SHAFQUAT ALI

LBBA 1 (Quaid-i-Azam University Islamabad)

Subject: Principles of Management

Teacher: Mam Qudsia Jabeen

LECTURE 1 (Chapter 1)

MANAGEMENT AND ORGANIZATIONS

MANAGER

People who coordinates and oversees the work of other people and are responsible for directing the
efforts aimed at helping organizations achieve their goals.

TYPES OF MANAGERES

1. First line Manager

 First or lowest level of managers in organizational hierarchy
 Responsible for managing the work of operating (non-managerial) employees.
 Supervisor, shift managers, district managers, department managers, office managers
2. Middle level Manager
 Managers in midrange of organizational hierarchy
 Responsible for directing the activities of lower level managers and sometimes those of
operating employees.
 Also reports to more senior managers.
 Regional/project/store/division mangers.
3. Upper level Management
 Works at the top of organizational hierarchy
 Responsible for making organization-wide decisions, and establishes operating policies
and guides the organization’s interaction with its environment.
 Executive vice president, CEOs, president, managing director, chief operating officer,
MD.

MANAGEMENT LEVEL AND SKILLS (SKILLS APPROACH)

Henry Fayol identified three basic kinds of skills: technical, human and conceptual.

1. Technical Skill: ability to use the procedures, techniques, and knowledge of a specified field.
2. Human Skill: ability to work with, understand, and motivate other people as individuals or in
groups.
3. Conceptual Skill: ability to coordinate and integrate all of an organization’s interests and
activities.

Fayol and Robert L. Katz (Business Executive, teacher) suggests although all skills are essential to a
manager, their relative importance depends upon manager’s rank in the organization.

 Top Management Conceptual (increases with rise in rank)

 Middle Management Human (Important at every level but primarily for middle M)
 First line Management Technical

MANAGEMENT
 Management is efficient and effective utilization of organizational resources in order to achieve
organizational goals. Resources can be material, human or informational.

The process of planning, organizing, leading, and controlling the work of organization members and of
using all available organizational resources to reach stated organizational goals.

EFFECIENCY AND EFFECTIVNESS

EFFICIENCY EFFECTIVENESS
Ability to minimize use of resources in achieving Ability to determine appropriate objectives: “doing the
organizational objectives: “doing things right” right thing”
Getting work done with minimum effort expense or Accomplish task that helps fulfills organizations goals.
waste.
Use resources – people, raw material, money, time Make the right decisions and successfully carry them out
wisely and cost effectively. to achieve organizational goals.
Efficiency (means) Resource usage Effectiveness (End) Goal attainment

Management Strives for:

Low Resource Waste (high efficiency)
High Goal Attainment (high effectiveness)
 No amount of efficiency can make up for a lack of effectiveness. Effectiveness is the key to the
organization’s success. Before we can focus on doing things efficiently, we need to be sure we
have found the right things to do. (Peter Drucker)

MANAGEMENT FUNCTIONS
PLANNING (Settings goals and plans (how to achieve them))

 Define goals (making broad outlines of what need to be achieved)\

 Establish broad strategies for achieving these goals.
 Develop plans to integrate and coordinate activities

ORGANIZING (assigning tasks, grouping tasks into departments, delegating authority, and allocating
resources across the organization)

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

LEADING (Motivating employees and influencing their behavior to achieve organizational goals)

 Motivate subordinates (lower positions)

 Help resolve group conflicts
 Influence individuals or teams as they work
 Select the most effective communication channel
 Deal with employee behavior issues
CONTROLLING (Systematic process of collecting, analyzing and using information to track and
ensures all activities are accomplished as planned)
 Monitor activities’ performance
 Compare actual performance with actual set goal
 Evaluate activities’ performance whether things are going as planed
 Correct any disturbance to get work back on track and achieve the set goals

MANAGEMENT ROLES

MINTAZBERG MANAGEMENT ROLES

Henry Mintzberg in mid 1970s, devise a list of 10 managerial functions that in turn aggregated into three
major functions. He refers these functions and sub-functions as roles.

INTERPERSONAL INFORMATIONAL ROLES DECISIONAL ROLES

ROLES

 Figurehead  Monitor  Entrepreneur

 Monitor  Disseminator  Disturbance Handler

 Liaison  Spokesperson  Recourse Allocator

 Negotiator

INTERPERSONAL ROLES

Interpersonal roles cover the relationships that a manager has to have with others. (Subordinates and
person outside the organization).
o Figurehead Role: it relates largely to ceremonial duties performed by manager as a result of
his/her position. (Greeting visitors, speaking at opening of a new faculty, representing company
at community events to support the local charities)

o Leadership Role: ability to successfully influence people in order to translate intentions into
reality. (motivate employees to achieve organizational goals)

o Liaison Role: Involves contact with people outside the manager’s work to build alliances that
will help in organization goal achievement.
INFORMATIONAL ROLES

It relates to the manager as a receiver and sender of Information.

MONITOR ROLE: The manager collects Information.

(Scan environment for information, actively contact others for information, and continually update news
/ stories related to their business (inside and outside org.)
 DISSEMINATOR ROLE: Distributing information within the work unit (with subordinates and
other people)

 SPOKEPERSON ROLE: Distributing Information outside the work unit (departments and
companies)

DECISIONAL ROLES

Entails making decisions or choices

 ENTERPRENUERIAL ROLE: Involves the vision manager has regarding what must be done in
order to successfully perform his or her job. (adapt themselves, subordinates and their
department/units to innovation and change

 DISTRABANCE HANDLER: It relates to control. Manager must devise a system for understanding
and handling disturbances as they arise.

 RESOURCE ALLOCATOR: It is related to planning. Manager must have plan to make happen the
entrepreneurial vision. Efficient use of Man, material, money, information.

 NEGOTAITION ROLE: It requires managers to fight or his or her vision. I.e. negotiation with
superior, upper-management to get funds and better worker salaries.

HOW IS THE MANAGERS JOB CHANGING?

In today’s world, managers are dealing with global, economic and political uncertainties, changing
workplaces, ethical issues, security threats, and changing technology.

The Increasing Importance of Customers

 Customers: the reason that organizations exist
 Changing customer relationships is the responsibility of all managers and employees.
 Consistent high quality customer service is essential for survival.

Innovation
 Doing things differently, exploring new territory, and taking risks
 Managers should encourage employees to be aware of and act on opportunities for innovation.
CHANGES FACING MANAGERS

CHELLENGES IMPACTING THE MANAGERS JOB

ETHICS: (Code of Conduct, right or wrong)

 Increased emphasis on ethics in college and university curriculums

 Increased creation and use of codes of ethics by businesses

WORKFORCE DIVERSITY

 Increasing heterogeneity in workplace. A more diverse workforce. (Pluralism)

 Gender diverse, minority, ethnic and other form of diversity in employees (more emphasis on
cultural values)
 Aging Population (biggest immediate issue in Europe, USA)

GLOBALIZATION
  The process by which people and goods move easily across borders. (integration of markets,
trade and investment)
 The rise of market economy and neo-liberalism
 Management in International organization
 Political and Cultural Challenges of operating in global market

E-BUSINESS (electronic business)

 The work performed by an organization using electronic linkages to its key constituencies
 E-commerce: the sales and marketing component of an e-business

IMPORTANCE OF CUSTOMERS

 Customers have more opportunities than ever before

 Delivering consistent high-quality service is essential
 Managers need to create customer-responsive organizations

INNOVATION

 Doing things differently, exploring new territory, and taking risks

 Managers need to encourage all employees to be innovative

KNOWLEDGE MANAGEMENT

 The cultivation of a learning culture where organizational members systematically gather and
share knowledge with others in order to achieve better performance

DEFINING AN ORGANIZATION

A deliberate arrangement of people to accomplish some specific purpose (that individuals

independently could not accomplish alone).

Common Characteristics of Organizations

 Have a distinct purpose (goal)
 Composed of people
 Have a deliberate structure

WHY STUDY MANAGEMENT?

Universality of Management: management is needed in all types (profit or non-profit) and sizes
of organizations (small or large), at all organizational levels (Bottom or top) and in all
organizational work areas (Marketing, HRM, finance, sales and production, Information), and in
all organizations, no matter where they’re located.
The reality of Work: Employees either manage or being managed
 LEARNING ORGANIZATION
An organization that has developed the capacity to continuously learn, adapt, and change.

Learning Organization vs. Traditional Organization

Traditional Organization Learning Organization

Attitude towards change If it’s working, don’t change it If you’re working. It won’t working too
long
Attitude towards new ideas If it isn’t invented here, reject it If it was invented or reinvented here,
reject it
Who is responsible for Traditional areas such as R & D Everyone in organization
innovation?
Main fear Making mistakes Not learning: not adopting
Competitive advantage Products and Services Ability to learn, knowledge and expertise
Manager Job Control others Enable others

REWARDS AND CHELLENGES OF BEING A MANAGER

REWARDS CHELLENGES
 Create a work environment in which  May have duties that are more clerical than
organizational members can work according managerial.
to best of their ability.  Have to deal with variety of personalities
 Have opportunities to think creatively and  Often have to make with limited resources
use imagination.  Motivate workers in chaotic and uncertain
 Help others find meaning and fulfilment in situations.
work.  Blend knowledge, skills, ambitions, and
 Support, coach and nurture others. experiences of a diverse work group.
 Work with a variety of people  Success depends on others’ work performance.
 Receive recognition and status in
organization and community.
 Play role in influencing organizational
outcomes.
 Receive appropriate compensation in the
form of salaries, bonuses, and stock options
 Good managers are needed by
organizations.
Lecture 2 (Chapter 2)

MANAGEMNT HISTORY MODULE

Management has been practiced a long time. Organized endeavors directed by people responsible for
planning, organizing, leading, and controlling activities have existed for thousands of years.

 EGYPTIAN PYRAMIDS
 THE GREAT WALL OF CHINA
 INDUS VALLEY CIVILIZATION, CITY OF VIENCE

ADAM SMITH (JOB SPECIALIZATION)

 In 1776, published “The Wealth of Nations” in which he argued the economic advantages that
organizations and society would gain from the division of labor (or job specialization)—that is,
breaking down jobs into narrow and repetitive tasks.
 Individual employees specialize in part of an activity rather than the entire activity to increase
output.
 Division of labor increased productivity by increasing each worker’s skill and dexterity, saving
time lost in changing tasks, and creating laborsaving inventions and machinery.

INDUSTRIAL REVOLUTION

 Machine power was substituted for human power.

 Created need for large organization in need of management

MAJOR APPROCHES TO MANAGEMENT

 CLASSICAL APPROACH
The formal study of management didn’t begin until early in the twentieth century. These first studies of
management, often called the classical approach, emphasized rationality and making organizations and
workers as efficient as possible.

SCIENTIFIC MANAGEMEMNT
 Fredrick Wilson Taylor, the father of Scientific Management
 Published Principles of Scientific Management in (1911)
The Theory of Scientific Management
 Using scientific methods to define the “one best way” for a job to be done:
 Putting the right person on the job with the correct tools and equipment.
 Having a standardized method of doing the job.
 Providing an economic incentive to the worker.

PIG IRON EXPRIMENT: Workers loaded “pigs” of iron (each weighing 92lbs.) onto rail cars. Their daily average
output was 12.5 tons. However, Taylor believed that by scientifically analyzing the job to determine the “one
best way” to load pig iron, output could be increased to 47 or 48 tons per day. After scientifically applying
different combinations of procedures, techniques, and tools, Taylor succeeded in getting that level of
productivity.

 In modern terms, Taylor’s concept of job design was to analyze the job, discard wasted
movements, and reconstruct the job as it should be done.
 He also sought to find the right tools, and the right way to operate the machinery to make the
job more efficient.

TAYLOR’S SCIENTIFIC MANAGEMENT PRINCIPLES

1. Develop a science for each element of an individual’s work to replace the old rule-of thumb method.

2. Scientifically select and then train, teach, and develop the worker.

3. Heartily cooperate with the workers so as to ensure that all work is done in accordance with the
principles of the science that has besen developed.

4. Divide work and responsibility almost equally between management and workers. Management does
all work for which it is better suited than the workers.

 Frank Gilbreth a construction worker and his wife Lilian, a psychologist studied work to eliminate
inefficient hand-and body motions. The Gilbreths also experimented with the design and use of
the proper tools and equipment for optimizing work performance.
 Frank is probably best known for his bricklaying experiments. (Time and motion study to
eliminate wasted motions). The Gilbreths invented a device called a Microchronometer that
recorded a worker’s hand-and-body motions and the amount of time spent doing each motion .
They also devised a classification scheme to label 17 basic hand motions (such as search, grasp,
 hold), which they called “therbligs”. This scheme gave the Gilbreths a more precise way of
analyzing a worker’s exact hand movements.

GENERAL ADMINISTRATIVE THEORY

HENRY FAYOL
Fayol described the practice of management as something distinct from accounting, finance,
production, distribution, and other typical business functions. His belief that management was
an activity common to all business endeavors, government, and even the home led him to
develop 14 principles of management—fundamental rules of management that could be
applied to all organizational situations and taught in schools.
1. Division of Work. Specialization increases output by making employees more efficient.
2. Authority. Managers must be able to give orders, and authority gives them this right.
3. Discipline. Employees must obey and respect the rules that govern the organization.
4. Unity of command. Every employee should receive orders from only one superior.
5. Unity of direction. The organization should have a single plan of action to guide managers
and workers.
6. Subordination of individual interests to the general interest. The interests of any one
employee or group of employees should not take precedence over the interests of the
organization as a whole.
7. Remuneration. Workers must be paid a fair wage for their services.
8. Centralization. This term refers to the degree to which subordinates are involved in decision
making.
9. Scalar chain. The line of authority from top management to the lowest ranks is the scalar
chain.
10. Order. People and materials should be in the right place at the right time.
11. Equity. Managers should be kind and fair to their subordinates.
12. Stability of tenure of personnel. Management should provide orderly personnel planning
and ensure that replacements are available to fill vacancies.
13. Initiative. Employees who are allowed to originate and carry out plans will exert high levels
of effort.
14. Esprit de corps. Promoting team spirit will build harmony and unity within the organization.
MAX WEBER – Early 1900s
 German Sociologist
 Developed a theory of authority, structures and relations based on an ideal type of organization
he called a bureaucracy.
 Weber recognized that this “ideal bureaucracy” didn’t exist in reality. Instead he intended it as a
basis for theorizing about how work could be done in large groups. His theory became the
structural design for many of today’s large organizations.

CHARACTERISTICS OF BUREAUCRACY

1. DIVISION OF LABOR: Jobs broken down into simple, routine, and well-defined tasks.
2. CLEARLY DEFINED HIERARCHY AND AUTHORITY: Positions organized in a hierarchy with a clear
chain of command
3. FORMELY RULES AND REGULATIONS: System of written rules and standard operating
procedures.
4. IMPERSONALITY: Uniform application of rules and controls, not according to personalities.
5. FORMAL SELECTION: People selected for jobs based on technical qualifications.
6. CAREER ORIENTATION: Managers are career professionals, not owners of units they manage.

BEHAVIORAL APPROACH
THE HAWTHRONE STUDIES

 A series of productivity experiments conducted at Western Electric (USA) from 1927 to 1932.
 The Hawthorne studies were conducted in order to find out the role of human resource in
increasing the production of an organization
 Wanted to examine the effect of various lighting levels on worker productivity.
EXPIREMENT FINDINGS
 As the level of light was increased in the experimental group, output for both groups increases.
 Then, much to the surprise of the engineers, as the light level was decreased in the
experimental group, productivity continued to increase in both groups.
 They concluded that lighting intensity was not directly related to group productivity, and that
something else must have contributed to the results
RESEARCH CONCLUSION (Elton Mayo, Harvard Professor)
 Social norms, group standards and attitudes more strongly influence individual output and work
behavior than do monetary incentive
 These conclusions led to a new emphasis on the human behavior factor in the management of
organizations.

HAWTHRONE EFFECTS
Better lighting, more regular breaks etc. improve productivity. However, when workers see, people
concern for them, productivity rises more.

QUANTITATIVE APPROACH
 Also called operations research or management science

 Evolved from mathematical and statistical methods developed to solve WWII military logistics
and quality control problems. After the war was over, many of these techniques used for
military problems were applied to businesses.

 Focuses on improving managerial decision making by applying: statistics, optimization models,

information models, computer simulations, and other quantitative techniques to management
activities.

 Examples: Linear programming, for instance, is a technique that managers use to improve
resource allocation decisions.

Total quality management, or TQM, is a management philosophy devoted to continual improvement

and responding to customer needs and expectations.

CONTEMPORARY APPROACH

THE SYSTEM APPROACH

A system is a set of interrelated and interdependent parts arranged in a manner that produces a unified whole.

 Closed systems are not influenced by and do not interact with their environment. (All system input and
output is internal)
 Open systems are influenced by their environment and dynamically interact with their environment by
taking inputs and converting them into output that are distributed in their environment.

Organizations are described as an open system. The organization is “open” to and interacts with its environment.
Organization as being made up of “interdependent factors, including individuals, groups, attitudes, motives, formal
structure, interactions, goals, status, and authority. Managers coordinate work activities in the various parts of the
organization, they ensure that all these parts are working together so the organization’s goals can be achieved.

Organization as an Open System:

IMPLICATIONS OF SYSTEM APPROACH
 Coordination of the organization’s parts is essential for proper functioning of the entire
organization.
 The systems approach implies that decisions and actions in one organizational area will affect
other areas.
 The systems approach recognizes that organizations are not self-contained. They rely on their
environment for essential inputs and as outlets to absorb their outputs. No organization can
survive for long if it ignores government regulations, supplier relations, or the varied external
constituencies upon which it depends.

THE CONTENGENCY APPROACH

Different and changing situations require managers to use different approaches and techniques.

The contingency approach (sometimes called the situational approach) says that organizations are
different, face different situations (contingencies), and require different ways of managing.

There is no one universally applicable set of management principles (rules) by which to manage
organizations. Organizations are individually different, face different situations (contingency variables),
and require different ways of managing.

POPULAR CONTINGENCY FACTORS

 Organization Size. As size increases, so do the problems of coordination.

 Routineness of Task Technology. To achieve its purpose, an organization uses technology.
Routine technologies require organizational structures, leadership styles, and control systems
that differ from those required by customized or no routine technologies.
 Environmental Uncertainty. The degree of uncertainty caused by environmental changes
influences the management process. What works best in a stable and predictable environment
may be totally inappropriate in a rapidly changing and unpredictable environment.
 Individual Differences. Individuals differ in terms of their desire for growth, autonomy, tolerance
of ambiguity, and expectations. These and other individual differences are particularly important
when managers select motivation techniques, leadership styles, and job designs.
CHAPTER 3

ORGANIZATION CULTURE AND ENVIRONMENT: THE CONSTRAINTS

THE MANAGER: OMNIPOTENT OR SYMBOLIC

Omnipotent View of Management: The dominant view in management theory and society in general is
that managers are directly responsible for an organization’s success or failure. (Traditional view)

In this view, someone has to be held accountable when organizations perform poorly regardless of the
reasons, and that “someone” is the manager.

 The quality of the organization is determined by the quality of its managers.

 Managers are held accountable for an organization’s performance

Symbolic View of Management: much of an organization’s success or failure is due to external forces
outside managers ‘control.

 A manager’s ability to affect performance outcomes is influenced and constrained by external

factors. It’s unreasonable to expect managers to significantly affect an organization’s
performance.
 Instead, performance is influenced by factors over which managers have little control such as
the economy, customers, governmental policies, competitors ’actions, industry conditions, and
decisions made by previous managers.
 This view is labeled “symbolic” because it’s based on the belief that managers symbolize control
and influence.

CONSTRAINTS ON MANAGERIAL DISCRETION

 ORGANIZATION’S CULTURE
Just like human, an organization, too, has a personality, which we call its culture. And that culture
influences the way employees act and interact with others.

Organizational culture has been described as the shared values, principles, traditions, and ways of doing
things that influence the way organizational members act.

 It determines “The way we do things around here”. (values, norms, myths, symbols, rituals,
practices, and beliefs)

IMPLICATIONS

 Culture is perception (not physical but what members experience)

 it is descriptive (how members perceive it and describe it)
 it is shared (members describe it in shared terms regardless of their background)

STRONG CULTURE

Those culture in which the key values are deeply held and widely shared—have a greater influence on
employees than do weaker cultures.

FACTORS INFLUENCING STRENGTH OF CULTURE

 Size of organization
 Age of organization
 Rate of employee turnover
 Strength of their original culture
 Clarity of cultural values and beliefs

STRONG VS. WEAK CULTURE

Strong Culture Weak Culture

Values widely shared Values limited to a few people—usually top
management
Culture conveys consistent messages about what’s Culture sends contradictory messages about what’s
important important
Most employees can tell stories about company Employees have little knowledge of company
history or heroes history or heroes
Employees strongly identify with culture Employees have little identification with culture
Strong connection between shared values and Little connection between shared values and
behaviors behaviors

BENIFTS OF STRONG CULTURE

 Organizations with strong cultures, employees are more loyal than are employees in
organizations with weak cultures.
 Research suggests that strong cultures are associated with high organizational performance.
 Creates a stronger employee commitment to the organization
 Aids in the recruitment and socialization of new employees

DRAWBACK (Strong culture also might prevent employees from trying new approaches especially when
conditions are changing rapidly).

SOURCES OF ORGANIZATION CULTURE

 The original source of the culture usually reflects the vision of the founders. (vision and mission)
 The actions (behaviors) of top management
 Past practices of the organization

CONTINUATION OF ORGANIZATIONAL CULTURE

Once the culture is in place, certain organizational practices help maintain it.

 Recruitment of likeminded employees who fit. During the employee selection process,
managers typically judge job candidates not only on the job requirements, but also on how well
they might fit into the organization.
 Organizations help employees adapt to the culture through socialization, a process that helps
new employees learn the organization’s way of doing things.

MANAGERIAL DECISIONS AFFECTED BY CULTURE

Planning

 The degree of risk that plans should contain

 Whether plans should be developed by individuals or teams
 The degree of environmental scanning in which management will engage

Organizing

 How much autonomy should be designed into employees’ jobs

 Whether tasks should be done by individuals or in teams
 The degree to which department managers interact with each other

Leading
  The degree to which managers are concerned with increasing employee job satisfaction
 What leadership styles are appropriate
 Whether all disagreements—even constructive ones—should be eliminated

Controlling

 Whether to impose external controls or to allow employees to control their own actions
 What criteria should be emphasized in employee performance evaluations
 What repercussions will occur from exceeding one’s budget

ORGANIZATION CULTURE ISSUES

CREATING AN ETHICAL CULTURE

A strong culture with high risk tolerance, low to moderate aggressiveness, and focus on means, as well
as, outcomes, is most likely to shape high ethical standards.

CREATING INNOVATIVE CULTURE

 Challenge and involvement – Are employees involved in, motivated by, and committed to long-
term goals and success of the organization?
 Freedom – Can employees independently define their work, exercise discretion, and take
initiative in their day-to-day activities?
 Trust and openness – Are employees supportive and respectful to each other?
 Idea time – Do individuals have time to elaborate on new ideas before taking action?
 Playfulness/humor – Is the workplace spontaneous and fun?
 Conflict resolution – Do individuals make decisions and resolve issues based on the good of the
organization versus personal interest?
 Debates – Are employees allowed to express opinions and put forth ideas for consideration and
review?
 Risk-taking – Do managers tolerate uncertainty and ambiguity, and are employees rewarded for
taking risks?

Suggestions for Managers: Creating a More Ethical Culture

o Be a visible role model

o Communicate ethical expectations
o Provides ethical training
o Visibly reward ethical acts and punish unethical ones
o Provide protective mechanisms so employees can discuss ethical dilemmas and report
unethical behavior without fear.

CREATING CUSTOMER RESPONSIVE CULTURE

1) Type of Employees
Hire people with personalities and attitudes consistent with customer service (having strong interest
in serving customer): friendly, attentive, enthusiastic, patient, good listening skills.
2) Type of Job Environment
Design jobs so employees have as much control as possible to satisfy customers, without rigid rules,
procedures and regulations.
 3) Empowerment
Give service-contact employees the discretion to make day-to-day decisions on job-related activities.
4) Role Clarity
Providing role clarity to employees to reduce ambiguity and conflict and increase job satisfaction.
5) Consistent desire to satisfy and delight customers
Clarify organization’s commitment to doing whatever it takes, even if it’s outside an
employee’s normal job requirements
 Having conscientious, caring employees willing to take initiative
 Having good listening skills in relating to customers’ messages

SUGGESTIONS FOR MANAGERS: CREATING A MORE CUSTOMER RESPOSINVE CULTURE

 Hire service-contact people with the personality and attitudes consistent with customer service
—friendliness, enthusiasm, attentiveness, patience, concern about others, and listening skills.

 Train customer service people continuously by focusing on improving product knowledge, active
listening, showing patience, and displaying emotions.

 Socialize new service-contact people to the organization’s goals and values.

 Design customer-service jobs so that employees have as much control as necessary to satisfy
customers.

 Empower service-contact employees with the discretion to make day-to-day decisions on job-
related activities.

 As the leader, convey a customer-focused vision and demonstrate through decisions and actions
the commitment to customers.

THE EXTERNAL ENVIRONMENT: CONSTRAINTS AND CHELLENGES

The term external environment refers to factors and forces outside the organization that affect its
performance.

Components of the External Environment

 Specific environment: external forces that have a direct and immediate impact on the
organization (customers, investors, public pressure groups) etc.

 General environment: broad economic, socio-cultural, political/legal, demographic,

technological, and global conditions that may affect the organization

 ECONOMIC: interest rates, inflation, changes in disposable income, stock market fluctuations,
and business cycle stages.
(Great Recession/depression, Covid 19)
  DEMOGRAPHIC: trends in population characteristics such as age, race, gender, education level,
geographic location, income, and family composition.
(Lifestyle, entertainment, I Generation, Generation Z)
 POLITICAL/LEGAL: federal, state, and local laws, as well as global laws and laws of other
countries. It also includes a country’s political conditions and stability.
 SOCIOCULTURAL: societal and cultural factors such as values, attitudes, trends, traditions,
lifestyles, beliefs, tastes, and patterns of behavior.
 TECHNOLOGICAL: scientific or industrial innovations.
 GLOBAL: issues associated with globalization and a world economy.

STAKEHOLDER RELATIONSHIP
Stakeholders are any constituencies in the organization’s environment that are affected by an
organization’s decisions and actions. These groups have a stake in or are significantly influenced by what
the organization does. In turn, these groups can influence the organization.

WHY MANAGE STAKEHOLDER RELATIONSHIPS?

 It can lead to desirable organizational outcomes such as improved predictability of

environmental changes, more successful innovations, greater degree of trust among
stakeholders, and greater organizational flexibility to reduce the impact of change.
 It can lead to improved organizational performance (research shows)
 It’s the “right” thing to do. Because an organization depends on these external groups as
sources of inputs (resources) and as outlets for outputs (goods and services), managers need to
consider their interests as they make decisions.

ORGANIZATION STAKEHOLDERS
MANAGING STAKEHOLDER RELATIONSHIPS
a. Identify the organization’s external stakeholders.

b. Determine the particular interests and concerns of the external stakeholders.

c. Decide how critical each external stakeholder is to the organization.

d. Determine how to manage each individual external stakeholder relationship

Lecture 4 (Chapter 8)

FOUNDATIONS OF PLANNING

PLANNING: A primary managerial activity that involves:

 Defining the organization’s goals

 Defining an overall strategy to achieve those goals
 Developing plans to integrate and coordinate work activities.
Planning is concerned with both ends (what) and means (how).

TYPES OF PLANNING

 Formal: written, specific, and long term focus, involves shared goals for organization

 Informal: non written down, short term focus, specific to an organization unit.

Goals: desired outcomes or targets/future state that organization attempts to realize

Plans: documents that outline how goals are going to be met.

A plan is a blueprint for goal achievement and specifies necessary resource allocations, schedules, tasks,
and other actions.

Planning: incorporates both ideas and means, determining the goals and defining the means for achieving
for them.

TYPES OF GOALS (give practical examples)

1. FINANCIAL GOALS: goals which are related to the financial performance of the organization,
2. STRATEGIC GOALS: are related to all other areas of an organization’s performance. (Bloomberg
L.P.: “We want to be the world’s most influential news organization.”)
3. STATED GOALS: official statements of what an organization says, and what it wants its
stakeholders to believe, its goals are.
 Found in an organization’s charter, annual report, public relations announcements, or in public
statements made by managers—are often conflicting and influenced by what various
stakeholders think organizations should do.

4. REAL GOALS: those goals an organization actually pursues—observe what organizational

members are doing. Actions define priorities.

WHY DO MANAGERS PLAN?

 Planning provides direction to managers and no managers alike. When employees know what
their organization or work unit is trying to accomplish and what they must contribute to reach
goals, they can coordinate their activities, cooperate with each other, and do what it takes to
accomplish those goals. Without planning, departments and individuals might work at cross-
purposes and prevent the organization from efficiently achieving its goals.
  Planning reduces uncertainty by forcing managers to look ahead, anticipate change, consider
the impact of change, and develop appropriate responses. Although planning won’t eliminate
uncertainty, managers plan so they can respond effectively.
 Planning minimizes waste and redundancy. When work activities are coordinated around plans,
inefficiencies become obvious and can be corrected or eliminated.
 Planning establishes the goals or standards used in controlling. When managers plan, they
develop goals and plans. When they control, they see whether the plans have been carried out
and the goals met. Without planning, there would be no goals against which to measure work
effort.

PLANNING AND PERFORMANCE

 Formal planning is associated with positive financial results—higher profits, higher return on
assets, and so forth.
 The quality of planning and implementation affects performance more than the extent of just
planning.
 The external influence can reduce the impact of planning on performance.
 The planning-performance relationship also seems to be influenced by the planning time
frame.

TYPES OF PLANS (Give example of each)

1. STRATEGIC PLANS: plans that apply to the entire organization and establish the organization’s
overall goals. (Strategic plans are broad).
 2. OPERTIONAL PLANS: Plans that encompass a particular operational area of the organization.
(operational plans are narrow)

3. LONG TERM PLANS: as those with a time frame beyond three years.

4. SHORT-TERM PLANS: cover one year or less. (Any time period in between would be an
intermediate plan. Although these time classifications are fairly common, an organization can
use any planning time frame it wants).

5. SPECIFIC PLANS: Specific plans are clearly defined and leave no room for interpretation. A
specific plan states its objectives in a way that eliminates ambiguity and problems with
misunderstanding.

6. DIRECTIONAL PLANS: Directional plans are flexible plans that set out general guidelines. They
provide focus but don’t lock managers into specific goals or courses of action. When uncertainty
is high and managers must be flexible in order to respond to unexpected changes, directional
plans are preferable.

7. SINGLE USE PLAN: is a one-time plan specifically designed to meet the needs of a unique
situation.

8. STANDING PLANS: are ongoing plans that provide guidance for activities performed repeatedly.

SETTING GOALS AND DEVELOPING PLANS

GOAL SETTING/ACTION PLANNING: it is process of deciding what you want to accomplish and devising
plan to achieve the results you want. It is a two part process. For effective goal setting you need to do
more than just deciding what you want to do; you also have to work at accomplishing whatever goal you
have set for yourself.

APPROCHES TO SETTING GOALS (PLANNING)

1. Traditional goal setting

2. Management by Objectives MBO

TRADIONAL GOAL SETTING APPROCH

 Goals set by top managers’ flow down through the organization and become sub goals for each
organizational area.
 Top level management is often assisted by formal planning department; a group of planning
specialist whose sole responsibility is helping to write organizational plans.
 Under this approach, plans developed by top-level managers flow down through other
organizational levels.
 Although this approach makes managerial planning thorough, systematic, and coordinated.
  The plans are tailored to the particular needs of each level.

 This traditional perspective assumes that top managers know what’s best because they see the
“big picture.”

Problems with Traditional Goal Setting Approach

 Turning broad strategic goals into specific departmental, team, and individual goals can be a
difficult and frustrating process.

 When top managers define the organization’s goals in broad terms—such as achieving
“sufficient” profits or increasing “market leadership”—these ambiguous goals have to be made
more specific as they flow down through the organization. Managers at each level define the
goals and apply their own interpretations and biases as they make them more specific.

 Clarity is lost as the goals make their way down from the top of the organization to lower levels

MANAGEMENT BY OBJECTIVES (MBO)

A process of setting mutually agreed-upon goals and using those goals to evaluate employee
performance.

MBO programs have four elements:

1) Goal specificity

2) Participative decision making: (boss and employee)

3) Explicit time period

4) Performance feedback: continuous on performance and goals to monitor and correct their own
actions.

 Instead of using goals to make sure employees are doing what they’re supposed to be doing,
MBO uses goals to motivate them as well. The appeal is that it focuses on employees working to
accomplish goals they’ve had a hand in setting

STEPS IN MBO

1. The organization’s overall objectives and strategies are formulated.

2. Major objectives are allocated among divisional and departmental units.

 3. Unit managers collaboratively set specific objectives for their units with their managers.

4. Specific objectives are collaboratively set with all department members.

5. Action plans, defining how objectives are to be achieved, are specified and agreed upon by
managers and employees.

6. The action plans are implemented.

7. Progress toward objectives is periodically reviewed, and feedback is provided. 8. Successful

achievement of objectives is reinforced by performance-based rewards.

STEPS IN GOAL SETTING

1) Review the organization’s mission, or purpose: (A mission is a broad statement of

organization’s purpose that provides overall guidance). Managers should review the mission
before writing goals because goals should reflect that mission.

2) Evaluate available resources: set realistic goals according to available resources.

3) Determine the goals individually or with input from others: goals should be measurable,
specific, and include a time frame for accomplishment and should be congruent with the
organizational mission and goals in other organizational areas.

4) Write down the goals and communicate them to all who need to know: Writing down and
communicating goals forces people to think them through.

5) Review results and whether goals are being met: If goals aren’t being met, change them as
needed.

WELL WRITTEN GOALS

 Written in terms of outcomes rather than actions

 Measurable and quantifiable
 Clear as to a time frame
 Challenging yet attainable
 Written down
 Communicated to all necessary organizational members

DEVELOPING PLANS

Contingency Factors and Planning Approaches

CONTINGENCY FACTORS IN PLANNING

 a. Organizational Level: lower-level managers do operational planning while upper-level managers
do strategic planning.
b. Degree of Environmental Uncertainty: Stable Environment (specific plans), Dynamic
Environment (specific but flexible).

 Managers must be prepared to change or amend plans as they’re implemented. At times,

they may even have to abandon the plans

c. Length of Future Commitments: The commitment concept says that plans should extend far
enough to meet those commitments made when the plans were developed. Planning for too
long or too short a time period is inefficient and ineffective.

CONTEMPORARY ISSUES IN PLANNING

HOW MANAGERS CAN PLAN EFFECTIVELY IN DYNAMIC ENVIRONMENT?

 Data driven approach

 Contingency planning (specific and flexibility in plans)
 Making organizational level falter (minimizing hierarchy)
 Managers need to recognize planning is an ongoing process
 A manager’s analysis of the external environment may be improved by environmental scanning,
which involves screening information to detect emerging trends. One of the fastest-growing
forms of environmental scanning is competitor intelligence, which is gathering information
about competitors that allows managers to anticipate competitors’ actions rather than merely
react to them.

Lecture 5

PLANNING TOOLS AND TECHNIQUES

TECHNIQUES FOR ASSESSING THE ENVIRONMENT

Environmental scanning, forecasting, and benchmarking.

ENVIRONMENT SCANNING: is the screening of large amounts of information to anticipate and interpret
changes in the environment. Extensive environmental scanning is likely to reveal issues and concerns
that could affect an organization’s current or planned activities.

 Research has shown that companies that use environmental scanning have higher performance.

 COMPETITOR INTELLIGENCE: process by which organizations gather information about their

competitors and get answers to questions such as Who are they? What are they doing? How will
what they’re doing affect us?

 It is not spying, but rather careful attention to readily available information from employees,
customers, suppliers, the internet and the competitors itself,.
 Advertisements, promotional materials, press releases, reports filed with government agencies,
annual reports, want ads, newspaper reports, and industry studies are examples of readily
accessible sources of information.
 Many firms regularly buy competitors ‘products and have their own engineers study them
(through a process called reverse engineering) to learn about new technical innovations.
 Managers need to be careful about the way competitor information is gathered to prevent any
concerns about whether it’s legal or ethical.

 GLOBAL SCANNING:

 Screening a broad scope of information on global forces that might affect the organization.
 Has value to firms with significant global interests.
 Draws information from sources that provide global perspectives on world-wide issues and
opportunities
 The first step in developing an effective global business is to create global-scanning skills.
Careful, ongoing identification and analysis of critical global trends, trends, both
macroeconomic and industry-specific, create an informed basis for business decisions.

FORECASTING

The part of organizational planning that involves creating predictions of outcomes based on information
gathered by environmental scanning.
 Facilitates managerial decision making
 Is more accurate in stable environments

FORECASTING TECHNIQUS
Quantitative forecasting applies a set of mathematical rules to a series of past data to predict
outcomes. These techniques are preferred when managers have sufficient hard data that can be used.
Qualitative forecasting, in contrast, uses the judgment and opinions of knowledgeable individuals to
predict outcomes. Qualitative techniques typically are used when precise data are limited or hard to
obtain.

Today, many organizations collaborate on forecasts using an approach known as CPFR, which stands for
collaborative planning, forecasting, and replenishment. CPFR provides a framework for the flow of
information, goods, and services between retailers and manufacturers.

FORECASTING EFFECTIVENESS (How to make forecasts more effective)

 Forecasting techniques are most accurate when the environment is not rapidly changing. The
more dynamic the environment, the more likely managers are to forecast ineffectively.
 use simple forecasting methods
 Look at involving more people in the process
 Compare every forecast with “no change.” A no change forecast is accurate approximately half
the time.
 Not rely on a single forecasting method. Use rolling forecasts that look 12 to 18 months ahead,
instead of using a single, static forecast.
 Don’t assume that the turning points in a trend can be accurately identified.
 Remember that forecasting is a developed managerial skill that supports decision making.
 Shorten the time period covered by a forecast

BENCHMARKING

Benchmarking is the practice of comparing business processes and performance metrics to industry
bests and best practices from other companies.

The search for the best practices among competitors or no competitors that lead to their superior
performance.

 The basic idea behind benchmarking is that managers can improve performance by
analyzing and then copying the methods of the leaders in various fields.
 Studies show that users have achieved 69 percent faster growth and 45 percent greater
productivity.

STEPS IN BENCHMARKING
TECHNIQUES FOR ALLOCATING RESOURCES

RESOURCES: The assets of the organization including financial, physical, human, informational,
intangible, and structural/cultural.

 Financial: debt, equity (Net worth), and retained earnings

 Physical: buildings, equipment, and raw materials
 Human: experiences, skills, knowledge, and competencies
 Intangible: brand names, patents, reputation, trademarks, copyrights, and databases

BUDGETING

A budget is a numerical plan for allocating resources to specific activities. (Revenues, expenses and
capital expenditure)

 Budgets to be used for improving time, space, and use of material resources.
 Applicable to a wide variety of organizations and work activities within organizations and most
commonly used.
 Important managerial activity because it forces financial discipline and structure.
SCHEDULING

Detailing what activities have to be done, the order in which they are to be completed, who is to do
each, and when they are to be completed.

It represents the coordination of various activities.

Program Evaluation and Review Technique (PERT)

A PERT network is a flowchart diagram that depicts the sequence of activities needed to
complete a project and the time or costs associated with each activity.

To understand how to construct a PERT network, you need to know four terms.

 Events are end points that represent the completion of major activities.
 Activities represent the time or resources required to progress from one event to
another.
 Slack time is the amount of time an individual activity can be delayed without delaying
the whole project.
 The critical path is the longest or most time-consuming sequence of events and
activities in a PERT network. Any delay in completing events on this path would delay
completion of the entire project. In other words, activities on the critical path have zero
slack time.

Developing a PERT network requires that a manager:

 Identify all key activities needed to complete a project,

 Rank them in order of occurrence,
 Estimate each activity’s completion time.

STEPS IN DEVELOPING A PERT NETWORK

1. Identify every significant activity that must be achieved for a project to be completed.
2. Determine the order in which these events must be completed.
3. Diagram the flow of activities from start to finish, identifying each activity and its relationship to
all other activities.
4. Compute a time estimate for completing each activity.
5. Using the network diagram that contains time estimates for each activity, determine a schedule
for the start and finish dates of each activity and for the entire project.

CONTEMPORARY PLANNING TECHNIQUES

Project Management and Scenario Planning.

PROJECT MANAGEMENT
A project is a one-time only set of activities that has a definite beginning and ending point in time.
Project management is the task of getting a project’s activities done on time, within budget, and
according to specifications.
More organizations are using project management because the approach fits well with the need for
flexibility and rapid response to perceived market opportunities.

PROJECT MANAGEMENT PROCES

SCENARIO PLANNING
A scenario is a consistent view of what the future is likely to be. Developing scenarios also can be
described as contingency planning; that is, if this event happens, then we need to take these actions.

Scenario planning is making assumptions on what the future is going to be and how your business
environment will change overtime in light of that future. More precisely, Scenario planning is identifying
a specific set of uncertainties, different “realities” of what might happen in the future of your business.

 Although scenario planning is useful in anticipating events that can be anticipated, it’s difficult to
forecast random events—the major surprises and aberrations that can’t be foreseen.

CONTINGENCY PLANNING

A contingency plan is a proactive strategy that describes the course of actions or steps the management
and staff of an organization need to take in response to an event that could happen in the future.

It' also known in names such as plan B, backup plan, and disaster recovery plan .
Both contingency and scenario planning are structured ways for organizations to think about the
future. Scenario planning usually anticipates gradual change, such as a loss of revenue over time.
Contingency planning is for a sudden, drastic turn of events.

PREPARING FOR UNEXPECTED EVENTS

 Identify potential unexpected events.

 Determine if any of these events would have early indicators.
 Set up an information gathering system to identify early indicators.
  Have appropriate responses (plans) in place if these unexpected events occur

 Planning tools and techniques can help managers prepare confidently for the future. But they
should remember that all the mentioned tools will never replace the manager’s skills and
capabilities in using the information gained to develop effective and efficient plans.

Chapter 9 (Lecture 7)
STRATEGIC MANAGEMENT

Strategy: a course of action/a plan or method employed in order to achieve Organizational

targets/goals.
Effective strategies result in high organizational performance.

Decisions and actions that determine the long run performance of an organization.

STRATEGIC MANAGEMENT:

What managers do to develop organizational strategies?

An art and science of formulating, implementing, and evaluating cross functional management decisions
that enable organization to achieve its organizations goals.

Strategic management achieves a firm’s success through integration of cross management decisions
(Management, Marketing, Finance/Accounting, Production and Operations, Research and Development,
MIS).

BUSINESS MODEL

Strategic designs for how a company intends to profit from its strategies, work processes and work
strategies.

It focuses on two things:

(1) Whether customers will value what the company is providing, and
(2) Whether the company can make any money doing that.
Example: Samsung is the highest contributor to the GDP of South Korea (electronic products, financial,
information, and communication services). Its business model is based on a balance of core strategies:
Quick learner, risk taking abilities, diversification in business lead to unification in the world, cost
advantage, holdover management.
IMPORTNACE OF STRATEGIC MANAGEMENT
 Research has found a generally positive relationship between strategic planning and
performance. It appears that organizations that use strategic management do have higher levels
of performance.
 It require managers to adapt and examine changing business environment.
 It coordinates diverse organizational units, helping them focus on organizational goals.
 It is very much involved in managerial decision making.

STRATEGIC MANAGEMENT PROCESS

A six-step process that encompasses strategic planning, implementation, and evaluation. First four steps
describe planning that must take place, implementation and evaluation are just as important.
 STTEP.1 Identify the Organization’s current Mission, Goals, and Strategies:
 mission—a statement of its purpose (the firm’s reasons for being) (its products and services)
The mission of Facebook is “a social utility that connects you with the people around you.”
 The foundations for further planning (Measureable performance units)

STEP.2 Doing External Analysis:

 Environmental scanning of specific and general environment)
 Focuses on identifying opportunities (exploit) and threats (counteract)

STEP.3 Doing an Internal Analysis:

 Accessing important information about an organization’s specific resources and capabilities and
activities.
 capabilities are its skills and abilities
 resources are its assets—financial, physical, human, and intangible
 Strengths creates value for customers and strengthen firm competitive position and weaknesses
can place company in competitive disadvantage.

The combined external and internal analyses are called the SWOT analysis, which is an analysis of the organization’s
strengths, weaknesses, opportunities, and threats. After completing the SWOT analysis, managers are ready to
formulate appropriate strategies—that is, strategies that (1) exploit an organization’s strengths and external
opportunities, (2) buffer or protect the organization from external threats, or (3) correct critical weaknesses.

STEP.4 Formulating Strategies:

 Formulate strategies considering the realities of external environment and available resources.
 Select strategies for all levels of organizations that provide relative competitive advantage
 Corporate, competitive, and functional strategies.

STEP.5 Implement Strategies:

 Effectively fitting organizational structure and activities to the environment.
 Organization structure influences strategy implementation because it facilitates communication
and information flow; controls allocation of the resources; assigns duties and responsibilities;
serves to define jobs and work groups such as project teams, departments, and influence
technology and culture.
STEP.6 Evaluating Strategies:
 How effective strategies have been?
 What adjustments, if any, are necessary?

TYPES OF STRATIGIES

CORPORATE STRATEGY (Top level Management)

Corporate strategy is one that determines what businesses a company is in or wants to be in, and what
it wants to do with those businesses.
It is top management’s overall plan for the entire organization and its strategic business units.
Example: PepsiCo: Foods and Beverages, chips and Quaker Foods. (PepsiCo North and Latin American
Foods, PepsiCo International). “Performance with Purpose” (Indra Nooyi PepsiCo CEO)
TYPES OF CORPORATE STRATEGY
 Corporate
Stretegy

Growth Stability Renewal

Vertical Horizontal
Concentration Diversification Retrenchment
Integration Integration

Backward
Vertical Related Turnarround
Integration Diversification

Forward Vertical Unrelated

Integration Diversification

TYPES OF CORPORATE STRATEGY

1) GROWTH STRATEGY: an organization expands the number of markets served or products
offered, either through its current business (es) or through new business (es).
An organization may increase revenues, number of employees, or market share.
Types of Growth Strategy
a. Concentration:
 Focuses on its primary line of business and increases the number of products offered or
markets served in this primary business.
 Center on improving current products and/or markets without changing any other factor.
 MacDonald’s, Starbucks, and Subway are the firms that have relied heavily on concentration
strategies to become dominant players.

b. Vertical Integration:
 Backward Integration: The organization becomes its own supplier so it can control its
inputs. For instance, eBay owns an online payment business that helps it provide more
secure transactions and control one of its most critical processes.
 Forward Integration: the organization becomes its own distributor and is able to control its
outputs. For example, Apple has more than 287 retail stores worldwide to distribute its
product.
c. Horizontal Integration:
 A company grows by combining operations with competitors to improve competitive
strengths and lower competition among rivals.
 Example: Merger of Adidas with Reebok aimed at transferring intangible resources like
relationships and knowledge.
 Purpose: reduced Competition, expand products and services e, access to new markets and
improved market share.
  Acquisition: one company purchases another (amazon bought Daraz)
 Merger: joins two company’s into one (Exxon and Mobil Oil)

d. Diversification Strategy:
 Take place when business introduce new product in the market
 Related Diversification (Concentric): a company combines with other companies in
different, but related, industries that are strategic fit. (Disney’s Purchase of ABC)
 Unrelated Diversification (Conglomerates): when a company combines with firms in
different and unrelated industries where higher financial returns are possible. (For
instance, the Tata Group of India has businesses in chemicals, communications and IT,
consumer products, energy, engineering, materials, and services. Again, an odd mix. But
in this case, there’s no strategic fit among the businesses.

2) STABILITY STRATEGY
 A Strategy that seeks to maintain current status quo to deal with the uncertainty of
changing environment, when industry is facing slow growth or no growth conditions, or
if the owners of the firms elect no to grow for personal reasons.
 Organization continues to do what it is currently doing.
 Examples of this strategy include continuing to serve the same clients by offering the
same product or service, maintaining market share, and sustaining the organization’s
current business operations. The organization doesn’t grow, but doesn’t fall behind,
either.
3) RENEWAL STRATEGY
 Strategies designed to address declining performances.
 This helps an organization to stabilize operations, revitalize organizational resources and
capabilities, and prepare to compete once again.
a. Retrenchment Strategy: a short-run renewal strategy used for minor performance problems.
 It is adopted when an organization aims at reducing its one or more business operations
with the view to cut the expenses and reach to a more stable financial position.
 Example: company laying off employees or shutting its less profitable operations.
b. Turnaround Strategy: When an organization’s problems are more serious, more drastic action—
the turnaround strategy—is needed.
 It is backing out or retreating from decision wrongly made earlier and transforming from
loss making to a profit making company.
 Example: In 2006, Dell started selling products directly to implement cost cutting
measures, but it faced huge losses. Then in 2007 Dell withdrew its direct selling strategy
and started selling its computers through the retail shops. Today it is second largest
computer selling company in the world.

CORPORATE PORTFOLIO ANALYSIS

Managers can manage portfolio or collection of businesses using a tool called a corporate portfolio
matrix. This matrix provides a framework for understanding diverse businesses and helps managers
establish priorities for allocating resources.
It’s a method of categorizing a firm's products according to their relative competitive position and
business growth rate in order to lay the foundations for sound strategic planning.
BCG GROWTH SHARE MATRIX
Developed by Bruce. D. Henderson for the Boston Consulting Group and introduced the idea that an
organization’s various businesses could be evaluated and plotted using a 2 2 matrix to identify which
ones offered high potential and which were a drain on organizational resources. The horizontal axis
represents market share (low or high) and the vertical axis indicates anticipated market growth (low or
high). A business unit is evaluated using a SWOT analysis and placed in one of the four categories.

Stars: market leaders at the peak of their cycle and are able to
generate enough cash to maintain high market share.

Question Marks: new products with the potential for success but
require a lot of cash for development

Cash Cows: product that need for more money that is needed to
maintain the market share.

Dogs: products with low market share and don nor have potential
to bring much cash in.

Strategic Implications of the BCG Matrix:

 The dogs should be sold off or liquidated as they have low market share in markets with low
growth potential.
 Managers should “milk” cash cows for as much as they can, limit any new investment in them,
and;
 Use the large amounts of cash generated to invest in stars and question marks with strong
potential to improve market share.
 Heavy investment in stars will help take advantage of the market’s growth and help maintain
high market share.
 The stars, of course, will eventually develop into cash cows as their markets mature and sales
growth slows.
 The hardest decision for managers relates to the question marks. After careful analysis, some
will be sold off and others strategically nurtured into stars.

BUSINESS OR COMPETITIVE STRATEGIES

It focuses on improving competitive position of a company or a business unit’s products and services
within the specific industry or market segment it serves.
It is a strategy focused on how an organization should compete in each of its Strategic Business Units
(SBUs).
When an organization is in several different businesses, those single businesses that are independent
and that have their own competitive strategies are referred to as strategic business units (SBUs). SBUs
company examples includes LG, Proctor and Gamble P&G, Unilever, Nestle etc.
Types of Competitive Strategies
 a. Cost Leadership Strategy: seeking to attain lowest overall costs relative to other industry
competitors. Example: Walmart (Always Low prices) (Save Money).
b. Differentiation Strategy: attempting to create unique and distinct products or services for which
customers will pay. Example: Tesla first introduced Electric Cars
c. Focus Strategy: using a cost or differentiation advantage to exploit a particular market segment
rather a larger market. Example: China Mobiles focuses on rural population of Pakistan.

FIVE COMPETITIVE FORCES

The five forces framework developed by Porter allows a firm to assess:
 The attractiveness (potential profitability) of its industry
 Its competitive position within that industry
1. Threats of New Entrants: the ease and difficulty with which new competitors can enter an
industry.
2. Threats of Substitutes: the extent to which switching costs and brand loyalty affect the
likelihood of customers adopting substitute’s products and services.
3. Bargaining Power of Buyers: the degree to which buyers have the market strength to influence
competitors in an industry.
4. Bargaining Power of Suppliers: the pressure that suppliers can put on companies by rising their
prices, lowering their quality, or reducing the availability of their products.

5. Current Rivalry: the extent to which firms within an industry put pressure on one another and
limit each other's profit potential. If rivalry is fierce, then competitors are trying to steal profit
and market share from one another.

STRATEGIC MANAGEMENT TODAY

Strategic management is designed to prepare current as well as future managers to meet the challenges
of today's competitive and ever-changing environments. It also assists in better decision making. It helps
to improve managerial knowledge.

STRATEGIC FLEXIBILITY
The ability to recognize major external changes, to quickly commit resources, and to recognize when a
strategic decision isn’t working. Given the highly uncertain environment that managers face today,
strategic flexibility seems absolutely necessary.
New Directions in Strategic Management
 E-Business Strategies
 Customer Service Strategies
 Innovation Strategies