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Chapter One

Managers and Managing

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. 1-2

Learning Objectives

1. Describe what management is, why management isimportant, what managers do, and how managersutilize organizational resources efficiently andeffectively to achieve organizational goals

2. Distinguish among planning, organizing, leading, andcontrolling (the four principal managerial tasks), andexplain how managers’ ability to handle each oneaffects organizational performance

3. Differentiate among three levels of management, andunderstand the tasks and responsibilities of managersat different levels in the organizational hierarchy

1-3

Learning Objectives

4. Distinguish between three kinds of managerial skill,and explain why managers are divided into differentdepartments to perform their tasks more efficiently andeffectively.

5. Discuss some major changes in management practicestoday that have occurred as a result of globalizationand the use of advanced information technology (IT).

6. Discuss the principal challenges managers face intoday’s increasingly competitive global environment

1-4

What is Management?

All managers work in organizations

Organizations

≈collections of people who work together andcoordinate their actions to achieve a widevariety of goals

1-5

Question?

What is a person responsible for supervising

the use of an organization’s resources to

meet its goals?

A. Team leader

B. Manager

C. President

D. Resource allocator

1-6

What is Management?

Managers

≈The peopleresponsible forsupervising the useof an organization’sresources to meetits goals



1-7

What is Management?

Management≈The planning, organizing, leading, and

controlling of human and other resources toachieve organizational goals effectively andefficiently

1-8

Figure 1.1

Efficiency and Effectiveness

1-9

Organizational Performance

Efficiency

≈A measure of how well or how productivelyresources are used to achieve a goal

Effectiveness

≈A measure of the appropriateness of the goals

an organization is pursuing and the degree towhich they are achieved.

1-10

Why Study Management?

1. The more efficient and effective use ofscarce resources that organizations makeof those resources, the greater therelative well-being and prosperity ofpeople in that society

1-11

Why Study Management?

2. Helps people deal with their bosses andcoworkers

3. Opens a path to a well-paying job and asatisfyingcareer

1-12

Four Functions of Management

Figure 1.2



1-13

Steps in the Planning Process

1. Deciding which goals the organization willpursue

2. Deciding what courses of action to adoptto attain those goals

3. Deciding how to allocate organizationalresources

1-14

Organizing

Involves grouping people into departmentsaccording to the kinds of job-specific tasksthey perform

Managers lay out lines of authority andresponsibility

Decide how to coordinate organizationalresources

1-15

Organizing

Organizational structure

≈A formal system of task and reportingrelationships that coordinates and motivatesmembers so that they work together to achieveorganizational goals

1-16

Leading

Leadership involves using power,personality, and influence, persuasion, andcommunication skills

It revolves around encouraging allemployees to perform at a high level

Outcome of leadership is highly motivatedand committed workforce

1-17

Controlling

The outcome of the control process is theability to measure performance accuratelyand regulate organizational efficiency andeffectiveness

Managers must decide which goals tomeasure

1-18

Decisional Roles

Roles associated with methods managers use in planning

strategy and utilizing resources.≈ Entrepreneur —deciding which new projects or programs to

initiate and to invest resources in.

≈ Disturbance handler —managing an unexpected event orcrisis.

≈ Resource allocator —assigning resources betweenfunctions and divisions, setting the budgets of lowermanagers.

≈ Negotiator —reaching agreements between othermanagers, unions, customers, or shareholders.



1-19

Interpersonal Roles

Roles that managers assume to provide direction andsupervision to both employees and the organization as a

whole.≈ Figurehead —symbolizing the organization’s mission and

what it is seeking to achieve.

≈ Leader —training, counseling, and mentoring high employeeperformance.

≈ Liaison —linking and coordinating the activities of peopleand groups both inside and outside the organization.

1-20

Informational Roles

Roles associated with the tasks needed to obtain andtransmit information in the process of managing the

organization.≈ Monitor —analyzing information from both the internal and

external environment.

≈ Disseminator —transmitting information to influence theattitudes and behavior of employees.

≈ Spokesperson —using information to positively influence theway people in and out of the organization respond to it.

1-21

Areas of Managers

Department

≈ A group of managers and employees who worktogether and possesssimilar skillsor use the sameknowledge, tools,

or techniques

1-22

Levels of Management

Figure 1.3

1-23


First-line managers

≈responsible for the daily supervision of thenonmanagerial employees

Middle managers

≈responsible for finding the best way to organizehuman and other resources to achieveorganizational goals

1-24


Top managers

≈ responsible for the performance of alldepartments

≈establish organizational goals

≈decide how different departments shouldinteract

≈monitor how well middle managers utilizeresources to achieve goals



1-25

Relative Amount of Time That Managers Spend on theFour Managerial Functions

Figure 1.4

1-26

Question?

What skill is the ability to understand, alter,

lead, and control the behavior of other

individuals and groups?

A. Conceptual

B. Human

C. Technical

D. Managerial

1-27

Managerial Skills

Conceptual skills

≈ The ability to analyze and diagnose a situation anddistinguish between cause and effect.

Human skills

≈ The ability to understand, alter, lead, and control thebehavior of other individuals and groups.

Technical skills≈ Job-specific skills required to perform a particular type

of work or occupation at a high level.

1-28

Core Competency

Core competency

≈Specific set of departmental skills, abilities,knowledge and experience that allows oneorganization to outperform its competitors

≈Skills for a competitive advantage

1-29

Restructuring

Restructuring

≈ Involves simplifying, shrinking, or downsizing anorganization’s operations to lower operatingcosts

Outsourcing

≈Contracting with another company, usually in alow cost country abroad, to perform a workactivity the company previously performed itself

1-30

Empowerment

Empowerment

≈ Involves givingemployees more

authority andresponsibility over the

way they perform theirwork activities



1-31

Discussion Question

What is the biggest challenge for

management in a Global Environment?

A. Building a Competitive Advantage

B. Maintaining Ethical Standards

C. Managing a Diverse Workforce

D. Global Crisis Management

1-32

Challenges for Management ina Global Environment

Rise of Global Organizations.Building a Competitive Advantage

Maintaining Ethical Standards

Managing a Diverse Workforce

Utilizing Information Technology andTechnologies

Global Crisis Management

1-33

Building Competitive Advantage

Competitive Advantage

≈ability of one organization to outperform otherorganizations because it produces desiredgoods or services more efficiently andeffectively than its competitors

1-34

Building Blocks of Competitive Advantage

Figure 1.6

1-35

Turnaround Management

Turnaround management

≈creation of a new vision for a strugglingcompany using a new approach to planning andorganizing to make better use of a company’sresources to allow it to survive, and eventuallyprosper

1-36

Maintaining Ethical and Socially

Responsible Standards

Managers are under considerable pressureto make the best use of resources

Too much pressure may induce managersto behave unethically, and even illegally



1-37

Managing a Diverse Workforce

To create a highly trained and motivatedworkforce managers must establish HRMprocedures that are legal, fair and do notdiscriminate against organizationalmembers

1-38

Global Crisis Management

May be the result of:

Natural causes

Manmade causes

International terrorism

Geopolitical conflicts

1-39

Management in the Movies: FastTimes at Ridgemont High

What could Bradhave donedifferently to makethe situationbetter?

1-40

Video Case: Changing Times at Dyson

What strategy has James Dyson used todevelop and sell products like his cyclonicvacuum cleaner?

What leadership qualitiesdoes James Dyson exhibit?



1

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Two

The Evolution ofManagement Thought

2-2

Learning Objectives

1. Describe how the need to increaseorganizational efficiency and effectiveness hasguided the evolution of management theory

2. Explain the principle of job specialization anddivision of labor, and tell why the study ofperson-task relationships is central to thepursuit of increased efficiency

3. Identify the principles of administration andorganization that underlie effectiveorganizations

2-3

Learning Objectives

4. Trace the change in theories about howmanagers should behave to motivate andcontrol employees

5. Explain the contributions of managementscience to the efficient use of organizationalresources

6. Explain why the study of the externalenvironment and its impact on an organizationhas become a central issue in managementthought

2-4

The Evolution of Management Theory

Figure 2.1

2-5

Job Specialization and

the Division of LaborAdam Smith (18th century economist)

≈Observed that firms manufactured pins in oneof two different ways:

- Craft-style—each worker did all steps.

- Production—each worker specialized in one step.

2-6

Job Specialization and

the Division of LaborJob Specialization

≈process by which a division of labor occurs asdifferent workers specialize in specific tasksover time



2

2-7

F.W. Taylor and Scientific Management

Scientific Management≈The systematic study of the relationships

between people and tasks for the purpose ofredesigning the work process to increaseefficiency.

2-8

Four Principles of Scientific Management

Study the way workers perform their tasks, gather allthe informal job knowledge that workers possess andexperiment with ways of improving how tasks areperformed Time-and-motion study

Codify the new methods of performing tasks into writtenrules and standard operating procedures

Carefully select workers who possess skills andabilities that match the needs of the task, and trainthem to perform the task according to the establishedrules and procedures

Establish a fair or acceptable level of performance for atask, and then develop a pay system that provides areward for performance above the acceptable level

2-9

Problems with Scientific Management

Managers frequently implemented only theincreased output side of Taylor’s plan.≈Workers did not share in the increased output.

Specialized jobs became very boring, dull.≈Workers ended up distrusting the Scientific

Management method.

Workers could purposely “under-perform.”≈Management responded with increased use of

machines and conveyors belts.

2-10

The Gilbreths

1. Break up and analyze every individual actionnecessary to perform a particular task into eachof its component actions

2. Find better ways to perform each componentaction

3. Reorganize each of the component actions so

that the action as a whole could be performedmore efficiently-at less cost in time and effort

2-11

Administrative Management Theory

AdministrativeManagement

≈ The study of how to

create anorganizational structurethat leads to highefficiency and

effectiveness.

2-12

Administrative Management Theory

Max Weber

≈Developed the principles of bureaucracy as aformal system of organization andadministration designed to ensure efficiencyand effectiveness.



3

2-13

Weber’s Principles of Bureaucracy

Figure 2.2

2-14

Question?

When a factory has a standard practice thateach machine operator should leave his or her

work station in a clean condition and ready for

the next shift of workers, this is an example of:

A. An SOP.

B. Bureaucracy.

C. Job specialization.

D. A rule.

2-15

Rules, SOPs and Norms

Rules≈ formal written instructions that specify actions to be taken

under different circumstances to achieve specific goals

Standard Operating Procedures (SOPs)≈ specific sets of written instructions about how to perform a

certain aspect of a task

Norms≈ unwritten, informal codes of conduct that prescribe how

people should act in particular situations

2-16

Fayol’s Principles of Management

Division of Labor: allows for job specialization.

Authority and Responsibility

Unity of Command

Line of Authority

Centralization

Unity of Direction

Equity

Order

2-17

Fayol’s Principles of Management

Initiative

Discipline

Remuneration of Personnel

Stability of Tenure of Personnel

Subordination of Individual Interest to theCommon Interest

Esprit de corps

2-18

Discussion Question?

Which of the following is the most

important aspect of Fayol’s principles of

management?

A. Division of Labor

B. Unity of Command

C. Remuneration of Personnel

D. Esprit de corps



4

2-19

Behavioral Management Theory

Behavioral Management≈The study of how managers should personally

behave to motivate employees and encouragethem to perform at high levels and becommitted to the achievement of organizationalgoals.

2-20

Behavioral Management

Mary Parker Follett≈Concerned that Taylor ignored the human side

of the organization

Suggested workers help in analyzing their jobs

If workers have relevant knowledge of the task, then

they should control the task

2-21

The Hawthorne Studies

Studies of how characteristics of the worksetting affected worker fatigue andperformance at the Hawthorne Works ofthe Western Electric Company from 1924-1932.

≈Worker productivity was measured at variouslevels of light illumination.

2-22


Human Relations Implications

≈Hawthorne effect — workers’ attitudes towardtheir managers affect the level of workers’performance

2-23


Human relations movement

≈advocates that supervisors be behaviorallytrained to manage subordinates in ways thatelicit their cooperation and increase theirproductivity

2-24

Implications of the Hawthorne Studies

Behavior of managers and workers in thework setting is as important in explainingthe level of performance as the technicalaspects of the task

Demonstrated the importance of understandinghow the feelings, thoughts, and behavior of work-group members and managers affectperformance



5

2-25

Question?

If a manager feels that his major jobresponsibility is "to counteract the natural

tendencies of subordinates to avoid working

hard," this manager is acting consistently with

the principles of:

A. Contingency theory.

B. Theory X.

C. Theory Y.

D. Theory Z.

2-26

Theory X vs. Theory Y

Figure 2.3

2-27

Management Science Theory


≈Contemporary approach to management thatfocuses on the use of rigorous quantitativetechniques to help managers make maximumuse of organizational resources to producegoods and services.

2-28


Quantitative management

≈utilizes mathematical techniques, like linearprogramming, modeling, simulation and chaostheory

Operations management

≈

provides managers a set of techniques theycan use to analyze any aspect of anorganization’s production system to increaseefficiency

2-29


Total quality management

≈ focuses on analyzing an organization’s input,conversion, and output activities to increaseproduct quality

Management information systems

≈help managers design systems that provideinformation that is vital for effective decisionmaking

2-30

Organizational Environment Theory

Organizational Environment

≈The set of forces and conditions that operatebeyond an organization’s boundaries but affecta manager’s ability to acquire and utilizeresources



6

2-31

The Open-Systems View

Open System≈A system that takes resources for its external

environment and transforms them into goodsand services that are then sent back to thatenvironment where they are bought bycustomers.

2-32

The Organization as an Open System

Figure 2.4

2-33

The Open-Systems View

Input stage

≈ organization acquires resources such as raw materials,money, and skilled workers to produce goods and

services

Conversion stage

≈ inputs are transformed into outputs of finished goods

Output stage≈ finished goods are released to the external

environment

2-34

Closed System

Closed system

≈A self-contained system that is not affected bychanges in its external environment.

≈Likely to experience entropy and lose its abilityto control itself

2-35

The Organization as an Open System

Synergy

≈ the performance gains that result from thecombined actions of individuals anddepartments

≈Possible only inan organized system

2-36

Contingency Theory

Contingency Theory

≈The idea that the organizational structures andcontrol systems manager choose arecontingent on characteristics of the externalenvironment in which the organizationoperates.

≈ “There is no one best way to organize”



7

2-37

Contingency Theory

Figure 2.5

2-38

Type of Structure

Mechanistic Structure

≈Authority is centralized at the top.

≈Emphasis is on strict discipline and order

≈Employees are closely monitored andmanaged.

≈Can be very efficient in a stableenvironment.

2-39

Type of Structure

Organic Structure

≈Authority is decentralized throughout theorganization.

≈Departments are encouraged to take a cross-departmental or functional perspective

≈Works best when environment is unstable andrapidly changing

2-40

Management in the Movies

How are the workers

viewed in Metropolis?

How do the workers

feel about going to

work each day?

2-41

Video Case: The Assembly Line

What downside do you think workersexperienced after Taylor helped Fordintroduce job specialization in his factory?Think of an example from the video.

How does a moving assembly line fit intothe beliefs of a Theory X manager, adesignation given to Henry Ford?



1

Chapter Six

Managing in the GlobalEnvironment


Learning Objectives

1. Explain why the ability to perceive, interpret,and respond appropriately to the globalenvironment is crucial for managerial success

2. Differentiate between the global task and globalgeneral environments

3. Identify the main forces in both the global taskand general environments, and describe thechallenges that each force presents tomanagers

6-3

Learning Objectives

4. Explain why the global environment is becoming moreopen and competitive and identify the forces behind the

process of globalization that increases theopportunities, complexities, challenges, and threats thatmanagers face

5. Discuss why national cultures differ and why it is

important that managers be sensitive to the effects offalling trade barriers and regional trade associations on

the political and social systems of nations around theworld

6-4

Global Organizations

Global Organizations

≈Organizations that operate and compete notonly domestically, but also globally

≈Uncertain andunpredictable

6-5

What Is the Global Environment?

Global Environment

≈Set of forces and conditions in the worldoutside the organization’s boundaries thataffect the way it operates and shape itsbehavior

≈Changes over time

≈Presents managers with opportunities andthreats

6-6

Task Environment

Task Environment

≈Set of forces and conditions that originate withsuppliers, distributors, customers, andcompetitors

≈Affects an organization’s ability to obtain inputsand dispose of its outputs

≈Most immediate and direct effect on managers



2

6-7

Forces in the Global Environment

Figure 6.1

6-8

Question?

Which part of the task environment provides

an organization with the input resources that

it needs to produce goods and services?

A. Customers

B. Suppliers

C. Competitors

D. Distributors

6-9

The Task Environment

Suppliers

≈ Individuals and organizations that provide anorganization with the input resources that itneeds to produce goods and services

Raw materials, component parts, labor (employees)

6-10

Global Outsourcing

Global Outsourcing

≈Organizations purchase inputs from othercompanies or produce inputs themselvesthroughout the world to lower production costsand improve the quality or design of their

products

6-11


Distributors

≈Organizations that help other organizationssell their goods or services to customers

Powerful distributors can limit access to marketsthrough its control of customers in those markets.

Managers can counter the effects of distributors byseeking alternative distribution channels.

6-12


Customers

≈ Individuals and groups that buy goods andservices that an organization produces

Identifying an organization’s main customers andproducing the goods and services they want is

crucial to organizational and managerial success.



3

6-13


Competitors≈Organizations that produce goods and

services that are similar to a particularorganization’s goods and services

Rivalry between competitors is potentially the mostthreatening force that managers deal with

6-14


Barriers to Entry≈Factors that make it difficult and costly for the

organization to enter a particular taskenvironment or industry

≈Economies of scale, brand loyalty, governmentregulations

6-15

Barriers to Entry and Competition

Figure 6.2

6-16

The General Environment

Economic Forces

≈ factors that affect the general health and well-being of a country or world region

≈ Interest rates, inflation, unemployment,economic growth

6-17


Technology

≈Combination of tools, machines, computers,skills, information, and knowledge thatmanagers use in the design, production, anddistributionof goods andservices

6-18


Technological Forces

≈Outcomes of changes in the technology thatmanagers use to design, produce, or distributegoods and services



4

6-19


Sociocultural Forces≈Pressures emanating from the social structure

of a country or society or from the nationalculture

Social structure: the arrangement of relationshipsbetween individuals and groups in society

National culture: the set of values that a societyconsiders important and the norms of behavior that

are approved or sanctioned in that society.

6-20


Demographic Forces≈Outcomes of change in, or changing attitudes

toward, the characteristics of a population,such as age, gender, ethnic origin, race,sexual orientation, and social class

6-21


Political and Legal Forces

≈Outcomes of changes in laws and regulations,

≈deregulation of industries, the privatization oforganizations, and increased emphasis onenvironmental protection

Increasingly nations are joining together intopolitical unions that allow for the free exchange ofresources and capital

6-22

The Global Environment

Figure 6.3

6-23

Process of Globalization

Globalization

≈Set of specific and general forces that worktogether to integrate and connect economic,political, and social systems across countries,cultures, or geographical regions

≈Result is that nations and peoples becomeincreasingly interdependent

6-24


What is the principal form of capital that

flows between countries?

A. Human

B. Political

C. Resource

D. Financial



5

6-25

Process of Globalization

Four principal forms of capital that flowbetween countries are:

≈Human capital

≈Financial capital

≈Resource capital

≈Political capital

6-26

Declining Barriers to Trade and Investment

Tariff≈A tax that government imposes on imported or,

occasionally, exported goods.

≈ Intended to protect domestic industry and jobsfrom foreign competition

6-27

GATT and the Rise of Free Trade

Free-Trade Doctrine

≈The idea that if each country specializes in theproduction of the goods and services that itcan produce most efficiently, this will make thebest use of global resources and will result in

lower prices

6-28

Declining Barriers of Distance and Culture

Distance

≈ Markets were essentially closed because of theslowness of communications over long distances.

Culture

≈ Language barriers and cultural practices mademanaging overseas businesses difficult

Changes in Distance and Communication

≈ Improvement in transportation technology and fast,secure communications have greatly reduced thebarriers of physical and cultural distances.

6-29

Effects of Free Trade on Managers

Declining Trade Barriers

≈Opened enormous opportunities for managersto expand the market for their goods andservices.

≈Allowed managers to now both buy and sellgoods and services globally.

≈ Increased intensity of global competition suchthat managers now have a more dynamic andexciting job of managing.

6-30

Question?

What are ideas about what a society

believes to be good, desirable and beautiful?

A. Norms

B. Needs

C. Roles

D. Values



6

6-31

The Role of National Culture

Values≈ Ideas about what a society believes to be

good, desirable and beautiful.

≈Provide the basic underpinnings for notions ofindividual freedom, democracy, truth, justice,honesty, loyalty,love, sex, marriage, etc.

6-32

The Role of National Culture

Norms≈ Unwritten rules and codes of conduct that prescribe

how people should act in particular situations.

Folkways—routine social conventions of daily life (e.g., dresscodes and social manners)

Mores—behavioral norms that are considered central tofunctioning of society and much more significant than folkways(e.g., theft and adultery), and they are often enacted into law.

≈ Many differences in mores from one society to another

6-33

Hofstede’s Model of National Culture

Figure 6.4

6-34


Individualism≈A worldview that values individual freedom and

self-expression and adherence to the principlethat people should be judged by their individualachievements rather their social background.

Collectivism≈A worldview that values subordination of the

individual to the goals of the group andadherence to the principle that people shouldbe judged by their contribution to the group

6-35


Power Distance

≈Degree to which societies accept the idea thatinequalities in the power and well-being of theircitizens are due to differences in individuals’physical and intellectual capabilities andheritage

6-36


Achievement versus NurturingOrientation

≈Achievement-oriented societies valueassertiveness, performance, and success andare results-oriented.

≈Nurturing-oriented cultures value quality of life,personal relationships, and service.



7

6-37


Uncertainty Avoidance≈Societies and people differ in their tolerance

for uncertainty and risk.

≈Low uncertainty avoidance cultures (e.g., U.S.and Hong Kong) value diversity and tolerate awide range of opinions and beliefs.

≈High uncertainty avoidance societies (e.g.,Japan and France) are more rigid and expecthigh conformity in their citizens’ beliefs andnorms of behavior.

6-38


Long-term vs. Short-term Orientation≈Cultures with a long-term orientation rest on

values such as thrift and persistence inachieving goals

≈Cultures with a short-term orientation areconcerned with maintaining personal stabilityor happiness and living for the present

6-39

Movie Example: Gung Ho

What decisions should

the Assan Motors

executives consider

before opening a plant

in the U.S.?

6-40

Video Case: The Delmar Dog Butler

What forces in the global environment areleading to outsourcing?

What has outsourcing meant to countrieslike India?

Do you think outsourcing is helping orhurting America?



1

Chapter Four

Ethics and SocialResponsibility

Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 4-2

Learning Objectives

1. Explain the relationship between ethicsand the law

2. Differentiate between the claims of thedifferent stakeholder groups that areaffected by managers and theircompanies actions

3. Describe four rules that can be used tohelp companies and their managers actin ethical ways

4-3

Learning Objectives

4. Discuss why it is important formanagers to behave ethically

5. Identify the four main sources ofmanagerial ethics

6. Distinguish between the four mainapproaches toward social responsibilitythat a company can take

4-4

The Nature of Ethics

Ethical Dilemma

≈quandary people find themselves in when theyhave to decide if they should act in a way thatmight help another person even though doingso might go against their own self-interest

4-5

The Nature of Ethics

Ethics

≈The inner-guiding moral principles, values, andbeliefs that people use to analyze or interpreta situation and thendecide what is the“right” or appropriateway to behave

4-6

Dealing with Ethical Issues

There are no absolute or indisputable rulesor principles that can be developed todecide if an action is ethical or unethical



2

4-7

Stakeholders and Ethics

Stakeholders – ≈people and groups affected by the way a

company and its managers behave

≈supply a company with its productiveresources and have a claim on its resources

4-8

Question?

Who has a claim on a company’sresources?

A. Employees

B. Customers

C. Suppliers

D. Stakeholders

4-9

Types of Company Stakeholders

Figure 4.1

4-10

Stockholders

Want to ensure that managers arebehaving ethically and not risking investors’capital by engaging in actions that couldhurt the company’s reputation

Want to maximize their return on

investment

4-11

Managers

Responsible for using a company’sfinancial capital and human resources toincrease its performance

Have the right to expect a good return orreward by investing their human capital toimprove a company’s performance

Frequently juggle multiple interests

4-12

Employees

Companies can act ethically towardemployees by creating an occupationalstructure that fairly and equitably rewardsemployees for their contributions



3

4-13

Suppliers and Distributors

Suppliers expect to be paid fairly andpromptly for their inputs

Distributors expect to receive qualityproducts at agreed-upon prices

4-14

Customers

Most critical stakeholder

Company must work to increase efficiencyandeffectiveness inorder to createloyal customersand attract newones

4-15

Whole Food’s Approach to Ethical Business

Figure 4.2

4-16

Community, Society, and Nation

Community

≈Physical locations like towns or cities in whichcompanies are located

≈A community provides a company with thephysical and social infrastructure that allows it

to operateA company contributes to the economy of

the town or region through salaries,wages, and taxes

4-17

Ethical Decision Making

Figure 4.3

4-18

Question?

Which ethical decision rule produces the

greatest good for the greatest number?

A. Utilitarian Rule

B. Moral Rights Rule

C. Justice Rule

D. Practical Rule



4

4-19

Practical Decision Model

1. Does my decision fall within the acceptablestandards that apply in business today?

2. Am I willing to see the decision communicatedto all people and groups affected by it?

3. Would the people with whom I have asignificant personal relationship approve of thedecision?

4-20

Why should managers behave ethically?

The relentless pursuit of self-interest canlead to a collective disaster when one ormore people start to profit from beingunethical because this encourages otherpeople to act in the same way

4-21

Effects of Ethical/Unethical Behavior

Figure 4.4

4-22

Trust and Reputation

Trust

≈willingness of oneperson or group tohave faith orconfidence in the

goodwill of anotherperson

4-23

Trust and Reputation

Reputation

≈esteem or high repute that individuals ororganizations gain when they behave ethically

4-24

Sources of Ethics

Figure 4.5



5

4-25

Societal Ethics

Societal Ethics≈Standards that govern how members of a

society should deal with one another in mattersinvolving issues such as fairness, justice,poverty, and the rights of the individual

People behave ethically because they haveinternalized certain values, beliefs, andnorms

4-26

Occupational Ethics

Occupational Ethics≈Standards that govern how members of a

profession, trade, or craft should conductthemselves when performing work-relatedactivities

≈Medical & legal ethics

4-27

Individual Ethics

Individual Ethics

≈Personal standards and values that determinehow people view their responsibilities to otherpeople and groups

≈How they should act in situations when theirown self-interests are at stake

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Organizational Ethics

Organizational Ethics

≈Guiding practices and beliefs through which aparticular company and its managers view theirresponsibility toward their stakeholders

≈Top managers playa crucial role in

determining acompany’s ethics

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Social Responsibility

Social Responsibility

≈Way a company views its duty or obligation tomake decisions that protect, enhance, andpromote the welfare and well-being ofstakeholders and society as a whole

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Approaches to Social Responsibility

Figure 4-6



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Obstructionist approach≈Companies choose not to behave in a social

responsible way and behave unethically andillegality

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Defensive approach≈companies and managers stay within the law

and abide strictly with legal requirements butmake no attempt to exercise socialresponsibility

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Accommodative approach

≈Companies behave legally and ethically and tryto balance the interests of different stakeholdersagainst one another so that the claims ofstockholders are seen in relation to the claims ofother stakeholders

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Proactive approach

≈Companies actively embrace sociallyresponsible behavior, going out of their way tolearn about the needs of different stakeholdergroups and utilizing organizational resources topromote the interests of all stakeholders

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Why Be Socially Responsible?

1. Demonstrating its social responsibilityhelps a company build a goodreputation

2. If all companies in a society actsocially, the quality of life as a wholeincreases

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Role of Organizational Culture

Ethical values and norms helporganizational members:

≈Resist self-interested action

≈Realize they are part of something bigger thanthemselves



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Johnson & Johnson Credo

Figure 4.7

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Ethics Ombudsman

Responsible for communicating ethicalstandards to all employees

Designing systems to monitor employeesconformity to those standards

Teaching managers and employees at alllevels of the organization how toappropriately respond to ethical dilemmas

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Movie Example: John Q

What should be the

ethical standard in

communicating job status

changes and healthcare

changes to employees?

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Video Case: Whose Life is It Anyway?

Do you think it is ethical for Scott’s or othercompanies to fire employees who smoke,even if they only smoke outside of work?

In implementing Scott’s health initiatives,does Hagedorn put the interests of one

group of stakeholders above those ofanother?



1

Chapter Seven

Decision Making,Learning, Creativity and

Entrepreneurship


Learning Objectives

1. Differentiate between programmed andnon-programmed decisions, and explainwhy non-programmed decision making isa complex, uncertain process.

2. Describe the six steps that managersshould take to make the best decisionsand explain how cognitive biases canlead managers to make poor decisions.

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Learning Objectives

3. Identify the advantages and disadvantages ofgroup decision making, and describetechniques that can improve it.

4. Explain the role that organizational learningand creativity play in helping managers toimprove their decisions.

5. Describe how managers can encourage andpromote entrepreneurship to create a learningorganization and differentiate betweenentrepreneurs and intrapreneurs

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The Nature of Managerial Decision Making

Decision Making

≈The process by which managers respond toopportunities and threats that confront them byanalyzing options and making determinationsabout specificorganizational

goals and coursesof action.

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Decision Making

Programmed Decision

≈Routine, virtually automatic process

≈Decisions have been made so many times inthe past that managers have developed rulesor guidelines to be applied when certainsituations inevitably occur

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Decision Making

Non-Programmed Decisions

≈Non-routine decision made in response tounusual or novel opportunities and threats.

≈The are no rules to follow since the decision isnew.



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Decision Making

Intuition≈ feelings, beliefs, and hunches that come

readily to mind, require little effort andinformation gathering and result in on-the-spotdecisions

Reasoned judgment≈decisions that take time and effort to make

and result from careful information gathering,generation of alternatives, and evaluation ofalternatives

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Question?

Which decision model assumes the decisionmaker can identify and evaluate all possible

alternatives?

A. Neo-classical

B. Classical

C. Administrative

D. Practical

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The Classical Model

Classical Model of Decision Making

≈A prescriptive model of decision making thatassumes the decision maker can identify andevaluate all possible alternatives and theirconsequences and rationally choose the mostappropriate course of action.

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The Classical Model of Decision Making

Figure 7.1

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The Administrative Model

Administrative Model

≈An approach to decision making that explainswhy decision making is inherently uncertainand risky and why managers can rarely makedecisions in the manner prescribed by theclassical model

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The Administrative Model

Bounded rationality

≈There is a large number of alternatives andavailable information can be so extensive thatmanagers cannot consider it all.

≈Decisions are limited by people’s cognitivelimitations.

Incomplete information

≈Because of risk and uncertainty, ambiguity,and time constraints



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Causes of Incomplete Information

Risk≈Present when managers know the possible

outcomes of a particular course of action andcan assign probabilities to them.

Uncertainty

≈Probabilities cannot be given for outcomesand the future is unknown.

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AmbiguousInformation

≈ Information whosemeaning is not clearallowing it to beinterpreted inmultiple orconflicting ways.

Figure 7.3

Young Woman

or Old Woman

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Time constraints and information costs

≈managers have neither the time nor money tosearch for all possible alternatives andevaluate potential consequences

Satisficing

≈Searching for and choosing an acceptable, orsatisfactory response to problems andopportunities, rather than trying to make thebest decision

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Six Steps in Decision Making

Figure 7.4

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Which step in the decision making process is

the most important?

A. Generating alternatives

B. Choosing an alternative

C. Evaluating alternatives

D. Learning from feedback

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Figure 7.5

General Criteria for Evaluating Possible Courses of Action



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Feedback Procedure

1. Compare what actually happened to whatwas expected to happen as a result of thedecision

2. Explore why any expectations for thedecision were not met

3. Derive guidelines that will help in futuredecision making

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Cognitive Biases and Decision Making

Heuristics≈Rules of thumb that simplify the process of

making decisions.

≈Decision makers use heuristics to deal withbounded rationality.

Systematic errors

• errors that people make over and over and that result inpoor decision making

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Sources of Cognitive Biases

Prior Hypothesis Bias

≈Allowing strong prior beliefs about arelationship between variables to influencedecisions based on these beliefs even whenevidence shows they are wrong.

Representativeness≈The decision maker incorrectly generalizes a

decision from a small sample or a singleepisode.

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Sources of Cognitive Biases

Illusion of Control

≈The tendency to overestimate one’s ownability to control activities and events.

Escalating Commitment

≈Committing considerable resources to a

project and then committing more even ifevidence shows the project is failing.

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Group Decision Making

Superior to individual making

Choices less likely to fall victim to bias

Able to draw on combined skills of groupmembers

Improve ability to generate feasiblealternatives

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Potential Disadvantages

≈Can take much longer than individuals tomake decisions

≈Can be difficult to get two or more managersto agree because of different interests andpreferences

≈Can be undermined by biases



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Groupthink≈Pattern of faulty and biased decision making

that occurs in groups whose members strivefor agreement among themselves at theexpense of accurately assessing informationrelevant to a decision

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Devil’s Advocacy and Dialectical Inquiry

Figure 7.7

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Organizational Learning and Creativity

Organizational learning

≈Managers seek to improve a employee’sdesire and ability to understand and managethe organization and its task environment soas to raise effectiveness.

Learning organization≈Managers try to maximize the people’s ability

to behave creatively to maximizeorganizational learning.

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Question?

What is the ability of the decision maker to

discover novel ideas leading to a feasible

course of action?

A. Originality

B. Imagination

C. Creativity

D. Ingenuity

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Organizational Learning and Creativity

Creativity

≈The ability of the decision maker to discovernovel ideas leading to a feasible course ofaction.

A creative management

staff and employees arethe key to the learningorganization.

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Senge’s Principles for Creating a

Learning Organization

Figure 7.8



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Building Group Creativity

Brainstorming≈Managers meet face-to-face to generate and

debate many alternatives.

Production Blocking

≈Occurs because group members cannotsimultaneously make sense of all thealternatives being generated, think upadditional alternatives, and remember whatthey were thinking

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Nominal Group Technique≈Provides a more structured way to generate

alternatives in writing and gives each managermore time and opportunity to come up withpotential solutions

≈Useful when an issue is controversial andwhen different managers might be expected tochampion different courses of action

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Delphi Technique≈Written approach to creative problem solving.

≈Group leader writes a statement of theproblem to which managers respond

≈Questionnaire is sent to managers to generatesolutions

≈Team of managers summarizes the responsesand results are sent back to the participants

≈Process is repeated until a consensus isreached

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Entrepreneurship

Entrepreneurs

≈ Individuals who notice opportunities and takethe responsibility for mobilizing the resourcesnecessary to produce new and improvedgoods and services.

Social entrepreneurs≈ those who pursue initiatives and opportunities

to address social problems and needs in orderto improve society

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Entrepreneurship

Intrapreneurs

≈ Individuals (managers, scientists, orresearchers) who work inside an existingorganization and notice an opportunity forproduct improvements and are responsible formanaging the product development process.

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Characteristics of Entrepreneurs

Open to experience: they are original thinkersand take risks.

Internal locus of control: they take responsibilityfor their own actions.

High self-esteem: they feel competent andcapable.

High need for achievement: they set high goalsand enjoy working toward them.



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Entrepreneurship and Management

Frequently, founding entrepreneur lacksthe skills, patience, and experience toengage in the difficult andchallenging workof management

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Intrapreneurship and Organizational Learning

Product champions: taking ownership of aproduct from concept to market.

Skunkworks: keeping a group ofintrapreneurs separate from the rest of thefirm.

Rewards for innovation: linking innovationby workers to valued rewards.

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Movie Example: Family Man

How do Jack andKate use thedecision-makingprocess to come to aconclusion?

What criteria areused to make adecision?

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Video Case: Laser Monks

Which aspect of LaserMonks’ formula—quality products, competitive prices, orsocial entrepreneurship—would increasethe chance that you would buy from thiscompany?

Which entrepreneurial characteristics doesBrother Bernard McCoy exhibit?

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