Topic 2: Theories of Management
What is Theory
A theory is a set of assumptions and principles that explain the relationship between two or more facts and provide a basis for predicting the future events.
Why Study Management Theory
· It improves the understanding and insight of managers and helps managers to accomplish tasks and handle situations rightly without having to rely on trial and error.
· It helps in identifying areas of management in which present and future managers can be trained for them to manage rightly.
· Management theories and principles acts as a ready reference for managers to check whether their decisions are appropriate.
· They serves as focal points for useful research both to ascertain their validity and to improve their applicability.
Evolution of Management Theory
Human beings have been making plans and pursuing goals through organizations, and accomplishing all kinds of feats, for thousands of years. Management theory, however, is generally considered a relatively recent phenomenon that emerged with the industrialization of Western Europe and the United States in the nineteenth century.
Scientific Management Theory
It was formulated mainly by Frederick Winslow Taylor and sought to determine scientifically the best methods for performing any task and for selecting, training and motivating workers. F.W. Taylor rested his philosophy on the following principles:
+ The work assigned to any worker should be observed and analyzed with respect to each part, and the best way of doing the job should be determined after time study, motion study and fatigue study.
+ The employees should be selected after matching their skills and experience with the requirements of the job they are to perform, and adequate training and opportunities for growth and development should be provided to them.
+ There should be close cooperation between workers and management.
+ Planning of work should be the responsibility of management and execution of the planned work the responsibility of the workers.
+ Create suitable working conditions, workers should be devoted and should not waste the organization's resources, management should resolve problems scientifically.
+ Aim of management should be to increase productivity so that organization earns surplus profits and productive workers can earn more wages through differential rate system.
Other contributors to the scientific management theory were
· Henry L. Gantt (he developed various scientific techniques like the Gantt Chart)
· The Gilberths (they conducted various fatigue and motion studies on workers)
Example: The ideas of Taylor and the Gilbeth's are evident at United Parcel Service (UPS), where workers are guided by carefully calibrated productivity standards. At regional sorting centres, sorters are timed according to strict task requirements and are expected to load vans at a set number of packages per hour. Delivery stops on regular van routes are studied and carefully timed, and supervisors generally know within a few minutes how long a driver's pickup and deliveries will take. Industrial engineers devise precise routine for drivers, who are trained to knock on customer's doors rather than spend even a few seconds looking for the doorbell. Handheld computers further enhance delivery efficiencies. At UPS, savings of seconds in individual stops add up to significant increases in productivity.
Classical Management Theory
This theory was pioneered by Henri Fayol and it grew out of the need to find guidelines for managing such complex organizations as factories. Henri Fayol gave the following fourteen principles of management :
+ Division of labour : all work should be subdivided and allocated to a number of persons so that by repeating the same work they acquire speed and accuracy in the job.
+ Parity of authority and responsibility: if an employee is given some responsibility he should be given equal authority to help him meet his responsibility.
+ Discipline: everyone in the organization should comply with the rules and regulations , rules should be clear and penalties should be imposed with fairness.
+ Unity of command: every employee should receive orders from only one superior to avoid confusion and conflict.
+ Unity of direction: ensure unity of action., coordination of strength and focussing of effort to achieve the groups goals.
+ Subordination of individual to general interest :individuals must sacrifice in the interest of the whole organization.
+ Fair remuneration: adequate salaries/wages to all considering costs of living, average wages, and the work assigned.
+ Centralization and decentralization: depends on the size of the organization, experience of the manager and ability of subordinates
+ Scalar chain: the line of authority from the top management to the lower levels (scalar chain) also serves as the communication chain.
+ Order: there should be a place for every thing/person and every thing/person should be in it's place.
+ Equity: managers should be fair & impartial, no favours to some & neglect to other.
+ Stability of tenure of personnel: employees should be given some time to prove themselves and their position shouldn’t be changed frequently.
+ Initiative: employees should be encouraged to take action without being asked to do so.
+ Esprit de corps: develop feelings of team spirit , build unity within the organization.
Other contributors to the classical management theory were:
· Max Weber (Bureaucracy) : a bureaucracy should have clear written rules, the hierarchy of authority should be well defined and everyone's work should be decided in advance with a fair evaluation and remuneration for the work.
· Mary Parker Follett : she suggested that an organization is also influenced by various forces external to the organization such as social, legal, economic, political, technological.
· Chester Barnard : according to him management should try to use the informal groups in the organization to help workers willingly accept their responsibilities which they can perform as a team.
Behavioural Management Theory
Both scientific and classical theories viewed employees as machines and the managers as engineers. The behavioural management theory viewed organization as a group of people. This school of management thought grew out of insights from sociology and psychology and valued human relations. Human relations indicated the way managers interact with other employees or recruits.
The contributors of this theory included:
· Elton Mayo (Hawthorne Studies/Effect): worker productivity was measured at various levels of light illumination, but regardless of whether light levels were raised or lowered productivity rose. Elton Mayo suggested that workers enjoyed the attention they received as part of the study and were therefore more productive.
· Abraham Maslow: he suggested that workers have various levels of needs and these needs should be met so that they can feel satisfied and only then will they give their best to the organization.
· McGregor's Theory X and Theory Y: Theory X states that employees are lazy, and managers must closely supervise them by creating strict rules. Theory Y states that employees are willing to work, the management should motivate them to work by building the worker's initiative and by providing them adequate authority.
Quantitative Management Theory
Uses scientific techniques like statistics, MIS (management information systems), computers, CPA (critical path analysis), forecasting, simulation etc.
Example: Motorola uses an intranet to maintain and update complex assembly instructions for use where they are most needed - on the factory floor. When instructions change they are updated on the web server and become immediately available at every terminal on the production floor. Such "cyber instructions" have passed ISO quality audits without any problems.
All modern organisations should be open systems and they should continuously collect feedback from the environment to ensure that the organisation's (system's) output are as planned. This will help them achieve synergy in the organisation. Synergy is a situation in which the whole is greater than it's parts.
Example: 3M is saving hundreds of thousands of dollars annually by making use of the new RP or rapid prototyping machines. The technology turns CAD drawings into working prototypes and parts for a variety of 3M production systems. The firm even has a rapid prototype centre that adds to competitive advantage. They achieve success by viewing their whole organisation as part of system which incorporates their customers and their employees too. Receiving feedback from all sources they effectively make use of the information gathered to make the system work even more better.
The early theories suggested using the same principles in all situations, but according to the contingency theory management should appropriate action according to the situation being faced by the organisation. They should consider all relevant factors and then decide what best action should be taken.
Modern Management Thinking
Traditional theories are being challenged by the increasing dynamics of the modern world. Today managers have to be considered of various issues like
+ the culture that exists within an organisation,
+ the issues of being socially and ethically responsible and of being a 'Green' (environment friendly ) organisation.
+ Acceptance of a multi cultural working environment
+ Being aware of the opportunities and threats brought about by globalisation of businesses.
+ Predicting the popularity and entering the realm of ecommerce and virtual business thereby ultimately leading to the development of newer models of "boundaryless mangement".
Test Your Knowledge
& A _______ explains the relationship between two or more facts. (True or False)
& Understanding management theories help managers prepare better for the future. (True or False).
& The _______________ theory provides the best methods for performing any task and for selecting, training and motivating workers.
& _____________ developed various scientific techniques including the Gantt chart.
& Henri Fayol pioneered the classical management theory.
& __________theory grew out of the need to manage complex organisations like factories.
& The father of scientific management is _____________.
& Max Weber suggested an approach of _____________
& Other main contributors to the classical theory were _________, ________ and __________.
& ________________ theory grew out of insights from sociology and psychology and valued human relations.
& Human relations indicates the way managers interact with other employees (True or False)
& The Hawthorne experiments were interpreted by ___________
& ____________ suggested that workers have various levels of needs.
& Theory ___ states that employees are lazy and managers must closely supervise them.
& Theory ___ states that employees are willing to work and managers should motivate them
& _____________ theory involves the use of various scientific techniques like forecasting, statistics etc.
& __________ is an integral element of an open management system.
& When two or more subsystems working together produce more than what could have been produced individually, it is called _________
& The _________ theory views that the management approach applicable in different situations may vary.
Topic 3: Organization's Environment
What is Environment
An organization does not exist in a vacuum. It exist in an environment. An environment can be defined as the sum total of all the surroundings under which an organisation exists. An organisation performs it's various activities by taking various inputs from outside, processing these inputs and then providing them to the outside world in the form of outputs (goods, ideas or services). Similarly, such systems take place in every organisation and all these organisation are collectively a part of a much bigger system.
There are various factors that influence the functioning of the organization's activities and these factors can be broadly divided into external and internal environmental factors.
External environment includes those factors that influence all the organisations in a country irrespective of their type of activity, size, number of employees, volume of turnover etc. These factors are also known as the Indirect-action elements as they do not affect the organisation directly. These factors include the following:
Social : These include factors like the culture (values, norms, beliefs) of the people where the organisation is located, the relationship between people and different groups, the buying habits of people, the role of men and women, the lifestyles that different groups adopt and also the demographic situation of the place. Demographic factors play a very important role as they help organisations decide what the total market is for their product/service, how the total population is changing, what is the composition of the population and also what the likely future trends are.
Example: When British Airways surveyed it's customers a simple lesson emerged - don’t assume that people from different cultures will have the same dining habits and preferences. Japanese, for example, commented that BA's food was not bad for westerners. They also pointed out that the white china dishes were similar to those used in Japanese hospitals and prisons ! Thus BA initiated a major overhaul to get a more truly global identity.
Similarly McDonalds, when entering India had to consider the fact that it would save serious problems if beef was not included in it's menu as eating beef is considered irreligious among the majority Hindu population. Accordingly it tried to popularize Veg Mc in India. And the same company promotes the burger with wine in France due to French's preference for wine with meals.
Legal : All the organisation existing with the boundaries of a country have to follow the laws that have been laid down in that country. These include various mercantile laws, contract laws, labour laws etc. Such laws apply to all types of organisations; however there might even be laws that cover certain specific types of organizations or industries.
Example: Organizations involved in fisheries and those dealing with hazardous chemicals and dangerous goods have to face strict pollution, safety control laws.
Economic : Various economic conditions are crucial to the success of any organisation. The wage level in the country, the rate of inflation, fiscal and monetary policies undertaken by the central bank, the level of growth in the national income, personal disposable income etc all have a strong influence on the activities that any organisation takes. Any changes in these factors will has to be carefully monitored by organisations.
Political : The political scenario in the country - the type the government (majority, coalition), political stability/instability, the prospects of war etc. all affect an organization's growth and their activities with other organisations throughout the world. Moreover, it is the government that shapes the various economic and legal forces in the country.
Technological : It includes the various advances and developments that place in technology which help in improving the products or services offered by organisation. It not only includes innovations in the field of materials but also includes other developments in the product design, processes, distribution, promotion techniques etc. Such changes often make products or processes obsolete very quickly and therefore management should be prepared to change.
Example : The introduction of EPOS (Electronic Point of Sale) system that is being widely used in retail stores throughout the world. The developments in the field of bio-technology has also brought about the introduction of GM (Genetically Modified) foods.
Another example that highlights the role of technology in management of operations is E-banking. It has been researched that online banking is 97 % cheaper that ATMs and 99% cheaper that human tellers. Moreover, it also provides a platform for local banks to target foreign customers who couldn’t use the services earlier due to geographical barriers. E.g. ICICI, ME Bank.
These external forces have a profound impact on the organisations and managers usually cannot control these.
Apart from the above five forces in the external environment organisations also have to consider the Global Forces arising out of a change in the international relationships between countries. Perhaps the most important is the economic integration of countries at various levels . (E.g. General Agreement on Tariffs and Trade (GATT), North American Free Trade Association (NAFTA) European Union (EU), Gulf Co-Operation Council (GCC) etc.
All the forces in the environment can change overtime and thus provide Opportunities or Threats to organisations. Opportunities are new openings for managers to enhance revenues or open new markets through new technologies, new ideas etc. Threats are issues that can harm an organisation success or even it's very survival.
Apart from the various external environmental factors there are various factors that directly influence an organization's activities. These are also known as the Direct-action elements. They include :
Stakeholders are individuals or groups who are directly or indirectly affected by an organization's pursuits of it's goals.
Internal Stakeholders: An organisation is responsible towards it's internal stakeholders which are the employees and the shareholders (people who have invested their money into the business). The organisation has to make sure that the employees get a fair wage/salary, have proper work conditions and that they receive adequate opportunities for growth and development in the organisation. At the same time an organisation also has to ensure that the shareholders get a good return on their investment.
Example: Many people said that Aaron Feurstein was crazy when he kept some 1000 workers in the payroll after his apparel factory burned down. Today Malden Mills of Lawrence, Massachusetts is back in business and the owner couldn’t be prouder. He paid his jobless employees over $15 million during the several months it took to rebuild the plant. Now he is reaping the gains of a loyal workforce dedicated to their customers. Feurstein calls his decision just "common sense".
External Stakeholders : stakeholders that affect an organization's activities from outside the organisation include suppliers, distributors, customers, competitors and other elements. Their relationship with the organisation can be seen in the diagram below:
Apart from these core elements of the direct stakeholders there are competitors in any business too. An organisation has to make sure that they effectively check their Competitors activities, their new products, their prices etc.
Example: Competition plays a key role in the "burger wars". Soon after Burger King introduced it's version of the McDonald's "Big Mac" sandwich, McDonald's offered something quite similar to Burger King's "Whopper" The tendency among fast food makers is towards an outside-in strategy of "If you can't beat them, copy them" !
Similar intense competition or rivalry can be seen in almost every industry. The success of "Kaun Banega Crorepati" (a TV game show based on the popular English show "Who wants to be a millionaire" ) on Star TV was soon copied by Zee TV with it's launch of "Sawal Dus Crore Ka" and was further copied by Sony Entertainment Television's "Jeeto Chappar Phaad Ke". Apart from these shows there were also similar 'jackpot' shows on various regional channels too.
Competition may not only be on the product (introducing similar products), but also on the process (using similar techniques for production) people (though difficult to copy as people are unique but organisation at times copy other organization's training programs or even go a step further and entice competitor's employees to join their organisation, in return for better
pay and perks) or even on promotion (often seen in the similar advertisements or the promotional campaigns amongst the giants of the cola war - Pepsi and Coke)
Other elements that are playing an increasing role in modern businesses include the labour unions and consumer protection groups. Different Labour Unions exist among different categories of work and even at the state and national levels.
Similarly, the modern educated consumers now no longer tolerate any exploitation by the organisations and have formed various Consumer Protection Groups to deal with any issues of consumer exploitation.
Today organisations have also to consider the various impacts that their operations are bringing about on the country's (and the world's) Natural Environment. The increasing air pollution by factories, depletion of ozone layer, cutting down of forests, water pollution through oil slicks, improper factory waste disposal, animal testing etc all are being monitored by the government and community at various levels to ensure that organisations follow an image of "Green and Clean".
Example: Recycling car parts is the goal of the RAT pack at the Ford Motor Company. The firm's Recycle Action Team meets once a week to find new ways to use recycled materials and to recycle as much as possible of the firm's products. Ford vehicles now are incorporating parts made from recycled tires, soda bottles and even used carpeting from homes. A special project of Ford's environmental outreach and strategy program. RAT is a good example of applying team creativity and initiative to solve important problems.
Test Your Knowledge
& An _________ is the sum total of all the surroundings under which an organisation exists.
& The environmental factors that an organisation faces can be divided broadly into ________ and _________.
& External factors affect all organisations in the same manner (True or False)
& External environment is also known as _________________
& Factors like culture, lifestyle, religion etc are collectively called _______ factors.
& The laws of a country do not affect organisations. (True or False)
& Economic factors include _________, _________ and _________.
& Changes arising out of international relationships between countries is called __________
& The forces in the external environment may provide an ________ or a ________ to the organisations.
& The internal environment in other words is known as the direct-action elements (True or False)
& ____________ are individuals or groups who are directly or indirectly affected by an organization's pursuits of it's goals.
& Internal stakeholders include __________ and ___________
& Stakeholders that affect an organisation from outside the organisation are called _________ stakeholders.
& Suppliers, distributors, customers, competitors are examples of external stakeholders (True or False)
& Today organisations also have to be concerned about the _________ environment inorder to project a clean and green image.
Topic 4: Planning and Decision Making
What is Planning
"Planning is a pervasive and continuous executive function involving complex processes of perception, analysis, communication, decision and action."
"Planning is the design of a desired future and of effective ways of bringing it about."
Planning is deciding in advance what is to be done, where it is to be done and who is to do it. It is a process of thinking before doing. Planning implies that managers think through their goals and objectives chalked out in advance. Planning is the process used by managers to identify and select goals and courses of action for the organization. The organizational plan that results from the planning process details the goals to be attained.
Features and Importance of Planning
· Planning is goal-oriented
· Planning precedes all other functions of management.
· Planning is applicable at all levels and all types of organisations.
· Plans can be changed as and when the environment requires.
· Planning continues throughout the lifetime of an organisation.
· Planning looks ahead into the future
· Planning involves choosing between various alternative courses of action
· Planning involves insight, intelligence and other creative characteristics.
· Planning makes objectives clear and specific
· Planning makes activities meaningful
· Planning reduces the risk of uncertainty
· Planning facilitates decision making
· Planning helps coordination
· Planning promotes creativity
· Planning provides the basis of control
· Planning leads to economy and efficiency
Levels of Planning
Corporate level planning directs what the organisation should pursue as a total enterprise. Decisions by top managers. Considers on which business or markets to be in. Provides a framework for all other planning
Business level planning guides how the organisation will compete in each major business. Details divisional long-term goals and structure. Identifies how this business meets corporate goals. Shows how the business will compete in market
Functional level planning explains how each management functions will support the business. Actions taken by managers in departments of manufacturing , marketing etc. These plans state exactly how business level strategies are accomplished
Types of Plans
On the basis of:
· Strategic: a comprehensive plan that addresses the long term needs and direction of the organisation.
· Operational: plans that provides the details needed to incorporate strategy into day to day operations.
· Long Term: long-term plans are usually 5 years or more.
· Short Term: short term plan are for a period of less than 1 year
Frequency of use:
· Single Use: a detailed course of action used once or only occasionally to solve a problem that does not occur repeatedly.
· Standing Plans: an established set of decisions used by managers to deal with recurring activities. Major types of standing plans are:
· Policies: a standing plan that establishes general guidelines for decision making.
· Rules: standing plans that detail specific actions to be taken in a given situation.
· Procedures: a standing plan that contains detailed guidelines for handling organisational actions that occur regularly.
Plans may also be classified according to the type of the function/department in which they are intended to be used. Thus on the basis of function, plans may be divided into:
· Operations etc.
Steps in the Planning Process
Limitations of Planning
· Planning may create rigidity in the minds of managers.
· A faulty plan may actual misdirect the organisation
· Planning often involves a lot of time, effort and money.
· Planning may create a false sense of security that everything is moving according to plans
· Planning is based on probability and forecasts may go wrong.
How to overcome the limitations
+ Involve the right people in the planning process
+ Write down the planning information and communicate it widely
+ Goals and objectives should be SMARTER (specific, measurable, achievable, realistic, time-framed, enhancing and rewarding)
+ Build in accountability - make clear who is responsible for what.
+ Note deviations and re-plan accordingly
+ Continuously evaluate planning process and plans
+ Acknowledge results, whether good or bad and celebrate good results
Apart from the various suggestions listed above, to overcome the limitations of planning, organisations should also try to use newer and better approaches and techniques in the planning process. Some of these include Forecasting, Scenario Planning, Benchmarking, Management by Objectives (MBO), Participation and Involvement.
Decision making may be defined as the process of identifying and selecting a course of action to solve a specific problem. A problem is a situation that occurs when an actual state of affairs is different from a desired state of affairs. Problems may be under circumstances of Certainty, Risk or Uncertainty.
Certainty: decision making condition in which managers have accurate, measurable and reliable information about the outcome of various alternatives under consideration.
Risk: decision making condition in which managers know the probability a given situation will lead to a desired goal or outcome.
Uncertainty: decision making condition in which managers face unpredictable external conditions or lack the information needed to establish the probability of certain events.
Depending on the nature of the problem and the level in the organisation managers may take programmed or non-programmed decisions. Programmed decisions are repetitive decisions that can be handled by a routine approach. Non-programmed decisions are unique decisions that require a custom-made solution.
Decision Making is influenced by Rationality, Bounded rationality, Satisficing or Heuristic principles.
Steps in Decision Making
· Identification of a Problem:
We need to make a decision something as there is a problem that is causing some obstacles towards the achievement of our goals smoothly.
· Identification of decision criteria:
We need to think about the various factors that can influence our choice or those factors that we consider important in our decision.
· Allocation of weights to criteria:
All the factors thought of may hold the same importance, hence it necessary to allocate weights to each of the factors on the basis of their relative importance.
· Development of alternatives:
Having allocated appropriate weights we need to consider the various alternatives that are available to us.
The alternatives identified should then be analyzed with respect to the factors that we decided earlier
· Selection of an alternative:
From the various alternatives identified we need to select an alternative that best matches our criteria
· Implementation of the alternative:
The alternative finally chosen is then implemented .
However the decision making process doesn’t end here. We also need to evaluate the effectiveness of our decision and should learn from our current decisions to make better decisions in the future.
Strategic Management Process
The pattern of decisions managers take to reach the organisational goals is the organization’s strategy. The planning function determines how effective and efficient the organization is and helps setting the strategy of the organization.
MISSION: Overriding premise in line with values of the stakeholders.
GOAL: General statement or aim of purpose
OBJECTIVES: Quantification or more precise statement of the goal
STRATEGIES: Broad action plans to achieve the goals
ACTION: Individual steps to implement strategies
CONTROL: Monitoring and assessing the effectiveness of strategies
REWARDS: A payoff for reaching the objectives.
The America West Airlines corporate mission reads "America West will support and grow it's market position as a low-cost, full-service nationwide airline. It will be known for it's focus on customer service and it's high performance culture. America West is committed to sustaining financial strength and profitability, thereby providing stability for it's employees and shareholder value for it's owners.
British Airways' mission is "to be the best and the most successful company in the airline industry.
Skyline College's mission is to provide it's students with the best professional career prospects in the emerging global market place and to equip them to become effective business managers.
Example: When Howard Schultz joined Starbucks in 1982 the firm was a small coffee retailer in Seattle. But Schultz saw more potential that included Starbucks becoming a national chain of stores offering the finest coffee drinks. Today Starbucks has grown to ver 2,300 stores cross North America and is expanding internationally towards it's goal of becoming the most recognized and respected brand of coffee in the world. All this was possible through a long term vision and effective strategies laid down by the management.
The strategic management process is explained in the diagram below:
Test Your Knowledge
& ______ implies that managers think through their goals and decisions chalked in advance.
& Planning is required only at the time of setting up business (True or False)
& Planning makes _______ clear and specific
& The three levels of planning are _______, __________ and ____________.
& The first two important functions of management are ______ and _________.
& A general plan which outlines the long term needs and direction of an organisation is called __________
& Short term plans are usually for a period of 5 years (True or False)
& A detailed course of action used once to solve a problem that does not occur repeatedly. (Name the concept)
& Plans developed for activities that recur regularly over a period of time are called ______
& A standing plan that establishes general guidelines for decision making is called _______
& Securing cooperation is not an important step in the process of planning (True or False)
& Faulty plans affect the success of the whole organisation (True or False)
& _________ may be defined as the process of identifying and selecting a course of action to solve a specific problem.
& A ______ is a condition in which managers know the probability of a given situation leading to a desired goal or outcome.
& Decisions may be divided into ________ and _______ depending on the nature of the problem and the level in the organisation.
& The decision making process involves allocating weights to various alternatives and choosing the best alternative (True or False)
& An overriding premise in line with the values of the stakeholders is called a ________.
& _________ are broad action plans to achieve the goals.
& Implementing strategies is not a part of the strategy management process (True or False)
Topic 5: Organizing
What is Organizing
Organizing is the process of arranging people and resources to work toward a common purpose. In organizing, mangers create the structure of working relationships between organisational members that best allows them to work together and achieve goals by creating departments and laying down lines of authority and responsibility.
An organizational structure is the outcome of organizing. It is the system of tasks, reporting relationships and communication linkages by which an organization's activities are divided, organized and coordinated.
An organization chart is a diagram that shows the formal arrangement of work positions by depicting the lines of authority and communication between them. Some charts show titles with the position held and the names of the title holders. An organisational chart also provides a visual map of the chain of command. Each individual can identify the boss and trace the lines of authority to the top position. Today most organisations have organisation charts showing the chain of command and the basic structure of the organisation.
It should also be remembered that apart from the formal organisational structures that an organisation chart depicts there also exists in an organisation Informal organisational structures which reflects the relationships between members that emerge out of social and group needs of employees.
Inorder to determine the most appropriate organization structure managers have to consider a variety of factors such as the long term goals and objectives, strategies, people, technology, external environment etc. This process of determining the right organization structure is called organizational design. An organization's design may be mechanistic (bureaucratic, many rules and procedures, formal coordination, central authority) or organic (decentralized, fewer rules and procedures, wider span of control and personal coordination)
The organizing process includes the following
1. Division of work
Division of Work
The activities of an organisation should be divided into several small parts or jobs and individuals should be made responsible for a limited set of activities. By frequently repeating
the same tasks, efficiency of employees will increase due to job specialization. However, excessive job specialization may make the job monotonous and boring and creativity of workers may be affected.
Departmentalization is the process of grouping activities into departments that are similar and logically connected. There are various ways to group activities. These are discussed below:
Functional Structure : It is a form of departmentalization in which individuals engaged in one functional activity, such as marketing are grouped into one unit. Thus under such a structure there are different departments for marketing, finance, human resources, operations etc.
Divisional Structure: A divisional structure groups together people who work on the same product, market (geographical region) or customer.
Matrix Structure: Also referred to as a "Multiple Command System", this is a hybrid structure in which employees work in two chains of command and report to two heads for better control. Example: Toyota had a matrix structure designed exclusively for the production of it's luxury car Lexus
Example: When H.J.Heinz became concerned about the company's international performance they decided to change the structure. The former structure which emphasized countries and regions, was changed to global product divisions. The company believed that this new structure will bring the best brand management to all countries and increase cooperation around the world within product businesses
Consider the different organisational structures given below:
A pattern of multiple levels of an organisation structure is called hierarchy. A hierarchy helps in serving the following decisions.
1. Establishing reporting relationships
§ Chain of command - plan that specifies who reports to whom
§ Span of management control - number of subordinates reporting directly to a given manager
§ Tall Vs Flat Organisation: A wide span of control creates a flat structure and a narrow span of control creates a tall structure.
Example: Nucor Corp is a successful steel company with a reputation for cost efficiency and streamlined management. The firm operates with a minimum of staff by putting daily decision making in the hands of operating people. Larger steel companies have typically 8 or 9 levels of management, Nucor operates with half as many with close to 7000 employees. They believe in having the fewest management levels and in delegating authority to the lowest level possible.
2. Distributing Authority : Authority is the power given by the organisation because of the position held.
§ Delegation - the process by which a manager assigns a portion of his/her total workload to others.
§ Decentralization - the process of systematically delegating power and authority throughout the organisation to middle and lower levels.
Elements of Delegation of Authority
The superior has to define the jobs to be performed by his subordinates. He must also define the results expected of them and has to further decide on the allocation of various duties to the subordinates. The subordinate should then be given the right amount of authority which he will require to perform the delegated tasks. Along with the grant of authority the superior should also create a standard of performance for the subordinates. In other words they should be made responsible for the work they are supposed to do. Arising out of his responsibility the subordinates will be made accountable or answerable for the performance of his tasks and duties.
Authority is delegated; responsibility is created ; and accountability is imposed.
Importance of Delegation of Authority
· Reduces the work load of managers
· Helps establish superior-subordinate relationships
· Improves managerial effectiveness as managers can concentrate on more important matters
· Motivates subordinates to perform well and use their full potential.
· The increased authority and responsibility helps subordinates develop into future managers.
· Increases efficiency of the whole organisation if used at all levels.
Centralization and Decentralization
Centralization of authority means concentration of authority for decision making at higher or top levels of management. It refers to a situation where all decisions on specific matters are taken by one or a few managers at relatively higher levels.
Decentralization of authority refers to the systematic delegation of authority at all levels of management and in all departments of the organisation for taking decisions and actions appropriate at the respective levels. In a decentralized organisation authority is retained at the top management level for taking major decisions and framing policies concerning the entire organisation. At the same time, the middle and lower level management is entrusted with
authority for taking decisions on tasks assigned to them. Authority is pushed down even to the lower levels of management.
Everything that goes to increase the subordinates role is decentralization and everything that goes to decrease it is centralization.
Example: When Leo F. Mullin became CEO of Delta Airlines he took steps to restore the airline's reputation and performance. Rebuilding began at once and with a new focus on employees. Mullin met with workers all over the system to gather ideas and rebuild morale and started decentralizing. His goal was to give managers more day-to day decision making power to speed problem solving and improve service.
Coordination is the process of integrating the activities of separate parts of an organisation (departments) to achieve organisational goals effectively.
The differences in the functioning of various departments in an organisation is called Differentiation. For example, accountants may see cost control as the most important factor while the production department may see the quality of the product as the most important factor and the marketing department may see the variety of models available as the most important factor in the success of the organisation.
Integration is the degree to which members at various departments work together in a unified manner. For example, the sales personnel should give advice to the market research department about the needs of the customers and this information should then be passed on to the production department so that they can ensure the production of the right kinds of goods.
Coordination should exist between all departments and also between various levels of management to ensure that the work is carried on smoothly and that no conflict or confusion arises.
Example: When Ford took over as the new owner of Jaguar it had to resolve many quality problems. Although the "Jaguar" automobile enjoyed cachet, it had also developed a reputation for maintenance problems. The quality turnaround at Jaguar took longer than Ford anticipated, in part because of what Jaguar's chairman called "excessive compartmentalization". In building cars, the different departments did very little talking and working with one another. Ford's response was to push for more inter departmental coordination, consensus decision making and cost controls.
Trends in Organizing
The complexities and the dynamism of the modern business world is putting increasing pressures on organisations to search for productivity improvements and performance advantages in the workplace. Some such new developments that are taking place in organizing include team structures, network structures, boundary's organizations, virtual corporations, sub-system structures etc.
Example: Intel is a major player in the dynamic computer chip industry. It is a fast moving company, and it operates in a fast moving environment. To stay ahead of it's competitors, Intel relies on a team organisation in which most workers are assigned to one or more projects under he direction of the team leaders. The traditional hierarchy of organisations takes a back seat to the focus of team activities and project accomplishments. Team members feel responsible for meeting performance targets and act accordingly.
Test Your Knowledge
& The process of arranging work, authority and resources among an organization's goals to achieve goals is referred as __________
& The way in which an organization's activities are divided, organized and coordinated is referred as ______________
& An organization chart is a visual representation of an organization's structure (True or False)
& The process of determining the most appropriate organization structure is called _______
& By repeatedly performing the same task, the efficiency of workers will increase. (Name the concept)
& ________ is the process of grouping activities into departments that are similar and logically connected.
& The three major types of structures are ________, _________ and __________
& Organizations may be divided into different divisional structures on the basis of ________, ___________ and ____________.
& A matrix structure is also referred to as _____________________.
& A pattern of multiple level of an organisation structure is called _________.
& ____________ is the number of subordinates reporting directly to a given manager.
& A _____ span of control leads to a flat structure and a narrow span of control leads to a _____ structure.
& The process by which a manager assigns a portion of his/her total workload to others is called delegation (True or False)
& ____________ means concentration of authority for decision making at higher levels of management.
& ___________ is the degree to which members at various departments work together in a unified manner.
Topic 6: Leading
Meaning of Leadership
Leadership involves a manager using power, influence, vision, persuasion, and communication skills. It may be defined as the process of directing and influencing task related activities of group members. In leading, managers determine direction, state a clear vision for employees to follow, and help employees understand the role they play in attaining goals. Leadership involves influencing people through the use of different types of power.
Leadership = Respect x Trust
Respect is based on knowledge and skills while trust is based on concern for people's needs and feelings
Show respect for others….
People will respect you only when you show that you respect them. Treat people as individuals, seek their opinions and listen to their suggestions. If you are willing to listen and take other people's inputs seriously, they will be more willing to listen to you and take your input seriously.
Respect….know you job and do it well. People respect knowledge. When you answer people's questions correctly and can explain why certain procedures are important, you are demonstrating your knowledge and showing people that you know what you are talking about.
Be fair…you are a human being and you have your own likes and dislikes. Your personal feelings should never influence your treatment of people. Every person you work with deserves fair and equal treatment when work is assigned and performance is evaluated . you should be consistent in the way you treat people. Do not be moody, or treat people based on how you feel.
Trust….you can build trust by using positive and corrective follow up, by showing that you care, by creating a positive working environment, by treating people the way you like to be treated. Get to know people….you need to know your staff well to build trust so that they realize that you don’t think of them merely as employees.
Power is the capacity to affect the attitudes or behavior of others. It is the ability to get someone else to do something you want done or to make things happen the way you want.
Sources of Power: The sources of power may be broadly classified into two sets.
1. Position Power: An important source of power is a manager's official status, or position in the organization's hierarchy of authority. The three bases of position power are:
· Legitimate power: the capacity to influence other people by virtue of formal authority or the rights of office.
· Reward power: the capacity to offer something of value as a means of influencing people.
· Coercive power: the capacity to punish or withhold positive outcomes as a means of influencing other people.
2. Personal Power: Another source of power is the manager's unique personal qualities that he brings to a leadership situation. Two bases of personal power are:
· Expert power: the capacity to influence other people because of specialized knowledge.
· Referent power: the capacity to influence other people because of their desire to identify personally with you.
Another source of power that is also visible if "Access to Information" power It is the capacity to influence people because of access to company information, strategic plans etc.
Power of the POSITION
Based on things managers can offer to others
Power of the PERSON
Based on ways managers are viewed by others
Rewards: "If you do what I ask, I'll give you a reward"
Expertise - as a source of special knowledge and information.
Coercion: "If you don’t do what I ask, I'll punish you."
Legitimacy: "Because I am the boss, you must do as I ask"
Reference - as a person with whom others like to identify.
Fig: Sources of position and personal power used by managers
Approaches to Leadership
Trait Approach : This approach believes that leadership behavior is the sum total of all the traits (qualities) of the leader. Psychologists studying leadership behavior have classified these traits into:
Physical characteristics like height , weight, appearance….
Personality characteristics like intelligence, knowledge…
Social factors like inter personal skills, socio-economic position….
Six Traits that differentiate leaders from non leaders
1. Drive: leaders exhibit a high effort level. They have a relatively high desire for achievement, they're ambitious, they have a lot of energy, they're relatively persistent in their activities and they show initiative.
2. Desire to lead: leaders have a strong desire to influence and lead others. They demonstrate the willingness to take responsibility and are always enthusiastic and motivated to perform at their best level.
3. Honesty and integrity: leaders build trusting relationship between themselves and followers by being truthful or non deceitful and by showing high consistency between work and deed.
4. Self-confidence: followers look to leaders for an absence of self-doubt. Leaders therefore need to show self-confidence in order to convince followers of the rightness of goals and decisions.
5. Intelligence: leaders need to be intelligent enough to gather, synthesize and interpret large amounts of information and to be able to create visions , solve problems and make correct decisions.
6. Job relevant knowledge: effective leaders have a high degree of knowledge about the company, industry, and technical matters, in depth knowledge allows leaders to make well informed decisions and to understand the implications of those decisions. They also show flexibility to deal with various changing stimuli in the environment.
Other traits of a good leader are dependable, fair, objective, sensitive, self-confident, persistent, broad minded, creative, tolerant, calm, insight, enthusiastic, intelligent, courage, visionary…
Behavioral Approach: This approach views leadership in terms of the group-maintenance and the task-related activities that a leader has to perform. Thus different leaders will lead differently depending on their relative concern for the people or the concern for production.
On the basis of their differing concerns leaders adopt different styles of leading
Contingency Approach: This approach views that the leadership style that best contributes to the achievement of the organisational goals might vary in different types of situations. Various factors may influence the "best" leadership style. These factors may include the task requirements, employee's characteristics, expectations and behavior, the organisational
culture and policies etc. A contingency approach to leadership effectiveness is shown below:
Functions and Responsibilities of a Leader
A leader has to perform a variety of functions and responsibilities inorder to achieve group goals. Some of the functions of leader are :
+ Set goals
+ Present positive image of goals and responsibilities
+ Communicate with employees
+ Inspire and Motivate
+ Capitalize on individuals skills and interests of staff
+ Anticipate needs and problems
+ Establish guidelines and structure
+ Involve staff in decision making
+ Establish favorable conditions for increasing productivity
+ Build sense of security
+ Acknowledge group achievements
Other Issues in Leadership
Transactional Leaders are those who determine what subordinates need to do to achieve objectives, classify those requirements, and help subordinates become confident they can reach their objectives.
Transformational Leaders are those who through their personal vision, energy and inspiration have a major impact on their organisations by working on the SWOT and providing high quality solutions. Example: Jan Carlzon turned Scandinavian Air System from $8 million loss to $ 71 million profit in one year !
Charismatic Leaders develop special leader-follower relationships and inspire followers through their personal charisma. The leader is an idolized hero, a messiah, a savior for the followers. Example: Mahatma Gandhi, John F. Kennedy, Thomas Watson (IBM), Walt Disney.
Post-Heroic Leadership : Make everyone a leader by making them perform with their Head, Heart and Hands. Leadership must permeate the whole organisation and not just with one or two superstars at the top.
Subconscious Leadership: Leadership tendency may emerge as a result of the unfulfilled subconscious desires of a person.
Romantic Leadership: Some are born to be followers and have "fairy tale" concepts of the leader's skills and capabilities.
Substitute Leadership: Does every group need a leader ? Have a professional approach, satisfying job, clear rules and feedback and leader's role diminish and eventually cease to exist.
Leadership across Cultures
Leadership styles may vary over different cultures. European managers tend to be more people oriented than American managers. Japanese cultures is very collective oriented, while American focuses more on profitability. Time horizons also are affected by cultures. US firms often focus on short term efforts. Japanese firms take a longer term outlook. It is essential that international managers are become aware of such cultural differences when leading in a foreign country.
Test Your Knowledge
& _________ is defined as the process of directing and influencing the task related activities of group members.
& Leadership = _______ x ___________
& Leadership involves influencing people by using different types of ________
& ________ is the capacity to affect the attitudes or behavior of others.
& Position power can be classified into _______, __________ and __________.
& _______ is the capacity to influence other people because of specialized knowledge.
& The ________ approach to leadership believes that leadership behavior is the sum total of all the qualities of the leader.
& Three major traits that differentiate leaders from non-leaders are _______, _______ and ________.
& The __________approach views leadership depending on their relative concern for task and people.
& An __________ leader shows high concern for tasks and low concern for people.
& A democratic leader shows high concern for both people and tasks (True or False)
& _____________ leaders show low concern for both people and tasks.
& Leadership style that best contributes to the achievement of the organisational goals might vary in different situations. (Name the approach)
& Inspiring and motivating employees is not the responsibility of the leader. (True or False)
& A ____________ leader brings about major changes in the organisation through their personal vision, energy and inspiration.
& Charismatic leaders cannot influence their followers easily (True or False).
& Leadership styles differ from culture to culture (True or False)
Topic 7: Communication
What is Communication
Communication is one of the most important element of social life. It is the process by which people attempt to share meaning through the transmission of messages by an appropriate channel. It is a continuous process of telling, listening and understanding information from one person to another and of establishing a commonness of thought between a sender and a receiver. Effective communication is an art, any one can learn it to maintain harmonious and productive relationships with others.
Business communication is a sub set of the broader concept of communication. It is a form of inter-personal communication. Managers spend around 60 - 90% time in communication.
Effective business communication skills are essential in today's dynamic business world because:
· Companies are getting larger with mergers and acquisitions
· More and more products and service packages are designed, made, communicated and sold.
· Increased links of managers with community groups and special interest groups.
· Managerial style is shifting towards collaborative, democratic type
· Fast developments in communication technology such as electronic mail, video conferencing GSM satellite phones, fax services have made communication links essential, effective and efficient.
The Communication Process
The communication process takes place in the interaction between a sender and a receiver. The sender, or the source of the message, initiates the process and sends the message to be transmitted by encoding it in the form of appropriate words, symbols etc. This encoded message is then passed through a channel of communication and reaches the receiver who decodes the message into meaningful information and understands it. However, the communication process doesn’t end here. It should be remembered that communication is a two-way process and communication can only be successful only when the receiver acknowledges the receipt of the message by giving a feedback to the sender. The entire communication process however suffers from various stimuli, both internal and external, called noise. Noise confuses, disturbs and interferes with the effectiveness of the communication process and thus should be minimized.
Example: The late Sam Walton, Wal-Mart's founder was a master communicator. Stopping once to visit a Memphis store, he called everyone to front saying, "Northeast Memphis, you're the largest store in Memphis, and you must have the best floor cleaning crew in America. This floor is so clean, lets sit down on it." Kneeling casually and wearing his Wal-Mart baseball cap, Walton congratulated them on their fine work. "I thank you", he said. "The company is so proud of you and we can hardly stand it", he said reminding them of bonus checks recently given out. "But", he added, "you know that confounded Kmart is getting better, as so is Target. So what's our challenge?" Walton asked. "Customer service" he replied in answer to his own question. Walton's quality measure was clear to everyone.
Barriers to Effective Communication
· Emotional : emotional factors affect communication. Indifference or hostility towards a person or subject.
· Perceptual: we all perceive things differently. Same stimulus can be seen or interpreted differently. People's perception are based on their own experience and value systems.
· Selectivity: Selective retention. All information inputs are not absorbed. Cognitive shutters filter information.
Semantic Barriers: semantic is the branch of language science dealing with the study of meanings. Words are symbols. They may mean different things to different people, and different meanings may block communication.
Example: Consider the following "bafflegab" found amomg some executive communications. The report said: "Consumer elements are continuing to stress the fundamental necessity of a stablilization of the price structure at a lower level than exits at the present time."
Translation: Consumers keep saying that prices must go down and stay down.
Physical Barriers: Physical appearance, the audience, the noise (amount of distraction in the environment), uncomfortable arrangements etc also hamper effective communication.
Types of Communication
1. Formal: refers to the official communication which takes place following the chain of command. It may be :
· Vertical communication: any communication that moves up or down the chain of command. Vertical communication may be:
Upward: flows from a subordinate to his superior
(work performance, problems, opinions, suggestions)
Downward: flows from a superior to subordinate
(org. plans & policies, orders & instructions, rules)
· Horizontal: flows between persons holding same position level (coordination, consultation)
Informal: refers to the communication which takes place independently of the official hierarchy. Arises out of social interaction and may take place between employees of different position levels.
Grapevine: network of informal communication. Origin and direction difficult to trace. E.g. : Rumours
Channels of Communication
· Oral : face to face, telephone, loud speaker
· Written: letter, notices, orders
Communication may be:
· Verbal : Use of language
· Non-verbal: Vocal cues, eye contact, facial expression, body language, tone of voice, space, touching…
Communication Skills for Managers
Communication skills for managers as senders:
+ Send clear and complete messages
+ Encode messages in symbols the receiver understands
+ Select a medium appropriate for the message and monitored by the receiver
+ Avoid filtering (holding back information) and distortion as the message passes through other workers
+ Ensure feedback mechanism is included in the message
+ Provide accurate information to avoid rumours.
Communication skills for managers as receivers:
+ Pay attention to what is sent as a message
+ Be a good listener : don’t interrupt. Ask questions to clarify your understanding
+ Be empathetic: try to understand what the sender feels
+ Understand linguistic styles: different people speak differently. Speed, tone, pausing all impact communication. This is particularly true across cultures. Managers should expect and plan for this.
Example: Twice a year Scott's Co. makers of the well-known lawn care products of the same name, holds large employee meetings to thank employees for their work, tell them the results of the firm's financial performance, and celebrate teamwork. The food is good and plentiful, there is music and entertainment, and a lot of information is shared. These meetings demonstrate top management's commitment to and informal and involved workforce.
Importance of Effective Communication
· Better clarification of ideas and concepts
· Improved ability to understand, persuade and work with superiors, peers and subordinates.
· Effective managing (accomplishing results with and through other people)
· Effective selling of a business plan to obtain approval, or finance or credit.
· Communicating clearly the goals of organisation to employees
· Handling difficult interpersonal conflict situation.
· Facilitating planning and decision making
· Facilitating coordination
· Improving superior-subordinate relationships
· Effective leading and motivating
Test Your Knowledge
& ___________ is defined as the process by which people attempt to share meaning.
& Effective communication is an art (True or False)
& The complexities of markets today have made business communication a simpler process (True or False)
& The _________ is the initiator of the communication process
& The transformation of information into a series of symbols for communication is called _________
& __________ is the process by which the receiver interprets the information received into meaningful information.
& Stimuli that confuse, disturb or interfere with the communication is called ________
& Barriers to communication include factors like differing perceptions, language difference, emotions etc (True or False)
& Communication that flows up or down according to the official line of authority in an organisation is called ___________
& _________ is a network of informal communication where it is very difficult to trace the origin and the direction of the message.
& Two examples of written channels of communication are _______ and _________.
& Facial expressions, gestures, body language, tone of voice etc are all examples of ______________ communication.
& Communication should be both effective and essential (True or False)
Topic 8: Motivation
What is Motivation
Ever since the beginning of time man has been trying to find newer and better ways of organizing things. This need for organizing things and even people arises due to the benefits that simplicity and systematization creates in the environment in which people exist. Such organizing efforts can also be seen in business organisations which continuously strive to achieve their goals and objectives through an effective management. Inorder to get things done through other people they have to be encouraged first. This encouragement, in other words, is known as Motivation.
The term "motivation" has been derived from the Latin word "movere" which means "to move". Motivation is a force which initiates behaviour, directs it and then leads to it's termination. It is a drive that directs a person's behavior towards the goals. Motivation arises when people's needs are raised to a certain level of intensity.
What is a Need
A need involves an organism wanting something. This goal can be an object from the environment or an inner condition of satisfaction. Thus needs can be :
· Biogenic (arising from physiological state. E.g. : hunger, thirst, air etc. ) or
· Psychogenic (arising from psychological state. E.g.: needs of esteem, association etc )
In the same manner the motivation that encourages a person to satisfy his needs may be
· Intrinsic (experienced or felt directly /internally by the individual) or
· Extrinsic (provided by an outside agent, such as a supervisor).
Thus a need can be defined as a generalized condition of desire or want which results in individual identifying a particular goal and directing his activities towards it's fulfillment. Needs are a complex concept of human behaviour. Different people have different needs and the strength of their common needs may also differ. These needs then motivate people in different manners.
The motivational cycle begins when a need is felt and the person is motivated to perform a behavior which is instrumental (helpful) in reaching the goal that he desires. After reaching the goal he experiences relief as the need is satisfied. The cycle starts again when the same or a new need is felt. E.g. Need for water. This process continues throughout our life and needs that remain unsatisfied continue to motivate a person until it gets satisfied or some other need replaces it.
Characteristics of Motivated Behaviour
· The motivated person becomes more active and seeks the goal vigorously
· The motivated person becomes more focused on the goal or it's activity
· Stronger motivation leads to more persistent behaviour
· The motivated person tried creative approaches to achieve the desired goal.
Theories of Motivation
There are a number of theories that explain the various needs that motivate people. These also help understand what could managers do to motivate their staff.
F.W. Taylor in his ideas on scientific management proposed that employee's work should be divided and subdivided and this will help them become more efficient. By being more productive they could get more pay and that would be strong enough to motivate them to work better. Thus he highlighted people's needs for money.
Example: Owner Don Miller of the $50+ million Roppe Corporation wanted to encourage his workers to do better than their average of 75 % of quotas. So, he offered a novel incentive. On any day you hit a new quota, 10 % higher than the old, he would pay 10 percent more and let them go home early. Productivity in the plant increased and Miller has since negotiated new quotas as more efficient technologies are installed.
Elton Mayo based his principles on the idea that 'man is a social animal'. He highlighted the fact that everyone has a need to be a part of a group, to be associated with others and to live and work in an interactive social environment. Thus to motivate employees they should be made to feel useful and important.
McGregor suggested two theories of motivation. According to Theory X people are naturally lazy and dislike work and inorder to make them work properly they need to be forced or 'pushed'. On the other hand Theory Y assumes that employees are hard working, creative and are committed to reaching their goals. It is only that the manager should create favorable working conditions and 'pull' them towards their job. McGregor's theory highlights the needs of people to be given clear orders or instructions, their needs to be led by someone else.
Theory X (Push) : "Work is a necessary evil "
Theory Y (Pull) : "Work is a blessing which people seek"
Theory X Assumptions :
· The average employee dislikes work and will try to avoid it.
· Most people need to be coerced , controlled, directed, and threatened with punishment to get them to work towards organizational goals.
· The average employee wants to be directed, shuns responsibility, has little ambition, and seeks security above all.
Theory Y Assumptions:
· Most people do not inherently dislike work, the physical and mental effort involved is as natural as play or rest.
· People will exercise self-direction and self-control to reach goals to which they are committed; external control and threat of punishment are not the only means of ensuring effort towards goals.
· Commitment to goals is a function of the rewards available, particularly rewards that satisfy esteem and self- actualization needs.
· When conditions are favourable, the average person learns not only to accept but also to seek responsibility.
· Many people have the capacity to exercise a high degree of creativity and innovation in solving organizational problems.
· The intellectual potential of most individuals is only partially utilized in most organizations.
Freud suggested that people's personality characteristics also shape their motivation. He highlighted the fact that people's 'real' needs may be largely hidden and it is these hidden needs that determines a person's motivation.
Abraham Maslow suggested a 5 level hierarchy of needs. People first try to satisfy their basic needs and having satisfied those needs they then move on the next higher level of need. Once a need is satisfied it is no longer powerful enough to motivate a person.
Clayton Alderfer's ERG Theory: Unlike Maslow, Alderfer broke down needs into just three categories:
"E"xistence needs: physiological needs like food, clothing, shelter, air, water
"R"elatedness needs: needs for interpersonal relations as a member of work groups and in society
"G"rowth needs: needs for personal creativity and the utilization of one's fullest potential.
Alderfer suggested that when higher needs are frustrated, people return back to the lower needs. For example, when people's needs for growth are not satisfied and the organisation is thinking laying-off employees, then the employees become more concerned about the safety and security of their job or even their very existence
John W. Atkinson in his Three Need Theory proposed that people are motivated by 3 basic needs:
Need for achievement : the need to have adequate responsibility and to be able to achieve something worthwhile
Need for affiliation: the need to be accepted by others and to have friends and interaction with others.
Need for power: the need to be able to compete with others and to influence others. Various forms of power.
Herzberg's Two Factor Theory. According to this theory there are certain Hygiene factors like company policy, working conditions etc which do not motivate people but can make people feel dissatisfied if these are not adequate. While the Motivators, such as recognition in work, responsibility and advancement opportunities make the job both satisfying and motivating for most people.
Influenced by job context or hygiene factors
· Working conditions
· Interpersonal relations
· Organizational policies
· Quality of supervision
· Base wage or salary
Rule: Poor job context increases dissatisfaction
Influenced by job content or motivator factors
· Sense of achievement
· Feelings of recognition
· Sense of responsibility
· Feelings of personal growth
· Opportunity for advancement
Rule: Good job content increases satisfaction
Herzberg's two-factor theory
Equity Theory compares people's perception about the equality of their efforts (inputs) with that of the rewards (outputs) that they receive. People need to feel that they are being properly rewarded. Such comparisons arise between a person's effort and rewards and also between different people working in the same organisation or in different organisations. Only an adequate or overcompensation can motivate a person as his needs of equality are satisfied.
Input > Reward Dissatisfied :-(
Input = Reward Satisfied :-|
Input < Reward Delighted :-)
B.F. Skinner's Reinforcement Theory. According to this theory people's future behaviour can be modified depending on the responses and the consequences that he receives for a particular behaviour done in the present. A positive behavior can be encouraged through positive reinforcement and a negative behavior can be discouraged or stopped through negative reinforcements or even punishments. For example, motivating a person to do better in the future by praising him or by promoting him and discouraging his late arrivals at work by suspending him for a week.
Stimulus Response Consequence Future Response
Managers may use this theory in the following four ways:
1. Positive reinforcement: the use of positive consequences to encourage desirable behaviour . E.g. salary raise or praise.
2. Avoidance Learning (Negative reinforcement): learning that occurs when individuals change behaviour to avoid or escape unpleasant circumstances like criticism
3. Extinction: the absence of reinforcement for undesirable behaviour so that the behaviour eventually stops recurring. Example: a manager who observes that a disruptive employee is receiving social approval from coworkers may counsel the coworkers to stop giving this approval.
4. Punishments: the application of negative consequences to stop or correct improper behaviour E.g. fines for late entry, dismissals etc.
Earley and Shalley's Goal Setting Theory
Establish a standard
Can standard be achieved
Does standard match personal goals
Standard is accepted, goal is set, employees work towards achieving the goal.
Example: Workers at Rocky Shoes and Boots in Ohio know the goals. A goal clock prominently displays actual performance versus the daily goal for the factory's production of shoes and boots. With new modular technologies and a focus on teams, plant efficiency and profitability has continuously increased.
Effective Use of Motivation
Thus we can see that there are various needs that explain the reason and the intensity of people's motivation. It should be the duty of the managers to ensure that these diverse needs are identified and that they are satisfied through the use of various motivation techniques. Inorder to motivate their employees management should first of all recognize their individual differences, match them to the right jobs, set various targets and goals, ensure that employees perceive the goals as attainable, devise various rewards plans which link their performance with the rewards in an equitable manner reward them for their superior performances.
In the modern materialistic world, businesses should ensure that their employees are handsomely rewarded to keep them motivated. Various compensation programs such as Pay for Performance, Incentive Compensation Schemes (bonus pay, profit-sharing, gain sharing, employee stock ownership programs) etc may be implemented to motivate employees monetarily.
Example: There is a concern for example that the pay of CEOs isn't adequately linked to performance. Apple Computers, for example, reportedly lost $2 billion during Gilbert Amelio's 17 month tenure as CEO. When he was ousted by the board he took away $2 million in salary and bonus for a year plus a $6.7 million severance package.
At the same time, however, it should be realized that there are a range of other needs that can motivate people and these should be considered by management too. These may involve various factors about the job itself such as the job design, job simplification, job rotation, job enlargement, job enrichment etc. Only the successful identification and satisfaction of all needs can ensure that employees are motivated towards the continued growth and success of the organisation.
Example: Marriott Hotels's customer service associates program redefined the job of a doorman into that of a "guest service associate" This new role was described by one worker as "a bellman, a doorman, a front desk clerk all rolled into one. I have more responsibilities. I feel better about my job, and the guests get better service". The new job's multiple tasks all focus on a common result- quality customer service.
Today companies have traditional and not so traditional ways to motivate and reward employees.
Example: At Hewlett Packard an employee came to his manager with the solution to a problem that a group had struggled with for weeks. The manager fumbled around in his desk for something to give as a "reward" and finally handed him a banana from his lunch, exclaiming, "Well done!". Now the Golden Banana Award has become one of the company's most prestigious honors for inventiveness.
At Lionel Trains Inc., a marching band came into the plant and led the way to a party for exceptional employees.
Mobil, Toyota and Nabisco send outstanding employees on a "shopping spree" in which they have to fill a warehouse cart.
At Silicon Graphics, employees can receive "spirit" awards for things like "encouraging creativity" and "seeking solutions rather than blame". Fifty awards are given annually. Winners get trips to Hawaii for two and a year long appointment to the management advisory group.
IBM, Monsanto and Nikon give outstanding employees Star Certificates which declare their ownership of an actual star with a sky chart and verification record…now that’s some way to reward your "star" performers!
Test Your Knowledge
& _____________ is a force which initiates behaviour, directs it and then leads to it's termination.
& Motivation does not go into a person's performance (True or False)
& Needs may be _______ or _____________.
& An _________reward is felt directly by an individual.
& A __________reward is provided by some outside agent, such as a supervisor.
& Behaviour that helps in reaching the desired goal is called ___________ behaviour.
& After a person reaches a goal he experiences satisfaction (True or False)
& Elton Mayo highlighted people's _______ needs.
& "Motivate through money". This was an idea primarily suggested by ________ in his ____________theory.
& The theory that explains the job satisfaction/dissatisfaction arising from two different sets of factors is the ____________theory
& The theory of motivation which states that people are motivated to meet needs as arranged in a hierarchy. (Name the theory)
& The Equity theory explains the relationship between ________ and _________.
& The top most level of need as highlighted in the need hierarchy is _______________.
& Clayton Alderfer broke down needs into three categories namely _______, _________ and ___________.
& Theory _____ assumes that people are inherently motivated to work.
& Punishment is the application of negative consequences to stop or correct improper behaviour (True or False)
& Motivation techniques may be ___________ or ____________
& Managers can utilize motivation to arrange job relationships in an organisation (True or False).
Topic 9: Teamwork
Teamwork in Management
Ever since time memorial man has been trying to find newer and better ways of organizing things. This need for organizing things and even people arises due to the benefits that simplicity and systematization creates in the environment. Such organizing efforts can also be seen in business organisation which continuously strive to achieve their goals and objectives through an effective management. Management is an art and it comprises of various functions like planning, organizing, leading and controlling. Inorder to carry out all the above functions, managers often make use of a way of grouping people into small units which are called Teams.
What is a Team
A team is defined as two or more people who interact and influence each other towards a common purpose. Organisations function with a common goal in mind and there should be a unity of direction and efforts of the people working in an organisation. Inorder to promote this unity and to create a synergy in the organisation, employee's social needs are understood and their needs for affiliation are satisfied by the formation of various types of teams in the organisation.
Types of Teams
Teams can be broadly classified into Formal and Informal Teams
Formal Teams are deliberately created by managers charged with carrying out special tasks. These types of teams are created based on the formal organisation structure and are formed to achieve the organization's goals and objectives. A formal team can be of three different types.
1. Command Teams comprises of a manager and all employees reporting to that manager. For example, a marketing manager and all his subordinates working under him are collectively called a command team as they have a command over the marketing department.
2. Committees are a formal organisational team, which are usually relatively long lived and which deal with specific problems and decisions. For example, it can often be seen in organisation that an employee grievance committee is formed to look into employee's complaints and problems and to devise solutions for those problems.
3. Task Forces (Project Teams) are created to deal with a specific problems in case of emergencies or changes in an organization. For example, if an organisation plans to set up a branch in a foreign location, then they might set up a project team to look into the various aspects of the foreign location and this team will then suggest to the management the right strategy for setting up the foreign branch.
Informal Teams emerge when people come together and interact regularly. The need for such team arises as a result of employees social needs and needs of belongingness. Such teams strengthen norms and values that members hold in common. It gives members a feeling of social security, status and satisfaction. Helps members communicate more freely and thus solve problems. An informal team can be of two different types.
1. Interest Groups (E.g. Hobby, Sports ) are formed to facilitate employees pursuits of common concern
2. Friendship Groups (E.g. On Picnics) are formed to meet employees social needs of association.
Self Managed Teams : Super teams are teams that manage themselves . The whole team takes the responsibility of achieving the "complete task at hand". Members possess a variety of skills and they themselves decide their goals, schedules and methods of performance. Moreover the performance of the whole team forms the basis for compensation and feedback.
Stages of Team Development
The process of team development takes place through a series of steps which are as follows:
1. Forming: During this stage the members of the group get to know one another and various rules and regulations are set about the general beahvioural patterns within the team. The team members tend to interact informally in the beginning so that they get acquainted and understand their own initial position vis-à-vis others in the same team and other teams as well. Moreover, the importance of their group goals is highlighted so that the team remain cohesive towards the achievement of the group goals.
2. Storming: During this stage some members oppose the structure of the team and may even protest against the rules and regulations set during the forming stage. Some members disagree with other members in the team due to conflicts arising out of various reasons like conflicts in the roles assigned, conflicts in the power structures or even conflicts arising out of personality disputes. During this stages it is quite possible that some members may form their own 'in-group' within the team. It is therefore essential that conflicts or any misunderstandings are resolved at this stage itself and that they are not allowed to escalate further.
3. Norming: The conflicts and differences are then sorted out and after negotiation with other members acceptable rules and standards are set. Having accepted the negotiated rules everyone in the team now becomes more comfortable and speaks more confidently thus developing close and strong relationships. It should however be noted that it is not merely the development of trustworthy relations that is important in a team. A team is set with a particular purpose in mind and it can be achieved only when the team actually starts performing.
4. Performing: Members are now ready to direct their efforts towards the achievement of group goals and each member in the team becomes a valuable asset for the total performance of the team. It should be remembered that even during this stage, conflicts may arise between the team members but the conflict at this stage is positive and functional. It helps the team members work towards the achievement of their goals in a
more creative manner. Members learn to understand each other's view point more openly and constructive feedback is provided about each team member's performance.
5. Adjourning: Finally, after the teams goals are reached they wrap up all activities and then the group ceases to exist. This may lead to feelings of joy (as the goals are achieved ) or feelings of depression (as the members are now no more part of that same team ). However, it should be understood that some teams are set up for a very small period of time while others are set up for an indefinite period and though the members might change the team may exist throughout the life of the organization. It should be remembered that the team should acknowledge their end results. After monitoring the results the team should try to find out the causes of the errors (if any) or should celebrate their achievements.
Why use Teams
· Organisations use various forms and types of teams as it helps promote the feelings of unity and promotes cohesiveness within the group.
· By working upon a certain specific issue teams can give their best to the task at hand and this way managers can allocate different decisions to different teams thus promoting efficiency and effectiveness.
· As a team may comprise of members from different backgrounds (age, gender, qualifications, culture, education etc. ) they tend to look at the same issue with varying angles of perception and this brings creativity to the solution of problems.
· The combination of two or more individuals in a team helps bring about synergy.
Example: At Boeing Company, technology and people are keys to the development of the new 777. Designs for the 777 airplane utilize the latest computer assisted techniques and are largely paperless. Engineers work out problems on powerful computers, including all the coordinating details of over 130,000 engineered parts and more than 3 million rivets, screws, and fasteners. But technology doesn’t stand alone, people count too. Engineers work in a team structure where cross-functional "design-build" teams include representatives from all areas, whose contributions are essential. Design and manufacturing problems are to be solved by the teams before production starts. Each team is thought of as little companies who have individual cost and performance targets.
Characteristics of Effective Teams
Inorder to be effective a team should have the following characteristics :
· Clear understanding of the team goals, what is to be accomplished by each member and how.
· Inorder to achieve the goals smoothly the team members should comprise of members who have the relevant skills. The skills should not only be technical or professional but also interpersonal, social and communication skills.
· The team members should have trust in themselves and also between themselves. Only a mutual trust can help them to remain strongly unified.
· Conflict is not suppressed. Team members should be allowed to express negative feelings and confrontation within the team which is managed and dealt with by team members. Dealing with and managing conflict is seen as a way to improve team performance.
· Each member of the team should be committed to achieving the group goals.
· There should be good communication between every member and every member should be given an opportunity to voice their concerns, ideas, suggestions etc. There should be cohesiveness in a team.
· The team should also be supported by other teams to have the right coordination and moreover all the teams should be integrated by the organization's management.
· Every team should also have an appropriate leader and he/she should guide the team using the right style of leadership.
Example: Enthusiasm and high-performance norms rule the day at Motorola's Penang, Malaysia, operation. A team spirit rallies the plant's workers who in one year alone submitted 41,000 suggestions for improvement and saved the firm some $2 million. Now Motorola is trying to import the Malaysian team spirit to it's Florida operation. New applicants are carefully screened for their attitudes towards teamwork. A quality team at the Florida plant suggested ways to streamline workflow and increased output by 150 %.
One of the most important area where management's attention is required is towards the management of conflict that takes place both within a team and between teams. Conflict, if unchecked can create a lot of damage to the performance of the team. However, not all types of conflict is harmful. Infact if there is no conflict or competition between the teams then the teams performance may actually be lower. It is the job of the management and the team leaders to utilize this conflict in a creative manner and use it towards the betterment of the group.
Future Growth of Teams
The development of teams play a very important role in the successful management of staff in an organisation. Teams when utilized constructively can be used to promote creativity and unity in an organisation and can help in the development of the entire organization's cohesiveness. Team members then start viewing themselves less as individuals and more as part of the entire group. It should be remembered that the formation of teams may result in conflicts at times as people are bound to clash due to communication, structural or even personality differences. However, such conflicts are normal in any team and it is the job of the manager to ensure that conflict is used positively and that it does not obstruct the team's performance.
Today, teamwork is being promoted in most organisations because they permit faster decision making and facilitate cultural diversity in the workplace. The growth of virtual teams, where members work together and solve problems through computer based interactions, has made newer accomplishments possible. Managing teams effectively involves all the managerial functions of planning, organizing, leading and controlling. Planning issues for teams include having clear goals. Organizing issues include clarification of authority and structural relationships. Leading issues include what role the leader will play and controlling issues involve appraisal and reward system for the team. Only such an integrated approach can help management ensure their organization's continued mastery through the successful use of teams.
Test Your Knowledge
& A _____ is defined as two or more people who interact and influence each other towards a common purpose or goal.
& Teams may be broadly classified into __________ and ____________.
& A _________ team is created based on the formal organisation structure.
& A finance manager and all his subordinates taken collectively is an example of a ______ team.
& A _______ is created to address a specific problem that an organisation faces.
& Informal teams are created because of people's social needs (True or False)
& Two types of informal teams are ________ and ________
& Members of a _________ team possess a variety of skills.
& Self-managed teams may not necessarily require a __________
& Forming is the first stage in the development of teams (True or False)
& Conflicts and differences in a team are settled in the _________ stage of development.
& Teams help promote ________ and _________ in an organisation.
& The combination of two or more individuals as a team helps bring _______ in an organisation.
& All types of conflicts should be suppressed in a team (True or False)
& Expectations about how members will perform are called ______
& In _______ teams members work together and solve problems through computer based interactions.
& There should be cohesiveness within teams and not between teams (True or False)
Topic 10: Controlling
What is Controlling
In controlling , managers evaluate how well the organization is achieving it's goals and takes corrective action to improve performance. Managers monitor individuals, departments, and the organization to determine if desired performance has been reached. Managers also take corrective action to increase performance as required. The outcome of the controlling function is accurate measurement of performance and regulation of efficiency and effectiveness. Thus controlling may be defined as the process of ensuring that the actual activities conform to the planned activities.
Why is Control Needed ?
· To create better quality of people, products and processes
· To cope with changes, both internal and external
· To create faster cycles of production, leading to greater efficiency and effectiveness.
· To facilitate delegation and teamwork
· To add value
Example: General Electric found that leaders must make extra efforts to push new quality programs. They tell employees that quality is critical to survival, you have to demand everybody gets trained, you have to cheerlead, you have to have incentive systems, you have to say 'We must do this'.
The Control Process
The first step in the control process is the setting up of standards of performance. The standards should be set in measurable terms such as in terms of physical units produced, costs, profit, time etc.
The second step requires the measurement of the work actually done and the result achieved. Measurement of performance should be done in the same units as the set standards to make the comparison easier. However, measurement of performance at the higher levels of management becomes difficult as the results achieved cannot be so easily apportioned to the
different tasks. Measurement of the actual performance may be at periodic intervals - weekly, monthly, quarterly or yearly.
After measuring the performance we have to find out if there are any deviations, and moreover we also need to find out what the causes of these deviations are. These can be found out through a detailed analysis.
The purpose of controlling is not merely to find out the causes of the deviations but also to adopt various remedial measures. Where the deviations cannot be rectified through managerial actions, the standards set may have to be revised to make them more realistic.
It should also be remembered that controlling should take place at all stages of the work process. Thus control can be more effective and timely when it is use before the process, during the process and after the work process. Moreover, controlling is not merely a function covering the blue collar workers, it is applicable even to review the performances of the management and at all types of organisations.
Example: Continuous improvement is the theme of the US Army's After Action Review program. Exercises are videotaped and monitored by trained observer controllers. The results are peer reviewed, with participants commenting on one another's performances and the observer-controllers giving immediate feedback.
Techniques of Managerial Control
Various techniques are used by management to control the diverse activities of the organization. Some of these techniques include:
· Statistical control reports : using averages, correlation etc. for example average daily/monthly sales, employee turnover etc.
· Break even point analysis : to anticipate the profit (loss) at various levels of production and sales.
· Special control reports to monitor the performance in a particular area like handling of customer complaints.
· Gantt milestone chart to check the production schedule at different levels.
· Programme Evaluation and Review Technique (PERT)
· Critical Path Method
· Cost Control
· Management Accounting
· Production Control
· Quality Control
· Budgetary Control
Managerial decisions frequently have implications for a number of functions of a business. It is very important for managers to co-ordinate these interrelated aspects of decision making. One way for managers to co-ordinate their activities is to prepare detailed and explicit plans
of action for specific future periods. These plans are referred to as Budgets and the co-ordinating activity is usually termed as Budgetary Control. Thus budgets may be defined as a formal quantitative statement of resources allocated for planned activities over stipulated periods of time.
A budget is prepared for a definite future period which is defined well in advance. The period selected may be short or long range depending on various factors such as the life cycle of the firm’s products, the type of customers, the stability of demand for the firm’s products,
In many organisations budget help frame an entire programme covering all operations of the enterprise. Many individual budgets are developed in different departments and subsequently integrated into one master budget. As the size of the organisation increases, the need for budget also becomes more.
Types of Business Budgets
Within the purview and framework of the master budget or the general budget of the firm, a number of sub-budgets for different business operations are prepared. Functional budgets may include the following:
· Sales Budget including Selling and Distribution Cost Budget
· Production Budget which consists of :
Raw Materials Budget
Manufacturing Overhead Budget
· Personnel Budget
· Plant Utilization Budget
· Administration Cost Budget
· Capital Expenditure Budget
· Research and Development Cost Budget
· Cost Budget
Such functional budgets are first developed for integrating them into a master budget. The nature of the budgets depend primarily on the nature of the activities of the enterprise and the purposes which the budgets are intended to serve. While some organisations follow the Incremental Budgeting approach, others follow the Zero Based Budget approach. Both these approaches have their advantages and disadvantages and therefore some organisations adopt the Priority Incremental Budget System, which represents an economical compromise between Zero Based Budgeting and the Incremental Budgeting approach. For the actual preparation of the budget a budget committee is usually formed, comprising a representative from all departments, chaired almost inevitably by the chief executive.
Uses of Budgets and Budgetary Control
· Helps in planning and controlling of the organization's various departments and activities.
· Helps in using resources economically
· Helps in evaluating performance as the actual performance can be compared with the standards as in the budgets
· It provides a challenge to employees and thereby motivates them to meet the standards set.
· It makes the implementation of various strategies very smooth as every task is clearly decided in advance.
Features of a Good Control System
1. Appropriate : a control system should be appropriate to suit the requirements of the organisations depending on the scale of operations, size of the organisation, activity etc.
2. Economical: the costs of setting up a control system should not exceed the benefits derived from it.
3. Simple: the system should be simple enough to be understood by managers and workers alike. The set standards and the performance reports should be straight forward.
4. Objective: there should be very little scope for personal bias or partiality in the control system.
5. Flexible: it should be flexible enough to be changed and adjusted according to the changing requirements of the organisation.
6. Concentration on exceptions: the control system should focus on deviations that require action, any negligible differences should not be concentrated upon by the management as they can utilize their precious time on other serious and important matters.
Example: At Bell Atlantic senior level executives are appointed to specifically monitor corporate performance on the top 20 to 30 priorities. In this way, objectives are revisited, results analyzed, new conditions taken into account, and plans and activities adjusted to maximize performance. Such an independent review helps to ensure that the control process operates even at the highest levels of the organisation.
Test Your Knowledge
& Controlling is the process of ensuring that the actual activities conform to the planned activities (True or False)
& The first step in the control process is establishing ______________.
& A good control system helps deal with changes in the external environment (True or False)
& When the deviations are too high or low the _____________ may have to be re-set.
& Controlling may be carried out __________, ___________ and _______ the work process.
& Two techniques of managerial control are __________ and _____________.
& A _______ is a formal quantitative statement of resource allocations for planned activities during a period of time.
& A good control system should be simple enough to be understood by all. (True or False)
& A control system is said to be ____________ when it suits the requirements of the organisation.
& A good control does not allow any flexibility (True or False)
& Controlling helps evaluate the effectiveness of various other management functions (True or False)
Topic 11: Globalization
History of Globalization
Individuals and nation states have involved themselves in international trade ever since the first national borders were formed. International business consists of transactions that are carried out across national borders, to satisfy the objectives of the individuals and the organisations. The wave of internationalization of the economic activities was much enhanced by the onset and diffusion of industrialization, in Europe, from the 18th century onwards. Today the national boundaries of the country no longer act as water tight containers. We are moving away from a market in which each national market is a distinct entity, isolated from each other by barriers of trade, barriers of distance, time and culture and towards a system in which national markets are merging into one huge global marketplace.
Example: Even with it's long history of international involvement - Henry Ford had a sales branch in France by 1908 and a manufacturing facility in England by 1911 - the company is still learning how to master the challenges of global operations. The company is globalizing product development, purchasing, sales, and manufacturing through multifunctional teams staffed from around the world to develop new cars and trucks as the firm strives to become a true global player.
Meaning of Globalization
Economic activity is not only becoming more internationalized but it is increasingly becoming globalizes. Globalization is a complex and advanced form of internationalization which implies a degree of functional integration between internationally dispersed economic activities. It is the recognition by organisations that businesses must have a global and not a local focus. To survive gallantly in this ‘global village’ firms need to co-ordinate their marketing activities within the social, cultural, political, economic, technological, and legal constraints of the global environment. When going abroad organisations have to face a variety of stimuli in the external environment which differ from nation to nation. A key concern of international marketing strategist, therefore, is to decide the market entry strategies that it must adopt to meet the ‘global customer’ needs better than the competitors.
Market Entry Strategies
Successful market entry strategy is built on the pre-requisite of a systematic ‘environmental scanning’ of both the macro and the micro variables involved in a foreign market opportunity. A market entry is not an end in itself but is a means to an end. A variety of motivations can push and pull firms along the international path. Some of the major motivations that have been found to make firms go international are given below:
· To seek a profit advantage by exploiting the opportunities available in other countries.
· To market a unique product that the firm may have developed.
· To make use of the technological advantages that a country may possess.
· To make use of the exclusive information about the country's demand situation, people's buying habits, market scenario etc that the firm may have gathered through it's own research.
· To make use of the tax benefits that a country may offer, especially in free trade zones.
· To produce more goods at a lower price through the economies of scale.
· To overcome the competitive pressures from rival firms who have already gone international or have come in the domestic market from abroad.
· To maintain the declining profit and sales level due to low domestic demand.
Before selecting a market entry mode organisations have to consider a range of criteria such as:
· The company goals in terms of volumes of international business, geographical coverage, international market share, profitability etc.
· Costs: Organisations have to consider indirect costs such as freight charges, costs of strikes, disruptions to output, as well as the costs of doing nothing which may be higher than the attendant risk of moving into a relatively unknown market
· The level of flexibility required.
· The variety of risks associated with the entry mode.
· The investment payback period.
· The speed of market entry desired.
· The managerial commitment.
· The organization's product line and the nature of the products.
· The intensity of competition abroad.
Example: "Going global" as a business enterprise often means adapting products to fit local needs around the world. When Whirlpool Corporation set out to develop convinced the product development team that uniformity wouldn’t work. Differences between countries in customs, costs, and available materials made it impractical. The team therefore chose a flexible design for a lightweight, low-cost washer and preferences. It is manufactured in the country where it is to be sold by companies that are Whirlpool affiliates or joint venture partners.
Modes of International Market Entry
A firm may decided to go international in one or more of the following ways. Often, a firm may enter the international market in one mode and after getting a strong foothold may change the way in which it's mode of international presence in the country. Some of the important modes of international market entry are:
· Exporting: the selling of domestically produced goods in foreign markets. Exporting may be direct or indirect (through an agent)
Example: Direct - Komatsu exporting earth-moving machines to the US
Indirect - Jaguar appointed Inchcape, a UK based services and industrial marketing group as its importer/ distributor for China.
· Licensing: the selling of rights to market brand name products or to use patented processes or copyrighted materials.
Example: Sanofi, a French pharmaceutical company appointed Bristol-Myers Squibb to market the drug, Plavix in the US. Johnson's baby soap is made by Soap and
Chemicals Industrial And Trading Co. (SCITRA) Shj, under license from Johnson and Johnson, UK.
· Franchise: an arrangement in which a company sells a "package" of support containing a trademark, equipment, material and managerial guidelines.
Example: Firms like McDonald's, KFC, and others sell facility designs, equipment, product ingredients, and management systems to foreign investors while retaining certain product and operating controls.
· Joint venture: a business undertaking in which foreign and domestic companies share the costs of establishing operations.
Example: The collaboration between Caterpillar of the US and Mitsubishi Heavy Industries of Japan
· Contract manufacturing: an arrangement under which the principal company gives a foreign company a contract to manufacture a product(s) under the principal company's brand name.
Example: Chrysler has a contract manufacturing agreement with Dailmer - Puch, an Austrian group, to build its Jeep Cherokee model at an yearly volume of 47,000.
· Assembly: a business operation under which various parts of the component are brought together at the foreign unit and assembled to make the final product.
Example: Daewoo , the motor vehicle manufacturer of Korea has an assembly operation in Vietnam.
· Wholly owned local production: a local operation completely owned by the foreign firm where the complete production of the product takes place.
Example: In 1982, Honda became the first Japanese car manufacturer to set up production in the US.
· Acquisitions: a transaction in which a firm acquires all or part of the assets, business, stock, or other securities of the selling company, there by gaining operational control of a part or all of the acquired firm
Example: Reckitt and Coleman of the UK buying L&F Household from Eastman Kodak to compete with Procter and Gamble.
· Strategic Alliances: alliances formed by organisations generally with an aim of exploiting opportunities in research and development or towards achieving leadership in supply.
Example: General Mills of the US entered into a global alliance with Nestle of Switzerland to form Cereal Partners Worldwide, owned equally by both companies.
Growth of Globalization
Thus we can see that globalizations has reduced the cultural differences between consumers and producers and is now bringing convergence of consumer tastes and preferences. Formerly protected markets have opened their doors in the form of economic integration like
EU and NAFTA. Global communication networks and global media such as CNN, BBC and MTV and the growth of global products like Sony Walkman, McDonald etc are creating a worldwide culture. The IT revolution has also brought new challenges and opportunities by making the world a highly connected web and thus increasing the real proximity between countries. Even though, globalization today has become more complex and competitive it still offers the international manager various new possibilities that will continue to test them anew throughout the continued years of the new millenium.
Test Your Knowledge
& ____________ is the recognition by organizations that businesses must have a global and not a local focus.
& When firm go international they have to face a variety of external environmental stimuli which differ from nation to nation (True or False)
& Two reasons because of which firms go international are ______________ and ____________.
& A firm can decide any mode of international market entry without considering any factors (True or False)
& Exporting may be ___________ or ___________
& ___________ is the selling of rights to market branded products or to use patented processes or copyrighted materials.
& An example of franchise operations can be seen in the fast food industry firms KFC, McDonald's etc. (True or False)
& An _____________ is a transaction in which a firm acquires all or part of the assets of another company.
& Strategic alliances may lead to exploitation of consumers (True or False)
& Any three factors that a firm may consider in the foreign market while going international are __________, ____________ and ____________
& Two examples of economic integration that can be seen in the world today are ________ and ____________.
1. Introduction: True, F.W Taylor, Managers, True, False, Planning, Organizing, Leading, True, Co-ordination, Top, middle and lower, Efficiency, Effectiveness, False, Technical
2. Management Theories: Theory, True, Scientific Management, Henry Gantt, True, Classical management, F.W.Taylor, Bureaucracy, Max Weber-Mary Parker Follett-Chester Bernard, Behavioural, True, Elton Mayo, Abraham Maslow, X, Y, Quantitative, Feedback, Synergy, Contingency
3. Organisation's Environment: Environment, External and Internal, True, Indirect Action Elements, Social, False, Wage levels-Inflation-Fiscal policy, Global forces, Opportunity-Threat, True, Stakeholders, Employees-Shareholders, External, True, Natural
4. Planning: Planning, False, Objectives, Corporate-Business-Functional, Planning and Decision Making, Strategic Plan, False, Single Use Plans, Standing Plans, Policies, False, True, Decision Making, Risk, Programmed and Non-programmed, True, Mission, Strategies, False,
5. Organizing: Organizing, Organization Structure, True, Organizational Design, Division of Work, Departmentalization, Functional-Divisional and Matrix, Product-Matket and Customers, Multiple Command System, Hierarchy, Span of Control, Wide-Tall, True, Centralization, Coordination,
6. Leading: Leading, Respect-Trust, Power, Power, Legitimate-Reward and Coercive, Expert Power, Trait, Physical characteristics, Personality characteristics and Social factors, Behavioural, Autocratic, Democratic, Laissez faire, Contingency, False, Transformational, False, True
7. Communication: Communication, True, False, Sender, Encoding, Decoding, Nosie, True, Formal, Grapevine, Letters and notices, Non-verbal, True
8. Motivation: Motivation, False, Biogenic or Psychogenic, Intrinsic, Extrinsic, Instrumental, True, Social, F.W.Taylor-Scientific Management, Herzberg's Two Factor Theory, Abraham Maslow's Hierarchy of Needs, Effort and Reward, Self-actualisation, Existence-Relatedness and Growth, Y, True, Monetary or Non-monetary, True
9. Teamwork: Team, Formal and Informal, Formal, Command, Committee, True, Interest groups and Friendship groups, Self managed team, Leader, True, Norming, Unity and Creativity, Synergy, False, Norms, Virtual, False
10. Controlling: True, Standards, True, Standards set, Before-During and After, Break even analysis and PERT, Budget, True, Appropriate, False, True,
11. Globalisation: Globalisation, True, Profit advantage and Economies of scale, False, Direct or Indirect, Licensing, True, Acquisition, True, Costs-Risks and Competition, NAFTA and EU,