater vs Redbox Blockbuster, Netflix, video streaming cola vs bottled water Complement: Printers and ink cartridges. New homes and appliances.

17. Managing Substitutes Technological advances and economic efficiencies allow for rapid development of substitutes Potential substitutes require management attention

18. Environmental Uncertainty Environmental complexity -The number of issues to which a manager must attend as well as the interconnectedness of these issues Environmental dynamism -The degree of discontinuous change that occurs within an industry 2-18

19. Environmental Analysis Environmental scanning -searching out information that is unavailable to most people and sorting that information to interpret what is important and what is not. Competitive intelligence -Information that helps managers determine how to compete better. 2-19

20. Environmental Analysis Scenario development -A narrative that describes a particular set of future conditions -Best-case, worst-case Forecasting -Method for predicting how variables will change the future 2-20

21. Resources from Suppliers People – from schools, colleges and universities Raw materials – from producers, wholesalers, and distributors Information – from researchers and consulting firms Financial capital – from banks and other sources

22. Suppliers are important because… They can:  Raise their prices  Provide poor quality goods and services  Fail to provide human resources

24. Management Theories Scientific Behavioral Systems Contingency

25. Scientific/Classical Approach Late 1800’s Engineering approach “One best way” Task definition Dividing and simplifying tasks Frederick Taylor, Fayol, etc. Our current POLC is derived from Henri Fayol’s Theory circa 1917! Introduced task definition and specific measurement of the work process. Around between 1900 until 1940. Taylor believed that productivity problems of the day were due to the lack of management attention to workers. In general is this theory applicable today?

26. Classical/Scientific Approach 1.Develop one best way to do a task 2. Scientifically select, train, teach, and develop each worker 3. Cooperate with workers and provide incentive to do work the one best way 4. Divide work equally between management and labor

27. Classical/Scientific Approach Scientific approach was finding the one best way to complete a task. This approach emphasized improving efficiency of work by the systematic and scientific study of work methods, tools, and performance standards. It was based on assembly line workers and specifically the steel mills which is what Frederick Taylor studied. Frederick Taylor stated productivity problem due to lack of management involvement, not laziness of employees as thought prior to this approach.

28. Behavioral Approach Early 1900’s Social Sciences approach (employees want good social relationships in the workplace leading to producing more output ). Need to understand people attitudes and behaviors. The Behavioral or Systems approach views management organizations as sets of interrelated parts to be managed as a whole with the purpose of achieving a common goal. Hawthorne Experiment Do you believe this is more how companies operate?

29. Behavioral Approach - Early 1900’s Social Sciences approach. Need to understand people attitudes and behaviors. The Behavioral or Systems approach views management organizations as sets of interrelated parts to be managed as a whole with the purpose of achieving a common goal. Hawthorne Experiment - Led by Elton Mayo discovered that employees want good social relationship in the workplace leading to producing more output. Worker productivity would be interpreted predominately in the United States in terms of social group dynamics, motivation, leadership, and “human relations”. The manager was an immediate part of the social system in which work is performed, responsible for leading, motivating, and communicating.

30. Behavioral Approach - Early 1900’s Hawthorne Experiment: Led by Elton Mayo discovered that employees want good social relationship in the workplace leading to producing more output. General Electric, the major manufacturer of light bulbs, had preliminary evidence that better lighting of the work place improved worker productivity, but wanted to validate these findings to sell more light bulbs, especially to businesses. GE funded the National Research Council (NRC) of the National Academy of Sciences to conduct an impartial study. AT&T's Western Electric Hawthorne plant located in Cicero, Illinois, was chosen as the laboratory. Beginning with this early test, the “Hawthorne Experiments” were a series of studies into worker productivity performed at the Cicero plant beginning in 1924 and ceasing in 1932.

31. Systems Approach 1930-1940 Organization is a set of interrelated parts that can be managed as a whole ( each person has a job to do but no one job is more important than another). Orchestra analogy – everyone is needed to “play beautiful music”. Inputs, transformation, output, feedback W. Edward Deming Continuous improvement and process control Is this theory applicable in business today?

32. Systems Approach 1930-1940 Organization is a set of interrelated parts that can be managed as a whole with the purpose of achieving a common goal - Each person has a job to do but no one job is more important that another. I like the analogy in the video that an organization is like an orchestra. No one job is more important. Everyone is needed to “play beautiful music.” Inputs, transformation, output, feedback W. Edward Deming Continuous improvement and process control

33. Contingency Approach 1960’s “It depends” Identify key variables in each situation. Understanding the relationship among the variables Recognizing the causal effects of management decisions. Organizations respond to differing environments

34. Contingency Approach – 1960s “It depends” Identify key variables in each situation. Understanding the relationship among the variables Recognizing the causal effects of management decisions The basis of contingency theory: a search for factors that affect an organization and for the implications of the organization's dependence on the factor. In the 1950's Burns and Stalker found that organizations respond to differing environments, answering the question: How do firms organize given their environment? It depends on what type of environment the organization is in.

35. Unit 2 Assignments Reading, chapter 2; The Five Competitive Forces that Shape Strategy: Harvard Business Review Discussion Question – Substitutes and compliments Dropbox Assignment For this assignment, you must watch the video presentation on the Evolution of Management. You will find the video on page 2 of the Assignments page in your course. Explain how the theories presented are different from one another State which management theory you think is more important and why. Respond in a paper consisting of one full page of content and submit your paper to the Dropbox. quiz