Mtp-notes

LSC LONDON SCHOOL OF COMMERCE

MANAGEMENT THEORY & PRACTICE

Courtesy Stephen P. Robbins

1

Lecture Breakdown Lecture Contents Number 1 Introduction: Organisation, Managers, management. • Management functions and processes. • Historical background of management. Scientific management. General administrative theorists, Quantitative approach to management.

Resources Lecture notes Chapter 1 and 2, Reference book 1.

Review and issues for Discussion

2

Organisational culture and environment: What is • organisational culture? Strong versus weak culture. The • source of culture, how employees learn culture, influence of culture on management practice.

Lecture notes Chapter 3, Reference book 1.

Review and issues for Discussion

3

Global environment: Understanding the environment, how to go global and managing in a environment. Social responsibility and managerial ethics: responsibility and economic performance. Values management. “Greening” of management.

global • global • Social based

Lecture notes Chapter 4 and 5, Reference book 1.

Review and issues for Discussion

4

Planning: The decision making process, the manager as a • decision maker. What is planning? Strategic versus • operational plan, Short term versus long term plan. Review and issues for Discussion

5

Strategic management: Importance of strategic • management. Strategic management process. Levels of • strategy. Review and issues for Discussion

6

Organising: Definition of organisational structure. • Organisational design decisions. Common organisational • designs. Human resource management: HRM process.

Lecture notes Chapter 6 and 7, Reference book 1. Lecture notes Chapter 8 and 9, Reference book 1. Lecture notes Chapter 10 and 12, Reference book 1.

Review and issues for Discussion

2

Lecture Contents Number 7 Managing change and innovation: Forces of change. The • calm waters metaphor and the white water rapids metaphor. • Techniques for managing change. Contemporary issues in managing change. Stimulating innovation.

Resources Lecture notes Chapter 13, Reference book 1.

Review and issues for Discussion

8 9

Assignment Guidance and Discussion • Leading: Organisational behaviour. Attitudes, Personality, • perception and related theories. • Review and issues for Discussion

10

Understanding groups and teams: Group behaviour, • turning groups into effective teams. Developing and • managing effective teams. Review and issues for Discussion

11

Motivation: Theories of motivation. Designing motivating • jobs. Motivating diverse workforce. • Review and issues for Discussion

12

Leadership: Managers versus leaders. leadership. Conflict management skills.

Theories

of • •

Review and issues for Discussion

13

Controlling: The importance of control. The control • process. Operations and value chain management. Tools for • monitoring and measuring organisational performance. Review and issues for Discussion

14

Overall Revision

•

Classroom discussion Lecture notes Chapter 14, Reference book 1. Lecture notes Chapter 15, Reference book 1. Lecture notes Chapter 16, Reference book 1. Lecture notes Chapter 17, Reference book 1. Lecture notes Chapter 18, 19 and 20, Reference book 1. Classroom discussion

Reference Books: 1. Stephen P. Robbins and Mary Coulter: Management, 7th edition, Prentice Hall, 2002. 2. Gary Dessler: Management, Prentice Hall, 2002. 3. Samuel C. Certo: Modern Management, 8th edition, Prentice Hall, 2000.

3

ORGANISATION THEORY AND PRACTICE What is an organisation? Organisation is a deliberate arrangement of people to accomplish some specific purpose. • • •

Distinct purpose Deliberate structure Arrangement of people

Changing Organisation Today’s organisations are becoming more • • •

Open Flexible Responsive to changes

Traditional

Vs

New organisation

•

Stable

Dynamic

•

Inflexible

Flexible

•

Job focused

Skill focused

•

Individual oriented

Team oriented

•

Permanent jobs

Temporary jobs

•

Command oriented

Involvement oriented

•

Managers always make decisions

Employees participate in decision Making

•

Rule oriented

Customer oriented

•

Relatively homogeneous workforce Diverse workforce

•

Workdays defined as 9 to 5

Workdays have no time boundaries

•

Hierarchical relationships

Lateral & networked relationships

•

Work at organisational facility during specific hours

Work anywhere, anytime

4

POINTS FOR DISCUSSION 1. What are the three characteristics of organisations? 2. Why are managers important to an organisation’s success? 3. Why are organisations changing? Classification of managers

• First line managers: are the lowest levels of management. • • •

•

Supervisors in general Foreman in manufacturing Coach of a sports team

Middle managers: all levels of management between the supervisory level and the top level of the organisation • • • •

Department head Project leader Plant manager Dean

• Top managers: responsible for making organisation-wide decisions and establish policies and strategies • • • • •

Vice president President Managing director Chief executive officer Chairman

POINTS FOR DISCUSSION 1. How are managers distinct from non-managerial employees? 2. Why it is not always easy to determine exactly who the managers are in organisations? 3. Compare and contrast the three different levels of management.

MANAGEMENT Management: is the process of coordinating and integrating activities in order to complete them efficiently and effectively with and through other people.

• Efficiency: Doing things right – the relationship between inputs and outputs, the goal of which is to minimise resource costs. 5

• Effectiveness: Doing right things – goal attainment.

Management: Efficiency and Effectiveness

Efficiency (means)

Effectiveness (ends)

Resource usage

Goal attainment

High waste

Low waste

High attainment

Low attainment

Management strives for LOW resource waste (high efficiency) and HIGH goal attainment (high effectiveness)

POINTS FOR DISCUSSION 1. How is management a process? 2. Explain why efficiency and effectiveness are important to management. 3. Explain how efficiency and effectiveness are related.

Management functions and processes According to Henri Fayol the management functions are: • • • • •

Planning Organising Commanding Coordinating Controlling

The above functions are condensed into the following four: • • • •

Planning Organising Leading Controlling 6

Defining goals, establishing strategy, and developing sub plans to coordinate activities

Planning

Determining what needs to be done, how it will be done, and who is to do it.

Organising

Directing and motivating all involved people and resolving conflicts

Leading

Monitoring activities to ensure that they are accomplished as planned

Controlling

Achieving organisation’s goals

Henry Mintzberg’s Managerial Roles (late 1960s) Interpersonal Role

1. Figurehead: Symbolic head obliged to perform a number of routine duties of legal/social nature. Example: Greeting visitors, signing legal documents

2. Leader: Responsible for motivation, staffing, training, … Example: Activities involving subordinates.

3. Liaison: Maintaining outside contacts which provide favours and information. Example: External board work, government and other agencies, … Informational Role

1. Monitor: Seeks and receives wide variety of special information to develop through understanding of organisation & environment. Nerve centre of internal and external information. Example: Monitoring the environment for information.

2. Disseminator: Transmits information received to members of the organisation. Example: Holding informational meetings. 7

3. Spokesperson: Representing the organisation to outside agencies. Example: Holding board meetings, giving information to media, … Decisional Role

1. Entrepreneur: Searching organisation and environment for opportunities and initiates improvement projects to bring in changes. Example: Organising strategy and review sessions to develop new programs.

2. Disturbance Handler: Responsible for corrective action when organisation faces important, unexpected disturbances. Example: Disturbance and crises management.

3. Resource Allocator: Allocation of organisational resources of all kinds. Example: Scheduling, budgeting, …

4. Negotiator: Responsible for representing the organisation at major negotiations. Example: Participating in union contract negotiations, …

POINTS FOR DISCUSSION 1. Describe the four common functions of all managers. 2. What is the management process, and how does it reflect what managers do? 3. Describe Mintzberg’s ten management roles and how they are used to explain what managers do.

8

Management skills (Robert L. Katz)

Middle Management

First line Management

Technical Skills

Interpersonal Skills

Conceptual Skills

Top Management

Conceptual Skills: The ability to think and conceptualise abstract situations, to see organisations as a whole and the relationship among its various subunits, and to visualise how the organisation fits into its environment. Interpersonal Skills: The ability to work well with other people both individually and in groups. Technical skills: Skills that include knowledge of and proficiency in a certain specialised field.

Evolution of Management • 1776 Adam Smith: Classic economic doctrine “The Wealth of Nations” – division of labour: the breakdown of jobs into narrow, repetitive tasks.

• 18th century: Industrial revolution in Britain – the advent of machine power, mass production and efficient transportation.

• 1900s: development of formal theories to guide managers Four Different Approaches •

Scientific Management: viewed at management from the perspective of improving the productivity and efficiency of operational personnel.

•

General administrative: Concerned with the overall organisation and effectiveness.

•

Quantitative: Development of quantitative models and applying them to manage better. 9

•

Organisational behaviour: Emphasis on human behaviour and the people side of management.

Scientific Management 1. Frederick Winslow Taylor: Principles of Scientific Management (1911). This pioneering work made him the Father of Scientific Management. He sought to create a mental revolution among both workers and managers by defining clear guidelines. Taylor’s four scientific management principles: • • • •

Develop a science for each element of an individual’s work, which replaces the old rule-ofthumb methods. Scientifically select, train, teach and develop workers. Fully cooperate with the workers to ensure that all works are done in accordance with the principles of the science that has been developed. Divide work and responsibility almost equally between management and workers. Management takes over all the works which are better fitted for them than the workers.

2. Frank Gilbreth & Lillian Gilbreth (1912): Experimented in the design and use of proper tools and equipment for optimistic work performance. Devised a classification scheme to label 17 basic motions such as search, select, grasp, hold, …This classification scheme for labeling 17 basic hand motions is called therbligs. 3. Henry L. Gantt: A close associate of F W Taylor. He sought to increase worker efficiency through scientific investigation. He is most noted for creating a graphic bar chart to be used by managers as a scheduling device for planning and controlling work. This Gantt Chart shows the relationship between work planned and completed on one axis and time elapsed on the other axis. General Administrative Theorists Persons who developed general theories of what managers do and what constitutes good management practices. 1. Henri Fayol: classified management functions as – planning, organising, commanding, coordinating and controlling. He developed 14 principles of management: universal truths of management. 1. Division of work, 2. Authority, 3. Discipline, 4. Unity of command, 5. Unity of direction, 6. Subordination of individual interests to general interests, 7. Remuneration, 8. Centralisation, 9. Scalar Chain, 10. Order, 11. Equity, 10

12. Stability of tenure of personnel, 13. Initiative, and 14. Esprit de corps 2. Max Weber: In the early part of the 20th century he developed a theory of authority structures and described organisational activity based on authority relations. He brought in the concept of bureaucracy – a form of organisation marked by division of labour, hierarchy, rules and regulations, and impersonal relationships. His writings were less operational compared to Taylor’s. Weber’s ideal bureaucracy 1. 2. 3. 4. 5. 6.

Division of labour Authority of hierarchy Formal selection Formal rules and regulations Impersonality Career orientation

3. Ralph C. Davis: In his book The fundamentals of Top Management In 1951, he refined the concept of management as the functional executive leadership.

Quantitative Approach This approach was evolved during world war II through development of mathematical and statistical solutions to military problems. This approach uses quantitative techniques to improve decision making. The pioneers of this approach are: Robert McNamara and Thornton. Organisational Behaviour (OB) is the field of study concerned with the actions (behaviour) of people at work. •

Human relations movement: The belief that a satisfied worker will be productive.

•

Behavioural science theorists: Psychologists and sociologists who relied on the scientific method for the study of organisational behaviour.

•

Process approach: Management performs the functions of planning, organising, leading and controlling.

•

Systems approach: Recognises the interdependency of internal organisational activities, and of the organisation and its external environment.

•

Contingency approach: Recognising and responding to situational variables as they arise.

•

Workforce diversity: Employees in organisations are heterogeneous in terms of gender, race, ethnicity and other characteristics

•

Bi-modal workforce: Employees tend to perform either low-skilled service jobs for near minimum wages or high-skilled well-paying jobs.

11

•

Learning organisation: An organisation that has developed the capacity to adapt and change continuously.

•

Re-engineering: A radical redesign of all or part of a company’s work processes to improve productivity and financial performance.

•

Downsizing: Organisational restructuring efforts in which individuals are laid off from their jobs.

•

Contingent workers: Non-permanent workers including temporaries, part-timers, consultants, freelancers and contract workers.

•

Empowerment: Increasing the decision making discretion of workers.

POINTS FOR DISCUSSION: 1. What were F. W. Taylor’s contributions to scientific management? 2. What were Foyal’s principles of management and how do they compare with Taylor’s? 3. Explain with examples how quantitative approach help in better decision making? 4. “Everyone wants a challenging job with opportunities for advancement”. How does this statement reflect upon the organisational behaviour approach? How does it reflect upon workforce diversity, empowerment and bi-modal workforce?

The Manager: Omnipotent or Symbolic Omnipotent View: The view that managers are directly responsible for an organisation’s success or failure. Symbolic View: The view that managers have only a limited effect on organisational outcomes because of large number of factors outside their control. Real View: Managers are neither helpless nor all powerful. Managers operate within the constraints imposed by the organisation’s culture and environment.

Parameters of Managerial Discretion

Environment

Managerial Discretion

Culture

12

Organisational Culture: A system of shared meaning within an organisation that determines, in large degree, how employees act. When confronted with problems or work issues, the organisational culture – the way we do things here – influences what employees can do and how they conceptualise, define, analyse and resolve issues. Seven Dimensions of Organisation’s Culture 1. 2. 3. 4. 5. 6. 7.

People Orientation Team Orientation Aggressiveness Stability Innovation and Risk Taking Attention to Detail Outcome Orientation

Each of these characteristics exists on a continuum from Low to High. These dimensions can be mixed to create significantly different organisations

Dimensions of Organisational Culture

Attention to Detail Low … High

Innovation & Risk taking Low … High

Outcome Orientation Low … High

Organisational Culture

Stability Low … High

Aggressiveness Low … High

People Orientation Low … High

Team Orientation Low … High 13

1. People Orientation: Degree to which management decisions take into account the effects on the people in the organisation. 2. Team Orientation: Degree to which work is organised around teams rather than individuals. 3. Aggressiveness: Degree to which employees are aggressive and competitive rather than cooperative. 4. Stability: Degree to which organisational decisions and actions emphasize maintaining status quo. 5. Innovation and Risk taking: Degree to which employees are encouraged to be innovative and to take risk. 6. Attention to Detail: Degree to which employees are expected to exhibit precision, analysis and attention to detail. 7. Outcome Orientation: Degree to which managers focus on results or outcomes rather than on how these outcomes are achieved. Strong Culture Vs Weak Culture Not all cultures have an equal impact on employee’s behaviours and actions. Strong Cultures: Cultures in which the key values are deeply held and widely shared. The more the employees accept the organisation’s key values and their commitment to those values, the stronger the culture is. Means by which Employees learn Culture: • • • •

Stories Material Symbols Rituals Language

Stories: These typically contain a narrative of significant events or people including such things • • • •

Organisation’s founders Rule breaking Reactions to past mistakes Company’s heritage

Rituals: are repetitive sequences of activities that express and reinforce the values of the organisation. • • • •

annual sales representatives meet Employees’ Day Founder’s Day Product launching Functions. 14

•

Training Programmes.

Material Symbols: When we walk into an organisation we get a feel of place like: formal, casual, fun, serious. These are the effects of materials symbols such as: • • • •

Layout of the facilities of the organisation How employee’s dress The types of automobiles the executives use The recreation facilities

Language: Many organisations use language as a way to identify members of a culture. • • •

Colleague Do or Die Work judo

Influence of Culture on Managers An organisation’s culture, especially a strong culture constrains a manager’s decision making options in all management functions. Planning 1. The degree of risk that plans should contain 2. Plans to be developed by individuals or teams 3. Degree of environmental scanning to be done. Organising 1. Level of autonomy to be designed into employee’s jobs 2. Tasks to be done by individuals or teams 3. Degree of interaction between departmental managers Leading 1. Degree to which managers are concerned with increasing employees’ job satisfaction 2. The appropriate leadership styles 3. Degree of tolerance with disagreements Controlling 1. Whether to impose external controls or to allow employees to control their actions 2. What criteria to be emphasized in employee performance appraisals 3. Consequences of exceeding one’s budgets As the composition of workforce changes, managers must take a long hard look at their organisational culture to see if the shared meaning and beliefs that were appropriate for a more homogeneous workforce will support diverse views.

Environment External environment: refers to the forces outside the organisation that potentially can influence the organisation’s performance. 1. Specific environment: includes those that have direct and immediate impact on managers’ decisions and actions and are directly relevant to the achievement of the organisation’s goals. The main ones are: 15

• • • •

Customers Suppliers Competitors Pressure groups

2. General environment: includes broad external conditions that may affect the organisation. These include: • • • • • •

Economic conditions Political/Legal conditions Sociocultural conditions Demographic conditions Technological conditions Global conditions

Assessing Environmental Uncertainty Uncertainty: Degree of change and complexity in an organisation’s environment. If the components of organisation’s environment changes frequently it is a Dynamic environment. If the change is minimal it is a Stable environment.

Simple

Complexity: The number of components and the extent of an organisation’s knowledge about its environmental components.

Complex

Degree of Complexity

Degree of Change Stable

Cell 1

Dynamic

Cell 2

Environmental Uncertainty Matrix Cell 3 Cell 4 Cell 1: (Simple, Stable) • • • •

Stable and predictable environment Few components in environment Components are somewhat similar and remain basically the same. Minimal need for sophisticated knowledge of components

Cell 2: (Simple, Dynamic) 16

• • • •

Dynamic and unpredictable environment Few components in environment Components are somewhat similar but are in continual process of change. Minimal need for sophisticated knowledge of components

Cell 3: (Complex, Stable) • • • •

Stable and predictable environment Many components in environment Components are not similar to one another and remain basically the same. High need for sophisticated knowledge of components

Cell 4: ( Complex, Dynamic) • • • •

Dynamic and unpredictable environment Many components in environment Components are not similar to one another and are in continual process of change High need for sophisticated knowledge of components

PLANNING 1. DECISION MAKING Levels of decision-making Strategic level: Decisions at this level include diversification, product/market development, merger, … Tactical level: Decisions at this level include budget allocations, personnel assignments, promotional mix decisions, …. Technical (operational) level: Decisions at this level include quality control, payroll, transportation, credit acceptance or rejection, .. Informational requirements to make decisions at these three different levels are different. Decision Making: The essence of the manager’s job Decision: A choice between two or more alternatives Decision-making process: A sequence of steps starting from identifying the problem to evaluating the decision’s effectiveness. Problem: A discrepancy between an existing and a desired state of affairs. Decision criteria: Criteria that define what is relevant in a decision. Rational decision-making: Describes choices that are consistent and value maximising within specified constraints.

17

Intuitive decision-making: A subconscious process of making decisions on the basis of experience and accumulated judgement. THE DECISION-MAKING PROCESS Step 1: Identifying a Problem: The decision making process begins with the existence of a problem or more specifically, a discrepancy between an existing and desired state of affairs. Step 2: Identifying decision Criteria: Once the manager identifies a problem that needs attention, the decision criteria important to resolving the problem must be identified. That is, managers must determine what is relevant in making the decision. Step 3: Developing Alternatives: This step requires the decision maker to list the viable alternatives that could resolve the problem. No attempt is made in this step to evaluate the alternatives. The Decision-making process Step 4: Analysing Alternatives: Once the alternatives have been identified, the decision maker critically analyse each one. Each alternative is evaluated by appraising it against the criteria established in Step 2. This will enable to find out the strengths and weaknesses of each alternative. Step 5: Selecting an Alternative: After analysing the alternatives and matching them with the criteria, the appropriate alternative is selected. Step 6: Implementing the decision: Implementation involves conveying the decision to those affected by it and getting their commitment to it. Step 7: Evaluating Decision Effectiveness: This involves appraising the outcome and to see if the problem has been solved. Examples of Decision in Management Function - Planning • • • •

What are the long-term objectives? What strategies will best achieve those goals? What should be the short-term objectives be? How difficult should individual goals be?

DECISION-MAKING STYLES There are four decision-making styles as described below: Directive style: A decision making style characterised by low tolerance for ambiguity and a rational way of thinking. Managers having this style have low tolerance for ambiguity and are rational in their way of thinking. Their efficiency and speed in making decisions often result in making decisions with minimal information and assessing few alternatives. Analytical style: A decision making style characterised for a high tolerance for ambiguity and a rational way of thinking. Managers with this style need more information and consider more alternatives before making the decisions.

18

Conceptual style: A decision making style characterised by high tolerance for ambiguity and an intuitive way of thinking. They are good at making creative decisions. Behavioural style: A decision making style characterised by a low tolerance for ambiguity and an intuitive way of thinking. These managers work well with others. They are concerned about the achievements of colleagues and are receptive to suggestions from others. Acceptance by others is important to this decision making style.

High

Tolerance to Ambiguity

Summarising these four styles we have the following grid:

Analytic

Conceptual

Directive

Behavioural

Low POINTS FOR DISCUSSION: Way of thinking

1. Why is decision-making often described as the essence of manager’s job? Describe the Rational Intuitive decision making process with a suitable example. 2. “As managers use computers and software tools more often, they will be able to make more rational decisions”. Do you agree or disagree with this statement? Why? 3. Case 1: You probably would not know quite what to expect from a business named Pyro Media, but you would figure it was going to be something pretty unusual. Grace Tsujikawa Boyd’s business, Pyro Media, has pursued a pretty unusual direction, but the decision to do something different was not made randomly or without thought. Boyd’s Pyro Media started as a manufacturer of huge ceramic glazed pots such as the ones you might see holding trees or plants in the lobbies of large hotels. Using her degree of art Boyd herself initially made the high quality glazed pots, which sold for about $ 1500 each. As her business grew to the point at which it had backorders of 8 to 12 weeks, Boyd decided it was time to move to a bigger facility and to invest in equipment and employees. She says, “WE were in business making money and assumed that business was going to grow at the same rate it had been”. Grace soon found, however that Pyro Media’s revenues did not keep increasing by 30% as they had been but were dropping off. Upon investigating the situation, she found that big corporations had begun importing and distributing terra cotta planters, essentially stealing away her business. Boyd knew that she had to do something. She had invested in equipment, a 56000 facility and employees who knew ceramics. She called in some consultants to see what other markets her business might pursue. Their study, which took about six months, recommended that Pyro Media look into high-tech ceramic applications: In other words, take the same technology that Boyd had developed and used in making ceramic pots and 19

apply to a new area. On the basis of that information, Boyd hired a ceramic engineer and went after the ceramic castables market. The company’s decision to move into this new market proved to be successful. Recognising that business was falling off and analysing the reason behind the loss of revenue were instrumental in Pyro Media’s continued success. Boyd says that being able to recognise the problem is critical, especially in small businesses. Why? Because small businesses have no money or time to waste. If problems are ignored and not analysed, the business might face quick failure. Questions: a) A decision to move into a new market as Boyd’s Pyro Media did is a major decision. How could Boyd have used the decision-making process to help her make this decision? b) Would you call declining revenues a problem or a symptom? Why? c) Identify the decision-making style you think Boyd has used. Explain your choice. d) Do you agree with Boyd’s assertion that being able recognise a problem is critical, especially for small business? Why or why not? 4. Case 2: Beatrice International Holdings Research over the past few decades has shown us the need for understanding the sociocultural factors among people from different countries. Individuals from countries where power distance is high, for example, are frequently accustomed societies composed of “Haves” and “Havenots”. The haves possess significant power to make decisions. Yet, when these Haves leave the comforts of their homeland, they, too, often must make some adjustments in their decisionmaking styles. That is precisely what Loida Nicholas Lewis did. Lewis grew up in the Philippines. She was born into a politically well-connected family that still operates the country’s largest and most successful furniture company. Her early years were filled with all the privileges and amenities associated with high society: the best schools, foreign travel, and a large base of support and assistance. One thing that her upbringing did not include, however, was having decisions made for her. Lewis, has always been an independent women, making her own choices, not those her family wanted her to make. For example, her father urged her to become a lawyer, a politician, and an instrumental member of the ruling class in the Philippines. She rejected that alternative; she wanted to dedicate her life to two goals – raising a family and helping others less fortunate than her. She wanted to help Phili[inos enter the United States so that they could escape the political repression in the Philippines. She married Reginald F. Lewis, the major owner and chairman of Beatrice International Holdings, Inc., the new York based global supermarket and speciality foods company. Lewis was living her dream – raising a family and helping others. Her life was uncomplicated. At least until 1993, when Reginald Lewis – who was known as the world’s richest AfricanAmerican man and had become a national role model – passed away. In his will, he left the job of running Beatrice to his wife. Lewis inherited a $1.7 billion company, but this company was stagnating. Lewis did not have the business acumen or the experience of her late husband. In fact, this softspoken, petite woman has a persona that was directly opposite to Reginald’s “macho, bruising style”. Understandably anxious, she nevertheless took over the company and began moulding it in her image. 20

She recognised that the company was losing money. Its tremendous growth through diversification in the 1980s was hurting Beatrice. Many of the status symbols her late husband had accumulated – a corporate jet, high-priced New York real estate, and the like – were now financial drains leading in the part to a $17 million loss. So she made several major decisions. She pared down the company to enhance its core business operations of making ice cream in the canary Islands and producing snack foods in Ireland. She also decided to sell of the company limousine and the corporate jet, cut headquarters staff in half, and sell off many of the less profitable ice cream companies that Beatrice held in Denmark, Germany, and Italy. She also focused on reducing Beatrice’s debt in an effort to take the company public. One would think that following a strong leader like Reginald would have posed problems for Lewis. It didn’t. Although her style is very different from her husband’s, she has achieved remarkable success. She involves her inner group in decisions and uses compassions to develop a “focussed, disciplined, sensitive, and collegial atmosphere”. And the numbers support that her approach is working. Her actions – while reducing company annual revenues to about $350 millions – have led to nearly 35 percent increase in the net earnings. Questions: a) What types of problems do you see Loida Lewis having to deal with in this case? Explain your choices. b) What decisions did Loida Lewis make that helped turn around the ailing company? Would you classify them as programmed or nonprogrammed? Why? c) How would you describe Lewis’ decision-making style? Cite specific examples. Note: Programmed decision: A repetitive decision that can be handled by a routine approach. Nonprogrammed decisions: Decisions that must be custom-made to solve unique and nonrecurring problems. 2. FOUNDATIONS OF PLANNING Planning is a process that involves defining the organisation’s goals, establishing an overall strategy for achieving those goals, and developing a comprehensive set of plans to integrate and coordinate organisational work. Purposes of planning: Among others planning helps the managers in the following ways. • • • •

Planning establishes coordinated effort. It gives direction to managers and nonmanagers. With out planning, departments and individuals might be working at crosspurposes, preventing the organisation from moving efficiently toward its goals. Planning reduces uncertainty by forcing managers to look ahead, anticipate change, consider the impact of change and develop appropriate responses. Planning reduces overlapping and wasteful activities, thus reducing waste and redundancy. Planning establishes goals and standards used for controlling. Through controlling actual performance are compared with goals, significant deviations are identified and timely corrective actions are taken. 21

Planning Vs Performance • • •

Formal planning is associated with higher profits, higher return on assets and other positive financial results. Planning and appropriate implementation of the plans enhances the performance. In spite of appropriate planning if the performance does not improve it could be due to external factors. Planning – Performance relationship is influenced by planning time frame. Studies have proved that a reasonable period of time (depending on the size and nature of business) is required to feel the impact of planning.

Role of Goals and Plans in Planning Goals: are desired outcomes for individuals, groups or entire organisation. Stated goals are official statements of what an organisation says and what it wants its various stakeholders to believe its goals are. Real goals are goals that an organisation actually pursues as defined by the actions of its members. Plans: are documents that outline how goals are going to be met including resource allocations, schedules and other necessary actions to accomplish the goals. TYPES OF PLANS Strategic Plans: are plans that apply to the entire organisation. They establish the organisation’s overall goals and seek to position the organisation in terms of its environment. They are long term and directional. Operational Plans: Plans that specify the details of how the overall goals are to be achieved. Operational plans tend to cover short time periods and are specific. Long-term and short-term Plans: With the environment being so dynamic and uncertain, distinction between long-term and short-term has become too difficult. However, plans with a time frame of over three years are called long-term plans and plans with a time frame of one year or less are classified as short-term plans. Specific Plans: Plans that are clearly defined and leave no room for interpretation. For example, the plan to increase the productivity by 10% over a one-year period. Directional Plan: These plans are flexible plans that set out general guidelines. When uncertainty is high and flexibility is required to respond to the unexpected changes such plans are essential. For example, the plan is to increase the productivity b by 6% to 10% over a period of one year. Single-use Plan: This is a one-time plan specifically designed to meet the needs and challenges of a unique and specific situation. Standing Plans: These are ongoing plans that provide direction for activities performed repeatedly.

22

3. PROCESS OF GOAL SETTING Before getting into the steps of the goal setting process, let us list the characteristics of welldesigned goals. Goals possess the following: • • • • •

Written in terms of outcomes rather than actions, Measurable and quantifiable, Challenging yet attainable, Written down, and Communicated to all concerned organisational members.

Step 1: Review the organisations mission, which states the purpose of the organisation. This is necessary since the goals set must reflect what the mission statement says. Step 2: Review the resources available. This is necessary for the reason that goals must be achievable even though they have to be challenging. Step 3: Determine the goals individually or with input from others. This will ensure consistency of purpose. These goals must be measurable, specific and include a time frame for accomplishment. Step 4: Write down the goals and communicate to all the members of the organisation who need to know. Step 5: Review the results to see whether the goals are being met with or achieved. Based on the feedback amend or change the goals as needed. 4. CONTINGENCY FACTORS IN PLANNING The contingency factors affecting planning are: Level in the organisation: Strategic planning is the responsibility of top executive of the organisational using internal and external information available whereas lower level managers mainly do operational planning. Degree of environmental uncertainty: Based on the environmental uncertainty the plans have to be flexible to cater to the changes in the environment. Length of future commitments: This is required that the plans extend far enough to meet those commitments made when the plans are developed. Criticisms of Planning The primary arguments directed at formal planning include: • • • • •

Planning may create rigidity Plans cannot be developed for a dynamic environment Formal plans cannot replace intuition and creativity Planning focuses manager’s attention on today’s competition and not tomorrow’s survival Formal planning reinforces success, which may lead to failure 23

POINTS FOR DISCUSSION: 1. What characteristics a well-designed goals have? 2. What are the major arguments against formal planning? Explain with examples. 3. How might planning in a not-for-profit organisation such as British Cancer Society differ from planning in a for-profit organisation such as Pepsi? 4. What types of planning do you do in your personal life? Describe these plans in terms of (a) strategic or operational, (b) short or long term, and (c) specific or directional. 5. STRATEGIC MANAGEMENT PROCESS This process has eight steps as shown in the following chart.

Analyse the environment

Identify the organisation’s current mission, objectives and strategies

Identify the opportunities and threats

SWOT Analysis

Analyse the organisation’s resources

Identify strengths and weaknesses

Formulate strategies

Implement strategies

Evaluate results

Key words definitions Opportunities: Favourable or positive trends in external environmental factors. Threats: Adverse or negative trends in external environmental factors. Strengths: Activities the organisation does well or any special/unique resources it has. Weaknesses: Activities the organisation does not well or any special/unique resources it needs but does not possess. Core competencies: An organisation’s major value creating skills, capabilities and resources that determine its competitive weapons. 24

SWOT Analysis: Analysis of an organisation’s Strengths, Weaknesses, Opportunities and Threats.

6. ORGANISATIONAL STRATEGIES Organisational strategies include three levels: Corporate level – managers at the top level are responsible, Business level – managers at the middle level are responsible, and Functional level – managers at the lower levels are responsible.

Corporate Level

Multibusiness Corporation

Business Level

Functional Level

SBU 1

R&D

Manufacturing

SBU 2

Human Resources

SBU 3

Marketing

Finance

a) Corporate Level Strategy: This strategy seeks to determine what businesses a company wants to be in or should be in. Major corporate strategies are listed below: Stability Strategy: A corporate level strategy that is characterised by an absence of significant change. Growth Strategy: A corporate level strategy that seeks to increase the level of operation of the organisation. Growth can be achieved through: • Direct expansion: achieved by internally increasing a firm’s sales, production capacity or workforce. • Vertical Integration: to grow by backward vertical integration to gain control of inputs, forward vertical integration to gain control of outputs or both. • Horizontal Integration: to grow by combining with other organisations in the same industry. That is combining operations with competitors. • Related Diversification: Merging with or acquiring firms in different but related industries. • Unrelated Diversification: Merging with or acquiring firms in different and unrelated industries.

25

Retrenchment Strategy: is a corporate level strategy designed to address organisational weaknesses that are leading to performance declines. When an organisation is facing performance problems, a retrenchment strategy helps it stabilise operations, revitalise organisational resources and capabilities and prepare to compete once again.

High

Anticipated Growth Rate

Corporate Portfolio Analysis: When an organisation’s corporate strategy involves a number of businesses, managers can manage this collection or portfolio of businesses using a corporate portfolio matrix. The most common and powerful portfolio matrix is the BCG matrix. This matrix was developed by Boston Consulting Group. Through this matrix an organisation’s businesses could be evaluated and plotted by a 2 x 2 matrix to identify which businesses offer high potential and which businesses a drain on organisational resources. The two dimensions of the matrix are Market Share and Anticipated Growth Rate as shown in the following figure.

High

Low Market Share

Stars

Question Marks

Cash Cows

Dogs

Low Cash Cows: This is a combination of Low Growth and High Market Share. Businesses in this category generate big cash but the prospect of their future growth is limited. Managers should milk the cow for as much as they can, limit new The investment in them and use the large amounts of cash BCG Matrix generated to invest in Stars and question marks with strong potential to improve market share. Stars: This is a combination of High Growth and High Market Share. These businesses are in a fast growing market and hold a dominant share of that market. Their contribution to cash flow depends on their need for resources. Heavy investments in Stars will help take advantage of the market’s growth and help maintain high market share. The stars will eventually develop into Cash Cows as their markets mature and sales growth slows. Question Marks: This is a combination of High Growth and Low Market Share. These businesses are in an attractive industry but hold a small market share percentage. The hardest decision for managers is related to the Question Marks. After close and careful analysis, some will be sold off and others turned into Stars. Dogs: This is a combination of Low Growth and Low Market Share. Businesses in this category do not either produce or consume much cash. They have a low market share in a low growth industry. 26

The Dogs should be sold off or liquidated as they have low market share in markets with low growth potential. b) Business Level Strategy: This strategy seeks to determine how an organisation should compete in each of its businesses. Organisations in multiple businesses each division will have its own strategy that defines the products and services it will offer, the customers it will reach and similar focuses. Each single business which is treated as independent and that formulates its own strategies is called a Strategic Business Unit (SBU). One of the key concepts of strategic management is Competitive Advantage. Competitive advantage is what sets an organisation apart; its distinct edge. According to Michael Porter has identified five competitive forces that dictate the rules of competition. These five forces determine industry attractiveness and profitability. 1. Threat of new entrants: Factors such as economies of scale, brand loyalty, capital requirements determine how easy or hard it is for new competitors to enter an industry. 2. Threat of substitutes: Factors such as switching costs and buyer loyalty determine the degree to which customers are likely to buy a substitute product. 3. Bargaining power of buyers: Factors such as number of customers in the market, customer information and the availability of substitutes determine the amount of influence that buyers have in an industry. 4. Bargaining power of suppliers: Factors such as the degree of supplier concentration and availability of substitute inputs determine the amount of power that suppliers have over firms in the industry. 5. Existing rivalry: Factors such as industry growth rate, increasing or falling demand, and product differences determine how intense the competition rivalry will be among existing firms in the industry. Once these five forces are analysed, the managers can select any one of the following strategies. Cost leadership strategy: A business level strategy in which the organisation is the lowest cost producer in its industry. Differentiation strategy: A business level strategy in which a company offers unique products that are widely valued by the customers. Focus strategy: A business level strategy in which a company pursues a cost or differentiation advantage in a narrow industry segment. c) Functional Level Strategy: An organisational level strategy that seeks to determine how to support the business level strategy. POINTS FOR DISCUSSION: 1. How is SWOT analysis useful? 2. Explain the Strategic Management Process. 3. How can quality management be a competitive advantage? 27

4. Describe three possible competitive strategies. 5. Explain Porter’s five forces model. 6. How might the process of strategy formulation, implementation and evaluation differ for (a) large businesses, (b) small businesses, (c) not-for-profit organisations and (d) global businesses? 7. Case: Eighty-two percent. That’s the market share held by Air Canada, the sole remaining major Canadian airline, after its takeover of money-losing Canadian Airlines in the spring of 2000. The Canadian airline industry now is going through some major upheavals. Consumers facing an airline market that’s more reliant on a single carrier than any other major Western nation – even Germany’s Lufthansa only has 60 percent of the market – are complaining about the almost total monopoly. They are critical of flights being overbooked, extremely long lines at check-in, and telephone call centers with half-hour-plus waits on hold, and prices that cost the passenger less to fly to Europe than to the next province. In response, the Canadian government encouraged discount airlines and stood behind their attempts to make it in the market. The House of Commons passed legislation in May 2000 that defined “abuse of dominant position” and empowered the Competition Bureau (equivalent to the U.S. Federal Trade Commission) to punish companies engaging in price gouging. This legislative move was prompted by Air Canada’s competitive attack on Westjet Airlines for moving into markets in eastern Canada. Westjet Airlines is one discount airline struggling for a smooth flight in this increasingly turbulent environment. Of the six scheduled discount airlines started in Canada in the last 20 years, only Westjet, based in Calgary, Alberta, is still flying. It serves 13 western Canadian cities and has 5 percent of the Canadian market. But Stephen C. Smith, president of Westjet, has made a strategic decision to take the company national. Westjet, started in 1996, mimics the Southwest Airlines strategic model. Southwest Airlines, a U.S. airline, has enjoyed phenomenal success with a strategic formula of low fares and short-haul routes. Westjet’s fares are an average of 40 percent lower than Air Canada’s. It offers one class of seating, has no meals on board or executive lounges in airports, and concentrates on flights of 400miles or less. Passengers don’t have tickets, only confirmation numbers. And, to cut costs, Westjet encourages ticket sales through the Internet, which now accounts for about 11 percent of its tickets sold. Whenever possible, it lands at smaller airports that charge low user fees. One deviation from Southwest’s strategy is that Westjet does assign passengers – or guests – to specific seats. As many of these strategies illustrate, Smith has made a commitment to keeping operating costs low. In addition, like Southwest, Westjet flies one class of jet, the Boeing 737, which minimizes pilot training, maintenance costs, and gate turnaround time. To keep its employees (over 1,100 of them) nonunionized and, thus, giving the company more control over wages and salaries, Westjet uses several incentives. A major one is that all workers who have been with the company at least three months participate in a profit-sharing - $4 million was shared among eligible employees in 1999. In addition, 70 percent of the employees participate in a stock purchase plan, in which Westjet matches employee contributions up to 20 percent of their salary. Smith’s no-frills model appears to be working. During its four years of operation, Westjet’s growth has been steady. Revenue passenger miles (a key operating measure in the airline industry) were up 54 percent for the first four months of 2000. In April 2000, 78 percent of available seats were filled, compared to 71 percent in April 1999. Westjet also consistently makes a profit. A spokesperson for a Canadian consumer group said, “Westjet is tightly run and well managed… There are not many [passenger] complaints”. However, some experts say that Smith’s strategic decision to compete nationally is a gamble that will either make or break Westjet. “It’s a risk, and this isn’t an industry that tolerates a lot of mistakes”. To accommodate its national expansion, Westjet ordered 20 new Boeing 737 jets to be delivered over eight years and plans to lease 10 more. Also, Westjet’s 28

competitor, Air Canada, started its own discount carrier in summer 2000, serving Westjet’s stronghold, Western Canada. Although industry analysts say that unionized Air Canada will have a hard time matching nonunionized Westjet’s cost structure, some feel that Westjet may be overextending itself and expanding faster than demand for its services. Questions: a) What competitive advantage(s) do you think Westjet has? What competitive advantages do you think Air Canada has? Explain your choices. b) What competitive strategy does Westjet appear to be following? Explain your choice. c) How could Stephen Smith have used SWOT analysis in developing his strategy to go national? Do an abbreviated SWOT analysis using information from the case. d) What do you think of Westjet’s strategic decision to compete nationally? What suggestions might you make to Stephen Smith?

ORGANISING Few purposes of organising in any organisation are, organising: •

Divides work to be done into specific jobs and departments

•

Assigns tasks and responsibilities associated with individual jobs

•

Coordinates diverse organisational tasks

•

Clusters jobs into units

•

Establishes relationships among individuals, groups and departments

•

Establishes formal lines of authority

•

Allocates and deploys organisational resources

1. ORGANISATIONAL STRUCTURE An organisational structure is the formal framework by which job tasks are divided, grouped and coordinated. When managers develop or change an organisation’s structure, they are said to be engaged in organisational design. In organisational design decisions about six key elements are taken: work specialisation, departmentalisation, chain of command, span of control, centralisation and decentralisation, and formalisation. Work specialisation: The degree to which tasks in an organisation are divided into separate jobs; also known as division of labour (Adam Smith). Departmentalisation: The basis by which jobs are grouped together. • • • •

Functional departmentalisation – Groups jobs by functions performed. Product departmentalisation – Groups jobs by product line. Geographical departmentalisation – Groups jobs on the basis of territory or geography. Process departmentalisation – Groups jobs on the basis of product or customer flow. 29

•

Customer departmentalisation – Groups jobs on the basis of common customers.

Chain of command: The continuous line of authority that extends from upper organisational levels to the lowest levels and clarifies who reports to whom. Authority refers to the rights inherent in a managerial position to tell people what to do and to expect them to do it. The obligation or expectation to perform is known as responsibility. Unity of command states that a person should report to only one manager (Fayol). Span of control: Refers to the number of employees a manager can efficiently and effectively manage. Centralisation and decentralisation: The degree to which decision-making is concentrated at a single point in the organisation is called centralisation. The degree to which lower level employees provide input or actually make decisions is called decentralisation. Factors that influence the amounts of centralisation and decentralisation are listed below: • • • • • • •

More Centralisation Environment is stable Lower level managers are not as capable or experienced at making decisions as upper level managers Lower level managers do not want to have a say in decisions Decisions are significant Organisation is facing a crisis or the risk of failure Company is large Effective implementation of company strategies depends on managers retaining say over what happens

• • • • • • •

More Decentralisation Environment is complex and uncertain Lower level managers are capable and experienced in making decisions Lower level managers want a voice in decisions Decisions are relatively minor Corporate culture is open to allowing managers to have a say in what happens Company is geographically dispersed Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions

Formalisation: Formalisation refers to the degree to which jobs within the organisation are standardised and the extent to which employee behaviour is guided by rules and procedures. Learning Organisation: An organisation has developed the capacity to continuously adapt and change because all members take an active role in identifying and resolving work-related issues. Organisational Design Boundaryless Teams Empowerment Organisational Culture Strong mutual relationships Sense of community Caring Trust

Learning Organisation

Information Sharing Open Timely Accurate 30

Leadership Shared vision Collaboration

POINTS FOR DISCUSSION: 1. Describe the factors that influence greater centralisation and those factors that influence greater decentralisation. 2. Describe the characteristics of a learning organisation. 3. Can an organisation’s structure be changed quickly? Why or why not?

2. ORGANISATIONAL COMMUNICATION Formal Communication: Communication that takes place within prescribed organisational work arrangements. Informal Communication: Communication that is not defined by the organisation’s structural hierarchy. Downward Communication: Communication that flows downward from a manager to employees. This is used to inform, direct, coordinate and evaluate employees. Upward Communication: Communication that flows upward from employees to managers. It keeps managers aware of how employees feel about their jobs, their co-workers and the organisation in general. Lateral Communication: Communication that takes place among any employee on the same organisational level. This horizontal communication is frequently needed to save time and facilitate coordination. Diagonal Communication: Communication that cuts across work areas and organisational levels. Organisational Communication Networks The variety of patterns of vertical and horizontal flows of organisational communication. The three common networks are: • Chain network – Communication flows through the formal chain of command, both downward and upward. • Wheel network – Communication flows between a clearly identifiable leader and others in a work group or team. The leader serves as a hub through whom all communications passes. • All-channel network – Communication flows freely among all members of a work team.

31

Chain

Wheel

All channel

Criteria Speed Accuracy Emergence of leader Member satisfaction

Chain Moderate High Moderate Moderate

Communication Network Wheel All channel Fast Fast High Moderate High None Low High

Rate of effectiveness of communication networks Grapevine: The informal organisational communication network. 3. HUMAN RESOURCE MANAGEMENT (HRM) PROCESS HRM aims at high performance work practices that lead to both high individual and high organisational performance. Environment

Environment

Human resource planning

Recruitment

Selection

Decruitment

Adapted & competent employees with up-to-date skills and knowledge

Orientation

Performance management

Competent & high performance employees who are capable of sustaining high performance over the long term

Identification & selection of competent employees

Environment

Training

Compensation & benefits

Career development

Environment 32

Human resource planning: The process by which managers ensure that they have the right number and kinds of people in the right places and at the right times, who are capable of effectively and efficiently performing assigned tasks. • Job analysis – An assessment that defines jobs and the behaviours necessary to perform them. • Job description – A written statement of what a jobholder does, how it is done and why it is done. • Job specification – A statement of the minimum qualification that a person must possess to perform a given job successfully. Recruitment: The process of locating, identifying and attracting capable applicants. Sources are: Internal search, Advertisements, Employee referrals, public employment agencies, private employment agencies, School placements, employee leasing and independent contractors, webbased advertisements. Decruitment: Techniques for reducing the labour supply within an organisation. Options are: Firing, layoffs, attrition (not filling openings created by voluntary resignations or normal retirements), transfers, early retirements, job sharing. Selection: The process of screening job applicants to ensure that the most appropriate candidates are hired. Few of the selection devices are: Application form, written tests, performance-simulation tests, interview, background investigation, and physical examination. Orientation: Introduction of the new employee to his or her job and the organisation. Training: Employee skills can be grouped into three categories: technical, interpersonal, and problem solving. Most training activities seek to modify an employee’s skills in one or more of these areas. The training could be through Sample on-the-job training methods (job rotation, understudy assignments) and / or Sample off-the-job training methods (classroom lectures, films & videos, simulation exercises, vestibule training). Performance management: A process of establishing performance standards and evaluating performance in order to arrive at objective human resource decisions as well as to provide documentation to support those decisions. Compensation and benefits: Managers must develop a compensation system that reflects the changing nature of work and the workplace in order to keep people motivated. Organisational compensation includes base wages and salaries, wage and salary add-ons, incentive payments and skill based pay. Career development: Career is defined as the sequence of positions held by a person during his or her lifetime. POINTS FOR DISCUSSION: 1. Identify three skill categories for which organisations do employee training. 2. What strategic importance does HRM have for organisations? 3. Studies show that women’s salaries still lag behind men’s and even with equal opportunities laws and regulations, women are paid about 79% of what men are paid. How would you design a compensation system that would address this issue? 33

4. MANAGING CHANGE AND INNOVATION Both external and internal forces constrain managers. These same forces also bring about the need for change. External forces include: market place, Government laws and regulations, Technology, labour market and economic changes. Internal forces include: organisation’s strategy, workforce, equipment and employee attitude. Managers have to play the role of change agents – people who act as catalyst and assume the responsibility for managing the change process. The three categories of changes are as below: Structure

• • • • • • •

Work specialisation Departmentalisation Chain of command Span of control Centralisation Job redesign Actual structure redesign

Technology

• • •

Work processes Methods Equipment

People

• • • •

Attitudes Expectations Perceptions Behaviour

Managerial actions to reduce resistance to change a) Education and Communication • • •

Communicate with the employees to help them see the logic of change Educate employees through one-to-one discussions, memos, group meetings or reports Mutual trust and credibility between managers and employees

b) Participation • • •

Allows those who oppose a change to participate in the decision Assumes that they have expertise to make meaningful contributions Involvement can reduce resistance, obtain commitment to seeing change succeed and increase quality of change decision

c) Facilitation and Support •

Provide supportive efforts such as employee counselling, new skill training, short paid leave of absence 34

•

Can be time consuming and expensive

d) Negotiation • • •

Exchange something of value to reduce resistance May be necessary when resistance comes from a powerful source Potentially high costs and likelihood of having to negotiate with other resistors

e) Manipulation and cooptation • • •

Manipulation is covert attempts to influence such as twisting or distorting facts, withholding damaging information or creating false rumours Cooptation is a form of manipulation and participation Can fail miserably if targets feel they have been tricked

f) Coercion • • •

Using direct threats or force Inexpensive and easy way to get support May be illegal. Even legal coercion can be perceived as bullying

The road to Cultural Change Even under the most favourable conditions cultural changes are difficult and may have to be viewed in years, not weeks or even months. However the following may lead to cultural change: • • • • • •

Conduct cultural analysis to identify cultural elements needing change Make it clear to the employees that the organisation’s survival is legitimately threatened if change is not forthcoming Appoint new leadership with a new vision Initiate a reorganisation Introduce new stories and rituals to convey the new vision Change the selection and socialisation processes and the evaluation and reward systems to support the new values.

5. STIMULATING INNOVATION Creativity is the ability to combine ideas in a unique way or to make unusual associations between ideas. Innovation is the process of taking a creative idea and turning it into a useful product, service or work method. Systems View of Innovation Inputs

Creative Individuals, Groups, Organisations

Transformation

Outputs

Creative Process, Situation

Creative Products, Services, Work Methods

35

Innovation Variables

Structural Variables Organic Structures Abundant Resources High Interunit Communication

STIMULATE INNOVATION

Cultural Variables Acceptance of Ambiguity Tolerance of the Impractical Low External Controls Tolerance of Risk Tolerance of Conflict Focus on Ends Open-system Focus

Human Resource Variable High Commitment to Training and Development High Job Security Creative People

POINTS FOR DISCUSSION: 1. How can cultural change be implemented? 2. Describe the specific structural, cultural and human resource variables associated with innovation. 3. Innovation requires allowing people to make mistakes. However, being wrong too many times can be damaging to one’s career. Do you agree? Why or why not? What are the implications of nurturing innovation? 36

LEADING To lead an organisation effectively, managers have to understand the behaviour of the people in the organisation. More so, managers have to understand the organisation behaviour of the people around. Behaviour: The actions of people. Organisational Behaviour (OB): Actions of people at work. OB first looks at the individual behaviour such as attitudes, personality, perception, learning, and motivation. Then, OB looks at group behaviour, which includes norms, roles, team building, leadership, and conflict. Attitudes are evaluative statements – either favourable or unfavourable – concerning objects, people, or events. Components of attitude

Cognitive component The part of an attitude that is made up of the beliefs, opinions, knowledge, or information held by a person.

Attitude

Affective component The part of an attitude that is the emotional or feeling part.

Behavioural component The part of an attitude that refers to an intention to behave in a certain way toward someone or something.

37

Managers are more concerned with the attitudes related to job-related matters. The most common job-related attitudes are: •

Job satisfaction: An employee’s general attitude toward his or her job. A person with a high level of satisfaction holds positive attitude toward his or her job, while a person who is dissatisfied with the job holds negative attitudes towards the job.

•

Job involvement: The degree, to which an employee identifies with his or her job, actively participates in it, and considers his or her job performance to be important to self-worth.

•

Organisational commitment: An employee’s orientation toward the organisation in terms of his or her loyalty to, identification with, and involvement in the organisation.

Another overall attitude that managers may find important is Organisational Citizenship Behaviour (OCB), which is discretionary behaviour that is not part of an employee’s formal job requirements but that nevertheless promotes the effective functioning of the organisation. There are strong evidences that committed and satisfied employees have low turnover and absenteeism. In addition, research has shown that job satisfaction influences organisational citizenship behaviour, primarily through perceptions of fairness. Also, studies have found that the goal of making employees happy on the assumption that their being happy will lead to higher productivity is probably misread. Managers who follow this strategy could end up with a very content, but very unproductive, group of employees. Managers would get better results by directing their attention primarily to what will help employees become more productive. Then successful job performance should lead to feeling of accomplishment, increased pay, promotions, and other rewards – all desirable outcomes – that then lead to job satisfaction. Personality: An individual’s personality is the unique combination of the psychological traits that describe that person. Some of the personality traits are: quiet, passive, loud, aggressive, ambitious, loyal, tense, shy, or sociable. Two of the most popular personality models are: •

Myers-Briggs Type Indicator (MBTI)

•

Five-factor Model Myers-Briggs Type Indicator (MBTI)

These indicators assess how people usually act or feel in different situations. 1. Social Interaction: Extrovert or Introvert (E or I). •

An extrovert is someone who is outgoing, dominant, and often aggressive and who wants to change the world. Such persons need a work environment that is varied and action oriented, and gives them a variety of experiences.

•

An introvert is an individual who is shy and withdrawn. They prefer a work environment that is quiet and concentrated, that leaves them alone, and that gives them a chance to explore in depth a limited set of experiences. 38

2. Preference for gathering data: Sensing or Intuitive (S or N). •

Sensing people dislike new problems unless there are standard ways to solve them. They like established routine, show patience with routine details, and tend to be good at precise work.

•

Intuitive people are individuals, who like to solve new problems, dislike doing the same thing over and over again, jump to conclusions, are impatient with routine details, and dislike taking time for precision.

3. Preference for decision-making: Feeling or Thinking (F or T). •

Feeling type of individuals is aware of other people and their feelings, like harmony, need for occasional praise, dislike telling people unpleasant things, tend to be sympathetic, and relate well with most people.

•

Thinking types are unemotional and uninterested in people’s feelings, like analysis and putting things into logical order, are able to reprimand people and fire them when necessary, may seem hard hearted, and tend to relate well only to other thinking types.

4. Style of making decisions: Perceptive or Judgemental (P or J). •

Perceptive types are curious, spontaneous, flexible, adaptable, and tolerant. They focus on starting a task. Postpone decisions, and want to find out all about the task before starting it.

•

Judgemental types are decisive, good planners, purposeful, and exacting. They focus on completing a task, make decisions quickly, and want only the information necessary to get a task done.

MBTI has been used to help managers select employees who are well matched to certain types of jobs. MBTI can be a useful tool for understanding personality and predicting people’s behaviour. The Big-Five Model of Personality The big-five personality traits are: 1. Extraversion: The degree to which someone is sociable, talkative, and assertive. 2. Agreeableness: The degree to which someone is good natured, cooperative, and trusting. 3. Conscientiousness: The degree to which someone is responsible, dependable, persistent, and achievement oriented. 4. Emotional Stability: The degree to which someone is calm, enthusiastic, and secure or tense, nervous, depressed, and insecure. 39

5. Openness to experience: The degree to which someone is imaginative, artistically sensitive, and intellectual. Perception: is a process by which individuals give meaning to their environment by organising and interpreting their sensory impressions. Factors that influence perception 1. Perceiver: When an individual looks at the target and attempts to interpret what he or she sees, the individual’s personal characteristics will heavily influence the interpretation. These personal characteristics include attitudes, personality, motives, interests, experiences, and expectations. 2. Target: The characteristics of the target being observed can also affect what is perceived. 3. Situation: The context in which we see objects or events is also important. The time at which an object or event is seen can influence attention, as can location, light, heat, colour, and any number of other situational factors. POINTS FOR DISCUSSION: 1. Explain the three components of attitude and the three job related attitudes. 2. Contrast the MBTI and big-five models in terms of understanding personality. 3. How can an understanding of perception help managers better understand individual behaviour? Understanding Groups and Teams Stages of Group formation The first stage, forming, has two aspects. First, people join the group either because of a work assignment, in the case of a formal group, or for some other benefit desired (such as status, selfesteem, affiliation, power, or security), in the case of an informal group. This stage is complete when members begin to think of themselves as part of a group. The storming stage is one of intragroup conflict. Members accept the existence of the group but resist the control that the group imposes on individuality. Furthermore, there is conflict over who will control the group. When this is complete, there will be relatively clear hierarchy of leadership within the group and agreement on the group’s direction. The norming stage is complete when the group structure solidifies and the group has assimilated a common set of expectations of what defines correct member behaviour. The fourth stage is performing. The group structure at this point is fully functional and accepted. Group energy has moved from getting to know and understand each other to performing the task at hand. 40

Performing is the last stage in the development of permanent work groups. Temporary groups have a limited task to perform have a fifth stage, adjourning. In this stage the group prepares to disband. Work teams: They are formal groups made up of interdependent individuals who are responsible for the attainment of a goal. Types of teams 1. Functional Team: A type of work team composed of a manager and his or her subordinates from a particular functional area. 2. Self-managed team: A type of work team that operates without a manager and is responsible for a complete work process or segment. 3. Cross-functional team: A type of work team that is a hybrid grouping of individuals who are experts in various specialisations and who work together on various tasks. 4. Virtual team: A type of work team that uses computer technology to link physically dispersed members in order to achieve a common goal. Characteristics of Effective Teams • • • • • • • • •

Clear goals Relevant skills Mutual trust Unified Commitment Good Communication Negotiating Skills Appropriate Leadership Internal Support External Support

The successful teamwork on which the firm is built relies on seven key ingredients: a clear mission, positive thinking, unselfish effort, mutual respect, trust, small size, and strong management. The team leader or manager must always be on the lookout for distractions, tangents, and unproductive or ancillary issues. If the leader spots the project going astray, it is his or her responsibility to get it back on track. POINTS FOR DISCUSSION: 1. What type of planning, organising, and leading issues must be addressed when managing a team? 2. Why have teams become so popular in organisations? 3. Describe functional, self-managed, virtual, and cross-functional teams? 41

MOTIVATION Motivation is the willingness to exert high levels of effort to reach organisational goals, conditioned by the effort’s ability to satisfy some individual need. In general, motivation refers to effort exerted toward any goal. The effort is a measure of intensity or drive. A motivated person tries hard. But high levels of efforts are unlikely to lead to favourable job performance unless the effort is channelled in a direction that benefits the organisation. Theories of motivation 1. Maslow’s Hierarchy of Needs: The best known theory of motivation is Abraham Maslow’s theory of hierarchy of needs. Maslow proposed that within every person is a hierarchy of five needs: Physiological needs: Food, drink, shelter, sexual satisfaction, and other physical requirements. Safety needs: Security of protection from physical and emotional harm, as well as assurance that physical needs will continue to be met. Social needs: Affection, belongingness, acceptance, and friendship. Esteem needs: Internal esteem factors such as self-respect, autonomy, and achievement and external factors such as status, recognition, and attention. Self-actualisation needs: Growth, achieving one’s personal goals, and self-fulfilment; the drive to become what is capable of becoming. 2. McGregor’s theory X and theory Y: Theory X presents an essentially negative view of people. It assumes that workers have little ambition, dislike work, want to avoid responsibility, and need to be closely controlled to work effectively. Theory Y offers a positive view. It assumes that workers can exercise self-direction, accept and actually seek out responsibility seek out responsibility, and consider work to be a natural activity. McGregor himself held to the belief that the assumptions of theory Y were more valid than those of theory X. Therefore, he proposed that participation in decision making, responsible and challenging jobs, and good group relations would maximise employee motivation. 3. Herzberg’s Motivation-Hygiene theory: Frederick Herzberg’s motivation-hygiene theory proposes that intrinsic factors are related to job satisfaction and motivation, whereas extrinsic factors are related with job dissatisfaction. He concluded from his analysis that his findings indicated the existence of a dual continuum: The opposite of Satisfaction is No Satisfaction and the opposite of Dissatisfaction is No Dissatisfaction. The factors that create job dissatisfaction were called hygiene factors and the factors that increase job satisfaction were motivators. Motivators Achievement

Hygiene Factors Supervision 42

Recognition Work itself Responsibility Advancement Growth

Company policy Relationship with supervisor Working conditions Salary Relationship with peers Status Security

Designing Motivating Jobs Any organisation is composed of thousands of tasks. These tasks are aggregated into jobs. Job design: Job design refers to the way tasks are combined to form complete jobs. Job scope: The number of different tasks required in a job and the frequency with which those tasks are repeated. Job enlargement: The horizontal expansion of a job by increasing its scope. Job enrichment: The vertical expansion of a job by adding planning and evaluating responsibilities. Job depth: The degree of control employees has over their jobs. Job enrichment increases job depth. •

Combine tasks: Managers should put existing fragmented tasks back together to form a new, larger module of work (job enlargement) to increase skill variety and task identity.

•

Create natural work units: Managers should design tasks that form an identifiable and meaningful whole to increase employee ownership of the work and encourage employees to view their work as meaningful and important rather than as irrelevant and boring.

•

Establish client relationships: The client is the internal and external user of the product or service on which the employee works. Whenever possible managers should establish direct relationship between workers and their clients to increase skill variety, autonomy, and feedback.

•

Expand job vertically: Vertical expansion (job enrichment) gives employees responsibilities and controls that were formerly reserved for managers. It partially closes the gap between the doing and the controlling aspects of the job and increases employee autonomy.

•

Open feedback channels: Feedback lets employees know not only how well they are performing their jobs but also whether their job performance is improving, deteriorating, or remain the same. Ideally, employees should receive performance feedback directly as they do their jobs rather than from managers on an occasional basis.

Motivating a Diverse Workforce Employees have different personal needs and goals that they are hoping to satisfy through their job. Hence, apart from the normal motivation measures, a manager has to think in terms of flexibility. •

Skill-based pay: A pay system that rewards employees for the job skills they can demonstrate.

43

•

Compressed workweek: A workweek in which employees work longer hours per day but work fewer days per week.

•

Flexible work hours: A scheduling system in which employees are required to work a certain number of hours per hours per week but are free, within limits, to vary the hours of work.

•

Job sharing: The practice of having two or more people split a full-time job.

•

Pay-for-performance programs: Compensation plans that pay employees on the basis of some performance measure.

POINTS FOR DISCUSSION: 1. Most of us have to work for a living, and a job is a central part of our life. So why do managers have to worry so much about employee motivation issues? 2. Could managers use any of the motivation theories or approaches to encourage and support workforce diversity? Explain. 3. Explain any two of the motivation theories with relevance to performance of employees in workplaces. LEADERSHIP Leader is someone who can influence others and who has managerial authority. Leadership is the process of influencing a group toward the achievement of goals. Leadership research has identified the following leader traits – characteristics that might be used to differentiate leaders from nonleaders: •

Drive: Leaders exhibit high effort level, high desire for achievement, ambitious, tirelessly persistent in their activities, and show initiative.

•

Desire to lead: Leaders have a strong desire to influence and lead others, and demonstrate willingness to take responsibility.

•

Honesty and integrity: Leaders build trusting relationships between themselves and followers by being truthful, and by showing high consistency between word and deed.

•

Self-confidence: Leaders show self-confidence in order to convince followers of their rightness of goals and decisions.

•

Intelligence: Leaders need to be intelligent enough to gather, synthesise, and interpret large amount of information, and they need to be able to create visions., solve problems, and make correct decisions.

•

Job-relevant knowledge: In-depth knowledge allows leaders to make well informed decisions and to understand the implications of those decisions. 44

Behavioural Theories of Leadership 1. University of Iowa Studies: The university of Iowa studies explored three leadership theories. •

Autocratic Style: A leader who tended to centralise authority, dictate work methods, make unilateral decisions, and limit employee participation.

•

Democratic Style: A leader who tended to involve employees in decision making, delegate authority, encourage participation in deciding work methods and goals, and use feedback as an opportunity for coaching employees.

•

Laissez-faire Style: A leader who generally gives the group complete freedom to make decisions and complete the work in whatever way it saw fit.

2. Ohio State Studies: The Ohio state studies identified two important dimensions of leader behaviour. •

Initiating Structure: The extent to which a leader was likely to define and structure his or her role and the roles of group members in the search for goal attainment.

•

Consideration: The extent to which a leader had job relationships characterised by mutual trust and respect for group members’ ideas and feelings.

A leader high in both initiating structure and consideration behaviours is called a high-high leader. 3. University of Michigan Studies: University of Michigan’s Survey Research Center identified behavioural characteristics of leaders that were related to performance effectiveness. •

Employee oriented: Leaders who were employee oriented were described as emphasising interpersonal relationships, and taking care of employees’ needs.

•

Production oriented: Leaders who were production oriented emphasised technical or task aspects of jobs.

Specific Team Leadership Roles Liaison with external constituencies

Coach

Team Leader Role

Conflict Manager

Troubleshooter 45

Few other leadership Styles •

Transactional Leaders: Leaders who guide or motivate their followers in the direction of established goals by clarifying role and task requirements.

•

Transformational Leaders: Leaders who provide individualised consideration, intellectual stimulation, and possess charisma.

•

Charismatic Leaders: An enthusiastic, self-confident leader whose personality and actions influence people to behave in certain ways.

•

Visionary Leaders: Leaders who have the ability to create and articulate a realistic, credible, and attractive vision of the future that improves upon the present situation.

POINTS FOR DISCUSSION: 1. If you were to ask people why a given individual is a leader, they tend to describe the person in terms such as competent, consistent, self-assured, inspiring, and enthusiastic. How do these descriptions fit in with the leadership concepts you have studied? 2. What are leadership traits? What has leadership research shown about traits? CONTROLLING The process of monitoring activities to ensure that activities are being accomplished as planned and of correcting any significant deviations is control. The three approaches to control systems are: •

Market control: An approach to control that emphasises the use of external market mechanisms to establish the standards used in the control systems.

•

Bureaucratic control: An approach to control that emphasises organisational authority and relies on administrative rules, regulations, procedures, and policies.

•

Clan control: An approach to control in which employee behaviour is regulated by shared values, norms, traditions, rituals, beliefs, and other aspects of the organisation’s culture.

The control process The control process is a three step process having the following steps: 1. Measuring the actual performance: measuring can be done by the manager by personal observation. This is often called as management by walking around wherein a manager is out in the work area, interacting directly with employees, and exchanging information about what is going on. Measuring could be through statistical reports, oral reports, or written reports.

46

2. Comparing actual performance against standard: The comparison is between the actual performance and the expected standard levels of performance. In most cases there is an acceptable range of variation between actual performance and the standard. 3. Taking managerial action: Managerial action could be immediate corrective action or basic corrective action. However, if the variance is a result of unrealistic standard, a corrective attention has to be given to the standard itself.

Managerial Decisions in the Control Process

Compare actual performance with standard

Is Standard being attained?

Yes Do nothing

No Yes Is variance acceptable?

Objectives

Standard

Measure actual performance

Do nothing

No

Is Standard acceptable?

Yes

Identify cause of variation

No

Revise standard

Correct performance

Types of control 47

Managers can implement controls before the start of an activity, during the progress of an activity, or after an activity has been completed. 1. Feedforward control: This type of control focuses on preventing anticipated problems and variations since it takes place in advance of the actual work activity. 2. Concurrent control: This type of control takes place while a work activity is in progress. 3. Feedback control: This type of control takes place after a work activity is done. Qualities of an effective control system The characteristics of an effective control system can be grouped into 10 categories: 1. Accuracy: An effective control system is reliable and produces valid data. 2. Timeliness: An effective control system provides timely information. 3. Economy: An effective control system must be economical to operate. 4. Flexibility: An effective control system is flexible enough to adjust to changes and opportunities. 5. Understandability: An effective control system can be understood by users. 6. Reasonable criteria: An effective control system has control standards which are reasonable and attainable. 7. Strategic placement: Since managers cannot control everything, they must choose those factors that are strategic to the organisation’s performance. 8. Emphasis on exceptions: Because managers cannot control all activities, control devices should call attention only to exceptions. 9. Multiple criteria: Multiple measures decrease tendencies toward a narrow focus. 10. Corrective action: An effective control system not only indicates significant deviations but also suggests appropriate corrective action. POINTS FOR DISCUSSION: 1. “Every individual employee in the organisation plays a role in controlling work activities”. Do you agree, or do you think control is something for which only managers are responsible? Explain. 2. Contrast the advantages and drawbacks of feedforward, concurrent, and feedback control. 3. Explain the methods by which managers can acquire information about actual performance of activities. 48

OPERATIONS AND LOGISTIC MANAGEMENT Operations Management: The design, operation and control of the transformation process that converts resources into finished goods and services.

Operations System

Inputs People Technology Capital Equipment Materials Information

Transformation Process

Outputs Goods Services

Manufacturing Organisations: Organisations that produce physical goods such as steel, vehicles, textiles and farm machinery. Service Organisations: Organisations that produce outputs such as medical, educational and transportation services which are intangible. Characteristics of Services: • • •

Intangible: Cannot be seen, touched or felt. Inseparable: Produced and consumed simultaneously. Variable: Quality depends on who provides it and where it is provided. 49

•

Perishable: Cannot be stored in inventory

Planning Operations 1. Strategic Operations Plans: • • • •

Capacity Planning: How many are to be produced? Facilities Location Planning: Where are they to be produced? Process Planning: Which production methods are to be used? Facilities Layout Planning: How should equipment and work stations be arranged?

2. Tactical Operations Plans: • • •

Aggregate Planning: What is the overall production plan for all products? Master Scheduling: How many units of each product will be produced? Material Requirement Planning: What materials are needed to satisfy the master schedule?

50

What is to be produced?

Capacity Planning Location Planning Process Planning Layout Planning Aggregate Planning

Comprehensive Operations Plans

Master Scheduling MRP

S T R A T E G I C T A C T I C A L

Operations can take many different forms. The transformation process can be: Physical Locational Exchange Physiological Psychological Informational

as in manufacturing operations as in transportation or warehouse operations as in retail operations as in health care as in entertainment, or as in communication

Activities in Operations Management (OM) 51

• • • • • • • • • •

Organising work Selecting processes Arranging layouts Location facilities Designing jobs Measuring performance Controlling quality Scheduling work Managing inventory Planning production

Operations as the Technical Core 1. Finance / Accounting: • Production & Inventory data • Capital budgeting requests • Capacity expansion & technology plans • Budgets • Cost analysis • Capital investments • Stockholder requirements 2. Marketing • Product/Service availability • Lead time estimates • Status of order • Delivery schedules • Sales forecasts • Customer orders • Customer feedback • Promotions 3. Human Resources • Personnel needs • Skill sets • Performance evaluations • Job design • Work measurements • Hiring/firing • Training • Legal requirements • Union contract negotiations 4. Production (Operations) • • • • • • •

Orders of materials Production and delivery schedules Quality requirements Design/Performance specifications Material availability Quality data Delivery schedules 52

•

Designs Operations in an E-Business environment

1. Business-to-business (B2B): Electronic communication and trade among businesses. 2. Business-to-consumer (B2C): Electronic communication and trade between businesses and consumers. 3. Consumer-to-business (C2B): Transactions reverse of normal flow of trade by having customers post what they want and having business accept or reject their offer. 4. Consumer-to-consumer (C2C): Transactions involve consumer auction sites like eBay, or consumer exchange like Napster.

POINTS FOR DISCUSSION: 1. What activities are involved in the operations function? How does operations interact with other functional areas? 2. What constitutes Operations at a) a bank, b) a retail store, c) a hospital, d) a cable TV company? 3. Describe the strategic and tactical plans in planning operations. 4. Distinguish products from services in terms of their characteristics. STRATEGIC DECISIONS IN OPERATIONS Strategic decisions in operations involve: • • • • • • •

Product & services Processes & technology Capacity and facilities Human resources Quality Sourcing Operating systems

All these decisions fit like pieces in a puzzle. A tight strategic fit means competitors must replicate the entire system to obtain its advantages. 1. Product & Services: Make-to-order: Products and services are made to customer specifications after an order has been received. Operations issues: Satisfying the customer and minimising the time required to complete the order. Make-to-stock: Products and services are made in anticipation of demand. Operations issues: Forecasting future demand and maintaining inventory levels that meet customer service goals. 53

Assemble to order: Products and services are produced in standard modules to which options are added according to customer specifications. Operations issues: Minimizing the inventory level of standard components as well as the delivery time of the finished product. 2. Processes and Technology Project: is a one-at-a-time production of a product to customer order. Examples: construction projects, Shipbuilding, new product development, air craft manufacturing. Batch production: processes many different jobs at the same time in groups or batches. Examples: Printers, bakeries, machine shops, education, furniture making. Mass production: produces large volumes of a standard product for a mass market. Examples: Automobiles, televisions, personal computers, fast food, mast of consumer goods. Continuous production: processes very high volume commodity products that are very standardised. Examples: Refined oil, paints, chemicals, treated water. 3. Capacity and Facilities Capacity decisions affect: product lead times, customer responsiveness, operating costs and the firm’s ability to compete. Critical decisions: When, where, how much, what process. 4. Human resources Strategic issues involve determining skill levels, degree of autonomy required to operate the production systems, training requirements and selection criteria, policies for performance evaluations, compensation and incentives. 5. Quality Target level for quality, quality measurement, employees’ involvement in quality, training requirements, systems to ensure quality, maintenance of quality awareness, determination of customers’ quality perception, influence of decisions in functional areas on quality.

6. Sourcing Vertical integration: is the degree to which a firm produces the parts that go into its products. The strategic decision is to decide on how much work should be done out side the firm. Make or buy decisions and outsourcing decisions. 7. Operating Systems Operating systems execute strategic decisions on a day to day basis. Planning and control systems must be set up with timely feedback loops and consistent decision making criteria. 54

Strategic Planning

Mission & Mission Voice of the Business

Corporate Strategy

Voice of the Customer

Operations Strategy

Marketing Strategy

Financial Strategy

Types of Production Processes 1. Project: represents one-of-a-kind production for an individual customer. Examples include a building, airplane, ship, developing a new product. 2. Batch Production: A production system that processes items in small groups or batches is called batch production. Batch production systems are called job shops. Examples include machine shops, printers, bakeries, furniture making. 3. Mass Production: Mass production produces large volumes of a standard product for a mass market. Mass production is usually associated with flow lines or assembly lines. Advantages of mass production are its efficiency, low per-unit cost, easy to manufacture and control, and speed. 4. Continuous Production: This is used for very high volume commodity products that are very standardised. This system is highly automated and is typically in operation continuously 24 hours a day. Steel, paper, paints, chemicals and foodstuffs.

Process Planning Process planning determines how a product will be produced or a service is provided. It decides which components will be made in-house and which will be purchased from a supplier, selects processes and specific equipment, and develops and documents the specification s for manufacture and delivery. 1. Make-or-buy decisions: Companies that control the production of virtually all of its component parts, including the source of raw materials are said to be vertically integrated. Today, outsourcing is more common. For process planning which items will be purchased from an 55

outside supplier and which items are to be made inside is to be decided. This sourcing decision is called make-or-buy. The make-or-buy decision depends on the following: • • • • • •

Cost Capacity Quality Speed Reliability Expertise

2. Specific Equipment Selection: After making the make or buy decision, specific equipment decision has to be made. Capital investment analysis has to be carried out. Few techniques for this are: pay back period, net present value, and internal rate of return. The factors to be considered are: • • • • • •

Purchase cost Operating cost Annual savings Revenue enhancement Replacement analysis Risk and uncertainty

3. Process plans: The set of documents that details manufacturing and delivery specifications is called a process plan. This includes: • • • •

Blue prints Bill of materials Assembly chart Operations process chart

4. Process analysis: Process analysis is the systematic examination of all aspects of a process to improve its operation – to make it faster, more efficient, or more responsive to the customer. The basic tools of process analysis are: • Process flowcharts • Process diagrams • Process map. 5. Process reengineering: Process reengineering is the total redesign of a process. Processes are planned in response to new facilities, new products, new technologies, new markets, or new customer expectations. Principles of reengineering are: • • • • • •

Remove waste, simplify, and consolidate similar activities Link processes to create value Flex the process for any time, any place, any way Provide visibility through fresher and richer information about process status Add analytic capabilities to the process Personalise the process with the preferences and habits of participants. 56

6. Process selection with Break-Even analysis: Break-even analysis examines the cost trade-off associated with demand volume. The components of break-even analysis are volume, cost, revenue and profit. Break-even point is given by v=

cf p − cv

, Where

v = volume (number of units produced and sold cv = var iable cos tperunit c f = fixed cos t p = priceperunit

POINTS FOR DISCUSSION: 1. Describe the four basic types of production processes. What are the advantages and disadvantages of each? When should each be used? 2. What are the major cost factors considered in process selection? How is break-even analysis used for process section? 3. List and explain six factors that affect the make-or-buy decision. 4. What is reengineering? Explain how you would reengineer a process you find troubling? 5. Mikey W. Smitty, an emerging rapper, is getting ready to cut his first CD, called “Western Rap”. The cost of recording the CD is $ 5000 but copies are $ 5 apiece. If the CDs can be sold for $ 15 each, how many CDs must be sold to break even? What is the break even point in dollars? 2. Facilities Facilities have impact on both quality and productivity. Facility layout refers to the arrangement of machines, departments, workstations, storage areas, and common areas within an existing or proposed facility. Effective layouts: • • • • • • • • • • • • •

minimise material handling costs utilise space efficiently utilise labour efficiently eliminates bottlenecks facilitate communication and interaction between workers, between workers and their supervisors, or between workers and customers reduce manufacturing cycle time and customer service time eliminate unwanted and redundant movements facilitate the entry, exit, and placement of material, products and people promote product and service quality encourage proper maintenance activities provide visual control of activities provide flexibility to adapt to changing conditions increase capacity 57

Layouts: There are three basic types of production layouts: process, product, and fixed-position; and three hybrid layouts: cellular layouts, flexible manufacturing systems, and mixed-model assembly lines. 1. Process Layout: Process layout groups together similar activities in departments or work centres according to the process or function they perform. This is also called as functional layout. Examples are Supermarkets, Manufacturing shop floors.

Drilling

Lathe

Grinding

Receiving & shipping

Milling

Painting

Assembly

2. Product Layout: Activities are arranged in line according to the sequence of operations for a particular product or service. This is also known as assembly lines. Process layouts are flexible whereas product layouts are efficient.

IN

OUT

3. Fixed-Position layout: This layout is used in projects in which the product produced is too large, fragile, or heavy to move. Ships, houses, aircrafts are examples. Hybrid layouts modify and/or combine some aspects of product and process layouts. 58

4. Cellular layout: Cellular layouts attempt to combine the flexibility of a process layout with the efficiency of a product layout. Based on the concept of group technology (GT), dissimilar machines or activities are grouped into work centers, called cells, to process families of parts or customers with similar requirements. The cells are arranged in relation to each other so that material movement is minimised. Large machines that cannot be split among cells are located near to the cells that use them. The layout of machines within each cell resembles a small assemble line. Thus, line balancing procedures, with some adjustment, can be used to arrange the machines within the cell. The layout between cells is a process layout. The advantages of cellular layouts are as follows: • • • • • •

Reduced material handling and transit time Reduced setup time Reduced work-in-progress inventory Better use of human resources Easier to control Easier to automate

The disadvantages of cellular layouts are as follows: • • • •

Inadequate part families Poorly balanced cells Expanded training and scheduling of workers Increased capital investment

5. Flexible Manufacturing Systems (FMS): A flexible manufacturing system can produce an enormous variety of items. Early FMSs were very large and complex, consisting of dozens of CNC machines and sophisticated material handling systems. These systems were very automated, very expensive, and controlled by complex software. An FMS can produce an enormous variety of items efficiently because of the versatility of the machine centers in the FMS, the speed with which machines can be set up for different processing requirements, and the speed and flexibility of material transport between centers. 6.

Mixed-Model Assembly Lines: These assemble lines process more than one product model. Her the time needed to change over the line to produce different models is reduced. The workers are trained to perform a variety of tasks and are allowed to work at more than one workstation on the line, as needed.

POINTS FOR DISCUSSION: 1. Does layout make a difference? Think of a time when the layout of a facility impeded a process with which you were involved. Think of a time when a layout made it easier for a process to be completed. 2. Distinguish between a process and product layout. Give an example of each. 59

3. What types of layout(s) would be appropriate for: • A grocery shop? • Home construction? • Electronics assembly? • A university? State reasons for your choices. 4. Discuss the advantages and disadvantages of cellular layouts. How does a cellular layout combine a product and process layout? SUPPLY CHAIN MANAGEMENT (SCM) A supply chain encompasses all activities associated with the flow and transformation of goods and services from the raw materials stage to the end user, as well as the associated information flows. It is also a sequence of business processes and activities from suppliers through customers that provide the products, services, and information to achieve customer satisfaction. The suppliers are referred to as upstream supply chain members, while distributors, deliverers, are termed as downstream supply chain members.

Information

Suppliers • • • •

Materials Parts Sub assemblies Services

Inventory

Products Services

Producers

Distributors

Customers

Finished goods End products Services

Package Delivery

Satisfaction with Price, Quality, Delivery, Service

Products Services

Inventory

Products Services

Inventory

Cash

SCM focuses on managing the flow of goods and services and information through the supply chain in order to attain the level of synchronisation that will make it more responsive to customer needs while lowering total costs. Inventory is the insurance against supply chain uncertainty. Distorted information, or lack of information, from one end of the supply chain is one of the main causes of uncertainty, and it can lead to excessive inventory, poor customer service, lost revenues, missed production schedules, 60

wrong capacity plans, ineffective transportation, and high costs. Keys to effective supply chain management are information, communication, cooperation, and trust. 1. Information in the supply chains: Information links all aspects of the supply chain. Information technology can provide the following functions to improve supply chain management: • Integration of transportation, distribution, ordering, and production • Direct access to both domestic and global transportation and distribution channels • Locating and tracking the movement of every item in the supply chain • Consolidation of purchasing from all suppliers • Intercompany and intracompany information access • Data interchange • Data acquisition at the point of origin and point of sale • Instantaneous updating of inventory levels in real time Some of the most popular applications of information technologies for supply chain management include: Electronic Business, Electronic Data Interchange (EDI), bar coding, Internet, and World Wide Web. Electronic Business (E-Business or e-commerce): refers to the replacement of physical business processes with electronic ones. For companies heavily involved in e-business, paper transactions are becoming obsolete. Companies are able to automate the process of moving information electronically between suppliers and customers. Influences of e-business on supply chain management include: • • • • • • •

Cost saving and price reduction derived from lower transaction costs Reduction or elimination of the role of intermediaries and retailers, thus reducing costs Shorting supply chain transaction times for ordering and delivery Greater choices and more information for customers Improved service as a result of instant accessibility to services Levelling the playing field for small companies, which lack resources to invest in infrastructure and marketing Gaining global access to markets, suppliers, and distribution channels

Electronic Data Interchange (EDI): EDI is a computer to computer exchange of business documents established by ANSI (American National Standards Institute) and ISO (International Standards Organisation). EDI has proved to be effective in reducing or eliminating the bullwhip effect (The effect which unnecessarily increases inventory upstream in the supply chain). Bar Codes: Using bar coding, computer readable codes are attached to items flowing through the supply chain, including products, containers, packages and even vehicles. Bar code might include things such as product description, item number, its source, destination, special handling procedures, cost, and order number. Big packaging delivery companies like FedEx, UPS and DHL use bar codes to provide themselves and customers with instantaneous detailed tracking information. Point-of-sale is generated by bar codes at check-out counters. This piece of information can be instantaneously transmitted throughout the supply chain to update inventory records. This helps 61

suppliers, producers, and distributors to quickly identify trends, order parts and materials, schedule orders and production, and plan for deliveries. Intranets and Extranets: Intranets are computer networks within an organisation, while extranets are intranets connected to Internet. Intranets allow companies to implement internal applications without having to develop custom interfaces, avoiding expensive hardware and special dial-in procedures. Internet applications typically allow unlimited access. Extranets allow access by restricted partners and customers from outside the company. 2. Suppliers: Companies need materials, parts, and services necessary to produce their products to be delivered on time, to be of high quality, and to be low cost which are the responsibilities of the suppliers. Procurement – purchasing goods and services from suppliers – plays a crucial role in supply chain management. • • • • •

On-demand delivery: requires the supplier to deliver goods when demanded by the customer. Continuous replenishment: supplying orders in a short period of time according to a predetermined schedule. Sourcing: is the selection of suppliers. Outsourcing: is the purchase of goods and services from outside supplier. Single-sourcing: In single-sourcing, a company purchases goods and services from only a few (or one) suppliers.

3. Distribution: Distribution is the actual movement of products and materials between locations. Distribution management involves managing the handling of materials and products at receiving docks, storing products and materials, packaging, and shipment of orders. • • • •

•

Order fulfilment: this is the process of ensuring on-time delivery of an order. Logistics: is the process of transportation and distribution of goods and services. The driving force behind distribution and transportation in a competitive business environment is speed. Distribution Centers and Warehousing: These facilities are used to receive, handle, store, package, and then ship products. Warehouse Management systems (WMS) is an automated system that runs the day to day operations of a distribution center. A WMS may include: transportation management, order management, yard management, labour management, and warehouse optimisation. Distribution Outsourcing: As a recent trend, producers and manufactures are increasingly outsourcing distribution activities. This is done to allow the company to focus on its core competencies, in addition to lowering the inventory and reducing costs.

4. Transportation: In relation to supply chain, transportation refers to the movement of a product from one location to another as it makes its way to the end user. Some of the modes of transportation are: • • • • •

Rail Trucking Air Package Carriers Water 62

•

Pipelines

POINTS FOR DISCUSSION: 1. Define the strategic goals of supply chain management and indicate how each element of a supply chain (purchasing, production, inventory, and transportation and distribution) has an impact on these goals. 2. Select a company and determine the type of suppliers it has and indicate the criteria that you think the company might use to evaluate and select suppliers. 3. Discuss why single sourcing has become attractive to companies.

63